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Making, and respecting, the rules

About the author
Maria Livanos Cattaui has been Secretary-General of the International Chamber of Commerce (ICC) since 1996 and is chief executive of the world business organisation.
openDemocracy – Everyone is now talking about ‘globalisation’. As one of its leading advocates what do you mean when you argue in its favour?

Maria Cattaui – For me, globalisation is the flow of information, technology, ideas, goods, services, capital and people across borders, with rules-based agreements particularly for flows of trade and investment.

open – How have the events of 11 September and after affected, or are likely to affect, this definition of globalisation?

MC – The events of 11 September are likely to have a short to medium term effect on the costs for business. Higher insurance costs, delays at customs, heightened security measures and concern among companies about risks they can take in furthering their activities in many developing countries. All of these things create an added, unexpected financial burden which business will have to bear.

However, I think the effects of the 11 September terrorist attacks on the economy are being a little overstated. Let’s not forget that the contraction of investment around the world and of capital flows were taking place before 11 September. We should not be using 11 September as the excuse for all the world’s current economic ills.

On the contrary, the tragedy presents a challenge to us. We should be harnessing the unique atmosphere of international co-operation it has created. Rather than being timid and retreating into our respective national shells, now is the time for us to be even more bold and further open the flows of trade and investment around the world.

To that end, the International Chamber of Commerce is working hard to ensure that the next World Trade Organisation Ministerial in November delivers significant progress.

Governments are already co-operating in the fight against terror. Let’s extend this mood of international co-operation to the WTO meeting, take some strides in trade liberalisation and by so doing, help to wipe out the poverty which allows terror of this kind to germinate and flourish. Otherwise we deliver the terrorists a victory they simply do not deserve.

Good globalisation?

open – Do you see globalisation as a new phenomenon?

MC – No. We know that from the 1870s to 1914 there was a more open flow of capital. Globalisation is not new. But today, we are seeing the involvement of many more participants, with communications as the motor of cross-border flows. The extent and intensity of communications is greater than in the days of the telegraph, steamships and railways. But perhaps the most important aspect of contemporary globalisation, is that it is rules-based. It is not coerced by territorial empires, but relies on agreement amongst countries in small, regional, and above all multilateral groupings. I would argue that multilateral rules-based globalisation is the least coercive, and probably the most unique experiment yet in cross-border flows.

open – You’ve said that poor countries need more globalisation, not less. Do you see the developments it brings as wholeheartedly beneficial?

MC – Nothing is wholeheartedly beneficial. There’s always a price to pay. Up until now, hammering out a multilateral rules-based system has been a complex process. Many countries have not had the capacity to be “rules makers.” It isn’t just about power. Within most international organisations like the WTO the numbers are now with the developing countries. The ability to hammer out treaties and agreements is something that at this moment, we’re slowly seeing these countries becoming able to handle.

From the business side, the ICC tries to recommend that governments find ways to enhance their capacity. Otherwise, in many cases, developing countries have not got the deal they wanted.

You only have to look at the Uruguay Round to see that commitments on the part of the developed world to open their markets were often not fulfilled. Many developing countries, rightly, are pressing for commitments already made to be honoured. Developing countries haven’t benefited enough because they haven’t been able to fight their corner well enough.

open – Your assumption is that on balance globalisation is beneficial.

MC – There is no doubt about it. All the hard data we have indicates that the opening up of markets and the integration of economies has helped every single society that we know. We’re beginning to see now what the best processes for opening an economy are, to benefit a country. But globalisation isn’t a magic formula. It is an opportunity that has to be prepared for. You cannot liberalise markets without preparation. To exchange a public monopoly for a private monopoly is not a move to a market economy.

Globalisation and the public sector

open – Are you thinking about Russia?

MC – I’m thinking of many examples. How can you liberalise your financial market without an appropriate regulatory framework to ensure competition and a supervisory framework for financial institutions? And this itself requires competent people and a whole package of educational systems.

For example, Singapore is still trying to move forward with its effort to fully open its financial markets. They know that it is both necessary and hard, and they are amongst the best. If the financial system is weak, the result of liberalisation can be further weakening. Many people criticise the Bretton Woods institutions for insisting that countries liberalise all in one go. This criticism is absolutely valid – in this one sense, there must be preparatory stages to help the countries manage it. You cannot have a weak government or an incompetent bureaucracy in a period of globalisation.

I’d maintain that government has never counted more than now. Nobody can play the game of globalisation without a strong public sector. Without proper social security, you can’t globalise or internationalise. Opening means opening up to competition. So you’ve got to have structures for retraining people when technologies and competition disrupt the status quo.

It’s hard. You must be able to cushion the first disruptions. But if you look at the countries that have thrived, it’s those who have increased and strengthened their internal systems and dedicated the needed funds. I have some figures here for Canada. Government spending rose from 29% of national output in 1960 to 39% in 1980 and 44% in 1996. This is mirrored for all OECD countries and all those who have successfully managed their transition. Unemployment benefit, retraining, social security, safety nets – all these are exactly what will allow a country to be aggressively competitive. It’s only under those circumstances that you can afford to change whole sectors to respond to technological innovation. Above all, of course, you need education. But you also need good bureaucracy – that is an important competitive advantage.

open – But when strong government was first advocated in the UK it meant downsizing public services such as education, and increasing the size of the police.

MC – We shouldn’t be naïve. We are not talking about countries suddenly needing more of something they can’t handle. They need more of something they can handle.

open – So it’s not just a matter of free trade?

MC – Personally, I don’t ever talk about free trade, but rather of a rules-based trading system based on proper market economics. And by the way, chaos is not a properly functioning market economy; there are so many pieces needed. Korea had the same per capita income as Ghana in 1960. All over South East Asia, countries are stronger than they were in 1960, despite the 1997/8 financial crisis. But we forget that the policies pursued were not laissez faire policies. They were strongly government-inspired. More recently, they have become less government-oriented. Why? Because we know that the kinds of subsidies they used eventually didn’t work, they made industries uncompetitive. We know that Korea has to move on, but the developed world did exactly the same thing. One must always understand the purpose of a subsidy.

open – Are you saying that subsidy and protection do work to begin with? That they work to grow certain sorts of industries?

MC – I look at it the other way round. The Asian economies started as totally closed, and gradually opened. But they managed it in a limited period, something that India hasn’t. India has fallen behind because of a limited government understanding of when subsidies don’t work or when liberalisation will help competition.

Other countries haven’t had protection because they have been exposed to catastrophe, and they’ve had to focus on survival economics. Many countries in Africa have always been highly exploited. So this process does not always apply to them. They have to start with another set of givens.

The challenge of Africa

open – So no route map for development?

MC – I don’t think there is any route map. There are some examples and principles. These are contradictory, I admit, but necessarily, because there is no formula. The difficulty is that in parallel, one has to put in structures that are pro-competitive and regulatory, at the same time as seeking and welcoming inward investment, even if all the necessary steps to make the economic environment attractive are not yet in place.

The blend of factors will differ for each country. We know from experience that you need an understanding of the different social needs. Each country has to hammer out its own process. It is different, say, in Russia than for Zimbabwe.

open – But Africa is the continent where economic growth in terms of per capita GDP is projected to remain static, even if the WTO gets its way. Africa is the challenge for globalisation. You’ve described an Asian way, but what is the path to good development for an African country with weak government, war-torn for some time, with an economy already largely open but exploited by existing foreign investors?

MC – Africa is indeed the challenge. Every time that you look at countries that have made it work, Peru or Chile despite their problems, or South-East Asia, you’ll always find there is a kind of civic and government structure that was responsible. This is why there is no magic formula. Without rules, without predictable laws predictably implemented, a market economy can’t exist and nothing will move forward. Some governments in Africa have attempted to move toward a rules-based system and I wish we’d support them much more –

open – For example?

MC – It’s not my position to point out places where things are good or bad. Finger-pointing is not helpful. Just look at the African countries and you see which ones are doing well or not. The problem is often too little investment, and not always the right kind. It is a problem for which we don’t yet have an answer.

Today, there is practically no investment in Africa. We would like to get foreign direct investment into the productive areas of African countries and we know very well why it isn’t coming: customs, laws, bureaucratic hassle, corruption. But the business world shouldn’t wait for everything to be perfect. Things will have to move tentatively in parallel to improvements in the public governance, as they have in other countries, such as China.

Things aren’t all in place in China, from intellectual property rights to many other areas. But things move in parallel. Investment coming in influenced structures. The structures got better, and influenced the level of investment in turn. We need this kind of parallel movement for Africa.

NGOs and protest

open – Not everyone agrees this process can be benign –

MC – I will not aggregate every protest into one big ball of yarn. If you’re talking about not agreeing with policies, I’ll be on the front line. I think the way some of the Bretton Woods institutions were unable to network with other international bodies to help countries prepare themselves was extremely short-sighted policy.

I would also protest some policies. But we must think this through clearly. We can’t just throw open a world without rules. One of the difficulties is finding the balance between rules and freedom, whether in the social or business context. And we are short-sighted in not sufficiently recognising the enormous work done by responsible NGOs all over the world. Many are the only delivery systems for civic structures in health, aid, and true capacity building.

I am on the board of some NGOs of this kind – for instance, the International Youth Foundation, based in Baltimore. It’s an extraordinary outfit: dedicated, brilliant. I respect, above all, those who are on the ground in the developing countries, working with government, local citizens and small businesses to make things happen. Trying to educate people, women, bureaucrats – everything to move things forward. The people in these NGOs wouldn’t be there unless they had a deep sense that things weren’t right and they needed to do something. This is the strongest kind of protest – trying to make a difference.

Many businesses, too, take risks investing in countries that have the potential to implode. I think we forget the courage and risk-taking involved. We look at the big multinationals and forget small businesses around the world that invest cross-border. Of course they do it for profit, otherwise they’d be called a “foundation” not a business. They’re supposed to be returning something to their shareholders and creating jobs and value. But nevertheless they are pioneers.

Then there are the vocal protestors. In the openDemocracy round-table on NGOs, you asked how we start to differentiate programme-oriented, action-oriented, and policy NGOs. How do we describe this huge field of people deeply concerned about what is going right or wrong according to their value scheme?

Shouldn’t NGOs themselves clarify who is doing what so we don’t throw them all into one lump? How would we do this? There are NGOs that have practical programmes, groupings that are there to destroy or cry out in the dark, others who consider it their job to be violent, organisations that try to change policy instead of running their own programmes. Could they launch a debate to help governments, international organisations and ordinary citizens start to clarify this situation and distinguish between them? In a strict sense, anything that is not government is an NGO – from the Church to the ICC. It is a nonsensical term at present.

open – Again, what do you think will be the impact of 11 September on the NGO and protest movements, and what is the prospect of such a debate?

So far, and for the most part, they have been very careful and sensitive to the mood and the more pressing, immediate problems this tragedy has created in people’s lives. I would hope that those NGOs who have a positive contribution to make to the recovery process are able to do so. I know there are many NGOs who are already helping to rebuild.

In the short term, I expect the protest noises we are going to be hearing will be predominantly anti-war. Previous international events like the G8 Summit in Genoa have clearly shown us that it is unacceptable to prevent democratically elected members of sovereign governments from meeting. Neither do anti-globalisation protestors have the right to stop responsible NGOs from engaging in debate.

Since governments and inter-governmental organisations don’t seem to be able to weed out the troublemakers, it should be up to the more responsible and accountable NGOs to sideline those who give good constructive criticism a bad name. It’s unacceptable that leaders have to hide to meet. Expressions of differences are part of the democratic process, but only within rules.

The need for rules-based governance

open – Is it not an essential part of the new era of globalisation that new kinds of international organisations come into existence – those who feel they have a responsibility to the world in different ways, and are trying to organise themselves?

MC – I have debated this with our traditional partners, such as trade unions. Like business organisations, they’ve been around a long time – maybe guilds were the genesis of both. Business organisations and trade unions represent different constituencies and objectives, but we’ve been negotiating for decades and we’ve come to obey a set of rules, more or less government-imposed. There are sets of rules for behaviour, recording rules, membership, financial rules.

These are public laws, but also more. People demand accepted standards of practice from their trade unions and their businesses. We are enveloped by a set of constraints and accountabilities that give us our credibility and authority. We cannot go around saying or doing things for which we are not held liable: morally liable by our respective membership, and also legally and financially liable. It has taken centuries of trial and error to develop rules for us to know how to relate to each other and to government.

It might be that unless organisations are willing to submit to some sort of rules-based understanding – even if it is not legislated – they will never be accepted as structures of influence and as a real, integral part of an economic or political picture.

open – Global rules?

MC – Not really. The world is complex. We’re never going to get some kind of dictatorship at the top – nobody wants such a thing. We’re going to have to deal with mixed-up and overlapping rules. This complexity will not go away. But however confused, we need to start to understand some requirements of accountability. Countries can cooperate on these things. Maybe until that happens and until rules-based entities exist we won’t be able to talk to each other properly.

The International Chamber of Commerce

open – What is the ICC? It was founded in 1919, but you only had your first international gathering in 1999.

MC – It was at the beginning of the last century that business organisations got together for the first time. It was called the International Congress of Chambers of Commerce and enveloped all business organisations in the participating countries. This evolved into ICC, formally established after World War I. Now, we have autonomous national groups in each country. Many bring together businesses of all sizes as well as business associations like local chambers of commerce. We have members in some one hundred and forty countries. So, for instance, we have ICC Korea, ICC Thailand, ICC Peru, ICC United Kingdom, ICC Canada and so on. They group their members together in the way they think best. International corporations as well as smaller companies are members of their national committee. They have direct access to us and some large global companies are members in many countries where they have important operations. So-called global companies have strong local linkages.

Since we’re in one hundred and forty countries, a lot of our members are small and medium-sized groups, while some of the traditional market economies have a good mix of large, powerful companies as well as some newer players and new technology businesses.

It is true that large companies can act as pioneers in many fields. They are the ones with the capacity to think broadly. They have the resources to spearhead thinking on new ideas which then spread to other companies.

Markets and corporations

open – You’re very eloquent on the need for open markets which are regulated and rules-based and supported by strong state structures, which generate and help to distribute growth. What about the role of corporations in this?

MC – People believe the corporations are oligopolistic. Little companies want to become medium sized, and large ones want to become monsters. Ambition, aggression and the desire to succeed are inbuilt in human nature. In such a process, it’s healthy to have rules that ensure competition because we know very well that monopolies, whether government-run or privately-run, are damaging to the proper functioning of a market economy.

Companies need to know that they can only be successful and strong within the limits laid down inside well-functioning market economies. That’s why the discussion on global competition rules is so interesting today – because competition is the crux of the market economy, and competition is cross-border today.

open – Let’s take one of the criticisms of Monsanto: you’ve got small farmers who want to be able to decide to buy their seeds from one year to another. They may want to expand but they don’t want to farm the world. Some of the technologies being developed by corporations, like genetically modified seed, force smaller producers into a dependency upon them.

MC – We have to differentiate here. Modification of crops, which began with the Green Revolution of several decades ago, hugely benefited many farmers. It is different from behaviour that tries to close down a market because of the way a technology is marketed. Whether it’s in software platforms, computers, or genetically modified produce, there can be the same problem of closing down competition through a marketing loop. These things teach us more about proper marketing, and about oligopolistic or monopolistic marketing methods. On each point we need a lively public debate.

A platform for computers that practically swept the world makes some people think, “Oh, large companies are bad for you”, rather than thinking through the harder questions – the proper ways for competition to enter any new marketplace or technology. The same goes for genetically modified crops. Other companies developing GM crops might very well ask similar questions about improper marketing methods.

Finally, every single country has the absolute right to regulate the marketing structures of its country. There is nothing that forbids any sovereign country from maintaining the growth of its farming sector, its market structures, or its competitiveness.

open – There’s a question of the balance of power here. For instance, Nestlé marketing powdered milk to vulnerable mothers who actually have their own milk supply, and the advantages their marketing brings them.

MC – There’s always a national breakdown involved. You won’t find these problems inside well-governed countries. By the way, one of the biggest problems with AIDS is its transmission through breast-feeding. We know why this happens. These countries don’t have any clean water, for example, for alternative nutrition. We know that the fundamental problem is also a breakdown in the delivery of health services.

There is indeed enormous inequity in this world, and the biggest inequity exists between people who are lucky enough to be governed properly, and those who are unfortunate enough to have no governance. Because bad governance cripples your ability to stand up to any kind of injustice in this world. If you don’t have strong governance and civic structures to sort out those conflicting interests in the public good, there will always be disaster.

How are global decisions made?

open – Is it just a matter of governments? Some of the people who protested at Genoa don’t vote, because they see the powerlessness and inadequacy of governments.

MC – They are well-intentioned but ill-informed. For the record, the G8 does not make any binding international agreements. It is an informal talkathon between eight or ten people. No international negotiations pretend to take place there. Many people ascribe to the G8 characteristics that it simply doesn’t have. We’re all well-intentioned and ill-informed on something. Unfortunately, in addition, there were other people who went to Genoa who are quite well-informed but totally ill-intentioned.

open – But the WTO is a decision-making body.

MC – No. There is no bureaucracy at the WTO that sits down and makes decisions. The only thing the very small WTO bureaucracy does is monitor. Decisions are made by sovereign governments to agree to certain rules and agreements. That’s all. The idea that the WTO is some kind of global governance is misplaced. As a bureaucracy, it makes even fewer decisions on its own than ICANN.

open – But you’ve talked about the sharing of sovereignty.

MC – Between and among nations.

open – Within the WTO?

MC – Not only there. For two hundred years we’ve been hammering out agreements. We forget that long ago in order to fly in a plane from one country to another, we had to make international agreements and give up some sovereignty over our airspace. The same for broadcasting and communication agreements – spectrum allocation, for instance. The process of making international agreements among and between nations has accelerated. But some of the really big ones happened a long time ago.

open – Surely the IMF and World Bank are global institutions in their own right, not the functions of international negotiations?

MC – The decisions are taken by sovereign governments. However, there is definite need for improvement in their governance structures. I am not condemning the World Bank and the IMF as institutions. We all question some of the policies they propose, although the disciplines of the IMF are still much needed. What I think is short-sighted is that we believe any country could be described by a series of “formulas”. Most business people know very well that formulas don’t work. I am a great supporter of recognizing reality. You choose a goal and try to move towards it, and drop the formulas. Instead, you take a set of givens and you do something with them. Again, that’s hard work, and it doesn’t fit into somebody’s theories of how things should move forward. The old adage sometimes also pertains to our institutions: when there is a conflict between plan and reality, plan prevails.

If I had a criticism to make of all of us, it’s that we’ve tried to make recipes. One of the things we need today is much more cooperation and coordination between business investment and government policies. To try things out step-by-step and see how we can improve societies. The formula approach, we’ve learnt over the last years, often has tragic, unintended consequences. The World Bank and the IMF go in with good intentions – I will never say otherwise. Contrary to some protestors, I don’t think they are evil people. This is nonsense. We have to correct the inadequacies of policies, some of which continue to this day.

open – But people feel that large businesses are taking decisions about the way their life is organised. Supermarkets move in, little shops close down…

MC – Stop! Nothing is done without the agreement of the government, local or national. If we want to change things, we have to start by changing the government. Speak out. Offer credible, alternative policies.

open – But they don’t feel that their government is strong enough, they feel they are losing accountability…

MC – Oh, that’s crazy! Who can raise taxes? Who can spend? Who can set up a judiciary? Who can incarcerate? Who can regulate the marketplace? Who can raise an army? There’s no company in the whole world that does that! This is the job of government! And they do it, more than they ever have before. It is complete balderdash to say that any company is stronger than government.

There’s something else, something different at work. Until the Second World War, except for a tiny elite in each country, most people were on the receiving end of instructions. At that time, there was much more inequity than today. Historically, small groups of people had far more influence over their governments and the rest of the people than they do today.

Since the beginning of the twentieth century people have begun to feel less disenfranchised from decision-making. This has accelerated, to the point where today we are in a bind. We say we want to make decisions. But we haven’t always got the ability to do so. We feel what you call “disempowered”. I don’t call it that. We feel confused! Things happen, and you say, “Oh my god! I wasn’t even aware of it!” Things move much faster, and in more complex ways.

Government doesn’t run business any more. Business runs business. So who has the most immediate effect on our lives now? And I sympathise with people who say, “What purpose does all this modern technology have if I can’t walk thirty metres outside of my door and breathe fresh air?” Of course I get annoyed at that! If I turn my tap on and brown sludge comes out instead of water, I will get annoyed. Again, this is the government that needs to take the lead and work more closely with its partners in society – including business – as well as educate its citizens.

This example is huge because it is so tangible. But what about the less tangible, such as: what happens when the profession which I had grown up in simply disappears? What happens when a relevant education suddenly becomes unaffordable? What is this thing called Europe? I really don’t understand who rules it any more. Is this a British product or an American product? I no longer have even an idea of where these things are made or how.

It is more than simply “disempowerment”. This is an enormously complex time. People are starting to find their way around the new structures to exercise influence over their own lives. That is difficult, and the difficulty can only accelerate. We’re never going to go back to the nice, smooth 1950s where you obeyed your boss forever! And the wife obeyed her husband forever! And the children were spanked properly! All of these old structures have gone out the proverbial window.

So the question is, how do you exercise this new freedom, when we all have it, with the right accountability and responsibility? We will all have to take responsibility for our lives. But most people in this world would love to have somebody else telling them how things are going to go. Very seldom do we fully understand that responsibility and accountability come along with rights. And it’s an extremely difficult thing for each of us, because we feel we’re out there alone with our pants down and the cold wind blowing.

It’s the governance, stupid

open – Even if governments should be stronger than companies, there are other examples. For example, the relationship between the Nigerian government and Shell. Shell is famous for its organisational innovation. But a systemic relationship developed between it and the Nigerian government, in many ways a throwback to the imperial tradition of charter companies. You’ve got a government that desperately needs capacity-building in a context of tremendous corruption. And a European-based international company that wants to become more profitable and compete on a global basis with only four or five others in a global market. This can mean there’s only one company operating in a particular country, presenting problems for local supply-side competition. The big company works in a paternalistic way to secure its profits, and the government, which isn’t even strong enough to regulate or enforce the law, gets locked in a cycle of corruption with the company. Aren’t companies stronger than government in such a case?

MC – I will not answer on a specific country or company. Much more interesting: is this kind of thing happening more broadly? The problem is that the government isn’t functioning, and that distorts the relationship with business. Responsibility has to be taken at the most fundamental level, which is the organisation of our democracies at government level.

Having said that, there is no doubt that today we are more enlightened than we were even a decade ago about the way in which companies behave in countries that are highly vulnerable; about the importance of that behaviour for the well-being of both company and country. The international marketplace of opinion and customers will no longer forgive behaviour outside of proper norms. This is an international marketplace if ever there was one! But fault lies most of all at home with the countries concerned. Any country that massacres its writers and people for no reason, that provides nothing on which people can rely, is in the first line of blame, not the last.

This doesn’t mean that the rest of us don’t have our own responsibilities, that we’re held to by our customers, clients, and citizens. The International Youth Foundation helped to start the global alliance for workers and communities, which investigated Nike’s often twice-removed suppliers in the footwear market. And it was Nike who gave us the money to do it. Those studies congratulated Nike on what it had done in response to public concern, but pointed out areas and policies still requiring change and said there were further actions needed. I applaud companies that can open their books and stand ready to be exposed to public scrutiny.

I want to get onto the question of democracy. Democratic governments, the vast majority of governments today, are responsible to their people. If the people don’t like what they’re doing, they kick ’em out. But until recently, governments worked on the principle of being voted in for a set period of several years. Now the virtual ballot-box arrives five minutes after they’ve been elected in the form of opinion polls. Nobody is going to give four or five years of leeway to any government.

There is elected democracy and there is what De Tocqueville called the tyranny of public opinion. Today in the US it is more powerful than the legislature, more powerful than elections.

Are opinion polls a proper aspect of democracy? What are the proper structures when citizens are sophisticated, no longer willing to abdicate their influence between elections, and want to exercise that influence through civic groups, NGOs and other structures? And how does this work, not only within a country, but across borders? These are some of the issues I think openDemocracy should get at.


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