The Times: A beautiful mind: “A slew of companies including Shell and Unocal are being sued in the US at the moment for a range of alleged human rights abuses in the developing world. And we are all familiar with stories of multinational companies subcontracting out operations to sweatshops, or in the course of their business activities despoiling the environment." (ShellNews.net)

Posted 6 October 2004

With a PhD from Cambridge, an economics bestseller to her name, and now a new book out on Third World debt, I.O.U: The Debt Threat and Why We Must Defuse It, Noreena Hertz has established herself as one of the world's leading young thinkers. Read her answers to your questions

Where have all the protestors gone that were out demonstrating against globalisation in Seattle, Genoa and later at the anti-Iraq war marches?

Jacopo Spadoni, Bologna, Italy

I believe that protest has entered the mainstream. The protest movement today doesn’t just comprise the million plus who went out on the streets in Seattle, Genoa, Nice, and Barcelona and on anti-war marches. It includes the British housewives who refused to buy GM foods, Joseph Stiglitz the former chief economist of the World Bank who resigned because he’d come to believe that its programmes were exacerbating poverty, and George Soros who sees himself as part of this movement. It comprises those who buy fair-trade coffee, would not buy a product made in a sweatshop, and who sign petitions in their children’s’ playground.

Do you think debt relief and anti-corporate globalisation, both complicated issues, are dependent on media coverage to inform and educated people? Has this issue slipped of the agenda of late in the mainstream media?

Michael Zitoune, London

The media provides the oxygen these issues need to survive. It educates people about the issues (and this is where one hopes that its take on them is suitably informed), and also shapes how urgently they perceive the imperative to act is. In the case of genetically modified (GM) foods, for example, not only did the British media (and it was the Daily Mail that really went hell for leather on this subject) inform the British consumer of the dangers, its campaign spurred Britain’s housewives and mothers to actively refuse to buy these kind of foods.

Fortunately given the plethora of non-traditional forms of media out there today – especially on the web – and given the mainstream distribution nowadays of movies such as Super Size Me and books like mine and those of Naomi Klein, George Monbiot, Eric Schlosser, Joseph Stiglitz and Michael Moore, we have more ways to inform ourselves and mobilise than ever before.

Would you ever work for a major corporation or international financial institution again?

Sally Letts, Atlanta, USA

I engage with such institutions the whole time in order to get my ideas across to key global decision makers directly. But I would only take a position within one if I had a real mandate to make meaningful reforms.

If we ever had a global parliament as suggested by George Monbiot in his book Age of Consent, do you think Bono should be Prime Minister?

David Shorter, Swansea

It’d be a good start.

Do you think the war on terror is misguided and should really be a war on debt?

James Clark, Edinburgh

I think a war on poverty is what we need if we are serious about addressing terror. Which is not to say that all terrorists are poor, of course they are not, nor that poverty is the only cause for terrorism, of course is it is not. But what it is to say is that when the economic is combined with historical grievances or ethnic persecution or territorial disputes or religious divides it is a very inflammatory mix.

The recruiting pitch for a young man – and it is predominately young men we are talking about in the context of terrorists - living in a country characterized by poverty, inequality and absence of hope is not difficult to script. “By sacrificing your own life you will be able to ensure your family and community a significantly better future.” Alternatives that to us seem morally unacceptable can be seen from a position of hopelessness as not only worth contemplating but inescapable.

What do you think when people say that you've made macroeconomics sexy?

Peter Lennon, Belfast

There are enough people out there making economics boring and dull. I am delighted that I can get people engaged in a subject that really matters, because it affects all of our lives.

If debt cancellation is to be achieved, as I believe it should, how can we stop a sense of fiscal irresponsibility seeping into these countries? It could seem as if we will simply bail them out whenever they rack up too much debt.

David Copple, Halstead, Essex

Lenders today might reasonably think that they will effectively always get bailed out however slack they are in their lending decisions! Canceling those loans that were made to developing countries by lenders who never established how the money would be spent, the kind of regime they were lending to, and how it would be repaid and therefore ended up in corrupt or tyrannical dictators’ pockets would provide a good wake up call to lenders to stop lending so irresponsibly.

As to how debt cancellation might affect borrowers’ future spending patterns, we have to make a distinction between a country not paying its debts because it doesn’t want to and a country not paying its debts because it simply can’t – because it is insolvent.

In the case of the latter, which is of course the case most of the world’s poorest countries are now in, empirical evidence suggests that reducing a country’s debt to a level at which it is again solvent will, in the long run, increase its financial viability.

Moreoever there is no body of evidence that supports the claim that when countries have debts cancelled they go on mad spending sprees. On the contrary, there is evidence from several countries that when their debts were cancelled, they were more easily able to borrow on the market -the market is incredibly strict about fiscal irresponsibility. Also they were able as a consequence to invest in poverty alleviation, education, health care and infrastructure development, measures that in the long run will improve a country’s chances for economic self-sufficiency.

Moving forward, I don’t think however that it makes sense to keep on giving loans to countries that clearly cannot repay them. The world’s poorest countries for now should be given grants, and the grants should be appropriately “ring-fenced” so that they do meet the needs of their poor, sick and vulnerable.

I also think we want to discourage developing countries from borrowing as much as they have in the past. Those that can need to make improved efforts to mobilise domestic resources.

They can do this through better tax collection in those countries where the tax base can reasonably bear it; through spending more frugally on non-essential matters (over the long run, prudent fiscal management will provide more sustainable social policies); by attracting back monies that have flown out, but also through generating new resources themselves.

Remittances from Latin American and Caribbean overseas workers, for example, are currently worth $38 billion a year. If they are securitised – pooled, turned into a bond and then sold to investors – as Banco de Brazil has recently done - these can present an excellent new revenue stream. The cost of borrowing externally is, as we have seen, often inordinately high, both in financial terms and in terms of what it means for sovereignty. Developing world governments do need to see external borrowing as a last not a first resort.

The World Bank has been portrayed as the Big Bad Wolf of global capitalism. Do you think it deserves the bad press it gets and is it really responsible for promoting third world debt and nothing else?

Beatrice Ruttiger, Paris

The World Bank could be a fantastic institution, making a real impact on poverty alleviation throughout the developing world. Its track record, however reveals how just how far off that course it is.

Congressional hearings currently taking place in the US have revealed that a third of loans made by this institution over the past six decades were made to regimes that stole the money. Hardly surprising when some of the biggest clients of the Bank during that period included the notoriously corrupt regimes of Suharto in Indonesia, Marcos in the Philippines, Abacha in Nigeria and Mobutu in Zaire.

It’s not only that the World Bank has a history of bankrolling corrupt or tyrannical regimes and a host of environmentally unsound projects that creates a problem. Also highly problematic are the “one size fits all” economic conditions it imposes when it makes its loans.

I’m thinking here of conditions they insist upon such as the capping of public expenditure and the removing of subsidies on industry, conditions that may at face value seem prudent, but upon closer examination are seriously flawed.

Because what does the capping of public expenditure in a very poor country in practice mean. It means that the country’s poor and vulnerable disproportionately lose out. How so? Well, in order to meet this requirement governments typically do not invest in infrastructure development like water and sanitation.

And who does this harm most? Those who are poorest and most vulnerable – women. For it is women who as a result walk up to 15 km each day to collect water; women who on these journeys risk their own security – the Sudanese militia, for example, has been reported to prey on the women of Darfur who have to walk long distances to find water. It is girls who become “prisoners of daylight” because of a lack of toilet facilities, fearful to go for a pee or carry out their ablutions until it is dark and then having to catch their chances that they will not in the process be attacked or raped. When countries without strong social safety nets are forced to cap or cut back on public expenditure, the impact upon those already most marginalized in society is necessarily extremely severe.

Or take the removing of subsidies on industry, another favourite condition imposed by the Bank. While it is true that not all industries do benefit from subsidies, some industries clearly do need a period of nurturing in order to realise their potential. Almost every successful developed country today –The United States, the United Kingdom, Japan, South Korea - developed off the back of a protectionist trade policy.

Also highly contentious is the way voting shares and board seats are allocated within the institution. Because voting rights are related to the size of a country’s GDP low and middle-income countries have less than 40 per cent of the share of votes, the entirety of sub Saharan Africa has only 4 per cent. This despite the fact that the peoples of the developing world make up 84 per cent of the world's population. G7 countries on the other hand account for over 40 per cent of voting power with the US, a country with less than 5 per cent of the world’s population is the only country with an effective veto vote.

The Big Bad Wolf image will continue unless the World Bank seriously revises the ways in which it makes loans and grants. It also needs to address its immunity, so that where professional negligence or lack of due diligence in lending can be proven, a claimant - be they a village, an individual or a nation - must be ale to hold the institutions liable in the same way that a bank can be held liable for law. It should abandon its dogged insistence on the blanket meeting of one-size-fits-all economic conditions and it become a much more representative institution. Unfortunately the negative image is there too often for good reason.

What do you think the relationship should be between the World Economic Forum and the World Social Forum? Do you think the latter could ever act as a coherent body rather than a talking shop for ideas and maybe one day add a social conscience to economic globalisation?

Jeff Day, London

Both run the risk of never being more than just talking shops. Which is a big shame as a lot of very smart and very talented people attend both. The question both organisations need to ask themselves is if they are truly committed to making a positive difference. If they can answer that in the affirmative, all this talent and energy could be used much more effectively than it currently is.

Do you think that corporate globalisation and international corporations can ever be a positive force for improving the lot of less developed countries?

Francesca Moss, Brighton, East Sussex

Business can be a positive force for good. We have examples of this: Jordanian-Israeli joint ventures making among other things knickers for Marks and Spencer and Giorgio Armani that have played a role in the Middle East Peace Process; Levis paying parents in Turkey to keep their children in school.

But of course we also have all too many examples of the converse. A slew of companies including Shell and Unocal are being sued in the US at the moment for a range of alleged human rights abuses in the developing world. And we are all familiar with stories of multinational companies subcontracting out operations to sweatshops, or in the course of their business activities despoiling the environment.

The challenge is how to reframe the market so that it is increasingly in corporations’ own interest to do the right thing. To some extent the market itself is reining in unacceptable corporate behaviour – there has been a huge rise in consumer and shareholder activism over the past few years, with 52 per cent of British consumers polled saying that they have actively boycotted a product over the past 12 months, and $1 in every $8 invested in the United States now socially screened in some sort of way. However, such market-based forms of regulation are de facto limited in their efficacy.

Why? Because only visible brands tend to be spotlighted by these forces. Invisible brands, secondary goods producers, smaller multinational corporations and companies that are not brand dependent are able to slip under their radar screen.

Also, by handing over governance to the market, we risk those social concerns deemed most popular by their customers getting pushed aside. Rights to freely associate are often not included in decisions by consumers on whether or not to buy a product, while environmental matters on the other hand are more likely to be.

And lastly, even if the group I call “political shoppers” want to factor social and environmental issues in their purchasing decisions, they are stymied by a lack of sufficient information as to what companies are actually doing. Although most FTSE 100 companies do now produce glossy environmental and in some cases, social reports, these are well nigh impossible to monitor or assess. Market mechanisms rely upon sufficiently informed consumers to be effective - uninformed stakeholders lack relevant information to hold corporations to account.

That is why we have to accept that the market on its own will not be able to ensure that corporations do not do wrong in their global activities. There remains a clear need for binding international rules governing corporate activity. I developed some of these themes in my last book, The Silent Takeover.

Noreena Hertz’s new book I.O.U: The Debt threat and Why We Must Defuse It is published by Fourth Estate.