Applying IMF’s Plutocracy to Swiss Democracy  

The world economy is hit by economic crisis and financial chaos. There is a wide spread political will to bail out the banks. However, due to globalisation the poor will be hard hit by the crisis as well – and no bail-out is in sight.

Developing countries are strongly underrepresented in the international financial institutions and bear the burden of poor governance. The International Monetary Fund (IMF) is the most prominent example. The creditor countries' governments are the IMF's dominant shareholders. The majority of mankind is a powerless minority in terms of the IMF's plutocratic voting rights.

Let us visualize the urgent need for a structural reform of the IFIs by applying the IMF's voting rights and rules to the Swiss State chamber of the national parliament. We are confronted with a dramatic power transfer to the economically strong federal states ("Cantons" ) of Switzerland.

Five rich cantons would enjoy a comfortable majority whereas the voices of the remaining weaker 18 cantons would no longer matter much. Similar to the role of the United States in the IMF, the Canton of Zurich alone would have the power to veto any important decision. Now all the 23 cantons are represented equally with two seats, comparable to the equal footing of all member countries in the United Nations.

A graph illustrates the plutocratic allocation of seats in the Swiss State Chamber.

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The Air Ticket Levy

Abstract:

Aid needs to be doubled if poverty is to be halved. Air traffic is a driving motor of globalisation. It could also contribute to financing development. The vision is: whoever boards a plane should pay an additional charge, which is graded depending upon distance (domestic, European, intercontinental) and class (Economy, Business/First), to contribute to international development efforts.

The total income will vary depending on the number of countries that introduce the levy. France started taxing as of July 1st, 2006. The income flows into the «International Drug Purchase Facility» and is dedicated to the fight against HIV/AIDS, tuberculosis and malaria. It is a first but modest step towards making additional resources available for the fight against poverty.

Sources: Louven Erhard 1994; own research

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Taiwan: The Foundations of an Economic Miracle

Abstract:

Within 50 years, the poor agrarian country Taiwan changed into a global industrial power. Between 1950 and 2000, economic growth was 8.5% – a rate which has yet to be equaled by another country. Today, Taiwan is a leader in computer chip production. Every second laptop sold worldwide originates from the island.

The breathtaking speed of this transformation has been determined, among other things, by the political conflict and the economic competition with mainland China.

During decades, this conflict brought Taiwan massive economic and military support, especially from the USA. Inwardly it also set off an authoritarian development dictatorship (marked by land reform, investment in education but also violation of human rights).

Between 1950 and 1987, martial law was in place. The first free parliamentary elections took place in 1992, the first free presidential elections in 1996 and in the 21st century there was a democratic change of power. Taiwan’s economic miracle was based on the following pillars.

Sources: Louven Erhard 1994; own research

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Large Natural Disasters on the Increase

Abstract:

The tsunami of 26 December 2004 was one of the most devastating natural disasters for decades. Due to their climatic conditions, developing countries are much more prone to natural disasters, such as earthquakes, typhoons, floods and droughts, than the North. Three quarters of the 380 catastrophes that Swiss Re, the world’s second largest reinsurance company, registered for 2003 affected developing countries.

The human consequences of disasters are much more severe in economically weak countries than in industrialised nations. Additionally poor people usually have no insurance and have to make up for losses in income, harvest or destroyed houses themselves.

Swiss Re makes only 20% of its payments for damage claims to developing and transitional countries. The tsunami came on top of a long-term and overriding trend – almost unnoticed in public – of increasing large natural disasters globally (see graph 1960 – 2000):

Sources: Swiss Re, Sigma

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Patients’ rights before patent rights

Abstract:

Over recent years, increases in prices for medication in India have been far below average. India today has a worldwide reputation for producing low-price high-quality pharmaceuticals. However, years ago India used to be one of the countries with the highest prices for such products.

Its achievements are due to a revision of the patent law in 1970, which gave patients’ rights clear priority over patent rights. As a result, legally produced imitations of medical products (generics) are sold for a fraction of what needs to be paid for the equivalent brand-name drugs. The massive differences in price can be a matter of life and death, as the comparison of prices for the antibiotic Ciprofloxacin and anti-retroviral (ARV) HIV/AIDS drugs shows (see graph).

The obligations of the TRIPs regime imposed by the World Trade Organisation (WTO) require India from 2005 on to value patent rights higher and as such endanger these achievements.

Sources: KPMG; own research

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Mauritius: Sweet Sugar

Abstract:

Mauritius illustrates the relevance of foreign support. Were it not for more than 25 years of “fair prices” for its sugar, Mauritius could not have accomplished such a spectacular economic rise. The sugar protocol with the European Union (EU) secured sales for large quantities of the sugar harvest (around 500’000 tons per year) at prices far above the world market. This revenue was used to enlarge the economic basis of the island and to reduce its dependency on sugar.

The success of Mauritius is unthinkable without smart investments, rule of law and democracy (“good governance”). Albeit its success, the success story of Mauritius cannot be repeated, because the fair prices of the sugar protocol run counter to market economic basics and will be discontinued soon.

Sources: Mauritius Chamber of Agriculture; Leffler Ulrich, Mauritius. Abhängigkeit und Entwicklung einer Inselökonomie, Institut für Afrika-Kunde, Hamburg 1988; Herrmann Roland, Weiss Dietmar, A Welfare Analysis of the EC-ACP Sugar Protocol, Agrarökonomische Diskussionsbeiträge Nr. 24, Universität Giessen 1994; Interviews

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Radios against Poverty

Abstract:

Community radios are people’s radios. In Mali, Radio Belekan is distributing information on prices of foodstuffs available on local markets. This gives people the chance to decide for themselves where they want to buy and sell.

In Uganda, Radio Apac transmits dates for vaccination services, which means that up to ten times more people will be treated than before these announcements were made on the radio. In Zambia, Radio Mazabuka is contributing to shaping opinion and to the process of democratisation through information broadcasts.

Radio as an information and communication tool is easy to access: the local language prevails, no formal education is required, literacy is unimportant. The variety in the content of local broadcasts fits well into the multifaceted nature of poverty reduction.

Local community radios are broadcasting information for example on:

Sources: Gerster, Richard/Zimmermann, Sonja. ICTs for Poverty Reduction in Sub-Saharan Africa , IICD, The Hague 2003

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Fair Trade – the Example of Pineapples

Abstract:

In Switzerland, fair-trade pineapples are labelled ' Max Havelaar? . With an annual volume of 800 tons, they reached two years after launch an excellent market share of 15% of total retail sales. In the shops, the difference between conventional and fair-trade pineapples is only noticeable because of the Max Havelaar sticker.

However, for the producers, business as usual and fair trade are worlds apart: A guaranteed minimum price gives the producers security against the enormous price fluctuations on the world market, the workers get a premium for community projects, and the certified plantations are obliged to observe international standards and national laws.

The prices in the graph are based on "Smooth Cayenne" pineapples from Ghana. For conventionally produced pineapples CHF 0.95 remains in the country of origin, for fair trade pineapples it is CHF 1.25. For the Swiss consumer it is a small difference, for Ghana it is a plus of more than 30%. A retail price of roughly CHF 6-7 per fruit of 1.6 kilos consists of the following elements:

Source: HPW Marketing GmbH; Bomarts

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Fair Trade – the Example of Bananas

Abstract:

In Switzerland, fair-trade bananas are labelled ' Max Havelaar? . They have a unique market share of 47% of total retail sales. In the shops, the difference between conventional and fair-trade bananas is only noticeable because of the Max Havelaar sticker. However, for the producers, business as usual and fair trade are worlds apart.

There are times when world market prices cover little more than packaging. Under these circumstances, the guaranteed minimum price of Max Havelaar becomes very important. For the sale of more than 32 million kilos of Max Havelaar Bananas in Switzerland in 2004, the producers in the Dominican Republic, in Ecuador, Columbia and Costa Rica received more than CHF 3.3 million additional profit, compared to what they could have expected from average world prices.

The guaranteed minimum price for one box containing 18 kilos of bananas was CHF 8.90 in 2003 compared to CHF 5.60 in conventional trade. A retail price of roughly CHF 3 per kilo consists of the following elements:

Source: Max Havelaar Foundation (Switzerland)

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Private Capital for the Poor: A Myth

Abstract:

The OECD statistics for 2001 account for 109 billion dollars of private capital flows to developing countries. This amount does not include return flows of interest and dividends. According to the OECD, interest alone amounts to 115 billion dollars (1999).

For 2001, UNCTAD quotes 2174 billion dollars as stocks of foreign investment in developing countries. According to Oxfam, a minimum of 20% profits – that is more than 420 billion dollars – can be assumed, of which two thirds (280 billion dollars) flow back to the foreign providers of capital, and one third is reinvested in the country.

In other words: In 2001, private inflows of 109 billion dollars were met with 395 billion dollars of return flows. Official development assistance (ODA, around 50 billion dollars in 2001) and donations by non-governmental organisations (10 billion dollars per year) cannot compete against that.

Sources: OECD, Development Cooperation; UNCTAD, FDI Database; Oxfam, Tax Havens, Oxford 2000

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What Difference between Hong Kong and Paris?

Abstract:

A comparison of 70 global cities reveals that the salary level in Mumbai (India) is just 3% of the wages paid in Zurich (Switzerland). To buy a ' Big Mac' , people in Mumbai have to work 114 minutes, whereas in Zurich 14 minutes is sufficient. It is not only wages and prices that differ. In Asia, working hours are much longer than in Europe.

Taking 2000 working hours per year as the yardstick, we find Paris at the lower end with 1561 and Hong Kong with 2398 hours (more than 50% higher than Paris) at the upper end. The figure for Zurich is 1872 hours.

Due to globalised competition, these differences in wages and work time will challenge lifestyles and social achievements in Europe in future.

Sources: UBS 2003

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The Power of Microfinance

Abstract:

No doubt, microfinance is a success story. The United Nations declared 2005 the International Year of Microcredits. Microcredits enable the empowerment of the poor and to alleviate poverty. The "poor" are hardly creditworthy in the eyes of conventional bankers.

The innovative step of microfinance is to work with groups of people in poverty, mainly women, who stand firm for repayment as a group. 90 percent of the loans are repaid. The arrangement works because, in microfinance, not banking secrecy but transparency is the rule of the game and this allows social control.

Microfinance today is much more than microcredit. Equal access to financial services, notably savings, matters in disadvantaged regions. However, microfinance is not a shortcut to development. It should be embedded in a holistic village-centred development. In the case of Sri Lanka, the Sarvodaya Movement has an entrepreneurial wing "SEEDS" which includes banking. More than 600 village banks and more than 3000 savings and credit organisations are part of the SEEDS network.

Village banking is financially self-sufficient within SEEDS. Before becoming eligible for the foundation of a village bank in the SEEDS framework, a village has to pass through a range of stages (see graph).

Sources: www.seeds.lk, www.respnsAbility.ch and own research.

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Cotton: Snags of Subsidies

Abstract:

Benin, Burkina Faso, Mali and Tchad survive on the cultivation of cotton. Some 5-10 percent of their Gross National Product and 30 percent of their export revenue originates from the "white gold" .

Between 1999 and 2002, these countries increased production but their export revenue dropped drastically. The reason: the US and the European Union massively subsidise their cotton farmers. Overproduction lets world market prices drop into the basement.

More than 10 million West African farmers are in danger of losing an important part of their livelihoods. The four West African countries have taken their case to the World Trade Organisation (WTO), but have met stiff resistance on the US side so far. Can trade rules be shaped and implemented in a way that benefits people living in poverty?

This is the challenge to the Doha "development" round of trade negotiations. The cotton case is on the way to becoming the litmus test of the credibility of the international trading system.

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Zurich as a Global City

Abstract:

Just as every city has a local hinterland so world cities have a global hinterland. The network of Zurich (Switzerland) consists of cities from all parts of the world. The Globalisation and World Cities Study Group and Network at Loughborough University (UK) has carried out research on the global role of Zurich. Zurich cannot compete with London or New York or Tokyo as a global city but it has a niche from which to operate in the world city network.

Positioned as number 19, Zurich is, in particular, a key global hub for emerging and developing countries. The global exposure of Zurich, as well as Geneva, may be mainly due to the role of Switzerland as an international financial centre. This should be an opportunity, as well as a challenge, for Switzerland to give priority to the concerns of developing countries in its foreign and development policies.

Sources: Taylor P.J., Zurich as a World City, Globalisation and World Cities Study Group and Network, Research Bulletin 112; Tages-Anzeiger 5.8.03, S. 14

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Wanted: A Challenge to Global Cartels

Abstract:

During the 1990s, cross-border mergers and acquisitions increased dramatically, from 2502 in 1990 to 7335 in 2000. The slackening world economy temporarily reduced this number to some 4500 in 2002.Another rise is most probable. Not only the number but also the volume of the mega-marriages increased, and with it the danger of power abuse. Informal price agreements among a few dominating players ('cartels' ) are of particular concern for developing countries.

Multinational companies may use their market power to make oligopolistic profits. There is, however, no referee who blows the whistle to end private protectionism. A global agreement is required to challenge global cartels.

Sources: Informationsdienst des Instituts der deutschen Wirtschaft vom 30.8.2001; UNCTAD, World Investment Report 2003 (für 2002); NZZ 19. 2. 2002, S. 21; Hard Core Cartels, Organisation for Economic Co-operation and Development, 2000; Margaret Levenstein et al., International Price-Fixing Cartels and Developing Countries: A Discussion of Effects and Policy Remedies, 2002.

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Copyright: Erosion of the Public Domain

Abstract:

Copyright laws define the duration of protection of works - novels, music, software, etc. . After that period the copyright ends and the works become part of the public domain. The public domain stagnates, private interests expand. This trend is typical for national and multilateral intellectual property legislation. The copyright reforms of the United States play a leading role. Crucial dates in the recent history of US-copyright law are

• 1963: Copyright terms extended from 28 years, renewable for an additional 28 years, to 28 years renewable for an additional 47 years (75 years total);
• 1976: All new works given a single copyright term lasting either
  (1) the life of the author plus 50 years, or
  (2) 75 years if owned by corporations;
• 1992: Copyright renewal retroactively eliminated for all works created after 1963;
• 1998: All copyright terms extended by 20 years
  

Sources: Jay Worthington/Lake Murphy in Cabinet Magazine No. 10; NZZ 23.09.03; Hariharan Venkatesh, Why India Looks to GNU/LINUX with Hope, www.indlinux.org;www.gnu.org/copyleft;

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Less Subsidies, More Fish

Abstract:

Will the World Trade Organisation (WTO) make a bold step towards sustainable development when meeting in Cancún (Mexico) from September 9 ? 13, 2003? At the talks in Doha (Qatar) in November 2001, the trade ministers committed to ? clarify and improve WTO disciplines on fishery subsidies, taking into account the importance of this sector to developing countries?

In fisheries, harmful subsidies are widespread and one of the key reasons why large parts of ocean resources are being depleted. Tax payers subsidise fishing worldwide by USD15 billion annually, the bulk of the subsidies leading to overfishing.

Subsidies stimulate and allow the maintenance of large overcapacities. They undermine sustainable fishing practices. This race for fish at all costs is not only an environmental issue but operates to the detriment of many developing countries and those members of their populations trying to make a livelihood of fishing. The global fishing grounds are to...

Sources: WWF, Turning the Tide on Fishing Subsidies: Can the World Trade Organisation Play a Positive Role?, Gland 2002; ZKB, Nachhaltige Anlagen. Informationen zu umwelt- und sozialverträglichen Investments, April 2002; Grynberg Roman, Fisheries Subsidies: Casting a Net too small, Bridges, October 2002, 5f.; The Courier ACP-EU, May-June 2002, 28ff., and July-August 2002, 45ff.

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Easter Hare's Economics

Abstract:

The Easter Hare brings more than a pound of the finest chocolate per person into the households of Switzerland. Each year, the Swiss consume 12 kilograms of chocolate per person – a world record. The cocoa contents correspond to 30 percent of the chocolates' weight.

However, the cocoa producers receive only 10 percent of the chocolates' prices in the shopping malls. The consumer prices of chocolate products such as Easter hares remain stable or increase in the long term. The cocoa producers, however, many of them being small holders, ride on the roller coaster of highly volatile world market prices.

Six multinationals control more than 80 percent of the cocoa market. Speculation dominates. Because of the civil war in Ivory Coast as a major supplier, cocoa prices have temporarily risen to uniquely high levels:

Sources: ICCO; Marc Maes, Kakao: Tiefstand nach 27 Jahren, Fairtrade Jahrbuch 2001, 84ff.; Chocosuisse, Dokumentation, Facts and Figures, 2001; International Cocoa Organisation, Annual Report for 1999/00; Tages-Anzeiger 10.8.2002

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Globalisation of Large Swiss Construction Sites?

Abstract:

Engineering companies of Europe, North America and Japan often enjoy a slice of the economic cake of large construction sites in developing countries. As the World Trade Organisation (WTO) is aiming at liberalising public procurement, will companies from developing countries have access to large construction sites in the North as well?

The example of Switzerland demonstrates that liberalisation of public procurement will hardly be more than lip service for developing countries. In practice, conditions to observe minimum standards of employment not only protect Swiss workers but discriminate against low-wage offers from developing countries.

In the case of the giant Swiss project Alp Transit, the construction of the world's longest railway tunnels, the tender procedures led to a "Europe-isation" instead of a globalisation of the construction site, the "Shaft Sinkers" from South Africa being a controversial exception.

Sources: Die Volkswirtschaft, 10/2002, pp. 15-27; Baumann Hans, Mehr Arbeitnehmerrechte auf internationalen Baustellen, Bau-Input, Nr. 2, Juni 2002, 3f.; Keine Hungerlöhne mehr, Tages-Anzeiger, 18.12.1998; GBI

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Internal African Phone Calls, Intercontinental Detours

Abstract:

The new information and communication technologies (ICTs) – a revolution for whom? In Geneva, December 10 – 12, 2003, and in Tunis in 2005, the World Summit on the Information Society (WSIS) will take place. An analysis of the economic and social implications beyond technical requirements for ICTs is desperately needed.

Within Africa, a regional telephone and internet network only exists in a rudimentary form. Detours via North America and Europe – particularly the former colonial powers, Great Britain and France – are the rule. Africa lacks the financial means to install direct connections even though these detours are highly expensive. The African users are fully charged for the costs of cable capacities and connections. African telephone companies annually pay USD400 million to European and North American providers for internal African connections.

Let us examine a phone call from Benin (Porto Novo) to Nigeria (Lagos) and compare it to an international phone call of slightly greater distance from Switzerland (Geneva) to France (Lyon).

Sources: Spanning the Digital Divide, www.bridges.org; Jensen Mike, Information and Communication Technologies (ICTs) in Africa – A Status Report, United Nations Information and Communication Technologies Task Force, 2002; www.itu.int/wsis; www.geneva2003.org.

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Why Europeans Die; Why Africans Die

Abstract:

The causes of death in Africa and Western Europe reflect the entirely different age structure of the population, their differing living conditions and clinical pictures. Against this background, the orientation of 90 percent of global drug research towards the illnesses of the richest 10 percent of the world population is fatal.

The dynamics of globalisation bypass the basic health needs of the vast majority because, due to the lack of purchasing power, they are not a promising market. The graph shows the most important causes of death on Africa and Europe, compared to world average (HIV/AIDS is included under infectious deseases).

Sources: WHO, in: Sutcliffe Bob, 100 Ways of Seeing an Unequal World, Zed Books, London/New York 2001, 35; Global Forum for Health Research, The 10/90 Report on Health Research 2001-2002, Geneva 2002; Médecins sans Frontières, Fatal Imbalance: The Crisis in Research and Development for Drugs for Neglected Diseases, Geneva 2001

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Lifeline Agriculture

Abstract:

In low-income countries, agriculture is the basis of the livelihoods of the majority of the population. In Western Europe or Northern America, however, agriculture is of marginal economic importance. Nevertheless, industrialised countries protect their farmers with high tariffs - the average tariff on agricultural products is 40 percent; compared to 4 percent for industrial products.

Developed countries spend US$1 billion a day on agricultural subsidies. The developing countries lack the financial means to follow similar policies, they are deprived of their export opportunities, and on the domestic market unsubsidised local production has to compete with subsidised agricultural imports from developed countries.

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Terms of Trade Deterioration: How Much Coffee a Swiss Army Knife Costs

Abstract:

Coffee prices are not only highly volatile but equally seriously, the terms of trade for coffee producers have deteriorated dramatically. Coffee-producing regions have been hard-hit as a result.

In Kenya, families can no longer meet the costs of schooling for their children. In countries such as Columbia or Peru, the cultivation of coca leaves is financially much more attractive than coffee due to its depressed price level. As a consequence, more and more farmers shift their production despite official and US campaigns against the cultivation of coca.

Fair trade coffee is so far the only viable alternative on offer to increase incomes but is highly limited in its outreach. A producer cartel or convention between producers and consumers is out of sight.

Coffee producers had to sell more than 3 times as much coffee to buy a Swiss army knife in 2003 as they did in 1980. This is despite the fact that the price of the knife was reduced from SFR 19.50 (1980) to SFR 19 (1990) and to SFR 18 (2000), due to economies of scale. The Swiss army knife has been chosen to illustrate the terms of trade because it is a typical Swiss export product which has constant quality over decades.

Sources: World Bank, Global Development Finance 2002, Washington 2002; Volcafé; Victorinox

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Globalisation of the Second World

Abstract:

Between May and September 1992, most members of the Community of Independent States (CIS) – the former Soviet Union – entered the age of market orientation and globalisation by becoming members of the IMF and the World Bank.

A deep recession characterised the first years. Although there has been some growth recently, the recession between 1990 and 2000 cut the CIS-wide Gross Domestic Product (GDP) by 37 percent. By comparison, the most severe economic crisis of the last century – from 1930-32 reduced Germany's output by a cumulative 16 percent. Before their transition to market economies, CIS-members were among the most egalitarian countries.

Ten years later, the Gini coefficient (the measure of inequality) has increased by 64 percent, from 0.28 (1989/90) to 0.46 (1996/98). The distribution of wealth and poverty in the former Soviet Union is now among the most unequal in the world. In Tadjikistan and Kyrgyzstan, more than 50 percent of the population is living in poverty (measured as income below 2 USD per pita per day).

What policies can offer these countries a way out of recession, inequality, poverty? The first 10 years of reform and the unique experiences gained should form the basis for an independent assessment and debate.

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