Celebrate, Don’t Mourn, Collapse of WTO Talks

Predictably, the cheerleaders for corporate globalization are bemoaning the collapse of World Trade Organization negotiations.

“This is a very painful failure and a real setback for the global economy when we really needed some good news,” said Peter Mandelson, the European Union’s trade commissioner.

Even worse, says the corporate globalization rah-rah crowd, the talks’ failure will hurt the developing world. After all, these negotiations were named the Doha Development Round.

“The breakdown of these talks is bad news for the world’s businesses, workers, farmers and most importantly the poor,” laments U.S. Chamber of Commerce President Tom Donohue.

But don’t shed any tears for the purported beneficiaries of the WTO talks. If truth-in-advertising rules applied, this might have been called the Doha Anti-Development Round.

The alleged upside of the deal for developing countries — increased access to rich country markets — would have been of tiny benefit, even according to the World Bank. The New Delhi-based Research and Information System for Developing Countries points out that Bank analyses showed a successful conclusion of the Doha Round would, by 2015, increase developing country income in total by $16 billion a year — less than a penny a day for every person in the developing world.

The World Bank study, however, includes numerous questionable assumptions, without which developing countries would emerge as net losers. One unrealistic assumption is that governments will make up for lost tariff revenues by other forms of taxes. Another is that countries easily adjust to import surges by depreciating their currencies and increasing exports.

In any case, the important point is that there was very little to gain for developing countries.

By contrast, there was a lot to lose.

The promise to developing countries was that they would benefit from reduced agricultural tariffs and subsidies in the rich countries. Among developing nations, these gains would have been narrowly concentrated among Argentina, Brazil and a few other countries with industrial agriculture.

What the spike in food prices has made clear to developing countries is that their food security depends fundamentally not on cheap imports, but on enhancing their capacity to feed themselves. The Doha rules would have further undermined this capacity.

“Opening of markets, removal of tariffs and withdrawal of state intervention in agriculture has turned developing countries from net food exporters to net food importers and burdened them with huge import bills,” explains food analyst Anuradha Mittal of the Oakland Institute. “This process, which leaves the poor dependent on uncertain and volatile global markets for their food supply, has wiped out millions of livelihoods and placed nearly half of humanity at the brink of hunger and starvation.”

Farmers’ movements around the world delivered this message to government negotiators, and the negotiators refused to cave to the aggressive demands made by rich countries on behalf of agricultural commodity-trading multinationals. Kamal Nath, India’s Minister for Commerce and Industry, pointed out that the Doha Development Round was supposed to give benefits to developing countries — especially in agriculture — not extract new concessions.

The immediately proximate cause of the negotiations’ collapse was a demand by developing countries that they maintain effective tools to protect themselves from agricultural import surges. Rich countries refused the overly modest demand.

And agriculture was the area where developing countries were going to benefit.

The rough trade at the heart of the deal was supposed to be that rich countries reduce market barriers to developing country agricultural exports, and developing countries further open up to rich country manufacturing and service exports and investment.

Such a deal “basically suggests that the poor countries should remain agricultural forever,” says Ha-Joon Chang, an economics professor at the University of Cambridge and author of Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. “In order to receive the agricultural concession, the developing countries basically have to abolish their industrial tariffs and other means to promote industrialization.” In other words, he says, developing countries are supposed to forfeit the tools that almost every industrialized country (and the successful Asian manufacturing exporters) has used to build their industrial capacity.

In sum, says Deborah James, director of international programs for the Washington, D.C.-based Center for Economic and Policy Research, this was a lose-lose deal for developing countries. “The tariff cuts demanded of developing countries would have caused massive job loss, and countries would have lost the ability to protect farmers from dumping, further impoverishing millions on the verge of survival,” she says.

By the way, it’s not as if this is a North vs. South, rich country vs. poor country issue. Although there have been multiple lines of fragmentation in the Doha negotiations, the best way to understand what’s going on is that the rich country governments are driving the agenda to advance corporate interests, not those of their populations. That’s why there is so little public support for the Doha trade agenda, in both rich and poor countries.

Says Lori Wallach of Public Citizen’s Global Trade Watch: “Now that WTO expansion has been again rejected at this ‘make or break’ meeting, elected officials and those on the campaign trail in nations around the world — including U.S. presidential candidates — will be asked what they intend to do to replace the failed WTO model and its version of corporate globalization with something that benefits the majority of people worldwide.”

The Scourge of the IMF

Tuberculosis, a treatable disease, kills 1.7 million people a year worldwide.

TB incidence, according to the World Health Organization, seems to be correlated to broad social factors, like access to clean water and sanitation, HIV incidence and national health expenditures.

A just published study in the journal PLoS (Public Library of Science) Medicine investigates the role of different possible explanatory factor: the International Monetary Fund (IMF). The researchers’ study focuses on the period 1991 to 2003 for the former Soviet Union and Eastern Europe, a region for which there is robust data.

The results: The researchers concluded “that IMF economic reform programs are strongly associated with rises in tuberculosis mortality rates in post-communist Eastern European and FSU [former Soviet Union] countries, even after correcting for potential selection bias, tuberculosis surveillance infrastructure, levels of economic development, urbanization, and HIV/AIDS.”

“We estimated an increase in tuberculosis mortality rates when countries participate in an IMF program, which was much greater than the reduction that would have been expected had the countries not participated in an IMF program. On the other hand, we estimated a decrease in tuberculosis mortality rates associated with exiting an IMF program.”

In other words: When countries entered IMF programs, TB rates went up. When the programs ended and countries escaped from IMF influence, TB rates went down.

OK, but the region was in chaos after the fall of the Soviet Union. Economies crashed and per capita income plummeted. Crime rose, incarceration rates jumped, HIV spread. Aren’t these the real factors behind rising TB rates?

Explains Sanjay Basu of Yale University, one of the study authors: “First of all, not all of these countries in this region were dependent on the former Soviet Union. Many of them actually had an increase in GDP after the fall of the former Soviet Union. Several were not part of the trading bloc. And in some of the key countries where TB rates rose, we actually saw an increase in economic growth. So economic downturns could not explain, as the WHO itself has stated, the trends of tuberculosis in that regions. Something else was going on.”

“The reason we use such heavy statistics is precisely to factor in these other issues — incarceration, HIV, changes to the economy, changes to the healthcare infrastructure. We found a statistically independent effect of the IMF. That’s not to say that the IMF was the only cause of TB in this region. The economy, incarceration, HIV — these are all very important, but those factors could not fully explain TB in the region.”

(An interview with Basu follows this column.)

The PLoS study found that participating in an IMF program correlated with increases in tuberculosis incidence of 13.9 percent and an increase in TB mortality rates of 16.6 percent. Basu says that, if the study results are valid, they suggest “we would have averted tens of thousands of deaths and hundreds of thousands of new cases” if countries in the region had never entered IMF programs.

The theory of the study authors is that IMF programs drive down healthcare spending, and this reduced investment in healthcare explains the rise in TB incidence and death. Basu emphasizes, correctly, that the issue is not so much the IMF directing countries to spend less on health. Rather, it imposes a set of policy constraints — including overall limits on government spending, and needlessly low inflation targets — that inevitably result in countries spending less on health.

There are always variations between regions, but there is nothing about the PLoS researchers’ story that suggests things are any different in Africa, the region where the IMF now exerts the most influence.

Not surprisingly, the IMF has rejected the PLoS findings. “Severe methodological shortcomings limit the scope of these results and prevent any causal interpretation,” asserts an IMF response that is much more subdued than comments from spokespeople. “The fundamental problem is that this study does not take properly into account that countries implement IMF-supported reforms in times of economic distress.”

Says the IMF response: “The authors do not take into account that the economic and social instability following the collapse of Soviet Union may have had a direct impact on TB incidence in the 21 transition economies considered in the study.”

The problem with this line of argument is that it is not true. The authors did take the economic and social instability into account.

Can anything be done about IMF policies with such harmful impacts?

Yes. The IMF is a human creation, not a force of nature.

The United States Congress will next year have a unique opportunity to influence IMF policy. The IMF needs approval from the Congress to go ahead with plans to sell some of the gold it controls. This gold would be used to fund the IMF’s administrative costs — a new income stream the IMF desperately needs. Interest payments from middle-income countries previously paid for administrative costs, but these countries have paid back their loans in order to escape from IMF influence.

As the U.S. Congress looks to approve gold sales to finance the IMF, it must insist that the IMF first end the mandates that effectively restrict countries’ health spending, and force borrowing countries to implement a discredited market fundamentalist policy agenda.


An Interview with Sanjay Basu,

Department of Epidemiology and Public Health, Yale University

(Co-Author, “International Monetary Fund Programs and Tuberculosis Outcomes in Post-Communist Countries,” PLoS Medicine, July 2008, Vol. 5, Issue 7)

Question: Can you give a thumbnail sketch of what you found?

Sanjay Basu: The hypothesis we wanted discussed was the effect of IMF programs on health outcomes. Tuberculosis is a good test because it has long been viewed as a social indicator. When your society breaks down, tuberculosis rates rise pretty quickly, particularly death rates from TB.

We tested two decades of data from the entire region of Eastern Europe and the former Soviet Union. That region was of interest because they had relatively similar public health infrastructure, training systems and general design of their TB program. Their TB rates were improving just prior to the collapse of the former Soviet Union, when many of them received IMF loans of different size and duration. Therefore, we could test the impact of these IMF loans. And they also received other loans from non-IMF sources, of similar size and duration, as a kind of control group.

What we found was that even after correcting for the impact of the economic downturn in some of these countries — although for some of them, GDP actually increased — and for HIV rates, incarceration rates and dozens of other variables, IMF loans profoundly affected tuberculosis rates.

We wanted to make sure this wasn’t a false association, that we weren’t blaming the IMF for responding to a worsening situation. Using something called a control function approach, which gives us a sense of whether someone was responding to a problem, or whether they were generating a problem, we found that the IMF seemingly precipitated the worsening in tuberculosis rates.

One thing that was really strong and surprising and rarely happens in social science data, was a dose-response relationship. The higher that the IMF loan went, the higher the TB rates went in proportion. Similarly, when the IMF loan ended, the TB rates fell to the same degree, and the duration of the loan corresponded exactly to the TB rates. And they corresponded well also to public health funding that was cut during the period of the loan, the number of doctors available and the coverage of WHO-recommended treatment. Meanwhile, the non-IMF loans did not have these negative impacts either on health spending or on tuberculosis outcomes.

Question: Is your hypothesis that the mechanism by which the IMF loans were harmful was that they reduced spending on healthcare?

Basu: Yes. That’s what all arrows pointed to.

Question: The IMF says it does not require countries to reduce health spending.

Basu: Well, the IMF doesn’t actually directly tell countries what to do, but it provides inflationary targets for them. And implicitly the countries will have to cut health and education funding in order to reach those targets.

It’s like saying, you can have our loan but you have to follow our investment advice. We’re not going to tell you exactly what to invest in, but here’s how it should end up looking.

It’s kind of like tying a person’s hands behind their back and telling them to eat pie, and when they stick their face in the pie, saying, well, you could have used a fork.

So no, the IMF doesn’t directly tell countries what to do, but implicitly, there’s a political reality.

Question: There were 21 countries that you studied, and all but one had the IMF loans?

Basu: Right. But we weren’t just comparing whether a country did or did not take an IMF loan. There could be many other factors — including whether a country needed to take a loan, and variations between countries — that could explain tuberculosis rates. So we did what is called a within-country analysis. It holds all the other factors within a country the same so that you can see the effect of one factor in particular — in this case, the IMF loan. After correcting for the economic factors and background of those countries, we found that countries that took small loans did better, and those that took the larger loans did worse.

It’s kind of like what we do for pharmaceutical studies. If a person is taking a drug for high blood pressure, maybe their blood pressure drops a lot and somebody else’s doesn’t. But to know if the cause is the drug or not, you have to correct for who that person is. Maybe they have a kidney problem that prevents their blood pressure from decreasing. We corrected for those factors.

Question: In responding to your study, the IMF has argued that you found effects on TB rates too quickly. If IMF loans were responsible for worsening TB, they say, there should have been more lag time between when countries took loans and when the impact on TB was evident.

Basu: That’s a fallacy. Tuberculosis mortality in particular is a very quick responder to social change. If you close a hospital, then people who already have tuberculosis will die, and they will die pretty quickly. That doesn’t take years to evolve.

Changes in incidence and prevalence are slower, but certainly over two decades we see enormous changes. In Eastern Europe and Central Asia we saw a reverse impact over 20 years. This is a pretty long duration of time over which to see large macroeconomic effects.

Question: Are you able to say what the increased mortality rates mean and what the increased incidence rates mean in terms of overall numbers?

Basu: In a statistical sense, you can say how many statistical deaths have resulted. In terms of deaths, it was on the order of tens of thousands. In terms of incidence of new cases, it was on the order of hundreds of thousands. Of course, these are all jumbled in reality, but in a statistical sense, that is part of the effect due to the IMF programs.

Question: Does that mean that, had there not been IMF programs in these countries, that you would have seen tens of thousands of people living who did in fact die?

Basu: If the associations do indeed point to causation, and everything we did said that it indeed was a causal effect — and if we’re not confounding the results by some unforeseen variable — then yes, we would have averted tens of thousands of deaths and hundreds of thousands of new cases. And the TB rates before the IMF came were indeed stable and declining.

Question: One intuitive skepticism about your results is that there was a lot of chaos after the Soviet Union collapsed — declining economies, rising crime and incarceration, social breakdown. How can you really blame the IMF or associate rising TB with the IMF when all of these overarching macro developments were taking place?

Basu: That’s why it’s important to do statistics in these studies. First of all, not all of these countries in this region were dependent on the former Soviet Union. Many of them actually had an increase in GDP after the fall of the former Soviet Union. Several were not part of the trading bloc. And in some of the key countries where TB rates rose, we actually saw an increase in economic growth. So economic downturns could not explain, as the WHO itself has stated, the trends of tuberculosis in that regions. Something else was going on.

And the reason we use such heavy statistics is precisely to factor in these other issues –incarceration, HIV, changes to the economy, changes to the healthcare infrastructure. We found a statistically independent effect of the IMF. That’s not to say that the IMF was the only cause of TB in this region. The economy, incarceration, HIV — these are all very important, but those factors could not fully explain TB in the region. T he IMF was found to have a profound impact and explain a lot more of the variation than some of these other factors.

Crime, Punishment and ExxonMobil

Last month witnessed the extraordinary contrast of two perspectives on crime, punishment and ExxonMobil.

Just two days after leading climate change scientist James Hansen told the U.S. Congress that he believed ExxonMobil and other fossil fuel company CEOs “should be tried for high crimes against humanity and nature” for their role in delaying a serious global response to climate change, the U.S. Supreme Court decreed that a $2.5 billion punitive judgment against Exxon for the Valdez oil spill disaster denied the company the “sense of fairness” to which it is entitled.

Each of these proclamations is extremely significant in its own right.

The Supreme Court’s ruling has the more obvious direct importance. Operating in the framework of maritime law, where it is free to establish its own rules in the absence of Congressional guidance, the Court held in a 5-3 ruling that punitive damage awards should not exceed compensatory damages. In other words, the punitive fine imposed by a civil jury should not be greater than the harm the jury found a defendant caused to a plaintiff by its wrongful act.

As a matter of law, this was a remarkable ruling — a hyper-activist, policy-driven, non-originalist action by a faction of the Court that claims to defer to legislative determinations or seek its legitimacy in the Constitution, law or strongly rooted history. And the policy choices made by the Court are not only corporate-friendly and harmful to the victims of corporate wrongdoing and the environment, they are remarkably poorly argued.

The real premise of the Court’s decision, written by Justice Souter, is that “American punitive damages have been the target of audible criticism in recent decades,” but it is forced to acknowledge in the same sentence that these criticisms are ill founded. There is no problem of runaway awards, the Court concedes; and punitive damage awards are rising in neither frequency nor amount. Thus the Court is forced to rely on a purported problem of unpredictability in punitive damage awards, even as it acknowledges that appellate courts routinely overturn or limit outlier awards. (Indeed, the original Exxon punitive verdict had been $5 billion.)

Concluding that more predictability is needed, the Court determines that some formula to restrict punitives is appropriate. It settles on the idea of a ratio to compensatory damages. Many states have adopted such ratios, so they seem like a good idea, the Court concludes. A plurality of states have a ratio of 3:1, but having relied on the state experience as the rationale for adopting a federal maritime rule, the Court then declares that the state rules are too different to set the right ratio.

Instead, the Court says it bases its assessment of a reasonable ratio on juries’ actual awards — the very juries it is trying to constrain. The median punitive damage award is less than the compensatory award, so the Court settles on a 1:1 ratio. The Court states, “we would expect that awards at the median or lower would roughly express jurors’ sense of reasonable penalties in cases with no earmarks of exceptional blameworthiness within the punishable spectrum.” You can read that a few times. It still won’t make sense.

In a very concise dissent, Justice Stevens takes apart the majority argument. In short, he writes, if Congress has not acted, and there are no constitutional issues (none were involved in this case), then appellate courts should review punitive awards and overturn them only if they constitute an abuse of discretion. If the only problem is a few outlier awards, then appellate review easily solves the problem.

“On an abuse-of-discretion standard, I am persuaded that a reviewing court should not invalidate this award,” Justice Stevens wrote. “In light of Exxon’s decision to permit a lapsed alcoholic to command a supertanker carrying tens of millions of gallons of crude oil through the treacherous waters of Prince William Sound, thereby endangering all of the individuals who depended upon the sound for their livelihoods, the jury could reasonably have given expression to its ‘moral condemnation’ of Exxon’s conduct in the form of this award.”

Left unstated, but most important for the purpose of deterring bad corporate behavior, is that the very unpredictability disdained by the Court’s majority is one of the core benefits of punitive damages. Corporations are not people, and the Court’s rhetoric about preserving a “sense of fairness in dealing with one another” is inapposite as regards corporations’ wrongful acts against real people. The point that corporations are not people is not just rhetorical; they have different forms of calculus and are differently affected moral restraints. The possibility of facing an outlier punitive verdict for wrongful conduct is a needed control on corporate recklessness.

The direct precedential value of the Exxon decision is limited, because it was issued in the confines of maritime law, and includes some caveats. But it will cast an ominous shadow over state and federal court decisions on punitive damages for years to come.

Dr. James Hansen, the NASA climatologist who was one of the first to sound the alarm on global warming and who has refused to capitulate in the face of Bush administration efforts to silence him, does not specialize in the law but he offers a far keener sense of justice than did the Supreme Court.

“CEOs of fossil energy companies know what they are doing and are aware of long-term consequences of continued business as usual,” Hansen told a Congressional committee. “In my opinion, these CEOs should be tried for high crimes against humanity and nature” for spreading doubt about global warming and obstructing needed action.

This notion of justice suggests individual as well as organizational responsibility; insists on connecting the predictable and intended consequences to ultimate instigators without being distracted by intervening factors; and refuses to let perpetrators establish rules to legitimize their conduct.

However, Hansen noted, “conviction of ExxonMobil and Peabody Coal CEOs will be no consolation, if we pass on a runaway climate to our children.”

Even more significant than Hansen’s call for prosecution of CEOs for crimes against humanity was his description of his latest research. Hansen and colleagues have concluded that the safe level of atmospheric carbon dioxide — the level below which catastrophic, self-reinforcing climate change can be averted — is considerably lower than previously thought. Not only must the world slow its carbon emissions, Hansen argues, it must reduce atmospheric carbon from current levels. This remains achievable, Hansen believes, if immediate, far-reaching action is taken.

A society reveals its values in what it tolerates and proscribes, in what it authorizes and punishes. The U.S. Supreme Court held that basic fairness means that Exxon, which made more than $40 billion in profits last year, should not be slapped with a $2.5 billion punitive verdict. Representing humanity’s better face. Dr. James Hansen asserted that the basic principles of justice and accountability to which street criminals are held should be applied to the rich and powerful, particularly when their intentional actions recklessly endanger the lives of not just one or two or five people, but millions.

The Supreme Court signaled that ExxonMobil should continue business as usual. Hansen said that business as usual is intolerable.

“In my opinion,” Hansen said, “if emissions follow a business-as-usual scenario, sea level rise of at least two meters is likely this century. Hundreds of millions of people would become refugees. No stable shoreline would be reestablished in any time frame that humanity can conceive.”