The G-20 in an Unjust World Only Radical Thinking and Action Can Tame Globalization
Part 2: 'This Is Too Important To Be Left to 20 People'
It's even harder for corporations to make the world a better and fairer place. Publicly traded companies submit themselves to the rules of a financial capitalism, whose standards have spun out of control. Just four technology companies on the stock markets -- Facebook, Apple, Amazon and Google -- have a combined market capitalization of just under $2.4 trillion, a sum that exceeds India's gross domestic product. Central banks are flooding the markets with money and those profiting from the development are building up wealth of almost unimaginable magnitude -- while the connection to the real economy is eroding.
It's not that things were much better in the past. The economy has been driven by the shareholder value mindset for three decades. What's new today is that the financial sector essentially points CEOs in what direction their companies must go. Economists refer to the phenomenon as the financialization of the economy. "Our biggest and brightest companies have started to act like banks," American columnist Rana Foroohar recently wrote.
Today, airlines often earn more money through hedging on oil prices than they do selling seats to passengers. And companies buy back their own shares rather than invest their money. Between 2004 and 2014, American firms used over half of their profits to do so, spending close to $7 trillion in stock buyback programs. Meanwhile, financial institutions move the prices of corn or wheat through commodities speculation, leading to a situation in which prices are no longer determined by the quantity of the harvest. Indeed, prices are no longer determined by supply and demand.
Companies are getting further and further away from their original reason for going into business: providing good products that people like, earning decent money and paying their employees well. A hundred years ago, German engineering giant Siemens was building housing settlements for its employees, an idea that seems unfathomable today, despite housing shortages. These days, the main focus of companies is the effort to deliver a larger profit than that of the previous year.
People serve companies, but actually it should be the other way around, argues Christian Felber, who sometimes does handstands when he gives speeches. What Felber is trying to show is that the way we conduct business has been turned on its head. On this particular morning in Berlin, the moderator says time is short, so Felber skips this part of his show. Felber is sitting on a panel at the T-20 summit -- T for Thinktank. Like the C-20, it's also a preparatory meeting -- and one that is attended by some pretty high-level people, including Nobel laureates, CEOs and German government ministers. Sitting between them is Felber, with his strawberry blond beard, rolled-up shirt sleeves and green backpack on his shoulder. Even without doing his signature handstand, he stands out from all the others in their suits. So, too, do his ideas.
Ideas from the 13th Century
Felber, born in 1972 in Vienna, is one of the co-founders of the Austrian chapter of Attac. He's also one of the new stars of the alternative scene and gets invited to events so frequently that he could probably make daily appearances, but he tries to limit himself to 100 a year. Felber's fundamental thesis is captivating -- he's calling for a new economic order that he calls the economy for the common good, one that serves to help people live better lives rather than just increase profits.
Felber himself admits that there's nothing new about his thesis and that many of the ideas can be found in the work of the 13th century philosopher Thomas Von Aquin. Felber says he just updated those notions to fit with the times. In an economy for the common good, it isn't the financial result that is placed at the center of all economies, but rather five central values: fairness, human dignity, solidarity, democracy and sustainability. Felber and his fellow campaigners are also developing a common good balance sheet that can be used to measure whether systemic changes have been successful.
In it, they try, for example, to review how a company treats its suppliers or employees, whether it's business practices are climate-neutral, whether it discloses money it gives to lobbyists and if it is a company that promotes women. A few companies have already allowed their common good aptitude to be tested, including German outdoor sports equipment-maker Vaude and even one financial institution, Munich's Sparda bank.
The bank has made the decision to ensure that no part of its employees' salaries is performance based nor does it pay commissions on business acquired. The bank wants to ensure that money doesn't get in the way of providing clients with reputable service and advice. The shift in values at the company goes so deep internally that the bank has removed Nestlé water coolers from its office and offers its employees fair trade coffee. The company's tea towels are produced in factories that employee blind or otherwise disabled workers.
A broad spectrum of organizations are adhering to such common good ideas, including Protestant church organizations and activists with the environmentalist group Greenpeace. Around 200 companies have already been reviewed to determine their common good balance sheets. Felber says he even presented his system to Germany's postal service, Deutsche Post, although the resonance was limited.
At the T-20 panel in Berlin, Felber sat across from Deutsche Post CEO Frank Appel. The executive waxed philosophical about the questions facing mankind, the importance of love, meaning and hope, but also about Deutsche Post's responsibility to society. "We have done a lot," he said, adding that Post could provide an example for other companies. At that point, the panel moderator asked him why Deutsche Post had decided against the economy of common good concept?
The 'Golden Straightjacket'
Appel admitted that he couldn't recall the exact reasons. He said many alternative models exist, but they lack the kinds of standards used in classical accounting. If a global standard were established, the executive assured, Deutsche Post would also be open to participation. Felber smiled. It was exactly the kind of answer he had expected.
New York Times columnist Thomas Friedman once invented the image of the "golden straightjacket" to describe the situation governments and executives find themselves in. They are trapped in a system of global competition, borderless free trade and the ruthless grabbing for profits. It was then-British Prime Minister Margaret Thatcher who first tailored that jacket at the beginning of the 1980s, when she placed the United Kingdom on a strict liberal economic course. Even today, nobody seems to have truly been able to escape it -- assuming any of them actually even want to get out in the first place.
In 2005, a CEO of a company on Germany's blue chip DAX stock index earned 42 times that of a normal employee. In 2014, it had risen to a factor of 57 times a normal salary. Post CEO Appel earned a total of 9.9 million euros last year, compared to around 34,000 euros for a postal carrier. This means that Appel gets more on a single workday than a postal carrier gets over an entire year. And now he wants to talk about love, meaning and hope?
Globally, the income disparities have reached their highest levels in 50 years, according to the Organization for Economic Cooperation and Development. The places with the greatest social inequality are not to be found in the United States, Asia or Europe or even in New York, Shanghai or London, as one might expect. Almost all are in Africa.
Four countries in Africa are home to the greatest social disparity. In Angola, around 40 percent of the populace lives under the poverty level, but its capital city Luanda has been determined to be the world's most expensive city for expats. Well-paid foreign professionals, mostly working in the oil industry, have driven up prices.
In Africa, the economic conflict lines are to some extent two-dimensional. The gap between the industrialized nations is widening, but at the same time, the chasms within African countries are also growing dramatically. But what's causing this? "First and foremost, Africa's elites themselves," says Oxfam coordinator Byanyima. "The governments need to create economies that help many and not just a few."
Africa is globalization's perpetual loser and it has been since colonial times. The international community has spent entire generations ignoring the suffering in sub-Saharan Africa and it took the escalation of the refugee crisis two years ago before people once again became politically aware of the continent's fate -- at least that's the case for many Europeans.
But now, suddenly, Africa is gaining importance in another area: It's demographic development will almost certainly have an impact far beyond the continent. By 2050, Africa is expected be home to more than one-quarter of the global population. It is predicted that the population will double to 2.5 billion, with half of that figure under the age of 25. The German government has placed issues pertaining to Africa at the center of its G-20 presidency.
The German Finance Ministry has christened its new initiative the Compact with Africa. Initially, the plan is for the program to include five pilot countries -- Ivory Coast, Morocco, Rwanda, Senegal and Tunisia -- with each receiving 300 million euros in additional aid money from Germany. The aim of the pact is to attract private investment to Africa. But Oxfam International Executive Director Byanyima is critical of the initiative. "I'm sorry," she says, "but it's going in the wrong direction."
As an adolescent, Byanyima experienced in Uganda firsthand what despotic rule is like. People could be detained by the military at any time, an experience that has shaped her political understanding. Byanyima believes the government should play a central role in combating poverty -- in the form of a predictable, policy-oriented state that supports small businesses at the local level. Byanyima warns that private investors pursue ulterior motives -- namely their own interests. "They play with the countries," she says.
She recalls how Rwanda's former finance minister once told her how a company CEO had flown to the capital city of Kigali in a private jet to negotiate his tax rate. The man then climbed back into his jet and flew to Uganda, where he planned to do the same thing. The problem with that kind of behavior is that African governments will lose billions if they allow themselves to engage in a downward competition to offer the lowest corporate tax rates. This has already resulted in Kenya losing $1 billion a year in tax revenues -- twice the amount the country spends annually on health care. Poor countries suffer disproportionately from tax avoidance schemes because they often have few revenue streams other than trade in raw materials.
These countries lack the ability to conduct good governance -- the ability to take assertive government action through reliable institutions or maintain the principles of rule of law -- regulations that protect property and prosecute corruption. Markets alone can't eliminate poverty; often they exacerbate it. To do so, you need an active state that sets the ground rules and creates a better balance between society's winners and losers.
THE WAY OUT
That's the good news. There are ways of making the world a fairer place while at the same time protecting the environment. For that to happen, though, the people, the business community and the politicians need to be honest with themselves. They need to do more than just say the right thing -- they must to have the trust in themselves necessary to take decisive action. They need to muster the courage and resolve for radical change. Implementation begins on a small scale at the municipal administrative level.
This year, the city of Portland, Oregon, wants to impose a 10-percent surcharge on the corporate tax if a CEO earns more than 100 times more than a normal worker. If that level exceeds 250 times the salary of average normal employees, an additional levy of 25 percent would be charged. The regulation is a response to the fact that within a period of just five years, the average annual salary of the 200 highest-paid CEOs in the U.S. has doubled and now stands at $19.3 million.
The leadership in Beijing has also shown some imagination. Residents of the city are only able to obtain a license to purchase a car with a combustion engine through a lottery, with chances of winning minimal, at a level of under 5 percent. The calculation is that more people will buy electric cars in the smog-choked city.
Arrangements like that provide an example of how politicians can effect change at the local level. They illustrate a level of courage, imagination and also a bit of radicalness. But the issues addressed at the G-20 summit in Hamburg will be even bigger -- it will be about the issues humanity faces and the world's problems.
It will be about fair taxation, given that international agreements are necessary to standardize minimum tax rates, to eliminate tax havens and to prevent corporations from funneling their money to these havens in perfectly legal ways to avoid paying taxes, thus circumventing the contribution they should be making to the common good. It's hoped that the so-called BEPS Project can be used to make life more difficult for the kind of tax avoidance schemes used by well-known tricksters like Amazon or Starbucks. But the treaty still needs to be ratified and it is not believed that it has support from the U.S. at this time.
Another priority is to prohibit the acquisition of raw materials of dubious origin. The U.S. used to be a leader in this push -- at least until Donald Trump repealed the relevant passage from the Dodd-Frank Act this year. Until that move, publicly traded corporations had been required to disclose whether their products contained conflict minerals sourced from the Democratic Republic of Congo, including coltan, tin, gold and tungsten. Rebel groups finance their torture and rape through sales of the minerals. The European Union has a similar regulation in place, but it doesn't cover cobalt -- and over 50 percent of the world's supply of cobalt comes from Congo.
Very clearly, another pressing issue at the summit will be climate protection -- namely that of creating a price that is applied globally for the right to pollute the atmosphere with CO2. Europe's own system of trading CO2 certificates hasn't been successful, with a ton of emissions now costing only five euros, a sum far too low to actually have a significant deterrent effect. Economist Stern believes that figure will have to go up to at least $40 to $80 for it to have any effect.
A more consistent and effective way of protecting the climate would be to issue similar certificates to individuals. Climate researchers believe the acceptable figure would be 2 tons of CO2 emissions per person per year. That would force the U.S. to massively limit its emissions. Currently, the average American emits 16.1 tons of CO2 per year, compared to 9.5 tons emitted by the average German. Brazilians, on the other hand, are only slightly over that limit. At the G-8 summit 10 years ago in Heiligendamm, Germany, that system found a prominent advocate in Chancellor Merkel, who expressed her support for it at the time.
Those would be the perfect issues for the Hamburg summit. But it's difficult to imagine they will be discussed seriously when democrats meet with autocrats this week and those seeking climate protection meet with leaders who doubt climate change even exists and when those supporting human rights meet with oppressors. Never before have expectations been so low for a summit. The evening before the summit, the Sherpas will meet until late in the night and hone every last sentence of the G-20 closing statement. This time, some are even questioning whether there will even be a closing statement. I have to admit, Columbia University economics professor Jeffrey Sachs recently told a panel, "I just become more and more nervous."
Sachs is something of a popstar among global economists. During the early 1990s, he advised the new governments in Eastern Europe and later he devised a plan for eliminating poverty around the world. Now 62, he has gray hair, but he still exudes an almost Kennedy-like charisma. The speech he gave at the T-20 summit was a brilliant appeal -- angry, almost despairing, but also passionate. "We are living in a quite dangerous world right now," he said near the beginning of his speech. "Our institutions are not working, and our governments are not working, mine first and foremost." The United States, he said, is "in a massive political crisis -- the likes of which we have not seen, perhaps since the Civil War -- and I do not think I am speaking hyperbolically." The president, he said, is "incapable of this job," and "behind him is a broken political system."
Then Sachs turned to what he described as the other "prima donnas," who are betraying the interests of their people by ignoring existential problems like species loss, the flooding of coastal areas and hunger in the world. How can we prevent, Sachs asked the audience, 5.9 million children under the age of five from dying this year? If questions like that aren't addressed at the G-20 summit in Hamburg, he demanded, then where else can they be?
If the G-20 leaders won't listen, he continued, then voters will "bring in the next ones, honestly, because this is too important to be left to 20 people. This is for 7.5 billion people and their children and their grandchildren."
- Part 1: Only Radical Thinking and Action Can Tame Globalization
- Part 2: 'This Is Too Important To Be Left to 20 People'