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From: Bob Olsen <bobolsen@arcos.org>
Newsgroups: misc.activism.progressive
Subject: MAI Alternatives
Followup-To: alt.activism.d
Date: 13 Jan 1998 01:15:12 GMT
Originator: rich@pencil.math.missouri.edu

From: lerner@watserv1.uwaterloo.ca (S. Lerner)
Subject: FW/fw-l Proposed alternative to the MAI from Ward Morehouse - for comment

THE OTHER ECONOMIC SUMMIT
777 United Nations Plaza, Suite 3C
New York, New York 10017
Tel. (212) 972-9877   -   Fax (212) 972-9878
e-mail: cipany@igc.apc.org

January 7, 1998
(Dictated December 27, 1997)

TO:              TOES Listserve
FROM:           Ward Morehouse


When I was in London in mid-December on my way back from India, I spent a day with Colin Hines (Co-Author of, among other works, The New Protectionism) trying to formulate alternatives to the Multilateral Agreement on Investment (MAI). Enclosed is the result of that effort. Colin and I see it as the beginning of a process of debate and exchange, certainly not as anything remotely like a "finished product". Hence, critical feedback is particularly welcome.

WM/td

Alternatives To The MAI:

First Thoughts From Ward Morehouse & Colin Hines

Background

The anti-MAI campaigns have published excellent papers on why the MAI should be opposed, but less attention has been paid to what alternative set of rules, for what end goal should replace the MAI as the subject for international and intergovernmental debate. We have therefore tried to pull together what we have found, plus some ideas of our own, to attempt to start a debate about what alternative we might as a movement choose to consider. Once we are within sight of beating the MAI, then we will almost certainly be asked for our ideas on this matter.

Finally, if we have missed doubtless the one thorough document which does just this, then our apologies and please send it or e-mail. it to us. Otherwise please send any comments or additions you might have which we will incorporate and circulate. We hope you find this useful:

Overarching International Concept: The Alternative Investment Code
(Suggestions For Sexier Title Welcome!)

The intention of such a code is NOT to ensure the unimpeded international flow of capital and investment, but to have as its basic aim the regrounding of capital locally to fund the diversification of local, sustainable economies which have at their core the right to livelihood. The right to livelihood is a key human rights goal in this alternative investment code. Other rights such as private property rights are contingent on fulfilment of this most basic human right.

Tony Clarke and Maude Barlow in their groundbreaking book MAI and the Threat to Canadian Sovereignty pointed out that: ...the UN Charter of Economic Rights and Duties of States provided quite a different framework for establishing a set of global investment rules. It was based on the assumption that nation-states acting on behalf of all their citizens and the public at large, had the political sovereignty to regulate foreign investment. The Charter granted member nations the authority to supervise the operations of transnational corporations in their territories by establishing performance requirements.

These performance requirements were to be based on the national development needs of the people of each country. While nation states were also granted the powers to nationalize, expropriate or transfer ownership of foreign property, the charter called for the payment of fair compensation for expropriation.

Although changes in the global economy over the past twenty years or so would require that modifications be made, the UN Charter on the Economic Rights and Duties of States contains many of the elements for modern, alternative approach to global investment rules.

Bearing this in mind a fundamental rethink of the MAI could result in an agreement along the lines of this:

Alternative Investment Code; Key Provisions

Purpose : The Alternative Investment Code (AIC) seeks to strengthen democratic control of capital and stimulate investments that benefit local communities.

National Treatment : Investments that increase local employment with decent wages, enhance protection of the environment and otherwise improve the quality of life in communities and regions within states which are parties to the AIC are encouraged. States are urged to give favourable treatment to domestic investors who further these goals and are prohibited from treating foreign investors as favourably as domestic investors.

Most Favoured Nation Status : Provided it is not at the expense of domestic investors, states shall give preferential treatment to investors from other states which respect human rights, treat workers fairly, and protect the environment.

Performance Requirements : States may impose requirements on investors which further the goals of this code such as the following:

  1. to achieve a given level or percentage of domestic content, whilst at the same times ensuring that monopolies do not develop;

  2. to give preference to goods produced locally;

  3. to stipulate a minimum level of local equity participation;

  4. to hire a given level of local personnel and respect labour and environmental standards;

  5. to protect enterprises which serve community needs from unfair foreign competition;

Standstill And Rollback : No state party to the AIC can pass laws or adopt regulations that diminish local control of capital or that divert investors from giving priority to meeting local needs.

Existing laws and regulations that give preferential treatment to foreign investors or encourage absentee ownership of community-based enterprises must be rolled back over the next decade.

Dispute Resolution : Citizen groups and community institutions are given standing to sue investors for violations of this investment code. All judicial and quasi-judicial procedures such as arbitration shall be fully transparent and open to public observation.

Investment Protection : Workers and communities play a vital role in the creation of corporate assets, and that role must be recognised and protected. Thus, expropriation of such assets to serve vital community needs is permitted and must take into account the interest of workers and communities in those assets. Similarly, restrictions may be placed on excessive repatriation of profits by foreign investors, and capital may not be transferred without indemnification of worker and community interest in such capital. Central to this new set of controls on investments will be the establishment of policies for the effective community and national control of capital.

Controlling Capital-Hands On Rather Than Hands Off

What is required is the investment of the majority of funds in the locality where they are generated and/or needed, i.e. an 'invest here to prosper here' policy. Democratic control over capital must be seen as the key to providing the money for governments and communities to improve environmental and social conditions and job opportunities.

The fear is that any one country, on its own, would immediately be punished by the markets for even considering such an approach. However, a regional grouping of states such as in the European Union or North America would be a powerful, secure and lucrative enough market to ensure that those that control money flows would not dare exit from the safety of such a bloc.

These policies must also incorporate an internationalist approach to make certain that they do not merely benefit the rich countries at the expense of the poor. Tax penalties will exist for foreign investment which does not directly help the Third World or Eastern Europe to protect and rediversify their own sustainable local economies. Aid and trade rules must be changed to ensure a similar outcome and the transfer of sustainable technologies must become the centre piece of new aid regimes.

What is required on an economic bloc-wide scale is a check on the destructive power of speculators through the introduction of a Tobin Tax which taxes domestic and global foreign exchange speculation. A purchase tax on stocks, bonds, derivatives etc. would be introduced. The present easy credit that allows speculators to multiply the size of their bets way beyond the cash required to cover them, should be replaced by an insistence that those buying must put up 100% of the purchase price. Governments also need to reassert control over fiscal policies (i.e. tax and public expenditure) by re-regulating finance and banking and reintroducing exchange controls. Central banks should lower interest rates to achieve a new end goal of generating large numbers of new jobs by investing locally.

Once the threat of capital flight has been substantially lessened the taxation system can be changed progressively to serve the needs of the community in general. Higher taxation of capital gains, green taxes, progressive taxes on income and lower taxes on labour all have a place in this transformation. Strict and transparent accounting rules would enable the phasing out of 'corporate welfare' for the undeserving rich.. Payback periods need to be lengthened using penal short-term capital gains tax for shareholders who take early profits, but tapering to near zero for longer-term shareholders. At the end of perhaps 20 years however the shareholder interest would revert to the workers and communities which have played a critical role in generating company profits. Such regulation of investment to impose some obligations towards affected communities is key.

Also vital is a bloc-wide Beat a Cheat campaign cracking down on corporate tax evasion. This would require public disclosure of corporate finances, especially global taxes paid or avoided and closing national and global tax loopholes. It would also penalise and eventually eliminate tax havens. Intra-corporate financial transfers, at present used to avoid paying national taxes (e.g. transfer pricing), would also be monitored and punitively taxed. After due warning to allow diversification of the economies concerned, offshore banking centres should be closed down by prohibiting domestic banking systems from honouring the transfers of offshore capital. This would prevent capital evading banking and securities laws and national taxes.

To keep capital local the influence of local banks on central bank policies must be strengthened to reinforce the significance of the local banking structure. This would encourage the rebuilding of local economies via smaller locally based banks, credit unions, LETS schemes etc. Insurance, pension, building society and endowment funds should be encouraged via legislative measures and tax breaks to invest in the local. And those who contribute to such funding must in law become more genuine owners by achieving greater control over their own savings and deferred wages.

The Present Global Economic Instability Comes To Our Aid

Since the end goal of such an Alternative Investment Code is the exact opposite of the MAIs raison d=EAtre and the neoliberal model, justification for its plausibility is vital. This will be helped by referring to the present Asian crisis and how the deflationary policies that the IMF will enforce in that area will not only reduce demand there, but also in the rest of the world by reducing export markets and undercutting the products of other areas via Asias competitive currency devaluation. Similar deflationary policies are occurring in Europe as it prepares for it own structural adjustment policy of the Single Currency. In short, the global system can still produce countless products and services, the problem (which Business Week in a Special Report on November 10th termed The Threat of Deflation) will be lack of adequate consumer demand. The MAI with its emphasis on less protection for local industries and services, and the orgy of global mergers and job losses likely to result, will only make matters worse.

WARD MOREHOUSE AND COLIN HINES, December 1997.

Essential reading:

Other references:

Other methods for enhancing community self management Shann Turnbull, in Building Sustainable Communities edited by Ward Morehouse, the Bootstrap Press, John Carpenter Publishing, US and UK, 1997

Background Reading:

Bob Olsen adds: The last book on the list, by David Korten, is great!

Bob Olsen           Toronto           bobolsen@arcos.org   (:-)




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