 |
| With the help of UNHCR and its partner agencies, many refugees are able to secure loans to start small businesses. This woman raises pigs to generate income. UNHCR photo/L. Taylor |
Discussion on the interaction between market economy and democracy and the influence one has on the other has permeated different international meetings. It is indeed an extensive subject that includes relations between good governance, corporate governance and the process of a fairer globalization. And within such discussion, the role that Governments, corporations, international organizations and civil society have to play should be considered.
Although there is no proven correlation between democracy and market economy, many development economists believe that transparency, accountability and participation in political decision-making will have a direct effect on the level of market fairness. Transparent and participatory decision-making also makes a positive contribution to a country’s investment climate.
According to the Executive Opinion Survey carried out with multinational companies in the 2004 World Economic Forum, the governance cluster, which includes corruption and bureaucracy, was considered one of the top three most binding constraints for investment. Nevertheless, it is important to keep in mind that economic growth is not necessarily linked to raising people’s living standards. According to Daniel Kaufmann, Director of Global Governance at the World Bank, institutional and economic reforms have to come hand in hand with participatory approaches.
Good governance may play a role in the investment decisions of companies, but the availability of strategic natural resources like oil is more important to them. Still a transparent, participatory and accountable polity can be a further advantage. The private sector represents a powerful driving force behind good governance if it takes corporate governance seriously. This concept gained momentum as the global economy became increasingly market-based, rather than centralized as it was during the cold war, and interdependent with corporations as its organizers and investors saw a link between sound corporate governance and lowered investment risk. Moreover, the Asian crisis at the end of the 1990s, which spread to many countries worldwide, highlighted the need to strengthen governance reform in the global financial architecture. Even so, such discussion has been framed within legal boundaries, posing a challenge in defining what practices are bad.
The problem of corruption, for instance, lies in a grey area. According to Mr. Kaufmann, this is because discussion is focused on illegal forms of corruption in the public sector. In the World Bank’s Global Competitiveness Report 2004/2005, he warns that “the reality of corruption is twofold: first, it most often involves collusion between at least two parties, typically from the public and private sectors, for a corrupt act to take place; and second, where the rules of the game, laws and institutions have been shaped, at least in part to benefit certain vested interests, some forms of corruption may be legal in some countries”. The same study shows that corporations headquartered in developing countries, often characterized by a good governance environment, tend to engage in illegal forms of corruption such as bribery at some of their branches. It is then possible to observe that the domestic institutional context of the host country influences the level of corporate governance. Moreover, such practices may create a vicious circle, hampering the level of country governance.
As in the case of corporate governance, the mechanisms of globalization are also central to the discussion of good governance. Amartya Sen, Lamont University Professor at Harvard University and 1998 Nobel Laureate in Economics, has constantly reminded the world that although there is no need of dispensing the market economy, globalization on market alone is not enough. Indeed, markets do not listen to the requirements of the poor. There is the need to have a shift towards making it more transparent and accountable as well as inclusive. Modifications could address global policies, including economic and social conditions, such as assessment of adequacy of global institutional arrangements, trade agreements, technological dissemination and distribution of natural resources, and fair treatment of accumulated debt. International organizations have an immense role to play.
During a presentation of the preliminary recommendations put forward by the Millennium Project for the implementation of the United Nations Millennium Development Goals, American economist Jeffrey Sachs, who directs the initiative, warned that although some developing countries “have passed the test” of good governance, international assistance was falling short. He stressed that aid should be calculated on what was needed in the developing countries rather than what was available from donor countries, adding that the problem lay not only on trade barriers but on a lack of basic infrastructure in poor countries, which decreased their competitiveness. As suggested by Mr. Sen, an increased focus on micro-credit and education could help to address such shortcomings.
Microcredit and micro-finance arrangements have been recognized by the international community as an effective way of taking many people out of the poverty strata. But it is worth keeping in mind that both work best only in certain situations and should therefore be seen as part of a strategy and not as the whole solution. Their impact can be measured in various dimensions, such as improved income, local infrastructure, employment and household expenditure, and reduced vulnerability to economic and social crises. Moreover, microcredit and microfinance serve as confidence-building measures and present exciting opportunities for women often forgotten in many societies.
According to the UN Secretary-General’s report to the General Assembly of September 2004, women’s savings through micro-finance often build significant economic power that can change attitudes and practices. It also contributes to creating or reviving the economy at the community level, moving from subsistence to market-based. Finally, it is believed that microcredit and micro-finance promote increased expenditures in education, enhancing human capital, thus also impacting on countries’ productivity and effectiveness levels. This is an important dimension that contributes not only to the investment climate of a country but also to the formation of a responsible civil society. Indeed, according to Mr. Sen and James D. Wolfensohn, President of the World Bank, public debates and discussions can play a major part in the formation of values. Mr. Sen commented that “in this sense, the openness associated with democracy is part of the solution of the problems of value failures that hinder the effectiveness of markets”, stressing that it was as important to see relations between nations as between citizens.
Inequality in the world is not only a question of global governance but also about public discussion, and that is where civil society comes in. It can increasingly push participation forward and increase pressure on Governments to make decision-making processes more accountable and transparent. |
Print