Fighting Corruption For a Sustainable Future

H.R.H. Prince El Hassan Bin Talal, 13th IACC, Plenary Thematic Discussion, Sustainability

HRH Prince El Hassan bin Talal

Transparency International

Global Transparency: Fighting Corruption For a Sustainable Future

2 November 2008

Transparency, Interest Rates & The Adjustment of the Global Monetary System

I want to start my remarks today by quoting an intellectual giant of our time who celebrated his 81st birthday a few weeks ago.  I am speaking of Paul Volcker.   He said that we are facing a serious problem restoring trust and confidence while in a serious recession.  I agree with him that the global financial downturn is not comparable with the great depression. Robert Zoellick of the World Bank has mentioned the ‘r’ word – reconstruction – an international bank for reconstruction.  I would add to reconstruction, reconciliation and religion for those of you who are interested in an ethical approach to some of the problems we are facing today.  I think it is important to bear in mind that in mobilizing for change, and I quote Paul Volcker, “The recitation of particular market vulnerabilities, of supervisory lapses, of failures to close gaps or end disagreements among regulators is not surprising… The drumbeat of lobbying pressure has not been for more effective supervision…”[1].  As a member of the ECOSOC kitchen cabinet, I have called for the division of ECOSOC into an economic and a social council[2].   I think that activities relating to social equity – and I am a member of the international commission of the Legal Empowerment of the Poor – has not, unfortunately, been moving to the drumbeat of economic achievement or development.   In speaking of my own part of the world, I would like to refer to a recent McKinsey Report[3] and my address to the Global Compact Summit in July 2007. The Global Compact, to my continuing surprise, includes governments and the private sector but does not, other than on the fringes, address the theme of bringing governments and the private sector together with civil society in the context of an overarching thematic mission for redirecting multilateralism.  That is the theme I want to address.

What worries me especially about McKinsey's positive economic outlook for the MENASA region is that we are currently seeing a sharp slowdown in the Persian Gulf economies reverberating in the Middle East.  I note that the UAE recently injected $30 billion into its banking system in guaranteed bank deposits – and similar  injections of finance continue in every Gulf country.  Meanwhile, Prime Ministers from Gordon Brown to other Western Prime Ministers, have been visiting the Gulf countries hoping to raise monies to finance the global economic adjustment from the region's Sovereign Wealth Funds. What is interesting to note in the MENASA Report by McKinsey is that there is absolutely no reference to key elements of what you would consider geographically to be the Middle East, North Africa and South Asia.  That is to say, the nations of Israel, the PalestinianTerritories, Bangladesh, Sri Lanka, Yemen, Syria, Sudan, Iranand Iraq, which are geographically part of the MENASA region, are not included in the McKinsey analysis. So presumably MENASA to McKinsey only means those that are regarded as serious countries by the Heritage Foundation freedom rankings.  Unfortunately, my politics and those of the Heritage Foundation do not necessarily coincide on a scale of ten.

The time has come to recognize the basis of our problem. Different perspectives would be acceptable in a democratic context, but the basis of our problem is, in my humble opinion, that we face four simultaneous macroeconomic shocks all relating to human dignity deficits:

·        The International Energy Agency estimates that the energy sector needs $22,000 billion over the next two decades to meet the rising demand for energy

·        The Stern Review says that we must spend $14,000 billion over the next twenty years to cut carbon emissions

·        Thousands of analysts claim that we need an immediate capitalization of the global banking system on the order of $1000 billion, and probably far more during the next two decades

·        The United Nations indicates that the Millennium Development Goals require $1100 billion in promised foreign aid and another $1100 billion in newly generated funds to end poverty and related problems over the next seven years, and then much more after 2015

Presumably all of this is going to come from the milch cow of our traditional sources of funds.  We, the people of the region, live in the hinterland of oil, so when you speak about the Extractive Industries Transparency Initiative, what is important to me is not only the pipelines, but the people living in the neighbourhood of the pipelines.  Presumably, all the recent political fuss about Darfuris not only related to poverty.  I was working with lepers in Darfur in 1986 when nobody had heard of Darfur.  I assume that this new attention to Darfuris also related to the fact that when we are all vaporized by a nuclear confrontation in the region, thanks to this marvellous pipeline, oil will still flow from the Horn of Africa to the Atlantic coast.

The world is greatly in need of new revenue streams to fund our massive deficits. None of this financing will be possible without a major global macroeconomic adjustment which includes an intra-regional conversation – intra-regional, ladies and gentlemen.  Our region has an Arab League and an Organisation of Islamic Conferences which meet once a year, if that, to discuss everything and nothing.  We have a UN Economic and Social Commission for Western Asia which is somewhere between Beirut and Vienna when it isn’t being bombed, and apart from that I don’t think my region really has any quarterly meetings at all.  If we fail to take on this  macro-economic adjustment on the basis of intra-regional governance – that is to say we end the season of Dumbarton Knox and Bretton Woods and begin a new season for ministers to meet and greet in Washington and New York and also encourage them to meet in the Middle East region – then presumably, we will start to generate authentic policies.  But the bright side is that this crisis provides the world with an opportunity to redefine the relationships between energy, the environment, monetary policy and poverty and maybe to undertake a total recalibration of our system.

The degree to which energy is related to monetary values is seldom realized.  Because oil is priced primarily in dollars across the world and has more direct influence on the value of currency than any other factor, the US dollar is fundamentally linked to global crude oil as its de facto reserve base.  This has broad implications.  Many people are now acknowledging the need to internalize the external costs of environmental degradation and climate change into the market system by setting a real price on carbon emissions.  The idea is that as consumers and businesses are forced to adjust their practices and lifestyles by reducing their oil consumption, and businesses find that investing in efficiency or alternative energy is cost-effective, they will absorb most of the new environmental costs through higher prices.

William Polk wrote a splendid article[4] the other day suggesting that as the English were once called a nation of shopkeepers, we have all become shopkeepers but jointly in terms of our consumption patterns.    I would like to add to that, as a promoter of DESERTEC[5], a project for solar energy from the Gulf across North Africa to Europe, it is almost impossible to talk about greening that part of the world, which would mean, for example, a solar energy power plant on the Egyptian side of the Gaza Strip.  You can mend a solar panel, but you can’t mend a hydro-carbon station.  In connection with the question of greening, I would like to mention that Juan Somovia of the International Labour Organization recently wrote to the G8 calling for the creation of green jobs in the region.

Let's say we begin today to decarbonize the global economy and increase the price of carbon-based energy by curbing our appetite for oil, developing alternative fuels and achieving energy efficiency through technological advances.  Even if every person and every business in the world were to adopt clean and renewable sources of energy right at this moment, petroleum will remain the most important ingredient of economic growth and the profit and wage incentives in these ‘green’ businesses will still be denominated in dollar values linked directly to oil.   So there are two lobbies working directly against the greening solution.

The ‘triple bottom line’ strategy made popular by a growing coalition of environmentalists, politicians and business leaders (simplified by the slogan, ‘people, profit, planet’) proposes that tackling our social, ecological and energy problems will create a massive stimulus for business and jobs.  While this formula gives primacy to the economic signals of the marketplace, it largely ignores the independent monetary driver of energy reserves, currency values and interest rates.

We have to face the fact that a money system based on debt and issued at compound interest requires a level of exponential economic growth that tests the physical limits of its resource reserve – which in our present system is fossil fuels.  Any major shift by governments to price carbon emissions in market terms will result in a dramatic increase in oil prices, creating widespread inflation, a significant increase in interest rates, large fluctuations of exchange rates, upheavals in global capital markets, disruptions in access to credit, and major monetary disorder – not to mention the stimulation of the parallel grey economies which we have in our countries anyway and, for that matter, the continued financing of extremists, who, through our inability to reach out to people, are filling the vacuum.

What I'm saying is that greening all of the world’s businesses through the economic signals of the marketplace will not change the energy base of civilization from fossil fuel to solar or other renewable energies as long as the reserve standard of the dominant global currency remains tied to fossil fuels.

Ultimately, the external costs of global poverty, climate change and geopolitical security must be adjusted not only through global market prices and alternative sources of finance (such as global commons transaction taxes and an expansion of the Special Drawing Rights of the IMF), but also through an adjustment of the world reserve currency system.  Ultimately, global currency value should be determined by the priority and sustainability of global energy resources as monetary reserves – not by their price in the marketplace based on economic productivity and growth.   May I also suggest to you that the question is basically, when we look at oil, are we interested in protecting oil in situ?  Are we interested in protecting the hinterland?  Are we interested in protecting the strategic waterways and the commons?  In that regard if we are going to talk about the protection of oil, are we interested in the displaced persons, internally displaced persons, stateless persons, refugees, and the mass migration of people that has caused a real upheaval in our part of the world?  If that is our interest, when are we going to create a cohesion fund, as Paul Volcker has suggested, for asymmetric empowerment of the poor?  If we are interested in cultural solutions, I am happy to say that the Sheikh of the Azhar has issued a fatwa, a legal injunction, calling for a percentage of the profits of oil (rakaz) to be spent on the empowerment of the poor (zakat).  That would certainly change the nature of the war on terror to a struggle for human dignity.  I think we have done enough fighting against this and that.  Walter Sisulu from one hemisphere and Yehudi Menuhin from another, both asked why don’t we work for something.   You have the opportunity on 15 November to make your voices heard at the Summit Meeting of Finance Ministers in Washington, DC, and I hope Joseph Stiglitz will help edit the input of 600 NGOs in response to that conference.  But even Joseph Stiglitz is not a miracle worker.

To face our problems head-on, we must all realize the extent to which we are borrowing from the natural world without paying it back.  When we don't take steps to replenish our resources, we ignore nature's vital role in producing the food, the water, the oil, gas and minerals, the fibers in our clothing, the materials of our houses and the medicines for our health that are so essential to our lives.

We are all constrained – consciously or not – by our expected rates of economic growth and the degree to which the interest rate benefits us or not.  This crooked way of thinking not only yields reckless competition and greed; it also generates our widening social disparities and the oft-forgotten human dignity deficit, in which some persons are deemed more valuable than others, leading to extremism and hatred.  Ladies and gentlemen, in all honesty, how can we worry about our anticipated earnings when the very system that supports us is under assault from climate change, resource degradation and mass poverty?

The commons – our environmental, social, cultural, genetic and intellectual resources – is the stock from which all wealth grows.  If we extract resources at a rate beyond the level of replenishment, our commons will collapse.  It's really that simple.  The macroeconomic realignment we need to make is to stop following the interest rate and start tracking the resource replenishment rate.

We have a responsibility as world citizens to oversee this adjustment of our monetary system.  It requires a Global Social Charter – a legal covenant for the just distribution of resources and human security.  As part of this Global Social Charter, we call for the creation of three new agencies:

·        A Global Water, Energy and Clean Air Authority to ensure the availability of sufficient and affordable flows of water and energy and to curb carbon emissions

·        A Global Monetary Council to oversee capital markets through public consent, generating capital formation with the goal of economic growth and development rather than trading for its own sake

·        A Global Transparency Agency that generates fees from the sale of the rights to commons resources and ensures that they are spent for the common good

The lesson we are learning from the financial crisis is that we cannot borrow ourselves into wealth. Forget money and forget the rules; but ask yourself, how do our resources best serve our people to improve their quality of life and enhance their personal dignity?  That is the only way we are going to have the perspective needed to make the great adjustment from energy dependence to energy intra-dependence, from a fossil fuel civilization to a solar energy civilization, from a deficit-based economy to an asset-based system yielding new forms of natural and social equity, and from a world of poverty to a world of prosperity and peace.  To me, this is the true meaning of transparency and human security.

[1]Remarks by Paul A. Volcker at a luncheon of the Economic Club of New York, New York, 8 April, 2008

[2]The United Nations Millennium Development Goals as Global Common Goods, HRH Prince El Hassan bin Talal, United Nations Millennium Development Goals Awards, United Nations, September 12, 2008.

[3]Perspective on the Middle East, North Africa and South Asia (MENASA) region, McKinsey & Company, July 2008

[4]Talk at BenningtonCollege, William R. Polk, 15 September, 2008.


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