« « One model can hide another » », or the evasive strategy of the United States via Carnegie Foundation I. Peter Mandelson is pitching the recommendations of the Carnegie foundation…
Peter Mandelson gave a speech in Brussels on the 21st of March before the European Commission entitled “Sustainable trade: observations on trade and protectionism »
The purpose of his talk was to examine how to achieve “sustainability” of trade policies, not only for our generation but for those to come.
He has defined seven conditions :
1 There is no simple textbook answer for the problems of trade policy. Each situation depends on different circumstances. 2 There is no automatic rule according to which the liberalization of international exchanges will lead to greater economic growth. 3 The history of protectionist policies suggests that such policies are a dead end because any short term advantage leads to the erosion of economic strength. 4 Autarkic strategies are even worse than protectionist policies when it comes to leading countries toward economic progress. 5 Through progressive liberalization, trade promotes economic development by combining opportunities through low customs barriers, better world governance, more clearly defined property rights, a more stable legal system and modern infrastructures. 6 We have to accept changes in the production and consumption structures of a global economy and not take on a defensive and passive approach. 7 We must promote multilateralism beyond the liberalization of markets (i.e. we must promote international cooperation on trade, the environment and social issues...) Moreover, Peter Mandelson refuses to consider the liberalization initiated within the framework of the Doha round as a panacea for development and he is highly critical of the studies produced by the World Bank that assert such ideas.
« …the bulk of the benefits of agricultural liberalization are limited to developed countries and a core group of highly competitive farm exporters - especially Brazil, Argentina and South Africa.». To support this assertion he referred to the study of the Carnegie Endowment for International Peace published in February 2005, which is a reference not only for Peter Mandelson but also Rob Portman, the U.S. Trade Representative :
› This study converges with the observations of WOAgri (the existing international agricultural models are flawed) and some of the answers we propose (the creation of a new model, which the Carnegie Institute has done),
› It promotes the “Carnegie model” that was used for the economic simulations carried out at the meeting in London on the 10th and 11th of March 2006,
› But it paints a partial picture of agricultural realities through the use of this model, a model which is an improvement on the others but which remains imperfect.
› It tends to demonstrate that only total liberalization of trade will solve the problem of the LDCs. II.…which is being used to promote the generalized liberalization of trade without any regulations A. The CEIP: an influential organization that criticizes the World Bank...
The CEIP is a private American foundation the purpose of which is to improve cooperation between nations and promote an active international commitment of the United States. Founded in 1910, it is not affiliated a priori to any political party.
It has, through its partners (Cf. Appendix) a great deal of “clout” in all international spheres of influence. The organization has a liberal orientation, cleverly manipulating environmental, social and educational themes, and is an ardent defender of American interests abroad. The critiques put forward by the CEIP concerning the negotiations of the Doha round can be grouped under four principal headings :2
1According to the CEIP, there is an important contradiction between what the negotiators believe liberalization could do for the LDCs and what it will really accomplish. Thus, contrary to the studies of the World Bank according to which the liberalization of agricultural exchanges would above all benefit the LDCs, the CEIP asserts that the proposals put forward so far (at the outcome of the Hong Kong summit) would widen the gap between the rich and poor countries.
However, the CEIP does not consider that the liberalization of exchanges is a bad thing, on the contrary. It promotes the total liberalization of international exchanges because it believes that partial liberalization would produce perverse and harmful effects for the LDCs.
2The CEIP considers that the benefits induced by liberalization would be lower (by at least half) than the estimates of the Bush administration and the World Bank in 2001. 3They believe that the hypotheses used by the international agricultural models to model the work force are totally unrealistic.
Indeed, these models consider that the economy is always in a state of full employment. By ruling out any possibility of unemployment they cannot study the effect of liberalization on poverty.
And they do not make any distinction between urban and rural unskilled labor whereas for the LDCs the bulk of family income concerns unskilled agricultural workers. Thus, the impact of the liberalization of agricultural exchanges on the demand of a LDC will profoundly affect a large number of families and therefore the global health of the economy.
4The international agricultural models do not take into account the costs linked to the abolition of preferential agreements for the LDCs. B. …in order to promote its own model which is more attractive but just as inappropriate as the World Bank model
1. Conclusions The Carnegie model is a model of calculable general equilibrium that covers 13 regions and three economic sectors: agriculture, manufacturing and services.
It is based on recent hypotheses in that it includes the results of the Hong Kong summit negotiations that took place December 2005.
The innovation of the Carnegie model compared to current international agricultural models is a better modeling of the labor force3 by :
› considering that the economy does not always experience full employment (and in fact never does) ;
› distinguishing between urban and rural unskilled labor, because for the LDCs, the bulk of family revenues concern unskilled agricultural workers. Taking these two factors into account is essential. Indeed, because the international agricultural models consider that the economy is always experiencing full employment any increase in exports is translated by an increase in salaries because everyone has a job.
When we take into account the existence of unemployment in a given region, this beneficial effect is no longer guaranteed and we can observe :
› no increase in salaries but the creation of jobs, and not always because there are many constraints,
› and the creation of jobs is more likely to occur in manufacturing than in agriculture (the Chinese economy is one of the most striking examples) Apart from this specific difference in the Carnegie model, no other adaptation has been made in relation to the World Bank model, which means any conclusions resulting from this model must be formulated with extreme moderation. Indeed, this model leads to three main conclusions :
a. Total liberalization of international exchanges would benefit all the countries of the world: there would be no losers. b. The LDCs would benefit more from the liberalization of industrial products than the liberalization of agricultural products.
c. An increase in the export of manufactured goods would be the only source of net gains that the LDCs could get out of the Doha round. Liberalizing the agricultural sector alone can therefore cause an increase in poverty in the LDCs. This is why the authors are in favor of total liberalization of all markets, agriculture as well as industry and services, so that the LDCs can benefit the most from a liberalization of exchanges. 2. Limits a. A model run by the Americans This model is financed by a multitude of American foundations as well as private companies who have everything to gain from total liberalization of international exchanges (Ford, Boeing, Citigroup, but also Yukos, Warburg…). At a time when the negotiations are “at a standstill” and when the simulations of the principal model used up until now to justify the liberalization of exchanges are more and more criticized (World Bank), this model is a new strategic weapon that is more difficult to attack and serves the interests of America and its allies.
Indeed, it justifies the dismantling of customs barriers and demonstrates that the liberalization of the agricultural sector (the stumbling block in the current negotiations) is only a part of the whole. This strategy consists in “skirting” the obstacle by raising the stakes. According to Rob Portman, U.S. Trade Representative, "The scenarios presented are consistent with a view that underlies the U.S. negotiating approach in the Doha Development Round – economic gains grow as the degree of trade liberalization increases. This is why the United States has been a primary force pushing for a maximum degree of market opening in these negotiations. ».(R. Portman, 15th March 2006)
b. A static model The Carnegie model is based on a static approach rather than a dynamic approach. Therefore it does not include the effects of economic growth due to the liberalization of exchanges on future generations by taking into account the importance of education and training (human capital) and the objective of putting an end to poverty.
And it ignores the effects of the liberalization of exchanges on services. c. A model that once again oversimplifies the realities of agriculture Finally, like all the other international agricultural models, it is based on a totally idealized vision of agricultural realities by resituating agriculture within a framework of pure and perfect competition. In the same way it supposes that the demand for agricultural products is totally elastic in relation to price and neglects the impact of energy and transport costs, phytosanitary regulations and environmental constraints even though they are more and more important.
If the Carnegie model does innovate on one point it is still based on hypotheses that are not realistic and does not take into account fundamental criteria such as innovation, poverty, exchange rates, climatic and market risks, sustainable growth, education and training in the LDCs, energy and transport…all factors that are integrated in the NRA model with a much more reliable and dynamic point of view.
Finally, the recommendations of the Carnegie Foundation have come out “just in time” to redirect the WTO negotiations by creating the illusion that the major preoccupation is development and by trying to push aside the World Bank model which has lost credibility.
Appendices The members of the board of directors of the CEIP James Gaither : President and director general of Sutter Hill Ventures;
Gregory Craig : Vice president, associate of Williams & Connolly
Bill Bradley : Allen & Company
Robert Carswel Shearman & Sterling
Jerome Cohen : Wharton & Garrison
Richard Debs : Morgan Stanley
William Donaldson : Securities and Exchange Commission
Roger Ferguson : Federal Reserve Board
Donald Fites : Retired, Caterpillar, Inc.
William George : Medtronic, Inc.
Richard Giordano : BG Group plc
Jamie Gorelick : Hale & Dorr
Stephen Harlan : Harlan Enterprises LLC
Donald Kennedy : Professor of Environmental Science Emeritus, Stanford University , Institute for International Studies
Robert Legvold : The Harriman Institute, Columbia University
Stephen Lewis, Jr. : President Emeritus, Professor of Economics, Carleton College
William Lewis, Jr. : Investment Banking, Lazard Ltd.
Jessica Mathews : Carnegie Endowment for International Peace
Zanny Minton Beddoes : The Economist
Olara Otunnu : LBL Foundation for Children
William Perry : Professor, Stanford University, Institute for International Studies and Center for International Security and Cooperation
W. Taylor Reveley III : William & Mary School of Law
Shirley Tilghman : Princeton University
The partners and financial backers of the CEIP
The finances of the CEIP come from public and private sources :
AIG (Americain Internationa Group) : World leader in insurance and financial services.
Boeing Company
The Lynde and Harry Bradley Foundation : Foundation for the defense of liberalism and American interests and institutions.
Carnegie Corporation of New York : Its purpose is to promote the advancement and diffusion of knowledge. It has capital estimated 135 million dollars.
Citigroup : International financial services company.
Commission for Environmental Cooperation of North America : International organization created by Canada, Mexico and the United States, and mandated to study environmental problems on the scale of the North American continent, to contribute to the prevention of commercial and environmental disputes and to promote the efficient application of environmental laws.
The Compton Foundation : It works for peace in the world by trying to eradicate all conditions that are a potential source of conflict. It concentrates on rapid population growth, scarcity of natural resources due to population growth and increased consumption, damage to the environment and absence of Human Rights legislation in most regions of the world.
Department of Foreign Affairs and International Trade (Canada)
The Ford Foundation : Its objective is to create political, economic and social systems that promote peace, the well-being of Mankind and the sovereignty of the environment on which life depends.
General Electric
The German Marshall Fund of the United States : Its objective is to promote a common action between the EU and the United States. Its annual operating budget is 20 million dollars. It is run by Craig Kennedy, a liberal and former director of the liberal foundations of a Chicago billionaire.
The William and Flora Hewlett Foundation : Its objectives are to promote education, the environment, and development. It is totally independent from HP and the HP Foundation. It has 6.7 billion dollars of capital.
Kimsey Foundation : It aims to reduce human suffering but also to support studies that identify the interdependencies on a planetary level of different sectors and the role of the United States as a committed world leader.
The Henry Luce Foundation, Inc : It tries to explore the interdisciplinarity of higher education, to improve the links between Asia and the United States and to study environmental and social programs. It has capital estimated at 700 million dollars.
The LWH Family Foundation
The John D. and Catherine T. MacArthur Foundation : A private and independent foundation that takes part in two principal programs: global security and sustainable growth program and the program for the improvement of human conditions. It has over 5 billion dollars of capital.
The Andrew W. Mellon Foundation : This foundation is mainly involved in demographic and conservation/environmental programs.
Charles Stewart Mott Foundation : Its objective is to work towards a society that is more just, fair and sustainable.
The New-Land Foundation, Inc. : Its mission is to promote knowledge relative to American philanthropy.
Nuclear Threat Initiative
Ploughshares Fund : This is a public foundation that tries to promote peace and security by limiting the proliferation of nuclear weapons as well as the conflicts in which they could be used.
The Prospect Hill Foundation : The primary objective of this foundation is conservation of the environment (ecosystems, clean air …)
Marit and Hans Rausing Charitable Foundation
Smith Richardson Foundation, Inc. : The mission of the foundation is to defend and promote American interests on the international scene.
The Rockefeller Foundation : It tries to improve the condition of poor populations and to promote the modernization of agriculture. It has 3.2 billion dollars of capital.
The Starr Foundation : It is active in many areas (education, medicine, public policies, culture and the environment). It has 3.5 billion dollars in capital.
Warburg Pincus : Private investment firm (Warburg Bank)
Yukos : Russian oil company.
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