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CONTENT Foreword.................................................... 3 Globalisation and its Discontents....... 4 The Economics of the Champagne Glass............................... 6

Trading and Working ACKNOWLEDGMENT

The Trading Game.................................. 7 Good Trade............................................... 10

Lead author/editor: Steven Heywood

Movement of Labour.............................. 12 Designer: Romain Oria

Snakes and Ladders for Workers........ 14 Improving Labour Conditions.............. 16

Comments, edits and corrections: Eirwen Harbottle, Sonya Silva, Rosey Simonds, Nicolo Wojewoda, David Woolcombe

With thanks to: Reilly Dempsey, Maeve Devaraj, Sam Dupre, Lea Keiper, Ravi Theja Muthu, Sonia Preisser

Debt and Finance The Circle of Debt................................. 18

Aid, not Debt........................................... 20 Corruption................................................ 22

A Greener Economy

Microfinance............................................ 24 Currency Speculation............................ 26 Tobin Tax.................................................. 27 A green economy................................... 28 Information and Ressources................. 34

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Glossary..................................................... 35


Introduction by Amory Lovins

Director of the Rocky Mountain Institute and author of Reinventing Fire, Factor Four, Soft Energy Paths and many important innovations in the field of sustainable development. I am delighted to be introducing the Economic section of this important series. Here you will read the basic economic information about human inequality, aid, trade, debt, corruption and globalization – all the stuff you have to know to understand how Planet Earth Inc. operates. I don’t want to repeat all that: rather I want to tell you the good news which is that we can make it! We can, by 2050, double the size of our global economy and run it without oil, without coal, without nuclear energy and a third less natural gas. How? – well: read our book, Reinventing Fire – or at least, check out the Infographic summary at: www.rmi.org/ReinventingFireInfographic. Or watch the video at: http://www.youtube.com/watch?v=lT-g__695Go. Reinventing Fire goes into detail about defossilizing fuels, hyper-light-weight cars, smart, zero-carbon buildings, how we can transform industrial processes, and repower our prosperity with renewably generated electricity. It is the fruit of many years of labour by top engineers, environmental economists and others at the Rocky Mountain Institute. As Amartya Sen and Mahbub al Haq, who coined the term, Sustainable Human Development, wrote: Development is about choices. We have to make a choice: to carry on with business as usual, waiting until oil runs out, then hoping that some brilliant techno-fix will magic out of nowhere to save us. Or we can start that transition now. And there’s no question where the smart money is: a global clean energy race has started and is proceeding at astounding speed. The ability to operate an economy without fossil fuels will define winners and losers in business – and in nations. In my country – the cost of the transition to a clean energy economy will be $5 trillion less than business as usual: and it will create jobs, re-vitalize cities, restore soils and biodiversity. And it will require no Act of Congress, no federal support or new taxes. It will happen simply when business wakes up to the fact that it can make profit from green business and green growth. More profit that it could from Business as usual. Oil and coal have built our civilization, created our wealth and enriched the lives of billions. Yet their rising costs to our security, economy, health and environment now outweigh their benefits. Moreover, that long-awaited energy tipping point - where the alternatives work better than oil and coal and compete purely on cost – is no longer decades away. It is here and now. It is the fulcrum of economic transformation. Whether you care most about profits and jobs, national security, health or environmental stewardship, we can now set our world on a pragmatic course that makes sense and makes money. But it is not enough just to read and learn about this transition that is going to have to happen in the lifetimes of you who are currently passing through our schools and colleges. Rather we all have to act to secure energy without end – a world where energy has turned from worrisome to worry-free, from risky to rewarding, from costly to profitable. The countries and businesses that make this transition first will be the market-leaders in the new economy. Those that delay the transition will lag behind and lose market share. Humanity has only one chance to make this choice: so Choose Well!

Amory Lovins

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The Economics of the Champagne Glass

E

conomics is about trade, about jobs, about money – and the thing that characterises all three of these at the moment is inequality. The inequality of the world can be shown through this wine glass. Most of the wine is stored at the top of the glass, just like 94% of the world’s wealth is controlled by the richest 20% of people. The remaining 80% of the world’s population, which controls just 6% of the wealth, waits at the bottom of the glass for a little of the wealth to spill over the top. Is this fair? This level of inequality doesn’t just apply to the world as a whole though – in which case we could simply say the ‘rich’ countries should give more money to the ‘poor’ countries. Instead, inequality like this can be seen in almost every country of the world. Here are some examples:

20% of Americans control more than 80% of the wealth, with the top 1% alone controlling almost 35% of the wealth .

The richest

UK, the top 10% have a wealth of around £2.2 million each by the time they reach 65, while the bottom 10% have only around £8,000 – a difference of 275 times .

In the

China the top 10% control 45% of the wealth, with the bottom 10% controlling only 1.4% .

In

Bolivia, the top 20% receive just under half the income, with the bottom 20% receiving just 4% . In

In the following pages we look at what’s causing this inequality, and what we can do to reduce it and make things fairer for people all over the world.

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Globalisation

T

oday’s world is very interconnected – in a matter of seconds we can send an email or make a phone call to New York or Beijing, or get all the latest news from South Africa to Argentina on the internet. The process that has brought this about is known as globalisation – all sorts of things, from communications technology to trade to law are being coordinated on a global basis. Whereas our great-grandparents’ lives were lived in their local areas, today our lives can be lived on an international level. It’s this that has led people to say the world is getting smaller, as we all become closer to one another.

This global closeness means that actions and decisions taken in one part of the globe can be closely connected to consequences in other parts. A decision made in a bank in London or Berlin can have devastating impacts on someone living in Manila or Addis Ababa. While the recent decades of globalisation have seen some people become hugely wealthy, this has often been at the expense of others, as the gap between the richest and the poorest increases, giving us the champagne glass model we saw on the previous pages.

But this global closeness means that we also have the ability to help improve conditions for people around the world – perhaps changing the champagne glass of inequality into something more like a mug of equality, where wealth, food, medicine and opportunity are more evenly distributed between and within countries.

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Throughout the rest of the book we look at how our worldwide, globalised economy is currently damaging lives and creating inequality around the world, and the ways in which we can change it to better benefit everyone.


The Trading game

A

large part of the inequality in the world comes from the way we trade. Trade is a very basic human activity, and people have traded with each other since human history began. Trade can also increase human development by increasing people’s incomes, but the current system of world trade is unfairly stacked in favour of the people that are already rich. On these pages we look at some of the problems with trade, and how they affect real people.

Tariffs Tariffs are a type of tax added to products when they are exported from one country to another. For example, if one country wants to sell $10m of cotton in another country, they might have to pay a 5% tariff, meaning a tax of $0.5m. This is done to protect cotton producers in the second country, by making foreign cotton more expensive. However, tariffs are applied very unevenly. Developed countries charge much higher tariffs to developing countries than they do to other rich nations, and they charge much higher tariffs for finished products than for raw materials. This is because raw materials like cotton or rubber are worth much less than finished products like shirts or tyres. These tariffs make it more difficult and expensive for developing countries to create finished products that would make them higher profits, and leaves them stuck producing low-cost raw materials.

Trade in service

Around the world, public services are being privatised – this means that services which were once provided by governments, like education, healthcare and water, are now being sold to private companies, who run them for profit. In developing countries this often means that multinational corporations are taking over these services and raising prices, making them less available to poor people. In Bolivia in 2000, for example, there were riots on the streets of the city of Cochabamba when a group of European and American companies took over the water services and raised the price to $20 a month .The minimum wage in Bolivia at this time was only $70 a month. Foreign companies can in some cases have a positive impact, through improving road or public transport services, or reducing the costs of the services they run, but the UN’s Human Development Report warns that in areas like health and education, countries should make sure their emphasis is on improving the lives of their people rather than making profits.

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The Cocoa, from Raw Material to Finished Product Developed countries put much higher tariffs on finished products than they do on raw materials – this is because they can’t grow or mine the raw materials themselves, but they can use it to produce the finished product. It seems to make sense then, for them to save that work for their own citizens. But this comes at a high cost to people in the developing world, as most of the value of an item is added in the later stages of production. Take a $1 chocolate bar, for example. This goes through many stages before it lands on a shelf in a shop in Europe or America, the first of which is growing the cocoa. The income for cocoa growers in West Africa can be as little as $100 a year – around 7 cents for each chocolate bar. The chocolate companies then process the cocoa, adding milk, sugar and flavourings, before the product makes it to the shops. This is a not a huge amount of work compared to growing all the cocoa, but leads to profits of $436m for Hershey’s in 2009 and £559m for Cadbury’s in 2008.

One dollar Chocolate Bar Chocolate company

Cocoa producer

100$ a year

559M $ year

7

cents

8

93

cents

a


Subsidies

Another problem is the subsidies that rich countries give to their producers – an example of a subsidy can be seen in the production of sugar in Europe. Governments in Europe buy sugar from their own farmers for four times more than it is worth. This has encouraged European farmers to produce 4 million tonnes more sugar than Europe actually needs. Because there is so Oops, much extra sugar in I think I the world, the price produced too has fallen by onemuch. third (because the more common an item is the less it costs). This means farmers in developing countries get less money for their sugar and find it harder to survive. In many cases the European sugar is sold in developing countries for much less than the local farmers can afford to sell it for, putting them out of business.

Intellectual Property

Intellectual property refers to things like copyrights and patents – laws that stop people from stealing your ideas before you have had a chance to make some money from them. This sounds like a good thing, and to an extent it is – if people thought their good ideas or inventions would get stolen straight away, they might not bother to develop them further. However, strong intellectual property laws are keeping the costs of medicine high in developing countries. The companies that create the medicines are allowed to control the supply of them for twenty years, and they keep prices much higher than they would be if developing countries were allowed to make their own versions of the same medicine – known as ‘generic’ medicines. In Thailand, for example, generic HIV/AIDS medicine can be produced for only 3% of the cost of the official version. Copyright laws are important to encourage people to develop medicines, but pressure needs to be put on pharmaceutical companies to lower the prices of their drugs to affordable levels for developing countries.

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Good Trade

T

he current trading system is strongly set against poorer nations, but it doesn’t have to be that way. Here are some suggestions of positive changes we can make to the ways we trade.

Fairtrade

If you see the Fairtrade label on the packaging of a product you are buying, it means the people who produced it were treated more equally and fairly than they normally would be in the trading system. The Fairtrade Labelling Organisation sets a price for products like bananas, tea, coffee and cocoa that ensure that the producers will be able to cover their costs – this is the minimum that a company or supermarket must pay for the goods if they want to use the Fairtrade label. The food often costs a little more when you buy it, but the label is attractive to consumers who want to know that they are helping people in developing countries, rather than exploiting them. Fairtrade goods were first sold in the Netherlands in 1988, and have since spread across the world and cover a huge range of items. How many can you spot next time you go shopping?

Case study : Epona

Epona were one of the first companies to produce Fairtrade cotton clothing certified by the Fairtrade Foundation, in 2005. Since then, we have gone on to become one of the leading suppliers of Fairtrade promotional clothing to the UK. All the cotton in our clothing is Fairtrade, which means that the farmers receive a fixed minimum price for their cotton. This guarantees that farmers receive a price which covers the cost of sustainable production, even if market prices fall below this. In addition, farmers also receive an additional premium on top. This premium is to be used for projects which benefit the whole community, and it is up to the farmers to decide how to invest their premium. Some have used the additional funds on education or health projects, and others have used it for machinery such as weighing scales to ensure they receive a fair price for their cotton. In 2010, Epona helped over 200 farmers to get a better deal, and provided ÂŁ22,000 for the premium. This has enabled farmers in the poorest parts of India to continue to earn a fair and sustainable income. In addition to the economic benefits of Fairtrade, farmers are also involved in environmental projects, such as being trained in drip irrigation farming methods to minimise water usage on their crops, and the use of harmful pesticides is also restricted.

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Human Rights The Universal Declaration of Human Rights, a document which sets out the things that all humans should have, states that everyone has the right to health and well-being, and education . However, when water, education and health services are taken over by private companies from developed countries, they are not always concerned about ensuring this is the case. When developing nations are encouraged to open their services to foreign companies, it needs to be with guarantees that these services will be used to increase human development, rather than purely to make profit.

Co-operatives Workers in developing nations can also be encouraged to set up their own businesses and to organise them as co-operatives to ensure that everybody in the community reaps the benefits, rather than all the profits going to foreign corporations. In a co-operative, the workers own the company and make all the important decisions themselves – what they will work on, for how long, and how much they will sell their products for. They also share the profits among themselves equally. There are examples of successful co-operatives stretching back a very long time in developed nations – like the Co-op Supermarket in the UK – and many Fairtrade producers are co-operatives.

Diverse Economies Another important aspect of making trade more fair is to encourage developing countries to create diverse economies. Many poor countries currently make large amounts of their money from a single item or resource – such as extracting oil, growing cocoa beans or making items of clothing like trainers or t-shirts. If there is a problem with this resource, like a failed harvest or a sudden drop in the price of oil, these countries are in trouble. The trade tariffs we talked about in the previous section create a similar problem – developing countries can grow cocoa, but they cannot make chocolate bars (which are worth more money than plain cocoa) because of high tariffs. Developing countries should be encouraged to have as many sources of income as possible, through lowering tariffs and increasing education so their citizens have the skills to work in numerous industries.

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Movement of Labour/ Travel apartheid

W

here you’re born can have a big impact on where you’re allowed to live and work. Here, two people from different sides of the rich/poor divide visit the HappyCo travel agency, to seek greener pastures...

Thinking of going on holiday sometime soon? Well, you’ve come to the right place – here at HappyCo Holidays we aim to please! Where are you from? The US, UK, Canada, Australia, any of the rich, developed nations? Lucky you – most countries around the world will be happy to give you a visa. A visa is a travel document you need to work, live or even visit another country. Most countries encourage the richer citizens of Europe, North America and Australia to visit them, because they provide lots of money through tourism, and are often highly educated or have useful skills like the ability to teach English. Every year thousands of young people from developed countries go to other countries to help out, whether by volunteering in orphanages in Africa, teaching English in southeast Asia, or in many other ways. This work is often highly valued, and the young people are welcomed enthusiastically to the country for their help. Having problems finding a job in your home country? Thinking of spending some time working in Europe or America to make some money to support your family? And you’re from where? Africa, South America, Eastern Europe? Well, you might find you have some problems. The developed nations make it much more difficult for new people to enter them. Even though workers from poorer countries are often well-educated and skilled, and can perform vital services like working in healthcare, plumbing or building, they have a lot of restrictions on their ability to move between countries. This is because developed nations are worried that temporary workers will never go back to their own countries, and also fear that workers from developing nations take jobs from their own citizens by asking for lower wages. This is despite the World Trade Organisation calling on all countries to make the movement of workers around the world easier . Developing countries may be starting to fight back though, with an increasing number, including China and Brazil, introducing reciprocal visa charges. This means that if a developed country charges $100 to a Chinese citizen for a visa, China will also charge $100 for citizens of that country to visit China.

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This man is a traveller coming from a developing country who wants to enter a rich country.

This man is a traveller coming from a rich country who wants to enter a developing country.

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Improving Labour Conditions

C

onditions for workers in developing countries are often poor now, but small changes can lead to big improvements and allow workers around the world to earn a fair wage for a fair amount of work. On these pages we look at what companies, governments and consumers can do to help.

Companies

Much of the responsibility for improving life for the workers rests with the companies that employ them. They should adopt a code of conduct that promises health and safety measures in the workplace, a maximum working week of forty-eight hours, freedom from discrimination on the basis of race, gender or anything else, the freedom to join a trade union, and the payment of a living wage. A living wage means rather than the pitifully small amounts of money workers receive at present, they should be paid enough for food, water, shelter, clothes, education, health care and transport – the amount of money required for this will vary from country to country, but these are essentials of life and all workers should have the right to them. It is not just enough to have a code of conduct though – the companies need to make sure the managers in all their factories enforce the code, and this should be independently verified. This means that that an organisation other then the company – perhaps the International Labour Organisation, trade unions, or other groups that defend workers rights – needs to be allowed to check that the code is working .

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Governments

Many governments of developing countries are worried that if they make the laws regulating working conditions stronger – by creating a minimum wage or introducing strong health and safety laws, for example – the companies that set up factories and employ their citizens will leave. This would be a bad thing, leaving thousands, if not millions of people unemployed and the country much poorer. There is some truth to this, which is why a lot of the blame for poor working conditions rests with the companies. But governments also need to take stronger positions to protect their people from exploitation. Governments in developing countries, where most of the companies come from, should also put pressure on the companies to provide living wages and fair and safe working conditions.

Consumers

Consumers – and this can include you – also have a responsibility to make sure the products they buy are not exploiting others. Try to buy products from companies that have high standards for the conditions in which their employees work – this might require some research into which companies are the best and worst, which you can start by heading to www.labourbehindthelabel.org and www.ethicalconsumer.org. As well as buying from ethical companies, consumers can pressure companies with poor labour standards to improve them, by writing to them to demand they implement and enforce a code of conduct like the ones described above. If enough people let these companies know that they won’t buy their products until this happens, they will soon realise how important it is and will change their ways to keep their profits high.

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The Circle of Debt It’s widely known that developing countries have a lot of debt – that is, they owe a lot of money to richer nations. But what’s less well-known is how this situation came about – why do poor countries have so much debt? Step It’s the 1970s. Businesses and governments in rich countries need oil to keep their economies going. They give lots of money to the leaders of oil-producing nations in the Middle East, like Saudi Arabia or Dubai. Because these countries supply so much of the world’s oil, they can keep the price of it high and make even more money for themselves. Step The leaders of these oil-producing countries are often dictators. They spend some of the money on their own people, but they keep much of it for themselves, and to keep it safe and invest it wisely, they put it in banks in the same developed countries that paid for the oil. Step The banks now have a lot of extra money from the Middle East. The banks want to lend this money to someone else so they can charge interest on it – when you take a loan from a bank you pay back more than you borrowed, as a kind of payment to the bank for lending you the money, and this is called interest. So they look to the parts of the world that have the lowest human development and the least amount of money – South Asia, South America and Africa. Step In the 1970s many countries in these regions were also dictatorships. The dictators took out massive loans, claiming they needed them to help their people. However, they often kept most of the money for themselves, and the citizens of these countries saw very few improvements to their lives. The money the dictators kept for themselves was invested in...the developed country banks. Again. Step Moving forward to the 2000s, the leaders of almost all of these countries have changed, and many of them have become democracies. Even though the money was lent to leaders who should never have received it, the debt that poor countries owe to rich countries continues. The poorest countries in the world still pay almost $116 million every single day to banks in the developed countries , and at the current rate will never even pay back the interest they owe, let alone the original loans.

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Step So leaders in developing countries still have very little money to spend on helping their own people, because so much of it is being used to pay back their debts. That money goes to...yes, you guessed it, the banks in rich, developed nations – the only real winners in this circle of debt .


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Aid, Not Debt What is aid?

Aid is assistance given by rich developed countries to poor developing ones to help them increase their human development and provide health, education and other basic services to their people.

Why should rich countries give aid?

As we have seen in much of the rest of this booklet, rich nations have been exploiting poor nations for a long time, with unfair trade conditions and the use of lowpaid workers to make cheap products. To some extent, it is only fair that the developed nations now help people in poorer countries to improve their lives. From another perspective, giving aid to poorer countries actually helps richer countries as well. As the UN’s Human Development Report says, “Infectious diseases, security threats, illicit weapons and drugs, and environmental problems cross the borders separating rich countries from poor countries”, and these are the kinds of problems that aid addresses.

“In a world tightly linked by trade and investment flows, poverty in one country diminishes the potential for prosperity in another” (ibid)

What are the benefits of aid?

Aid has been used successfully in many countries to improve spending on basic services like health and education. For example, the country of Zambia spends $8 per person per year on health services, but without aid this would fall to only $3 per person, and many vital services would have to be taken away. In Egypt, child deaths fell by 82% during the five years of a diarrhoea programme funded by the USA and the World Health Organisation. In 2003 Tanzania was able to stop charging families to send their children to school because of funding from aid, and 1.6 million more children received an education as a result. Aid also helps to support countries that have been affected by disasters, whether natural ones like floods or earthquakes, or human-made ones like war. This has helped to achieve a lot of social progress in Timor-Leste, a country which was fighting a war of independence against Indonesia until 1999; while in Afghanistan more than 4 million children have been sent back to school through aid financing.

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What are the problems with aid?

In the past, one of the major problems with aid was that political issues decided who got it – for example, during the Cold War between the USA and the Soviet Union each side would only give aid to its own supporters. This meant that a lot of aid was given to corrupt leaders and dictators because they happened to support the USA or the USSR, and was subsequently wasted. Today a bigger problem is the lack of aid, and the ‘conditionalities’ that often come with it. Conditionalities are requirements that donor countries insist upon if they are to give aid. Often these are simple things like making sure the uses of the money are recorded and reported; but sometimes the requirements include privatising banks, water companies or schools, or drastically reducing the number of people employed by the government, putting lots of people out of work. Of course, not all the problems of aid are caused by the donating countries – some developing nations that receive aid use it poorly, or still have problems with corruption and mismanagement. The problems are on both sides, not just one or the other.

What needs to happen?

The main thing to improve aid would be to increase it. 40 years ago, the Pearson Commission suggested that developed countries should give 0.7% of their GDP to developing countries. In 2005, at a G-8 meeting at Gleneagles, European Union countries agreed to reach the 0.7% target by 2015. By 2009 only four had done so ­ Sweden, Denmark, Luxembourg and the Netherlands. Norway is the most generous at 1.02%; the USA gives just 0.22%; Japan: 0.28%; Germany: 0.35%; UK: 0.48%. Canada, whose Prime Minister, Lester Pearson, set the target gives just 0.35%. Debts also need to be cancelled. The World¹s poorest countries currently pay more to the rich world in debt interest than they receive in aid, This ridiculous situation has started to change with the HIPC (Heavily Indebted Poor Countries) initiative which cancels unrepayable debts.

How much is 0.7%

Developed countries should be giving 0.7% of their GDP as aid, but just how much is that, and what could it be spent on? As we can see below, just five of the richest countries in the world could provide almost $185 billion in aid, which could end many problems.

USA, GDP=$14.72tn,

0.7% =$103bn

UK,

GDP=$2.189tn,

0.7%=$15.3bn

France, GDP=$2.16tn,

0.7%=$15.1bn

Germany, GDP=$2.96tn,

0.7%=$20.7bn

Japan, GDP=$4.338tn,

0.7%=$30.4bn

Total aid per year

=$184.5bn

Primary education for all children = $10bn HIV/AIDS prevention and care= $22bn Ending world hunger

=$30bn

Adapting to climate change = $100bn

Total per year

= $162bn a year

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Corruption

C

orruption is when someone abuses their power to gain advantages for themselves, and is one of the biggest problems facing developing and developed nations alike. Examples of corruption are local government officials insisting on bribes in exchange for access to good schools or hospitals, police officers refusing to arrest drug dealers who pay them, or corporations that try to use their political connections to hide wrongdoings.

Corruption can be small in scale, limited to a few people in relatively low-powered jobs like police officers or border guards; but it is often revealed to be massive, stretching right the way to the tops of governments. Dictators and corrupt leaders that have very strong control of their countries find it easy to steal aid money and money from natural resources like oil, and deposit it in secretive banks in developed countries. The sums of money involved can be unimaginably huge.

History’s

Greediest

Dictators

(Name, Country, Period, Amount Stolen)

- Suharto, Indonesia, 1967-98,

$15-$35 billion - Ferdinand Marcos, Philippines, 1972-86,

$5-$10 billion

- Mobutu Sese Seko, Zaire (now DR Congo), 1965-97, $5 billion - Sani Abacha, Nigeria,1993-98, - Slobodan Milošević, Yugoslavia, 1989-2000,

$2-$5 billion $1 billion

These are not just abstract figures – corruption and bribery has a real effect on people’s lives. It’s estimated that the annual total of bribes paid worldwide is $1 trillion, all of which could otherwise be spent on improving living conditions, feeding families or educating children. As much as 24% of the money earned by low-income Mexican families is spend on bribes, as much as 50% of the funding for healthcare in Ghana goes missing before it reaches the hospitals and clinics that need it, and 86% of parents in Nicaragua report having to pay bribes to teachers for their children’s education. Corruption is not just a problem in the developing world. Companies and politicians in the developed world have often been involved in corruption scandals too – examples include US President Richard Nixon trying to cover up illegal surveillance and burglary of his political opponents, and the energy company Enron using false accountancy and poor financial reporting to hide billions of dollars in debt.

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A GREENER ECONOMY

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Microfinance

O

ne way of increasing levels of employment and income in the developing world is through microfinance. Microfinance means offering very small loans to people to help them set up their own businesses.

The people who benefit from microfinance are people who would not normally be given a bank loan because they are too poor – a traditional bank would be worried that they would not be able to pay the money back. Microfinance, offering small loans at reasonable terms, gives them an opportunity to use their skills to make money – for example, through weaving clothes, making pottery, or even buying a mobile phone and renting it out for other local people to use. Part of the money they make goes back to the microfinance bank, and the rest can be used to improve their living standards and keep their business running. The most famous microfinance organisation is the Grameen Bank of Bangladesh, founded by Nobel Prize winning economist Mohhamed Yunus. The bank operates a system of ‘solidarity lending’, meaning they lend to people in groups of at least five. Each individual gets their own money, but all five watch over each other to ensure they use the money responsibly and do not have problems with paying it back. The bank also encourages its customers to grow their own food and send their children to school, and has been very focused on improving the position of women in society – over 90% of its loans now go to women. The bank now has 2,500 branches across the country, and over 6.4 million borrowers . Microfinance has recently been criticised, as many new microfinance banks are charging very high interest rates and attracting rich investors who want them to focus more on making money and less on the social benefits of microfinance. Some companies have been accused of being just as violent as the loan sharks they are supposed to help people avoid, and putting unfair pressure on borrowers.

Mohhamed Yunus founder of the Grameen Bank

Picture from Ed Schipul

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Read more about Grameen Bank at their websites : www.grameen-info.org


Case Study: Microfinance in Kenya The Soroptomists are an international organisation that aims to transform the lives of women and girls for the better. Here they tell us about a microfinance project in Kenya that aims to do just that. In partnership with local schools and businesses, Soroptomists in Kenya organised entrepreneurship training for a group of widows from a local slum area. The women were trained over twelve weeks (one day a week) in aspects such as keeping financial records, legal considerations for business, and business financing. The Soroptomists had previously rehabilitated 40 women’s houses and businesses after they had been destroyed in the 2007 postelection violence. He women were maintaining a revolving fund which had been set up by the Soroptomists – this means they were recycling their funds by providing loans, receiving loan repayments, and using them to make further loans. Through this relationship, it became apparent that the women would greatly benefit from entrepreneurship skills in order to be able to expand their business further. The Soroptomists partnered with a recognised microfinance training provider to train the women while using real scenarios that relate to women;s businesses. At the end of the course, each of the women were awarded a certificate of competence. Better financial records are now being kept by the women entrepreneurs. They have also been able to make their weekly loan repayments more promptly due to better cash flow management. Three of the women are even contributing to their daughters’ education by providing personal items for them while the Soroptomists provide their tuition. For more information on the work of the Soroptomists, go to www.soroptomistinternational.org

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Currency Speculation

C

urrency speculation is really a sort of gambling with the currencies that we use every day to buy things. The difference is that if you lose at gambling you only hurt yourself, but when financial speculation goes wrong it can bankrupt entire countries and destroy lives. Currency speculators make money by exploiting small changes in the values of currency – they buy huge amounts of a currency while it is cheap, and aim to sell it when the price rises, thus making a profit. For example, if you buy $1 million of a currency, then even a 1% increase in the price would make you an extra $10,000 – and the figures usually involved are much larger than this. As long ago as 1998, daily currency transaction already amounted to $1.6 trillion. Today the figure is $4 trillion every single day. The problem is that this constant flow of money across borders makes currencies unstable, so sometimes their value goes down. When speculators think this is about to happen to a currency, they all sell it at the same time – which actually causes its value to drop massively in a short space of time. The speculators can then buy the currency back at the new cheap price, and keep the profit. In the past this has led to catastrophes like the Asian Financial Crisis of 1997, which caused prices to rise and people to lose their livelihoods and savings in countries like Thailand, Malaysia, South Korea and Indonesia. The Asian Crisis made 16 million people unemployed and put 50 million people below the poverty line – at the same time, people could buy less and less with the money they did have as the values of their currencies had dropped so much .

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Tobin Tax Let’s make an example : 2 huge banks are making a currency deal.

A solution to this problem was proposed decades ago – the Tobin Tax, named after the economist James Tobin, who first suggested it. This would be a very small tax – as low as 0.5% or even less – on all large currency transactions. This would make gambling on small changes in the value of a currency too expensive to be profitable. This would slow down the rate of currency buying and selling, and hopefully help to avoid future crises. The money that this tax raises could be spent on putting all children around the world into school, ensuring everyone has access to healthcare, preparing for and trying to avoid environmental problems like climate change, or whatever else the international community feels is important.

But is it really possible? And would every country in the world agree to it? The simple answer is that they don’t need to – most financial transactions take place in just seven cities around the world, with 58% taking place in just London, New York and Tokyo . Banks and currency traders could move to other countries, but this would be an expensive and unwelcome move for them, and it would be perfectly possible for the international community to punish countries that encourage currency speculation by charging higher trade tariffs to them, for example.

$

$

£

One bank sells the other $50m of currency.

£

50 M $

25 000 $

The Tobin Tax takes 0.5% of this - that’s $250,000 - to invest in schools.

New school

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A Green Economy

W

e’ve seen throughout this book that our current economic system can be destructive and damaging to both people and the environment. We have also seen that there are opportunities for change and progress. On these final few pages we explore what a green economy – one that serves people and the planet - would look like.

What does a green economy look like? It invests in planet-saving technology, not planet-destroying. This means that governments and companies need to start spending money on renewable energy, like solar panels and wind power, rather than fossil fuels like oil and coal. It means focusing on locally-owned, environmentally-friendly farms rather than industrial agriculture that uses too many chemicals. It means encouraging the use of bikes and public transport, rather than building more and more roads and more and more cars to drive on them. Governments have invested billions into fossil fuels in the past to help them develop and to research quicker and easier ways of getting them out of the ground and turning them into electricity or fuel. It’s now time for them to do the same for renewable technologies – providing money for research to make them more efficient, and encouraging more large-scale renewable energy projects. If we are to get away from our economic dependence on fossil fuels, this is vital.

It creates jobs for young and old. Making houses more efficient, building bicycle paths or creating renewable technology systems all require workers. A green economy would need to focus on training new workers and retraining older ones to do this work, providing people all around the world with new skills and livelihoods. A green economy might also involve job-sharing, in which each of the people sharing the job work less hours than if one person was doing it – this gives them more leisure time to enjoy, while increasing the number of jobs available.

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It shifts the focus from products to experiences. One of the most damaging aspects of our current economy is the focus on constant consumption. Particularly in developed countries, much of the economy is based on constantly manufacturing, buying and using up new things – computers, cars, televisions, phones. We are constantly encouraged to buy new things even when our old ones are working perfectly well, because without this endless consumption our economies would collapse. A green economy, on the other hand, could focus more on services and experiences that add value to our lives – entertainment, conservation, food growing – while concentrating production on creating long-lasting products that don’t need replacing and sustainable technologies.

It has stricter regulations. In our current economy, there are few regulations on the actions of companies, and few restrictions on where they can go to extract resources. Companies can drill for oil in the Arctic, or build chemical plants with few safety rules, for example. There have been many accidents caused by poor regulations, and there are many examples of companies purposefully damaging the environment because they believe they will get away with it. Because a green economy would be based on protecting the environment, it would have regulations on companies that stop them from damaging important ecosystems, and force them to clean up after themselves if they pollute. It focuses on people more than profit. A green economy would not be based on the idea that profit is the same as prosperity. Instead, it would give at least as much attention to other measures of well-being, such as level of education, healthcare, equality and fairness, and even happiness. With less focus on money and status, people could enjoy their leisure time more and would have less reason to get into debt to ‘keep up’ with their neighbours. Changes to laws and policies could be made based on the principle of what makes people happier, rather than what makes them richer. It is true that this idea applies more to developed countries, where the majority of people are already quite wealthy compared to developing countries. In those developed countries, it is important to raise people’s incomes so they can afford a decent standard of living. But all of these suggestions for green economies, with a few changes, can be applied to poor nations as well as rich nations – a single-minded dedication to growing cash crops or mining for coal may create a lot of money for a country very quickly, but at a high cost to people and the planet.

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The Green Economy in Action

T

he first step towards creating this green economy is ideas – those small sparks that can turn into big fires. On these pages we look at some of the ideas that people are having to create their own little piece of the green economy. These ideas are all part of Peace Child International GEEBIZ Initiative.

The Yonso Project One common misconception about green business and design is that it is expensive to take advantage of and difficult to learn. This belief makes green entrepreneurship wrongly seem like something that only those from developed nations can take advantage of. Since 2005, the Yonso Project has been striving to alleviate rural poverty and provide environmentally-sustainable employment opportunities to people in the Ashanti region of Ghana. In 2009, we came together with bamboo bicycle pioneer Craig Calfee to build a new product, one that would provide high-paying new jobs for the rural youth population while also producing a substantial profit that is used to provide microloans for businesswomen and scholarships for school children. We use locally-sourced bamboo and other materials to build bicycle frames that are lighter, stronger, and far more attractive than traditional metal frames. We have recently begun production of our new bamboo cargo bikes, allowing farmers to transport their goods to market further, faster, and much more cheaply than they have been able to in the past. Three years into operation, with domestic and international sales booming, the future looks bright for the Yonbikes Workshop and for expansion of the business model into other communities to spread the idea that rural youth in developing nations can earn a wage many times greater than what they would make through poaching or logging.

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you can find more info at

www.geebiz.biz

Renergy Technologies Sustainable India Solutions aims at providing alternative energy solutions to villages in India by using solar LED lighting systems, concentrators, PV modules and biogas plants. The aim of the business is to provide sustainable, reliable and affordable solutions to the rural Indians and hence improving their standards of living. Most of the rural parts of India don’t have access to a continuous and reliable supply of electricity. There are frequent power cuts, which makes living miserable in these areas. Even today, there are millions of people who use firewood, kerosene etc for their energy needs. They are definitely looking for cleaner and better solutions. They have plenty of energy in the form of the Sun, cow dung and agricultural waste around them, but they are far from harvesting it for their benefit as they are economically out of their reach. Sustainable India Solutions aims at bringing such non conventional and cleaner energy to their reach by supplying the equipment on loan. The villagers will have to repay the loan in installments every month for a period of 24 months.

Thus Sustainable India Solutions aims at taking the modern technology to those who actually need it by making it more affordable. We also seek to achieve independence from dirty fossil fuels based energy by making these villages models of “Zero Carbon Economies�.

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Youth Action on Inequality

Y

oung people around the world are not just accepting economic inequalities like the ones we’ve seen in this book. Instead, they’re fighting to build a more just and humane society, the kind of world they want to live in. Here are just some of the ways in which they’re doing that…

UK Uncut UK Uncut started in response to the British government’s measures to cut public services such as unemployment allowance, child benefit, and even benefits for disabled people who are unable to work. This was supposedly being done to save money, but more money could be raised by clamping down on corporations that use accountants and lawyers to reduce the amount of tax they pay. To bring the issue to the public’s attention, UK Uncut have been holding protests in the offices and shops of companies accused of tax-dodging, including Vodafone, HSBC and the department store Fortnum and Mason. The movement has even spread to other countries, with a US Uncut starting recently.

http://www.ukuncut. org.uk/

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PIctures by Dominic’pics


National Youth Empowerment Network, Uganda NYEN recognised that the large number of unemployed youth in the villages around the Ugandan capital of Kampala were falling into lives of gambling, drug addiction, robbery and prostitution. They decided to tackle this by creating sustainable livelihoods for these young people – teaching them how to make tablecloths, mats, scarves and longlasting bags out of old disposable plastic bags. The young men of the villages were taught how to make bricks and tiles out of clay, and have now sold 20,000 of them in the local markets.

http://www.nyen2009.org/

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· “16 years of education, a first class degree in economics and the only job I can get is waiting tables!” Juan, Argentina · “I cannot get a job without experience. But I cannot get The Green Cafe-Kisumu experience without a job!” Rahul, Bangladesh 1.2 billion young people will enter the job market in the next 10 years yet fewer than 300 million jobs await them (ILO). Over 500 million youth live on less than $2 per day. 238 million - 22.5% of the world’s youth - live on less than $1 dollar per day (UNFP). · “We need to change the psychology from ‘how do I get a job?’ to ‘How do I create ten jobs?’ Ngozi Okonjo-Iweala, Finance Minister, Nigeria · “If you invest in youth, and create jobs for them, society will get tax-payers; if you fail so to invest you will get citizens who are, at best, a drain on the state and, at worst, over-throwers of it – as several Arab states have found to their cost in 2011.” William S Reese, CEO, International Youth Foundation · “In every country in the world, our research has shown that one in five young people have the intuitive skill to start and run a successful small business. If governments were smart enough to invest in that one in five, pretty soon, they would employ the other four.” Andrew Fiddaman, Youth Business Intl. Peace Child Intl. has an idea for how to deal with this problem. Like all our good ideas, this one came from a young person. Paul is from Kenya, and he told us: “They tell me: ‘Start a company, make your own job!’ But nothing in my schooling taught me how to do this. I don’t know where to start….” How great would it be to leave school, not just with a piece of paper saying how clever you are, but an operating company – with staff, cash flow, order books? Fundacion Paraguay has been doing this for year with small rural farming students, teaching them by mentoring them to set up small companies while they are still at school. The Be the Change Academy wants to extend that to every area of business. We started our first one in Kisumu, Kenya in April 2011 – and it’s going rather well: we have not trained any dot.com billionaires yet – but taking a street kid like Kenneth – and supporting him to start the Green Café with his friend – and make it profitable while also paying taxes and employing a couple of young waitresses: that’s success in Kisumu! The key to the BTCA’s success is its young international staff: like the Peace Child Intl. office in the UK, all BTCAs will be run by volunteer young people – who are there because they want to be, not because they are paid to be. Of course, the managers are all Kenyan in Kisumu but they are supported by young Germans, Canadians and Americans who bring their skills and ‘can-do’ optimism to the slums where some of the most disadvantaged youth live.

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If you want to find out more, or start your own BTCA, write to: outreach@peacechild.org It could transform your community.


Glossary of Key Terms Aid – assistance given by rich developed nations to poor developing ones to help improve their levels of human development. Conditionalities – requirements that developed countries insist upon if they are to give aid. They range from basic requests for recording the use of money, to demands for privatisation and reducing government wage bills. Currency Speculation – the value of a currency changes over time. Speculators buy currencies when they are worth little and sell them when their value goes up, thus making a profit. This can make currencies unstable and lead to financial crises that damage the economy and people’s livelihoods. Debt – money that a person (or a country) owes to a bank. Many developing countries owe huge amounts of debt from money that was originally lent to dictators or corrupt politicians who kept it for themselves. Export Processing Zone – an area, usually in a developing country, where taxes, business regulations and wages are very low – they are attractive to foreign companies who want cheap labour, and employ 42 million people worldwide. Interest – when you borrow money from a bank, you pay back more than you originally borrowed – this is like a payment to the bank for lending you the money, and is called interest. Intellectual Property – When a person or a company creates something – from an artwork, to an electronic gadget, to a new medicine – it becomes their intellectual property, and they have the right to make money from their new invention. However, this has caused problems in the developing world, where companies have charged too much for medicines, making them unaffordable. They are allowed to do this, but many think it is morally wrong. Microfinance – microfinance banks lend very small amounts of money to people who live in poverty, to help them start small businesses. Ordinary banks would not lend to these people because they are thought to be too poor to pay the money back, but microfinance loans often have a very high payback rate. Multinational Corporation – a huge company that operates in many countries all around the globe, and usually makes very large amounts of profit. Tariff – a tax added to a product or a raw material when it is exported from one country to another. These are often much higher on developing countries, and much higher on the finished products that could make developing countries greater profits. Trade Union – A group of workers who work together to fight for their rights at work – these could include insisting on better safety measures, asking for higher wages, or defending colleagues from being sacked unfairly. Privatisation – when an institution that was previously owned by the state is sold to a private individual or company. This could include water companies, schools, hospitals, train companies or more. Subsidy – financial assistance given to a business or group of people to give them an advantage over their rivals. An example is growing sugar in the EU, where farmers are paid much more than the sugar is worth – this allows them to keep growing the crop, even though it could be grown more cheaply elsewhere. Visa – a document required to live, work, or sometimes even travel to a country other than your own.

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Artwork by Zeromano

Profile for Peace Child International

book two-SHD and Economics-interactive  

1 35 16 Globalisation and its Discontents....... 14 Improving Labour Conditions.............. Information and Ressources................. 3...

book two-SHD and Economics-interactive  

1 35 16 Globalisation and its Discontents....... 14 Improving Labour Conditions.............. Information and Ressources................. 3...

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