September 1993
by Sheila Kaplan
Planning for Disaster: China’s Three Gorges Dam
by Patricia Adams
Editorial: Defend Delaney
The Front
Interview
Market Myths and Polish Realities
An Interview with Jan Olszewski
Economics
by Natalie Avery
Ghana: The World Bank's Sham Showcase
by Ross Hammond and Lisa McGowan
Their testimony confirms a 1991 Food and Drug Administration report that claimed that the valve was manufactured under conditions "in serious violation" of good manufacturing processes (see M ultinational Monitor, October 1991).
Fractures occurred in at least 501 of the devices that were sold from 1979 to 1986, when Shiley ceased production due to "negative publicity." At least 250 people have died from the fractures.
The former employees allege that workers at the Irvine, California facility, where the device was manufactured, routinely re-welded valves previously tagged to be rejected. Former welder Harvey Hilman stated that re-welding was done because the components "were very expensive, and it would cost the company too much to scrap valves that had cracks." The re-welding was often done improperly, or not at all. The ex-employees claim that supervisors, often aware that workers were using improper techniques, did nothing to train workers to correct their procedures.
According to the ex-employees, Shiley attempted to cover up its practice of selling faulty devices by forging records to state that corrective manufacturing processes took place, or by buffing over the control numbers of faulty valves and stamping them with new numbers, thereby destroying the ability to trace the devices. The former employees stated that drug and alcohol abuse was also rampant at the plant.
Shiley declined to comment on the ex-employees’ allegations.
Ypsilanti argued that GM made an irrevocable promise to provide jobs in the community when they accepted $13.5 million in tax abatements from the Township (see Stopping Capital Flight," Multinational Monitor, June 1993 ). According to Douglas Winters, the attorney that represented Ypsilanti in its case, "the tax abatement is an incentive to keep the industry there. ... With that, comes some responsibility. If [GM] doesn’t want to have any commitments to the community, then they shouldn’t take the tax subsidies [that require] those commitments."
In response, according to Janine Frueham at GM’s Mid-sized Car Division, GM argued that it merely "took advantage of incentives offered by the State of Michigan ... just like any other business does." She adds that GM fulfilled its obligation to invest $250 million in the community, but that "employment levels cannot be guaranteed when the market fluctuates as it does."
The appeals court adopted GM’s position, and the company is now free to close the plant which once employed 4,600 workers.
Bob Harlow, president of United Auto Workers local that represents the Willow Run workers, says he was "flabbergasted" by the ruling. He expresses concern for how the community will cope as workers leave to work at other facilities.
Winters fears that the ruling "allows corporations like GM to continue to practice deceit and dishonesty and to bamboozle communities when they seek tax subsidies in exchange for creation of employment."
The Township will still seek monetary damages in trial court, but Winters claims that "the courts will have to realize that there are some things that money simply cannot fix."
Hoechst Philippines, Inc. and Hoechst Far East Marketing Corporation are suing the news service and a scientist quoted in the story for over $814,800, according to PAN.
The lawsuit was filed in Philippine court against the English-language news syndicate, Philippine News and Features, and Dr. Romeo Quijano, a pharmacologist and professor at the Philippine General Hospital, and the University of the Philippines College of Medicine, who was quoted in the article "More Diseases Traced to Pesticide Use." The article ran in Philippine Daily on May 13, 1993, according to PAN.
Hoechst has been able to block the Philippine government from effectively banning pesticides containing endosulfan, and those products, including Thiodan, are still on the market, according to PAN.
"There have been other problems that have to do with Hoechst endosulfan, in the Third World," says Judith Gips of PAN.
Hoechst spokespeople in New Jersey and Germany said they could not comment on the Philippines situation.
According to PAN, the Hoechst subsidiaries are also threatening further legal action against Philippine News and Features for reporting on the company’s harassment of a farmer, Erminia Abongan. Abongan, at an April 1993 pesticide conference, charged that she is still experiencing health problems from the fungicide Brestan, which was banned in the Philippines in 1990.
- Aaron Freeman
The reason: while the package contains a number of progressive reforms designed to tighten up the regulatory procedure and lower the overall use of pesticides in the United States, the package would abolish the Delaney Clause, the federal law which prohibits the use of cancer-causing pesticides that concentrate in processed foods.
The pesticide reform package is the Clinton administration’s latest attempt - following its compromise efforts concerning logging in the Pacific Northwest and wetland preservation in Florida’s Everglades - to resolve industry-environmentalist conflicts. In exchange for proposing a prohibition on the export of pesticides canceled in the United States for health or safety reasons, an easing of the level of proof necessary to force cancellation of unsafe pesticides and other environmentally-sound measures, the administration would wipe the Delaney Clause off the books. This is too high a price to pay for the positive elements of the administration’s package.
One indication of who is getting the better end of the deal is the fact that the administration’s proposal has garnered the support of the National Agricultural Chemicals Association, the pesticide industry trade group.
The pesticide industry despises the Delaney Clause, which was adopted in 1958, for the very reasons consumer advocates and environmentalists applaud it: it is an inflexible rule that leaves little room for political lobbying, scientific wrangling or legal challenges over specific regulatory decisions. Industry argues that technical advancements in the ability to measure small amounts of pesticide residues make the Delaney Clause anachronistic; when it was passed in 1958, scientists could only measure parts per million, but now they can monitor parts per trillion, so much smaller residues can be detected than the Delaney Clause authors could have imagined. The risks of cancer from very small residues, on the order of a few parts per trillion, is negligible, pesticide manufacturers argue, while the costs of banning pesticides on the basis of those small residues are enormous.
The latest round of pesticide industry attacks on the Delaney Clause came earlier this year after the Supreme Court refused to hear an appeal of a Court of Appeals decision requiring the Food and Drug Administration and Environmental Protection Agency to enforce the explicit terms of the Delaney Clause, rather than an interpretation developed under the Reagan administration which held low risks of carcinogenicity (deemed "negligible" or "trivial") to be the equivalent of no risk.
The Clinton administration proposal would essentially make the Reagan position the law: pesticide residues which are estimated to present a cancer risk of one in a million will be permitted. That is a level of risk society can accept, the argument goes, in exchange for the benefits of pesticides.
But the risk-assessment model on which this determination rests is fundamentally flawed. First, the government’s pesticide standards purport to assess the risk for each pesticide, but they do not account for consumers’ aggregate exposure to the range of pesticides in use: from eating foods with more than one pesticide on them (11 cancer- causing pesticides are registered for use on apples alone); from eating more than one food containing pesticide residues; and through non-food exposures to the same pesticides which are widely used in lawncare. Second, the risk models, because they rely on broad age categories, do not adequately account for the vulnerabilities of infants and young children, who a recent National Academy of Science report found are especially sensitive to pesticide-related health risks. Third, and perhaps most importantly, the risk models’ use of extraordinarily precise figures lend the practice of risk-assessment an air of scientific certainty that the theories do not warrant. In fact, scientists do not fully understand cancer’s causal mechanisms, and their techniques for estimating carcinogenicity are very crude, with different assumptions and models yielding vastly different results.
Perhaps the most disturbing element of the Clinton proposal is the way in which it undercuts the core Delaney Clause principles of erring on the side of safety in the face of scientific uncertainty and of preventing, rather than just regulating , carcinogenic exposures. Whether these twin principles of precaution and prevention will be preserved or eroded has far-reaching implications.
Cancer now strikes one in three people in the United States and kills one in four. Citing these statistics the chemical industry argues that an additional one-in-a-million chance of getting cancer is too small to worry about.
Proponents of the Delaney Clause take a much more thoughtful and practical view, however. They argue that the rapidly rising incidence of cancer is precisely the reason that all unnecessary and preventable exposures should be eliminated. This argument is all the more forceful when it is combined with recognition of the uncertainties surrounding cancer causation, the synergistic effects of exposure to multiple carcinogens and the environmental effects of extensive pesticide use.
In a society where fascination with technological innovation often crowds out sober realities about safety, environmental and social effects of new technologies and products, the role of prevention and precautionary principles is critical. Where these principles are embedded in law, they must be protected and preserved, not sacrificed for reasons of political expediency.
The signs, erected by the Berawan people, a small indigenous ethnic group of approximately 1,000 people, draw the battleline in a land conflict that pits the Berawan against a Japanese hotel chain and the Sarawak state government. The bungalows rest on the non-Berawan side of the battleline; they comprise the Royal Mulu Resort, a five-star hotel for wealthy visitors to the breathtaking Mulu National Park.
Opened to foreign tourists in 1985, the park features the spectacular Mulu cave system, which includes the world’s largest cave chamber. A recently constructed airstrip bordering the park makes this remote area far more accessible to outsiders than it was only a few years ago. Visitors can stay at low-priced tourist hostels run by Berawan entrepreneurs or at the Royal Mulu Resort which bills itself as offering "Adventure in the Lap of Luxury" and assures potential customers, "You won’t be living in a tree-house in Mulu." Rooms at the luxury hotel, which is owned by local interests and operated by the Rihga Royal chain, cost from $100 to $800 a night.
Now the resort owners have provoked a conflict with the Berawan by preparing plans to expand the hotel and to construct a 200-acre golf course on land the Berawan claim is their ancestral, or Native Customary Right (NCR), land. The state government has lined up on the side of the hotel, a fact the Berawan link to the significant stake that family members of Sarawak’s chief minister have in the hotel.
For the Berawan, the fight is the latest chapter in a decades-long struggle against "development projects." Like so many indigenous Dayak people in Sarawak, the Berawan have seen their means of survival undermined by the widespread logging of Sarawak’s forests, which has deprived them of food and medicines and led to soil erosion and pollution of the rivers where they traditionally have fished.
While the Berawan-hotel dispute centers on a relatively small piece of territory, it is disturbingly representative of indigenous land conflicts in Sarawak. The Berawan themselves cast the conflict in broad terms and believe they are fighting on behalf of the state’s entire indigenous population. "We feel that if the government can do this to us, it can do the same to native land anywhere in Sarawak," says Thomas Ngang, a leader of the Berawan.
Ancestral rights vs. family ties
The Berawan have strong evidence of their historic ties to the land for the proposed golf course. The land contains many markers of traditional Berawan use, including the remains of an old long house, a burial site and old gardens and fruit trees belonging to the Berawan, claims Ngang. It also, he adds, "is in the area where we hunt."
Representatives of the hotel in Mulu were unavailable for comment, and the Tokyo office of the Rihga Royal chain declined to respond to questions about the Berawan claims.
But the state government has been vocal in its refusal to recognize the Berawan land claim, with officials calling the Berawan "squatters" and "greedy people." Ngang retorts, "If we are squatters, the government should drop the chief minister and me in the Mulu cave and see who can find their way back." The state government says it is free to permit the hotel to use the disputed land, which it calls state land, as it wishes.
The Berawan charge that the government is refusing to recognize their NCR land because of the Sarawak chief minister’s ties to Borsarmulu, the local company which owns the hotel. Lawyers hired by the Berawan have documented that the chief minister’s brother, sister and brother-in-law sit on the board of directors of Borsarmulu. This sort of conflict of interest is typical in Sarawak, where the economy is dominated by small politically connected cliques, and it poses obvious difficulties for opponents of state- approved development projects.
Resisting the resort
With the government refusing to entertain repeated appeals for recognition of their land claims, the Berawan have resorted to various protest activities.
Since July 1992, they have temporarily blockaded the pathway to the resort’s fuel storage area on several occasions, preventing oil from being delivered to the resort and threatening the resort’s ability to continue operating. The Berawan held their most recent blockade during the last week of July and first week of August, with some of the Berawan who work in Sarawak’s oil industry giving up their jobs in order to help staff the barricade.
Many Berawan work as guides for the national park, and they have tried to use their positions to advance their cause. The guides explain the Berawan concerns to all tourists, and ask the tourists to urge the government to recognize the Berawan NCR land claim. On August 2, in an attempt to increase the pressure on the government to recognize their land claims, the guides went on strike, essentially shutting down the national park, since tourists are not allowed to enter the park without a guide.
The Sarawak government’s initial response to the Berawan’s latest expression of militancy was forceful and unwavering. As the conflict heated up in the beginning of August, the police arrested a handful of people blockading the resort’s fuel storage area and deployed more than a dozen paramilitary forces to the park. Awang Tengah Ali Husan, assistant minister in the Sarawak chief minister’s office, told the Borneo Post, "The unsubstantiated claims by the Berawans will not be entertained even though the Mulu tribe has been staging strikes and protests."
Whether the government will maintain its hard-line position is unclear. The Berawan ultimately called off the August blockade, reportedly after the government announced that it would not negotiate with them if the protests continued. Although no date has been set for negotiations, the Berawan are hopeful that the government has softened its stand - but they are committed to resuming protests if the government refuses to enter a good-faith dialogue.
Development and dignity
The Berawan are careful to stress that they are not "anti-development." They support development of the national park as a tourist attraction - many of them now rely on tourism for their economic well-being - but they want their land rights recognized, and they want to be actively involved in decision-making about how land near the park will be used.
A leaflet distributed by the Berawan at the August blockade explained what is at stake in their fight: "It is a question of economic survival, and the defense of our fundamental rights to live as a people with dignity." For a people who have already seen their way of life profoundly changed by logging "development," the struggle over tourism at Mulu National Park may be the last opportunity to defend and assert their ancestral and community rights.
Officially, Ramos is the secretary-general of the National Federation of Free Trade Zone Workers in the Dominican Republic , an 18,704-square mile Caribbean nation of 7.3 million people. Chatting at a Santo Domingo hotel, the 30-year-old Ramos laughs as he refers to his "Federation of Fired People," then turns serious as he says: "Our hope is the AFL-CIO. It can get U.S. law imposed and insist that the law be followed so that we can have freedom of association and collective bargaining."
These are the rights that 150,000 Dominican workers, employed by 423 companies in this nation’s 30 free trade zones, don’t have now.
To try to obtain these basic human rights, the AFL-CIO petitioned the Office of U.S. Trade Representative Mickey Kantor in June 1993 for a termination of the country’s preferential trade status under the Generalized System of Preferences (GSP) and the Caribbean Basin Initiative (CBI). Under the GSP, companies can export tax-free raw or partly finished materials from the United States to the free trade zones, assemble those goods in the free trade zones and import the finished products back to the United States duty-free. The CBI is a program conferring special trade benefits on Caribbean nations.
At the same time, the AFL-CIO asked the U.S. government to withdraw the trade privileges it has accorded to Costa Rica and Haiti, citing violations of internationally recognized worker rights standards, and renewed its call for terminating trade benefits with three other Caribbean Basin countries, Panama , El Salvador and Guatemala .
Since 1968, when the Dominican Republic’s first free trade zone was founded at La Romana by Gulf & Western , the country has taken greater advantage of the GSP than any other Caribbean nation.
More than half the free trade zone companies are U.S.-based - including such well-known names as Hanes , General Electric , Avon , Westinghouse , Baxter , Johnson & Johnson , Emerson Electric , Eli Lilly , Bristol- Myers and Abbott Labs . About a quarter of the companies are Dominican, usually subcontractors to big U.S. firms, according to Acelis Angeles de Glass, executive director of the National Council of Free Trade Zones for Export, a public-private organization that defines free trade zone policies and rules. A tenth of the free trade zone companies are South Korean; there are a dozen Taiwanese firms, a dozen Panamanian, and a few from Europe.
Wages in the free trade zones average about $175 a month, according to Angeles de Glass, and in 1992 the free trade zones sent $1.165 billion worth of goods abroad. Of that, 93 percent went to the mainland United States and Puerto Rico .
Just over two thirds of that value was in finished textiles - underwear, trousers, shirts, dresses, blouses. The next two biggest categories were shoes and electronics, each just under 5 percent of the total, followed by jewelry, which totaled just under 3 percent. Most of the remaining exported products consisted of sporting goods, metal products, tobacco, pharmaceuticals, furniture, luggage and other leatherware. About 3,000 products are on the list for duty-free U.S. access.
Free trade zones are one of the Dominican Republic’s two boom areas in an economy whose jobless rate is conservatively estimated at 30 percent of the labor force and where the yearly per capita income is only about $1,000. The other boom area is tourism, helping to offset a drop in output - and prices - of such traditional products as sugar, coffee, bananas and minerals.
Trampled rights
But trade unionists in both the Dominican Republic and the U.S. charge the free trade zone boom is built on a foundation of worker exploitation. The AFL-CIO’s petition says: "Despite the passage of a new labor code in May, 1992, worker rights are still being violated with impunity by companies in the free trade zones. After years of vigorous organizing by thousands of workers who have repeatedly and courageously signed membership petitions, and after years of government promises to protect their rights, the situation remains fundamentally unchanged. There is not a single functioning trade union, nor a single collective bargaining contract, in any of the free trade zones. The reason is clear. The new labor code, which theoretically provides protection from firing and other forms of retaliation against workers who seek to form trade unions, is simply not being enforced. The central problem is the notoriously inefficient and corrupt judicial system."
The AFL-CIO petition cites eight specific cases where companies denied workers their right to organize by firing union leaders or where "a combination of psychological pressures and monetary inducement of individual workers succeeded in nullifying the union’s legal efforts to protect its members against employers’ reprisals for organizing activities."
Ramos, who began his working career as a 15-year-old assembly line worker in a San Pedro de Macoris underwear plant, says there is "an institutionalized blacklist" in the free trade zones. He adds that it is not unusual for a company to fire its entire labor force "if unionization is threatened" - and then hire and train an all-new work force. He claims such firms as Westinghouse "fire their manager if there are signs of union activity." The bottom line, says Ramos, is that "in the Third World these companies want cheap labor and want to get away from unions." He says his country "has never followed international labor agreements," and that "the free trade zones are a marriage between corporate and government interests." Joaquin Balaguer, the nation’s 86-year-old president, "knows this, and the U.S. government has the power to change this at no political cost."
Ramos claims the same phenomenon is evident in Costa Rica . "If there’s no halt, we’re going to have corporate colonialism all over the Western Hemisphere."
The corporate view
Those who manage the free trade zones, not surprisingly, offer an entirely different spin on the situation.
At the San Isidro Free Trade Zone, 10 miles east of Santo Domingo, Jose M. Ceron Peña, executive vice-president of the 230-acre San Isidro Free Trade Zone and president of Adozona, the Dominican Association of Industrial Free Trade Zones, says: "Labor conditions in the free trade zones are quite different from the rest of the country. It’s easy to form a union. By law you have to have 20 people and they have immunity, you can’t touch them. But the union is only as good as its bargaining power. Fifty-one percent of the workers have to agree to collective bargaining." Once a majority is achieved, he says, "management has to sit down with the union. But in most cases, the union hasn’t been able to get 51 percent of the vote." Miguel Angel Pichardo, a free trade zone consultant in Santo Domingo, adds that "if free trade zone workers are not treated properly, they’ll find unions, but less than 1 percent of the free trade zone companies are unionized." He charges that union leaders "don’t work; they’re living off the workers. The organizers all have nice cars, nice apartments and go abroad."
Of the 30 Dominican free trade zones, 16 are privately owned, 12 are public and two are mixed public-private. The private San Isidro Zone is a glossy new example. It was inaugurated in April 1988, and now rents to 20 companies with a total of 3,500 employees. Hanes, part of the Sara Lee Corporation (which did $13.2 billion worth of business last year, $5.4 billion in textiles alone), is one of the biggest tenants. It occupies a 76,000-square-foot building and a 21,000-square-foot building and San Isidro’s management is building Hanes another 80,000-square-foot plant.
Ceron says that, over all, about 70 percent of free trade zone workers are women. By providing jobs, Pichardo asserts, the companies have improved living conditions for women. They have been "a great help in [alleviating] the prostitution situation and for [helping] women abandoned by their husbands." The prostitution to which he refers is one of the sleazier aspects of the Dominican Republic’s tourist prosperity, so-called sex tourism.
Santiago M. Kalaf, 44, is general manager of the Itabo Free Trade Zone, 10 miles west of the Dominican capital and close to the principal port, Haina. Itabo also is privately owned, covers 150 acres and began in 1985. Kalaf says it has 6,500 employees "in close to 600,000 square feet of plants, mostly fully air-conditioned." He says the plants have lockers, lunch rooms and "free medical service in a unit staffed by four doctors, nurses and its own ambulance." Workers who don’t live nearby use Itabo’s "subsidized bus service" and there is also subsidized food, says Kalaf. "We don’t allow companies in our park without employee facilities."
Kalaf insists, "I believe in unions, in the right of every employee to unionize. But the right to unionize shouldn’t interfere with the right to work. If I treat my workers right and you’re unable to convince them to join the union, you’re not good for them. ... There are a lot of unions in free trade zones, but the minority doesn’t rule. I’m not going to say there aren’t bad companies, there probably are. But the AFL-CIO has a protectionist agenda, it overreacts and generalizes."
Kalaf concedes the Korean and Taiwanese companies in free trade zones may be anti-union, but notes "they have a different culture."
He agrees with the AFL-CIO petition that the judicial system is lagging, but says, "All Latin countries have the same problem; judges aren’t speedy and they’re vulnerable to money from both sides and to politics. There’s nothing new about that, it’s been going on for 50 years. There were probably 10,000 unresolved complaints under the old labor code."
The new labor code grew out of a controversy that began in 1990 with a petition to the U.S. Trade Representative from the human rights organization Americas Watch, complaining of the treatment of Haitian cane-cutters in Dominican bateys, the plantation barracks where Haitians were forced to live. A year-long review of the Dominican GSP status ensued and near the year’s end an AFL-CIO committee began looking into the cane-cutters’ and other union complaints. The GSP review dragged into a second year, the International Labor Organization (ILO) was alerted and finally, in 1992, Balaguer’s government seemed to make improvements for the Haitians, for unions outside the free trade zones and in the labor code. This got the ILO off Balaguer’s back and the United States decided against GSP-CBI termination.
But in more than a year, as Ramos stresses repeatedly, nothing really has changed in the free trade zones.
Only pressure from the United States seems to hold much prospect of improving the Dominican labor rights situation. Daniel Liranzo, deputy executive director of the National Council of Free Trade Zones for Export, concedes "the threat to lose GSP-CBI is real. ... For now it’s quiet, but the AFL-CIO petition is putting on new pressure."
-William Steif
More than 50 farmers were arrested during the incident at the partially completed seed-processing plant in Bellary, 300 kilometers from Bangalore in South India. The $2.2 million plant was scheduled to begin commercial operations in three months. The farmers were later released.
Reports of the extent of damage caused ranged from near-total destruction to minimal damage. In Bangalore, Cargill Seeds authorities said "considerable structural damage" estimated at $15,750 had been caused to the administrative block, main compound wall, ablation block and security building. Police sources labeled the damage "minimal," adding that "timely intervention" by the police prevented extensive destruction.
This is the second action taken by the movement as part of a campaign targeting all multinational corporations in the seed sector. Last year approximately 1,000 farmers gathered at Cargill’s offices to demand a ban on the entry of such companies into India. On December 29, KRRS activists destroyed the official records in the company’s Bangladore office, but no officials were attacked in line with the Sangha’s policy of non- violence.
The KRRS, led by professor of law Nanjudaswamy, launched its "seed satyagraha" (a "satyagraha" denotes actions of civil disobedience) late last year with the aim of protecting the "rights of farmers to produce, use, modify and conserve seeds." The 13- year-old movement grew out of the farmers’ uprising against levies on irrigation water in the Dharwad district.
This fundamental right is under threat from multinational seed companies which see farmers’ rights to their own seeds as an obstacle to market expansion by multinationals. The Bellary raid was carried out as part of protests against the acceptance of the General Agreement on Tariffs and Trade (GATT ) proposals on agriculture by the Indian government. The KRRS has been campaigning against the proposal for patenting of life forms for the past seven months.
According to news reports in India, the KRRS said the GATT proposals were detrimental to Indian agriculture as they were aimed at patenting plants and genes, and were part of an international conspiracy to deny farmers the right to produce, modify and sell seeds. They demanded a ban on multinationals in the seed sector, a total rejection of the GATT proposals and maintenance of status quo with regard to the Indian Patent Act of 1970, which excludes patents on all life forms.
KRRS General Secretary Hanumanagouda told the Union Government to make a decision on the GATT proposals only after discussion with state governments. He said that the Sangha had also been demanding that the Union Government furnish details of multinational corporations which had been allowed to set up business in Karnataka.
There are currently a total of six new multinationals in Karnataka either operating or scheduled to commence operations shortly in the fields of food and medicine.
"Our movement will be intensified, and the farmers will continue to wage a relentless battle against multinationals," said professor Nanjudaswamy. Two months ago, he announced the KRRS’s intention to destroy the property of multinationals operating in Karnataka.
"This is a warning to Prime Minister Narasimha Rao," he added, referring to the Bellary attack as merely the first stage of a program which will escalate. He identified the W.R. Grace pesticide manufacturing plant in Tumkur and the Pioneer Hybrid Seeds Ltd. at Ranebennur as future targets for similar actions.
Cargill Seeds, a joint venture of the Delhi-based Tadco Group and Cargill Incorporated U.S.A., is constructing seed-processing plants and huge godowns in Bellary to store seeds. This latest incident would delay the completion of the project, and Cargill spokespersons have said the company is contemplating legal action.
-Third World Network Features
PRESIDENT BILL CLINTON has vowed to increase U.S. aid to the former Soviet bloc in an effort to boost the new democracies and stabilize their shaky economies. That translates into more money and power for the Agency for International Development (AID), the agency that dispenses most U.S. economic assistance abroad.
But AID’s ventures into Eastern Europe and the former Soviet Union to date - more than $1 billion have been doled out since the fall of the Berlin Wall in 1989 - generate little confidence that the agency is prepared to handle a larger mandate. In too many cases, the real winners in AID’s foray into the region have been the multinational corporations, law firms and accounting firms that have quickly grabbed a piece of the new post-Communist pork.
Documents obtained under Freedom of Information Act requests, as well as interviews with AID staffers, outside investigators, contractors and foreign officials, provide evidence of widespread waste, poor accountability, ethical lapses, and other management problems likely to plague the new administration. Specifically:
o AID has paid law firms like Cleveland, Ohio’s Squire, Sanders & Dempsey , as well as other businesses, hundreds of thousands of dollars to underwrite services that others are performing for free or for drastically less money;
o AID has neglected to open dozens of proposals for costly grants and contracts to competitive bid, as required by law, to the detriment of taxpayers, who pay the tab;
o AID has overlooked potential conflicts of interest by the accounting firm of Deloitte & Touche , by Los Angeles’ Latham & Watkins , and by other firms that represent private clients doing business or planning to do business with the very governments that AID is paying them to advise; and
o AID has paid contractors to help locate overseas investments for Waste Management Inc. and other U.S. companies that have been heavily fined for mishandling contracts for federal and state agencies.
Who benefits?
Troubles are not new at AID. In recent years, the agency has been criticized for everything from exporting American jobs to misuse of funds. AID’s push into Eastern Europe and the former Soviet Union offered a chance for the agency to rise above previous problems and make a new start.
And many AID projects to the former Communist bloc have been successful, at least on their own terms. The project launched to assist the newly independent states with privatizations, for example, has in a short time drawn high marks from officials of foreign governments and helped ease the transition to market economies.
But other projects have seemed more like aid to U.S. companies than aid to emerging democracies.
For example, when the governments of the former Soviet Union last year asked the United States for emergency medical supplies to protect its children from disease, AID was quick to respond. Bypassing the usual bureaucratic maze, AID awarded a $3.2 million contract for measles vaccines to the New Jersey-based Merck & Co .
Sounds impressive. But for the same money, UNICEF, which has handled similar AID contracts in recent years, could have inoculated between four and five times as many children, according to C. Ross Anthony, an AID official.
Merck’s interest, says one senator, is easy to explain.
"Many drug companies are trying to get their foot in the door in what will be very lucrative markets for their products," says Sen. David Pryor, D-Arkansas, who chairs the Governmental Affairs subcommittee that oversees government contracts.
"The obvious question here is why AID awarded the contract to Merck when it appears that UNICEF could have provided the vaccine at lower cost," Pryor says.
Similar questions can be asked about a lot of contracts, grants and other projects involving AID’s work in Eastern Europe and, to a lesser extent, in the former Soviet Union.
"These AID contracts raise the very real question of whether our assistance programs in Eastern Europe and Russia are designed to help these countries move forward on a more self-reliant path or if, in fact, our goal is to push forth U.S. investment," says Douglas Hellinger, managing director of the Development Gap, a Washington, D.C.-based group that advocates a grassroots approach to multilateral aid.
"This is where so much of our money is going, and it demonstates whose interests aid is currently serving," adds Hellinger, who has been advising the administration task force on AID and other foreign-aid programs.
Blueprint for aid
In 1989, with communism collapsing, Congress adopted the Support for East European Democracy Act, known as SEED, which has since authorized $1.04 billion, through fiscal year 1993, for AID and other federal agencies to develop a range of programs to help stabilize the new governments.
In an atmosphere filled with a sense of excitement and mission, many AID officials took steps that would be considered improper during normal times. Cash was transported to East European AID projects in suitcases. Contractors such as Coopers & Lybrand were delegated authority to dole out U.S. grants themselves, with little official oversight. Officials, though still instructed to send contracts out for bid whenever possible, were no longer required to do so in every case.
Operating under new-found autonomy, granted by a Congress eager for quick results, many of AID’s contract officers tried to save time by notifying only a few prospective bidders or by choosing one firm without having any competition at all. Sometimes AID officials had little choice: Congress had already designated specific companies, non-profit groups or universities to receive grants by earmarking the appropriations.
Those not blessed with earmarks were sometimes able to tap other political connections.
Among the winners in the no-bid stakes was the American Bar Association (ABA), which has received grants worth more than $5 million to draft laws - and to help its members make lucrative contacts. The ABA secured its first $400,000 contract before the competing - and less visible - Federal Bar Association could even land a meeting with an AID officer.
Another group apparently on an inside track was the Hudson Institute, now home to former Vice President Dan Quayle, which won a $256,838 grant to study privatization in the Baltics. And AID gave a $6.857 million contract to Partners in Economic Reform, a non-profit group set up by a group of coal companies with some labor support.
The coal partners, which work with the AFL-CIO, are working to provide technical assistance in the former Soviet Union. They will also "facilitate the transformation of the centrally planned and controlled coal-mining industry ... of the Russian Republic."
In other words, they will have a chance to scout mining prospects for Peabody Coal , the CSX Corp. and the other consortium members. A more modest proposal by a Washington-based public-interest law group that wanted to train citizens’ groups to deal with health hazards in the mines was rejected.
Everybody wanted a piece of the pie. After a round of competitive bidding, Healthcare Enterprise International Inc. , a Rockville, Maryland consulting firm, formed a consortium which got a $17 million contract to transfer the "expertise and skills of the U.S. health industry." In another competition, the Sawyer Miller Group , a Washington, D.C. public-relations outfit, won $6.2 million to publicize the virtues of capitalism to the Russians. The University of Nebraska-Lincoln, got $1.58 million to provide management training in the Yugoslavian Republics. Then-administrator Ronald Roskens was president of the University of Nebraska system before joining the agency.
The Citizens Network for Foreign Affairs, a group of agricultural companies whose directors include former Agriculture Secretary John Block and former Defense Secretary Frank Carlucci, received a $44 million grant to restructure the food systems of the former Soviet Union. The network includes 25 companies and trade groups, among them RJR-Nabisco, ConAgra and the National Food Processors Association. Each member will apply to a network administrator for grants from the $44 million pool to train workers. At the same time, they will have new opportunities to expedite their overseas expansion.
Accounting firms also formed consortia with law firms, investment banks, and others to compete for one of the biggest pots: the $150 million allotted for privatization.
"What has happened is you have every consultant in town and every PVO [private voluntary organization] in town lobbying to get the money disbursed among themselves," says one senior AID official who asks not to be identified.
Why pay less?
In the rush to boost the emerging democracies, AID officials often bypass standard operating procedures and wind up overpaying as a result. Throughout the region, AID is actually paying contractors to do work that other companies or non-profit groups were already doing on their own, with no federal money, or at a much cheaper rate per project.
Take the export of legal advice. AID records obtained under the Freedom of Information Act show that the agency is underwriting more than a dozen law firms to advise the former Soviet Union and Eastern European governments. These firms are also on the lookout for overseas business.
Their fees range from $2,200 per day for a senior partner at Latham & Watkins, which got AID officials to approve a special waiver of the normal salary ceiling, to the $700 a day per person for some of the less fortunate firms.
While these firms are racking up the fees, the Federal Bar Association, a voluntary bar group of lawyers who practice at federal agencies, offers virtually identical services through its Democratic Development Initiative. The difference: its lawyers work for free.
"I have no question, we have people ready, willing, and able to go and commit themselves," says Brian Murphy, a staff attorney at the Administrative Conference of the United States and chair of the association’s Eastern Europe project. The Federal Bar Association’s project has received only about $10,000 worth of State Department funds.
"These are people doing this pro bono. They would need only their airfare offset and living expenses," Murphy says.
Obviously, even volunteer lawyers may not have entirely altruistic motives. Many belong to firms that have launched practices in Eastern Europe or hope to leverage the contacts made through pro bono work to do so. But at least their trolling expeditions come at less cost to U.S. taxpayers.
Capitalism without competition
A report by AID’s inspector general (IG) released in late March underscores the fact that AID has not followed its own guidelines for grants and cooperative agreements in Central and Eastern Europe in several key areas, thus increasing costs.
After focusing from May through December 1992 on nine projects in Eastern Europe, the IG concluded that AID had sought competitive proposals for only two - even though such competition was required in all nine.
Justification was offered for waiving the competition, but in three cases the IG found the justification inadequate. As a result, the cost to taxpayers was increased to $17.5 million, the report says.
In one instance, AID justified waiving competition for its $20.6 million agreement with the International Executive Service Corps (IESC) by claiming that it had "predominant capability." The non-profit group sends retired executives to work as overseas volunteers.
But officials offered no evidence to the inspector general of that superior capability and, in fact, had decided to give the group the money even before reading its proposal. The reason? Congress had earmarked it for assistance and, an AID auditor noted in the report, "IESC enjoyed excellent relationships with both the Congress and State Department." This rationale troubled the IG.
An earlier IG report said that the IESC’s financial accounting system was unacceptable and that the group could not justify expenses totaling $40 million.
The AID bureaucracy is not the only entity responsible for impeding the competition process; Congress has contributed its share to the problem as well.
When the Center for Clean Air Policy (CCAP), a non-profit energy research group affiliated with major public utilities and municipal governments, sought a $1 million grant to train overseas officials on energy issues, AID was lukewarm. The agency had just awarded a similar project to the Research Triangle Institute, after an open competition.
But CCAP had some friends in high places, among them then-Sen. Robert Kasten, R-Wisconsin, and Sen. Mark Hatfield, R-Oregon, both of whom had staffers meet with AID officials to press CCAP’s case. The senators, working with Sen. Patrick Leahy, D- Vermont, wrote language in the Senate report recommending that AID fund the project, and agency officials found that impossible to resist.
"We were squeezed politically," says one AID environmental contract officer.
Why did CCAP win such support? One clue might be the CCAP’s first adviser posted to Prague, David Yaden. Yaden, who met Hatfield while working for a Washington state legislator, had kept in touch with the senator in his subsequent job as a lobbyist for Nerco, an Oregon energy and minerals company. On one occasion, Yaden organized a fundraising dinner for the senator.
While Yaden sought help from Hatfield, CCAP chairman Anthony Earl, a former Democratic governor of Wisconsin, approached Kasten, who agreed to speak up, according to CCAP Executive Director Edward Helme.
"I wouldn’t say we pressured them," says Helme. "We were new to the game of how AID makes contracts, and they said Congress sends us signals about what they like, so we went to Congress." As for the issue of duplication, Helme says, "We thought of it first."
Conflicting signals
It is an open secret by now that many law firms and other consultants view their AID-backed work for foreign governments in the old Soviet bloc as a lure to private clients with an interest in the region.
For example, Cleveland’s Squire, Sanders & Dempsey recently began an AID contract in Bulgaria to perform pre-privatization legal audits for eight Bulgarian companies. After this assignment is completed, the firm hopes to represent commercial clients buying into the projects.
"That’s the idea," says Mark Cusick, the London partner who heads the international practice. "It introduces us to Bulgaria, to privatization officials, and it introduces us to eight specific companies."
That scenario took some getting used to in at least one country.
"Initially, the Czech government did not want us representing Western interests while we were acting as advisers to them," says Henry Lavine, a senior managing partner in Squire, Sanders’ Washington, D.C. outpost.
"Then the ground rules changed," Lavine continues. "It was because they found if they closed law firms from acting on behalf of Western interests, they were really inhibiting their investment program, because the Western law firms were very often a source of interested investors."
In other words, Lavine’s firm, while advising the Czechs on creating the regulatory structure for an industry, can also round up its clients to buy in. So, Lavine says, everyone wins.
Lavine says that his firm avoids conflicts by not representing both the Czech government on the sale of a particular business and a company bidding on it at the same time.
In Poland, Los Angeles’ Latham & Watkins has an AID contract to help the Polish government negotiate power project proposals and develop a framework on competitive power generation.
At the same time, the law firm also represents the National Independent Energy Producers. Some of their members are eyeing the region, says Tobyn Anderson, director of government and public affairs. Other clients are the National Association of Energy Service Companies, and the Intercontinental Energy Co.
John Sachs, the Latham & Watkins partner who runs the project in Poland, says that the firm has no conflict because it is not representing any energy companies while it is advising the government. Although he acknowledges that the firm may end up representing energy companies in Poland, Sachs says, it plans to do so in a way that will avoid conflicts.
But critics call this scenario a classic conflict of interest. "Instead of exporting democracy, it sounds like we’re exporting hypocrisy," says Dan Guttman, author of The Shadow Government, a 1976 examination of the government’s use of contractors. Guttman, a partner at the law firm Spiegel & McDiarmid, has done pro bono work for the Czech Republic on energy issues.
"By definition, experts often get their expertise by working several sides of an issue," says Guttman. "The problem is that it appears there is little or no official oversight, and no evident disclosure [of conflicts] to the host country, much less to the American public."
Another energy lawyer, who asks not to be identified, agrees.
"I would love to be in a situation where I’m the rule-writer, and then when I’m finished writing the rules, to represent utilities who will have to follow them," he says. The rule-writer "might know unique features that some of his clients have and can try to write rules that make those features more attractive."
Indeed, when informed that U.S. law firms are working for private clients in the same region AID is paying them to advise government ministries, one high-level official in AID’s Bureau for Europe looked surprised.
"I think you’re onto something," he offered in an interview.
A few weeks later, David Merrill, acting assistant administrator of AID’s Bureau for Europe, responded to a query on this issue in a written statement.
"We have clauses in our contracts that have the effect of prohibiting such conflicts," Merrill stated. "In addition to that, law firms have their own standards and codes of ethics under their respective bars. We tell the law firms that they’re supposed to avoid such conflicts and they do the policing. If there’s a conflict we don’t know about, we’d be happy to look at it."
But Sen. David Pryor says that philosophy is not sufficient.
"AID does not require its contractors to disclose its clients," Pryor says. "This is unacceptable. ... The truth is that AID does not check to see who else its contractors work for. The truth is that the taxpayers are paying for contractors who are working both sides of the street."
Combining government projects with work for private interests is also likely at the three accounting firms that lead consortia working on the $150 million privatization project in Eastern Europe.
The accounting firms - Deloitte & Touche, Coopers & Lybrand, and KPMG Peat Marwick - each lead a team of law firms, investment banks, and other companies that bid to land AID contracts to carry out such individual projects as drafting legislation, auditing factories and locating investors.
Although all three teams were involved at the start, Deloitte & Touche got a jump on the competition by working pro bono to help the countries figure out what they wanted the consortia to do for them. Then, Deloitte & Touche recommended itself to perform the work, and the host countries - Poland, Hungary, and Czechoslovakia - were happy to oblige by asking AID to assign the tasks to Deloitte & Touche.
Among the lucrative assignments AID gave Deloitte & Touche: $236,550 for "ad hoc privatization and economic advice to the Slovak deputy premier’s office;" $451,000 to help the Republic of Estonia develop a privatization strategy; and $4.6 million to advise the Czech Republic on 2,500 privatizations.
At the same time, Deloitte & Touche has been working with U.S. and European clients who are buying into the privatized companies.
But Robin McPhail, a principal in Deloitte & Touche, says that when conflicts of interest come up in a particular case, the company discloses it and steps aside.
"You can’t determine it in advance," says McPhail, who is based in Washington, D.C. "It’s no different than in the United States. We could be advising the U.S. Defense Department on an issue, and there could be a client on the other side. It’s not any different from any other client situation."
Other contractors disagree. "While we’re under AID contract, we’re prohibited [by firm policy] from pursuing any commercial interests," says David Wolcott, who advises the Polish government on an AID contract for RCG/Hagler, Bailly Inc. , an Arlington, Virginia energy consulting company.
"Obviously our advice would be suspect," says Wolcott, whose firm’s AID assignments included advising East European governments on energy regulation and related privatizations. "I couldn’t imagine going there and advising the government and the next day going to the government and saying, ‘Now I’m speaking on my own.’ It would undermine my credibility. Our advice would be worthless."
A spokesman for Coopers & Lybrand discounts the potential for conflict, explaining that all commercial work is handled by a British branch of their company. KPMG Peat Marwick declined to comment.
At least one consulting firm with an AID contract tripped over a client right away. Last summer, under an AID contract, Booz Allen & Hamilton began reviewing applications from telecommunications companies for the Development Cost Support Fund, a new $6 million AID grant program for small- to-medium-sized U.S. businesses that would not otherwise have the resources to market themselves overseas.
It didn’t take long for Booz Allen’s role as grant reviewer to bump into its considerable client list. In an internal report, obtained through the Freedom of Information Act, the fund administrator noted that the very first telecommunications application reviewed for the new AID fund was submitted by U.S. West - a Booz Allen client. To its credit, Booz Allen noted the conflict immediately and recused itself from reviewing the proposal.
Edward Mattix, a U.S. West spokesman based in London, says he does not remember if he heard about the fund from Booz Allen or another source. Charles Givans, a principal at Booz Allen, says his firm did not inform U.S. West about the project.
Still, the fact that the first applicant in the program was the main reviewer’s client is, at minimum, an odd coincidence.
As it turned out, U.S. West still prevailed. The grant reviewer that filled in for Booz Allen approved a $208,000 grant to the huge Denver-based company, which already was active in Hungary and was among the first U.S. businesses to move into Russia and Czechoslovakia.
That experience made U.S. West an unusual winner in a program designed to promote smaller companies that would not otherwise move into the region.
Robert Navin, director of AID’s Capital Development Initiative, who oversees the fund administered by the Booz Allen project, says exceptions to the size constraints are permitted if an applicant is deemed particularly worthy, which evidently applied to U.S. West. (Exceptions are also permitted to the salary caps that usually apply to AID contractors: Booz Allen won a waiver and earned more.)
Hazardous export?
To some critics, the most troubling aspect of AID’s contracting practices is the agency’s willingness to boost companies that have patterns of serious problems with much of their other work for the U.S. government.
Waste Management Inc. (WMI) and the Westinghouse Hanford Corp ., for example, have each received two weeks of valuable time from an AID contractor charged with helping to promote small and medium-sized U.S. business in Eastern Europe.
The AID contractor, Sanders International Inc. , a Washington, D.C.-based consulting firm, spent about 80 hours on AID’s tab, guiding WMI and Westinghouse through the morass of Eastern European bureaucracies and trying to find projects for them. Both are now considering environmental cleanup work in the region.
In 1991, WMI paid $8.1 million in fines to settle Environmental Protection Agency charges concerning the company’s handling of government work at several Superfund hazardous-waste sites; that followed $5.4 million in settlements in 1990. Last year, a WMI subsidiary, Chemical Waste Management Inc., pleaded guilty to six felony counts and agreed to pay $11.6 million in penalties for mishandling government-funded cleanup work at a Superfund dump site.
In March, the state of Washington fined the Westinghouse Hanford Co., along with the U.S. Department of Energy, $100,000 for the violation of hazardous-waste regulations.
"They’ve had trouble for years," says Jerry Gilliland, a spokesman for the Washington State Department of Ecology, which levied the fines. In a statement describing the violations, the department noted that one factor that led to the fine was the length of time that Westinghouse knew about the violations. "Ecology inspectors found internal Westinghouse audit reports identifying the problem repeatedly since 1989," the department noted in a statement released when the fines were announced.
Robert Pollard, senior nuclear safety engineer with the Union of Concerned Scientists, thinks that Westinghouse is a bad choice for overseas export. "If you look at Westinghouse’s record in Hanford, one would think that somebody in the U.S. government would be smart enough to know that this is not a good, shining example to send overseas," says Pollard.
Sen. Pryor also questions the wisdom and propriety of AID’s assistance to WMI and Westinghouse. "This raises a concern that I have had for years," Pryor says. "If a company has violated some law, owes some taxes, has been debarred or suspended, or there is some other relevant information concerning that company, then this should be known to the federal government before the company receives anything from the government."
But Steven Swanson, Sanders International’s founder, says that he doesn’t discriminate against companies with mixed track records when, under his AID contract, he tries to find overseas investments for U.S. companies. "I’m not certain that the fines that people have had or their [negative] experience necessarily translates into what’s going on over there," Swanson says. "We feel an obligation to help everyone equally." As for the issue of why he helped such large companies that have the resources to conduct their own groundwork, Swanson says that, until now, he has had time to help everyone who has asked.
Jan Miller, an AID assistant general counsel, agrees that, unless a business is officially barred from being a U.S. contractor, AID shouldn’t unilaterally decide they are not worthy recipients. "Unless they are actually declared suspended, they continue to be eligible," Miller says. "We don’t pretend to be experts in energy. We cut across every sector."
An uncertain future
In May 1993, J. Brian Atwood was confirmed as President Clinton’s choice to take over the agency. Atwood, who was president of the National Democratic Institute, a government-funded agency that supports democracy abroad, declined to be interviewed.
But Atwood is overseeing what may be a major restructuring of AID in the wake of a Clinton task-force report on AID’s work worldwide. One result could be a shift away from heavy reliance on contracts with U.S. corporations and other entities, which played a central role in the program during the 12 years of Republican administration. Instead, explains one adviser to the task force, AID and other agencies would take "a bottoms-up approach, looking to build on what is already there on the ground and can be accomplished by local populations."
But even if Atwood is serious about undertaking a major overhaul, critics question Atwood’s ability to revamp such an entrenched bureaucracy. They say it won’t be easy to loosen the grip that private interests seem to have on the agency. "That’s the tradition," says one longtime AID official. "The question is, does the Clinton crowd have the guts to break it?"
ON THE NIGHT OF AUGUST 27, 1993, a dam burst high in a remote western province of China , sending torrents of water crashing down on nearby villages, killing more than 200 people, and rendering thousands more homeless. Though no official reason has been given for this latest human-made disaster in a country plagued by them, one government spokesperson admitted that a destructive earthquake which hit the region of the Gouhou dam in 1990 "may have had some effect" in causing the dam to collapse under this year’s flood waters.
Amid the horror of the death and destruction in this outlying area rose a different fear among opponents of the Three Gorges dam, the world’s largest, now under construction on the mighty Yangtze River. Though thousands of miles away from the Gouhou dam, the Three Gorges dam is also located close to seismic fault lines. Located in one of China’s most densely populated areas, a dam burst at Three Gorges would, says engineer Philip Williams, president of the San Francisco-based International Rivers Network, "rank as one of history’s worst man-made disasters."
Situated in the upper reaches of the Yangtze, the world’s third largest river and one its most dangerous, the dam would attempt to control the 6,300-kilometer river that surges through the legendary, 200-kilometer stretch of narrow canyons formed by limestone cliffs, known as the Three Gorges.
Dam proponents - the Chinese government, engineering giants like Hydro- Quebec and international aid agencies like the World Bank and the Canadian International Development Agency (CIDA) - claim the Three Gorges dam will do what no other dam on earth has been designed to do: protect millions of people living along the middle and lower reaches of the river from disastrous floods; generate up to 20,000 megawatts of hydroelectricity for China’s energy-hungry industrial centers; and transform a 600-kilometer stretch of the fast-flowing river into a smooth navigable waterway for ocean-going vessels.
The dam would cost a staggering $12 to $20 billion. "It is," expounds Tao Jing Liang, a top official with China’s ministry of water resources and electric power, "the biggest and most essential project in China’s history." When finished, the gargantuan wall of concrete and steel would span 2 kilometers across the river and soar 185 meters into the air, creating a 600-kilometer-long lake behind it, flooding the homes of an unprecedented 1.3 million people from more than 100 towns, 800 villages and nearly 100,000 hectares of China’s best farmland. The benefits, say advocates of the dam, outweigh these costs.
But environmentalists and engineers from around the globe, and eminent scientists and economists within China, think otherwise. By forever changing the hydrology of the river for thousands of miles, they argue, the dam would destroy commercial fish stocks and deprive the complex floodplain agricultural systems of the water and silt they need, threatening the livelihoods of 75 million people who live by fishing or farming along the Yangtze’s banks. Important archaeological sites - some dating back to 10,000 B.C. - would be submerged. Many species of fish and fowl would be threatened with extinction. And, contend critics such as University of Manitoba professor Vaclav Smil, author of several books on China’s energy sector, alternative sources of electric power - including efficiency improvements and smaller-scale turbines that operate on everything from natural gas to chicken manure - are cheaper and more readily available than power from the dam, which would take 18 years to build.
But most important, critics argue, the dam will not perform as planned. The dam would obstruct, not improve, navigation by making shipping vulnerable to an untested lock system that would prohibit the passage of every ship whenever serious technical problems arise. The promised flood control benefits are exaggerated, scientifically unsubstantiated and politically motivated. Experts state that the dam would put more people at risk of flooding than would be removed from harm’s way.
Upstream communities for hundreds of kilometers would be threatened when the fast-flowing Yangtze’s massive silt load is dropped in the slow-moving waters of the reservoir, creating mud banks that cause floods. Downstream of the dam, millions of people, lulled by a false sense of security created by the dam, are expected to settle on what are now the floodplains of the Yangtze, putting them at risk of the floods that will inevitably come. To make matters worse, with sediment trapped behind the dam, the "clearwater" flows passing through the dam will erode banks and dikes, causing still more flooding. And the 500-kilometer coastline, where the Yangtze empties at Shanghai, will be starved of the sediment that has for millions of years slowly raised mudflats that protect the coastline from storms and rising tides.
Catastrophe in the making
Proponents downplay the possibility of a catastrophic human-made disaster, though several fault lines run right under the dam site itself. To critics, such as the International Rivers Network’s Williams, the proponents’ analysis glossed over the potential for reservoir-induced earthquakes and landslides, compromising their dam design as a result. The compromise may also be present in the dam’s submerged spillway bays - 27 in all and each one with the average flow of the Missouri River. The dam’s engineers are confident they can design, construct and operate them, even though these engineers admit their size would be "well beyond proven world experience." If they are wrong, they could lose control of water flows, risk overtopping and catastrophic destabilization of the dam structure itself.
The dam’s origins
The idea of damming the Three Gorges was first proposed in the 1920s by Sun Yat-Sen, revolutionary and founder of the republic. Since then the debate over whether to build the Three Gorges dam has been as tempestuous as the Yangtze River itself.
The U.S. Bureau of Reclamation, the foremost U.S. dam-building agency, was the first to help Chinese engineers pick a site in the 1940s, only to be replaced by the Soviets in the 1950s. The Yangtze floods of 1954, which left 30,000 people dead and one million people homeless, brought a renewed sense of urgency to damming the Three Gorges. Chairman Mao Tse Tung vowed to speed up preparations for the dam. Since that time, hundreds of government agencies, bureaucracies, and academic bodies have participated in detailed studies on all aspects of the megaproject. But the plans have never been finalized because efforts to push the project through China’s elaborate decision-making process have been interrupted over the years by ideological struggles, the chaos of the Cultural Revolution, economic troubles and prolonged governmental debate over the feasibility of the project.
By 1981, the U.S. specialists were invited back, leading to a five-year agreement with the United States for technical assistance to Chinese dam builders. That same year, Sichuan province was struck by devastating floods, adding fresh fodder to those pushing the dam. By 1985, a high-powered consortium of U.S. dam-builders known as the U.S. Three Gorges Working Group was formed, including representatives from the U.S. Bureau of Reclamation, the U.S. Army Corps of Engineers, the American Consulting Engineers Council, Guy F. Atkinson Company, Bechtel Civil and Mineral, Inc., Coopers and Lybrand, Merrill Lynch Capital Markets, Morgan Bank, Morrison-Knudsen Inc., and Stone and Webster Engineering Corporation. That working group submitted a proposal to the Ministry of Water Resources and Electric Power which recommended that a cost- benefit analysis acceptable to potential financiers be conducted and that the dam be built by a joint venture between the Chinese government and the U.S. Three Gorges Working Group, with possible funding from the World Bank, the Asian Development Bank, Sweden, Japan and Canada.
But to the U.S. consortium’s chagrin, its reputation preceded it. In 1986, the Chinese Ministry of Water Resources of Electric Power, apparently fearing that U.S. corporate endorsement of the dam would only strengthen the hand of dam critics inside China, asked the Canadian government to finance a $14 million feasibility study to be conducted by a rival Canadian consortium. The consortium, known as CIPM Yangtze Joint Venture, included three private companies (Acres International, SNC, and Lavalin International) and two state-owned utilities (Hydro-Quebec International and British Columbia Hydro International). The World Bank would supervise the feasibility study to ensure it would "form the basis for securing assistance from international financial institutions."
A flood of opposition
Then, early in 1989, with the Canadian feasibility study recently concluding that the dam "should be carried out at an early date," and a Chinese feasibility study recommending an even higher dam, an extraordinary political event occurred within China. Prominent citizens, scientists, intellectuals, journalists and artists - gathered to condemn the recommendations that the dam be built - released Yangtze! Yangtze!, an independently published collection of interviews and essays critical of the Three Gorges project. Speaking at the press conference organized by the book’s editors, author Chengjing Jie declared: "We hope the authorities halt this big-name, big-money, low- benefit project that serves as a monument to a handful of people." The critics’ news release stated: "For the first time ordinary Chinese people will not keep silent on a weighty economic policy decision. They don’t want to see an endless repetition of foolish policies."
Yangtze! Yangtze! marked what the Far Eastern Economic Review would call "a watershed event in post-1949 Chinese politics:" for the first time, China’s journalists, intellectuals, and public figures dared to lobby the public to influence the governmental decision-making process. The publication of Yangtze! Yangtze! was a feat of breathtaking determination: it was produced in under four months in order to influence delegates attending the Chinese People’s Political Consultative Conference meetings in March and the National People’s Congress (NPC), at which a final decision to build the dam was expected. Momentum gathered. Hundreds of delegates called for the Three Gorges project to be postponed into the next century, leading to the announcement that the project would be shelved for at least five years. Days later, the Chinese People’s Political Consultative Committee denounced the Chinese feasibility study, saying it was not conducted in a scientific or democratic manner, and called for a complete reappraisal of the entire project.
This unprecedented show of opposition to the dam, a project known to be favored by Premier Li Peng, was one of many blows dealt to the Chinese leadership in early 1989. According to sinologist Frederic Moritz of Pennsylvania State University, the premier’s "loss of face" due to the Three Gorges project opposition helped fuel the student protests for democracy in Tiananmen Square. China’s burgeoning environmental movement had scored a momentous victory by successfully opposing the government’s plans to build the massive dam. But their victory, and the unprecedented public repudiation of the proposed dam, was short-lived.
The clampdown begins
The daring act of launching China’s first public campaign against a project supported by the highest levels of government would cost the critics. Dai Qing, the book’s chief editor, was arrested soon after the Tiananmen Square massacre and jailed without trial for 10 months, during which she was told she would be executed. Yangtze! Yangtze! was banned on the grounds that it "abetted the turmoil." Criticism of the Three Gorges dam was, and remains, strictly forbidden.
With the critics silenced, Premier Li Peng, a Soviet-trained hydraulic engineer and the project’s champion, revived deliberations on the fate of the Three Gorges. According to the South China Morning Post, the dam-builders now had a good chance to get the project off the ground, since the dam’s critics had been silenced by the government’s campaign against "bourgeois liberalization."
But criticism of the project was not silenced abroad. The Canadian environmental group Probe International forced disclosure of the Canadian feasibility study using Canada’s Access to Information law. After a thorough review of the study by nine independent experts from around the world, who found systematic bias and compromised engineering throughout the study, Probe International published its findings in a book entitled Damming the Three Gorges, and launched precedent-setting complaints of negligence and professional misconduct against the Canadian firms that carried it out.
But Beijing was not about to allow this challenge to the proposed project to interfere with its schedule. In anticipation of securing formal parliamentary approval from the National People’s Congress, the Chinese government started moving people from the dam site. By the summer of 1991, 50,000 people had been uprooted. "We are experimenting with moving households," explained Guo Shuyan, governor of Hubei province, "so that when the project is approved we will be able to carry out the relocation process as quickly and as efficiently as possible."
Later that year, the U.S. Bureau of Reclamation signed a contract with the Chinese government to provide consulting services and technology for the Three Gorges dam. The contract also pledged assistance from the U.S. Army Corps of Engineers.
The dam’s turbulent approval
While Beijing prepared to secure approval for the dam from the March 1992 session of the National People’s Congress, renegade delegates in the normally sleepy, rubber-stamp parliament prepared to contest it. Furious that they were denied access to critical reports of the dam, they requested a parliamentary debate. But on the day of the vote, the chairman refused to allow any discussion.
In a last ditch effort, one delegate, Huang Shunxing, interrupted the vote by standing and shouting his opposition. Pandemonium reigned for five minutes as the press descended on the delegate. When the chairman yelled that no one would be heard from, another delegate, Liu Caipin, shouted: "The NPC has violated its own law." She then pressed the objection button on her computer and stormed out, chanting "I protest, I protest."
In taking the vote, Premier Li Peng was dealt another blow when, for the first time in the history of communist-led China, one-third of the delegates registered their opposition to a government proposal by voting no or abstaining. But with two-thirds of the dutiful delegates voting in favor, the Three Gorges dam was officially approved.
Cold feet, clay feet
As Three Gorges moved closer to becoming a reality, its foreign supporters increasingly moved to distance themselves from the project. Pierre Senecal, vice-president for environment at Hydro-Quebec and an author of the Canadian feasibility study, told a recent conference of impact assessors in Shanghai that his study’s conclusion that resettlement was feasible "is not valid anymore," citing population growth and the shortage of replacement land. Another contributor to the Canadian feasibility study, Professor Carl Nordin, recently told a special seminar at the American Society of Civil Engineers National Hydraulics Conference in San Francisco that "there are quite a few problems with the Canadian study. ... I don’t support a lot of the Canadian options." CIDA, the Canadian aid agency that funded that feasibility study and which endorsed the study’s conclusion that the plans to build the dam "should be carried out at an early date," officially announced that it would not provide any more money to the dam because of "budgetary restrictions." Unofficially, CIDA representatives acknowledge that the agency had tired of getting flak from the Canadian public. As for the World Bank, inside sources say the Bank was "walking on eggs" over the Three Gorges dam, and any World Bank money for the dam would be "camouflaged as some kind of social contribution - roads, schools and so on."
Then in September 1993, the U.S. Bureau of Reclamation confirmed that it will cancel the balance of its contract to assist with the design and construction of the dam, arguing that large-scale, water-retention dam projects are not "environmentally or economically feasible."
But defiant to the end and desperate for foreign financing to build the dam, the Chinese government has stated that the firms to which it awards equipment contracts ("the Danes, the Germans, the French and the Americans are all trying to sell us equipment," reports one Three Gorges official) will obtain concessionary export loans from government agencies such as the U.S. Export-Import Bank.
In addition, the Chinese government is taking advantage of private foreign financiers’ desperation to gain access to the huge untapped Chinese market. The government recently gave special access to China’s banking, insurance, securities and real estate markets to a joint venture - including Merrill Lynch & Co . of the United States, a Taiwanese investment firm and the Lippo Group of Indonesia - on the condition that it provide financial support for the dam’s construction.
Though officially approved, and already proceeding, completion of the Three Gorges dam is by no means a certainty, say critics. Nagging problems may kill it in its infancy. The Yantgze’s massive silt load, which is expected to cripple the dam, remains an unresolved hurdle. Domestic economic woes, simmering opposition at home and boiling opposition abroad could make implementation politically impossible. And liability concerns of financiers, consultants, and suppliers alike that the dam might increase the risk of a catastrophic flood that could kill millions - may finally close the curtain on the seven-decade long debate over the Three Gorges dam.
Sidebar
Probe International files
complaints against Canadian
Engineers
On September 17, 1990, using the findings contained in its book Damming The Three
Gorges, Probe International filed complaints against five Canadian engineering firms
for their work on the Three Gorges Water Control Project Feasibility Study. The
complaints were filed with the regulatory bodies which are legally responsible for
regulating the profession of engineering in the provinces of British Columbia, Quebec and
Ontario.
Probe International accused the engineering companies of negligence, incompetence and professional misconduct, arguing that the engineers had violated their professional and ethical codes which required that they:
o be realistic in the preparation of all estimates, reports, statements and testimony;
o not distort facts in an attempt to justify decisions or avoid responsibilities;
o regard their duty to public safety, health and welfare as paramount;
o guard against conditions which are dangerous or threatening to the environment;
o make reasonable provision for the safeguarding of life, health or property of a person who may be affected by the work for which the practitioner is responsible.
In Quebec, the Ordre des ingénieurs du Québec (OIQ) rejected Probe International’s complaint on the grounds that "we have authority over individuals only, and none over engineering firms." As the OIQ explained, so many engineers worked on the study that it was "impossible for us to attribute to either one or several of our members total or even partial responsibility for any hypotheses, solutions, and recommendations." The OIQ argued: "No individual decision was taken by any particular engineer for which he/she could be held responsible."
The Association of Professional Engineers of the Province of British Columbia also rejected Probe International’s complaint, on the mistaken grounds that the terms of reference for the study did not require the engineers to do proper environmental and social assessments.
Meanwhile, after a two-year investigation, the Association of Professional Engineers of Ontario (APEO) admitted that "there are in this case varying opinions among competent, experienced and reputable experts as to whether the Feasibility Study reflects an acceptable standard of engineering practice on the part of the CYJV [the engineering consortium] in general, and Acres in particular."
Although the APEO went on to reject Probe International’s complaint on the ground that the engineers followed "generally accepted international engineering standards," it failed to define those standards, or to identify who sets and enforces them. Nor did the APEO explain how those "generally accepted international engineering standards" could deviate so dramatically from the standards used in Ontario, Britain and the United States, and by the U.S. Commission on Large Dams and the International Commission on Large Dams which, Probe International argued, were violated by the Canadian engineers. Probe International has appealed the APEO’s decision.
Should the Canadian engineers be found guilty of violating their professional responsibilities in the course of carrying out the Three Gorges feasibility study, they would be subject to a range of disciplinary actions from reprimands or financial fines to the suspension or revocation of their licenses. -P.A.
Jan Olszewski gained his reputation in Poland as a human rights lawyer, having defended political dissidents since the 1960s. He was a top adviser to Lech Walesa and the Solidarity trade union movement in the 1980s. Olszewski was Poland’s third prime minister after the collapse of the Communist government in 1989. He held the position from December 1991 to May 1992. In Poland’s September 1993 elections, Olszewski's political alliance, The Movement for the Republic did not receive the 5 percent threshold vote needed for representation in the Polish Parliament.
Multinational Monitor: What sort of economic system do you envision for Poland?
Olszewski: There is talk of a free market, a market economy, but a free market can mean many different things. It will mean one thing in Sweden, another in Brazil, and yet something else in Nigeria. Now it certainly has to mean something else if it is introduced to countries held back by the remnants of communism, like Poland, Czechoslovakia , Hungary , not to mention Romania and Bulgaria . We certainly are aiming to build a market economy, but this has to be, out of necessity, something other than a system identical to that, for instance, of the United States, or perhaps even of Western Europe.
MM: Given the external pressures, does Poland have any real chance of creating some alternative system?
Olszewski: Obviously, we are gravitating to the European Community, its defined economic structure, and ultimately the same model. But attaining this model cannot be done in a single leap, as was attempted in Poland in 1989, specifically the program of the Balcerowicz group [Olszewski replaced Balcerowicz as Poland’s prime minister in December 1991], that is, the plan postulated by Jeffrey Sachs. This kind of attempt was undertaken and it has ended unsuccessfully. You cannot do that with one quick, very radical move; this is a question of the entire process of transformation, taking place over a long period, and certain elements in this transformation are preexisting structures. It is not possible to part with these structures overnight. They will determine the method of restructuring as well.
MM: How do you propose transforming the old state-run industries?
Olszewski: Part of the huge state industry system is completely absurd. Economically, it was tied to the Soviet war system, it worked for the needs of the Soviet military complex. Obviously this part of industry cannot be preserved. But we cannot just abandon the greater portion of heavy industry, nor can we lead it to complete ruin. We have to try to somehow transform what can be saved.
Obviously, this requires a considerable amount of money. Either this money comes from abroad, which makes the transformation easier and quicker, or we have to find money here, which slows down the whole process considerably. But, in any case, the change cannot be carried out overnight.
In my opinion, the most rational way is to maintain some form of a mixed economy. The state cannot suddenly repudiate its responsibility for existing enterprises. In some instances, like in the city of Mielec [a city in southern Poland with a population of approximately 50,000 people], unprofitable enterprises have to be supported, because entire cities depend on them. We cannot say that overnight we are liquidating them, because we would be liquidating entire cities. That would be an utter social catastrophe.
MM: Could you elaborate on what is happening in places like Mielec?
Olszewski: The issue is that people in Mielec have been working for the past three years in this enterprise. Theoretically, they are working, since for two weeks they work and for two weeks they are on furlough, and they end up with a third of their wages. This enterprise cannot be closed because a whole city depends on it; but, at the same time, it has no reason to exist in the long term, since it was intended to produce airplanes for the Soviet Union, which no longer needs them. This industry has to be transformed, but it cannot be done instantaneously since there is not enough money. So they are making changes gradually, they are manufacturing different [non-military] products, some of which are being exported to the United States. The state cannot repudiate its responsibility for this enterprise and just pass it off to either the city or the workers or someone else. We simply have to assure these people and this city some minimum of existence. And Mielec is only one of numerous examples.
If this were a situation such as East Germany, where there had been an inflow of West German capital that takes over those enterprises for free, and West German companies agreed to it, then very well. But here we do not have anyone who would take over these operations for the state. Foreign capital will not do it because, for the most part, our enterprises are not attractive investment options. The problem is not one of immediate changes in ownership, but of changes in the way the economy is run.
Foreign capital investment is very much needed in Poland. But it is needed in a sensible manner. Otherwise, if it is done in order to drive enterprises to bankruptcy and then buy them out for nothing, and it turns out that Polish industry is bought out in this way, then this is a different kind of capitalism than that in Western Europe or the United States. It is the kind of capitalism you find in Nigeria .
MM: So what you fear is neocolonialist relations between the West and Poland?
Olszewski: Exactly. A country dominated by neocolonialist capitalism could not enter as an equal partner into the European Community. It would simply be unqualified; it would remain as a kind of marginal area of Europe, a kind of hinterland.
MM: In this scenario, Poland would relate to Europe the way Mexico relates to the United States?
Olszewski: Right. Just as Mexico will always be for the United States both a source of profit for certain corporations and at the same time a danger, since masses of poor, uneducated people flow in [to the United States from Mexico]. This would be the same kind of thing on the border of the European Community. But [foreign investment] is just one aspect of the transformation of the public sector. It cannot take place on the principle of uncontrolled privatization, because it would then lead to this kind of Mexican structure.
MM: What kinds of problems does Poland face in transforming other elements of the economy?
Olszewski: The second problem besides industry is agriculture. In Poland, it looks different than in other socialist countries. Private ownership was preserved here and the situation is a little better. We do not have to break up collective farms and rebuild the entire agricultural system. The basic infrastructure is already there. But it is extremely backward. For 40 years private farming was treated as something that should disappear. Now it has to be rebuilt and to be brought up to the same level as the West.
However, this cannot be achieved on the basis of free trade - direct competition between our farmers and Western farmers - since our agricultural sector would be ruined immediately. It will not withstand this competition. It has to be protected and simultaneously the state has to plan its gradual reconstruction. There must be a plan as to the optimal size of these farms, what kind of model we are aiming for, and for gradually eliminating, through appropriate policy, the smallest farms, while finding other work in the country for these people, in servicing the larger farms, for instance.
There is also a third problem facing the economy: the base for an authentic free market is not huge capital, it is the middle class. But small business was destroyed here, and this social class has to be rebuilt. The Balcerowicz plan has a different emphasis; it is as if huge speculative capital came to be preferred, making itself rich through swindles, in part with the cooperation of the former nomenklatura, which, taking advantage of its influences has also been taking possession of state property. Policy toward small and medium-sized business has been and continues to be restrictive.
Once a middle class arises, we will be able to say that a market has really been recreated. Then, even the entry of big foreign capital will not be such a danger.
MM: You met with World Bank representatives in April 1992. How did they view the situation you have just described?
Olszewski: They were clearly aware of the failure of the Balcerowicz plan. But I did not have the impression that they were entirely clear how the economic reconstruction process should proceed and what kind of model is most rational for Eastern Europe. I did not come away with the impression that they had any vision of such a model, but it is difficult to demand it of them, since really neither the World Bank nor the International Monetary Fund have ever dealt with this kind of problem.
I have the impression that it is as if they look at these countries the same way they look at the underdeveloped countries of the Third World. But this is a mistake. Because this is a completely different kind of society and a different kind of economy. In one sense we are in a markedly worse situation; for instance, even in the poorest Latin American countries there has always been something in the way of a market infrastructure, buyers, artisans, a certain group with private initiative. It may have been very primitive, but it was there.
Here, we do not have this. And we do not have people with the mentality to immediately begin these kinds of activities. We still have to build this, in a certain sense.
On the other hand, we have an industrial base, although it is partly useless. And we have a working class that has a certain degree of professional competency and some general level of education - which is lacking in the Third World. This labor force, at the moment, is confronting a situation where it is not useful. But it can and somehow must be utilized, because it has completely different social ambitions than, say, the peon class in Latin America. People from the World Bank and International Monetary Fund do not seem to grasp these specifics of the situation in Eastern Europe; they do not seem to understand that you have to find a completely different solution. That was my impression.
MM: But this leads back to the question: how do you escape from the World Bank and International Monetary Fund?
Olszewski: This depends precisely on how the multilateral institutions and the West understand their interests here. They have to decide on one thing: whether they support their economic interests here or whether they support a democratic system. The two are incompatible. If it is exclusively their economic interests, then they have to consent to a dictatorship here. If they want political democracy, then they have to agree to a market system that is built gradually so that every fundamental and important social class gets a share. This means that Western capitalists have to understand and they have to agree that they will not extract huge, immediate profits from Poland.
"THE 1990S HAVE STARTED WITH A BANG," said William Ryrie, executive vice president of the International Finance Corporation (IFC), an affiliate of the World Bank , as he recently addressed the Seventh Annual Conference on Privatization sponsored by the British think tank, the Adam Smith Institute. "Privatization will, I am sure, be a continuing theme of the remaining years of the century, and the potential benefits to the countries concerned will, I have no doubt, continue well into the new century."
Ryrie’s enthusiasm for privatization of publicly owned enterprises is reflected in World Bank policy during the last decade. Ahmed Galal, a senior economist at the World Bank, says, "Privatization has featured in almost every structural adjustment program in the last 12 years or so." As of 1992, the World Bank and its affiliates had supported privatization in more than 180 Bank operations, and had provided investment, support and advice to privatized firms in dozens of IFC operations. The World Bank has pushed privatization in countries ranging from Argentina to Zimbabwe .
The Bank’s use of privatization as a conditionality for the receipt of structural adjustment loans has escalated in the last few years. The proportion of World Bank structural adjustment loans made conditional on specific privatization targets has risen from only 13 percent in 1986 to 59 percent in 1992.
The Bank’s emphasis on privatization over the last decade has drawn sharp criticism from a wide array of government officials, academics, community activists and institutions, perhaps most notably the United Nations Development Program (UNDP). They charge that privatization has primarily benefited multinational corporations, which have gained access to previously closed industries in the Third World and Eastern Europe, and local elites in those countries, who have bought up privatized enterprises at discount rates. As the UNDP’s 1993 World Development Report asserts, "In many countries the privatization process has been more of a ‘garage sale’ to favored individuals and groups than a part of a coherent strategy to encourage private investment."
Privatization and related policies have widened the gap between rich and poor and increased human suffering throughout the Third World and Eastern Europe, contend critics. Although the Bank insists that its promotion of privatization is based on "pragmatic" considerations and that privatization will eventually lead to a reduction of poverty, the effect of Bank-inspired privatizations carried out so far has been to intensify poverty. The UNDP concludes that "the long-term objectives of privatization may be to increase economic growth and human development but the immediate effects [on human development] have been traumatic."
Many of those who most harshly condemn World Bank-directed privatizations are quick to assert that they are not detractors of privatization per se. For example, Brendan Martin, author of the soon-to-be published In the Public Interest? Privatization and Public Sector Reform, says, "The global privatization drive has been guided by a dogmatic ideological insistence that the market is better than the state at allocating resources and the private sector can run anything better than the public sector. It has been able to happen in part because the opposition to it has all too often fallen into the trap of simply reversing these propositions equally rigidly."
Martin, whose London-based organization Public World monitors and analyzes privatization and public sector reform developments worldwide, asserts: "The point is that privatization can and indeed must contribute to establishing a balance of state, market and society. It can help to improve sustainable economic performance, combat poverty and give people more control over their local industrial and agricultural development. In practice, however, it is having the opposite effect because it is serving an opposite agenda - that of concentrating wealth with the transnational corporations, income with elites and power with remote bodies and individuals far from the reach of political accountability."
Mexico : privatizing monopoly
Mexico was one of the early countries to undertake a large-scale privatization scheme under the World Bank’s tutelage. In 1986, with the government itself turning to a neoliberal economic agenda, the deeply indebted country assented to demands from the Bank and other financial institutions to undergo a major restructuring of its economic policies, including an extensive privatization program [see From the Many to the Few: Privatization in Mexico, Multinational Monitor, May 1991 ].
The Mexican privatization program, developed with the advice of the World Bank, failed in many ways to meet the objectives the Bank and the government had defined at the outset of the program. Instead of distributing wealth, improving efficiency and breaking up monopolies, says Carlos Heredia, an ex-deputy director of international economics in Mexico’s Ministry of Finance and now director of international programs at Equipo PUEBLO, a Mexican non-governmental organization, "Mexican privatization basically transformed public monopolies into private ones." Heredia asserts, "Privatization has worsened the already steep concentration of wealth in the country. Along with structural adjustment policies in general, privatization has benefited the friends of President Carlos Salinas."
Privatization in Mexico was supposed to improve the fiscal situation of the new government, demonstrate the government’s commitment to the private sector, improve the efficiency of enterprises, eliminate monopolies and improve the quality of public service. "The government has achieved the first two goals," Heredia says, "but the last three have largely been forgotten." El Financiero, a Mexican daily newspaper, reported in December 1992 that a large number of privatized industries have seen efficiency fall, monopolies maintained and serious financial problems worsened.
One of the largest privatized enterprises is Telefonos de Mexico (Telmex), which the government sold to a Mexican firm headed by Carlos Slim, a close political ally of Salinas. "The privatization of Telmex," Heredia says, "illustrates how Mexican privatization has benefited a few private capitalists at the expense of consumers." Since privatization, consumers’ telephone bills have skyrocketed and, according to Equipo PUEBLO, Telmex has not managed to improve services.
The World Bank recently subjected some results of the privatization of Telmex to an econometrics model, devised by Galal and others, who claim it reveals the overall effects on a country’s economic welfare. According to Galal, who managed the project, the researchers concluded, "In the case of Telmex, the bottom line is positive. The Mexican economy was better off with the privatization of Telmex." In response to assertions that the privatization of Telmex has hurt consumers, Galal says, "You have the winners and the losers - among these actors are government, the consumers, the workers. We do have numerical values as to who won how much. It is true that in the case of Telmex consumers were worse off and that is probably okay from an economist’s point of view."
Martin is critical of this type of research and methodology. He told the Monitor, "The Bank assigns numerical values to the interests of various categories of people - workers, service users, shareholders, and so on - which at best are totally arbitrary and at worst reflect existing inequalities. Then they say if the gains of the rich are greater than the losses of the poor, the welfare of society as a whole has improved."
Hungary : a multinational feeding frenzy
Hungary’s privatization program, like that of Mexico, has resulted in a massive transfer and reallocation of power. Yet, unlike the Mexican experience, in which assets were transferred primarily to local conglomerates, the Hungarian experience has been marked by a massive transfer of wealth to foreign multinationals. As is the case in many Third World and East European countries, Hungary’s industrial and service sectors need investment, and could benefit from more efficient management and production structures. The divestiture of public enterprises is central to the post-communist Hungarian government’s policy. The World Bank, however, has played a substantial role in determining the pace and structure of the country’s privatization program, loaning Hungary $200 million in April 1992, for example, on the condition that the government meet highly specific privatization targets.
By 1992, significant sectors of the Hungarian economy, including brewing, cement, glass, bread, vegetable oil, sugar confectionery, paper and refrigerators were in the hands of foreign multinational corporations. In 1991, nine of the largest 10 privatizations went to Western multinational corporations. Eighty-five percent of privatization proceeds came from foreign investors. Multinationals including Electrolux , Unilever and General Electric have plucked attractive state enterprises.
This concentration of ownership in the hands of foreign multinationals has upset many Hungarian citizens. Facing plummeting popularity and public alarm over the level of foreign control over the economy, in early 1993 the government began to institute policies designed to favor Hungarian investors over foreign ones in future privatizations. By May 1993, purchases of state enterprises by Hungarians outnumbered those by foreigners.
Nevertheless, Hungary’s privatization program continues to be plagued by controversy. In May, Imré Korosi, a member of parliament for the Hungarian Democratic Forum, the country’s largest coalition party, charged that the nation’s privatization minister, Tamas Szabó, was in charge of a "destructive privatization process." In June, the country’s State Privatization Agency (SPA) launched an investigation into allegations of fraud, blackmail and bribery during previous sales, announcing that it will investigate over 400 separate incidents of possible criminal malpractice.
Disputes over the role of foreign investors, despite the government’s recent reforms, are also ongoing. In May 1993, public outrage erupted following revelations that the Hungarian American Enterprise Fund (HAEF), a U.S. investment fund, was paying part of the salary of the chair of the AV RT, a state holding company. The chair, Paul Teleki, who was earning $130,000 per year, an amount that far exceeds the salary that AV RT alone would have provided him, resigned effective July 1, 1993 in the wake of publicity about HAEF’s payments.
The fact that a U.S. fund, with a significant interest in facilitating the purchase of Hungarian assets, subsidized the salary of the person who was in charge of half the nation’s business portfolio outraged many Hungarians. But the president of the HAEF, Alexander Tomlinson, says he saw nothing wrong in the arrangement, "We agreed to supplement [Teleki’s] salary in order that he be able to take the job," he told the Monitor. "We were able to do this because we have a certain amount of money allocated to technical assistance." He adds that the HAEF concluded that "we would have no reason to do business with them [AV RT] because we are dealing with small companies and they are dealing with big companies. If it [a conflict of interest] did arise, we would make sure that we didn’t act in such a way that we would take advantage of some kind of a conflict. We’ve had no business with them so far."
Kenya : confusion and corruption
Privatization has been a feature of World Bank structural adjustment loans to Kenya since 1983, when the Bank asked the government to consider the privatization of its maize marketing board. In order to receive desperately needed aid to help repay its mounting debts, Kenya implemented more market-friendly economic policies designed to boost exports. It lowered exchange rates and cut social services. It has also slowly begun to privatize state-owned enterprises.
"The Bank’s strategy has been extremely short-sighted," asserts Jasper Okelo of the Kenyan Economic Association. "It has failed to acknowledge the important role state- owned enterprises have played in the Kenyan economy." After independence in 1963, indigenous Kenyans lacked the capital and the experience to take over the enterprises left by the colonists. The new government set up the Industrial and Commercial Development Corporation and the Kenya Industrial Estates to help Kenyans enter business. Okelo contends, "When assessed in terms of efficiency and profitability, many of these firms have not been great successes. However, when they are assessed in terms of their original goals these firms have been relatively successful. They have succeeded in helping Kenyans participate in industrial and agricultural development and increased employment opportunities."
Furthermore, some studies indicate that Kenyan parastatals perform better than private enterprises on a range of economic indicators. A recent study of Kenya’s industrial sector by Kenyan researcher Barbara Grosh found that, by sector, Kenyan parastatals were generally less protected and more profitable and efficient than private firms. Citing Grosh’s research, Susie Ibutu of the National Council of Churches of Kenya told a conference on the social impact of structural adjustment in November 1991 the "advantages of privatization have been supposed rather than based on Kenya’s experience."
Interested in obtaining information on the impact of privatization on the vulnerable poor and in opening up discussion on alternatives to privatization, Ibutu distributed a questionnaire to representatives of non-governmental organizations and religious institutions. Ibutu reported that most respondents felt that privatization had the potential of releasing state resources so that government could "do what it does best" - provide social services. The respondents believed that any privatization program should be blended with a commitment to increase employment, improve efficiency, facilitate more involvement by indigenous Kenyans in the economy and transfer skills and technology. According to those who responded to Ibutu’s questionnaire along with many others, the Kenyan privatization program, and advice from the World Bank, has failed to meet or even address these goals.
Some Kenyan members of parliament have also been extremely critical of the country’s privatization program. On November 6, 1991, members of parliament charged that the government’s Ministry of Privatization was guilty of corruption and that the country’s privatization program was a conduit for transferring money out of the country. They also complained that government sales have been made to parties lacking managerial capacity and that state-owned enterprises have been shut down without authority.
A head-in-the-sand policy
Community groups, government officials, trade unions, academics and even the UNDP have criticized the way in which the last decade’s wave of privatization has been carried out under the World Bank’s direction. Despite widespread evidence that privatization has undermined communities, transferred power to remote bodies, concentrated wealth and income and contributed to growing poverty in many countries throughout the world, the Bank continues to pressure countries to embark on massive privatization programs.
The UNDP’s 1993 World Development Report asserts that the impact of privatization on human development has been given minimal attention by those intent on promoting it. The Bank’s research concentrates on the macro-economic impact of these policies at the expense of providing a comprehensive assessment of the impact of these policies on human welfare and communities.
Galal responds, "With every public policy you have a debate going both ways. You have those guys that like it and they are going to support it no matter what, and the guys that oppose it. And they are going to oppose it no matter what."
But Brendan Martin argues a more nuanced view is called for. "The trouble is that the debate has been polarized between whether or not privatization in general is a good or a bad thing," he says. "That misses the point, because neither public nor private ownership and control is necessarily right for every sector in every time. Like any other policy instrument, much depends on what privatization is designed to achieve and whose interests it is intended to serve."
by Ross Hammond and Lisa McGowan
GHANA’S STRUCTURAL ADJUSTMENT PROGRAM, one of the longest-running International Monetary Fund /World Bank -initiated economic-reform programs in Africa, is regularly cited by Fund and Bank economists as the prime example of how structural adjustment cures failing economies and places them on a path to sustainable growth. Although there is overwhelming evidence of the program’s failure, it continues to be used to legitimize adjustment programs elsewhere on the continent.
In 1983, the Ghanaian economy had reached a state of virtual collapse, the victim of falling cocoa prices, decreased government revenue, spiraling inflation and political instability. At the same time, $1.5 billion in loan repayments fell due as debts rescheduled in 1974 matured. Faced with possible bankruptcy, the Ghanaian government, led by Flight Lieutenant Jerry Rawlings, undertook a series of structural adjustment programs, designed and financed by the World Bank and the IMF. The programs became known collectively as Ghana’s Economic Recovery Program (ERP), which was divided into three phases: Stabilization, Rehabilitation, and Liberalization and Growth.
As part of the ERP, the government has slashed public spending, devalued the currency (the cedi), invested in natural resource exporting industries and carried out a number of other IMF/World Bank-prescribed reforms designed to orient the economy to export production and open it to foreign investors.
As reward for its relentless pursuit of World Bank and IMF-inspired reforms, Ghana has been showered with foreign aid. In its decade-long quest for economic recovery, the government has drawn upon virtually every funding mechanism available at the Bank and Fund, contracting more than $1.75 billion in Bank loans and credits by the end of 1990. In fact, by 1988 Ghana was the third largest recipient in the world of credit from the International Development Association (IDA), the Bank’s soft-loan window. Only India and China, each with populations over 850 million, received more than Ghana, whose population is only 15 million. IMF funding under the ERP has totalled over $1.35 billion, and total financial resources from bilateral and multilateral sources amounted to $8 billion over the first seven years of the program, making Ghana one of the most favored aid recipients in the developing world.
Macroeconomic failures of the ERP
Despite massive amounts of foreign financing, Ghana can claim little real progress under its structural adjustment programs. The most regularly cited indicator of success - real gross domestic product (GDP) growth averaging 3.88 percent annually between 1983 and 1990 - is indisputably an improvement over the negative growth rates experienced in the immediate pre-adjustment period. However, this figure looks less impressive when one takes into account population growth (3.1 percent a year), huge inflows of foreign exchange from donors, relatively good weather conditions over the adjustment period and the initial goodwill of the Ghanaian people towards the ERP. Furthermore, an examination of the sectoral distribution of GDP growth shows that:
o growth has taken place principally in those areas receiving direct financial/investment support;
o while the minerals and forestry sectors have grown, manufacturing has declined;
o the performance of the domestic food and livestock sub-sectors, critical to the well-being of most Ghanaian consumers, has on balance been negative; and
o the service sector (especially the transport, wholesale and retail subsectors) has grown from a 37-percent share of GDP to 42.5 percent, indicating that the economy is increasingly becoming a "buying and selling" one.
The evidence strongly suggests that growth in Ghana is aid-driven and, as such, is fragile and skewed toward those areas in which the donors are interested - such as natural-resource extraction - rather than towards domestic capacity building.
The goals of the latest phase of the ERP are to reduce inflation, generate a substantial balance-of-payments surplus, promote private investment and stimulate growth in the agricultural export sector. These goals have remained elusive, however, with the country’s economy slipping notably during the past few years.
o by 1990, real annual growth of GDP had fallen to 2.7 percent, down from over 6 percent in the mid-1980s;
o inflation, which dropped from 123 percent in 1983 to 25.2 percent in 1989, jumped to 37.7 percent in 1990;
o the ratio of investment to GDP is lower than it was in the 1960s and 1970s; and
o the tightening of credit (designed to control inflation) has decreased domestic investment and increased reliance on foreign borrowing; by 1992 the interest rate had risen to 37 percent.
Cocoa crowds out food
The World Band and IMF point to the growth of Ghana’s agricultural export sector as chief among the ERP’s successes. As a result of government incentives that included higher producer prices and increased investment, the volume of cocoa exports rose by more than 70 percent between 1983 and 1988. Cocoa is now responsible for more than 70 percent of Ghana’s export earnings. Unfortunately, the world market price of cocoa has been dropping steadily since the mid-1980s. According to a U.S. congressional study, world consumption of cocoa has increased by only 2 percent annually while supply has grown by 6 to 7 percent.
This emphasis on cocoa production has exacerbated local and regional income disparities. While approximately 46 percent of government expenditure in the agricultural sector has been invested in the cocoa industry, cocoa farmers comprise only 18 percent of Ghana’s farming population and are concentrated primarily in the South, which has traditionally been favored by both government and donors over the disadvantaged Northern savannah region. Since the 1970s, land, power and wealth within cocoa- producing communities have become increasingly concentrated as well. Currently, the top 7 percent of Ghana’s cocoa producers own almost half of the land cultivated for cocoa, while 70 percent own farms of less than six acres.
The government has not made economic incentives similar to those extended to agro-export producers available to those who produce food for domestic consumption. It has failed to promote food security through measures to raise productivity, yield and storage. As a result, Ghana’s food self-sufficiency declined steadily during the 1980s and the per capita income of non-cocoa farmers stagnated. Producers of rice, vegetable oils and other cash crops were hit hard by a flood of cheap imports, the product of trade- liberalization measures and exchange-rate adjustments.
Unequal burdens
It is the Ghanaian poor who have had to bear the greatest burden of adjustment. In the critical fishing industry for example, as a result of a series of currency devaluations, inputs have become more expensive, particularly for small-scale operators who fish to meet local needs. Increased production costs are then passed on to the nation’s consumers, most of whose real wages have been falling. Since Ghanaians obtain 60 percent of their protein from fish and fish by-products, the decrease in fish consumption resulting from higher prices has contributed to increased rates of malnutrition in the country.
Malnutrition and illness among the poor have also increased as a result of cuts in wages and public expenditures, currency devaluation and the introduction of user fees for health and educational services. In addition, illiteracy and drop-out rates have risen. When the minimum daily wage of 218 cedis was announced in 1990, the Trades Union Congress calculated that an average family needed 2,000 cedis a day for food alone.
The effects of eliminating thousands of government jobs under the adjustment program are spreading throughout the economy and to more and more people. Aside from the direct impact these cutbacks have had on urban unemployment rates, second-tier effects are being felt by the dependents of the newly unemployed, many of whom have been forced to take to the streets in search of income for their families. It is estimated that in Ghana an average of 15 people are at least partially dependent on each principal urban wage earner.
In contrast, rich Ghanaians have fared quite well under adjustment. Data generated by the 1987 Living Standards Measurement Survey indicate an increase in income inequality in the 1980s, compared to the 1970s. Land holdings and agricultural export earnings have become more concentrated, especially in the cocoa sector. Import- liberalization measures have led to increased food imports; the rich, with more money to spend, have more access to a wider range of higher priced food products, while more of the poor are going hungry.
Cutting down the forest for the trees
The economic-reform program has also promoted the export of timber, Ghana’s third most important export commodity after cocoa and minerals, with a devastating effect on the nation’s forests. The IDA and other aid agencies have funneled aid and credit packages to timber companies to enable them to purchase new materials and equipment. As a result, timber exports, in terms of volume and value, have increased rapidly since the start of the ERP, rising from $16 million in 1983 to $99 million by 1988.
This quick-fix solution to Ghana’s need for foreign-exchange earnings has contributed to the loss of Ghana’s already depleted forest resources. Between 1981 and 1985, the annual rate of deforestation was 1.3 percent, and current estimates now place the rate as high as 2 percent a year. Today, Ghana’s tropical forest area is just 25 percent of its original size. In its desperate drive for export earnings, the government has allowed timber companies and fly-by-night contractors to cut down the Ghanaian forests indiscriminately.
Such widespread deforestation is exacting a high toll on the country, leading to regional climatic change, soil erosion and large-scale desertification. Deforestation also threatens household and national food security now and in the future. Seventy-five percent of Ghanaians depend on wild game to supplement their diet, but with the forest stripped, wild game is increasingly scarce. For women, the food, fuel and medicines that they harvest from the forest provide critical resources, especially in the face of decreased food production, lower wages and other economic shocks that threaten household food security. These resources are lost when trees are cut for export.
They call this success?
After nine years of economic recovery programs and huge inputs of foreign aid, Ghana’s total external debt has risen from $1.4 billion to almost $4.2 billion. Current investment and savings are too low to sustain the GDP growth rate in the absence of foreign funding, and capital flight has become a serious problem. Since 1987, Ghana has paid more to the IMF than it has received. Environmental degradation is fast-paced and is exacerbated by the policies of the ERP. All of these indicators suggest that the long-term prospects for Ghana’s recovery are bleak and that Ghana’s budget-cutting, free-trade program, so enthusiastically applauded by Western creditors and commentators, is hardly a model for the rest of Africa.
Sidebar
Stated Goals of the "Economic
Recovery Program" (ERP)
ERP I (1984-1986): Stabilization
arrest and reverse the decline in production
control inflation
reform prices and restore production incentives
restore overseas confidence in Ghana
mobilize both domestic and foreign resources to restore the living standards of Ghanaians
improve the overall availability of foreign exchange and improve allocation mechanisms
ERP II (1987-1989): Rehabilitation
ensure substantial economic growth (around 5 percent)
stimulate substantial increases in the levels of savings and investment
place the balance of payments on a sounder footing
improve public sector management
ERP III (1989-1993): Liberalization and Growth
ensure an average annual growth of 5 percent, or about 2 percent per capita
reduce inflation
generate a substantial balance-of-payments surplus
promote private investment
promote growth in the agricultural sector
The agreement requires UTC to pay $3.7 million under the Resource, Conservation and Recovery Act (RCRA) - the largest civil penalty ever imposed under RCRA in an EPA agreement. The remaining $1.6 million will be paid under the federal Clean Water Act (CWA) and the Connecticut Water Pollution Control Act (CWPCA). UTC’s violations of environmental laws ranged from improper handling of hazardous waste to discharging pollutants without a permit.
Twenty-six UTC facilities in New England are covered by the audit agreement, which will assess the company’s ability to comply with a wide range of environmental statutes. Federal officials maintained that UTC’s widespread, serious and repeated violations could have been prevented if proper compliance procedures had been in place.
Under the agreement, UTC is required to retain a management consulting firm to assess the company’s management systems and its ability to comply with federal environmental laws, and to recommend improved management and environmental compliance procedures, which the company will then implement.
The settlement also requires that an outside firm audit UTC’s improved management procedures to ensure that they result in compliance.
"The audit, one of the most extensive ever agreed to in an enforcement action, will force widespread management improvement strategies to achieve compliance with every major environmental law at all of its facilities," says Paul G. Keough, EPA acting regional administrator for region 1.
As part of the settlement, Kimberly-Clark agreed to spend at least $47 million on facility improvements, including a new plant that will eliminate the use of chlorine in the bleaching process. The new facility is scheduled to start up in late 1994.
The agreement settles five dioxin lawsuits filed in 1990 and 1991 that sought a total of $500 million in damages.
The settlement covers all past, present, and future property damage claims by class members related to activities at the plant from 1988 to July 1993. Plaintiffs’ attorney Richard Freese says he is "unaware of any" health problems of landowners.
Kimberly-Clark did not admit to any wrongdoing in the settlement. The company denied that any health damages had occurred, or that the dioxin posed any material threat to human and aquatic life. The company said that upon completion of the new facility it will have spent $130 million on environmental improvements at the mill since 1988.
The complaint charged that Kimberly-Clark "knowingly and intentionally" discharged a form of dioxin known as 2,3,7,8-TCDD into the Coosa River which runs into Lay Lake. Tests of fish directly downstream from Kimberly-Clark’s waste discharge point at Coosa Pines have shown dioxin levels in excess of 30 parts per trillion (doses as low as .001 parts per trillion have produced cancer in test animals, according to the plaintiffs’ complaint). Many of the fish in the river had developed sores, lesions and numerous growths on the exterior and interior parts of their body. Prior to the discovery of these problems, the river had been a popular fishing area.
"We will not tolerate companies that seek to gain competitive advantage through the strategy of undermining the nation’s fair labor standards," Department of Labor Secretary Robert Reich says.
Of the $16.2 million, $13.2 million will go toward back wages for current and former Food Lion employees; $2 million will be paid as civil money penalties arising from the overtime and minimum wage violations; and another $1 million will be paid as civil money penalties for child labor violations.
Food Lion operates approximately 1,100 stores with over 60,000 employees. The company did not admit to any violations of FLSA in the settlement.
"Rather than spend considerable resources and years in litigation, we decided to resolve our differences with the Department now, and invest our dollars in our workforce," says Tom Smith, president and CEO of Food Lion, Inc.
Food Lion agreed to inform all employees of their rights and assured the Labor Department that no retaliatory action will be taken against employees who file complaints about unpaid overtime or other potential FLSA violations.
The settlement did not satisfy labor groups. "We don’t think the settlement was adequate in terms of the amount of money for back pay for workers, nor do we think it was adequate in terms of preventing future violations," says Greg Denier, of the United Food and Commercial Workers (UFCW). The UFCW filed the initial complaint, which included grievances from former Food Lion employees in 141 stores, with the Labor Department in September 1991. The $13.2 million settlement averages to about $330 per worker in back-pay compensation.
"Food Lion still had a net gain by violating the law," Denier says. "If the company made $65 million a year in not paying workers for off-the-clock work, then, after three years, paid $13.2 million in back pay, it’s certainly to [their] advantage to break the law."
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