Open the Debate

The financial turmoil of the past year underscores the fact that the global economy is too important to leave to central bankers, financiers, and corporations. Most of the world's people live and work in the global economy, but they are excluded from decision-making about its future. If there is to be a 'new economic architecture' for the global economy, all those it affects must be able to help shape it. This requires a global dialogue that is not limited to the richest nations and international financial institutions that are responsible for the current architecture --and for its crisis. We expect that all fora in which finance and investment regulations are discussed -- at the international and national levels -- include consideration of the proposals and principles made in this statement and allow participation by the public.

The Current Situation

At the core of the international economy is international investment by multinational corporations, financed by the global casino known as the world financial market. In 1980, the daily average of foreign exchange trading was $80 billion; today, more than $1.5 trillion flows daily across international borders. Private financial flows to developing countries grew from $44 billion in 1990 to $256 billion in 1997. Today, nine-tenths of capital flows are speculative, rather than productive in nature.

This explosive growth results in part from global financial deregulation. According to many economists and world leaders, this market 'liberalization' was supposed to deliver progress and well-being for all. Some surely benefitted. Four hundred forty-seven (447) billionaires now have wealth greater than the income of half of humanity. One-fifth of all foreign-owned assets in the world is controlled by just 100 multinational corporations. This concentration of wealth and power is increasing due to record mergers and acquisitions. But meanwhile, globalization has distorted economies, reduced self-sufficiency, expanded unsustainable extraction and use of natural resources, displaced families and communities, and made billions of people dependent on fickle foreign markets.

In response, the public in many countries has begun to question the current model of globalization and liberalization. The rejection of the Multilateral Agreement on Investment, the questioning of the role and performance of the International Monetary Fund, defeat of U.S. fast track authority, and criticism of the environmental, social and economic impacts of the World Trade Organization by civil society are among the strongest examples of this new debate.

The economic events of the past year have validated these concerns. The world has learned that 'hot money' can flow out of a country as rapidly as it flowed in. The result has been a ricocheting financial crisis that has devastated lives around the world. Financial volatility is bringing massive economic breakdown, insecurity, increased poverty, unemployment and dislocation, assaults on environmental and labor conditions, loss of wilderness and biodiversity, massive population shifts, increased ethnic and racial tensions, and international conflict. According to U.S. President Bill Clinton, "the world faces perhaps its most serious financial crisis in half a century."

The effects of free market financial deregulation are even threatening global elites. U.S. Treasury Secretary Robert Rubin states that "the global economy cannot live with the kind of vast and systemic disruptions that have occurred over the last year." He -- as well as many other economists and world leaders who helped to design the current system -- are now calling for a 'new architecture' for the global financial system.

Principles for Responding to the Global Financial Crisis

We welcome the fact that governments are discussing the issue of international financial regulation. We are concerned, however, that the wrong policies will further centralize wealth and power while rendering the world's citizens poorer and more powerless.

A new architecture for the international economy requires more than just plastering over the cracks in the current system's foundations. It requires new vision, goals, and principles.

Today's global financial crisis poses a grave threat to the prosperity of the world's people and environment. But it also provides an opportunity to rethink and reshape the rules of the international economy. It is time to ensure that the international economy of the future is built on a solid foundation of sustainable development, not unlimited profit for a few global corporations and elites.

To achieve these goals, we propose that new regulation of the international economy be based on the following principles: Principles

1. Democracy: Citizens must recapture their governments from global economic elites. The global economy must strengthen rather than undermine the capacity of democratic governments at every level, from local to multilateral, to meet the needs of the public. International institutions and negotiations must operate transparently with full and fair public participation.

2. Human Rights: Fifty years ago governments adopted the Universal Declaration of Human Rights. International economic rules and institutions must be based on the rights of people, not investor interests.

3. Sustainability: The protection of human health and preservation of natural resources and biodiversity will require the integration of economic and social objectives, within environmental limits.

4. Development, not Austerity: International and national policies should alleviate poverty, create and sustain livelihoods and enable sustainable human development to improve the quality of life for all.

5. Equity: The current gap between the global rich and poor, exacerbated by the high debt burden of many developing countries, is unacceptable. It is unconscionable to act as if it can be a permanent feature of the international economy. Within countries, policies should be designed to reduce inequalities thus improving health and social cohesion.

6. Civil Society Participation: Economics should serve the people. Those affected by economic have the right to participate in the policy making process. Civil society will engage with international and national economic institutions on the terms and agenda of civil society.

7. Financial Stability: Equitable, sustainable development requires economic stability. Destabilizing speculative investments should be regulated to discourage boom and bust development and the severe social and environmental consequences of financial crises.

8. Good Governance and Transparency: Governments and intergovernmental organizations are only accountable to the public if they operate in a transparent manner. Corporations and markets also require effective regulation and transparent procedures if they are to function in society's interests.

First Steps to Reform: Policy Proposals

A. Regulate International Finance

Principles on Financial Flows

1. Reorient the economy from speculation to long-term investment: The rules and institutions of the global economy should discourage all speculation and encourage long-term investment in the real economy in a form that supports local economic activity, sustainability, equity, and reduce poverty.

2. Reduce instability and volatility: The rules and institutions of the global economy should seek to eliminate instability in financial markets.

3. Enhance local and national political space: The rules and institutions of the global economy should create maximum space for national government policy-making to set exchange rate policy, regulate capital movements, and eliminate speculative activity.

4. Keep private losses private: The rules and institutions of the global economy should force private actors to absorb losses for bad decisions.

5. Address the imbalance between private and public flows: It is unreasonable to assume that development needs will be met by private capital flows alone. The rules and institutions of the global economy should seek to decrease private speculative flows while increasing public flows toward sustainable and equitable local activities.

Policy proposals to control financial flows and mitigate their negative impacts: Mechanisms to control short term capital and prevent capital flow crises are needed. If and when crises do occur, mechanisms are needed to mitigate the impact of destructive capital outflows, and ensure that the poor and the environment are protected from the effects of financial volatility.

Preventive policies: Governments should be allowed, and indeed encouraged, to pursue regulations and measures to restrict short term capital mobility, including implementing taxes, establishing capital controls, and setting exchange rate regimes. Governments should be free to pursue the policies that are best suited to their national needs and situation. An international financial institution is needed to provide sound economic policy advice for countries that will help prevent financial crises. Such an institution should be fully transparent, accountable, participatory, and democratic. Responses to crises: An international debt arbitration panel should be established to ensure that financial crises and debt obligations do not place undue burdens on countries. A panel is needed to ensure that a country does not sacrifice national development, poverty alleviation, and environmental protection priorities in order to meet debt service obligations. Regional monetary funds are needed to provide liquidity, without conditionality, for countries in crisis.

B. Hold Corporations Accountable

1. FDI and the operations of TNCs should serve the needs of people by contributing to locally and nationally determined sustainable human development strategies. This requires:

2. Corporations should be bound by an enforceable international agreement establishing core standards of behavior for TNCs. These standards, which would provide a floor, not a ceiling, include disclosure, respect for human rights, labor standards, working conditions, equality, consumer protection, taxation, indigenous and local community rights, business practices and competition, and sovereignty over development strategy. At a minimum, corporations should be bound by existing standards in already agreed international treaties and declarations, including ILO, UNHR, the Rio Declaration, etc. Corporations must be held accountable to these standards through effective binding mechanisms for monitoring and enforcement, such as international courts with citizen standing, access to local courts, standing to pursue justice in the home country courts of TNCs, and financial sanctions for non-observance.

3. The emergence of the global corporation poses key questions on the role of corporations in society and the structure of corporations. Corporations are creations of the law with interests that should be subordinated to social priorities. Governments should re-examine corporate structure and corporate behavior, including issues such as:

C. Increase Public Participation

1. When we engage the 'system,' whether at the national or international level, we demand full and meaningful participation, including basic principles of access to information, access to decision-making and access to justice.

2. We call on the institutions of civil society to build open and democratic social movements in order to challenge existing economic elites and their policies. Participation of civil society must be based on first principles and values defined by civil society.

3. In order to effectively ensure that civil society leads international regulatory and decision-making processes, national representative should be made fully accountable to civil society.