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May 2015

Halting the 'race to the bottom’ in corporate conduct: Governance reform, focus on ethics must repair the damage

Christopher Colford's picture

When terms like “criminal conspiracy” and “felony” appear in confessions and plea bargains, the criminal-justice system sits up and takes notice. And when the confessed felons are some of the world’s largest corporations, the private sector ought to be jolted into action, too.

The continuing shame of confessed corporate misconduct – in this case, lawbreaking conducted with such a degree of guile that the U.S. Attorney General called it “breathtaking flagrancy” and that the FBI labeled it criminality “on a massive scale” – reached a new intensity this month: Four of the world’s largest banks confessed to taking part in a five-year-long conspiracy to manipulate the world’s foreign-exchange markets.

This latest in a series of stern legal judgments has damaged the corporate reputations of some of the world’s most pivotal financial institutions – with guilty pleas, to felony charges no less, entered by Citicorp, JPMorgan Chase & Co., Barclays PLC and The Royal Bank of Scotland PLC. A separate guilty plea by UBS – along with earlier fines against Bank of America and HSBC in separate settlements in related cases – has brought the total of fines against those once-trusted, now-tarnished firms to about $6 billion.

The corporate confessions of deliberate lawbreaking, pursued with systematic and sinister stealth – at the very center of the international financial system – vividly validate the recent exhortation of Christine Lagarde of the International Monetary Fund: that corporate governance must be strengthened and that a higher standard of individual ethics must prevail, especially in the financial sector.

Lagarde wisely linked skewed incentives and a short-term profit-maximization mindset to the risk of financial instability, in an eloquent recent address to the Institute for New Economic Thinking’s conference on “Finance and Society”: “There is still work to be done to address distorted incentives in the financial system. Indeed, actions that precipitated the [global financial] crisis were – mostly – not so much fraudulent as driven by short-term profit motivation. This suggests to me that we need to build a financial system that is both more ethical and oriented more to the needs of the real economy – a financial system that serves society, and not the other way round.”

Those who champion the creative potential of the private sector (including, I imagine, the regular readers of this blog) have a particular reason – one might even say, a special responsibility – to voice their anger about the foreign-exchange-rigging scandal and other acts of lawlessness.

Idealists who esteem the private sector’s ingenuity in delivering growth and jobs sans frontières know that business' creativity will be indispensable in achieving the vital development goals of eliminating extreme poverty and promoting shared prosperity. Society thus rightly expects that the full measure of corporate energies should be focused on companies’ central mission of generating wealth that benefits all of society. Whenever any of those energies are diverted – especially toward criminal schemes that put short-term personal plunder ahead of long-term economic growth – the lawbreakers undermine public confidence (or what little remains of it, in the wake of the global financial crisis) in the fairness of the economic system.

Moreover, lawbreakers provide ammunition to critics who allege that today’s economic system is irredeemably corrupt, through-and-through – thus making it even more difficult for law-abiding companies, holding true to the values of honest business behavior, to make the case for policies that liberate private-sector dynamism.

Carbon pricing is achieving critical mass as governments learn from one another

Thomas Kerr's picture
 
 Mary Nichols, chair of the California Air Resources Board, speaks on a panel with the president of Japan's New Energy & Industrial Technology Development Organization and the CEO Peugeot Brand. Business & Climate Summit 2015
Mary Nichols, chair of the California Air Resources Board, speaks on a panel at the Business & Climate Summit with the president of Japan's New Energy & Industrial Technology Development Organization (NEDO) and the CEO of Peugeot Brand. 


Over the past two weeks, hundreds of global business and government leaders meeting in Paris and Barcelona demonstrated the growing support for ambitious climate policies.

At the Business & Climate Summit in Paris, François Hollande, the president of France, echoed a key message from the private sector in his keynote address, saying, “Carbon pricing is essential to move to a low-carbon economy.” Business leaders repeatedly asked governments to put a price on carbon to enable them to scale up investment in low-carbon solutions. Eldar Saetre, chief executive of Norway’s Statoil described a carbon price as “the single most efficient measure.”

The messages carried into Barcelona and Carbon Expo the following week, as market traders and officials from from multinational companies and governments discussed carbon pricing tools and options to finance a transition to sustainable economic growth. The Expo saw a 30 percent uptick in attendance this year, due in part to the growing interest in carbon pricing and the upcoming climate negotiations. The World Bank Group released its Carbon Pricing Watch, reporting that about 40 national and over 20 sub-national jurisdictions, representing almost a quarter of global greenhouse gas emissions, are now putting a price on carbon. Carbon pricing instruments have increased their coverage threefold in the past decade and now represent 7 gigatons of CO2. 

A learning journey
 
With the growth of carbon pricing instruments and rising interest from the private sector, governments are increasingly learning from one another and experimenting with different carbon pricing solutions. Whether they use taxes or emissions trading systems, there is now an emerging evidence base of how to successfully price carbon. Three jurisdictions are leading the way: the European Union, California and China.

Do better roads really improve lives?

Eric Lancelot's picture
Image courtesy of history-map.com
The PPP territory spans the globe, and the debate over its effectiveness as a financing tool to achieve development goals reaches equally far and wide.

​Most recently, the Financing for Development Conference in Addis Ababa, Ethiopia sparked even more discussion about the role of public-private partnerships. The official line, spoken in a multitude of tongues, is that PPPs have an important role to play, and results are dependent on projects being procured, managed and regulated well. But one thing is clear in every language: “results” are based mainly on anecdotal evidence and case studies where attribution remains dubious, and findings cannot be generalized as they depend on the particular characteristics of the specific projects.
 
We can do better. As economists, development professionals, finance experts, and explorers of new and creative solutions to solve the problem of poverty, we must do better. And we will – with better data.
 
Lack of data has constrained the empirical literature on PPPs, in turn constraining our ability to tap the territory of PPPs and its potential to transform markets. After all, what do we really know about the economic impact of PPPs? Our first-ever literature review, underway now (the first draft is available at https://www.pppknowledgelab.org/ppp_document/2384), has laid an initial foundation for knowledge, and we have made the first draft available so that colleagues and interested individuals and organizations can contribute their data.

Partnering to Make Investment Climate Reforms Happen for Development

Kaori Niina's picture


In the spirit of working together to help developing countries reap the benefits of investment, the World Bank Group’s Trade & Competitiveness (T&C) Global Practice and the Organization for Economic Co-operation and Development (OECD) joined forces to make investment climate reforms happen on the ground. In a high-level roundtable event, which took place in the context of the recent WBG Spring Meetings, the two organizations announced their partnership by acknowledging the clear synergies that exist between their respective work programs - namely the OECD’s updated Policy Framework for Investment (PFI), and the diagnostic tools, technical assistance, implementation support and financing instruments provided by the WBG’s Investment Policy and Promotion (IPP) team

The Growing Importance of Investment for Developing Countries
 
For the past three decades, the private sector has served as the main driver of sustainable economic growth, employment and poverty reduction around the world (World Bank Group 2015). In particular, private sector investments have been powering international trade and the world economy as a whole. According to  UNCTAD’s World Investment Report 2014:
 
  • Between 1990 and 2013, foreign direct investment (FDI) flows increased at an exponential rate - growing eight-fold from $208 to $1,452 billion.
  • Today, more goods and services reach consumers through the sales of foreign affiliates than through exports. While in 2013 the dollar value of global merchandise exports was $18.8 trillion and commercial services $4.7 trillion, sales of foreign affiliates reached $34.5 trillion.
  • Meanwhile, international production is continuing to expand; between 2012 and 2013, it rose by 9 percent in sales, 8 percent in assets, 6 percent in value added and 5 percent in employment.

 
These figures shed light on the vital role that foreign direct investment can play in linking a country’s domestic economy to global value chains. Not only does FDI bring investment and jobs to a country, but also increased exports, supply chain spillovers, new technologies and enhanced business practices. In sum, investment is a key vehicle for developing countries to leverage the world economy for domestic growth.
 
Building the Foundation for Future Collaboration
 
Realizing all the potential benefits of FDI requires the clear and effective implementation of investment strategies and policies that respond to the realities and aspirations of a country. To attract, retain and maximize the benefits of different types of FDI, developing countries need to establish a favorable investment climate, and for that they need our assistance. International organizations must strive to cooperate with one another and provide more effective, coherent and relevant support in leveraging investments to help countries better connect to the world economy, which is so critical for development, especially given the complex changes in global trade and investment patterns.

​Five secrets of success of Sub-Saharan Africa’s first road PPP

Laurence Carter's picture



Action on reducing child stunting across Africa is imperative for driving economic growth and reducing poverty. That was the message emanating from a  roundtable of African heads of state, ministers, CEOs and civil society leaders this morning, on the eve of President Obama’s U.S.-Africa Leaders Summit in Washington, D.C.

Friday round up: Visualizing financial inclusion, food insecurity, behavioral economics, poverty among urban children, and citizen well-being

LTD Editors's picture
The Guardian's Global Development Professionals Network blog has created visualizations using Global Findex data.
 
The FAO finds in its 'The State of Food Insecurity in the World 2015' report that 795m people are undernourished globally, down 167m over the last decade, and 216m less than in 1990–92.
 

Getting to 100% renewable: dream or reality?

Oliver Knight's picture
© Abbie Trayler-Smith Panos Pictures UK Department for International Development via Creative Commons
​Attending the Future of Energy Summit last month, an annual event hosted by Bloomberg New Energy Finance, I was struck – for the second year running – by the rapid pace of cost reductions and innovation happening across the clean energy spectrum. With the news that a recent solar photovoltaics tender in Dubai obtained bids at less than US6c/kWh, to major investments in electricity storage and electric vehicles, to increased interest in demand-side management at the grid and consumer level, the message is clear: clean energy has most likely reached a crucial tipping point that will start to suck in increasing levels of investment. Some commentators also noted the opportune timing: with capital investment in upstream oil production sharply curtailed due to falling global prices, there is potentially a lot of financial capital looking for a home.
 
But perhaps one of the more interesting messages was the one coming from progressive regulators here in the U.S. The head of the California Public Utilities Commission, Michael Picker, noted that with renewable energy already supplying 40% of the state’s electricity a few days last year, the target for 50% renewables by 2030 is “not really a challenge”. Perhaps more interesting, he seemed very relaxed on reaching 100% renewables at some point in the future, on the back of strategic generation placement, transfers to neighboring states, and embedded storage. And note that we’re not talking about large hydropower here, which supplies between 6-12% of California’s electricity and is unlikely to increase.

The employment outlook for Nigeria

Olu Ajakaiye's picture
Data shows that huge swaths of populations in developing countries are not learning to read. Scaling up early reading interventions will be a first step toward addressing these high illiteracy rates.
Data shows that huge swaths of populations in developing countries are not learning to read. Scaling up early reading interventions will be a first step toward addressing these high illiteracy rates. (Photo: Liang Qiang / World Bank)


It is estimated that more than 250 million school children throughout the world cannot read. This is unfortunate because literacy has enormous benefits – both for the individual and society. Higher literacy rates are associated with healthier populations, less crime, greater economic growth, and higher employment rates. For a person, literacy is a foundational skill required to acquire advanced skills. These, in turn, confer higher wages and more employment across labor markets .

How we can feed the world: Interview with Ethel Sennhauser

Kalyan Panja's picture
A climate-smart farm in Kenya. © V. Atakos/CGIAR


Editor’s note: Kalyan Panja was the grand prize winner of our first Spring Meetings blogging contest. His winning post covered two events related to food and agriculture. His prize was the opportunity to interview Ethel Sennhauser, the World Bank’s director of agriculture. 

What is the most striking crisis in the agricultural sector that needs to be addressed urgently?

The world needs to feed 9 billion people by 2050 — but climate change, declining soil health, and overstretched resources could drive down agricultural productivity in the long run. Droughts and extreme weather events are already having a negative impact on farming and productivity. In the future, yields could drop by more than 25%.

Global Daily: U.S. GDP contracts in first quarter

Global Macroeconomics Team's picture


Esta publicación forma parte de una serie de blogs (i) relativo a  los objetivos de desarrollo sostenible y los datos de la edición 2016 de los Indicadores del desarrollo mundial.

Los bosques cubren el 30 % de la tierra, pero alrededor de 13 millones de hectáreas desaparecen cada año, pese a los esfuerzos por protegerlos. Entre 1990 y 2015, el mundo perdió más de 129 millones de hectáreas (más del 3 % de su área forestal). A pesar de los esfuerzos por proteger los bosques, los hábitats naturales y la diversidad biológica, los impactos de la actividad humana en el medio ambiente continúan afectando a las comunidades más pobres del mundo, y la deforestación, la desertificación y la pérdida de biodiversidad están planteando grandes desafíos. El Objetivo de Desarrollo Sostenible 15 procura “proteger, restaurar y promover el uso sostenible de los ecosistemas terrestres, manejar los bosques de manera sostenible, luchar contra la desertificación, y detener e invertir la degradación de las tierras y frenar la pérdida de la diversidad biológica”.


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