Author Archives: Andrew Wilson

President Reagan’s Call for a Campaign for Democracy Still Applies Today

By Andrew Wilson, Managing Director, Center for International Private Enterprise

Photo Credit: Wikipedia

When President Reagan delivered his Westminster address to Members of the British Parliament 35 years ago today, he predicted the downfall of the Soviet Union and called for a campaign to support democracy around the globe. What Reagan could not have predicted when he made that famous speech was that his campaign to support democracy would be as needed in 2017 as it was in 1982.

The violent extremism, conflict between states, unequal economic opportunity, and migration crises afflicting the world today are causing some to question the continued viability of the liberal-democratic values that Reagan championed. The belief that democracy, economic freedom and rule of law provide the “not so-secret sauce” for sustainable human progress is being openly questioned in capitals around the world.

In a results-based world we should be ready to scrutinize liberal-democracy’s track record.

To be certain, one outcome of liberal democracy – globalization- has done an impressive job of alleviating human suffering in the last quarter century.  Our global health indicators, poverty reduction goals, and literacy rates all figure in the plus column.  Societies are more resilient when disaster strikes, and the emergence of global standards on labor, environment, and anti-corruption are all leading to a more ethical and sustainable development pattern driven by the private sector.

However, while strides have been made to ensure a basic level of human existence, many societies still fail to provide their people with a path to a better life. In many countries citizens live in a world of governance failures and inequalities perpetuated by vested interests, corrupt elites, and authoritarians who understand that broad-based opportunity threatens their status-quo.  Indeed, if we look at where we see the greatest threats to global stability we see the hand of corrupt authoritarians, be that in the Middle-East, Venezuela, or Russian aggression in Ukraine.

It’s notable that those regimes most likely to cause instability are those which are quickest to point towards liberal democracy as the cause of the world’s problems. Our cold war of times past, in which liberal democracy and communism fought for supremacy, has been replaced by a new war in which our values are now questioned by those whose only ideology is that of authoritarianism and kleptocracy.

Looking back on the experience of the last 35 years, many of the world’s problems don’t stem from the failure of liberal democracy, rather a failure to more actively pursue its consolidation, and ensure that the economic and social benefits of democracy penetrated throughout societies.  As the causes of disorder are man-made, so are the solutions.  Support for economic development overseas must continue its emphasis on getting governance right, providing opportunity for all to participate in an economic life, and encouraging open societies to reinforce values and institutions that include respect for property as a human right, free media, and democratic space.

When governments get these things right, all citizens benefit. The proof of this lays in what we can take from the current migration crisis in the Mediterranean.  Migrants making the perilous boat journey to Italy’s southern shores are not coming from Tunisia where a democratically oriented government seeks to build democratic consensus on economic growth, but from its neighbors where poor governance and lack of opportunity drive desperate people to do desperate things. Tunisia shows us that the goals of the Arab spring, when consolidated in democratic values can bring relative stability. Tunisia’s goal now is to wring greater economic opportunity from the governance and democratic strides made by a revolution whose roots lay in economic discontent.

Globalization must also come to represent opportunity for all – technology, such as EBay and other online trading platforms, is breaking down international barriers to trade for micro and small entrepreneurs, and the WTO’s Trade Facilitation Agreement, if enforced, will smash non-tariff barriers that keep the little guys from trading across borders.

A quarter century of democracy support has shown that the most effective path forward is not to export nation building, or embrace foreign models, but rather to support and encourage the development of local voices for reform, and domestic expertise that can guide societies on their own path to good governance.  In many countries these brave voices are now at risk, as years of neglect have led to their increasing isolation and in many cases repression.  These are the world’s authentic voices of moderation, they alone are in a place to counter local extremism, advocate for opportunity, and chart paths for good governance.

While not always perfect, liberal democracy offers the most sustainable and equitable path to confronting the challenges facing the world, and it’s the best way we know to create long lasting jobs. An employed and prosperous people rarely resort to violent extremism, conflict, or emigration. For our government to reach its policy goals, it would be well served to look to the wisdom of Ronald Reagan who understood that markets and democracy were the best responses to the challenge of his time, and are timeless in their relevance today.

Reaffirming the Euro-Atlantic Commitment to Democracy and Private Enterprise

Protesters at the March for Europe protest on July the 2nd, 2016 in London.

The outpouring of anti-globalist sentiments from both right and left in many western democracies is teaching those of us who support a global economic architecture many valuable lessons on how we should look toward reforming our international institutions of trade and finance. The rise of nationalism and populism in western democracies is a reaction to the perceived loss of sovereignty and economic exclusion that many ordinary citizens have felt as a result of the growth of transnational institutions, be they the European Union, the World Trade Organization, or more focused initiatives such as the Trans-Pacific Partnership.

In reaction, citizens have been reclaiming their desire for sovereign power through exercising their democratic franchise at national polls, especially in the Euro-Atlantic family. Whether a backlash to Brussel’s Euro-bureaucracy through Brexit and the rise of populism in Central Europe or the increasing influence of anti-globalization politics within both U.S. political parties, we need to recognize that these assertions of political will are legitimate forms of grievance. While we may be disheartened by the message at times, we must at least take heart that these grievances play themselves out in a democratic process (albeit one that seems increasingly under fire). In essence, citizens are using their local ballot boxes to push back at international institutions that they otherwise feel powerless to influence.

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Fighting Kleptocracy

The world -- including global financial centers -- needs to come together to fight kleptocracy. (Photo: Wikimedia Commons)

The world — including global financial centers — needs to come together to fight kleptocracy. (Photo: Wikimedia Commons)

Corruption is often thought of as an individual problem where a corrupt official abuses his or her government position for personal gain. But what happens when an entire government, or the ruling class of an entire country, is engaged in corruption? When corruption becomes systematic and institutionalized, the damage is much greater – and the tools to fight it increasingly require international cooperation.

Two weeks ago the World Movement for Democracy held its eighth international conference in Seoul, Korea. Discussions of the corrosive effect corruption have on democratic renewal abounded throughout the conference. However, a discussion on kleptocracy chaired by the National Endowment for Democracy’s Carl Gershman brought out the enormous scale of illicit cash flows from kleptocratic governments, and the direct influence they can have on enabling authoritarian push-back was made clear. Presenters on the panel highlighted the need for both international coordination on efforts to improve investigation, journalism, and the tracking of money flows, and also support for in-country efforts to strengthen local watchdogs and activists.

From the CIPE perspective, we offered a strategy based on the old adage “follow the money”: to contend with and reduce capital flows from illicit gains we need to understand how such funds are siphoned off, how they move around the world, and what institutional responses we can promote to slow and stop them. Kleptocrats often use a mixture of state and private institutions to steal money, and then establish complex networks of shell companies and other fronts to launder funds. They then use global financial institutions to move “clean” money into markets where it can be securely invested.  A comprehensive strategy is needed to combat this complex crime at all levels.

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After 25 Years, Are Central and Eastern Europe’s Democracies in Danger?

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Romanians protest against President Basescu in January 2012. (Bogdan Cristel/Reuters)

Though some recent machinations remind us that democracy can be a fragile thing, one can observe with guarded optimism that the overall transformation of the Central and Eastern European region to market-oriented democracies has been relatively successful.  To understand where we are today, it’s important to look back to see how far Eastern Europe has come in 25 years.

Many take the Eastern European transitions for granted, noting the existence of market institutions and young democracies before World War II and subsequent Soviet domination, and characterizing the transition as a mere return to business as usual in the region.  This interpretation is flawed, as it fails to realize that what we historically took to be “market institutions” and “democratic practice” in the region prior to post-war communism were deeply flawed and often only skin-deep.

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A Business Agenda for Democracies

Andrew Wilson of CIPE speaks at the 7th Ministerial Meeting of the Community of Democracies in Ulaanbaatar, Mongolia.

Andrew Wilson of CIPE speaks at the 7th Ministerial Meeting of the Community of Democracies in Ulaanbaatar, Mongolia.

The seventh ministerial meeting for the Community of Democracies (CD) was held last month in Ulaanbaator, Mongolia. This year, for only the second time, the business community met as the Corporate Democracy Forum (CDF) to share its views with the CD ministerial, and CIPE was invited to participate.

The Community of Democracies is an intergovernmental coalition of over 100 democratic nations established by Polish Foreign Minister Bronislaw Geremek and U.S. Secretary of State Madeline Albright in 2000 to promote democratic rules and strengthen democratic norms and institutions.

In conducting its work the CD actively seeks input from a number of stakeholder groups including women, youth, parliamentarians, and civil society, who also gather during the ministerial meetings to provide their own viewpoints and recommendations on what the organization’s priorities should be and how to achieve its goals. The CDF represents the private sector’s voice in that discussion.

The overriding theme that dominated the CDF’s discussions was the concept of companies exercising a stronger sense of corporate citizenship, in which they recognize the broader role and leadership position they have within democracies as wealth creators, employers, taxpayers, and leaders.  For their part, governments need to encourage companies to take a stronger role, and welcome them in partnership.

Organized by the Mongolian Chamber of Commerce and Industry, the meeting highlighted steps that both the public and private sector can take to promote democracy through actions in three areas: improving public-private dialogue, promoting anti-corruption actions, and corporate social responsibility.

The CDF recognized that sustainable economic development must be based on private sector growth, and, as a stakeholder in this process, business requires an equal seat at the policy table. While sounding simple this task often requires a commitment from both sides of the dialogue that sometimes signals a change in the way things are done. Government officials have to get used to the idea of business as a policy partner, and businesspeople must be prepared to enter into dialogue in a thoughtful and constructive fashion.

Recognizing that the business community is not a monolith the CDF called on CD members to ensure inclusiveness by extending their dialogue to the broader business community including, national, regional, sectoral, and women’s business groups.

In terms of the fight against corruption, the CDF recognized that businesses are part of the “supply and demand” equation that allows corruption to flourish, and as such the business community has an obligation to lead through example. The CDF highlighted the work of programs such as the World economic Forum’s Partnering Against Corruption Initiative (PACI), and other efforts led by business associations and NGOs that seek to help companies improve ethical standards and implement anti-corruption initiatives. The CDF called on CD governments to encourage the establishment of such efforts.

In the field of corporate social responsibility, the meeting highlighted the important role business  has to play in promoting sustainable development. To this end, the CDF’s deliberations put the emphasis on private sector action in finding ways to support the implementation of all 10 Millennium Development Goals in a fashion that encourages sustainable and “green” development in transitional and aspiring democracies. As with the other topics for discussion, emphasis was placed on the need for effective public-private dialogue on how to achieve these goals.

The overall sense at the CDF was one that appreciated the opportunity the CD has extended to all the stakeholder groups to provide their input on a more visible and equal footing, showing that sustainable democracy is built on consensus and inclusion. It is a lesson other international inter-governmental bodies could more effectively learn.

Andrew Wilson is Regional Director for Eastern Europe & Eurasia and South Asia at CIPE.

Public-Private Dialogue and International Development

The Second Vice President of Afghanistan, Abdul Karim Khalili, addresses participants at a 2011 NBA launch event in Kabul.

In his article in the most recent  USAID Frontlines publication, Eric Postel, Assistant Administrator for Economic Growth, Education and Environment, gave CIPE a nice shout-out for its work in encouraging public-private dialogue. We appreciate the recognition, and the extent to which USAID has supported our efforts both past and present to improve public-private dialogue on economic policy.

Postel’s article is a broader piece that looks at the sum total of the agency’s efforts to promote economic growth and their impact. While cataloguing the work USAID does, from building infrastructure to the role technology plays in spurring growth, the thing that strikes me most is that there is no one silver bullet to promote economic reform and growth. Rather, development policies that deliver must embrace a wide range of activities that require both hard skills (shovel, mortar, and cell phone) and soft skills (advocacy and policy making).

For every business park that’s built we need to ensure that the infrastructure, both physical and regulatory, is present to ensure that enterprises can flourish. This is best done when governments and donors alike take the time to sit down with businesses to discuss their needs and priorities. But too often the business community is poorly prepared to engage in meaningful discussions, leading to frustrations all around.

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A Hippocratic oath: Competitive neutrality and SOEs

An abandoned former state-owned factory near Sofiya in the Bulgarian countryside, just one of many dotting the landscape as a legacy of inefficient state-owned enterprises. (Photo: Flickr user Gilgongo)

During the past decade, and especially since the financial crisis of 2008, governments have debated a variety of approaches to promoting economic growth, and State-Owned Enterprises (SOEs) have once again become a tool to focus resources on economic development.

For instance, in Russia we have witnessed the growth of “national champions” – state-owned firms that swept up private sector holdings in particular sectors (e.g. aerospace) in the hopes of jumpstarting competitive sectors, utilizing state resources and state-sponsored advantages.  Despite the widespread privatizations throughout the nineties, we have also seen resurgent state interest in maintaining or regaining its ownership role in a variety of sectors including water and energy.  Whether we like it or not, we must accept that in many emerging markets the state intends to continue participating in the economy as an owner, and views SOEs as a tool to direct development and provide services to all citizens.

This month the OECD released an excellent working paper working in economies where the state-owned sector plays a major role, “Competitive Neutrality and State Owned Enterprises: Challenges and Policy Options.”

This trend raises a few key questions regarding state-ownership: how does the state become a responsible owner and how do we guarantee accountability?  How does the presence of state-owned enterprises directly or indirectly effect the competitive environment in a country?  If state-owned enterprises squeeze out competition resulting efficiencies and growth, are they really serving the economic interests of their country?

At CIPE our partners around the world often complain that they are forced to compete in a “noncompetitive environment”, and when pressed they often identify state-owned competitors as the primary culprit.

The OECD has been active in addressing these issues through their Guidelines on Corporate Governance for State-Owned Enterprises, and more recently a new program on competitive neutrality of which the aforementioned paper is the first step of a multi-year effort.

The OECD recognizes and applauds that many state-owned firms are corporatizing and becoming more efficient, but point out that the advantages they gain by incumbency can crowd new market entrants out through SOE domination of markets and their ability to effect costs and pricing.  These effects may be deliberate or unintended side-effects of the structure of the SOE activity, but in either case they must be recognized and addressed to allow for competition and growth.

The report also points out that tax breaks and other hidden subsidies also allow SOEs to gain unfair advantages over new market entrants, and may also encourage ongoing inefficiencies within the SOE.

The authors of the report have identify a number of policies that can be adopted by countries to help them address the potential impact of SOEs on competition, analyzing the legislative and administrative environment for SOEs and promoting greater transparency and accountability in determining their costs in private sector terms.  Policy adjustments can then be made to level the playing field for the private sector.  In cases where an uncompetitive environment is deliberately mandated, the authors concede that the only solution can be advocacy to reverse the policies.

By promoting improved corporate governance in SOEs and understanding their cost structures and politically-maintained advantages, policymakers can begin to create an environment in which SOEs are more accountable and private business can advocate for a fairer playing field.

By promoting the concept of Competitive Neutrality, the OECD seems to be asking governments and their state-owned firms to take the Hippocratic oath to “do no harm” when it comes to private sector growth.  It will be interesting to watch how this debate unfolds in the coming years, the OECD’s paper is a terrific start to this debate, one in which I hope CIPE and partners will participate.