social accountability | Normative Narratives

Walmart is one of the biggest and fastest-growing polluters in the nation, despite the company’s 2005 pledge to become an environmental leader, according to a report from the Institute for Local Self-Reliance (ILSR).

The retail giant emits 45 million metric tons of CO2e (carbon dioxide equivalent), slightly more than Target, at 42 million metric tons, and significantly more than Costco, at 16 million metric tons, according to the report.

“The scale of Walmart’s energy efficiency and renewable power measures is not up to the scale of their business or their growth,” Stacy Mitchell, the author of the report, told Al Jazeera. “They been placing solar powers on the rooftops and getting some wind power and so on, but Walmart only derives 4 percent of its energy from renewable energy sources.”

“This is a business model that is built on these far-flung distributors and goods that are trucked all over the country [and shipped all over the world],” Mitchell said. “There are fundamental aspects of Walmart’s business model that are at odds with sustainability.”

Walmart spokesperson Christopher Schraeder told Al Jazeera that the company is “working hard every day to find solutions to the most pressing sustainability issues,” and that has “ambitious sustainability goals to improve our operations, increase fleet efficiency, source locally and sell more sustainable products.”

Mitchell acknowledged that significant change in emissions will have to come through legislation, not just from companies becoming more ‘green.’

But with Congress more divided than ever, that’s not likely to happen soon, especially when companies use their financial resources and lobby members of Congress to block environmental protection measures.

Through the Walmart Stores Inc. PAC for Responsible Government, Walmart has given more than $22 million to politicians who are opposed to legislation that would regulate emissions and promote climate change.

In the 2008 elections, 80 percent of Walmart’s senate campaign contributions went to people who blocked the “cap-and-trade” bill, which would have reduced carbon dioxide and other greenhouse gas emmissions across the U.S. economy. In the 2012 elections, 70 percent of donations went to people who supported the Keystone XL pipeline

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Walmart has gotten a bad rap over a number of issues, and in the past I have been critical of Walmart’s business model as well. But I was still fair in my analysis back then; the two main issues Walmart receives flack for–employee compensation and emissions–need to be addressed by government policy:

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1) Employee Compensation: This is as clear cut an example of policy failure there can be. Walmart, by paying its sales associates an average of $8.81 cents / hr, is not breaking any laws. This comes out to a yearly income of a little over $15,000, placing a large burden on the social safety net:

On the flip side of this, it costs the nation an estimated $1 billion a year in social safety net use. Essentially, the U.S. taxpayer is subsidizing Walmart’s low wages, which systematically produce full-time workers living below the poverty line.

It should raise a red flag that the same ideology opposed to safety net policies also tends to be against higher minimum wage legislation as well. It used to be that if you worked hard you could live a comfortable middle-class life and have enough to invest in a better future for your children. With the current minimum wage, the American Dream is no longer a reality for a large number of hard working but less-skilled Americans.

The plan to increase the federal minimum wage to $10/hr (and thereafter tying it to a cost of living metric such as the CPI) beginning in 2014 (I believe the plan is to phase it in over three years) is a good start. This could also have the effect of pushing up non-minimum wage compensation as well, as employers looking for more skilled labor will have to compete with higher minimum wage employers. Such changes are all the more important in the context of rising inequality and falling median incomes (which are at their lowest level since 1995).

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2) Emissions:

As the report states, “significant change in emissions will have to come through legislation, not just from companies becoming more ‘green.’”. Corporate social responsibility (CSR) is a nice idea, but it only changes things at the margin. As with employee compensation, the real driver of change must come from carbon tax / cap-and-trade legislation. With proper legislation in place, CSR gives way to more enforceable corporate accountability.

Another important element of environmental sustainability should come from tax incentives for using local producers. This legislation would be less politically contentious than carbon taxation, but would have a huge impact on emissions. According to the ILSR report, Walmart’s carbon emissions disclosure does not include emissions from international shipping. However, this is a large component of Walmart’s competitive advantage, finding the lowest cost producers, which are always in developing countries due to lower labor costs. Since there is no taxation on emissions, as long as the price of production + transporting from the developing world is lower than the price of producing domestically, retailers such as Walmart have little incentive to choose the later.

By evening the playing field through tax incentives, the benefits would be twofold: 1) stimulating the U.S. economy through more local production and 2) lower emissions due to less transportation from production site to the store. These tax incentives could be paired with carbon tax / cap-and-trade revenue (to fulfill the revenue-neutrality legislative condition the G.O.P. lives by), further tilting the playing field towards lower emission American production.

Walmart’s own CSR initiatives have led to an increase in American production, appropriate legislation can (literally and figuratively) bring these changes home.

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I would like to take this opportunity to also highlight an example of the political economy definition of a “collective action problem”:

A collective action problems occurs when a large group of people would be better off with a change, but that change does not occur because the gains to each individual in that large group are small, while the losses imposed by the change on a small group are large. In this case, the American public would be better off with regulations on GHG emissions, but these improvements in environmental quality are hard to quantify and will occur only in the future. In contrast, the cost to the small group (Walmart) is large and immediate–having to pay for emissions. Therefore, it is rational for Walmart to use it’s resources ($22 million in this case) to lobby against these changes.

But there is strength in numbers and in public opinion, particularly in a democracy. While civil society may not be able to raise money to counter Walmart’s lobby, it need not do so to overcome the collective action problem. This comes down to an issue of social accountability. In a democracy, we can vote for lawmakers who will stand up to lobbies for the greater public good.

The fact that these politicians are rare-to-non-existent is partially due to legislation (lobbying money is allowed to influence lawmakers), but mainly it is due to a failure of social accountability. People are either too busy or too cynical to vote, with the aggregate outcome of a legislature that represents the interests of it donors rather than its constituents.

Democracy is powerful, voting is powerful. It is why we see wars fought in the name of democracy; people are willing to die for the rights we as a nation largely take for granted. Our ability to move forward as a nation whose laws represents the interest of the general public hinges on overcoming cynicism in the democratic process.

Finger-pointing and playing the blame game are not the answers. Education / information dissemination is an important element of overcoming collective action problems, and is largely why I do what I do here at NN. But ultimately the responsibility lies with each and every U.S. citizen. Belief in the power of the democratic process is the only way to return to the more egalitarian America of yesteryear.

September 21, 2013
by bzupnick 1 Comment

Economic Outlook: African Leaders Demand Better Deals in Chinese Extractive FDI

Original Article:

In Niger, government officials have fought a Chinese oil giant step by step, painfully undoing parts of a contract they call ruinous. In neighboring Chad, they have been even more forceful, shutting down the Chinese and accusing them of gross environmental negligence. In Gabon, they have seized major oil tracts from China, handing them over to the state company.

China wants Africa’s oil as much as ever. But instead of accepting the old terms, which many African officials call unconditional surrender, some cash-starved African states are pushing back, showing an assertiveness unthinkable until recently and suggesting that the days of unbridled influence by the African continent’s mega-investor may be waning.

For years, China has found eager partners across the continent, where governments of every ilk have welcomed the nation’s deep pockets and hands-off approach to local politics as an alternative to the West.

Now China’s major state oil companies are being challenged by African governments that have learned decades of hard lessons about heedless resource-grabs by outsiders and are looking anew at the deals they or their predecessors have signed. Where the Chinese companies are seen as gouging, polluting or hogging valuable tracts, African officials have started resisting, often at the risk of angering one of their most important trading partners.

“This is all we’ve got,” said Niger’s oil minister, Foumakoye Gado. “If our natural resources are given away, we’ll never get out of this.”

“We’ve got to fight to get full value for these resources,” Mr. Gado said. “If they are valued correctly, we can hope to bring something to our people.”

“The Chinese are genuinely unprepared for this degree of pushback,” Mr. Soares de Oliveira said.

China’s Foreign Ministry rejected the notion that its role had been anything but fruitful. In Niger, it said, it has improved the economy, has hired local residents and is building schools, digging wells and carrying out other “public welfare activities.” In Chad, it said, it has urged companies to protect the environment and will seek to resolve the dispute through “friendly negotiation.” In Gabon, as elsewhere, it said, it supports cooperation “on the basis of equality, amity and mutual benefit.”

Few nations in the world are as weak as Niger, where nearly half of the government budget comes from foreign donors. But the nation long had unfulfilled oil dreams that were largely ignored by major companies. In 2008, two partners came together secretively — the country’s autocratic ruler, Mamadou Tandja, and China National Petroleum — and signed an unpublicized deal that seemed to give both parties what they wanted.

But far less clear, then and now, was whether Niger — one of the world’s most impoverished countries, regularly threatened by famine — would substantially benefit from the deal.

Mr. Tandja got a costly oil refinery in an area of Niger that he needed to win over with the promise of development, but the need for such a project in this low-energy-consuming nation has been sharply questioned by experts, not to mention the mysterious $300 million “signing bonus” Mr. Tandja’s administration received….The refinery has a capacity that is three times Niger’s consumption, and the overall cost should have been only $784 million, according to a United Nations expert. Niger must still pay 40 percent of the original cost, with money lent to it by the Chinese.

In return, the Chinese got access to untapped oil reserves in the remote fields on Chad’s border on terms that still make Oil Ministry officials here wince. Beyond that, local residents have protested that the Chinese presence has brought few jobs, low pay and harsh working conditions.

“In the context of this fight, we are revisiting these contracts to correct them,” said Mr. Gado, the oil minister in the new democratic government led by an opponent of Mr. Tandja. “In the future, we will pay closer attention, to not make the same mistakes.”

“This is a lesson we are giving to the Chinese: we are keeping a close lookout on them,” said Mahaman Gaya, the Oil Ministry’s secretary general. Mr. Gado has not made his last trip to Beijing.

Niger’s lesson is being applied elsewhere as well: African governments, grateful as they are for Chinese-built roads and ministry buildings, are no longer passive partners.

“Are we going to continue to ignore what the Chinese companies are doing?” asked Mr. Doudjidingao, the Chadian economist. “I think this is the beginning of a change between African states and the Chinese. It’s a consciousness-raising, so they won’t be guilty in the face of history.”

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Natural resources need not be a “curse”, but avoiding human rights violations in extractive industries takes political will, government oversight, and corporate accountability. In order to help African governments, which tend to be underfunded and sometimes corrupt, the Chinese government should hold it’s companies accountable for their extra-territorial human rights obligations (especially considering these companies are state-owned!). Sure this may result in higher costs in the short-run, but businesses thrive on consistency and stability; it is better to pay a little more now then have no idea what the cost may be in the future.

Commitments must be made on the side of the African government’s too; if the Chinese agree to work with them on vetting extractive contracts for human rights implications, then the terms agreed upon will be honored for the life of the contract. This is admittedly challenging in an unstable political climate, where the government of today may not necessarily be the government tomorrow. I am not talking about regime changes, I am talking about revolutions, coups, and other means of fundamentally altering the structure of the government. But still, deals should be made with a mutually beneficial long-term view.

Certain types of foreign direct investment, known as “market-seeking” FDI, are characterized by better deals for host-countries. Willing to forgo some of the labor and regulation saving costs, companies pay a little more because they wish to not only produce at a cheaper cost, but to also empower locals to become future customers. Unfortunately, “extractive” FDI does not lend itself to such benevolent partners. It is therefore the job of the government(s) involved to ensure that human rights obligations are upheld; in an industry with tens of billions of dollars in annual profits, paying to ensure the local poor are receiving a fair deal should not be an issue.

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It is not only foreign powers that wish to exploit Africa’s natural resources, cheap labor and lax environmental standards. Natural resources can be easily stolen, especially in countries with lax security / highly organized criminal networks. Furthermore, often times corrupt government officials are willing to provide protection for oil thieves in exchange for personal riches:

Thieves steal an estimated average of 100,000 barrels a day, the report said; working in elaborate networks and protected by corrupted security officials, they tap into the huge and isolated network of pipes that crisscross the country’s swampy southern Niger Delta region. The price of oil fluctuates, but a hypothetical per-barrel price of $100 would mean an annual loss of $3.65 billion. Oil closed at $107.28 per barrel on Thursday.

“Top Nigerian officials cut their teeth in the oil theft business during military rule,” it said. “Over time, evidence surfaced that corrupt members of the security forces were actively involved. The country’s return to democracy in 1999 then gave some civilian officials and political ‘godfathers’ more access to stolen oil.” Security officials are said to extort payments from the oil thieves in return for protection, according to Chatham House.

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There is no easy answer to sustainable human development in Africa. However, it is self-evident that the presence of natural resources should expedite the development process, not slow it down or reverse it. This requires political will from both host countries and governments representing foreign investors. But political will is not enough, multiple layers of accountability are needed to ensure the gains of resource extraction go to help the people in the countries which own these resources. Corporate accountability is one aspect which, alongside political accountability, can help ensure that the rule of law is upheld with respect to contracts, and that deals are properly vetted for human rights considerations.

There is, however, another part of the story. African governments would be right to instill the idea within their citizenry’s that profits from natural resource production indeed do belong primarily to the people. Bad contractual terms are more easily remedied than organized criminals and corrupt officials stealing resource rents. In order to remedy this issue, social accountability could go a long way. Empowering people with political rights, and institutions for voicing grievances (such as ombudsman offices and / or NHRIs, or institutions created specifically for extractive industry grievances) can help turn nationalism and self-interests into meaningful accountability on a scale that is otherwise unachievable.

If people in the developing world are convinced resource profits will go to development programs, and governments are committed to these programs and institutions that promote social accountability, then perhaps we can move past the point in history where the presence of natural resources is considered a “curse” and move toward a future where natural resource profits help expedite human development (as they should!). It appears the political will is slowly accumulating throughout Africa, this is great news as tighter regulations always work better when imposed regionally in order to avoid a “race to the bottom”. The UN Post-2015 Development Agenda will also help achieve this goal, as it is set to have human rights considerations and accountability at it’s core.