Examination of Witnesses (Questions 449
- 459)
THURSDAY 15 JUNE 2006
MS SUMI
DHANARAJAN, MR
DOMINIC EAGLETON,
AND DR
CLAIRE MELAMED
Q449 Chairman: As you know, we are
at the closing stages of our report on private sector development
and we are looking at the way we can expand the private sector
in ways that would reduce poverty. This is an opportunity for
you to give us your views on the ups and downs of that. Perhaps
we could start with a very simple question which all of you can
answer, and then pick up from there: How do you see the role of
the private sector in developing countries in reducing poverty.
What do you think are the pluses and minuses?
Mr Eagleton: I would like to make
it clear that ActionAid thinks a thriving private sector is absolutely
crucial to poverty reduction and economic growth. As the UNDP
pointed out in its written submission,[1]
economic growth and private sector development on its own is necessary
for sustainable economic growth and human development but on its
own is not sufficient. There needs to be quite intelligent and
robust regulation in order to make sure that it is equitable.
Dr Melamed: Like Dominic, we think
the role of the private sector is absolutely crucial. The main
thrust of our whole trade campaign over the last five years has
been about creating the conditions for domestic private sector
development in developing countries. That is what it is about.
That analysis carries through into other areas of policy we do
where it is absolutely fundamental. I think, however, the Government
have a role in two key areas, first of all, in creating the infrastructure
and the environment for companies to function—and I am thinking
here about banks, regulation and some of the other things that
I am sure we will come on to in a minute, and secondly, obviously,
in areas of social policy, health and education and so on. In
order to do both of those, they need to harness some of those
resources from the private sector for development through effective
systems of taxation and so on.
Ms Dhanarajan: I would probably
give the same kind of answer. For Oxfam, the main concern is:
How can you grow a private sector that is going to make that link
between economic growth and poverty reduction? That is the critical
thing. How can you create a private sector that is going to do
that? We feel there are a lot of automatic assumptions that, by
the mere fact that a private sector does generate economic growth,
that will lead to poor people being alleviated from poverty. What
can we do to make that link?
Chairman: I think that probably leads
into the next question. The two issues are: how do you make the
private sector grow, and how do you ensure that, if it does grow,
it helps the poor.
Q450 Ann McKechin: What do you think
donors can do to ensure that the private sector is a force for
good? A great deal of your written submission[2]
is about the issues with mandatory codes, as opposed to voluntary
codes, vis-a"-vis the UK Government, but there is
very little mention of the sovereignty of donee nations and in
determining what should be their priorities, and also the role
of domestic legal systems and trade unions making their own decisions
or making their own voice heard. I would like to have your thoughts
about whether there has been too much emphasis on the donor countries
trying to do everything and whether we need to leave some of that
to the donee nations themselves.
Mr Eagleton: An issue that is
crucial in this is trying to include the voice of developing country,
stakeholders, disadvantaged stakeholders, such as trade unions,
such as small producer associations, in the development of donor
policy for private sector development. It is absolutely crucial.
Most of the voluntary codes and standards from private sector
and also donor policies are coming from businesses themselves,
and the people to whom they are addressed are generally disadvantaged
stakeholders in developing countries, but, by and large, they
are excluded from dialogue, the standard setting processes. There
is much that the donor community could do to make sure that disadvantaged
groups are included in these debates.
Q451 Ann McKechin: Perhaps I could
press you a little on that, because you are asking for mandatory
codes for UK companies, for example.
Mr Eagleton: Yes.
Q452 Ann McKechin: Who would have
the ability to enforce the mandatory code? It would not be foreign
nationals, would it?
Mr Eagleton: We think there has
to be a mixture of both voluntary and mandatory codes. It is not
a question of there only being mandatory codes.
Q453 Ann McKechin: You appreciate
the problem of enforcement, because we are trying to create a
system extrajudicial to the donee nations here in the UK by which
the people who are directly affected by these decisions would
have no direct involvement. I am wondering where you strike a
balance between those two.
Mr Eagleton: That is the key point
to make, striking a fair balance, but the one thing to remember
is that a lot of communities that are affected negatively by private
sector development that is not regulated properly, that has damaging
effects, often have no avenue for redress in their own country,
because either the laws are not enforced properly or they are
non-existent. For example, communities being able to bring cases
in the UK is a really important area. Another example would be
the supermarket code of practice. We are told there is no legal
conceptual barrier to it applying to overseas suppliers and it
actually does apply to overseas suppliers, so, yes, there is so
much that can be done in the developing countries themselves but
we also have a responsibility in the UK. There is much the UK
policy community could be doing; for example, strengthening the
supermarket code of practice, which does extend overseas.
Ms Dhanarajan: It is a critical
question to look at. Certainly when we have looked at the whole
concept of developing an international law or convention to regulate
TNCs[3]
for example, one of the questions that we have certainly asked
is: What will it do for growing strong governance or domestic
legal system in a country? For example, if a Nigerian was consistently
having to take cases in the US or the UK courts rather than in
Nigeria, you may be in a situation where the Nigerian courts will
never be able to develop precedence or jurisprudence to be able
to look at corporate accountability within the context of Nigeria.
I think it is a phase issue, where, yes, the foremost thing in
people's minds must be about how we get victims redress, and if
the only mechanism to do so now is to take it under the Alien
Tort Claims Act in the US or to develop a similar type of mechanism
in the UK, then, fine, however, that does not mean taking your
eye off—
Q454 Ann McKechin: Donors should
spend more time in trying to assist in terms of legal structures
and enforceability structures within donee nations.
Ms Dhanarajan: For sure. Governance
has to remain an absolutely critical part of the portfolios of
private sector development within countries. I used to work in
Hong Kong before I joined Oxfam here. It was at the time of the
transition, in 1995-97, and one of the key things that the Hong
Kong people were concerned about was: "When we move back
to the Chinese we cannot lose our rule of law because that is
our absolute bastion for attracting the private sector into Hong
Kong."
Q455 Hugh Bayley: Lots of these voluntary
codes of the UK banks have relevance to quite a number of government
departments and how well coordinated is government policy. What
would be your proposals for ensuring that there is a sort of common
standard across government for monitoring how these agreements
are formed?
Dr Melamed: It is safe to say
that government policy could be much better coordinated in this
area. I think there is a cross-Whitehall group which is supposed
to deal with these issues which perhaps is less effective than
it might be. I think there are specific areas where you can see
there is a particularly woeful gap. One that comes to mind is
the Export Credit Guarantee Department, for example, where DFID
needs to have a much, much stronger authority to look at the kind
of support that is being offered to companies through those types
of programmes, through a corporate social responsibility lens.
That is just one example and I think there are a whole range.
Q456 Hugh Bayley: Give specific examples
of particular businesses or companies that have not been properly
regulated.
Ms Dhanarajan: Gosh, that is a
big question to ask.
Q457 Hugh Bayley: Who have not properly
regulated themselves, I think is what we are saying.
Ms Dhanarajan: There are companies
that will be effectively regulating themselves, just because they
are positioned as leaders within their sector and really have
no choice but to behave in that manner within their sector, and
similarly we will have laggards within each sector too. I think
it is hard to pull out one particular sector that has not regulated
itself well. You will find both in each.
Q458 Hugh Bayley: I mean some hard
meat of: Is there a problem?
Ms Dhanarajan: There are certain
sectors—a phrase that we have started to use—that
lend themselves more towards a tendency of "exploiting for
profit rather than investing for profit". If you look at
the extractive industry, it is probably easier to move towards
that, and it is also because the shareholders at the top of the
chain are pushing you to deliver a short-term profit-making business
model that might suggest that in the current scheme of things
the best business model you can use is one that is going to be
exploitative. There are others—and I think you have heard
from Unilever. The Unilever model is one of embedding in the country.
Unilever is not Unilever in Indonesia; it is Unilever Indonesia.
They have an absolute interest in Indonesia prospering, which
is why they stayed throughout the financial crisis.
Q459 Hugh Bayley: With respect, that
is the same for the extractive industry. In fact one of the complaints
that Shell UK have about the NGO complaining about Shell in Nigeria
is that they do not control it because it is Shell Nigeria and
it is 51% government owned. Surely, with respect to Ann's point,
if you want to regulate a Nigerian company, then that should surely
be done by Nigerian law.
Dr Melamed: This issue about the
chains of command in companies is a difficult one. In a sense,
part of the problem is the opaqueness of relationships between
different branches of the same company: they say one thing; the
Nigerians say something else. If you look at their accounts they
show different kinds of transfer pricing, for example, between
those different branches of Shell in Nigeria and in the UK, which
indicates a very strong relationship. In a sense, exactly part
of the problem is a lack of transparency, so we do not know the
right answer to these questions. When Shell says they do not have
control, then we are professionally inclined to be very sceptical
about that, but we have no way of knowing because they need to
make their strategies and their accounting procedures much more
transparent. One of the demands of organisations like ours is
simply that we have more information about this as a start.
Mr Eagleton: The corporate veil.
An Australian judge recently ruled that is quite often simply
a legal fiction. For Shell to say that what is going on in Nigeria
is nothing to do with the headquarters in the UK sounds spurious.
If they are siphoning profits from there, then you have to wonder.
1 Ev 320 Back
2
Ev 151 Back
3
Transnational Corporations Back
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