This article was featured on the DBJ Instablog on Seeking Alpha.

Three months after the “nut rage” scandal sparked international ridicule and debate over the abuses of family-run Korean conglomerates, a court has convicted and sentenced former Korean Air vice president Cho Hyun-ah on Feb. 12 to a year in prison for illegally forcing a flight to change its route.

Cho, the daughter of Korean Air chairman Cho Yang-ho, forced a taxing plane at Kennedy International Airport to return to the gate in order to remove the chief steward. She was angry because a first-class flight attendant served her macadamia nuts in the original packaging, rather than on a plate.

Passengers in the cabin reported that Cho forced the chief steward to kneel before her and beg for forgiveness. She reportedly threw papers at him, screaming because the flight attendant served macadamia nuts in the “wrong way.”

Since the Dec. 5 scandal, Cho resigned from her post, was arrested for violating aviation safety laws and instigated national debate regarding the perceived arrogance of Korea’s business elite.

This incident, however, is more than an isolated case of “nut” behavior or individual inanity. It provides a glimpse into the larger structural dynamics of power and wealth in South Korea.

Namely, the sense of entitlement and authority that led Cho to turn around a 250-passenger plane illustrates Korea’s chaebol economic structure and the incredible power chaebol families wield. But the overwhelmingly negative reactions to Cho’s actions also demonstrate the growing resistance against the perhaps all-too-powerful chaebol.

The chaebol’s grip

 Chaebol refers to Korea’s largest conglomerates, which are most often controlled by and passed on to family members of the original founder. Internationally known chaebol include Samsung, Hyundai, LG and Hanjin (the holding company of Korean Air), and domestic conglomerates include Lotte, SK, GS and Hanwha. Members of the founding families still largely control these conglomerates, and as a result, their influence in Korea is far and wide.

Samsung, for example, singlehandedly contributes approximately a fifth of South Korea’s gross domestic product, according to a 2011 Economist article. Though known elsewhere in the world for its electronic products, Samsung has a stake in almost all aspects of South Korea’s society and economy. It sells life insurance, builds amusement parks and apartments, produces credit cards and has its own professional baseball team. The company’s subsidiaries build roads, manage oilrigs, operate hotels and hospitals, and even produce chemicals, ships and weapons.

“You can even say the Samsung chairman is more powerful than the South Korean president,” said economist Woo Suk-hoon in 2012.

In fact, Samsung’s influence is so great that the South Korean president pardoned chairman Lee Kun-hee 2009 of his tax evasion and embezzlement convictions. Lee was considered “too important” to the economy to be imprisoned.

Relatives of Lee also wield incredible power. The daughter of Samsung’s founder is the chairwoman of Shinsegae Group, one of the largest department store and discount retailer chains in South Korea. The grandchildren run CJ Corporation, one of the largest food and entertainment companies, known for its movie theaters, pharmaceutics and films.

Similar accounts of incredible power hold true for any of the other dynastic conglomerates in South Korea. Power and wealth are concentrated in a few families, and their personal decisions have the potential to change the daily lives and experiences of South Koreans.

It is not particularly surprising then, that these chaebolfamilies exert such enormous influence. Given the structural dynamics of power and wealth at play, it appears conceivable, that when the Korean Air heiress ordered the plane to turn around, not even the pilot could have overturned her decision.

Growing wealth inequality and resistance

 The chaebol control a significant portion of Korea’s wealth, and income inequality appears to be growing even greater.

South Korea’s GINI coefficient, which measures income inequality, climbed from .306 in 2006 to .315 by 2011. As of 2012, the upper tenth possess 46 percent of wealth, while the bottom half controlled only 9.5 percent.

This growing disparity in wealth has given the chaebol an overwhelming advantage in expanding their economic dominance. These conglomerates often acquire promising start-ups or outcompete mom-and-pops businesses by mobilizing their massive resources. This has stunted entrepreneurship, compelling many of Korea’s most talented to work for these conglomerates their entire careers.

Yet, there appears to be a growing resistance among Koreans against the vacuum-like power and perceived high-handedness of the chaebol. The “nut rage” incident has sparked contentious dialogue and debate for the past few months in South Korea.

“Cho Hyun-ah’s ‘nut rage’ could have resulted in no jail time. But public sentiment seemed to influence the court’s ruling, and they gave her an actual prison sentence,” South Korean lawyer Kim Kwang-sam told Arirang News that “The public’s hostile view of chaebol families – privileged, with an easy life coming from wealthy parents – was loud and clear this time.”

In the days following the incident, South Koreans flooded social media and other websites with content ridiculing Cho and denouncing the abuses of other chaebol. Many called for a boycott of Korean Air, and analysts have speculated that the 6.6 percent drop in passengers in Dec. 2014 from the holiday season a year earlier can be attributed to the “nut rage” incident. During that same period, Asiana Airlines, Korean Air’s primary rival, experienced a 13.2 percent increase in passengers.

A bill called the “Conglomerates Ethical Management Law,” commonly referred to as the Cho Hyun-ah law, is to be introduced February 2015. It will detail punishments for “high-handed conduct” and crimes such as embezzlement committed by chaebol.

While anti-chaebol sentiment has been present in South Korea for quite some time, the “nut rage” incident might signify the first spark that mobilized the government and South Koreans to change the chaebol structure.

Why the chaebol can’t be touched

South Korea, however, has been historically reliant on the entrepreneurial capabilities of the chaebol.

Any account of South Korea’s meteoric economic rise following the Korean War must acknowledge the chaebol’s role. Park Chung-hee, the military ruler who seized power in the 1960s, devoted scarce capital to the chaebol under the condition that they expand Korea’s export economy.

This concentration of economic power had dramatic effects on Korea’s market system. The chaebol spearheaded the industrialization of Korea, converting the country’s agrarian economy into an export powerhouse within a few decades. Between 1960 and 2000, the chaebol were responsible for creating a 13-fold increase in output per capita, enabling the country to be the 10th largest exporter by volume.

Today, the chaebol are even more vital to the Korean economy than they were in the past. As of now, these conglomerates are the only realistic outlets through which Korean manufacturers can export products to the outside world. To hastily decentralize the oligopolistic power of the chaebol is analogous to potentially dismantling South Korea’s export economy, a decision that would undoubtedly be catastrophic to many South Koreans. The collectivization of wealth in so few companies means that any regulation must be approached with extreme caution.

In addition, while many South Koreans harbor misgivings about the chaebol, they also revere the business superstars who carry South Korea’s economy. Some 70 percent of household expenditures, according (incidentally) to the Samsung Economic Research Institute, are used towards private education, often in the pursuit of helping children perform well on tests, gain acceptance to the country’s top universities and then obtain a job in one of the conglomerates.

This is because, realistically, working for a chaebol is one of the few ways Korean youth can secure a stable occupation, accumulate some wealth and climb South Korea’s social ladder. Being hired by a chaebol is considered to be a major life accomplishment, and the prestige of working for a chaebol carries a similar weight as a job at a Wall Street firm does for American students.

“Many Koreans right now have dual minds about chaebols,” lobbyist Lee Cheol-haeng told the Washington Post in 2012. “They say, ‘I hate chaebols, but I want my son to work for one.’”

In an economic environment that is dominated by a few dozen families, many South Koreans resent, ridicule and revere the chaebol all at the same time. As much as people want to weaken the chaebol structure, they simply do not possess the money or resources to compete with the chaebol. Since the chaebol also hold a position of reverence and deep regard, they are viewed as untouchable and their words are absolute.

The result of South Korea’s initial collectivization of wealth has been a self-perpetuating vicious cycle. The larger structures of power and inequality place South Koreans in a position where they must all compete for a spot within a chaebol, rather than compete against the chaebol. But with its endless supply of Korea’s brightest minds who have devoted their adolescence to South Korea’s spartan education system, the chaebol only become stronger, causing even further distrust and dissent among South Koreans.

But the “nut rage” incident has brought to surface the long-suppressed grievances of South Koreans. A scuttle over a bag of macadamia nuts might represent a precursor to change.

Mention “Alibaba” and people tend to associate it with two things. First, that it completed the largest Initial Public Offering (IPO) in history with $25 billion (compared to Facebook’s $16 billion). Second, that it is an e-commerce company that threatens domestic icons Amazon and eBay and wants to take over the United States. Alibaba certainly looks formidable by sheer volume of business- it had $80 billion in gross merchandise volume in the second quarter of 2014, compared to eBay’s $20 million.

But will Alibaba necessarily be a threat to the existence of Amazon and eBay? Its differences with the two domestic giants, as well as inherent challenges it faces, suggest not. For one, it is more similar to eBay than Amazon. Instead of selling goods directly to customers (which is what Amazon does), Alibaba provides an online bazaar that matches buyers and sellers. Unlike Amazon, Walmart or Staples it does not have a vast network of warehouses. Alibaba has multiple marketplaces: Taobao, China’s biggest consumer-to-consumer shopping site that is home to 7 million merchants and a billion products; Tmall.com, China’s largest third-party platform for brands and retailers; and Alibaba.com, the world’s largest online business-to-business trading platform.

It earns revenue primarily from charging merchants for advertising and transaction fees on its sites. Like Google, Taobao charges sellers for putting their names on top of search queries- in contrast to eBay and Amazon, who pay Google to have their products listed. Thus Taobao gets a hearty portion of the revenue that would otherwise go to search engines. While it offers all basic services free to both buyers and sellers, it charges for online advertisements, and extra services like website design- expenses that sellers clearly think worthwhile in differentiating themselves on the messy, chaotic Taobao cyberspace. Alibaba’s lower fixed costs in terms of infrastructure and fewer employees allows for its astounding profit margin of 80%, and a net income of $1.35 billion in the October-December quarter, trouncing Amazon’s mere $247 million of net annual income and eBay’s $2.86 billion.

 

Revenue, 2Q 2014 (Billions)                                                                            Net profit margins, 2Q 2014

revprofit

It is no secret that Alibaba aspires to expand its e-commerce business globally. This June it launched 11 Main, a US shopping website in high-end fashion, sporting goods, toys and jewelry, which aims to appeal to US customers. In Europe, Alibaba made deals with the Italian and French governments for easier sales on TMall. It is also partnering with Brazil’s state-owned postal services company, Correios, to allow small businesses to use its electronic payment system, Alipay, to sell products in China. Alipay is Alibaba’s very own payments system which buyers can use to purchase everything from movie tickets to taxi rides. Just this week, news about a possible “marriage” between Alipay and Applepay (Apple’s own version of a mobile wallet which lets iPhone 6 users make payments at retailers with their smartphones) has been causing excitement in the business community. Besides launching 11 Main, Alibaba is looking for other ways to increase the number of consumers it has. The company intends to get into video creation to propagate its sites, and Alibaba founder Jack Ma allegedly intends to travel to several Hollywood studios to strike content deals.

However, it is clear that Alibaba does not have a very strong presence amid retail consumers in the United States, and indeed elsewhere in many developed economies. One reason is that it is a relatively new player, but it is also because it suffers from a reputation of counterfeits. The reputation is both real and by association with China, which has been globally condemned many times for its thriving market of fake luxury items. Up until the end of last year, Taobao was on the American government’s list of “notorious markets”. Its removal reflects the effort the firm has put into cracking down on fakes by working with multinationals, but fakes are still too readily available throughout the site. Ma has an exceptional track record of building trust among buyers and sellers in China and has also been celebrated for his philosophy of putting customers before employees and shareholders. Yet, despite all this, the trust of consumers in developed economies continues to elude Alibaba.

Furthermore, the fact that Alibaba is a from a country that is perceived to be the economic and military rival of the United States, immediately inclines Americans to stick with home companies they perceive to be safer. This is perhaps why the primary focus of Alibaba in the near future remains to attract Chinese consumers, especially given the ferocious competition it faces with domestic competitors. In fact, its recent US acquisitions reflect the company’s awareness of the need to stay ahead. Alibaba has been buying American start-ups focused on mobile and e-commerce, such as messaging app Tango ($280 million) and peer-to-peer ridesharing app Lyft ($250 million). These apps might give Alibaba an edge over domestic competitors back in China such as Tencent, which is a behemoth collection of businesses that is also a leader in mobile apps. Tencent launched messaging app WeChat, which is hugely popular in China and has 438 million active users globally (compared to Whatsapp’s 465 million).

In fact, Alibaba’s greatest potential for overseas expansion lie in emerging economies with conditions similar to those in China that allowed Alibaba to rise to prominence in the first place. Countries in Africa, Latin America and Asia are likelier to have plenty of small to medium sized businesses that rely on low capital and infrastructure, which stand to benefit the most from the online market platforms offered by Alibaba. As some have already pointed out, it is unclear that Alibaba’s marketplace business approach, which allows it to do without warehouses and other tangible assets, will be successful in a country like the United States, where there are already dominant internet retailers.

Indeed, as Yahoo Finance reports, Brazil has a fragmented retail economy and millions of small merchants like those that Alibaba already targets in China. It also has a growing middle class eager for shopping bargains in Chinese-made goods, making it the fastest growing e-commerce market in the world after China. These factors have allowed Alibaba to be successful in its ventures in the region. Last year, Alibaba opened a Portuguese e-commerce site and integrated a locally dominant payment forum known as Boleto. In July, 12 million Brazilian visited AliExpress, almost ten times the traffic garnered one year ago.

Thus it remains very unlikely that Alibaba will immediately swallow up Amazon and eBay in the foreseeable future. Alibaba does not sell directly to American consumers, while Amazon retains the heavy capital for its retail services. A resurgent eBay holds the upper hand in reliability and consumer trust. The interest and buzz surrounding Alibaba’s IPO and stock prices are from companies and individuals seeking to profit from its status as a large, promising and stable company with strong ambitions to continue to grow. Yahoo, which owned about 24% stake in Alibaba just before the IPO, has seen its profits soar, earning no less than $6.3 billion from selling part of that stake. While these profits are impressive, Alibaba’s future will remain hinged on its ability to make smart investment decisions both at home and abroad.

 

 

In 2009, in a promotional presentation to prospective investors, Susan Payne, CEO of the largest land investment fund in Southern Africa, touted Africa as “the last frontier for finding alpha.” Her company, Emergent Asset Management, a private limited liability company based in London, has invested over 540 million dollars in land acquisitions and controls 100,000 hectares of land in a dozen sub- Saharan countries. Once the industrial agricultural projects are fully operational, Emergent Asset Management expects to make annual returns of twenty-five percent or more. Emergent Asset Management is one of many foreign investment companies participating in a massive rush to acquire huge tracts of land spanning the entire African continent. Triggered by the recent financial crisis and high global food prices, investment banks, hedge funds, international agribusinesses, commodity traders, and even governments have amassed an estimated 32.8 million hectares of land in Africa in their quest for high returns and potential profit from future food crises. These corporations claim that they will bring modernization and spur a long needed “rejuvenation of African agriculture”. Agricultural yields will increase tenfold and hunger and poverty will be eradicated.

However, critics assert that talk of eradicating hunger in Africa is simply a cover for the exploitation of natural resources by powerful international corporations. Abetted by the World Bank, outside investors are introducing an industrial model of agriculture, connected to large far-off markets, in complete disregard of local communities. Large scale commoditization of agriculture, with the introduction of genetically engineered seeds protected by Western patent law, are in effect disenfranchising local communities in a movement that can qualify as nothing less than a dispossession on a massive scale and a new twenty-first century form of colonialism.

In most of the developing world, small scale farming remains the most basic foundation of life, playing a crucial economic as well as social and cultural role in local communities. For centuries, the agriculture of developing countries was built upon the local resources of land and water, capitalizing on local seed varieties and indigenous knowledge of farming practices. Farmers save and share seeds, and for tens of thousands of years have been practicing seed selection to develop unique local varieties of food crops.  Professor Miguel Altieri from the University of Berkeley writes in “Agro-ecology, Small Farms, and Food Sovereignty” (2009) that traditional subsistence farming nurtures biologically and genetically diverse small farms with a “robustness” and “built in resilience” that forms the basis of indigenous cultures.

However, seeds are big business for Western corporations like Monsanto and Syngenta which seek to sell their patented genetically modified seeds throughout the developing world, including Africa.  Genetically modified seeds require agricultural chemicals, herbicides and pesticides, also manufactured by the same multinational companies, to be productive.  By imposing a chemical input and GMO seed based agriculture on African farmers, these companies are creating a new form of dependence among African farmers, and new sources of profits for foreign shareholders. Unfortunately, powerful international bodies, such as the World Bank, the World Trade Organization, as well as certain UN affiliated entities, encourage or even coerce African nations to allow Monsanto and Syngenta and other big Agribusiness suppliers into their markets. Under the banner of modernizing agriculture, and also through trade agreements, these companies are given access to the African market where they have few competitors and where farmers often feel that they have no choice but to join the chemical agriculture bandwagon.

While large corporations want to convert African farmers to an agricultural model dependant on chemical input, other Western and Chinese business interests simply want to acquire African land to farm. To this end pressure is put on African governments to “reform” their legal systems governing ownership rights. Traditional African tenure laws view land as a complex interlocking and overlapping system of rights, in which private property cannot be categorized as private property in the same way that it is in much of the Western world. Western conceptions of ownership, Parker Shipton contends in “Land and Culture in Tropical Africa: Soils, Symbols, and the Metaphysics of the Mundane” (1994), “impose alien assumptions or emotional charges on African tenures. Legal language implying human mastery over land misfits some peoples who speak of it more often the other way around”. While true equality is elusive in Africa as elsewhere, Shipton argues that nevertheless egalitarianism has been a “stock theme” in African anthropology. As such, he contends, “An ideal often perceived to underline indigenous tropical tenure systems across the continent might be called fairness and flexibility. According to this principle, access to land should go to those who need and can use it, and no one should starve for special want of it.”

In “Seized: The 2008 land grab for food and financial security,” Grain, an international non-profit research organization, chronicles how foreign corporations are getting new forms of control over farmland to produce food not for local communities but for an international export market. A number of African countries, such as Malawi, Senegal and Nigeria were identified as offering fertile land, relative water availability, and potential farm productivity growth. Within five years, a dizzying 3.28 Million hectares of land across Africa was amassed by a multitude of corporations and countries across the world, and this trend is expected to continue as up to thirty percent of all arable land has been identified as potentially up for grabs.

BlackRock, the world’s largest asset manager, is one of many that have identified African agriculture as a new source of profit. In 2008, it set up a $200 million agricultural hedge fund used to acquire farmland around the world. The life of such a fund is typically 10 years with expected annual rates of returns as high as 400%, with the clear understanding that they will build an industrialized infrastructure in order to mine as much output from the land as possible.  Corporations and countries usually strike deals to acquire land under the pretext that it is “fallow”, but Grain points out that this is rarely the case as local farmers typically utilize land on a rotational basis in order to enhance soil fertility. In other instances local communities are simply not accounted for at all. Jettie Word, policy analyst at the Oakland Institute, reports that a map produced by state technicians in Senegal, before leasing twenty thousand acres of land to Senhuile Senethanol, confirmed the existence of only six of the forty villages that were using the land which was subsequently leased to foreign companies.

The lease and purchase of farmland previously used by small subsistence village based farmers robs millions of Africans of their livelihoods. Furthermore, the elimination of small farmers undermines the moral and ethical underpinnings of rural culture and society. In Stolen Harvest, Vandana Shiva argues that hidden behind complex free trade treaties promoted by Western countries and the World Trade Organization, are shrewd ways to essentially disenfranchise local farmers. “As farmers are transformed from producers into consumers of patented agricultural products, as markets are destroyed locally and nationally but expanded globally, the myth of free trade and the global economy becomes a means for the rich to rob the poor of their right to food and even their rights to life.”

In 2013, leaders of the most powerful western countries convened at the G8 Summit in London to address malnutrition and hunger in the third world. The summit culminated with the signing of the Nutrition for Growth Compact. Hailed as a great humanitarian success by most of the media, the compact received financial commitments from western and Chinese governments that surpassed expectations. Essentially the compact offers African countries public and private money if they strike agreements with G8 countries and their private sectors to ”develop” agriculture. Many critics view this foreign aid as a Trojan horse designed to help Western corporations to exploit third world resources. Critics such as George Monbiot, a columnist for The Guardian, argue that G8 countries use their leverage and funds to force African countries to undertake structural reform, rewrite laws facilitating foreign access to lands, and undertake partnerships with global corporate partners such as Monsanto, Cargill, Dupont and Synegenta.

Under the official purpose of “lifting 50 million people out of poverty over the next 10 years”, this deal is essentially a self interested effort by the G8 countries to take land away from the very people who supposedly need to be lifted out of poverty, and reallocating them to these global corporations. The African countries that agreed to sign the Nutrition growth summit must comply with the demands of the G8 countries or they will not receive any aid. Ivory Coast must “facilitate access to land for smallholder farmers and private enterprises” which in practice means evicting smallholder farmers for the benefit of private enterprises. Already it has signed deals with French, Algerian, Swiss and Singaporean companies leasing 600,000 hectares of prime arable land which Grain reported in “ G8 and land grabs in Africa” will displace tens of thousands of peasant rice farmers. Similarly, Mozambique, Ghana and Tanzania must rewrite laws to promote these same types of “partnerships” and are obliged to draw up new laws granting intellectual property rights in seeds under the pretext that this will “promote private sector investment”. These new intellectual property rights essentially turn staple crops into patented property, owned by companies such as Monsanto and Cargill, which criminalizes sharing and saving seeds thus eliminating centuries of collective innovation by farmers and peasants.

In essence, foreign development undertaken under the pretext of “fighting hunger” or “eradicating poverty” is simply a channel through which to usher in foreign private capital with little regard for the local communities.  “What we are seeing,” writes Vandana Shiva is “the emergence of food totalitarianism, in which a handful of corporations control the entire food chain and destroy alternatives… Local markets are being deliberately destroyed to establish monopolies over seed and food systems.”

Under the auspices of the World Trade Organization and agreements such as the Nutrition for Growth Summit, western countries are forcing third world countries to recognize US style patent regimes. “Instead of the culture of the seed, which privileges reciprocity, mutuality, permanence, and exhaustless fertility, corporations are redefining the culture of the seed to be about piracy, predations, the termination of fertility, and the engineering of sterility”. This new system, Shiva argues, “is transforming farmers highest duties- to save seed and exchange seed with neighbors- into crimes.” Under the pretext of foreign aid and development, the G8 Summit ultimately aims to facilitate a market infiltration of foreign agri-businesses into Africa, turning local farmers into disenfranchised tenant farmers who can no longer claim title to the land they till or the crop they produce.

The new waves of agricultural development have drastic effects on pastoralists, traveling herdsman who follow a seasonal migration pattern to find land for their cattle. About 40% of land had up until recently been dedicated to pastoralism but recent development and foreign land grabs are compromising their access to land and the means of their subsistence. With the guidance of the World Bank, African governments enacted land privatization policies that have made it increasingly difficult for these traveling herdsmen to move across land. In 2006, the Tanzanian government authorized the eviction of Pastoralist communities from the Usangu basin in the Southern highlands of Tanzania without offering them any other land to use. As huge tracts of lands are taken away from them, competition for grazing space has exacerbated conflict and endangered Pastoralism as a viable lifestyle.

There is no doubt that African farming needs support—millions of families struggle to feed themselves, don’t have access to clean water, and die from poverty every year.  The Food Policy Research Institute says that Africa needs to increase its food production by 40%. However, there is no evidence that the arrival of Western agribusiness enriches local people.  A small wealthy urban African elite and foreign stockholders and owners reap most of the benefits.

Could it be that we are once again seeing exploitation and colonialism hidden behind false humanitarian rhetoric? Is this simply a new age of imperialism driven not by lofty political ideals but rather corporate profits?

It is time to acknowledge that combating household food insecurity will involve more than just increasing food production and must instead emphasize access. Helping poor households in rural Africa feed themselves requires introducing low-cost, sustainable enhancements to farming. Intercropping, agro-forestry, composting and soil conservation are all valuable measures to enhance soil fertility and control pests without massive cash outlays for expensive chemicals and fertilizers.

 

 

 

Julie farms for a living to support her family of five in the Putumayo region of Colombia. She used to grow grapefruits, but the costs of transporting the grapefruits across ruined roads to distant towns made it unreasonable for her to even pick the fruit from the trees. However, she found a new crop to harvest; one whose prices remain stable and provides at least five times the profit, and she does not even have to leave her farm to sell it. Every month, buyers come directly to her farm to purchase what she harvests – the coca leaf, the first ingredient in the making of cocaine.

US fumigation efforts have hindered her crop, but not entirely. As soon as the chemicals land on her crops, Julie knows how to quickly wipe off the chemicals before they start killing her crop. She usually manages to save a majority of the crop, but even left with only half of her crop she would make much more than she would with an entire grapefruit harvest.

Fumigation is only one facet of the United States’ War on Drugs which demonstrates their ineffective militarized and supply-side approach. These tactics have only transformed the drug market into a more lucrative and organized venue. Much literature on this topic has concluded that the War on Drugs has been unsuccessful; unchanging policy and has not produced the satisfactory results that four decades and $1 trillion dollars should exhibit.

How do we make the War on Drugs as cost effective as possible? A new study released by the London School of Economics basically reiterates everything that literature over the past decade has been proving: by focusing on demand and rehabilitation. In theory, rehabilitation and treatment programs should decrease overall demand for drugs since addiction and repeat customers are what fuel most of the demand. Decriminalization, another point explained by the study, will also cut healthcare (decreased HIV transfer through dirty needles used for drugs) and incarceration costs for taxpayers.

These tactics have not been implemented in the United States due to political roadblocks. Instead United States policies continue to be centralized around supply-side eradication efforts.

How did this happen?

The international community has enacted drug reduction policies since the 1900s, with their initial focus on opium. Hundreds of countries signed multilateral treaties  (though the League of Nations and then through the UN) in which each country promised to sanction policies that combat the drug trade that posed a domestic and international risk to civilian safety and health. Not until the Nixon administration did the United States finally coin the term “War on Drugs,” demonstrating a new, militarized approach to narcotic control.

When the Cold War ended, the Pentagon and other government officials realized that the end of the war meant decreased military spending, thus reducing their prestige and importance in the government. They needed an alternative and the War on Drugs was the perfect substitute. The war had an unclear end, which basically guaranteed funding for a very long time. There were politicians in Washington who wanted to focus on a demand side approach, to target the issue from the addiction end. However, there was greater support for taking a hard stance on drugs which was more popular with the constituency and in the White House.

Cartel structure

The United States seemed to be gaining a foothold in the War on Drug s the early 1990s as they managed to capture one of the most prominent drug lords – Pablo Escobar. However, in the wake of his demise, at least another dozen, smaller drug lords filled his power vacuum. The flexibility of the hierarchical structure of these cartels made it harder for the US to take down a cartel by killing a prominent member, as they are easily replaced. The rhetoric behind the War on Drugs allowed for easy “villainization” of these drug cartels or any involved member. In the wake of the 9/11 attacks, drug traffickers began to become associated with terrorists, thus creating the term “narco-terrorism.” This new rhetoric added a new dimension to the War on Drugs. Now not only was drug trafficking harmful to public health, but it was also a threat to national security. This further propagated the policies that drug trafficking had to end and to do so, the US had to take a militarized approach, because the US does not “negotiate with terrorists.” Thus, the US prioritized supply side eradication over any drug rehabilitation programs. Yet, as long as the demand exists for drugs, these cartels can always recruit people to work for their very lucrative business.

Agricultural sectors

US eradication efforts, such as fumigating coca fields in Latin America, seem effective when analyzing the decrease in coca crop in each fumigated country. However, when one country fails to grow the necessary amount of coca to match demand, another country picks up the slack. The coca crop cultivated in Bolivia, Peru, and Colombia since US eradication efforts demonstrates this phenomena. In a sense, by attempting to remove the coca crops, the US is playing a game of musical chairs where they fail to remove one chair every round.

These eradication efforts are performed bilaterally, where the United States receives permission from the country’s government to spray their country’s crop. “Permission” refers to the US promise to increased aid to governments that agree with US drug war policies. Unfortunately, inefficient crop substitution and agricultural subsidy programs in these Latin American countries means that this aid does not go to the coca farmers that the eradication methods displace and marginalize. Thus, when a country’s coca crop is fumigated, there always seems to be a rebound in the following year, probably due, in part, to these failed policies that do not give coca farmers a better alternative. Yet, the reason remains that growing coca is the best employment because of the consistent demand for drugs.

Creating the perfect product

The “Iron law of prohibition” explains that the toucher the enforcement on a drug, the more potent it will become. This happens due to to simple business decisions. For a drug trafficker, making drugs more concentrated means decreasing bulk and cost of transport, which is artifially high due to law enforcement. As demonstrated by Figure 1, the price of marijuana in the United States has steadily decreased while the potency has increased by at least 100 percent. By making drugs more potent and concentrated, not only are drug traffickers able to increase their profits per gram, but they can also transport drugs more inconspicuously. In turn, the War on Drugs ha thus increased the profit margins for drug traffickers as transportation costs are lower and revenues higher. This benefits the consumer because as the drugs become more potent and of higher quality, drug dealers have to become competitive and lower or stabilize their prices. The economic effects of the War on Drugs have been beneficial in the sense that consumers have lower prices and higher quality and the producers have lower costs and higher profits.

Present day

Most of the new rehabilitation policies mentioned by the London School of Economics paper will take time to really become effective. In fact, simply introducing these new ideas has taken over a decade and will most likely take longer to become law in the United States. In the meantime, Portugal’s decriminalization has seen dramatic reductions in HIV levels, increased rehabilitation, and an almost steady amount of users since their new drug laws were passed. Relative to other countries, Portugal’s policies have been a success. A CATO institute study conducted seven years after the drug laws were passed noted that post decriminalization, Portugal had the lowest rate of lifetime marijuana use amongst people over the age of 15: 10 percent, contract of the US’s 39.8 percent. The laws that used to drive drug users underground now allow the Portuguese government to treat these people, making positive steps towards decreasing demand.

This change in mindset can almost be seen as reversing the rhetoric that the United States had established about drugs. The United States has always taken a tough stance on drugs, marking users as criminals and essentially alienating the constituency that needs the most aid from the government. Portugal on the other hand has reversed this rhetoric of criminalization, by identifying addicts as patients who need medical treatment; they decrease demand by encouraging an inclusive drug free community. Though decriminalization and demand-focused policies are not perfect, they are, in theory, the most cost effective way to fight the War on Drugs by drastically decreasing healthcare costs and excessive military involvement. And enacting these types of policies in the United States, which is one of the world’s largest consumers of illicit drugs, might have a greater global ripple effect on the drug supply chain than a small country such as Portugal can cause.

Most of us know that tomatoes come from vines, but few are actually aware of the story fro behind the juicy red fruit that we often find at our dinner table. In fact, most people can only trace their tomato’s heritage as far back as the supermarket. Therefore, this spring, wanting to learn more about the story behind the famous fruit and the process it takes to bring it from the vine onto my plate, I took a trip to Immokalee, Florida, as part of Tucker Foundation’s Alternative Spring Break Program.

Immokalee is a small migrant town in Florida, about 30 miles inland from wealthy beach resorts such as Naples and Fort Meyers. According to the New York Times, it is a town of “taco joints and backyard chicken coops where many farmworkers still live in rotting shacks or dilapidated, rat infested trailers.” The rent to live in a single trailer exceeds their income, so most live as multiple families under one very small roof in packed and deplorable conditions. Although in recent years, “affordable” housing communities have been built in the Ommokalee area, the majority of these homes cost between $80,000 and $100,000, a hefty price tag that new migrant families cannot afford. Immokalee stands in stark contrast to the wealthy beach resorts only 30 miles away, and it is not a huge stretch to say that it almost resembles a town in a developing country.

Although Immokalee is generally reasonably safe, it nonetheless gets it share of crime and violence. In 2008, a case of modern day slavery was discovered in the center of the town where a group of undocumented migrants were imprisoned in a trailer house and forced to work against their will in fields for no pay. For many years, lack of labor inspection made migrant workers in this community extremely vulnerable to unethical working conditions. Indeed, until recently, migrant workers were forced to catch a bus to work at 4 a.m. but would only receive compensation for hours logged after 8 a.m. During the hot and humid summers, workers, not permitted to take breaks, suffered hardship under the grueling conditions. Verbal abuse, including racist remarks and discriminatory behavior, was widespread as the unregulated farms at which they worked were largely free of any government oversight.

The Coalition of Immokalee Workers, focused on advocating for better conditions for migrant farm workers, has been educating local farm workers about their rights and protections under the Fair Food Code of Conduct. Their efforts led to the creation of the Fair Food Program, a unique worker-led, market enforced social responsibility program which aims to address issues of unfair wages and sexual assault in the fields. Sexual assault, violence, and unfair wages, is not unique to Immokalee and has plagued farm worker communities around the world. Indeed it is estimated that 50 to 80 percent of all female farmworkers have been sexually harassed while working in the fields according to the Huffington Post.

The Fair Food Program involves over a dozen major food retailers, including Wal-Mart and Whole Foods, who have signed on and committed to only buying tomatoes from trusted and verified producers that provide safe and fair working conditions. Additionally, the retailers that have agreed to participate in the Fair Food Program have pledges to pay one more cent per pound of tomatoes with the money going directly to supplementing the tomato pickers wages. The companies have also pledged to drop any suppliers that violate the standards of the program.

In the past 10 years, the program has had considerable success. By having as many large retailers sign on as possible, tomato producers are left with no choice but to abide by the new regulations. Consumer and retailer pressure has made the program incredibly effective and migrant workers have directly benefited from the program. There has been a significant reduction in the amount of reported sexual harassment cases in the fields. Thanks to the additional penny per pound, the tomato pickers are paid an additional $60 to $80 a week, amounting to an additional $4 million a year received by tomato pickers according to the New York Times.

Although the Fair Food Program is not perfect, it sets a precedent for future change. The Fair Food Program currently applies only to tomato producers and there are many large retailers that have yet to sign on whose presence would greatly solidify the program. However, Industries worldwide can learn a lot from the Fair Food Program. Hailed but the New York Times as “one of the great human rights success stories of our day,”  it has demonstrated the substantial impact consumers and retailers can have on improving the well being of workers around the world.

While marching in Lakeland, FL against Publix, a major food retailer in Florida, I was amazed to see the spirit and will of the community where the national movement was initially born. Marching for three miles, they chanted, “Up, up with the fair food nation; down down with the exploitation,” unified in their strong commitment to fight for what they know is right.

Founded in 2010, Start-up Chile was created as an ambitious program to turn Chile into the innovative hub of South America and attract world-class entrepreneurs. Fully supported by the Chilean Government, Start-Up Chile is an accelerator program that aims to transform Chile into the “Silicon Valley of Latin America.” To make Chile attractive to foreign entrepreneurs, the government provides promising young firms with $40,000 of equity free seed capital, a temporary one year visa to develop their project for six months, access to the most potent social and capital networks in the country as well as various other perks such as free office space. Every year, Startup Chile receives applicants from all over the world and many graduates from the world’s most prestigious education institutions including Harvard, MIT, Columbia and Oxford.

Start-Up Chile has garnered overwhelming praise from the press and social commentators. Stephen Keppel, an economist and writer who is currently Director of Empowerment Initiatives at Univision News, argued in an article in October 2013 that Start-Up Chile, is quite literally “changing the face of entrepreneurship in Latin America” and with it the Chilean culture and economy. In just three years, the program has attracted over 900 entrepreneurs from 37 countries, created 695 jobs and sparked 36 deals with Chilean investors. The Economist coined the term “Chilecon Valley” in 2012 and argued that Chile has successfully exploited Silicon Valley’s weak point by welcoming thousands of entrepreneurs who were turned down in the U.S. due to rigid immigration policies. Kauffman Foundation Vice President of Innovation Lesa Mitchel praised it as “ a unique model other regions of the world should emulate”.

A promotional video on Start-up Chile’s website spells out their mission “They arrive. They work. They connect. They leave and Chile stays connected”. Thus Chile is less interested in attracting the businesses as they are in fostering an “innovative spirit” that they hope will begin to permeate a typically risk averse Chilean culture. In return for the $40,000 in seed capital and the free visa, Start-Up Chile participants are required to engage with Chilean students and often end up mentoring and hiring Chileans. They are required to speak to local entrepreneurs, speak at events, and have held thousands of workshops. The program has engendered in Chile, a country heavily reliant on copper exports, a new spirit of innovation and creativity that the Chileans see as key to their economic future. “The influx of foreign innovators” Keppel argues, “has disrupted the status quo in Chile and introduced a new generation of entrepreneurs to opportunities in Latin America.”  By importing foreign entrepreneurs, the Chilean government hopes that they will inspire homegrown ones. “The idea is to fertilize the local landscape with new ideas and ambitious people” Vivek Wadwha, a visiting scholar at Berkeley argued. “This is a win-win. If all goes according to plan, we will have a thriving innovation hub in Chile-Silicon Valley South”.

Although retaining the entrepreneurs after the six months is not Start-up Chile’s primary concern, over 40% have in fact chosen to stay.  The pro-business government is partly responsible for the high retention rate. Chile has a low 20% corporate tax rate and has fostered a “summer camp environment” with a vibrant community and strong network support. Furthermore, as Europe and the United States continue to suffer from sluggish growth, Latin America, spearheaded by Chile, is becoming of greater and greater interest to foreign investors. Ariel Arrieta, cofounder of NXTP Labs, an acceleration program that provides seed capital, consulting, and training to technological startups, argues that Latin America holds enormous potential as an untapped market with astounding growth prospects. Improving market conditions coupled with a very young population, has created a thriving climate for technology startups and consequently has attracted the attention of many global analysts and early stage investors that hope to latch onto prominent startups.

Start-Up Chile’s detractors criticize the program for funding foreigners (although the program is also open to Chileans) and many note that it’s still too early to see any real benefits from this program to the Chilean people. That said, the Chilean government should be commended for taking such creative actions and attempting to carve out for itself a place in the global economic market. It would not hurt the United States government, plagued by inaction and stalemates, to take Chile as an example and learn some lessons.

When the spark of revolt first ignited with the fruit vendor in Tunisia, investors already understood the impact the conflict would have on their investments. They started transferring their money to more secure locations, often to banks in neighboring countries. Lebanon banks acquired a total of almost $11 billion dollars from Syrian banks, according to a report from the UN Economic and Social Commission for Western Africa. When the conflict reached Syria, and refugees flowed into Lebanon, they added another billion dollars to Lebanon’s economy through consumer spending. Thus, in the initial stages, the Arab Springs had a generally positive impact on the Lebanese economy.

The large increase of Lebanon’s population has added pressure to their economy. Refugees, realizing that they cannot return to Syria quite yet, are now competing with Lebanese citizens for jobs. Before the refugees tried to enter the work force, Lebanon was already having issues with job creation. The Ministry of Economy in Lebanon explains how “The Lebanese economy already has a problem meeting local demand for jobs. Out of the 25,000 we need to create each year, we are only creating 3,000.” With such a low demand for workers, but an increased amount of available labor, many Lebanese citizens complain about wage cuts. Because of the increased competition for jobs, The World Bank describes how Syrian refugees have offered to work for half the wage that Lebanese citizens traditionally received for unskilled labor, overall dropping wage rates in Lebanon.

There is also competition for public goods and services, with the government taking the brunt of the costs. Because the Syrian refugees haven’t been absorbed into the Lebanese job market, they require government assistance. Unfortunately, with this increase of an unemployed population, the government has to somehow fund services for them with a dwindling budget. The Associated Press cited a World Bank report that estimates for the years 2012-2013, “$1.5 billion in government revenues will be lost while simultaneously, government spending will have to increase by $1.1 billion because of the surge in demand for public services,” which entails a “total negative impact on the Lebanese budget to $2.6 billion.” Because of the increase in demand for these public services, it has caused a decrease in overall accessibility and quality of the services, as the services were not acclimatized to the sudden surge in population or use.

Geographically, Lebanon is largely bordered by Syria on the East, Israel in the south and the Mediterranean Sea for its west. As a result, Lebanon’s gateways to land routes for trade to the Middle East are mainly through Syria and Israel. The Syrian conflict has disrupted these land routes, which has impacted their flow of goods and ability to transport their goods for trade. The Wall Street Journal explains “In the years that followed, Syria remained a main land route for some of Lebanon’s biggest economic drivers– commerce, tourism, and foreign remittances.” The effects on Lebanon’s trade deficit have been large, “according to estimates from data covering 2008 to 2013, Lebanon has a trade deficit of between 30 percent to 40 percent of GDP” (ESCWA). 

Due to this close proximity, the economies of Syria and Lebanon have been intertwined. Before Syria decided to diversify and liberalize their economy, Lebanon was portrayed as “a lung of the Syrian economy” and Syria was a major market for Lebanese products, as described by the Wall Street Journal quoting Abdallah al-Dardari, ESCWA’s chief economist and Syria’s former deputy prime minister for economic affairs. Their GDPs have indicated this relationship, where in the past two years, Syria has lost between 35% and 40% of its GDP in the past two years, while there was a 6% decline in GDP growth in Lebanon over the same period (ESCWA).

Countries can easily prepare for natural disasters or economic impacts from direct involvement from war. It is not as easy, however, to predict the economic impact of war in a neighboring country, especially one, which has both fiscal and social, ties to the affected country. The most that Lebanon can do now is hope for increased international aid in order to support their newly enlarged population. A Reuters article describes how recently, Lebanon was able to sell “$1.1 billion of long-dated bonds [in April].” This demonstrates the investors are still willing to invest in the country and have hope for its economic resurgence. Hopefully, there could still be positive implications of the rise in population. There would be increased demand for goods and services, such as housing or food and an increased workforce to help meet the demands. This could lead to an increase in prices, but the Reuters article quotes Alix-Garcia, “an assistant professor at the University of Wisconsin,” whom “says that could be offset by free food aid supplied to the refugees.” While there are currently short-term economic pressures for Lebanon, for the long run, they have new potentials for the direction of their economy. Most modern day economies are no longer traditionally bound to a specified output or method of production. With these changing circumstances, the largely trade-based Lebanese economy can adapt and use this new producer and consumer force to promote their economy in an area of conflict.

 

 

The problems embedded in the world agriculture situation have been popularly labeled as “food insecurity” or “hunger,” and these terms have risen on the international agenda particularly since the 2008 global food crisis. What’s glaringly missing, however, is any sense of the political—how the relations between corporations, governments, farmers and consumers manifest themselves in a deeply unequal distribution of benefits. The task for international social movements, then, is to craft discourses centered around local people’s sovereignty. John Dryzek, in his book Deliberative Democracy and Beyond, terms this “transnational discursive democracy,” which is highly relevant to the push toward a new model for world agriculture. 

The link between transnational discourses and a more democratic state is particularly relevant in combatting the “race to the bottom,” whereby poor countries make their resources amenable to foreign investment at the expense of local people’s human rights. This issue is not just a matter of globalization, but of the absence of democracy in developing countries. Movements to strengthen the position of, say, laborers or farmers at the domestic level may prevent the state from opening its doors to foreign capital that undermines local people.

The impasse at the Doha (Qatar) round of World Trade Organization negotiations, which have dragged on since 2001, is often considered to be a failure of international cooperation. Yet looked at another way, this stands as a promising example of how domestic-level political concerns can protect vulnerable groups in one country and promote collective action by the developing world as a whole. Leaders from developing countries refused to budge on the issue of farm subsidies, which have long been central to U.S. and European policy to artificially lower the price of agricultural exports, undermining local farmers around the world. Critics in developing countries point out the injustice of continued protectionism in the U.S. and Europe even as these powers have sought to prevent other countries from subsidizing their own farmers. That position was in no small part influenced by global discourses highlighting agricultural trade liberalization’s disastrous impact on the world’s poor. Dryzek correctly states that inserting civil society into global trade institutions would do little for democracy, serving only to remove key actors from the international “public sphere” that has really been the most effective space for advocating for a more democratic world. If the WTO itself cannot be democratized, then there still remains the possibility of democratizing its member states so that they defy the WTO’s free trade orthodoxy.

Furthermore, transnational discursive democracy’s connection to the state is evident in the movement for the “Right to Food.” This rights-based approach has been unfairly criticized for focusing on technical and legal components while neglecting structural political-economic factors. Yet efforts to implement the Right to Food at the country level inevitably draw upon transnational discourses of agriculture and development, which certainly do indeed incorporate the political economy element. The UN Special Rapporteur on the Right to Food, Olivier De Schutter, is the embodiment of global narratives coalescing into a coherent agenda for national development. When he conducts right-to-food missions to individual countries and meets with high-level leaders, he is essentially transmitting transnational discourses to the state.

Interestingly, successful activism in one part of the world may inadvertently have detrimental consequences for that same social movement in another region. In response to the European Union’s ban on genetically-modified crops, multinational seed companies headed into developing countries intent on expanding their market for such crops. It is unlikely that their efforts in India and Africa would be so aggressive if the European market had remained open. Clearly the higher degree of democracy in EU member states, compared with those of the global South, accounts for this outcome. Rather than dismiss this situation as the inevitability of capital flight, the challenge is to strengthen democracy in the global South in order to push back against capital flight.

Indeed, there is an important place for global North-South discourse in facilitating such a shift in agriculture. Food sovereignty movements in the U.S. and Europe can send a message to Southern political leaders: even as they seek to adopt the former’s agriculture system, mobilization around an alternative agriculture offers a warning that industrialized food production has proved a failure in the very countries that are supposedly the model for the rest of the world.

Dryzek encapsulates an effective way for thinking about social change when he suggests that we ask, “Will action X help bring into being the kind of world I find attractive?” rather than “Will action X achieve particular goal Y?” The task for social movements is to facilitate an arrangement of actors that transforms the apolitical “food security” frame to the explicitly political “food sovereignty” frame. These actors, in turn, will elevate the legitimacy of people and knowledge systems that have long been marginalized by trade-based and large-scale industrialized food production. By contrast, the second question does little challenge the prevailing order.  One way to think about a paradigm shift, Dryzek writes, is as the contestation of discourses rather than as competition among identities.

Discourses transcend the constituencies directly affected by an issue by appealing to moral standards of the dominant order, exposing the contradictions within that order (i.e. increasing hunger despite higher crop productivity), and imagining an alternative. All this then allows for collective choice, which rebuts the notion that discourses have little relevance to actual policymaking processes aimed at bringing about a major transition. Framing such resistance merely as the assertion of particular interest groups (i.e. developing world smallholder farmers) is problematic because it creates a zero-sum game whereby those farmers’ gain must come at another’s expense; yet in reality, significant parts of society benefit from policies favorable to those farmers. The other issue is that collective choice is deemed intractable if farmers are seen as an “interest group,” when in fact constituencies other than farmers would be supportive of their agenda.

Agricultural development strategies—be it new technologies or export-oriented production—have long evaded political accountability, finding their legitimacy in seemingly common sense notions of progress and modernization. What social movements can do is to raise questions in the political arena that have long remained off the table, challenging the taken-for-granted nature of development narratives and expanding the realm of what is indeed possible.

Source: http://www.flickr.com/photos/imfphoto/7176494253/

Peter Bauer, a prominent developmental economist, argued “there would be no concept of the Third World at all were it not for the invention of foreign aid” (The Economist). He opposed the idea that development aid could provide the capital needed to kick-start economic growth and fight poverty (Kristof). Aid, he argued, politicized economies and more often than not ended up in the hands of government officials. Contrary to Bauer’s beliefs, foreign aid is not fundamentally ineffective. While in its current form it has little effect on economic growth and may even hamper a country, foreign aid can be effective in certain situations if reformed and managed correctly.

Recent studies suggest that foreign aid may hamper a recipient nation in the long run by weakening local institutions and adversely affecting the country’s competitiveness. In a paper published in 2005, Raghuram G. Rajan, former chief economist at the International Monetary Fund (IMF), and Arvind Subramanian, a former IMF researcher, offer compelling evidence that aid appreciates the real exchange rate of a country thereby decreasing competiveness (Rajan and Subramanian). This appreciation has two root causes. Aid increases the price of resources in short supply such as skilled labor and land, raising costs for local business owners and increasing unemployment (Ibid). An inflow of foreign capital appreciates the nominal exchange rate, making the currency (and in turn the nation’s exports) more expensive. The appreciation of the real exchange rate pushes countries away from “export oriented labor intensive manufacturing.” An export oriented economy encourages sensible government policy by providing the incentive of significant economic growth; foreign aid could potentially eliminate this incentive (Rajan and Subramanian). Therefore, governments must spend foreign aid very effectively in order to offset the fall in competitiveness.

In the case of countries like Somalia, current foreign aid provides temporary relief but does not tackle the root causes of the country’s problems: establishing security, providing food and encouraging business (The Economist). The government must limit the influence of jihadists and secure the Kenya-Somalia border, the site of much terrorist activity. Somalia is a hungry country; according to the U.N., 80,000 Somalis may have perished in last year’s famine (Ibid). Efforts must be made to stabilize food production by making it safe again for displaced farmers to return to their farms. In order to encourage local businesses, foreign donors must invest in industrial equipment, telecommunications, and livestock by supplying capital for loans to medium sized companies. Only then does Somalia have a good shot at success.

While most of academia has concluded that development aid is usually ineffective, there remains much discussion over humanitarian aid. In an editorial published in the New York Times, Carol Giacomo, a member of the Council of Foreign Relations, argues that humanitarian aid helps advance stability abroad by providing food and medicine (Giacomo). For example, U.S. foreign aid was cut by $6 billion, or roughly 11%, in 2011, with further cuts looming due to recent efforts by Republicans to trim our budget (Ibid). Giacomo warns that such budget cuts, which represent a tiny portion of our multi-trillion dollar federal budget, would be “hugely damaging.” Indeed, there is evidence that humanitarian aid has had an effect: in the past 50 years, the number of children who die annually has gone down by 60% (Gates). Furthermore in the last decade the cost of fighting HIV and AIDS has gone down significantly (Emanuel). Nicholas Kristof, a Pulitzer Prize winning columnist for the New York Times, tentatively concluded that one-time interventions such as bed-nets and vaccinations are more likely to be effective than sustained efforts (Kristof). Rajan and Subramanian, however, challenge the notion that humanitarian aid is as beneficial as it is purported to be (Raghuram and Subramanian). In fact, it’s just as ineffective as bilateral or multilateral aid because governments “seem to view all forms of aid as going to a common pot and act accordingly” (Ibid).

Perhaps the way foreign aid is administered is at fault. The Center for Global Development, a Washington think tank, put forth a scheme called “Cash on Delivery” (Rosenberg). The idea is simple: donor countries only pay for projects when something good comes out. For example, the United States and Malawi would draw up a five-year plan to improve primary schooling that specifies a set of payments and what must happen for Malawi to get them (Ibid). After the contract is drawn up, the funder takes a “hands-off approach” which allows the recipient nation the freedom to accomplish the requirements on its own (Center for Global Development). Theoretically, “Cash on Delivery” should garner more political support at home for foreign aid than traditional aid would and also create a sense of accountability in aid-dependent countries (Rosenburg). This method is still untried so we cannot know how successful it can be. And, at the risk of sounding cynical, the entire premise of the “Cash on Delivery” is contingent upon the fact that the foreign government (organization, business, etc) is organized enough to accomplish the set goals in a legitimate manner. Back to the Malawi example, if test scores were used to determine the effectiveness of an education program, it would not be impossible for interested parties to alter test scores and escape the scrutiny of foreign auditors. Yet despite skepticism about the effectiveness of “Cash on Delivery” and foreign aid in general, it’s encouraging to know that we have not abandoned the desire to alleviate poverty worldwide.

Assistant Secretary of State Jose Fernandex ’77

Nominated by President Obama in 2009, Jose W. Fernandez ’77 serves as the Assistant Secretary of State for Economic and Business Affairs. Fernandez oversees the bureau, which handles international trade, finance, policy, development, as well as economic sanctions and support for U.S. business abroad.

“Economics is a critical part of foreign policy, just as important as politics,” Fernandez said in an interview with the Dartmouth Business Journal.

A major focus during his tenure has been “economic statecraft,” a term coined by Secretary Clinton, which involves using economic policy to strengthen diplomacy abroad and in turn, using diplomacy to strengthen the U.S. domestic economy.

A key component of “economic statecraft” has been finding ways to get U.S. companies more involved abroad, according to Fernandez. “The U.S. benefits when our companies do well, and our companies are an extension of American power,” Fernandez said.

In addition to “economic statecraft,” Fernandez’s tenure has also been focused on dealing with “swing state countries,” which are also referred to as “multipliers.” These are typically emerging countries and markets with which the United States can potentially partner to benefit our economies, like Indonesia, Turkey, and Brazil.

In the realm of “economic statecraft,” Fernandez spoke about the need for countries in North Africa and the Middle East to follow positive economic polices which create jobs and promote growth. Fernandez cites countries like Algeria, which has staggering unemployment figures, and Tunisia that had an unemployment rate of 20-30 percent, and even higher for young citizens. “If you put it in the context of many other issues, you realize it is a revolution waiting to happen,” Fernandez said.

The solution, Fernandez said, is regional integration. Middle Eastern and African countries have the lowest interregional trade in the world at around 5-6 percent, however if they engaged in trade their GDP could grow 6-8 percent.

“They need to pursue economic polices that create jobs, foster innovation, and have Arab countries trading more and opening their borders,” Fernandez said.

Fernandez also focuses on areas where economics and development converge, and U.S. companies can, for example, build roads and power plants to contribute to infrastructure. “It is a great example of doing well by doing good: companies that can profit, but can also benefit societies they operate in and by extension help American foreign policy,” Fernandez explained.

The North Africa Partnership for Economic Opportunity (NAPEO) has been a key joint project between the Aspen Institute and the U.S. Department of State. The Aspen Institute is a nonprofit international organization focused on fostering leadership and dialogue through various programs. A main objective of NAPEO has been to build networks between the public and private sectors, encourage American business in the Maghreb region, and foster entrepreneurship and a positive business climate.

The Maghreb region of Northern Africa: an area of focus for Jose Fernandez

Another key project has been Domestic Finance for Development that creates partnerships to help countries mobilize their resources, improve transparency, and battle corruption. “Developing countries have to ultimately own their own development by collecting their own taxes and fund themselves,” Fernandez said.

When failed states cannot support their state apparatus, expected services like police and medical help cannot exist, according to Fernandez.

Tax administration and collection is critical and in many countries people do not pay taxes because “they think it will end up in a Miami bank account,” Fernandez said. This issue ties into corruption and in order to deal with corruption people need to be shown budgets, and there needs to be transparency, according to Fernandez.

Today, the pressing issues the bureau faces include intellectual property rights, treatment of US businesses abroad, state-owned enterprises, and sanctions.

Intellectual property is an issue that goes across borders and affects U.S. companies. The bureau tries to get countries to enforce their intellectual property rights laws, Fernandez said.

The equitable treatment of US businesses in foreign countries and competing with countries with “national champions,” or state owned enterprises, have recently rose as pressing issues.

“We are making sure we are getting a fair shake when [American] investors go to India or China, that [U.S. businesses] are getting an even playing field,” Fernandez said.

Fernandez also indicates Brazil as a well-known emerging market, highlighting the nation’s discovery of “enormous petroleum deposits,” and hosting the Olympics. Within Latin America, Fernandez also calls attention to Colombia, which is “growing by leaps and bounds,” and Peru, which has cut its poverty rate.

“Peru has managed to cut their poverty rates in half, from 54 to 28 percent,” Fernandez said. “In 15 years, that is a great achievement.”

Prior to his service at the State Department, Fernandez was a partner at Latham & Watkins in New York and was the Global Chair of its Latin American practice. After earning his J.D. from Columbia University School of Law, Fernandez worked across European countries and in the EU as it was consolidating. His later concentration in Latin America veered off into Africa, involving mostly corporate work in buying and selling, financing and restructuring companies. He said his experience at his varied practice best prepared him for his work at the State Department.

Fernandez finds the “intellectual aspect” of his work at the State Department to be his favorite but most challenging part.

“The intellectual aspect is fascinating; the ability to learn new things and go from a meeting on agriculture to a meeting on telecommunications, and talk about Algeria and move on to Russia,” Fernandez said. “The intellectual diversity is what makes it interesting and challenging.”

At Dartmouth, Fernandez was a history major with a concentration in Latin history and Russian history. Prior to his appointment at the State Department, Fernandez served on the Board of Trustees of the College.

Fernandez encourages students interested in international business, economics, and development to travel and study abroad. He advises students to be “willing to immerse yourself in other countries and cultures…and being able to put yourself in their shoes.”