A Call to Action

A Call to Action
A Citizen's Agenda for Reform of the Global Economic System
I. INTRODUCTION: Open the Debate
The global financial crisis presents an opportunity to rethink and reshape the rules of the international economy so that they benefit people and the environment.  We welcome the discussion and debate among governments and multilateral organizations about international financial regulation and the global economy. It is time to ensure that the international economy is built on a solid foundation of sustainable development, not unlimited profit.
The social and environmental damage caused by the international financial crisis underscores the fact that the global economy is too important to leave to central bankers and financiers.  Most of the world's people live and work in countries that are interdependent in the global economy, but these people are excluded from decision‑making. If there is to be a \new financial architecture\ (as some leaders have called for) that serves the interests of the world's people, participation in building that architecture must be broadened, not limited to the richest nations and multilateral financial institutions.  We call on governments to open the forums in which finance and investment regulations are discussed ‑ at the international and national levels‑ to include public participation and consideration of the principles and proposals made in this statement.
The Current Situation
Today international financial markets resemble a global casino where traders gamble on minute market fluctuations that have no grounding in real economic activities. In 1980, the daily average of foreign exchange trading was $80 billion.   Today, more than $1.5 trillion flows daily across international borders.   Private financial flows to developing countries grew from $44 billion in 1990 to $256 billion in 1997.    Today, nine‑tenths of capital flows are speculative, rather than productive in nature.
This explosive growth results in large part from global financial deregulation. According to many economists and world leaders, this market \liberalization\ was supposed to deliver progress and well‑being for all.  Some surely benefited. 447 billionaires now have wealth greater than the income of one half of humanity . A mere 100 multinational corporations control one‑fifth of all foreign‑owned assets in the world. And, due to record mergers and acquisitions, this concentration of wealth and power is increasing.  Meanwhile, globalization has distorted national and local economies, reduced self‑sufficiency, expanded unsustainable extraction and use of natural resources, displaced families and communities, and made billions of people dependent on fickle foreign markets.
In response, the public in many countries has begun to question the current model of globalization and liberalization and to question who benefits from this model.  Some high profile examples of the growing strength and momentum of the popular movement against the current model of globalization include the following: public rejection of the Multilateral Agreement on Investment (MAI); the unprecedented level of criticism of the role and performance of the International Monetary Fund in responding to the global financial crisis; and reproach of the environmental, social and economic impacts of the World Trade Organization by civil society.
The economic events of the past year have validated these concerns. The world has learned that \hot money\ can flow out of a country instantaneously.  The result has been a ricocheting financial crisis that has devastated lives around the world. Financial volatility is bringing massive economic breakdown, insecurity, increased poverty, unemployment and dislocation, assaults on environmental and labor conditions, loss of wilderness and biodiversity, massive population shifts, increased ethnic and racial tensions, and international conflict. According to U.S. President Bill Clinton, \the world faces perhaps its most serious financial crisis in half a century.\ 
The effects of free market financial deregulation are even threatening global elites. U.S. Treasury Secretary Robert Rubin states that \the global economy cannot live with the kind of vast and systemic disruptions that have occurred over the last year.\  Rubin  ‑‑ as well as many economists and world leaders who helped to design the current system ‑ are now calling for a \new architecture\ for the global financial system.  Any new architecture must be based on certain principles that ensure the current instability and inequality are not repeated.
II. PRINCIPLES : Responding to the Global Financial Crisis
The new regulation of the international economy should be based on the following principles:
1.  Public Participation: All people should have full and meaningful participation in national and
international economic decision‑making. Participation that does not recognize the public as an equal stakeholder in the deliberative and final decision‑making processes is categorically rejected.  Full and meaningful Participation is fundamentally comprised of access to
information, access to decision‑making and access to justice.

  • Access to information means that the public should have access to information with only limited, explicit exceptions.
  • Access to decision‑making means that the public has the right to participate in the decision‑making process and that this participation is taken into account in the final decision.
  • Access to justice means that the public should ultimately have access to an independent and binding review process for infringement of its rights or to challenge a wrongful substantive decision.

2. Democracy: The global economy must strengthen rather than undermine the capacity of democratic governments at every level, from local to multilateral, to meet the needs of the public. International institutions and negotiations must operate transparently with full and fair public participation.
3.  Human Rights: Fifty years ago governments adopted the Universal Declaration of Human Rights. At a minimum, international economic rules and institutions must not undercut the basic rights set forth in this treaty.
4.  Sustainability: The protection of human health and preservation of natural resources and
biodiversity requires the integration of economic and social objectives, within environmental limits.  In general, the more local the source and control of capital the more likely development will be sustainable.
5.  Development, not Austerity: International and national policies should alleviate poverty, create and sustain livelihoods and enable sustainable human development to improve the quality of life for all.
6. Equity: The current gap between the global rich and poor, exacerbated by the high debt burden of many developing countries, is unacceptable. It is unconscionable to act as if it can be a permanent feature of the international economy. Within countries, policies should be designed to reduce inequalities, thus improving health and social cohesion.
7.  Financial Stability: Equitable, sustainable development requires economic stability. Destabilizing speculative investments should be regulated to limit boom and bust cycles and the severe social and environmental consequences of financial crises.
8.  Good Governance and Transparency: Governments and intergovernmental organizations are only accountable to the public if they operate in a transparent manner. Corporations and markets also require effective regulation and transparent procedures if they are to function in society's interests.
III. A CITIZEN'S AGENDA: First Steps to Reform of the Global Economic System
A. Regulate International Capital

  • Reorient finance from speculation to long‑term investment:  The rules and institutions of global finance should discourage all speculation and encourage long‑term investment in the real economy in a form that supports local economic activity, sustainability, equity, and reduces poverty. 
  • Reduce instability and volatility:  The rules and institutions of global finance should seek to reduce instability in global financial markets. 
  • Enhance local and national political space:  The rules and institutions of global finance should allow maximum space for national governments to set exchange rate policy, regulate capital movements, and eliminate speculative activity. 
  • Keep private losses private:  Governments should not absorb the losses caused by private actors' bad decisions. 
  • It is unreasonable to assume that development needs will be met by private capital flows alone.  The rules and institutions of the global economy should seek to decrease private speculative flows while increasing those public flows that support sustainable and equitable development activities.

Mechanisms to control short‑term capital and prevent capital flow crises are needed.  If and when crises do occur, mechanisms are needed to mitigate the impact of destructive capital outflows, and ensure that the poor and the environment are protected from the effects of financial volatility.
Governments should be allowed, and indeed encouraged, to pursue regulations and measures that restrict short term capital mobility, including implementing taxes, establishing capital controls, and setting exchange rate regimes. International regulations should not hamper the flexibility of national governments to pursue the policies that are best suited to national needs and situations.
At the International Level Governments should:
1. Establish An International Bankruptcy Mechanism
An international debt arbitration panel should be established to ensure that financial crises and sovereign debt obligations do not place undue burdens on countries and to prevent a liquidity crisis from becoming a solvency crisis.  When sovereign debt service threatens the welfare of a country's people, the panel would restructure and/or cancel debts so as to ensure that important social services are not compromised in an effort to meet debt obligations.  In a financial crisis, the panel would prevent a liquidity crisis from becoming a solvency crisis by arbitrating an agreement that meets the needs of sovereign debtor and creditor thereby helping reduce the need for bailouts by the international community.
2. Provide Substantial Debt Reduction Detached from IMF and World Bank Conditions
Currently, debt payments cripple the ability of many developing countries to invest in development.  Any resolution of this crisis must include an expansion of the resources available and the countries eligible for bilateral and multilateral debt relief.  This relief should not be conditioned on IMF and World Bank structural adjustment programs and it should allow countries to dedicate sufficient resources to health care, education, social services,  and environmental protection.
3. Reform the IMF
Member governments should insist that the IMF enforce Article 6 of its own charter, namely that the IMF should oversee capital controls, not capital account liberalization.  With the establishment of the bankruptcy mechanism above, the IMF need only retain minimal capability as lender of last resort and gather/publish international and global economic data.  Decision‑making by the IMF board needs greater transparency and accountability by introducing greater democracy in voting and publicly releasing as much information about its operations as feasible.
4. Establish Speculation Tax
The governments of the world's major currencies should levy a tax on certain international transactions so as to discourage speculative and herd behavior in international capital flows.
At a regional level governments should:
1. Establish Regional Crisis Funds
We support the creation of regional funds outside IMF control that can respond quickly to crises while maintaining regional sensibilities and interests.
At a national level governments should:
1. Retain the Right to Apply Speed Bumps and Capital Controls
The rules and institutions of the global economy should allow maximum space for national government policy‑ making to regulate the amount, pace and direction of capital movements. 
2. Eliminate Short‑term Manipulative Instruments
National governments should set regulations and incentives on cross‑border transactions so as to eliminate capital flows that are entirely speculative (i.e. gambling on market fluctuations as differentiated from hedging risk) and that can undermine the real economy.
3. Maintain Stable Exchange Rate Regimes
National governments should strive to reduce the volatility that has characterized exchange rates since the collapse of the Bretton Woods arrangements in the early 1970s.  Any international regime should reinforce the ability of national governments to maintain this stability.
At the local level governments should:
1. Democratize Mutual Funds and Pension Funds
Local and national regulations and taxes should be structured in such a way so as to encourage local investment and control of local capital.  Local education initiatives should also inform citizens about the power of using their assets.
B. Regulate Investments and Promote Corporate Accountability
Liberalized investment rules and the downward spiral of corporate standards can cause significant harm to communities, workers and the environment.  As the world's economies become more interconnected it is becoming more important to have clear rules of operation for corporations.  In February 1999 at the World Economic Summit in Davos, Switzerland, UN Secretary‑General Kofi Annan called on corporations to abide by core values, including protection of human rights, labor standards and environmental protection .  We call on
world leaders to regulate investment and take firm steps toward holding corporations accountable to the respect of human rights, workers rights and protection of the environment.  Foreign Direct Investment (FDI) and the operations of Transnational Corporations (TNC) should serve the needs of people by contributing to locally and nationally determined sustainable human development strategies.  Specifically, we call on governments to:
1. Recognize Clear Rights for Governments to Regulate Investment
2. Establish Measures to Redirect and Improve the Quality of FDI Flows
Competitive deregulation and the \race to the bottom\ as strategies to attract investment should be replaced with source and destination country regulations, taxation measures, use of export credit financing, and radical reform of International Financial Institutions' (IFIs') support for FDI.
3. Conduct Consequential Review and Re‑negotiation of International Institutions and Agreements Those agreements and institutions that constrain governments' rights to pursue these measures ‑ for example, bilateral investment treaties (BITs) trade related investment measures (TRIMs), the North American Free Trade Agreement (NAFTA) and the structural adjustment programs (SAPs) of IFIs should be renegotiated.
4. Establish Core Standards of Behavior for TNCs
These standards, which would provide a floor, not a ceiling, include community disclosure, respect for human rights, labor standards, working conditions, equality, environmental and consumer protection, taxation, indigenous and local community rights, business practices and competition and sovereignty over development strategy. At a minimum, corporations should be bound by existing standards in international treaties and declarations, including the International Labor Organization (ILO), the body of United Nations human rights treaties and the Rio Declaration. Corporations must be held accountable to these standards through effective binding mechanisms for monitoring and enforcement, such as international courts with citizen standing, access to local courts, standing to pursue justice in the home country courts of TNCs, and financial sanctions for non‑observance.
5. Re‑examine Corporate Structure and Corporate Activities
The emergence of the global corporation reposes key questions on the role of corporations in society and the structure of corporations. Corporations are creations of the law with interests that should be subordinated to social priorities.  Thus, the issues listed below demand re‑consideration:

  • Corporate obligations to stakeholders other that shareholders;
  • Chartering of corporations;
  • The political influence of corporations;
  • Oversight of mergers and acquisitions;
  • Corporations' limited liability status.

Matthew Siegel,
\Control of International Capital: A Survey of Policy Options,\ Conference Preparatory Paper, November 1998.
Roger Cohen,
\Argentine Economy Reborn but Still Ailing,\ The New York Times, February 6, 1998 p. A1.
John Cavanagh and Sarah Anderson, \The Impact of Capital Flows on Workers in the Global   Economy,\ March 1, 1998, Institute for Policy Studies;  \Toward a New Financial   System,\ The Economist, April 11, 1998.  Calculated by the Institute for Policy Studies based on data from Forbes magazine and the United Nations Development Program.
These principles are inclusive of those presented in \Declaration on the New Global Financial Architecture: Letter to Global Leaders from Civil Society Representatives,\ which was crafted by over eighty non‑governmental organizations from around the world at the Bank Information Strategy Meeting, Washington, DC, October 9‑10, 1998.
\The Secretary‑General Address to the World Economic Forum,\ Davos, Switzerland, January 31, 1999.