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“Mr Speaker. Today is the day when Britain steps back from the brink. When we confront the bills from a decade of debt.”[1]

  These were the words of George Osbourne yesterday, before he announced what are reported to be the largest cuts in a generation. Amongst the £81bn to be cut from public spending over the next six years are £7bn extra from welfare payments, 19% in average cuts from departments and the abolishment of nearly 200 quangos. 192 of these public bodies will be axed, whilst 118 more will be merged in a move which the government defends as improving accountability and cutting costs. Some of those facing extinction include the UK Film Council, the Audit Commission and Regional Development Agencies.[2]

  The Audit Commission’s role in improving accountability would appear to be negligible in the view of the government. Those bodies and departments which have remained untouched presumably play a sufficiently strong role in achieving this goal. One such organisation is the Export Credit Guarantee Department (ECGD) which helps exporters of UK goods and services to win business overseas by providing guarantees, insurance and reinsurance. A major client of this department has been the arms industry which consumed between 30-50% of its budget in the early years of the decade.[3] In one year BAE alone accounted for 42% of the ECGD budget.[4]

  The scheme is defended by the government as a vital support to British industry and British jobs. Despite employing merely 65,000 in 2006, the combined subsidies allotted to the arms industry through the ECGD, R&D and trade mission support totalled £852million a year.[5] This is equivalent to a subsidy of £13,000 per employee per year. When compared to an annual salary on Job Seeker’s Allowance of £2696.2 this appears an incredibly inefficient means of providing for workers, ignoring of course the huge profits which these companies make. Not only this, but the department was recently implicated in a court case which revealed that ECGD funds had been used to underwrite contracts obtained by bribery.[6] No cuts or reforms have been proposed for this department.

  Another body escaping the “fair” allocation of cuts is UK Trade and Investment, and its sub-division of the Defence and Security Organisation. This body is the repackaged entity for the former Defence Export Service Organisation (DESO). Set up by Dennis Healey in 1966, the organisation promoted foreign arms sales abroad and was headed by seconded executives from private defence companies. Mr Healey defended its creation to Parliament, espousing that:

“while the Government attach[es] the highest importance to making progress in the field of arms control and disarmament, we must also take what practical steps we can to ensure that this country does not fail to secure its rightful share of this valuable commercial market.”

  This aim was not forgotten, and DESO continued to play a prominent role well into this decade. It employed almost 500 staff, with around 400 in London and a further 100 based in offices across 17 countries worldwide. DESO also worked closely with military attachés in at least 80 British Embassies. It was not until 2007 when demands by the Liberal Democrats, Plaid Cymru and the Greens as well as 30 NGO’s  with a signed statement led to the organisation’s closure by Gordon Brown. [7]

  Far from the end however, DESO’s work has continued to flourish within UK Trade and Investment. The body boasts services to its clients including facilities for events and exhibitions, market analysis and opportunities to take advantage of some of the MOD’s “long-term partnerships” in overseas markets.[8] Indeed DSO continues to employ more civil servants than all the other sectors of UK Trade and Investment combined. This seems only “fair” for an industry which employs less than 0.5% of the UK work force, and at a time when other British industry such as Vestas is moving overseas. Of course these overseas deals can only take place under licence by the UK Government. These have been granted so far to 13 out of the 20 worst offending states on human rights records. [9]

  With its unrivalled assistance to private arms companies it is no wonder that the UK continues to play a leading role in global trade. One might question whether the services, expertise and taxpayer funds which are disproportionately allotted to this industry could have been used to secure the development of an IT or Green energy base within these shores. It seems that the international community has decided though. UK Trade and Investment recently won an international award for Best Trade Promotion Agency.[10]

  The Department is not ready to rest on its laurels as others around it face cuts and abolishment however. This summer it published a report identifying new opportunities for British companies in Iraqi Kurdistan, describing the region as, “a gateway for British companies looking to establish a foothold in Iraq.”[11] With the intelligence gathered from almost 8 years of occupation it is likely that UK Trade and Investment will be well placed to give British industry the edge in this “new market”.

Chris Bowles

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A World Bank arbitration panel has ruled in favour of Canadian mining company Pacific Rim in determining that a controversial lawsuit, which the corporation filed against the government of El Salvador after the latter indefinitely suspended the exploitation of a gold mine close to the nation’s capital, may proceed. Preliminary Objections to Pacific Rim’s case had been filed by the Salvadorian government in January, alleging that the lawsuit was erroneous and without legal foundation.

El Salvador’s president, Mauricio Funes, had halted exploration at the El Dorado mine site, located around 40 miles from San Salvador, citing the potential for environmental and social damage. In June, Funes had affirmed that, “El Salvador and my government are not going to support, nor authorise, any mining exploration or exploitation which puts the country’s health at risk and which further deteriorates our environment”[1], however the panel’s ruling puts this position in serious jeopardy.

The case, brought by Pacific Rim subsidy Pac Rim Cayman, has been shrouded in controversy since it was filed in April of 2009, with the government of El Salvador maintaining from the outset that there is no legal basis for arbitration on behalf of the International Centre for Settlement of Investment Disputes (ICSID), the World Bank’s dispute resolution panel. Upon filing the case, Pacific Rim announced that it would be seeking, “award of damages in the hundreds of millions of dollars from the government for its multiple breaches of international and Salvadoran law”[2], and the figure currently being demanded by the Canadian company is $77 million. An estimated 30% of El Salvador’s 6 million people live below the poverty line, and the country’s illiteracy rate currently stands at around 20%.[3]

Pacific Rim has pursued its claim under the terms of the 2005 Central American Free Trade Agreement (CAFTA), to which the United States, the Dominican Republic and five Central American nations, including El Salvador, are signatories. The company’s Pac Rim Cayman subsidiary had been registered in the Cayman Islands, but relocated to the U.S. state of Nevada in 2007 – some three years after a rift had begun to emerge between Pacific Rim and the government of El Salvador.  CAFTA has no jurisdiction in either Canada, where Pacific Rim is registered, or in the Cayman Islands, but Pac Rim Cayman’s registration in Nevada has allowed it to use the terms of the free trade agreement to bring legal proceedings against El Salvador.

The Salvadorian government presented ICSID with a six-page document outlining what it describes as flagrant violations of World Bank policy last week, after the panel had determined that the case would be allowed to proceed in spite of vociferous objections. The government also charges that Pacific Rim is acting in violation of the 1996 El Salvador Mines Law, which stipulates certain prerequisites for the granting of mining concessions in the country.[4]

Pacific Rim’s President and CEO, Tom Shrake, said that the company was “very pleased” with ICSID’s decision to allow the case to proceed. “This is a positive and crucial step in the CAFTA process for Pac Rim. We are, however, reticent to celebrate as we believe a more productive outcome is possible for both the Salvadoran people and foreign investors. With this phase of the arbitration now completed, we hope to resume a mutually beneficial dialogue with the Government of El Salvador to resolve the impasse on the El Dorado project”, he added.[5]

The Salvadorian National Committee against Mining (Mesa Nacional frente a la Minería), however, decried the ICSID ruling, saying that it sets a “terrible precedent” in terms of national sovereignty and the right of a country “to reject projects that are environmentally or socially unfeasible”.[6] The committee has called on Funes’ government to join forces with groups opposed to the World Bank’s ruling, with activist Manuel Fuentes saying that by allying with such organisations the government can “strengthen its defensive strategy”.

Furthermore, there have been calls from activists in El Salvador for the government to pass legislation prohibiting outright the mining of metals in the country, to withdraw from the Central American Free Trade Agreement with immediate effect, and to rule out the possibility of signing bilateral trade accords with Canada.

Neoliberal ‘free trade’ agreements such as CAFTA and its counterpart NAFTA – the North American Free Trade Agreement, which encompasses Canada, Mexico and the United States – have come under intensifying scrutiny in recent years, as many have pointed out that they actively erode national sovereignty and pit member states’ economies against one another in what has been dubbed the “race to the bottom” by some economists.

Republican Congressman Ron Paul remarked of CAFTA in 2005 that, “It is absurd to believe that CAFTA and other trade agreements do not diminish American sovereignty.  When we grant quasi-governmental international bodies the power to make decisions about American trade rules, we lose sovereignty plain and simple… Like the UN, NAFTA, and the WTO, it represents another stone in the foundation of a global government system.  Most Americans already understand they are governed by largely unaccountable forces in Washington, yet now they face having their domestic laws influenced by bureaucrats in Brussels, Zurich, or Mexico City.”[7]

Former World Bank Chief Economist Joseph Stiglitz has also voiced opposition to NAFTA and CAFTA, observing that these agreements have had a detrimental effect on domestic agriculture in signatory states, whose markets have been flooded with cheap produce imported from the United States. In many cases, heavy subsidies offered to U.S. farmers by the federal government mean that U.S.-grown crops are able to undercut domestic produce with disastrous results for those who depend on farming to make a living. The result has been increasing rural poverty in countries such as Mexico, simultaneously fuelling migration from the countryside to the city and immigration from Latin America into the United States.

Speaking about the effects of the NAFTA agreement on Mexico, Stiglitz observes that, “NAFTA, ten years later, did not, I think, produce the benefits that Mexico had hoped for. A fairer agreement could have, but that’s not what they got. One of the key aspects of this was agriculture. The price of corn fell by half. The poorest people in Mexico are corn farmers. So you increased the poverty among the poorest groups in the country. It helps their urban workers, who buy food, but it hurts the some of the poorest. So you have seen this change in the pattern of inequality within Mexico.”[8]

In 1993, then-Vice President-elect Al Gore took part in a televised debate with independent presidential candidate Ross Perot, a passionate opponent of NAFTA, on a special edition of Larry King Live on CNN. It was during this debate that Gore uttered the now infamous line, “this is a good deal for our country”[9].

A 2003 report into the effect of NAFTA on the U.S. economy, however, contradicts Mr. Gore in the strongest possible terms. Robert E. Scott’s report, The high price of ‘free’ trade, notes that in the first ten years following the 1993 inception of NAFTA, over 870,000 jobs were lost from the United States, mostly “high-wage positions in manufacturing industries”[10]. In addition, NAFTA “contributed to rising income inequality, suppressed real wages for production workers, weakened workers’ collective bargaining powers and ability to organize unions, and reduced fringe benefits”.

Scott’s damning report observes that, “no protections were contained in the core of the agreement to maintain labor or environmental standards”, and that NAFTA, “tilted the economic playing field in favor of investors, and against workers and the environment, resulting in a hemispheric “race to the bottom” in wages and environmental quality”.

The report goes on to state that advocates of NAFTA, such as Al Gore and former President George W. Bush, “misrepresent the real effects of trade on the U.S. economy: trade both creates and destroys jobs. Increases in U.S. exports tend to create jobs in this country, but increases in imports tend to reduce jobs because the imports displace goods that otherwise would have been made in the United States by domestic workers.”

The result of nearly two decades of unchecked neoliberal economic policy has been a sharp decline in real wages and living standards in the United States, spurred on by the near-total obliteration of the country’s manufacturing sector as companies seek to maximise profit margins by moving their factories south of the border where land and labour are considerably cheaper. With support for such policies unsurprisingly strong among Washington D.C.’s political elite, this trend shows no sign of relenting in the foreseeable future.


[1] Pacific Rim expresa su satisfacción por victoria en tribunal internacional, http://noticias.terra.es/2010/economia/0804/actualidad/pacific-rim-expresa-su-satisfaccion-por-victoria-en-tribunal-internacional.aspx

[2] Arbitration panel favors Canada miner in dispute with El Salvador, http://www.laprensasa.com/2.0/3/309/796002/America-in-English/Arbitration-panel-favors-Canada-miner-in-dispute-with-El-Salvador.html

[3] The CIA World Factbook – El Salvador, https://www.cia.gov/library/publications/the-world-factbook/geos/es.html

[4] El Salvador busca frenar demanda de Pacific Rim, http://www.elsalvador.com/mwedh/nota/nota_completa.asp?idCat=6374&idArt=5040098

[5] Pac Rim Cayman LLC – ICSID Tribunal Rejects Government of El Salvador’s Preliminary Objection, http://www.allbusiness.com/legal/trial-procedure-decisions-rulings/14892156-1.html

[6] Ambientalistas consideran un “precedente nefasto” la decisión contra El Salvador, http://es.noticias.yahoo.com/9/20100811/tsc-ambientalistas-consideran-un-precede-23e7ce8.html

[7] CAFTA: More Bureaucracy, Less Free Trade, http://www.house.gov/paul/tst/tst2005/tst060605.htm

[8] Fair Trade for All: How Trade Can Promote Development, http://www.cceia.org/resources/transcripts/5339.html

[9] NAFTA: Ross Perot and Al Gore Debate 1993, http://www.youtube.com/watch?v=GhwhMXOxHTg

[10] The high price of ‘free’ trade – NAFTA’s failure has cost the United States jobs across the nation, http://www.epi.org/publications/entry/briefingpapers_bp147/

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The announcement comes as the first commitment to promises made at the G8 conference convened at Aquila, Italy last year. The talks, which involved representatives from Spain, Canada and South Korea, backed a US plan to establish a $20billion multi-lateral aid fund (Global Agriculture and Food Security Program).[1] Monitored by the World Bank, the fund would aim to help poor farmers in Africa increase productivity and reduce systemic problems of food insecurity.[2]

The project has not only gathered support from governments and institutional organisations (World Bank, UN, USAID), but has also been greatly shaped by its well publicised philanthropic investors. Through the Bill and Melinda Gates Foundation, the former Software CEO has already donated over $300m, and currently stands as the public face of what is becoming one of the largest international policy programs in recent years.

  The vehicle for the practical application of this investor capital is the Alliance for a Green Revolution in Africa (AGRA). Launched by Kofi Annan at the World Economic Forum on Africa in 2007, the organisation is jointly managed by the Gates and Rockefeller Foundations.[3] Its stated goal is to improve the livelihoods of smallholder farmers by dramatically increasing African food production.  This aim would be achieved through an exchange of both technology and finance between stakeholders in the program.

  The primary strategies for achieving this expansion in agricultural productivity involve improved seed technology, increasing soil fertility and improving the efficiency of agricultural markets.[4] In delivering these objectives, AGRA argues that commercial partners with the necessary expertise and experience will be essential for success.

With their powerful publicity work and strong relationships with national governments, both the Gates and Rockefeller partners are hoping that they can entice businesses to invest in the continent’s agriculture another time around.

  The first Green Revolution, backed by the Rockefeller Foundation again, ran from the late 1960’s until the early 1970’s with the aim of using commercial crops and modern industrial techniques to transform the agricultural sector. This was combined with efforts to ‘liberalise’ the markets. In policy partnership with the IMF, the project sought to eliminate fixed exchange markets, farmers’ subsidies and national trade tariffs.[5] The aim was to make African agriculture ‘compete’ in international markets. The effect was that so-called ‘cash-crop’ production was incredibly unstable, responding too closely to market price falls. Pressures were exacerbated by the influx of cheap foreign food imports from the United States and Europe as a result of their farmers’ subsidy programs (Farm Income Stabilization and Common Agricultural Policy respectively). The first revolution effectively ended in failure, with many nations’ agricultural sectors devastated and with the countries themselves in enormous debt to the IMF for the ‘aid’ they had received.

  The next revolution proposed by AGRA purports to be different. It promises to, ‘make food supplies secure by working with smallholder farmers to achieve rapid and sustainable agricultural growth with their staple crops.’[6] It claims to focus on small-scale farmers and improving their productivity, rather than attempting to convert the continent to large scale commercial production.

However, this revolution also differs from its predecessor in that whilst it has the same institutional and government partners, it also has significant private investment. In delivering returns for its investors, the program appears to move away from international market sales to more thorough investment in African economies. Through ‘strategic partnerships’, AGRA aims to open up seed, fertilizer, food production and other associated markets to its private clients. The group has also not ruled out the need to ‘promote “land mobility” ‘; a euphemism for encouraging farmers to leave the land.

  The private clients lined up to invest in agriculture include leaders in the world of chemicals and industry. Both Monsanto and Syngenta, who between them control 30% of world seed markets, have aligned themselves with the project, along with the world’s largest chemical company, DuPont.[7]

Both Monsanto and Syngenta are specialists in GM technologies and in producing patented seed varieties. As the primary strategy of AGRA, these companies will assist in the dissemination of ‘knowledge and awareness’, research and sales of GM seeds in African markets. The Gates Foundation itself has offered US$5.4 million to the Donald Danforth Plant Science Center, a US institute funded heavily by Monsanto, to promote GM advocacy in African arenas.[8]

  In India, the failures of GM variants have already been apparent, and their inefficiency in Western countries appears to be evidenced by their reliance on heavy subsidies. Quite apart from productivity concerns though, GM variants pose another problem for farmers. They herald a departure from independent ownership of crops and land as the seeds which are grown remain the intellectual property of the relevant private company. As such, the land whilst they are grown, together with the final product, become entities ultimately outside the farmers’ control.

Added to this are issues of one-yield seed products, which require the farmer to return to the market each year to purchase more seeds, rather than being able to the sow seed from his previous crop. [9] The company has a well documented history of intimidating farmers who chose not to use their seeds, and of encouraging agricultural mono-cultures. [10] [11]

  The AGRA project is far from the only one being launched in the continent.  Recent years have seen foreign investment in Africa increase at a steady pace, with the food price crisis of 2008 greatly accelerating this. The issue of food security, as AGRA fails to emphasise, is not only one for Africans, but one that affects much of the developed world. Just as political turbulence in the past affected energy prices and the policies of nations seeking to secure their supply, similar patterns are beginning to emerge in relation to food. As states seek to secure their sources of supply, they are increasingly searching for non-market options. As such, the latest wave of investment has largely been characterised by private and foreign governmental partners.

  A South Korea company was embroiled in a scandal in early 2009, after their attempt to gain control of half of Madagascar’s agricultural land in a free one hundred year lease.  The situation climaxed in a presidential coup which saw the deal revoked.[12] In 2007 investment totaled $30 billion with some 2.5 million hectares being bought or leased by private investors.[13] Since then, investment has risen to $100 billion involving 30 million hectares of agricultural land in around 30 different African countries.

  The Tony Blair Foundation, and the former British Prime Minister himself, were integral in securing the opening of the market of Sierra Leone to foreign investment, particularly agribusiness. President Koroma praised the efforts towards, ‘building a legislative framework that provides the right incentives for investors.’[14] Throughout Africa, organisations and companies have been applying greater pressure on national governments to reform legislation as a necessary precursor for development.

With ‘development’ coming increasingly on the back of private investment, states are encouraged to ensure the legal environments which provide the necessary incentives for these investors. These include lowering tariff barriers, removing restrictions on holding assets offshore, and permitting foreign tenure or ownership of domestic goods and property.[15]

  Debates regarding development policies remain contentious, with many arguing that development of African economies, and agriculture specifically, will be impossible without the assistance of private foreign investors. However, ignoring past failures and the current issues regarding the nature of these investments, there remains a significant factor when considering their application.

The previous Green Revolution was criticised by many for its failure to consult with the African populations who were the recipients of its ultimately disastrous policies. This new wave of projects under the label of ‘development’ has also conspicuously avoided consultative measures with African groups. Whether or not the current interests eventually reap rewards for the continent’s poor, their policies will fail to gain consent as long as they fail to refer to those they primarily affect.

Chris Bowles


[1] Timothy Geitner and Bill Gates to launch agri-fund for the poor

http://ecodiario.eleconomista.es/noticias/noticias/2080306/04/10/USs-Geithner-Bill-Gates-to-launch-agrifund-for-poor.html

[2]Bill Gates in plea to “Farm Aid” donors

 http://www.ft.com/cms/s/0/04f1d5da-4e34-11df-b48d-00144feab49a.html

[3] The Role of Business in Achieving a Green Revolution in Africa

http://www.weforum.org/pdf/BAACH/Business_Role_in_Achieving_a_Green_Revolution_for_Africa.pdf

[4] AGRA Strategy for a Green Revolution in Africa

www.agra-alliance.org/files/936_file_AGRA_Strategy_20090609.pdf

[5] Africa’s land and family farms up for grabs

http://www.grain.org/seedling/?id=666

[6] Strengthening food security

http://www.rockefellerfoundation.org/what-we-do/current-work/strengthening-food-security-alliance/

[7] AGRA, The return of the green revolution

http://www.globalpolicy.org/component/content/article/215/46148.html

[8] Africa’s land and family farms up for grabs

http://www.grain.org/seedling/?id=666

[9] Monsanto’s intellectual property seed policies explained

http://www.monsanto.com/seedpatentprotection/monsanto_patent_seeds.asp

[10] Patterns of agricultural privatization

http://www.foodincmovie.com/

[11] ‘Mirage’ of GM’s golden promises

http://news.bbc.co.uk/2/hi/science/nature/3122923.stm

[12] Madagascar leader axes land deal

http://news.bbc.co.uk/2/hi/africa/7952628.stm

[13] Land grab, or development opportunity?

http://www.ifad.org/pub/land/land_grab.pdf

[14] Tony Blair praises Sierra Leone’s pro-business climate

http://www.tonyblairoffice.org/news/entry/tony-blair-praises-sierra-leones-pro-business-climate-and-encourages-intern/

[15] Infrastructure private-public partnerships in Africa

http://www.icafrica.org/fileadmin/documents/Tokyo/Public-Private_Partnerships-Tokyo_background_paper-_FINAL.pdf

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Last week the Indian government secured Cabinet approval for a new agreement which aims at promoting greater privatisation of agricultural services and increased collaboration between American agribusiness and the Indian farm sector.[1]

The agreement comes as one of a package of six pacts signed between the two countries as part of a Memorandum of Understanding (MoU).  Most publicised for its focus on counter-terrorism, the MoU also covers issues as diverse as education, health, green development and in this instance, agriculture. Viewed as representative of stronger links between the two nations, Obama has described their growing relationship as, “one of the defining partnerships of the 21st century.”[2] Indeed P.M. Manmohan Singh’s reception in Washington as the first foreign leader hosted as the State Guest by the 10 month old administration acknowledged his country’s heightened significance.

The proposed Indo-U.S. pact on agriculture is intended to widen the opportunities for private investment in the farm-sector and reciprocal trade. The agreement includes a bilateral policy dialogue and agribusiness-to-business collaboration between the two countries. Practically, this will involve assistance in weather forecasting in order to improve crop management and marketing, and food security co-operation. This latter focus will be increasing the quality and quantity of “diversified and fortified foods”. Greater co-operation in technological and expertise exchange through private enterprise and international agribusiness partnerships should allow for modernisation and efficiency benefits in the farm sector. The nature of this technological exchange will be in the form of the commercialised extension of genetically modified foodstuffs.[3]

There have already been those who have raised their concern at these developments.  Suman Sahai of Gene Campaign has argued that although farmers would benefit from enhanced weather prediction models, the MoU will also give the U.S. access to the great genetic diversity ofcrop plants for commercialization in their interests. “The opening of food security policy dialogue is also a matter of concern as it will impose on India the U.S. model of agribusinesses and vertical integration of food chain, impacting diversity and consolidating monopolies,”[4]

These fears appear to be borne out by the one-sided appearance of the agreement. The various arrangements on the subject of agriculture appear to almost exclusively benefit India. The receipt on the part of the farm sector of greater technology, expertise and developmental intelligence is unlikely to come without significant reciprocal exchange. It would be naïve to assume that the donation of such assistance would not be part of a program of investment intended to deliver returns.

The investment by U.S. firms in the Indian farm sector has been growing since the turn of the 21st Century. Monsanto first released its pest-resistant BTCotton in 2002 and both Monsanto and Cargill have been on the board of the U.S.-India Agricultural Knowledge Initiative (AKI) since 2008. The firms have played a strong role in the collection of data on crop performance and the publication of reports on the benefits of GM seeds through the channels of the AKI and state departments.[5]

Despite the distinguished reports coming from official levels, the development of BTCotton in particular appears to have somewhat less success on the ground. Commercial cultivation throughout the six states of Gujarat, Maharashtra, Madhya Pradesh, Andhra Pradesh, Karnataka and Tamil Nadu revealed low levels of performance when compared against non-GM strains. The average yield of Bt cotton was found to be lower in all categories of land holdings, whether they were irrigated, good quality soils or poor quality red soils in the rain fed areas. In fact, 60 % of the farmers cultivating Bt cotton were not even able to recover their investment and incurred losses averaging Rs. 80 per acre.[6] Added to this have been reports that prescriptions requiring barriers of non-GM crops surrounding BTCotton fields have been ignored. This may result in insects developing resistance to the anti-pest gene, and hence becoming a greater threat to farmers.

Monsanto has become a name associated in both North America and Europe with the powerful marketing of inefficient and sometimes dangerous crops, and vigorous law-suits against farmers who breach their patents.  Their poor performance history in the Indian market to date will be little to belay fears of a continuation of their domestic commercial practices.

Chris Bowles


[1] http://news.outlookindia.com/item.aspx?670025

[2] http://news.outlookindia.com/item.aspx?670025

[3] http://beta.thehindu.com/news/national/article112297.ece

[4] http://beta.thehindu.com/news/national/article112297.ece

[5] http://www.fas.usda.gov/icd/india_knowl_init/AKI_bdmtg6_042008.asp

[6] http://www.genecampaign.org/Publication/Article/BT%20Cotton/Failure_Monsanto-BtCotton.pdf

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A recent report leaked from the European Commission appears to legalise covert tactics to justify the increasingly dubious environmental benefits of bio-fuels.[1] The document is directed at the issue of deforestation, which has become so heavily associated with bio-fuel production in the developing world. In countries such as Indonesia, Brazil and Malaysia, where attempts to take advantage of the lucrative trade in bio-fuel ‘feedstocks’ have seen dramatic growth, the cheapest land is often the most desirable. This has tended to be rainforest or other virgin tropical vegetation.

Efforts to introduce sustainability guidelines on bio-fuels have sought to reduce the attractiveness of such measures. However, the significance of the E.C. report is that it appears to offer a clause to protect plantations created on previous forest land.  The report states that, “A change from forest to oil palm plantation would not per se constitute a breach of the criterion,” of sustainability. The classification of dense palm oil plantations as “forest” allows companies to conceal an alteration of the vegetation, and in turn to retain their sustainability credentials. [2]

This has been an issue at the heart of the controversy over bio-fuels for some time. Their concept was initially hailed as a reliable green alternative to the use of traditional carbon-fuels. As developed countries have struggled to meet limits on transport emissions through difficulties in implementing new technologies, bio-fuels appeared to offer a means to buy time. With their ‘carbon-neutral’ credentials they were preferable to fossil-fuel based products and could be produced from a variety of sources. This latter point has also been of interest to developed nations seeking to ensure their energy security. On both these grounds however, the concept has recently been shown to be failing.

Although bio-fuels capture carbon-dioxide from their various feedstocks, hence offsetting the CO2 released through their combustion, this ignores the indirect costs of their production. The vegetation often cleared for their production in developing countries tends be prime carbon capture. Peat-bog wetlands and tropical rainforests are considerably more efficient in the process than other vegetation,  and are usually preferred for plantation cultivation due to their cost.[3] Adding to this are the direct impacts of the vegetation destruction, through the clearing and burning, which releases further carbon dioxide. Farming processes often compound these effects through the use of fertilisers, leading to the release of nitrous oxide gases which are 300 times more potent than CO2 as a greenhouse contributor.[4]

Bio-fuels were initially favoured by developed countries for their prospects of producing secure transport fuels. Dependence on foreign sources of fossil-fuels has characterised the energy policies of most developed countries since decolonisation and has consequently forced them to rely on unstable markets which have been subject to frequent price-spikes. Encouraging bio-fuel production as a domestic industry promised to provide greater stability through the internalisation of energy policy. Through internal subsidies and incentives farmers were encouraged to switch areas of land to bio-fuel feedstocks. The pattern was also hoped to alleviate some of the problems of cereal over-production and dumping associated with the C.A.P. (Common Agricultural Policy).Since these policies, EU domestic production rates alone have accelerated to 10 billion litres annually.[5] Intervention from the WTO however, has acted to limit this growth and encourage a more international trade. Arguing that incentives and subsides harm international trade and provide domestic producers with unfair trade advantages, the WTO has sought to encourage more pluralist production. It argues for the developing world, that this could, “generate significant economic, environmental and social benefits.”[6]

Whilst developing nations may wish to take advantage of this lucrative new energy market, they often lack the resources to finance such initiatives. The WTO has therefore argued that private finance should be encouraged into these areas. The beneficial climate, environmental concerns, and land and labour costs should all make external production an attractive prospect to investors.[7] Private investment has indeed followed these guidelines as countries throughout the world have switched to feedstock production. This policy has not only had environmental consequences, but also threatens to have significant human impacts.

A recent report by ActionAid has attributed growing problems of landlessness, increased food prices and approximately 100 million more people falling below the breadline, to the 10% targets sought by the E.U.[8] As millions of acres of land are taken out of food production in Africa, Latin America and Asia this has had a predictably significant impact on world food markets. Since 2002 global food prices have increased more than 140 percent and many claim this trend will continue as long as the production of bio-fuels is encouraged. ActionAid cites in its report an investigation by the IMF which attributed up to 30% of the recent price increases directly to bio-fuels. [9]A more recent report by the World Bank has challenged this figure, claiming that perhaps as much as 70% of the rises have been due to the shift of farming to energy markets.[10]

These reports pose significant implications for the accepted logic of the West’s green agenda. They implicate the smaller populations of developed nations as having a far greater impact on food prices than over-population in the South.  Production methods, with their significant environmental and human impacts, also appear to contradict the initial expectations of this fuel source as carbon-neutral and beneficial. It is not surprising therefore, that increasingly elaborate means are being found necessary to justify the continued expansion of bio-fuels.

Chris Bowles


[1] http://www.telegraph.co.uk/earth/earthcomment/geoffrey-lean/7168296/EU-raises-biofuel-threat-to-rainforests.html

[2] http://uk.reuters.com/article/idUKLDE6191VX20100211?sp=true

[3] http://www.telegraph.co.uk/earth/earthcomment/geoffrey-lean/7168296/EU-raises-biofuel-threat-to-rainforests.html

[4] http://www.spiegel.de/international/world/0,1518,563927,00.html

[5] http://uk.reuters.com/article/idUKLDE6191VX20100211?sp=true

[6] http://www.bioenergy-business.com/index.cfm?section=features&action=view&id=10786

[7] http://www.bioenergy-business.com/index.cfm?section=features&action=view&id=10786

[8] http://www.guardian.co.uk/environment/2010/feb/15/biofuels-food-production-developing-countries

[9] http://www.guardian.co.uk/environment/2010/feb/15/biofuels-food-production-developing-countries

[10] http://uk.reuters.com/article/idUKLDE6191VX20100211?sp=true

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22 Executives and Employees in the private military industry were recently arrested under charges of attempting to pay bribes to secure foreign contracts, in a joint US and UK operation.  The FBI claims that the accused attempted to pay a sizeable “commission” to an agent posing as the defence minister of an un-named African country. The various executives were each seeking to win a portion of a lucrative $15m contract to arm the country’s “presidential guard”.[1] The arrests, with the exemption of one, were all made in Las Vegas where the accused were attending the Shooting, Hunting, Outdoor Trade Show and Conference (S.H.O.T. show), billed as “the world’s premier exposition of combined firearms, ammunition, archery, cutlery, outdoor apparel, optics, camping and related products and services.”[2]

Comprising the end of a two-year investigation, the sting itself began just over 6 months earlier on 13th May at the Mandarin Oriental Hotel in Miami. A former executive in the military equipment industry acted as the contact through his previous business relations with all the accused. He introduced each of them to FBI agents posing as the foreign minister for an African country, and his sales procurement officer. According to the FBI, all the defendants agreed to pay a 20% commission on a shopping list which included grenade launchers, rifles and ammunition,, despite being told that half of it would go directly to the ‘foreign minister’ .[3]

The 22 individuals were charged in the Department of Justice’s (DoJ) largest investigation and prosecution in history in enforcement of the 1977 Foreign Corrupt Practices Act. The law, “prohibits U.S. persons and companies, and foreign persons and companies acting in the United States, from bribing foreign government officials for the purpose of obtaining or retaining business.”[4]

American pro-gun groups and lobbyists have attacked the move, claiming that it represents an offensive against gun owners. The anti-government website Prison Planet features an article titled “Obama Justice Department Decapitates Gun Industry” which laments, “Since the election of Obama the main question for gun owners has been, ‘when will Obama come after the guns’? It looks like that question has been answered!”[5] Despite the fact that the action focused on foreign trade, rather than domestic transactions, some believe that this is simply a further attempt by the Obama administration to stifle the US gun industry. That the embarrassment caused by the arrests was as a direct result of alleged illegal corrupt practices may not be enough to satisfy some.

The investigation has been lauded as one of the first of its kind in involving international co-operation to target corporate bribery. However, although the investigation did involve one executive from Smith & Wesson, and one sales-agent from the UK, the prosecutions were largely confined to smaller US firms.[6] The investigation significantly did not involve the bigger international defense giants such as Lockheed, Boeing and BAE who have previously been embroiled in sizeable corruption scandals, and who are all involved in military supply contracts to Iraq and Afghanistan.

The FBI investigation comes at a time of business expansion in both these regions, with international figures such as the UK’s Lord Mandelson urging, “companies to ‘seize the opportunity’ of investing in Iraq.”[7] The British Business Secretary recently embarked on a trade mission to the country with representatives of 23 British companies, including Rolls Royce, BP and Shell and encouraged UK defense firms to bid harder for contracts (some of which have already been as large as $300m). With competition between firms in this lucrative market growing, together with the notorious corruption records of both countries, the DoJ should not relax after its success.

Chris Bowles


[1] http://www.democracynow.org/2010/1/21/headlines

[2] http://www.nytimes.com/2010/01/21/business/21sting.html

[3] http://www.nytimes.com/2010/01/21/business/21sting.html

[4] http://www.justice.gov/opa/pr/2010/January/10-crm-048.html

[5] http://www.prisonplanet.com/obama-justice-department-decapitates-gun-industry-fbi-arrest-21-gun-industry-executives-in-las-vegas-to-attend-gun-show.html

[6] http://www.justice.gov/opa/pr/2010/January/10-crm-048.html

[7] http://www.globalsecurity.org/wmd/library/news/iraq/2009/04/iraq-090407-irna01.htm

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After the collapse of Lehman brothers in America and the subsequent instability in the U.K. banking sector, many of the country’s institutions were forced to seek government assistance in the form of bailout loans from the bank of England. Barclays chose however to defy its investors in this motion and instead opted to seek investment through other channels. The £7bn required to keep the bank solvent was eventually obtained from foreign sources, most notably from investors in Abu Dhabi and Qatar.[1] Two Qatari investment funds contributed £2.3bn of the required capital whilst another £3.5bn was provided by Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi royal family, and controller of the International Petroleum Investment Company.[2] This sale of stock left Middle East investors owning around a third of Barclays.

Stakeholders including legal & General Investment management and Aviva Investors led a revolt at the decision which they criticised as being both dilutive and expensive.[3] In return for avoiding UK government assistance the bank was forced to pay a 14% dividend in comparison to the 12% offered by the Bank of England.[4] The stakes sold are also similar to the preference shares purchased by the Government in that they allow the Middle East investors the right to buy shares in the Bank at the fixed price of 197.775p at any time in the next five years.

The investment by these sovereign wealth funds has caused considerable concern to domestic clients who see such a large stake as threatening to the institution’s independence. The reality of these concerns was established in January of this year as the bank continued to struggle financially. In serious need of further capital injection Barclays was forced to consider the option of government assistance. However, due to a clause written into the Middle East investment deal this would have comprised the bank’s ownership. The capital investment was made on the terms that the clients would have to wait a full seven months to receive their shares, convertible at 153.276p.[5] If at any time during this period the bank raised further capital at a lower share price the Qatari and Abu Dhabi partners were entitled to claim their shares at the same base price. In late January when Barclays share price stood at around 66%, if it was to accept government investment it would have had to return its £7bn investment for the same price, equivalent to around 55% of the business, effectively a controlling share.[6] This clause was written into the agreement to protect the Middle East investors from having their stake diluted. However, little consideration was made to protecting the bank from further financial instability.[7] This raises an interesting dilemma with investment deals, particularly the increasing tide coming from foreign funds.  Is the responsibility of the institution primarily to its domestic clients and customers or instead to its primary benefactors, whether they be foreign or domestic? The financial crisis has revealed some of the problems emergent from seeking such large single investments especially from foreign sources.

On the 2nd June Khadem al-Qubaisi of the Abu Dhabi sovereign fund announced that he would be selling mandatory convertible notes equivalent to £1.3bn in shares, prompting a 13.5% slump in the share price.[8] The decision was taken due to a need to focus on their core oil and gas business. Even as the conditions in the banking sector improve it is clear that institutions are increasingly susceptible to the whims of foreign investors.

Chris Bowles

 

 


[1] http://www.guardian.co.uk/business/2008/oct/31/barclay-banking1

[2] http://www.nytimes.com/2009/06/03/business/global/03barclays.html 

[3] http://www.100mortgages.org/20081112/barclays-shareholder-revolt-against-middle-east-investment/ 

[4] http://www.guardian.co.uk/business/2008/oct/31/barclay-banking1 

[5] http://www.fairinvestment.co.uk/deals/news/investment-news-Barclays-Middle-East-investors-block-government-bail-out–2803.html 

[6] http://www.100mortgages.org/20090122/barclays-may-lose-control-to-middle-east-investors/ 

[7] http://www.fairinvestment.co.uk/deals/news/investment-news-Barclays-Middle-East-investors-block-Government-bail-out–2803.html 

[8]  http://www.nytimes.com/2009/06/03/business/global/03barclays.html

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Although at its zenith at the end of the Cold War, by the end of the century the arms industry in Britain, just as elsewhere in the world, had begun to contract. Defense spending by the UK government had fallen from 3.4% in 1993 to a mere 2.6% in 1999.[1] The absence of a potent global threat had significantly reduced the need to maintain previous levels of procurement. The fall of the Soviet Union and the defeat of Saddam in the first Gulf War marked a definite shift as Western states reduced their contracts and expenditures. Not only was the arms industry becoming surplus to requirements, but it also seemed unable to extricate itself from a continuous pattern of corruption scandals. Matrix Churchill’s sale of parts to Iraq necessary to build a ‘supergun’ in breach of an arms export ban is one example.[2] Another was the numerous controversial deals made between BAE systems and Saudi Arabia which have found their way into the judiciaries of both UK and US governments. [3] Throughout the nineties these scandals, often involving MP’s, helped to steadily bring the arms industry’s necessity into disrepute.

The accession of Labour to the political fore in 1997 came with a promise to engage in ethical foreign policy and to, “make Britain once again a force for good in the world”.[4] The opportunity for this re-invention of the business came in 2001, and not only for the UK market. Al’Qaeda’s attacks in New York presented world leaders with a new challenge, global in its extent and serious in the threat it posed. Regimes and states all over the world now sought the means to defeat and suppress militant terror networks within their borders. The US and Britain have risen to this growth in demand, sizeably increasing their market share. In the last 5 years Britain has risen to a clear second place with $53 billion of sales behind the U.S.’s $63 billion and leaving their nearest rival, Russia, with only $33 billion.[5]

Both Britain and the U.S. have been keen to attract custom in many states considered more moderate, especially in the Middle East. In the hope of containing such viable threats as Iran and Syria, nations must be equipped with the capabilities, not only to rout out internal extremism, but also to present a bolstered resistance to so-called ‘rogue’ states.[6] With the significant oil wealth of the region, regimes are often keen to become a strategic ally of the U.S. if it allows them to acquire the latest defense technology.

The effects of the global economic downturn may pose some risks to the continuation of this model. Despite the wealth of the region, and the regimes’ appetite for arms, their reliance on oil may prove decisive. The fall in oil prices from $150 a barrel at the peak of last year to a mere $40 is reflective of the falling demand as many consuming countries downsize their expenditures.[7] This is likely to have a damaging effect on sales as Middle Eastern states seek to balance their budgets. The military intelligence specialists ‘Jane’s’ have argued that although large contracts ($5 billion) were concluded at the IDEX exhibition in Abu Dhabi, many of these are to be paid over several years and were arranged some time ago.[8] [9]Other arms suppliers however have questioned this. According to the Middle East chief of Raytheon P.T. Mikolash, the regional tensions will continue to fuel demand and, ‘there is every confidence in their ability to drive on their acquisition schemes.’[10] The suggestion appears that states will continue to trump calls for decreases in defense expenditure as economies contract with issues of national security and counter-terrorism. With the definitional characteristics of the War on Terror so loosely defined, and no specific end in sight, it is likely that sales will continue to increase well into the future.

A poignant example of the ability of governments to maintain loyal to their arms suppliers is that of Iraq. Despite the internal turmoil and significant costs of rebuilding, the government has approached U.S. firms such as Lockhead Martin with a wish-list including Abrams tanks, attack helicopters, hellfire missiles and f-16 fighters.[11] The prospective order of fighter planes alone would cost $3.6 billion with a further $12.5 billion of prospective orders in 2008.[12] Whilst these sales are defended by arms suppliers and the U.S. government alike on the grounds that they will reduce reliance, the fact that Saddam himself had previously been equipped with U.S. weaponry should not be forgotten.

With the arms industry’s predilection for broadening its market horizons it is likely that Iraq will be by no means the most worrying case of defense sales. As the scale of globalization increases, companies are presented with ever greater opportunities to flout restrictions on sales. Embargoes and control laws can be bypassed through outsourcing and offshore business registration.[13] Despite the place which many of these companies are claimed to hold in bolstering the allies in the War on Terror, it may be that their eagerness for sales may extend to the other side of the conflict. The ‘Arms without Borders’ report by Oxfam and Amnesty International has reportedly found evidence that in the Palestinian conflict, British arms found their way onto both sides. Companies flouted regulations to supply Israel with helicopter parts at the same time as selling equipment to Iran which was later found in the possession of Hizbollah.[14]

The fight against global terrorism and militancy has clearly provided many companies with new opportunities. Some of these opportunities, presented by the eradication of regimes and the two sided nature of conflict, may not be so beneficial to the aims of peace and security. It is clear however, that as long as conflict continues to intensify, arms suppliers will be significant beneficiaries.

Chris Bowles


[1] http://news.bbc.co.uk/1/hi/business/3084718.stm

[2] http://news.bbc.co.uk/1/hi/business/3084718.stm

[3] http://www.moneyweek.com/investment-advice/why-the-arms-industry-is-a-lone-uk-success-story.aspx

[4] http://news.bbc.co.uk/1/hi/business/3084718.stm

[5] http://www.moneyweek.com/investment-advice/why-the-arms-industry-is-a-lone-uk-success-story.aspx

[6] http://www.janes.com/news/security/jdw/jdw070801_1_n.shtml

[7] http://archive.gulfnews.com/indepth/idex09/more_stories/10289884.html

[8] http://www.janes.com/news/defence/business/jdw/jdw090302_1_n.shtml

[9] http://archive.gulfnews.com/indepth/idex09/more_stories/10289884.html

[10] http://archive.gulfnews.com/indepth/idex09/more_stories/10289884.html

[11] http://www.fpif.org/fpiftxt/5545

[12] http://www.fpif.org/fpiftxt/5545

[13] http://www.independent.co.uk/news/world/politics/arms-industry-flouting-export-laws-418540.html

[14] http://www.independent.co.uk/news/world/politics/arms-industry-flouting-export-laws-418540.html

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The conclusion of the recent G20 summit in London saw a range of polices and promises made in order to provide global and concrete solutions in the challenges of the financial crisis. Although the meeting included only the richest states in the world, they did not shrink from their responsibility to provide for the poorest. In order to prevent the financial crisis which is now being felt in the West from spreading to less developing countries and causing far greater economic and social hardship, the G20 agreed to substantially increase the financing of the International Monetary Fund (IMF). Dominique Strauss-Kahn, managing director of the fund, lauded this move as, “a powerful signal that the international community is committed to supporting these countries.”[1] A statement released by the London Summit 2009 details the new extensions of credit made available to the IMF. $750 billion will be made available over the next few years by the leading countries, together with an immediate injection of $250 billion of special drawing rights, additional allowances for trade finance and a sale of IMF gold will bring the total new funding to $1.1 trillion.[2]

 

  The injection of this new capital will come as a welcome relief to the bank, which has seen its revenues and balances falling in recent years. Despite continuing to attract investment from donor countries, it is not this capital which makes up the majority of the bank’s revenue. The University of Iowa’s Centre for International Finance and Development identifies loan repayments as the primary source of operational-cost income.[3] This is not surprising if the IMF’s fundamental nature is understood. The title ‘Fund’ is semantically deceptive, suggesting an operational capacity similar to the funds operated by charities. The IMF is however essentially a bank. It gains investment from donor countries and then derives its revenue, just as a high street institution does, through the repayment of loans to other countries at interest. In 1986 alone the repayment of interest totalled 2.7 billion (SDR) leaving a net profit for the bank of 1.3 billion (SDR).[4]

 

  The falling revenues for the bank are attributed by the University of Iowa’s study to the recent pattern of many countries in paying off their loan commitments. In December 2005 Brazil made the largest repayment in history to the institution when it completely paid off its $15.5 billion loan. This move represents a trend of many other less developed countries which have either fully or substantially fulfilled their debt obligations. The depletion of the IMF’s balance sheet has been substantial. In 2003 their total lending stood at 73 billion (SDR) whereas four years later this has been reduced to only 10 billion (SDR).[5] With the fall in lending the fund has been deprived of significant interest repayments, and as such its profits have fallen.

 

  Since the interest payments paid to the IMF are themselves partly returned to donor countries to pay the interest on their investments, the fall in lending has undoubtedly had a significant effect on the banking institutions within these Western countries. It is not therefore surprising that in this present climate of fiscal scarcity in the West some of the strongest pressure to increase IMF lending has come from the banking world. The Institute of International Finance (IIF), which represents some of the world’s largest banks, has lobbied the IMF and others to secure the new funding promised by the G20.[6] It is not apparently enough to wait for the governments of the individual countries to authorise the funding since the current need is so urgent. Instead the IIF is pressing for $500 billion of the funding promised to be extended to the IMF within 90 days of the end of the G20 Summit. In a statement released by the organisation they announced that:

 

“The Fund will need a new and more forceful approach to strengthen international coordination of macroeconomic policies to reduce global imbalances, fostering an open, fully global economic system.”[7]

 

With such significant pressure coming from banks, and the profits available to them if legislatures approve the funding, one might ask what benefit is extended to the less developed countries. Whilst it is true that a bank assists individuals in purchasing goods or services that they would otherwise be unable to obtain there are some significant differences between individuals’ and states’ debts. When an individual dies his debt is not usually passed on to his offspring, whereas this is certainly the case with a nation’s regime change. The sheer scale of the credit extended also proportionally dwarfs that made to individuals. Finally an individual is not obligated to change his living style or to purchase products only from companies tied or linked to the bank. Conditionalities remain however an essential determinate of whether a country receives ‘aid’, then tying it in future to the purchase goods from donor countries and to the opening up of its economy to the donor’s companies. All these differences make it unsurprising that the benefits sometimes enjoyed by individuals taking loans are not felt by the less developed countries that accept them.

 

A recent BBC report from Eastern Europe published the findings of a study by Cambridge and Yale universities. The study claimed to have discovered a link between the rise in tuberculosis cases and the acceptance of IMF loans.[8] It was argued that the pressure applied by the IMF to remove funding from public services and to open them up to private competition has resulted in a drastic reduction in the level and efficiency of care. The start of the TB increases appears to link directly with the start of IMF assistance and continues thereafter. Rates of TB have risen in these countries by an average of 16.6%, whereas they may have otherwise continued to fall by 10%.[9] With the results of this investigation and many others throughout the world on different issues of social welfare, it is not therefore surprising that in recent years so many countries have chosen to sacrifice other necessary expenditures to pay off their debts.

 

This situation has been criticised by charities and other NGO’s for many years, maintaining that the work of the IMF is often counterproductive and benefits often only the investing countries and banks.[10] There has been significant pressure in recent years from the campaign group Make Poverty History and Christian Aid to stop the UK from lending any capital tied to controversial obligations and it prevent lending until the IMF changes its policies towards debtor countries. In the climate which has developed over the last two years however, the pressure to decrease and control the IMF’s role in the world may be silenced. With an economic recession that is increasingly growing to include the entire global community, countries may have little choice but to again turn to the IMF and their foreign donors for assistance, whatever the cost may be.

 

Chris Bowles


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Britain will spend almost as much on servicing debts to foreign investors who hold government bonds as it does on the entire education budget according to Treasury figures. Government spending on debt interest payments announced in the 2009 budget will only be exceeded by the funding allocation of three Whitehall departments under a plan that will lead to a drastic increase in Britain’s national debt.

Alistair Darling outlined plans to borrow more than £500 billion over the next five years, which will take Britain more than £1 trillion into debt for the first time in history in 2012/13.[1] As a result, an enormous proportion of taxpayers’ money will be earmarked for interest payments to the nation’s creditors, at the expense of vital public services and on the back of significant tax rises.

 

The Treasury has disclosed that it forecasts increased income of £7bn following the decision to raise the maximum tax-band to 50% of income for those earning more than £150,000 a year, and the abolition of personal allowances and pension tax breaks for the affluent.[2] At the same time, spending on debt interest payments will total £30.8 billion this year, rising to £40 billion by 2010/11 – roughly equivalent to one quarter of the revenue generated from income tax. If the government premium paid to lenders in 2013/14 is roughly equal to the rate for 2010/11, debt interest payments are forecasted to total over £51 billion in 2013/14.

 

Financing interest on loans will outstrip the budget of the Ministry of Defence, which is set at £36.7 billion for 2010/11, and will more than double the budget of the Home Office and the Ministry of Justice, responsible for the administration of Britain’s police and prison system, which receives £19 billion.[3] Spending on interest payments will also surpass the amount afforded to local councils by around £15 billion, with a mere three Whitehall departments receiving a larger amount of funding than will be spent on debt servicing.

 

Darling promised unspecified “efficiency savings” amounting to £9 billion in the 2009 budget, prompting leading Liberal Democrats to accuse him of sucking £3 billion directly out of the NHS and DCSF (Department for Children, Schools and Families). Vince Cable, Liberal Democrat Treasury Spokesman stated, “The government must now be honest about what it is actually cutting; it will certainly not save £3 billion by cutting back on paperclips”.[4]

 

Allocating such a significant chunk of public money to private investors as interest payments on loans is likely to provoke outrage in Britain, particularly in the context of the current global economic climate and growing disquiet over the extent to which governments are beholden to the interests of private financial institutions. In the context of tax increases for the well-off and cuts in funding for necessary public services, the relationship between the government and private investors comes under growing scrutiny.

 

Michael Fallon, a Conservative member of the Treasury select committee affirmed that, “It is just morally wrong to be spending as much on servicing Government debts as we do on educating our children. Taxpayers should get a credit card-style statement on their pay slips setting out just how much of their tax goes on Government debt”[5].

 

Many in Britain are ignorant of the true extent to which holders of government bonds profit out of the public coffers. To put the sum spent on servicing debt in some context, Britain lost roughly £2.5 billion from benefit fraud and errors in benefit administration in 2008[6] – less than one tenth of the amount spent on debt interest payments before this week’s budget announced huge increases in debt servicing.

 

Tom Kavanagh


[2] Budget 2009: Economist warns of spending cuts and tax rises, http://www.guardian.co.uk/uk/2009/apr/23/budget-2009-spending-cuts-tax-rises

[6] Hain in trouble over £2.5bn lost in benefit fraud and errors, http://www.guardian.co.uk/politics/2008/jan/19/uk.socialexclusion

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