Companies concerned about sustainability need to factor political democracy - or lack of it - into risk analyses.
Originally posted on the CSRwire website.
By CSRwire Talkback Managing Editor Francesca Rheannon
In his acclaimed new book, The View From Lazy Point, the author-scientist Carl Safina writes, “Saving the world requires saving democracy. That requires well-informed citizens. Conservation, environment, poverty, community, education, family, health, economy — these combine to make one quest: liberty and justice for all.”
The corollary, of course, is that despotism leads to environmental and social havoc — which, we are learning, leads to political upheaval. From Soviet-era Eastern Europe to the oil-soaked Niger Delta to the smog-choked cities of China, the least democratic regions are the most polluted and large portions of their citizens live in poverty — and it’s only a matter of time before the political chickens come home to roost.
They’ve already alighted on the despotic regimes of northern Africa, of which Libya is the most extreme example. And access to food is the nodal point where the environment, poverty and political disenfranchisement meet.
The last time food prices skyrocketed was 2008, a year that saw food riots around the world. Back then, Muhammar Gaddafi warned, “We are thinking about our peace and security. We are disturbed by the rising prices of food in the world.” Prescient words — and since Gaddafi equates his country with his person, the words ring even more presciently as a prediction of his expected downfall.
The recent sharp rise in food prices was the spark to the flame fanned by decades of tyranny, beginning in Tunisia, spreading to Egypt and now roiling Bahrain, Algeria, Oman, Yemen and Libya. Libya imports fully 80% of its food; the other countries are also heavy food importers.
While other factors play a role, climate change has been the major driver behind higher food prices. 2010 was brutal for the climate — and agriculture. Drought and fires shriveled the Russian wheat crop by 30%; floods wiped out Canada’s and Australia’s wheat crops and decimated rice crops in Thailand and Vietnam (the world’s two biggest exporters), as well as in Pakistan (and, in 2011, Sri Lanka’s crop). Hot, dry weather has ruined Argentina’s soybean crop. In a globalized food system, catastrophe in one area, let alone many, brings high prices far afield. World food prices soared 32% in the latter half of 2010 and continue higher.
Oil prices have also been on an upward trend (contributing to the rise in food prices), even before pro-democracy revolutions began rocking the Arab world. You’d think Libya would be sitting pretty — 95% of its revenues come from oil and with prices up, foreign reserve coffers were swelling. But, of course, little of that wealth was shared with its citizens. According to the latest CIA statistics, 1/3 of Libyans live below the poverty line.
The link between poverty and despotism is clear in Libya. Like elsewhere, despotic governments don’t allow niceties like real labor rights. They also tend to be corrupt — and that creates burdens not only for their own citizens, but also for foreign companies doing business with them.
It’s instructive to read from the U.S. Commercial Service’s website, BuyUSA.gov, about doing business in Libya. (The entry predates the current troubles by several years):
Despite the country’s recent economic growth, unemployment remains high. In addition, Libya’s ambiguous legal structure, often-arbitrary government decision-making process…and various structural rigidities have posed impediments to foreign investment and economic growth.
One of those impediments has been the fact that the lion’s share of business enterprise has been dominated by Gaddafi and his family. “It’s totally corrupt,” one Libyan corporate investigator told one New York Times reporter. “This is just how business works in Libya.” A year ago, Forbes stated in reference to Libya, “foreign businesses are always at risk of political or arbitrary interference, though these risks can be managed.”
But after trade sanctions against Libya were lifted in 2004, companies in the U.S., U.K., France, Germany (Italy, a major trader with Libya, never stopped) — the major Western democracies — were falling all over themselves to do business with Gaddafi, Inc. Libya was one of North Africa’s top performing economies, and, as BuyUSA.gov stated, “With proper planning and foresight, U.S. companies can take advantage of commercial opportunities in almost every sector, from oil and gas to agriculture to telecommunications and tourism.”
Well, maybe not so much right now. Companies with exposure to Libya have been hit with stock jitters and an Italian index fund with 18% exposure is down 4.2%. Occidental Petroleum — with Amerada Hess and Chevron Texaco, the company won big oil contracts in the first auction after sanctions were lifted — has been trading down.
The larger world economy is also threatened with rise in crude oil prices, partially fueled by worries over unrest in Libya (and what might be next in the Arab world). The lesson to be drawn is that dictatorship is a risk for companies everywhere — with globalization, no company or economy is immune from political sins of others.
So what can companies do? One place companies can go for information about anti-democratic regimes is the Business And Human Rights Resource Centre. The complicity section on the organization’s website provides guidance on human rights standards, publishes key reports and lays out case studies for analysis.
But more is needed — maybe something along the lines of the Carbon Disclosure Project. A Despotism Disclosure Project would have to apply to all forms of undemocratic rule — not just dictatorships, but also oligarchies and plutocracies (U.S. — be forewarned). The winds of democracy are blowing strong; companies that want to sail them, rather than get blown over, would do well to make democracy a central indicator of their planning.
About Francesca Rheannon
CSRwire Talkback’s Managing Editor is Francesca Rheannon. An award-winning journalist, Francesca is co-founder of Sea Change Media. She produces the Sea Change Radio’s series, Back to The Future, and co-produces the Interfaith Center of Corporate Responsibility’s podcast, The Arc of Change. Francesca’s work has appeared at SocialFunds.com, The CRO and E Magazine, and she is a contributing writer for CSRwire. Francesca hosts the nationally syndicated radio show, Writers Voice with Francesca Rheannon.
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