Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

Say, Not as we Did (CAFOD [Catholic Agency for Overseas Development], London, and South Centre, Geneva), pp. 19–23.

53

Particularly notorious in this regard is the so-called Chapter 11 in NAFTA (North American Free Trade Agreement), which the US has managed to include in all its bilateral free trade agreements (except in the one with Australia). Chapter 11 gives foreign investors the right to take the host country government to special international arbitration bodies of the World Bank and the United Nations if they think the value of their investment has been reduced due to government action, ranging from nationalization to environmental regulation. Despite involving the government, these arbitration procedures are closed to public participation, observation and input.

54

Kozul-Wright & Rayment (2007), ch. 4.

55

P. Hirst & G. Thompson (1999), Globalization in Question, 2nd edition (Polity Press, Cambridge), chapter 3, provides detailed information on this.

56

World Bank (1985), World Development Report, 1985 (Oxford University Press, New York), p. 130.

57

Nokia was founded as a logging company in 1865.The shape of the modern Nokia group started emerging when Finnish Rubber Works Ltd (founded in 1898) bought the majority shares in Nokia in 1918 and in Finnish Cable Works (founded in 1912) in 1922. Finally, in 1967, the three companies were merged to form Nokia Corporation. Some Finnish observers summarize the nature of the merger by saying that the name of the merged company (Oy Nokia Ab) came from wood processing, the management from the cable factory and the money from the rubber industry. Nokia’s electronic business, whose mobile phone business forms the core of the company’s business today, was set up in 1960. Even until 1967, when the merger between Nokia, FRW and FCW happened, electronics generated only 3% of Nokia group’s net sales. The electronics arm lost money for the first 17 years, making its first profit only in 1977.The world’s first international cellular mobile telephone network, NMT, was introduced in Scandinavia in 1981 and Nokia made the first car phones for it. Nokia produced the original hand-portable phone in 1987. Riding on this wave, Nokia rapidly expanded during the 1980s by acquiring a series of electronics and telecommunications companies in Finland, Germany, Sweden and France. Since the 1990s, Nokia’s leading business has been mobile phones. By the 1990s, Nokia became the leader in mobile telecommunications revolution. For further details, see H-J. Chang (2006), Public Investment Management, National Development Strategy Policy Guidance Note, United Nations DESA (Department of Economic and Social Affairs) and UNDP (United Nations Development Program), Box 15.

Chapter 5

1

Property rights need not be private property rights, as is implicitly assumed by many people who emphasize the role of property rights. There are many communal property rights that work well. Many rural communities from all over the world have communal property rights that effectively regulate the use of common resources (e.g., forest, fishery) to prevent their over-exploitation. A more modern example is open-source computer software, such as Linux, where users are encouraged to improve the product but are banned from using the improved product for their personal benefit.

2

Strictly speaking, the soft budget constraint is not a problem due to ownership per se. All that is needed to ‘harden’ it is to punish lax management, which can be done even under state ownership. Moreover, soft budget constraints alone do not make the managers of the enterprises lazy. Why? If professional managers (whether they are running an SOE or a private enterprise) know they will be severely punished for poor management (say, have their salaries cut or even lose their jobs), they will not have the incentive to mismanage their firms (allowing for, of course, the usual principal-agent problem). If they are punished for poor management, the fact that their company survives thanks to government bail-out is neither here nor there for them. Therefore, even though soft budget constraints are more likely for SOEs due to their ownership status, the key cause of the problem is the incentives for the SOE managers, rather than soft budget constraints. If that is the case, privatization is unlikely to change the performances of the enterprises involved. For further discussion, see H- J. Chang (2000), ‘The Hazard of Moral Hazard – Untangling the Asian Crisis’, World Development, vol. 28, no. 4.

3

T. Georgakopolous, K. Prodromidis, & J. Loizides (1987), ‘Public Enterprises in Greece’, Annals of Public and Cooperative Economics, vol. 58, no. 4.

4

The Wall Street Journal, May 24 1985, as quoted in J. Roddick (1988), The Dance of the Millions: Latin America and the Debt Crisis (Latin America Bureau, London), p109.

5

Temasek Holdings owns majority shares in the following enterprises: 100% of Singapore Power (electricity and gas) and of PSA International (ports), 67% of Neptune Orient Lines (shipping), 60% of Chartered Semiconductor Manufacturing (semiconductor), 56% of SingTel (telecommunications), 55% of SMRT (rail, bus and taxi services), 55% of Singapore Technologies Engineering (engineering) and 51% of SembCorp Industries (engineering). It also owns a controlling stake in the following enterprises: 32% of SembCorp Marine (shipbuilding) and 28% of DBS (the largest bank in Singapore). See H-J. Chang (2006), Public Investment Management, National Development Strategy Policy Guidance Note, United Nations DESA (Department of Economic and Social Affairs) and UNDP (United Nations Development Program), Box 1.

6

According to a well-known World Bank report on SOEs, the average share of the SOE sector in GDP in the 40 developing countries it studied was 10.7% during 1978–91. The corresponding figure for Korea was 9.9%. See World Bank (1995), Bureaucrats in Business (Oxford University Press, New York), Table