The Big Idea: UN Climate Talks: Why the Private Sector Needs to Be Involved Now

By Ann Condon and Norine Kennedy

un_headquarters_lo-resThomas Edison said, “Opportunity is missed by most people because it is dressed in overalls and it looks like work.” For the United Nations climate change deliberations driving toward a global agreement in Paris this December, we would offer a variation on Edison’s observation. In this context, opportunity looks like a business person, ready to roll up their sleeves, invest in innovation, find new markets and become more competitive. USCIB wants to make sure the negotiators do not miss that opportunity.

And it goes beyond an opportunity. In our view, engagement with the private sector is imperative from both an economic and environmental standpoint. We need to manage and address the risks of climate change, and doing so requires engaging all countries and societal partners. And this must happen cost-effectively, with job creation and shared prosperity, stimulating economic growth and development.

Can emissions reductions and economic growth really go hand in hand? The answer is an emphatic “Yes!” Moreover, we now have clear evidence that this is underway. In March, the International Energy Agency announced that the world had successfully decoupled economic activity from greenhouse gas emissions, with global GDP increasing by 3.3 percent in 2014, while emissions decreased. This was the first time in over 40 years that observed emissions declined without an economic downturn.

USCIB member companies have made important contributions to inform the discussions, with the goal of influencing policy and market outcomes, meeting societal expectations and, in the process, finding new opportunities and new markets.

The business community has a clear stake in being engaged in the UN negotiation process, to help policy makers understand the economic and business opportunities and consequences of their policy choices.

USCIB, which has been engaged in the process since negotiation of the original UN Framework Convention on Climate Change in 1992, is seeking to expand private-sector engagement throughout the course of 2015 and beyond the Paris summit to the period when national implementation begins.

To do this we are working through multiple channels:

  • Advocating directly to the U.S. government, both on specific elements of a global agreement and on the critical issue of the U.S. pledge (or INDC, for “intended nationally determined contribution”).
  • Working closely with our partners in the International Chamber of Commerce; which serves as the business focal point for the UN negotiations and is playing an increasingly important role as a champion of sensible policies.
  • Engaging with multiple organizations on the interplay between the UN climate talks and other initiatives such as the Sustainable Development Goals.
  • Forging stronger links between the business communities of the major emitting countries through the Major Economies Business Forum.

So how do USCIB member companies see a feasible and durable approach to climate, one that sets the stage to address these joint economic and environmental imperatives?

First, we want governments to provide a clear framework for international action on the many dimensions of climate change – including energy access and modernization to reduce greenhouse gas emissions, and resilience and adaptation; with all large economies making national pledges to measure, monitor and report their activities.

Second, negotiators must find a way to mobilize and deploy $100 billion annually that governments pledged for climate mitigation and adaptation. You simply can’t get to a number that big without catalyzing private investment, which responds best to market incentives. For USCIB, open markets and trade are vehicles that spread investment and technology cost effectively and profitably; anything that hampers markets will slow the pace of climate action and make it needlessly expensive for companies and for society.

Third, and perhaps most importantly, the Paris summit must map out practical ways to include the private sector as a partner in the success of a global climate agreement. USCIB is seeking a recognized consultative role for business in all aspects of climate policy – setting priorities, informing policy options, taking action. As USCIB President and CEO Peter Robinson remarked at the most recent UN climate conference in Lima, Peru: “If a global agreement doesn’t work for and with business, it won’t work.”

It is apparent that this is an idea whose time has come: the French government has called upon the private sector to be part of a shared agenda for action in Paris, and has signaled the importance of ongoing dialogue with business as a priority.

The international community has laid out a broad vision of 2015 as a critical fulcrum, where we can reinvent and reinforce economic and environmental imperatives, using both in markets and policy. For USCIB and its members, expectations are high. We will do our utmost to make the case for what we know will work best – open markets and trade, innovation and the enabling conditions for private sector investment — to address climate change challenges and move the global economy forward.

Ann Condon is director for resource and environment strategies at GE and chair of USCIB’s Environment Committee. Norine Kennedy is USCIB’s vice president for energy, environment and strategic international engagement.

The Big Idea: The UN’s Development Agenda: An Opportunity to Cement Private Sector-Led Growth

4614_image001The United Nations has embarked on an ambitious effort to define forward-looking objectives to succeed the Millennium Development Goals (MDGs), which the UN adopted in 2000 and which set 2015 as a deadline to reach targets toward ending extreme poverty, ensuring universal primary education, curbing the spread of infectious diseases, and attaining a number of other fundamental goals. (See USCIB President and CEO Peter Robinson’s Spring 2013 column.)

Many may roll their eyes and think, “There they go again – the UN with its hand out, dreaming up ways to waste money.” However, we believe this exercise represents a unique opportunity to catalyze the international community around the importance of private sector-led growth and a more robust, inclusive global economy. The business community needs to be a driving force in this vitally important debate.

It is important to recognize just how far we have moved from the old model of development policy, which relied largely on official development assistance (ODA) by governments. In the four decades following World War II, ODA made up 70 percent of the resources flowing from developed to developing countries, while just 30 percent came from private investment. But the levels of private investment in developing countries surged with the global economic boom of the 1990s, and by the end of the century, that ratio was reversed. Today, over 80 percent of capital flows to developing countries come from private investment, while the share from ODA continues to fall (to say nothing of the additional contribution of in-country investment by indigenous companies, particularly in rapidly developing economies such as China or Brazil).

This shift is well documented and widely acknowledged, yet previous discussions of development in the UN, including the MDGs, has largely focused on ODA, with private investment – and the conditions that facilitate it – getting little, if any, attention. The MDGs have been criticized as, in effect, a debate over where to target aid rather than how to generate economic growth. To be sure, assistance to the least developed countries is critically important. But in our view, the post-2015 development agenda is a unique opportunity to drive progress for economic and development advancement in all countries.

In addition, the international community and global business now recognize the importance of integrating broader environmental, economic and social elements in the wider concept of sustainable development. This goes far beyond a narrow focus on ODA. The post-2015 development agenda provides a window for us to achieve consensus – individuals, governments, businesses, indeed all stakeholders – around the essential elements of sustainable development in the 21st century.

The UN can help address this imbalance through a new development agenda that recognizes and fosters private investment as the main engine for economic growth and sustainable development. This new development agenda, which would include new Sustainable Development Goals (SDGs) to build on the MDGs, represents an opportunity to shift the focus to how individual countries can create the right conditions for sustained economic growth, environmental stewardship and development – and progress to a state of economic self-sufficiency without aid.

To fully embrace this opportunity, United Nations members will need to take five steps:

1) Ensure national focus and implementation

This approach calls for development goals that promote national policies and institutions that will lead to peace and security, good governance, economic growth, environmental protection and social progress – the mutually reinforcing objectives of sustainable development. Global goals are useful, but we must recognize that all the key drivers for development take place within a national context and must be implemented through national institutions.

2) Address broad framework conditions

The Millennium Development Goals were a good start, but they left out many important framework issues, such as peace, security and good governance. Good national governance, including the rule of law, accountable government, independent courts, individual liberty, the absence of corruption, clear property rights and functioning national institutions are all prerequisites to sustained growth and sustainable development.

3) Promote private-sector growth

Private investment and economic growth cannot and will not happen in the absence of a conducive environment at the national level, which must include sound macro-economic and fiscal policies, adequate infrastructure, communication and education systems, and efficient business regulations in the areas covered by the World Bank’s influential Doing Business reports. Efficient business regulations support entrepreneurship and recue the untaxed informal economy. Moreover, the lack of clear property rights – for both enterprises and households – remains the single biggest impediment to reducing informality.

4) Focus on entrepreneurs and enterprises

Any discussion on employment must focus primarily on enterprises. There is universal agreement on the urgent need for job creation, but far too little focus on who will actually create the jobs. So we must always finish that sentence, emphasizing the urgent need for jobs to be created by enterprises. Increased employment is the outcome of policies that promote entrepreneurship and support enterprise creation, particularly small and medium-sized enterprises, which are the main engines of job growth in every country.

5) Harness the business case for development

Put most simply, development is good for business, and business is good for development. The vast majority of potential consumers live in the developing world, and companies recognize that their future growth and competitiveness hinges on the ability to address the needs of developing economies. At the same time, economic growth is one of the most powerful drivers of poverty reduction in the world, and business is the most reliable engine powering that growth. Harnessing this virtuous circle is the best path to sustainable growth.

The business community is actively seeking to help shape the SDG and the broad post-2015 agenda. USCIB and its global network – the International Chamber of Commerce, the International Organization of Employers, and the Business and Industry Advisory to the OECD – have engaged with the UN secretariat and member states in an effort to secure truly ambitious and effective targets for private sector-led growth and the achievement of other critical societal goals. Only by working together can we ensure that the 21st century is truly the century of broad, sustained development for all the peoples of the world.

 

Adam Greene is USCIB’s vice president of labor and corporate responsibility; Norine Kennedy is USCIB’s vice president for strategic international engagement. This essay appeared in the Autumn  2013 issue of International Business, USCIB’s quarterly journal. It is part of our regular series of thought-leadership columns. To submit a column or suggest a topic, please contact Jonathan Huneke (jhuneke@uscib.org).

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The Big Idea: How Global Supply Networks Drive Jobs and Growth

“Made in America” increasingly hinges on creative new ways to make goods and services in conjunction with the world.

By Matthew J. Slaughter

4523_image001Matthew J. Slaughter, professor and associate dean at the Tuck School of Business at Dartmouth, served as a member of the Council of Economic Advisers from 2005 to 2007. His new report, “American Companies and Global Supply Networks: Driving U.S. Economic Growth and Jobs by Connecting with the World,” published by USCIB, the Business Roundtable and United States Council Foundation, is available free of charge at www.uscib.org.

Recent U.S. jobs reports, while encouraging, show that we continue to confront a competitiveness challenge of too little economic growth and too few jobs. America’s 113.2 million private-sector jobs today are not much above the number there were in late 2000, yet during these 12-plus years the U.S. labor force grew by about 15 million.

The good news is there is a future in which America can create millions of good jobs and strengthen its economic growth by seeking opportunities in global markets. Achieving this future, however, will require thoughtful U.S. policies based on a sound understanding that the success of American companies, and of the U.S. workers they employ, increasingly hinges on their global engagement.

A new report I authored for USCIB, the Business Roundtable and the United States Council Foundation, “American Companies and Global Supply Networks: Driving U.S. Economic Growth and Jobs by Connecting with the World,” explains what American companies must do to succeed in today’s dynamic global economy—and how that success fosters growth and jobs in America.

What global companies make abroad tends to stay abroad…

First, their success in America increasingly hinges on their venturing abroad to meet the growth in global demand that, over the past generation, has been much faster than that in the United States. The U.S. share of world GDP fell from 32.3 percent in 2001 to just 21.6 percent in 2011. American companies see vast new markets with billions of new customers to serve not just via exports but, for global companies, via foreign-affiliate sales as well. For the affiliates of U.S.-based global companies, the annual average growth in value added over 1999-2009 was 8.4 percent in Brazil, 22.8 percent in China, 24.9 percent in Eastern Europe and 26.8 percent in India. And 91.1 percent of what these affiliates produced abroad in 2009 was sold abroad, not imported back to America.

…while exports are increasingly “made in the world.” Source: www.globalsupplynetworks.org

Second, successful American companies must also venture abroad to refine their operations by creating and integrating into global supply networks, which include both U.S. and foreign companies. “Made in America” increasingly hinges on creative new ways to make goods and services in conjunction with the world. One recent study estimated that the foreign content of U.S. exports has tripled in the last 40 years, rising from about 7 percent in 1970 to 22 percent in the late 2000s—with a much sharper rise since 1990. A very important implication of America’s engagement in global supply networks is not just rising exports but rising imports as well. In 2011 fully 62 percent of America’s $2.2 trillion of goods imports were intermediate inputs that were used in America by American workers.

Third, even amidst all this global outreach, globally engaged U.S. companies are fundamentally American companies whose activities drive economic growth and well-paying jobs in the United States. Global companies operating in the United States in 2010 employed 28.1 million Americans, at average compensation about one third above the national average. They performed $253.8 billion in research and development. They invested $587.3 billion in property, plant, and equipment. They bought from U.S. suppliers more than $8.0 trillion in goods and services. And these companies are richly diverse in size and industry. Today about 26 percent of the U.S.-parent companies of all U.S.-based multinationals are classified by the U.S. government as small businesses because they employ fewer than 500 people.

The global engagement of U.S. companies tends to boost, not reduce, hiring, investment, and R&D in America. Research continues to show that more employment and investment abroad by U.S. multinationals tends to increase employment and investment in their U.S. operations. Globally engaged U.S. companies also create jobs in other American companies. In particular, they create jobs in small and medium-sized American enterprises that become part of their global supply networks. The U.S. parent enterprise of the typical U.S. global company buys more than $3 billion in intermediate inputs from more than 6,000 American small businesses, which was more than 24 percent of its total input purchases. All this job creation is dynamic, with many companies both expanding and reducing jobs as opportunities evolve.

My report uses a mix of economic data, academic and policy research and case studies that detail how the success of globally engaged U.S. companies, their customers and suppliers, as well as the U.S. workers they all employ, increasingly depends on their competitiveness in the global marketplace. The companies profiled are The Dow Chemical Company, The Coca-Cola Company, ExxonMobil, FedEx Corporation, IBM, Procter & Gamble and Siemens.

There is no single strategy for what American companies must do to succeed and create jobs when venturing abroad. To stay ahead of intense international competition American companies must create, implement, and refine strategies from a truly global perspective. Globally engaged U.S. companies need flexibility to experiment, learn, fail, adjust, and succeed.

To support American growth and jobs, U.S. policies must help all companies in America—big and little, U.S. and foreign, young and old—compete globally. Such sound policies are not guaranteed. But, if based on a clear understanding of what U.S. companies must do to succeed in today’s global marketplace, they are no doubt attainable.

Key Facts:

  • Growth in demand abroad continues to surpass growth in demand in America.
  • International operations of U.S.-based companies primarily exist to serve foreign markets, with more than 90 percent of the foreign production by American companies sold to foreign customers and not imported back to the United States.
  • Global companies operating in the United States in 2010 employed 28.1 million Americans, performed $253.8 billion in research and development (R&D), invested $587.8 billion in capital, and bought from U.S. suppliers more than $8.0 trillion in goods and services.
  • The worldwide operations of U.S.-headquartered global companies are highly concentrated in America in their U.S. parents, not abroad in their foreign affiliates: In 2010, U.S. parents accounted for 67.3 percent of their companies’ worldwide employment, 72.5 percent of capital investment, and 84.3 percent of R&D.
  • Today about 26 percent of U.S.-based global companies have U.S. parent companies that are classified by the U.S. government as small or medium-sized businesses because they employ fewer than 500 people.

This essay appeared in the Spring 2013 issue of International Business, USCIB’s quarterly journal. It is part of our regular series of thought-leadership columns. To submit a column or suggest a topic, please contact Jonathan Huneke (jhuneke@uscib.org).

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The Big Idea: It’s Time to Stop Investment Protectionism

New ICC investment guidelines help chart a path to reviving FDI as an engine of global growth.

By James Bacchus, Victor K. Fung, Harold McGraw III, Gérard Worms

go away language globeGérard Worms, Harold McGraw III and Victor Fung are respectively chairman, vice chairman and honorary chairman of the International Chamber of Commerce, the world business organization for which USCIB serves as the American affiliate. James Bacchus chaired the drafting group that revised the ICC Guidelines for International Investment.

It is time for a much-needed reminder of the tremendous potential that investment liberalization can unleash on the ailing global economy, and for the G20 to create a more stable and predictable climate for cross-border investment.

Although international investment is rising again after plummeting from the record levels registered just before the global financial crisis began, global foreign direct investment (FDI) remains 15 percent below pre-crisis levels. Rising, too, are restrictions on FDI through various forms of investment protectionism that are clouding the future for global economic growth.

To help counter this rising threat of investment protectionism, the International Chamber of Commerce (ICC) has released revised guidelines to help increase cross-border investment flows and thus stimulate economic growth and prosperity across the globe. Like the recent EU-U.S. statement endorsing investment’s key role in the global economy, we hope that G20 leaders recognize FDI’s role in promoting growth and standing strong against the temptations of protectionism.

Boosting FDI in today’s global economy is a pressing concern to developed and developing countries alike. The new world of international investment no longer holds to the weary “North-South” stereotype. More than half of all inbound FDI today – 52 percent – goes to developing and transitional economies. Outbound FDI from developing and transitional economies is also increasing rapidly – $388 billion in 2010, up 21 percent from 2009.

Yet the business confidence needed to boost investment flows worldwide is constrained by significant uncertainties ranging from excessive sovereign debt and macro-economic imbalances to the increasing influence of state-owned enterprises and sovereign wealth funds, as well as the growing trend of “re-regulating” international investment.

In 2000, only two percent of all government investment measures taken worldwide imposed new restrictions on international investment. In 2010, that proportion had risen to nearly one-third – 32 percent. UNCTAD has warned that this “maintains the long-term trend of investment policy becoming increasingly restrictive rather than liberalizing.”

ICC Guidelines for International InvestmentOther stereotypes of the past no longer apply either. Most of the new measures limiting international investment are being used not by developing countries but by developed ones. This is particularly the case in the financial and natural resources sectors, and reveals a disturbing and shortsighted trend away from free markets towards increasing discrimination in favor of “national champions” and local companies in “strategic industries.”

The new ICC guidelines, which draw on the collective experience and specific suggestions of businesses throughout the world, reaffirm business’s belief in what the G20 has described in its action plan for jobs and growth as the role of investment “to unlock new sources of growth.” The guidelines reiterate the basic obligations of investors, investing countries, and host countries with respect to such traditional concerns as fair and equitable treatment of investment and protection against expropriation without just compensation.

But the guidelines also go far beyond the previous version to address several “new” investment issues that have emerged since 1972, during four decades of expanding globalization.

They emphasize the global need for the free flow of capital to spur investment and of services to support investment, as well as the need for transparency and due process in the governance of investment. They also state that host countries should respect international rules related to foreign investment such as local content, equity caps, technology transfer, domestic sales limitations, and the mandatory use of indigenous technology.

The guidelines outline the protection of intellectual property rights, the prohibition of discrimination in government procurement, and anti-corruption. They contain language which specifically addresses corporate responsibility, strengthening previous provisions on labor rights, setting out new obligations on human rights, and incorporating new obligations related to environmental protection and sustainable economic growth.

ICC has taken into account that governments are increasingly deploying FDI through state-owned enterprises and sovereign wealth funds. The new guidelines address the role of the state by setting out, for the first time, the principle of fostering competitive neutrality in cross-border investment. They also underscore the need to establish an effective means of upholding the rule of law relating to international investment, including through investor-state dispute settlement.

Resisting investment protectionism is essential to promoting economic growth. The G20 should establish appropriate rules, drawing on guidelines from international business, so that the global economy creates more opportunity, prosperity and hope for workers and entrepreneurs alike.

This essay appeared in the Summer 2012 issue of International Business, USCIB’s quarterly journal. It is part of our regular series of thought-leadership columns. To submit a column or suggest a topic, please contact Jonathan Huneke (jhuneke@uscib.org).

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The Big Idea: Our Not-So-Flat World

We’re not as globalized as we think, according to Pankaj Ghemawat, author of “World 3.0.”

Note:  This article appeared in the Winter 2011/2012 issue of International Business, USCIB’s quarterly journal.  It is part of our regular series of thought-leadership columns.  Views expressed by authors and those interviewed are their own, and no endorsement by USCIB is implied.  To submit a column or suggest a topic, please contact Jonathan Huneke (jhuneke@uscib.org).

4242_image002The world is flat, right?  Well, consider the following facts:

  • Only 20 percent of the world’s equity shares are held by investors outside a company’s home market.
  • Just three percent of people live outside their country of birth.
  • Less than one percent of all American companies have any foreign operations – and most of them operate in just one country, primarily Canada.
  • Worldwide public opinion surveys indicate that people care about their fellow citizens from 100 to 10,000 times more than they do about foreigners.
Pankaj Ghemawat
Pankaj Ghemawat

Pankaj Ghemewat, professor of global strategy at IESE Business School in Barcelona and author of the well received book“World 3.0: Global Prosperity and How to Achieve It” (Harvard Business Press), has thought a lot about this.  Ghemewat takes issue with common assumptions about globalization.  The world, he says, is far from flat, and in fact is still largely defined by national borders.

Ghemewat sat down with USCIB to discuss his ideas.  World 3.0 encourages companies and policy makers to look at globalization differently.  He explains how, for too long, governments, business, and the general public have been stuck in a tug of war between two opposing worldviews, World 1.0 (a protectionist, regulated world) and World 2.0 (in which the world is seen as flat and corporations as stateless entities).

He argues that both these views are flawed: they don’t fit the facts, and they don’t provide practical direction toward a better future.  He proposes a more accurate and useful worldview, based on evidence that we are in a state of semi-globalization.

Pointing to data on flows of trade, capital, information and people, Ghemawat shows that actual levels of globalization are far lower than many of us think, and that there is tremendous potential to expand prosperity by increasing integration.

What’s more, with protectionism on the rise, Ghemawat points out how exploding some of the myths about globalization’s scope can defuse anxiety about its purported side-effects. For example:

  • Recognizing that goods made in China account for just 1-2% of U.S. personal consumption expenditures undercuts those seeking to blame the trade deficit for America’s problems – shifting the focus on jobs away from protectionism and toward domestic policies.
  • Recognizing that international air transportation accounts for 1-2% of greenhouse gas emissions – one-tenth as much as ground transportation – would help prevent an overemphasis on localizing production that sacrifices important production efficiencies.

  • Recognizing that foreign aid accounts for just 1% of the U.S. federal budget – instead of the 30% or so that Americans tend to guess – can helps build support for more cross-border aid.

World 3.0 recounts the track records of numerous companies in adapting – or failing to adapt – to this semi-globalized world, where attention to national differences can still spell the difference between success and failure.

Perhaps most intriguing for USCIB members are Ghemawat’s policy prescriptions.  Here he places the emphasis on the importance of more or less unilateral decisions by national governments.

Interestingly, he contends that trade liberalization by itself offers limited prospects for growth. Success in the Doha Round, he says, would lift global GDP by a mere 0.1 percent, and even the complete elimination of trade barriers would raise growth by only 0.5 percent.

In contrast, Ghemawat contends that very rapid increases in integration undertaken unilaterally or by small groups of governments could spur far greater growth.  One example, says Ghemewat, is Mexico under NAFTA, where the single biggest benefit of integration with the U.S. and Canada has been to drastically reduce the price-setting power of oligopolies.

Ghemewat says governments can foster integration at both the national and global levels through policies such as improved infrastructure and education.  Poor road and port infrastructure in his native India, for example, is a huge constraint on growth, because it limits access to global markets.

Ghemewat criticizes the view that deregulation is the best way to achieve growth. “A hands-off approach to regulation is untenable,” he says.  Minimum wage laws, for example, help reduce inequality.

And while popular perceptions of globalization’s impact on unemployment are vastly out of line with reality, Ghemewat stresses the importance of improving the social-safety net for people who are negatively affected.  He’s skeptical about trade adjustment assistance laws, and says improved unemployment benefits, access to health care, and education are a better approach.

World 3.0 makes for fascinating reading, and while you may not agree with everything Ghemawat prescribes, he presents a very convincing case that there is still a long, long way to go before the world is truly flat.

Staff contact: Jonathan Huneke

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