Governance

One would have to search high and low for a community that has as remained unscathed from the recent economic downturn. However, the Asia-Pacific region, as a whole, it the Asia-Pacific region has survived much better than other regions because of the risk and macroeconomic management measures that were developed in the aftermath of the 1997 Asian crisis. 

The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)’s study, Economic and Social Survey of Asia and the Pacific, 2010 assesses the critical issues, policy challenges and risks that the region faces in the months and years ahead as it leads the world economy to recovery after the first global economic contraction in modern history. The survey discusses multiple imbalances and development gaps, evaluates their differential impact across countries and sub regions, and identifies key policy responses for the short- and long-term. The report is very particularly relevant to apparel and textile manufacturing as it is a significant industry in the region.

While the economic crisis slowed GDP growth in all countries throughout the region, the countries that depended more on exports and global financial flows suffered more damage. This is understandable when you consider that exports can comprise up to 38 percent of a country’s GDP, not to mention that exports dropped at rates nearly twice those that followed the 1997 crisis.

The report suggests that economies highly dependent on trade with the US and Japan are more vulnerable than others to the collapse in external demand. It’s worth looking at an interesting dynamic mentioned in the report: despite the overall reduction of exports to the US, all ESCAP countries increased their share of the remaining US market.

The study also states that finance costs increase due to reduced export opportunities. In turn, this reduces export performance. The reversal of foreign capital flow can impact the whole country financially, from exchange-rate depreciation to a decline in foreign exchange, which will likely damage the economy as a whole. Governments should work with banks and financial institutions to provide a selection of tools, such as loans and guarantees, and share risks appropriately.

The report discusses additional impacts (e.g. increased unemployment, decreased social protection measures and the continual migration of laborers) before examining how countries that invested in public spending programs aimed at creating employment and strengthening domestic demand fare better than others. Results indicate that monetary policies played a smaller role than fiscal policies in supporting domestic demand.

In times of economic downturn, governments should develop policies that reduce entrenched poverty and protect the population at large from the risk of falling into poverty. Policies should provide social protection that develops short-term safety nets, prevents increases in deprivation, and promotes better chances of individual development. Policies that generate income opportunities and improve access to basic social services, especially in rural areas, are also critical.

Agricultural improvement services can have a large impact in rural communities that are often reliant on agriculture as a source of income. These improvements should include research and development, effective extension services with agronomic support, and increased connectivity through the use of information and communications technology to enable knowledge sharing. Programs should also address measures to improve transport systems and accessible financial support along with risk management tools (such as crop insurance), all of which could significantly contribute to reducing rural poverty.

The authors present future scenarios for:  inflation, commodity price volatility, increase in food prices, and an asset price bubble. Here are some conclusions that the authors of the UNESCAP survey shared:

• The system of institutes like the Consultative Group on International Agricultural Research (CGIAR) have a key role in generating new knowledge and technology in agriculture and putting it in the public domain, where it is available to national agricultural research systems for adaptation to their geoclimatic conditions.
• A key element here would be a system that could help small farms benefit from economies of scale in marketing and assist them in meeting international standards.
• The authors suggest that governments could aim to improve the banking architecture by establishing institutions that facilitate financial inclusiveness, such as credit bureaus and credit guarantee funds for microfinance activities. Governments might also undertake large-scale financial literacy campaigns to equip the poor to benefit from financial inclusiveness.
• The report ends on the note of when should governments end stimulus policies and how can they facilitate self-sustaining economic growth.  The authors also suggest that boosting domestic demand can make up for some export loss. Countries that are unable to create domestic demand should diversify their markets. Finally, policies that promote long-term structural rebalancing of economies can create healthier long-term trade conditions. 

I feel that there is a lot of good information in this report that can be used to create policies that protect vulnerable members of our societies and strengthen economies.

Questions for consideration

Will such policy interventions be possible in all regions? Are there other, non-policy, mechanisms that can provide similar benefits?

OECD's "Guiding Principles for Regulatory Quality and Performance" states, "the goal of regulatory reform is to improve national economies and enhance their ability to adapt to change." Given the state of the cotton market, climate change impacts, growing populations, political unrest and the recent collapse of global financial markets the need for national economies to adapt to change has never been greater.

OECD guidance focuses in part on helping countries improve their regulatory policies and tools, open markets and fair competition, and reduce regulatory burdens. They present the values of dynamic, ongoing and multi-agency approach to implementing regulatory reforms.

The seven principles OECD suggests governments follow when undertaking regulatory reform are:

1.     Adopt broad programs that establish clear objectives and frameworks for implementation. This should be done at the highest political level possible and include key elements of regulatory policy -policies, institutions and tools- applied across all levels of government. They should have a sound legal basis and align with identified goals, focus on minimizing costs and market distortion, create benefits that justify any costs, be compatible and consistent with other regulations or competition, as well as trade and investment principles.

2.     Assess impacts and review regulations systematically to ensure that they meet their intended objectives efficiently and effectively in a complex and ever changing landscape.  A system to review the effectiveness of policies and regulation on a routine basis should be implemented. is the focus of this principle. The review should be based on performance-based assessments, target regulations that present the highest potential benefits, and include new regulations.

3.     Ensure that regulations, regulatory institutions charged with implementation, and regulatory processes are transparent and non-discriminatory. This includes the need to consult with significantly affected stakeholders at the earliest stage of the process. The consultation should be open, transparent and include an appeals process that does not unduly delay business decisions.

4.     Review and strengthen where necessary the scope, effectiveness and enforcement of competition policy. Vigorous enforcement of competition law should be applied where collusive behavior, abuse, monopolization or anticompetitive mergers pose risks to constructive progress.  Governments should provide enforcement agencies with the proper authority and capacity needed to enforce competition policy. Governments should also raise public awareness of the role and benefits of healthy competition that is void of corruption and collusion.

5.     Design economic regulations in all sectors to stimulate competition and efficiency, and eliminate them except where clear evidences demonstrates that they are the best way to serve broad public interests. Governments should ensure that regulatory restrictions on competition are limited and in line with public interest.  OECD promotes efficient means to address areas of potential market abuse. This can be true when competition increases due to privatization and market reform. They promote non-discriminatory access to essential network resources, inter-connected geographic networks, and considers price caps and price monitoring where warranted.

6.     Eliminate unnecessary regulatory barriers to trade and investment through continued liberalization and enhance the consideration and better integration of market openness throughout the regulatory process, thus strengthening economic efficiency and competition.  OECD encourages governments to work with other countries with a focus on transparency, non-discrimination, harmonization towards international standards, and streamlining of conformity assessment procedures and application of competition principles.

7.     Identify important linkages with other policy objectives and develop policies to achieve those objectives in ways that support reform. Governments should apply principles of good regulation, review and policy adaptation. This is especially true in areas of safety, health, consumer protection and energy security.

The cotton industry operates in a wide range of countries that have varying degrees of governance. Strong governance is essential for any fair and open market. The above principles provide solid guidance on how to improve all governments' governance programs and should be promoted.

Questions

Can the cotton industry take actions to promote stronger and more effective governance programs in OECD countries? If so, should it take such action?

Total support to the agricultural sector (including producer support) was USD 375 billion in 2007-09 (0.9% of OECD GDP). This is down 2.3% from 1986-88. In all but one OECD countries, the agricultural support had declined when compared to the overall economy.  High world commodity prices and lower food stocks contributed to food security becoming central to agricultural policy debate.

Many countries implemented previously agreed reforms, others took ad hoc measures in prompt response to price volatility. Some trends in policy reforms include: delinking of support from commodity production, and increasingly linking support to better practices. Some countries adjusted the form of subsidies paid to producers because rising prices negated the need for them.

Food security was the focus of discussions when Ministers for Agriculture from the OECD countries met in early 2010.  The Ministers agreed to build on and complement policy principles agreed in 1998 and recognized:

• An integrated approach to food security is needed
• ‘Green growth' offers opportunities
• Climate change presents challenges and opportunities.

The Ministers also agreed that governments should meet many basic responsibilities that include ensuring that:

1.     appropriate institutional, regulatory and policy frameworks are in place to enable markets to function properly

2.     appropriate policies are developed to manage risk

3.     policies are coherent with general macroeconomic, trade and other policies

4.     policies support responsible management of natural resources

5.     the total costs and benefits to society are considered

6.     there is a supportive investment climate

7.     innovation is encouraged, including transfer of technologies that enhance  productivity and product quality

Some recommendations for governments to consider when shifting support from production levels to adoption of better practices include:

• State clear objectives, use evidence-based evaluations of progress, and improve transparency,
• Target support to lower income farmers and include risk management tools to protect them from price variability and crop damage.
• Encourage payment schemes that cost polluters and benefit ecosystem services providers.
• Promote climate change adaptation and natural resource conservation.
• Invest in needed infrastructure.
• Promote innovation that builds efficiency across the sector.

A stronger and more transparent global market that can reduce price variability and lead to more consistent policies that take a long-term approach which could further stabilize and strengthen the overall industry.

I read an interesting paper produced by OECD recently, Policy Responses in Emerging Economies to International Agricultural Commodity Price Surges (2010), which examined short-term policy responses to the 2006-08 rise in commodity prices and analyzed their effectiveness in meeting policy objectives. This is particularly relevant today as cotton prices soar to all times high. Changes in trade flows, price transmission, inflation, consumption and production were also examined.

Overall, the study found that focused safety nets were best at sheltering poor households without disrupting the market, including creating negative price signals to farmers. An added benefit was that the conditions of the safety net could be adjusted as prices rose and fell, allowing greater flexibility over other interventions.

The researchers categorized government short-term policy responses into four types:

     1.     Market interventions to limit the rise in food prices

     2.     Market interventions to control inflation

     3.     Assistance to consumers through safety nets

     4.     Support to producers

The study found that most countries tried to limit the rise in food prices by directly affecting the price or increasing the supply of commodities by removing tariffs, increasing export taxes or reducing export price incentives. These usually reinforced existing policy themes and aligned with longer-term policy frameworks and objectives such as food security.

Export restrictions (e.g. bans, taxes, reduction in rebates) were found to significantly reduce exports of the covered commodities; however, these and other direct government interventions were not always effective in suppressing domestic price pressure. Additionally possible negative impacts included depression in prices discourage farmers from replanting the targeted crops.

OECD promotes shifting from outdated subsidies towards more progressive programs aimed at achieving its economic growth and poverty reduction targets. Traditional subsidies can distort consumption behavior and negatively influence policy decisions by keeping the cost of resources artificially low. Many developing countries will need to invest in their infrastructures to achieve the economic growth they aim to achieve.

Shifts towards programs that lift restrictions on foreign investments, improve access to land, improve enforcement of competition rules and cutting red tape. Progressive programs such as public-private partnerships will also be needed to make any significant headway on infrastructural improvements.  It is, however, worth noting that opportunities to secure funding through these public-private partnerships will likely be increased if more progressive investments that promote better agricultural practices, protection of ecosystems and provide basic worker protection as many funders are incorporating these criteria into program requirements.

Question

Are there measures that the cotton industry should be taking to strengthen governance in times of such price volatility?

 This is my second blog in a series to present highlights from the International Union for Conservation of Nature's (IUCN's) Water and Nature Initiative (WANI) toolkit. The WANI toolkit is aimed at helping communities improve water governance programs

My first blog on the WANI toolkit posted November 26^th presented Rule: Reforming water governance. It provides guidance on understanding and developing basic principles of good water governance and necessary elements of a strong water governance program.

The focus of this blog - WANI's Negotiate: Reaching agreements over water - builds on the basic principles of water governance and presents practical steps on how to negotiate effective multi-stakeholder agreements on water rights and governance.

Lasting and effective agreements that address complex water issues are best achieved through constructive engagement and open and cooperative forms of negotiations. The complexity of water governance issues can include identifying and determining the value of ecosystem services, creating incentives and financing mechanisms, what capacity exists versus what is ultimately needed, how to hold responsible parties accountable to the terms of the agreement, and establishing water allotments that sufficiently fulfill all stakeholders' needs, among other issues. Negotiate: Reaching agreements over water addresses the following concepts of local water governance negotiations:

• Competing priorities and uncertainties make water allocation decisions complex
• Environmental flows as a governance tool to support water allocation decisions
• Constructive engagement catalyses water solutions that are durable
• Good water governance generates adaptive capacity

Negotiate: Reaching agreements over water begins by making the case for consensus based, multi-stakeholder negotiations - primarily that engagement of all key stakeholders from the onset will likely create more workable solutions they would not otherwise achieve. It frames water agreement negotiations on the concept of 4Rs of negotiations - rewards, rights, risks and responsibilities. For example:

• The rewards associated with different options across all stakeholders.
• The involuntary and voluntary water-related risks.
• Water-related rights.
• The various water-related responsibilities of State and non-State actors.

By identifying the 4Rs for each stakeholder group that depends or has an interest in the water being negotiated, the importance of the subject water source is discussed and negotiated in a holistic manner. This helps all stakeholders understand the needs of and the importance of solutions that are mutually beneficial to all affected stakeholders.

Consensus-based negotiations are best conducted through a process that involves convening appropriate stakeholders, establishing responsibilities and objectives, deliberating and establishing agreement priorities and implementing and monitoring the agreement. The resultant strong and effective partnerships will improve the long-term implementation of the agreement.

Developing multi-stakeholder water governance is a long-term process that involves continued engagement and negotiations. It unpacks constructive approaches such as Multi-Stakeholder Platforms (MSPs) and Consensus Building, and finally focuses on the diversity of agreements that can be produced to create more effective long-term water allocation and use agreements. MSPs are forums that focus on

• Sharing knowledge, experiences and perspectives
• Generating and exploring options
• Informing and shaping negotiations and decisions

They create an open forum where differences are recognized and all parties gain a better understanding of complex issues. The MSPs are most effective when they are open to all vested stakeholders. This is best assured by mapping stakeholders who impact or are impacted by the allocation of rights to the subject water source.  These stakeholders can be prioritized by their influence on or impact related to the 4Rs of negotiation - e.g. entities who currently have direct responsibilities over or rights to the source of water and those who would be impacted by changes to water use or allocation.

The value of Consensus Building has many benefits including focusing on mutual gains by focusing on interests and negotiating across multiple issues, it often prioritizes scientific data over self-interests and is aimed at reaching mutually acceptable agreements that all parties can and will implement.

Water agreements will require continued monitoring and adjustments over time. The partnerships and processes developed through the above mentioned concepts will likely result in lasting positive exchange and cooperation among all participating stakeholders.

Efficient, equitable and sustainable water management is essential for social equity, economic development and the avoidance of political unrest. The International Union for Conservation of Nature (IUCN) has worked with 80+ partner organizations across the world to develop water management partnerships through its Water and Nature Initiative (WANI) with the aim of helping organizations improve water governance programs. IUCN has developed a tool kit that consists of several documents that:

• support learning on how to mainstream an ecosystems approach in water resource management;
• are aimed at practitioners, policy-makers and students from NGOs, governments and academia; and
• build on practical case studies to show how key principles of sustainable water management are implemented in river basins.

The first WANI toolkit document that I would like to discuss is Rule: Reforming Water Governance. It discusses and presents the benefits of the following principles of good water governance:

• depends on political will and government's capacity to develop, maintain and enforce its governance program,
• needs policies, laws, institutions, regulations and enforcement mechanisms, and
• should be built on the process principles of: transparency, certainty, accountability and public participation.

A government's ability to create and implement an effective water governance program depends on its capacity to do so. It must have strong leadership from authoritative bodies, adequate resources, established mechanisms (e.g. judicial process, incentives) and allow for continuous improvement as the needs, beneficiaries and other conditions change over time.

A policy is a living blue print that sets forth it purpose, vision, scope and the responsibilities and rights of the policy's stewards and beneficiaries. To support the policy, laws should be developed to create predictability and flexibility with respect to regional boundaries, stakeholders, and implementing mechanisms - whether penalties and incentives. These elements should be develop transparently and should promote inclusion of key stakeholders such as water users and community members. The legal framework should provide clear direction on requirements or expectations and ensure accountability among responsible parties.

Water is best governed at the watershed level but must also align with national and regional frameworks while still protecting the rights of individual beneficiaries.

Rule: Reforming Water Governance identifies international treaties and types of water policy arrangements (e.g. authoritative, pluralistic-liberal, decentralized-communitarian) as well as discuss basic principles of good water governance and how they work together to work within different realities and settings. It presents case studies to illustrate how water governance capacity, policies, laws, institutions and mechanisms (regulations contracts, etc.) work together and can be adjusted to become effective in different realities.