Global Issues Week 8 Reading Notes

Christopher McCrudden and Stuart G. Gross, “WTO Government Procurement Rules and the Local Dynamics of Procurement Policies: A Malaysian Case Study,” The European Journal of International Law 17, 1 (2006), pp. 151-185

I continue to be amazed, this semester, at how well all of my classes fit together. This article, about the status of "global administrative law" in procurement, brings together a lot of threads. You might think that "WTO Government Procurement Rules and the Local Dynamics of Procurement Policies" would be fairly boring, but in fact, if Douglass North and his co-authors are correct, these are exactly the kinds of things that make the difference between this:

North argues that the transition from "limited access order" to "open access order" is the key to being a rich country. In limited access orders, the ruling elite use their monopoly on power to monopolize economic opportunity, and use the profit to sustain the monopoly on power. The path to national prosperity, therefore, lies in breaking open the monopolies on both political and economic power. Global procurement rules, in negotiation as part of GATT and then WTO, aim to do precisely that for government spending, which can be easily amount to half of all spending. Obviously, enshrining open access in procurement laws and practices would go a long way towards an open access order, on both political and economic fronts.

The paper is specifically a case study in Malaysia, which has several interesting dynamics going on. The first is a "market-dominant minority", as defined in Amy Chua's "World on Fire", a book which I bought and skimmed a few years ago but regret never getting around to reading through. But I think I got at least the thesis: that a common pattern in economies is for an ethnic/racial/religious minority to have a wildly disproportionate role in the economy. (Which leads to a good question for Douglass North: what does his theory have to say about market-dominant minorities, which on the surface seem to violate one of his premises.) In Malaysia, the Chinese are "a quarter of the population but hold 40% of the economy", while Malays are "60% of the population" but "own just 19% of the economy". The Malaysian state after independence was founded on "the Compromise", which was essentially that the Chinese and Indian minorities would accept second-class status in exchange for not being ethnically cleansed right out of the country. But after decades, the Malay majority remains at an economic disadvantage, and over time a number of government policies have formally enshrined discrimination in favor of Malays. These policies are at odds with emerging international norms of open procurement.

Note that the United States also opposes complete open procurement access, because US government procurement uses discrimination to support minority and woman-owned businesses. Only a small fraction of WTO members are part of General Procurement Agreement (GPA); the US is a member but has negotiated big exceptions.

We can also tie in a bit of current news:

The controversy over the Pentagon decision to award a $35bn refuelling tanker contract to EADS ... Nancy Pelosi, the Democratic House speaker, said Boeing had been on course to supply the US Air Force with tankers until Mr McCain "intervened". "Senator McCain intervened, and now we have a situation where the contract may be - this work may be outsourced." ...

The air force originally chose Boeing to supply it with 100 tankers. But Congress canceled the deal after it emerged that Darleen Druyun, a former top air force acquisitions official, had held illegal job discussions with Boeing while still negotiating the deal. ... The tanker scandal claimed the career of former Boeing chief executive Phil Condit. Ms Druyun and Mike Sears, Boeing's former chief financial officer, were sent to jail.

I'm not a reporter so I'm not going to do the work, but surely there must be quotes in which Pelosi and others who have complained about the EADS award are, in turn, complaining that US companies are denied access to foreign markets because of preferential treatment of foreign domestic companies?

The article goes on to describe negotiations in the last few decades to bring Malaysia and other developing countries into the GPA subset of WTO, negotiations which have to date failed. North would argue that the developing countries are shooting themselves in the foot; they are refusing membership in a group which would help them move to open access orders. I think this has be understood in the context of what I'll call the "Washington Consensus Debate", which is roughly this: Developed countries: "If you agree to play by all of these rules which work well for rich countries, you'll be rich." Developing countries circa 1980s: "Okay" Time passes. Developing countries do not become rich. Developing countries: "Hey, wait a minute! These rules just let you keep exploiting us. You yourselves didn't follow these rules to get rich."

The actual, original Washington Consensus rules are probably not to blame; most of them should help everybody. But the other cruft and ideology that accumulated around the term probably does include a lot of rules with very unequal results, not the least of which TRIPS. (The article quotes a paper alleging that some developing countries have had to spend an entire year's development budget to set up the regulations TRIPS requires, regulations which protect the creators of intellectual property, not the consumers. Guess how many developing countries are major creators of intellectual property (pharmaceuticals and software each bring in hundreds of billions of dollars per year globally; movies bring in far less, and music less still)? Guess who benefits.) So the big question is, are open procurement rules and other steps to reach an open access order really different from exploitative "Washington Consensus" prescriptions like open capital flows (which some economists now view with much skepticism)?

Ann Florini, The Coming Democracy: New Rules for Running a New World, Chapter 7, Brookings, 2003

The global poverty level is US$1/day. Out of curiosity, if you had to survive in the US on $1/day, you would do well to buy M&M jumbo packs, apparently, at 36 calories per penny. Probably all of the best buys will be in candy, since it's almost purely reprocessed, heavily subsidized corn. You could afford 3600 calories, which is roughly double the daily calories you need. Of course the malnutrition would probably cripple or kill you, and you wouldn't have anywhere to live or clothes to wear or medical care, and we're ignoring food kitchens and govenment programs etc etc. But still, Bulk M&Ms, and probably clip some coupons. Food economics is always fascinating; see here.