Is FIFA-world just a microcosm of the real one?

Russia's president Vladimir Putin (left) and Fifa president Sepp Blatter

FIFA-world: a virtual world where you get ahead by what you pay and stay ahead by denying the evidence

“When we get bribed, we stay bribed.”

Jon Stewart on his Daily Show in the USA – his take-down of Sepp Blatter and FIFA. The legal onslaught on FIFA-world  has been 24 years in the making – 24 years before the legal process (headed by the US Attorney General Loretta Lynch) went into motion. As Stewart remarked, “even Switzerland” itself had moved on FIFA.

Yet, Sepp Blatter was overwhelmingly affirmed by FIFA delegates for another four years – on the votes of Africa, Asia and Platini’s France amongst others. This was despite the obviously dangerous legal claims made against many senior employees and representatives of FIFA by the US and Swiss legal authorities. This was despite the fact that Blatter has been President of FIFA for so long – it has been on his watch.

The President of FIFA has (under its latest statutes) the following responsibilities:

32. President

The President represents FIFA legally.

He is primarily responsible for:

a)  implementing the decisions passed by the Congress and the Executive Committee through the general secretariat; 

b)  supervising the work of the general secretariat;

c)  relations between FIFA and the Confederations, Members, political bodies and international organisations.

Only the President may propose the appointment or dismissal of the Secretary General.

The President shall preside over the Congress, the Executive and Emergency Committee meetings and those committees of which he has been appointed chairman.

The President shall have an ordinary vote on the Executive Committee and, whenever votes are equal, shall have a casting vote.

If the President is absent or unavailable, the longest-serving vice-president available shall deputise.

Any additional powers of the President shall be contained in the FIFA Organisation Regulations.

As FIFA’s legal representative on planet earth, it seems clear that Blatter would be held accountable for all its actions whether he knows about them (and he claims a complete absence of knowledge) or not. Yet, FIFA members, by a great majority, supported his continued Presidency.

For some of us, this seems absurd. For those of us brought up under democratic systems, where wrongdoing in an elected body is normally punished by the voter, the inability of FIFA to sort itself out appears naïve as does the apparent understanding of the electorate. Yet, to many of those who voted for Blatter, their response was entirely logical.

How FIFA-World Seems to Work

The world has changed over the last fifty years to an extent that is now becoming highly visible. Until the 1950’s, the great western powers and the USSR held military power (hard power) over the rest of the world. One by one, states outside this power block became politically independent. Asian economic power-houses like Japan grew quickly and then China began its sustained and dramatic economic renaissance. After the break-up of the Soviet Union, instead of democracy, economic power brokers developed (with Putin at the top of that tree).

While we understandably focus on military and security threats posed by those like ISIS, the world has been moving on – with economic growth at the centre (softer power).

However, instead of the west’s domination, there are now various centres of economic power – such as China, India and Brazil – which are breaking down long-established norms.

These norms (such as the desire by Western nations to link good governance with economic aid) are under real threat as newly enriched nations like China care less about the good governance of its supply and customer base outside China than it does internally and less than the stated aims of the earlier economic hegemonies.

This compounds the pent-up pressure on the governments of the newly developing world that may be tired of the continuous pressure put on them to do more of what the west wants them to do – such as reduce corruption and improve good governance. This is not the reaction necessarily of their people (most are completely sick of the bribery and corruption that exists, often sick of the absence of real democracy and the absence of real representation) but in many parts of the world, the people do not have a say.

Also, populations are torn between a natural desire to see things properly run (good governance) and feeding their kids or having a roof over their heads. Elsewhere, like in Russia, the government has a rigid control over their people. The same is true in China.

Finally, nations are now (because of their own economic strength and because of alliances with those like China) less likely to fold against the old hegemonies of the USA and Europe.

For all these reasons, FIFA-world seems symbolic of the new world order that is taking place where an organisation that has been corrupt for so long is able to maintain good relationships with its supporters through its economic success and the ability to pass on that financial success to a range of nations and individuals – upon which it also survives. It pays to support Blatter – even if you are in receipt of dirty money.

Despite pressure from the west (notably the UK – via, mainly, its newspapers like the Sunday Times while government was just as mercantilist when London was in the running for the World Cup), FIFA refuses to change from the inside. As there is no ability to march into Switzerland and take over the company by force (the 19th Century ideal), the only method remaining is via international law as applied by the US Attorney General and the Swiss. It has taken 24 years to get to this stage.

What could we be learning from FIFA-world?

This microcosm represented by FIFA-world must have lessons for the new real world order but it is not easy to overcome the concern that fifty years of working towards better governance (e.g. where we have seen increases in the number of democracies throughout the world) is under threat.

The natural focus on material wealth as the highest priority for all nations and all people is understandable. Worldwide poverty indicators are reducing (even if mainly from Chinese economic success). As Maslow showed so clearly in the 1930’s, most people focus on material wealth creation well before there is a serious thought given to quality of life issues.

MAslow

This is clearly seen in practice as the world pursues economic gains even in those countries that are already wealthy. Even the safety and maintenance of nature and the environment becomes translated into a form of costed “natural capital” so that it can enter into our economic thinking. If it has no valuation methodology, then humans seem unable to evaluate it. If we can’t count it, we can’t imagine it, apparently.

This means that issues like corruption are treated as secondary to economic benefit or economic security in most nations. It is no longer just a case of saying “Corruption is bad, stop!” because the complexity of the each situation means that, in the short term, those who gain through corruption and / or being part of a corrupt environment do not visualise the problems quickly enough. Moral crusades are not high enough on Maslow’s hierarchy (which was developed for marketing purposes but serves as a useful tool elsewhere).

Even the use of legal sanction by the USA, while applauded by many in developed nations, is not so well received elsewhere. Blatter knows how to utilize this reaction by appealing to the sensitivities of nations that do well out of FIFA economically and see themselves (as nations and individuals) threatened economically by the ending of corruption. This is not much different from oil-rich nations like Angola preferring to sell to China than the west – because no-one in China is demanding good governance from Sonangol, the dos Santos-owned oil company. It is similar to tribal leaders in Afghanistan that react badly to the west’s demands for an end to corruption in that country.

Those legal sanctions operating in the West (through a range of anti-money laundering devices, FCPA, Bribery Act and the like) can have great power when used against corporations. They are now extra-territorial in scope and can remove any one nation’s or company’s ability to protect themselves from legal onslaught. However, in the UK, for example, implementation of laws such as the Bribery Act are completely under-resourced so reliance has been placed on the US to widen its military policing role to one of legal challenge – where an individual using US assets (banking, currency or legal) is liable.

Such legal sanction needs to be policed (a) by more than just the USA and (b) in a way that is not seen as hegemony by former military world powers.

The first requires resources and a willingness to attack the problem; the second is far more subtle – a need to assess how to convince the world that corruption is hugely damaging to economies, sectors or society and even security (as is seen in Nigeria, Iraq, Afghanistan and many others vulnerable nations where armed forces are depleted by funding being ransacked by a few elites) when the benefits are clearer than the problems.

As an article in today’s National Post in Canada shows so well, giving the World Cup to a country well down Transparency International’s Corruption Perception Indicator (CPI) is asking for trouble. Yet, not giving the World Cup to such nations (which are developing nations in need of such investment and focus) until they have cleaned up their act would be seen to be counter-productive – and construed as anti-poor. There is no support for such a move.

What needs to happen is that good governance is seen as a central tenet of major corporations and of governments (national and local) and, for this to happen, a huge and relentless shift needs to take place in the way the non-FIFA world works so that the real economic needs of people are met while the ugly needs of vested interests that stand to gain through corruption are not.

For corruption to be minimized should be seen as one of the world’s major aims – where we need nations to meaningfully sign up to this in the same way as we sign up to human rights as corruption erodes human rights as well as any impediment known to humankind.

FIFA-world is a microcosm of how the real world tolerates corruption and the 24-year corruption story in FIFA is by no means finished. We need to learn from that story not just to fix FIFA-world but to fix the way the world tolerates corruption.

Note: I am a Trustee of Transparency International – UK

Supporting entrepreneurs in developing nations

Top-down or bottom-up economics?

Sunday Times (6th October, 2013) reports:

 

“The London-listed miner founded by former England cricketer Phil Edmonds has won a breakthrough export licence in Guinea after appointing to its board a businessman with close ties to the president.”*

*Nb. refers to Sable Mining Africa – a British Virgin Islands incorporated, AIM-registered company

 

Market economics has achieved substantial results worldwide – mainly because of huge success in China (and, to an extent, India), the percentage of those deemed at the worst stage of poverty (those living on less than $1.25 per day) according to the World Bank has fallen dramatically in the last ten years, from over half in the developing world to 21%.

Despite this, around 1.2 billion people are still impacted by extreme poverty and many areas of the world remain blighted by lack of economic progress.

Forget GDP per capita numbers – it is irrelevant where all the proceeds go to 0.1% of the population. Equatorial Guinea has a per capita GDP of nearly $20,000 – yet, the vast majority of the population live in conditions of extreme poverty.

In post-conflict states and many others where there is poor access to economic opportunities for the majority of the population, extreme poverty stubbornly persists. There are many reasons for economies to be mired in lack of progress. As Dani Rodrik states in his “The Globalization Paradox”, “the most pressing problem could be a shortage of finance; it could be government practices (such as high taxes or corruption) that depress private profits; it could be high inflation or public debt that increases risk; it could be learning spillovers associated with infant industries that prevent private entrepreneurs from reaping the full social value of investments.”

Macro, Top-down attempts at change

Normally, the response has been for nations to work to remedy this on a macro-economic basis by implementing major, nationwide changes – often hand-in-hand with the IMF or similar. Countries in Latin America were good examples of this in the 1980’s. This led countries like Argentina to see rapid growth through the dramatic reduction in capital controls, for example, and then to debilitating recessions. The WTO model – opening up to huge changes quickly through the freeing of capital and exchange controls – relies heavily on the nation’s capability for being up to the job – overnight. The problem is that the rapidity of the change is usually too much, too soon. It often leads to rapid increases in fund flows – maybe inward as the search for investment grows and maybe outward as the indigenous population (maybe the top 1%) find better investment opportunities elsewhere – and upheaval.

While it is important that positive (and well thought-through) macro-economic change happens, Rodrik shows how important it is for states to nurture their manufacturing, design, distribution and other industries. China is held up as a prime example of this. It did not join the WTO until its economy was healthy and competitive.  The same is true about Taiwan or South Korea.

Micro revitalisation– tunneling through the transaction costs

The problem in many countries is that while there may be an appetite for economic progress at government level (where an understanding of economics may be poor to non-existent and the “appetite” may be for quick profits, legally or corruptly gained), it is bound up with difficulties. These often include entrenched positioning of those in power –  an elite that has vested interests in the status quo. This is clearly seen in resource-rich countries – where small elite groups manage to take over the profits of a country’s natural resources and the mass of the population sees no economic improvement. Countries like Angola have gone way beyond corruption – the dos Santos family now owns the country’s natural resources and the companies (like Sonangol) which manage their energy wealth; or in the Democratic Republic of the Congo – see Dan Snow Wednesday 9pm BBC2; or government and business collusion (such as alleged in the Sunday Times article mentioned at the start of this post. Guinea has just has just had elections – and is a country rife with corruption as noted recently by the Economist.

Of course, some wealth filters down into the wider country, but only so that the elite (and those associated with them) becomes fatter. This remains a tiny proportion of society.

In such countries, there remains a massive desire for economic advancement through their own efforts amongst the people despite all the problems put in their way.

Organisations like the World Bank, GEM, GEDI and others are researching, for example, these obstacles to entrepreneurship and economic advancement worldwide. All show the huge desire of people to fend for themselves and not to rely on handouts from top-down aid.

GEM (Global Entrepreneurship Monitor – http://www.gemconsortium.org/) produces an annual assessment of global entrepreneurship activity; GEDI (The Global Entrepreneurship and Development Institute) also ranks countries by their ability to be entrepreneurial and works on a macro basis to provide ideas on improving economic performance. GEDI works with large multi-nationals and claims that:

“Entrepreneurship-focused support not only improves the business environment, creating economic value, it kicks off virtuous cycles that create waves of social value.”

The World Bank itself produces rankings in its global “Doing Business” listings. Along with such as Transparency International’s Corruption Perception Index and countless economists, it is a continuous process to develop new macro-economic methodologies.

Rodrik himself was asked by the South African Government in 2007 to address the problem of unemployment and developed significant opportunities for real improvements in “social value” – which benefits the many not the few.

In many countries, though, macroeconomic policies do not work. William Easterly strongly makes the case that it is not the “planners” (with their top-down policies) that work for poor nations but the “searchers” – those providing bottom-up opportunities. Indeed, the annual studies show that entrepreneurialism is higher in poor countries than the rich ones. This is partly due to less opportunity to find employment but is also down to the natural and instinctive ability of humans to fend for themselves exists throughout, when the incentives are apparent and not made impossible.

Micro-economic incentives and opportunity provision are always required. These incentives may be financial or they may be educational or they may be motivational. They may be needed to provide networks and distribution facilities. There may be the need for leadership skills training or the development of manufacturing or design skills. Each nation or region or even city may well be different.

If the natural tendency to trade (so common in all countries) is allied to the skills and abilities needed to create, develop and manufacture together with some motivation and belief in the future, then real progress can be made – allied to the profit motive that underpins the market economy.

Fighting through the mayhem

The big question is how? There are a number of ways to do this – but, all rely on somehow creating the entrepreneurial business ethic and safe passage through the morass of so-called “transaction costs” which are often traumatic in countries where wealth is uneven or normally unobtainable. It also requires the desire to build an economy that is wider than an elite – where trading does not just enrich a tiny bunch.

The transaction costs may be how long it takes to register a company or gain permission to sell products or find the training and skill-up or find staff or understand royalty and tax issues or accounting problems. It may be that there is rampant corruption that stifles progress or downright intimidation. It may be that women are not allowed to participate.

All these and many more factors are grouped together to dramatically hinder progress. To resolve them takes a bottom-up approach – which has to be allied to changes on a national / macro scale. These changes must focus on, for example, eradicating corruption, developing proper taxation systems, ensuring that tax is collected and used for public good.

The bottom-up approach can be successfully done by the hardest working acting on their own – and there, of course, are examples of businesses that progress despite all the problems thrown at them.

It may, though, be provided with external help – but, this is generally through business arrangements where companies operating from developed nations see opportunity – again, mining in Guinea is an example. This is often where natural resource recovery takes place – where the Chinese now dominate throughout Africa – but where the mass of local populations doesn’t benefit. This is the case for energy and other natural resources like wood and minerals or gold.

There is another way just beginning. This is where organisations from the economically developed world (some may be social enterprises, some may be charities) that have business ability and seek out those bursting to improve their economic lives that also show some capability. By analyzing the obstacles in their way and providing an “economic tunnel” through the mayhem – for example, through training, networking, distribution channels, financing, motivation, skill development – small pockets of entrepreneurialism can be assisted to grow.

This “micro-economic tunnel” will be different in each country or region or city, but there are already examples where social entrepreneurs are providing enablement into countries that face the harshest of obstacles – like Afghanistan. Recently, two, different examples have been shown in that country – both encouraging the development of inherent capability in different ways – one through perfume, one, Future Brilliance, through jewellery design and distribution into the global marketplace.

With examples provided on a daily basis that show how lack of economic opportunity provide incentives for corruption and even terrorism, more needs to be done at the micro-level where real people with real capability and drive can be provided with the tools and incentives to thrive and provide social value. The days of top-down aid and macro-focused solutions may not be at an end, but bottom-up opportunity is the lifeblood of a nation’s success and needs to be nurtured.

 

1.2bn people still attempt to live on less than $1.25 per day. 

 

“Entrepreneurship-focused support not only improves the business environment, creating economic value, it kicks off virtuous cycles that create waves of social value.”

Jeff Kaye is a Director of Future Brilliance http://www.futurebrilliance.net