Heritage: U.N. Review of Tech Transfers to Iran, North Korea Underscores Need for U.S. Action

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By Brett Schaefer

As reported by Fox News earlier this year, the World Intellectual Property Organization (WIPO) approved the transfer of computers and other equipment to Iran and North Korea—both of which are under sanction by the U.S. and the United Nations—without notifying WIPO member states or the U.N. sanctions committees.
In response, WIPO director general Francis Gurry announced that the organization would establish an “Independent External Review” to investigate and submit its report to WIPO. While director general Gurry clearly sought to minimize the potential for embarrassment by circumscribing the review through its “terms of reference,” the two individuals conducting the review (Stig Edqvist and John P. Barker) went well beyond this guidance. Their findings, published in a report this week, are damning:

• The report concludes that the transfers could have violated U.N. sanctions, depending on how the language adopted by the Security Council was interpreted. The final determination will be made by the U.N. Sanctions Committees.
• While noting that WIPO has implemented procedures as of May 1, 2012, to “require a review of programs for countries subject to UN sanctions,” the experts harshly criticized WIPO’s previous disregard for such procedures and saw “no justification for the previous lack of a policy to check Sanctions Committee Compliance on a systematic basis.”
• Moreover, the report states that much of the transferred equipment is subject to U.S. jurisdiction under U.S. Export Administration Regulations and would have triggered the need for an export license. As a result, the report unambiguously concludes that North Korea and Iran “could not have purchased much of this equipment directly from third-party vendors. These countries could only have gained access to the specific items delivered through an organization that invoked the privileges and immunities protections such as WIPO.”
• WIPO asserts that, as an international organization, it is not subject to national laws. However, the report observes, “Other international organizations have the same privileges and immunities, yet often will take into account national laws on technology transfers to sensitive countries, end-users, and end-uses out of respect for the views of their Member States.”

The experts were clearly astounded by WIPO’s actions:

[W]e simply cannot fathom how WIPO could have convinced itself that most Member States would support the delivery of equipment to countries whose behavior was so egregious it forces the international community to impose embargoes and where the deliveries, if initiated by the recipient countries, would violate a Member State’s laws.… The UN itself declared that Iran and [North Korea] should fall into a heightened category of diligence and review because of their threats to world peace and stability. WIPO, as a UN agency, shares the obligation to support the work of other UN bodies, including the Sanctions Committees.

Based on the review, WIPO’s actions are indefensible, and WIPO should be held accountable. To do this, the U.S. needs to make its own assessment of how these transfers were approved and who is responsible. According to House Committee on Foreign Affairs chairwoman Ileana Ros-Lehtinen (R–FL) and ranking member Howard Berman (D–CA), director general Gurry and WIPO legal counsel Edward Kwakwa have impeded congressional testimony by WIPO witnesses. The U.S. should insist that the witnesses requested by Congress be allowed to testify without restriction.
Moreover, the U.S. should not let stand WIPO’s assertion that U.S. sanctions can be ignored with impunity. The report correctly notes that only the U.S. can “make the determination of whether the UN privileges and immunities ultimately would exempt WIPO from enforcement of U.S. export control laws” and whether those immunities extend to third-party contractors.
A failure by the U.S. to vigorously insist that its export control laws apply to the U.N. and its contractors would, in effect, render them meaningless.

Posted in American Leadership

 

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U.S. Should Rein in Lavish U.N. Salaries

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By Brett Schaefer

The International Civil Service Commission (ICSC) is currently meeting to recommend changes to the salaries and benefits for more than 80,000 United Nations employees and 14 other organizations participating in the United Nations common system.[1] The ICSC calculates that U.N. employees in the professional and higher grades in New York earn a net remuneration (take-home salary) that averages 29.5 percent higher than that of equivalent U.S. civil servant grades in Washington, D.C. Moreover, U.N. employees enjoy benefits that in many cases exceed those of U.S. civil servants.

The financial implications of these lavish salaries and benefits are significant for the member states that pay for the budgets of these organizations, since the large majority of these budgets are dedicated to salaries and benefits. As the largest contributor to the U.N. system, the U.S. should work with the other member states to immediately freeze U.N. salaries until they are equivalent to that of the U.S. civil service.

U.N. Compensation


The U.N. is comprised of 193 member states and is specifically charged by the U.N. charter to give “paramount consideration” in hiring staff to “the highest standards of efficiency, competence and integrity” while giving due regard to “the importance of recruiting the staff on as wide a geographical basis as possible.” This presented a challenge to the U.N. when it was founded, because compensation varies greatly between member states.

When the U.N.’s predecessor, the League of Nations, grappled with the issue, it established the Noblemaire Committee,[2] named after its chair, which recommended the adoption of a compensation system equal to that of the British Empire—the highest paid civil service in the world at the time—because “if lower salaries had been offered, it would be impossible to obtain the services of Britishers of the required standing.… On the other hand, it would be difficult…to pay lower salaries for the same work to members of other nationalities.”[3]

This practice, known as the Noblemaire principle, was inherited by the U.N. and requires professional staff salaries to be determined by comparison to those of the civil service of the member state with the highest civil service pay levels. Since the U.N. was founded, this has been the U.S.

Complicating matters is that U.N. professional categories do not line up with U.S. civil service grades. The ICSC calculates equivalencies between the two as a basis for determining compensation—a process that inevitably involves subjective judgment. The ICSC itself reports that U.N. compensation significantly exceeds that of the U.S. equivalent. Specifically, the seven U.N. professional categories in New York receive net remuneration[4] between 27.7 percent and 40.4 percent higher than the net remuneration of U.S. federal employees based in Washington, D.C.[5]

On average, weighting for the number of U.N. employees in each category, U.N. net remuneration is 29.5 percent higher than that of their U.S. equivalent. The most numerous U.N. professional grade (called “P-4”) earned an average take-home salary in 2011 of $133,225, versus $104,353 for the U.S. equivalent.[6]
The ICSC calculates the cost-of-living differential between Washington and New York to be 12.7 percent. After applying this adjustment and weighting for the number of U.N. employees in each category, the ICSC calculates that U.N. net remuneration is 14.9 percent higher than the U.S.
equivalent. However, the U.S. Office of Personnel Management calculates the locality pay differential in New York as only 3.6 percent. Using this 3.6 percent differential reveals that net remuneration for U.N. staff in New York is actually 25 percent higher than the U.S. equivalent even after adjusting for location.

Additionally, the U.N. applies the Noblemaire principle selectively to benefit U.N. staff. While the U.S. instituted a pay freeze for federal workers in 2011 and 2012, the U.N. approved a salary increase of nearly 3 percent last year.[7]

U.N. Benefits


The U.N. asserts that the pay discrepancy is necessary in order to compensate for “specific elements relating to expatriate service.”[8] But it is unclear why a premium above U.S. civil service salaries, the highest of any member state, is required. Indeed, U.N. net remuneration does not include the additional, incredibly generous benefits and allowances enjoyed by U.N. staff—many of which are specifically targeted to alleviate the challenges of expatriate service including:[9]

• A rental subsidy of up to 80 percent of rent above a specified threshold.
• Higher salaries and allowances for U.N. employees with dependents.
• A dependant child allowance (under 18 or under 21 if attending school full-time) of $2,929, a secondary dependant allowance (sibling or parent) of $1,025, and enhanced allowances for disabled dependants.
• Education grants for staff serving outside their home country amounting to 75 percent of tuition, up to $32,255 per annum, payable through the fourth year of college up to the age of 25, and up to 100 percent reimbursement for boarding school for primary and secondary students.
• Travel expenses relating to the initial appointment, change of duty stations, family visitation separation of service, and home leave travel. Staff posted outside their home country are provided with paid travel to their home countries for themselves and their families biennially.
• A daily subsistence allowance during business travel and a half-rate daily subsistence allowance for traveling family members.
• Hardship and danger allowances for duty stations with difficult living conditions that can reach thousands of dollars each month.
• A mobility allowance when moved between duty stations, and paid expenses for shipping household goods and, in some cases, partial payment for shipping automobiles.
• Annual vacation of 30 days, 10 official holidays, 16 weeks of paid maternity leave, and four to eight weeks of paid paternity leave.

Many of these benefits exceed those provided by the U.S. federal government—in some cases, significantly. The extent of U.N. compensation is further illustrated by studies indicating that U.S. federal employees on average earn significantly more in salary and benefits than equivalently skilled U.S. private-sector workers.[10]

The Need to Rein in U.N. Compensation


Under the Noblemaire principle, the U.N. is supposed to base its compensation on that of the U.S. civil service. In reality, the U.N. provides more lavish salaries and benefits than those of equivalent American civil servants. This discrepancy poses significant, unjustified costs on member states, especially the U.S., which is the largest contributor to the U.N. system, providing $7.7 billion in FY 2010.[11] Personnel costs comprise 74 percent of the U.N. regular budget according to the U.S. Mission[12] and the budgets of most other U.N. organizations are similarly structured. To address this critical budgetary issue, the U.S. should:

• Demand an immediate pay freeze until U.N. net remuneration matches that of the U.S. civil service;
• Urge the General Assembly to instruct the ICSC to use the U.S. Office of Personnel Management locality pay adjustment for New York rather than its own cost-of-living calculations; and
• Have the U.S. Office of Personnel Management, the Congressional Budget Office, or the Government Accountability Office periodically conduct its own comparative analysis of U.N. compensation versus that for U.S. federal workers, including establishing its own equivalencies and comparing total compensation combining salaries and benefits, as independent verification of the ICSC calculations.

Austerity at the U.N.


Fiscal prudence is always sound policy, but it is especially urgent in this era of tight budgets and financial crisis. Governments around the world have to implement austerity measures to meet budgetary necessity. As a composite of the world’s nations, the U.N. should not be insulated from this reality.

Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in the Margaret Thatcher Center for Freedom, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation. 


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U.S. Should Hold WIPO Accountable and Dissuade Future Violations of U.N. Sanctions

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By Brett Schaefer
July 9, 2012

It is becoming increasingly clear that the World Intellectual Property Organization (WIPO) has transferred technology to North Korea and Iran that are prohibited by United Nations Security Council sanctions and U.S. law. These violations have spurred a State Department investigation and were raised at a House of Representatives Judiciary Committee hearing on June 27. The U.S. should hold the leadership at WIPO accountable and prevent repetition at WIPO or any other U.N. organization.

WIPO’s Mission

WIPO is a U.N. specialized agency with 185 member states focused on establishing international standards for protecting and facilitating access to intellectual property. WIPO administers 24 treaties establishing standards for patent, copyright, and trademark matters. The U.S. rightly supports most, if not all, of these treaties and efforts that strengthen protections for the intellectual property of American companies and citizens.

WIPO has been charged by its member states with providing developing countries with technical assistance, technology transfer, and policy advice. Broadly speaking, this effort is targeted at improving developing country adherence to legal norms and obligations embedded in WIPO-administered agreements on intellectual property, enhancing domestic governance and law enforcement for intellectual property, providing appropriate access to intellectual property, and implementing policies to bolster opportunities for their citizens to register and benefit from their intellectual property.

WIPO, North Korea, and Iran

Both Iran and North Korea are members of WIPO and are among the developing countries targeted by WIPO under the organization’s development agenda. These interactions are sensitive because Iran and North Korea are subject to significant sanctions enacted by the U.N. Security Council—which are binding on all U.N. member states and all U.N. organizations, including WIPO—barring sale, transfer, or other provision of equipment or material that could be used to advance their nuclear or ballistic missile programs.[1] Nonetheless, WIPO has conducted 48 specific technical assistance programs for Iran and 16 for North Korea.[2]

In April 2012, Fox News reported that WIPO (with Chinese cooperation) had shipped “computers and sophisticated computer servers to the government of North Korea” in a manner designed to “bypass safeguards specifically created by U.N. authorities to prevent a repeat of previous U.N. scandals involving shipments to North Korea.”[3]

The purpose of the computers was reportedly to allow North Korea to set up a modern patent office and allow it to more easily access WIPO’s database of more than 2 million patents. The transfer of the computers and equipment was approved and completed by WIPO in November 2011.

WIPO member states reportedly learned of the North Korean transfer only after the fact. Bank of America and the U.S. Office of Foreign Assets Control blocked the payment for the computers out of concern that it was in violation of U.S. law banning certain exports to North Korea. A letter from Moncef Kateb, president of the WIPO Staff Association, to the U.N. Joint Inspection Unit confirms that WIPO member states were kept in the dark:

Member States have not been consulted and have no knowledge of the project. Thus, they were not given an opportunity to review or object to it. The project was allegedly approved directly by the Director General.

The Staff Council is extremely concerned by the fact that WIPO staff may be implementing a project in violation of two UN Security Resolutions related to Sanctions against the DPRK and possibly in violation of staff’s own international obligations, and their national laws.[4]

The letter reportedly led to a direct meeting with Director General Francis Gurry by representatives from the U.S. and other countries. The U.S. State Department also initiated an investigation of the issue.

WIPO legal counsel Edward Kwakwa wrote a legal memo to Gurry stating that “WIPO, as an international organization, is not bound by the US national law in this matter.”[5] However, the computer manufacturer, Hewlett-Packard, is subject to U.S. law, and by transferring the computers to North Korea, WIPO is in violation of its contractual obligations.

Kwakwa repeatedly asserted that it is “unlikely” that U.N. sanctions “restrict the computer transfer” but never indicated that WIPO actually consulted the sanctions committee to determine this fact. Moreover, while the memo asserts that there is “no provision excluding general computer technology” in the sanctions, the analysis neglects to address the possibility that the computers could be prohibited as a dual-use item.

The U.S. has indicated that it is also investigating WIPO shipments of sensitive technologies to Iran, including 20 Hewlett-Packard computers.[6]

Victor Cormas, a member of the U.N. Panel of Experts assessing the Security Council sanctions on North Korea from 2009 to 2010, strongly criticized WIPO’s actions: “They are walking through the cracks and loopholes of the sanctions regulations. There should be some recognition that international organizations themselves are obliged to follow the rules.”[7]

Next Steps

Congress and the Administration are right to be concerned about alleged acts by WIPO to circumvent sanctions on North Korea and Iran. However, direct action against WIPO is likely to be ineffective. WIPO’s funding structure—which relies principally on private payments and fees for service from businesses rather than member state contributions (in 2011, the U.S. provided only $1.2 million to WIPO)—is unusual in the U.N. system and undermines the ability of the U.S. government to impose financial penalties and incentives on the organization. The U.S. could withdraw from WIPO,[8] but for the minimal cost of WIPO dues, it is better for the U.S. to retain the oversight privileges of membership.

Thus, the U.S. should exploit less direct steps to address the current situation and prevent repetition:

• The State Department should complete the independent investigation of all WIPO activities in countries under Security Council sanction, and Congress should hold a hearing on the report’s conclusions;
• The U.S. representative to WIPO should call for the immediate dismissal of Gurry and Kwakwa for failing to alert the member states about the Iranian and North Korean transfers, failing to alert the Security Council sanctions committees about the transfers, and facilitating WIPO’s violation of its contractual obligations with Hewlett-Packard;
• The U.S. should call on the Security Council to issue a statement reminding all U.N. specialized agencies, funds, programs and other bodies that they are bound by Security Council sanctions and that the sanctions committees must receive advance notice of any transfer of goods, equipment, technology, or individuals to sanctioned countries;
• The U.S. should also draft a Security Council resolution requiring complete and immediate cooperation and transparency by all U.N. organizations in investigations into alleged violations of Security Council sanctions;
• The U.S. should demand that the Secretary-General adopt a policy that U.N. immunity from domestic prosecution will be immediately waived when credible evidence is presented of U.N. staff violating or assisting in the violation of Security Council sanctions; and
• The U.S. should also explore the possibility of giving the Chief Executives Board for Coordination (CEB)—which is made up of the heads of all major U.N. funds, programs, and agencies under the chairmanship of the Secretary General—institutional responsibility for transmission of sanctions information to U.N. bodies and require that they report any and all contacts with sanctioned member states to the CEB, which, in addition to the U.N. organization, would be charged with alerting the Security Council of these activities.

Cause for Concern

The evidence indicates that WIPO transferred technology to North Korea and Iran that could be used by those regimes to advance their nuclear and missile programs. These actions may violate U.N. sanctions, and the U.S. is right to investigate these actions.

Regardless of the outcome, however, the leadership at WIPO has demonstrated grave lapses in judgment in failing to alert the member states and the sanctions committees of these transfers and should be held accountable.

Moreover, the U.S. should take steps to forestall similar incidents by WIPO or other U.N. organizations through the Security Council and urge changes in U.N. policy to enhance transparency and accountability.  

Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in the Margaret Thatcher Center for Freedom, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation.

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Helen Clark orders Frederick S. Tipson to attack Republicans and Heritage Foundation

UNDP-FOR-THE-RECORD

30 September 2010

A response to the Heritage Foundation

The Real UN Development System:
A Response to the Heritage Foundation

The United Nations needs all the constructive criticism it can get. As the Washington representative of the UN Development Programme, I can attest that those who work for UN agencies are more focused than anyone else on identifying our shortcomings and working for continuous improvement. So we welcome informed, fair criticism that highlights significant issues—especially when it includes realistic proposals for improving our performance.

The Heritage Foundation has produced constructive critiques of this kind over the years. Brett Schaeffer’s ConUNdrum volume in 2009 contained a number of strong chapters that address key areas of the UN system where performance falls short. But the chapter by former U.S. Ambassador to ECOSOC, Terry Miller, on “The United Nations and Development” is of a different sort. Miller is an experienced former official who was once responsible for overseeing U.S. contributions to UN agencies. He is concerned about the proliferation of agencies and the inconsistencies of donors, and he seeks more accountability and transparency from all actors. His views warrant consideration. But his frustrations with perceived deficiencies in the “UN development system” in general, and UNDP in particular, do not add up to a cogent critique. His chapter is a rambling, dogmatic indictment of all aspects of development assistance, yet he offers only an odd assortment of half-baked ideas to fix the problems. Unfortunately, his chapter was given new life last week during the UN Millennium Summit as a Heritage Special Report (SR-86). Heritage added a further broadside at UN development assistance with a “WebMemo” (#3020) by James Roberts subtitled “Foreign Aid v. Economic Freedom.” Sifting through this barrage of criticism from Heritage, I would like to address three of their major points: reporting results, promoting capitalism, and reforming the system.

Over-Promising and Under-Delivering Results. Miller starts his chapter by mocking the annual reports of UNDP as “filled with beautiful pictures of happy and prosperous people…touting the UN agency’s positive role in their lives.” He takes UNDP to task for a lack of rigorous analysis to explain the linkage between agency programs and the “developmental results” that would justify these smiling faces. He contrasts the “rationalists” (including himself) with the “emotionalists” (UN agencies).

Leaving aside his cynical tone, Miller makes a fair point in challenging development agencies to better demonstrate the impact of their programs, not just to sum up intentions and expenditures. Indeed, as he indicates, measuring results and determining “what works” is the perennial challenge of all development agencies—particularly in terms of the size, significance and sustainability of results. Donors constantly press for cost/benefit justifications for programs so that they can best judge the relative value of their contributions—among types of programs, across sectors of an economy, or even among countries and regions—the “opportunity costs” of one choice or another, as Miller puts it. Unfortunately, Miller appears either stuck in the past or is just plain uninformed. Over the past few years, UNDP has placed strong emphasis on improving the methods and discipline we apply in assessing and documenting the impacts of our efforts. UNDP Country Offices report annual results at the “outcome” level and link inputs, outputs, outcomes and strategic goals, which are then integrated by headquarters into a global report. Comprehensive information about our programs and funding is also available on a country-by-country basis on the Web. Since Miller served in government, the organization has also strengthened its capabilities for independent audits and program evaluations, in close consultation with the U.S. State Department and other major donors regarding both functions. Each of these steps has been noted favorably by these officials and by other independent analysts.

However, the demand for precision in gauging impacts can also drive agencies toward false choices between what can be measured and what actually contributes to human and institutional development in an actual location over time. Improving the conditions of life for a brief period is not the same outcome as assisting in the development of capacities and skills in people and organizations that result in sustainable capabilities and lasting change. Conveying the latter impacts is often better accomplished with illustrative accounts of individual achievements or summaries that capture the nature of progress of this kind. The building of political stability, administrative effectiveness or competitive efficiency is notoriously difficult to measure in a reliable manner, even though these capabilities can be the most important and lasting contributions to a country’s development. Miller himself acknowledges that: “development effects, positive or negative, are difficult to isolate in complex systems in which many inputs and factors combine to produce a result.” Precisely. Which is why experience and judgment based on local understanding and long-term presence are so valuable in organizations such as UNDP or USAID. Resisting the temptation to over-promise change and over-hype impact to impress donors and local officials is a necessary attribute of development professionals.

Ironically, the pitfalls of excessive claims about development impacts are best illustrated by the some of the recent critics of development assistance, who exaggerate the negative consequences of “foreign aid.” A case in point is the Heritage “WebMemo” cited above. James Roberts argues that development assistance (“foreign aid”) promotes corruption, does not foster growth, and does little to create positive change, whether economic competition or democratic governance. He takes the twelve African nations with the largest share of GDP deriving from foreign assistance and correlates that assistance with low levels of economic freedom and high levels of corruption--concluding that aid perpetuates rather than improves both conditions. In so doing, he asserts a direct causal relationship between these evils and the levels of outside assistance that is every bit as exaggerated and misleading as any of the positive claims he and Miller ascribe to aid agencies. Gross correlations such as these ignore the structural and cultural features that result in corrupt behaviors and undeveloped economies, and which outside assistance (technical as well as financial) is often seeking to change or overcome, not reinforce or reward. Such factors as weak governance, gross economic inequalities, criminal syndicates, and external diplomatic agendas have far more to do with encouraging corruption than official development assistance—particularly in the modest amounts and targeted focus of UNDP’s programs. To be sure, history is full of examples where funds ostensibly given for “development” of a country were provided in the wrong ways to the wrong people—indeed, during the Cold War, aid was intended as much to win loyalty as to promote development—but this is not a valid criticism of multilateral assistance in 2010.

And it is also a misleading conclusion to draw about all the countries on Roberts’ list. Half of them have been plagued by, or are still recovering from, crippling conflicts: Guinea Bissau, Mozambique, Mauretania, Burundi, Rwanda, and Sierra Leone. Some have strong governments, others very weak or fragile ones. Some have economies distorted by oil revenues or impacted by climate changes which make balanced growth far more difficult; others are so poor and politically stressed that both insiders and outsiders are more preoccupied with the prevention of civil violence than the nurturing of entrepreneurs. Even so, if growth is his test of success, the recent growth rates of most of these countries look remarkably good (between 3% and 11% over the last few years), despite global economic conditions. Yet the reasons for these successes vary significantly, from strong centralized management (Rwanda), to reasonable democratic stability (Mozambique) to large and growing oil revenues (Guinea Bissau). Or they simply reflect a very low GDP at the start of the measured time frame or a high level of outside assistance in the short-term. The important point is that it is necessary to understand the particular history and features that account for the differences among them—differences that also indicate the best opportunities for progress as well. Misinformed diagnoses from 60,000 feet (or 3,000 miles away) are largely useless or even counter-productive.

Of course development agencies need improved methods for conveying the impact of their work. Miller is apparently not persuaded by the value of pictures or human stories in doing so. But to suggest, as he does, that this is all UNDP’s reports consist of, or that it is not possible to find out where its funds go or what kinds of impacts they have, is simply not fair. Perhaps the best observation is one made recently by the head of USAID under President George W. Bush, Andrew Natsios, who argues that development efforts are plagued by demands for false precision and short-term impacts. As he puts it: “those development programs that are most precisely and easily measured are the least transformational, and those programs that are most transformational are the least measurable.”

“Socialist Leanings (or socialist/Marxist fantasies).” Miller repeatedly suggests that UN agencies have an institutional bias against “capitalism” and a “sixty-year fascination with socialism” that impedes economic growth and stifles entrepreneurs. He says that UNDP and other UN agencies have a “state-centric” philosophy and believe that “the state has a primary role in promoting or directing development.” The United Nations, he argues, “eschews the proven development strategies of classic liberal economics for aid-focused plans that almost certainly do more harm than good because they emphasize and enhance the role of government and central planning.” He then goes on to advocate the importance of private property and the rule of law as essential underpinnings of economic growth.

Apparently as a State Department official in 2002, Miller had at least one bad experience trying to lecture a large diplomatic gathering on the virtues of capitalism: “I spoke of the need for developing countries to embrace capitalism wholeheartedly,” only to find that “the room erupted in a clamor at my mere use of the word.” Or perhaps later, as Ambassador to ECOSOC, he had to spend too many hours in large UN conference rooms listening to diplomats with no involvement in development criticize developed countries for their pre-occupation with private property and capital investment. Again Miller is misinformed or stuck in the past. Across the UN system there is now a clear appreciation that the business community has to be an essential partner in development. Miller should spend more time talking to UNDP Country Directors or Resident Representatives of the UN about their efforts to foster the enabling environments that make private sector development flourish. And with the exception of the small, but strategically-leveraged UN Capital Development Fund, Miller seems unaware of the significant efforts made by UNDP to foster foreign investment and private sector development. This emphasis is best captured in the reports on two widely-acclaimed initiatives: “Growing Sustainable Business” (focused on large corporate initiatives) and “Growing Inclusive Markets” (focused on local private sector development). What these reports record is a multiplicity of initiatives at the country level to promote private sector activity that generates jobs and growth. As for property and legal rights, he might consult the initiatives captured in the report on “Legal Empowerment of the Poor,” produced by a panel co-chaired by Hernando de Soto, the advocate for property rights and the rule of law whom Miller greatly admires.

Even more importantly, Miller greatly oversimplifies the issues relating to economic freedom and “capitalism,” and consequently misconstrues the vital relationship between effective governance and private sector development. Capitalism is not simply an economic choice that officials or citizens adopt like a breakfast cereal. It is a political-economic system which depends for its flourishing on the protection and regulation of governments, and it takes effective political development to accomplish this. As Miller himself notes, markets need political/legal infrastructure: property rights, contract enforcement, courts to resolve disputes—all government-based institutions that most developing countries need more of, not less. How does Miller suppose that such “capitalism” can be fostered and protected, if not by government institutions? If programs for political development are too “state-centric” for him, then so be it. But countries will not have capitalism without effective governments.

To be sure, many kinds of government intervention--running large businesses, setting prices, picking winners and losers, awarding licenses to cronies or bribe-payers--is bad governance, and it is important to recognize the difference and the various types of capitalism that result from these different behaviors. That is the point of a recent study by William Baumol and his colleagues titled Good Capitalism, Bad Capitalism, which posits four different types of capitalist political-economic systems: State-guided, Big Firm, Oligarchic, and Entrepreneurial—the latter being the most productive and innovative. Unfortunately, many countries (both developing and developed) have one of the other kinds—and seem to prefer them--so to transition economies toward the more open and entrepreneurial varieties is a political challenge—not just an economic or philosophical choice--of the first order.

When capitalism functions effectively—markets are efficient and transparent, investment flows to those who can apply it most productively, growth is even and well-distributed—it is a marvel of human ingenuity. But this achievement takes a balance of entrepreneurs, enterprises, legal institutions, regulatory overseers, and effective law-makers. When that balance is out of whack, capitalism can produce bubbles, swings in investment, insufficient tax revenues, fraud and graft that results in horrendous dislocation and real human suffering. If Miller thought “capitalism” in the abstract was a hard sell in large international gatherings in 2002, just imagine the response he would get following the recent global financial crisis and the imbalances and hardship it has caused.

“A U.N. development system that functions like a giant bazaar.” Finally, Miller is dead set against efforts to improve the effectiveness of multilateral agencies and the UN system as a whole. He suggests that the multilateral development system needs more competition, not more consolidation and coherence, because that would only make it more appealing to donors and perpetuate the shortcomings and dysfunctions he ascribes to the agencies involved.

Here again, Miller is way off the mark. What the world needs now is a lot more collaboration and specialization, not less. The pattern of development assistance in many countries is a confusing patchwork of bilateral aid agencies, IGOs, NGOs, IFIs, Foundations, and Corporate philanthropies who often resist coordination, even by the host governments themselves (who, when all is said and done, provide the lion’s share of money and effort on their own behalf.) Donors and host governments have repeatedly sought to address these issues through a set of agreements on “aid effectiveness” which move collaboration in the right direction. But more initiatives of this kind are called for. The UN system is actually one of the better performing actors in this regard, working through a system of Resident Representatives and Country Teams to promote in more-and-more countries a “Delivering as One” approach by multilateral agencies. Yet this is a long way from the kind of centralized, lock-step control that Miller seems to fear—a prospect that is so far from reality it is pointless to worry over.

I conclude where I started. UN agencies and development programs need strong oversight and informed criticism. The Heritage Foundation has sometimes played this role and should continue to try to do so. But its recent papers on the UN development system, timed for the Millennium Summit, fall well short of that standard.

Frederick S. Tipson
Director, Washington Liaison Office
U.N. Development Programme