Examination of Witnesses (Questions 180
WEDNESDAY 6 MARCH 2002
MP, MR ANDREW
180. Do you think there is a danger that a global
summit which is perceived to concentrate mainly on poverty eradication
will be seen by UK citizens as broadly very worthy, but really
nothing that is particularly relevant to them?
(Clare Short) No. We are also trying to do more work
with education of the public generally about development. If rich
countries, the OECD countries, do not take this more seriously,
the world is at a turning point, and either we could have a period
of enormous advance in the globalising world, if the technology,
the capital and the knowledge available is really applied across
the planet, and give a lift-up to the poor of the world. If we
do not, and the world is more and more bitterly divided and environmentally
eroded, we will have all sorts of bitterness and division. This
is in the selfish interests of UK citizens; it is not just morally
right. We are testing opinion regularly, public opinion and young
people's opinion. They show enormously high commitment to development.
It comes in at 70 per cent. The levels of poverty in the world
are the biggest moral issue facing the world. Then when people
are asked what they can do about it, they have very limited sense
of what to do, and they end up saying, "I should give some
money to a charity." People have the intelligence to realise
that this matters for their own security as well as mattering
morally, and we need to deepen for them the sense of what can
be done that will make the future of the world safer. I think
that is where British public opinion is.
181. I am not wearing my Nike trainers this
morning, but from what you were saying earlier, you were arguing
the case that economic development is very important to a number
of these countries, even though you realise there is some kind
of tension between that and sustainable development. In a nutshell,
is it fair to say that you could summarise your case as "Trade,
(Clare Short) No. Fair and equitable rules of trade,
and more and better aid to build up the capacity of developing
countries to grow their own economies and to provide services
for their people.
182. On that subject of building up third world
economies, can we go on to discuss the Commonwealth Development
Corporation (CDC). There has obviously been a great deal of concern
and growing unease that has particularly found expression in the
media recently about the fact that the CDC appears to be diverting
from its founding principles. I have had experience in the venture
capital world before coming into parliament, and I have seen,
certainly in our economy, the great benefits which venture capital
can bring. But VC, like all capital, is amoral, and I really cannot
understand how internal rates of return of 25-30 per cent are
compatible with investments in third world projects which have
at their heart a determination to promote social justice and sustainable
development. Some of the examples we have seen quoted in the newspapers
recently have quoted Guy Scott, a former agricultural minister
in Zambia, saying, "Anything that works in this country is
a result of CDC investment. For the CDC to be pulling out of this
sector in search of short-term returns means the end of British
foreign aid." As I understand it, CDC has sought to rid itself
of long-term agricultural investments, which only have a rate
of return of 6-8 per cent, as you might imagine. Can I ask you
therefore what is happening with CDC? How can we reconcile an
IRR of 25-30 per cent with its founding principles, and what environmental
governance and sustainable development governance is actually
in place to ensure that the investments that it is making do promote
(Clare Short) I do not know whether you were in the
House at the time, but we took through Parliament a Bill, which
was very thoroughly discussed and supported by all parties, which
committed us to restructure CDC, keeping its development objectives
absolutely central, both in terms of the countries in which it
invests and a very strong ethical code on environment, social,
labour and the rest, but to try to get more private sector investment
in partnering CDC into developing countries where the private
sector tends not to go. That is the whole purpose, and we sought,
and it was scrutinised, parliamentary approval, and all parties
supported it. There is a disgruntled group of former employers
who have generated two stories in the media. One ridiculous front
page series in The Timesshock, horrorrevealing
that the Government is doing what it got the permission of Parliament
in thoroughly scrutinised legislation to do. Obviously, the journalist
concerned thought he had got a secret story but did not bother
to scrutinise the parliamentary record. So we are absolutely committed
to creating a partnership between CDC and the private sector to
get more investment into developing countries under a very stringent
ethical code. I absolutely still believe that this is the right
thing to do. In order to do that and in order to get the long-term
investment, CDC is moving more to equities, which, as you will
know, means more engagement with management, and a lot of these
countries need better management capacity in their own private
sector. It means needing to get higher rates of return in order
that all of our pension funds and all the rest will follow and
be willing to go to these kinds of countries. Some of the old-fashioned,
low rate of return agricultural investments have been sold on
to local owners, not closed down, and I think that is a perfectly
good thing to dothe CDC investing in something and then
selling it on and it is still working. That is what we are doing,
proudly. I think the dishonest attacks in The Times (and
there was a previous piece in The Economist) are grossly
mis-informed and are maligning the current management team who
are doing a great job. The international climate has not been
helpful for driving this forward post-September 11, and the rest,
but I absolutely believe in what we are trying to do and I believe
it will be successful. I think the CDC, instead of being government-funded,
small investment, low-rate of return, can-never-be-an-example-for-the-private-sector-to-follow,
can blaze a trail that will help to bring beneficial, large inner
amounts of investment from the private sector into the poorest
183. But the rate of return that you set is
absolutely critical. That is the big hurdle, is it not?
(Clare Short) No.
184. Secretary of State, it is.
(Clare Short) I am sorry, with great respect, I have
now got a time problem and I care about this enormously and I
do not want to avoid answering your questions.
185. Perhaps the way out of this
(Clare Short) It is not central to this Committee.
186. It is, actually.
(Clare Short) I am delighted to find a way of having
another discussion on where the CDC is
187. It is central to this Committee because
it is about the whole issue of development versus the environment,
which we are discussing.
(Clare Short) Nothing that has been said has been
anything to do with the environment, it is whether the CDC should
restructure in order to
188. It is part of that argument.
(Clare Short) No, nothing that has been said has touched
on the environment.
189. It is environmental governance and sustainable
development in conflict with a higher rate of IRR that is my premise.
Should we not be going in to support projects which ordinary capital
cannot support. Any capital that can get 25, 30 per cent rate
of return will go to those projects, but capital is amoral. What
I am concerned about is that the Government is sponsoring projects
which do not have regard to the environment or sustainable development
because they are simply doing a job that could be done elsewhere
in the city by any of the major VC firms, who look for equivalent
rates of return.
(Clare Short) No, absolutely wrong. I profoundly disagree.
I have said to you there is a very stringent code on environment
labour and ethics under which the CDC operates. Again, if you
are right, the world is in desperate trouble. If the private sector
cannot get the rate of return that will take our investments and
our pension funds to developing countries in responsible investments
that generate economic growth that are also responsible environmentally,
then the poorest countries are going to remain marginalised and
going to be more and more environmentally degraded and the world
is going to be more and more in bitter trouble. Happily, I think
you are wrong. If you are right in saying the private sector will
never go to these countries, then these countries have had it.
190. Secretary of State, that is not what I
am saying. I am saying that the CDC should be leading the way,
not operating on exactly the same rules for IRR that the private
(Clare Short) The CDC is leading the way. The other
thing is we did have very long debates in the House of Commons
on these questions. I do not know whether you have looked at the
Mr Barker: I think we are trying to probe what
actually happens in practice.
191. We had those debates two or three years
(Clare Short) What is happening is exactly what was
outlined would happen in those debates.
192. We are delighted to hear it.
(Clare Short) There are tough environmental considerations
and sustainability considerations, and I think this is another
myth. If anyone is seriously arguing you can only have beneficial
and environmentally responsible investment at very low rates of
return that the private sector will never engage in, and it will
only get the resources for those kinds of investments in poor
countries out of the public sector, then they are never going
to have clean water and sanitation. Half of humanity has no sanitation.
193. Secretary of State, we are running out
of time, but we appreciate that. I am glad we have had another
quarter of an hour to make up for the half-hour at the beginning.
I would be grateful if, in the light of Mr Barker's questions,
you could send us a short memorandum on this, simply because things
have moved on in the last two or three years and it may be working
out rather differently from what was intended by Parliament.
(Clare Short) It is moving well, and there is a group
of malign forces which is trying to distort what is happening.
They tended to work in the past in very low rate of return agriculture,
and they are misleading people about what is taking place.
194. Fine. If we could have a short memorandum
which we could incorporate into our review we would be delighted
to have it.
(Clare Short) I would be delighted.
195. Could that memorandum take into account
this article in The Times and put the record straight?
(Clare Short) We can enclose that.
Chairman: Thank you, Secretary of State. It
was a belated start but, nonetheless, we are delighted to have
had such an interesting session. Thank you very much indeed.