Back in 1982 Pfizer was on the verge of shutting down a research programme run by a chemist called Michael Bright. For eight years Bright and his team – along with a rival company – had been on the trail of an antibiotic that promised to cure diseases that no one had seen cured before. There had been successes along the way with a compound that Bright called CP62993. But now his team seemed to have hit a dead end.

Then Bright rushed into a meeting at the Pfizer labs in Groton, Connecticut. He was carrying test results so new that he had only had time to photocopy a few sheets. He laid the pages in front of our former senior scientist, John Niblack, and some others. There was a tense moment while everyone scanned them. Then Niblack looked up smiling.

“Isn’t this the most exciting thing we’ve ever seen?” he said.

The compound CP62993 was what became Zithromax, the antibiotic that cures staphylococcal infections, inner-ear conditions and many other diseases. It was a victory for science and for the ingenuity and tenacity of our scientists and those at our rival, the Yugoslav company Pliva.

It was also a victory for one other thing – intellectual property rights or patents. Patent protection is under attack these days, particularly in our industry. Although the US Congress is willing to extend protection for entertainment, there are those who want to cut it back for pharmaceuticals.

This attack is wholly misguided. Without the incentive of patents – which Abraham Lincoln said “added the fuel of interest to the fire of genius” – we would not have Zithromax or many of the drugs we use to fight tuberculosis, polio, depression, AIDS or the other scourges that rob human beings of life and good health.

Why is that? One reason is obvious: innovative people will work better if they are rewarded for their efforts. But when it comes to the pharmaceutical industry, there are other reasons.

First, discovering the drugs that are revolutionizing health care involves a long time and a lot of money. It commonly takes more than a decade and $800 million to turn a molecule into a pill that can be taken safely by a patient.

Second, even with that effort, the odds of success are long. As Bright puts it, finding the right compound is like “finding a needle in a Kansas cornfield”. We get one profitable drug out of every 5,000 to 10,000 compounds we test. On average, the proceeds from only about three in 10 drugs exceed R&D; costs. Who could afford this herculean effort without incentive?

R&D; investment in Mexico tripled after the introduction of full intellectual property protection in 1991. Economists have charted similar effects in South Korea, Japan and Italy. And we are just beginning to see the benefits to science and education in those countries.

Critics of intellectual property rights say high prices, caused by a 20-year patent monopoly, keep drugs from patients who need them, particularly in Africa. Those who argue this mean well, but do not know the facts. Patents in pharmaceutical research simply do not equal monopoly. There is too much competition.

In fact, drugs do not get 20-year protection. Because it takes such a long time after patents are granted before the drugs appear on a pharmacist’s shelf, it is more like 12 years. Sometimes, because regulatory reviews are so complex, and because of the lack of data protection in some countries, it is even less.

More important, while the AIDS epidemic in sub-Saharan Africa is a monumental human tragedy, the evidence shows that patents play little role in restricting access to AIDS drugs.

One detailed survey of company-held patents published in the Journal of the American Medical Association found that in most sub-Saharan countries patents on the key AIDS medications do not exist. It concluded that “patent protection laws are not a major barrier to treatment”.

I would go further. Far from being a barrier, patents are the springboard that has allowed us to leap over barriers. The world’s response to the most important health crisis of our time has been made possible by an extraordinary response from our industry.

Since 1981, when few scientists had even an inkling that this new epidemic had begun, researchers have developed 64 drugs to treat AIDS. Of these, 57 have come directly from the laboratories of our industry. We have 83 more drugs for AIDS in clinical trials. Our company has another drug that treats opportunistic infections striking AIDS victims. We are making it available free of charge to needy patients in several African countries and plan to extend this to the world’s 50 poorest countries. And we are by no means the only company with such a policy.

Africa, of course, is bedevilled by other terrible illnesses. If we are to meet these health scourges head-on, we cannot afford to snipe at each other. We must work in partnership.

One such partnership involves Zithromax, the drug that so elated Bright in 1982. The road to market was long, but in the end Pfizer developed the drug under licence from Pliva and eventually doctors could prescribe it.

And then, in addition to the uses we had predicted, Zithromax turned out to have another. A single dose can cure trachoma, the leading cause of blindness in the world and a devastating problem for Africa.

That was certainly true in Morocco. Health officials there had struggled for decades to eradicate the disease but nothing worked. Then, two years ago, we began donating Zithromax to Morocco. Now, 2 million doses later, the results are in. We have cut trachoma there by 75%. And we are cutting infection rates in other African countries, too.

That is why Edna Mukuta, a 37-year-old mother of three, turned up at a treatment centre in the Dodoma region of Tanzania. She did not know what trachoma was, or what caused it.

“We were just told the medicine is good, so we came to get it,” she said, taking the single dose of Zithromax that would cure her.

The medicine is good. As a young Pfizer employee, I remember hearing about the painstaking, elegant manipulation of molecules that Mike Bright and his team went through. I wish I had the space here to detail the exciting story of how they brought that compound from test tube to animals and then to human beings.

“But these miracle drugs wouldn’t exist if we didn’t have the investment,” says Bright.

While there are those who argue that we put “patent rights” before “patient rights”, the truth is that patent rights are precisely what give patients hope. We need to defend the patents on drugs, not discourage them. For there are too many promising avenues to explore.

Do we want a cure for AIDS? We are seeking one. Do we want a cure for the common cold? A promising medicine is being tested now. Do we want to beat antibiotic resistance? Researchers are working on a derivative of macrolides – like Zithromax – called ketolides, that could deliver. Do we want to find a vaccine against CMV, the herpes virus that is the leading infectious cause of birth defects in the US? Or one for cervical cancer? Both are in development. None of these innovations will succeed without the incentive made possible by patents.

It was more than 200 years ago that Thomas Jefferson, the third president of the US, faced a dilemma. He disliked monopoly but was an inventor himself.

His designs still exist for a new plough, a macaroni machine and the swivel chair. Jefferson knew that patents “encourage men to pursue ideas which may produce utility”.

The brilliant idea that he and his successor as president, James Madison, came up with was to reject the British models of monopoly (granted at the king’s discretion) and issue limited protection. This concept, in itself an invention, has fostered so many others.

Since knowledge is available to anyone who can read the research filed with a patent application, the spread of knowledge is facilitated. It is thus a reflection of everything Jefferson had hoped for from a democratic society – openness, transparency, competition and benefit to the citizenry.

It is simply the best way we know of encouraging good ideas. Like the idea that Mike Bright had in Groton, Connecticut.

The idea he called CP62993 was made possible by Jefferson’s idea. And it has made life possible for millions.

The global business community must fight to preserve this concept, which has fuelled such massive economic and social development in the US. We must encourage its adoption throughout the world so that other countries can enjoy the same benefits.

Only if we do that will it remain possible for scientists of the future to have moments when they look at the data, see the possibilities stretching before them and exclaim, as John Niblack did 20 years ago, “isn’t this the most exciting thing we’ve ever seen?”

Dr Henry McKinnell, Jr
Dr Henry McKinnell, Jr is chairman and CEO of Pfizer Inc.

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At the end of his magnificent and disturbing novel The Plague, Albert Camus issues a warning. His hero, the famous humanist Dr Rieux, who survived the death of many of his friends and adversaries is now, at the very end of his story, walking in the city, remembering and listening to the cries of joy rising from the town. All of a sudden, says Camus, Rieux remembered:

“That such joy is always imperilled. He knew what those jubilant crowds did not know, but could have learned from books, that the plague bacillus never dies or disappears for good. That it can lie dormant for years and years in furniture and linen chests, that it bides its time in bedrooms, cellars, trunks and bookshelves and that perhaps the day would come when for the bane and the enlightening of man it would rouse up its rats again and send them forth to die in a happy city.” And that is also true of anti-Semitism.

Who doesn’t know, if he or she has a sense of history, that anti-Semitism is a social disease and a theological aberration that all decent and intelligent societies are duty-bound to confront and eliminate?

I am convinced that we share the same concern over its possible impact on today’s generation.

What is it about anti-Semitism that it is still alive? Days come and go, cultures change – as do political systems – yet the hatred toward Jews remains almost intact. So we try to understand: why is the oldest collective hate-obsession in history still incurable and immune to change? What makes it so popular, so attractive, so seductive in so many circles?

May I confess to you that, in this respect, I was naïve? I allowed myself to believe in man’s capacity for reason and self-protection. Oh yes, in 1945, immediately after the defeat of Hitler’s Germany I became hopeful. I know: it sounds strange, even absurd. And unreal. If ever a Jew had all the motives in the world to submit to despair, it was then. Victims of hatred and indifference, 6 million men, women and children had been murdered only because they were Jewish. For them, being had become a crime punishable by death. The House of Israel was in mourning. Entire communities, some 2,000 years old, vanished in a tempest of fire. For the first time in our history, our dead were not buried in cemeteries. Our hearts were their cemeteries.

And yet.

Somehow, deep down in my wounded soul, I felt an absurd optimism. I said to myself: there are certain lessons the world has learned from what happened. Never again will big nations go to war to conquer and oppress small nations. Never again will children die of starvation and violence. Never again will racism dominate policy. Never again will political fanaticism be an accepted national philosophy. Never again will Jews have to fight anti-Semitism, for now the whole world knows its nefarious consequences.

That was my hope. Hence my question: if Auschwitz hasn’t cured mankind of anti-Semitism, what will?

Its history is old, almost ageless. It transcends both time and geography, religions and cultures, political theories and social spheres. From Egypt’s Pharaohs to Nabouchodnosor of Babylon to Torquemada in Spain to Hitler and Stalin, Jews lived in danger. In ancient Greece and Rome, Jews were accused by pagan historians, including the great Tacitus, of being implacable enemies of mankind. There wasn’t an era in which a Jewish community somewhere had not been persecuted, humiliated, expelled or driven to death.

The reasons invoked? Disregarding not only truth but also logic, they combined all possible contradictions. To some, we were too rich; to others, we were too poor. Too religious and not enough. Too Jewish and too assimilated. Too learned and too ignorant. Too nationalistic and too universalist. Both too rational and irrational, chosen by both God and Satan. To Hitler, we were all communists, and to Stalin, too anti-communist. They were mortal enemies – yet both hated Jews.

The anti-Semite is by definition ideologically fanatical and pathologically racist. In the beginning, for a while, people thought that suicide-terrorists are not so dangerous since their target is just Israel the State, or Israel the people. Now everybody realizes that suicide-terror is a threat to other people as well.

For such is the reality of hatred: it is like a cancer that goes from limb to limb, from person to person, from community to community. If not stopped, it could and would destroy villages and cities, both near and far.

That is why I believe that hatred of Jews must be denounced not only for our sake but also for the sake of others. As is the case with any organized prejudice and bigotry, it ultimately reflects on the nation in which it grows; it becomes its moral barometer. For history has taught us that he who hates, hates everybody. He who hates Jews will end up hating blacks, Hispanics, Muslims, homosexuals, Gypsies, Turks and Arabs, and ultimately himself.

The answer? Whatever it is, education is its major component. Is it sufficient? Haven’t we learned that many of the SS killers had college degrees? So I suggest we come back to the question I raised earlier: if Auschwitz did not put an end to anti-Semitism, racism and hatred – what can and what will?

Elie Wiesel
Elie Wiesel is a human rights activist and an author of the internationally acclaimed memoir Night as well as of more than 40 other books of fiction and non-fiction. His tireless efforts have been recognized by numerous awards including the Nobel Prize for Peace in 1986.

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We live in a world of risk. Everywhere risks are identified, analyzed and managed.

It is not that risk is bad, although one might assume so from much commentary and, certainly, from the rhetoric of many politicians and regulators. The word “risk” derives from the Italian risicare – to dare. And, just as an act of daring may be excitingly bold, risk comes from the uncertainty that makes the world interesting. After all, what chance would Autumn Pearl, my talented filly, have against the legions of racehorses fielded by Godolphin, without the uncertainty and the unpredictability of life? However, while risk makes the world interesting, it also creates winners and losers. So the focus on risk management is partly about ensuring we are the winners and partly about protecting the losers.

Government policies everywhere are heavily affected by the desire to influence who are the winners and losers. It has always been thus, but recently the focus on risk appears to have moved to a different level. For instance, much has been written about doctrine of pre-emption in the development, and justification, of US foreign policy. Very significant interventions have been predicated on eliminating unrealized risks. On a more mundane level, financial regulators have certainly moved the goalposts in terms of their expectations of risk management practices and procedures at financial services firms. Similarly, research analysts now spend time and effort considering the value at risk measures for the major firms active in the capital markets. Importantly, much of this analysis is intended to measure return against risk, and so the analysts tend to remember that risk is what makes the world go round.

A more dangerous world?
So the question arises: is the world today riskier than it was yesterday? This question is impossible to answer persuasively without much more definition. After all, different answers would be given by the same person depending on the point of comparison: riskier than when? I felt extremely vulnerable on the morning of September 11, 2001 as I walked up the West Side of Manhattan having watched a hijacked aircraft hitting the World Trade Center. But then how do we distinguish between the risk and the perception of risk? The world was just as risky on September 10 as on September 11, but I went about my business in New York in sublime ignorance of the unfolding events. For many policy-makers, the perception of risk is the greater reality, the more potent driver of behaviour and votes. Finally, measuring one world of risk is impossible. Which types of risk affecting which people and where in the world?

It’s a different kind of risk
Although the question may be unanswerable, it is arguable that the nature of risk in our world has changed, and some of this change arises from the impact of the revolution in information technology on our world of risk.

First and most obviously, we all know much more about the risks in the world, large and small. This is, in part, a result of more people knowing more, the mass of data at our fingertips and our reaching out to the world through the Internet. This is powerful in itself, but the revolution in information technology also embraces our enhanced ability to manipulate data. Desktop and distributed computing power democratizes scenario planning and enables us to imagine the worst by developing doomsday possibilities at a level of detail far beyond the imagination of historical Cassandras.

Second, this impact of information technology on risk shows us how interconnected the different risks are and tightens the connections by accelerating and correlating our behavioural responses. During my working life, there has been a very significant shift in how financial risk moves between asset classes and around the world. It is no longer good enough to buy on the rumour and sell on the news. You now need to anticipate the next rumour and watch carefully shifts between different asset classes as more and more investors chase new opportunities in pursuit of some non-correlated returns.

Third, the power of our new information technology raises expectations about our ability to manage risk, to position ourselves as winners in this world of uncertainty or to redirect our behaviour away from doomsday. Financial regulators certainly see new opportunities to avoid the failure of individual firms and to reduce systemic risk. Sometimes the possibilities seduce them into forgetting how risk and return are two sides of the same coin; how uncertainty makes life interesting.

The revolution in information technology has raised expectations in many areas, and not simply in terms of our expectations about our ability to manage risk. Critically, it has materially broadened the appreciation of inequalities of wealth and income in the world, and shown the poor how the rich live. It has also enabled the local terrorist to take a global stage. Individuals are more able to reach fellow sympathizers, to organize and communicate, as well as to attract worldwide attention to their demands as well as their sanctions.

The challenge of management
So many things have changed in our world of risk, especially with the dramatic changes in our information technology. But not all of our management mechanisms have stayed current with the technology. Indeed, much of the management of risk is restricted and separated from adjacent risks that we increasingly understand may break down the starting assumptions for complex models of specific types of risk. There are very significant variations between the electoral cycle of political success, and failure and the timescale of environmental risks. Similarly, we know that political geographic divisions are not respected by the major environmental risks to which we are exposed.

One consequence of risk management with a narrow focus is a tendency to redistribute risks from the core to the periphery or from the strong to the weak. For instance, in the capital markets, the extensive use of derivatives to hedge market positions moves exposures with sometimes limited transparency. It appeared that this had happened a year or two back in the transfer of corporate risk from the banks to insurance companies through the credit default swap market. Capital pressures emerged in the insurance sector following the decline in world equity markets as the Internet bubble collapsed. It seemed that these pressures were intensified by insurance companies’ participation in the credit derivative market. It is not that insurance companies are weak and banks are strong, but rather that banks are familiar with corporate risk. So, as financial regulators raise risk management standards among capital market firms, there is a real possibility that the risk moves in unexpected directions.

Our new information technology has changed our world of risk. It has magnified local risk and accelerated interconnections. It is both a catalyst for new uncertainties and critical to more sophisticated risk management techniques. However, we do not yet know how best to use this power to govern and manage our world of risk. Our best managers of risk are very specialist, but our world of risk is making connections across categories very quickly as human behaviour responds ever more rapidly to the burgeoning data about what might happen tomorrow. For the world to prosper, we must reach beyond our specialties and understand the connections between the worlds of risk in which we are engaged professionally and personally. We should connect the specialists and the narrow models, and seek to understand the whole.

Kevan Watts
Kevan Watts is chairman of Merrill Lynch International. Before joining Merrill Lynch, he was an official at HM Treasury, which he joined in 1974 from Oxford University. He is on the Development Committee of the National Gallery, London, and on the Advisory Board of Heart of the City.

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Open source software development is now a cultural as well as an economic phenomenon. Instead of the traditional model of software production, where companies hide the details of code for fear that their value will be eroded, open source software is generated by the collaboration of thousands of volunteers who agree to share the resulting product for free. The Internet has enabled these worldwide communities to work together creating, most famously, products such as Linux, an operating system so ubiquitous it runs a fifth of the world’s servers. So successful has the model been that the open source model of innovation is now being copied outside the information technology industry. Biotechnology researchers are working together voluntarily to advance genetic research.

Unconventional wisdom
Open source challenges all the received wisdom about innovation. Intellectual property law – such as copyright and patents – has grown up in order to safeguard the material rewards of invention and, by extension, to create incentives to further research. For this reason, some believe that open source simply cannot last. Indeed, the sustainability of open source as a tool of innovation is of interest to many parties: to collaborators, to potential users, and to those considering offering ancillary products and services. Most companies do not want to lock themselves into technologies or, even worse, a model of innovating that has no future.

It’s good to share
Innovation must benefit the innovator and the customer, and it must be institutionalized in order to survive. So what does open source do for its legion of voluntary collaborators? Well, for starters, many are simply not voluntary. According to one recent study, no less than 40% of contributors are paid to do so. This may be because companies find open source an efficient way to innovate. They do not have to “reinvent the wheel”. In traditional software development, there are many obstacles to the reuse of code, while our research shows that in some open source projects, for every new line of code a further 25,000 may be second-hand. Open source is a way of directly solving problems. It can be much cheaper than traditional models of innovation, and it is a flexible way of developing exactly what clients want. Some companies join in open source development because they get independence from big software companies and avoid large licence fees. But that still leaves the three-fifths of collaborators who seem to be doing it just for the love of it. For many, sharing advanced and effective solutions to technical problems gives them status in the community of software developers.

Consumer benefits
Most of the world’s biggest companies now use some form of open source software. They and other software customers choose their products based on a range of criteria, such as stable product supply, customer support and product quality. Some users reckon open source software is likely to be around longer than some software suppliers. When suppliers go out of business, users are left with a piece of code, and nobody to maintain it. Open source products rarely rely on the support of only one company. Rather, they rely on the continuous support of many software contributors and other users. Some open source software products have outlived generations of contributors, while others have not. What matters is the extent to which there is a general interest in the software offered. As software and hardware companies increase their commitment to open source, more and more customer services, including distribution and customization, consulting, education and training, are being offered to support existing products. However, as customers start to look for increasingly sophisticated solutions, they may need services in addition to those currently offered, such as additional software, financing of systems, hosting and application, opening up new business opportunities. Corporate customers are rightly sensitive about the quality of software products. The cost of a security breach, a server malfunction, or a database collapse is immense and can even undermine the company’s existence. Many that choose open source cite higher quality. How are these quality levels achieved? Open source software projects shift the balance of power back to users by securing quality through direct and immediate user feedback. This feedback is constant throughout the product’s life cycle. Open source is often thought to be anarchic, and to lack the processes typical in most software corporations. In fact, open source projects secure product quality through a regimented contributor talent selection and retention as rigorous as any company. In most open source software projects we have examined, only “core-developers” have the access to change any part of the software’s “official version”, while more peripheral contributors do the testing and inspection, and give user feedback. For example, in Freenet, a file-sharing software, just 1% of contributors did more than half of the development work. To become a “core-developer” contributors have to demonstrate considerable interest in and knowledge of the product as well as programming skills. Moreover, “core-developer” status is kept only by those who make significant and lasting contributions to the product.

Genius is doing it twice
Most companies strive to institutionalize good practices. Over the past four years, the open source movement has engaged in a day-to-day process of institutionalization that enhances its ability to sustain itself. It protects itself by securing public access to products; if appropriated by an individual or company, the underlying project may be jeopardized. Open source projects deploy various means of securing public access to products, including hosting projects on public infrastructures such as Sourceforge, and officially registering project names. Several projects have also set up project governing councils to oversee compliance with the licence, make critical decisions on software design, cooperate with firms or other institutions, manage the project’s image and so on. Many, such as the Apache web server project, have turned into professional institutions that coordinate the efforts of contributors and manage the strategic development of the product portfolio.

Enter the lawyers
While open source is doing well on these three criteria, there are some immediate legal challenges. The most worrying is the SCO case. SCO claims it owns rights to UNIX, an operating code, and that this has been copied by Linux. Whatever the merits of SCO’s case, the legal uncertainty has made some companies wary of using open source software in case they could be held liable for using proprietary software in combination with open source. And, whatever the outcome of the case, it is accepted that from now on open source distributors and integrators will have to verify the origin and intellectual property rights of the code within their products. Many companies and projects already employ methods to do this. Some projects require contributors to provide legal documentation proving ownership of the code they contribute and verify authenticity by using digital signatures. A second worry is that software patents are on the rise in the United States and are being considered in many other countries. In the mid-term, open source communities are concerned about how such patents could restrict the scope of innovation across their projects. Because many open source projects face a scarcity of resources, it is unlikely that they can fight out lengthy and costly legal battles on their own.

A middle way
Open source is unlikely to overtake the traditional software industry where innovators are able to appropriate the financial returns stemming from their products. But it would also be irrational to discard the opportunities offered by open source innovation. Due to the economics of software, companies should adopt what I call compound innovation – a strategy to initiate, participate in and develop open source software while protecting other products through patents and licences, thereby securing a revenue stream. Companies to watch include MySQL and Sleepycat which make databases and data management, or Trolltech, which produces tools for development and applications. These firms do not simply sell services to support “free” open source products but embrace a dual licensing model that allows for compound innovation. Dual licensing permits customers to use software at no charge under the condition that if they use the product in conjunction with an application they redistribute, the code must be made available and freely distributed. However, if a customer wants to use a product in conjunction with software it does not want to release to open source, then it must buy a commercial licence. The companies that use a dual licensing model stand behind their open source products with certified code, a plan for developing and testing the product, and various levels of indemnity that the vendor will defend the user in the event of an infringement lawsuit. It seems compound innovation may offer customers the best of both worlds – the freedom of open source along with the benefits of a commercially supported product. With compound innovation, both software companies and open source may thrive, as will their customers.

Georg von Krogh
Georg von Krogh is a professor of management at the University of St Gallen, Switzerland, and a director at the university’s Institute of Management. His work focuses on innovation and competitive strategy. He has published 17 books and numerous articles, and his book Enabling Knowledge Creation won the Association of American Publishers’ Award for the Best Professional Business Book.

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Before asking whether some heads of state are deliberately violating international law, it would be useful to ask ourselves about the legality and, even more, the legitimacy of the institutions that are expected to judge them.

I would like to argue that the International Criminal Court (ICC), which has allocated itself this role, is not only not fit to do so but, moreover, is contributing to the institutionalization of the international chaos against which it claims to be making a stand.

First, the United Nations (UN) Charter in no way authorized the Security Council to institute a jurisdiction such as the ICC. Second, even if we agree that its institution was legal, it is not competent to judge events that occurred before its creation. Third, the way in which it operates is, in several fundamental aspects, incompatible with the general principles of procedure recognized by all states and sanctioned by the international instruments relating to human rights.

Unconstitutional
The UN has been governed by international law since its creation in 1945. But it also possesses an internal order, a coherent body of legal rules that govern its operation, the relationships between its different organs, and between these and member-states.

In this context, Article 7 of the UN Charter authorizes the creation of “such subsidiary organs” as “may be found to be necessary” to maintain or re-establish international peace and security. The distinction between principal and subsidiary organs is fundamental: the principal organs are established by the founding treaty; the subsidiaries by the principal organs to help them to accomplish their missions.

Recourse to the creation of these organs is frequent in international organizations: they may comprise independent experts or be of an intergovernmental nature. But to ensure that these ad hoc bodies do not modify the existing institutional equilibrium, the International Court of Justice has laid down a common-sense limit since July 13, 1954: “The principal organ shall not allow the subsidiary body more areas of jurisdiction than it has itself”.

Now the Security Council, which has full powers to maintain peace, does not, as the principal political organ of the UN, have legal jurisdiction. As early as 1950, in his commentary on the Charter, legal philosopher Hans Kelsen underlined that the Security Council is not a judicial body, on the one hand, because “its members are not independent”, and on the other hand because the aim of its preventive actions “is not to re-establish justice, but to re-establish or maintain peace, which is not necessarily identical to justice”.

Since the functions of the Security Council are not judicial, the subsidiary body “necessary to the exercise of its functions” would not be judicial, except in its capacity to modify the jurisdictions of the Security Council by this oblique route. The creation of an ad hoc criminal court by a resolution of the Security Council is, therefore, unconstitutional because it does not conform to the Charter.

“Grandfathering” – not always cuddly
Let us accept, for the purposes of argument, that the UN Charter authorized the Security Council to set up a criminal jurisdiction such as the ICC for the former Yugoslavia. Could the Council, with respect to the principles of international public law and to the international instruments relating to human rights, attribute jurisdiction to this Court to judge events that occurred before its founding resolution came into force?

For this, the UN Charter would have to denounce the principle that statutes should not apply retrospectively – expressed in the adage “Nullum crimen sine lege” (No crime without law) – which it does not. On the contrary, this principle has taken on the value of a convention since it was adopted in Article 15 of the International Covenant on Civil and Political Rights in 1966. The provisions of this covenant are more precise and restrictive than those of the Universal Declaration of December 10, 1948.

Article 15 declares that “No-one shall be held guilty of any criminal offence on account of any act or omission, which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the criminal offence that was committed”.

This principle applies to international crimes as specified in the 1998 UN Convention which established the status of the International Criminal Court. Articles 22, 23 and 24 of the Rome Statute of the ICC are specifically entitled “Nullum crimen sine lege” (“No crime without law”), “Nulla poena sine lege” (“No sentence without law”) and “Non-retroactivity ratione personae”. Therefore, there is no doubt that in the minds of the authors of this convention this is not an innovation, but the recognition of a pre-existing principle.

Now, not content with increasing international chaos by violating the principle of the non-retrospectiveness of criminal law, the ICC has deliberately breached Article 2 of the UN Charter by arresting Slobodan Milosevic and organizing his detention in another country, in this case the Netherlands.

Article 2 of the Charter, in fact, declares that the UN is founded on the “principle of the sovereign equality” of all its members, and that it must not intervene in “matters which are essentially within the domestic jurisdiction of any state”. The principle of “essential national jurisdiction” shall not, of course, constitute an obstacle to the application of measures of enforcement, as referred to in Chapter VII. Again it is important that the aforementioned enforcement measures do not breach the fundamental internal rules – here the constitutional rules – of the state concerned.

Yugoslavia’s constitution invests the federal organs alone with international jurisdiction. The cooperation with the ICC of the single state of Serbia, which is devoid of international jurisdiction, thus invalidates the arrest and detention of Yugoslav citizens. So the breach of internal constitutional rules should have appeared “objectively evident” to the Netherlands – an external state acting on behalf of the court.

Bad rules
Even if we accept the ICC’s existence and assume that its retrospective jurisdiction has been acquired, we still need to cast doubts on its method of operation.

The adoption of procedural rules constitutes an initial guarantee for anyone under a court’s jurisdiction. The intense debates around procedural reform in any country show that the legitimacy of a criminal justice system is judged by its principles and rules of procedure.

Article 15 of the statutes of the International Criminal Tribunal for the former Yugoslavia (ICTY) provides that “the judges of the International Tribunal shall adopt rules of procedure and evidence for the conduct of the pre-trial phase of the proceedings, trials and appeals, the admission of evidence, the protection of victims and witnesses and other appropriate matters”.

This is a case of “delegation” of competence that goes against the best-established principles of criminal procedure. For it is the law, and the law alone, that determines the organs charged with judging offenders, their competence and the procedure on the basis of which these jurisdictions can deliver a decision to acquit or to sentence.

To be governed by the rules and machinery pre-established by an authority other than the one that applies them is the first sign of a fair trial, a now almost universal concept linked to the international instruments of human rights.

Article 51 of the Rome Statute of the International Criminal Court refers to this principle of fair procedure. It makes provision for the adoption and modification of the rules of procedure and evidence by a two-thirds majority of the Assembly of Member States. So it is solely through the failure of the international legislator that the judges find themselves invested with the power to establish rules of procedure.

Another curious feature of the ICC that is contrary to basic fairness between the parties is that certain witnesses are allowed to appear masked before the Court, allegedly for their own protection. In domestic law, there are often two categories of witnesses. There are ordinary witnesses who have been present at events and can recount them, and there are “special” witnesses, such as undercover agents, police informers and other direct auxiliaries of justice. In the case of the latter, their protection is deemed to be of an institutional nature, tending to guarantee further services on their part.

In the case of ICTY, the concept of a witness is that of an ordinary witness. Because he or she cannot claim for damages as a private individual, a victim will be heard in his or her capacity as a “witness”. The non-disclosure of a person’s identity is a direct breach of the principle of the equality of treatment of the parties in a criminal trial, and a prerogative that only the prosecution can use in the person of the director of public prosecutions.

Justice must be seen to be done
Increasing the numbers of anonymous witnesses, delaying the disclosure of their identity and thus depriving the accused of their legitimate cross-examination, using technical procedures to the detriment of the accused – while they are designed as measures of protection against third parties – all these are breaches of the fundamental principles of human rights as established by the international instruments and courts, beginning with the decisions of the European Court of Human Rights.

Finally, the way the ICC is funded seems to go against Article 17 of the UN Charter. On September 14, 1993, the General Assembly emphasized that Article 17 confers on it “the role of the organ responsible for examining and approving the budget of the organization and for spreading the costs across the Member States” and declared “concern that advice given to the Security Council by the Secretariat on the nature of the financing of the International Tribunal does not respect the role of the General Assembly as set out in Article 17 of the Charter”.

Indeed, the Security Council was in favour of voluntary partial funding of the activities of the Court by states or private parties. However, when consulted on UN expenditure in 1962, the International Court of Justice refused to make a distinction between the organization’s expenses.

This method of voluntary funding is even more controversial when it involves an activity presented as a question of jurisdiction. How can we entrust justice to a body that is funded in part by state or private “sponsors” whose militancy could weigh heavily on the court?

Far from contributing to the strengthening of international order, the ICC discredits justice itself. It is the first court to combine modern totalitarian justice with the archaic nature of ancient private justice systems. How can supported magistrates, applying a procedure outside the law, inspire the slightest respect and, furthermore, the slightest fear in the people they are expected to judge?

Jacques Vergès
Jacques Vergès is a French defence lawyer whose clients have included Algerian guerrillas fighting for independence from France, Palestinian activists, Nazi war criminal Klaus Barbie, terrorist Ramírez Sánchez (“Carlos the Jackal”) and Holocaust denier Roger Garaudy. He is one of the lawyers organizing the defence of former Iraqi head of state Saddam Hussein

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The “problem” of an ageing population is now discussed not just in rich countries but across the world. But increasing life expectancy is a wonderful development and is neither the major demographic challenge the world faces nor even a significant problem at all. By far the more important demographic change is the transition to low birth rates. But that too is welcome, provided it does not go too far. The ideal outcome for the world would be broad population stability combined with ever-increasing longevity. Provided we achieve that outcome, pension system challenges are manageable. But achieving it will require deliberate policy choices.

Ripe old age
Increasing life expectancy is not an inherent problem if ageing means more years of active, healthy life rather than more years of frail, dependent life; and the balance of the evidence is that ageing can be healthy if people make sensible lifestyle choices and if health-care systems are well designed. Increases in retirement ages are, therefore, a logical and feasible response to pension system challenges. And if the only demographic challenge a country faced were increasing life expectancy, a proportionate rise in retirement ages – the rise needed to keep stable the proportion of life spent working – would be a sufficient response to keep the pension system in balance. In such a situation there would be no need for tax rises, increases in savings, or reductions in relative pensioner income. Political courage is required to convince people of the need for and possibility of later retirement. Higher retirement ages will also require new approaches to the retraining of older workers, an end to age discrimination and changes to age-related pay scales. But a longer-lived society is not an inherent problem: the longer we live, the better.

Low birth rates pose a far more fundamental challenge to pension systems. And very low birth rates – Italy’s 1.2 children per woman, Russia’s 1.1, Japan’s 1.3 – would, in the long run, create major economic and social problems. But it is also important to recognize the huge long-term benefits of population stabilization and the huge disadvantages that would follow if Europe or China reverted to perpetual population growth. If the United Nations (UN) “medium scenario” is correct in projecting that world population will stabilize in about 2075, that is a good thing. The optimal birth rate for countries, and for the whole world, is probably at around replacement level and neither significantly below nor significantly above it.

The present predominant pattern, however, is that birth rates fall well below the replacement rate of two children per woman wherever economic success is achieved. At present Europe (east and west combined) has a birth rate of around 1.4, but low fertility is not specifically an “Old Europe” phenomenon. America has a fertility rate around the replacement level only because Hispanic immigrants maintain a high birth rate in the first generation after arrival. But with Latin American birth rates now falling fast, America’s rate is almost certain to fall back below replacement level. The developed east Asian economies – Japan, Korea, Hong Kong and Singapore – all have birth rates in the 1.0 to 1.4 range: China’s is 1.8. The UN’s medium projection meanwhile suggests that Brazil, Turkey and Iran will all have below-replacement birth rates within 15 years.

Who will pay for our pensions?
Low birth rates pose huge challenges to pension systems because the fundamental economics of pensions are determined by the ratio of workers to retirees. This is true irrespective of whether pensions are provided through a pay-as-you-go tax system or funded through capital market investments. In the past, the worker-to-retiree ratio was swollen by the fact that each successive generation was larger than the one before. The pension systems of the 20th century have all, to a degree, been pyramid schemes, chain letters or Ponzi schemes, where the relationship of benefits to contributions is vitally dependent on there being more people in the next generation, in the next link of the chain. But the base of the pyramid is now shrinking. When that happens one of four things must occur: pensioners become poorer relative to the rest of society; taxes must rise; savings must rise; or average retirement ages must rise more than proportionately to life expectancy, decreasing the proportion of life spent in retirement.

This is the challenge that the whole world will face before the end of the 21st century if the UN’s medium scenario population projection is correct. But the timing and the pace of the transition will vary hugely, with enormous consequences for the relative size of different populations. Russia’s population could well fall from 145 million today to 100 million by 2050, and Pakistan’s rise from 145 million to 350 million (see chart 1). Africa’s population, currently two-thirds of China’s, might by 2050 be 30% larger and still rising. China’s will probably be in gradual decline after about 2030 (see chart 2). America’s population might well grow via immigration by 40% between now and 2050. The European Union, unless it also accepts mass immigration, will have a slightly declining population. These changes carry consequences for economic growth rates and for countries’ financial and geopolitical weight. Even if European productivity rises as fast as that in America, the US economy will grow by around 1% faster per annum thanks to higher immigration, as it has done for the past 25 years. And Europe’s share of world population and of world income will shrink.

Higher immigration in the short term and a higher birth rate in the long term are therefore seen by some people in Europe as essential, not only to avoid a pension crisis but also to maintain economic growth and to minimize the loss of economic and geopolitical status. And, it is true that significant immigration into Europe is simply unavoidable, and that immigrants ought to be welcomed and integrated as effectively as possible. But immigration and high birth rates can only make a major difference to pension systems if large enough to produce significant population growth.

The limits to growth
In the very long run such population growth could only be achieved by a higher birth rate: once the whole world’s population stabilizes, the whole world cannot solve its pension crisis through immigration from the moon. But, however achieved, population growth on that scale, into already densely populated parts of the world like much of Europe, would have huge adverse economic and quality-of-life consequences. The benefits to pension-system sustainability would, therefore, be offset by the costs of transport congestion, countryside destruction and rising property prices as people compete for a limited supply of spacious and pleasantly located housing. And perpetual population growth on that scale at a global level would mean an ever-growing human impact on the world’s ecology and would undermine attempts to solve the pressing challenge of climate change. The shift towards lower birth rates might well be a naturally arising human response to both the opportunities and the environmental pressures created by rising prosperity: to seek to reverse it by deliberate policy, simply because generous pension systems are under strain, would be undesirable.

As for concerns about shifts in economic and geopolitical weight, similar mathematics apply. The biggest driver of such shifts will arise not from changing population sizes but from the developing world catching up to the prosperity of the developed, a catch-up that anybody with any moral sense should welcome. If China achieves in the coming half-century what Japan and Korea achieved in the past one, Europe’s economy will be significantly smaller than China’s. Only explosive European population growth – multiplying the population three-fold or four-fold – could prevent that. But although Europe’s share of world income will fall, and Europe’s total income will grow significantly more slowly than America’s, there is no reason why prosperity – per capita income – should not grow as fast. For countries to follow population growth strategies in pursuit of relative economic or geopolitical weight would be environmental folly. In the long term, when the immigration option is exhausted, it will also, almost certainly, be impossible. The chances that women will revert to high birth rates to serve the status ambitions of national elites is close to nil.

Stability – not decline – is desirable
But if strategies of population growth to earn geopolitical standing are both undesirable and, almost certainly, infeasible, there are good arguments for developed rich countries, and for low-income countries like China that already have rich-country birth rates, to encourage birth rates close to replacement levels rather than dramatically below them. Pension system challenges are manageable provided populations are about stable. If Britain’s population remains roughly stable at around 60 million over the next 50 years, the combination of an increase in tax equal to 1.5% of national income, a one-third increase in the pension savings rate, and a rise in the average retirement age from 63 to 66 (which would still allow a rise in the number of years spent in retirement) would be a sufficient response to the pension challenge. But when populations fall significantly, as they are forecast to do in Russia, Italy and Japan, pension system sustainability becomes impossible. Significantly poorer pensioners or a very big rise in the burden on the working population become unavoidable. And although there are good ecological reasons for desiring population stability, global environmental balance does not require perpetual and significant human population decline.

The optimal birth rate, for the whole world and for individual countries, is therefore likely to be close to the replacement level of two children per woman and neither significantly below nor significantly above this. The challenge in much of western Asia, the Middle East and Africa remains to get birth rates down to replacement level. For all the talk of a demographic slowdown and an ageing population, we should not forget that in Pakistan, Saudi Arabia, Somalia and Yemen, it is rapid population growth that still threatens economic and political stability. The challenge in rich developed countries, however, will be to avoid a lengthy or permanent period of birth rates well below replacement levels.

The good news is that both the decline (where desirable) and the increase (where desirable) are most likely to be achieved by empowering women to make their own decisions. Economic prosperity, education for women and open access to contraception seem to be sufficient to bring birth rates down towards replacement levels, irrespective of cultural and religious differences. And in countries with birth rates well below two there is survey evidence that many woman would have chosen a higher birth rate if it had been easier to combine work and family lives. The European evidence suggests that the best way to encourage birth rates at least close to two rather than far below (the 1.8 achieved in Norway rather than the 1.15 in Spain, for example) is via policies on working hours, child-care provision, gender equality and maternity and paternity leave.

The natural consequence of certain good things – prosperity and freedom for people, particularly women, to make their own choices – might well be population stability as well as ever-lengthening lives. We should welcome that stability and design policies to make it more likely, managing the significant but clearly surmountable problems that population stability and longer lives create for pension systems.

Adair Turner
Adair Turner is vice-chairman of Merrill Lynch Europe, director of United Business Media, chairman of the Low Pay Commission and of the Pension Commission and a visiting professor at the London School of Economics and Political Science.

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The Iraq crisis has created a large number of casualties, and some have begun to suggest that the United Nations should be added to the list. A poll taken by the Pew Research Centre for the People and the Press in 20 countries in mid-2003 showed that the UN had suffered a great deal of collateral damage over Iraq. The UN’s credibility was down in the US because it did not support the US administration on the war. But it was also down in 19 other countries because it could not prevent the war. A 2004 Pew poll continued to show that the organization’s standing was lower in America and in a number of Muslim countries than ever before. The label of “irrelevance”, which had been flung at the UN during the debates at the Security Council, continues to hang in the air.

We have been there before – the NATO bombing of Kosovo, without reference to the Council, generated similar concerns. But that phase did not last more than a few weeks, and the UN, after being bypassed during the war, was soon placed in charge of the ensuing peace. It hasn’t worked out quite that way in Iraq.

Back to the UN
Ironically, the key message of president George W Bush’s appearance before the UN General Assembly in September 2002 went the other way. In calling on the Security Council to take action against Iraq, he framed the problem not as one of unilateral US wishes, but as an issue of the implementation of United Nations Security Council resolutions. The UN and the earlier decisions of its Security Council remained at the heart of the US case against Iraq.

And despite failing to win Security Council support for the intervention, the US brought Iraq back to the UN within two months of the start of the war. The Council adopted Resolution 1483 in May 2003, asking the secretary-general to appoint a special representative to help the victorious coalition build an internationally recognized, representative government.

The very submission of this resolution by the US to the Security Council was an acknowledgment by Washington that there is, in secretary-general Kofi Annan’s words, no substitute for the unique legitimacy provided by the United Nations. This is not just a matter of legal theory. Without Resolution 1483 the US-led coalition could not have sold a drop of Iraqi oil. There would have been nothing to prevent, say, a Russian company from filing suit at the International Court of Arbitration in Paris, claiming it had a prior contract on that oil with the legal government of Iraq – that of Saddam Hussein. It was the new state of affairs in international law created by the Security Council resolution that allowed the Coalition authorities in Iraq to conduct normal commerce. And its unanimous acceptance by other Council Members – even those who led the opposition to the US intervention – demonstrated their understanding of the importance of collective action.

The duly-appointed special representative, Sergio Vieira de Mello, went to Baghdad and was making considerable progress in building bridges between Iraq and its future, notably in helping establish the Iraqi Governing Council. His tragic death, together with 21 other dedicated staff, in a suicide bombing of his headquarters on August 19, 2003, and a second attack on the same premises on September 22, led to the withdrawal of the UN’s international staff. But our heroic UN local colleagues stayed and continued to provide essential aid, notably delivering 500,000 metric tonnes of food per month; supplying some 11 million litres of water a month to Baghdad and Basra, and 2 million litres of fuel for water treatment plants; helping revive the school system and get children back into classrooms; delivering fertilizer, herbicides and pesticides in the lead-up to the planting season; and delivering medical supplies and helping the Iraqi Ministry of Health establish a disease surveillance system.

The provision of humanitarian relief is only one aspect of the UN’s continuing involvement in Iraq. Washington has discovered in Iraq that the US is better at winning wars alone than constructing peace alone: military strength has its limitations in the area of nation-building (as French diplomat Charles Maurice de Talleyrand-Périgord said, the one thing you cannot do with a bayonet is to sit on it). When the Coalition decided to hand over sovereignty by June 30, 2004, it again turned to the UN to identify Iraqi interlocutors. Early in February 2004, special envoy Lakhdar Brahimi, accompanied by UN election experts, made the first of several trips to Baghdad to assess options for rebuilding a sovereign, independent and democratic Iraq. He was able to meet with Iraqis of all persuasions, including those who would not talk to the Coalition. Brahimi’s recommendations were widely applauded, and the Interim Government he helped craft came into being ahead of schedule at the end of June.

Since then, the United Nations has been active in: helping Iraq convene and run a national conference in July to select a Consultative Council; aiding the new authorities write an electoral law and set up an Independent Electoral Commission; and working with these bodies to prepare for elections scheduled for January 30, 2005. The UN remains charged under Security Council Resolution 1586 with promoting national dialogue and consensus on drafting a new constitution, helping the government develop civil and social services, coordinating reconstruction, development and humanitarian assistance, promoting the protection of human rights, and helping the authorities plan for a census.

Advising not doing
Although the UN was instructed to advise and help, the Security Council made it clear that the Iraqis own this process. And it recognized that the UN would only undertake these tasks as circumstances permit – code for “when we can ensure the security of our staff”. Nonetheless, since July, a new special representative of the secretary-general, Ashraf Jehangir Qazi of Pakistan, has been deployed to Baghdad, restoring a small (but growing) UN international presence, bolstered by experts rotating in and out of the country. Offices in Basra and Erbil are due to open shortly.

Clearly, the security situation in Iraq remains a serious concern. As we do not believe we should ask unarmed civilians to put their lives at risk unless there are no other means of delivering on our mandates, we will only carry out activities in Iraq that must take place inside the country. Everything else will be managed or coordinated from outside, until the situation improves, either because we have sufficient security forces to protect our civilian staff, or – more hopefully – because the violence wanes and the situation improves for everyone in Iraq.

Many UN staff resent accusations made by some commentators that UN staff will not face dangers to help people – an accusation that is doubly offensive when three of my colleagues were recently released after being held hostage in Afghanistan and thousands of others continue to risk death and debilitating disease in peacekeeping and humanitarian operations around the world. But protection and security for UN staff – indeed for anybody going into Iraq to help – are a basic and essential prerequisite.

That said, there is real progress on the electoral front. The UN has helped train some 6,000 registration clerks employed for the voter registration – both directly and by training Iraqi trainers – and we are on course to have 130,000 poll workers ready for the elections on time.

In some circles, much has been made of the fact that we only have modest numbers of electoral staff permanently stationed in Baghdad. We will certainly put more people in if the security conditions allow. But the comparisons that some have drawn with our electoral presence in East Timor and other places are nonsense. In East Timor the UN ran the elections – UN staff drafted the rules, registered the voters, designed and arranged the printing of the ballots, staffed the booths, counted the votes, and so on.

The impending Iraqi election is an election run by the Independent Electoral Commission of Iraq (IECI), which the UN helped establish. The UN is not organizing, conducting or monitoring the election. It is giving advice to the Iraqis, at their request. Dozens of UN staff, not all in Baghdad, have been providing extensive technical assistance to the IECI. And more are on their way as I write.

Crucial support
But it is the quality of the United Nations’ input, not the size of the UN team, that is the key to providing meaningful assistance to the electoral process. The technical support and strategic advice of a dedicated team of international experts have been crucial in enabling the IECI to prepare for elections. Inside Iraq, UN experts working with the Commission have been meeting with various political entities and civil society representatives to explain the electoral process. Outside Iraq, the UN has trained the members of the Commission and several hundred other electoral workers. Voter registration started on November 1, on schedule, and most of the 542 registration centres are now open. (Incidentally, they are using the Oil for Food Programme’s food distribution lists as the basis of the provisional voters’ roll.)

The technical preparations for the elections are critical – but so is the political and security environment. If politicians do not feel safe to campaign and voters are afraid to line up to cast a ballot, the election will be compromised. The political parties seem largely supportive, and the political space created by the prospect of elections is broadening to include the supporters of radical Shia cleric Moqtada al-Sadr, who had so far stayed out of it. But security remains a key variable – and it rests in the hands of Iraqis themselves and the US-led multinational force. The responsibility for determining whether the elections ultimately can take place in January belongs to the people charged with running those elections – the Iraqis of the Independent Electoral Commission. So far, they are determined to proceed.

Beyond Iraq
The ultimate objective of all UN involvement in Iraq has been that Iraqis should regain control of their own political destiny. We hope that the elections will take place, and that they will be as inclusive as possible. The divisions that bedevilled the organization in early 2003 are behind us; our secretary-general, Kofi Annan, has repeatedly stated that it is in everyone’s interest to see the emergence of a peaceful and stable Iraq. But the crisis isn’t over, and the UN is ready to do its part to help create a new Iraq.

But whatever happens in Iraq, let us not forget that the relevance of the United Nations does not stand or fall on its conduct on one issue alone. When this crisis is over, the world will still be facing (to use Annan’s phrase) innumerable “problems without passports”, issues that cross frontiers uninvited: the proliferation of weapons of mass destruction; the degradation of our common environment; contagious disease and chronic starvation; human rights and human wrongs; mass illiteracy; and massive displacement. The United Nations remains the world’s indispensable instrument to deal with these problems, which will persist long after Iraq has disappeared from the headlines.

Shashi Tharoor
Shashi Tharoor is under-secretary-general for communications and public information at the United Nations. In the course of a 26-year UN career he has also served as the UN high commissioner for refugees and led the headquarters team responsible for peacekeeping operations in the former Yugoslavia. He was named a Global Leader for Tomorrow in 1998.

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America’s capital markets are the oxygen of our country’s free market economy. They represent more than 35% of the market capitalization of world stockmarkets. By uniting issuers and investors they provide the financial fuel that powers economic growth.

Recently, American stockmarkets have been supported by reductions in tax rates on labour and capital, which have helped to sustain the long-term growth in our equity culture. The number of American shareholders rose sharply from 30 million in 1980 to more than 84 million in 2002. American investors have also increased the holdings of foreign equities in their portfolios from $200 billion in 1990 to more than $2.1 trillion in 2004. The growth and rising liquidity of US equity markets, in turn, have helped to spur the growth of international companies and equity markets overseas and, with them, the expansion of the global economy.

Today, all the elements that traditionally have favoured rising stockmarkets are in place. The US and global economies are enjoying solid, after-inflation growth of approximately 3.75%. Inflation in America is still under 3%, and interest rates remain low by historical standards. Productivity growth is high, and capital spending and corporate profits have been rising at double-digit rates. And more than 2 million jobs have been created since August 2003.

America’s equity markets have responded to the good news, with the Dow Jones Industrial Average rallying from the lows set in October 2002, following a series of setbacks that led to the loss of over $4.4 trillion of equity value.

I believe that the principal challenge facing US equity markets in 2005 is to strengthen further investor confidence and trust. Achieving that goal begins with the recognition that the real genius, power and potential of US capitalism do not reside on Wall Street, but on Main Street and, above all, with the individual investor and entrepreneur.

Collectively, markets, companies, the financial services industry and government regulators must unite in a commitment to strengthen investor confidence. We must set our sights on better governance, increased transparency and disclosure, advancement of shareholder rights, and management of companies and markets that will inspire greater investor trust.

Those of us in positions of leadership in US equity markets must ensure the equitable treatment of all investors. Every investor, whether buying 100 shares or 1 million shares, must be treated equitably and receive the best price and the best value from a trading venue.

Here’s to Sox
As we focus on better governance, let us acknowledge that Sarbanes-Oxley represents an indispensable first step toward this ideal, and also that the great majority of companies are working hard to abide by the legislation. To be sure, many business leaders with whom I have spoken, both in America and abroad, are concerned about the costs of compliance, and are increasingly insistent about the need for tort reform. I have passed on their concerns to our regulators and political leaders in Washington, and underscored the importance of preventing regulation from becoming an undue burden.

Overall, Sarbanes-Oxley and other disclosure requirements are helping to ensure companies have solid governance structures, that corporate financial performance is well audited, and that all relevant facts about companies are disclosed.

At the New York Stock Exchange (NYSE), we have endeavoured to exemplify the spirit and substance of this landmark legislation through a complete restructuring of our governance structure. Our corporate governance overhaul has been guided by three core principles: independence, separation of key functions and transparency. Even before the passage of Sarbanes-Oxley, NYSE developed and began implementing standards for our more than 2,760 listed companies that are among the highest in the securities industry.

Rather than merely helping listed companies to avoid repeating yesterday’s mistakes, we are pushing them to aim for the highest ethical standards in the eyes of the investing public. Research shows that strong standards of governance and transparency are increasingly important investment criteria that lead to improved equity performances, higher valuations and to stronger brands. These benefits, along with natural advantages inherent in the deepest, most efficient and most liquid markets in the world, enhance the value proposition for non-US companies to list in America. Between 1992 and 2004, non-US companies raised more than $370 billion in American equity capital through public and private offerings.

The cost of compliance
Nevertheless, many non-US companies are now questioning whether they want to deal with the costs of compliance with new standards. At the NYSE, our role is to work closely with our listed companies to ensure that they understand – and have the necessary information to comply with – our own governance requirements, and those of Sarbanes-Oxley.

Many companies have now completed their Sarbanes-Oxley certification, without incurring prohibitive costs, and others can learn from their experience. We bring these companies together, providing a platform for them to interact, enabling listed companies to draw on the expertise of other companies and share best practices.

Nevertheless, the reluctance of American investors to return with greater conviction to our equity markets clearly indicates that, while companies have made a good-faith start, important work remains to be done.

Companies must understand that there is a new breed of investor, with new demands. Today, it is individual investors – putting money into 401(k) pensions and into mutual funds and brokerage accounts – who account for up to 80% of the new money coming into our stockmarkets. Most of these people were caught unawares by the wave of corporate scandals. As a result, many have decided to trust their own judgment and, by taking their own initiatives and becoming more entrepreneurial, to rely less on traditional sources of information.

Today’s investors are smarter and more sophisticated; they assemble their own research, most of it web-based; and they know more and pay closer attention than ever before. In addition, they have been energized by the Securities and Exchange Commission and by the NYSE’s empowering them with new opportunities to vote on shareholder issues and to communicate directly with boards.

Investor relations
Companies need to communicate with these investors in clear creative ways. For example, investors might not understand the fine points of the work of an audit committee, or whether the chairman is a member of the nominating committee. However, they do understand that most corporate failures occurred when boards and managements selfishly put their own interests before those of their shareholders.

Investors today want, first, to be assured that a company’s board is truly independent and is meeting its responsibilities. Second, they want to know about a company’s financial health and prospects, and want that vital information to be communicated in plain English. Third, they want assurances that intermediaries and institutions that trade in markets will not be permitted to line their pockets.

Investors will also judge whether a company is merely complying with the new rules, or sincerely striving to create an all-pervading ethos of good governance. Companies that build these bonds of trust around their operations, people and prospects, and make them central to their culture, will be rewarded by investors.

Finally, as US companies conform to the new regulatory regime, it is heartening to see other countries advancing proposals that reflect the goals of Sarbanes-Oxley. However, as long as the regulatory regimes that govern markets remain fragmented, global capital markets will be marred by inefficiencies that will dampen investor confidence. Our foremost challenge, internationally, is to cooperate and collaborate in creating a seamless global market that satisfies different regulators with common disclosure, accounting standards and the highest quality of corporate governance.

That said, I have never been more optimistic about the future of equity markets. We cannot foresee geopolitical events, but the outlook for the US and global economy is brighter than at any time in the past five years. Capital markets continue to perform superbly in bringing together issuers and investors to fund research and development, new products and the most exciting growth prospects for the 21st-century economy. What’s more, everywhere that I travel, and every leader that I meet, in Latin America, across Europe, to India, China and the Pacific Rim, I hear one conviction repeated again and again: that free markets are the future.

And, since free markets are propelled by investor confidence, we must spare no effort to ensure that such confidence is fully restored and strengthened.

John Thain
John A Thain is chief executive officer of the New York Stock Exchange and was formerly president and chief operating officer of Goldman Sachs. He is co-chair of the World Economic Forum Annual Meeting 2005.

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GLOBAL AGENDA What do you think are the main risks associated with the growing US current account deficit? LARRY SUMMERS It’s never the acceleration that kills. It’s the deceleration. And the question goes to the sustainability of the US current account deficit at a time when it is large, it is financing consumption rather than investment and is primarily pointed towards and relying on official rather than private sector finance.

GA How sustainable and desirable is the current arrangement of foreign official creditors financing the deficit, what you call the international vendor finance arrangement?

LS In the short run it has its attraction. But in the long run it’s not sustainable and there are likely to be costs associated with its unwinding. My own judgment would be the sooner it’s unwound the better.

Necessary measures for its unwinding include an increase in US national savings, an adjustment of undervalued currencies and, politically, measures to stimulate domestic demand in the world to offset the consequences of reduced domestic demand in the United States.

GA Is there a strong reason to believe that Asian central banks will start to diversify away from the dollar in the near term?

LS I don’t want to predict the actions of other policy-makers. Experience in financial life suggests that things take longer to happen than you think they will, and then when they happen, they happen faster than you think they will. That may be relevant to thinking about this.

GA How much of a role do you think international politics might play in such a scenario?

LS There’s surely a political element. One of the uncomfortable elements of our system is that there’s an element of a balance of financial terror involved in the magnitude of US dependence on foreign central bank holdings. That’s a little problematic.

GA What do you think the current US administration’s policy on the US dollar is?

LS I didn’t say much about the dollar when I was US treasury secretary on the observation that a strong dollar is very much in America’s national interest. No nation can devalue its way to prosperity, and the American economy is strong enough not to require currency-induced adrenaline. But as for judging the intentions of policy-makers, I’d rather leave that up to them.

GA Is a falling dollar likely to have a positive impact on the deficit?

LS It’s much better not to think of currency values or flexible exchange rate systems as policy instruments. Currencies move with fundamental conditions of supply and demand, in terms of the level of interest rates, in different countries. An approach that works towards strong fundamentals and recognizes that strong fundamentals are likely to lead to strong currencies is probably the healthiest one. GA How big do you think the risk of global recession actually is?

LS There is a substantial risk of a disruption associated with what’s happening in the US, associated with working off the current kinds of imbalances. Whether it’s a 25% risk or a 75% risk is hard to say, but I think that we are running real risks and that the unwinding of the US current account deficit will be associated with substantial disruption.

GA Some economists suggest that emerging markets are now playing such a key role in determining international patterns of growth, inflation and financing that this constitutes a new paradigm in the international economy.

LS I just turned 50, and I’m old enough to have seen half a dozen new paradigms in the world economy, so I’m a little sceptical every time I hear the words “new paradigm”, but there’s no question that the importance of emerging markets to the overall global economy steadily increases, for two reasons. One is that the fraction of GDP and global products that comes from emerging markets has trended upwards, and the other equally important reason is that the fraction of the goods that are potentially tradable increases year by year. My guess is that just as emerging markets are more important to the global economy than they were a decade ago, barring some very sharp discontinuity, I’d be very surprised if they weren’t even more important to the world economy a decade from now.

GA Everyone agrees that education is essential to economic development, but when it comes to higher education there’s not much consensus. The UN doesn’t even mention higher education as being an instrument for meeting any of its millennium development goals, and the World Bank downplays its importance. Does this concern you? LS We’re likely to see some swinging of the pendulum in the years ahead. There have certainly been abuses and excesses of misallocation of resources in developing countries towards tertiary education and towards tertiary healthcare. On the other hand, it’s very difficult for a country to succeed without a cadre of leaders, and without a cadre of entrepreneurs. And that requires sophisticated higher education institutions. And just as at a time, relatively early in our history, when the land grant universities in the United States played an important role in driving economic growth – even when the substantial majority of American children weren’t completing secondary school – there’s going to be an increased recognition in the years ahead that a limited number of high-quality, meritocratic academic universities are an important component of a national growth strategy. My sense is there was a need to emphasize primary and secondary education, but that the pendulum has probably swung too far on that. Watch what happens in development thinking over the next few years.

GA But at present there is a sense in which neglect of this sector threatens development, especially since the need for higher education in many developing countries is largely unmet.

LS Whenever I’ve travelled in developing countries since becoming president of Harvard this is something I’ve talked about a lot. It’s very important that developing countries develop strong meritocratic universities. I think, though, that the investment needs to go with the reform. If universities are run for the benefit of the children of the elite, or if universities are run as cooperatives of those who are employed at them, or if universities are run as bureaucratic entities of the state, then they’re not going to succeed, and so the commitment to increased investment has to come with the commitment to increased reform, and that’s a complicated challenge in any country.

GA With their wealth, institutions like Harvard are able to lure many of the very best faculty and students from other institutions and countries. Are you at all concerned about the brain drain that this might encourage, especially in the developing world?

LS International understanding is promoted when students study with students from other cultures. That’s why we’re so glad to have foreign students at Harvard, and we’re so glad that we’ve been able to extend the concept of need-blind aid to students from all parts of the world. It’s also why we’re making a big effort to ensure that as many of our students as possible study abroad, because international understanding is a two-way street. My guess is that as economies in the rest of the world improve, you’re going to find a higher fraction of students who come and study at universities like Harvard, and who return to the country they came from. From my perspective that’s fine.

GA Do you think institutions like Harvard have a responsibility to help combat that trend, the brain drain? LS It’s really not for us to try to judge where people live. In some cases, countries that provide funds will establish expectations that their students return as part of the understanding that came with those funds, and that’s a reasonable thing to do. But it’s not for us to decide where people are going to live. It’s for us to provide the best education we can and the most insightful programmes we can.

GA What are the main steps to be taken if the developing world is to produce graduates who are better able to participate in and compete in today’s ever more globalized world?

LS Academic excellence is a complicated thing. My sense is that the strength of the American university system derives fundamentally from three things. It derives from a basically competitive environment among universities. We’re always kept on our toes by competition for the best faculty and for the best students. It derives from pluralism, the fact that some institutions are public and some institutions are private.

Different institutions are run in different ways. There’s no single model of what constitutes an appropriate educational model, and so there’s a kind of evolutionary progress that’s made and it derives from the culture of American institutions. Too often universities around the world are either governmentally run like the Department of Motor Vehicles, with a bureaucratic sense of restrictions and rules, or are run like utopian cooperatives where the leaders are chosen by vote of faculty, staff and students. The right culture for a university is one that is based on the authority of ideas rather than the idea of authority, where there’s a careful balance maintained between the need for leadership and the need for creativity.

GA Assuming you agree that knowledge is a public good, would you also agree that allowing free access to a privileged private university’s learning materials is a sound way of ensuring that knowledge is actually treated as such?

LS If you look, there’s a vast amount from Harvard on the university’s website, you can find full course materials for literally dozens, if not hundreds, of Harvard courses. You can find a substantial majority of the scholarship of Harvard professors on their website, you can find substantial volumes of materials from the Harvard libraries there, and there’s no question that as information technology develops universities will increasingly be making their knowledge more freely available.

GA Curriculum reform is widely recognized as one issue that needs to be addressed by developing countries in trying to build competitive economies. What’s your approach to curriculum reform at Harvard, and is there a sense in which that would serve as a model for other institutions around the world?

LS I hesitate to prescribe too closely because every institution is different. At Harvard we’re revising our curriculum, and we’ll be placing increased emphasis on science and technology as part of the basic literacy that every graduate should have. We’ll be increasing our expectation of a global study, including the expectation that all our students travel or study abroad at some point during their undergraduate years.

We’ll be emphasizing, more than we have traditionally, the need to find structures where our students and our faculty are in close and individual contact with each other, and I suspect that we’ll be stepping back a bit from the humility of the 1970s when there was a sense that all we could do was to provide perspectives, and that there was no basic knowledge that we could impart in the course of a basic curriculum. But this is a very complex transformation and one that’s very much under way at Harvard as it is at many other universities.

GA Why the current extra emphasis on science and technology? And why now?

LS It’s central to living in the modern world. It’s just as important to know the difference between a gene and a chromosome as it is to know something about the plays of Shakespeare. All of us are now in a world where we can’t escape some of the basic developments in the life sciences or some of the basic developments in information technology. The role of quantitative reasoning has increased in everything from banking to baseball.

larry summers
president, harvard university

Education
BSc, Massachusetts Institute of Technology; PhD, Harvard University.
1982-83 Domestic policy economist, President’s Council of Economic Advisers
1983-93 Professor of economics, Harvard University
1987 Nathaniel Ropes Professor of Political Economy
1991-93 Vice-president, development economics, chief economist and member, Loan Committee, World Bank
1993-95 Undersecretary of the Treasury for international affairs
1995-99 Deputy secretary of the Treasury
1999-2001 US secretary of the Treasury
Since 2001 President, Harvard University

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The United Nations, in its Millennium Development Goals, provided explicit, quantitative targets for reducing a wide variety of human miseries, including poverty, hunger, excessive mortality and insecurity. These, least of all health issues, are not problems that can be solved in isolation from each other.

The population grows when the number of children who are born and survive exceeds the number of people who die. For most of human history, surviving births did not much exceed deaths, leaving the planet sparsely populated until relatively recent times.

The first stimulus to growth, settled agricultural communities, was made possible by cultivation of grain and expanded trade, which depended upon general security. This generated the excess capital (and food) required to build the first great civilizations. Members of these better-fed and better-housed societies lived longer, although the growth of cities and concomitant crowding increased the risk of infectious disease. Distances between people shrank, facilitating direct transmission of microbial agents, and increasing the difficulty of disposing of growing amounts of human and animal waste, which contaminated food and water.

Epidemics became more frequent and were sometimes calamitous. In the 14th century, the Black Death (plague spread by flea-infested rodents), wiped out one-third of Europe’s population, depopulating the countryside. Whole societies collapsed. It took centuries for Europe to recover its health and productivity. For hundreds of years, China’s population went through recurrent cycles of expansion and sudden implosion.

Living longer

But several centuries ago population growth resumed and, except under unusual circumstances, it has been growing ever since. This reflects longer life expectancy in the face of high fertility. Life expectancy (at birth) is largely determined by the likelihood of children surviving infancy and the first five years of life. The rate at which young children die has a far greater impact on life expectancy than does the age at which the elderly succumb, simply because there are many more lost years at stake. Apart from the very old, young children are most vulnerable to death and disease, particularly from malnutrition and infections. Child survival (or life expectancy at birth) is therefore an important indicator of societal wellbeing.

A child’s health is, to a very large degree, determined by the health of its mother and by her knowledge of good child-rearing practices and freedom to follow them. Mothers cannot perform this vital function if they are uneducated, bound by inappropriate customs or if they themselves die prematurely.

High fertility (many pregnancies during a woman’s reproductive period) is driven, to a large degree, by high childhood mortality. In many low-income countries, children – particularly male children – are the sole support of elderly parents. In medieval Europe (or 20th century Asia and Africa) half of all children died before their fifth birthday. The average woman had to bear eight children to ensure that she had two sons who survived childhood. When child survival rates improve, fertility rates decline and populations begin to stabilize.

The under-fives mortality rate has markedly declined around the world. In high-income countries it is now below 10 per 1,000 live births. In sub-Saharan Africa it is roughly 170, and in South Asia 98. But it is important to recall than many countries that today enjoy high incomes and high child survival rates, like Japan, had high child mortality rates (similar to many of today’s developing countries) well into the 20th century.

Thank public health

In 1900, average life expectancy in America was barely 40 years and in Japan, it was even shorter. Today it is 77 and 81, respectively, in the two countries, largely because infants and young children are much more likely to survive. This dramatic improvement was largely unrelated to direct investments in health or the discovery of high-tech magic bullets. Measles (chart 2), typhoid and tuberculosis deaths in America declined before there was a vaccine to prevent measles or effective anti-microbial therapy for typhoid or tuberculosis. Everyone benefited from: better nutrition, which dramatically increases resistance to serious infections; better living and safer working conditions, with improved ventilation; clean water and effective sanitation, which virtually eliminate the risk of waterborne diseases such as typhoid; and isolation and quarantine of infected patients (tuberculosis) and their contacts (measles). Successful control of the recent severe acute respiratory syndrome (SARS) outbreak depended entirely on this same basic containment strategy.

Immunization, a direct population-wide health intervention, has provided additional protection from measles, tetanus, diphtheria, pertussis (whooping cough), polio and other infections. But vaccines require a stable, functioning health delivery system. For maximum benefit, immunization needs to be added on top of basic societal standards of adequate nutrition, housing, hygiene and sanitation.

Security and political will are essential to health. A concerted global effort eradicated smallpox, once a dreaded, naturally occurring infection with high mortality and, to this day, no effective treatment. Polio, on the other hand, for all the wrong reasons is still with us. Eradicated from the Americas 10 years ago, the number of cases worldwide had declined from 350,000 in 1988 to fewer than 2,000 in 2002 – by an astounding 99%.

But last year the fundamentalist Muslim governor of Nigeria’s Kano state halted all polio immunization efforts because of alleged (and unsubstantiated) claims that it was part of a plot to sterilize Muslim girls. By the time he relented, polio had spread to 12 African countries that had been freed of the disease, dramatically setting back global eradication efforts and forcing the rest of the world to continue vaccination programmes. Money helps, too

Life expectancy, child survival and maternal mortality are all closely correlated, and income and female education also come into the picture. Life expectancy increases dramatically as national income per capita approaches $2,000, and more gradually thereafter, reflecting investments in basic living standards essential to health (chart 3). Income distribution matters too. Some low- and middle-income countries (Vietnam and Cuba, for example) have disproportionately long life expectancies, while in some wealthy countries (the Gulf states) life expectancy is disproportionately short.

In general, health and longevity were improving nearly everywhere by the mid-1980s. Some 80% of African children were receiving routine childhood immunizations, and both child and maternal health were benefiting from birth spacing, fewer unintended pregnancies (therefore, fewer maternal deaths), more widespread breast-feeding, and better maternal nutrition and education.

A worsening outlook

In contrast, the past decade has been a global health disaster. While the health indices of high-income countries continue to improve, these have dramatically worsened in much of the rest of the world. Fewer than half of Africa’s children presently receive basic childhood immunizations. Russian men lost five years of life expectancy following the break-up of the Soviet Union, partly from a collapse of basic health services (and an attendant increase of preventable infectious diseases), and partly from deteriorating living conditions and a growing use of tobacco and alcohol, much of it the result of insecurity and uncertainty.

HIV/AIDS has already had a disastrous impact on many populations, particularly in sub-Saharan Africa, where it has disproportionately affected the already scarce educated and professional classes. This has fed political instability, curtailment of human rights and a further breakdown in societal security. The power struggles and chaos of Africa’s Great Lakes region illustrate the enormous health consequences inflicted on displaced persons, who cannot farm (to feed themselves), educate their children or build viable infrastructures essential to health.

Women’s lot

Women (and secondarily their children) have suffered from rape, trafficking and the loss of educational opportunities, family planning services, prenatal care and trained midwives. Maternal deaths in industrialized countries are now 13 per 100,000 live births. Rates in sub-Saharan Africa and some south Asian populations are 50 to 100-fold higher (940 for all of sub-Saharan Africa; 560 for south Asia).

Loss of women’s rights is particularly egregious. In Africa, young girls are frequently coerced into sex with HIV-fearing or infected men. In southeast Asia, where HIV is increasingly spread by intravenous drug use, trafficking of young girls has become an economic mainstay, underpinning the cost of drugs as well as the support of displaced, impoverished families. As forced sex workers become infected, they in turn spread the virus to their clients and relations.

Well-meaning but ill-advised

Strong political leadership and investment in HIV prevention can be effective. Thailand and Uganda have dramatically reduced the rate of new infections by openly educating the public and making barrier protection, particularly condoms, widely known, acceptable and available. The potential benefits of some outside investments, like America’s President’s Emergency Plan for AIDS Relief (PEPFAR), however well intended, are undermined by the conditions attached to them.

First, recipients are asked for duplicative and incompatible reports. More worryingly, there is an ideological and political insistence that abstinence be a facet of prevention in cultures where young women have little choice in the matter of sexual relations. There is a further guideline that one-third of all funds be channelled through faith-based institutions whose leaders admit they are uncomfortable talking about condoms. These donor-driven obstacles guarantee that these investments will be far less effective than they otherwise might be.

There is only a decade left to reach the UN’s health millennium development goals to reduce the under-five mortality rate by two-thirds, reduce maternal mortality by three-quarters and halt (and begin to reverse) the spread of HIV/AIDS, malaria and other major diseases.

These targets can be achieved without “magic” new technologies, like an HIV or malaria vaccine (although these would certainly help). But even with new technology, the task remains daunting, and each year the world falls further behind. Political chaos, poverty, insecurity and trampling on human rights preclude both the stable infrastructural platforms (drinkable water, education and nutrition) required to curb these problems in the first place and the means for delivering the direct health interventions that help.

The 40 million people already infected with HIV will die prematurely; even earlier than necessary because of our inability to distribute medication. Obstacles to better health for far too many include political chaos and instability; rampaging thugs and armies trampling on human rights, particularly those of women; cultural taboos and ossified, millennia-old customs; stigmatization; and the absence of anything resembling health care delivery systems.

Brain drain

The inadequacy of health care systems has received relatively little attention. It is not only the result of inadequate investment. The demand for health services has skyrocketed in wealthy and poor countries alike, generating a migration of trained health workers from poor African (or Asian) countries to wealthier ones, and from these to Europe and America, whose demand for trained health personnel is insatiable. The poorest countries are doomed to come off worst in this competition for talent.

The government of Botswana, global pharmaceutical company Merck, and the Bill and Melinda Gates Foundation launched a pioneering effort to demonstrate how medications could be effectively delivered to a highly HIV-infected population (one-third of Botswana’s adults are HIV positive). Even this small, relatively well-to-do country (with a population of 2 million), found its health delivery infrastructure wholly incapable of performing the task. The obstacles have now been removed, but only by diverting manpower from other health goals and by attracting trained workers from poorer countries with equivalent needs. In any case, the real test of any HIV/AIDS programme is not the number of infected people treated, but a decline in the numbers of newly infected.

The UN millennium health goals will remain well beyond our grasp until globally sustainable levels of societal wellbeing are achieved. Human rights, security, education, nutrition and poverty alleviation, particularly among child-rearing women, provide the foundation on which direct health investments can prosper. By the same token, healthy populations are more productive. They can afford to invest in their own health systems and have the power and rationale to secure human rights, invest in their own security and education, and provide vigorous markets for the products of others.

Alfred Sommer
Alfred Sommer is dean of the Johns Hopkins Bloomberg School of Public Health and professor of ophthalmology, epidemiology and international health. He has received numerous awards, including the Albert Lasker Award for Clinical Research and the Charles A Dana Award for Pioneering Achievements in Health. Sommer is a member of the National Academy of Sciences and its Institute of Medicine.

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