{"id":245614,"date":"2023-10-09T12:00:05","date_gmt":"2023-10-09T11:00:05","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=245614"},"modified":"2025-01-10T15:03:20","modified_gmt":"2025-01-10T15:03:20","slug":"the-german-banker-and-british-lord-who-wrote-the-capitalist-magna-carta","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2023\/10\/the-german-banker-and-british-lord-who-wrote-the-capitalist-magna-carta\/","title":{"rendered":"The German Banker and British Lord Who Wrote the \u2018Capitalist Magna Carta\u2019"},"content":{"rendered":"
\"\"<\/a>

Lord Hartley Shawcross, co-author of the \u2018Abs-Shawcross Draft Convention\u2019, at Heathrow Airport, London, 1967.
(Photo: George Stroud\/Daily Express\/Hulton Archive\/Getty Images)<\/p><\/div>\n

As independence movements swept the globe in the 1950s, two men proposed an international legal system to protect foreign investors. Their idea, now realised, is the key mechanism multinational corporations are using to challenge government policies around the world.<\/em><\/p><\/blockquote>\n

4 Oct 2023<\/em> – In 1957, the influential head of the Deutsche Bank, Hermann Abs \u2013 who was also a director of several giant corporations like Daimler-Benz and Lufthansa \u2013 marked his 56th birthday in San Francisco.<\/p>\n

\n

Jailhouse Rock had just come out and then rising star Elvis Presley was performing downtown. But he had not travelled there for rock music nor a typical birthday celebration. He had gone to give a speech at this elite event \u2013 campaigning for what was boldly described as a new, global \u2018Capitalist Magna Carta\u2019 to enshrine and protect worldwide \u2018rights\u2019 for private investors.<\/p>\n

At a swanky hotel near the iconic Golden Gate Bridge, Abs presented his plan to more than 500 of the world\u2019s most prominent bankers, businessmen and politicians gathering for what was called the International Industrial Development Conference.<\/p>\n

He denounced \u201cthe well-known attitude of some less developed countries, according to which the Western world is actually obliged to pay for the advancement of their economies\u201d. He instead proposed a new international legal system for the \u201ceffective and enforceable rule of law for private foreign investment\u201d.<\/p>\n

The context was the Cold War and rising independence movements in the South and labour movements in the North. Foreign firms who had profited under colonial regimes were feeling the earth shift beneath their feet.<\/p>\n

Across Africa there were industries that could be nationalised by newly-freed nations, there were special concessions and vast landholdings that could be expropriated.<\/p>\n

Foreign firms who had profited under colonial regimes were feeling the earth shift beneath their feet.<\/strong><\/em><\/p><\/blockquote>\n

Abs said his proposed system could help respond to, or even prevent, such threats. It could also deal with what he called \u201cindirect interferences with the rights of private foreign capital\u201d \u2013 including states refusing to give up \u201cessential raw materials\u201d or grant companies required licences, and even \u201cexcessive taxation\u201d (from the investors\u2019 perspective).<\/p>\n

What is now called the investor-state dispute settlement (or ISDS) is a powerful yet obscure global legal system through which multinational corporations can sue entire countries directly at shadowy international tribunals.<\/p>\n

A similarly obscure branch of the World Bank called the International Centre for the Settlement of Investment Disputes (ICSID) has overseen the bulk of such cases \u2014- almost 1,000 in total as of September 2023, with almost 300 still pending.<\/p>\n

\"\"<\/picture>
Hermann Abs, prominent German banker and co-author of the \u2018Abs-Shawcross Draft Convention\u2019. (Photo: Creative Commons)<\/figcaption><\/figure>\n

Challenging policies<\/strong><\/h2>\n

Some of these disputes have been worth billions of dollars \u2013 and have challenged laws and policies including environmental regulations, as well as post-apartheid black economic empowerment policies in South Africa.<\/p>\n

Widespread popular opposition to this system\u2019s inclusion in the Trans-Atlantic Trade and Investment Partnership (TTIP), proposed between the US and the European Union, helped lead to the treaty\u2019s downfall in 2016.<\/p>\n

Yet few of the cases that have gone through this system have been covered, let alone investigated, by journalists. They have had, and are still have, significant impacts on taxpayers, voters and residents of countries around the world \u2013 largely in the shadows.<\/p>\n

Shortly after we began as fellows at the Centre for Investigative Journalism in London, in 2014, we received an unexpected phone call that sent us to El Salvador and into this ISDS system.<\/p>\n

From the frontlines of local struggles against mining in that country to the archives of the World Bank\u2019s ICSID centre in Washington DC, we traced how this system has been used by multinational corporations and foreign investors to challenge environmental regulations and people\u2019s movements around the world \u2013 and how it was set up for such purposes.<\/p>\n

Rather than a system initially created with good intentions, historical documents showed us how it was set up anti-democratically, against concerns from developing countries.<\/p>\n

\u201cThe World Bank was concerned that different strands of resistance would unite.\u201d<\/strong><\/em><\/p><\/blockquote>\n

ICSID was established in 1966. Ahead of that, the World Bank held regional meetings about it \u2013 summary notes from which showed how some developing countries had objected to the proposal\u2019s substance and form, from the start.<\/p>\n

It would give foreign investors a \u201cprivileged position, in violation of the principle of full equality\u201d, warned a Brazilian delegate. An Indian representative at another meeting said that it would give \u201cinvestors additional rights of unspecified scope\u201d, without saying anything about their obligations \u2013 and that draft proposals should \u201cbe considered in a wider forum\u201d before being adopted.<\/p>\n

According to British academic Taylor St John, who also studied this period, there was an extensive Bank strategy \u201cto avoid opposition uniting\u201d. She said: \u201cThe Bank was concerned that different strands of resistance would unite\u201d, particularly after previous attempts to set up such a system through the OECD or UN had ended in stalemates. She described how it adopted a range of tactics to prevent this, including not circulating notes from consultations on its proposals.<\/p>\n

However other historic documents showed that other people had pitched the idea, and welcomed it \u2013 including years before the World Bank took it up. Rather than representing the people, they came from the transnational corporate elite.<\/i><\/p>\n

San Francisco, 1957<\/strong><\/h2>\n

We found another extraordinary window into the creation of the ISDS system in TIME magazine\u2019s<\/em> archives. In the late 1950s, Henry Luce, the American magazine magnate, and publisher of Time, Life, and Fortune, started funding what was called the International Industrial Development Conference (IIDC).<\/p>\n

The 1957 edition was held in San Francisco \u2013 where Hermann Abs made his pitch for what TIME <\/em>dubbed a \u201cCapitalist Magna Carta\u201d and described as \u201cthe most widely applauded concrete proposal of the conference\u201d.<\/p>\n

The TIME-LIFE International media group co-sponsored that event and TIME<\/em> published an illustrated, eight-page supplement to it, entitled \u201cThe Capitalist Challenge\u201d. \u00a0Its colourful articles described attendees as \u201can international Who\u2019s Who of high finance and high office\u201d.<\/p>\n

It said: \u201cFrom London came financiers whose firms had bankrolled the Industrial Revolution; from Berlin the brisk businessmen who have built Europe\u2019s sturdiest economy from the rubble of war\u201d. The Italian car giant Fiat\u2019s managing director was there. But the biggest delegation was a \u201c202-man phalanx of US executives\u201d including from Ritz Crackers and RCA electronics.<\/p>\n

The context \u2013 of corporate elites\u2019 fears that people\u2019s movements could threaten them \u2013 is also clearly presented in these articles. One described how \u201cWesterners emphasised the need to protect investors in new lands seething with nationalism.\u201d<\/p>\n

Another on \u2018The Anti-Capitalist Attitude\u2019 said \u201cone of the biggest barriers in the way of foreign investment in the world\u2019s underdeveloped countries\u201d lies in the \u201cminds and emotions of those who need foreign investment most\u2026because they often tend to equate it with 19th century-style colonialism, they are reluctant to accept it\u201d.<\/p>\n

\u201cWesterners emphasised the need to protect investors in new lands seething with nationalism.\u201d\u00a0<\/strong><\/em><\/p><\/blockquote>\n

By then, Abs was already a legend in the world of international finance. \u201cHis appointment in 1937 as head of the Deutsche Bank\u2019s foreign department established him at 36 as the Wunderkind of German banking,\u201d TIME would later write about him, describing how he would also join the boards of directors of 25 large corporations and be so busy that \u201cmuch of his decision making is done on airplane flights\u201d.<\/p>\n

When he died in 1994, the late Eric Roll, Baron of Ipsden, and former director of the Bank of England, wrote an obituary for the UK newspaper The Independent<\/em> which called Abs \u201cthe outstanding German banker of his time\u201d.<\/p>\n

It described him as an advisor to Indonesia, the Holy See, Argentina, Brazil, and the World Bank\u2019s International Finance Corporation (IFC), which lends and invests money directly in private companies.<\/p>\n

Roll also shared a joke about the banker: upon arriving in heaven, he finds it dilapidated and in financial ruin. Abs quickly draws up a plan for the archangels: Heaven plc \u2013 the privatisation of the afterlife, with the Almighty as Deputy Chairman of the Board. (The implication: Abs himself would be Chairman, above God).<\/i><\/p>\n

The plan<\/strong><\/h2>\n

In San Francisco, Abs \u2013 who was additionally chair of a group called the German Society to Advance the Protection of Foreign Investments \u2014 told his audience that lawyers were already working out the details of his plan, and that he hoped that a draft of his proposed convention would be ready to share with allies by the end of the year.<\/p>\n

The banker\u2019s California trip was just one stop on an international campaign trail, promoting this new global legal system to protect foreign investors\u2019 interests.<\/p>\n

There were some informal precedents for his proposal. In 1864, Napoleon III arbitrated a dispute between the Suez Canal Company and the state of Egypt. In that case, the company had demanded compensation from the country for cancelling a canal construction project over its use of forced labour. The assembled tribunal sided with the company, deferring to what it called the \u201csanctity\u201d of the contract, and ordering Egypt to pay a massive penalty.<\/p>\n

Reviewing this \u201clong forgotten\u201d dispute, US law professor Jason Yackee wrote in 2015 that the company\u2019s claim had \u201ca strikingly modern (and perhaps even timeless) character: under what circumstances, and with what consequences, can the government of the day change its laws in order to promote its conception of the public good, where the change negatively impacts, and perhaps even destroys, the value of the foreigner\u2019s investments?\u201d<\/p>\n

In 1864, Napoleon III arbitrated a dispute between the Suez Canal Company and the state of Egypt.<\/strong><\/em><\/p><\/blockquote>\n

Back then, such cases were on ad-hoc bases, without an institutional infrastructure. This is what Abs was proposing to change. In late 1957, just a few months after the San Francisco conference, he released, as promised, a draft \u201cInternational Convention for the Mutual Protection of Private Property Rights in Foreign Countries\u201d.<\/p>\n

In 1958, a separate group of lawyers led by Lord Hartley Shawcross, a former attorney general in the UK and a director of Shell, produced a second draft \u201cConvention on Foreign Investments.\u201d In 1959, these two proposals were merged and reissued as a single draft known as the \u201cAbs\/Shawcross Convention on Investment Abroad,\u201d which the West German government submitted to what is now the OECD.<\/p>\n

The same year, an all-party parliamentary commission in the UK published a report calling for a world investment convention and an arbitral tribunal to settle disputes.<\/p>\n

Their idea didn\u2019t go too far however, until the idea found a new home at the World Bank, itself increasingly involved in expanding private business globally.<\/i><\/p>\n

The \u201cBanker-Diplomat\u201d<\/strong><\/h2>\n

Eugene Black, then President of the World Bank, had also spoken at the San Francisco event, condemning a \u201chostile attitude, by governments and peoples alike, toward the profit motive\u201d. He insisted that \u201cpeople must come to accept private enterprise, not as a necessary evil, but as an affirmative good\u201d \u2013 while governments must do more than \u2018tolerate\u2019 private business. He clarified: \u201cThey must welcome its contribution and go out of their way to attract it and even to woo it.\u201d<\/p>\n

Born in 1898 in Atlanta, Georgia, Black had come from an elite family of bankers. In the 1930s, his father had briefly been chairman of the US Federal Reserve. He arrived at the World Bank in the late 1940s after working at an investment firm and Chase National Bank, and soon \u201ccame to personify the Bank\u201d, according to the institution\u2019s account of his tenure, when it \u201cbecame widely known as Black\u2019s Bank\u201d.<\/p>\n

It remembers him as a \u201cBanker-Diplomat\u201d who was \u2013 echoing his comments in San Francisco \u2013 \u201cdeeply concerned about communism spreading and its impact on the restoration of a functioning global, capitalist economy\u201d.<\/p>\n

With Black at its helm, the World Bank expanded rapidly. It lent increasing amounts of money to governments around the world \u2013 and set up new branches to directly support private companies. He had a \u201cknack for bargaining and negotiating\u201d, wrote a bank historian in the 1990s, describing his \u201cinternational reputation as a mediator\u201d and how he had been \u201cinfluential in settling foreign investment disputes\u201d \u2013 insisting that countries come to the table with companies to negotiate deals.<\/p>\n

\u201cPeople must come to accept private enterprise, not as a necessary evil, but as an affirmative good.\u201d<\/strong><\/em><\/p><\/blockquote>\n

Along with the German (Abs), the Englishman (Shawcross) and this American (Black), two other men seemed to play particularly pivotal roles in the creation of the international investor-state legal system we had been investigating.<\/p>\n

One was another American \u2013 George D. Woods, who took over as World Bank president when Black retired in 1963. Like Black, he\u2019d been a commercial banker first. In his first address to the World Bank\u2019s board, as its new president, he pledged to explore \u201call possible ways in which the Bank can help to widen and deepen the flow of private capital to the developing countries\u201d. He said that he was convinced that countries which accept this \u201cwill achieve their development objectives more rapidly than those who do not\u201d \u2013\u2013 and stated \u201cthat means, to mince no words about it, giving foreign investors a fair opportunity to make attractive profits\u201d.<\/p>\n

The second was Aron Broches. He had been part of the official Dutch delegation at the Bretton Woods Conference in 1944, at which the World Bank, along with the International Monetary Fund (IMF) were created. Then, he served as the Bank\u2019s general counsel for decades. In the 1960s, he oversaw the creation of ICSID.<\/i><\/p>\n

Enshrining the system<\/strong><\/h2>\n

Over the next several decades, the ISDS system was enshrined in thousands of international treaties that grant foreign investors access to it in case of disputes with governments. They effectively give the state\u2019s advance \u201cconsent\u201d for foreign investors to file claims at places like ICSID.<\/p>\n

Broches would himself become very involved in these deals \u2013 encouraging states to sign what were called Bilateral Investment Treaties (BITs) with other countries, including such provisions.<\/p>\n

For a long time, almost all of these cases were filed by companies based in rich countries, against governments in poor countries. This seemed to match the vision of this system\u2019s creators, and the enduring rhetoric of how it should help poor countries to develop by increasing amounts of foreign investment. However, more recently, there had been a spike in cases against rich countries too \u2013 including Abs\u2019 Germany.<\/p>\n

We saw in ICSID\u2019s case database that a pair of suits had been filed against Germany, by a Swedish company. One was worth billions and was ongoing, over the country\u2019s decision to close down its nuclear power plants. The second was about a controversial new coal-fired power plant that seemed to contradict Germany\u2019s much-lauded promises to pursue an epic \u2018green energy\u2019 transition.<\/p>\n

If Germany \u2013 sometimes called the \u2018grandfather\u2019 of the international investor-state legal system \u2013 could be sued, it seemed like any country, and thus every taxpayer and citizen, globally could be at risk. We thought again of questions that had driven us thus far. Were our elected officials actually in charge of as much as they said?<\/p>\n

______________________________________________<\/p>\n

\"\"<\/a>Claire Provost is co-founder and co-director of the non-profit <\/em>Institute for Journalism and Social Change. She is the co-author of <\/em>Silent Coup (2023).<\/em><\/p>\n

 <\/p>\n

\"\"<\/a>Matt Kennard is chief investigator at <\/em>Declassified UK. He was a fellow and then director at the <\/em>Centre for Investigative Journalism in London.
\n<\/em><\/p>\n

 <\/p>\n

This is an adapted extract of<\/em> Silent Coup: How Corporations Overthrew Democracy<\/a> by Claire Provost and Matt Kennard (Bloomsbury Academic 2023)<\/em><\/p>\n

Go to Original – declassifieduk.org<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

4 Oct 2023 – In this excerpt from their book, Silent Coup, the authors go to the sources of a key legal mechanism used by multinational corporations to override governments around the world.<\/p>\n","protected":false},"author":4,"featured_media":245616,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[55],"tags":[1023,232,555,739,1126,1050,2059,639,70],"class_list":["post-245614","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-capitalism","tag-banksters","tag-capitalism","tag-elites","tag-germany","tag-hegemony","tag-imperialism","tag-organized-crime","tag-uk","tag-usa"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/245614","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=245614"}],"version-history":[{"count":4,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/245614\/revisions"}],"predecessor-version":[{"id":245625,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/245614\/revisions\/245625"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media\/245616"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=245614"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=245614"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=245614"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}