Frankfurt, May 4th
Globalisation and the Social Market Economy
Konrad Adenauer Stiftung
It is a pleasure and an honour to address such a distinguished audience today under the auspices of the Konrad Adenauer Stiftung.
Adenauer once remarked that a thick skin is a gift from God. He was surely right. The World Trade Organisation has taken more than its fair share of flack recently. But I'm strengthened by the knowledge that in the 50 years since the GATT/WTO system was established the world has witnessed the most dramatic rise in living standards in history. World output per person has risen by 2% a year over the past half century, double the rate of increase between 1820 and 1913. That is a remarkable achievement, which has lifted millions of people out of poverty.
Yet few topics are as controversial as globalisation. That is hardly surprising. Bringing distant markets and people across the world closer together is a huge change that affects everyone, whether they are peasants in India or bankers in Frankfurt. And such an enormous upheaval is unsettling, especially when it seems unpredictable and uncontrollable. People tend to assume the worst: that what they value most will be lost, and that what replaces it can only be bad. People in Germany and elsewhere in Europe often think that globalisation threatens the European model of capitalism, which tempers markets with government policies that aim to promote social justice. Indeed, it is now conventional wisdom that globalisation sets governments, like companies, in greater competition with each other, and that this will force Europe to remodel itself along American lines.
Becoming more like the United States is not necessarily a bad thing. Few can fail to admire the dynamism of the American economy, the harnessing of creative talents in Silicon Valley, and the benefits of America's success that spill over to the world at large. America's booming economy kept the world, and arguably the world trading system, afloat when it looked like it might sink in the wake of the Asian crisis. Now that the world economy is thankfully on a surer footing, European leaders want to capture some that American spark in Europe, as they pledged to do at their summit in Lisbon earlier this year. Yet many Europeans also cherish the right to be different, and rightly so. Germany is right to be proud that it was the first country in the world to introduce state retirement pensions. My country, New Zealand, was second. And Germans are right to be proud of their world-beating apprenticeship system.
As a New Zealander, I am no stranger to the worry that opening up to the rest of the world will swamp local ways of doing things. But I think those fears are misplaced. Europe's social model is not under threat from globalisation, or from the WTO for that matter. Certainly, whatever our critics might claim, the WTO is not going to force Europe to dismantle its social market economy. It cannot and should not. And if Europeans are willing to pay higher taxes in order to enjoy socialised healthcare or generous unemployment benefits, then there is no reason why they cannot continue to do so, however much Europe globalises. On the contrary. An efficient national health service is often a competitive advantage in a global economy, and a well-run public education system is a necessity. Moreover, because free trade boosts economic growth, it brings better-paid jobs and more money to spend on health, education and pensions. That is the bottom line. Freer trade is good for the European social model, not bad for it.
Adenauer was a fervent believer in European integration. He thought that bringing the countries of Europe closer together would make all of them stronger, not weaker. He was right. Germany is a much richer and more stable place now than he could ever have imagined when he became Chancellor in 1949, the year I was born. So are the 14 other countries of what is now the European Union. Of course, they depend on each other more than ever before. But France is no less French, and Germany no less German. People may criticise the EU and blame Brussels for their problems, but in the end not many think that Europe or the world would be better off without the European Union.
I think opposing the WTO or a new round of trade liberalisation is as shortsighted as opposing the enlargement of the EU. Of course, we can debate its conditions and timing, but we ought not to doubt the principle. Globalisation, like European integration, offers amazing opportunities. Just consider these examples. icq, an instant-messaging service developed in Israel that allows people around the world to chat for free, has spread like wildfire in Germany. NetIPO, an Internet investment bank based in Frankfurt, last year placed a share issue for FortuneCity.com, an American cyber-community, on Germany's high-tech stockmarket, the Neuer Markt. Volkswagen makes cars in Mexico. Deutsche Bank now owns America's Bankers Trust. Daimler Benz has snapped up America's Chrysler, as well as a stake in a Japan's Mitsubishi Motors. And yes, Mannesmann has been taken over by Britain's Vodafone Airtouch.
Taken together, these link-ups are perhaps as momentous as the decision in 1951 to pool France and Germany's coal and steel production, the act that gave birth to what has become the European Union. This surge in cross-border trade and investment is helping to raise living standards across the world as new technologies spread faster, foreign competition keeps domestic firms on their toes and consumers reap the benefits of an ever wider choice of cheap imports.
Of course, greater interdependence does make economies and people more vulnerable to events across the globe. DaimlerChrysler will take a bigger hit if America's economy turns sour than the old Daimler Benz would have done. Yet by the same token, DaimlerChrysler's German workers and shareholders are now benefiting more from America's unprecedented economic boom than they would otherwise have done. Germany depends much more on the rest of the world than it used to. Thirty years ago, total trade, the average of exports and imports, accounted for just under a fifth of Germany's national income. Now it accounts for around a third.
But the figures don't tell the whole story. Globalisation is not only about economics. It is also about people's life choices. In a wholly national economy, a German would have to live in Germany, eat German food, shop in German shops and watch German sports. Now she can choose to eat Moroccan food, read The New York Times on the Internet and visit Paris without changing money or producing a passport. "Globalisation increases people's freedom to shape their identities, independent of those of their ancestors," as John Micklethwait and Adrian Wooldridge say in their forthcoming book on globalisation, "A Future Perfect".
For all their similarities, though, globalisation is very different from European integration in at least one important way. Whereas the ultimate aim of the EU, as stated in the Treaty of Rome, is political union between its member states, there is no such desire outside Europe. Governments, and the people they represent, do not want a world government of any shape or form. But they do want global rules, and that is where the WTO comes in. Not as a rule-setter: unlike King Solomon, we do not lay down the law. We are a forum where governments negotiate rules, which are ratified by national parliaments, that promote freer trade and provide a transparent and predictable framework for business. And we are an impartial arbitrator on which member governments can call to hold others to rules to which they have previously agreed.
Inevitably, as an umpire the WTO often courts controversy. I need hardly remind you of the events in Seattle. Yet the WTO is not as unpopular as our critics make out. 58% of Americans think that the WTO has a positive impact on the world, compared with only 27% who think it has a negative impact, according to a recent poll by the Angus Reid group. Indeed, speaking before a German audience, I may be preaching to the converted. I am glad to tell you that 65% of Germans think the WTO has a positive impact on the world, more than in any of the 17 countries surveyed apart from the Netherlands. And only 14% of Germans think that the WTO has done more harm than good to their country. 2,000 people may have rioted against capitalism in London this week, but thirty countries, more than 1.5 billion people, are queuing up to join the WTO.
Still, we face a big challenge ahead. The WTO is too often misunderstood, sometimes genuinely, often wilfully. We need to put our case better. We also have to listen to our critics more. They are not always wrong. At the moment, we are working on a package to help the world's poorest countries reap greater benefits from the world trading system. This package includes better access to rich-country markets, increased technical assistance, and closer co-operation between the WTO and other global institutions that promote development, notably the World Bank. And we are trying to make the WTO's work even more accessible to the man and woman in the street. We are constantly improving our website, www.wto.org, so that it offers an even greater wealth of information. We welcome public scrutiny. We have nothing to hide. But we can do better. We must.
Even so, we cannot succeed alone. We need others to speak out on our behalf too. That is where you can help. I hope I have convinced you, if you needed convincing, that globalisation can be a powerful force for good in the world. Freer trade helps pay for the things we value most: jobs, health, education, a cleaner environment. Every mother wants the best the world can offer when her child is sick. Freer trade also promotes freedom and buttresses our security and peace. One of the great things about the 80s and 90s is that so many more people, from Eastern Europe to South Africa and South America to Asia, finally became free. We owe it to themand to ourselvesto match that political freedom with economic opportunity. The WTO itself upholds the rule of law instead of the law of the jungle. I'm sure that Adenauer would have been a champion of the WTO. And I hope that you will be too.