Zealand, 14th August 2000
In praise of the future
lunch, Canterbury Employers Chamber of Commerce
Centra Hotel, Christchurch - New Zealand
Few topics are as controversial as globalisation. That is hardly surprising. It is the defining feature of our time. Bringing distant markets and people across the world closer together is a huge change that affects everyone, whether they are peasants in India, students in London or bankers in New York. 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.
We need to reassure people that globalisation is generally a force for good. The last 20 years have seen a dramatic rise in living standards for many countries across the world. But those gains can be lost. Of course, the Internet cannot be uninvented. But Governments can, and do, intervene to prevent products, money, people and ideas from flowing freely across national borders. They can slow or block progress. In the first half of the 20th century, the globalisation of the 19th Century was rolled back. We cannot rely on peoples grudging acceptance of the perceived inevitability of globalisation, freedom and openness. We must make our case again and again.
Let me add that globalisation and trade are not new phenomena. Trade as a percentage was higher in 1914 than it is now. Globalisation is a process, not a policy. Its just accelerating. Just as we went from hunter-gatherer societies to agricultural, feudal societies and then into the industrial age, so today we are in the post industrial age. 100 years ago over 80% of New Zealanders or Americans were on the land, now it is less than 10%. Yet we produce more food, fibre and protein.
Alas, each generation must relearn the old lessons. Our parents, having suffered the great depression and the collapse of the trading system, made deeper and more lethal because of tariff hikes in major markets, then suffered a world war. Those two events were connected. Great men, liberal and progressive leaders like Roosevelt, Lord Keynes and others, erected a new system of global structures, including:
- The United Nations; to handle political matters
- The World Bank, to manage development
- The International Monetary Fund, to manage global economic policy
- The International Trade Organisation (which became GATT and then the WTO), to manage trade.
Embodied in the Marshall Plan, the most generous idea by victors in war ever, this was the mirror opposite of the spiteful, short-term thinking of 1918 and Versailles. What a different and more dangerous world it would have been without this visionary political leadership.
Einstein once defined insanity as people or societies doing exactly the same thing over and over again and expecting different results. The forces of reaction and economic tribalism still lurk out there. For example, I see two Europes. There is a united Europe confident; where people enjoy each others culture and commerce, move freely, respect human rights, and promote and defend environmental standards. Contrast this with the other Europe the Balkans, where political and economic tribalism still destroys hope and tortures the truth. A grotesque example of what really happens when tribalism wins over openness and democracy.
As I said, we need constantly to reassure people.
Perhaps the critics of globalisation are trying to say that the benefits of globalisation mean little to ordinary people. After all, no one has ever manned a barricade demanding that efficiency be maximised. But although the terminology may not have a human face, the reality does. Inefficiency is never a good thing: it means people are wasting their talents and countries are squandering their scarce resources. Maximising efficiency means getting the most out of what youve got. It means enabling people to fulfil their potential and helping countries to make the most of their resources and conserve their environment. Efficiency is just another word for conservation.
The evidence of people doing better for themselves is captured in economic statistics. There is overwhelming evidence that trade boosts economic growth. Just compare the protectionist nightmare of the 1930s with the long boom in America and Europe as trade barriers fell in the 1950s and 1960s. Or read the famous study by Jeffrey Sachs and Andrew Warner of Harvard University, which finds that developing countries with open economies grew by 4.5% a year in the 1970s and 1980s, while those with closed economies grew by 0.7% a year. At that rate, open economies double in size every 16 years, while closed ones must wait a hundred. Or cast an eye on the countless country studies that support their results.
When people say globalisation lacks a human face, they may also mean that it doesnt benefit ordinary people. But that is simply not true. More has been done to address poverty in the past 50 years than the previous 500 years. In 40 years, developing countries have seen child death rates drop by half and malnutrition drop by a third. The percentage of rural families without access to clean water has fallen dramatically.
It is not just Wall Street traders, management gurus and international civil servants who gain from globalisation.
It is also everyone with a pension who enjoys a more comfortable retirement because their savings are more fruitfully invested abroad, as well as everyone abroad who benefits from that foreign investment.
It is people in Britain who can talk on Finnish mobile phones, use Japanese cameras, drive American cars, drink Colombian coffee and wear clothes made in Asia.
It is poor people everywhere who can buy cheaper food and clothes produced abroad.
It is Indian computer programmers who can sell their services to American companies and earn enough to give their children a better education and decent healthcare.
And it is poor people in poor countries who are grasping the opportunities provided by trade and technology to try to better their lives: Mexican farm hands who pick fruit in California; Bangladeshi seamstresses who make clothes for Europeans; South African phone shop owners who hawk time on mobile phones to their fellow township dwellers. They and countless other real people everywhere are the human face of globalisation.
It is true that, in general, living standards in poor countries are not catching up with rich ones. It is a tragedy that 1.2 billion people a quarter of the worlds population survive on less than a dollar a day, and that a further 1.6 billion another third of the worlds population make do with between one and two dollars a day. But let us be clear. Trade and openness is not the problem for these poor countries. Rather, it is too little trade and not enough openness. Sometimes. It is also a lack of good governance or democratic structures.
Reducing extreme poverty must be a priority. Of course, it is easier said than done. But we can learn from the example of those developing countries that are catching up with the rich ones. Take South Korea. Thirty years ago, it was as poor as Ghana; now it is as rich as Portugal. Or consider China, where 150 million people have escaped from extreme poverty over the past decade.
What do these successful countries have in common? Openness to trade. That is the main finding of a new World Trade Organisation study on trade and poverty by Dan Ben-David of Tel-Aviv University and Alan Winters of Sussex University revealed recently.
The bottom line is this: the developing countries that are catching up with rich ones are those that are open to trade; and the more open they are, the faster they are converging. That is particularly good news for China. The liberalisation that joining the WTO requires will give another big boost to Chinese living standards.
Trade alone is not enough to eradicate poverty. For instance, abolishing trade barriers will not help much if countries are at war and farmers cannot get their crops to market. Nor will abolishing trade barriers have much impact if debt repayments account for nine times more expenditure than healthcare. And if 25% of the people are HIV positive, as is the case in some parts of Africa, then trade on its own will not be the whole solution. But trade will be a key part of any solution.
Even so, critics of free trade argue that poor people within a country lose out when it liberalises. Not so. The new WTO study finds that the poor tend to benefit from the faster economic growth that trade liberalisation brings. It concludes that trade liberalisation is generally a strongly positive contributor to poverty alleviation it allows people to exploit their productive potential, assists economic growth, curtails arbitrary policy interventions and helps to insulate against shocks. This concurs with the finding of a new study by David Dollar and Aart Kray of the World Bank which, using data from 80 countries over four decades, confirms that openness boosts economic growth and that the incomes of the poor rise one for one with overall growth.
Of course, in the short term, some people do lose from globalisation. As trade barriers fall, foreign competition forces domestic firms to specialise in what they do best, rather than making goods which are more efficiently produced elsewhere. Those who are no longer gainfully employed have to find new jobs. Some are fat cats grown rich from cosy deals with governments. But others are poor farmers who lose their subsidies or unskilled workers who lose their jobs and take time to find another one.
Their plight must not be forgotten. But their hardship, like that of anyone who loses their job, should be eased with welfare benefits and job retraining, not by putting a halt to liberalisation. The temporary losses of a few should not prevent a country from reaping the much bigger, and permanent, gains from free trade. After all, the interests of candle makers were not allowed to stop the introduction of electricity. Nor are governments scrambling to stop the Internet cutting out middlemen. Freeing trade, like new technology, causes change. That is how it boosts economic growth. Some of us lose at first, but eventually we all gain. Technology can be the friend of the people. Nobody wants yesterdays medicine.
The information age is providing opportunities in education, health care, entertainment, enjoyment and employment never before dreamed of. On lonely atolls and distant villages, one can enjoy Pavarotti, get weather reports and teach ones children. Contrast when I was a child, the hope of every working class family was a set of the Encyclopaedia Britannica. In those days it cost a years pay. Now, its free on the internet or you can buy the CD with a weeks social security.
Free trade is generally a good thing. And so is the WTO. We are too often misunderstood, sometimes genuinely, often wilfully. We are not a world government in any shape or form. People do not want a world government, and we do not aspire to be one. But people do want global rules to match the acceleration of globalisation. If the WTO did not exist, people would be crying out for a forum where governments could negotiate rules, ratified by national Parliaments, that promote freer trade and provide a transparent and predictable framework for business. And they would be crying out for a mechanism that helps governments avoid coming to blows over trade disputes. Thats what the WTO is. We do not lay down the law. We uphold the rule of the law. The alternative is the law of the jungle, where might makes right and the little guy doesnt get a look in.
The best friends of the WTO are those who are not members. This year, Georgia, Jordan, Albania and Croatia have joined the WTO. The Albanian President said to me that those who oppose economic integration and support isolation should visit Albania. Later this year we hope to have China, Chinese Taipei, Oman and Lithuania as new members. It is worth reflecting that the Baltic states had living standards equal to Denmark before the Soviets closed them up. Czechoslovakia had a living standard comparable with France before the war. And at the turn of the century, Chile, Argentina and Uruguay had higher living standards than New Zealand, Australia and Canada. Then they turned inwards and downwards. The lessons are overwhelming.
Although the WTO is not a development organisation, it does a lot to alleviate poverty. After all, free trade is not an end in itself. It helps to raise living standards, which lifts people out of poverty.
Even so, the WTO could do more to help the poor. Poor countries do not always make the most of the world trading system, and sometimes their interests are overlooked. I am glad to report that we have made progress on that front, with a package that 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.
These are important steps. But the surest way to do more to help the poor is to continue to open markets. A new round of multilateral trade negotiations would bring huge benefits. As Kofi Annan, the Secretary General of the United Nations, has said: whatever cause you champion, the cure does not lie in protesting against globalisation itself. I believe the poor are poor not because of too much globalisation, but because of too little. He is right. The poor as well as the rich need globalisation.
President Kennedy, on the launch of the Kennedy round of trade liberalisation, said This will assist developing countries like Japan. Look at Japan today. I think this makes our case.