October 26th 2000
The Backlash against Globalization?Liberal International
It is a great pleasure to be here with you today. I think it is vitally important that we reconnect international organizations with the political grassroots. That is why I am here to report back to you as well as to listen to your concerns. I have made a point of meeting with elected representatives from the Socialist International and the Democratic Union. We need to connect better and be more accountable to our owners, governments, and work closer with legislators.
If I had made this speech a few years ago, my theme would probably have been The Triumph of Economic Liberalism. After all, since the Second World War, the world has become a much more liberal and open place. In 1949, when I was born, trade barriers were still at their post-Depression highs, few currencies were convertible, rationing was commonplace, huge swathes of industry were nationalised, and Soviet communism threatened to crush liberal democracy.
At first, the pace of economic liberalization was slow and its scope limited. Industrialised countries made their currencies convertible and freed up trade among them, but governments maintained a tight grip on capital flows and continued to intervene heavily in the domestic economy. But in the 1980s things changed. In rich countries such as the United States, Britain and my own country, New Zealand, governments embraced liberal ideas. National champions were discarded in favour of international competition. Industries were privatised and markets deregulated. Capital controls were abolished. Foreign investment was welcomed with open arms. These policies were copied not only in other industrialised countries, but also in many developing ones, and then, after the collapse of communism, in ex-communist ones. The discrediting of communist, and by extension statist, policies gave a big new boost to open economic principles ideas everywhere.
As governments retreated, markets combined with new technologies to weave national economies more closely together. An ugly new word, globalization, was coined to describe this process. It seemed inevitable; even those who harboured doubts about globalization thought opposition was futile. In those giddy days, pundits were quick to proclaim the triumph of liberal democracy and even The End of History, which was and is a silly phrase.
The mood has changed. The financial crisis that engulfed first Asia, then Russia, then the world in 1997-98 led many people to question the merits of free markets. The collapse of negotiations at the OECD on a Multilateral Agreement on Investment gave new heart to critics of globalization. And the failure to launch a new WTO round in Seattle emboldened some globaphobes to think that they could put a halt to globalization and rewrite the rules of the world economy on their terms.
I am not suggesting that liberalism is in retreat. The world economy has survived the financial storm and is growing strongly again. Worries that developing countries would turn their backs on free trade have proved unfounded. The setback in Seattle has not stopped the launch of new WTO negotiations on agriculture and services in Geneva or impeded the enforcement of existing rules through the dispute-settlement process.
But there has been a backlash against liberalism. For a start, statist urges are alive and well. The traditional calls for intervention to save jobs or redistribute wealth still strike a chord. Moreover, many people dislike the fact that seemingly impersonal market forces hold sway over their lives, even though markets in fact reflect the combined preferences of millions of ordinary people. And there is a widespread distrust of the profit motive, as if making losses was preferable. In my own country, I used to lecture unions that profit was a good word, that the only real security for workers was a healthy balance sheet, and that they should not attack companies that made big profits but picket incompetent managers who endangered workers' futures by making losses.
Another strand is people's fear of change. Globalization is not new, but it is more pervasive than before. A century ago, for instance, there was more cross-border migration than there is now. Throughout the past century, new technologies have continuously caused upheaval. But now in our media age, people are constantly confronted with change that they would otherwise not be aware of. This helps opportunistic populists whip up fears of change. Of course, some people lose from change, and many more fear they might lose. We must ensure that they receive help to adjust. But we should also remember that a century ago, people fretted at the massive shift off the land and into the factories, but that people nowadays are much richer thanks to the Industrial Revolution.
Perhaps the biggest challenge comes from those who want to constrain economic, political and social freedom in the name of some higher ideal. Some people cannot accept that others have different values and want to impose their own values on them. That is wrong, whether those people are for or against globalization. It is fine to love rural life, national cultures or the environment, just as it is fine to love cities, Americana or the motor car. The problem comes when some of those who idolise rural life want to prevent people moving to towns, or when some of those who put national cultures on a pedestal want to curb the influence of American culture. And so on. Those people then blame globalization because it enables people to make choices that they disapprove of. As one developing country leader said, They want to save us from development. And they take aim at the WTO because they see it as the handmaiden of globalization.
We shall never convince such zealots of the case for economic liberalism. But we must not allow the zealots and self-serving privileged people to discredit liberalism among the wider public. We need to make the case for freedom, economic, political, and social, again and again.
I think the most important lesson of the past 50 years is that we must embrace the outside world, not shun it. Openness is good. Just compare the protectionist nightmare of the 1930s with the long boom in America and Europe in the 1950s and 1960s as trade barriers fell.
But the benefits of openness are not only economic. Whatever its flaws, no one seriously doubts that Europe is better off with the European Union than without it. Sceptics need only look at the bloody wars in the Balkans. Fifty years ago, all of Europe was like that.
Open societies share their ideas and their culture. I love my country, but I see no reason why I shouldn't also enjoy the best that other countries have to offer. It is great that Canadians eat Chinese food, watch American films, and read French books. It is heartening that we celebrated when apartheid fell in South Africa and were horrified when people were butchered in Rwanda. Opening up, which is basically what that ugly world globalization means, is in keeping with the internationalism that progressive people have always championed.
Openness does bring with it new challenges. Our lives are more closely linked with those of others across the globe. When Russia defaulted in 1998, the financial aftershocks meant Mexican homeowners had to pay higher mortgage rates. When South Korea's economy seized up, workers in Korean factories in Britain lost their jobs. Undeniably, this causes pain. But people tend to forget that, thanks to globalization, good times in the rest of the world spill over to us too. America's free-spending consumers prevented a world recession in 1998 and have helped Asia to recover quickly. More generally, exports can keep an economy going when domestic demand flags, while imports can prevent it from overheating when domestic demand is strong.
The World Trade Organization, and its predecessor the GATT, has played an important role in creating this more open and prosperous world. Since the GATT was set up in 1948, world trade has soared 15-fold, to more than $7,000 billion a year. This has helped to multiply world output by seven. This huge rise in living standards has allowed nearly everyone to enjoy the luxuries that were previously enjoyed only by the few. European tours were once the preserve of British aristocrats. Now almost everyone in the EU can enjoy a foreign holiday. Even in poor countries, people live longer, eat better, and have more access to clean water than they did 50 years ago. GDP per head in less developed countries has trebled since 1950, life expectancy has risen by over 20 years, and adult literacy rates have increased by over 30 percentage points.
Of course, some people do lose in the short run from trade liberalization. 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. Their plight should not be forgotten. But the right way to alleviate the hardship of the unlucky few is through social safety nets and job retraining rather than by abandoning reforms that benefit the many.
Free trade is generally a good thing. It helps pay for the things we value most: jobs, health, education, a cleaner environment. And it 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 them and to ourselves to match that political freedom with economic opportunity.
The WTO is a powerful force for good in the world. Yet 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. At the WTO, governments decide, not us.
But people do want global rules. 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. That is what the WTO is. We do not lay down the law. We uphold the rule of law. The alternative is the law of the jungle, where might makes right and the little guy doesn't get a look in.
Of course, we need to put our case better. We also have to listen to our critics more. They are not always wrong. And we are trying to make the WTO's work even more accessible to everywhere. We are constantly improving our website. We welcome public scrutiny. That is why I make a point of testifying before parliamentary committees whenever I visit a country. And that's one of the reasons I'm here today.