Adelaide, 2 February 2001
The case for the “open society” and the role the WTO plays
Australia-Israel Chamber of Commerce
It is a pleasure to be with you and to share some thoughts about the open society and to explain the role the WTO can play in building a more secure, stable, predictable economic system from which civilised people, working families, businesspeople, investors can prosper — a system of agreed rules by governments and parliaments, not force. The law is the great equalizer, whether that law be local or international.
There is no international institution less understood, more demonized than the World Trade Organization. According to some of the propaganda that I have read, I am one of the most powerful men in the world. Alas, that's not so.
A little history. The great depression was made deeper, prolonged and more lethal because of protectionist measures by governments who scrambled in panic to save, as they saw it, their economic skins. The great depression helped give rise to the twin tyrannies of our age — fascism and marxism. Thus the hot and cold war. The most terrible war in human history and the most wasteful misallocation of resources in the human experience. The vicious and ungracious Versailles agreement after the Second World War gave way to the most generous and visionary idea in history, the mirror opposite of Versailles. The Marshall plan, where the victors decided to rebuild the vanquished and to integrate a broken Europe into a new world economy. It worked. A peaceful Europe is a force for good, and that economic union is still at work, extending to a wider Europe.
The same principle of open society and open markets worked so that Japan is now a force for good, a great nation, a great exporter and a great importer. Tens of thousands of jobs in Australia rest on Japan's success. How did this happen?
Even before the War ended, leaders determined this tragedy must not happen again. The world needed an international architecture to protect it. The United Nations was born to handle political matters, the World Bank to finance and assist development, the International Monetary Fund to handle macro-economic issues and financial liquidity issues, and finally, the General Agreement on Tariffs and Trade — the GATT, which only recently became the WTO, with binding rules and procedures.
Too much of this century was marked by force and coercion. Our dream must be a world managed by persuasion, the rule of law, the settlement of differences peacefully within the law and cooperation. It is a good thing that all our living standards are now based on the ability of our neighbours to purchase our products. That's where the WTO can do splendid work and advance the progress of the human species.
Governments own the WTO, we don't own them. We have 140 members. We operate by consensus, there is no security. Our agreements must be ratified by sovereigns, parliaments and congresses.
So why the controversy? In the absence of an “ism” to hate, globalization is now the target. But globalization, that terrible word, is not new. It is not a policy or a plan or a conspiracy worked out in secret and implemented by a cabal of the rich. It is a process that started when the first person stood upright and walked out of a cave and exchanged products. Many economists and historians argue that trade as a percentage of GNP was higher before the First World War that it is now and that there was certainly a greater movement of people then than now.
Technology, information and financial flows have accelerated this process. The great difference is that everyone can see and understand what is happening. There is a debate and that is a good thing. Too often, people confuse technological change with globalization and some even think that if there were no WTO there would be no globalization.
History shows how we moved from hunter-gatherers, to agricultural, then feudal and industrial society. Now we are in the post-industrial age. Each of these great cycles of historic economic development was marked by turmoil, unrest, hatred of leaders, a phase of discontent, even revolution. I believe these movements are for the better, at least for most people. Liberty and living standards have advanced. Technology has advanced our species. In the 1960s India and China were faced with frequent famines. Then came a science-driven green revolution. The author of blessings such as super rice and super wheat got the Nöbel prize for peace. Now he would be met with protest. In open and democratic societies, where ideas must be tested, where we operate in a transparent way, science is our best friend. Everyone is a globalist when their child is sick. They want the best medicine the world can offer. Look at how costs relative to income have dropped over time. 125 years ago, it took a week's work for a Kiwi to put one word in a cable to London. Now the children of the unemployed or widows can e-mail or chat anywhere for almost nothing. In the 1950s it took a year's wages to pay for the Encyclopaedia Britannica. Now it's on the internet.
Anti-globalization groups such as E.Hippies, Anti-globalisation.dot.com, miss the splendid irony in such titles. Ideas must travel, that is what education is all about. The most globalized of all our activities down the ages have been in our universities and in the arts. However, ideas must be rationally tested. Protest and questioning is part of progress, that in fact is the basis of Karl Popper's proposals in his work the “Open Society and its Enemies”. That is why freedom, both economic and political, returns superior results. The democracy of the market-place, with millions of consumers making decisions, with products being tested in the market-place, is as important as a political market-place. It allows for perpetual improvement. That is why open societies do better. That is the principle of the Open Society, a society that tests itself, open to improvement. That is why it is more successful than closed societies that deny their imperfections and cover up their failures. That is why in the last 50 years open societies have advanced, and so have living standards. As living standards go up, so does the demand for better human rights and environmental standards. An educated people demands it.
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.
It is not just Wall Street traders, management gurus and international civil servants like myself who gain from globalization. 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 good education and decent health care. 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, and 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 globalization.
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 — almost a quarter of the world's population — survive on less than US$1 a day and that a further 1.6 billion make do with between US$1 and US$2 a day. Reducing such 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 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 100 million people have escaped from extreme poverty over the past decade. What do these fortunate countries have in common? Openness to trade and ideas.
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 liberalization that joining the WTO requires will give another big boost to Chinese living standards.
Lee Kuan Yew had this to say about the WTO:
“Through the WTO, the Chinese economy can become integrated into the rest of the world. When the Chinese livelihood is interdependent with that of the world through trade, investment, tourism and the exchange of technology and knowledge, there will be a better basis for a stable world”.
But 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 or if nations are crippled by debt, or an AIDS epidemic, or bad governments. But freer trade is essential if poor people are to have any hope of a brighter future. Those societies that have produced the worst results are those that do not treasure trade, honest and open governments, the rule of law and freedom. Amartya Sen won his Nöbel prize by his studies that showed economic and political freedom were linked to development. Sen writes that: “Freedom is at once the ultimate goal of social and economic arrangements and the most efficient means of realizing general welfare. Social institutions like markets, political parties, legislatures, the judiciary and the media contribute to development by enhancing individual freedom and are in turn sustained by social values. Values, initiatives, development and freedom are closely interrelated”.
Critics of free trade argue that poor people within a country lose out when it liberalizes. This is where the government has a crucial role to play. It must distribute the benefits of trade. Of course, in the short term, some people do lose from globalization. As trade barriers fall, foreign competition forces domestic firms to specialize 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. Poor farmers who lose their subsidies or unskilled workers who lose their jobs need time to find new employment. 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 liberalization and economic reform. The temporary losses of a few should not prevent a country from reaping the much bigger — and permanent — gains from 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 from 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.
There are many reasons why the lucky country Australia is so successful. But surely one of the main ones is its greater openness to trade. In 1990, Australia's exports came to 39 billion US dollars. Last year, they were an estimated $69 billion. Ten years ago, imports came to 39 billion US dollars. Now they are put at $77 billion. Total trade, exports plus imports, now accounts for over two-fifths of the economy. A decade ago, it accounted for only a third or so.
Accessions are one of our priorities for 2001. China is almost done. Thirty other countries are knocking on the door. They include large nations such as Russia to smaller nations such as Vanuatu, Viet Nam and, recently, Yugoslavia who sees membership of the WTO as part of its wider democratic strategy.
Another priority is to launch a new round of multilateral trade negotiations. I am glad to say that Australia has been in the forefront of efforts to launch a new round. Your minister, Mark Vaile, loudly beats the drum for freer trade. He is right to do so. Halving trade barriers around the world would add over 380 billion US dollars a year to the world economy, according to a study by the Tinbergen Institute.
Australia has many interests in a new trade round. Lower industrial tariffs would boost manufacturing exports. Services liberalization would help new-economy companies blossom. But perhaps the biggest gains could come in agriculture. Farming is one of Australia's greatest strengths. Hence the need for further negotiations.
We must not forget that if the big guys are not doing well, neither will the small guys. We need the US, Japan and Europe growing strongly and keeping their markets open.
But although it's not politically correct to say so, the big guys also need new markets to ward off protectionist pressures at home. The use of anti-dumping and countervailing duties is soaring, threatening the gains from past liberalization. Producer support estimates for agriculture are rising again, according to the OECD. The siren voices of protectionism beckon.
Leaders and ministers have a far more difficult job than in my day. Special interest groups are better mobilized. However, in Geneva work is progressing on all fronts, we are in serious negotiations on our mandated agenda, agriculture and services, two thirds of the world's economy. We have groups working at various levels of intensity on investment, industrial tariffs, trade facilitation, transparency in government purchasing, competition policy and wrestling on social issues. The key area of implementation, which covers the difficulty developing countries have with existing agreements, has been the subject of intensive negotiation, with only modest results. We have a package through on market access for least-developed countries, where over 20 countries have indicated support.
We have worked harder on inter-agency cooperation with our partners in the World Bank, the IMF, UNCTAD and UNDP, to get up and work on an integrated framework to assist LDCs.
We have reached out with new programmes and new technology to the 30 nations, too small, too poor to have missions in Geneva. The most marginalized, our non-residents. We know the opportunities are immense for all.
I am haunted by the studies that show OECD subsidies are greater than the total GNP of Africa. Abolishing these subsidies would represent a return to developing countries of three times all the total ODA put together. These are goals and opportunities worth fighting for.
Can I finish with a quiz. Guess who said this of the WTO:
are firmly of the belief that the existence of the GATT, and now the
World Trade Organization, as a rules-based system provides the
foundation on which our deliberations can build in order to improve
… As we enter the new millennium, let us forge a partnership for
development through trade and investment0.
nation, big or small, can be left out of this important institution,
nor should it … We should turn this organization into an instrument
of the struggle for a more just and better world”.
is not a policy choice — it is a fact”.
evidence is overwhelmingly persuasive that the massive increase in
world competition - a consequence of broadening trade flows - has
fostered markedly higher standards of living for almost all countries
that have participated in cross-border trade”.
Ladies and Gentlemen, I am not arguing that in our imperfect world there is no need for change, adjustment or reform of our global architecture, or that the WTO does not need to adapt nor improve. But I will say the world would be a more dangerous, less stable place and Australia less prosperous without it.