Speech at the Königswinter Conference, Oxford, UK, 22 March 2002
Whereas the Select Committee on Globalisation has two and a half years to discuss this wide subject, I have a limit of 10 minutes. That is a bit like the difference between the subjects of globalisation and of housekeeping at Keble College!
1. Would economists please remember what some of their pioneers said?
Over 200 years ago, when Adam Smith set about forming his moral ideas of the free market, he made it clear that the wealth of nations requires a strong state, not a weak one! At least three conditions need to be granted by the state:
- External peace;
- A reliable legal frame. Let’s call it good governance;
- Healthy infrastructure that benefits all competitors but would not be paid for by any individual actor. Adam Smith takes lighthouses as an example.
Another grandfather of modern economists, David Ricardo, also presented assumptions for healthy trade and an international division of labour. One of his assumptions was that capital was not moving. Is it very far-fetched to suspect that David Ricardo, had he been alive today, would be among the protesters in Seattle, Genoa or Barcelona? These protesters say nothing against international trade but don’t like the élite power structures of today’s capital “markets”.
2. The Fall of the Iron Curtain produced the Globalisation paradigm
Since when are we speaking about globalisation? Some believe that globalisation started with the ancient Phoenicians or at least since Cook’s sailing around the world. This is untrue: globalisation is a brand new term. It emerged after 1990 and the collapse of the Iron Curtain, which we all applauded, and simultaneously, in the context of the Internet revolution.
Until 1990, international capital had to seek consensus with national governments and parliaments in the North and South. In the South, governments used to play on the East-West tensions to solicit ODA. In Europe, we had the spectre of ‘Finlandisation’, referring to a dangerous rapprochement with the Soviet Union. Clearly, a consensus society with some elements of a welfare state was seen as more attractive by the owners of capital.
After 1990, despite massive reduction of military budgets (by roughly 300 billion US-$), the amount of funds available for development aid, public goods was shrinking. We have seen a steady reduction of capital taxation in all OECD states. The OECD calls it “harmful tax competition”.
3. Global governance
The private sector benefited and boomed. It may be high time to re-establish a healthy balance between public and private goods.
To be sure, private capital accumulation is a public good in itself. It is a major part of the wealth of a nation. Moreover, international trade helps preserving international peace, better than the nation states have been able to do.
Nevertheless, I see a need for the world to establish an equivalent to democratic state authorities, this time of a global scale. The idea is to have a power structure matching the powers of the private sector, and committed to defending public goods — in line with Adam Smith’s concepts.
In effect, we are speaking about global governance (not: global government!).
4. Three pillars
Global governance would have to rest, I suggest, on three pillars. In classical political science, we had the duality between the state and the private sector. These are then two of the three pillars.
- The state must more and more extend its reach to global affairs, by, inter alia, strengthening the UN system, international treaties, regional authorities (notably the EU). It must also secure a meaningful participation of parliaments. The International Parliamentary Union (IPU) established as early as 1889, is far from being an adequate institution in this regard. Let me inform you about one fascinating initiative called e-Parliament, that tries to link up parliamentarians via Internet to help them in their local and national needs to learn about parallel developments in other countries; the perspective is to enhance the level of competence and thereby of clout of parliaments.
- The private sector has “black” and “white sheep”. UN Secretary-General Kofi Annan has invited the “white sheep” to help him on matters of the UN agenda. Many British and German enterprises have joined this “Global Compact”. Another road is investment portfolios specializing on “white sheep”. Both the UK and German Parliaments have adopted legislation obliging private pension schemes to declare if the adhere to ethical or ecological criteria. It’s a rather new and exciting market with growth rates around ten percent per annum.
- The new pillar is civil society. International Civil Society organizations are booming. Although incredibly diverse, they can be strong.
We have witnessed several struggles between private sector corporations and civil society. Perhaps the most famous struggle in the United Kingdom occurred between Shell and Greenpeace over a North Sea oil platform. Legally, Shell was in the right: the British authorities agreed with the oil company’s plan to dump the platform. However, for moral reasons, Greenpeace objected and forced Shell to bow to them instead of the British authorities. In a sense, this event encouraged both parliamentary and civil society actors to join forces for the common good.
Unless civil society can be persuaded that private sector companies act morally, public suspicion will not disappear and Seattle may reoccur in the future. In addition, parliaments will remain alert to global pacts or alliances between states or international organizations and the private sector.