LONDON 2001 - The Trilateral Commissiontrilateral.org/download/doc/london01_full_text1.pdf · ·...

The Annual Meeting of The Trilateral Commission

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Trialogue: 55

The Trilateral Commission was formed in 1973 by private citizens of Europe,Japan, and North America to help think through the common challengesand leadership responsibilities of these democratic industrialized areas inthe wider world. The leadership tasks of the Trilateral countries need to becarried out with others to an increasing extent, and the 2000–2003 trien-nium of the Trilateral Commission has reflected this changing context andthe opportunities it provides.

See our website for more information: http://www.trilateral.org

Copyright © 2001 The Trilateral Commission

All Rights Reserved

East Asian

Chairman

Yotaro Kobayashi

North American

Chairman

Thomas S. Foley

European

Chairman

Peter D. Sutherland

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Editing

Damon C. Morris

Charles B. Heck

Layout & Production

Damon C. Morris

Graphic Design

John Hair

T a b l e o f C o n t e n t s

L O N D O N2 0 0 1

S E C T I O N 1

The Challenges ofGlobalisation

3 Robin Cook

S E C T I O N 2

The ChangingRole of States

9 Gordon S. Smith

12 Ernesto Zedillo

S E C T I O N 3

Addressing Those in Dangerof Being Left Behind

15 Jusuf Wanandi

17 Nora Lustig

19 Jay Mazur

23 Otto Graf Lambsdorff

S E C T I O N 4

Improving theTrading Regime

25 Mike Moore

28 Frits Bolkestein

30 Toru Kusukawa

33 C. Fred Bergsten

S E C T I O N 5

The Legitimacy andAccountability of KeyMultilateral Organizations

37 Joseph S. Nye, Jr.

Jessica P. EinhornBéla KádárHisashi OwadaLuis RubioYoung Soogil

G L O B A L I Z A T I O N A N D G O V E R N A N C E

S E C T I O N 6

Britain: Public Opinion,Economy, Business, Science

50 Robert Worcester

53 Bill Emmott

56 Martin Sorrell

59 Robert May

63 David Howard

S E C T I O N 7

The International System:A European View

65 Chris Patten

S E C T I O N 8

The Future of Africa

68 Frene Ginwala

S E C T I O N 9

The International Role ofthe United States

71 Brent Scowcroft

76 Carla A. Hills

73 Yoichi Funabashi

78 Georges Berthoin

S E C T I O N 1 0

International SecurityChallenges

80 Charles Guthrie

83 Sergei Yastrzhembsky

86 Lee Hong-Koo

89 Richard C. Holbrooke

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London was the location of the 2001 annu-al meeting of the Trilateral Commission,which began on the evening of March 9

and ended at midday on March 12. The pub-lication that follows draws together edited tran-scripts and texts of presentations made in thecourse of those three days.

The London meeting, the first of the TrilateralCommission’s new triennium, was also the firstannual meeting in the widened frameworkagreed upon last year. Most notably, the Japangroup has been widened into the Pacific Asiangroup; and the North American group nowincludes Mexican members. Mexico and PacificAsia beyond Japan are well-represented in thispublication. Section 10 includes the speech ofLee Hong-Koo (from page 86), former PrimeMinister of the Republic of Korea and head ofthe group of Korean Trilateral members. Section3 includes the presentation of Jusuf Wanandi(from page 15) of the Centre for Strategic andInternational Studies in Jakarta, one of fifteenmembers from the original five ASEAN coun-tries. In Section 5 are excerpts from the answersto Joseph Nye’s questions of Young Soogil, nowat the Insitute for Global Economics in Seoul.Section 2 includes the London presentation ofErnesto Zedillo (from page 12), former Presidentof Mexico. Luis Rubio, Director General ofMexico City-based CIDAC (Center for Researchfor Development), was among those respond-ing to the Nye questions (Section 5). We arecontinuing the practice in this triennium of invit-ing a number of persons from other key areasof the world to participate in annual meetings.Speaking to the London meeting was FreneGinwala, Speaker of South Africa’s NationalAssembly (Section 8 from page 68).

The substance of the London meeting wascentered on four sessions grouped under thebroad theme of “globalization and governance”:

“The Changing Role of States” (Section 2),“Addressing Those in Danger of Being LeftBehind” (Section 3), “Improving the TradingRegime” (Section 4), and “The Legitimacy andAccountability of Key Multilateral Organizations”(Section 5). The speech of Robin Cook (thenBritain’s Foreign Secretary) on the openingevening of the London meeting was focused onthe challenges of globalization; and in this pub-lication the Foreign Secretary’s speech is pre-sented as Section 1, with the “globalization andgovernance” sessions. The growing interdepen-dence that so impressed the founders of theTrilateral Commission in the early 1970s hasbecome a process of “globalization” that in anumber of ways presents even more complexand urgent challenges.

At the outset of the London meeting, PeterSutherland became the new European Chairmanof the Trilateral Commission. Mr. Sutherland,now based in London as Chairman of BP Amocoand of Goldman Sachs International, earlierserved as Director General of GATT/WTO, aMember of the European Commission, andAttorney General of Ireland. He takes overfrom Otto Graf Lambsdorff, Honorary Chairmanof Germany’s Free Democratic Party and for-mer German Minister of Economics. PaulVolcker announced at the March London meet-ing that Tom Foley would succeed him as NorthAmerican Chairman. In April Mr. Foley, for-mer Speaker of the U.S. House of Representatives,completed service as U.S. Ambassador to Japanand returned to Washington, D.C., as a part-ner in the law firm of Akin, Gump, Strauss,Hauer & Feld. In May he succeeded Mr. Volcker,former Chairman of the Board of Governorsof the U.S. Federal Reserve System. Reflectingthe widened framework of the TrilateralCommission, there are two new DeputyChairmen: Han Sung-Joo, former ForeignMinister of the Republic of Korea and nowProfessor and Director of the Ilmin InternationalRelations Institute at Korea University; andLorenzo Zambrano, Chairman and ChiefExecutive Officer of Cemex.

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R O B I N C O O K

The Challenges ofGlobalisation

It is my pleasure to welcome you to yourdebates on globalisation in London. Therecould not be a more appropriate setting

than London in which to muse on the chal-lenges and legacies of globalisation. Today’sLondon is a perfect hub of the globe. It is hometo over thirty ethnic communities of at least tenthousand residents each. In this city tonight,over three hundred languages will be spokenby families over their evening meal at home.

That is a cultural diversity which reflectsthe long historic connections which Britainhas forged in seven continents. But it is alsoan economic advantage in a world in whichthe prosperity of a nation depends increasing-ly on the health of its trade and investmentnetworks with other nations. The national air-line of at least one of the countries represent-ed in this audience has recently relocated itsbooking operation to London preciselybecause of the linguistic variety of the staffwhom it can recruit here.

So I have every confidence that the stimu-lating environment of London will help you toresolve the problems of globalisation. To helpyou on your way, let me share some of theperspectives of a Foreign Minister.

The Impact of GlobalisationThe effect of globalisation on business andindustry has been profound. Innovations cre-ated in one country are routinely manufac-tured in a second country, often mobilisingcapital from several countries. The compo-nents in the laptop on which this text was

produced may have travelled further beforefinal assembly than even the Foreign Ministerin the same period.

We live in a global economy in whichgrowth is driven by trade, which is expandingmore than twice as fast as output. And inwhich financial flows across currencies areincreasing even faster and every week outstripthe annual volume of trade. You will all befamiliar with the dramatic effects of thesetrends on your business over your lifetime.Even the youngest executive among you hasprobably seen a bigger growth in trade thanthat in the period from the IndustrialRevolution to the Second World War. And Iwill not embarrass the more mature among usby listing the even more dramatic changes wehave experienced in our lifetime. But theimpact of globalisation is as profound on pol-itics as on business. No national economy isnow an island. And every nation-state is asinterdependent as it is independent.

In the twenty-first century, the old dividinglines of national politics between domesticLeft and Right will be less and less useful as apolitical definition. A more relevant guide tothe forces of progress and those of reactionwill be provided by how they respond to thenew global reality of interdependence.

The progressive political forces will be thosewho are cosmopolitan and outward-looking,who are comfortable building internationalpartnerships and who respect people fromdifferent ethnic identities. They will offersolutions that recognise that national securityrequires international alliances and thatdomestic prosperity requires the dynamicpursuit of external economic cooperation.They will be people who welcome foreigncontact as enriching, not as threatening.

The reactionary political forces will be thosewho are isolationist and inward-looking, whofeel more comfortable clinging to the comfortblanket of a false idyllic past. They will offersolutions that are based on a retreat to narrownationalism and a reluctance to enter intointernational partnerships. They are more

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likely to keep out foreign contact than to wel-come it.

As you meet in Britain, permit me to saywhere the British Government stands.

Global BritainThis Government is firmly committed toembracing the changing nature of the interna-tional reality as a condition of domestic suc-cess. We do not want to cling to a LittleEngland. We want to build a Global Britain. Acountry which accepts globalisation as anopportunity to be seized, not a threat to beresisted. A country which is confident in itsapproach to international partnership. A coun-try which is comfortable that it can face thechallenges of globalisation. A country which isat ease with itself and with its neighbours inEurope. Global Britain can be confident in itsapproach to globalisation because it speaks thelanguage of globalisation. English has becomethe language of the Internet, of software, of thecommunications revolution. English has beenour country’s single most successful export.

Global Britain can be comfortable in facingthe challenges of globalisation because ourethnic diversity is a strength in the modernworld. A multi-ethnic society is betterequipped to handle a multi-polar world.

Global Britain understands that the strongerwe are in our own continent of Europe, thestronger we will be in the other six continentsof the world. Any sane foreign policy muststart by accepting the facts of geography. Wecannot manage a foreign policy that goes allthe way round the board of the globe withoutpassing Europe. Any responsible trade policymust start by accepting the laws of arithmetic.It is with the other countries of Europe thatwe trade the clear majority of our exports.

The prosperity and the security of ournation depend on foreign contacts. Tolerancetowards the foreign resident who has madehis or her home in our country is the parallelto partnership with a foreign country abroad.

In the global village legitimate migration isthe necessary unavoidable result of economic

success which generates a demand for labourfaster than can be met by the birthrate of amodern developed country. We must ensurelegal migrants have the full opportunity tocontribute their skills and talents to the coun-try they have chosen as their home. By con-trast, discrimination at home is sister to xeno-phobia abroad. In the age of globalisation,both damage the national interest. Neithershould have any place in the political lexicon.

I have said that we want a Global Britainthat is confident and comfortable and at easewith the challenges of globalisation. I wasvery struck reading through the papers foryour discussion that not all contributorsshowed that sense of confidence, comfort andease about globalisation. On the contrary,there were frequent strains of angst at beingmisunderstood and a touching sense of hurtat not being regarded with more affection. Letme therefore as a politician address some ofthe questions raised by the gulf between glob-alisation and its populist critics.

Building a Wider ConsensusThe age of globalisation is marked by remark-able economic vibrancy and rapid technologytransfer. In economic history, it is matchedonly by the experience of the post-wardecades, from the Marshall Plan to theSeventies oil shock—what the French call “lestrente glorieuses.” During that period, theBritish economy doubled in size, the U.S.economy tripled. Germany and Japan bothgrew ten-fold. However, the striking contrastbetween these two phases of similar growth isthe difference in public reaction. The periodof post-war growth was overwhelmingly wel-comed and by and large was not in itself amatter of political controversy. By contrast,the term “globalisation” has entered the lan-guage as an unloved, faintly menacingword—as unattractive as it is polysyllabic.Why this contrast in popular reaction to twoperiods of similar growth?

The post-war settlement was built not justaround economic growth. It reflected a much


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wider political consensus which was broadlyshared across Western Europe. Business wasguaranteed a stable environment for sustainedgrowth. But the wider consensus was basedon an implicit social contract with the people.Their consent was based on other features ofthe post-war consensus. A universal standardof welfare. Equal opportunity of educationand in employment regardless of birth. Anopen society and democratic government.These were the broad planks on which popu-lar support was built for the prolonged post-war period dynamism of business in theAtlantic area. Globalisation does not enjoyany such broad consensus. It is vulnerableprecisely because it is often perceived by itscritics as the globalisation only of investmentand of trade. If we are to defeat those critics,we can do so only by building a wider con-sensus that globalisation must be much morethan just a global economy.

We will not construct such a consensussimply through better presentation or widerprocess. I have no doubt that both could beimproved. For instance, global organisationsneed to master the same structured dialoguethat national governments hold with NGOs.Non-Governmental Organisations are no sub-stitute for elected democracy, but they cancomplement it and are part of the strength ofany mature civic society. There are forinstance in Britain five times as many mem-bers of environmental NGOs as there aremembers of political parties. Prudent politi-cians treat them with respect.

If we are to divert sympathy of NGOs fromthose who take to the street, then we mustenable them to be part of the internationalcommunity in the same way as they are partof national society. And with a similar basis fordialogue. Official forums through which theycan formulate and express their concerns.More open access to working papers. Theexchange of secondments between staff of theofficial organisation and staff of the largerNGOs. The inclusion of representatives ofNGOs within national delegations. All of

these are methods which we have adopteddomestically in Britain. It does not spare usfrom criticism. The whole point of a Non-Governmental Organisation is to put forwardnon-governmental views. By and large,though, inclusion does engage those who takepart in a legitimate dialogue rather than ille-gitimate disruption.

But changes in presentation and processcannot by themselves create a consensus. Thatalso requires changes of substance. So now Iwant to focus on two issues of substance, twoessential building blocks of a consensus onglobalisation—Global Fairness and GlobalResponsibility.

Global FairnessFirst, Global Fairness has made a strong netcontribution to development. In the pastdecade, the level of foreign direct investmentin developing nations has increased six-fold.It now runs at three times official develop-ment aid. Over the past generation, countriesin Asia have achieved such dramatic growthin trade that their incomes have moved fromsomething akin to African levels to somethingsimilar to countries in Europe. These are for-midable pluses on the balance sheet. But thebenefits of globalisation have been unevenlyspread. The overwhelming bulk of investmentgoes to just a few developing countries. Africahas been passed by. Despite the excitingtrends and dramatic growth elsewhere, percapita income in Africa is less today than ageneration ago. It is not just an irony but atragedy that the poorest continent on theglobe is the one which has actually got poor-er during the age of globalisation.

The revolution in communications createslimitless opportunities for the transfer ofknowledge, technology and design. A primedriver of economic growth will be the acceler-ating speed of technology transfer in a wired-up globe. But large parts of the face of theglobe are simply not wired up. Here inBritain, 95 per cent of households have a fixedtelephone line, and 65 per cent of the total

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population now have mobile phones. But halfof humanity has not made or received a tele-phone call in their life. Like me, many of youmight feel one day without a telephone callwould be enriching, but a lifetime without itis impoverishing. The old divide based on dif-ferential access to investment or to skills is indanger of being replaced by a modern divideover different access to the new technologiesof communication.

Globalisation is not to blame for this unfair-ness, but nor will globalisation alone removethe unfairness unless we consciously adoptGlobal Fairness as a deliberate objective.There is much that can be done.

It is one of the harshest paradoxes of glob-alisation that in the very decade when theworld has been integrating a global economy,the global level of development aid has beendeclining. Moreover, the global distribution ofofficial aid sometimes appears to enhancerather than diminish unfairness. For instance,if we were to produce an index of poverty, itwould be unlikely to produce a spread ofdevelopment aid which allocated to sub-Saharan Africa only one-twentieth of the helpper head available to the Middle East andNorth Africa.

As Foreign Secretary, I pay tribute to mycolleague Clare Short, our DevelopmentSecretary. Under her guidance, Britain isincreasing our aid budget by almost 50 percent in six years. And refocusing it on thepoorest people in the poorest countries.

Development aid in these circumstances isnot in competition with private investment. Itreaches those communities which currentlyreceive no investment and which will attractprivate investors only through sustaineddevelopment of human resources. And itneeds to be accompanied by an approachcharacterized by a generous realism whichrecognises that poorer countries cannot devel-op their human resources if their debt burdenexceeds their education and health budgets.

Yet, I was struck that none of your contrib-utors saw an increase in official aid or a reduc-

tion in debt as part of the answer to the crit-ics of globalisation. I believe it is in the inter-ests of global private enterprise to press gov-ernments to reverse the general decline indevelopment assistance and thereby addressthe perception that globalisation is unfair.

There is a parallel here with the point Imade about the post-war consensus. Welfarefor the destitute, public health to protect thecommunity as a whole, and free access to edu-cation for all were essential elements in thatconsensus. It is precisely that development ofhuman resources which is now needed in thepoorest countries to enable them to takeadvantage of the opportunities of globalisa-tion. Businesses engaged in the spread ofglobalisation should openly demand suchinvestment by their governments. The othermeans of promoting Global Fairness is trade.Even a modest shift in the terms of trade canproduce gains to a national economy thatwidely exceed any possible increase in devel-opment aid.

The fastest-growing developing countrieshave been those which have done most totake the opportunity of globalisation to boosttrade. As a result, global inequality fell in the1990s after three decades in which it soared.But global inequality remains much higherthan a generation ago and the benefits ofgreater trade are uneven. The total exports ofIndia, Pakistan and Bangladesh together arebroadly similar to the exports of Thailand’s 60million people.

The collapse of the Seattle talks arose inlarge part from the feeling among the devel-oping countries that their priorities were nothigh on the agenda and that their voice wasnot influential in the Council chamber. Yet, itwould be a tragedy for those same developingcountries if we were not to take forward a fur-ther World Trade Round. Halving trade tariffsworldwide would boost developing countries’income by three times the total of develop-ment aid flows. We must persist with a furtherWorld Trade Round. But we must ensure thatit gives strong priority to promoting develop-


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ment. Free trade for the industrialised prod-ucts of the developed world must be matchedby fairer access for the agricultural products,textiles and clothing of the developing world.

This poses a particular challenge forEurope. The Common Agricultural Policy isthe largest system of agricultural protection-ism on the globe. But it does not protect theliving standards of the farmers themselves, aswe have seen here in Britain. Nor is it in theinterests of our nations as a whole. Our con-sumers pay prices well above the world mar-ket, and in the case of commodities from thepoorest countries, such as sugar, they paythree times the world market price. Europecannot simultaneously be in the vanguard ofliberalising industrial trade and in the rear-guard of liberalising agricultural trade.

There is one simple but profound stepwhich the WTO could take to demonstrate itscommitment to Global Fairness. It shouldcommit itself to achieving agreed InternationalDevelopment Targets, such as the reduction byhalf by the year 2015 of those living below thepoverty level. It has the capacity to make amassive contribution to meeting those targets.It could thereby demonstrate to the develop-ing member states that their concerns areshared by the organisation as a whole. And itcould disarm those critics that see it as aninstrument of injustice rather than an advocateof Global Fairness.

Global ResponsibilityThe other foundation for a new consensusmust be Global Responsibility. The connec-tions between our actions and their resultswere much easier to understand in an agewhen most of the products we bought wereproduced domestically, possibly even locally.But now consumers buy their food, theirclothing and their compact discs from coun-tries which they have never visited. They haveno idea, and no means of knowing, what mayhave been the non-financial costs of their pur-chase. When they buy furniture, they have lit-tle idea of the environmental footprint on the

local forest. When they buy an engagementring, they cannot tell whether it was boughtwith blood in an African conflict.

Nor can their government address theseconcerns by unilateral regulation. Developingcountries are rightly suspicious of nationalenvironmental restrictions on trade as a covertform of protectionism. And, in any case, theseare international problems which can besolved only by international solutions.Governments cannot hope at an internationallevel to discharge the public responsibilitywhich they are expected to exercise at anational level.

Nor is it unreasonable in the modern worldto expect a wider degree of private responsi-bility. One of the consequences of globalisationhas been the rise of transnational corporationswith assets greater than those of governments.Wal-Mart has a turnover broadly similar to theGDP of Norway and General Motors has aturnover greater than the GDP of sub-SaharanAfrica. Many of the larger corporations repre-sented in this room have more executivesworking in foreign capitals than I have diplo-mats working for the Foreign Office.

In these circumstances, it is reasonable toask for corporate good citizenship. Businesshas as much a duty as government to ensurethat its activities protect the environment. Andthere are many striking examples of corporatebusiness accepting that duty. GlobalResponsibility means that it should becomethe norm within globalised business to observethe sound principles of environmental man-agement. The sustainable harvesting of timberand fisheries. The reduction of waste emissionsand energy consumption. The application indeveloping countries of the same safety stan-dards that they would apply at home. Thepublication of an environmental audit as a rou-tine part of the annual reporting cycle.

All of this is in our own interests as well asthose of the local population. The most com-pelling demonstration of globalised cause andeffect is the discovery of the intimate way inwhich disturbing the environment in one

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hemisphere can produce profound and irre-versible changes in the climate in the otherhemisphere. Those businesses most active inthe globalising economy must show the great-est global responsibility in stabilising theglobal climate.

There are other examples where businessand government can work as partners todemonstrate Global Responsibility. Forinstance, diamonds from regions of conflict.

The majority of deaths in conflict over thepast decade have taken place in Africa. Andthe struggle for control over the diamondfields is at the heart of many of those con-flicts—in Angola, in the Democratic Republicof the Congo, and in Sierra Leone. In all ofthem, control of diamonds is a principalincentive and the sale of diamonds is the prin-cipal means of paying for weapons.

Mainly because of our leading role in SierraLeone, Britain has been pushing for a globalban on rough diamonds from conflict areas. Ihave to say that we are very encouraged bythe positive response from the diamond tradeand I would particularly mention the strongleadership provided by De Beers. As a result,we are now on the verge of a world certifica-tion regime, which will ensure that rough dia-monds cannot be traded from countries inconflict unless they are validated by the legit-imate government. This will reduce both thecapacity and the will of rebels to prolong aconflict. But this will also provide an illustra-tion of the positive potential of globalisationand the way global networks can be turned toadvantage if business and government togeth-er accept their Global Responsibility.

ConclusionGlobalisation is with us. It is not just here tostay. It is here to accelerate. Our prosperityand our security will become increasinglyinterdependent. I have tried to sketch outsome of the elements of a political consensusto match that new economic reality. Greatertransparency of international organisations. Adetermination to ensure that the benefits of

globalisation are more fairly shared. A com-mitment that global trade does not knowinglydestroy the local environment or unwittinglypromote local conflict.

Of course, it will be a major undertaking toturn round the perception of those who seeglobalisation only as a threat and never as anopportunity. But I said at the start thatLondon might prove a stimulating environ-ment for your discussions. Perhaps I couldend by adding that the example of Londonprovides not only a stimulus but a hope.London was after all first established as thecapital of England by Romans from Italy. Whowere in turn driven out by Saxons and Anglesfrom Germany. The great cathedrals of thisland were built mostly by Norman bishops,but the religion practised in them was securedby a Dutch prince. Contact with the outsideworld did not begin with globalisation.

London City and the British nation haveboth been shaped by successive waves ofmigration and foreign influence. And there isa consensus among my countrymen of natur-al pride in the culture and economy that hasresulted from their past contact with the out-side world. I offer that happy ending as anencouragement to your discussions and a signof hope that with effort it should not beimpossible to build a similar consensus on theaccelerating foreign contacts required byglobalisation.

Robin Cook was the United Kingdom’s Secretaryof State for Foreign and Commonwealth Affairs inthe first Blair Government (1997–2001), includ-ing during the March 2001 Trilateral meeting. Inthe Cabinet shuffle after the June 2001 electionshe became the Government’s leader in the Houseof Commons.


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G O R D O N S M I T H

Globalization andGovernance

Iunderstand globalization to be more thanan economic phenomenon, even one withclear social and cultural implications.

Other things than the economy are “globaliz-ing.” Security has been globalized ever sincethe advent of nuclear weapons and the long-range means of their delivery. We now seeenvironmental challenges as global in a num-ber of areas; none more obviously than climatechange. Again, I would argue this definition istoo narrow. Global challenges, by definition,are those that require responses at a globallevel. No individual state can develop ade-quate policies on its own. That is the point onwhich I shall build.

Let me tell you something about my experi-ence as the Canadian Prime Minister’s “sher-pa,” or personal representative, for the G-7/8Summits in the mid-1990s. Two decades ago,the first summits focused on macroeconomicissues. I found fascinating in the mid-1990sthat, when the leaders were alone talkingamongst themselves about their major wor-ries, they talked about a much broader rangeof global challenges and the management ofour increasing interdependence. Of course,they talked about the Bretton Woods institu-tions, the WTO, a possible new environmen-tal organization, and the UN. But they alsotalked about other particular challenges insome depth. Climate change will not surpriseyou. But infectious diseases and transnationalcrime might. Both are subjects that sherpaswere asked to prepare for substantive discus-sion at future summits. Why were leaders so

interested in these issues? Quite simply, theyunderstood that they could not deal withthem at a national level, and believed that theinternational machinery was at best creaky.

Globalization, particularly in the economicarea, is not new. Impressive numbers can bebrought to bear showing the high importanceof international trade and investment onehundred years ago. It is also clear from thatexperience that economic globalization wasnot and is not irreversible. War can certainlybring it to an end. In today’s context, so can amajor backlash against globalization. Such abacklash could even undo other forms ofglobal integration being caused by new tech-nology and the increasing pressure of humanson the planet.

Global “Governance” at Besta Work in ProgressI also want to ensure we all understand inbroadly the same way “governance.” It is obvi-ously not synonymous with government. Tome, global governance refers to the manage-ment of issues that spread across borders andtypically involve governments, of course, butalso international organizations, civil society,often the private sector, and sometimes—andindeed increasingly—formal or informal net-works. These issues require, in many cases,what has been called “global public policy.” Todeal with climate change, for instance, it isobvious that there must be just such a globalpublic policy.

These changes in the public policy agendahave clear implications for the role of statesand of international institutions. So does therise in importance of civil society. The num-ber, scope, and influence of non-governmen-tal organizations have grown impressively.This process has been facilitated by the infor-mation revolution, which makes it so mucheasier for people around the world to connectquickly and cheaply. We are also seeing thespread of democratization and its conse-quences. While not universal in scope or inquality, it has meant that more people now are

2 0 0 1 L O N D O N M E E T I N G 9

S E C T I O N 2

THE CHANGING ROLE

OF STATES

GL O B A L C H A L -

L E N G E S , B Y

D E F I N I T I O N ,

A R E T H O S E

T H A T R E Q U I R E

R E S P O N S E S A T

T H E G L O B A L

L E V E L . N O

I N D I V I D U A L

S T A T E C A N

D E V E L O P A D E -

Q U A T E P O L I C I E S

O N I T S O W N .

jp 3-92 2/12/03 10:23 AM Page 9

aware of what is going on and feel a right tobe involved in decisions that affect them.They are asserting that right, sometimes onthe streets. There is mounting discontent asdecisions that have important effects at thelocal level are taken by international bodiesthat are not perceived to be part of a gover-nance process for which there are clearaccountability mechanisms.

In an increasingly interdependent world, itis obvious—I think to most everybody, butmaybe I am mistaken—that one needs betterand universally applicable rules of the road.We need means of ensuring we don’t collide,and at a higher level, that will enable us toarrive at our chosen destinations. The ruleshave to be both effective and accepted as fair.How to bring this off is not obvious and doeslead to questions about who should make therules, how they should be made, how flexibleshould they be, and who, if anybody, is toenforce the rules. You will recognize these asclassic questions about politics and gover-nance. Yet we have no clear system andprocess of global politics and global gover-nance. We have parts of a system, but nothingthat is remotely complete. The building hasmany architects and many workers, and canat best be described as a work in progress.

It is clear we will not have comprehensiveglobal government for a long time, if ever.That does not mean that building governancein a more conscious way for the major globalchallenges that require policy and manage-ment is not urgent. It is. Governance has toreflect the state of global politics, even if it isnow a messy one. It also has to reflect a systemof accountability that has more acceptancethan the present one. And that has implica-tions for transparency and participation.

I have no doubt that global institutions feelquite accountable to those they understand tobe their stakeholders. The latter are govern-ments, or more accurately, parts of govern-ments—individual ministries. I would arguethat the series of separate links back frominternational bodies to national governments

is part of the problem. The decisions of theseinstitutions can have truly dramatic effectsacross economies, societies, and cultures.Think about the Asian crisis and that dramat-ic picture of Michel Camdessus standing witharms crossed waiting for Indonesia to acceptthe terms established by the IMF. Despiterecent efforts to improve transparency, partic-ipation, and accountability, these institutionsfall far short of what one would expect from ademocratically elected government. This isnot because of the insensitivity of manage-ment and boards. It is in no small partbecause the stakeholders—member govern-ments—would not have it any other way.

The end result is not satisfactory. There is aneed for greater inclusion, a sharing in thebenefits of globalization, and better means ofmanaging what economists call global publicgoods—and “bads”—which cut across a num-ber of institutions. Otherwise the backlashagainst globalization will mount and we will findourselves with more and more important envi-ronmental and security problems. This wouldnot be a pleasant world in which to live. Thegood news is that we don’t have to live there.

States Must Still Lead,but in an Inclusive WayLet me now turn to the changing roles ofstates, the traditional locus of authority andaccountability for governance. The reality ofmajor global challenges that can only be metthrough intensive international cooperation isa major change affecting the efficacy of indi-vidual states. We live in a world in which,despite some rather impressive concentra-tions, I would argue power is increasingly dif-fused. Sovereignty has been ceded upwards tointernational institutions. Non-state actors(civil society and the private sector, nationallyand globally) have simply asserted theirincreasing power. And sub-national levels ofgovernment are increasingly constitutionallyrequired to be part of the process. There areclear contenders to the state’s formerlyunchallenged exclusive authority.


IN A N

I N C R E A S I N G L Y

I N T E R D E P E N D E N T

W O R L D , I T I S

O B V I O U S . . .T H A T

O N E N E E D S

B E T T E R A N D

U N I V E R S A L L Y

A P P L I C A B L E

R U L E S O F T H E

R O A D .

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But it does not follow the state is goingaway—far from it. What is needed is for thestate to learn how to share power. Thisrequires more than better information andeven consultation. Let me recall two examplesthat I have experienced. First are the negotia-tions on a multilateral agreement on invest-ment (MAI). Experts in the field who met atthe OECD conducted them. A variety of dif-ferences emerged that required difficult andabsorbing negotiations, but meanwhile thoseinvolved lost sight of the developing opposi-tion to the MAI in civil society that eventuallydid in the negotiations. That opposition wasan alliance of convenience of groups that inother circumstances would have had difficul-ty agreeing the time of day.

My other example is the treaty to ban anti-personnel landmines, so often heralded as asuccess by my former boss, Lloyd Axworthy,who was Foreign Minister of Canada. Let mesay very clearly that if we had concentratedour efforts on lobbying other foreign min-istries around the world, we would not havecome very far. Instead we built on and helpeddevelop a coalition of NGOs. We worked withthe late Princes Diana—a transnational per-sonality if ever there was one.

What this means is that governments needto act in different ways. While they can andmust lead, they need to do so in an inclusiveway. They need to become more and morecomfortable working with civil society—notnecessarily all of it, but key parts. Subordinateorders of government (in a constitutionalsense) need to be brought into the tent.Nonetheless, the state retains its uniqueauthority. It is uniquely accountable to itselectors. NGOs may be increasingly powerful,but have in many cases questionable repre-sentativeness and accountability. The state isan indispensable part of governance at theglobal level. Global environmental change,transnational health and crime problems can-not be solved without the state. This is quiteapart from the fact that many, indeed most,policy issues and program services are best

handled at the national level.We are living in a world in which there is

simultaneously integration and fragmentation.Traditional lines between “domestic” and “for-eign” have broken down. Old national loyal-ties are being undermined. There is increasingdistrust of governments and other institutions.National borders are more porous. It is harderand harder to frame policies strictly at thenational level. Events move more rapidly.These are challenging times for policymakers.

The Role of the United StatesBefore closing I would like to say a wordabout the United States, obviously the coun-try that has by far the most power in theworld today. The leadership of the UnitedStates in building a rules-based system withstrong institutions to manage those areas inwhich we are interdependent is crystal clear.That won’t happen if the United States suc-cumbs to the inclination to act unilaterally. Iam not worried about isolationism. I worryinstead about the concept of U.S. exceptional-ism, as well as attachment to sovereignty,which I know is deeply rooted in Americanpolitical culture. I am absolutely convincedthat the idea of a world in which there is oneset of “rules” that the United States establish-es for itself and another for the rest of theworld won’t fly. Think about the example ofthe International Criminal Court. Therewould not be an ICC without the leadershipof a number of Americans. If the United Stateswishes to be able to bring to justice war crim-inals, can there be a system for Serbs andRwandese, not to mention Canadians andGermans, that cannot by definition apply toAmericans? Excuse me, but I think not.

* * *

My conclusion, therefore, is that while global-ization, global change, global interdepen-dence—whatever you want to call it—is goingforward and leading to the development ofinnovative forms of governance that increas-ingly often include civil society, the state is not

2 0 0 1 L O N D O N M E E T I N G 11

WE L I V E I N A

W O R L D I N

W H I C H . . . P O W E R

I S I N C R E A S I N G L Y

D I F F U S E D .

. . . T H E R E A R E

C L E A R C O N -

T E N D E R S T O

T H E S T A T E ’ S

F O R M E R L Y

U N C H A L L E N G E D

E X C L U S I V E

A U T H O R I T Y .

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going away. Other actors have joined it on theworld stage. The state needs to learn some newroles, to operate in different ways. And thereare more and more opportunities for those ofus at present not in governments to have influ-ence. There are some interesting politicalimplications from this. The capacity of electedgovernments to deal with an increasinglyimportant set of problems is circumscribed.This reflects on how governments are seen andwhat they must say to their electors. As exter-nally agreed decisions and rules have growingimpact, including on social cohesion, who isto be accountable and how will that account-ability be exercised? There will be a large polit-ical cost to fudging the answers.

Global politics on the great issues of pover-ty, sustainable development, climate change,and the like are now only working in a rudi-mentary way. There is no assembly or parlia-ment; nor is there likely to be one for a while.Yet something has to be done at the globallevel to permit non-governmental voices to beheard in a more systematic way. It seems tome that there is something the TrilateralCommission, as a good NGO, can do to facil-itate this process.

Gordon Smith is Director of the Centre for GlobalStudies at the University of Victoria and formerCanadian Deputy Minister of Foreign Affairs.

E R N E S T O Z E D I L L O

Globalization andthe ChangingRoles of States

It is commonly believed that globalizationis forcing nation-states to adapt. This viewconsiders that modern globalization is

mainly a result of technological progress inproduction methods, transport, and telecom-munications. It attributes to nation-states asomewhat reactive, even passive, role in theprocess. At the very best, proponents of thisstandpoint look at the nation-state as just oneamong several important factors in the global-ization process. An extreme version of thisview would submit that globalization fre-quently proceeds in spite of nation-states. Idispute the validity of this view because itdoes not correspond with practical experienceand it can also lead to mistaken policy deci-sions. I believe that modern globalization hasoccurred not in spite of the nation-state, butreally, to a significant extent, because of deci-sions and actions taken by nation-states.

Global integration, economic and otherwise,has indeed been driven by technologicalprogress and economic incentives, but itwould be inconceivable in its present formwithout the universe of political decisionstaken by states at both the national and inter-national levels in many fundamental respects.The rapid expansion of international trade andinvestment in recent decades has certainlybeen facilitated by technological progress, butit would hardly have occurred in the absenceof very deliberate policies implemented bymember-states of the international community.At the national level, sovereign state decisionsto foster the market economy by opening toforeign trade and investment and liberalizingfinancial markets are, more than anything else,key to explaining present economic integra-


. . .M O D E R N G L O B -

A L I Z A T I O N H A S

O C C U R R E D N O T

I N S P I T E O F T H E

N A T I O N - S T A T E ,

B U T. . .B E C A U S E

O F D E C I S I O N S

A N D A C T I O N S

T A K E N B Y

N A T I O N - S T A T E S .

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tion. At the international level, it has beenchiefly by virtue of political decisions made bysovereign states that many agreements leadingto unprecedented integration have been made.

For example, regional agreements such asthe European Union, Mercosur, and NAFTAwere not the result of technological progress.They have been above all the result of politi-cal visions and decisions by sovereign states.The processes which have produced, forexample, the remarkable, albeit yet incom-plete, rules-based WTO system are of anequally political nature. Believe me that notechnological factor would help to significant-ly explain the way in which the Mexicaneconomy has integrated into the world econ-omy in just a few years. Sheer political deci-sion and action explain why today Mexico hasfree trade with more countries than any othernation in the world. Of course, this circum-stance includes NAFTA and the unprecedent-ed FTA with Europe.

Acknowledging the strong political roots ofglobalization brings with it both good andbad news. The good news is that notwith-standing their current adverse reputation, thehuman inventions of politics and the nation-state are still doing a lot of good. The badnews is that, contrary to some beliefs, global-ization, being to a great extent a creature ofpolitical decisions, is not an irreversibleprocess. Its technological determinism is a fal-lacy. Beware of the possibility that govern-ments and politicians can still resort to newforms of protectionism to roll back existingliberalization and can also make policy mis-takes that could lead to a less propitious envi-ronment for the expansion of the internation-al economy. They can, in short, adhere tooquickly and too blindly to the emerging“political correctness” that fallaciouslyimputes to globalization all the present evilsof the world. Let us not forget that, in modernhistory, globalization was already reversedonce by the actions of states with disastrousconsequences for humankind.

If we believe, and I certainly do, that global-

ization is not the cause, but part of the solutionto the problems of poverty and inequalitywhich unfortunately prevail in the world, thennation-states have an enormous responsibilitynot only to confront, with good politics andwise public policies, the present hostilitytowards globalization, but also to continueplaying an active role in its orderly develop-ment. Our conference chairman, PeterSutherland has rightly pointed out that, “Whilethe market economy system is largely agreed inprinciple, the mechanisms to make it workinternationally are at an early stage of develop-ment.” This is by no means an exaggeration.The agenda facing nation-states to harnessglobalization’s full potential contribution tohuman development is very challenging aswell as fascinating. Of course, I do not intendto burden you with an exhaustive discussion ofsuch an agenda. Fortunately, it is being coveredto some extent in the various sessions of thismeeting. Just allow me to hint at a few pointsthat I consider to be of some relevance.

First, I would insist on the fundamental andirreplaceable role of nation-states in the con-struction of global governance. In this task, asin many others, it is absurd to try to bypassthe nation-state with agents of nil democraticrepresentation and of dubious transparencyand accountability. Indeed, let us be attentiveto all voices, but without allowing the state tobe overruled by other actors, however altruis-tic they may claim to be.

Second, nation-states should continue tostrive for a rules-based international system.This is in the best interests of the weakermembers of the international community. Farfrom diminishing modern national sovereign-ties, a rules-based system enhances the powerof weaker states to safeguard their legitimateinterests. I liked what Secretary Robin Cooksaid to us yesterday, “We are now as interde-pendent as we are independent.” In referenceto the developing countries’ cases I couldchange somewhat Mr. Cook’s idea to make iteven more appealing: We are now indepen-dent to the extent that we are interdependent.

2 0 0 1 L O N D O N M E E T I N G 13

L E T U S N O T

F O R G E T T H A T,

I N M O D E R N

H I S T O R Y , G L O B -

A L I Z A T I O N W A S

A L R E A D Y R E -

V E R S E D O N C E B Y

T H E A C T I O N S O F

S T A T E S W I T H

D I S A S T E R O U S

C O N S U Q U E N C E S

F O R H U M A N K I N D .

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Third, the WTO experiment—indeed thefirst post-Cold War era rules-based institu-tion—should not only be fully completed in anew comprehensive round of negotiations,but the basics of this model (binding regula-tions and dispute settlement provisions)should be extended to other essential areas.Rather sooner than later, the internationalcommunity—represented by nation-statesand assisted by existing multilateral institu-tions—should begin to decide on new or rein-forced global institutions in fields such as theenvironment, investment, world taxation,banking standards, and accounting standards.Likewise, the fundamental issue of globalpublic goods should be tackled.

Fourth, and most important, nation-statesshould more effectively confront the acuteproblem of social exclusion at both thedomestic and the international levels. Theyshould start by dispelling the mistaken ideathat globalization per se is a main cause ofexisting disparities. Globalization offersunique opportunities that hardly any othereconomic arrangement could provide. Thequestion is why some are able to take advan-tage of those opportunities, while others can-not—or are left behind. The bottom line (or Ishould better say, the dividing line) has to dowith freedom. People are left behind becausethey are not free. And they are not freebecause they lack nutrition, education, train-ing, health, basic human and political rights,security, elementary infrastructure, andemployment. By means of well-designed andfocused social policies which expand basichuman freedoms, the most vulnerable mem-bers of societies can be empowered to sharethe opportunities provided by the marketeconomy and globalization at-large. Ofcourse, this is more easily said than done. Itrequires sound domestic policies pursued bystrong and democratic national institutions,but in many cases it also requires vigorousinternational cooperation that, unfortunately,is today practically absent from the agendas ofthe well-off countries of our world.

I hope that, beyond any altruistic senti-ment, self-interest will advise a change in thepresent status quo about aid and internation-al cooperation. Otherwise, confusion and ani-mosity about globalization will prevail. Andmuch sooner than later, everyone will have topay for that.

Ernesto Zedillo is former President of Mexico(1994–2000).


. . . I T I S A B S U R D

T O T R Y T O

B Y P A S S T H E

N A T I O N - S T A T E

W I T H A G E N T S O F

N I L D E M O C R A T I C

R E P R E S E N T A T I O N

A N D O F D U B I O U S

T R A N S P A R E N C Y

A N D A C C O U N T -

A B I L I T Y .

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J U S U F W A N A N D I

Benefiting fromGlobalization:DomesticFoundations,International Help

Iwill talk about developing nations in dangerof being left behind in the globalizationprocess. This does not mean that no parts of

the developed world are experiencing the sameproblem. The demonstrations in Seattle againstthe WTO, in Washington against the IMF andIBRD, and in Australia and Switzerland againstthe World Economic Forum are ample evi-dence of that. But larger parts of the developingworld are definitely being left behind.

Sub-Saharan Africa: Hardly Touched So FarThere are two big groups among developingnations. One group is hardly being touchedby globalization, including most countries ofsub-Saharan Africa. In order for them to ben-efit from globalization in the future, a greatdeal of effort will have to be undertaken bythemselves. In many of these countries, peacehas to be restored and a modicum of domes-tic stability achieved. Policies have to be rightand a certain level of institutionalization hasto take place. A certain level of economicdevelopment and growth has to happenbefore globalization is going to touch them.

The international community can help invarious ways. ODA (Official DevelopmentAssistance) and technical assistance are stillvery relevant and should focus on education

and health care. Debt relief, as has beenpromised, is critical for these countries tofund their development. Aid programs toeradicate diseases such as malaria and tuber-culosis are also very important. Public- andprivate-sector cooperation from the West iscritical for these efforts to save their populace.Of course, it is true that these countries andtheir leaders first have to help themselvesbefore outside assistance will have any mean-ingful impact. Without some political stabilityand security, a certain level of institutionaldevelopment, and at least some economicgrowth, there is almost nothing that outsiderscan do. A lot of aid and assistance to thesecountries has been squandered due to the lackof some of these basic factors.

East Asia, Latin America:Real Benefits, but Havoc CreatedIn the other group of developing countriesglobalization has had an impact. Some coun-tries have benefited, especially in East Asiaand Latin America. Most of the countries inEast Asia have benefited tremendously fromopening up their economies to the influenceof globalization. They have been able tochange their socioeconomic structures andreduce poverty. In Indonesia, for instance, thenumber of people living below the povertyline has been reduced from 40 percent of thetotal population in the 1970s to only 11 per-cent in 1997. This is a tremendous improve-ment. China has done even better. The finan-cial crisis increased the number of people liv-ing below the poverty line, but to a lesserextent than initially thought to be the case.

While the benefits are real, the havoc glob-alization created in Latin America in the1980s—even before the impact of full-fledgedglobalization—and in East Asia since 1997has been quite dramatic. These experiencessuggest that certain policies and institutionshave to be in place in these countries beforethey can benefit from globalization in a moreenduring way.

In Indonesia, the changes that have resulted

2 0 0 1 L O N D O N M E E T I N G 15

S E C T I O N 3

ADDRESSING THOSE IN DANGER

OF BEING LEFT BEHIND

. . .C E R T A I N P O L I -

C I E S A N D I N S T I -

T U T I O N S H A V E

T O B E I N

P L A C E I N

T H E S E C O U N -

T R I E S B E F O R E

T H E Y C A N

B E N E F I T F R O M

G L O B A L I Z A T I O N

I N A M O R E

E N D U R I N G W AY .

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from the opening up of the economy are feltin every aspect of life. In the socioeconomicfield, the changes have created a dualisticsociety. There is a divide between the 20 per-cent of the people who have benefited fromglobalization—basically the middle class—and the 80 percent who have been leftbehind. This 80 percent benefits somewhatfrom the trickling down effect, but Indonesiais experiencing a widening income gap. Thisposes a real political problem.

In the sociopolitical field, globalization hascreated a middle class that is more assertiveand independent from the government. Theydemand a more flexible political system,which in most cases can be offered only by areal democratic system. In the socioculturalfield, values are changing very fast, resultingin the alienation of some of the populace whothen try to protect themselves behind tradi-tional values based on religion, race, and eth-nicity. These changes have created greaterdivides in society at-large and have causedmore political problems.

In retrospect, Indonesia’s troubles are obvi-ously related closely to domestic politicaldevelopments. The crisis in 1997 was preced-ed by a very authoritarian political system.Rules and institutions, and the flexible politi-cal system necessary to cope with globaliza-tion, did not exist. Socioeconomic andsociopolitical changes are required beforeIndonesia can benefit more fully from global-ization. Transparency, accountability, goodgovernance, the rule of law, flexible politicalinstitutions, and adequate financial institu-tions (including the right sequencing of theprocess of opening up the financial system)are prerequisites that must exist in conjunc-tion with the globalization process. Inequalityis a special concern that can be overcome byspecial policies and measures, especially inthe education and training fields. These poli-cies and measures are critical for workers thatlack skills, and small and medium-sizedenterprises that lack technology. So, as in thecase of the first group of countries, domestic

policies and institutions are critical for reap-ing the benefits of globalization.

The international community can andshould help those developing countries dis-rupted by globalization willing to continue tobe part of the globalized world to becomehealthy again. If most of them cannot over-come the setbacks they are now enduring,then support for globalization will be set backand fewer countries in the developing worldwill stay partners of the West.

What do these countries expect from theinternational community, particularly theWest?

• First, global fairness. The developing worldexpects a level-playing field in trade, espe-cially access to Western markets for textiles,footwear, and agricultural products.

• Second, global ethics. It is hoped that goodgovernance is valid not only for govern-ments, but also for the private sector, whichhas caused so much damage to the environ-ment and in the treatment of their labor.Cooperation between the public and pri-vate sectors in these areas can lead to theestablishment of rules of good governanceand to overcoming the problem of trainingand education, and the problem of health-care for the people.

• Third is review and renewal of global rules andinstitutions. Since the Bretton Woods institu-tions were established in 1944, dramaticchanges have taken place and many morecountries now take part in these regimes.One very obvious problem is in the area ofinternational finance. Short-term move-ments of funds have caused havoc in thedeveloping world. Another issue relates tothe role of the IMF and the need for greatertransparency and accountability. The devel-oping world feels that, in the developmentof global rules and institutions, the Westhas been too dominant. Therefore, it is onlyfair to demand some changes. Correctionsare also needed in the field of trade. Newconditionalities—environmental and labor


. . . I N T H E

D E V E L O P M E N T

O F G L O B A L

R U L E S A N D

I N S T I T U T I O N S ,

T H E W E S T H A S

B E E N T O O

D O M I N A N T.

T H E R E F O R E , I T I S

O N L Y F A I R T O

D E M A N D S O M E

C H A N G E S .

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standards—to be included in the nextround of WTO negotiations are stronglyrejected because they may be a disguise forprotectionism. Environmental and laborissues are important, but they have to behandled separately and by the appropriateinstitutions, such as the ILO in regard tolabor standards.

Globalization Potentially Beneficial,but Requires CorrectionsAs was evident at the recent Porto AlegreWorld Social Forum in Brazil, there are differ-ent perspectives on the impact of globaliza-tion and economic liberalization. The “global-izers” tend to look at the impact of globaliza-tion at the aggregate national level and in amacroeconomic sense, while the “globalizees”tend to see concrete cases of poverty, starva-tion, or complete deprivation of basic humanneeds. A second difference in perspective isthe timeframe. While the “globalizers” usuallyrefer to the medium to long term (five to tenyears or more) for overcoming the inequalitygap, for the “globalizees” the problem is oneof the coming days or months, because theimpact could be a calamity for a family, a vil-lage, or a region. But some agreements werereached in the dialogue at Porto Alegre; and,except for some NGOs that hold extremeviews, the process of globalization has beenaccepted as potentially beneficial, albeitrequiring a lot of corrections.

NGOs should not be considered enemies.There are various kinds of NGOs and manyperform very useful roles in correcting andcriticizing governments. But to expect thatthey will replace governments is also wrong.They do not pretend to replace governments,so to expect them to fulfill the conditionsexpected of governments, such as democraticrepresentation, transparency, and accountabil-ity might be the wrong approach. If NGOs arenot credible, public opinion will graduallydeflate their importance and discount theirviews. There are good and bad NGOs, just asthere are good and bad governments, but to

deny their role because there are bad NGOs isnot going to be effective in dealing with them.In some developing countries, their role iscrucial to continuing democratic change and,for that reason alone, their existence and rolehas to be respected.

Jusuf Wanandi is Member of the Board ofDirectors, Centre for Strategic and InternationalStudies, Jakarta, Indonesia.

N O R A L U S T I G

Sharing theBenefits ofGlobalizationMore Widely

Iam going to address three questions. Isthere evidence that there are people andcountries in danger of being left behind? Is

globalization helping or hurting those in dan-ger of being left behind? What actions areneeded so the benefits of globalization aremore widely shared?

Those in Danger of Being Left BehindOn the first question, I want to share with yousome figures. In 1960, per capita GDP in therichest twenty countries was eighteen timesthat of the poorest twenty countries. By 1995,this gap had widened to almost forty times.There is evidence that wage disparitiesbetween skilled and unskilled workers havebeen on the rise in many parts of the devel-oping world (particularly the middle-incomeLatin American countries) and also the devel-oped world. Gains in life expectancy since themid-twentieth century will soon be wiped outin countries at the center of the HIV-AIDS epi-demics in Africa. In the transition economies

2 0 0 1 L O N D O N M E E T I N G 17

TH E R E A R E

G O O D A N D B A D

N G O S , J U S T A S

T H E R E A R E

G O O D A N D B A D

G O V E R N M E N T S . . . .

jp 3-92 2/12/03 10:23 AM Page 17

of Europe and Central Asia, the number ofpeople living on less than a dollar a day rosefrom about one million in 1987 to twenty-four million in 1998—more than twenty-fold.Ethnic and racial minorities face higherpoverty rates in many societies and this maynot be improving. In Peru, for example,indigenous groups were 40 percent more like-ly to be poor than non-indigenous groups in1994, and 50 percent more likely in 1997.

While donor countries’ economies grew inthe 1990s, at the same time their develop-ment assistance shrank from one-third to one-fourth of one percent of their combinednational product. It has been estimated thatindustrialized countries’ trade barriers causeannual losses in developing countries’ poten-tial welfare of more than twice the yearlyamount of development assistance. Only 10percent of the $50–60 billion in healthresearch worldwide each year is spent on thediseases that afflict 90 percent of the world’speople. Over thirty-two million HIV-positiveindividuals in the developing world do nothave access to treatment because AIDS drugscost $10,000–$15,000 a year—between fiveand fifty times more than annual averageincomes in some of these countries. There isalso evidence that, in many developing coun-tries, public spending is not progressive and isnot protected from adverse shocks.

Globalization Is ProducingWinners and LosersWhat’s the link of all this to globalization? Iinclude in the concept of globalization theprocess of market reforms, particularly theprocess of liberalizing trade and capital accountsand deregulating the economy. The evidenceshows that market reforms in general haveresulted in positive outcomes in countries thathave introduced them. Studies on Latin Americaindicate that the counterfactual of no reformswould have cost, on average, two percentagepoints of growth in the early 1990s. The coun-tries of the former Soviet Union that reformedfaster did better. China is a very good example of

a country that reaped large growth dividendsfrom the introduction of market mechanisms.

More growth, as we know, means lesspoverty. At the same time, however, I think wehave to recognize that growth in developingcountries has been disappointing, partly asthe result of external shocks, but partlybecause some reform processes have failed todeliver what was expected or failed entirely. Insome cases, financial and capital account lib-eralization has been one of the main causes ofsignificant banking crises worldwide. Anotherproblem has been the capture of the reformprocess by rent-seeking elites.

Country-focused studies have found thatliberalization can generate benefits for thepoorer sectors of society, particularly when itinvolves agriculture. In some cases, likeGhana, Chile, China, and Uganda, there havebeen gains for everybody, including the poor.However, other studies show that the processof liberalization has created losers, particularlyduring the transition when subsidies are elim-inated and trade barriers are dropped. Some ofthese losers may be the already-poor or peoplewho become poor as a result of reforms.

Level the Playing Field andAddress Systemic RisksWhat actions can be undertaken so the bene-fits of globalization are more widely shared?Economic growth continues to be one of themain factors in reducing poverty worldwide.There is no doubt about it. But we have to beaware that reducing poverty through growthmay be quite slow. For example, in Brazil—where half of Latin America’s poor live—forthose people who live at below half the pover-ty line, their income would have to increase300 percent in order to reach the poverty line,so it would take several decades for them tobecome non-poor. This is the case even if thecountry’s GDP per capita grows steadily at 3percent, a growth rate higher than Brazil’s pastperformance.

In order to accelerate the spread of benefitsthat growth may bring, specific actions are


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needed both nationally and internationally.Actions are needed to level the playing field,particularly by increasing the asset-base ofpoor people in the areas of education, health,and land; by making markets work better forpoor people; and by reducing social barriersthat keep certain ethnic and racial groups orwomen in a state of disadvantage in society.The other important sets of actions that haveto be undertaken have to do with risk man-agement. It has to be recognized that reformscan produce losers and new sources of riskduring the transition. Mechanisms reducingthe likelihood and risks of shocks, and help-ing poor countries and poor people cope withshocks when they occur have to be integralparts of the process of globalization if the ben-efits are to be shared.

Beyond the domestic arena, there is also anumber of international actions that can helplevel the playing field and address systemicrisk. One is the importance of reducing pro-tectionism in developed countries. A secondis promoting financial stability. There is now adebate over how that stability has to be pro-moted. In particular, how important are ex-post rescue packages? In a world where con-tagion and herd behavior prevails, timely res-cue packages—supported by appropriatedomestic policies—will continue to be cru-cial. Another is promoting global publicgoods, such as research in agriculture andcommunicable diseases that affect the devel-oping world, and providing access to theresults of this research to the poorer parts ofthe world. Other actions include focusing aidon poverty reduction; stemming armed con-flict; and encouraging the constructive partic-ipation of the poorer countries and poorerpeople in the world fora that decide how theprocess of globalization takes place.

Nora Lustig is Senior Advisor and Chief of thePoverty and Inequality Unit of the Inter-American Development Bank and was Co-Director of World Development Report2000/1: Attacking Poverty.

J AY M A Z U R

GlobalizationMust Work forEveryone

Ivery much appreciate the opportunity toparticipate in this discussion, for I believeit reflects a positive shift in the focus of

debate on the direction of the world economy.For too long the great debate on globaliza-tion—particularly trade—has been reduced tosterile caricatures that are increasingly mean-ingless: Labor is protectionist; big businessfree-traders. This is not true. In fact, I find thata strange reversal has taken place in thisdebate. The continued resistance to the inclu-sion of worker and environmental rights intrade agreements might very well be called the“New Protectionism.” What do I mean bythat? I mean protection of the privilege andpower to exploit workers and the environmentwithout regard to the human consequences;protection against the sometimes inconvenientdemands of industrial and political democra-cy; protection to buy and sell without anyrestrictions, including responsibility for thesocial implications of this commerce.

Let me be absolutely clear about this. Thelabor movement and its allies do not believethat higher trade barriers are the solution topoverty and oppression. Increased trade canand has created new wealth and raised livingstandards for many people around the world.We do not believe that the industrialized coun-tries can turn our backs on the struggle of devel-oping nations to raise the living standards oftheir most destitute citizens. We do not believethat globalization is the new Evil Empire.

So when we speak of those in danger ofbeing left behind, we are talking about thosewho have not shared in the benefits of global-ization. But we are not talking about a fewstragglers in an otherwise orderly march of

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humanity toward a bright future. We are talk-ing about multitudes who do not believe thesystem is working for them. They have beenleft behind, and they know it: workers whohave seen their real incomes stagnate ordecline over the past decade, which is whatmost workers have experienced in both devel-oped and developing nations; the nearly twobillion people who live on less than a dollar aday; the hundreds of millions who are illiter-ate and malnourished; the 2.6 billion peoplewho lack even basic sanitation.

We understand that these problems cannotbe solved overnight, that there has been someprogress. But there is one indisputable factabout globalization that I believe holds the keyto this discussion: Globalization has createdspectacular concentrations of wealth. Some ofthis wealth has inevitably trickled down, butthis process should not be confused withsocial development or even economic growth.Whatever else we may say about globalization,the rich are getting richer and the poor are get-ting poorer. Even some of the most ardentproponents of globalization have come toacknowledge what I suggest to you is thispotentially fatal failure of the current system.

Globalization increases income and socialdisparities within and among nations.Globalization has left many people behind. Itis wrong to protect only those who invest fora living and not those who work for a living.If globalization is to work, it must work foreveryone. When the assets of the two hun-dred richest people in the world are greaterthan the combined income of the two billionpeople at the other end of the economic lad-der, there is something wrong. The sheer size,and with it the power, of multinational corpo-rations is overwhelming national states. Ofthe one hundred largest economies in theworld, fifty-one are corporations—the otherforty-nine are countries. I would venture tosay that never before have so few benefited somuch from the labor of so many.

These inequalities impact not only peopleand nations of the developing world. There are

many millions of working people within theTrilateral countries themselves who believe,and have reason to believe, that they have beenleft behind. A recent Business Week poll foundthat only 10 percent of Americans supportedfree trade; 37 percent called themselves “pro-tectionists.” And fully half said they favoredthe kind of fair trade that the labor movementand its allies have long advocated. It is oftensuggested that the way to address the discon-tent arising from this situation is by enhancingthe social safety net, providing more effectiveand comprehensive job retraining, upgradingeducational and health care systems, providingadequate unemployment and retirementinsurance, and so on and so forth. This, ofcourse, is an excellent idea, but unfortunatelyone that flies in the face of current politicalrealities. For it is those very same unregulatedcompetitive forces of globalization that haverelentlessly pushed corporations and govern-ments to cut back on labor costs and socialprograms. By all means, let us work at provid-ing better safety nets, as a few companies andgovernments have, but let us have no illusionsabout what we must do to get at the heart ofthe matter. It is one of those moments in his-tory that requires systemic changes, of under-lying attitudes and overarching architecture.

We Need a Global New DealAn essential point of departure is to remindourselves that labor is not just another com-modity, not just another factor of production,however accustomed we might have becometo describing it that way. Labor is an expres-sion of unique human value. Its rights areincorporated into the Universal Declaration ofHuman Rights alongside the other rights wehold to be fundamental and essential tohuman dignity and political democracy—noble sentiments with which I trust everyonein this room agrees. But in most of the worldtoday the rights of labor are indifferentlyenforced, blatantly suppressed, or violentlydenied. This not only offends our sense ofdecency, but it is also extremely short-sighted


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from an economic point of view. More thananything else, what the global economy needsare consumers with money to spend, workerswho can buy the goods they produce.

So when we talk about workers’ rights, howdo we get from agreement in principle toapplication in practice? It is no longer accept-able to say that today we will have free tradeand tomorrow we will figure out how toenforce labor rights and environmental stan-dards. It is no longer acceptable that we vig-orously sanction the violation of patents,intellectual property rights, and investorrights, but are unable or unwilling to designappropriate sanctions for the violation ofworker rights. Even Charlene Barshefsky, theformer U.S. Trade Representative, has calledthe notion that labor rights should be discon-nected from trade “intellectually indefensi-ble.” The elements of the system must belinked if the system is to function properly.Universal rights must be enforced universallyand simultaneously, not sequentially. Whenthe enforcement of rights is taken seriously, asin the case of property rights, that is the waythe system works. We can do no less for thedignity of human labor or the physical healthof the planet.

I am reminded of a remark made by theformer Secretary General of the World TradeOrganization, Renato Ruggiero, who said,“We are no longer writing the rules of inter-action among separate national economies.We are writing the constitution of a singleglobal economy.” To the extent that this istrue—and I believe there is a great deal oftruth to this statement—we must rememberthat a constitution is a political document. Aconstitution of the global economy mustreflect and embody our democratic princi-ples. It must respond to the legitimate needsof the majority while protecting the rights ofthe minority. It must be clear that our eco-nomic system and the markets that drive itare not ends in themselves.

I believe there is a lesson to be learned in thehistorical experiences of our own nations. We

have learned that the market, by itself, couldcreate havoc as well as wealth, famine as wellas feast, oppression as well as opportunity. Welearned that some degree of regulation wasnecessary if markets were to reflect our valuesand meet our needs as a society. Laws werepassed to temper the social distortions shapedby unrestrained capital and markets.Mechanisms were created to enforce theselaws. Countervailing institutions were devel-oped to moderate the power of capital in theworkplace and the broader political discourse.There was resistance—sometimes a lot ofresistance—to these changes. But businessleaders who saw beyond the immediate heat ofthe battle, who looked to the long-term inter-ests of their shareholders, who were willing tothink and act anew, played a pivotal role inharnessing the wild energy of our economicsystem toward the greater good of our peoples.

We need such leadership today, particularlyfrom the Trilateral countries. The global econ-omy of today is like an economic Wild West,with speculative capital flying around theworld at well over a trillion dollars a day andgoods and services increasingly free to movewherever a dollar can be made. I do notbelieve that these profound structural prob-lems are going to be fixed by tinkering at themargins. There must be changes in our way ofthinking as profound as the problems them-selves. I stated at the outset of my remarksthat I believe there has been a shift in thefocus of the debate on globalization. We areapproaching a new consensus that there needto be new rules for the global economy, notonly to address the immediate problems ofthose who have been left behind, but also tostabilize a crisis-prone financial system and tofill the institutional vacuum created by aninternational economy that has overwhelmedour national political systems.

But what are these rules? Who makes them?And how are they enforced? We need a prag-matic leap of imagination. I don’t claim to haveall the answers, but I know we need a bold newapproach, a new vision, a Global New Deal:

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• The rights of workers, and the protection ofthe environment, must be given equal con-sideration with the rights of capital andproperty and the regulation of trade.Whether this is done primarily through theWTO or by strengthening the ILO, or somecombination of the two, is an open ques-tion. But there must be a commitment tomake this happen and to assure that theserules are built into the global trade andinvestment system with sanctions to enforcethem just as property rights are enforced.

• Debt forgiveness for impoverished nationscannot continue to be a carrot offered onlyafter disastrous cuts in social and educa-tional programs. These countries desperate-ly need relief, and the funds saved can betargeted on basic needs like health care andschooling.

• Something must be done to bring globalfinancial speculation under control. I leaveit to the technicians to determine the bestway to do this, but serious considerationshould be given to the kind of tax proposedby Nobel Laureate James Tobin on themovement of speculative capital. Thiswould not only lower the speculative fever,but also raise significant funds that could bededicated to improving the prospects ofthose in danger of being left behind.

Toward a New InternationalismLet me say one last word about those whohave been left behind. They have begun toreact, to organize, and to protest, as I am sureyou have noticed. They are in the streets andat the factory gates. They are on the net andthe web and in the offices of lawmakers andother elected officials. They are workers andstudents, churches and women’s groups, envi-ronmentalists and human rights activists. Thisis a truly grass-roots, international movement,linking North and South, East and West. Thedin you hear may sound confused and confus-ing at times, some of the ideas may be foolishand the behavior excessive, but this is a socialmovement that is growing stronger and more

coherent around a New Internationalism.It is a movement that is not going away

until there are fundamental changes in thesystem. While the WTO can convene on anisland, the protest can’t be put out to sea. Thisis not a public relations problem; it is a per-formance problem. The global economy justisn’t working very well for working people.They and their allies refuse to accept the dic-tates of the market as the final arbiter of thecondition of the human family. They do notbelieve that undirected growth and open mar-kets alone will lift them out of poverty or givetheir children the opportunities they did nothave themselves. They want the freedom tospeak their minds and a fair share of the fruitsof their labor.

There is only one way this can happen. Thelaws and political institutions that were devel-oped to protect people against the “creativedestruction” of markets at a national levelmust now be boldly and imaginativelyextended and adapted to the new internation-al realities. Victor Hugo once said that there isnothing more powerful than an idea whosetime has come. It is not uncommon for suchideas to originate and gather force outside tra-ditional institutions. I believe this movementtoward a New Internationalism reflects andarticulates just such an idea, and for the bil-lions of people who have been left behind, ithas come not a moment too soon.

Jay Mazur is President of the Union of Needle-trades, Industrial and Textile Employees (UNITE),American Federation of Labor–Congress ofIndustrial Organizations (AFL–CIO) and Chair-man of the AFL–CIO International AffairsCommittee.


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O T T O G R A F L A M B S D O R F F

EconomicFreedom IsBest Policy

It is very appropriate, indeed, to speak onthe subject of globalization right here in thiscity and in this country. Here in London in

1846 a striving parliamentary majority broughtdown the infamous Corn Laws, which weresuch a burden to the poor. Thus began anunprecedented era of free trade that spread allover the world. The first stage of globalizationwas launched here. The movement under thespirited leadership of Richard Cobden andJohn Bright that brought free trade found thesupport of businessmen and the working class-es alike, and even inspired poets and intellec-tuals. Free trade was the watchword of enlight-ened public opinion. There were critics of glob-al free trade, it is true, but they were seeminglyunable to counter Cobden’s and Bright’s leaguefor free trade and the enthusiasm it inspired.

Of course, we now live in different times.The critics of free trade are still there, but theenthusiasm of the free-traders somehow hasfaltered and withered away. Even if one doesnot agree with them, one cannot help butadmire the critics of free trade for their stub-born obstinacy. Since the days of Cobden andBright, the same old argument has beenrepeated and repeated and repeated all overagain. Free trade, this argument says, servesonly those who are already rich and want tobecome even richer. The poor are deliberatelymade poorer while unhampered marketforces are unleashed against them. Over timethe argument has come up in several disguis-es—a nationalist one, a socialist one, andtoday a politically correct one. But essentiallyit has remained the same.

The persistent repetition of this argumentover more than 150 years has not made it intel-

lectually more valid, but it obviously hashelped to anchor it deeply in the minds andhearts of the people. If you look back in histor-ical perspective at those who predicted that freetrade would impoverish the already-poor, youwill find nothing but a mass grave of falseprophesies. Indeed, classical liberalism, underwhich free trade flourished so much, has beenthe most successful economic policy in worldhistory. In the nineteenth century it put an endto famines in Europe, which were seen as theinevitable lot of mankind. We forget that, forinstance, in eighteenth century France ninefamines killed more than 5 percent of the pop-ulation. When we think of the liberal period ofthe nineteenth century too much in CharlesDickens’ terms, we ignore that, in those days,this kind of misery was effectively put to anend. Free trade was not the cause of, but theresponse to, misery. When we see faminestoday, we will only find them under non-capi-talist, non-liberal, and non-free-market dicta-torships such as North Korea. The era of freetrade in the nineteenth century for the first timein human history made wealth for all possible.

That the free market is a source of wealthtoday is unquestionably true. The data con-firm this. The Friedrich NaumannFoundation is one of around fifty co-publish-ers of an annual study called “EconomicFreedom in the World,” which was originallymasterminded by no one less than NobelLaureate Milton Friedman. The purpose ofthis study is the measurement and the com-parison of economic freedom in 118 coun-tries. Measurable indicators like the tax rate,the government share of GDP, and the extentof trade restrictions are used to find the placefor each country in a comparative ranking.This is not of mere academic interest. Thestudy has clearly demonstrated that there is aremarkable connection between economicfreedom and economic growth. The heavierthe burden of government on the individual,the more stagnant becomes the economy.Moreover, by correlating the results of“Economic Freedom in the World” with stan-

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dard of living criteria other than mere growthrates, it has been shown that the freest coun-tries of the world have less illiteracy, less cor-ruption, and a higher life expectancy than theleast free ones. This alone should be enoughof an argument to say farewell to any form ofeconomic collectivism.

But what does this study say about those“left behind”? We all hear that the gapbetween rich and poor countries is widening.This is actually true. In the Third World thereare poor countries with zero or even negativegrowth rates, while most countries of the FirstWorld are—at least moderately—growing.But this fact is substantially explained only if,again, you correlate it to the degree of eco-nomic freedom. Then one can see that thegroup of the poorest and slowest growingcountries is almost identical with those thathave not opened their economy and constant-ly interfere with the freedom of their people.Yes, there are people who are “left behind,”but they are not the victims of free trade orglobalization. They are victims of their owngovernments!

A growth rate taken in aggregate, one couldargue, does not say much about the internaldistribution of wealth. In the industrializedcountries, so the media say, the liberalizationof the economy may have created new jobs,but those are only low-skill trash jobs or“McJobs,” as the pundits say in order to addthe usual anti-American tone to the argument.The “working poor” is the new stereotype thatis supposed to give some rhetorical ammuni-tion for the crusaders against globalizationand free trade on the right and on the left. Ifit was all true it still would be better than theexclusion of the less qualified from the labormarket that is practiced by the over-inflatedwelfare states in Europe. But it is not true atall, at least not in the way it is generally pre-sented. Not only did the new technologies notdestroy jobs, they created new and betterones. Those countries that kept their marketsfairly open saw an increase in demand forhighly qualified employees rather than an

increase in demand for the least qualifiedemployees. In the United States, 55 percent ofthe jobs created between 1983 and 1996 werefor the highly qualified, about 32 percentrequired medium qualification, and only 18percent required little qualification.Sometimes one should just take a look at thefigures to find out what is behind the com-mon stereotypes on globalization.

Is there, then, nothing to do anymore? Hasthe world economy been switched to auto-pilot? Do, as some prophets seem to believe,national governments completely loose theirgrip on the economy? Is anarchy lurkingaround the next corner? Again, our discourseon globalization obviously is polluted by allsorts of unrealistic clichés. Government willnot perish. It still can solve many of the prob-lems ahead. International governmental orquasi-governmental structures are alreadyestablished for the solution of those problemsthat cannot be solved by national govern-ments. I rather fear that we have too manygovernmental do-gooders on the internation-al scene than too few. The danger is not thatgovernments—whether national or interna-tional—will loose control. The danger ratheris that they will keep control and steer theplane into the wrong direction.

The present climate of opinion, which isdominated by anti-globalization NGOs andmedia attention to demonstrations againstfree trade (such as the one in Seattle in late1999), is not favorable to any reasonable pol-icy approach. We should concentrate on theessentials. The WTO, for instance, must notbe overburdened with social and environmen-tal agendas. Yes, there is misery in this world.But the best strategy for help is to begin withthe essential tasks of government before weimpose Western European standards of wel-fare-statism and green ideology on other peo-ple. These essential tasks are peace, the rule oflaw, and free trade. We should be cautiouswith everything that goes beyond this.Governmental arrangements should adapt tothe diversity of human civilization. The prin-


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ciple of subsidiarity should be applied asmuch as possible. Peaceful competition is notonly good for the economy, it is also good forgovernmental arrangements. Hence, weshould not harmonize standards of gover-nance where this is not necessary, except thatthe right of every individual to be free mustnot be infringed.

Let us remember what happened when theliberal era of free trade of the nineteenth cen-tury ended. Everybody was optimistic then.People believed nothing could go wrong any-more. It was, nevertheless, the dawn of a cen-tury dominated by war, totalitarianism, andgenocide. Don’t let us make this mistakeagain. Perhaps the free-traders of our timeshould learn from their predecessors of theage of Cobden and Bright to restore their self-confidence. Or they should learn from theirpresent-day opponents, who diligently repeattheir arguments over and over again untileveryone believes them—even if they servethe wrong cause! How much better this strat-egy would be if it served the right cause!

Otto Graf Lambsdorff is Chairman of theFriedrich Naumann Foundation and formerMember of the German Bundestag and FederalEconomics Minister.

M I K E M O O R E

The MultilateralTrading RegimeIs a Force forGood: Defend It,Improve It

The subject on which I will speak isimproving the trade regime. But beforeI turn to this, I think we should cele-

brate what we have achieved in the past fiftyyears since the visionaries created the BrettonWoods institutions. The nineteen-fold increasein world trade since 1950 has helped multiplyworld output by six and living standards bythree, lifting millions out of poverty. We allknow the history, but we ought to repeat it,because wider society has forgotten it. Evensome business people and politicians have for-gotten why these institutions were established.The Great Depression was made deeper andmore lethal, and was prolonged by panic-stricken governments implementing protec-tionist trade measures. The Great Depressionhelped give rise to the twin tyrannies of ourage—fascism and communism—and, thus, tothe Second World War and then the Cold War.

The vicious Versailles Treaty after the FirstWorld War gave way to the most generous andvisionary idea in history—the Marshall Plan,whereby the victors decided to rebuild the van-quished and integrate a broken Europe into asingle economy. It worked. A peaceful Europeis a force for good. That economic union is stillat work extending itself, thereby raising livingstandards, labor standards, environmental

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standards, and human rights. The same princi-ples of an open society and an open markethave worked for Japan, as well. Japan is now aforce for good. It is a great nation, a greatexporter and a great importer. Harry Truman,George Marshall, and Ernie Bevin did not con-duct opinion polls on the Marshall Plan. Theydecided what was right, what was wrong, andwhat was achievable. Why have those lessonsof the twentieth century been lost?

I’m stumped by the misunderstandingsabout the WTO. A guy like Ralph Nader cansay unchallenged, “The WTO is a secret cabalrun by some insiders unaccountable andunelected.” As you know, governments own theWTO, the WTO does not own them. The WTOnow has 140 members. It operates by consen-sus. There is no WTO Security Council. Ouragreements must be ratified by parliaments andcongresses. So why the controversy?

In the absence of anything to hate, globalismand globalization are now the targets.“Globalization” is a horrible word. Strangelyenough, a couple of generations ago, “interna-tionalism” and “solidarity” were fine, non-threatening, idealistic words, lifting people to ahigher plane. But somehow the brand of glob-alization is crushed down on those who shouldlead. It’s not a policy or a plan hatched by theTrilateral Commission or wealthy people inDavos. It’s a process that started probably whenthe first person walked out of a cave. Manyeconomists and historians argue that trade as apercentage of GDP was higher before the FirstWorld War than it is now. Certainly, there wasa greater movement of people then than now.

Information technology and financial flowshave accelerated the process. The great differ-ence is that now everyone can see what is hap-pening. There is debate and that’s a good thing.Too often people confuse technological changewith globalization. Some even argue that, ifyou abolish the WTO, there would be no glob-alization. The fear people have about science isa bit scary. Technology has been the best friendof our species. India and China were facedwith frequent famines through the 1960s.

Then came a science-driven “green revolution”and the authors of such great blessings assuper-rice and super-wheat got the NobelPeace Prize. Now those ideas would be metwith protest and resistance. Anyone is a glob-alist only when their child is sick. Then theywant the best medicine the world can provide.

We ought to get out and explain how costsrelative to income have dropped. When I wasa kid, it took a year’s pay for a working-classfamily to purchase the Encyclopedia Britannica.My parents couldn’t afford it. Now it takes lessthan one week of unemployment benefits tobuy a compact disc—or nothing to get it on theinternet. Alas, too many politicians and busi-ness people have lost their nerve. It is time forthe business community and political leadersto fight for the values and successes of the pastfew decades and explain to workers and share-holders that there is no shame in profit, only inlosses, and that the best security a workingfamily has is a business that is profitable. Weought to face these challenges with humor andsome humility. Anti-globalization groups, suchas e-hippie and antiglobalization.com, miss thesplendid irony in their titles. We need to pointout again and again the overwhelming evi-dence that trade boosts economic growth. Astudy by Jeffrey Sachs and Andrew Warner ofHarvard University found that developingcountries with open economies grew by 4.5percent a year in the 1970s and 1980s, andthose with closed economies grew by less thanone percent.* At that rate, open economiesdouble in size every sixteen years; closed onesmust wait one hundred years.

A New Multilateral Round Is the Best Wayto Improve the Trading RegimeOf course, we need to improve the tradingregime. I can’t think of any institutional struc-ture that cannot be improved. And if peoplebelieve the present system is unsatisfactory(and it is), and unjust (and it frequently is),


*Jeffrey Sachs and Andrew Warner, “Economic Reform andthe Process of Global Integration,” Brookings Papers onEconomic Activity 1 (Spring, 1995).

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H A S 1 4 0 M E M B E R S .

I T O P E R A T E S B Y

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and imperfect (and it certainly is), what shouldwe do? I say to the critics, the best thing wecan do is start a new trade round so we cannegotiate and attack those injustices. We canimprove the trading regime and gain throughfurther success the moral authority we lack.

Robert Stern of the University of Michigansuggests that cutting barriers to agriculture,manufacturing, and services by one-thirdwould boost the world economy by over $600billion—the equivalent of adding anotherCanada to the world economy. If all trade barri-ers were abolished, that would boost the worldeconomy by nearly $2 trillion—the equivalentof adding two more Chinas to the world econ-omy. It is no wonder the kids and others protestwhen OECD agricultural subsidies alone equalthe entire gross product of all of Africa.Abolishing these subsidies would deliver todeveloping countries three times more than allthe official development assistance combined.

We ought to heed the words of those lockedout. Alec Irwin, the South African TradeMinister, said recently, “The danger of not hav-ing a multilateral round is to further exacerbatethe development problem. For us in the devel-oping world that would be disastrous.” It ismarginalization from globalization that thosewho legitimately lead the developing worldfear the most. Why is it that Singapore getsmore investment than all of Africa? Why is itthat London has more internet connectionsthan all of Africa? What does this teach us?

Of course, we ought to change the way wedo things at the WTO and we are. We spentone hundred hours in open Council meetingin three months at the end of last year onissues of implementation. Ten years ago wewould spend fifty hours in twelve months oneverything. We are delivering up a package onmarket access for least-developed countriesand I pay tribute to those political leaderswho fought with their domestic constituentsover it. It is an injustice when the least devel-oped countries, who account for half of onepercent of world trade, find that the toughestand highest trade barriers are in their areas of

excellence. There are thirty member-nationsthat cannot afford the resources to have a mis-sion in Geneva, but we have found new waysof connecting them to our process.

“We the People” or “We the Governments”?Let’s not lose our nerve, because the tradingsystem offers one of the best chances for thepoorest amongst us. Let’s remind ourselvesthat, of course, the UN, the Bank, the Fund,the ILO, and the WTO are imperfect, but theworld would be a less stable, less predictable,and more dangerous place without them. Overthe last twelve months, the WTO has wel-comed Jordan, Georgia, Albania, Croatia,Oman, Lithuania, and Moldova to member-ship—almost thirty million people. Whilethere may be a few thousand protesters outsidethe meetings in Washington and Prague andSeattle, there are millions queuing up to jointhe WTO because they believe a rules-basedsystem is an opportunity for their people. Theyare inspired by such leaders as in Yugoslavia,who said, “Membership in the WTO is part ofour democratization movement.”

I don’t want to underestimate the depth offeeling and alienation of protesters, though weought to better connect ourselves with our trueowners—the governments. We are taking actionin that regard through, for example, conferenceswith the Inter-Parliamentary Union and theEuropean Parliament, and by making ourselvesavailable more often to the governments andparliamentary and congressional committees.Of course, I’d like to see the WTO more trans-parent, and it is becoming so. The NGOs are notalways wrong, but they’re not always right,either. They represent the best and the worst ofour species—from the young men and womenwho get their university degrees and then gointo the bush to help the poor, to entrepreneursand marketers feeding off the anxieties of others.I confess to uneasy feelings when some NGOsand even some international institutions startquestioning the legitimacy of our real owners,the governments. The debate must be held. It isprofound and it is painful. Do the international

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agencies represent “We the People” or “We theGovernments”? I guess I’m old-fashioned andshaped by a parliamentary experience wherebylegislators create the laws and the rules, and thepeople create the legislators.

However, this we know to be true: No nationcan enjoy clean air or water, manage a tax sys-tem, or manage airlines without the cooperationof others. We all depend on our neighbors’ suc-cess for our own success. As governments con-tract out to international institutions and agree-ments—whether the WTO, the ILO, theAntarctica Agreement, the Law of the Sea, etc.—those governments have an obligation and aduty to insist on greater oversight to make thoseinstitutions and agreements more accountable,to give them the resources they need to be moretransparent, and thus more accountable to thereal owners of both international institutionsand governments—the people. And finally,when we talk of labor, environmental, indige-nous, or gender issues, we need to think notjust about the principles involved, but the juris-dictions of those institutions we created.

The gaps in the international architecture areglaring. They will not be fixed by the odd sem-inar or assembly of NGOs, pressure groups, orlobbyists to safeguard and protect society frominternational institutions. Keeping the archi-tecture intact is one of the great challenges thatpolitical leaders will face this century. It is true,the institutions are creaky, inefficient, middle-aged. It is time the WTO had a check-up anda reality check as all middle-aged people andinstitutions should. Ironically, some NGOs andpressure groups say the WTO has too muchpower. Then, after saying the WTO has toomuch power, they want to load it with respon-sibilities that will increase that power, whetherit be regulating indigenous rights, or gender orwomen’s rights, or labor rights, or whatever. Ifthat were to happen, then the WTO reallywould be a threat to you all!

Mike Moore is Director-General of the WorldTrade Organization and former Prime Minister ofNew Zealand.

F R I T S B O L K E S T E I N

Getting theMultilateralTrading AgendaBack on Track

It comes easily to me to underline theimportance of an open and free world trad-ing system. As European Commissioner for

the Internal Market and the Customs Union itis my daily task to protect and preserve thelargest and most advanced free-trade system inthe world. As an active liberal politician formore than twenty years, I cannot but rejoiceover the emerging, although sometimes fragile,consensus on the merits of free trade. As a for-mer industry man with a multinational com-pany, I find the advantages that free tradeholds for economic operators stand to reason.And as an economist, I find the century-oldlogic and the massive empirical evidence of theeconomic effectiveness of free trade irrefutable.

Not only is the evidence of free trade as afundamental means to achieving economicefficiency overwhelmingly persuasive. Thatsystem is also an agenda for justice and fairnessand openness to aspirations. It is an inclusiveapproach. It is a moral approach. With greatereconomic efficiency the cake becomes biggerand there is more for all to share. Free tradealso allows each participant to enjoy the fullbenefits of his relative strength without othersbeing allowed to neutralize that strength in anartificial way. The multilateral free-trade sys-tem is a champion of rapid economic develop-ment for underdeveloped countries.

It is therefore doubly regrettable that theglobally-organized trade system ran into moreproblems of legitimacy a short while ago thanat any other time since the revival of free tradeafter the Second World War. There is no wayaround it. While the agenda itself is immense-


. . .T H E U N , T H E

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ly strong and inclusive, it was a failure not tohave been able to explain it in a way that suf-ficiently persuaded the increasing numbers ofparticipants from countries with varying lev-els of economic development of its benefits. Itwas also a failure not to take the debates cir-culating in important parts of civil societyseriously enough, thereby inadequatelyaddressing their concerns. Having recognizedthese failures of persuasion and presentation,it is time to rebuild consensus and bring thesystem back on track again. But the new agen-da must take account of recent experiences. Itmust not repeat the errors of the past.

Europe’s Role and AgendaEurope is well placed to assist in buildingbridges and nursing some new dynamismback into the process. We have to constructthe basis upon which it will be possible torelaunch a comprehensive new round of mul-tilateral trade negotiations. Europe, and theEuropean Union in particular, has a historicalresponsibility to foster dialogue and coopera-tion between the richer and the poorer quar-ters of the world. Recent experience hasdemonstrated this European role. One of themost important international agreements inmany years, the Kyoto Protocol on ClimateChange, would not exist today without thesuccess of the European Union in keeping thedeveloping world and the industrializedcountries together in the same negotiation.

Europe should also demonstrate such nego-tiating skills in the trade field. My very ablecolleague Pascal Lamy will lead the field as faras the European Commission is concernedand that is a cause for optimism. A Europeanagenda for a new round of talks to improvethe world trading system must remain broad.We have a well-established book of rules and afunctioning organizational structure. Weshould build on these rules and this structureto strengthen the existing system. But weshould do this in a way that more clearlyaddresses the interests of all participants, and inparticular the interests of developing countries.

Within the Commission I have been a strongsupporter of our recent initiative to enhancemarket access across the board for the poorestcountries of the world. I have been somewhatdisappointed that it has so far proven difficultto maintain the highest level of that ambition.European farmers should sooner rather thanlater come to grips with the realities of worldtrade. Nonetheless, the Commission’s initiativeremains important and should demonstratethe willingness of Europe to encourage whatone could almost call confidence-buildingmeasures. Our general approach on issues ofmarket access—whether on agricultural prod-ucts, industrial products, or services—will bea key to our success in revitalizing the negoti-ating process. Europe has some soul-searchingto go through here and should, hopefully,come out as leader of the pack, pushing therest of the world to follow suit.

I also support a balanced approach to thesensitive issue of access to drugs. I subscribeto the analysis of this issue set out by Director-General Mike Moore some time ago. TheCommission has been working actively in thisarea to promote accelerated action targeted atmajor communicable diseases. It cannot bequestioned that there is a need to ease theflow of vital drugs to developing countries.But it would be a marksman’s shot in our ownfoot if we did this at the cost of discouraginginvestments in the drugs of the future. Theapproach set out in the TRIPS agreement istherefore the right one, namely, that any mea-sures which involve restricting certain aspectsof intellectual property rights should be bal-anced by adequate compensation. The exist-ing provisions of the TRIPS agreement are suf-ficiently flexible and give clear guarantees inthis respect. This agreement obviously doesnot prevent—and I would consider it anexcellent idea—supporting access to drugsmore actively via development aid budgets.

At the same time as strengthening the devel-opmental aspect of our approach, it shouldalso remain part of the European agenda toargue in favor of rules on issues such as invest-

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ment and competition. The logic behind sucha policy is compelling. The more we open ourtrading system, the more urgent it becomesthat we have some basic rules of fair play. Someof our partners may have difficulties with this,so why not open the door to optional mem-bership of those rules? This is not a perfectsolution but it may start the process and allowall partners to take an active part in the nego-tiations while reserving their right not to par-ticipate at the end of the negotiating cycle.

It remains true that there is a need for aglobal dialogue on trade and social develop-ment. But it is equally true that such a dia-logue should have a broad setting. The WTOis not the only institution to be involved inthat dialogue. We should therefore pursue itin a multi-institutional setting that wouldinvolve all relevant international institutionsin a solid timeframe.

We also have to tread carefully as regardstrade and environmental protection. It is evi-dent that a clarification of the relationshipbetween the numerous multilateral environ-mental agreements and the WTO rulebookwould be useful. But to be credible with ourpartners any such dialogue must explicitlyrule out all possibilities of discriminatorypractices or disguised trade restrictions.

* * *

Ladies and Gentlemen, I am convinced thatthere is an urgent need to get the multilateraltrade agenda back on track again. The greaterprosperity brought to us by free trade is not agiven and the risk of the world lapsing intoineffective protectionism is real. It is a duty ofall policymakers to ward off this danger. Wemust do so not in splendid isolation, but witha subtle and sensitive feeling for the differentrequirements of the various partners in theprocess. Without such subtlety and sensitivitywe shall surely fail.

Frits Bolkestein is Member of the EuropeanCommission (Internal Market).

T O R U K U S U K A W A

The ComplexPath Ahead

In the past, Pacific Asia enjoyed stronggrowth thanks to economic policies thatwere mainly concentrated on the sustain-

able expansion of exports. As we know, this isin contrast to the failed policies of SouthAmerican countries that concentrated onbuilding up their industries for the purpose ofimport substitution. The emphasis on exportsput the Pacific Asian countries firmly on theside of free trade and led to the opening oftheir markets to foreign industries. This situa-tion worked fine and produced remarkableprosperity until the Pacific Asian countrieswere faced with a sudden change of environ-ment caused by turbulent currency fluctua-tions and the drastic reversal of short-termcapital flows.

Although many countries in the region con-tinue to adhere to the principle of free tradeand open markets, they now feel somewhatuneasy with all-out liberalization, particularlyregarding the liberalization of capital accounttransactions. Many things can be said aboutthe cause of the Asian economic crisis, but itis quite clear, as APEC has pointed out, thathasty liberalization and underdevelopedfinancial infrastructure proved to be risky andultimately very costly. Both the “globalizers”and “globalized” miscalculated the situation.This is a point that we need to rememberwhen we discuss future trading regimes.

Structural Changes Widen the AgendaWe also have to keep in mind the new realitycreated by the evolution of information andcommunication technology (ICT) that some-what blurs the borders of nation-states. Thisevolution has changed how we conceive oftrade and how we perceive the movement ofcommodities and people across national


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boundaries. Another element we have to con-sider is the importance of the tertiary sector.When industrial countries undergo structuralchanges, the tertiary sector’s share of GDPgrows far larger than that of the secondary sec-tor. This is why we now have GATS—GeneralAgreement on Trade in Services—alongsideGATT. Surely, trade in goods is still important,but we now have trade in services, as well.

Foreign direct investment and e-commerceare replacing traditional modes of commoditytrade. The size of corporations’ internal tradeis reducing the validity of traditional trade sta-tistics. In fact, the EU is no longer stronglyaffected by external trade and currency fluctu-ations. The movement of production sitesacross borders has replaced some portions oftrade while the tertiary sector acts as a stabiliz-ing element in times of economic fluctuations.In this sense, the imbalance of outward andinward investment in Japan has to be regardedas a very important trade-related issue andunderstood as an inevitable challenge.

The Qatar Ministerial Must SucceedWith the failure in Seattle, we have to empha-size that the coming negotiations in Qatarcannot fail. Failure would be a serious blow tothe future of the WTO. Its integrity is at risk.Developed countries should make their bestefforts to meet the demands that were madeby Brazil, India, Egypt, and other developingcountries in Seattle. I understand that many ofthese demands have by and large been attend-ed to already. There is a dilemma betweendemocracy and efficiency. While we have toaddress the concerns of all 140 member-countries, at the same time there is a timeconstraint and we have to be efficient. Thesetwo things must be balanced and that is real-ly a very difficult job for the Director-General.Like the European Union, Japan wants a com-prehensive approach to negotiations coveringnot just the built-in agenda of agriculture andservices, but also issues such as anti-dump-ing, general tariff reduction, GATT and GATSharmonization—that is, harmonization of

rules and procedures—and investment, espe-cially foreign direct investment. Governmentprocurement transparency and movement ofpersons across national boundaries are othersubjects Japan would like to see covered.

There are other issues I am sure. The ques-tion is whether we can make any satisfactoryprogress on any of these items in Qatar. Havewe got enough time to smooth the way? Wemust endeavor to meet the timetable, but ifwe cannot really fulfill that, then we had bet-ter tone down expectations to realizable lev-els. I am concerned about the United Statesand Japan. The new administration in theUnited States has to work hard to meet thistimetable and Japan has Upper House elec-tions in late July that might produce uncer-tainty in the preparations for Qatar.

The other subject that may concern thefuture of the WTO is the growing criticism ofglobalization. I won’t get into the details, butthere are issues like global fairness that wehave to consider very seriously.

Japanese Bilateral Arrangements CanSupport Multilateral ObjectivesThe WTO is not perfect. There is room for otherforms of negotiations. For instance, there areregional arrangements, bilateral arrangements,and unilateral action. Quite recently we haveso-called “plurilateral,” or “opt-in” and “opt-out,” arrangements. These open-ended formsshould not be rejected altogether. The questionis whether they are WTO-consistent or not.They should be building blocks for achievingWTO objectives and not stumbling blocks.

Japan has recently changed its trade policy,although it still adheres to the priority of mul-tilateral negotiations such as the WTO. Japanfeels that additional approaches might also beuseful. This change of policy has stirred somesuspicion among some of our friends becauseJapan has in the past criticized others whodeviated from the WTO framework and con-cluded bilateral or regional FTAs.

The proposed pact between Japan andSingapore is to be called a “New Age

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Economic Partnership,” rather than an FTA. Isthis term just rhetoric or is there somethingmore to it? I think there are some ambitions tointroduce a new type of trading pact. Thecommodity portions in the proposedJapan–Singapore New Age Economic Partner-ship are relatively small. The focus is more onregulatory liberalization, service sectors, sci-ence and technology, and human resourcedevelopment. Preliminary studies are alsobeing made for such FTAs with Korea,Mexico, Canada, and even with New Zealand.

For Japan, FTAs are essentially domesticpolitical matters. A lot of work has to be doneat home to implement an FTA—regulatoryadjustment, changes of market practices, andabove all, reform of the agricultural sector.Japan knows about Article 24 of the WTO. Itknows about APEC’s Bogor Declaration with atime limit of 2010 for industrialized mem-bers. Japan knows what it has committeditself to. We endorse the spirit of the WTO.That is why I have to ask our politicians whatwill be done in connection with these com-mitments, particularly in the agricultural sec-tor. Agriculture is a delicate issue not only inJapan, but also in many other countries. It isalways connected to important political con-stituencies. It has a special character, history,and associated lifestyle. The Japanese peoplestill remember past starvation and want to beassured of an adequate food supply. It is,therefore, primarily a matter for political lead-ers, who should demonstrate their politicalwill and exercise their leadership to sort outthis problem. Some countries, fortunately,have very strong political leaders; others,unfortunately, do not.

Future of Regional ArrangementsNAFTA and the EU are the most representa-tive regional arrangements. There is some fur-ther movement to expand NAFTA to a Free-Trade Area of the Americas. The EU alwayshas widening and deepening challenges. Theinteresting thing about regionalism in thesetwo areas is that it also involves some sort of

key currency issues. There is the issue of “dol-larization” in Latin America, of some coun-tries unilaterally taking actions to adopt theU.S. dollar as their own currency. Similarly,there is a movement in Central Europe toadopt the euro as their own currency, regard-less of the Maastricht criteria. If that happens,then the concept of regionalism may changequite a lot. What should be done in this situ-ation? In Asia we have started the Ten-Plus-Three group—ASEAN plus China, Korea, andJapan—to try to prevent future financialcrises. But I feel that any Ten-Plus-Threearrangements might be quite a time-consum-ing process. Furthermore, it will need tosomehow include Australia and New Zealand.Otherwise, it will be difficult forming the sortof regional support we need.

There is one last issue that I want to men-tion. As a member of the APEC BusinessAdvisory Council, I was deeply involved in theaffairs of APEC. There has been some criticismthat APEC is not functioning well. This criti-cism is based mostly on APEC’s limited contri-bution to the resolution of the Asian financialcrisis. This observation is partly right, but alsopartly wrong. It is a bit too harsh becauseAPEC is composed of only foreign ministriesand trade ministries, with finance ministriesquite separate. The resolution of the Asianfinancial crisis was sought by the region’sfinance ministers, and therefore was outsidethe main APEC process. As such, I do notthink APEC should really be criticized for itsinability to cope with the situation. In thefuture, the APEC finance ministers should beintegrated further into the broader APECprocess, to make APEC’s function as a regionalcooperative organization more comprehensive.

Toru Kusukawa is Senior Counselor, FujiResearch Institute Corporation and formerJapanese Delegate to the APEC Business AdvisoryCouncil (1998–2000).


FO R J A P A N , F T A S

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F R E D B E R G S T E N

New MultilateralRound Vital toCounter Drifttoward Three-BlocWorld

At this morning’s meeting of theExecutive Committee of theCommission, some members under-

lined their strong views that strains within theTrilateral world were posing risks of signifi-cant international tension and indeed conflict.I think the outlook for the global trading sys-tem is one of the clearest cases in point. Wetalk a great deal about the problems betweenindustrial countries and developing countriesin the WTO. Indeed, a greater responsivenessto the needs of the poorer countries is a criti-cal element to restoring confidence in theWTO and moving ahead with its agenda. Buteven more critical are two severe challenges tothe entire global trading system whichemanate from within the Trilateral world.

The Risk of a Transatlantic Trade WarThe first is the immediate and severe risk of atrade war between the United States and theEuropean Union. There are over a dozen seri-ous sectoral and functional conflicts betweenthe United States and Europe at this moment.The United States has already retaliated onbeef and bananas. Europe is threatening toretaliate over U.S. export tax subsidies and the“carousel provision” of U.S. trade legislationthat requires the President to rotate his retali-ation in order to make it bite harder. Newconflicts are threatening over steel and anti-dumping issues more broadly, and over air-craft subsidies. The “agricultural peace”clause, which is keeping that most volatile of

all sectors under control for now, expires inthe next two years.

We have heard just this week in bothWashington and Brussels that the linkagesbetween these issues could produce a tradewar. The new U.S. Trade Representative, BobZoellick, our former Trilateral colleague, hasmade very clear that, if Europe does not meethis test on bananas, he will be forced toimplement the carousel provisions andincrease U.S. retaliation.1 The Europeanshave made clear that if the United States doesthat, it will have no choice but to hit theUnited States over its $4 billion of export taxsubsidies through the FSC Provision. Inshort, the United States and Europe are veryclose to a trade war. Good diplomacy haskept it under wraps and a bit quiet at themoment, but there should be no illusionsamong us. It may seem perverse and anom-alous in this world of new technologies to befighting over beef, bananas, even aircraft andsteel, but that is still the reality of the globaltrading system and it is putting us literally, inmy view, on the brink.

A Potential East Asian BlocThe second huge challenge to the trading sys-tem emanating from within the Trilateralworld is more subtle, but perhaps even moreserious and potentially more disruptive notonly to the trading system, but to Trilateralrelations more broadly. We face the realpotential of a true Asian trading bloc for thefirst time in history, as Kusukawa-san beganto discuss. We discussed this issue last Aprilin Tokyo and at the initial meeting of thePacific Asian Group in Seoul in November.But there have been enormous developmentseven since November. As Mr. Kusukawa men-tioned, there are a number of bilateral region-al arrangements underway within East Asia,such as between Japan and Singapore. But

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1The United States and the European Union reached a ten-tative agreement on bananas on April 11 that would even-tually transform the European system of mixed tariffs andquotas into a tariff-only system by 2006.

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much more significant is that Zhu Rongji pro-posed a China–ASEAN Free-Trade Agreementat the Ten-Plus-Three summit in Singapore inDecember, which was converted by the headsof state into a serious study of a full East AsianFree-Trade Area. That study comes on top ofan initiative already taken a year earlier afterthe Japan–Korea FTA talks to broaden it toinclude China. A Northeast Asia free-tradearrangement is being seriously analyzed bydesignated think-tanks in the three NortheastAsian countries.

The critical point is that all three Asian eco-nomic powers have reversed their positionson this issue. Until recently it was only Japan,China, and Korea that participated in noregional agreements. The rest of the world didso. China, as I say, has proposed an East AsianFree-Trade Agreement. Japan is pursuingaggressively a series of bilateral agreementsand is involved in the efforts to createNortheast Asian and East Asian free-tradeagreements. Korea has similarly reversed itsposition. All of these initiatives are in additionto the substantial Asian movement toward anAsian Monetary Fund, though they don’t nowcall it that. My guess is that within the nexttwo or three months they will announce theinitial steps, including about $50 billion ofcurrency swaps, coordinated exchange ratearrangements, and early warning systems toprevent crises.2 What all this means is that,within a few years, Prime Minister Mahathir’sEast Asian Economic Group could exist, albeitwith a different name and with different moti-vations. Nevertheless, it would bring togethermore than one-third of the world economyinto a new meaningful, effective regional eco-nomic grouping.

The Imperative of a New WTO RoundFrom a U.S. standpoint, this raises the possi-bility of what I call two-front economic con-flict.3 From a global standpoint, it raises theprospect of a three-bloc economic world forthe first time in history. The prospect of athree-bloc world combined with the existing

U.S.–Europe problems would pose an enor-mous two-fold challenge to our global tradingsystem, and the world economy and politymore broadly. What it suggests is the absoluteimperative of reinforcing, re-strengthening,and reestablishing at the center of the globaleconomic system an effective, functioning,multilateral umbrella—in the trade case, inthe World Trade Organization.

I don’t want to be totally negative aboutregional organizations, and as all of you know,I have never been. Indeed, the post-WorldWar II history is a story of steadily ratcheting-up of liberalization driven sequentially byregional and global initiatives. Every time theEuropeans took a new step toward greatertrade integration or economic unity, theUnited States and others responded by callingfor a global round; in turn, the Europeansresponded and barriers were reduced world-wide. There has been a positive dynamic, butit has required firm, cooperative leadership bythe global powers. The issue is whether thatsame kind of leadership will continue in thefuture if a third major economic regionalgrouping in Asia emerges.

It is clear that the only way to resolve thesepotential risks is for the WTO to be reinforced,reestablished, and reinvigorated at the center ofthe trading system. Only that kind of multilat-eral step will subsume the major bilateral dis-putes—like those between the United Statesand Europe—within a broader enterprise, pro-vide a broader strategic vision that can over-come the captured politics of individual sectoralproblems, and therefore resolve trade disputeswithout digressing into conflict at the globallevel. A new forward momentum is required inthe global trading system through the WTO.This momentum can only be achieved by thelaunch of a major comprehensive new round ofmultilateral trade negotiations.


2In mid-May 2001 a series of currency swap arrangementswere announced among the central banks of the ASEAN-Plus-Three group.

3See C. Fred Bergsten, “America’s Two-Front EconomicConflict,” Foreign Affairs 80 (2): 16–27.

WE F A C E T H E

R E A L P O T E N T I A L

O F A T R U E

A S I A N T R A D I N G

B L O C F O R T H E

F I R S T T I M E I N

H I S T O R Y . . . .

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Launching a new trade round requires theTrilateral powers to get together. The UnitedStates, the European Union, and Japan aregoing to have to agree to get it going andsoon. At Seattle, they were in total disarray.They disagreed fundamentally over a wholeseries of issues and the meeting broke up intotal failure. The challenge between now andthis year’s WTO Ministerial in Qatar is for theTrilateral countries to get their acts togetherand overcome these enormous threats andchallenges that I described. The EU, for itspart, is obviously going to have to be willingto talk seriously about agricultural reform.Yet we hear from the French and some otherEuropeans, “We can’t possibly do that untilafter our election; maybe we can’t do it untilafter 2006. We don’t know if it’s possible.”For its part, the United States has been stale-mated over these issues for five or six years.As you know, our president has had no newnegotiating authority since 1994 and there-fore the United States has been unable to par-ticipate actively in, let alone lead, any multi-lateral trade initiative. The United States wasunable to put forward any kind of balancedproposal at Seattle and that was enough tocreate a complete failure there, although thedisagreements with Europe and Japan madeit even worse.

Underlying Difficulties inthe United StatesThere is no doubt in my mind that the newadministration in the United States is going todo everything it can to overcome this stale-mate. President Bush and Bob Zoellick haveboth made crystal clear (including in testimo-ny by Mr. Zoellick to the U.S. Congress) thatthey put high priority on getting the UnitedStates back in the trade act in broad terms andin launching a new round in the WTO. Theissue is whether they will be able to do so inlight of the situation in the Congress andAmerican policy more broadly. Indeed, thebattle lines were already drawn this week. BobZoellick laid out the administration’s broad

views and Sandy Levin, who leads theDemocrats on the House committee responsi-ble for trade, laid out his views at the sametime. The two sets of views were opposite inboth substantive and tactical terms, indicatingthat there is a great deal of work to be done athome over these next few months.

Jay Mazur described quite colorfully yes-terday some of the opposition to globaliza-tion in the United States. But I must tell you,it’s not just Jay Mazur. The Institute forInternational Economics has just published astudy showing that, over a series of six hun-dred polling questions over the last thirtyyears or so, the American public is basicallysplit right down the middle on the questionof globalization.4 The split in the Congressaccurately reflects the public. Americans withat least some college education love global-ization; but those without are very anxiousabout globalization’s disruptive effects andworry about dislocation. Another IIE studyshows that, of all the American workers dis-located by trade—of which there are severalhundred thousand per year—about one-thirdtake annual lifetime earnings losses of 30–40percent.5 It’s a small number of the total pop-ulation, but it has a significant effect. Otherworkers fear they may go that same way and,therefore, are leery of the whole process. Thispolling also shows that if we put effectivedomestic programs in place to help dislocat-ed workers, then support for globalizationand open trade goes up sharply. The chal-lenge to us domestically is to put programslike that in place.

In sum, there are deep underlying difficul-ties in the United States in moving ahead andthe outcome is uncertain. Our underlyingeconomic outlook is getting worse. The slow-down of the economy—though I think it willbe relatively short-lived—will certainly push

2 0 0 1 L O N D O N M E E T I N G 35

4Kenneth F. Scheve and Matthew J. Slaughter, Globalizationand the Perceptions of American Workers (Washington, D.C.:Institute for International Economics, 2001).

5Lori Kletzer, Job Loss and Competition from Imports: HowMuch, How Costly? (Washington, D.C.: Institute forInternational Economics, forthcoming).

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unemployment up. Since our trade deficit ishitting about $500 billion this year withsteady growth in that number, we will hearcharges that the trade position is hurting theeconomy rather than helping it, which, ofcourse, it does.

(Parenthetically, I might note that the tradedeficit requires the United States to borrow $2billion net from the rest of the world everyworking day, which raises the potential risk atsome point of a sharp fall in the exchange rateof the dollar. This risk, in my view, will beexacerbated by the large tax cut now beingproposed in the U.S. Congress because anysuch tax cut must in fact be financed mainlyby the rest of the world, given the low level ofprivate saving in the United States.)

The Necessity of a Broad AgendaThe bottom line is that our work is cut out forus in all parts of the Trilateral regions. It isclearly imperative to launch a new multilater-al trade round quickly to deal with the imme-diate threat of a transatlantic trade war and tomake sure that the incipient new regionaldevelopments in the Pacific are channeled ina constructive direction. To do so, the agendahas to be broad. Europe has to be ready totalk about agriculture; the United States hasto be ready to talk about its anti-dumpinglaws, as well as competition and investmentpolicies; the developing countries have to beready to talk about labor and environmentalissues. The history of the GATT is that big isbeautiful in terms of launching and movingforward with trade initiatives. Everybody’sinterest has to be on the agenda if a launch isto be effective.

If we are unable to launch a new traderound and restore the forward momentum tothe global trading system very quickly, then Ithink we have to face the serious possibilitiesthat there will be a trade war across theAtlantic and that within five years we couldeasily have a new Asian regional bloc thatcould detract from the stability of the system.The challenge to all of us in the Trilateral

world is to do everything we can within eachof our regions to move this issue toward pos-itive and constructive resolution over thesenext few months. The outcome, I think, willbe essential not only to the world economy,but to Trilateral relations and even to worldpolitics more broadly.

C. Fred Bergsten is Director of the Institute forInternational Economics and former U.S.Assistant Secretary of the Treasury forInternational Affairs.


TH E H I S T O R Y O F

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B E A U T I F U L I N

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T I V E S . E V E R Y-

B O D Y ’ S I N T E R E S T

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J O S E P H S . N Y E , J R .

A “DemocracyDeficit” in theGlobal Economy?

Iwould like to try to set the scene for thediscussions we are going to have. Let mestart with three definitions, since we can

confuse ourselves if we are not clear aboutwhat we are talking about: globalization, gov-ernance, and democracy. By “globalization” Imean simply interdependence at interconti-nental distances, and that distinguishes itfrom regionalism or localism. Essentially, it’sinterdependence on a worldwide basis. By“governance” I mean the pattern of ways inwhich we manage our common affairs.Governments are a subset of governance, butthey are not the only way we govern collectiveaffairs. By “democracy” I mean a situationwhere leaders are accountable and ultimatelyremovable by a majority of the people.

Multilateral Governance of GlobalizationLet me start the discussion by going back toyesterday’s lunch and the very interesting pre-sentations by Gordon Smith and ErnestoZedillo. I agree with them that globalization isnot new and that it is more than just econom-ics. I also agree with President Zedillo’s pointthat globalization is driven by two forces: oneis technology and the other is policy deci-sions. So is globalization reversible? Theanswer has to be “yes” in one sense, but “no”in another. Technology is probably irre-versible, but policy decisions are reversible.As several people have already noted, we haveseen periods in which economic globalizationhas been reversed. Indeed, the levels of eco-nomic integration that the world achieved by1914 were not re-achieved until the 1970s(and on a few measures not yet, particularlymigration measures). Reversibility is one of

2 0 0 1 L O N D O N M E E T I N G 37

S E C T I O N 5

THE LEGITIMACY AND ACCOUNTABILITY

OF MULTILATERAL ORGANIZATIONS

We used an experimental procedure for prepara-tion of the one draft “paper” for the London meet-ing. Rather than a team of authors preparing ajoint draft report, Joseph Nye prepared six ques-tions and we asked others to prepare brief andpointed “answers” to these questions from theirvarying individual perspectives. Thinking aboutthe legitimacy and accountability of global insti-tutions—about what some call the “democracydeficit” in the global economy—is far from settledas globalization proceeds. Our hope with thispaper and the related London discussion and“Trilateral Memoranda” has been to help clarifythinking by bringing different perspectives andconcerns into sharper focus. Developing theappropriate normative standards for judging thekey multilateral institutions is a critical part ofglobal governance.

In the following pages we present an editedtranscript of Prof. Nye’s opening presentation tothe London meeting session. Sprinkled throughthe Nye text are the six questions and excerptsfrom one of two “answers” to them. Joseph Nye’sintroduction to the London paper and his Londonpresentation are also the basis for his ForeignAffairs piece entitled “Globalization’s DemocraticDeficit: How to Make International InstitutionsMore Accountable,” the opening piece in theJuly/August 2001 issue.

SO I S


R E V E R S I B L E ? T H E

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B E “ Y E S ” I N O N E

S E N S E , B U T “ N O ”

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the reasons why we should be concernedabout what’s going on with the backlash now.

Yesterday Gordon Smith said it was WorldWar I which stopped nineteenth-century glob-alization. It was; but it was also more than that.The ‘20s and ‘30s also brought this about. KarlPolanyi in his book, The Great Transformation,

argues that what really happened with nine-teenth-century globalization was that econom-ics outran politics. Essentially laissez-faire eco-nomics created such enormous inequalitiesbetween those who profited and those whowere left behind (in the terms of yesterday’s dis-cussion) that it gave rise to the great social dis-


QUESTION 1Protestors assert that institutions like the World Trade Organization,

the World Bank, and the International Monetary Fund are effectively accountable to no one.

Is there any validity to their claims? Why or why not?

L U I S R U B I O

The main problem is not one of governance, though a lot could be done on that front, butone of legitimacy. All three organizations—the IMF, WTO, and World Bank—report to theirshareholders (or the equivalent in the case of the WTO) and have internal governance struc-tures that are reasonably well-organized…. The public nature of these institutions some-times does create serious problems of internal control. Some of the issues involved havebeen widely argued: a bureaucracy devoted to self-preservation more than anything else; thepresence of an endless number of (often unaccountable) committees; deep-rooted arro-gance; inefficiency; and so on. Also, the shareholder nations often tolerate many of these illsin order not to upset other nations as well as the very institutions that they may need fortheir own agendas. From this vantage point, a significant internal reform (some of which isalready in the works) appears warranted.

But the issues the protestors in various cities have brought out into the open are not relat-ed to the internal workings of these institutions, but to the assumed nature of their goals.No less important, many of the protestors represent vested interests of wealthy nations thatfear the impact the forces of globalization may have upon themselves. In this sense, the issueof accountability has been fundamentally misplaced. If the attacks against the internationalorganizations come from groups in wealthy nations that assume they will lose out, who rep-resents the rest of humanity—in all nations—that benefits from financial stability and thegrowth of international trade? Who represents the world’s poor?

…The objectives, functions, procedures, actions, and accomplishments of these institu-tions are often unknown to the public at-large, a fact that generates and justifies criticismfrom many quarters and, more important, lends credibility to the protestors.

From this vantage point, the only way to act upon the issues raised by the protests is tode-legitimize the critics with arguments, while legitimizing the institutions with actions. Itis the legitimacy of the institutions that has to be addressed.

Luis Rubio is Director General of CIDAC (Center of Research for Development) in Mexico City.

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T H E P R O T E S T O R S

I N V A R I O U S

C I T I E S H A V E

B R O U G H T O U T

I N T O T H E

O P E N A R E N O T

R E L A T E D T O

T H E I N T E R N A L

W O R K I N G S O F

T H E S E I N S T I T U -

T I O N S , B U T T O

T H E A S S U M E D

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eases of the twentieth century, fascism andcommunism, which contributed greatly to thedisruption of economic globalization. I don’texpect that type of response again, but I dothink that we have to worry about the backlash.The backlash could change policy decisionsand if policy decisions become more protec-

tionist, that in turn would have a net negativeeffect on the poor. Putting it another way, eco-nomic globalization is not sufficient to solve theproblems of the poor, but I think it is necessary.If you don’t believe me conduct the followingthought experiment. Try to think of any coun-try that has prospered that has shut itself off

2 0 0 1 L O N D O N M E E T I N G 39

J E S S I C A E I N H O R N

I think protesters who assert that international organizations are not accountable to anyoneare misleading the public for the purpose of altering the existing accountability in a direc-tion that would give the protesters more authority. Since the international organizations arenot formally accountable to them, they assert that they are not formally accountable to any-one. There is little validity to that claim and it is a dereliction of duty that the shareholdersof these institutions, which comprise almost every government in the world, have notresponded more energetically to this charge.

The Bretton Woods institutions have charters, which are treaties under international law.These agreements have been and can be amended from time to time. It is the Articles ofAgreement of the World Bank, for example, which specify the purposes, membership, votingprocedures, and accountability of the staff and the organization to the governments that ownit. Both the World Bank and the IMF have permanent sitting Boards, residing in Washington,with representatives appointed by governments who either have individual seats (majorshareholders) or aggregate themselves into constituencies to elect a Director and an Alternate.All the policies of these organizations are determined with the agreement of their Boards; thebudgets are the subject of intensive reviews from capitals with instructions to their Directors;indeed, even the annual salary increase of staff is subject to specific review….

I could go on elaborating the nature of governmental oversight of these highly “constitu-tionally”-based organizations. But the more fundamental question is how does the chargeeven arise, given the structure and operating procedures that have been in place for morethan fifty years? Let me suggest two reasons:• First, it is comfortable politically for government officials to remain largely passive in the face

of broad-based protests against the international organizations. Since no one government isin charge, no one government finds it politically attractive to vigorously defend the institu-tions…. Belonging to everyone, they are defended by no one in the public relations arena.

• Second, the World Bank, the IMF, and the WTO are only intermittently dependent on leg-islative actions…. The fact that these are operating organizations that are not subject toannual budgetary oversight directly by the legislatures may contribute to the claim of non-accountability….To the extent that accountability to the Executive Branch is considered a poor stepchild to

legislative accountability, and leaders of governments have little political inducement to vig-orously defend the organizations against domestic NGOs, the supranationals are losing apublic relations battle.

Jessica Einhorn, now a Consultant with Clark and Weinstock in Washington, D.C., was the WorldBank’s Managing Director for Finance and Resource Mobilization. Early in her career she workedat the U.S. Treasury and State Department in offices charged with overseeing the Bank and Fund.

TR Y T O T H I N K

O F A N Y C O U N T R Y

T H A T H A S

P R O S P E R E D

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I T S E L F O F F F R O M

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from the world economy. I can’t think of any. The other thing worth noticing is that, even

if economic globalization is brought to a halt,this doesn’t mean that other forms of global-

ization will stop. Sometimes people say thatglobalization went on until 1914 and thenstopped until the end of the twentieth centu-ry. That’s nonsense. Military globalization


QUESTION 2While democratic norms have spread across the world,

the sense of political identity at the global level remains weak. Does it make any sense to speak of democracy

in the absence of a strong sense of political community? How “strong” is necessary?

How long will it take for a minimal sense of communityto evolve at the global level in this information age?

L U I S R U B I O

The absence of a common enemy (“the Martians”) makes it very difficult to develop aglobal political community. The latter notwithstanding, many worldwide communities havebeen springing around specific interests or issues: the environment, human rights, peace,labor rights, trade (and anti-trade), and so on. All of these have grown largely thanks to thespread of democratic ideas and norms, but also thanks to the development of much betterand inexpensive ways to access global communication and propaganda. Economic changeand communications have made this development possible, but it has been democratic stan-dards and values that have been the key to the emergence of a sense of functional commu-nity in a large number of areas.

Of course, those same democratic norms have created a big opening for anti-democraticinterests as well: religious fanatics, white supremacists, neo-nazis, etcetera. The most signif-icant feature has been the association of individuals around values, beliefs, and interests thatrival their national identities. Those affinities existed before, but the new vehicles have madeit possible for global communities to emerge.

In economic terms, democracy is achieved every time a producer or a consumer has accessto the market. In this sense, the democratization of the global economy follows from theintegration of the world’s individual economies. Throughout, consumers and producers ben-efit from integration (i.e. democratization), but can hardly be said to be moving towards apolitical community….

A sense of global community is thus emerging, a work in progress, but not as a universalphenomenon. Shared values and/or identities have sprung up around the world thanks to eco-nomic and technological change, but it has been specialized communities that have comeabout as a result. Only this way can one explain the virtual forging of an international con-sensus on issues such as Bosnia. Over time, success stories on issues such as human rightsmay lead to the development or strengthening of a community around key democratic values.

But, in the absence of an overarching external threat, the main risk to the development ofa global political community stems from the attempts by individuals of rich nations, typi-cally integrated in small groups, to extrapolate citizens’ rights at the national level to theworld at-large. However, and paradoxically, this undermines the development of a global vil-lage characterized by shared democratic values. In other words, although a single globalpolitical community is unlikely to ever emerge, everything else in the world economy is fos-

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H A L T, T H I S

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W I L L S T O P.

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accelerated after 1914. After all, what do two“world wars” mean, plus a globe-straddlingcold war? Environmental globalization wouldcontinue even if economic globalization were

brought to a halt by poor policies. Look atglobal warming, for example. Or look at thespread of the HIV virus. It’s worth noting thatit took smallpox something like three millen-

2 0 0 1 L O N D O N M E E T I N G 41

tering the spreading and adoption of democratic norms and standards. This, however, couldbe undermined by these attempts by rich-nation groups to impose standards through theinternational organizations upon the poorest nations in the world, on issues such as publicgoods, labor standards, and the like.

S O O G I L Y O U N G

The emergence of various international NGOs and associations as well as global press seemto signify that the global political community is in the early stage of formation.Globalization, and especially the rapid diffusion of information technology as well as thespread of liberal and democratic ideals, have been contributing to the development,enabling and encouraging coalescence of individuals across national borders around issuesand values. It is mostly issue-specific communities of values which have sprung up thus far.But also emerging are global communities around overarching and fundamental values likedemocracy, human rights, and sustainable development.

This evolutionary process will continue especially because many transnational issues areemerging along with the process of globalization and the nation-states are becoming moreand more insufficient as avenues through which their citizens can attempt to address thoseissues. Needless to say, the national governments themselves should work together throughinternational and intergovernmental cooperation to address these issues. In doing so, how-ever, they should welcome and encourage the emergence of the global political community,and utilize this community, weak and thin as it may be as of today, as partner for consulta-tion, cooperation, and support in these efforts. And it is by opening the intergovernmentalprocess to civil society in this way that the “democratic deficit” in global governance by theMultilateral Economic Institutions (MEIs) may be reduced.

In order to practice democracy in global governance in this sense, the MEIs or those gov-ernments which manage them do not have to wait for the evolution of a minimal sense ofglobal community. Democracy may be practiced in this way as a sense of global communi-ty evolves. In fact, both global democracy and global community should evolve and growtogether and with mutual synergy through the learning-by-doing process.

In order to make this process truly democratic, however, the participating internationalcivil society organization themselves should be required and shown to satisfy certain condi-tions of a true and democratic civil society organization. These include: being pursuant of aglobal public value rather than of a self-serving narrow interest of a national or regionalinterest group, open to new members in a non-discriminatory way, democratic in its corpo-rate governance, and transparent in regard to funding and decision-making. Otherwise, it ispossible for the process to be captured and distorted by well-funded interest groups of richcountries. And it is possible that some of the groups which participated in the so-called anti-globalization protest in Seattle were such groups.

Soogil Young, former Korean Ambassador to the OECD, is a Guest Scholar at the Institute forGlobal Economics in Seoul.

IT I S M O S T L Y

I S S U E - S P E C I F I C

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nia to reach all the continents of this globe; ittook HIV about three decades. So we may beleft by bad policy decisions with the end ofthe good types of globalization, with onlysome of the bad aspects of globalization.

That’s why people call for more governmentor governance of globalization, and that oftenleads people to talk about the need for worldgovernment. I think when you read theanswers to the questions that were provided tothe respondents, there is a unanimous consen-sus that world government is not going to hap-pen—not world government on the model ofa nation-state writ large. In that sense weshould not be looking for a domestic model ora domestic analogy as to how we’re going tosolve this. There is a great deal of “governance”that already exists. To some extent we’re likeMolière’s Bourgeois Gentilhomme, speakingprose without noticing it. There is not only theUnited Nations system, not a world govern-ment but dealing with a number of globalissues. There are hundreds of organizationsthat deal with different issues. You might saythat we have islands of governance in theinternational system. If you think of trade, ifyou think of air traffic, if you think of postalsystems, if you think of meteorology, all ofwhich have organizations associated withthem, a rich set of islands of governance wascreated in the international system in the sec-ond half of the twentieth century.

Multilateral Governance andNational DemocraciesThe problem that we face now is that the legit-imacy of these organizations is being called intoquestion. That gives rise to this issue of thedemocratic deficit. When you ask people whythey question the legitimacy of these organiza-tions, the protesters often say: because there’s ademocratic deficit. They are not consistentwith the procedural legitimacy of democracythat is essential in the twenty-first century.

Now the term “democratic deficit” reallygrows out of the literature on Europe and theconcerns about the role of the European

Parliament. The term doesn’t transfer wellfrom the European situation to the global sit-uation. It’s difficult enough in the context ofEurope (where the countries are relativelysimilar) to think of parliamentary control. It’salmost impossible to think of a world parlia-ment. And therefore to use this term “democ-ratic deficit” as though we were imagining aworld parliament is a mistake. Tennyson’s“Parliament of Man” was great Victorian poet-ry. It’s pretty poor political analysis.

When we look at democracy we have to behonest and realize that democracy occurs innation-states. Democracy occurs essentiallywhen there is a political community. Onlywhen there is a sense of political communitywill a minority acquiesce in the will of themajority. If we look at this at the global level,will people really be willing to be continuallyout-voted by the two-and-a-half billionChinese and Indians? I think the answer is no;and we’re kidding ourselves if we think that’sgoing to be the shape of the solution. Whenwe are looking at this issue, we’ve got to getaway from the idea that it will look likedomestic democracy.

So democracy occurs in national states andthese international institutions are the instru-ments or the agents of national governments.Since national governments are elected, what’sthe problem? There are three problems actually.

One is not all the members are democratic,something that Jessica Einhorn points out inher responses.

The second is the issue of long chains ofdelegation. People sometimes feel that there issuch a distance between those who are electedand those who are running the organizationsthat the legalistic argument is not enough.

Third, perhaps most important, is that theseinstitutions created in the second half of thetwentieth century as the agents of states are,as somebody said yesterday, actually theagents of parts of states. What we’ve devel-oped in the second half of the twentieth cen-tury you might call the “club model” of inter-national organization. Think of GATT and


TH E R E A R E

H U N D R E D S O F

O R G A N I Z A T I O N S

T H A T D E A L

W I T H D I F F E R E N T

I S S U E S . Y O U

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E R N A N C E I N T H E


S Y S T E M .

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then WTO: It’s a club of trade ministers.Think of the BIS in Basel: It’s a club of centralbankers. Think of the IMF: It’s a club offinance ministers. In other words, what youfind are parts of governments working withsimilar parts of other governments butexcluding other parts of their own govern-ments. That has been very effective, but itdoesn’t do very well when you get to theissues which are trade and labor, trade and theenvironment. Many people are saying, “I don’tfeel represented when my trade minister goesto Geneva and works with other trade minis-ters, because I do care about what happens todolphins or to turtles or to the environmentmore generally.” These clubs of ministers with

similar interests in an issue often are not asresponsive to the broader democratic publicas some people would want.

So there is a valid set of concerns that peo-ple raise. The basic point—that these institu-tions receive their legitimacy through delega-tion from governments—is true, but not allparts of governments, and the delegation linesare very long and some governments are notdemocratic.

Enhancing the Legitimacy and Account-ability of Multilateral GovernanceThat leads to the questions posed to theauthors who responded in the draft paperbefore you. I don’t have the answers to these

2 0 0 1 L O N D O N M E E T I N G 43

QUESTION 3Within the European Union it is often suggested that a

stronger European Parliament will reduce the sense of a “democratic deficit” as the regional community evolves.

Does the analogy make sense on a global scale? Can ways be found to apply the legitimacy of elected legislatures

at the global level (for instance, committees of national legislators attending WTO or IMF meetings)?

H I S A S H I O W A D A

Some form of participation by national legislators in the proceedings of the United Nationsmight prove to be useful in the context by giving them the needed sense of participation inthe process of global governance. However, such participation should be for the purpose ofthe debate only, and should not divulge into the realm of legislative power or executive deci-sion of the organs concerned of the United Nations. This device could help enhance thesense of trust on the part of elected representatives of states whose lack in trust in these orga-nizations is the root cause of many of the problems that we face today in relation to theseinternational organizations.

However, going beyond that is not practical or feasible, because the analogy with theEuropean Union, which is a supranational entity, cannot hold until the United Nationsbecomes a supranational organization for governance of the entire internationalcommunity.

For the same reason, the extension of this idea from the United Nations to the WTO orthe IMF is not going to be practicable inasmuch as the WTO or the IMF are intergovern-mental organizations endowed with executive power which can bind the national executiveorgans of the member-states.

Hisashi Owada, former Ambassador of Japan to the United Nations and former Vice Minister ofForeign Affairs, is now President of the Japan Institute for International Affairs (JIIA) in Tokyo.

ON L Y W H E N

T H E R E I S A

S E N S E O F P O L I T -

I C A L C O M M U N I T Y

W I L L A M I N O R I T Y

A C Q U I E S C E I N

T H E W I L L O F

T H E M A J O R I T Y .

jp 3-92 2/12/03 10:23 AM Page 43

questions. I don’t think any of us do. But letme give you, in concluding, the way I wouldapproach answering these questions.

1. First of all, think about institutional design. Weshould try as we construct international organiza-tions to create ones that minimize the conflict withnational democracy. If democracy occurs at thenational level, we ought to protect it as best we can.

In this regard I would argue that the WTOis actually a very good design. The protesterswho have called the WTO an incipient worldgovernment make a rather silly claim. MikeMoore has a smaller staff and less of a budgetthan I have as an academic dean, and less thansome of the NGOs that are always plaguinghim. But there is another dimension of theWTO. It is able to set rules through the dis-pute settlement mechanism, and these caninterfere with national sovereignty. The impor-tant thing in the design of the WTO, which we

should use as a model, is that if a democraticmajority in a WTO member wants to go backon its international agreement, it can do so. Itjust has to pay a penalty. That penalty isexpensive and painful, but it’s a little bit likedesigning an electrical circuit for a house inwhich you put a fuse. It’s better that the fuseblows than that the whole house burns down.What the WTO does is create a system whichallows democratic necessities at the domesticlevel to occasionally prevail without destroy-ing the whole system of reciprocity in interna-tional trade. So rather than criticize the WTO,as so many of the protesters have, I think weought to start studying some of the lessons ofthe WTO for ways in which we can reconciledemocracy at the national level with interna-tional institutional design.

2. Second, if democracy occurs at the nationallevel, then part of the solution has to start there as


QUESTION 4Accountability is not assured exclusively through the electoral process

even in long-established democracies. In the United States, the Supreme Court and the Federal Reserve System are only indirectly responsive to voters.

Professional norms and standards help keep judges and bankers accountable. Is there an analogous process at the global level?

In addition to voting, constituencies communicate and agitate over issues through a variety ofmeans, such as letters, polls, Internet postings, and protests.

Interest groups and a free press play an important role. What roles can and should NGOs play at the global level?

What about the legitimacy and accountability of the NGOs themselves?

S O O G I L Y O U N G

The NGOs are an important instrument for forcing the enhancement of the accountabilityof global institutions, in general. Their contributions in the form of identification of prob-lems, evaluation of performance, and recommendations and pressures for enhancing stan-dards and accountability should be actively utilized by the MEIs and governments. Theactivities of the Korean Citizens’ Coalition for Participation for the protection of small share-holders’ rights offer an exemplary model to follow. But the NGOs themselves should berequired to satisfy certain norms and standards of accountability and legitimacy to performsuch a role.TH E I M P O R T A N T

T H I N G I N T H E

D E S I G N O F T H E

W T O , W H I C H W E

S H O U L D U S E A S A

M O D E L , I S T H A T

I F A D E M O C R A T I C

M A J O R I T Y I N A

W T O M E M B E R

W A N T S T O G O

B A C K O N I T S


A G R E E M E N T, I T

C A N D O S O .

jp 3-92 2/12/03 10:23 AM Page 44

well. We can think of better parliamentarycontrol. For example, Denmark, as I under-stand it, has set up much better proceduresthan many other EU member-countries forinforming its parliament of what’s happeningin Brussels. Countries could develop betterprocedures for being informed of what’s hap-pening in key international institutions. Ifthere’s a concern that “my views aren’t repre-sented at the club of trade ministers,” there’snothing to stop a national government fromadding an environment minister or a laborminister to its own delegations. Better systemsfor domestic oversight—that’s another way wemight begin to solve this.

3. Third is to have more clarity about what wemean by democratic accountability. We some-times talk as if democratic accountabilitymeans that everyone and everything has to bedirectly elected. That’s clearly not the case. You

can have well-ordered democracies in whichthe accountability between a given agency andthe electorate is quite indirect. The U.S. FederalReserve System or the European Central Bankare accountable ultimately to the electorate; butthey’re not directly accountable because peopledon’t want them directly accountable. Theywant a different or longer time horizon whendealing with monetary policy. And there is noreason that we should hold international insti-tutions to a higher standard of democraticaccountability than we do institutions at home.The argument that it’s bad Mike Moore is at theend of a long line of delegation, but it’s goodAlan Greenspan is at the end of long line of del-egation—that’s inconsistent and we ought topoint that out. There’s nothing in democratictheory that requires constant direct votes oneverything for legitimacy.

4. Fourth, we can also turn to instruments of non-

2 0 0 1 L O N D O N M E E T I N G 45

B É L A K Á D Á R

NGOs are voices of special interests at the national level. Recently they have been establish-ing strategic alliances at the global level. They draw attention to “performance deficits,” dubi-ous government or global practices, and wrong approaches. They campaign frequently forgood causes, and transparency. At the same time their proposals are often contradictory, unfea-sible, and irrational; and their methods are sometimes aggressive and damaging. Some protestmovements exploit the freedom of maneuver granted in permissive societies, and strive forhigh visibility combined with violence. For the time being the legitimacy of some NGOs israther questionable. Their own lack of openness about their political connections and aboutthe interest groups sponsoring and financing their activities constitutes a transparency deficit.In some cases NGO activities—knowingly or unknowingly—weaken the bargaining capacityof democratically elected governments. Since they have not created any representative struc-tures they cannot play a well-structured advisory role within the WTO and the IMF.

Dialogue with and transfer of information to well-structured NGOs enjoying legitimacyand accountability (BIAC, TUAC) has proven to be fruitful. Extended participation of NGOsin dialogues should require a positive assessment of their legitimacy and capability for dia-logues. The involvement of some NGOs could be considered as a kind of “insurance policy”against other “non-qualified” NGOs. A change in the attitudes of international organiza-tions—including reduced luxury of conferences and life-styles, and a farewell to the appear-ance of rich men’s clubs—could decrease the vulnerability of some international organiza-tions vis-à-vis the protests.

Béla Kádár is Hungary’s Ambassador to the OECD and former Minister of International EconomicRelations and Member of Parliament.

IN S O M E C A S E S

N G O A C T I V I -

T I E S — K N O W I N G -

L Y O R U N K N O W -

I N G L Y — W E A K E N

T H E B A R G A I N I N G

C A P A C I T Y O F

D E M O C R A T I C A L L Y

E L E C T E D G O V -

E R N M E N T S .

jp 3-92 2/12/03 10:23 AM Page 45

democratic accountability. Accountability ismore than just elections, or even indirect con-nection to elections. For example, marketscan help with accountability when organiza-tions have to be alert to markets; for example,when the World Bank is going out to raisefunds, or even when governments are consid-ering rules and regulations. Markets are notdemocratic, but their insistence on trans-parency and legal certainty can influence and

help to strengthen democracy. Similarly, repu-tational and professional lines of accountabil-ity transnationally—economists care aboutwhat economic decisions are made andlawyers care about what legal decisions aremade—are not democratic per se, but theycan help to reinforce the accountability ofinternational institutions.

5. Fifth, it’s extremely important to increase trans-


QUESTION 5Representativeness is a critical dimension of legitimacy.

A recent Trilateral essay argues that the legitimacy of the IMF suffers from the “unrepresentative”character of its governance. The Fund is “largely governed

by the G-7, mainly the United States,” but “nearly two dozen” IMF members are “systemicallysignificant” to the world economy.

Some participants in the November 2000 meeting of Trilateral’s new Pacific Asia group werecritical of the relatively limited clout of East Asian countries in

multilateral institutions created and run by Americans and Europeans. How should we think about the representativeness of the governance of the Fund,

Bank, and WTO? What changes should be made?

J E S S I C A E I N H O R N

The representativeness of governance in the Bank and Fund are questions with which theinternational community struggles. Thus far, there has been no suggestion that these insti-tutions move to either the extreme of one country/one vote, or the extreme of voting on thebasis of population irrespective of economic strength. The voting is so wrapped up with thefinancing that this would be practically impossible, in any event. But, even in theory, the UNGeneral Assembly approach of making all sovereigns equal achieves nothing but the cele-bration of statehood, or its fractionation. Any argument in favor of population, per se, as thedemocratic basis for governance is mooted by the undemocratic institutions of some of themost populous nations.

The Bank and the Fund are reasonable in their starting points. The question is how to pro-ceed from here, and what are the obstacles? The obstacles are the countries themselves, allof whom engage in these negotiations as zero-sum games, with no sacrifices to be made for“public goods” to be gained. Small countries want to make sure that they maintain theirshare; emerging economies want their rightful place; traditional dominant economies do notwant to slip back. The irony is that nothing is at stake so the parties can afford to beintractable. The reality is that most issues within the organizations are decided by consen-sus and the most important issues are left to qualified majorities where the United States hasa veto, as do the Europeans if they chose to hang together, as would the developing coun-tries, as a group. So it’s a matter of prestige, and hundreds of man-hours are required to sortit out when the occasions arise….

I can’t help thinking that the “world” knows it is stuck with an anachronistic G-7 (or 8),that is increasingly outmoded. At the same time, the major countries of Europe do not want

AN Y A R G U M E N T

I N F A V O R O F

P O P U L A T I O N , P E R

S E , A S T H E

D E M O C R A T I C

B A S I S F O R G O V -

E R N A N C E I S

M O O T E D B Y T H E

U N D E M O C R A T I C

I N S T I T U T I O N S I N

S O M E O F T H E

M O S T P O P U L O U S

N A T I O N S .

jp 3-92 2/12/03 10:23 AM Page 46

parency. A more open process allows legisla-tors, as well as the public at-large, to knowwhat’s happening. And that’s where we come tothe role of the non-governmental organizations. Iwas sympathetic to the comment made thismorning that NGOs represent some of the bestand some of the worst. We make a mistakewhen we lump all NGOs together. There aresome which are terrific. I think we’re part ofone right here. I’ll give you another: Trans-

parency International, which works on inter-national corruption. And there are many more.There are others which claim to represent civilsociety, but represent only themselves.

The point is that NGOs can play a role in theprocess a bit like the role of the press indomestic political democracies, which essen-tially means they can open things up. They canbe a source of information. In that sense,they’re sometimes what you might call the

2 0 0 1 L O N D O N M E E T I N G 47

to be submerged in some community form of representation. The efforts made in the wakeof the Asian crisis to broaden the group of countries involved in discussing the financialarchitecture were steps in the right direction—but it certainly incited concern on the part ofthe bypassed institutions and the excluded countries.

Ideally, the Fund and the Bank would realign their voting structure to take account ofdecades of development. But, in the end, if it doesn’t happen, the institutions—not thecountries—will be the losers. Countries with open trading systems, growing economies, andparticipatory political systems have influence beyond their votes, in the corridors wheredecisions are really made. The ideal weighted system would qualitatively measure countriesagainst the norms that the institutions embrace and then give weight to sheer size and trad-ing volumes to end up with a governance model that respected both size and best practice!In the meantime, leading shareholders should band together in an effort to be less parochialand lend support to efforts to increase the participation of countries when they are clearlyoverdue for such accommodation.

H I S A S H I O W A D A

It seems to me that this question of representation is also becoming a problem with the IMFas compared with other international organizations, whether it be one of the Bretton Woodsinstitutions or not.

The weighted voting system as practiced in the IMF, however justified it may be on theanalogy of a joint stock company where the allocation of the voting power in proportion tothe shares held is the rule of the game, could create a major problem in the context of glob-al governance. It is because the IMF is not just a private joint stock enterprise whose goal isto maximize the profit of the shareholders. It is an instrument of public policy in the exist-ing system of global governance, operating for the promotion and maximization of interna-tional public goods.

There is also sometimes an attempt not to allow the true size of the national GDP of amember to be accurately reflected in the allocation of the voting power on the decision-mak-ing process of the Fund (or the Bank). This is because a somewhat artificial device is some-times employed to distort the allocation of voting power of the countries involved. It issometimes contended that such artificial devices could result in a situation where the voiceof some countries, e.g. East Asia, is represented less in the decision-making process of theinstitution than it should on the basis of its economic strength as measured by GDP.

. . .N G O S C A N P L AY

A R O L E I N T H E

P R O C E S S A B I T

L I K E T H E R O L E

O F T H E P R E S S I N

D O M E S T I C P O L I T -

I C A L D E M O C R A -

C I E S , W H I C H

E S S E N T I A L L Y

M E A N S T H E Y C A N

O P E N T H I N G S U P.

jp 3-92 2/12/03 10:23 AM Page 47

fourth branch of government. You don’t wantto bring them in as voting members in theprocess; they have no legitimacy for that. Butto the extent they bring openness to theprocess and greater transparency, they cancontribute to a greater sense of accountability.I think that probably means that you want toincrease the opportunities for dialogues withNGOs without actually having representationof NGOs. I would add that any NGO whichasks to be included in such a dialogue ought tobe held to the same standards of transparency.Only those NGOs which disclose their ownmembership and their own financing sourcesought to be allowed such privileges.

6. My sixth and final point is that we need toexperiment more. We have, as I’ve said, a suc-cessful set of institutions developed over thelast fifty years; but they are now comingunder question. There is no reason we can’tlook at different models and different types.One of the experiments is actually a very oldone, the International Labor Organization,which as far as I know is the only tripartiteintergovernmental organization. It goes all theway back to 1918.

A much more recent interesting venture isthe International Corporation on AssignedNames and Numbers (ICANN), which essen-tially governs the assignment of internet


QUESTION 6Defenders of international institutions could experiment to improve accountability. Transparency

is important. Global economic organizations could provide more access totheir decision-making process, even if this requires delayed release of records in the manner

of the U.S. Supreme Court and Federal Reserve. International non-governmental organizations could be welcomed as observers (as the

World Bank has done) or allowed to file amicus curae briefs in WTO dispute settlement cases. Insome cases, such as the Internet Corporation on Assigned Names and Numbers (ICANN), experi-

ments with direct voting may prove fruitful, although the danger of capture by interest groupsremains a problem. Hybrid networks that combine governmental, intergovernmental, and non-

governmental representatives, such as the World Commission on Dams, are another avenue to explore.

What experiments in processes and procedures would you recommend?

B É L A K Á D Á R

Transparency, accountability, and precautionary lending are being improved by the interna-tional financial organizations, but there is still a substantial lag behind the basic require-ments. Better insights into their decision-making processes, invitations to interested organi-zations with proper legitimacy, better PR, and periodic evaluations of their activities byteams of independent “wise men” or parliamentarians may simultaneously serve education-al purposes, transparency requirements, and the fight against the inbred cultures of inter-national organizations.

International organizations are, however, basically for cooperation among sovereign gov-ernments. To extend the right to file amicus curiae briefs to NGOs in WTO dispute settle-ment cases—an example mentioned in the question—could decrease the role of govern-ments and undermine professional efficiency. The release of records and minutes in princi-ple is a good idea, but it could aggravate legitimacy problems since the decisions are fre-quently not taken on purely economic grounds. More generally, various experiments can beinteresting but could further undermine the legitimacy of international organizations.

. . .T O T H E E X T E N T

[ N G O S ] B R I N G

O P E N N E S S T O T H E

P R O C E S S A N D

G R E A T E R T R A N S -

P A R E N C Y , T H E Y

C A N C O N T R I B U T E

T O A G R E A T E R

S E N S E O F

A C C O U N T A B I L I T Y .

. . .A N Y N G O

W H I C H A S K S T O

B E I N C L U D E D

I N S U C H A D I A -

L O G U E O U G H T

T O B E H E L D

T O T H E S A M E

S T A N D A R D S O F

T R A N S P A R E N C Y .

jp 3-92 2/12/03 10:23 AM Page 48

addresses. It was set up as a non-profit corpo-ration under California law to avoid the cum-bersomeness of a formal intergovernmentalorganization like the International Telecom-munications Union. While some of the boardis appointed, there are direct elections byinternet users for other members of the board.Now, these direct elections, when they werefirst held last fall, suffered one of the majorproblems which can happen in situations likethis—they were captured by those who orga-nized well. So the ICANN experiment withdirect election was not a full success. But thisdoesn’t mean you couldn’t design a way thatcould be more successful.

Another type of experiment is to think ofwhat are called trisectoral networks, organiza-tions in which part of the membership is fromgovernments, part from NGOs, and part fromthe private sector. The World Commission onDams (which the World Bank helped to set up)had twelve members—four from a govern-mental background, four from an NGO back-ground, four from the private sector. It tried todevelop guidelines for how large dams shouldbe created or not created, and has been rela-tively successful in developing a consensus.

So these are some examples of the types ofexperiments we could be undertaking to sup-plement, not to replace, the club model ofinternational institutions that has served us sowell so far.

* * *

These are mere suggestions. The questions aremore important than any of my own answers.But the need for us as a group to developanswers is absolutely essential. If we don’t,public opinion is going to be shaped by thedemagogues; and we would all be worse offfor that.

Joseph S. Nye, Jr. is Dean of the Kennedy Schoolof Government at Harvard University and formerU.S. Assistant Secretary of Defense for Inter-national Security Affairs.

2 0 0 1 L O N D O N M E E T I N G 49

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R O B E R T M . W O R C E S T E R

Public Opinionin Britain

Iassess public opinion. I try to understandBritain and what makes it British; whatcauses what happens here and who makes

it happen. You have invited me here today toshare some of that knowledge with you sothat you can better understand how theBritish think and feel, and how they see theirrole in Europe and in the world.

You are politicians, policy-makers, and poli-cy wonks, and public opinion is not your“bag.” Sure, you read the polls, but you treatthem somewhat with disdain, unless perhapsyou are running, or standing, for office andthen they become a weapon in your armory, tobe used in the campaign, and then put awayuntil next time. My own position on the role ofpolls, surveys, and assessment of public opin-ion is one not of an advocate of any particularpolicy, subject, or topic, but as a provider ofboth objective and subjective information,obtained systematically and objectively, ana-lyzed dispassionately, and delivered evenly. Ido feel passionately that decisions about pub-lic policy (and corporate policy for that mat-ter) should be made in the knowledge of thepublic’s view rather than in its absence.

Over the years the work we do has mod-ernized and globalized. There is the WorldValues Survey, the Eurobarometer, and theLatinobarometer. And for four years now, theBritish Government’s Cabinet Office has usedthe “People’s Panel”—a world first—to informBritish policy-makers in both business andgovernment not just about people’s opinionsand attitudes, but also their values, to help

develop products and services provided toconsumers. It has also linked government tocitizens. It is government for the people andby the people, not for people to dictate to pol-icy-makers, but to better inform them so theymake better, more user-friendly policies.

Citizens and Society in aContext of Rapid ChangeThe pace of change in Britain is accelerating atan accelerating rate. To some people this isfrightening all of the time and to most of us it’sfrightening at least some of the time.

Longevity threatens economic stability;global money movement, and speed and inde-pendence of communications from govern-ment restrictions threaten economic sover-eignty. The family structure is under threat,with the single person household projected togrow fastest. The service economy and theproportion of women in the workforce aregrowing. Downsizing is happening; part-timejobs are equally desired by both men andwomen. Europe and America’s share of worldtrade is approximately the same at about 18percent each. Gigantic mergers are announcedevery day. Deregulation, technological change,and corporate restructuring are all are havingtheir impact. Look at the public reaction togenetically modified organisms! The rise ofcivil society is accompanied by the rejection ofrole models and loss of confidence in institu-tions, while feminism and informality arefinding greater acceptance. The loss of statusand the breakdown of hierarchies presentboth threats and opportunities to our society.

Our work with a consortium of researchcompanies across Europe has identified anumber of “cross-cultural convergences.” Letme develop a few of these for you.

• The growing gap between institutions and peo-ple. There is a perceived lack of leadership,failure of top-down solutions, and institu-tional inertia. People are less hierarchicaland formal in family life and daily interac-tion, less submissive to authority and thestatus quo, and less rigid in planning their


S E C T I O N 6

BRITAIN: PUBLIC OPINION,

ECONOMY, BUSINESS, SCIENCE

TH E P A C E O F

C H A N G E I N

B R I T A I N I S

A C C E L E R A T I N G

A T A N A C C E L E R -

A T I N G R A T E .

T O S O M E P E O P L E

T H I S I S F R I G H T -

E N I N G A L L O F

T H E T I M E A N D

T O M O S T O F

U S I T ’ S F R I G H T -

E N I N G A T

L E A S T S O M E

O F T H E T I M E .

jp 3-92 2/12/03 10:23 AM Page 50

lives. They are more interested in self-man-agement and organization, willing to joingrass-roots efforts to combat problems.They are intolerant towards inefficienciesand lack of voice, which is in tune with thedesire for authenticity and integrity. In busi-ness and in government, ethics matter andhave to be transparent. Thinking small andlocal is just as important as thinking big.Authoritative communication is less credi-ble and less arrogance is wanted.

• The flow from ideology to the need for meaning.There is more emptiness in people’s lives.Old ideologies and belief systems are indecline. The search for greater meaning ineveryday life motivates many activities.People want an anchor in their lives, butwant their own value systems to be flexible.They want balance in their lives and focuson quality of life, not lifestyle.

• The trend from an organized social structure toa network culture. Ease of communicationhas resulted in massive increases in the lev-els and diversity of interpersonal contact,including an increase in word of mouth andmore “human” networks. There are alsoopportunities for new services that put peo-ple in touch with products, information,and other people. But people also want tobe able to “unplug” when they want privacy.

There is a growing sense that daily life hasbecome too stressful and that security isundermined. In the application of Maslow’s“Heirarchy of Human Needs,” sustenance isassured, but security is threatened. Esteem isunder attack, and self-actualization comeshard. Crude hedonism is on the rise, withmore drugs and more anti-social behavior—and growing faster among young women thanyoung men. Too many are what we call the“underwolves,” the underdog who bites back.There should be no one in this room who isnot aware that in the rich world today thereare three people working to support one pen-sioner. By 2030 this ratio will fall to 1.5 to 1.It will take between 9 and 16 percent of the

GDP in these countries to support today’spension promises, never mind the increasedcost of health care and housing that will berequired. Now pensioners represent one infive of the adult population, and one in fourwill be a pensioner in two decades. The typi-cal retired household occupant in twentyyears will be a lone woman.

All of this will result in resentments build-ing up: young against old, poor against rich,rural against urban, scientists against the peo-ple, producers against consumers, the peopleagainst the Institutions, central governmentagainst local government, globalized againstthe globalizers, and everybody against bigbusiness. Engineers want high tech; peoplewant high touch. And most challenging of all,working-class groups feel excluded. They areanxious about new technologies and resistantto new ways of working.

Implications for GovernanceThere is receptivity in the British electorate toelectronic government, but at the same timedissatisfaction with how they are being gov-erned. By listening to, and learning from, peo-ple’s views, government is better able to pro-vide the services that people want. The use ofsurveys by the British Government dates backto the Second World War and these days mostgovernment agencies use a variety of marketresearch methods to inform their thinking.The People’s Panel we are doing for theCabinet Office takes this one step further byproviding a research tool that can provideconsistency in approach over time in examin-ing the public’s views of public services. It hasbeen used recently to carry out research aboutthe development of electronic government.

We found that there is strong support forbeing able to contact government through callcenters. But nine out of ten people thought itwas important for a person to answer ratherthan hear a recorded menu of options. There issignificant support for local services becomingmore directly responsive, for example, throughreferenda and the election of local mayors.

2 0 0 1 L O N D O N M E E T I N G 51

PE O P L E A R E

L E S S H I E R A R C H I -

C A L A N D F O R M A L

I N F A M I L Y L I F E

A N D D A I L Y

I N T E R A C T I O N ,

L E S S S U B M I S S I V E

T O A U T H O R I T Y

A N D T H E

S T A T U S Q U O ,

A N D L E S S R I G I D

I N P L A N N I N G

T H E I R L I V E S .

jp 3-92 2/12/03 10:23 AM Page 51

People’s satisfaction with individual public ser-vices increases in proportion to how well a ser-vice keeps them informed about what it does.Openness is key to public satisfaction.

Attitudes towards new technology aremixed. On balance, people agree that it willmake dealing with government easier, butconfidentiality and other issues cause con-cern. There is also a mismatch between thosemore attuned to the potential for electronicgovernment and those who make most use ofpublic services.

Who Do the British Think They Are?In a survey we carried out for The Economist in1999, we tried to find out who the Britishthought they were, and who they saw as theirallies. First, we updated a survey first carriedout in 1969, when around four in ten of theBritish saw as their main partner theCommonwealth, and only about one in fiveeach thought Europe or America. In 1999, 16percent of the British said Europe would beBritain’s most reliable political ally, 15 percentthe Commonwealth, and 59 percent America.Thirty-six percent of the British thoughtBritain could learn something from Germanyin the way the economy works, 34 percentfrom America, and only 5 percent from theFrench. And when asked about the waydemocracy and government work, we foundAmerica well in front with 36 percent,Germany second with 23 percent, and Franceagain in third place with only 6 percent. Acynical one in six said that none of them hadanything to teach the British about gover-nance, thank you very much.

We probed local and national identities andfound 41 percent identified with their localcommunity, 50 percent their region of thecountry, 45 percent the country (England/Scotland/Wales)—but 72 percent in Scotlandand 81 percent in Wales—and 40 percentBritain—but only 18 percent in Scotland.Only 16 percent picked Europe and evenfewer, 9 percent, the Commonwealth. Over athird, 35 percent, said they least identified

with Europe, and only 21 percent said theyidentified with the European Union’s twelvestarred flag, nearly as many as the 23 percentwho said they identified with the AmericanStars and Stripes!

No Euro Referendum before 2005 ElectionTake it as read that the British electorate willreturn the Labour Government to office onMay 3 with a majority most politicians onlydream of. My current guess is a Labour major-ity of between 100 and 120 seats, far less thanthe current polls are showing, but still ahealthy Labour majority that Wilson andCallaghan would have never dreamed, muchless Foot or Kinnock.

I do not believe that in the life of the nextParliament, 2001–2005, Britain will find itpolitically expedient to join the SingleEuropean Currency. Last July I forecast thatthe Blair Government would call thepromised referendum on British entry into theSingle European Currency this November. Ipredicted that the referendum would succeedbut just, based on the nearly half of the Britishwho are generally in favor of British entry intothe Single European Currency but could bepersuaded either way. I now believe that thereferendum cannot be won, and therefore willnot be called in the life of the next Parliament.

The likeliest outcome of the election in2005 is a narrow win for Labour, either inde-pendent of the Liberal Democrats, or in con-junction with them. Either way, Labour willneed the Liberal Democrats for the followingParliament in coalition, the price of which willbe referendums on both the Euro and propor-tional representation. By 2005, it will becomeapparent, even to the Conservative Party, thatBritain cannot remain outside the SingleEuropean Currency and still have much say inthe future of Europe. For the future of Europewill be—within my lifetime—by any othername, a United States of Europe.

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All of us here today know that new technolo-gy brings benefits to people both through busi-ness and through government. Yet half or moreof the public are not convinced. It isn’t easy toeither prosper in business or govern in a tech-nological age. Yet that is the Age we are in. Wehave to worry not only about adults who areskeptical or afraid of new technology, we haveto worry about the children who are as well.They are not many, but they include the one intwenty who disagree that it is important forthem to learn about how to use computers atschool, the 8 percent who reject the idea thatcomputers make learning more enjoyable, andthe 15 percent who say they find computerstoo complicated to use. Technology bringspeople together across the world. It can be andshould be a force for good in our society.Information is power, and technology is anenabler of people power in the hands of thepeople. And that’s got to be good—for Britainand Europe, and for the USA, and Canada, andfor the world—if together we who do researchcan help our clients in the corporate sector, inthe civic sector, and in the NGOs to under-stand, to anticipate, to proactively respond andgo with the grain.

Robert M. Worcester is Chairman of MORI andVisiting Professor of Government at the LondonSchool of Economics and Political Science.

B I L L E M M O T T

The BritishEconomy

Over the past ten or fifteen years,speeches about the British economywere all about how we were no

longer as bad as we had been before and howwe were not making the sins of the past. Tosome degree we are still saying this. But look-ing at whether Britain and its economy nolonger commits the sins of the past is not asufficiently stiff test of our economy and ourprospects. We really need to look at what weare creating for the future and how we stackup compared with our equivalents.

Inflation. Inflation in Britain has been uncanni-ly stable. This was true before 1997 when theLabour government made the Bank of Englandindependent, and it has been very much trueafterwards. During that period we’ve also hada very tight fiscal policy. Perhaps what wasmost notable before 1997 was the sharp dropin the pound’s value when Britain was forcedto leave the Exchange Rate Mechanism of theEuropean Monetary System. Many people,including me, thought that we would againhave a spike in inflation. That was the dog thatdidn’t bark. It did not happen. Now we havestable inflation. The Bank of England’s targetrate is 2.5 percent, and if the Governor of theBank of England misses that rate—either toohigh or too low—he has to write an open let-ter to the Chancellor of the Exchequer apolo-gizing for this. We all expected him at somestage to have to write a letter apologizing forhaving too high inflation. He is quite soongoing to have to write a letter apologizing forhaving too low inflation.

Unemployment. Low unemployment is, ofcourse, the indicator that brings the most joy toany politician. British unemployment has

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halved in the last nine years. At the same time,employment as a percentage of the working agepopulation has risen to 75 percent, back up tothe level of the 1970s. We’ve gotten rid of theresistant long-term unemployment problemthat we still had during the 1990s. The unem-ployment rate, based on the International LaborOffice measures, is roughly half the unemploy-ment rate in our European neighbors.

GDP Growth. In the 1990s, Britain out-per-formed the current members of the Europeansingle currency. This performance led, I think,to a regrettable superiority complex in Britain. Itwas very often said that the British economy wasnow overtaking and out-performing ourEuropean partners. What happened in the endof the 1990s and still now, is that euro-areagrowth has overtaken growth in this country.But we have been tracking each other quiteclosely for the last two years. What’s notable forour North American friends is that those growthrates, even now, are about a percentage pointbelow the growth rate that the United Statesitself has been seeing over the last few years.

Manufacturing and Productivity Growth. We’vehad a tale of two economies in Britain. Wehave had an economy in which services out-put and activity has been growing very fastover the last four years, whereas manufactur-ing output has been fairly flat. It has had itsups and downs over those years, but it hasbeen fairly flat. This has an important effecton regional distribution within Britainbecause manufacturing on average takes placein northern Britain and services is more asouthern phenomenon. That’s a caricature,but nevertheless it’s true. This has meant thatthe prosperity of the southern part of theUnited Kingdom has moved forward muchmore rapidly than in the north.

Manufacturing has done relatively less well,but I think there is a different significance thatone should also draw from our performancein manufacturing, which is related to the levelof the pound sterling. As we know, the pound

sterling has been very strong in recent years,after having collapsed when Britain left theERM in the early 1990s. In the late 1990s itclimbed very high on a trade-weighted basis.From the beginning of 1997 it climbed to itspeak—almost 15 percent. (It has since fallen;it is approaching again its level of 1990.)During that period manufacturing was putunder a great deal of pressure. The manufac-turing industry in particular complainedabout the high level of the pound, most vocif-erously about the value of the pound againstthe euro, which for manufacturers is the areaof our major trading partners. The significantpoint is that manufacturing was actually fairlysteady during this period. In the 1980s, cer-tainly in the 1970s, if we had that sort of pres-sure from a strong pound sterling, manufac-turing would have suffered much more.Manufacturing did feel a lot of pain and pres-sure from the high level of the pound, butmore significant is how well it has resisted thehigh level of the pound. In recent months,manufacturing exports have in fact been oneof the stronger parts of the economy.

Why has manufacturing resisted? BecauseBritain’s productivity performance hasimproved somewhat. A key question for Britainand for Europe was why the “new economy”productivity growth that we were seeing in theUnited States had not crossed the Atlantic. Onepopular and easy explanation for Europe wasits inflexible labor markets. But Britain has aflexible labor market. We have seen some risein productivity in Britain at the end of the1990s, perhaps because of the implementationof more information technology. But this is stillnot new economy levels. Productivity growthhelps explain why manufacturing has donereasonably well under a strong pound, but thisis also the major area where there is a lot ofroom for improvement. Our productivitygrowth has not been strong. There are two pos-sible and popular explanations. One is that theskill level of British workers, because of thelegacy of the past, has remained poor. Theother is what the traditional economists claim,


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which is that the figures themselves are wrong;the problems are in the statistics. The answer isprobably a bit of both.

Will Britain Join the Euro?Bob Worcester has told you that Britain willjoin the euro after 2005. Let’s look at the for-mal tests set up by Gordon Brown for whetherBritain joins the euro (see Box). Tony Blair’sofficial position is that the Government willassess Britain’s performance against these testsduring the first two years after this generalelection. So we can expect a report of somesort from the government on how we are doingagainst these tests. But the bottom four of thesetests—that membership in the euro must notharm financial services in the city of London;that it must help investment (formally, the testsays investment, but most people think itmeans foreign investment); that it must notcost jobs in Britain; and that Britain must besufficiently flexible to be able to deal with eco-nomic shocks in the euro area—are not sus-ceptible to statistical measurement. They areessentially discretionary. They are basicallyquestions of judgment rather than knowledge.

The first test—whether there can be sus-tainable convergence between Britain and theeconomies of a single currency—is suscepti-ble at least to some measurement. What arethe facts? The first fact is that in goods tradewe are heavily integrated with the EuropeanUnion. More than 55 percent of our trade ingoods is with the other fourteen members ofthe European Union. But this is not so true ofservices. In the British debate you hear differ-

ent figures being quoted. The difference isbetween those who calculate trade in “goods,”and those who try to allocate trade in servicesby country and look at services together withtrade in goods. Adding services trade meansthat integration with Europe is closer to 50percent than 60 percent. Still very high.

What does convergence mean? Well, to somedegree it means cyclical convergence. As I notedearlier, we have had convergence with Europefor two years in the expansionary cycle. Theother form of convergence is interest rate con-vergence, which makes a difference, of course,for inflationary control. It also makes a differ-ence to the flexibility question because so muchof British housing loans are based on floatingrates. This means that they are quite violentlysusceptible to rises or falls in interest rates.There has been close convergence between theBank of England’s rate and the EuropeanCentral Bank’s rate. But the big question is,What is meant by “sustainable”? How do youmeasure that? This is a question of judgment.

My view is that the government’s judgmentis going to be essentially political. These eco-nomic tests mean almost nothing and playalmost no role. They are just a way of post-poning the issue. I do think that Labour willwin the next election with a majority of morethan 100. Indeed, I would even go a bit high-er than Bob Worcester’s 120. My bet is thatthey will call a referendum at the end of thefirst two years of the Labour government and Ithink they’ll have an even chance of winning it.

Bill Emmott is Editor of The Economist.

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The Five Economic Tests

1. Whether there can be sustainable convergence between Britainand the economies of a single currency.

2. Whether there is sufficient flexibility to cope with economic change.

3. The effect on investment.

4. The impact on our financial services industry.

5. Whether it is good for employment.

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M A R T I N S O R R E L L

Key Issues forCorporate Leaders

I’d like to talk a little about the key issuesthat face our clients. We at WPP are ulti-mately a reflection of our clients, which

happen to be the world’s leading companies.What are the key issues that the chairmen andCEOs of those companies have to deal with inthis day and age? I’ll take our three largestclients to give you an idea of who we are talk-ing about: Ford Motor Company is the largest,Unilever second, and IBM third. Typically weare working with companies of that size andstature throughout the world.

Six Stimuli and Two Responsesto Maintain GrowthCorporate leaders are currently facing sixstimuli that have created two responses. Thesix stimuli are things with which you are well-acquainted:

• Low population growth around the world isnot the sort of condition that we experiencedtwenty or thirty years ago. The last thing Iwould ever have expected to see in LatinAmerica is a government campaign, which Idid see last year, to stimulate the birth rate.

• Second is stable growth and low inflation.Low inflation over the last ten years hasdenuded our clients of pricing power,whereas in the ‘80s and certainly towardsthe beginning of the ‘90s they had an infla-tionary environment in which they couldpass on price increases to consumers andemployees who had growing money wages.

• Third, we have improving communicationsand free trade. Free trade and the develop-ment of free-trade areas have been the sin-gle biggest growth factor in our business.

• The transfer of technology means that it is vir-tually impossible nowadays to maintain a

significant tangible product or service differ-ence for any significant period of time. Myfavorite example is the car industry. A fewyears ago it took five years to introduce anew car. Today, it basically takes about eigh-teen months, largely as a result of Japaneseinfluence in the automobile industry.

• Another factor has been growing retailpower. Wal-Mart’s incursion into the UK, itsincursion into Germany, or its suggestedincursion into Japan struck terror not onlyin the hearts of manufacturers, but alsocompeting retailers. Growing retail power isan increasingly difficult factor for ourclients to deal with.

• Sixth is the growth of new competitive cate-gories. Taking a couple of examples from theUK, Marks and Spencer has grown out of itstraditional product categories into areassuch as financial services, and RichardBranson has taken Virgin out of its tradi-tional music business into travel, drinks,and financial services.

These six factors are making life terribly diffi-cult for our clients as a whole.

Most chairmen and CEOs that we deal withpromise investors at least 5–10 percentgrowth in earnings per share, profits, cashflow, or whatever metric they choose. Evenrelatively low 5–10 percent growth (otherspromise 10–15 and beyond) is very difficultto sustain in the environment that I am talk-ing about. Essentially, you can only deliverthat rate of growth consistently if you do oneof two things:

• The first is to differentiate your products andservices in a seriously effective way.

• The second is to expand geographicallyaround the world.

One thing that I would mention is the factthat most U.S.-based multinationals are stillvery parochially based in the United States.The average U.S. multinational has 70 percentof its business concentrated in the UnitedStates and only 30 percent outside. Therefore,a company like Coca-Cola is the exception to


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the rule, with something like 60 percent of itsbusiness outside the United States. A compa-ny like Pepsi-Cola, its competitor, is probablymore the rule, with 65 percent of its businessconcentrated in the United States.

Four Broad IssuesThat leads me to four points I think ourclients are concerned about:

The Importance of the U.S. Market. The worldhas not been globalized. What we’re talkingabout is Americanization, not globalization.Why do I say that? Well, if I take the advertis-ing industry as an example, about 45 percent ofworldwide media is bought in the UnitedStates. So the biggest concentration of mediainvestment is in that part of the world. The sec-ond biggest market is Japan, which accounts forabout 11 or 12 percent, and then we have theUK, Germany, France, Italy, and Spain roughlythe same at 6–8 percent. So we have this signif-icant concentration in the United States.

It’s even more concentrated than one wouldthink. It is a fact of life that, primed by newtechnologies, something like two-thirds ofadvertising expenditure is coordinated fromthe United States. It’s even more intense thanthat, because it is coordinated from the north-east corridor of Detroit, Chicago, New York,and Boston. True, there are major corpora-tions in Seattle, Atlanta, Houston, Dallas, LosAngeles, and San Francisco, but there is a verystrong concentration in this northeast corri-dor of the United States.

You ignore this fact at your peril. In theinvestment banking industry, for example, inthe UK we had a number of very significantbrands five or ten or fifteen years ago, such asS.G. Warburg, Flemings, Schroeders, andMorgan Grenfell. They were extremely strongand drew a lot of strong, bright young peopleto their organizations. Today, those brandshave largely disappeared into European orga-nizations or elsewhere. Why have they disap-peared? Because the managements of thosecompanies failed to understand the impor-

tance of the U.S. market. If you don’t have astrong position in the U.S. market, you reallydon’t have the basis for building global brandsof any significance. That U.S. engine istremendously important.

Why? The size of the U.S. market is impor-tant, but U.S. capital markets are also veryimportant. Their size and liquidity and thefact that valuations in the United States arestronger than elsewhere means that marginalcosts of capital, both debt and equity, arelower. Therefore, companies have more flexi-bility and mobility in terms of merger-and-acquisition activity and making investments.

The American lead in e-business is veryimportant, too. I know it’s slightly unfashion-able now, as opposed to six months or twelvemonths ago, to talk about the “new economy.”But we have to disassociate the financial bub-ble from the fundamental change to the waywe live our commercial lives (and, indeed,our ordinary lives) that has occurred. TheAmerican lead in e-business is criticallyimportant, not just in the “B-to-C” or “B-to-B”areas, but the growing influence that theUnited States will exert, for example, in wire-less technology, although it is true that theJapanese and the Europeans have the lead inwireless technology at the moment.

Over-Capacity, Intangible Differentiation, Short-age of Human Capital. Over-capacity is an evenmore critical concern. We operate for ourclients in most industries and services, and I’mhard-pressed to find any example where thereis significant productive under-capacity. Whatwe face is significant over-capacity. Let me giveyou an example from the car and truck indus-try. The total productive capacity of thatindustry is something like 80 million units ayear. Consumers can only buy 55–60 millionunits a year. Clearly, over-capacity is what isdriving the consolidation activity you see withRenault and Nissan, GM and Fiat, Ford andVolvo, and Ford, Land Rover, and Jaguar.

Why is this issue important? You can differ-entiate yourself in this situation by either tan-

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gible or intangible differentiation. Becauseproduct life-cycles are getting shorter andbrand-cycles are getting longer, technologicaldifferences are very hard to maintain over sig-nificant periods of time. Intangible differenti-ation is therefore critically important. This isvery difficult for some of us to get our mindsaround. People are generally very uncomfort-able with differentiating things for psycholog-ical, emotional, or lifestyle reasons. But clear-ly, the suit one wears, the dress one wears, thecar one drives, the holidays one takes, thehotels where one stays say something about aperson and how he or she feels about theproducts and services he or she consumes,and his or her lifestyle. Whether one feelscomfortable about it or not, these emotionaland psychological differentiations are becom-ing more and more important.

There is an interesting paradox. In the nine-teenth and twentieth centuries, productivecapacity was a significant issue. This is nolonger the case. We now have the real short-age, an under-capacity, in human capital. Thecritical factor that will differentiate corpora-tions in the next century will be their abilityto recruit, harness, retain, and develop humancapital. The demographic trends that weface—the aging of the population, the declinein the birthrate, increased divorce rates,smaller family size, fewer people getting mar-ried—mean that there is a constriction in thesupply of young people. Those of you whorecruit at the leading universities or the lead-ing business schools know that the competi-tion is becoming more and more intense. Sothe critical issue is going to be the shortage ofhuman capital and the ability to deal with it.

The “New Economy.” I mentioned before thatthe compression in values on the stockexchange of the new economy companiesshouldn’t lead us to underestimate the signifi-cance of the shifts that have taken place in thelast two to five years in the new media andnew technology areas. These shifts representthe transfer of power from producers to con-

sumers. It is really the consumers that havebenefited from the increased price competi-tion in the economy. As a result, there hasbeen a shift in wealth and a shift in marginfrom producers, manufacturers, and, indeed,some service companies to the consumer.This is a shift in wealth that will be very diffi-cult to reverse.

One of the incredible things to observers ofthe new technology scene is that the peoplewho produced and developed these serviceshave not charged for them. In the very earlydays of the internet, very few suppliers of theservices ever charged consumers a premiumof any sort for delivery of the products andservices they were offering. The result is someof the carnage that we are seeing in the stockmarkets now.

There are three things that have happenedin this revolution. The first is that businesseshave been significantly disintermediated bythese new technologies. For example, in themarket research business (about a sixth of ourtotal business), the traditional ways of captur-ing and developing data are through mail andtelephone. A lot of CEOs get very frustratedby the slowness of response with marketresearch. It takes a long time to put the ques-tionnaire together; it takes a long time forconsumers to respond; it takes a long time toanalyze the data dump that is deposited attheir door after the research has been done.Isn’t there a quicker and more effective way todo it? And the answer is yes, through theinternet. We have built a major panel, forexample, in the United States of over 500,000consumers who can almost instantly deliveropinions on issues, products, and services.Thus, new technologies threaten to disinter-mediate our traditional business, which isbased on mail and telephone.

The second thing that the new economy hasdone is introduce competitors that are subjectto totally different parameters in terms ofevaluation by investment institutions.Although valuations and attitudes havechanged significantly over the last year, new


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businesses are subject to lower investmentparameters. As a result, the lower-cost busi-ness models they can employ have made themmore effective competitors.

Finally, these new businesses have stolentalent very effectively, certainly in the initialstages of their formation. This has beenreversed to some extent in the last fewmonths, but the critical point is that youngpeople do not wish to serve apprenticeshipsin large corporations. Do not underestimatethe impact that the new economy has had onthe attitudes of young people to working inlarge bureaucracies and in large companiesover time. There is this desire to start a busi-ness and to work inside corporations that areleaner, meaner, and less bureaucratic.

Internal Communications. A critical issue thatwe see increasingly inside large corporationsis the desire to communicate internally strate-gic and structural change. Our three largestclients—Ford, Unilever, and IBM—areinvolved in extensive efforts to communicateinternally, to employees and internal commu-nities, the effectiveness of their strategies andtheir structures. Having said that, most of thatcommunication is aimed at internal audienceswith the objective of expanding that viewexternally through a motivated, incentivized,and directed work force. In other words,employees are effective communicators tooutside audiences, such as customers, clients,suppliers, potential employees, investmentinstitutions, the trade press, and beyond.

Sir Martin Sorrell is Chief Executive Officer ofLondon-based WPP.

R O B E R T M AY

Science andTechnology inBritain andOther OECDCountries

Iam going to talk first about why govern-ments in general and the United Kingdomin particular spend money on research

and development, and particularly on basicscience.* How much money do governmentsspend and what can they expect to get for it?What are the measures of output? What arethe comparisons in value for money amongcountries? Then I’m going to turn, secondly,to some of the opportunities and, at the sametime, the challenges and the worries that openincreasingly as we open more doors that leaddown previously unexplored passages. In thethird part, I am going to speak about theimplications of these opportunities and chal-lenges for the dialogue that we must learn toconduct better between science and society.

Spending, Output, Value for MoneyWhy do governments spend money onresearch and development? Why do theyspend money on the unforeseeable, unown-able, blue sky process of basic research? Thereason, in Tony Blair’s words, is “because thescience base is the absolute bedrock of eco-nomic performance.” In some larger sense,most of what you are going to talk about dur-ing this meeting is an epiphenomenon of theexistential advance of science.

The science base creates new knowledge.More importantly, governments spend on itbecause it buys a ticket into the club that pro-

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*This text was produced from a transcript of my recordedpresentation by the editors, to whom I am very grateful.

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vides access to the new knowledge created inother countries, which will always be largerthan that created in one’s own, even in theUnited States. Even more importantly, it cre-ates successive cadres of appropriately trainedpeople, some of whom will cycle back into theprocess of basic science and more of whomwill spin out into the civil service, businessand industry, and the City, bringing that ana-lytical, rational approach to the world withthem. The paradox at the heart of govern-ment-supported science is that most of thepeople doing the basic research aren’t doing itfor socially motivated reasons, even thoughthat’s why they are being funded. They aredoing it for reasons of pure hedonism and thepursuit of pleasure. They certainly are notdoing it for the money.

How much should governments spend onbasic research? The kind of figures with whichmost of you will be familiar are total expendi-tures on research and development by thepublic and the private sectors. In the OECDcountries, these figures typically range around1–3 percent of GDP annually. Only a fewcountries, such as Switzerland and Sweden,spend 3 percent of GDP. Countries like theUnited States, France, and Germany are in therange of 2–2.5 percent of GDP and Britain isa little low at about 2 percent of GDP. Smallercountries tend to spend less. And the ratio ofpublic to private money tends to vary. Withinthe scientifically developed countries, essen-tially the OECD countries, expenditures onthe science base itself typically runs around0.6–1 percent of GDP—from a high of around1 percent in Japan, Switzerland, and Sweden,to a low of around .6 percent of GDP in theUnited States and the United Kingdom. That’sthe input side. It’s the sort of thing with whichmy colleagues in universities are obsessed.

Equally important is what you get for yourmoney. What are the measures of output? Well,ultimately, they’re the way you harvest the newknowledge. To directly measure output of newknowledge itself, one might calculate the num-ber of papers published (roughly a million a

year in science, medicine, and engineering); orthe references to those papers within that liter-ature (roughly ten million a year); or thepapers cited as inspirations in patents; orprizes. If you just add up the total volume ofpapers in any one year, roughly about a thirdare published in the United States, about athird within the European Union, and about athird in other parts of the world.

But total volume is a funny measure. It is amixture of quality and size of units. Looking atthe 2000 Summer Olympics, one might thinkthe United States was the best performerbecause it won more medals. But if you re-scaleoutput to population size, Australia was far andaway the dominant country and the UnitedStates was not in the top twenty. Similarly, ifyou re-scale scientific research to populationsize, you get an interesting measure. Countingpapers or citations in relation to GDP per capi-ta, the top performers are Switzerland, Israel,and Sweden; Scotland would be third if it was-n’t dragged back by being lumped togetherwith England. The United Kingdom, shadingthe United States, both just scrape into the topten. Germany, France, and Japan—other pow-erhouses that do some superb science—all justscrape into the top twenty.

Particularly interesting is a value for moneymeasure, if you think of this as a kind ofenterprise (although that’s not how most prac-titioners think of it; it’s a very existential cre-ative enterprise). In terms of output in papersor citations last year in relation to the moneyspent three or four years earlier, or paperscited as inspiration for patents in relation toearlier expenditure, the United Kingdom hasbeen top of that league for the past decade.This performance is partly because the UnitedKingdom is very strong in output (though notthe strongest) and partly because it is near thebottom of the league in input. But there is acluster at the top of the value-for-money mea-sure that includes the Anglo and Scandinaviancountries, Switzerland, and Israel. Value-for-money measures for Germany and France areabout half that of the average Anglo or


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Scandinavian country. And for Japan it is one-fifth. That’s a dodgy statistic, but it’s worthreflecting on.

My personal view is that it’s not fashionableto ask questions. What was so special aboutPericles’ Athens or Shakespeare’s London?What are the things that are the sparks of thisoxymoronic concept of managing creativity?One characteristic of the best performers interms of value for money in science is thattheir science is done around universities orother places infested with the irreverentyoung, free of hierarchies, of dominance, ofdeference. In other words, you make sureyoung people are free to express themselvesfrom the earliest age. A second characteristicis that money is given out in an appropriatelycompetitive way. Although superb science isdone in Japan, it performs poorly on a value-for-money basis. The money given to univer-sities, which is a lot of the money expendedon science, is given out on an uncompetitiveper capita basis.

Overriding all of it, of course, is how toinstill in people from the earliest age an inter-est in science, medicine, or engineering and,particularly in increasingly knowledge-driveneconomies, how to make sure that appropriatecadres of people are trained very broadly in thesocial sciences, life sciences, physical sciences,engineering, and medicine. There are interest-ing statistics here. One of the biggest revolu-tions that has happened in the UnitedKingdom in the last twenty-five years is one onwhich very few people in the United Kingdomever reflect. Twenty-five years ago, just under7 percent of twenty-four year-olds in Britainhad university degrees, counting the polytech-nics as universities. Today, more than 35 per-cent have university degrees. It is a five-foldexpansion in twenty-five years. In fact, wehave just moved ahead of the United States inhaving a higher proportion of twenty-five year-olds with university degrees—just over 35percent versus just under 34 percent. The onlyOECD country with a similar expansion isSpain, which has gone from about 4 to about

20 percent. Not even South Korea has hadsuch an expansion as the United Kingdom.This expansion has created all manner of inter-esting problems for how you fund, manage,and appropriately diversify that expandingenterprise. We are still wrestling with it andtoo many of us are wrestling with it withouteven noticing that we’re doing it.

Great Opportunities, Deep ChallengesOut of all the excellence in science in so manycountries are coming all manner of new dis-coveries. We have learned more about theexternal world in the last fifty years than in allof previous human history. But what’s going tohappen in the next fifty years is going to makethat look mild. These days we particularlythink about the human genome and othergenomes that are going to open possibilitieswithin the next twenty years that will trans-form healthcare literally beyond imagining.But much more than that, our understandingof other genomes opens the doors, appropri-ately used, to developing crops much fasterthan the hit-and-miss methods of breedingthat have served us for the last 10,000 years.If we use that knowledge wisely, it will give usmore environmentally friendly crops growingwith the grain of nature rather than againstthe grain of nature. It will give us new meth-ods of clean-up; it will give us new materials.

At the same time, these opportunities willbring with them challenges. They will bringwith them worries about ethics and safety. Inthe longer term they have deep philosophicalimplications. As an evolutionary ecologicalbiologist, to me one of the most amazingthings about our extraordinarily acceleratingknowledge of our own and other “books oflife” is the degree to which we share genes withplants and animals. For example, more thanhalf the banana genome is shared withhumans (a fact more evident among some ofmy acquaintances than others). We have yet tocome to terms with the deeper implications ofthese discoveries, both practical and ethical.

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WE H A V E

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A More Open Dialogue betweenScience and SocietyThe dilemma at the heart of democracy isconducting a dialogue between those whomust make decisions and the public, or themany publics in their many forms. Too oftenthe dialogues are conducted in fora like this,as if you were representative of the public, oras if the social scientists that turn up at theScience and Society discussions are represen-tative of the public. They are not representa-tive of the person on the street. And yet thatdialogue is one we have to learn to conduct ina world that gets smaller and where the dia-logue increasingly is going to be about howwe make use of the potential opened by sci-entific advance, especially when that potentialis based on deeply complex science.

There are three common misconceptionsthat I wish to blast open and dismiss beforeturning to what I think in principle is theanswer to this dilemma. One misconception isthat people these days distrust science more,that they are more worried about science thanthey used to be. This is nonsense. People’s dis-trust of the new a few centuries ago wasexpressed in more draconian terms, at worst,by burning the harbinger of the new, as withBruno or, at best, as with Galileo, confininghim to house arrest and forcing him to recant.There were riots in the streets in Britain oversmallpox vaccination two hundred years ago.This was all conducted in a contemporaryidiom of Dr. Frankensteins, althoughFrankenstein hadn’t been written yet.

There is enthusiasm for science, but worryabout its outcome. Eighty-four percent ofpeople in Britain surveyed in an in-depth pollconducted by MORI said science makes lifebetter. Three quarters of the people said it isthe aim of scientists and engineers to makelife better. They even said a life as a scientistor engineer must be wonderful (which sug-gests they didn’t capture too many of my aca-demic colleagues in the sample). But the samepeople, more than half of them, said the paceof modern advance is too fast for effective

government regulation and oversight. The second misconception is that argu-

ments in favor of genetically-modified foodsor stem cell cloning would be much betterreceived if the populace was better educatedin science. Not true. Surveys that ask peoplenot just trivia questions about science of thekind you see on Who Wants To Be aMillionaire?, but deeper questions such as,What’s the nature of the experimentalmethod? What do you mean by a “controlgroup”? What do you mean by a “confidenceinterval”?, show a big gradient in Europe. Atthe top, in the seventieth percentile, isDenmark, followed by the United Kingdom.At the bottom are some of the Mediterraneancountries, in the thirtieth percentile. Whenasked, “Do you see science as making life bet-ter?” all countries, on average, say yes. But theless the people know about science the moreunequivocally enthusiastically they say, “Yes,it’s good.” And that’s how it ought to be.

(It’s also interesting that the very countriesthat are most skeptical of the euro—Denmarkand Britain—are also the top scorers in scien-tifically-educated citizenry. And the countriesahead of them—Switzerland and Norway—are not EU members. Switzerland just had areferendum again asserting they do not wantto join.)

The third misconception is that many of theattitudes and debates about genetically-modi-fied foods and the like are debates about theconservative Old World versus the enthusias-tically new-embracing New World. Onewould have to have a short memory to believethat. When the gene-splicing techniques thatare delivering products now first appeared inthe ‘70s, the discussion left an agonized after-math on the east and west coasts of the UnitedStates. Paul Volcker, as a trustee of Princeton,will remember as I do the delay of over a yearin Princeton’s Molecular Biology building aswe debated the conjectured worries. WallyGilbert of Harvard University had to cross theAtlantic to do the work he couldn’t do inCambridge, Massachusetts. In Europe, there


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were no such reservations. It is the color oflocal events—BSE, for instance—that sit ontop of an otherwise great similarity.

So, how do we manage these things? Theanswer has to be consulting widely, takingtime, asking people what world they want tobuild with this science, and doing it all open-ly rather than as confidential advice to minis-ters given in secret by closed coteries. We’relearning to do that. We did it in exemplaryfashion in Britain just recently over the ques-tion of stem cell cloning. Ten years ago, afterlong discussion, Britain put in place legisla-tion that enabled embryonic stem cells to beused in research to produce fertility treat-ments, a medical advance now warmlyembraced in countries such as Italy orGermany where the research is still illegal.Britain just extended that legislation after along three-year consultation and debate andan open vote in Parliament.

This process is the wave of the future, but it

is easier said than done. We need to learn todo it. The twentieth century has been a cen-tury of huge advance in understanding theexternal world and changing it to make lifebetter, but with some unintended conse-quences, including climate change and loss ofdiversity. The twenty-first century, as we readthe molecular machinery of life itself, is goingto give us the ability to change not just theexternal world but ourselves. The debates oftoday are going to look like shadows on thewall at a Trilateral Commission meeting of thiskind in twenty or thirty years. The role of sci-ence is not to impose the values, but to delin-eate the choices. In the words that Brecht putin the mouth of Galileo, “Science is not a pathto infinite wisdom, but it is a way of avoidinginfinite error.”

Sir Robert May is President of the Royal Societyand Professor of Zoology, Oxford University andImperial College, London.

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A L D E R M A N S I R D A V I D H O W A R D

The View from the CityThe opening dinner of the Trilateral meeting was hosted by the Corporation of the City of London,a Municipal Authority in Greater London that is one of the world’s greatest financial services cen-ters. Along with introducing Chris Patten (whose speech is presented on pages 65–67), the LordMayor spoke on behalf of the City.

London has been a major center of trading and governance since the arrival of the Romanssome two thousand years ago. This trade increased considerably from the fourteenth centu-ry onwards when London became one of the hubs of commerce within Europe. Large num-bers of merchants from continental Europe came to live here and so started our internationalcommunity which is so significant today. As seafarers from Europe spread out across theglobe, trade with the rest of the world was conducted through the port of London.

In parallel with this, bankers and financiers sprung up in the City of London to finance thistrade. Besides the British there were Germans from the Hanseatic League, Lombards fromItaly, Huguenots from France, traders from the Orient, and from the eighteenth centuryonwards, Americans from the United States. Thus the reputation and strength of the City ofLondon grew. In 1911 Francis Hurst, the then editor of The Economist wrote: “The City is thegreatest shop, the greatest store, the freest market for commodities, gold and securities, thegreatest disposer of capital, the greatest dispenser of credit. It is the world’s clearing house.”

As an international trading and financial center, the City, along with the United Kingdom,recognizes that international trade in goods and services is the great engine of global eco-

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nomic growth. Indeed it has grown seventeen-fold over the last fifty years. At the same timeproduction has quadrupled and per capita income has doubled. Within this trade, the servicesector contributes more to world-wide economic growth and job creation than any other. Itis the key to the future of the world economy. The European Union, as the largest single mar-ket in the world, is a world leader in this area. And within Europe, the City of London isEurope’s financial capital.

The City consequently strongly supports the European Commission and the World TradeOrganization in their efforts to liberalize trade in services, particularly financial services. Theseare of overwhelming importance in the development of the countries of Eastern Europe, LatinAmerica, Africa, and Asia-Pacific. For trade in a wide range of financial instruments, be theyinsurance, banking or securities, combined with the presence of foreign financial institutions,helps promote stable capital flows, which in turn increase financial stability. Transparency,good regulation, and adequate supervision also strongly contribute towards more open andefficient economies.

Businesses and institutions in the City of London are only too aware that populations inmany countries are wary of international trade. They have been encouraged by the tacticsand rhetoric of some leading, and influential, NGOs that are campaigning against globaliza-tion; against the international institutions, and the WTO in particular. Ladies andGentlemen, we cannot ignore them; indeed we cannot afford to ignore them. The scenes inSeattle and in Davos show quite clearly that we have to take the debate to them—just as ourpredecessors had to explain the vital importance of world trade in the 1950s after the yearsof protection of the 1930s and the war years of the 1940s—and we have to win it.

Of course we look to our governments and to international organizations to articulatethese arguments. But business itself is not immune from this responsibility. Business toomust make its case and demonstrate to the developing countries that it will be to theiradvantage, and to the advantage of their populations, to liberalize. They need to show clear-ly that the solutions advocated by protesting NGOs will harm growth and harm employmenteverywhere. Business should agree with governments on common aims and priorities and itneeds to work alongside governments in achieving the benefits of liberalization for all.

The businesses of the City of London thrive on openness and competition. We all wish tosee greater liberalization, both within Europe and across the world. And we particularlyneed greater freedom for firms to trade across borders.

Alderman Sir David Howard is serving as Lord Mayor of the City of London.

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C H R I S P A T T E N

The Legitimacyof EuropeanInstitutions andU.S. Leadership

When watching television reports ofthe Seattle WTO conference, Irecall seeing one bobble-hatted

demonstrator carrying a placard that read,“The Worldwide Movement against Globaliza-tion.” I am in the other camp: part of “TheWorldwide Movement for Globalization.” I aman ideological free-trader. I welcome the eco-nomic benefits brought to the majority ofcountries and the majority of individuals bythat combination of increasingly free and openmarkets, of capitalism, and of technology, thecombination of which constitutes globaliza-tion. As a European Commissioner responsiblefor much of our external assistance around theworld, I am aware of the dark side of global-ization, too: transnational crime; climatechange; the spread of AIDS; the destabilizingdivision between the haves and the have-nots.But I don’t want to focus this evening on theeconomic or the social dimension of globaliza-tion. Rather, I’d like to consider two politicalissues that I know concern the TrilateralCommission and which certainly affect myown responsibilities.

The Bedrock of Democratic LegitimacyLenin long ago predicted the abolition of thenation-state. Today, others following in hisfootsteps regard it as too small to be competi-tive or too large and remote from its own cen-

ters of vitality; or they think it institutionalizesxenophobia; or that it is ill-adapted to dealwith the problems of world interdependence.But I am happy to report that nation-states arealive and well. They will, I suspect, remain thebasic unit of the international order becausethey represent the largest communities towhich people can have an emotional attach-ment—a sense of common history and com-mon traditions, language, and culture. Butwhile men and women in the modern worldstill feel a primary attachment and loyalty tothe nation-state and its institutions, theyaccept the need for nations to pool their sov-ereignty to deal with problems that extendwell beyond national boundaries.

The European Union is the most advancedand successful experiment of its kind. Theproblem, of course, is how to control andlegitimize the structures created to managetransnational issues. The European Unionmay sometimes be admired, not least by thosewho see how it has helped to create and sus-tain order, stability, and prosperity in thewestern half of Europe and now offers thesame prospects in the post-Cold War world tothe whole of the continent. Admired, perhaps,but hardly loved. The Union cannot “live inthe hearts of men” as nations do. How do wetackle this issue? How do we tackle what ininstitutional terms threatens to become a lackof legitimacy?

It is important to recognize that this isn’tjust a problem for Europe. It’s a problem forthe whole international order, for what iscalled rather grandly if sometimes emptily,“global governance.” We need a World TradeOrganization to establish the internationaltrade framework and to ensure fair play. Weneed an International Monetary Fund, aWorld Bank, a United Nations, and a thou-sand other bodies to manage our interdepen-dence. Who knows, perhaps we need Davos.But from where do all these internationalbodies derive their legitimacy? What of thehost of non-governmental organizations,which are so often in the van of attacks on

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THE INTERNATIONAL SYSTEM:

A EUROPEAN VIEW

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that legitimacy? Where is the legitimacy ofNGOs? They tend to be private; they tend tobe undemocratic; they tend to be unaccount-able. I am against reducing democracy tomajoritarianism, but don’t NGOs tend toreduce democracy too often too minoritarian-ism? How can they too achieve greater legiti-macy? These are the very questions that havebeen posed to us by Joseph Nye. I look for-ward to hearing your conclusions because theEuropean Union is also grappling with exact-ly these issues.

One of the questions that Joseph Nye asksis whether the European Parliament offers auseful paradigm for other international insti-tutions as a way of overcoming what has beencalled the “democratic deficit.” Sadly, my ownconclusion is that it doesn’t, at least in its pre-sent form. The European Parliament isengaged in highly technical legislation and itdoes that work with increasing professional-ism, but in the absence of a single demos inEurope—a population that feels itself to beone—the European Parliament has difficultyestablishing itself as a wholly credible andsufficient democratic sounding board forpolitical action at the European level. Myown hunch is that building up the role of theEuropean Parliament, however worthwhile inits own right, is unlikely to resolve the legiti-macy problem. Rather, we need to find betterways of connecting the European suprana-tional institutions to the real bedrock ofdemocratic legitimacy in Europe—thenational parliaments and indeed sub-nationalones, such as in the German Länder. Theseassemblies need to take more responsibilityfor European decisions taken by Ministers inthe Council instead of sniping from the side-lines, portraying Brussels as someFrankenstein monster beyond their control,blundering around with a bolt through itsneck trampling down the ancient democraticrights of the citizenry.

American Unilateralism and theLegitimacy of U.S. LeadershipThis brings me to the second point I want toraise. If we have such difficulty democratizingthe organizations that administer and imple-ment the pooling of sovereignty, is the answerto draw back, refusing to submit domesticpolicies to international agreements or to thearbitration of supranational institutions? Thisis perhaps the main challenge on the interna-tional stage facing the United States in thenext few years and therefore the main chal-lenge for all of us in dealing with Washington.It concerns the role the United States sees foritself in the world system, in working withand through global and regional institutions.There is clearly a strong political argument todefine America’s first duty as looking after itsown people and limiting its responsibility tothat function. In the words of a newlyappointed member of the new administration,“This question of the threats to America’suntrammeled sovereignty posed by globalgovernance is the decisive issue [his emphasis]facing the United States internationally.”

I understand the case that is being put for-ward and maybe I wouldn’t worry so much ifit was put forward by a politician in my owncountry, even if I didn’t agree with it. But itworries me because the United States is not atypical country. As the overwhelmingly pre-eminent world power, the United States canadmittedly afford to stand aloof from interna-tional undertakings, to resist the Lilliputianefforts of the international community torestrict Gulliver’s freedom of movement, toexercise its power unencumbered by institu-tional entanglements. Not only can the UnitedStates afford to stand aloof, but there is a per-vasive, perhaps dominant, school of thoughtthat argues that it should. Unilateralism inthis view is not just a reflection of U.S. power,but a positive virtue: America’s hegemony isbenevolent and such is the primacy ofAmerican values and institutions that it is nobad thing that others must adapt themselvesto U.S. preferences. Forgive us, please, if in


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Europe and perhaps in East Asia, too, we shifta little uneasily in our seats.

This is my greatest concern about missiledefense. I hope that missile defense does notdestabilize relations with Russia and China. Iam sure that it won’t produce a major transat-lantic bust up. We can arrive at a sensibleaccommodation on this question, especially ifwe in Europe don’t give the impression thatwe can only feel secure if America feels inse-cure. My main worry is that this strategy issymptomatic of a tendency in the UnitedStates to believe that it is an island secure untoitself, fenced off from the world by advancedtechnological barriers, inviolate and invinci-ble. Why does this worry me above all?Because it relates to the question of the demo-cratic underpinnings of the international sys-tem: U.S. unilateralism would erode the legit-imacy of America’s global leadership.

I have another equally strong concern. Theworld as I said earlier is struggling to deal withthe dark side of globalization—drug trafficking,now a bigger export than iron and steel or cars;environmental degradation; and its implica-tions for poverty and security; illegal migration;and the failure of international trade to bridgethe divide between the billions who benefit andthose who are marooned in squalor and in mis-ery. These are not issues that can be ignored orleft to resolve themselves. Increasingly, theyforce themselves onto the agenda at interna-tional meetings. Individual countries, evencountries as large as the United States, cannottackle such problems on their own, nor canthey always be addressed by the traditionalmechanisms of classic international coopera-tion. The European Union finds itself, perhapsby accident as much as by design, with theauthority and legal competencies to tackle someof these cross-cutting issues in its inevitablyinadequate way. Fifteen member states, soon tobe twenty-five or more, share their powers inareas that touch on the tangled network of glob-al problems, from blood diamonds and drugtrafficking to climate change and its impact onsecurity. These are the problems of conflict pre-

vention that crowd in on us, problems that wedon’t believe can be resolved by a technical fix.Our own institutional development and experi-ence in Europe disposes us even more to com-mit ourselves to multilateralism.

My concern then is that the United States,whose instinct for multilateral commitment—look at NATO and the United Nations—shaped the world in the second half of the lastcentury, whose values are the same as my val-ues, who has done so much good in theworld, may be tempted to pull back, to insiston unrestrained independence of action, toinsist, for example, that its domestic energy orenvironment policy is its own business andthat the world should keep its nose out.

I understand why there might be a waningcommitment in America to internationalengagement. It is, after all, the duty of everygovernment to look after the national interest.But America’s national interest is in thestrengthening of those institutions that pro-vide a structure for the civilized resolution ofglobal disputes. If such problems can’t beresolved they will quickly become seriousthreats to security. I have little doubt that thenew administration, like most of its recentpredecessors, will ignore the voices from thethink tanks and from Capitol Hill and willrecognize its interest as well as its responsibil-ity to engage. But it will come under pressureto take another route. It’s in all our intereststhat it does not do so.

Chris Patten is Member of the EuropeanCommission (External Affairs).

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F R E N E G I N W A L A

The Future ofAfrica in theContext ofGlobalization

Iwill venture to reflect on the future ofAfrica in the context of globalization.There is some advantage in speaking near

the end of this meeting, as many of the areasinto which I might have strayed have alreadybeen covered, allowing me to focus on Africa.

I say Africa deliberately and not sub-SaharanAfrica. I am not certain that this division of ourcontinent is still relevant. The term “sub-Saharan Africa” is a reflection of a WestEuropean perspective based not on geography,but on culture. The world known to Europeextended across the Mediterranean where otherfair-skinned people lived. Beyond lay the desertand the unknown, except that it was inhabitedby dark skinned people, the “monstrous races,”the Blemmye, Scopapods, Troglodytes, cavedwellers, and others as described by Plene andSir John Mandeville even before colonization.This spawned particular attitudes as perspec-tives became entrenched. Faced with fact orreality, one sees only that which confirms ourpreconceptions and ignores that which doesnot. This approach has contributed in part tothe continuing image of Africa south of theSahara as one large negative homogenous mass.

The Future of Africa Is Bright The region consists of forty-eight countriesspread over twenty-four million square kilome-ters, and has a population of 642.1 million peo-

ple. It is currently the most impoverished andleast developed part of the globe. Opening thismeeting, Foreign Secretary Robin Cook said ofit: “It is not just an irony but a tragedy that thepoorest continent in the globe is the one whichhas actually gotten poorer during the age ofglobalization.” The number of people living onless than one dollar a day has been increasing.The World Bank estimates that by 2008 thoseliving on less than one dollar a day will increaseby a further forty million. We have the lowestprimary school enrolment rate. Life expectancyin 1997 was fifty-two years, a full generationlower than in the OECD countries. Generally,life expectancy has increased more in the lastforty years than it has in 4,000 years, but it isnow being reversed by highly preventable dis-eases arising from poverty, such as malaria andTB. Eighty percent of those infected by malarialive in Africa; nearly 70 percent of the world’sinfections of HIV/AIDS and 90 percent ofHIV/AIDS-related deaths are in the region.Excluding South Africa, the region’s averageincome per capita averaged just $315 in 1997.

Nevertheless, the future is bright and mymessage one of hope. I say this in the face ofthe news that regularly makes the front pagesof the newspapers or onto prime-time televi-sion: the continuing strife and instability inthe Democratic Republic of Congo, in whicheight countries in the region are involved andwhenever signs of a resolution have appeared,hopes have been dashed shortly thereafter;the war in Angola drags on with no sign of asolution in sight; the war in Sierra Leone issimilarly destabilizing the region. However, itis incorrect to see conflict as endemic to Africaany more than to Europe. Note the conflicts informer Yugoslavia and the CIS countries.

The causes of such conflict are the legacy ofcolonialism followed by post-colonial misman-agement and corruption and the application ofincorrect policies. For this, Africa must acceptresponsibility and does. But we must also ack-nowledge that the situation was aggravated bythe Cold War and rivalries among former colo-nial powers. For their domestic interests, these


S E C T I O N 8THE FUTURE OF AFRICA

TH E C A U S E S

O F. . . C O N F L I C T

A R E T H E L E G A C Y

O F C O L O N I A L I S M

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states supported, protected, bankrolled, andsustained in power undemocratic and corruptleaders. The United States, European countries,and the Soviet Union have all been involved.The result has been weak states, poor economicgrowth, and a shortage of human and financialresources to rectify the damage that was done.

Why then do I speak of hope? I am sure youwill understand if I start with my own coun-try—South Africa. The remarkable democratictransformation of post-apartheid South Africacontinues under conditions of stability. AsSpeaker of the National Assembly, I am privi-leged to have a front row seat and the best van-tage point for observing this democracy atwork! I am particularly proud to preside overan assembly that is among the most represen-tative in the world—with women, a full rangeof racial and cultural diversity, and representa-tives of disabled people who require the use ofBraille and sign language interpretation as thenorm. Few parliaments could claim such rep-resentativeness. Three of the four presidingofficers of parliament are women, as are 38percent of the executive—a record very fewlong-standing democracies could match. It iseasy to forget how close we came to disasterjust one short decade ago in South Africa andyet, if one reflects on the tremendous progressthat we have made, it becomes clear that SouthAfrica will continue to be a force for peace, sta-bility, and development in the region.

Of course, South Africa is not the onlycountry in sub-Saharan Africa where democ-racy is flourishing. Nigeria, for example,which is the most populous country in Africa,is firmly on the path to realizing its own goalof consolidating democracy. There are othercountries where democratic systems are doingwell in sub-Saharan Africa and, not surpris-ingly, that are flourishing economically aswell. Indeed, Africa has a new generation ofleaders who recognize both the colonial lega-cy and the failings of many African govern-ments and accept responsibility for the cur-rent poverty and lack of development.

There are a large and increasing number of

governments deriving their legitimacy fromdemocratic elections and sustaining thedemocratic process. At the same time, theOAU has refused to accept leaders acquiringpower through military coups. The newTreaty Constituting the African Union alsoprovides for African intervention to supportdemocratic governance. Civil society has bur-geoned, often forcing democratic change andengaging governments and parliaments toensure appropriate development policies arepursued. Prominent among these are awomen’s movement, youth groups, profes-sional organizations, and business.

Developing the MillenniumAfrica ProgrammeMany countries, but not enough, have main-tained growth rates of over 5 percent per yearover the past decade. Regional economic orga-nizations are being established and strength-ened. To take this process further, thePresidents of Nigeria, Algeria, and South Africaare developing a Millennium Africa Programme(MAP). It has not yet been finalized, but partic-ipation will be open to all African countriesprepared to make a commitment to the guidingprinciples. Some of you at Davos last monthheard President Mbeki present a brief overview.

The programme is a declaration of a firmcommitment by African leaders to take own-ership and responsibility for the sustainableeconomic development of the continent andto set out our own agenda. Our starting pointis a critical examination of Africa’s post-inde-pendence experience and acceptance thatthings have to be done differently to achievemeaningful socioeconomic progress, withoutwhich it will not be easy to achieve our his-toric task of improving the lives of our people.The outlines of a concrete multi-faceted pro-gramme of action have been developed.Priority areas include:

• Creating peace, security and stability, anddemocratic governance, without which itwould be impossible to engage in meaning-ful economic activity;

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• investing in Africa’s people through a com-prehensive human resource strategy;

• harnessing and developing Africa’s strategicand comparative advantages, i.e. in theresource-based sectors to lead the develop-ment of an industrial strategy;

• increasing investments in the informationand communication technology sector,without which we would not be able tobridge the digital divide;

• developing infrastructure, including trans-port and energy; and

• developing financing mechanisms.

The objectives we want to achieve throughthe implementation of the programme in-clude the acceleration of efforts to eradicatepoverty on the continent and to significantlyincrease new investments by mobilizing bothdomestic and, especially, foreign savings. Thefocus is not on simply increasing aid, butincreasing investments in viable infrastructureand business opportunities. Targeted aid andtechnical support to address capacity con-straints and urgent human development pri-orities would be required.

The programme is based on recognition ofglobal interdependence in respect of produc-tion and demand, an environmental base thatsustains the planet, cross-border migration, aglobal financial architecture that rewardsgood socioeconomic management, and globalgovernance that recognizes partnership of allpeoples. The programme addresses the needfor a global community in order to ensure thatglobalization is sustainable and will benefitboth developed and developing countries.

The global technological revolution needsan expanding base of resources, a wideningsphere of markets, new frontiers of scientificendeavor, the collective capacity of humanwisdom, and a well-managed ecological sys-tem. Much of Africa’s mineral and other mate-rial resources are critical inputs into produc-tion processes in developed countries. Africaprovides a great opportunity for investment,including opportunities for joint international

efforts in the development of infrastructure,especially in information and communicationtechnologies and transport.

It also provides prospects for creative part-nerships between the public and private sec-tors in the processing of primary products andnatural resources, agro-industries, tourism,human resource development, and in tacklingthe challenges of urban renewal and ruraldevelopment. One needs to emphasize that adeveloping Africa, with increased numbers ofemployed and skilled workers and a burgeon-ing middle class, would constitute an expand-ing market for world manufactures, interme-diate goods, and services.

Furthermore, Africa’s biodiversity—its richflora and fauna and rain forests—is an impor-tant global resource in combating environ-mental degradation posed by the depletion ofthe ozone layer and climate change, as well asthe pollution of air and water by industrialemissions and toxic effluents.

The expansion of educational and otheropportunities in Africa would enhance thecontinent’s contribution to world science,technology, and culture to the benefit of allhumankind.

As we have noted at this meeting, there is abacklash against globalization and fearsamong large sections of the population. Thiscan be mitigated by actions and cooperationamong the developed countries. A key priori-ty is the reform of international financial andtrading institutions to take on board the con-cerns of the countries of the South. For exam-ple, with regards to the WTO there is a needto re-examine the rules governing intellectualproperty rights, dumping and countervailingmeasures, subsidies, etc. The agreements gov-erning market access may need to be renego-tiated so as to benefit both developing coun-tries and developed. (Perhaps they need tofavor developing countries!) The structures ofgovernance require reform to give greaterweight to the concerns of the countries of theSouth. This would lay a foundation to addressthe profound imbalances in the structure ofthe global economy.


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Further, governments of developed countriesneed to do more to expand access to their mar-kets for developing countries’ products by low-ering tariff barriers and by providing exemp-tions from the many non-tariff barriers. Thedeveloped countries need to provide supportto developing countries to comply with theirsanitary measures governing their imports.

An important challenge is how to ensuregreater mobilization of resources for develop-ment in countries of the South. There are twoparticular aspects of this mobilization thatrequire attention. The first of these relates tothe expansion of the Highly Indebted PoorCountries (HIPC) initiative to include morecountries and a larger share of their debt.Debt relief should be granted more quicklyand should be tied to development targetsand outcomes in relation to poverty reduc-tion, and reform of institutions of governance.

The second relates to increasing the rate offlow of private foreign direct investments(FDI) to developing countries, especially toAfrica. The net FDI inflows to sub-SaharanAfrica averaged less than 0.7 percent annuallyin the 1990s, compared with an average for alldeveloping countries of over 1.2 percent.Clearly, increasing the flow of such foreigncapital as well as the savings of Africa’s privateinvestors—many of whom also prefer to holdtheir wealth outside the continent—wouldrequire developing countries to lower riskperceptions of potential portfolio and directinvestors by improving credibility of publicfinancial authorities and the soundness ofpublic and private financial institutions.

Finally, and most importantly, there is aneed for a renewed commitment to partner-ship among the international social partnersthat entails a shared responsibility to eradicatepoverty, social exclusion, and marginalization.On the part of developing countries and par-ticularly Africa, this requires a commitment tocreate conditions of peace, stability, and goodgovernance.

Frene Ginwala is Speaker of the NationalAssembly, Republic of South Africa.

B R E N T S C O W C R O F T

The NewAdministrationand America’sSecurity Role

I’m going to talk about the U.S. security roleand focus mostly on the U.S. role towardEurope and toward Asia. I will try to do

this from the perspective of the new BushAdministration, but I am not speaking for thenew Bush Administration. They can only dothat for themselves and in some cases theymight not even know yet what their policy is.

Different Perspective, Different StyleLet me say a few words about how the per-spective of the new administration differs fromthe Clinton Administration. It’s an experi-enced team with strong personalities, all hav-ing previously served in the same or analo-gous roles. Dick Cheney, who is an extremelyunusual vice president, has been chief of staffof the White House and secretary of defense,and he was also in the Congressional leader-ship in the House of Representatives. This is avery broad background and I think you willsee Dick Cheney playing a role that very fewvice presidents have played, primarily in rela-tion to a Congress that is evenly divided.

It has been a very sure-footed administra-tion so far. In the first six weeks I think it hasestablished a record probably unequalled byany previous administration. There have beenno significant gaffes. That bespeaks of a gooddecision-making process. There have been afew policy differences and I notice The

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THE INTERNATIONAL ROLE

OF THE UNITED STATES

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Telegraph this morning talked about a“cacophony.” That is an exaggeration. Thereare different world-views within the top lead-ership, but I think already it is quite clear thatthe decision-maker is the president. While helistens to his “board of directors,” if you will,very carefully, he makes the decisions.

There is a significant difference in stylebetween the Clinton Administration and thisadministration. I think you will find a moreconsistent pursuit of issues in this administra-tion than was the tradition in the ClintonAdministration. It is not clear what all of theadministration’s positions will be, but I thinkthey will be pursued with consistency andwith a greater attention to the views of friendsand allies. There will be more of a propensityto consult, and hopefully before rather thanafter a decision has been made.

On the only foreign policy issue in the pres-idential campaign, the issue of intervention, Ithink you will find the Bush Administrationmuch less willing to intervene on other thanclear security grounds, much less willing tointervene on behalf of values, human rights,and so on. I think that the view of the newadministration about U.S. leadership in gener-al is not that we make decisions and others fol-low, but that we are more the nucleus aroundwhich coalitions can form to take joint action.I believe the model of the Gulf War will be anexample that the new administration will tryto follow. The administration may say, let’s dosomething, but then they will try to get othersto join them.

There is greater concern in this administra-tion about China, Russia, and North Koreathan there was in the Clinton Administrationafter the first year.

There Will Be a Missile Defense System,but What Kind, When, and How?After that cursory introduction, I want to startwith missile defense, because that is one ofthe big psychological problems as I see it and,I think, as the administration sees it. How didwe in the United States get where we are on

missile defense? The Republican Congresspressed hard for a crash program to fulfill theReagan legacy. The Clinton Administrationstarted out wanting no part of a national mis-sile defense system. The program they inher-ited (GPAL, Global Protection AgainstLaunch) under which we had started discus-sions with both Europe and Russia wasstopped because it was a part of missiledefense that the Clinton Administration didn’twant to pursue. Pressures from the Congress,accelerated after the North Koreans tested along-range missile, gradually led the adminis-tration to support it. The program they pur-sued was based on the principle of least dis-ruption to the ABM Treaty. Congressionalpressure, and the way the ClintonAdministration reacted, resulted in a systemthat relatively few liked, whether you’re anopponent of an ABM system or a supporter ofit. Another factor is that the time in whichNorth Korea might have a missile able to hitthe United States (as projected by a commis-sion headed by now Secretary of DefenseRumsfeld) has been stretched out at least by acouple of years because the North Koreanshave not tested any missiles since then. That’swhere we are now.

There will be a missile defense system. Thereis no question about that. The administrationis fixed on it. But what kind and when andhow is much more up in the air now than itwas even a year ago. There is now a chanceand probably even a likelihood of a review ofwhere we are. I think it will include consulta-tions with Europe, Russia, and perhaps withChina. It may include a look at alternativeapproaches to the subject, for example, anearly intercept system. (The advantages of aboost-phase intercept are not only technical;that kind of intercept is less threatening topeople whom you don’t wish to threaten.) Orit may include an approach to national missiledefense through theater missile defense, whichperhaps would be much easier for all con-cerned to swallow, except the Chinese. Thebasic purpose for any missile defense is to pre-


. . .Y O U W I L L

F I N D T H E B U S H

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G R O U N D S , M U C H

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vent blackmail. That means that defending ourallies is as important as defending the UnitedStates because the United States can be black-mailed just as easily through London, Tokyo,or Paris as through New York.

The United States Security Role in EuropeThere is no questioning in the United Statesthat we have a security role in Europe.President Mitterrand used to say time andagain, “At some time your Congress is going tosay, ‘We’re tired of this, pull the troops backand come home.’” Well, that cannot be ruledout, but there is absolutely no discussion of it.

It is not an issue in the United States at thepresent time. As I said, the new administrationwill be more consultative, notwithstanding theunfortunate campaign comments about ourtroops in Kosovo, which were mostly misun-derstood. Those comments were partly basedon the general notion that President Clintonhad spread nation-building forces willy-nillyaround the world and had gone too far. Otherthan that, the core of the concern is that com-bat forces are not well-suited to the peace-keeping role, as in Kosovo, where you stillhave a military threat as well as a police prob-lem. Combat forces are designed to destroy the

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The New Administration and East AsiaI very much appreciate both Gen. Scowcroft and Ambassador Hills illuminating the newdirections and thinking of the new administration in a clear and succinct way. At the sametime, I cannot help but feel we are still in the midst of the presidential campaign becauseboth of them characterize the “dream team” of the new administration in a bit too one-dimensional and glorious way. I have detected different tones and sounds coming from someof the new Administration’s agencies, although it is not a “cacophony.”

Korea. It was certainly encouraging to see President Bush receive President Kim Dae Jung ina very timely fashion, but at the same time, there are some different signals emanating fromWashington. Mr. Scowcroft mentions that eventually the Bush Administration will negotiatewith Pyongyang. I agree. But I am concerned about the pace and modalities with which thenew administration will pursue this engagement. Not all of the previous administration’s for-eign policies were wrong, and I think one of the major achievements of the ClintonAdministration was its engagement with North Korea since 1994 through the AgreedFramework, KEDO, and the “Perry process.” Asians are still uneasy about potential suddenchanges in the processes and modalities of the United States’ engagement policy withPyongyang. Many Asians felt the North–South summit talks and the ClintonAdministration’s dispatch of Madeleine Albright to Pyongyang were too fast-paced. Theyactually felt relieved that President Clinton did not go to Pyongyang.

China and Japan. It is very encouraging to see the new U.S. Administration trying to redresswhat has been called a “China-tilt” policy, particularly in the latter part of the ClintonAdministration. But now the Chinese are worried that the new administration will perhapspush a “Japan-tilt” policy too far. I personally have heard this concern from my Chinesefriends. The question here is not whether the administration should pursue a China-tilt orJapan-tilt policy, but instead how the new administration views Japan and China in the larg-er strategic picture. The United States’ policy should strengthen the relationship with Japanfirst as a stabilizer and then engage China.

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enemy; police are designed to deal one-on-onewith occasional lawbreakers. The new admin-istration is arguing that what you need issomething in-between, which we don’t have.None of us has that. Perhaps a special corps,able to do police work and to cope with largerscale violence, is something at which we allshould look. Concerns that the BushAdministration will pull troops out of Kosovo,or go it alone here or there, or divide opera-tions into high-tech jobs and low-tech jobs areconcerns Europe needn’t worry about.

There is an incipient problem over aEuropean defense force (ESDP, European

Security and Defense Policy). I think there aretwo main questions involved. First of all, doesNATO have the right of first refusal? In otherwords, does any crisis first go to the NATOCouncil to decide how to deal with it? And sec-ondly, what are the kinds of forces that anESDP would build? If they are to act whenNATO does not, those kinds of forces includelift, command and control (including all theauxiliary communications forces), and intelli-gence. Those forces already exist withinNATO, but they happen to be mostly U.S.-owned. So if the focus is on building thosekinds of forces, the money is in part duplica-


Indonesia. Indonesia is increasingly likely to pose serious risks to all of us because of its roleas the ballast of ASEAN and Southeast Asian regionalism, which underpin the security of thesea lanes through the Straits and South China Sea. What kind of policy will we see evolvingfrom Washington with regard to Indonesia? The U.S. military role was neglected in theClinton Administration, but military-to-military cooperation between the United States andIndonesia could be a stabilizing foundation on which the democratization process could grad-ually develop. The Indonesian military has been implicated in East Timor massacres so,understandably, there have been very strong inhibitions on the part of the U.S. Administrationas well as Congress to work with the Indonesian military. But I think it is very important toexplore new ways to make the Indonesian military more accountable and responsible.

East Asian Regionalism. On the economic and trade side, we heard some very lively, interest-ing discussion this morning, particularly after Fred Bergsten mentioned the significance ofpossible ramifications of emerging Asian regionalism for the global trading system. I strong-ly urge the new administration not only to accept this new Asian regionalism, but also toencourage its development. It should be put within a much larger strategic picture, not justwithin the trade or liberalization picture. It would help develop the geopolitical space with-in which Japan and China could find much better ways to coexist. Korea—perhaps eventu-ally North Korea—should also be incorporated into this emerging Asian regionalism.

Therefore, I have two concerns about the new U.S. Administration: some divergent viewsamong the powerful players and unilateralist tendencies in foreign policymaking. And onefinal comment: I have seen the emergence of cultural anti-Americanism in Asia, as inEurope. Perhaps it is a reaction to the new thrust of the more right-wing Republicans(including the Christian right) in the U.S. Congress and in the U.S. public. That thrust verymuch tends to project onto the international scene these days. I wonder how mainstreamRepublicans cope with this challenge from the right wing, with this more unilateralist streakin the party.

Yoichi Funabashi is Columnist and Chief Diplomatic Correspondent of Asahi Shimbun.

I S T O N G L Y U R G E

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D E V E L O P M E N T.

I T S H O U L D B E

P U T W I T H I N A

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tive. At a time when I don’t think anybody canexpect large increases in European defenseexpenditures, that duplication would consti-tute a problem, for the Americans see a morecritical need for Europe to be able to fightalongside the United States in a technicalsense. The United States and the EU need toexplore new strategic ways of cooperating andrelating to each other more than we have so far.

The United States Security Role in AsiaAsia is a dynamic, rapidly changing region.The new administration probably has fewerpeople familiar with Asia than they do withEurope. The United States has operated onthe basis—which I think is true—that in Asia,there is no internal balance absent a U.S. pres-ence. The U.S. presence provides key ele-ments of Japanese security that the Japanesedo not have to provide for themselves; it pro-vides China with some sense of reassurancewith respect to Japan; and it provides the restof the states of the region the freedom ofmaneuver to avoid being forced into polariz-ing relationships. The key question is, Canwe, in fact, keep our forces in Asia?

Korea. The new administration is much moreskeptical about Kim Jong Il than was theClinton Administration. There are many in theRepublican party who feel that the 1994Agreed Framework was a mistake. Indeed, aproposal has been introduced in Congress thatthe United States withdraw from providingnuclear power plants to North Korea and sub-stitute conventional power plants. I think thatwould be a serious policy mistake at thispoint. While the North Koreans have not pro-ceeded either to build their proscribed nuclearplants or test the Taepodong missile in the lastcouple of years, the feeling within the admin-istration is that the relationship has beenmostly give by the United States and rhetoricby North Korea. There are dangers that wecould separate ourselves from South Koreaand Kim Dae Jung’s “sunshine policy” to anextent that would be imprudent. The presi-

dent distinguished himself from Secretary ofState Powell a bit on this issue by saying therewould not be any immediate negotiations onmissiles with North Korea. I believe there willeventually be negotiations, but the administra-tion will be much more skeptical and therewill be efforts to ensure that North Korea isprepared to carry out its end of the bargain. Sofar North Korea has used an element of black-mail. They have stopped doing things thatthey otherwise would have done. But everytime the United States objects to something,they say they may have to go back to buildingtheir own nuclear plants or testing their mis-siles. This is an issue where the administrationstill has to get its act together.

Taiwan. Taiwan is an issue where a consensuswithin the administration may not come easi-ly. There are many Republicans who are sus-picious of China and supportive of Taiwan tothe point of independence. Here I’ll give apersonal note. I think we need to tell bothsides, “Don’t rock the boat.” The United Statesshould tell the Chinese that an unprovokedattack on Taiwan would bring our support toTaiwan; and we should tell the Taiwanesethat, while they are free to make their ownpolicy, if they provoke a Chinese attack by, forexample, declaring independence, they’re ontheir own. This is an extremely sensitive issue,but there are some signs for hope. The newTaiwan president, who is from the indepen-dence party (DPP), has been generally verycareful not to provoke the Chinese. Indeed,he has stated that there will be no indepen-dence declaration unless the Chinese attack.The Chinese started out very hostile towardthe new Taiwan Administration saying that “atiger can’t change its stripes”; but they’ve sincecalmed down a lot. Vice Premier Qian Qichenrecently gave a reformulation of One China:There is one China, and Taiwan and Beijingare both parts of the one China. This formu-lation provides considerable flexibility.

There are many other challenges: theChinese missile build-up opposite Taiwan and

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the pressures it brings to deploy a theater mis-sile defense; the delay in China’s accession tothe WTO, probably requiring another vote inCongress to extend normal trade relations foranother year; and most importantly, the armssales agreement with Taiwan this year. Whathappens this year on Taiwan could stronglyimpact elections in Taiwan in December andthe Chinese leadership changes scheduled fornext year.

Lt. Gen. Brent Scowcroft, USAF (ret.), isPresident of the Forum for International Policyand former Assistant to the President for NationalSecurity Affairs.

C A R L A H I L L S

The NewAdministrationand U.S.InternationalEconomic Policy

We have a Republican president fac-ing a razor-thin majority in theHouse of Representatives and a

dead tie in the Senate. And the question put tome is, How will this new political lineup servein setting U.S. policy in the international eco-nomic and trade arena? Our friends across theAtlantic—but certainly across the Pacific aswell—worry that the new administration couldbecome more unilateral and less engaged inmatters of the global economy. I have a bias,but I do see it differently. I will say just a wordabout the style of the new administration, whattheir likely thinking is about economic andtrade policy, and some of the challenges that Isee for our Trilateral partnership.

Quieter Style Does Not Signal anInclination to DisengageHaving been in the Ford Administration andthe previous Bush Administration, I do knowthe people who have been appointed to theeconomic team very well. This team is experi-enced, business-like, and very decisive. Interms of style I agree with Brent Scowcroft. Itis very different. From day one it has demon-strated a sharp focus. In the first seven weeksthere has been a disciplined presentation ofthe president’s agenda, starting with his tax-cut program, his education program, defenseinitiatives, and an effort to get acquaintedwith foreign leaders with whom the UnitedStates will have to interact, especially our twoclosest neighbors, Canada and Mexico.

During the campaign the President said hethought that the United States ought to bemore humble in dealing with its trading part-ners and with other nations. I think thattheme has been well-reiterated by his eco-nomic team. For example, Paul O’Neill,Secretary of the Treasury, said in an interviewlast month just before he went to the G-7meeting that he would not publicly press theJapanese, as did his predecessors, on deregu-lation and restructuring issues. He would pre-fer to use his contacts in the corporate worldto convey any message that he wants to con-vey. But don’t be fooled. This quieter styledoes not signal a decreased commitment toworking with our trading partners or an incli-nation to disengage from the global economy.Rather, it reflects a judgment of the bestmeans that the United States has at its dispos-al to work with other nations. Last month inspeaking to our troops stationed in Norfolk,Virginia, President Bush said, “To succeed,America knows it must work with our allies.We did not prevail in the Cold War only to goour separate ways, pursuing separate planswith separate technologies.” And similarly,Secretary O’Neill said unequivocally, “I wantto underscore that on economic and financialpolicy, as in other areas, the United States willremain fully engaged internationally.”


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But, of course, you can ask, What does beingfully engaged internationally mean in terms ofa strong dollar policy, coordinated interventionin the currency markets, or U.S. leadership inthe International Monetary Fund? I start withthe proposition that this team very stronglybelieves in the positive power of the market.Last month in press interviews, SecretaryO’Neill said that ultimately market fundamen-tals, not government intervention, determinecurrency values. That statement was meant toconvey that he sees the strong dollar as a con-sequence of a strong economy, not that he isabandoning the strong dollar policy of his pre-decessors. He has been very careful not to ruleout U.S. participation in coordinated interven-tion in currency markets or U.S. leadership inthe International Monetary Fund if the needarises. Indeed, he said at his confirmation hear-ing, “Secretary Rubin was right to intervene inthe Mexican crisis and had Congress succeed-ed in preventing him from doing so, the con-sequences would have been very grave,indeed.” Nevertheless, he is of the firm viewthat there would be fewer crises if, in hiswords, “investors had the information theyneed to make a realistic assessment of the riskand a clear understanding that they, not gov-ernment, are responsible for what happens.”To that end he has encouraged the internation-al financial institutions, particularly the Fund,to be more forthcoming in its release of dataand he has indicated that he will seek to holdlenders accountable for their decisions.

The Trade Agenda Is Long, Time Is ShortWith respect to trade, President Bush is a self-proclaimed free-trader who campaigned onopening global markets and free trade in theWestern Hemisphere. The new U.S. TradeRepresentative, Bob Zoellick, is smart, strate-gic, and experienced. This is fortunate, for hisagenda is packed. In the next few months hemust put the United States back into a leader-ship role on broad initiatives to open up glob-al markets. He must deal creatively with along list of inherited but complex trade dis-

putes with every single one of our key tradingpartners. He must secure the approval of com-pleted agreements and complete negotiationsin process, including those with Vietnam,Jordan, Singapore, and Chile. He mustaddress a list of issues, from China’s entranceinto the World Trade Organization to bills thatwill expire within the next several months,including the Iran–Libya Sanctions Act andthe Export Control Act. And, most important-ly, he must gain Congressional support for theadministration’s trade initiatives.

This agenda is long and the time is short. Inthe next eight months, President Bush willattend three summit meetings in which tradewill be key. In April he will join thirty-threeother democratically-elected leaders in Canadato discuss the Free-Trade Agreement of theAmericas, which has been making no progressof late. In June he will attend the G-7 meetingin Italy, where leaders will consider whetherthe WTO negotiations that collapsed in Seattlecan be resuscitated in time for the next minis-terial (to be held in Qatar in November). Andin November he will attend the Asia-PacificEconomic Cooperation forum, which bringstogether the leaders of twenty-one economiesthat rim the Pacific (including Taiwan), hostedby China in Shanghai this year. Again, tradetalks about opening up the markets of thoseeconomies will be on the agenda in Shanghaiand would certainly be helpful in giving thoseeconomies a boost.

The benefits to the global and the U.S.economies of advancing each of these threeinitiatives are huge. We heard this morningfrom Fred Bergsten about the obstacles, whichare likewise huge. Let me just mention two.First is the sharp slow-down of the U.S. econ-omy and the accompanying plummeting ofconsumer confidence. That creates a muchmore challenging environment in which totalk about trade liberalization. Second is theneed for our president to secure trade negoti-ating authority, now called Trade PromotionAuthority. For six years, Congress, sharplydivided over trade policy, refused to give

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President Bush’s predecessor that authority. Onthe one hand are those who believe that theUnited States must continue to lead the worldin opening global markets and in supportingthe World Trade Organization, convinced thatopen markets and rules-based trade andinvestment raise standards of living and createthe wealth to deal with labor, environment,and other important issues. On the other handare labor unions and other supporters ofworkers’ rights, environmentalists, humanrights activists, and others who believe thattrade negotiations must address their specific

interests and that attacks on the WTO and onglobalization advance their particular cause.

Breaking the Damaging Spiral ofTransatlantic ConflictsThe task of building support for trade liberal-ization in our neatly-divided Congress is com-plicated by a number of very difficult andpolitically sensitive disputes that we have withour Trilateral partners, the most difficult ofwhich are with Europe. Although these dis-putes involve perhaps only two percent oftotal bilateral trade between Europe and the


G E O R G E S B E R T H O I N

Globalization and Governance:The Challengefor the United States and All of Us

With all the transformations we are witnessing and implementing, we need a geneticallymodified form of governance. We cannot go on having international negotiations based onthe old traditional diplomatic techniques. This challenge is facing everybody, fromLichtenstein to China to the United States. The politicians who don’t want to see that chal-lenge are not going to be true to the national interests of their own country and to the wel-fare of their citizens. Yes, the world is being Americanized; but America is being globalized.And America, like Europe, has to recognize that dual movement. The new administration inWashington and the new leadership in the European Union will have to provide practicalanswers to that challenge within a matter of a very few years.

In the military field, the United States will not be able to implement a national missiledefense system without addressing the problem of military governance of space. In the tradefield, we are already on the right road, thanks to the creation of the World TradeOrganization. If the present President of the United States favors the creation of aNorth–South American Free Trade Area, there is no doubt at all that it will be a big incen-tive for our Asian colleagues to do the same. The blocs that are going to be created will facethe United States with a very important dilemma: Do they accept the creation of moreregional blocs or do they want to strengthen the global institutions within which everybodywill feel at home because they will be recognized as legitimate and fair by everybody? Thisis the challenge facing all of us.

In the early post-war years, like now, we had a new president in Washington with a verygood team trained by previous administrations and a State Department headed by a gener-al respected because of the glorious way he conducted the war. Nobody was sure of the mas-tery of the president because he was very new and in some ways an unknown quantity. Thegeneral was a victorious leader, but nobody knew what he was going to do in the field ofinternational politics. I suggest that what Harry Truman and General George Marshall didcan be repeated.

Georges Berthoin is Honorary European Chairman of the Trilateral Commission.

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United States, they make it very difficult topersuade our elected representatives that it iscritical to negotiate additional WTO agree-ments when the current ones are not beingobserved. This situation has led some verybright people in my country and in Europe tosuggest that one way to reduce the growingfriction would be for the United States andEurope to negotiate a transatlantic free-tradeagreement. Let me say that I respectfully dis-sent. We already have rules in many of theareas of our differences and neither these rulesnor the sanctions that have been applied fortheir breach have succeeded in resolving ourdisputes. In fact, the process of litigation andsubsequent retaliation, actual and threatened,has contributed greatly to the acrimony.Moreover, we must remember that, when theOECD nations negotiated a quite good invest-ment treaty, it was off-putting to the lesser-developed nations, who felt that they had nothad a seat at the table. So the prospect ofspreading a bilateral agreement between theEuropean Union and the United States to less-er-developed nations is poor.

Our most intractable disputes result fromour growing integration—call it globalization,if you will. Increasingly, our international eco-nomic activity collides with sensitive domes-tic regulation. Regulatory policies that governfood safety, or beef and hormones, or geneti-cally modified food, or tax policy, or aircraftnoise are much more politically sensitive thantariff measures and far less amenable to rule-setting solutions, at least in the short term.What we need is the highest-level diplomaticeffort driven by a mutual desire to find solu-tions to these disputes, not to win the argu-ment. Both sides need to focus on the out-comes that preserve the relationship and setaside, or at least contain, the relentless questfor advantage. Such an effort will requireenormous political will on both sides of theAtlantic. We need to promote a better under-standing of the regulatory processes and thepolitical limitations of the other. This is wherethe Trilateral members can make a difference.

Strong technological forces are pushing ournations toward greater economic integrationand the prosperity that such integration canbring. But bad policy choices can stifle themost promising prospects for prosperity. Weknow that, after World War I, fear of compe-tition caused the United States and Europe toraise trade barriers in response to calls to pro-tect local workers. This heightened protec-tionism brought to a close the last sustainedperiod of globalization that had run fromabout 1850 to the First World War. AsNorman Cousins once said, “History is a vastearly warning system.” Unless we find a wayto break the damaging spiral of the transat-lantic conflicts, we face repeating a very bleakchapter in our history.

Carla A. Hills is Chairman and Chief ExecutiveOfficer of Hills & Associates and former UnitedStates Trade Representative.

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C H A R L E S G U T H R I E

Changing Context,Changing Tasks

International security is faced by a paradoxtoday. In a time of increased globalization,there is also fragmentation and marginal-

ization of some nations, and even communi-ties within nations. Globalization means thatthere is unprecedented readiness to cooperateinternationally. There is increasing impor-tance of groupings, both military and civilian.The United Nations, NATO, the EuropeanUnion, and the Organization for Security andCooperation in Europe are all growing in sizewith new countries wanting to join. There is aproliferation of regional groups, such as theEconomic Community of West African States,the Organization of African Unity, and theAssociation of Southeast Asian Nations.

When the Cold War ended, involvement inthe internal affairs of other nations—whichwas then much more likely to have beendescribed as interference— happened only invery exceptional circumstances. Now govern-ments have a greater sense of global responsi-bility for what happens in the Balkans,Indonesia, the Middle East, Africa, or theIndian subcontinent. They feel they must dosomething about ethnic cleansing, genocide,and humanitarian disasters. The ability of themedia to tell us exactly what is happening—or at least their interpretation of it—has beena huge boost for the “something-must-be-done” lobby and that particular school of for-eign policy. Hence, there is much greater glob-al awareness and willingness by governmentsto become more involved where they feel theycan make a difference.

As globalization proceeds, so does fragmen-tation. In so many corners of the globe, thereis a resurgence of nationalism and secessionisttrends. This resurgence is happening not justin the Balkans, Indonesia, or Central Asia. Inthe last ten years, the United Nations has rec-ognized almost thirty new countries. Far fromstability through ever closer union in theworld today, we face instability through frag-mentation. At times, this is not solely nation-alistic fragmentation, but often religious frag-mentation as well.

There are other sources of tension and con-flict, often based on need or greed. In parts ofAfrica, for example, there are countries withlittle or no water and food is in scarce supply.Countries such as the former British colony ofKenya, which once exported food to thewhole world, can now barely feed themselves.Then there is greed. For instance, many of theconflicts in Africa stem from the thirst for dia-monds, which in turn fuels the arming of thecombatants as they fight for control of the dia-mond areas. We saw this many years ago inwhat was then the Congo and in Angola; and,as Foreign Secretary Robin Cook said onFriday, it certainly fuels the current evil inSierra Leone. Poverty is rife and the divisionsbetween the haves and the have-nots are alltoo plain to see. The trends of globalizationand fragmentation are worsening inequalitiesof wealth and the poorer countries are beingincreasingly marginalized in world affairs.

In our changing world, nationalism, sectari-anism, poverty, and greed are likely to contin-ue to foster a spirit of distrust in many places.This will not necessarily lead to major warsbetween nation-states, but it is very likely togenerate friction between sub-regional group-ings, sects, or factions, with few clearlydefined battle lines between them. And thisleads to an altogether more complex scenariothan existed during the superpower standoffof the Cold War. Then, we were fundamental-ly defensive in nature. As the defenders, wecould choose our battlefield. In Britain’s case,we chose the Norwegian Sea, the Hanover


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Plain, and the air space above them both. Theenemy had to come to us on ground of ourchoosing. This is no longer the case. We mustnow go to the trouble spot and take on anypotential adversary, often on ground of hischoosing, not ours. This is more demandingand more complex, and can be every bit asdangerous. We need to be able to influence theoutcome through direct action across a broadspectrum of military capabilities to match thebroad spectrum of future conflict. Such con-flicts have the potential to explode in spectac-ular fashion, although they may have beenjudged initially by many to be limited. Thepotential for escalation is no longer in doubt.

There is proliferation of weapons of massdestruction—nuclear, chemical, and biologi-cal. Terrorism can export a limited regionalconflict to the international stage; for exam-ple, the attack on the U.S.S. Cole, or Islamicextremists operating virtually worldwide. Nolonger is the battlefield an organized placewith front lines and rear areas. It’s confused,fluid, and multi-dimensional. Asymmetricwarfare may call for a completely newapproach from conventional navies, armies,and air forces. Governments will also wanttheir forces to engage in fights against well-armed international criminals and drug car-tels. There is also another kind of threat tosecurity, which was manifested by the attackon the Tokyo subway. And don’t think any-body should be complacent. I myself am sur-prised that similar attacks have not happenedelsewhere in the world.

The fragmentation and instability in theworld has led to a dramatic increase in inter-national involvement in peace-support opera-tions. The first United Nations peacekeepingoperation began in 1956, monitoring the with-drawal of French, British, and Israeli forcesfrom Egypt. During the next thirty-fouryears—up to 1990—there were thirteen moreUN support missions. In the ten years since1990, there have been forty such operations,of which fourteen still exist today. Inter-nationalization of military operations, whether

it be peacekeeping or war-fighting as in theGulf, is a fundamental part of the geopoliticalsecurity environment. Multinational forces arehere to stay.

Strengthening and Adapting EuropeanMilitary CapabilitiesThis leads me neatly into European defense,the debate about which, in this country, hasoften bordered on the irresponsible and hashad little to do with our defense and security.There are clear political dimensions to thedebate, but speaking as a military man, NATOremains the most successful and importantalliance in history and is crucial to the UnitedKingdom and to the stability of WesternEurope. The key feature of the alliance is theengagement of North America in Europeansecurity. As Europeans, we have to do more toshare the burden with the Americans, becauseif we don’t do more, they will almost certain-ly do less. I think they are likely to do lessanyway. They will, as we heard yesterday, bemore cautious; but if Europe doesn’t do more,they will do much less.

Today, in European NATO countries, thereare two million people under arms; in theUnited States there are only 1.4 million. WeEuropeans have seven military satellites; theUnited States has over seventy. We Europeanshave four carrier task groups; the UnitedStates has twelve. As Lord Gilbert said yester-day, we don’t have a single wide-bodiedstrategic lift aircraft among us, and yet theUnited States owns over eighty. The UnitedStates, with just over a third of the populationof NATO, provides well over half the defensespending. Defense spending doesn’t have tofall remorselessly in Europe. In Britain lastyear, we achieved a modest increase of slight-ly more than one billion pounds. I understandthere are eleven other European countriesplanning to increase defense expenditure inthe near future, but I’ll actually believe itwhen it happens. We should also watch outfor some creative accounting. Of course, thetraditional expression of defense budgets in

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terms of percentage of GDP can be mislead-ing. Expenditure on defense is not a true mea-sure of military capability, but from these fewstatistics, one can see that European defenseefforts are nothing to be proud of. From out ofthe two million European servicemen inEurope, Europe found it difficult to providejust two percent of them for Kosovo. I thinkthat’s rather shaming.

Too many of Europe’s armed forces are stillfocused on Cold War requirements. Today,they need to be rapidly deployable and sus-tainable. They need to be mobile and flexibleso that we can make a more coherent andeffective contribution to NATO as well as takeaction when NATO as a whole is not engaged.But I entirely agree with what Karl Kaiser saidyesterday. It’s inconceivable to me that weEuropeans are going to carry out some mili-tary operation that NATO doesn’t want us to.Our British desire is to see an improved mili-tary capability. And I mean real improvementsof substance, not symbolism. I believe nationswill continue to want to retain authority overtheir armed forces, and only national govern-ments and national parliaments should havethe authority to send their forces into areaswhere they may risk their lives. Of course, theEU will need a small military staff if it is totake sensible decisions about security matters,particularly if it has to take responsibility formilitary objectives when NATO is notengaged. This small staff would also form acrucial element of the link between the EUand NATO. The EU will also need some formof crisis management organization if it is to beable to launch and then conduct militaryoperations in response to international crises.

What we do not need are unnecessaryheadquarters, unnecessary commands, moreBrussels committees, more ambassadors, andmore generals. They will not give comfort tothose on operations at sea, on land, or in theair. Of course, there will be a need for a prop-er NATO–EU interface to allow the EU todraw on NATO’s established and very effectiveplanning machine and key collective capabili-

ties. NATO has already agreed in principle todevelop such arrangements at the 1999Washington Summit, but we must do all wecan to avoid duplication. None of us canafford two sets of forces, one for NATO andfor Europe. Non-EU NATO countries are like-ly to be invited to participate in EU opera-tions. Thus transparency in the planningprocess will be essential—such countrieswould wish to convince themselves that anysuch operation had been properly conceivedand thought through before agreeing to con-tribute their own forces. These coordinatingorganizations need to be kept taut and drawon existing structures.

There is an argument that a strong, moreassertive Europe will undermine NATO. Ithink that argument is wrong. A Europewhich remains allied to the United States sim-ply because of its own weakness is of limitedvalue. Europe’s weakness to provide for itsown security interest is more damaging to thetransatlantic relationship than a strongEurope with a greater influence in decision-making. I maintain that a stronger Europeanmilitary capability should be good for NATO.But even an improved Europe, for the foresee-able future, could not conceive of undertakinganything other than a simple Petersberg taskor soft peacekeeping tasks without Americaninvolvement. The Europeans need to recog-nize this fact. They are not just about to pro-duce an army; they are not just about to pro-duce a rapid reaction force. But I would liketo keep it in perspective. There are somethings at which the Europeans are very good.They are every bit as good as the Americans oranybody else when it comes to being on theground in Kosovo or in Bosnia. So I am veryproud of that aspect of the European military.I don’t think we Europeans need to mirror theUnited States’ effort. I don’t think we can. Thecapability gap is wide between us indeed, andit’s getting increasingly wider, particularly inthe field of technology. My belief is we need tonarrow the gap. Having raised expectationsover forces better configured for expedi-


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tionary operations, Europe needs to deliver orNATO will be damaged.

Now, I have outlined what I see as theBritish position, which would be good forNATO, good for United States, and good forthe Europeans. But there are three potentialproblems. First, the Europeans need to puttheir money where their mouths are. Defensebudgets must be increased. We need increasedcapability. We do not want increased symbol-ism. Second, the non-EU NATO countriesneed to be reassured and convinced—particu-larly Turkey—that ESDI [European Securityand Defense Identity] is in NATO’s interestsand theirs. Third, there are still some who seeka degree of autonomy that would certainlydamage NATO. Autonomy would lead toduplication and distrust. All three of theseproblems, I think, can be solved and I amactually confident they will be in time.

General Sir Charles Guthrie retired as BritishChief of Defense Staff at the end of February2001.

S E R G E I Y A S T R Z H E M B S K Y

InternationalTerrorism andExtremism:Lessons fromChechnya

Ihave been dealing of late with issues asso-ciated with the counter-terrorist operationin the Northern Caucasus. As practical

experience has shown, Chechnya has becomea sort of testing ground for international ter-rorists and Islamic extremists. In Chechnya,techniques were fine-tuned not merely to fur-ther dismember Russia, but also to carry outworldwide plans drawn up by such figures asOsama bin Laden. It is no accident thatChechnya has seen massive concentrations offorces and resources of international terrorists.

In the past, we underestimated the dangerof Chechen separatism. Now, after havingbeen faced not only with the danger of sepa-ratism, but also with the intimate ties betweenlocal and international terrorists, it is particu-larly painful that the world community lacksin-depth understanding of the threats posedto it by international terrorism and religiousextremism. Therefore, my presentation willanalyze some of the lessons we have learnedfrom countering terrorism.

Separatism, Terrorism, and HumanRights in the CaucasusTo begin with, in 1996, Russia granted de factofull state independence to Chechnya, with-drawing militia units and troops and disman-tling all federal structures. However, thosesteps failed to bring real independence toChechnya because the power vacuum wasimmediately filled by political extremists,“soldiers of fortune,” and fanatics fromAfghanistan, the Middle East, and other

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regions. Ethnic cleansing was unleashed.According to the last census held in 1989, theRepublic’s population stood at 1,270,000 peo-ple, including 336,000 ethnic Russians. Butby the time the counter-terrorist operationwas undertaken in the fall 1999, there wereonly 20,000 Russians left in Chechnya, whilethe Chechen population did not exceed500,000 people out of a total of one millionChechens living in Russia.

With the rise of the Dudayev–Maskhadovregime, executions at town squares, decapita-tions, and attempts to restore law and orderon the basis of shariah perturbed both thepopulation of the neighboring Republics andthe Chechen people themselves. There is evi-dence that, in almost eight years of Dudayev–Maskhadov rule, more than 21,000 Russiancivilians were murdered and over 46,000 peo-ple were forced into slave labor. In 1995–99,as many as 2000 hostages were deported toChechnya from other Russian regions.

One can ask, Where was Europe? Wherewere all those who are so concerned todaywith human rights in Chechnya? Confident oftheir impunity, Ichkeria’s leaders did not limitthemselves to separatist objectives. They fellunder the influence of such personalities asthe Jordanian-born guerilla commanderKhattab and set themselves the goal of furtherdismembering Russia. The bandits becameimpudent to the point that they invaded theneighboring Republic of Daghestan fourtimes, which is—and I wish to emphasize thisfact—a Muslim-populated region.

Then came the bombing of apartment hous-es in a number of Russian cities, includingMoscow, that took the lives of over a thousandpeaceful citizens. Extremists declared openlythat their goal was to extend their influenceover the territories between the Black Sea andthe Caspian Sea. At that stage, it then occurredto us at last that, if the terrorist bases on Chech-nya’s soil were not demolished, the escalationof violence could attain unpredictable propor-tions and we took the necessary measures. Butwhen terrorists are beaten they immediately

invoke their human rights, demand protectionfor themselves, and appeal to internationalorganizations to come to their rescue.

Within this context I wish to remind youthat the regime that wielded power in theChechen Republic did not merely trampleunder foot Russia’s constitutional law andchallenge the territorial integrity of our state,but was also criminal under international law.Measures backed by the Maskhadov regime—including in the sphere of criminal punish-ment, for instance, dismemberment—werenot only crimes punishable under the RussianCriminal Code, but also violated the rights andfreedoms guaranteed by the European Con-vention for the Protection of Human Rights,the European Social Charter, the EuropeanConvention for the Prevention of Torture andInhuman or Degrading Treatment, the Euro-pean Framework Convention for the Protec-tion of National Minorities, and so on. By theirlegislation and actions, Ichkeria’s leadersdemonstrated that the accepted rules of thecivilized world held no authority for them.

Terrorism Beyond ChechnyaIt should also be understood that what hasbeen happening in Chechnya is a part of abroader process of activating extreme forces inthe Near and Middle East. What is going on,for instance, in Afghanistan? This country hasalready surpassed the whole of Latin Americain drug output. Protected by the Talibanmovement, extremist organizations findrefuge there to propagate terror as a means ofpolitical struggle. Afghanistan has become asource of threats to stability in Central Asia.The region has been witnessing a sharp rise inthe activities of such extremist groups as theIslamic movement of Uzbekistan, the Afghan“Jamiat-i-Islami-ul Tulaba,” and the “Hizb-ut-Tahrir” Party, which, in the pursuit of estab-lishing an Islamic caliphate, has involved thedirect invasion of the territories of Kyrgyzstanand Uzbekistan, as was the case last August.

The situation is very grave. Khattab,Maskhadov, Basaev, and their followers are not


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merely bandits. They are international terror-ists dreaming to impose their will on the wholeworld, dreams which they openly stated in1999 before the aggression against Dagestan.First comes the northern Caucasus, followedby the Transcaucasus, and then Central Asia.They plan to establish advanced strongholds toback their offensives throughout the world—from the Philippines to Bosnia—andChechnya was to play a key role. So Chechenterrorism is not only Russia's headache. This isevident from the many statements of separatistleaders. An archive belonging to a majorChechen band has been captured recently. Oneof the tapes features an address to Muslims bya British national, introducing himself fromManchester (his father is an African and moth-er is from west India). He says, among otherthings: “When we win the war, as inAfghanistan, we will establish a total Islamiclaw in Chechnya, Dagestan, and throughoutthe north Caucasian region. And further—inMoscow, New York, and Washington.”

For unknown reasons, unmasked xenopho-bia and anti-Semitism displayed by gang lead-ers of Ichkeria have been ignored by manypeople in the West. One of them, Arbi Baraev,who is still fighting in Chechnya and knownfor his order to decapitate three Britons and aNew Zealander in 1998, has stated publicly:“Jews must be killed, no matter where theyare, since the prophet Mohammed left thebehest that Jews must be killed.”

Islam and Extremism in ChechnyaIt is necessary to use the term “religiousextremism” with utmost care when it concernsIslam as a world religion. Otherwise there is atendency to equate the categories of funda-mentalism—religious coloring—and extrem-ism—political coloring. The Council of Muftisof Russia has discerned two main features dis-tinguishing extremists from true believers: thenegation of fundamental Islamic traditions;and the mentality of exclusion to the point ofassuming the right to infringe on the rights ofothers. These characteristics have become

dominant in the public life of Chechnya dur-ing the Dudayev–Maskhadov rule.

In reality, Russia is not waging a war withreligious fundamentalists. Khattab, Basaev,and their followers do not have any real rela-tion to “fundamental” Islam in its true mean-ing. Have you ever seen a true Muslim believ-er commit massive violations of shariah, suchas swearing on the Koran in the name ofAllah, entering a mosque with arms, or killingmuftis? Almost ten imams were killed inChehnya in recent months; there were alsokillings of imams during the Maskhadov rule.And how should one react to the fact thatalmost 60 percent of foreigners taken hostagewere Muslims, which is strictly forbidden bythe Koran? The Ichkeria leaders are no reli-gious “fundamentalists.” They are marginalswaving the banner of Islam. The present muftiof Chechnya, Shamaev, testifies that the fol-lowing motto was very popular amongMaskhadov’s entourage: “Oil for the upperclass, Islam for the lower class.”

Confronting Terrorism inChechnya and BeyondOf course, the Chechen problem exists, and alot of time and effort will be needed for itssolution. We understand very well that it canonly be resolved through political and eco-nomic measures. Such measures are the focusof the latest decisions by the President ofRussia to reduce the number of troops inChechnya, form a republican government,and increase financing for the restoration ofthe Republic. To simply abandon everythingthere and withdraw would create another vac-uum and provide a new foothold for aggres-sion against Russia. We cannot allow this. Thethreat coming from this terrorist enclave hastaught our citizens a great deal, which is whythe number of Russian people in favor ofkeeping Chechnya as a part of Russia hasgrown. This opinion was shared by only 25percent of the population in October 1997;now the percentage is almost 60 percent. It isno coincidence that the number of those in

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Russia who favor the force operation is alsohigh: the latest polls show that this course issupported by 47 percent of the population (itwas 46 percent last November). The portionof the Russian elite holding similar views iseven greater—almost 63 percent.

Chechnya is first a problem for Russia. Butin a wider context, the danger of terrorismand religious extremism, the formation ofsuch enclaves, constitute our common prob-lem and our common risk. In this connectionI cannot but note the adoption in GreatBritain of a new law against terrorism, whichmay result in the closure of a whole range oforganizations involved in terrorist activities,including those that are supporting Chechenseparatists. This law is of practical significancefor Russia. We circulate documents concern-ing terrorist acts in Chechnya to the British ona regular basis. On more than one occasion,we have drawn attention to the existence ofinformation centers and organizations collect-ing financial resources that support Chechenseparatism, banditry, and terrorism. We countvery much on London to pay heed to ourarguments and broaden the list of organiza-tions to include those that have been helpingthe Chechen terrorists in material terms.

Sergei Yastrzhembsky is Special Advisor to thePresident of the Russian Federation.

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Building aPeaceful AsianNeighborhood

The last three days we’ve been dis-cussing various problems of globaliza-tion. Does globalization make the

world safer? Does it make our neighborhoodsafer? Does it make military conflict and warless likely? Does the exposure to global mar-kets help improve national and regional secu-rity? To all these questions, my answer is, Yes,it does. As we consider the security dimensionof globalization, I think it is very important tokeep in mind a clear difference betweenEurope or the Atlantic community and Asia orthe Pacific region. It’s a rather obvious point,but let me just cite a few essential points.

Post-World War II history is, of course, thehistory of the Cold War. In Europe, the ColdWar ended in the 1990s with the Germanreunification and the dissolution of the SovietUnion. The West—the European Union andNATO—had essentially won the contest. Inthe Pacific region, however, the setting is quitedifferent. At the end of the Second World War,there were three divided countries in Asia:China, Korea, and Vietnam. And the solutionto the division in all three cases took militaryforms. In 1949 in China, the communists wonthe internal conflict militarily, thereby unifyingChina, although the Taiwan question remains.In Vietnam, again, the communist forces unit-ed the country by a military victory in 1975.In Korea, even though we had a very severewar for three years, 1950–53, we reached arather inconclusive end and the division stillcontinues. So what we have in Asia is a verydifferent setting. The outcomes of these con-flicts have left different types of political sys-tems in the region. We have to live together ina neighborhood where we clearly recognize


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our internal differences, yet try to maintainpeace in the region. So the task in the Pacificregion is quite different from the Atlantic situ-ation. Korea is still divided. Therefore, it is onthe Korean peninsula that the final chapter ofthe Cold War has yet to be written.

In one of the meetings, Dr. Kissinger men-tioned the fact that Asia has elements of anineteenth century balance-of-power or con-cert-of-powers system. I agree. Of course, thesetting is different. It is the twenty-first centu-ry. Nevertheless, perhaps what we need is anew sort of convocation of power, not fordomination, but for peace and common pros-perity in the region. With globalization, thepeople of Asia share common aspirations. Wecertainly would like to grow and improve ourstandard of living to match the otheradvanced regions of the world. We certainlydon’t want to repeat some of the mistakes wehave committed in the nineteenth and twenti-eth centuries, making us fall behind them. Sowe feel that we have to make a clear decisionas to how we are going to build a neighbor-hood that will enable us to keep prosperityand peace in the twenty-first century.

As you know, in the history books Korea isknown as the hermit kingdom. We have iso-lated ourselves to maintain our identity andsecurity. Now we have made a clear choice. Wehave made a 180-degree turn. We no longerwant to be known as the hermit kingdom. Wewant to be an active vanguard of globalization,a model of an open and democratic society.The reason is simple. We now believe that thisis the only way we can be safe and at the sametime prosperous. In short, the best road tosecurity is through globalization and buildinga strong regional and global neighborhood andwe would like to see every party surroundingKorea constructively involved.

Korea and the Maintenance ofBalance and Peace in East AsiaGeopolitics is still the most important factor inthinking about security in our region. Koreahas only big neighbors. In fact, we don’t have

many neighbors. I was in Berlin just a few daysago and they mentioned the fact that Germanyhas ten countries as neighbors sharing theirborders, most of them smaller parties. The sit-uation is quite different for Korea. We haveonly three immediate neighbors—China,Russia, Japan—and all three are overwhelm-ingly bigger than we are. That’s why we needsome sort of constructive balance of power inthe region to maintain the peace. Yesterday,Gen. Scowcroft mentioned the fact that theUnited States maintains a balance of power inthe region. I agree, but history has taught usthat even a power like the United States cannotreally succeed in maintaining a balance ofpower in the region as an outside power with-out help from the inside. Korea aspires to bethat inside balancer and will try its best tomaintain a balance of power and a convocationof power, which will help peace in the region.

We are a relatively small party in our neigh-borhood. A united Korea would have seventymillion people. If we were in Europe, theunited Germany would be the only countrybigger than a united Korea. A united Koreawould be bigger than either France or theUnited Kingdom. But, of course, big andsmall are relative terms. What is seventy mil-lion people when your immediate neighborhas 1.3 billion? In our case, our small relativesize is in fact an advantage. We pose no threatto any neighbors and all our neighbors knowthis, which is why we feel we could play avery useful role as an inside balancer. To playthat role we should be very efficient and res-olute, although we are small. Those are thelong-term visions we have for maintainingbalance and peace in the region.

For the next few years we have to concen-trate on the problem of division on the penin-sula. North Korea has begun a process ofmajor adjustment, but how successful theNorth Korean experiment will be no one issure. It has built up a very special system—one leader, one party, complete disciplining ofthe population, and almost complete isola-tion. And it faces a very severe economic cri-

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sis. Its leadership would now like to make amajor shift and try to catch up with overalltrends in the neighborhood and in the world.Could such a system successfully change? Ordo the system’s constraints make it impossibleto achieve? We have no definite answer. Weare trying our best to utilize the new opportu-nities between us for peace and the eventualunification of the Korean peninsula.

As I have already mentioned, no one wor-ries about a united Korea. A united Korea willnot pose any threat to anybody. In fact, I havereason to believe that recent developmentsregarding Korea provide a window of oppor-tunity for wider cooperation among the coun-tries in the region and outside powers. Forexample, U.S.–China relations may enter intoa more constructive period if they are engagedin resolving the Korean question. There isspeculation that, in the coming months andyears, the tension between the United Statesand China will rise and a strategic competi-tion will take place in the region. I believe thatthis should not and need not be the case. TheUnited States and China can cooperate inbuilding a neighborhood from which every-body can draw a great deal of benefit. At themoment, we have reason to believe that boththe United States and China are eager to see apeaceful and constructive resolution of theKorean question.

We need to pull together our energy andour wisdom to bring an ideal solution to theKorean question and that, in turn, will openup a new possibility for building a peacefulneighborhood in Asia. There are already verypromising signs in terms of regional and glob-al cooperation—ASEAN-Plus-Three, whichhas now emerged as a very constructive forumfor building a neighborhood, APEC, discus-sions about an Asian Monetary Fund, and, ofcourse, ASEM, which is not getting a greatdeal of attention because it was more symbolthan substance. But I think bringing theEuropean Union and ASEAN-Plus-Threetogether every other year to discuss our com-mon issues will gain greater importance.

No one needs to worry about an Asian bloc.There isn’t any bloc in Asia and there won’tbe. While we try to construct a peacefulneighborhood in Asia, each country in Asiaalso has very special relationships with out-side friends and allies. For example, weKoreans believe that our strong alliance withthe United States is the essential foundationupon which all our dreams and visions can berealized. There is a very well-functioningmechanism among the United States, Japan,and South Korea to deal with regional securi-ty problems. But again, these should not be inconflict with our concerted effort to build apeaceful neighborhood in the region. In short,our work in our neighborhood will construc-tively link itself to the global movement, inparticular to the consolidation of the WTO.We look forward to China joining the WTOthis year. I think this will help the generalatmosphere in which a well-functioningframework for regional security can be foundin the coming decade.

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All in all, we believe that greater participationby everyone in an expanded market willenhance the chance for security in our regionand, indeed, in the world. Therefore, as I said,we have to make a decision and I hope thepolitical leadership everywhere, and certainlythe countries represented in this Commission,will take more decisive steps in the comingmonths and years.

Lee Hong-Koo is Chairman of the Seoul Forumfor International Affairs, former Prime Ministerof the Republic of Korea, and former Ambassadorto the United States and to the United Kingdom.


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The New SecurityChallenges

The old security challenges havechanged so dramatically in the periodsince the end of the Cold War that it

can hardly be overstated. The greatest threat tosecurity, as we heard from Mr. Yastrzhembsky,often comes from armed insurrections operat-ing at the subnational level, which his govern-ment considers criminal, but others considerto be something different. Traditional warsacross borders still exist and we still have to bevigilant against them, but they are diminishingas we face problems like Chechnya, theCongo, Sierra Leone, Bosnia, Somalia, andRwanda. This type of warfare, which we neverdiscussed in the old days in this forum, is nowthe major threat to security in the traditionalsense. It poses enormous problems.

Sometimes this kind of conflict is said to becaused by “ethnic hatred.” The phrase is dan-gerously misleading. I need to be absolutelyclear on this point. Ethnic hatred is an artfuleuphemism for racism. In some areas, like theBalkans, the ethnic hatred which allegedly hasraged for six hundred years were actuallyracial tensions that were exacerbated by dem-agogues and criminals and exploited andexploded in a way with which we’re all toofamiliar after the end of the Cold War. It putsthe challenge to the international communityin a way that was never envisaged by thefounding fathers of the United Nations system.It challenges us on the definitions of sover-eignty and intervention and it challenges theleading nations of the world in various ways.You can judge our responses over the lastdecade for yourself. Certainly in Rwanda,Somalia, and Bosnia, the UN system failed.And in Bosnia, it was only when an interna-tional coalition of NATO countries intervenedthat the war was brought to an end.

Sometimes “Coalition of the Willing” MustAct Outside the United NationsI’ve heard a lot of talk and criticism here aboutunilateralism by the United States. In thesecurity field, American unilateralism is virtu-ally non-existent, except perhaps when wewrestled mighty Grenada to its knees in themid-1980s. By and large, the United Stateswill not and cannot act alone in the securityfield, but it can and should help form andlead coalitions of the willing, as it did inDesert Storm under the Bush Administrationand in Bosnia and Kosovo under the ClintonAdministration. This is an area where occa-sionally the UN is simply not qualified to actsuccessfully. If Brent Scowcroft was laying outa prescription for foreign policy for the newU.S. Administration yesterday, the administra-tion may find that disengaging early fromsome areas where they clearly feel the UnitedStates is over-committed either physically orrhetorically will draw them back in moredeeply and in a more expensive way later. Itsimply is not possible anymore for the UnitedStates to completely ignore issues that wereonce far off its radar screen.

I know that the Europeans and theJapanese—particularly the European Union—believe strongly that the Security Council ofthe UN must be the legitimizing organizationfor all use of force, except in direct self-defense. In an ideal world that would be theideal way to act. But I must say that, with alldue respect for the UN, it is not always possi-ble to get the UN Security Council to approveinternational actions of a security nature. It iscertainly desirable. But when it is not possibleand the need to act is clear and present—as itwas in Bosnia in the fall of 1995, as it was inKosovo (more arguably, but in the view of theUnited States and its NATO allies) in the earlypart of 1999—then I am afraid that the UNSecurity Council may not always be the legit-imizing organization.

The United Nations is an imperfect butindispensable organization. When I say thatwe cannot always take an issue to the UN, I in

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no way, shape, or form, wish to weaken theUN. On the contrary, in the time I was privi-leged to serve as United States Ambassador tothe UN, my overriding priority was tostrengthen the United Nations and, above all,to strengthen its peacekeeping operationswhich have been so deeply flawed. GeneralGuthrie (who himself played an enormouslyvaluable role as head of the British GeneralStaff in strengthening the UN) has given youthe statistics already on the astonishing prolif-eration of United Nations peacekeeping oper-ations. I do not think he would disagree withme when I say that the record of the UnitedNations in peacekeeping, when it goesbeyond simply observing and maintaining analready agreed-upon cease-fire or withdrawal,has been very, very spotty. Bosnia, Rwanda,and Somalia almost took the United Nationsdown in the period between 1992 and 1994.The number of UN peacekeepers rose from10,000 in 1989 to 80,000 in 1994 and thendropped just as precipitously by 1996. (Andin case you’re interested in why the UnitedStates started mistreating the UN so badly, itwas at precisely that moment that theRepublicans took control of both houses ofCongress and passed the resolutions andrestrictions that led to our appalling situationwith our arrears.)

In the aftermath of these disasters, the UNbegan slowly to rebuild itself under the lead-ership of its new charismatic SecretaryGeneral, Kofi Annan. I don’t think it’s an exag-geration to say that Kofi Annan saved theUnited Nations through his personal leader-ship. But that success was only partial. I can-not tell those of you who have not workedwith the UN in the limited amount of timeavailable how incredibly inept thePeacekeeping Office is when it comes to oper-ations in the field. There are four hundredpeople total in the peacekeeping office in NewYork, including secretaries and clerical staff.There are less than three people working onSierra Leone, where over 10,000 UN peace-keepers from some twenty-five countries were

deployed. They got caught in a scandalouslymis-thought-out deployment in which theNigerians and the Indians would not talk toeach other, and Ghanians and Zambiansarrived without equipment or communica-tions gear. And, of course, some were takenhostage. (And again, credit Charles Guthrieand the British for sending in their troops out-side the UN mandate to stabilize the situationin Freetown.)

What happened in Sierra Leone wasabsolutely predictable and appalling, and yet,who else was going to do the job? It was farout of the NATO area or of a coalition of thewilling of the sort that the Australians hadassembled to stabilize East Timor. The EastTimor operation was one of the most success-ful UN-sanctioned operations in history, but—and I stress this—it was not a UN operation. Itwas a UN-sanctioned operation. That optionwas not available in Sierra Leone because,regretfully, the administration of which I waspart refused to respond affirmatively to theBritish request for a helicopter warship off thecoast to support the British. So the British said,“If you don’t want to help us at all, we’re goingto limit the scope of our involvement.” TheUN was left to its own devices in a situationthat, in my view, could have been cleaned uprelatively easily and stabilized.

No one in the world has yet faced up to thefact that if we leave a situation like SierraLeone alone it will get worse. I know thatmany people in this room coming from a tra-ditional security background will say, “Sowhat? It doesn’t matter.” And others will say,“It may matter, but the resources required todeal with every problem in the world are toovast for even the developed nations.” I grantthe latter point. We cannot solve every prob-lem in the world, but by simply dealing withthe consequences and not the causes of theseproblems—which is what happens when wepour billions of dollars into refugee relief,reconstruction, and relocation—we are wast-ing money. In some cases, like Sierra Leone,there are solutions—although I will not


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extend that assessment to the Congo, an areaof such vastness and complexity that it defiesa rational solution at this time. There wereand remain many areas of the world wheremore engagement, more resources, and moreleadership will make a difference. But we can-not count on the UN Peacekeeping Office todo the job adequately as it is presently struc-tured. There was a peacekeeping reformreport issued last year, headed by Amb.Lakhdar Brahimi, to which I would give a C+for content. But even that report was only par-tially implemented by a General Assemblythat was very reluctant to increase the size ofthe Secretariat.

We Cannot Ignore AfricaI want to say a word about Africa in general.When I was Ambassador to the UnitedNations, the United States put more focus onAfrica than any of our predecessors. Thatmomentum is continuing, not because of any-thing we did, but because of the objectivereality that Africa cannot be ignored. I do not,however, think that our efforts have yet beenremotely successful. One of the most impor-tant issues that we must watch is whether thenew U.S. Administration engages Africa. Wecannot ignore Africa. People continually saythat discussing Africa is a kind of liberal do-good-ism, but that is nonsense. From wherewe sit today, we can be in Africa by plane in afew hours. Africa contains problems that willnot be restricted geographically to the conti-nent of Africa. It poses the cruelest and tough-est dilemmas that we can face in the Trilateralworld. If we engage them, the chances of suc-cess are limited and the resources to beexpended could be wasted; if we don’t engagethem, the situation will get worse and draw usin even more. I see, therefore, only one choicein the end. We must engage because eventual-ly we are going to get pulled in anyway, andthe earlier we engage the better. We can’t solveevery problem on the continent, but we candeal with some of them. I mentioned SierraLeone as a solvable problem. Had we been

tougher on Charles Taylor in Liberia (theSlobodan Milosevic of Africa with one big dif-ference—he’s got diamonds and Milosevic didnot), it would have made a difference. TheSudan, Somalia, the Congo, and perhapsBurundi, are much more difficult issues, butthey cannot be ignored.

“Soft” Security Issues of the Present Breed“Hard” Security Issues of the FutureWe must deal with these traditional securityissues, but there is a new set of issues that aremuch, much more difficult and elusive. Theydon’t respect national borders and many peo-ple resent the fact that they are even discussedin a security context. Yet, in my view, they aresecurity problems both directly and indirectlyfor their political and social consequences. Irefer, of course, to the issues that some peoplecall “soft” issues, which are, in the long run,much more serious because they are thebreeding ground for the “hard” security issuesof the future. One obvious issue is refugees.There are twenty million displaced peopleinternally in the world today and ten millionofficial refugees, so two-thirds of all therefugees in the world fall outside the UNHCRsystem. Sadako Ogata did a superb job withher mandate and I wish the best to PrimeMinister Ruud Lubbers as he begins his job,one of the most important in the world. Butthe UNHCR is far from adequate to deal withthis problem.

Another problem, and one on which Ifocused a great deal, is the problem of AIDS,not just in Africa, but on the Indian subconti-nent, in Southeast Asia, in Brazil, and else-where in the world. Let me be clear on whywe have asserted repeatedly that AIDS is asecurity issue. If you travel in Africa or thesubcontinent (and now for the first timeChina has acknowledged it has a problem)and you look at the nature of the disease, thestigmatization that goes with it, the veil ofsilence over who has it, you will see that thevery nature of this disease is more than ahealth crisis, although it is the worst health

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problem in six hundred years. It has thecapacity to destroy entire societies—socially,economically, and politically. It threatens allthe achievements of countries likeMozambique, Botswana, Namibia, and SouthAfrica. It can undermine everything thosefour nations have done to promote democra-cy and economic success. We must not ignoreit. This will be a great challenge for the UNand for the United States. For those of youlooking forward to the APEC and G-7 meet-ings, I would add to your agenda the UNGeneral Assembly Special Session on AIDS inlate June in New York.

Issues like AIDS and other health epi-demics, refugees, and, of course, issues ofdrugs and terrorism are the new securityissues. I would also add environmental issuesbecause, when the environment degrades,when the deserts spread in Africa or Asia,people move to the cities. These issues createmore social upheavals and the next generationwill face a new set of security threats that weregenerated by our failures to deal with them.All of these issues, plus the political issues ofspreading democracy and human rights,require tremendous leadership. I respectfullydisagree with Brent Scowcroft when he saidapprovingly that you would see less humanrights and more national interests from thenew administration. I think human rights is anational interest for the United States andevery other country represented in this room.

The challenge for all of us is how we aregoing to deal with these issues. We’ve spent alot of time talking about trade issues here andthe international trading regime, essentiallyamong the developed nations. And I applaudthat. The group in this room has vast expertiseand has done much as individuals and collec-tively to create the modern world trading sys-tem which has brought so much prosperityand progress to so many people. But, in myview, if we don’t pay more attention to thesenew international security issues—and I stressthey must be defined as security issues—thatfocus on Africa and the developing world, we

will face a very serious set of more traditionalsecurity problems in the future that we willnot be adequately prepared to handle.

Richard C. Holbrooke, now Counselor at theCouncil on Foreign Relations, is former UnitedStates Ambassador to the United Nations.


. . .T H E N E X T

G E N E R A T I O N

W I L L F A C E A

N E W S E T

O F S E C U R I T Y

T H R E A T S T H A T

W E R E G E N E R A T -

E D B Y O U R

F A I L U R E S T O

D E A L W I T H

T H E M .

jp 3-92 2/12/03 10:23 AM Page 92

The Trilateral Commission warmly thanks the many generous financial supporters making its workpossible. Funds are raised in each of the three regions, for that region’s participation and shared programexpenses. Within North America, funds are raised separately in Canada, Mexico, and the United States.

The U.S. group deeply appreciates the vital help provided by many supporters. The following U.S.foundations, corporations and corporate foundations, and individuals and individual or family

foundations have provided $30,000 or more over the past three fiscal years (since July 1, 1998):

Archer Daniels MidlandBank of America Foundation

(NationsBank Foundation)Bechtel Group, Inc.J.P. Morgan Chase & Co.CitigroupEnronJ. Epstein Foundation & Epstein

InterestsExxonMobil Corporation (Exxon

Corporation and Mobil Corporation)Franklin FundStephen & Barbara Friedman

FoundationGE FundGoldman, Sachs & Co.IBM CorporationJohnson & Johnson Family of

Companies

Levi Strauss & Co.The Henry Luce Foundation, Inc.Morgan Stanley Dean Witter & Co.PfizerPrudential Insurance Company of

AmericaDavid RockefellerRockefeller Brothers FundFrank Russell Group of CompaniesSara Lee CorporationSchlumberger Foundation, Inc.SmithKline BeechamThe Starr FoundationTime Warner, Inc.Paul A. Volcker & The Volcker Family

Foundation, Inc.Mortimer B. Zuckerman

Albemarle CorporationAmerican Standard FoundationAT&T FoundationCargill IncorporatedChemed CorporationCIGNA FoundationCompagnie Financière de CIC et de

l’Union EuropéenneCorning IncorporatedD.M.K. International, Inc.Deere & CompanyDow Jones FoundationEastman Kodak CompanyFannieMaeFreeport-McMoRan FoundationKatharine GrahamHeidrick & Struggles, Inc.Henry A. Kissinger

Lehman Brothers Holding Inc. Fund/IMarsh & McLennan Companies, Inc.McNamara FoundationMilstein Family Foundation, Inc.Mine Safety Appliances Company

Charitable FoundationWilliam S. Paley FoundationSprint CorporationTIC United Corp.TRW FoundationKo-Yung TungWarner-Lambert CompanyThe Washington Post CompanyWendt Charitable FoundationThe WEM FoundationWhitcom PartnersXerox Corporation

The following supporters have provided between $1,000 and $25,000 over the past three fiscal years:

Trialogue: 55

The Trilateral Commission was formed in 1973 by private citizens of Europe,

Japan, and North America to help think through the common challenges

and leadership responsibilities of these democratic industrialized areas in

the wider world. The leadership tasks of the Trilateral countries need to be

carried out with others to an increasing extent, and the 2000–2003 trien-

nium of the Trilateral Commission has reflected this changing context and

the opportunities it provides.

See our website for more information: http://www.trilateral.org

Copyright © 2001 The Trilateral Commission

All Rights Reserved

East Asian

Chairman

Yotaro Kobayashi

North American

Chairman

Thomas S. Foley

European

Chairman

Peter D. Sutherland

Londons Covers 2/12/03 10:50 AM Page 3

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