John Bruton

Opinions & Ideas

Category: Globalisation

WORLD TRADE DEAL IN BALI IS A BIG BOOST TO CONFIDENCE

Globalisation has meant that, no matter where we live in the world, we are liable to be affected by what happens very far away.

An environmental disaster, a financial panic, or a disease outbreak, in one part of the world can quickly affect people on the other side of the globe. No country, no matter how big, prosperous, or well armed is really an island any more.

The world, and its problems, were easier to manage (perhaps unfairly), when a small number of countries had to give their consent to any global agreement or rule.

This was especially the case during the century when most of the world’s surface was controlled by a few colonial empires.

It remained the case, when most of the major international organisations were founded, in the aftermath of the Second World War. Indeed that War, and a desire to ensure it was not repeated, forced nations to go beyond national sovereignty, and find new institutions to allow joint actions on a global scale.  Initially these institutions worked  easily enough because a cartel of big countries, the ones with permanent seats and vetoes on the UN Security Council, could both set, and decide, the issues on the agenda.

That world has gone.

The number of countries enjoying legal sovereign status has increased dramatically, so unanimous agreements are harder to achieve, The number who can  say “no”, on questions to which everyone else is (however reluctantly) is saying “yes”, has increased out of recognition.

Meanwhile, economic power, and thus the ability to pay for military power, is shifting. 

The world may soon have several policemen, with conflicting mandates, rather than a single (American) policeman.

China is testing the old order in the East China Sea at the moment.  This new multi polar order may seem fairer, but it will not make the world safer. 

At times, it seems as if it had become impossible to agree anything on a global scale. 

The bleakest moment was when the Climate Change talks collapsed in Copenhagen. The invasion of Iraq was another such dispiriting moment.

Now, with little notice, signs of hope have  appeared.

An interim deal with Iran on its nuclear programme has been agreed, although Israel (which officially has no nuclear capacity but actually in the only nuclear weapons power in the Middle East) is not happy.

And then, out of the blue it seemed to many, a world trade deal was concluded, by the 160 member WTO, in Bali last weekend!

During my time as EU Ambassador in Washington, I saw the draining away of hope that a world trade deal would ever happen. This was soul destroying, because the WTO seemed until then to be the only global organisation which really worked, and whose  disciplines were uncomplainingly incorporated by nations into their domestic law.

Now a deal has been put together  in Bali which will reduce the cost of trade by  10% to 15 %, by simplifying and standardising custom procedures. Limits will be placed on export subsidies.

The WTO disputes resolution procedures (a sort of World Trade court) will see their credibility restored by this breakthrough, because the organisation behind them, has shown it can actually make decisions, after all. That was a good week end’s work.

This will also help restore business confidence more generally , in ways that will have little to do with the ostensible content of the the deal in Bali.

ARE WE MISSING SOMETHING?

GLOBALISATION  IS NOT SOMETHING THAT IS DONE TO US…..IT REFLECTS OUR CHOICES

Ireland’s new Minister for European Affairs, Paschal Donohoe TD, gave an interesting speech last week.


He made the point that globalisation, of which many people complain, is not something “done to us, but is a consequence of the human desire to communicate, share, and exchange”.

He is right. 

He could have added that humans also want lots of variety, and choice in their lives, sometimes to an excessive degree, and that this drives globalisation forward as people go to the ends of the earth to find elusive “highs” in their lives.

He went on to say that the European Union gives us an opportunity to “positively mediate the consequences of globalisation”. He is right here too. A small country on its own, like Ireland, could have little impact on global trends, but the EU, as a block, can make a difference.

Globalisation has been facilitated by the internet, skype, containerisation, cheap air fares, and plentiful energy sources.

All these took investment to generate, and would not have happened, if people did not want them or were unwilling to pay for them. These technologies cannot be “uninvented” now. So Globalisation cannot be reversed. It is here to stay.

HOW SHOULD WE COPE WITH THE CONSEQUENCES OF GLOBALISATION?

But all this variety, all this communication, and all this exchange, does not necessarily make us happier. 

In fact, the more choices we have to make, the more discontented we can often become. This is especially so, if we feel we have to make these choices to keep up with neighbours or others with whom we feel we must compare ourselves.

Choices are hard to make. They require an effort. They involve saying No, as well as Yes. And the more choices you have, the more are the things you have to say No to. The more options you have, the more regrets you may have about the choice you could not make. The more choices we have the more we expect of life, and of ourselves.

“The Paradox of Choice”, by Barry Schwartz, had the sub title “How the culture of Abundance robs us of satisfaction”.


People are shopping more now, but enjoying it less.

Increased choice may actually contribute to the recent epidemic of clinical depression. 
Depression has tripled in the last two generations, despite all the treatments now available, that were not there 60 years ago. 

The culture of” more choice” undermines institutions, like churches. Because choice is the priority, people do not want to regard religious teachings as commandments, about which they have no choice, but as suggestions about which they themselves are the ultimate arbiters.

The over estimation of the value of choice may also have something to do with the increased divorce rate, because, as Schwartz puts it, “establishing and maintaining meaningful social relations requires a willingness to be bound and constrained by them.” But constraints are exactly what the ideology of choice rejects!

EUROPE NEEDS A RENEWED VALUE SYSTEM, IF IT IS TO MEDIATE GLOBALISATION

“Studies have estimated that losses have twice the psychological impact as equivalent gains” says Schwartz. In other words, people hate losing 100 euro, a lot more than they like winning 100 euro. This may explain why people in modern well off societies are so anxious, and why, in the face of recent economic losses, many are regressing to old dead end ideas, like nationalism, class warfare, and xenophobia.

Happiness is, at last being measured by economists, as well as the Gross Domestic Product

It seems that once a society’s per capita wealth crosses a threshold from poverty to adequate subsistence, further increases in national wealth have little effect on happiness. You may find as many happy people in Poland as in Japan, even though the average Japanese is much richer than the average Pole

This should make us stop and think.

Economic growth is a good thing, but it has physical limits, as we are discovering with climate change and pollution. Economic growth also has psychological limits, in the sense that some forms of growth increase anxiety by offering people a bewildering array of choices that they do not feel competent to make. Markets only work well if people are informed enough, and have the time and mental energy, to make wise choices.

Laws and government subsidies will never be enough. Societies need a strong value system, if they are to be happy. These values must put human respect, ahead of material things, and put human relations ahead of maximising choice.  The science of economics is only beginning to recognise this. 

If the European Union is to positively mediate the consequences of globalisation, it must ask itself whether the values of more choice, and more material abundance, imported from economics, are sufficient to build a good society. I believe they are not, but I do not have the sense that that a discussion of alternative and better European values is  yet taking place.

EXPLAINING EUROPE’S ECONOMY IN JEDDAH

I was in  Jeddah in Saudi Arabia this weekend  to speak at the  Jeddah Economic  Forum. The four day  Forum  has taken place every  year, for the past  ten  years.
Previously it has been addressed by then serving President Mary McAleese of Ireland, and  by then  former Presidents  Giscard d’Estaing of France, Bill Clinton, and George HW Bush of the United  States. John Major and Helmut Kohl have also addressed the Forum.
This year the former Prime Minister of Pakistan, Shaukat Aziz will speak.
Jeddah was founded as a fishing village in 500 B.C. It was incorporated into Saudi Arabia in 1924 after the end of the Ottoman Empire.
Today it is the commercial centre of Saudi Arabia and is  internationally oriented as it is the gateway, through which Muslims from all over the world  pass, on their way to Mecca on pilgrimage.
Jeddah is the headquarters of the Islamic Development Bank, and of the International Association of Islamic Banks.  It was an important place to visit in promoting Ireland as an international financial services centre. Ireland has passed legislation to facilitate the provision of Islamic  finance  from an Irish base.  Ireland also hopes to attract Saudi investment in renewable energy and other sectors.
There is a great deal of construction activity taking place in Jeddah.

GLOBALISATION   –   HOW SHOULD COUNTRIES COOPERATE?

I was asked to speak in a session on “Building Blocks-Models of Regional Cooperation”. The European Union is the most advanced model in the world of regional cooperation and there is a lot of interest in Asia in how it works.
There is a pervasive scepticism in the English language media about the prospects of success of the European Union.  Many of the same people, who predicted that the euro would never even be established in the first place, are now enthusiastically predicting its imminent demise.
But events are proving that EU institutions are able to adapt, albeit slowly, to new challenges.
I explained how the EU works and spoke of the recovery under way in Europe after the economic crisis. It has, of course, been a difficult process.  
Only in the last few weeks have adequate mechanisms been put in place to monitor overdue reforms, and to help remove underlying imbalances in the European economy. These things should have been done when the euro was originally launched in 1999.
During the down turn, Europe lost market share in export markets. Even Germany has had that experience.
If Europe is now to regain its dynamism, it will have to be able to reallocate resources, both human and material, more quickly from sectors where demand is in decline, to ones where it is on the increase.
Restrictive practices and unnecessary rules- in  entry to the professions, in the setting of wages, in education-inhibit the efficient reallocation of resources, and  thus prevent the creation of new jobs.  Getting rid of these restrictions is just as important as restoring the state finances.
 Reports by the European Commission to the heads of EU Governments are beginning to identify these bottlenecks. Passing laws to remove the bottlenecks will be a national responsibility, and vested interests will do their best to slow down progress, as we are seeing in Spain and Italy at the moment.
To meet the challenge of the rising, and more youthful, economies of Asia and Latin America, Europe will also have to put greater emphasis on efficient use of all its limited resources.  For example much energy is wasted in badly insulated buildings.  Only 40% of Europe’s waste is recycled. Huge amounts of food go to waste.  Arable Land is being wasted too. An area the size of Cyprus in concreted over for development in Europe every ten years.
 But the greatest waste of all, is the unemployment of young people.
There is something desperately  wrong with a  situation where, notwithstanding heavy investment in education and free movement of young people from country to country  within Europe,  youth unemployment is  19% in the UK, 22% in Belgium, 28% in Ireland  30% in Portugal,  and 48% in Spain.
 
THE EU IS NOT BECOMING A POLITCAL UNION,  A TRANSFER UNION,  OR A FISCAL UNION—       
IT IS SIMPLY BECOMING A DEEPER “UNION OF RULES”

Notwithstanding the major challenge to the euro posed by the sovereign debt crisis
  + the EU is not, as some suggest,  only able  to meet financial crisis if it first  becomes a political union.  Countries retain their own military forces and thus their own foreign policies.  Their national cultural policies remain unaffected
  +the EU is not about to become a transfer union either.  Countries in difficulty are being offered interest bearing loans, not subsidies. Once the  loans are paid back they will stand on their own  feet.
   +Nor is the EU becoming a fiscal union, because the vast majority of tax and spending decisions will  continue to  be taken at national level. The new EU rules will simply require that countries balance their books. It will for each to decide whether they want to do that at a high, or a low level ,of spending.
The EU is, however, under the recently agreed fiscal compact and other measures recently enacted,  becoming a much  deeper “Union of Rules”. This is a natural  follow on from the  development  of the EU in the past
 Originally , the EU set rules in regard to goods and services, so that these could be freely traded across borders.
 Then, as people moved from country to country, the EU came to set rules on mutual recognition of qualifications and rights to social security.
 With the establishment of the euro in 1999, the EU started to implement rules on debts and deficits.
 Now these rules, which were too weak and imprecise and which were  flouted by nearly every country, are being strengthened and made  automatic.
New norms are being set, on how budgets are presented, on levels of private debt, and on excessive trade surpluses as well as on excessive trade deficits. 
The aim is to ensure that the EU has a consistent economic policy, which will ensure that sort  of difficulties ,which came to a head in  2008, will never  again arise.
This is an evolutionary process. It involves trial and error.

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