§ 4.6 p.m.
§ Lord Peston
rose to move, That this House takes note of the Report of the Select Committee on Economic Affairs on Globalisation (First Report, HL Paper 5–1).
The noble Lord said: My Lords, I thank the Clerk to our committee, Christine Salmon, and our secretary Deborah Delacroix. 'Those noble Lords who are familiar with the membership of our committee will be aware of the saint-like character required by a Clerk or a secretary to such a committee. We are most indebted to them. I thank our economic advisers, Professor Venables of the London School of Economics and Professor Wickens of York University. Both are world-class figures in their own right. I also thank two more junior members of staff, Martin Stewart and Adrian Lewis, who were also immensely helpful to us.
As chairman I must thank the committee and say that all the good parts of the report were down to them and the errors I will accept myself.
Since we are discussing globalisation, it would also he remiss of me not to say a word about my right honourable friend Clare Short. She was an outstanding Secretary of State for International Development—probably the best we have ever had in this country. We found on our overseas visits that she did much to enhance the esteem in which our country is held by most countries in the world, especially in the area of globalisation. With no disrespect to my noble friend Lady Amos, whom we welcome very much to her unique position in the Cabinet, it would be wrong of me not to say that Clare Short will be much missed.
Turning to the report, I start with a boast. We are the first committee ever to publish its report and evidence on CD-ROM. Whatever else we have achieved, we are at a technical frontier here and I hope all of your Lordships' committees will follow that achievement. Where we failed is that we did not manage to get all our evidence regularly in good time on the web. I shall try hard in future to make sure that the evidence is more easily available.
I hope I do not have to remind noble Lords that your Lordships' committee always sticks to the highest standards of your Lordships' House. We are totally non-partisan in our approach to this matter. We never have votes. It is often said that that is another way of saying only one person has a vote—perhaps the chairman. Much more important than that, everything we do is evidence-based and I hope that noble Lords who have looked at the report will be impressed by the remarkable collection of witnesses that we had before us. We could have had many more and that shows the 1342 very high esteem in which your Lordships' House is held world-wide. These top international figures did not have to be persuaded to come to see us. They really wanted to come to see us and tell us about globalisation because they thought it was important.
I turn to our report and what lies behind it. The easiest way to give the background is to quote from three of our witnesses, who had very different views. Dr Noreena Hertz made the important point that,it is a matter of making globalisation work in a much better way for many more people.That is our view of how we ought to approach this matter.
Professor Stiglitz noted "a real sense of hostility towards globalisation". However, he said that in his view,it is not hostility towards globalisation. it is really hostility towards the way globalisation has been managed and to a particular set of economic doctrines that have accompanied globalisation on the part of some of the international economic institutions.That exactly encompasses the committee's view on this matter and I am sure it is entirely right.
Lastly, I cannot refrain from quoting George Monbiot of the Guardian. He said:I feel the protest against what has been called globalisation…has brought together an extraordinary array of concerns, some of which are mutually contradictory…it is a very broad and very wobbly coalition indeed".He referred to seeing vegetarians alongside meat farmers on the protest march. One of the interesting things about the issue is that it produces such strange bedfellows, which makes it even harder for your Lordships, with our dispassionate approach, to come to a rational conclusion.
Some noble Lords may think that some of what we say is controversial. First, we take the view that globalisation is a genuinely new phenomenon and is not simply free trade writ large. I do not believe for a moment that, in the late 18th and even the 19th century, the great protagonists of free trade—I speak as one—ever envisaged a world viewed globally. That is not to say that free trade is not important, but that is not quite the flavour of the thing. Secondly, the committee takes the view—I am convinced that it is right that, although openness to the global economy provides an opportunity for economic success, that success is not guaranteed. Our view is that there is no certain path to success and no simple economic formula such as "Do that and you will achieve economic growth and no inflation. You will reduce inequality and avoid social and political upheaval". There is no simple formula.
It is also our view that there is no single path to success. A public infrastructure is important, but so are free markets. Efficiency and uncorrupt administration are important in the public and private sectors. All of that is partly a causal factor, but it is also a consequence of economic success. The same point applies to the legal system. Someone who says, "All we need is legal reform, and everything will be fine" has neither examined the facts nor thought through them.
1343 It would be absurd to point a priori to a large number of conditions that must be met before economic advance is possible. The list approach would guarantee that nothing would happen in the world, as we could never meet all the points on the list. The committee takes the view that the correct approach to economic success is a step-by-step path of improvements, rather than just laying down vast numbers of pre-conditions.
The second part of our approach is that the most important thing is to help countries—especially poorer countries—to help themselves. There is a role for a country such as this, for the great international economic institutions and for the European Union. We and they can advise and warn, but we must not threaten. For example, aid is important—no one doubts that—but so is the free movement of capital. In terms of numbers, the free movement of capital is far more important. The second example is that the correct approach is not for us to take over such countries but to co-operate with them. I was interested to see the extent to which major companies saw cooperation as the way forward. I was particularly impressed by companies who said, "We must advance local management, so that it can eventually become the dominant force". It is vital that the countries with which they are concerned feel that they—not us—are in charge of their destiny.
This matter troubles me greatly. We must avoid adopting the contradictory position of, first, rejecting imports from poorer countries because they are produced by cheap labour, while, secondly, attacking our own countries for moving production over there because they have cheap labour. Thirdly, we are against that labour moving to countries such as ours where it could be more productive. We insist that all countries competing with us—the poor ones—have the highest standards of health, hygiene and safety, standards that we never met until after we had become successful. In other words, there is a whiff of hypocrisy about the way in which many people in the advanced world say, on the one hand, that they are devoted to the interests of such countries and that they have got to make themselves efficient, while, the moment that those countries make themselves efficient enough to threaten our production, we find ways of pointing out that it is unfair competition. As my noble friend Lord Barnett is aware, it is as if, every time Arsenal produce a better team, Manchester United say that they want their goal narrowed and the other goal made wider. I bring that in because it is fundamental to the matter. The important thing is that, a belief in globalisation, openness and free movement is a real belief; it is not a "Yes, but—".
I shall turn briefly to three other matters. First, there are the transnationals. I found it interesting—about myself, in a way, and about the committee—that we were open to the evidence. There is no doubt that many of us started with the view that the transnationals were central to the problem. I am not saying for one moment that the transnationals are perfect bodies and certainly not that they are altruistic bodies. However, the more we looked, 1344 the more we found that the notion that the world's ills particularly the ills—of the poor countries—could be laid at the door of the transnationals was simply wrong. Not surprisingly, there is a mixture. Also unsurprisingly, they do not always tell the truth entirely.
We were always taken aback to hear the overwhelming amount of evidence that there was a great deal of corruption in the world, even though we could not find a transnational that would admit that it ever engaged in corrupt activity. There was a slight contradiction there. However, I say to your Lordships, especially those who are concerned, as we all are, about the problems of Africa, particularly sub-Saharan Africa, that, although there is no doubt that we can do more to help, the notion that African countries that have the potential to be rich and have great resources—I shall not go through the list—are poor because of the appalling behaviour of the transnationals is not right.
We had the same openness with the world economic institutions. That surprised me, given my prejudices. We started off with a ranking list of all the world economic institutions. We took the position that they were all terrible and that the only question was, "Which is the worst?". On the whole, having met them and heard their evidence, we felt that they could do better, as we say in the report, but we also felt that they were trying to learn. In particular, having started off very anti-World Bank, we moved to a more positive position. My noble friends will confirm that. The International Monetary Fund stuck to the old-style religion for many years, saying, "This is the only way to economic success". Joe Stiglitz, in particular, published a book on that. The IMF is showing more and more intellectual flexibility i thinking about different paths to success. I am fairly optimistic about that.
I shall steal my concluding remarks from another distinguished economist, Paul Krugman. He is optimistic. in the sense that he drew to our attention the considerable number of countries that had become successful, despite starting from far back in the line. He said:A number of countries have made significant progress—enough so that at least we can say that that permanent division of the world into rich countries and the other quarter is not, in fact, the case".The emphasis is on the word "permanent". My final message to your Lordships is that he also said:All of the success stories are export-led growth. All of them are by getting into the global economy".Therefore, I end by saying that that is the message—that the global economy is there, that to achieve success one has to go in and use it. That does not guarantee success, but what will guarantee failure is autarchism and cutting out of the global economy. I beg to move.
Moved, That this House takes note of the Report of the Select Committee on Economic Affairs on Globalisation (First Report, HL Paper 5–I). (Lord Peston.)
§ 4.20 p.m.
§ Lord Howe of Aberavon
My Lords, it is a privilege to follow the noble Lord, Lord Peston, after his most effective presentation of the report of his committee.
I should like to begin by thanking the authorities for making this debate possible so soon after the completion of the committee's report, and to thank the noble Lord and all his colleagues on the committee for the quality of their work.
The House should rather modestly congratulate itself on the availability of the formidable team of people who composed the committee. When we look at their qualifications set out in the report, we see that we are privileged to have such an assembly of talent, and, as the noble Lord pointed out, to be able to attract to give evidence to such a body witnesses of the quality that appeared. The only comment I would make is that we ourselves have no doubt about the quality of the work that has been produced, but a prophet is not without honour save in his own country, and I should like to think that there are some ways in which the quality of this thinking could be more effectively publicised, to the advantage of the House and of those who might read it.
I commend first a very large number of well-balanced and important judgments on controversial issues which are too often misunderstood, beginning with the net benefits—I emphasise "net"—of globalisation as a concept. Of course, there are hazards and down sides, as in anything, but that is the important central message.
Secondly, there is the net beneficial role of the multinational corporations. They are, as one of the witnesses pointed out, in many cases the drivers of economic change, the dynamos—if properly viewed—that help us along. Alongside that, of course, as part of the picture there is the importance of corporate social responsibility.
I am glad that the Committee endorsed so clearly the legitimacy of the role of the International Bank for Reconstruction and Development (the World Bank) though it has had shortcomings historically. I am glad that the Committee rejects so decisively the unwisdom of the so-called Tobin tax, the capital transactions tax. It is very useful to have all the misunderstandings that have had a fashionable following objectively analysed and rejected in the way that the Committee does.
I am also glad that the Committee endorsed the importance of the International Monetary Fund, as clearly set out in paragraph 291, where it says thatwere it not to exist, it would have to be re-invented".I recollect that—astonishingly—20 years ago, the year when I was chairman of the Interim Committee, we had the task, which I am sure we did not perform fully, of handling the early examples of debt crisis, in Mexico, for example, with enhancement of the fund's resources by a 50 per cent expansion in special drawing rights. If the fund had not been there it would have had to be put there.
I want, like the noble Lord, to focus mainly on the unevenness with which the benefits of globalisation are shared around the world. That is one of the recurrent 1346 themes in the report. The most grave and wilful example is one that was also discussed in our exchanges on the Statement about the G8 summit meeting: the protectionism by developed countries, above all of their agricultural sectors, on both sides of the Atlantic and, just as mischievously and harmfully, in Japan and other places. It is rightly condemned, in the words of the Committee in paragraph 208, as "wholly objectionable arid unjustifiable".
One asks oneself why that is, and one answer is the inherent selfishness of democracies in protecting their own interests, because their politicians feel driven by the electorate to do that. But it is also because we have not yet got sufficiently in place respect for what should be the obligation of the international community, in many cases the legal obligation, to begin stripping away the protection that exists.
Time and again we have asserted the need to do that, and yet we have not yet fully grasped the importance and effectiveness of international law or international law in the making. Unlike common law, international law is a rather osmotic commodity, but it is important that it should be as effective as possible.
Therefore, it is important to consider the value of an aspect of globalisation that is not touched on in the report. I make no criticism of that. I refer to the globalisation of' law. It is interesting to witness the impact that that is having in many ways that we had not fully anticipated. Can we do anything to enhance or extend that process?
I often cite a non-economic example of the impact of the globalisation of law, starting with the Helsinki Final Act 1975. When I began to try to raise with that great figure Andrei Gromyko the importance of the Soviet Union's commitment to human rights in the Final Act, he told me the first time round that I was lowering the tone of the conversation, and our discussions thereafter continued along the same track. When I raised the matter with Mikhail Gorbachev on the second day of his visit here in 1984, and when a Select Committee of the Commons raised it with him the next day, instead of repudiating the Final Act in that way, he was prepared for the first time to begin addressing those arguments. Within four years his Foreign Minister, Eduard Shevardnadze, who has always earned my immense respect, not least for his courage still in his own state, Georgia, told a diplomatic conference in his own country:The image of a state is its attitude towards its own citizens, respect for their rights and freedoms and recognition of the sovereignty of the individual".That, from a Soviet Foreign Minister, within 13 years of the Helsinki Final Act, showed the impact of law in that field.
Can that be translated effectively into economic terms as well? To some extent we can answer that question if we ask ourselves: why is the flow of foreign direct investment so uneven? Where is it spreading most beneficially? Where is it not spreading at all?
The flow is manifest in the developed countries. We have confidence investing in each other. If we look at the countries of the former Soviet Union, or the central and 1347 eastern European bloc of the former Soviet empire, we see a very differentiated pattern. In Poland and the Czech Republic, where legal institutions are increasingly well fashioned, the flow is running well. Byelorussia and the hapless Ukraine, with 55 million people, are in a very sorry plight indeed; foreign direct investment flows scarcely at all, because the legal institutions that are necessary to give confidence do not exist.
In Russia itself, in a gradually improving twilight state—I speak as chairman of the Framlington Russian Investment Fund, which has struggled, not very successfully, to make money in that market—investment is taking place gradually and the flow is happening. But, my Lords, compare that with India or the People's Republic of China, where we see the impact of law—law coming into China, for example, from outside.
I had the privilege during the last decade of helping one of the leading American law firms establish offices in both India and the People's Republic. I remember vividly—and I have longed to say this in this House—going with my noble kinsman, which is what I think I should call her, and the noble Lord, Lord Brittan, on a visit to China in 1978. We were looking on that visit for any lawyers at all in the People's Republic. We found two or three struggling to re-create the law faculty in Beijing. We found one criminal court, which had never acquitted anyone, and that was only on the last day of our visit.
In the decade between 1985 and 1995 China trained 70,000 lawyers. The pace of training has doubled in the decade since then. The number of foreign law firms in Beijing in 1992 was 10. Four years later it was a hundred. And the pattern still grows.
Legal infestation is not normally regarded as a manifestation of prosperity, but the fact is that because there is growing confidence in the legal structures in the People's Republic more than 50 billion dollars of foreign direct investment is now going there each year. I am happy to say that the United Kingdom is the largest investor in China of the European Union countries. There are some 3,000 British-Chinese joint ventures in China. This partnership in the commercial field can also spill across into the field of human rights.
Let us look at the more difficult areas, such as Africa, for further applications of this message. We see in Zimbabwe, for example, the extent to which the process of institutionalisation can go tragically backwards. In Uganda, a country that I knew well when I served in the Army in East Africa, what seems like a hundred years ago, in the late 1940s, we saw what Amin and Obote could do to destroy working institutions. But if we look to the other side of the coin. we can see what President Museveni has since been able to do in beginning to restore legal institutions in that country.
The noble Lord was right to pay tribute to Clare Short, as a notable International Development Secretary. I cannot resist the temptation to pay a corresponding tribute to my noble friend Lady Chalker, who is not present in the Chamber today. She has played 1348 a formidable part in helping countries like Uganda in their efforts to get back on the path towards economic stability.
The magic that I relish from the Ugandan experience comes from a phrase that President Museveni used early on during his time there. He recognised, like the noble Lord, Lord Desai, in his evidence to the committee, that one of the problems of the developing countries is the extent to which they have been plugged in to the least stable part of the global economy—the commodity markets. President Museveni recognised the importance of trying to create within Uganda its own market economy. When he first came to a Commonwealth conference in, I believe, 1987, I remember him saying that Uganda had to become a "self-starting" economy, rather than a "towed" economy. If we bring our help to bear in the right way, that is the kind of change that can be helped by the world outside.
Finally, I have a wider message for the way in which we can help transmit these qualities to the developing countries. Indeed, how we can—if I dare use the phrase—help in "regime change". We cannot do so by way of shock therapy, whether administered in an ill-judged fashion by the International Monetary Fund, as has sometimes happened. For example, the impact of IMF treatment on Indonesia, unduly driven also by political ambition, may have made it much harder for that country to go through the process of transition. My great anxiety is that the impact on Iraq will be carried too far. I have in mind the removal of everyone of any competence from the administrative structure, thus literally having "created a wilderness and called it peace". I fear that replacing the necessary resources that we have removed from the country will prove to be a formidable task.
As the noble Lord, Lord Peston, said, we must apply ourselves to these issues carefully and step-by-step through advice, not threats. At present the western world is increasingly divided in the prescription that it offers as to the best way to handle such problems. There is a gulf between the present American view and the European view, within which I include that of the United Kingdom. Robert Kagan rather dramatically discussed the "Martian" quality of the Americans and the Venetian quality of the Europeans. Venus is actually a bit wet for us. I asked the staff in the Library of the House to try to find a different parallel to set against Mars. I wondered whether there was some attractive goddess who can symbolise justice rather than love. I searched for justice. Apparently, the Greek Gods of justice were either the Furies or Nemesis. That is a bit rough for me. However, I hope that the House will understand what I mean.
I believe that we all wish to see a change taking place by extending the effectiveness of a rule-based system, instead of a rather more raw exercise of military and political power—even though it may have good objectives. In an article in the Financial Times on 21st May, Martin Wolf put it quite succinctly when he said:The United States wants to transform the world, Europeans want to manage it".1349 It is no good being divided by such ideological arguments. We must bring ourselves together and, if we can, restore the real strength of G7 summits.
God help me, I attended 11 global summits. During that time I saw a gradual deterioration taking place because of the almost inescapable tensions between the charm of empty photo opportunities and the hard reality of getting international leaders to lash each other to the mast of economic virtue—and doing so in a way that would compel them to fulfil their obligations. There is one example with which I should like to close my remarks. I have in mind the most objectionable and unjustifiable maintenance of agricultural protectionism in the leading economic countries of the West. Until we introduce into the conclusions of these international economic bodies a self-enforcing, collective economic discipline, and one that gives us the courage to begin to dismantle such obstacles, we shall not be achieving as much as we could to help the poorest people in the world economy.
§ 4.34 p.m.
§ The Lord Bishop of Chester
My Lords, I, too, congratulate the Select Committee on producing this stimulating report. For a Member of these Benches to speak on economic affairs, not least sandwiched, as I am, between the noble and learned Lord, Lord Howe, and the noble Lord, Lord Barnett, might seem foolish. However, it has not always prevented my predecessors from attempting to do so. I hope that I shall not lower the tone of the debate in the way alluded to earlier in relation to Mr Gromyko.
I begin by asking whether globalisation is such a predominantly economic phenomenon as the report assumes, although that is understandable as it is a report from an Economic Affairs Committee. With some reservations, I am inclined to agree that the current phenomenon of globalisation is both quantitatively and qualitatively different from what has gone before. My reservation is that it is probably the quantitative scale of the phenomenon of globalisation that also generates the sense of qualitative change.
History tends to speed up, and it can also take us by surprise. I remember being in the United States in 1979 when there was a widespread sense that the period of American dominance, wealth and prosperity was actually drawing to a close. People could only buy petrol in the country on every other day, depending upon their car number plates. The subsequent 24 years have seen a great advance in American economic power and prosperity, both absolutely and relatively, as compared to that of most of its major competitors. With this development has come the great spread of western influence, if I may put it that way, around the world.
I turn to what I believe to be the roots of globalisation. One of the great shaping forces of the modern world probably the greatest is modern science. We sometimes forget that modern science is a comparatively recent arrival in our midst, dating from the 16th and 17th centuries. The report before us seems 1350 to support the view that the essential catalyst and fuel of globalisation was the invention of the microchip. We are living through a new industrial revolution which is more potent than those based on the invention of either steam power or the internal combustion engine. I am told that there are more scientists practising their craft today than the sum total of all scientists who ever worked previously, such is the power and reach of modern science.
We are still only in the early stages of the computer-based revolution. It has unleashed enormous power—economic, military and cultural—which is different, but, in its own way, comparable to the discovery of nuclear power. Were the equivalent of the Iraqi war to be fought in 20 years' time, we can imagine B52 and Stealth bombers no longer needing pilots, which is rather a frightening prospect. That military power, based upon new technologies, has all manner of economic cousins on which the report naturally concentrates.
So what must we do to be saved? Can we exert any real control over the huge forces that have been unleashed in the evolution of the modern world? The answer to that question may actually be no. Modern man has always tended to over-estimate his ability to control what will happen in the future. However, we can—and must—endeavour to shape the future as best we can. That is our responsibility. Perhaps I may briefly refer to two ways in which this might be attempted and addressed.
The first way would be to recognise, amid the distinctive features of the contemporary world situation, that the process of globalisation probably began around the year 1500. That is when the -death of distance"—to use an expression from the report—really got underway. In that sense, we could see Bill Gates as a sort of modern Captain Cook. In the ancient world, sophisticated civilisations could develop and yet have very little intercourse with each other. Of course, great oceans played their part. But let us take, for example, ancient China and the great Roman civilisations 2,000 years ago, both of which had very little mutual impact over a period of 400 or 500 years.
Even in medieval times, there was just a trickle of trade and a few travellers between China and what became known as Europe. All that has completely changed. We now live increasingly with what the historian John Roberts, in his splendid BBC series 20 years ago, called "The Triumph of the West". Western civilisation is increasingly pervasive globally to the extent that it is becoming difficult to speak of the West as a meaningful concept. On concluding his series and the accompanying book, Dr Roberts said:'The West' is hardly now a meaningful term. except to historians".That was 20 years ago. If it was true then, it is even more true today.
If we are to understand what is happening today in the phenomenon of globalisation, we have to be prepared to dig more deeply into the past; into the cultural roots of Europe and the United States. That 1351 will include the idea of the autonomous individual, able to escape from fate and external forces of enslavement, allied to the great belief in the possibility of progress.
It is good that the scriptures have been quoted. I shall leave your Lordships with a picture from St Luke Chapter 4, where Jesus of Nazareth went to the synagogue in his home town, took the scroll of Isiah, with its reference to liberating the oppressed, and proclaimed, "Today this word has come true in your hearing". In so doing, he burst through the bounds ancient Greek rationalism had placed on human expectations and hopes and led the world on a course where the striving for perfection and progress would characterise any civilisation based on Christian belief.
That took a long time to take root, develop and get going, but we are living in the latter stages where the momentum is extremely great. I believe it is becoming clearer that it is only as we understand the religious foundation of western culture that we shall fully appreciate its contemporary secular and economic dimensions as they envelop the world for good and for ill. The triumph of the West, as Dr Roberts made clear in his series, is a deeply ambiguous triumph; hence the subject matter of our report.
I shall conclude by trying to appreciate why western culture has been such an ambiguous influence, both liberating—I would not wish to underestimate that in any way—but also destabilising as it has spread around the globe. Western culture has called into question traditional beliefs in the societies it has touched; it has undermined the stable expectations with which many have lived and died. Rising expectations and even the process of beginning to meet them have compensated only partially for the cultural destabilisation which we now routinely export around the globe. Therein lies the root explanation of modern terrorism, still so poorly understood among us.
The destabilising effect of the core beliefs of western culture, whether one chooses to regard them as myths or truths, has been exacerbated by the fact that freedom tends to breed inequality. The report recognises that but suggests that growth in economic equality is more within countries than between countries, although that assessment is too dependent on the fact that China and India are among the countries that are successfully coming to terms with economic globalisation. Many smaller countries are in increasing danger of being left behind.
The growth of inequality—the tendency for some countries and individuals within the countries to grow ever richer as other countries and individuals grow poorer—is a major cause of instability in the modern world. We heard that point at Question Time on Monday and in the earlier exchange between the Leader of the House and the noble Baroness, Lady Williams. Perhaps one cannot buck the market, as someone once said, but one can certainly influence it. The striking revelation in the report that the total subsidies for agriculture in rich countries amount to no less than 350 billion dollars per year—seven times the total amount of overseas aid—influences the market.
1352 Unless we can find means of expanding international aid in all its forms, not even first and foremost in terms of money, although that must form a great part, and in creative ways and far beyond its present level and vision, the twenty-first century will present our global village with great and increasing instabilities. That is the challenge. It was hinted at in the Prime Minister's earlier Statement: the putting of flesh on those aspirations, hopes and commitments lies at the heart of a successful response to the phenomenon of globalisation.
§ 4.45 p.m.
§ Lord Barnett
My Lords, I congratulate the noble and learned Lord, Lord Howe, and thank him for his congratulations on the membership of our Select Committee. I have always recognised—as far as the other members are concerned—that we have an excellent committee. I congratulate my noble friend Lord Peston both on his introduction to the debate and on his chairmanship of the committee. I do so even though at times he digresses into matters that do not include what we are discussing; namely football, but I shall not talk about Arsenal and United. He said so much about the report, which spells out clearly the reasons for its conclusions. I will emphasise only one or two points.
First, one often hears a rather silly question: are you for or against globalisation? It is a silly question because globalisation exists. We heard a quote from paragraph 55 of the committee's report, where we referred to globalisation as being a new departure. The "death of distance" is to some extent the reason for that new departure. At paragraph 57 we said that it is true that the same has happened before, but it is quantitatively and qualitatively different. That is what is different about globalisation today.
On this, as indeed on every paragraph of the report, we are told that the Government agree. I shall comment on that point in a moment. They agree on every paragraph, but what they do beyond that is more important. When we started on the report, I and, I believe, many members of the committee, did not expect international development issues to be as central to the report as it turned out. In paragraph 64 we stated that we were appalled by the shameful level of poverty that we learnt about from our witnesses.
Again, the Government agree about the shameful level of poverty. I suppose that all governments have done so over many years. No doubt I have done so and so has the noble and learned Lord, Lord Howe. But what then? What are governments in the developed world doing about the shameful level of poverty? That is at the heart of our discussion. The attitude of the West is shameful. In the Prime Minister's Statement we had more excellent, wonderful words about what the G8 summit wants to see achieved. But what specifically will be done about the shameful level of poverty?
In fairness to the west and the developed world, it needs to be said, as we said in our report, that civil wars, corruption and incompetent governments have played a 1353 crucial part in why so many people in the developing world are still living in shameful poverty. China and India—I believe my noble friend Lord Peston said—have shown what can be achieved if governments seek to take advantage of what is available to them through both globalisation and the work of the developed world and the TNCs to which my noble friend referred.
But sub-Saharan countries in particular have shown what should not be clone. To a large extent in those countries it is their own fault that they are in this position. Zimbabwe and Nigeria, for example, should be very wealthy countries. The reason that they are now experiencing shameful levels of poverty is not primarily to do with western developed countries. One has to concede that. There are many other parts of sub-Saharan Africa and other areas of the world where that applies.
Members of the Economic Affairs Select Committee were discussing primarily economics and perhaps we had not appreciated—or at least, I had not—that the economics of severe poverty around the world were so crucial to the developed as well as to the developing world. In paragraph 86 we refer to the "failure" on the part of some of the developing world "to integrate", and again in paragraph 6 of their response, we are told that the Government agree. They state that,greater integration (especially trade) is a very important factor for growth".Of course it is; we all know that. But what is the western world doing about it? The plain fact is that the nations of the western world are not doing anything substantial. Indeed, in many cases they are doing the reverse.
We have heard already about what happens in the case of food aid and the unwillingness of western countries—not only the UK; this involves the whole of the European Union and the United States—to do anything. On the one hand, the nations of the western world talk glibly about help and the integration of trade and so forth, while, on the other hand, they refuse to do anything seriously to make changes to the system that would really help the developing world.
As we set out in the report, one is bound to say that there are shameful levels of poverty. Speaking in economic terms, the investment climate is also very relevant. Paragraph 94 refers to the issue of levels of investment. We are told that the Government agree. They welcome our work and say that they are working towards helping in this regard.
As I have said, it is not entirely the Government's fault that people in countries around the world are still living in shameful poverty. But what is the solution as regards foreign direct investment? In agreeing with paragraph 150 of the report, what is the Government's solution there? We are bound to recognise that the Government alone cannot solve it. The real solution is to put more effort into influencing actual action taken within the European Union and the United States. It is not simply a matter of words of agreement.
The plain fact is that, as a percentage of GDP in the West, no nation is yet anywhere near the target of 0.7 per cent in aid currently being talked about. Given 1354 that our own GDP today in current account terms is probably around £1,100 billion—across the western world GDP amounts to a huge sum—the amount we are providing in aid is abysmally low. I ask myself why that should be the case. The governments of the western world contain decent people who want to help. Over successive governments of all political persuasions there has been the desire to help. So why do they not do so?
I am afraid that I have come to the appalling conclusion that it is democracy which is the problem. The fact that presidents and prime ministers want to be re-elected means that they are not willing to spend more in this regard It has happened to all governments of all political persuasions, not just to the present Government. It is democracy that is creating the problem. I do not suggest for a moment that we should abolish democracy in the West, but it is time that those of us who want to see something done recognise that it is not enough just to talk about it. We have to see governments act and it is up to Members on the Back Benches to try to persuade governments and, indeed, opposition parties, that they must join together in a policy that will truly help, rather than just talk about helping the developing world.
§ 4.55 p.m.
§ Baroness O'Cathain
My Lords, like previous speakers, I should like to thank our chairman very much—even though, as a non-football follower, I found myself totally out of my depth at least once per session. I thank also our specialist adviser, our Clerk and the staff in the Committee Office, and last but by no means least, I thank our wonderful array of witnesses. All those people combined to make this the most fascinating work that I have ever undertaken in your Lordships' House over the past 12 years. It was a stimulating experience. I believe that the report is a good one and adds to the knowledge of the subject.
At the beginning of our work, our inimitable and rather intimidating chairman stated that there would be three rules governing our behaviour: first, we were to be apolitical; secondly, we must produce a unanimous report; and thirdly, we were to steer far away from Third World issues of poverty and other deprivations. It would be hard to believe that when reading our report.
Obviously we stuck to the first two, but within weeks the realisation dawned that there was no way that we could or even should avoid giving the deepest consideration to the impact of globalisation on the people and not just the economies of the deprived areas of the world. The noble Lord, Lord Barnett, has already referred to the "shameful level of poverty", something which became very evident to us all. I suggest that it was a steep learning curve for all members of the committee. Of course, those self-same issues have been even more in the spotlight since we began our work, as we have lived, and are now living, through a period of huge instability in all the areas that we looked at.
1355 We tried to arrive at a clear and succinct definition of globalisation. We all know what it embraces, but it is such a complex area that the emphasis put on certain aspects can actually confuse the understanding of all the implications of the term. I think that the phrase used in the Government response to the report—an increasingly integrated global economy"—is one of the better definitions.
Dealing with the government response, I am somewhat disappointed by the rather anodyne reactions to the points made in our report. I support what the noble Lord, Lord Barnett, said on this. It is good to see such a large measure of agreement with our conclusions, but the solutions advanced by the Government to some of the very serious issues are lacking in teeth and rely too much on the pious hopes of the ability of international organisations to change things. Perhaps I am a pessimist, but our recent history of reaching agreement with international organisations does not fill me with hope in this direction.
Before I comment on these points in more detail, perhaps I may in an aside make a plea for greater clarity in such responses, and better use of our wonderful language? Are split infinitives becoming as common as the use of the phrase "road map" in Treasury-speak? Please let us avoid the temptation to make "road map" the next "level playing field".
Speaking in this debate, I feel that, as the weight of sad evidence about poverty in so much of the world is likely to cloud the beneficial effects of the increasingly integrated global economy, I ought to dwell on how we thought, and the Government think, we can or could affect future discussion, debate and legislation with the aim of improving the lot of so many millions—actually billions—of the world's people.
Governments of the richer countries, international organisations such as the International Monetary Fund, the World Bank and the World Trade Organisation, along with the trans-national corporations—the TNCs—all have a responsibility. Whether that responsibility can be translated into action which will achieve the desired effect is a different matter.
There is universal agreement that better governance is required if countries are to benefit from globalisation. In their response, the Government seem to draw comfort from the fact that the codes and standards framework overseen by the IMF and the World Bank are good. They are fine in theory, but what about the practice? In addition, how can we enforce those codes and standards? By their very nature, codes are voluntary and any attempt by the developed nations to influence these countries could be seen as unacceptable interference. Linking aid to the operation of codes and standards would be a difficult task. How would it be policed?
The Government state that:On corporate governance, the government will work to pursue convergence towards a globally agreed single set of accounting standards that are capable of consistent application, interpretation and enforcement".1356 I am tempted to say, "Physician, heal thyself'. There has not been much success in achieving that in our own backyard. This is really my major concern about the response. The measures have been put in place, the suggestions have been made, but will they improve the lot of workers in developing countries or truly improve education levels?
Since we completed our report, I have been mulling over whether we gave the right emphasis when considering help in the drive for education in poorer countries. I may be quite wrong, but do we concentrate to a large enough extent on technical education or apprenticeship projects when giving aid? Naturally we hope that the basic skills of the three Rs plus IT skills should be emphasised, but the need for skilled workers is so great I believe that even greater emphasis should be placed on technical training.
I can see a possible objection to this emphasis because the discussion on education is dealt with in our report under the heading of "Child Labour". I suppose the connection could be made with the learning of new technical skills over a short period and then the transfer of these children back into the "child labour" market. However, as Dr Superchai Panitchpakdi, the new Director General of the World Trade Organisation, said when he came to see us, the most effective means against child labour, which is one of the key labour rights violations, is to extend compulsory education. The most important word there I see as being "compulsory". Perhaps we should try and get more compulsory technical education over a longer period for people in these countries.
The Government's response to this states,since May 1997 the Government has committed £700m to support education for poor people".Fine, but where? Incidentally, as an aside, the implication of that statement is that the previous Government did not commit any money to support education for poor people. I just do not believe that, but the Treasury response referred to it not once (Conclusion 10), not twice (Conclusion 14), but three times (Conclusion 15). It is such a pity that the Treasury is unable to be bipartisan, like the Select Committee. This is not, nor should it be, a political issue.
About 30 years ago, or maybe a little less than that, the righteous indignation of the critics of capitalism was directed fairly and squarely at the MNCs (the multinational corporations) as they were then called. There were many cases of abuse of power, and certain companies had a really wretched record of slave labour tactics, or almost, particularly in areas such as South Africa.
Since then the MNCs have become TNCs, and there is no doubt that corporate responsibility has become much more important. It is a development which has most often been initiated by the companies themselves in the recognition that the dignity of labour must be regarded and recognised.
What has been most encouraging about the work of the Select Committee is how far the cause of fairness and justice in the labour force has been improved. That 1357 is not to say there is not a huge amount still to do, but the TNCs have been very instrumental in the raising of living standards in many parts of the world.
More than that, there is now a genuine recognition of the fact that investing in developing countries has to be sustainable on every level and the development of local management, as the noble Lord, Lord Peston, noted, the involvement in training, the provision of good working environments and the commitment to long-term investment in the country are the norm—not the exception.
Although some witnesses expressed real concern about the economic power and influence of the TNCs in democracies, I feel that the contrary evidence was so strong that the fear should be focused on the operation of the democracies themselves rather than the operation of the TNCs. It was pointed out that any country had the sanction to expel a company. I cannot think of any company that could possibly have the power to expel a government.
George Soros subscribed to the view that "footloose capital" could be an issue as the companies could move their investment elsewhere. As an acknowledged expert of experience in the power of moving capital, his statement should be carefully considered. The other side of the argument was just, if not more, compelling, as stated by the noble Lord, Lord Browne of Madingley, the group chief executive of BP, when he said,you do not go into business and go into a country for a year. it is just not possible, it is very long term".This view was echoed by the chairman of Unilever and the then chairman of GlaxoSmithKline.
Our Conclusion 18 and paragraphs 158 to 162 deal with this issue and certainly give me a sense of comfort and pride in the fact that our companies have come such a long way, even if it is not universally acknowledged.
In this debate there is nothing like enough time to deal with all the fascinating aspects of globalisation. I believe the report deserves to be read widely and, as my noble friend Lord Howe of Aberavon recommends, to have greater recognition outside this House. It is thoughtful, authoritative and a most interesting read. It gives many pointers to what could and should be done to minimise the apparent and real drawbacks of globalisation but also to what could and should be done to maximise the genuine opportunities that globalisation offers. It should not be ignored, because there is one absolute fact—globalisation is here to stay.
§ 5.5 p.m.
§ Lord Skidelsky
My Lords, I was determined to take part in this debate as it is a subject that really interests me, despite the fact that I cannot delay a suddenly sprung commitment. So I apologise in advance to the noble Lord, Lord Peston, and his colleagues, and to the whole House if I slip away a little early.
The report follows the standard characterisation of globalisation as a growing integration of the world economy, chiefly through trade and capital. This means that political borders will be increasingly less 1358 important in deciding the allocation of goods, services and perhaps labour in what one witness called one giant global economy, although cultural and natural frontiers will always be important.
The logical end of this line is a world government providing the public goods for a world economy which national governments now do for national economies. We are not, of course, there yet, and many fervently hope we will never get there. What is happening is quite different. As time goes on, it becomes increasingly clear that what is shaping globalisation is politics. as it has been from the start. Here is the root of my first hesitation about the argument of the report. It takes the view that technological changes and trade liberalisation are driving the whole process. But trade liberalisation has come about as a result of political decisions—much more importantly, decisions to liberate capital movements were in all cases political decisions taken by national governments. Technological determinists will need to explain the irony noticed by Paul Volcker in his evidence that financial markets really only opened up dramatically in the 1990s following the break-up of the Soviet Union.
Today, it is even clearer that globalisation is being shaped by politics—above all, by the ambitions and vulnerabilities of one hyperpower, the United States. In every area, globalisation takes the form the United States wants it to.
Since the fall of communism, the American ideology of extending free markets has been driving the process. Since 9/11, however, this has to some extent been overshadowed by the war on terrorism, which points in a different direction to what might be called the Osama bin Laden factor, linking security issues, drug trafficking and money laundering in an atrocious mix. This points away from free markets towards more control over trade, the movement of goods, capital and labour.
Where do we go from here? US policy might go in one of two directions. We may see a much more explicit commitment to a pax Americana—explicit in the sense that military force is used more actively to keep the peace and ensure political arrangements supportive of American interests. We may see, for example, some elements of a territorial empire, particularly in the Middle East. If this happens, if a pax Americana is established, perhaps globalisation can proceed under American protection just as it did in the 19th century under the aegis of the pax Britannica. It may even proceed with a large measure of international agreement. On the other hand, there may be a much less benign American nationalism in which the United States uses its immense power to pursue its own interests at the expense of multilateral agreements, if necessary tearing up any already negotiated. There are some signs of that.
Two problems have scarcely begun to he tackled. One is the problem of rogue states and what we do about them, as their existence makes all of us less secure. The other problem, to which noble Lords have alluded, is that of so-called failed states, most of which are located in sub-Saharan Africa. They cannot 1359 provide even a minimum standard of civilised government; we have examples of that in Zimbabwe and, much more tragically, in the Congo. There are worrying reports of a growing exodus of skilled whites and blacks from South Africa.
There is good sense in the report about the problem of poverty and the role that good domestic governance can play in taking advantage of the opportunities that globalisation opens up. However, such language really fails to do justice to the extent of the collapse of any acceptable form of government in the poorest parts of Africa. We cannot in the end avoid asking a primal question: do we prefer self-government or good government? If there is a choice, which answer do we give, and what consequences flow from giving different answers? In short, one criticism of this admirable report is that it leaves out politics. I wish that it had an international relations dimension, as that would have strengthened it.
More briefly, I turn to a second omission. There is nothing in the report about exchange rates, even though capital movements are discussed. There is of course a relation between capital movement volatility and the exchange rate regime. The logical end of globalisation is the end of national currencies. It is surely a paradox that virtually all economists of Anglo-American provenance are united in lauding the virtues of national monetary autonomy, which is generally interpreted to mean "floating exchange rates", as they also oppose any limitations to free capital movements. That is the line that the report takes, as I interpret it.
I should have thought that it was worth some sacrifice of national autonomy, whose benefits are in any case greatly exaggerated—much good it has done Japan, for example—to keep at least G3 exchange rates as stable as possible. Not only is that more in the spirit of the multilateralism that informs other sections of the report, but it would be of great benefit to the emerging market economies themselves.
Globalisation based on floating exchange rates seems to me a contradiction in terms. In the past year, the euro has appreciated 25 per cent against the dollar. A trader might have lost 25 per cent of his expected revenues, having lost a similar amount when the currency movement was in the opposite direction over the previous year. We are airily told that we can always hedge, but we are told less often that it can be very costly to hedge, especially for a small company.
The report does not deal with exchange rates because they are at present off the agenda: no one is discussing them. That well illustrates the dilemma of that type of inquiry. If it is to be taken seriously, it must not be too stimulating or it will be ignored. To that argument, Keynes gave a classic reply. He said that the realistic mind was an awful thing and that to work out an inspired solution to the problems that face the world requires a person with a crazy mind. In welcoming the report and paying tribute to those who produced it, I would have welcomed a little less realism and a little more craziness.
§ 5.13 p.m.
§ Lord Paul
My Lords, let me first thank my colleagues in the Select Committee for the earnestness with which they set upon what I can assure noble Lords was quite an immense and challenging task. I would particularly like to congratulate our chairman, my noble friend Lord Peston, who has done a marvellous job in chairing our committee and gave an excellent introduction to the debate.
I am grateful to have a chance to discuss two of the recommendations in the report, which I believe are important to move further toward globalisation. I was born and raised in a developing country—India—and I know that people in developing countries are determined to improve their well-being and are happy with the globalisation process. As all noble Lords know, great and sustained economic progress has produced spectacular engines of wealth creation for several decades. Now, for the first time ever, we live in a truly international market and a global economy. There are virtually no barriers to the free flow of ideas and capital across national borders. Most goods that are in demand also find their way into markets that want them. That is a major change from just a few decades ago.
None-the-less, some nations that hitherto have been champions of the free trade movement try sometimes to reverse the process in certain areas when the heat is on, which has given a confusing message to the developing countries. Economic insecurity has increased and large numbers of people feel left behind. The achievements of globalisation have been outstanding but, unless we correct their focus and moderate their distortions, our successes will recoil on themselves and become endangered.
International economies are consolidating into powerful formal or informal trading blocs such as those in Western Europe, North America or the East Pacific. Countries and economies that find themselves on the periphery of those blocs now have to become exceptionally competitive if they are to be successful in this new world. For them, there is no other option. They have learned that the question is not whether or not to join the globalised world, but how to join it and benefit from it.
The United Kingdom, of course, has been a leader in the globalisation process for centuries. We must realise that, even today, we can help to steer globalisation in the direction of our choosing. Unless we steer it so as to improve the lives of people across the whole world. we will find that it does not benefit us nearly as much as it could.
There are two aspects of this report in particular where I believe Britain should take the moral and political lead. The first aspect is the current regime of agricultural and textile protectionism in much of the western world. Such protectionism runs contrary to the spirit of free enterprise and free markets. More tangibly, it constricts the abilities of farmers and workers in much of the world to make a sustainable living. That is not because farmers in developing countries are working in inefficient sectors. It is 1361 because wealthy countries are giving huge subsidies to their own farmers to keep inefficiencies going. That denies their own people the choice of better and cheaper products from other sources. If these subsidies are removed, it will be much fairer to everyone and will stop the need to give aid to some of these countries.
Take a country like India, which was suffering famine conditions in the 1940s, and now has a surplus of food. If the developed world stopped propping up inefficient primary sectors, developing countries would be able to trade more of their products. That would give them more pounds, euros and dollars to buy the sorts of goods that we in the western world have to offer. British intellectuals and policymakers have been showing for generations that open markets benefit both trading partners. The Prime Minister has also repeatedly declared his commitment to challenging EU agricultural policies. Let us in this House now help to lead the way in calling for the reduction of artificial agricultural subsidies.
I request that the Government take up this issue more vigorously at the next WTO Conference in Mexico in September. Of course I am delighted that the G8 leaders in Evian have decided to attend to this issue. I hope that they will do something about it.
The second aspect of globalisation that I believe we should actively work to change is the effect of the international movement of educated and skilled people on the economies of poorer nations. The phenomenon of brain drain—where bright people receive their education in their native land, often under state sponsorship, but then move away to pursue higher-paying jobs in wealthier countries—is a difficult problem to tackle. On the one hand, it is unjust to prevent individuals from living where they want to live and working where they want to work. On top of considerations of individual justice, there are tremendous economic advantages to labour mobility. On the other hand, it is unfair that a poorer nation should finance the education of those who will then move away and not generate wealth for that nation.
I therefore applaud the report's recommendations for solving the brain drain problem. Compensating a country for its human capital losses by providing aid to finance education and training seems to be a good temporary solution to what might otherwise appear to be an intractable problem. Given that the United Nations considers education to be one of the most fundamental measurements of development, our foreign assistance could hardly be put to better use. When our Prime Minister said that his biggest priority was education, education, education, I am sure that he meant that for the whole world. So let us show some action.
Globalisation creates more opportunities than dangers. We should be emboldened by the opportunities that it has given to so many countries in the world, especially our own. However, let us remember that we can control the path of globalisation. We should guide the process along the most fair and inclusive trajectory that we can.
§ 5.22 p.m.
§ The Earl of Sandwich
My Lords, it is a pleasure to follow the powerful speech of the noble Lord, Lord Paul. I warmly thank the noble Lord, Lord Peston, and others for this excellent report from such a wide range of opinion. I have seen many reports on globalisation, and I truly hope that this is the last of them. However, I have not found any as succinct and useful as this one will prove to be.
One important sentence which has already been mentioned, on page 20, drew me to this debate. It is that,there remains…a shameful level of poverty in the world".The committee goes on to say:We are appalled at the sheer waste of human potential that such poverty implies".I can testify to that as a trustee of Christian Aid and a member of the World Development Movement. However, the evidence is unclear as to whether poverty is generally decreasing, as we would all like to believe, because evidently the opposite is true in many countries which are unlikely to reach the 2015 development targets, even the education targets.
The committee accepts that the gap has widened between what the World Bank calls the "new globalisers" and the "weak globalisers". Among the former are the Asian tigers and China, which has paid for it with greater inequality. Within the latter group, African countries have been marginalised. I am sorry that the committee did not spend more time on the problems of the very poorest countries—perhaps because those countries by their nature are not natural allies of globalisation. I am not sure whether McDonalds has yet arrived in Ouagadougou, but I am certain that the beef will not come from there. Listening to some economists, I have a strong sense of a law of diminishing returns whereby trade is only for the advantaged to profit from while aid is a handout to the rest.
In my experience of world development there is no such simple divide; there is more of a tapestry of opportunity in which even the poorest can sometimes develop considerable income on a small scale from sensible economic policies. Research from micro-credit enterprises finds that the poorest in India, for example, are more efficient borrowers and are the first to repay their loans. In my view, those are the entrepreneurs who should be at the cutting edge of the drive against poverty, given the right kind of institutional support. That is where governance is, of course, the key factor. As one would expect, there is much in the report about the building of capacity—a DfID line of thinking which only just falls short of, "We can do it for them". However, it is the system which is wrong. It is the sheer inequality between rich and poor negotiators which strikes me rather than the inherent lack of capacity or ability.
So keen are we, the developed world, to exploit the developing countries that we send vast delegations to the WTO and the IFIs. One NGO at Doha counted more than 500 in the EU delegation compared with small island states with only two each. Haiti, one of the 1363 poorest nations, as has been mentioned alongside others, had no delegate at all. The cost of providing proper capacity, let alone legal representation in disputes, further demonstrates that inequality.
The committee accepts that the WTO is,dominated by a small number of rich countries",and that that domination is excessive, especially in the case of the WTO. However, it does not come up with a solution. It appears to endorse the World Bank view that without the WTO, matters would be much worse—as the noble and learned Lord, Lord Howe, said of the IMF. The Government are, however, urged to consider how to improve the balance of power and make their decisions more transparent. So far, their response has been weak in the extreme.
The committee, to its credit, goes on to berate developed countries for "objectionable and unjustifiable" protectionism. Those are strong words and will perhaps force EU ministers to reflect a little more, as the noble Lord, Lord Paul, reminded us, on the progressive damage done by the CAP, by last year's US Farm Act and the backdating of the textiles agreement—one of the so-called "implementation issues" which have caused a lot of frustration. We have had several recent debates, notably on NePAD and the CAP, which comes up again next week. However, apart from small advances on the decoupling of our larger farm subsidies, which seems to be going ahead, the only new EU initiative seems to be the new one on GATS. That is obviously to be welcomed, but only if it is not used to condone the privatisation of essential public services.
The noble Lord, Lord Barnett, mentioned the need for substantial action. It is difficult to see, with so little coming out of the G8, how the poorest countries can look forward to Cancun with any enthusiasm. For example, what has happened to the concept of special and differential treatment—the means by which countries with special problems could be given more attention—which was part of the real breakthrough at Doha? The Government have mentioned it in their response. Perhaps it will be mentioned at Cancun. Will we see the end of it?
In that context, President Chirac has surely stolen the Government's African clothes, as we heard in the debate between the noble and learned Lord the Leader of the House and the noble Baroness, Lady Williams. However, why did not the Government give more visible support at the G8 to the French proposal for a moratorium on all subsidies related to agricultural exports to Africa? It has been ignored by almost all but the financial press. That, I understand, was coupled with an investigation into the effects of deregulation on price stabilisation for primary commodities and products. France is also putting forward ideas for the development of regional markets, again with a particular emphasis on Africa. Surely that amounts, as the noble Baroness, Lady Williams, said, to a genuine move by France, which other EU countries which already support NePAD and the Africa Action Plan should seize upon. They should not wait even for Cancun.
1364 So we move to corporate protectionism, which is a strong concern of Christian Aid. The committee is broadly supportive of the NGO view of TRIPS. I am even pleasantly surprised that it takes a distinctly sceptical if not NGO line on the motives of pharmaceutical companies. I was personally encouraged by Mrs Brundland's comment on page 216 that public money and even a degree of intellectual property regulation would help research into new products and not just less profitable medicines.
There is a lot of suspicion of the TNCs, some of it unjustified. I agree with the noble Baroness, Lady O'Cathain, that the companies have come a long way and that they have further to go. As I said in the debate on globalisation two years ago, a commission on intellectual property rights will be useful only if developing countries believe that TRIPS is designed as a means of benefiting them and is not merely a Trojan horse for multinational companies or a vehicle for unregulated investment.
I am not qualified to speak on many areas of the report, especially on the financial chapter, and I shall make only one point on the IMF and the World Bank. It is an irony that neo-liberalism has coincided with genuine attempts to reform and reflect the views of civil society. The two seemed incompatible and yet advances are being made. I am sorry that the committee did not find time to include that in the report.
Finally, I am relieved to see the dismissal of the Tobin tax idea, which was always unworkable. Let us hope that that red herring has been finally laid to rest. The Government's response ignores it altogether, but does mention the important international finance facility—the Chancellor's attempt to double aid flows. It is another strange result of the Evian summit that that important initiative has not yet achieved the necessary G8 support and may run out of steam, unless the noble Lord. Lord McIntosh, can put us right on that.
§ 5.32 p.m.
§ Lord Griffiths of Fforestfach
My Lords, it gives me great pleasure to take part in the debate and especially to follow someone who is such an authority on developing countries and the problems of poverty. I should declare an interest. I am involved in a number of companies that could be said to make money out of globalisation.
This is an excellent report. It bears the stamp of a first-class academic in its chair. It is an inherently difficult subject. Globalisation is ill-defined. It is contentious and it has become a slogan. The report is comprehensive and balanced. It confronts difficult issues and makes good judgments. I would go so far as to say that I have read over the years many reports from your Lordships' House and, in my judgment, this is one of the very best.
As I read it, the report says that globalisation produces great benefits at some costs but that, overall, it is creating global prosperity and is therefore good. Let us consider those countries in the world that have 1365 engaged in globalisation and export-led growth—most recently, in the 1990s, China and India; beforehand, Mexico; and again, recently, Vietnam and Uganda. Those countries and their citizens have benefited in material terms from globalisation. Those countries which have not engaged in globalisation—Nigeria, Ukraine, Pakistan and others—have really suffered. Their GDPs per capita have gone down.
The report also says that globalisation is beneficial but that it is not autonomous. One cannot just leave it to itself. It must be managed. To follow the expression of the noble and learned Lord, Lord Howe of Aberavon, it should be managed for transformation. It should be managed, first, because private benefits may not equal social benefits and private costs may not equal social costs. Secondly, it should be managed because it has a moral dimension. Globalisation raises, whether we like it or not, questions of equity and justice and that dimension cannot be ducked.
The report also says that global institutions should be critical, advisory and supportive, which I wholly agree with, but that they should never be a substitute for national governments.
I would like to make three comments. The first is on the subject of globalisation and poverty. As the noble Earl, Lord Sandwich, said, the state of world poverty at the moment is scandalous and shameful. The report faces that head on. It welcomes the second of the millennium development goals; namely, the achievement of universal primary education, recognising that at present there are over 100 million children who do not go to school.
I would have thought it within the spirit of the report to welcome all of the millennium development goals of eradicating extreme poverty and hunger, of reducing child mortality, improving public health and so on. Globalisation is successful for the countries involved. The gap between them and countries that have not been involved is glaring and is a scar on our world. I was therefore rather surprised by the pessimism of the noble Lord, Lord Barnett. I have been the most enthusiastic supporter of the initiative that the Chancellor of the Exchequer, Gordon Brown, has taken with the international finance facility. That was welcomed and encouraged by the Doha meeting of finance Ministers last month. The communiqué from Evian also suggested that it is on the agenda and will be implemented.
I believe that it helps the situation in a number of ways. First, it recognises that the key to development in the developing countries is the private sector. Secondly, for that to happen, as the noble and learned Lord, Lord Howe of Aberavon, again said, a legal infrastructure is needed. We also need stable policies and a transparent government. Thirdly, developing countries need access to developed ones. I am sorry that the noble Lord, Lord Desai, scratched from the debate because he said that the CAP and the protection of agriculture in the US are nothing less than a crime against humanity. He is absolutely right.
In addition, if the private sector is beginning to take off, and there is the possibility of greater exports from the developing world, the IFF says that there should 1366 be a doubling of foreign aid to developing countries. Even if the private sector really gets going in, for example, sub-Saharan Africa, I still do not envisage there being universal primary schooling, clean water, better roads and public health simply because of a take-off in the private sector. Therefore, we in the developed world have a responsibility.
The demand for aid, however, does raise problems. Should it he provided in the form of loans or of grants? I see a great advantage in grants. Should it be bilateral or multilateral? Since the aid is taxpayers' money, there is good reason for stipulating that it should be given on a bilateral rather than a multilateral basis.
There is also the very difficult question of conditionality. The millennium challenge account, which is the response of President Bush to global poverty, sets out 16 specific performance indicators—for example, the number of days it takes to set up a business in a country and the output of primary education—as a condition for giving aid. That is maybe a trifle too restrictive, but it has value. In addition, there is the difficult question of what role the private sector and NGOs should play in the delivery mechanism of aid.
The second issue on which I want to touch is that of transnational corporations. It has emerged from the report and our debate that they are without doubt a force for good. I have been involved in a very small way. One sees investment going into a country; jobs being created; training of local people; new systems; new standards in internal controls, audit and compliance; the transfer of technology; and new management ideas. Typically, one also sees many companies from Europe and America giving advice to governments on the regulatory framework and so on.
My one concern about the way in which transnational companies are dealt with in the report involves corporate social responsibility. I am totally convinced that corporate social responsibility is a good thing. On the other hand, I get frightened when I read the European Union's approach in terms of "triple bottom line" reporting, which could easily become a process that is bureaucratic, lacks substance and has a needless increase in cost. Ultimately, if we go that way in terms of increased regulation rather than transparency for companies, it could be a dead hand.
Thirdly, and finally, I should put a rather different emphasis on the IMF and the World Bank. I should have been tougher on the World Bank and a little easier on the IMF. When the World Bank started in the 1950s, it was concerned with infrastructure; then it got into education and health, and then into poverty. Today, it is virtually in everything. As a result, it has genuinely lost focus. It is simply doing too much. It must ask itself, "What can we do best?". The answer is that it should lend to countries that do not have access to capital markets, and focus on advice that is given elsewhere.
The IMF has a very tough job, typically dealing with countries that have got themselves—mainly—themselves into trouble. Its resources are limited. It is never going to be a lender of last resort. It needs 1367 more sympathy, especially in its monitoring and surveillance roles. Globalisation raises the issue of global governance. A very cautious, step-by-step approach in reform is needed, not something too radical. In view of that—the IMF is currently reforming itself—and the implementation, I hope, of something like the IFF and allowing the market economy to work, I end up much more optimistic than, for example, the noble Lord, Lord Barnett. I did not sense that the report was that pessimistic.
§ 5.43 p.m.
§ Lord Sheldon
My Lords, the noble Lord, Lord Peston, is to be congratulated on introducing this report. I had not expected at the outset that a debate on a report from the Economic Affairs Committee would lead to a demand for the understanding of the needs of the underdeveloped world. That rather surprises me, and I very much welcome that consequence of the report. It shows the wide-ranging nature of the report. The issue has tended to educate the committee and the whole of this House.
Globalisation is a crucial matter. We share the same planet with many other nations. Globalisation should mean that we recognise the responsibility we have for all of the peoples of the world to share in the increasing prosperity that only part of the world currently enjoys. Globalisation has particularly shown up the inequalities that we see today; that was represented in the speech of my noble friend Lord Barnett and others. As the report shows, although there is not a simple definition of globalisation, there has been a fundamental change. That is largely due to the ease of modern-day communications, whether by transport, telephone or electronic means. Those means have produced an interchangeable world in which trade, culture, language and social advances become rapidly interchangeable. In fact, globalisation effectively means communication—physical, electrical and electronic. Globalisation has brought and continues to bring great benefits, which we must embrace with enthusiasm; they are essential to our future planet. It also brings responsibility for parts of the world that are not achieving the same level of improvements. The benefits of globalisation must mean and must be shown to mean benefits for all. Protectionism of developed countries, as the noble and learned Lord, Lord Howe, mentioned, must be addressed. We cannot tolerate protectionism against the interests of developing countries in our world.
On page 84 of the evidence, Professor Bill Buiter said:globalisation is, potentially, a blessing. It is first and foremost about increasing opportunity, choice and freedom. The simple but fundamental proposition that is the cornerstone of this positive judgement, is that trade—voluntary exchange—is not a zero-sum but a positive-sum game".He is quite right in that. Larger economic and social units mean that each part must accept some responsibility for those in the global community. The 1368 trend to globalisation must be accompanied by greater awareness of and action in relation to the problems of the rest of the global community.
Globalisation means that we live in one world but we must accept responsibility for the less successful parts. If there are benefits—it is not a zero-sum game—that should create a surplus, part of which should be used to assist less fortunate parts of the world. How is that assistance to be given? That is the critical question before us today. Financial help, yes, but on what conditions? Who organises it? The IMF, the United Nations or some new UN body?
Which countries have benefited from globalisation and which have lost out? We know that China and India have benefited as well as the developed countries. Some so-called developing countries have not been developing at all. Notably in Africa, some have gone backwards. Globalisation means mobility of goods, services, capital and labour.
In its evidence, the Engineering Employers' Federation commented some time ago on the way in which companies are resourcing their products from abroad. It points out that,35 per cent of companies currently have at least some of their production located abroad. This is a trend that is expected to continue with nearly half of the survey respondents anticipating some production to have moved abroad in five years".That is what is happening today. Those developing countries that have some manufacturing capabilities attract investment through their lower wages and standards of living. Those who rely on raw materials are frequently disadvantaged. Developing countries that are dependent on their agricultural sector are the least successful. Part of that involves the quite shameful way in which so many developed countries subsidise their agricultural sector and so deny developing countries their rightful place in increasing world prosperity, which should be their right. The major question is: how do we help with administrative and political reform in those countries, which are frequently a pre-requisite for financial assistance?
Globalisation has the advantage of spreading technology and practices—both good and bad—throughout the world. Efficient methods of working are diffused as movements of people and companies take place. One of the problems of globalisation and the increasing importance of transnational companies is that they can move their profits around. That means that the taxes they pay are less than those which smaller companies are having to pay. Remedying that is never going to be easy and is likely to take a great deal of international effort and agreement as well as time. Much of that may not be forthcoming. Efforts will be made and will continue to be made for very many years to come.
Another aspect of globalisation is that goods are made in one country, processed in another, further processed in another country and then sold in yet another. Textiles are an example of that. Cotton is grown in one country, spun and woven in another—perhaps halfway across the world—dyed in yet another country and made up into finished garments in a further country.
1369 We never had that sort of thing before. Such has been the pace of change that there are efficiencies that would have been inconceivable even 10 or 20 years ago. Such things are happening all over the world. People who are transporting goods and conveying information through various means, including e-mail and other forms of communication, have transformed the way in which the production of goods and services rapidly move across the world.
It is understandably resented that although many countries benefit from globalisation, some countries lose out as their agricultural exports are subject to the tariffs in developed countries—the CAP in particular. Issues such as opening markets and protection in agriculture must be addressed.
Obviously some sectors need to be considered, but that should be by assistance and a reduction in their protection by, if required, long-term measures. If we are to make a long-term success of globalisation, then the fact of one world must mean one world in the consideration of improvements to all parts of the world. That is what globalisation should really mean.
§ 5.51 p.m.
§ Lord Vinson
My Lords, it was a great privilege to be a Member of the House of Lords Committee on Globalisation and I pay special tribute to the noble Lord, Lord Peston, for his indefatigable and pleasant leadership.
I should like to major on two particular aspects of our deliberations: first, some thoughts on the possibility of free trade in agricultural products; and, secondly, where aid should or should not be directed.
When our committee visited the director general of the World Trade Organisation, he said that the Doha World Trade talks were "about trade in agriculture". Indeed agricultural commodities lie at the heart of world trade. Here I declare that at one stage I was a substantial grain farmer, but no longer. However, I trust that experience qualifies rather than disqualifies one to talk, as the modish politically correct might appear to wish.
Our report said:Protectionism with regard to agricultural products in particular is wholly objectionable and unjustifiable".That may be the case, but it is my belief that however desirable in theory free trade in such products may be, the reality is that food trade is not wholly driven by natural advantage and prices seldom represent the cost of production—or are ever likely to do so. Agricultural trade or most of it—is bound to be cat's cradled with restrictions for quite understandable reasons.
If one goes back to first principles, one of the primary objects of any government is to ensure food supply. As planning for inadequacy is not an option, food supply in most western countries means food over-supply. Protected agriculture is encouraged to produce, over-production results in falling prices, falling prices call for increased subsidy, increased subsidy in turn causes further over-production. So the cycle goes on until the next generation of politicians 1370 says enough, and then all restrictions are removed, as they were five years ago in America, and a free market is attempted.
However, prices then collapse still further and, as we saw last year in America and Canada, massive intervention is necessary to avoid widespread agricultural bankruptcy and ensure security of food supply. The food production cycle then recommences and surpluses are dumped at market clearing prices on to the world market.
The paradox is that the world today has never grown so much food. There is no overall scarcity. Food has never been so cheap. Wheat is currently sold below the cost of production. The consequence is that farmers in poor countries are abandoning their agriculture because they just cannot compete with the heavily subsidised foods that are flooding in on the back of world trade rules. Paradoxically prices need to rise to make it worthwhile for them to export.
It might be possible for a nation to follow the theoretical line given to us by Sam Brittan in his evidence, which is:If the Americans want to subsidise my breakfast, who am Ito say that that is a bad thing?".Security of food supply may appear unimportant to smaller nations that can always pick up bargain priced commodities except in times of scarcity. But if we take central Europe as a whole, it produces some 200 million tonnes of food grain. North America produces some 300 million tonnes of food grain. There is absolutely no sensible way that America could produce another 200 million tonnes and substitute completely for European demand. Those are enormous tonnages. Europe could certainly replace its marginal farm production by imports, but overall it is difficult to argue other than that prudence calls for it to remain as a major producer based on its own climatic natural advantage, which it has.
The margins in growing food are extremely line, even with subsidy. A 10 per cent variation in the exchange rate, if the product is unprotected, can lead to farm losses and shortly bankruptcy. In the past year the euro-dollar rate has moved by more than 25 per cent—a point well made by the noble Lord, Lord Skidelsky. Exposing agriculture to the full variations of the exchange rate would shortly mean no agriculture in any country.
In his evidence, the ex Fed chairman, Paul Volker, said:I think the instability of exchange rates in terms of globalisation is an important problem that threatens emerging countries…it is hazardous for emerging nations to participate happily due to the instability of exchange rates".It is hazardous for any nation to expose its long-cycle industries not only to massive exchange rate variations but to worldwide climatic ones as well. The European climate is good for growing grasses. Wheat is a grass. The American plains may be well blessed but they have dramatic climatic swings, as anyone who has read about the dust howl conditions of the 1930s will recall. Australia, which is one of the predominant 1371 players and the leader of the Cairns group that lobbies for free trade in grain, had a disastrous drought last year and actually imported wheat from this country.
One cannot turn agricultural production off quickly or on quickly, even in an emergency. Once the infrastructure is lost it is gone. It is for those practical reasons that most governments strive to ensure secure food supply. And it is for that reason that Europe will remain a major producer of wheat grain, and is unlikely ever to sign up to unfettered free trade in agricultural products.
However, that does not mean that it needs to grow the surplus that it does, particularly that grown on marginal land. It could and should afford to take limited inputs from other countries.
What applies to western world agriculture applies even more to the under-developed nations. That point was graphically and clearly made by Save the Children and by Dr Carline Lucas of the European Parliament, who said:I do not think it is good enough to say that the USA can produce our food more cheaply than we can and therefore we will stop producing food. I think there are certain minimum things a country should have control over, and food production is one of those. Since agriculture came into the WTO the impact for many countries has been negative".I believe that free trade in agricultural products will never be completely free however theoretically desirable.
That leads me to the second part of my speech—the distribution of aid. Productivity in the production of primary commodities has made them cheaper than ever, which is greatly to the benefit of user nations. But the producer countries are not sharing this golden harvest. The more they produce the less they get paid. How then can the West give meaning to the slogan Trade Aid and help those nations?
I agree with those who say that the only long-term solution is for primary producers to increase internal consumption, to add value and to develop quality of output. It is about turning wood into chairs, not planks. The punch question is how to do that.
It is beginning to happen where aid is routed bottom-up and helps the establishment of small enterprising businesses. Helping local markets develop naturally will solve their problems ultimately as it has broadly solved ours in the West. What poor farmers, street hawkers and others want is the freedom to create wealth in the way in which they best see it without an over-intrusive government. That leads me to the basic problems of many under-developed countries. It has been said before, but nobody really likes to say it: bluntly, underdevelopment is often due to corruption on the one hand and a total inadequacy of the framework of law and property on the other.
Of all the solutions to global poverty, the one suggested by the Peruvian economist, Hernando de Soto is among the simplest, and I believe the best. He said: 1372Give poor people formal ownership rights to the land they live or do business on and you immediately turn their unnegotiable capital into Wealth. They can then take out bank loans or trade on it. In short, they become part of the formal economy".Without the possibility to prove title to the ownership of land or your house, be it only a mud hut, it is not possible to secure credit, to borrow money, to invest on even the smallest scale; to buy a water pump; to buy a small tractor; or to buy a lathe on which to make furniture.
So, if poor countries can put their internal corruption right, then the initial step is to create an institutional framework where the market, in its smallest form, can begin to develop. Most of our aid flows top down. We need to reverse that and make more aid flow bottom up—sowing the seeds of a simple market economy by developing indigenous enterprise.
Hong Kong has no natural resources, but it has a framework of law and land title. We also only have to look to Singapore to find a shining example of the proof of this concept.
I have tried to make two essential points in this speech: first, food security has an economic rationale and commands huge political support in most countries. Consequently, policies to develop trade liberalisation should and must recognise that fact and work with it. Secondly, such policies need a new direction basically aimed to engender the inherent wealth-creating enterprise that can be found in all societies at all levels.
§ 6.1 p.m.
§ Lord Parekh
My Lords, I congratulate the Select Committee on Economic Affairs on its excellent report on globalisation. Such a report is only to be expected of a committee consisting of talented people drawn from different walks of life and led by someone of the stature of my noble friend Lord Peston.
Although the report covers many important issues, some are dealt with either cursorily or entirely from an economic angle. As someone who by profession happens to be a philosopher interested in issues of culture and politics, I hope your Lordships' House will forgive me for introducing those angles.
Globalisation by universal consensus is a process by which the globe becomes a single and integrated unit. Interests of different societies are intertwined, such that events in one part of the world directly or indirectly impinge upon another. Globalisation understood in this sense is almost an inexorable and irreversible fact of life. No country can step out of it, either because it is technologically impossible because of Internet and satellite television, or because the cost of so doing is so prohibitive that a government which dared to step out of globalisation simply would not survive.
Globalisation is not confined to the economy. It extends to political life, to cultures, to civil society, to religion and to many other walks of life. In each of these spheres of life it has good and bad consequences. In the economic sphere, for example, it increases 1373 consumer choices, reduces prices, improves the quality of products and brings them up to international standards, brings in new technology and capital and improves the lives of some groups and even perhaps adds to the prosperity of different countries. It also increases inequalities within and between societies. It bears rather heavily and harshly on those societies that are too weak or have too poorly endowed infrastructures to compete as equals. It gives the transnational corporations a free run of the weaker economies, as happened in the case of Union Carbide and Enron in India. In the short term, it tends also to increase unemployment.
The same kind of balance sheet of good and bad consequences happens in other areas of life—for example, politics. Globalisation creates a common political culture; a common vocabulary of human rights and liberties; and it encourages greater international co-operation. It makes it possible for us, collectively as humankind, to regulate the forces of the market.
But it also leads to the greater domination of powerful countries, especially the United States. It weakens democracy within the countries; it weakens the nation state; and it undermines the protection offered by the principle of national sovereignty. In many developing countries the poor tend to be political orphans because they can no longer rely upon the nation state, upon which they have traditionally relied to protect their interests in the international forum.
In the cultural sphere, globalisation can lead to better intra-cultural understanding, the sharing of ideas, and the possibility of creating a rich and thriving multi-cultural world. But it can also increase the domination of American culture and its cheap cultural products. I do not need to remind your Lordships of how, for example. the US film industry almost wiped out 80 per cent of the cinema studios in France and eastern Europe. The US film industry is able to recover most of its costs from its large domestic market and therefore is able to export films at a price with which the domestic counterparts can simply not compete.
One of the great French writers talked about "cultural totalitarianism of a monoculture". That kind of thing tends to result in cultural uniformity and homogenisation, which is bad in itself. But it also tends to provoke panic in some societies and promote fundamentalism. Some consequences of globalisation—good and bad—are inherent in the very process of globalisation. Others arise out of the fact that globalisation occurs in a world which is so unequal. Yet others arise from the fact that globalisation takes place within the context of neo-liberal orthodoxy.
Therefore, I suggest that globalisation has both good and bad consequences. Although on balance it is a good thing, we should be thinking in terms of minimising its harmful consequences and maximising its beneficial consequences. In other words, rather than asking the question, "Are you for globalisation or against globalisation?", as some anti-globalisation protestors in France, Switzerland and elsewhere have 1374 been doing, we should recognise that there are repressive or hegemonic as well as emancipatory and progressive forms of globalisation. The question to ask is: how can we ensure that the globalisation upon which the world is inexorably and irreversibly embarked is emancipatory and progressive rather than hegemonic and repressive?
What do I mean by "progressive globalisation" and what are the yardsticks by which we will judge whether a particular form of globalisation is to be welcomed or not? I offer three which I think have enjoyed universal consent. First, globalisation should promote global justice, so that human beings the world over are able to lead decent and fulfilling lives. Secondly, it should increase the space for human freedom and our capacity to control the forces of the market so that we do not feel completely at the mercy of forces we can no longer control. Thirdly, since I believe, and I am sure your Lordships would agree, that there is a good deal to be said for a rich and plural multicultural world, therefore, the third criterion I propose is: does globalisation foster such a rich and culturally diverse world from which we all gain?
Judged by these criteria I suggest that there is not very much to be said for the current neo-liberal orthodoxy which fuels and propels globalisation. Of course it does some good, but it also does some harm. It has not helped the really poor countries. It has imposed unfair burdens on developing countries, to which many of your Lordships have referred. It imposes a single prescription model. Stiglitz talks about that in his book Globalisation and Discontent. He was the chief economist to the World Bank. He shows how the IMF, constantly guided by the so-called "Washington Consensus" and the Structural Adjustment Programme, completely disregarded the cultural context of economic development and prescribed a single model, causing havoc not just in Indonesia, to which the noble and learned Lord, Lord Howe, eloquently referred—but also in several parts of Latin America and elsewhere. Furthermore, TRIPs and TNCs sometimes tend to plunder local knowledge and herbs and export them back at prohibitive prices.
So we should therefore think in terms of new measures, new principles, new institutions which can guide the process of globalisation. In a spirit of great humility, because I am not an economist, I want to suggest four or five solutions.
First, under globalisation today capital is free to move, but not labour. When labour is able to move—for some people labour is their only capital—either in the form of economic migrants or refugees, we make laws to make sure that it does not travel. On the one hand we insist that capital should not be prevented from crossing boundaries. On the other hand the rich countries insist that labour should not be allowed to cross boundaries. That is unfair.
Secondly, at the global level we have forums where rich governments and large corporations can regularly meet and plan their strategies. However, we have no forums where civil associations or civil society 1375 institutions, which are close to the people and struggle to fight for justice, can meet regularly and plan their response. Nor do we have international forums for trade unions. In that context several interesting ideas have been canvassed by academics and activists. I would not rehearse them but they are worth a careful thought.
Thirdly, developing societies, if they are going to compete in a global world, ought to be able to build up their competitive capacities. Therefore, they need development assistance and not a bail-out in situations of crisis as the IMF tends to do. Foreign aid needs to be increased from the current mean figure of 0.27 per cent of the OECD GNP.
Fourthly, I entirely agree with the report that the WTO is a democratic organisation in the sense that it is based on one country, one vote. However, there are several things about it which leave a great deal to be desired. Its negotiations and modes of resolving conflicts occur in secret. Poor countries have no qualified staff or representation in Geneva. Nor do they even have much technical expertise that can guide them on the implications of various agreements that they sign up to. We have realised that even half of the countries that have signed up to the WTO, including in some cases India, have signed up to agreements whose implications they have never understood, and have been frightened when they realised what they were expected to do. It would therefore be most welcome if there were to be an independent institute or agency which would assist developing countries in matters of negotiations with others in the context of WTO.
Fifthly, the hypocrisy and the economic and political muscle of the rich countries dictate unfair terms of trade to which many of your Lordships have referred. We ask developing countries to open up their markets, but refuse to open up ours. We deny them the right to subsidise their industries, but we use clever devices, including terminological inexactitude, to subsidise our own within the legal framework of WTO. I could give the House half a dozen examples during the past three years alone. Western farmers receive, as the report rightly says, an annual subsidy of 311 billion dollars. Contrast that figure with the annual foreign aid of 11 billion dollars. The West gives that in foreign aid and even some of that is tied.
Sixthly, current globalisation is too much in thrall to corporate interests and is too indulgent towards that misdemeanour. We should put a stop to that sort of thing. A vigorous global anti-monopoly authority linked to the WTO would help. Such a global antimonopoly authority could be built on the existing United Nations Restrictive Practices Code.
We could also think of a global tax on corporate profits to close such loopholes as transfer pricing and offshore arrangements. We could also abolish offshore finance centres and tax havens. We need to find ways of guarding against speculative runs against vulnerable markets and currencies. I agree that although I have long been an enthusiastic supporter of the Tobin tax, there are difficulties with the Tobin tax and in its current form it is not workable, as Professor Tobin himself recognised 1376 before he died. However, although the economic reality has changed in recent years the tax in principle still remains a good idea, and could be applied if it were suitably redefined and adjusted.
Finally, developing countries themselves need to change a great deal. They cannot sit passively and expect the rich West to adjust or readjust its ways. Corruption in those parts of the world must stop. More importantly, globalisation produces massive changes and causes political and social dislocation. Democracy is needed to debate those changes and how those societies can best comprehend and respond to them. Democracy cannot be exported, and we need to find ways of sustaining local forces.
In conclusion, all that I have suggested so far is largely a matter of detail. The most important thing to realise is that globalisation, sadly, is not working for some countries or some groups within even those countries where it seems to work. Those frustrated groups, feeling that they have been denied the benefits of globalisation, build up hatred of the rich West and threaten it with terrorist and other activities. It is therefore important that globalisation, which can he a great force for good, needs to be so institutionalised and regulated that it can sell the three goals of global justice, human freedom and cultural diversity that I talked about earlier.
§ 6.16 p.m.
§ Lord Burns
My Lords, along with others I would like to say what a great pleasure it has been to be member of the committee, chaired by the noble Lord. Lord Peston, and that is not only because of the constant chatter about football in the margins of our meeting. We also enjoyed robust debate. We considered challenging topics and, to our greater surprise, we even reached some conclusions at the end of the deliberations. At the outset of the inquiry I was not at all sure what we would achieve, given the confusion on some of the issues. In the end I hope that we have gone some way to help people to understand this immensely complex issue and why it has become so contentious.
First, I have been surprised that the anti-globalisation movement emerged in the way it did and with the force it has, accompanied by the appalling violence seen on occasions. I am one of those people who was brought up to believe in the benefits of trade and closer association between economies. My starting point still is that there are huge benefits to be had from competitive and innovative imports, as well as the rewards from being able to sell goods and services in markets around the world. In the past 25 years we have seen great benefits in the UK from the relaxation of the controls over capital introduced by the noble and learned Lord, Lord Howe, when he was Chancellor of the Exchequer.
We have also seen the great benefit of inward investment from Japan, the US and elsewhere on some of our most depressed regions. I am always astonished to see the extent of the benefits in both the north-east of England and in South Wales. By contrast, it is 1377 striking that the countries which have made the least progress in terms of standards of living are those that have attempted to cut themselves off from the trading systems and flows of capital that bring so much benefit to the rest of us. If, therefore, a country like the UK can benefit so much from globalisation, why has there been so much concern about the impact on other, usually poorer, countries?
I had my first taste of the protests at the IMF meeting in Berlin in 1988 when there was a considerable show of violence. It struck me at the time as rather strange that the protesters were targeting the bankers of the world while, less than a mile away, a captive population was being prevented from moving to the West to share in its prosperity by the existence of a huge wall. Since then the wall has come down but the protests have, if anything, become worse.
One of the important insights of our study was that the anti-globalisation movement was itself very complex and no more than an umbrella for a whole range of protesters, some of whom it is easier to understand than others. As we dug deeper, a second insight emerged. The movement was not so much antiglobalisation but a better globalisation movement—a point to which the noble Lord, Lord Peston, referred. Even then there is much difference of emphasis. To some, better globalisation was making sure that all countries and peoples might benefit from the increased integration of the world economy. To others, better globalisation was a rejection of some of the economic doctrines that have characterised the recent period—for example, more open markets, removal of controls and the central role given to profit-making transnational companies. Some people wanted globalisation, but in a different way.
We heard from several witnesses on the question of whether the latest round of globalisation was a new departure or whether it echoed similar developments in the past. Although it is not free trade writ large—as the noble Lord, Lord Peston, again mentioned—I prefer to think of it as a continuum.
At the end of the 19th century there was the big push towards more trade, greater capital flows and increased integration of markets—partly through labour mobility but driven by falling costs of transport. As the 20th century came to a close, we witnessed a huge technological push driven by information technology and the communications industry. This time, the process has shown itself in increased trade in services, ideas, information and product brands, as well as continued growth of trade in goods. Not only do we have reduction of travel costs in familiar ways, we also have the new digital world of communication which has virtually eliminated the cost of trading certain kinds of information.
However, when I was being taught about the gains from trade and economic integration, I was also taught that the distribution of those gains was unlikely to be equal and that that could be a matter of political and economic contention. That is what lies at the heart of much of the opposition to globalisation today and of much of what we have heard in this debate. We have 1378 the growing fear that the bulk of the gains from globalisation are going to the wealthy countries and that the poor countries are being left to their own devices or may even be damaged by the process.
On the one hand, we received quite a bit of evidence that pointed to less inequality between countries, although we are acutely aware of some remaining areas of huge poverty within countries. The conclusion we reached was much more that it was a question of who were the real gainers from globalisation. Rather than many parts of the world having been clearly identified as losers from the process, they simply had not gained as much as others.
The overwhelming feeling with which I came away at the end of our inquiry was that most of the economics I was taught those many years ago (surprise, surprise!) remains valid. There are great gains to be made from trade, capital flows and greater integration, although some countries will benefit more than others. However, that is no reason to hold back integration. Indeed, those countries that seek to cut themselves off from it will probably lose the most. But all members of the committee came to recognise that if the world is to retain confidence in the benefits of globalisation, more urgent action is needed to deal with some of the resulting inequalities. Of course, judging what can be done about that over what time-scale is extremely complex. Many of the committee's conclusions seek to give some direction. As we recognise, the extent to which countries can benefit from globalisation is in substantial part a matter for them. There is also an important role for collective action by the richest countries in the world, but that will come to little unless there is also change within the countries themselves. Most of the action open to countries themselves to take advantage of that new world lies outside the world of economics in the institutions of government and policy making; the rule of law and enforcement of contracts; safety for the individual; and the absence of corruption. I join with others in being surprised that there is great support for lawyers at this stage in the development of some countries.
There are also matters that are very much to do with economics, so it is not all about lawyers. These include the macroeconomic framework; the financial and commercial infrastructure; the extent to which countries are an attractive home for inward investment; and the ability to produce goods and services in an efficient way—all important topics covered in the report. The developed countries may be able to provide assistance, but that requires a willing host.
Where the issues become slightly more contentious is where we move on to the things that the developed countries can do to assist the poorer countries in taking advantage of globalisation. Again, we reached a number of conclusions about which there has been much discussion; I shall highlight only two or three that struck me most.
The first is the willingness of developed countries to open our markets to goods of all kinds, including agricultural and textile products. I do not share the 1379 view that agriculture must be excluded. It is so important to developing countries. If we seek to remove it from the world trading environment, we shall have the greatest of difficulty in moving forward. I find extraordinary the damage that protectionism by wealthy countries can do to developing countries. We know that, from time to time, imports will create disruption to businesses at home, but I regard that as an inevitable part of the process of development and something with which richer countries must themselves find a way to deal.
A similar issue is likely to arise from the import of services. In today's globalised world that will mean moving some large-scale service activities, such as call centres and back-office work, as well as specialist tasks such as software development, to poorer parts of the world. Again, that will be disruptive and will raise emotive issues about the export of jobs. But access to our market for services will be just as important as the market for goods if we are to develop higher-valueadded jobs in poorer countries.
Several speakers have mentioned health and education and the part they have to play. From my involvement in the water industry, I have been struck by the crucial part that it plays in the health of developing countries. The provision of clean water to the tap and the ability to cope with the disposal of dirty water are a crucial foundation of the health of all societies.
Finally, developing countries need the power to borrow. That in some cases means an easing of capital controls in a careful way, but it also means responsible lending by the western world and an important role for the IMF but also for the private sector to try to resolve problems when things go wrong.
My view—I came to this conclusion having sat through and listened to a great deal of evidence, including some impressive witnesses—is that there is capacity to make progress on some issues. If we can do so, it should be possible to convince some of the doubters of the benefits of globalisation. Through that, we could achieve benefit to an even larger group of people and countries.
§ 6.27 p.m.
§ Lord Elder
My Lords, it is appropriate to start by saying that the rather disparate—and rather argumentative, at that—group of people who constitute the Economic Affairs Committee would perhaps not have produced this substantive report or retained an ambitious programme for the future were it not for the role played by the chairman, the noble Lord, Lord Peston, who manages, despite provocation from us all, to keep his temper in check—at least most of the time.
The committee concluded that although almost all the elements of globalisation had been about for a long time, what was happening was a new phenomenon, not just the reworking of an old theme. Indeed, the change of pace and acceleration mean that, perhaps for the first time, not only do countries move forward at a 1380 quite unprecedented rate, but also that those who are not involved drop off the map in a way that has not happened before.
The evidence sessions on globalisation were absolutely fascinating. As the debate has shown, a full range of subjects was covered. Near the end of that debate, I want to concentrate on only a few of them. When we started off the whole process, if I had been asked on what we were likely to spend our time concentrating, it would probably have been the big institutions: the IMF, the World Bank and the World Trade Organisation. I started with the prejudice that they were all pretty grim. I ended up with the prejudice that at least one of them is pretty grim; one of them is perhaps not quite as bad; and that, rather surprisingly, the World Trade Organisation turns out to be OK.
I also ended up realising that one area to which we returned again and again, as has been the case in this debate, and on which I had not expected to spend as much time, was the issue of the poorest countries, sub-Saharan Africa in particular. We ended up in no doubt that, whatever the difficulties, the real problems of poverty in the world were much more the result of those countries being excluded from the process of globalisation than due to the process itself.
In that regard, we heard impressive evidence about the impact on the poorest countries of the agricultural support that we give in the West—in the EU, America and Japan. That has been much commented on in this debate. Both Mike Moore and Clare Short—I echo what my noble friend Lord Peston said about the contribution that she has made to international development over the years—when the latter was Secretary of State for International Development, were perhaps unsurprisingly outspoken. But their views were mirrored by the Chancellor and the Secretary of State for Trade and Industry, who said that developments such as the Farms Bill were not to be welcomed.
In the course of his evidence, Nick Stern gave an illustration of the sort of problems that the developing world faces when describing a series of impediments put in the way of a Mauritanian trader trying to sell camel cheese in the European Union. It would have been comic had it not been tragic. It culminated in a ludicrous decision that in the interests of hygiene it was only acceptable to have that cheese here if the camels could be proved to have been milked by a mechanical device. It was another case of the wealthy West ruthlessly protecting their own while denying by whatever means at their disposal the possibility of advance to a seriously poor region of the world.
There has been a good deal of talk about the need for further aid in the context of the present plight of many countries in sub-Saharan Africa. I do not doubt the need or urgency of that, but following all the evidence we received, I believe that to make a really fundamental difference, we must find a way of ensuring that the benefits of globalisation are available to these countries. That means that they must have a chance of exporting their food and textile produce. That in turn means that the grotesque imbalance 1381 between the support given to agricultural producers in the leading economies of the world and of the West, compared to those in the poorest countries, must be changed.
Whatever figures are used there is no real dispute about the scale of difference: whether it is the more than 2 dollars a day being paid to every cow in the European Union while over a billion people live on less than half of that a day; whether it is the total aid to farmers in the West being 350 billion dollars while total aid to the third world is one-seventh of that at 50 billion dollars; or whether it is the fact that the third world has to open up its markets while Western farmers continue to be protected behind very strong trade barriers. Whatever it is, it has to change.
In the face of that, aid can alleviate. However, it is not the long-term answer. The rhetoric of support to Africa will remain empty while that issue—by far the most difficult issue—remains unaddressed.
I was a little puzzled by the remark made by my noble and learned friend the Leader of the House in response to a question earlier today on the G8 Statement. When asked about the French initiative in Africa, he said that it was wrong to say the Government had not supported it but that the problem was that it did not go far enough. I have always had difficulty with the argument that says that because we want to take two steps forward, we absolutely must not take one. It has also always puzzled me that people do not appreciate what an enormously helpful thing a precedent is in this. Being able to say as far as the rest of the world is concerned, "but we already do it in Africa", would be an enormously powerful tool. I hope I misunderstood what the noble and learned Lord the leader of the House was saying, but that seemed to be the implication of his remark.
The great issue facing Africa is the loss of life associated with HIV and AIDS. There are firms in southern Africa where all of the workforce are HIV positive. What impact that has on an economy where productive labour is vital is almost too difficult to contemplate.
The latest moves to try to convince pharmaceutical companies to be more co-operative in providing drugs at a price that can be afforded is to be welcomed. It is certainly not enough.
There are many other issues regarding the labour market. There is a real tension here between not wishing to deny trained workers in the third world access to the Western job market while ensuring that the countries do not lose out from a loss of skills in which they have invested so much time and money.
In the West, and North too, there are difficulties. Often those who speak most forcefully for the liberalisation of trade and finance are markedly less enthusiastic when it is suggested that there should also be a liberalisation in the movement of people about the globe. That too should he a consequence of globalisation. The idea of linking aid in some way to the issue of compensation for the loss of trained and skilled workers has been raised by the committee. While I agree that impediments to the free movement of labour are not 1382 to be encouraged, it may be that the best way forward in a very imperfect world is pointed to in that. It certainly deserves further study.
My final comment relates to the new enthusiasm among TNCs for plans for corporate social responsibility. The Government's view is that a mix of voluntary and regulatory rules might be the best way forward. Perhaps because we were sent rather a lot of CSRs, I began to take the view that they all looked the same in glossiness and approach. I began to wonder whether they were all that useful. There is a danger that CSRs are just seen as something that must be done to appease the shareholders and are more gloss than substance. They must be real and if that takes an element of regulation, so be it.
I had a discussion outwith the committee with the representative of a tobacco company. They said they were happy with the response they had to their report. They were fulsome in the good relationship they had with their workers. However, they seemed unappreciative of the fact that reports of happy workforces do not mean that in producing a product which all medical opinion says kills a lot of the users, could be considered to be far from socially responsible. It struck me that in producing a corporate social responsibility report, it does not necessarily mean that the corporation is acting in socially responsible manner.
This report sets out the range of the problem and the extent of the challenge facing us all. The Government's response was supportive and I am very much aware that the real impact any one government can make is limited. The test of our commitment will be in the extent to which we are prepared to press for difficult changes in agricultural subsidies. Aid will he a necessary palliative, especially at a time of real crisis as now, but tougher decisions will have to be taken if we are to make a real difference. The fact that we know what to do does not make it any easier to do it.
§ 6.36 p.m.
§ Lord Newby
My Lords, I too should like to begin by expressing my thanks to the noble Lord, Lord Peston, for the way in which he conducted this inquiry. I also thank Christine Salmon and our special advisers and other members of staff who served us so well. I also thank the remarkable range of witness whom we interrogated.
There was a surprising degree of agreement among the witnesses about the nature of globalisation. The differences were, as the noble Lord, Lord Burn, described it, about the nature of better globalisation rather than whether it existed or whether it should exist. No alternative was offered by any of the witnesses to the processes we describe as globalisation. There were differences about how to achieve it but not about the basic principles.
What is globalisation and how far is it qualitatively and quantitatively different? I am afraid I must disagree with the right reverend Prelate the Bishop of Chester about the extent to which this is a qualitatively different situation from previous periods. For example, it is tempting to say that when Sir Thomas More went to 1383 Bruges in 1514 to negotiate a trade agreement and found that the French were intransigent and it took longer than he expected, it meant he could see Erasmus and write Utopia and so in the end it all came right. To an extent that is how the WTO operates, although perhaps without the intellectual gloss. There are a number of ways in which the current world and the current process is fundamentally different.
First, the death of distance is a huge difference. The fact that from my desk I can send an e-mail to thousands of people in the world instantaneously, gives a different quality to the way in which we interact.
Secondly, the growth of world institutions is qualitatively different from any previous period. In Geneva, we are told by Gro Harlem Brundtland that for many of the world's poor, the biggest influences on their lives were not their domestic government but the interventions of the various international institutions. In my view, that is a wholly new phenomenon.
Thirdly, there is now a single ideological and economic framework which is broadly accepted by opinion formers and economic decision makers across the globe. The economic elite seem to agree about how to do things to an extraordinarily great extent. Whether it was the Russian industrialist we heard, the governor of the Central Bank of South Africa, or many of the other witnesses, there was a remarkable degree of agreement about how things should best be done. This agreement is found among graduates and new economic players across the globe and that again is new.
I would love to have time to discuss the effect of globalisation on culture with the noble Lord, Lord Parekh. There is, in many respects, a predominance of US culture, However, anyone who attended or listened to the BBC World Service's 70th birthday party and who heard Youssou N'dour, a world-class Senegalese band, in London, as well as music from Kabul, from India and from South America, could not claim that there was no cultural diversity and that technology was stifling it. It is altogether so, and we must be cautious about being too critical.
As many speakers said, the economic consequences of what we now describe as globalisation are, on balance, beneficial. There are, of course, huge costs. There have been huge costs here. Whole industries have been decimated by increased global competition. Since the Government came to power, 500,000 jobs in the manufacturing industry have gone, due, in large measure, to globalisation. Service sector jobs in call centres are being lost as a result of globalisation. We all have to bear costs, as well as benefits, but we see major changes in the biggest countries as a result of such progress.
In China, there has been growth of 8 per cent, 7.5 per cent and 10 per cent. China is now the biggest destination for foreign direct investment. It will be the world's largest car market in five years, and it is already the biggest mobile phone market. India, which 1384 we think of as being relatively sluggish, has seen growth of 6.5 per cent in the first quarter of this year. The software and call centre industry is booming, partly, they claim, because they have been able to move so quickly that the bureaucrats have not caught up with them. That is part of globalisation—they have been able to get on with it. The consequence is that there has been a re-drawing of the world economic map. The emergence of China and India, in particular, and of other countries in the Far East is analogous to the emergence of the United States in the 19th century as a new major economic power. There are major problems as well, as several witnesses pointed out.
As some of my fellow committee members said, we started with some serious concerns about the role of transnational corporations. In the course of the committee's work, they were reduced significantly, although they did not necessarily disappear altogether. We found that the argument about excessive power vis-à-vis governments and the argument about a race to the bottom were not sustainable to anything like the extent that we had expected. In a raft of ways—relating to human rights, corruption, HIV/AIDS, other health and safety issues or the education of staff—TNCs were often far ahead of local indigenous producers. They acted as they did not for altruistic reasons but for sound economic reasons. The NGOs deserve much of the credit for shining a spotlight on many of the unacceptable practices that the corporations followed, but it is wrong to think that they have not responded.
We disagreed about whether we should recommend moving towards triple bottom-line accounting. Should all companies be required to report on their social and environmental performance? Our disagreement has been reflected in our contributions to today's debate. I am a strong advocate of compulsory reporting in those areas. Although the best companies may maintain good standards and report on what they are doing, there is a major free-loader problem, even among the TNCs. If we believe that the way in which companies treat the environment, the way in which they treat their workers and the way in which they inter-act with local communities are important, we need to regulate, as in many other areas of social legislation. It is difficult, and we want to avoid stifling initiative and to avoid box ticking, but there is no alternative.
There are also great concerns about the role of the institutions. Again, we felt that the IMF and the World Bank—for the centre Left, the bad boys among the world economic institutions—had had a chequered history but were making substantial moves. Anybody who heard the evidence from Nick Stern simply could not sustain the kind of arguments about the World Bank that were commonplace a decade ago.
The WTO is in a slightly different category. The noble Lord, Lord Elder, is not alone in being a fan of the WTO, in some respects. The GATT and WTO process has had great success. Industrial tariffs have come down from 40 per cent to 4 per cent in the past 50 years. That has undoubtedly helped world trade.
1385 There are major problems, and they have been well aired in the debate. The scandal of the continuing agricultural subsidising by the EU and the US ran like a leitmotiv through all the evidence. We agreed strongly with those who wanted the subsidies withdrawn. That is not a shortcoming of the WTO itself; it is a shortcoming of the US and EU, who insist on maintaining the subsidies. The WTO is not imposing them.
The noble Earl, Lord Sandwich, raised the question of bias in the WTO against developing countries. Because of the resource problem, they do not have trade lawyers. That is undoubtedly an ongoing problem. The WTO itself attempts to address the problem, but the resources that they have at their disposal for that are limited. Although there has been some progress, there must be more.
There is a division of view on whether the GATT arrangements are a positive or negative development—an argument between the noble Earl, Lord Sandwich, and the noble Baroness, Lady Symons of Vernham Dean, as it were. The problems with GATT that have been highlighted by the World Development Movement and others are important. The Government believe that those difficulties are nowhere near as great as the World Development Movement alleges. There should be more dialogue between the two sides, if they are to come to a resolution. There is an issue about the pace and irreversibility of some of the provisions in GATT. Undoubtedly, the EU is in a stronger position than individual developing countries as regards negotiations about openness.
The other problem with globalisation that we grappled with was the question of losers. We did not spend much time on losers in the developed world—rightly, as they have other options—but we worried about the shameful poverty in sub-Saharan Africa, in particular. The evidence suggested that, although the number of people in abject poverty had fallen in the past decade, it was still unacceptably high. There is a huge concentration in sub-Saharan Africa. It was argued that 95 per cent of the abjectly poor—those living on a dollar a day or less—lived in sub-Saharan Africa.
Why is that the case? There has been too high a dependence on primary products in sub-Saharan Africa. I was particularly impressed by the evidence given by Niall FitzGerald, who said that, when deciding to invest, Unilever looked for four things. The first was political stability, and Africa does not do well on political stability. The second is good macroeconomic management. The third is attractive financial returns, and the fourth is a healthy, educated and skilled population. At a time when not only is AIDS ravaging Africa but malaria is killing 3,000 children a day—3,000 children a day—it is not surprising that many investors worry about risking their investments and their staff in Africa.
Incidentally, I absolutely agree with those noble Lords who pointed out the lack of progress with TRIPS and in getting the drug companies both to 1386 make a greater volume of drugs available at acceptable prices and to make a greater investment in research for those drugs that relate to diseases of the very poor.
However, there are sonic positive signs coming out of Africa. The NePAD process, the New Partnership for Africa's Development, by which the leaders of Africa have accepted that they must take responsibility for growth and development, rather than look to the West to solve all their problems, is a major cultural shift which is hugely to be welcomed.
The growth rate in quite a number of African countries—Botswana, Ghana, Tanzania and Zambia, and even in sub-Saharan Africa in recent years—is such that the situation is not all gloom.
To sum up, we found that globalisation was on balance a hugely positive process. There are many losers—far too many—and still far too many non-gainers. The key factors for improving the process involve all the players, not least the major economies.
Earlier today there was much discussion of the conclusions of the weekend's G8 meeting. We should remember that it is only just over a century ago that the European powers were fighting to carve up Africa for their own empire. The fact that they are now concentrating on famine relief, water and sanitation, health, financing development and dealing with debt is surely an advance that should be welcomed. Much more needs to be done and the pressure needs to be maintained.
In the debate today there has been a certain difference between the pessimists and the optimists, particularly in terms of inequality and the effects of globalisation on gainers and losers. As a result of my participation in the Committee's work, I have become more of an optimist.
§ 6.51 p.m.
§ Lord Saatchi
My Lords, I join my noble and learned friend Lord Howe in saying that one has only to look at the volume of evidence from what my noble friend Lady O'Cathain called the "distinguished array" of witnesses—I think the noble Lord, Lord Newby, called it a remarkable range of witnesses—to see that the report alone is testimony to the rightness of what the noble Lord, Lord Desai, has said on many occasions. The noble Lord believes that it should be compulsory for our schools and universities to have available Select Committee reports from your Lordships' House, either to be read or, now, to be viewed on CD.
The noble Lord, Lord Barnett, was surely rightly impatient that the House should have the opportunity to debate the report, because it is so central to all our lives. As my noble friend Lady O'Cathain said, it is a thoughtful piece of work, and as my noble and learned friend Lord Howe said, it is a very well balanced piece of work. My noble friend Lord Griffiths said that it was one of the best reports he had ever seen in your Lordships' House, and I agree. It certainly is a tribute to the members of the committee, to their chairman, the noble Lord, Lord Peston, and to your Lordships' House itself.
1387 As the committee says in paragraph 55, and as the noble Lord, Lord Barnett, reminded us, globalisation is,a new departure in world affairs.It is, as the noble Lord, Lord Peston, said, "a genuinely new phenomenon", as the noble Lord, Lord Newby, said, "fundamentally different", and, as the noble Lord, Lord Sheldon, put it, "a fundamental change".
I can certainly testify to that, because I can safely say that globalisation changed my life. When I first read the original Harvard Business Review article, in the 1970s, it was a startling revelation. It struck me as stark, simple, irrefutable logic, because it was, as the noble Lord, Lord Burns, said, the application to the whole planet of the logic of the first industrial revolution—economies of scale, mass production, specialisation and the division of labour.
Before the concept of globalisation took hold, there was the old idea of the country as a profit centre, with a country manager who, if he hit his profit target for his country, would receive a bonus. But then along came that article, which said that companies should and would evolve along a continuum from loose coordination to complete integration. I was particularly struck by its conclusion, which I have never forgotten. It said:Companies that adopt this method can literally pave over competitors who are still stuck in the old ways of doing things.The clear injunction of that article was that if one does not do things globally someone else will. It determined that one should sell the same things in the same way everywhere, and so people have.
Today, 30 years later, nobody doubts the economic power of globalisation, but people share with one of the witnesses before the committee the view that the word has a "menacing ring". That is because there is, as my noble friend Lord Griffiths said, an inescapable moral dimension to the concept.
To assess that moral dimension we should, as I am told English law does, examine the motive of its proponents. What drives these companies? Is it greed? I do not think so; I think it is fear. In his famous book The Origin of Species, Charles Darwin noted the fierce competition between and within the species in nature. He observed, for example, that in birds the bones of the face, the curvature of the jaw, the number of ribs, the gape of the mouth, the length of the eyelids, the width of the nostrils, the size of the beak, the manner of flight and so on all varied remarkably. In what he called their "incessant struggle for survival" he described the process of "natural selection". Those with an advantage go forward. For the rest, extinction inevitably follows: the survival of the fittest.
The laws of Darwinism apply as inexorably and ruthlessly in commerce as they do in nature. That is why to oppose globalisation in economics is as futile as opposing Darwin in nature.
As politics follows economics, governments know this, and that means that they know that there is very little they can do about it. That may explain the 1388 anodyne response from our government that my noble friend Lady O'Cathain described. But, as the right reverend Prelate the Bishop of Chester said, that is surely a "deeply ambiguous triumph".
It is legitimate to ask, as the committee did and as many noble Lords have done today: does any good flow from this brutal market process?
Here I take my stand with Professor Lionel Robbins of the London School of Economics. Fifty years ago Robbins upheld the market as a "perpetual referendum" in which all vote pound by pound, day by day, between countless goods and services produced by unnumbered suppliers around the world, all competing in quality and price to satisfy their customers. And from that Darwinian struggle for survival better products and higher living standards emerge. "Benefits for all", I think the noble Lord, Lord Sheldon, said.
That is why I was very pleased and relieved to find the committee's conclusion, reached after reviewing all the issues. Despite what the noble Lord, Lord Barnett, and the noble Lord, Lord Newby, called the "shameful poverty" of many countries; despite the lack of education in many countries, which my noble friend Lady O'Cathain spoke of: despite the "exploitation" and "inequality" that the noble Earl, Lord Sandwich, referred to; despite the gap between rich and poor—I think my noble friend Lord Griffiths called it "the scar"; and despite the "grotesque imbalance" that the noble Lord, Lord Elton, described; despite all that, the committee still came to the conclusion, in paragraph 86, that,the opportunities created by globalisation outweigh the dangers".On that note, it is important to question how globalisation and America have become entwined in the public mind. I think that it is because the concept of globalisation has its deep philosophical roots in a uniquely American view of the world. In his famous essay on President Franklin Roosevelt, Isaiah Berlin described what he called the chasm that divides America from Europe. It may explain why America has embraced globalisation, and why so many Europeans, in the words of the noble Earl, Lord Sandwich, are "so suspicious of it". I shall quote from the essay at some length. He said that the American vision,is larger and more generous; its thought transcends, despite the parochialism of its means of expression, the barriers of nationality and race and differences of outlook, in a big, sweeping, single view. It notices things rather than persons, and sees the world (those who saw it in this fashion in the nineteenth century were considered Utopian eccentrics) in terms of rich, infinitely mouldable raw material, waiting to be constructed and planned in order to satisfy a worldwide human craving for happiness or goodness or wisdom. And therefore, to it"—the American vision—the differences and conflicts which divide Europeans in so violent a fashion must seem petty, irrational, and sordid; not worthy of self-respecting, morally conscious individuals and nations; ready, in fact, to be swept away in favour of a simpler and grander view of the powers and tasks of modern man".To me, that world view is perhaps the greatest asset of the great American global corporations that dominate the economic world. It is also their greatest liability in the eyes of their critics.
1389 We must face up to the fact, as does the committee both fair and square in its report, that the result of globalisation is American domination of the economic world. Critics say that that means not competitive capitalism, which can be admired, but monopoly capitalism—the monopoly of America. For example, in its conclusions the committee finds that "better globalisation" means that,strengthened international governance is required".Critics fear—and many members of the committee who have spoken in the debate reflected that view—that globalisation is shaking up all our institutions and has produced an entirely new version of capitalism, beyond the reach of national governments. Professor Bulmer-Thomas said as much in paragraph 153 of the report.
It is here that dislike of globalisation has merged with distaste for its chief exponent, America. There are now 37,600 Internet sites that deride American global capitalism. To the surprise of the noble Lord, Lord Burns, and as he said, anti-globalisation and anti-Americanism have become one; they have become the conspicuous feature of our age. Critics dislike the fact that globalisation has given America such a competitive advantage. America now accounts for seven of the top 10 investment banks, and eight of the top 10 companies. They disapprove of American unilateralism in foreign affairs. Hence French Foreign Minister Vedrine's expression "hyperpuissance"—beyond superpower—to describe the "hectoring hegemon".. America. As the noble Lord, Lord Parekh, indicated, critics also resent American cultural imperialism. Hollywood and the American media are said to be paving over precious national identities with a homogenised US version of life.
The critics follow Ken Tynan's injunction that we should not,sell our souls for a pot of message".For them, anti-Americanism is a branch of intellectual anti-philistinism. All critics of globalisation link hands under the unlikely banner:Join the worldwide movement against globalisation".Despite the fact that the US Government, very sadly—and, I would say, unwisely—declined to give evidence to the committee chaired by the noble Lord, Lord Peston, I was very pleased to see that the committee did not fall for the pat solutions of the corporate social responsibility movement, neither did my noble friend Lord Griffiths. Instead, as the noble Lord, Lord Newby, reminded us, the committee accepted that,often transnational corporations adopt standards higher than local businesses".The committee report ends its splendid tour d'horizon on this subject on an optimistic note, as did Darwin. Charles Darwin is often thought of as a pessimist; but that is not the case at all. He said something most uplifting at the end of his book, which I quote: 1390All that we can do, is to keep steadily in mind that each organic being is striving to increase at a geometric rate; that each at some period of its life, during some season of the year, during each generation has to struggle for life. But the vigorous, the healthy and the happy always survive and multiply".As the committee says in paragraph 81 of the report, many countries that have not been successful have failed to adapt to the globalised economy. The noble Lord, Lord Burns, echoed that sentiment today. As the noble Lord, Lord Peston, said at the beginning of this wonderful debate,That is the message".So it is. The noble Lord, Lord Paul, seemed to accept the message on behalf of India. When the noble Lord, Lord McIntosh, responds for the Government, I hope that he will not be anodyne in his comments on the benefits of globalisation. As the committee said, the healthy and happy ones will be those who understand the power of globalisation and embrace it.
§ 7.5 p.m.
§ Lord McIntosh of Haringey
My Lords, it may, or may not, be anodyne, but the Government's response to this excellent report is very clear. On virtually every recommendation and conclusion, other than that which is a search for information, the Government agree. Having said that, l could sit down at this point. However, your Lordships will not expect me to do so, because I have too much interest in the subject and too much concern for the issues raised in what the noble Lord, Lord Saatchi, rightly called a "wonderful" debate.
This is not just an economic issue. Indeed, it is also an emotional issue for all of us. One part of all of us is with the wise statesmen assembling at Evian, while another part is with the young idealists—and many less than idealists who gathered on the fringes at Annemasse, and also in Genoa, Seattle, and in many other places in the world. In many ways, these are the best of our young people; they are acting out of a profoundly-felt concern. The noble Lord, Lord Saatchi, is probably right: it is partly anti-Americanism and partly the fact that since the demise of the Soviet bloc there is only one major economic power in the world, a situation that may last for another 20 years until China catches up. Nevertheless, we are talking about profound emotional feelings, which we have to take into account.
I was fascinated by the process of thought described by the noble Lord, Lord Peston, in his opening speech. Clearly, the committee started off with a good deal of scepticism, but not about globalisation as such. Everyone agrees with the noble Lords, Lord Bartlett and Lord Parekh, that the question is not for or against. Everyone agrees with the noble Lords, Lord Griffiths and Lord Parekh, that globalisation is there and that the question is: how do we best manage it? It is not about that.
The issue with which the committee started its deliberations was scepticism about the organisations involved in globalisation—that is, scepticism about the International Monetary Fund, about the World Bank, and especially about the World Trade Organisation. However, as is clear from what the 1391 noble Lord, Lord Peston, and the noble Lord, Lord Newby, said, that scepticism diminished as the work of the committee progressed. I thought that the choice of three witnesses from whom to quote made by the noble Lord, Lord Peston, was most interesting. He chose, Noreena Hertz, Joseph Stiglitz and George Monbiot. I thought that that was probably harking back to his opening steps along the road to Damascus. But that is perhaps being unfair.
The committee must also be congratulated—or,perhaps, in this case, the usual channels ought to be congratulated—on the timing of the debate. It immediately followed the Leader of the House repeating the Prime Minister's Statement on the G8 summit at Evian. A great deal of the work at Evian is relevant to globalisation and to the subject matter of the committee's report. I shall highlight some of the commitments made which show that there is a will to meet the challenges of globalisation on the part of all countries: a new commitment to further work to develop the Chancellor of the Exchequer's proposal for an international finance facility, about which I shall comment in due course; the endorsement of the Finance Ministers' approach to strengthening global growth and addressing the causes of financial instability—that is not a subject of much debate, but I want to say something about it before I conclude—and a range of practical commitments to enhance sustainable development that were agreed at last year's meetings in Johannesburg and Monterrey.
In the chair's summary of the Evian summit there is a commitment to the delivery of Doha goals on schedule by the end of 2004 and a commitment to the results expected from Cancun. I hasten to say to the noble Earl, Lord Sandwich, and the noble Lord, Lord Newby, that that includes a commitment to dealing with the availability of medicinal drugs at a reasonable price in the third world.
The issues discussed at Evian are at the heart of much of this debate and much of the subject matter of the report. I turn to the international finance facility. I was particularly grateful to the noble Lord, Lord Griffiths, for his remarks. It is important that there should be a reliable source of funds for an international development financing facility that can leverage funds from international capital markets to meet the demand for large-scale assistance and to make it possible to achieve the millennium development goals earlier than would otherwise have been possible.
I believe that everyone except my noble friend Lord Parekh is agreed that the answer is not the Tobin tax. I understand why my noble friend had to leave; he has apologised to me. I am glad to see the noble Lord, Lord Skidelsky, in his place. In September 2001, Tobin said:The Tobin tax is in Europe now the focus of reform and protest movements. I have had nothing to do with them and am not informed of their platforms. I cannot control the use of the words 'Tobin Tax'. While I assume that most advocates mean well, I deplore the tactics of extremists. I am, like most economists, in favour of free trade and I welcome developmental capital investment in poor countries, both private and public".1392 If that is not what the noble Earl, Lord Sandwich, calls a red herring laid to rest, I do not know what is.
The Chancellor's international finance facility—it must be recognised as his initiative, together with Clare Short as Secretary of State for International Development—is of great importance and considerable size. It would meet the 50 billion dollar financing gap by doubling aid from 50 billion dollars per year today to up to 100 billion dollars per year in the years up to 2015. It would provide an important opportunity for donor countries to improve the predictability and stability of aid to the poorest countries to enable them to invest in medium-term programmes such as the development of education—a question raised by the noble Lord, Lord Hylton, in the debate on the G8 Statement—and health systems.
We are making good progress and it is good to see that the international finance facility is in the chair's summary of the Evian summit. That leads me on to aid. It is important that the developed countries should be prepared to increase vitally needed funds to achieve the millennium development goals. It is true, as many speakers have said, that progress on the millennium development goals has been far from uniform. East Asia and the Pacific have seen a rapid reduction in poverty. In sub-Saharan Africa none of the targets is on track.
I accept much of what was said about the reasons for that. I was particularly impressed by the comments of the noble and learned Lord, Lord Howe, about the globalisation of law. I was interested to hear the points about effective financial institutions in the Czech Republic and Poland. But the noble Lord, Lord Vinson, made a point following Hernando de Soto about the need for recognition and securitisation of capital assets that exist but have never been counted. That is an important complementary consideration.
The noble Lord, Lord Barnett, almost criticised the Government for inadequate aid. This is the only party political point I shall make: the spending review 2002 increased our aid programme to 0.4 per cent of GDP by 2005-06, which is above the EU/Monterrey target of 0.39 per cent. It represents a growth in real terms of 8 per cent per year.
The noble Baroness, Lady O'Cathain, and the noble and learned Lord, Lord Howe, were right that we must accompany aid with support, not threats. We must provide incentives for countries to adopt suitable codes and standards. I hope the noble Baroness will be encouraged to know that 70 per cent of the reports on observance of codes and standards are now published. That is becoming more of a standard process.
In terms of amounts of money, aid is insignificant in comparison with trade and foreign direct investment. Those developing countries that have been more open and trade more in the world economy have seen faster growth. That is the fundamental theme of the report and of the World Bank research, which suggests that the elimination of harriers to merchandise in both industrialised and developing countries could result in welfare gains—it says here—from 250 billion US 1393 dollars to 620 billion US dollars annually, of which over one third would accrue to developing countries. Those figures are beyond my ken.
In agriculture alone, the tariffs and subsidies of advanced economies cost developing countries an estimated 20 billion to 30 billion dollars per year directly, offsetting the value of 40 to 60 per cent of total annual aid flows from rich to poor countries. So many speakers spoke about protectionism and, in particular, the common agricultural policy, that I lost count: certainly the right reverend Prelate the Bishop of Chester; my noble friend Lord Paul; the noble Earl, Lord Sandwich; the noble Lord, Lord Burns; and the noble and learned Lord, Lord Howe, among others. The notable exception was the noble Lord, Lord Vinson, who stands up gallantly against received opinion on the matter.
The noble Earl, Lord Sandwich, and my noble friend Lord Elder criticised the Government for not supporting the France/Africa trade initiative. There are doubts about it; it is not just that it does not go far enough, as the Leader of the House said earlier. There are fears that it would entrench rather than eliminate subsidies in other parts of the world and that it would make Africa in particular dependent on continued protection from other developing countries. We take the view that multilateral liberalisation is a better process.
I agree with much of what has been said about the progress on the Doha round. There have been missed deadlines on TRIPS, public health, special and differential treatment for developing countries—a point that I believe was made by the noble Lord, Lord Newby; perhaps not. G8 has reinforced world leaders' determination to see that we get back on track with Doha and continue with Cancun.
In the debate on the G8 Statement, the noble Lord, Lord Elton, asked me to answer his point about support for smaller countries being present and represented at WTO meetings. I am glad to be able to do that. Agreed at Doha was trade-related and technical assistance capacity building and, as he rightly pointed out, fulfilling the Government's undertaking in the White Paper published in 2000 to contribute £45 million to that process. Some 80 per cent of that has been committed. I can assure the noble Earl, Lord Sandwich, that capacity building does include presence at WTO meetings. Furthermore, at Evian the Action Plan on Trade declared that we shall deliver capacity building technical assistance to developing countries in need to help them participate fully in WTO negotiations, implement trade agreements and respond to the trade opportunities created in co-operation with other bilateral and multilateral donors; 1.7 billion US dollars has been provided in 2002, representing a 16 per cent increase over 2001.
In addition to trade in the traditional sense I shall make only a passing reference to private investment, which is certainly the engine of economic growth. Foreign direct investment is an important source of financing for investment in developing countries and 1394 provides a vehicle for the introduction of new technologies and skills. This forms part of the corporate social responsibility agenda. I understand the scepticism expressed by my noble friend Lord Elder and on the whole I agree with the noble Lord, Lord Newby, when he said that he was in favour of reporting, even though that reporting is not always as it might be. As my noble friend Lord Peston and the noble Baroness, Lady O'Cathain, pointed out, transnational corporations increasingly recognise that they should attempt to answer these types of concerns in engaging with initiatives such as the UN Global Compact and the Global Reporting Initiative. The Government have been supporting those initiatives.
I shall say a brief word in response to my noble friend Lord Paul on migration. He set out very well indeed the difficult balance to be struck between natural justice—the right to live wherever you want—and the injustice of' developing countries losing those whom they have trained at great expense. He was right to say that the answer lies in support by the developed countries for aid for education in the developing countries. Of course that is a theme of the International Finance Facility.
Finally, I want to say a few words about Financial stability, which was not a subject of debate but is one of concern both to myself and to the Treasury. The right reverend Prelate the Bishop of Chester recognised the fears that might be felt on that. We have done quite a lot on this. Since the Asian crisis of 1997–98, we have recognised the extent of the risks. The links between the economies of the region at the time led to a remarkably swift reversal of capital flows and stalled the most rapidly developing economies in the world. It forced the international community to rethink. As a result, transparency in international institutions and on domestic policy has become central to the management of the global economy and the international financial institutions are embarking on a process of self-examination, which was discussed today.
Yes, things have been getting better. Let us take the example of the crisis in Argentina. If it had taken place seven or eight years ago, it would have spread much more rapidly to countries such as Chile, Mexico and Brazil; it has not done so. That does not mean that there is not much more to do, but for individual countries the lessons to be learnt are to ensure sound policies and institutions, which are domestic issues. However, the international community can help by supporting adherence to internationally agreed standards and codes. To that end, almost 100 countries have now been assessed against at least some of those.
For institutions, the procedures require continuous improvement. I thought that the point made by the noble Lord, Lord Griffiths of Fforestfach, about IMF surveillance was extremely valid. As the noble Lord knows, it is one close to the heart of the Chancellor of the Exchequer. He thinks that the IMF should be as independent of' influence in surveillance as an independent central bank is in its implementation of monetary policy.
1395 I have reached the limit of what I tried to set for myself. I hope that I have responded to many of the individual points, but I hope that I have also reinforced the point the Government make in response to this excellent report—that we agree with its conclusions. The report has steered an intelligent course around the controversies and emotion produced by this issue. It has brought together an astonishingly wide range of high quality evidence on many facets of globalisation and I congratulate all those involved in its production.
§ 7.25 p.m.
§ Lord Peston
My Lords, I shall not ruin what the noble Lord, Lord Saatchi, called a wonderful debate by going over the ground again. All the speeches were excellent and all shall have prizes.
§ On Question, Motion agreed to.