D+C Development and Cooperation (No. 5, September/October 2002, p. 4-5, 28-29)

Each year in his "Berlin Address", German Federal President Johannes Rau takes up a subject of particular importance and relevance for German society. This year, the President dealt with the effects of globalization and how it is changing the world.

Three years ago half the German population had never heard the word "globalization". Today virtually everyone is familiar with it. No political debate, no speech on the future of society, no economic analysis is complete without it.

The "one world" - which just a few years ago was the hope of alternative movements and so-called Third World groups - now seems to be becoming reality in quite a different way than once envisaged - through cross-border financial flows and company mergers, through the Internet and mobile phones.

We encounter the word "globalization" almost daily as an argument, albeit an argument for many different things: for radical education reform, for English lessons even in kindergarten, but also for cutting jobs, easing ethical standards, for instance in genetic engineering, for relocating company headquarters, for mergers - even for strawberries being available all year round.

Some say that globalization leads to the loss of familiar ties and the undermining of the nation-state - and are afraid of this. Others are delighted that the rule of the market and its laws will soon apply everywhere and to everything.

To some it all seems like an inescapable fate, a disaster, to others it is the promise of a golden age.

History has taught us that nothing - no technical invention, no political development, no social change - automatically leads exclusively to change for the better or worse for everyone. And with globalization, too, what counts is what we make of the new possibilities.

But many people today are asking whether one can do anything at all. Surely globalization cannot be influenced? Is it not like a natural phenomenon in the face of which we are powerless? If that were the case there would indeed be no sense in even trying to think how we could shape it and who should do so. But globalization is not a natural phenomenon. It is sought and made by people. That is why people can also change, shape and guide it in the right direction.

But one has to look very closely: There are amazing new opportunities - and there are tangible interests. There are people who make decisions - and there are people who have no say. There is greater prosperity and a wider cultural exchange - and there are countries and regions which are left behind.

We can and must ask: Who - thus far - are the winners and who - thus far - the losers of globalization? Where does globalization allow us access to foreign cultures? And where does it lead to an indefinable uniformity of lifestyles, with everyone eating the same food and watching the same films? Are we not getting too close to each other? Is not distance, or the possibility of keeping some distance, part of the progress of civilization?

We are all affected by globalization - even though we are not yet all truly aware of how it actually functions. And so we must try to understand what is happening and why. We must regard globalization as a political challenge and take political action. If we are to be able to shape globalization, we need new political responses.

The phenomenon which we today call "globalization" has historical roots. What we are seeing today is not a sudden dramatic change, but nor is it merely the continuation of what has gone before.

We are experiencing changes of a new quality. We are seeing international relations intensifying in an unprecedented manner. This is true in terms of business, the international division of labour, transport and communications, encounters with foreigners and foreign cultures, environmental issues and legal matters. We are seeing the emergence of international networks

All this is particularly visible on the financial markets:

• Trade in stocks and shares between the industrial countries was thirty times higher in 1998 than in 1980.
• Foreign direct investment, in other words the purchase or establishment of companies in another country, increased by 400 per cent through the 1990s. This means that more and more companies are operating on an increasingly international basis.

However, globalization has repercussions extending beyond markets for goods and networked financial markets: it also affects our approach to nature, it affects people’s lives and living conditions in many countries.

Not for a long time has there been such a broadbased international protest movement as the anti-globalizationists. For the first time in years people from across the world, from very different social and political backgrounds, are coming together with a shared cause: from the Guatemalan farmer to the New York student, from the trade union representative in Göppingen to the Cardinal of Genoa.

This movement prompted thorough reflection and asks good questions. This is true even if its demonstrations again and again end in violence. Everyone must realize that violence is not an instrument of political argument. Sensible critics and sensible supporters of globalization are not irreconcilable. Globalization’s supporters emphasize the opportunities inherent in it. Its critics oppose negative developments and point out the risks. Criticism is always a kind of early-warning system which politicians and business should not ignore.

The 1998 Nobel Laureate in Economics, Amartya Sen, has said that although he is in favour of globalization, he thanks God for the anti-globalization movement. How right he is.

Only those who have clear values going beyond the commercial can shape globalization. We must be clear about how we can secure and promote freedom and justice for all in the age of globalization. Our freedom is important to each and every one of us. Economic freedom is one of the fundamental liberties. It is the prerequisite for a strong economy and for prosperity for all. That is why money can justifiably be called an instrument of liberty.

Economic freedom, like all freedoms, is based on preconditions and depends on ties. It will quickly expire where there is no order and where order cannot be enforced. Giving the market a framework and organizing competition fairly is one of humanity’s major cultural achievements.

No one is free simply because he can participate in the market. But everyone loses part of his freedom if he is excluded from the market. Only those who regard the freedom of the market as part of universal human freedom can credibly seek the freedom of the market. The market, too, depends on conditions which it cannot itself create.

If the market is now becoming global, we need systems of order which will secure people’s freedom worldwide. Politicians must ensure that the freedom of the global market cannot impinge on the freedom of individuals. Everyone must be able to share in the benefits of the global division of labour. We are a long way from this ideal. Globalization is not yet as global as it sounds:

• Forty per cent of the world’s population live in the poorest countries of the world, their share of world trade is less than three per cent.
• In contrast, over three quarters of world trade is effected by just under sixteen per cent of the world population.
• Over eighty per cent of direct investment is concentrated on just ten countries.
• Thirteen per cent of the world population lives in Africa, but they have only 0.3 per cent of all Internet connections.

There is no way around it: so far globalization runs the risk of fragmenting the globe. We can never assess the market solely in terms of its impressive results for the winners. We must also always ask how these results were achieved.

A policy of freedom will only be convincing in economic terms too if it frees people from exploitation, poverty and overindebtedness, if it provides equal opportunities, if it helps promote mutual respect and if it lets all people share in global developments. The aim must be no more and no less than such a liberal order.

Ensuring the freedom of every individual is so important because we people have equal rights but are so very different. We are different and we want to be different. And the market thrives on these differences and on the desire for difference. Differences make life fun, exciting and sometimes even fascinating. But there is a degree of social inequality which we do not want and which is indeed harmful.

Certainly much has changed for the better throughout the world in recent years:

• Per-capita income in the poorest countries has more than doubled over the past thirty years;
• average life expectancy has risen by twenty years worldwide;
• child mortality has decreased;
• starvation is rarer across the world;
• illiteracy rates have fallen.

But it is also true that the gap between people’s living conditions is constantly growing - both on the global scale and within individual societies:

• One billion people do not even have access to clean water.
• A child in the industrial countries consumes on average fifty times as much as a child born in a developing country.
• In the so-called emerging market economies, for instance Argentina, the new middle class is threatened by poverty. Well-off citizens are taking to the streets.
• In 1970 a manager in the US earned on average 26 times as much as an industrial worker. In 1999 he earned 475 times as much.

We should follow a different path in Germany. In some industrial countries many of today’s employees earn less than their parents did. When the inequalities in society become too great, many people say: "This is no longer my community. There’s no fair chance for me here." When the sense of injustice spreads, people react with withdrawal or protest, rejection or even violence.

Horst Köhler, Managing Director of the International Monetary Fund, says: "The extreme inequalities in the distribution of the prosperity dividend are increasingly becoming a threat to political and social stability." He is right.

Some economists believe that one can determine the point from which higher tax rates lead to lower tax income. But we also need to know more about the question of how much social equality is necessary and about the point at which inequality becomes socially unacceptable and economically harmful. In Germany, too, we need a debate on how much social inequality we can accept in our own country and worldwide. And that, by the way, is not the same as a discussion of envy.

Freedom and justice

Freedom and justice - these are values to which we must orient ourselves if we want to shape globalization positively in both political and economic terms. The overindebtedness of many countries is not merely an economic problem. It is an existential problem for many people. Their country’s indebtedness robs them of the freedom to share in the advantages of globalization.

Corruption and mismanagement are the terrible causes of the dramatic situation confronting many countries. Something must be done about them in these countries themselves. However, the applicable rules on international capital flows still make dubious financial transactions too easy.

For far too long the developing countries’ debt problem was regarded merely as a question of their temporary inability to pay, not as a structural problem. Attempts to solve the problem by granting more and more loans and by extending their debts were therefore bound only to make the situation worse.

The G8 Köln Debt Initiative of 1999 has to date helped the 23 most highly indebted countries to the tune of 53 billion dollars. That is a huge step in a new direction. But we need further initiatives. We need insolvency rules for states.

In previous attempts to solve debt problems, the creditors have simultaneously played the roles of consultant, plaintiff and judge. I am pleased that the International Monetary Fund too is now talking seriously about reform.

If there were an international insolvency procedure with which the problems of overindebtedness could be solved, this would be a convincing signal of a responsible approach to globalization. As is the case with private bankruptcy, the guiding principle should be to support the claimant and to get the one who has gone astray back on course.

As early as 1776 a Scottish economist who is worshipped by many even today as the father of the market and free trade called for a fair insolvency procedure for states. Adam Smith quite simply recognized how necessary the visible hand of government regulatory policy is.

The poor countries can do much to help themselves. But this presupposes that we give them a fair chance in trade and do not close off those parts of our markets where the developing countries’ products would be competitive.

The Chief Economist of the European Central Bank, Ottmar Issing, is right when he says: "It is indeed a strange understanding of ethics and morality when rich countries hire the technical elite from developing countries while at the same time blocking market access for the products made in those same countries by cheap labour".

The members of the World Trade Organization have been negotiating further liberalization for many years. Differing interests collide. Often they all apply the principle: We are in favour of free world trade if it benefits us. The United States is familiar with this approach from us and we are familiar with it from the US.

We must gradually open our markets for all products from the developing countries. That is why the European Union is correct, for instance, in intending to completely dismantle its grain export subsidies in just a few years. Naturally I am aware that this will lead to structural problems in our own economy. And so policy-makers must take up the matter promptly.

We can only expect the developing countries to accept high social and environmental production standards worldwide if we ourselves are prepared to open up our markets. We must provide financial and technical assistance in order to help these countries meet the standards required in the interests of all.

By the way, ninety per cent of the money circulating in the world each day has nothing to do with the exchange of goods and services. Over two trillion euro, over two thousand billion, is moved around each day purely speculatively. This can cause the social and political destabilization of entire countries, indeed can drive them to economic ruin.

A very broad coalition has emerged, comprising not only wellknown critics of globalization but also politicians of all hues as well as Nobel economics laureates, all of whom agree on one thing: we must do something about speculation and we can do something about it.

I do not know if the so-called Tobin tax on currency speculation is the best instrument. But I do know that politicians must as a matter of urgency create instruments for an international financial market system if they want to get this problem under control and so that they can get it under control.

Need for regional and global
cooperation

When problems are or become global, then politicians must act globally too. Examples include climate protection, the international financial system, competition for business, social dumping, economic crises and the causes of flight. It has now become the norm to discuss how to tackle these global challenges on the basis of equality under the heading "global governance".

Global governance does not mean ruling the world, and it certainly does not mean that the nationstate is superfluous. However, the international community must work together constructively. We need regional and global cooperation, not centralism; we need multilateral cooperation, not the primacy of individual states.

But global cooperation is already much more advanced than we sometimes realize:

Global and regional organizations monitor elections, combat new forms of organized crime and take decisions on humanitarian intervention. Arms control and disarmament are further important elements of an international regulatory framework.

The most important element is the United Nations. The United Nations must be strengthened. It is after all much more than just the Security Council. It also concerns itself with health issues and industrial health and safety, with global environmental issues and with the fight against hunger and poverty.

The debate on the reform of the United Nations is at last underway. It is good that many sides are participating. The tasks facing us today are not those of fifty years ago. The United Nations must take account of this.

Global governance also implies a globally recognized legal order. We need reliable, independent courts and arbitral bodies to arbitrate in disputes, punish international crime and ensure that anyone who violates international order must fear the hand of the law. I confess I am worried that the establishment of an International Criminal Court has suffered such a severe setback recently.

Three institutions today are particular determinants of the shape of globalization: the International Monetary Fund, the World Bank and the World Trade Organization. Of course the work of these organizations is also the target of criticism. Some people accuse them of focusing on unilateral interests and demonstrating a blind faith in the market.

The developing countries must be given greater weight in the decision-making bodies of the World Bank, IMF and WTO. These organizations are under obligation to people across the globe, they are not slaves to economic or other specific interests.

We Europeans must bring our ideas of a social and environmentally-friendly market economy even more strongly to bear than we have done thus far. This, too, is a logical consequence if we are and if we wish to take on increased global responsibility.

Regional cooperation strengthens international cooperation. It wins back the sovereignty, the democratically legitimized power, which individual nationstates have lost as a result of globalization. The European Union is a successful illustration of this. It can and must make an important contribution to globalization. As a response to the challenges of our age it is an example for other regions to follow.

The nongovernmental organizations, too, provide substantial impetus in giving globalization political shape. They help to identify problems and develop strategies for their solution. Companies and entrepreneurs are responsible not only to their shareholders and employees. They also bear a social responsibility in the town, region and country in which they operate. There is a well-established tradition of this in many companies in Germany.

In 1999 Kofi Annan called upon the multinational enterprises to join in a "Global Compact", pledging to respect human rights at all production centres, to employ neither forced nor child labour and to operate in an environmentally responsible manner. Even more companies should respond to this call. By the way, anyone can look on the Internet to see which companies are facing up to their social responsibility worldwide and how.

All multinational companies must face up to the question of whether they comply with these standards. The trade unions have since their foundation always regarded themselves as international, because solidarity cannot stop at national borders. Today more than ever they must fight to ensure that workers in different countries are not played off against each other. Every one of us can do something. Everyone can contribute to fair world trade. This may seem naive, but there are good examples.

• Many consumers buy fair trade coffee, orange juice and cocoa.
• Goods with "Transfair" marks had a turnover of 53 million euro in Germany last year. Their market share is just one per cent for coffee, 2.5 per cent for tea. There really is terrific potential for increasing these figures. Another example is the "Rugmark", which guarantees that a carpet has not been made by children.

Many people associate globalization with the fear of losing something: their home, their identity, the possibility of influencing factors which determine their lives. This is undoubtedly more true in other countries than in Germany.

We all know how difficult it is to give political shape step by step to economic globalization. But it is inordinately more difficult to prevent globalization from leading to the loss of cultural diversity and cultural identity.

What we are experiencing today is not so much the emergence of a new culture from many different roots. What we are seeing is awash with European and North American characteristics and is therefore largely familiar. To many people, however, globalization means that their traditions and their attitudes are being ousted and eclipsed.

These people know and appreciate the benefits of economic progress. But they also notice how little their traditions, their culture - quite simply, the very fact of their difference - is respected when it comes to easing the way for economic progress, for the global market.

These people feel that their dignity has been violated. They feel like losers and indeed many of them are. Anyone who feels himself to be homeless and uprooted can easily fall victim to fundamentalism or populism. We have seen this over many years, not just in faraway countries. Political extremists are gathering large followings in European countries too, gaining a frightening number of votes in elections.

We can only stem this dangerous development if we take seriously such feelings of alienation and trace their causes. A globalization which overstretches people will in the end damage society as a whole. This too shows that globalization must be given political shape.

Only if we are prepared to respect different cultural, religious, economic and political identities and formative social ideas will we succeed in working and living peacefully together in our own country and in the one world.

Pressure of competition

The international environment in which the German economy operates has changed in recent years. International competition has heightened. Not only entrepreneurs feel this, employees do so too. Craft businesses are noticing that the number of suppliers of primary products is falling, and that the power of large companies to influence demand is increasing, as is pricing pressure. Never have so many workers worried that their company might become the object of a foreign takeover, and what would become of them then. That is a topic of conversation in the factory, in the pub and at home. People are realizing that: the permanent mobility repeatedly demanded of employees has concrete repercussions for families, friends and clubs.

People are not as mobile or free as capital: they never will be, nor do they want to be. We need a home and familiar surroundings. We need family ties, friends, acquaintances, a strong social network. People need warmth and a sense of security. Anyone who regards all this as oldfashioned is mistaken. Politicians must take such fears and uncertainties seriously. They must offer orientation.

A social welfare system which can cope with the major risks in life strengthens the freedom of the individual. Anyone who is afraid of what tomorrow may bring will cling desperately to what he has today. A basic feeling of security and reliability makes people more open to new things.

The welfare state does not put the brakes on economic dynamism. On the contrary: if it is managed correctly it enhances economic performance, because it relieves the burden on people and creates scope for creativity and achievement.

Let me say it again: many people associate the word "globalization" with fear and anxiety. We can seize the opportunity afforded by globalization if we do not accept it as fate, but recognize it and take it seriously as a political task.

• Globalization will be an opportunity if we orient ourselves to the principle of the freedom and equality of all.
• Globalization will be an opportunity if people from different civilizations respect each other.
• For us in Germany globalization will be an opportunity if we improve our education system for all, if we do something for everyone, the highly gifted as well as those who have difficulties, if we promote science and languages as well as art and music.
• Globalization will be an opportunity for us if we manage to make our taxation system simpler, fairer and more transparent. Modern tax policy must not turn into a race to cut taxes - neither between parties nor between states.
• Globalization will be an opportunity for us if our social systems are strengthened, if they embody solidarity and are organized more efficiently.
• Globalization will be an opportunity for us if we make public administration more efficient and take it closer to the citizens, because we know the value of public institutions.
• Globalization will be an opportunity for us if we know where our home and our roots are. Then we will also be able to integrate foreigners and manage immigration.

Whether we will be successful depends on whether we confine losers to the sidelines or whether we give everyone the chance to make something of their lives. If people feel cut off, if they feel that globalization is proceeding without them or even against them, then they will become opponents of globalization and also opponents of democracy and the rule of law.

Globalization presents us with a challenge. We must and can give it political shape. That demands a great deal, but no more than we can give. We have learnt that government cannot work miracles. Similarly, we should not forget that the market, notwithstanding all its achievements, is not a panacea for all ills.

Globalization will be a success if dynamic market forces are steered on a favourable course. People all over the world must see that they are at the heart of things. They must be able to appreciate that politics and business are run for the good of the people. We must now discover this anew.