In my role as Chairman of the parliamentary Select Committee on Economic Globalisation I learned with a degree of surprise that the term globalisation was brand new. It began to play a role in public life not earlier than in 1993. Fig 1 shows it for the German language but similar pictures are obtainable for other languages.

Fig. 1: The career of “Globalisierung”, i.e. globalisation in the German newspaper FAZ.

The strongest reason for the sudden appearance of the term globalisation has been the end around 1990 of the Cold War. 1990 was a real watershed date of history.

Nearly everybody was happy at the time. After all,

• We were freed from the spectre of a Third World War;
• Democracy, free speech and free press spread throughout the world;
• Well-positioned and well-governed countries enjoyed exciting new opportunities, e.g. the US (owning the largest amounts of capital which could be invested at the places of highest profitability world-wide) and China (with its immense labour force, emerging high technologies and high discipline).
• Stock markets soared, letting market capitalisation of the world’s total stocks triple within ten years. The sharp increase of foreign assets shows that this growth of value was interlinked with the globalisation of capital markets.
• Inflation was sent down in most countries to the lowest levels since the 1950s.
• The Internet became an immensely powerful tool of worldwide communication. It also massively spurred economic globalisation.

Fig. 2: The 1990s saw a jump in foreign assets. The picture shows foreign assets as percentage of the World GDP, Source: Nicholas Crafts, IMF in: Financial Times 01/23/03.

Fig. 3: The rise of the Internet, measured by the number of Internet hosts.

The downside of globalisation

However, for all the good news, there is also a downside to globalisation. During the Cold War, international capital had always to seek consensus with national governments and parliaments in the North and the South. In the South, governments used to play on the East-West tensions to induce the inflow of official development aid or of private capital.

In the North, the Cold War had forced governments to establish an attractive social security net to prove to the masses that capitalism took better care even for the poor than communism. In Germany it was the Social Market Economy launched by Ludwig Erhard in the 1950s. But the entire European Union was constructed around that model of an “inclusive” capitalism. Progressive income taxes and hefty corporate taxation were never seriously disputed. For business and for the rich this may have been annoying but it was anyway better than communism.

With the end of the Cold War, the need for consensus disappeared. Now the name of the game was catch as catch can. Competition got ever more brutal. You can see it from the number of business bankruptcies in many countries, including Germany.

Fig. 4: The rising tide of annual business bankruptcies after 1990 in Germany. 2003: HERMES-Prognosis.

Let me illustrate what happened by an anecdote from the automobile sector. Volkswagen got into deep troubles in 1993 because its cars were simply too expensive for the competitive world market. In response, Volkswagen hired a fairly controversial Spaniard, Mr. Ignacio Lopez whose task was to reduce costs, which he did by squeezing the last penny out of the parts suppliers, by saying they had to supply the same quantity and quality of parts next year, but at ten percent lower costs. If they complained hinting at their own costs, he coldly replied that Volkswagen would then go to another supply firm, maybe in Malaysia or Czechia.

It sounds brutal and it was brutal. But then, Fiat, which, I am sure, was much gentler to its part suppliers, ran into deadly difficulties a couple of years later.

For the state, the situation was not at all more comfortable. The increasing weakness of the state in negotiating with the private sector was soon felt in the field of taxation. Fig. 5 shows the steady decrease of corporate tax rates, resulting from ever-increasing pressures the private sector imposed on the states, in this case the OECD states.

Fig. 5: Corporate tax rates have been systematically reduced during the 1990s.
Source: KPMG Corporate Tax Rate Survey.

The joy of the winners and sadness of the losers

You can imagine that many people were truly happy with the new situation. The market philosophy originating with Adam Smith in the 18th century became something like a new religion. The Adam Smith Institute had a Christmas card recently showing the exuberant joy on the part of the new religion:

Fig. 6: A Christmas card from the Adam Smith Institute.

Unfortunately, there were also many losers, notably the poor in the developing countries. Fig. 7 shows the unfortunate dynamics of a growing gap between rich and poor in the world. Since the 1970s, the factor of the accumulated income of the richest 20 percent of the world population divided by the accumulated incomes of the poorest 20 percent rose from 30 to 75!

Fig. 7: The gap is growing between the rich and the poor.

During the 1980s, the reason for this growing gap were the “forerunners” of globalisation, the debt crisis and the “Washington Consensus”, which mandated the IMF to force liberalisation, privatisation and budget austerity upon countries needing IMF money. In the mean time, Joseph Stiglitz and others have brilliantly demasked the Washington Consensus as something that mostly benefits capital and rather impoverished the poor. In Latin America the effects were aggravated by the skyrocketing since 1979 of the US dollar interest rates leading in heavily indebted countries to what is now called the lost decade.

Keeping a balance between public and private interests

Before coming to solutions let me first recapitulate that Adam Smith himself made it clear that at least three conditions needed to be fulfilled before markets could become a blessing for all. (i)External peace and (ii) internally the rule of law are necessary to let the “invisible hand” work for the wealth of nations. Moreover, (iii) the state has to safeguard services and investments that are not by themselves profitable on the markets. Among them you would count mass education, infrastructure, social cohesion, culture or care for the environment.

“Inclusive” capitalism can be seen as one of the best ways of fulfilling Adam Smith’s conditions. When globalisation began to attack social justice and the provision of elementary infrastructure services, it thereby began to destroy the balance between public and private interests and thereby the very basis of healthy capitalism.

To visualise the idea of that balance, let us go through a small series of pictures symbolising the shift of power from the public to the private sector:

Fig. 8: In the 1970s the state was dominant but the business sector was happy.

Fig. 9: In the 1980s, the state was on the retreat.

Fig. 10: In the 1990s, globalisation set in and made the private sector dominant over public interests.

Let me submit that it is now high time to re-balance public and private interests.

Democracy, US unilateralism and WTO

To put it in more dramatic language: What we are up to is nothing less than a re-invention of democracy.

How that? Have I not said at the outset that the end of the Cold War helped the spreading of democracy? True enough, but at the same time nation states have lost much of their power to shape their own future because they have to obey the rules of world markets.

There is one country that feels differently about the new situation after 1990, the USA: Thomas Friedman, author of the brilliant book The Lexus and the Olive Tree wrote an enlightened article the New York Times (June 2, 2003) by, entitled Why the rest of the world hates America. He quotes a Pakistani saying that America is touching the daily lives of Pakistanis more than their own government does. This disturbing observation would not have been true before 1990 because it is only since 1990 that the US remained as the only superpower. If Washington judgments and decisions touch peoples lives more than their own parliament’s and government’s decisions do, the very meaning of democracy is at stake: What’s the use of going to the ballots if whom you vote for matters less than how some fellows on the Potomac behave?

To prevent too much of US unilateralism, many governments in the West – understandably – put their hopes on multilateral agreements. But then, what kind of agreements are there that have the capacity to impress America? America coldly disregards the International Criminal Court, the Kyoto Protocol and even the ABM treaty negotiated between the superpowers twenty years ago. The set of rules impressing America most are the free trade agreements. But there we are in a Catch 22 situation. Governments try further to strengthen the WTO, but in doing so sacrifice even more of their own democratic sovereignty. And regarding the aforementioned balance, WTO rather makes things worse by its inbuilt tendency of protecting the private sector at the expense of public sector needs.

As I write this, it is not clear yet whether the next WTO Ministerial at Cancún will make headway on global investment protection and the other “Singapore Issues”. There is no need for me to advise governments and NGOs from the South to be extremely cautious about the Singapore Issues, which further erode the shaping powers of national democracies.

NGOs have been active in challenging recent developments of the free trade agenda, including in particular GATS and TRIPS, both addenda to the old GATT during the “Uruguay Round” of negotiations.

I am not saying that trade in services (GATS) and patent protection (TRIPS) are per se undesirable, but we need a context of rules ensuring a reliable balance between public and private interests. How can that look like? Is there a chance of re-strengthening democracy, the public sector and the good sides of the nation state?

Global governance and civil society

I suggest that there are two mutually supportive strategies available for re-inventing democratic mechanisms:

• International rule-setting, often called “global governance” but also rules-based regional governance such as in the EU;
• The strengthening of a third actor, civil society, the NGOs, which can case by case line up on public issues with democracy thus strengthening both.

International rule setting and global governance should, of course chiefly address those aspects of political life that have come under that awful pressure of global competition. That is human rights, social equity, and environmental protection. The subordination under WTO rules of social and environmental treaties must under all circumstances be avoided. Shame on negotiators at the World Summit on Sustainable Development (Johannesburg, 2002) who tried to do exactly this! Climate change is likely to hit the poor far more than the rich. Also biodiversity losses could be disastrous for small farmers in developing countries. The ILO is right to insist on core labour standards that are essentially human rights protecting the weakest actors of the global economy. And the Forum on Financial Stability was right to establish recommendations (hopefully to become rules) against wild currency speculations.

Global governance also needs structures. The most important structure is the system of the United Nations. The UN are the hope also for those who are afraid of too much US unilateralism.

More realistic than global governance is regional governance. We see a number of regional economic groupings such as NAFTA, Mercosur or APEC. But none of them has so far attempted, let alone achieved a degree of democratic rule setting of the type built up in the process of European unification.

While deepening economic cooperation and integration, the EU (formerly the EEC and the EC) has created impressive mechanisms of democratic control, legal supervision, geographical spread of the benefits accruing, and political including environmental coordination. We have a European Parliament, a European Court of Justice, the “Cohesion Funds” and a regular coordination of policies at the Council level. Soon we shall even have a European Constitution. The EU is also reasonable open to cooperation with the NGOs, although so far the industrial lobbies are far stronger in Brussels than their NGO counterparts.

What is systematically deficient about global governance and even regional governance is direct and democratic participation of citizens. It is virtually impossible for “the man or the woman on the street” to influence the European Commission, the WTO or the Conference of the Parties to the Climate Convention.

This is where the NGOs come in forcefully. Everybody can join an NGO and strengthen its influence. Civil society can play and does play an increasingly important role in global affairs. NGOs can cry alarm whenever something scandalous goes on. Civil society consists of churches, trade unions, environmental NGOs, philanthropic clubs, scientific groupings, and the whole gamut of charitable or at least not-for-profit NGOs. Nearly all of them, almost by definition, defend some public good. In many cases have these groups made themselves heard and forced the private sector to withdraw from unacceptable practices. One of the earliest cases was the “Nestlé kills babies” campaign against Nestlé’s attempts to shift African mothers from breast-feeding to formula milk. In some case NGOs can cooperate with private companies on safeguarding particular public goods. A case in point is the “Marine Stewardship Council” formed by Unilever and WWF to ensure sustainable fishery by the firm.

Without NGO power both national democracies and international treaties such as the Climate treaty or the Universal Declaration of Human Rights can easily be marginalized or ignored!

NGOs can systematically cooperate with democrats in parliaments and political parties. I see lots of synergies. Parliaments can adopt transparency rules making it easier for NGOs to look into business practices including long and complex supply chains for consumer goods.

Fig. 11 symbolises the new and emerging coalitions that can be formed between the State and the NGOs.

Fig. 11: The NGOs can be seen as an emerging power helping the state defending public goods and services.

We have a long way to go both on national and international levels to develop a world society that is rooted in democratic control, in citizens’ participation and in international fairness. But then, when Charles de Montesquieu developed his fundamental ideas in the 1740s about the need for the division of power, no division of power existed in his own country, France. It took a couple of decades until, as the first country in the world, the USA took up his ideas and created a democracy built on the division of powers.

The answer to this question should be yes and no.

Yes, we are closer than ten years ago. During all of he 1990s, an irritatingly optimistic mindset was dominating the world. The very expression of ‘saving the planet’ would not have been politically correct in these days, because it sounds ‘pessimistic’.

What caused the air of optimism of the 1990s? The Cold War was over, alright, that was a great relief because it was also the end of the fear of a Third World War. Capitalism was celebrated as the only remaining ideology, constituting the ‘end of history’, as Francis Fukuyama put it. In its radical, Anglo-Saxon version it was politically hailed as the engine of growth and thereby as a cure-all, with slogans like “rising tide lift all boats”. ‘Creative destruction’ was seen as legitimate whenever what was to be destroyed had a smell of communism. Well, markets are a growth engine and a healthy cleansing mechanism, but at least two billion people felt outright cheated and exploited. They saw their ‘boats’ sinking, not rising at all.

Stock exchange quotations were another cause of optimism, as they seemed to rise without limits. That was a deception, too, as the collapse of the ‘dot com’ bubble showed in 2000. Concerning the environment, the prevailing paradigm was the optimistic Kuznets curve of pollution, meaning that once countries turn rich they will spend enough money on pollution control, and countries end up rich and clean. In terms of local pollution, the Kuznets curve was a reality, but for global warming and biodiversity losses the paradigm was dead wrong.

I must say, I was in a state of alarm during the late 1990s about the careless optimism and the uncompromising arrogance behind it. I felt rather helpless raising my voice against it.

So I see with a degree of relief that the days of the blatant type of arrogance are over and that it has become almost mainstream once again to address the real problems. What made this sea change happen? There were many different factors. The billions of people in their ‘sinking boats’ are no longer silent. The world community has addressed their situation in the Millennium Development Goals (MDG), acknowledging that markets will not do the trick. The end of the dot com bubble was a wake up call to some but the broader public did not hear the signals until the sub-prime mortgage crisis of 2007, originating in America but spreading worldwide. Some of the once celebrated investment gurus and their institutions got unmasked as irresponsible speculators using the money of credulous clients.

In the political arena, the military and ideological answer to the insidious attacks on the World Trade Center and other targets (‘9/11’), the “War on Terror”, more and more became a nightmare for all parties involved. The arrogant US unilateralism once impersonated by the Rumsfeld-Wolfowitz Pentagon lost its support even in the White House, let alone the US Congress after its mid term elections.

The environment is back on stage, after a quarter century of denial among the leading classes in the USA, and under the weight of evidence from the Intergovernmental Panel on Climate Change and the devastating pollution in the industrial centres of the high growth countries, notably China. The EU has taken the lead in politically addressing global warming, setting up the ETS, the European Trading System for carbon dioxide emissions. The two remaining candidates for the US presidency have expressed a clear commitment on mitigating global warming. China has become very serious about addressing pollution, climate, and energy efficiency. Renewable sources of energy constitute a dynamic growth sector. The Convention on Biological Diversity (CBD) is enjoying increasing visibility in the signatory states, i.e. nearly all states except the USA.

It is fair to summarise, then, that the last ten years have seen a tidal change in appreciation of the real problems the world community. Overcoming the arrogant optimism of the 1990 has been a huge and necessary progress.

It was necessary, but is surely not sufficient for an agenda of saving the planet. This is the core of the No answer.

Global warming got worse throughout the past ten years. New figures and extrapolations, e.g. from NASA’s James Hanson seem to show that stabilising atmospheric carbon dioxide at 450 ppm is far from sufficient and that we should rather aim at 350 ppm, which is still well above the pre-industrial levels of 280 ppm.

Biodiversity losses have accelerated, notably in the tropical countries. Fish stock depletion went on and partly accelerated. China aggressively began to access mineral and energy resources in Africa and elsewhere so as to continue its steep increase of resource consumption. India, Brazil, South Africa, Angola and a few other countries enjoy tremendous growth rates, all based on accelerated resource extraction, at a comfortably high price level. No end of the trend is in sight, not even a flattening of the curves. All countries of the world seem to work under the assumption that they have a right to the same kind of prosperity as the USA. And after many years of brainwashing that the American way of life was the best one could aim at, this assumption is hard to deny. But six or eventually ten billion people living by US American life styles is just not possible. We would need four or five planets Earth to accommodate their ecological footprints, according to the Global Footprints Network.

Thus in terms of climate and the ecological situation, the picture has become quite a bit grimmer, not better.

How can we now deal with this odd combination of the Yes and No answers? I submit that we can break out of the vicious circle of seeking wealth in material growth alone. I suppose we can decouple wealth creation from energy and material consumption very much like we decoupled wealth creation from the number of hours of human labour. The latter was the achievement of the Industrial Revolution. Labour productivity rose easily twenty fold in the course of 150 years of industrialisation. In other words, from one hour of human labour we learned to extract twenty times more wealth. Now is the time to do the same for energy and materials. We can learn and must learn to extract four times, ten times, and eventually twenty times as much wealth from one barrel of oil or from one ton of bauxite as we do today. Technologically speaking, this should not be more difficult than the rise of labour productivity. Resource productivity should become the core melody of the next industrial revolution.

Labour productivity rose in parallel with wages. Rising wages were justified by rising labour productivity, and rising labour cost stimulated ever further increases of labour productivity. Energy prices, on the other hand saw a secular decline (in constant dollars) over 200 years. The latest price hikes have not even brought us back to the price levels of some thirty years ago. Tragically, the political zeal has always been to keep energy prices as low as possible, thereby frustrating most attempts at increasing energy productivity. Energy price elasticity is very much a long term, not a short term affair. Infrastructure investments, which are crucial for an energy efficient society, take a lot of time.

What our societies ought to learn now is creating a long term trajectory of energy prices slowly but steadily and predictably rising in parallel with energy productivity. By definition, this would not cause any hardship, on average. But it would set a clear signal to investors and infrastructure planners that energy efficiency and productivity will become ever more profitable and necessary. It is bound to become more profitable and sexier even than the renewable energies.

If our societies, starting perhaps with the EU, embrace this new agenda of technological progress, and if later historians see the period between 1998 and 2008 the kick-off period for this new technological revolution, I suppose that those historians will agree that this time span has brought us closer to saving the planet.

Introduction

I feel greatly honoured being invited as your tenth speaker in the Business Leaders Conference on Environment and Development. Nihon Keizai Shimbun started the series in the year of the Earth Summit of Rio de Janeiro, the UN Conference on Environment and Development. 1992 was the year of culmination for the topics of environment and development. Since that year, public attention worldwide has to an alarming extent deserted both topics.

I shall briefly offer some unconventional views on Japan and then move on to discuss the megatrend of globalisation which I see as the main reason for the massive neglect of the environment. I shall conclude with an attempt at establishing a new sense of direction for technology, civilisation and investments.

Is Japan ill? I rather think the opposite

So let me begin with my personal views on your country. Foreign commentators tend to depict Japan as stagnating and ill. Increasingly, even the Japanese seem to believe in this negative assessment.

Of course, in a world in which growth is the yardstick of success, you cannot be too happy. Of course, one feels worried by non-performing loans worth 40 trillian Yen and by a national debt of 400 million Yen.

And, of course, everybody right in his mind has to support your Prime Minister Jun-ichiro Koizumi’s bold reform policies including the privatization of some of the tokushu-hou-jin (Special Public Corporation). He also addresses new competitive frontiers which are to be explored chiefly by the private sector.

However, let me as a guest and an outsider say a few words of reassurance to you. I have the privilege of visiting Japan rather regularly. What I see is a strong and prospering country proud of its history, full of high technology industry, pioneering in exquisite services. I visit top class universities, see happy school children in pretty school uniforms and enjoy clean and well-functioning public transport. I feel safe in the absence of crime and violence. Best of all, the people you meet on the streets look happy and respond with exquisite politeness to any question of a foreigner. Compare Japan to the violence situation in US American cities, in Colombia or in South Africa! Compare Japan with the poverty situation in most developing countries. Compare Japanese tolerance with the religious or political intolerance and fighting in half of the countries of the world! No, I find it squarely scandalous of journalists and economic analysts to call Japan a sick country.

One of your and of PM Koizumi’s worries is the lack of economic growth. But then let us reflect for a moment. What is the meaning of zero growth in a situation of a stable population and of high prosperity? It still means a huge turn-over; it can mean an increasing stock of wealth. It only means that the flow, covering both increase and maintenance of wealth is not bigger than it was in the preceding year. As a matter of fact, private financial assets are nearly four times as high as your state deficit meaning that your country as a whole is not indebted.

There are only two worrying facts associated with zero growth. One is that some competitors may eventually outgrow you. And the other is that technological advances produce higher labour productivity, which means an increase of unemployment, a phenomenon unknown to Japan for many happy decades.

I shall address both troublesome facts later. As I said before, I am not suggesting that Japan cannot be improved. I share the view in particular that Japanese consumers would do a good thing returning to an optimistic habit of spending. But I am suggesting that all measures of improvement including the Koizumi reforms would greatly benefit if the country would enjoy a new and clear sense of direction.

A clear sense of direction means that investors know where to invest. Banks trust that the investments make sense. And consumers want to be “with it” and re-discover the joys of owning the right things.

Blind markets

Markets in our days hardly create a new sense of direction. They did so in the past when essentially all goods and services were in short supply. Industry was only too happy to produce all that was needed. During this happy period the increase of labour productivity was only too welcome. It meant that ever more could be produced and that wages could steadily rise. Japan surely had a strong state dominating the economy. But the business community didn’t mind. “Japan Incorporated” benefited all during that period.

Let me repeat and highlight one aspect of this period. It is the dominance of the state over the private sector. Fig. 1 symbolises this situation, — in a caricature fashion.

Fig. 1: The state dominates but business is happy.

What was true for Japan, could similarly be found in West Germany, in Canada and essentially in all OECD countries. In the USA, in particular, the strong leadership of the state, the serious quest for social justice and the relatively humble role of the private sector, could be observed since the days of John F. Kennedy — not to mention Franklin D. Roosevelt a generation earlier.

But then, after the turbulences of the oil crisis and in its wake the novel arrogance of Islamic fundamentalism, first culminating in the Iran hostage crisis, the USA underwent profound changes. Ronald Reagan enjoying a landslide victory in 1980 pulled out of the welfare state and in foreign policy steered the country into harsh confrontation against what he called the “evil empire”. He promised to reduce taxes for the achievers and invited private business to take its profits home. In effect you could see the state on retreat.

Fig. 2: The 1980s: The state on retreat.

Similar developments could be observed in Britain, Germany and several other countries. At the time, I believe, it was good for these countries that the private sector assumed additional responsibilities and introduced efficiencies unknown to some state owned agencies. But in some cases such as the privatization of the British rail it went all wrong. Anyway what I am suggesting is for each country to maintain a healthy balance between public and private.

Globalisation

In many parts of the world we seem to have lost that balance. When the Soviet bloc collapsed, many nation states in the West and in the developing world all of a sudden lost much of their bargaining position towards the international capital markets. This bargaining position had been rooted to a large extent in the very existence of the communist threat. It forced capital owners to accept progressive income taxes, social security and environmental regulation. This was simply because the socially inclusive market economy was still better for capital owners than any kind inclination of a country to go communist.

Now, after 1990, that comfortable bargaining position of the nation state was gone. What now happened, was called globalisation and was characterised by the dominance over the smaller nation states of international capital markets.

Fig. 3: Globalisation means the dominance of the private sector.

This is our situation today. First, the world (and not only business) was celebrating it. The spectre of a third world war had disappeared. . Hundreds of million of people were liberated from dull, authoritarian and inefficient regimes. Huge peace dividends were expected to arrive. The stock markets soared. Francis Fukuyama in America called it the end of history, i.e. the end of ideological quarrels. Markets were believed to give guidance towards ever increasing prosperity. Nobody dared to question whether we had a reliable sense of direction.

Nobody dared to raise doubts about the legitimacy of the dominance of the private sector because the dominance of the state had conspicuously lost its legitimacy.

However, the euphoria didn’t last very long. Soon people began to realise that the gap between the rich and the poor was steadily widening. The income gap between the richest and the poorest twenty percent of the world population rose to a shocking factor of 75 during the 1990’s.

Fig. 4: The widening gap of income world wide.

Environmental policy became a nightmarish task because everybody’s immediate concern was now to survive in the unforgiving struggles of globalisation.

Even in their home turf, financial markets performed a lot poorer than expected In rapid succession, currencies from Eastern Europe, Western Europe, Mexico, the Asian emerging markets, Turkey and Argentina were subject to extremely damaging turbulences. Worst of all, the “new economy bubble” imploded and with it the entire euphoria of the global stock market.

The states, guardians of the public goods, suffered from stagnating revenues, in part self-inflicted through a rat-race for ever decreasing corporate taxation.

Fig. 5: Diminishing corporate tax rates in OECD and EU member states.

Ordinary people got increasingly worried and angry about the arrogance of the dominant market ideology. In Seattle, Gothenburg, Genoa you could see them marching and protesting. Protesters mostly represented the losers of globalisation. They also represented in a great variety of ways public goods such as the environment, human rights, social equity, farmers rights, cultural diversity, or the rights of indigenous people. You can ask any of these people if they see a purely monetarised globalisation as damaging to the public goods they defend. And their answer will clearly be “YES”.

Fig. 6: ¥€$.

Let us take stock for a moment. The victory of what we all considered the superior systems namely the democracy-based market economy, appears to be in the doldrums. People worldwide seek for a sense of direction, but in vain. Except, perhaps in China and America. In China they still enjoy the clear sense of direction of just increasing economic output. And in the US they don’t allow any critical questions about what their great country has been fighting for ages. They prefer to put the blame on the outside world, that is Islamic fundamentalism, coward Europeans, or a stagnating Japanese economy.

The unsustainable American way of life

I fear that we won’t arrive at a new and reliable sense of direction unless we dare to question – against all political correctness – the viability of the US model of economic growth or, what is usually called the American way of life.

In doing so, we have to focus our attention on the topic of our conference, environment and development. Let me submit that the American way of life is squarely unsustainable.

Of course, our friends from America don’t see it that way. To them, the USA represent the far end of what is often called the environmental Kusnets curve.

Fig. 7: The inverted U-curve of pollution.

The curve shows the history of the Industrial Revolution. Countries typically start off poor and clean. In the course of industrialisation they become rich and dirty. And finally they become so rich that they can afford expensive pollution control making them rich and clean. Japan, like the USA or Germany, is perfect example of this development. The curve justified in a sense what Indira Gandhi said 30 years ago, namely that “poverty is the biggest polluter”.

The trouble is that the situation of “rich and clean” is not automatically “sustainable”. Facing today’s major environmental problems, we should even call economic wealth the biggest polluter, although this time pollution is not perhaps the right term for the environmental damages. Fig 8 sums it up:

Fig. 8: The daily toll of environmental destruction.

Here we see the daily toll of global environmental destruction. We seem to be losing up to 100 animal or plant species every day. We blow 60 million tons of carbon dioxide into the air, thus changing the atmosphere. Over-fishing and deforestation go on almost unmitigated. Much of the damages stem from excessive land-use, material turnovers and energy consumption in the rich and clean countries. The USA is clearly leading this unsustainable direction of development.

Greenhouse effect and other ecological troubles

In assessing the problems and opportunities let me concentrate on the greenhouse effect, but I assure you that the assessment of land use and of material turnovers would lead to very similar considerations.

Carbon dioxide concentrations are on the rise since the early days of industrialisation. The next picture shows the trend for the last couple of decades:

Fig. 9: The steady increase of CO2 concentrations.

The trouble comes when you look at the correlation between CO2 concentrations and global temperatures.

Fig. 10: The “Vostok” expedition found a close correlation between CO2-concentrations and atmospheric temperatures during the last 160.000 years.

We can also see that in the industrial age the blue curve of CO2 is mounting steeply upward. Climatologists expect temperatures to rise correspondingly, and we are already seeing it happen. Nearly each year during the last 15 years has been the hottest year since scientific weather recordings started. During the last 4 years alone we have had twelve or more gigantic natural disasters due to weather in various places on earth including Asia and Europe.

In 2001, the Intergovernmental Panel on Climate Change projected a dramatic increase of global temperatures to occur until the end of this century.

Fig. 11: IPCC’s projection of temperatures until 2100.

Massive changes in the face of the planet could result. Temperatures alone and a few local disasters might not by themselves be the core of the drama. A hotter candidate for the core of the problem is the sea water table (Fig. 12).

Fig. 12: The sea water table goes with atmospheric temperatures.

In this picture I have added as a green line the sea water table during the last 160.000 years. I invite you to have a look at the difference between a high and low sea-levels. It is more than 100 metres! This formidable variance has a major impact on the coast lines, as can be seen on the next slide:

Fig. 13: Italian coast lines during the last Ice Age and during the Pliocene.

This is Italy some 20.000 years ago, during the last Ice Age. But now look at the coast line some 2 million years ago, during a truly hot age. Imagine, ladies and gentlemen, what this picture would mean for the Tokyo and Kansai areas or for Bangladesh, the Netherlands or for Egypt. What may cause more anxiety still is the potential dynamics of change.

Fig. 14: The collapse, 7700 years ago, of the ice shield covering Labrador and the Hudson Bay.

Studying the British coast line and flood marks left at the rocks rising from the sea, Professor Michael Tooley found that about 7,700 years ago global sea-levels must have risen by 7-8 metres within a few decades or even within a few weeks. His explanation is that the ice shield then covering Labrador and the Hudson Bay were breaking off into the sea within a short period of time. I assume that this was the historical backdrop for the Atlantis and the Biblical Deluge sagas.

If we now go on heating up the atmosphere, major parts of the Antarctic or of Greenland can break off at some unpredictable moment during the next 200 years.

If we want to avoid such disasters, we would be well advised at least to stabilise CO2-concentrations. In order to achieve that, we would have to reduce annual emissions by 60%-80%, according to the Intergovernmental Panel on Climate Change. Let us say – optimistically – that we need only a 50% reduction. This is as far higher ambition than laid down in the Kyoto Protocol. However, halving CO2-emissions may be extremely difficult to achieve because energy experts tell us that we shall rather incur a doubling of CO2 concentrations within a few decades.

Fig. 15: CO2-emissions should be halved to achieve stabilisation of CO2-concentrations, but energy demand is more than doubling.

The reason is that developing countries so far have much lower CO2-emissions per capita than the rich countries. China, Brazil and Ethiopia have every reason now to do exactly what we have demonstrated to them as the core of our industrial success story, namely high energy consumption accompanied by high CO2 emissions.

Factor Four

A gap is opening before us which is at least as large as a factor of four.

Some people both in Japan and Germany believe that the gap can be closed using nuclear power. Without going into any detail of this controversial issue let me only say that after 11th September 2001, safety assessments of nuclear installations have to be re-written from the scratch — with an essentially uncertain outcome. Nikkei President Tsuruta was kind enough to ask me how Germany was handling its decision of phasing out nuclear power while still subscribing to the Kyoto Protocol. One part of the answer is renewable sources of energy. However, we have to admit that there are also limits lying in their costs and in their modest energy densities.

The best solution, I suggest, is a strategy of systematically increasing energy productivity. The textbook for this has the title “Factor Four: Doubling Wealth, Halving Resource Use” which I co-authored with my American friend Amory Lovins and his wife Hunter Lovins.

Fig. 16: Factor Four: translated into many languages.

The book heralds a new industrial revolution. It thereby also conveys a new sense of direction for technological progress. It may encourage investors to go for new investments and for new technologies.

Quadrupling resource productivity, eventually even increasing it by a factor of ten, as my friend Friedrich Schmidt-Bleek is suggesting, is a gigantic challenge requiring the commitment of the brightest engineers and the boldest business people. It is my sincere hope that both Japan and Germany will play major roles in bringing that new technological revolution about.

Let me make the analogy to the industrial revolution more explicit. During the first fifty or seventy years of the industrial revolution, the world has seen a fourfold increase of labour productivity. Later, labour productivity increases even accelerated, owing to better technological communication and ever increasing costs of human labour.

Today, albeit expensive, labour is no longer a scarce factor. According to statistics of the International Labour Organisation (ILO), over 800 million people are unemployed or have only access to marginal work. In this day and age, it somehow doesn’t make much sense for the world economy to go on and maximise robotics and other labour saving technologies while neglecting productivity of the really scarce factor of our days, natural resources.

The mentioned book, Factor Four, which also was translated into Japanese, features 50 examples showing the potential of improving resource productivity at least by a factor of four. Twenty examples relate to energy productivity, twenty to solid material productivity, and ten to the transport sector.

Let me briefly introduce you to the new universe of factor four technologies. For this I shall show you some pictures beginning with Amory Lovins’ present favourite example, “Hypercar”:

Fig. 17: Hypercar is four times more fuel efficient than normal automobiles.

Hypercar, seen on the right hand side, is designed to use only one-and-a-half litres per hundred kilometres. I won’t go into technical details of this ultra-light vehicle.

The second example is what we refer to as the “passive house” which in Germany’s cold climate needs hardly any external heating except for some passive solar energy.

Fig. 18: Passive house, a concept to save 90% of the typical heating costs.

It is very well insulated. It needs no radiators and thus saves space and money making it commercially competitive with ordinary constructions. It is not only insulation and energy management that counts. Nearly equally important is the materials of construction. Wood is among the best, of course, in particular if we consider the carbon balance.

Fig. 19: Wooden construction saves energy and CO2.

Very familiar to you all are light bulbs and their modern efficiency substitutes.

Fig. 20: Fluorescent light bulbs are four times more efficient than incandescent bulbs.

A more recent development is light diodes which are still a factor of two better than fluorescent lamps.

Lets us now turn to household appliances. When you replace your free-standing refrigerator with a cold-storage room built into the north wall of the house, you can also save approximately a factor of four both in terms of energy and materials.

Fig. 21: FRIA, the non-mobile refrigerator.

In tropical countries, but also during the summer in Japan, the biggest energy eater in office and apartment buildings is air-conditioning. In Singapore, we found an engineer, Mr Lee Eng Lock, who builds air-conditioning systems that need some 70% less power than conventional ones. Imagine the savings for office towers and tourist hotels all around the hot belt of this planet.

When you replace an old filing cabinet with a CD-ROM system, you have a Factor 10 or more in material and resource productivity and you have much swifter access to your data.

Water is now one of the scarcest resources in the world. Several examples in our book deal with factor four water efficiency in agriculture, industry and households.

One important industry for water consumption is textiles. We found a small German manufacturer, Hess Natur, advertising clothes that overall need roughly one quarter of the natural resources including fresh water needed in ordinary products.

Fig. 22: Textiles with a cradle-to-grave resource use four times lower than average.

Another strategy of saving materials and energy is improving mechanical properties of such simple materials as steel. I recently learned about exciting advances in the Japanese steel industry.

Fig. 23: Innovative steel from Japan.

Instead of being a clumsy and heavy material, this extraordinary steel rod is incredibly light and elegant and yet extremely robust.

Let me finally turn to food. When you eat tomatoes from the Netherlands during the winter season, it could be that around 100 Kcal have been invested so that you can afterwards eat a Kcal tomato. In the case of European intensive husbandry beef each Kcal of beef requires some 20 Kcal of extended energy inputs. Ocean fishing, I am sorry to say, isn’t much better. With a diet, which is a little more seasonal, containing somewhat less meat and fish and stemming from organic farming or aquaculture you can easily save a Factor 4 in energy consumption, as the next picture indicates:

Fig. 24: Food can “eat” a lot of energy — but need not.

Stefanie Böge of the Wuppertal Institute has looked into the transport intensity involved in the production of strawberry yoghurt in Germany.

Fig. 25: 8.000 kilometres for strawberry yoghurt? It is too much!

She found that lorries are criss-crossing Europe at a total of around 8,000 km for the production of a cup of strawberry yoghurt. Clearly, this is not necessary.

Not only yoghurt journeys can be rationalised. Many business trips can be saved using videoconferences. And letters and manuscripts don’t always need airmail from Japan to Europe. Much can be sent by e-mail, saving a factor of 100 or 1000 in resource use. I am fully aware that substituting electronic dispatch for air transport in the case of tourism and Business Leaders Conferences is not quite so simple. Besides, people like to visit Tokyo for sight-seeing. However, in each case it is worth reflecting if a trip is really necessary.

In many cases the magical factor of four is not attained in one go. German chemical industry for instance managed to increase its overall energy productivity by a factor of four during a period of thirty years. Hundreds if not thousands of little inventions and process improvements were instrumental in bringing this success story about. You may not get much acclaim for this complex and incremental factor four story. But the effect is all the same.

Making it profitable

After having sketched out the shape of the new universe of factor four technologies I should like to turn to some economic and political questions. What can we do to make this technology shift profitable? Fortunately a reasonably large part of the eco-efficiency measures are already profitable. This is particularly true in developing countries. At my last journey to China, I read a brochure from a German consultancy working on strategies to reduce CO2 in China. And this is what they found:

Fig. 26: Fichtner found that CO2 reduction can be done at a profit in China.

I was actually surprised to see how cheap it was to reduce CO2 using wind or solar energy. But the real surprise was that just industrial modernisation would produce CO2 reductions as a windfall product. Best of all, strategic energy efficiency will earn the investor twenty dollars per ton of CO2 avoided. This is surely the basis for the astonishing fact that according to official statistics, China has reduced it CO2-emissions during the last three consecutive years while maintaining an impressive economic growth of up to 7% per annum.

Even if not every step of efficiency gains is profitable, the general attitude of eco-efficiency seems to pay. A Swiss-American partnership had lead to the establishment of the Dow Jones Sustainability Index representing the top firms worldwide which have a successful policy of improving eco-efficiency. Look how that paid off on the unforgiving international stock markets. The Sustainability Index had actually a better performance than the benchmark Dow Jones Index:

Fig. 27: Dow Jones Sustainability Index beats the ordinary Dow Jones.

Is that not a very encouraging piece of news? Unfortunately, the scope for profitable eco-efficiency is still rather limited. If we aim at a factor of four, we have to alter the frame conditions so as to make strategic efficiency increases still more profitable.

It can be seen as a perfectly legitimate objective for the state and for the international community to create an atmosphere that is favourable for creating the new industrial revolution. The basic idea is to make resource rationalisation more profitable than labour rationalisation. This has been the philosophy behind the ecological tax reform which has been introduced in most European countries, including Germany. The ideal scenario is one in which prices for energy, water and raw materials increase slowly (e.g. by 3 – 4% annually) so that technical progress can approximately keep pace. Imagine petrol prices increasing by 4% every year and the car fleet becoming 3% – 4% more efficient every year until. Then the fuel price per kilometre will remain almost stable. And your country would have to import much less oil.

Many other measures can be conceived to make resource productivity more profitable. Eco-audits have become very popular in Germany, Japan and elsewhere. The Netherlands through their former government have introduced a rule that pension benefits are tax free as long as the benefits are coming from certified stock portfolios of ecologically committed firms.

In the end I believe that one of the most important driving forces of technological progress is a new vision of how technology could look like in the future. I hope I was able in a very humble way to contribute to this goal.

Back to the alleged Japanese crisis

Let me return to the considerations made at the beginning. The eco-efficiency revolution can theoretically serve as a guideline for Japanese and European industry to return to investment optimism. In this field, it is both responsible and reasonable to go for innovations and massive investments that can shape the technological face of the world.

I also suggest to strengthen the advocates of the public sector again. The weakness of the state is likely to remain. But new allies have appeared on the scene to help the state defend public goods including the environment. It is the civil society NGOs. My last picture shows you in the former caricature form how I see the re-balancing of powers between private goods and public interest.

Fig. 28: NGOs can help the state re-establish the balance between public and private goods.

Let us hope that enlightened business leaders join in re-establishing both that said balance and the optimism that may also help overcome the economic stagnation some of you feel as a heavy burden on your companies and on your country.

Let me at the outset distinguish two different tasks of environmental policy.

• One is pollution control which is predominantly a local and a national activity. The first twenty years of environmental policy in European countries were almost exclusively devoted to pollution control, and the role of the European Community – later Union – was chiefly to set standards that aimed at harmonising national pollution control legislation, and that more of environmental professionals both in the public and private sectors deal with pollution control.
• The other task of environmental policy relates to global and long-term challenges such as climate change, biodiversity losses and unsustainable lifestyles. This is rather a new field of concern and is still in its conceptual phase regarding policy making.

Prices can work for the environment in both arenas. But if one pricing instrument is successful in one of the two, it does not necessarily follow that it is applicable for the other as well.

For pollution control, pricing instruments abound and have greatly helped cleaning up the environment. A typical case has been the waste water charge the revenues of which were used to finance water purification installations. This system of charges most widely used in the Netherlands but also in all other EU countries was highly successful environmentally. It never was very controversial. It fully conformed with the polluter pays principle and it had the attraction that he who applied prevention measures in his factory was freed from the charge.

In a wider sense the same applies to user fees, refund systems, violation penalties and tradable emission permits for classical pollutants such as SO2 or NOx They too met with rather little public resistance when introduced.

Let me not lose more time on this subject because we would all agree very soon that prices work well to reduce classical pollution. Nevertheless, if the EEB wants to document the findings of this conference, I suggest to add an expert paper by an environmental economist on many successes and a few failures.

Let me instead turn the attraction to the other subject, of long term and global environmental problems, notably the greenhouse effect and life style changes.

Let me at this juncture mention one major difference between the two fields of concern. For classical pollution control you could say it is good to be rich so that one can afford costly pollution control. Or, with a slightly modified meaning you can quote Indira Gandhi that “poverty is the biggest polluter”. This famous statement goes down extremely well with developing countries, but equally well with traditional business people and other people in the North because it justifies them to go on with traditional growth strategies and claim that this is good for the environment.

The opposite, or nearly, can be observed when we address the greenhouse effect, biodiversity and sustainable life styles. Here clearly prosperity is the biggest polluter.

This is so embarrassing a phenomenon that economists and politicians prefer not to recognise its truth. They hastily invoke the sustainable development triangle which says that economic and social well-being are equally important as a healthy environment. And very soon they return to the comfortable and familiar paradigm of pollution control where economic prosperity was not at all suspicious. You will discover that in their argumentation the environmental corner of the triangle is always classical pollution control. I am afraid, for the time being I have to invite you to be extremely cautious, if you are an environmentalist, when that triangle of sustainability is put forward.

But now comes the shock for us advocates of pricing instruments: In a domain where prosperity is the biggest polluter, all of a sudden, you have to admit that prices are meant to reduce “prosperity”, – at least the kind of prosperity that is causing so much CO2 emissions, land use, traffic and avalanches of materials. If you want to reduce urban sprawl, you have to say that people shouldn’t live in one family homes and commute to work with their cars. You want them to cut their energy and water consumption. You want them to stop buying lots of unnecessary trash goods and having weekend trips to Malaga and Christmas trips to the Seychelles. Don’t expect anybody, let alone democratic majorities to agree with these objectives.

And yet, having said all this, I remain a staunch defender of pricing instruments also for the second set of problems. How can that be?

Well, it is because I am confident that, fortunately for the environment, different modes of prosperity are available. The core of that “sustainable prosperity” is a new universe of eco-efficient technologies. At the Wuppertal Institute for Climate, Environment and Energy we have sketched out the landscape of that new universe. In a book which I wrote together with Amory Lovins, I gave it the simple title “Factor Four”, with the subtitle “Doubling Wealth, Halving Resource Use”.

The book features fifty examples, from automobiles to household appliances, from buildings to logistics, from industrial processes to farming methods, all demonstrating that a factor of four is available in energy or material efficiency.

The factor four universe can be seen as the Promised Land to those who deal with climate change, urban sprawl and biodiversity losses.

But there is a difference again with classical pollution technologies. Waste water treatment technology can be introduced in a matter of five or ten years, depending on the life cycle of the economy’s capital stock. In buildings, it may take fifty years to refurbish the entire stock of houses. The complete renewal of the car fleet may take thirty years. And a reasonable and comfortable reduction of urban sprawl may take a hundred or two hundred years.

“Factor Four” can be seen as the solid rock of technological insights which we need when talking about pricing instruments that work on the second category of problems. If we want to avoid attacking prosperity we should be patient with the existing capital stock.

The long time frame can also be expressed in terms of price elasticity. You would not expect the car fleet to react to an abrupt price signal, unless it is a brutal signal. However, if society knows that energy and other resource prices will go up for a long time with no hope of their coming down again, companies will strategically invest in resource efficient technologies. Consumer education will make resource efficient behaviour a prime objective. Academic engineers and scientists will target the basics of resource productivity. And public planning will shift priorities towards convenient mass transport, agreeable high-density urban planning and high resource efficiency in public buildings, transport systems and disposal concepts. As a result, the factor of four becomes a realistic perspective for all sectors.

Long term price elasticity means that price signals should be mild but predictable. The best of all worlds would be a political all-party agreement over thirty or fifty years to raise prices for scarce resources in very small and predictable steps, preferably in steps so small that technological progress can keep pace.

Please note that I am talking about a price corridor, not a taxation corridor. Taxes or other instruments would be used to reach the price corridor. In this ideal case, the monthly bills for petrol, electric power, water, space, virgin raw materials remain stable and on average the population is not suffering any losses in their lifestyles.

If the fiscal revenues from this operation go into reducing indirect labour cost, you would expect positive effects on the labour markets. And compared to business as usual scenarios, you would see human labour services becoming gradually cheaper, i. e. more affordable for the beneficiaries of that labour.

So much for the ideal world. I felt it was necessary to talk about the ideal world in order to provide orientation in this conflictual theme of price signals on the basic commodities of modern life.

Let me at the end very briefly address some of the practical problems.

First, with reference to the EEB’s campaign motives and targets, let me clearly say that I support them. It will be, however, extremely difficult with regard to reducing internal farm subsidies; it may be possible, however, to reduce export subsidies of farm products. It is reasonable to demand ten percent of all taxes to be environmental and to make the operation fiscally neutral, ie not to increase the overall tax burden.

Regarding the time frame, it is EEB’s right to ask for rapid results, but as a politician I can tell you that our machinery works rather a bit slower. Perverse subsidies too are difficult to remove. They are consistently targeted at politically influential parts of the electorate. Transport subsidies in particular enjoy extremely strong support not only from the immediate beneficiaries but also from the automobile and aircraft lobbies. Moreover, they tend to increase economic turnover which politicians call growth even if it does not contribute to any quality of life. But it is turnover, not quality of life that creates jobs.

Let me say a practical or political word about the price corridor that I am asking for. It is, let me admit it, highly unrealistic in our days. It requires two unusual things at once: a fiscal policy that flexibly responds to world market signals, and an all-party consensus in one area, which is perhaps the favourite battlefield for political parties. Also, it should be said that the price corridor it not easily attained with emission trading and other pure market instruments. An adjustment mechanism may have to be introduced to avoid brutal jumps that can occur in the course of free market fluctuations.

On the other hand, if the public is convinced that this gentle price corridor is a fair deal and the best guide rail to the Promised Land, it becomes increasingly more plausible for political parties to go for it.

This then brings me to my concluding remark. It is essential that we create a strong vision of what is necessary to avoid disasters from fossil and nuclear energy use, from rapid biodiversity losses and from resources. If that vision also contains a realistic and agreeable strategy of how to get from here to there, you will have the people behind you.

PS:

• In the discussion, Dr. Iannis Paleocrassas mentioned that as Greek Minister of Finance he had introduced a fuel tax flexibly responding to world market fluctuations.
• A few days after the conference, the coalition agreement was adopted between SPD and Greens in Germany. It reaffirms the exciting energy tax escalator and foresees a general review by 2004 of the green fiscal reform, with a view to potentially develop it further and more comprehensively.

Further information about the Conference and the EEB can be found on the EEB’s website.

Whereas the Select Committee on Globalisation has two and a half years to discuss this wide subject, I have a limit of 10 minutes. That is a bit like the difference between the subjects of globalisation and of housekeeping at Keble College!

1. Would economists please remember what some of their pioneers said?

Over 200 years ago, when Adam Smith set about forming his moral ideas of the free market, he made it clear that the wealth of nations requires a strong state, not a weak one! At least three conditions need to be granted by the state:

• External peace;
• A reliable legal frame. Let’s call it good governance;
• Healthy infrastructure that benefits all competitors but would not be paid for by any individual actor. Adam Smith takes lighthouses as an example.

Another grandfather of modern economists, David Ricardo, also presented assumptions for healthy trade and an international division of labour. One of his assumptions was that capital was not moving. Is it very far-fetched to suspect that David Ricardo, had he been alive today, would be among the protesters in Seattle, Genoa or Barcelona? These protesters say nothing against international trade but don’t like the élite power structures of today’s capital “markets”.

2. The Fall of the Iron Curtain produced the Globalisation paradigm

Since when are we speaking about globalisation? Some believe that globalisation started with the ancient Phoenicians or at least since Cook’s sailing around the world. This is untrue: globalisation is a brand new term. It emerged after 1990 and the collapse of the Iron Curtain, which we all applauded, and simultaneously, in the context of the Internet revolution.

Until 1990, international capital had to seek consensus with national governments and parliaments in the North and South. In the South, governments used to play on the East-West tensions to solicit ODA. In Europe, we had the spectre of ‘Finlandisation’, referring to a dangerous rapprochement with the Soviet Union. Clearly, a consensus society with some elements of a welfare state was seen as more attractive by the owners of capital.

After 1990, despite massive reduction of military budgets (by roughly 300 billion US-$), the amount of funds available for development aid, public goods was shrinking. We have seen a steady reduction of capital taxation in all OECD states. The OECD calls it “harmful tax competition”.

3. Global governance

The private sector benefited and boomed. It may be high time to re-establish a healthy balance between public and private goods.

To be sure, private capital accumulation is a public good in itself. It is a major part of the wealth of a nation. Moreover, international trade helps preserving international peace, better than the nation states have been able to do.

Nevertheless, I see a need for the world to establish an equivalent to democratic state authorities, this time of a global scale. The idea is to have a power structure matching the powers of the private sector, and committed to defending public goods — in line with Adam Smith’s concepts.

In effect, we are speaking about global governance (not: global government!).

4. Three pillars

Global governance would have to rest, I suggest, on three pillars. In classical political science, we had the duality between the state and the private sector. These are then two of the three pillars.

• The state must more and more extend its reach to global affairs, by, inter alia, strengthening the UN system, international treaties, regional authorities (notably the EU). It must also secure a meaningful participation of parliaments. The International Parliamentary Union (IPU) established as early as 1889, is far from being an adequate institution in this regard. Let me inform you about one fascinating initiative called e-Parliament, that tries to link up parliamentarians via Internet to help them in their local and national needs to learn about parallel developments in other countries; the perspective is to enhance the level of competence and thereby of clout of parliaments.
• The private sector has “black” and “white sheep”. UN Secretary-General Kofi Annan has invited the “white sheep” to help him on matters of the UN agenda. Many British and German enterprises have joined this “Global Compact”. Another road is investment portfolios specializing on “white sheep”. Both the UK and German Parliaments have adopted legislation obliging private pension schemes to declare if the adhere to ethical or ecological criteria. It’s a rather new and exciting market with growth rates around ten percent per annum.
• The new pillar is civil society. International Civil Society organizations are booming. Although incredibly diverse, they can be strong.

We have witnessed several struggles between private sector corporations and civil society. Perhaps the most famous struggle in the United Kingdom occurred between Shell and Greenpeace over a North Sea oil platform. Legally, Shell was in the right: the British authorities agreed with the oil company’s plan to dump the platform. However, for moral reasons, Greenpeace objected and forced Shell to bow to them instead of the British authorities. In a sense, this event encouraged both parliamentary and civil society actors to join forces for the common good.

Unless civil society can be persuaded that private sector companies act morally, public suspicion will not disappear and Seattle may reoccur in the future. In addition, parliaments will remain alert to global pacts or alliances between states or international organizations and the private sector.

Fig. 1: The career of the word “globalisation” in the German newspaper FAZ.

The strongest reason for the sudden appearance of the term globalisation has been the end of the Cold War. We all, I am sure, were glad about many things that happened in this context.

• We were freed from the spectre of a Third World War;
• Democracy, free speech and free press spread throughout the world;
• Well-positioned enjoyed exciting new opportunities, notably the US (owning the largest amounts of capital which could be placed at the places of highest profitability world-wide) and China (with its immense labour force, emerging high technologies and high discipline).
• Stock markets soared, letting market capitalisation of the world’s total stocks triple within ten years.
• Inflation was sent down in most countries to the lowest levels since the 1950s.
• The Internet became an immensely powerful tool of world-wide communication.

However, for all the good news, there is also a downside to globalisation. During the Cold War, international capital had always to seek consensus with national governments and parliaments in the North and South. In the South, governments used to play on the East-West tensions to induce the inflow of official development aid or private capital.

In the North, the Cold War forced governments to establish an attractive social security net to prove to the masses that capitalism took better care even for the poor than communism. Progressive income taxes and hefty corporate taxation were the rule. For private sector capital this may have been annoying but is was anyway better than any move towards communism.

With the end of the Cold War, the need for consensus disappeared. Now the name of the game was global competition not only among companies but also among states. Tightened cost competition was just too much for many companies. Business bankruptcies soared in many countries.

Fig. 2: The rising tide of business bancruptcies after 1990 in Germany.

In other countries, e.g. in Latin America, in Eastern Europe and in Africa, the situation was worse. The number of people living in poverty is on the rise. Least developed countries went through a demoralising period of de-industrialisation.

The strengthened bargaining position of the private sector was able to force the states to systematically reduce corporate taxation.

Fig. 3: Corporate tax rates have been systematically reduced during the 1990s.

These few pictures and passages are just the beginning of the story of globalisation.

The German parliament, the Bundestag, has established a select committee on economic globalisation in December 1999. I was appointed chairman of the committee. In June 2002, we published a report of 600 pages and 200 recommendations. The full text is available online. English, German, French and Spanish summaries are also available.

The International Labour Organisation (ILO) has created the World Commission on the Social Dimensions of Globalisation. I was appointed member and am happy recommending their website where you will find the final report of the Commission which was released 24 February, 2004.

On my website you will also find a few papers I wrote on globalisation.