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 advanced industrial countries were almost exclusively devoted to pollution control and to set standards. Since that time, most 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.

Environmental fiscal reforms can work in both arenas. But if one fiscal instrument is successful in one of the two, it does not necessarily follow that it is applicable to 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 is in use in most OECD countries and has been 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. It remains doubtful if charges on pollutants can be seen as “environmental fiscal reform”.

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. Here, I suggest, is the most important field for environmental fiscal reform.

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.

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 Egypt or Paris 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 ecological fiscal reform 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 ecological fiscal reform that works on the second category of problems. If we want to maintain 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 a small but sudden price signal. The immediate price elasticity is very low. However, if society knows that energy and other resource prices will go up slowly but 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. In other words, we can expect a high price elasticity in the long run.

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 stay inside the price corridor. In this ideal case, the monthly bills for petrol, electric power, water, space or even virgin raw materials remain stable. On average, the population would not suffer 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 clients 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 now very briefly address some of the practical problems.

At a conference in Brussels, four weeks ago, the European Environmental Bureau (EEB) presented an EU-wide campaign on fiscal measures for the environment. At its core, the demand was to have ten percent of all taxes to be environmental and to make the operation fiscally neutral, ie not to increase the overall tax burden.

The EEB’s campaign also asked rapidly to abandon all perverse subsidies. These subsidies, however, 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. Hence, one would not expect subsidies to disappear soon.

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.

During the Brussels conference, Dr. Iannis Paleocrassas mentioned that as Greek Minister of Finance he had introduced a fuel tax flexibly responding to world market fluctuations. This is an extremely encouraging example.

A few days after the conference, the coalition agreement was adopted between SPD and Greens in Germany. It reaffirmed the existing 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. A few steps to reduce tax rebates for fiscal year 2003 are now in the pipeline and will hopefully be adopted next week.

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.

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.

The World Summit on Sustainable Development (WSSD) is the third event in a row.

The first was the UN Conference on the Human Environment, Stockholm, 1972. In its wake, the UN Environment Programme, UNEP, was founded in Nairobi, and some UN agencies made some moves towards an ecological significance of their programmes. Ten years later, a meeting was held to assess progress since Stockholm and ended in disappointment. Continuing deterioration of the environment was reported chiefly in the developing countries. As one consequence, the World Commission on Environment and Development was created to study the reasons for that lamentable state of affairs, and Dr. Gro Harlem Brundtland, the Norvegian Prime Minister was appointed Chairperson. After three years of intensive work, the Commission published its report which was submitted for discussion at the UN General Assembly in 1997. As a result, the UN decided to convene another UN Conference, this time on Environment and Development, to be held in Rio de Janeiro in 1992.

The Rio de Janeiro “Earth Summit” was the second in the series of UN conferences. It had three major results: The Framework Convention on Climate Change (FCCC), the Convention Biological Diversity (CBD) and Agenda 21 with its fourty chapters. Agenda 21 was seen by many observers as a prescription leading – if properly applied – to sustainable development, a term already found in the Brundtland Report. Another five years later, the UN General Assembly held a special session in New York with a view to look back and assess progress made since Rio. Once again, the assessment was rather depressing from the point of view of the environment, and once again the UN decided to hold major conference, this time called World Summit on Sustainable Development, in Johannesburg, South Africa, in September 2002.

It is difficult to avoid the impression that UN conferences and reports have not been able to slow down let alone stop or revert the destructive trends. To be sure, pollution control has made major progress in the OECD countries. But then pollution is no longer the main ecological concern.

• Global warming seems to go on unmitigated. The Intergovernmental Panel on Climate Change fears that the added greenhouse effect might lead to a rise in average temperatures by some 1.4°C to 5.8°C during the 21st century. This could theoretically have disastrous effects on world agriculture and potentially on the global sea water table. If we want to halt this trend, it would be wise to stabilise CO2 concentrations at preindustrial or, less ambitious, at 1990 levels. This, however, would mean to reduce world wide CO2 emissions by at least 50 percent. Development aspirations, however, rather point at a doubling of CO2 emissions.
• Biodiversity losses have hardly slowed down; some 50 plant or animal species are said to become extinct every day! The major cause seems to be land conversion for civilisational use. One way of measuring this land use was given by William Rees and Matthis Wackernagel as the “ecological footprint”. It represents the direct and indirect land use for living, farming, clothing, transport, industry, recreation, energy etc. OECD countries have typical per capita footprints sized 4 hectares. This leaves most OECD countries too small to accommodate all of their footprints. They therefore have to export much of those footprints to less populated and less area-demanding countries. To accommodate six billion OECD type footprints we would need at least two planets earth. As we have only one, we should reduce OECD footprints at least by a factor of 2, — under the plausible assumption that developing countries have equivalent rights and aspirations regarding wealth and well-being.

Both trends and challenges have a massive bearing on Agenda 21 and the perspectives of sustainable development. If we need to reduce both CO2 emissions and ecological footprints by a factor of two at least while simultaneously aspiring at least to double world-wide wealth, we seem to be confronted with the need to perform at least four times more efficiently with the use of natural resources.

Fortunately, this goal it not as outlandish as it may sound at first. Amory and Hunter Lovins have coauthored a book with me, “Factor Four” which features fifty examples of a fourfold resource productivity. Automobiles can do 150mpg, cooling systems can do with 25% of today’s typical electricity consumption. Buildings can be designed for close to zero external energy input. Farm produce can be made with one quarter of the typical European energy inputs. Materials can be saved by large factors using re-manufacturing techniques. Water can be used four times more efficiently than today in many industrial, agricultural and private uses.

In addition, energy and materials used can be ecologically optimised as is already happening in several countries. Renewable sources of energy are a booming industry in many European countries. And materials can be selected to be perfectly recyclable.

Prices for the use of environmentally scarce resources should be gradually moved upwards so as to create an incentive for introducing “factor four-technologies”. An ecological tax reform or tradeable permits for resource use should be seen as chief candidates for instruments leading to that goal. Both can be designed in a socially and economically acceptable way. Tax-caused price increases can be tied to the pace of progress in average resource productivity.

Aggressive strategies to invcrease resource productivity may show the way for a true harmonisation of environmental and developmental goals thus ending the ecological frustrations we have experienced since the 1972 Stockholm Conference.

For further information visit the UN Chronicle’s website: http://www.un.org/Pubs/chronicle/.

When I began preparing this address on the Old and New Europe in their transatlantic relations, I saw with a degree of relief that hundreds of wise men and women had already written or spoken about the subject in recent months. So my task looked like a pretty easy one, just to summarise what wiser people than myself have said. That was the good news. The bad news was that much of what the wise men and women have said was mutually contradictory. Hence any summary would be confusing or absurd and would have sounded like:

• New Europe is closer to America than Old Europe because America is called the New World, but in the end the two are the same. Or:
• Old Europe is closer to America because it is so much like America as regards annoying the fellows on the other side of the Atlantic. Or:
• Old Europe believed that Blix was supposed to find weapons of mass destruction in Iraq while New Europe new better because of closer ties to the Pentagon. Now that everybody knows that the weapons of mass destruction were only put on the agenda for “bureaucratic reasons”, we need no longer distinguish between Old and New Europe.

So I feel a bit confused about New and Old and you should too. Let me suggest a contest between you and me. My job is to speak about the confusion, and yours is to listen. If you finish first, please let me know. Then I declare you the winner.

“Of Paradise and Power“

One of the prominent writers on the subject is Robert Kagan. In Of Paradise and Power, he sees a deep and structural divide between us Europeans and the US: To make his point, he needs no distinction of old from new Europe but regarding America, he doesn’t see much of a distance between Republicans and Democrats either. He says that even moderates in the US think like the hawks in terms of making use of America’s insuperable military power while even hawks in Europe are inclined to think in terms of paradise and international law to solve international conflicts.

At a lecture in Berlin ten days ago, Kagan insisted that most of today’s US policy that is annoying Europeans has actually been cooked by the Clinton administration. But that is grossly inaccurate, according to Frank Loy, the chief climate negotiator of the US under Clinton who listened to Kagan’s Berlin lecture and was much angrier about him than I am. Loy told me three days later, still full of anger, that arrogant unilateralism was an invention of the Bush people; and whatever came close to it during the Clinton years originated from the Republican dominated Congress after November 1984, not least from Newt Gingrich then House majority leader, and from the notorious Jesse Helms.

Other Americans tell me that after 9/11 the internal security system has turned absolutely frightening for liberals. Public institutions and private companies are encouraged to spy on staff and report to the Secret Service, reminding badly of the McCarthy times if not of the worst times we had in Europe. Kagan doesn’t touch that dimension and shouldn’t be surprised that Democrats and liberals feel he is not talking about their America.

Even inside the Republican government there is a rift. Newt Gingrich, now an advisor to Rumsfeld, said in April 2003: “The last seven months have been six months of frustrating and unsuccessful diplomacy and one month of successful military campaign”. His intention is clear to de-moralise Powell.

We learn from all this that Kagan is grossly over-simplifying American realities. Nevertheless, I find his observation absolutely convincing that Americans and Europeans are actually not that different by their human nature but by military realities. He also notes that historically this reality is a new phenomenon resulting from the collapse of the Soviet empire. Before 1990, America was simply not the only superpower and therefore had strong reasons to fear an all-out war. Hence, oddly, the Cold War served as a stabilising factor.

After 1990, all that was gone, and now America is the only military superpower left and hence is behaving, guess how? Just as Britain did during the 19th century and Germany tried to behave somewhat later and France and Spain somewhat earlier. At such times of the European nations’ military dominance, says Kagan, it was the USA to insist on diplomatic rather than military solutions. And let me add that civil freedoms at these times were well protected in the USA, not in militarised European states.

When explaining the propensity of nations to tailor their strategies to what they realistically can expect to achieve, Kagan quotes an old English proverb saying that if you are a hammer, the world around you looks like full of nails. The message being that in our times there is only one hammer left, the USA.

To add an element of scare, let me at this juncture tell you what observers say in Washington about the Bush team’s operational principle: “Ready – Fire – Aim”, in this sequence. And I am learning that this is a strategic idea originating from Harvard Business School, chiefly for start-up entrepreneurs: If you wait until you exactly know where to aim at, it will be too late to shoot. Now I don’t mind that first shoot then aim mentality for start-up businesses but I must say I find it scaring if it has infested the Pentagon. And so much is certain: this attitude was not in place in the Clinton years.

Returning to Kagan’s views on power-dependent mentalities, I should like to add that mentalities are not only dependent on military power but also on the physical experience of war. My wife brought that home to me when she observed during early 1980s that there was a fundamental difference in war fiction novels and films between the US on one hand and Europe on the other. German, Soviet, French, Italian, Polish or Scandinavian novels and films were very similar in that they all depicted the war as the ultimate tragedy and disaster. In US novels and films, with the exception of some Vietnam war sagas, war consists of battles between the heroes and the villains, — and as the heroes are the winners, war isn’t a bad thing per se.

I tell this to substantiate my view that the transatlantic divide that we are feeling in our days is not Schröder vs. Bush but rather roots much deeper in history.

The “old European” experience is clearly shared by nations that Donald Rumsfeld counts as New Europe. The Polish President, Aleksander Kvasnievsky, recently said in an interview with Der Spiegel that the description of new and old Europe was wrong and that Poland was, of course, “old Europe”. And ninety percent of the Spaniards rejected Aznar’s support to Bush and clearly wanted to be seen as Old Europe.

Living with US dominance

This brief historic introduction was perhaps necessary to better understand the state of affairs of transatlantic relations. Europe must learn from Kagan and others that we are in no way better animals than our American friends. Nevertheless, our historical experience may qualify us for a different role. That experience includes horrible wars and dictatorial governments as well as the deliberate and successful submission to the European Union of earlier national sovereignty.

Our American friends, on the other hand, would do good realising that other people may have good reasons not to follow the present American model. As a matter of fact, people around the world do feel troubled by the fact that America is touching their own daily lives more than their own government does. This disturbing observation has induced Thomas Friedman, author of the brilliant book The Lexus and the Olive Tree to write an enlightened article in the New York Times (June 2, 2003) entitled Why the rest of the world hates America. He too refers to the unparalleled ascent of US military power after 1990 and adds the dominance of US cultural and economic ideas about how society should be organised. If Washington judgments and decisions touch peoples lives more than their own parliament’s and government’s decisions, the very notion 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?

That is something to reflect on. The US is claiming to crusade to bring democracy to the world but by its unforgiving unilateralism makes people feel that democracy is not about influencing the forces that lie behing their real lives. What is the credibility of such crusade on democracy?

Gerard Baker and others in the Financial Times (30 May, 2003) show less sympathy than Friedman with the powerless and put it more matter-of-factly: “the future of transatlantic relations will ultimately be decided far more in Washington, by the sole superpower, than in Brussels”.

Does that mean, perhaps, that New Europe is the part of Europe, which has given up questioning the supremacy of the US while Old Europe is still struggling with it? Kagan says, we should not give up but should leave our “paradise” and build up military powers matching those of the US. It is an expensive advice: The US spends three percent of its GDP on defence, Germany only 1.1 percent. Although both figures are small compared to the six percent Britain spent during the glorious “Rule Britannia” times of the late 19th century, I don’t see any realistic strategy for tripling European defence budgets. Anyway I see no reason how such dramatic militarisation would solve any of the transatlantic problems and would rather create new ones.

Moreover, I see no need to bolster European self-confidence by running after the hammer. Instead I do see fascinating new roles for good old Europe which I shall outline momentarily.

European preference for the rule of law

The role of good old Europe as I see it is that of a mature global player who has learned the hard way that all fare better if internationally there is a rule of law, applying, of course, to everybody. Wars should be considered for defensive purposes only or under the explicit mandate from the United Nations, i.e. with explicit consent of the US, China and Russia.

The European Union was founded first as the European Economic Community after the war with a view to end all European wars forever. For this, it was simply necessary to subordinate international relations under the rule of law. Kagan himself quotes Steven Everts from Britain explaining and justifying the European project this way. By surrendering to the Union many traditional powers of the nation state, the European nations created the most successful, most prosperous and most peaceful period of history on the Old Continent.

We have no reason to leave this road of success. Rather we should attempt to geographically extend it, as we are presently doing with the accession to the Union of ten more countries all of which have suffered from the war and from authoritarian regimes. Europe’s global role should be one of strengthening the UN and of working on the establishment of a rules based world order.

This is also the view of US philosopher Richard Rorty, of the German Jürgen Habermas and the French Jacques Derrida, of the Swiss Adolf Muschg, of Umberto Eco from Italy and Fernando Savater from Spain. They all feel Europe should further develop and maintain that attitude of a proud and peaceful alternative to the present US policy of unilateralist dominance.

Coming from this perspective I would not put the blame on Europe for the present transatlantic tensions. They are unavoidable as long as the US government keeps de-legitimating the UN and international law and tries to divide Europe into old and new.

Sure enough, we have made mistakes in Old Europe. Chancellor Schröder was inconsistent with the said allegiance to the UN when declaring that Germany would under no circumstances participate in a war against Iraq. He surely assumed that there was no “case of defence” conceivable and that therefore the NATO Treaty’s Article 5 (used in the case of Afghanistan) would under no circumstances apply. It would have been easier for the US to accept this, had he said so explicitly. (Schröder and Chirac were right, on the other hand, not accepting the US language of constantly mixing up Al Quaeda, Saddam Hussein and Islamic fundamentalism.)

However, another major mistake was made by Old Europe in February and March. At that time we should have admitted publicly that without the US military build-up around Iraq, Saddam Hussein would not have moved on any of the Western demands. Had we said so, it would have been much easier for President Bush to eventually withdraw his troops without a war and yet without loosing his face.

Is the tide turning against G.W. Bush?

Admitting smaller mistakes will not suffice to re-establish transatlantic friendship. Robert Kagan and most Americans would probably reply to Rorty and his European colleagues that all that soft rhetoric of a rules based world would never impress Al Quaeda, Hamas or Kim Yong Il. And here the Americans are right.

For a while I hoped that the Iraq war might have a positive effect on the Israel-Palestine conflict. Palestinians have realised that the US is not bluffing and some leaders feel that it may be better for their people in the end to accept the “roadmap for peace” designed by foreign powers (including Europe!). At the Aqaba meeting, the US seemed to make progress also in taming Sharon. But only a week later Bush’s strategy suffered a massive setback. Anyway, the Palestine question is a bit outside today’s focus and is outside my own competence.

It is not out of our focus to look at some of the more contentious new catchwords used by the Bush Administration. Is it right for one country to call other countries “rogues” or “failed states”? Is it right for one country to declare “regime change” in another country an aim of its foreign policy? Can one country classify others as an “axis of evil”?

Clearly, in the present European political language, such are all impossible notions. What I nevertheless would be willing to accept is the use of these terms if they express what the US government, parliament or public choose to believe – as long as they don’t become instrumental for unilateral military action.

Rejecting unilateral military action has nothing to do with cowardice or Anti-Americanism but is indeed rooted in the said European experience of WWII and after. And let us remember that European NATO partners did not hesitate to support the “war on terrorism”, when the USA was attacked on 9/11.

After 9/11, nearly all people of this world including many Islamic people felt shocked and were on the side of the USA. A year and a half later, public opinion has massively turned against the US. To quote an American source: “There is little doubt that stereotypes of the United States as arrogant, self-indulgent, hypocritical, inattentive and unwilling or unable to engage in cross-cultural dialogue are pervasive and deeply-rooted.” So says The Independent Task Force on Public Diplomacy of the Council of Foreign Relations of the USA in a Report published a few weeks ago.

It is fair to assume that this massive change of tide has not been engineered by Schröder and Chirac. Most of my own American friends rather put the blame mostly on George W. Bush, on Donald Rumsfeld or on Fox media. Some of my friends believe that the tide is simply turning against G.W. Bush and are confident that his government will just be a transitory if embarrassing period after which reason will again assume the upper hand. They tell me that since a very long time, America has never been so deeply divided internally than in our days, and that despite all the patriotic feelings after 9/11, and despite near-unanimous backing of the American soldiers fighting in Iraq.

Of course, if you are on the side of Bush, as Kagan no doubt is, you are inclined to deny the existence of a divide. But then, there is a fundamental asymmetry of logic: If of two people in a room one is saying we agree and the other says we don’t , the latter is right and the former is not. In any case, we Europeans should never say “America” if we mean the Bush administration.

I still agree with Kagan that the transatlantic rift goes beyond President Bush’s current policies. So I try to go deeper into the rift challenge, in two steps. One step, following Rorty, Habermas and the others, is an outline of a proud European vision from which an extent of world-wide European influence could follow, which the US simply cannot ignore. The second step addresses what Continental Europeans see as an Anglo-Saxon preoccupation, namely the idea that it is good for all if we have as much economic competition as possible and that the survival of the fittest among the competitors is also good for all.

The European vision and the European Union

Let me begin with the European vision.

An essential part of the European vision will always be our fundamental friendship with the United States. The US have been so immensely helpful after WWII in establishing and defending freedom, democracy and the rule of law. And the US at the time of George Washington and Thomas Jefferson were the first in the world to adopt a democratic constitution based on European ideas.

The business communities in particular on both sides of the Atlantic are very eager to return to business as usual in the mutual relations and do not support such silly jokes as renaming French fries into Freedom fries.

But the European vision has to be far more ambitious than returning to business as usual in transatlantic relations. Much of the European vision is already in place and has to do with what is now called the European Union.

At the beginning there was the determination never to allow wars again among European countries. Nearly sixty years later, wars have become virtually inconceivable between France and Germany and the rest of the EU, and everybody in the world is appreciative of that achievement.

The beginning was modest by today’s standards: the Community of Coal and Steel, then considered core industries. From 1957 on, based on the Treaty of Rome, six countries became the European Economic Community, – a free trade zone pretty much like NAFTA. As more cultural, fiscal, environmental and legal matters were added, it became the European Community. A European Parliament was created, which over the years was given ever more powers. It will in the future be entrusted with electing the EU President.

The Community developed strong mechanisms of harmonising its policies. The Commission has the privilege to propose new directives, although the Councils of ministers can reject them and negotiate about details. In the field of the environment it is said that EU Directives and Regulations determine some 80% of the legislation of member countries. In agriculture it is more.

The European Court of Justice oversees the implementation of Community law and has often forced member countries to change their policies accordingly.

The Single European Act of 1987 was the first amendment to the Treaty of Rome and with its “Four Freedoms” (of movement of people, goods, services and capital) kicked off a new phase of integration leading through the Maastricht and Amsterdam Treaties to the new name of the European Union.

Meanwhile the number of member countries, all of them voluntarily joining, grew from six to fifteen, and another ten are joining in a year from now.

The Maastricht stability criteria were also the basis for the introduction of a European currency with presently 12 countries participating.

And since this weekend we are confident that we shall have a European Constitution overriding national constitutions.

From this formal description of the EU it is already clear that the NAFTA zone is light-years apart from that degree of integration. What Americans in particular tend to find revolting is the idea a supranational authority has powers to convict citizens and firms from one member country.

Differences go still further. The EU has a tradition originating from its earliest years of embedding the market economy into a web of social policies. In Germany we call it Soziale Marktwirtschaft, a term introduced some fifty years ago by Ludwig Erhard, then minister of economic affairs. The inclusive kind of market economy was extremely successful in demonstrating that the market economy was not only good for the high achievers but also for the less fortunate. The socially inclusive capitalism has also become official policy of the EU. Notably the Cohesion Funds of hundreds of billions of Euros serve to shift money from the rich to the poorer regions of the Union. In NAFTA countries the poor regions can only dream of such mechanisms in the absence of which rich regions as a rule get ever richer and poorer ones ever poorer.

Of course, the European vision would be a lot more attractive still if we were enjoying steady economic growth, which, alas, is not the case. I cannot offer you any miracle solutions to that problem. But I give to consider that growth in economically mature countries is correlated with population growth. The USA (and Canada and Australia) still benefit from immigration. Notably the US acts as a huge “vacuum cleaner” sucking in talented people from around the world, not least from overpopulated Asian countries but also from Europe and Latin America. These immigrants typically are in their best years and immediately begin to work and to increase economic output. Europe and Japan, by contrast, have hardly any internal population growth and apply fairly strict anti-immigration policies. Germany has taken in some two million immigrants from the former Soviet Union, — mostly as pensioners! All this may explain much of the transatlantic (and trans-pacific) differences in growth rates.

To respond to this challenge, Europe should adopt more liberal immigration policies and develop many more English language university courses. We should actively compete with America on attracting the elites of the world and on attractive conditions for modern industries. Moreover we should further liberalise labour markets, rebalance our social security system and otherwise improve conditions for investors without, however, giving up on the inclusive model of capitalism and on the maintenance of a first-class infrastructure.

This also means we should not compete for business by constantly cutting taxes. Functioning states need money. But then, what the OECD calls harmful tax competition originates mostly from the USA, and President Bush keeps pushing this agenda, to the detriment both of US public services and of transatlantic relations.

Economic Darwinism and Globalisation

Let me come to what I impolitely called an Anglo-Saxon preoccupation of ever enhancing economic competition. The quasi-moral value of competition is something that you don’t find in ancient Asian, African, Latin American or continental European cultures.

Having served as a professor of biology, I know, of course, Charles Darwin’s Origin of Species through Natural Selection, published in 1859 and know about the evolutionary power of competition. But let me submit that Charles Darwin, after his visit to the Galapagos Islands, made it clear that the evolution of diversity was dependent on barriers. The evolution of diversity presupposes millions of cases of survival of the less fit, while natural selection mainly works to reduce diversity. Diversity, on the other hand, is the precondition for resilience of the system against unexpected shocks and therefore enjoys artful conservation! This is a fact known to biologists but often ignored by economists using biological selection as a natural law to support their economic “Darwinism”.

Nearly a century before Darwin, Adam Smith discovered the productive sides of competition on the markets, laid down in his pivotal book on The Wealth of Nations. This groundbreaking work is seen as the origin of modern economic thinking and has shaped the Anglo-Saxon civilisation more than others. It reached all cultures over the last 200 years and has become dominant throughout the world after the collapse of communism. But why is it then that so many people feel threatened by markets and openly fight against further liberalisation? I see two reasons for this:

• The losers and the scary simply feel threatened and think (often rightly) that they would be better off with less competition;
• The benign function of markets requires strict rules, which at Adam Smith’s times were guaranteed by a strong nation state. The state is supposed not only to set and monitor the rules but also to take care of whatever may be necessary for a healthy development but is not profitable as a private economic activity (for this, Smith gives the example the construction and maintenance of lighthouses).

The first reason for fighting market competition must be refuted, but not the second. It is indeed essential to have rules (and to have an authority paying for infrastructure) reaching as far as the market forces do.

Now I am coming to an interesting observation concerning economic globalisation. Global capital has been around, of course, for a long time. But so long as we had the Cold War, capital was massively interested in keeping countries in the Western camp of market economies. For the high achievers and for capital owners, the social welfare state was no doubt a nuisance, but still preferable to communism. So they grudgingly accepted in each nation state measures such as affirmative action, extended workers rights and a whole host of redistributional taxes. When the Soviet Union collapsed, all of a sudden, the field was free for attacking everything that since a long time had been seen as a nuisance.

This is the new situation emerging after 1990, which was given the name of “globalisation”. It has been proven that the term globalisation entered the media not before 1992. Globalisation is clearly benefiting the high achievers and the capital owners. In the absence of a communist threat, they can now force nation states (and sub-national bodies) into ever fiercer competition against each other for optimum conditions of profit making, regardless of the costs to democracy, to the public, to the environment and to future generations. This what some consider global economic Darwinism falling back far behind Adam Smith!

Globalisation coincided with the new US American superiority. After all, both had the same origin, namely the collapse of the Soviet Union. But the synergies go further. The US has by far the largest institutional investors and by far the strongest universities, patent holding companies, acquisition and mergers banks, accountant firms, entertainment industry and computer firms, in addition to its superior military. The US is by far the biggest beneficiary of the new and global economies of scale. The “winner takes all” phenomenon works chiefly to the favour of the US and by the same token to the disbenefit of other countries.

This may explain some of the anti-American undertones found in the “anti-globalisation” movement. This too is part of the transatlantic relations problem. America would do good to understand this nexus and could co-operate with Europeans, in establishing global rules.

Let me just indicate a line of thinking that I adopted when dealing with globalisation. In the situation of states coming under more and more pressure from the international financial markets, public goods too come under dangerous pressures. If we want to re-balance public with private goods, what we have to do is a systematic strengthening of civil society to create the necessary public pressure in defence of public issues. This can unite millions of people, mostly of the civil society on both sides of the Atlantic and may constitute an essential pillar of friendly transatlantic co-operation in the future.

This is not meant as yet another idealistic longing for the paradise. We do have to sort out our real problems and we Europeans and Germans have to do our homework including in the war on terrorism.

But at least I hope to have shown to our American friends that European visions, inclusive capitalism and the evolution of globally respected rules are not meant as anything like Anti-Americanism.