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Dinner Speech Ban Ki-moon – Copyright: DGVN 2014

At the end of January I had the honour of being invited by the United Nations Association of Germany to give a short speech at a dinner with the Secretary-General of the United Nations Ban Ki-moon in Berlin.

Here you can download the script of my speech: Dinner Speech Ban Ki-Moon

Tomorrow, we shall discuss the science, management and economics of catastrophes. After Katrina, this is one of the hot debates in this country and the world. I seem to observe some kind of a new mindset setting in and do hope that the Bren School and the business community with which we are cooperating will be part of that shift of the mindset, with a view of reducing the risks of disasters and of arriving at a safe and prosperous world.

I thought to offer you some reflections this evening about the changes of the ecological mindset over the last half century and perhaps about its future.

Catastrophes have nearly always played a central role in creating a new mindset with regard to the environment. But in some cases it was slow disasters rather than sudden events like Katrina. Perhaps the most important chain of disastrous developments in this country surfaced during the 1960s. It was in 1962 that Rachel Carson in her “Silent Spring” described the widespread poisoning of the environment with toxic pesticides, killing millions of birds or their eggs and driving the bald eagle close to extinction. That gave an outcry of anger in the country about the chemical industry. Soon later you had that unbelievable burning water on the Cuyahoga river in Ohio. All of a sudden, then, it became politically correct also to complain about the air quality in LA or in Pittsburgh.

In Japan, it was chiefly mercury and cadmium pollution that killed fish and fishermen, (the Minamata and Itai-Itai diseases) and the terrible air quality in the two big agglomerations forcing traffic policemen to wear face masks all day. In Germany, the biggest trigger of environmental consciousness was the dieback of forests, and in Italy it was the Seveso disaster releasing tons of dioxin and killing people in the neighbourhood of the factory.

In response, all these countries developed regulation to control dangers and pollution. Pollution control became the core the ecological mindset in the 1970s and 80s. In the US, you had the Clean Air Act, the Clean Water Act. And California always went a step ahead e.g. with its clean cars regulation.

But then, with the political paradigm shift during the 1980s away from state intervention and pro free markets, the environmental movement suffered severe setbacks. Too much had it relied on state intervention and strict regulation.

One of the reasons why the movement got weaker was actually the good news that air and water quality had conspicuously improved over the years in all the rich countries. This made it possible to say in some quarters that environmentalists had overdrawn their cause and had become a real nuisance.

Moreover, the business community and the state could argue that the remarkable 20 or 30 years success story of pollution control was achieved by investing a lot of money in pollution control. The evidence was striking that countries could afford pollution control only if they had become rich in the first place. And turning directly to the activists you could remind them that on the market place organic food was more expensive than conventional produce. So if activists were opposing economic growth or further exploitation of natural resources, you had a convenient ecological argument against them.

The idea of “become rich first and take care of pollution control later” was an integral part of the ecological mindset of those years. And it served as a wonderful excuse for poor countries not to do too much for their environment. Thus the pollution control paradigm was extremely convenient for everybody.

But I am afraid that the days of this current paradigm and mindset may be over. Some very uncomfortable facts and forecasts are creeping in, most notably in the context of climate change. Uncomfortable because it turns out that it is chiefly the rich who cause the largest environmental impact. They have much higher carbon dioxide emissions than the poor. And they have an enormous need for land outside their own countries. Japan, Germany and to a lesser extent the US are exporting some of their environmental problems to poorer countries by importing timber, meat and fruits from those countries.

Of course, you see politicians trying hard to maintain the old, convenient paradigm. The ideal way of doing this is by singling out costly measures of climate protection, such as carbon sequestration, or costly measures of nature protection such as buying land with a view of idling it. Such costly measures allow us conveniently to pursue a “business as usual” strategy.

Let me submit that this strategy, as convenient as it may look at first glance, doesn’t really solve the problem. Chiefly because it encourages all six and a half billion people on earth to believe they can begin to cooperate only after having reached our levels of economic strength. By then it will be too late for a million species and for serious climate mitigation measures.

Fortunately, there is another way out. We can decouple economic well-being from carbon dioxide emissions and from excessive land use more or less the way we decoupled wealth from toxic pollutants. The new operation of decoupling will take longer than 30 years but it may actually become a thoroughly profitable operation.

What we would need, at the core, is a new technological revolution. This time, the characteristic of technological progress will in all likelihood be the dramatic increase of resource productivity. Prof. Umesh Mishra and Steve DenBaars, next door in the Engineering building, work on solid state power switching for hybrid cars, leading, so it seems to hybrid cars doing 100mpg. (This, I submit, would make the use of biofuels responsible, while biofuels for a hundred million gas guzzlers would be an ecological nightmare to me!) And Prof. Shuji Nakamura works on solid state lighting consuming just one tenth of the electricity of the outgoing generation of light bulbs. The same factor of ten seems attainable for buildings. The Bren School building is perhaps four times better than comparable office buildings.

This technological paradigm shift is already taking place in East Asia. There they have less energy and mineral resources of their own, and less space. So they are strategically heading for a doubling, if not quadrupling of their resource efficiency. I suggest that the US economy will be well advised to catch up with the Asians because world markets are becoming ever more sensitive in this respect as resource prices keep growing.

Let me close by explaining to you why I am putting so much emphasis on the technological solution side. It has been an experience all along both in medicine and in environmental policy that the readiness to recognize a disaster or a problem was greatly facilitated by the availability of remedies. The discovery of penicillin resistant bacteria was made in the early 1950s but became widely publicized and accepted only during the 1960s after other antibiotics had become readily available. At that time, the pharmaceutical industry, understandably, was the main driving force in publicizing the penicillin resistance problems! Similarly, the ozone depletion was known since the early 1970s but ozone diplomacy got successful only after Dupont had come up with elegant CFC substitutes. I suggest that in America and elsewhere the readiness to take strong measures on climate and biodiversity protection will grow more or less in proportion with the availability of the respective technologies.

That is a much nicer scenario, isn’t it, than waiting for natural catastrophes or business collapses resulting from dinosaur technologies until we wake up to the real challenges of our days.

Dear Professor Lu Mai, dear Professor Liu Shinjin, ladies and gentlemen,

It is an unusual honour for me to be invited to this keynote address, which I have put it under the title of Resource Productivity.

Fig 1

This title contrasts with the preoccupation with labour productivity during the last 200 years of technological progress. Labour productivity has been the melody of the first Industrial Revolution. It increased twentyfold or more during those 200 years. This has been the basis of prosperity and it is the main theme of China’s stunning economic progress.

During those same 200 years, the world has also seen a systematic decrease of prices of natural resources.

Fig 2

This invited mankind to a wasteful use of those resources. Small wonder, then, that resource productivity was stagnant or even decreasing during much of this time.

Let me submit to you that we cannot continue on this road. It may be wise, chiefly for the industrialized countries to slow down the further increase of labour productivity while forcing the increase of resource productivity.

Forcing resource productivity has become an imperative also for the developing countries that cannot afford a wasteful use scarce resources. Obviously, this consideration was at the roots of planning this conference. The new trend in technological development, namely a strong emphasis on resource productivity, may be triggered by the recent increase of resource prices:

Fig 3

For China in particular, the rising commodity prices were a signal of warning. But then, you have additional reasons to become more resource efficient. It would allow you to simultaneously reduce one major health problem, namely pollution-caused mortality in your industrial agglomerations:

Fig 4

Clearly, air pollution should also be addressed directly by appropriate pollution control measures. These have an additional cost, which however, is far exceeded by the economic benefits for China, according to Stefan Hirschberg et al (2003) of the Swiss Paul Scherrer Institute:

Fig 5

China is going through the standard development with regard to pollution: Countries start poor and clean. Then they industrialize and get rich and dirty. And then they rich enough so that they can afford pollution control and end up rich and clean:

Fig 6

It has been the traditional view of the developing countries that they are too poor to pay for pollution control. As Indira Gandhi said it in 1972 at the first UN Conference on the Human Environment in Stockholm: “Poverty is the biggest polluter”

Fig 7

Indira Gandhi’s slogan went down well not only with the political leaders of developing countries to whom it was a nice excuse for not acting on pollution control, but also for industry in the North that could conveniently say that they needed good profits for the sake of the environment.

The trouble is that today’s biggest environmental problems, biodiversity losses and climate change, are chiefly caused by the rich.

Fig 8

Regarding biodiversity, the biggest problem is habitat losses due to increased land use for agriculture, settlements, mining, energy and transport. You can estimate the acreage that is needed per person for a sustainable supply of all the daily goods and services. This is then the “ecological footprint” according to William Rees and Mathis Wackernagel, caricatured in the next picture:

Fig 9

The ecological footprints of average Chinese people are roughly one hectare. We in Western Europe have footprints four times as large, and in the US and Canada, footprints are even eight times that size. If all 6.3 billion people had US type lifestyles, we would need three to four planets Earth to accommodate all their footprints. This is obviously unsustainable.

The other big problem is global warming. Global temperatures have been rising and falling over the last 160.000 years in close correspondence with CO2 concentrations.

Fig 10
Based on the physics behind this correlation, the Intergovernmental Panel on Climate Change (IPCC) has projected temperatures to rise dramatically during our century:

Fig 11

The consequences could be alarming for water, food security and for biodiversity. You would also have to count with more devastating typhoons and, most dangerous perhaps, with a rising sea water table, indicated by the green line in the next picture.

Fig 12

The difference between high and low water tables is more than 100 metres, which means that coast lines will heavily vary. The next picture shows it for Italy. 20.000 years ago, during the last Ice Age, the Sea was lower and Italy was larger than today. But two million years ago there were no polar ice caps (and also the geological situation was different in the Mediterranean Basin) so that Italy was much smaller:

Fig 13

At present, we see a dramatic change of temperatures in the Arctic region, as has been discussed in the Arctic Climate Impact Assessment (2004). The summer freshwater coverage of Greenland has increased more than fourfold in ten years:

Fig 14

We are unable to predict the consequences of this development. But we know from historical records that ice masses can collapse or glide into the oceans in a very short period of time. This has been the case with the ice shield once covering Labrador and the Hudson Bay, which disintegrated during a few decades, perhaps even a few weeks some 7800 years ago, letting the sea water table rise by some 7 metres:

Fig 15

Imagine what such a mega-event would mean for China’s or Japan’s coastal areas, or for the Netherlands or Egypt or Florida!

What do we have to do to prevent such disasters from happening? It is plausible that at least we should try to stabilize CO2 concentrations. This, however, will require us to reduce annual CO2-emissions by 60-80 percent, according to the IPCC. Let us optimistically assume that 50 percent will do. But under the present trends, we shall get exactly the opposite. We are heading for a doubling of CO2-emissions:

Fig 16

China, India and other countries are drastically expanding their industrial outputs, their motorized transportation and their energy consuming housing and agriculture. So we shall see China and India to have emissions similar to those of the US:

Fig 17

Fig 18

The world energy pie shows that worldwide we have still an overwhelming dominance of fossil fuels.

Fig 19

In Europe, we have begun systematically to work on the reduction of CO2-emissions. The trading began in December, 2004. Initially, the prices paid per ton of CO2-emissions were at around 8 Euros. Meanwhile, prices have roughly doubled.

Fig 20

One component of our combating greenhouse gas emissions has been the increase of renewable sources of energy. In Germany, we have been quite successful in this:

Fig 21

We were very glad to see a large Chinese delegation at the Renewables 2004 conference in Bonn last year, and many said that China was about to copy the German system and is now planning another such conference this November. However, for all their merits, the renewables will not suffice to solve the problem. The energy pie is simply too large and must be reduced if we want to fight global warming and also avoid a dangerous dependence on nuclear power.

The key to the answer will be a Second Industrial Revolution focussing on the strategic increase of resource productivity. This has been the vision in the book “Factor Four. Doubling Wealth, Halving Resource Use”, which was also translated into Chinese:

Fig 22

It has been known for a long time that lower energy intensity is a sign of modernity:

Fig 23

We therefore see the Factor Four story as a true continuation of technological modernization and progress.

Let me now open a window for you to look into the new universe of eco-efficient technologies. The pictures will mostly compare existing technologies on the left hand side with new technologies on the right hand side that are some four times, or even ten or a hundred times more resource efficient than the old ones.

Fig 24

Let me start with my co-author’s Amory Lovins’ favourite idea, the “hypercar”, which allegedly does 150 miles a gallon, or needs only 1,5 litres per 100 kilometres.

Fig 25

Some remain a bit sceptical about its success but according to Amory, some 2 billion dollars have already been invested in the concept.

Fig 26

The next is Amory Lovins’ institute and home, the Rocky Mountain Institute, high up in the Rocky Mountains, which during much of the year is largely energy-self-sufficient and is easily a factor of ten better regarding energy than typical mountain.

Fig 27

The concept has been transferred ten years ago to ordinary apartment houses in Germany and elsewhere, as “passive houses” making use of solar heat and of heat exchange ventilation.

Fig 28

In my political constituency, Stuttgart, or rather in nearby Fellbach, we have a true zero-external-energy house. It has become a tourist attraction. And part of the excess energy it produces is channelled into a super-efficient car.

You all know the efficient light bulbs that need only a quarter of the electricity used in old incandescent bulbs. China has become the largest manufacturer worldwide of the efficiency bulbs. However, as most of you know, this is not yet the end of the road. Light diodes are coming up that are yet another factor of two or three better than the efficiency bulbs shown on the picture.

Fig 29

This is a small cooling chamber to replace the refrigerator that stands freely in the kitchen. Two weeks ago, I met with a Japanese gentleman who told me that even freely standing refrigerators have now been developed that are seven times more energy efficient that the old ones. The new development was probably triggered by the “Top runner programme” of Japan.

Fig 30

Fig 31

If you replace the old-fashioned filing cabinet technology by CD ROM’s you save more than a factor of ten and you have easier access to your data.

Fig 32

Water scarcity is one of the biggest problems of China. You may therefore be interested in a technology used in Germany that has reduced water consumption twelve fold in paper manufacturing, chiefly by systematically recycling and cleaning waste water.

Fig 33

My friend Professor Ryoichi Yamamoto of Tokyo once sent me the above picture showing a thin rod of steel that has the strength and capacities of otherwise ten times more resource consuming steel.

Fig 34

Video conferences are, of course, something like a factor of one hundred more energy efficient than the otherwise necessary business travel. I admit that video does not easily substitute for a business meeting on the Bahamas.

Fig 35

This is the story of modern, energy intensive agriculture. Winter tomato grown in greenhouses in Holland tend to need a hundred times more energy than they afterwards contain! With intensive cattle farming, the ratio is hardly better. Organic farming, on the other hand, is roughly by a factor of four more energy efficient.

Fig 36

This is the well-known strawberry yoghurt saga established by Stephanie Böge at the Wuppertal Institute. Lorries criss-cross Europe and drive some 8000 kilometres for the manufacturing of strawberry yoghurt. Obviously you could do at least ten times better.

So much perhaps to encourage you to think further about the upcoming technological revolution. Let me close by making a few remarks about methods to arrive there.

China is one of the countries that has established efficiency standards for cars. To meet the 2008 standards, many European and American car manufacturers have still to do considerable homework, while Toyota is well prepared.

Fig 37 [*]

In the business world we seem to see a slight competitive advantage of eco-efficient companies listed in the Dow Jones Sustainability Index over the average listed in the Dow Jones Group Index.

Fig 38

And if you compare different countries using the World Economic Forum’s Competitiveness Index you see a positive correlation with the Sustainable Development Index of countries.

Fig 39

So we seem to be on a good way. However, this is all too slow to reach the necessary factor of four. Let me in closing say a few words about instruments. I am impressed with what I heard in China about the determination with which you are creating incentives for more resource efficient technologies. Moreover, Douglas Ogden this morning mentioned the possibility of tax refunds for companies that achieve ambitious standards, and James Sweeney spoke about appropriate pricing.

Japan has gone a considerable step further with her “top runner programme” that makes the most energy efficient appliance or vehicle the top runner or standard and announces shame on those companies in a few years that still sell outdated, less efficient items. Ultimately they even have to pay a fine.

Germany and other countries have adopted an ecological tax reform to reduce the fiscal load on human labour while making natural resources more expensive.

And at the G 8 Summit that takes place in a few days, we hope countries agree on a geographical extension of climate policy beyond “Kyoto”. We hope that also China, India, Brazil etc will be invited under fair term to join international climate policy.

For this, the North has to understand that the present “grandfathering” approach is unfair to the developing countries and has to be replaced step by step by a system based on per capita allowances, – which would be good for China and India.

Mr. Chairman, ladies and gentlemen, I feel that the race is on worldwide among countries and among companies to take the lead in the Second Industrial Revolution that is driven by the second melody of progress, the melody of a revolutionary increase of resource productivity.

Thank you for your patience and attention!

References

• Hirschberg, Stefan, et al. 2003
• Rees, William and Mathis Wackernagel
• Von Weizsäcker, Ernst Ulrich, Amory Lovins and Hunter Lovins. 1997. Factor Four. Doubling Wealth, Halving Resource Use. A Report to the Club of Rome. London: Earthscan. Also available in Chinese and ten other languages.

[*] After the lecture, I was approached by a reresentative of General Motors who said that GM had also met the standards with cars exported to China.

Why Sustainable Development?

We live in a finite world. Ultimately, there is no way around production and consumption patterns that are sustainable. Ultimately, customers, engineers, managers and politicians will show a strict priority for the respect of nature and the environment.

To be sure, global competition for highest cost-benefit ratios leaves little breathing space for such long-term considerations. But at any moment in time it is legitimate to ask oneself if the time has come to now make sustainable production methods and ecologically benign products the priority for the company.

Many people in the business community believe that most of the environmental homework has been done leaving not much to do. This optimistic conviction is based on the inverted U-curve”. Countries typically start poor and clean. Then they industrialise and become rich and dirty. Once they are rich enough to afford costly pollution control, they finally become rich and clean.

Fig. 1: Countries historically started poor and clean, then got industrialised and dirty and ended up rich and clean.

The trouble is that ”rich and clean” involves per capita consumption levels of depletable resources easily twenty times the rate of the ”poor and clean” stage. In the language of William Rees and Matthis Wackernagel (1992), lifestyles in the rich and clean countries involve ”ecological footprints” of some four hectares per person. Similarly, Friedrich Schmidt-Bleek has developed the concept of ”ecological rucksacks”. Every average Japanese causes an ecological rucksack every year of some 45 tons. Germans cause even heavier rucksacks weighing some 60 tons. Heaviest, of course, are the US American rucksacks of some 80 tons annually.

All in all, we are far from a harmonious situation. In fact the daily toll of environmental damages can be seen as absolutely alarming, as Fig. 2 is summarising.

Fig. 2: The alarming daily toll of environmental destruction.

Among the most alarming effects of our footprints and of the rucksacks is the rapid loss of biodiversity. At present, we are losing some twenty, perhaps up to one hundred plant and animal species every day. This is mostly due to the destruction of natural habitats that have been the home to hundreds of thousands of biological species, some of them rather inconspicuous but nevertheless important in the interlocking webs of ecosystems. Habitat destruction mostly results from land conversion for mining, agricultural use, forest monoculture, or settlements. Even if much of the land degradation is taking place in the developing countries, it is often exports of timber, ores, fodder and fruits to the North that cause the degradation. In other words, we in the rich countries tend to export our ecological footprints to the South

One of the most disquieting aspects of environmental change is the greenhouse effect. The Intergovernmental Panel on Climate Change (IPCC) has published fears of global warming by up to 5 degrees during this century. (Fig. 3).

Fig 3: Projections of global warming until 2100 (Source: IPCC, 2001).

Global warming can be accompanied by a further rise of the sea levels. Fig. 4 shows how the coast lines of Italy reacted to different levels of the sea water table.

Fig. 4: Italy during the last Ice Age and during the Pliocene.

There is still a lot of ice on the Antarctic and on Greenland, enough to flood Holland, Bangladesh, Egypt, Florida and much of Germany.

We should by all means avoid such disasters. The IPCC has suggested that in order to stabilise carbon dioxide concentrations we should reduce carbon dioxide emissions by some 60 to 80 percent, say by 2050. On the other hand, we learn from the World Energy Council, that the demand for energy, and with it the emissions of carbon dioxide, are likely to rise steeply and are most likely to at least double within that period. So there is a gap as large as a factor of four which will have to be closed.

Nuclear energy can’t close the gap. Today, nuclear energy is a mere six percent of the world energy pie, and in most countries, even the most ardent defenders of nuclear energy have stopped ordering any new reactors. Even a neck-breaking rush towards tripling nuclear energy supplies in the world would not buy more than is an increase from six to eighteen percent of the energy pie. And if that pie is doubling, we are falling back to a mere nine percent.

The substitution of fossil fuels by renewables is a lot nicer to the environment. But then wind and solar make up only 0.5% of the present pie. Let us assume a heroic strategy of increasing it twenty fold. Then we have reached ten percent of the present pie, but a mere five percent of the double sized pie.

Let me conclude this introductory section by stating plainly that energy policies too are in a massive dilemma.

After the Industrial Revolution the Eco-Efficiency Revolution

The challenges of sustainability, of biodiversity protection and of climatic change look breathtaking. Fortunately, there is hope. Much of this hope is rooted in technological progress. But the task will be no smaller than the adventure of the Industrial Revolution. Having listened to some of the participants of this conference in advance, I am confident that the radiation curing industry can play a significant part in our new adventure of technological progress. However, I don’t claim the competence for giving you any special technological advice. Let me instead try and characterise the broader features of that new technological revolution.

In the early days of the Industrial Revolution, technology was mostly driven by the desire of economic expansion. The main emphasis was laid on the increase of labour productivity, which may have risen twenty fold during the last 150 years. This progress becomes visible in the speed of our vehicles, in the power of our machines, in the organisational miracles of industrial production lines and in the unprecedented skills of modern information technologies.

The emphasis on labour productivity was very reasonable until quite recently when human labour was indeed very inefficient and very hard too. The resources of nature seemed to be nearly unlimited. So the exploitation of nature seemed like a legitimate and natural part of the game for much of technological history.

Today we are living in a completely different world from the early 19th century. Labour today is abundant, labour productivity is very high, and the real scarce resource is nature. This means it is high time now to concentrate our efforts on the increase of resource productivity. Even purely economic — and social — reasons speak for it. Slowing down the increase of labour productivity while speeding up resource productivity should make countries richer, not poorer.

Shifting emphasis to resource productivity should be the best answer also to the challenge of sustainable development. The World Business Council for Sustainable Development now speaks of Eco-Efficiency as a new guiding term. And the Wuppertal Institute of which I have been the founding president, gives ambitious goals for the increase of resource productivity. For the use of materials, my friend Friedrich Schmidt-Bleek calls for a decupling of resource productivity. But for energy, I suggest a more modest figure of a factor of four. At any rate, we are speaking of productivity jumps equally impressive as those characteristic of the Industrial Revolution. Let us therefore speak of the Eco-Efficiency Revolution, which we shall be forced to launch very soon.

The Eco-Efficiency Revolution is perhaps the only strategy allowing a reduction in size of the ecological footprints without jeopardising employment and competitiveness.

Factor Four

The good news is that quadrupling resource productivity is technologically feasible. A 1995 Report to the Club of Rome (in English: Weizsäcker, Lovins and Lovins, 1997) features fifty examples for the potential of increasing resource productivity by a factor of four at least. Twenty examples were selected in the field of energy, twenty in material resource productivity, and ten in transportation.

Fig. 5: Factor Four was translated into twelve languages including Chinese and Japanese.

My co-author Amory Lovins lives in and works at the “Rocky Mountain Institute”, some 2000 metres above sea level in a truly cold climate. And yet his home needs almost no external energy. It is easily a factor of four more energy efficient than ordinary alpine buildings. The next picture compares the two in terms of energy productivity.

Fig. 6: The Rocky Mountain Institute is perhaps ten times more energy efficient than an ordinary alpine house.

Another very attractive Factor Four example is what my co-author Amory Lovins has dubbed the hypercar {Fig 7}. By almost entirely redesigning cars, making them light-weight and still crash-resistant, and by using modern hybrid engines, the average fuel efficiency can be pushed up to 150 miles per gallon, which is more than four times better than today’s fleets.

Fig. 7: Amory Lovins’ “Hypercar” (right) is five times as fuel efficient as ordinary cars (left).

Other examples include light bulbs, refrigerators, air conditioners, TV sets, mechanical fans, pumps and motors, computers and other office equipment.

Also renewable sources of energy will play an important role in the efficiency revolution. They may not by themselves save energy but they are at least ”carbon-efficient” and lend themselves to being combined with efficiency technologies, e.g. the use of passive solar energy in buildings can be optimised by the so-called translucent insulation technique.

A different and very important sector of energy use is nutrition. By reducing the excessive use of fertilisers and the transportation of fodder, and by slightly cutting meat consumption, energy requirements for a healthy diet can be cut by a factor of four.

The twenty examples of revolutionising material productivity range from construction and durable office furniture, to water in homes, in paper manufacturing and to high tech recyclable plastics for wrapping and catering. One fine example is the replacement of a clumsy paper-based filing cabinet by a modern CD ROM system. There you save more than a factor of ten even if you generously include the ”ecological rucksacks” of the metal contained in the disks. One example is modern steel, which can be easily four times as resource efficient per unit of results obtained (Fig. 8)

Fig. 8: Modern steel can be fabulously strong and can help saving 75% materials.

Let me present one last example from our book, the logistics of the production of strawberry yoghurt. Stefanie Böge has found out that for manufacturing a cup of strawberry yoghurt in Germany you would typically let lorries criss-cross central Europe and make 8000 kilometres, if suppliers and the suppliers of the suppliers are counted. It can easily be proven that you can do an equivalent job with only a thousand kilometres, which again is more than a factor of four. (Fig. 9)

Fig. 9: The distance of total lorry traffic for the manufacture of strawberry yoghurt today (left) and in an energy efficient future (right).

I may have opened a window for you into a distant future of technologies and everyday habits of people, There will be millions of small transformations, some of them quite inconspicuous, that make up the factor four revolution. I am perfectly confident that the revolution will be as benign as the industrial revolution, although surely there will be losers, chiefly among those who do not want or cannot keep pace. That, however, is not exactly new in the history of industry.

Profitability, long term and short term

Needless to say much of the efficiency revolution is not going to happen unless the framework for doing business is changed. Efficiency must be made profitable. Fortunately, some eco-efficiency is profitable now. (Fig. 10).

Fig. 10: A portfolio of stocks of ecological “best in class” companies had a better performance than the DJGI

A portfolio of stocks of ecological “best in class” companies had a better performance than the Dow Jones Group Index. Companies paying attention to the resource and energy flows going through the firm, tend to gain internal transparency and to enjoy better staff motivation and better customer relations. This is perhaps the most convincing explanation for their encouraging stock exchange performance.

It is to be feared, however, that the potential for making profits by eco-efficiency measures will be very limited if the present world market conditions prevail. Energy and natural resources are still too cheap because markets are rather blind with regard to long term scarcities and to such developments as the greenhouse effect.

Moreover, conventional policies in most countries have even subsidised the use of natural resources. André de Moor (de Moor and Calamai, 1997) has estimated that some 700 billion dollars are spent annually in subventions given to the four fields of energy consumption, water, agriculture and motor transport. This does not even account for all the tax advantages, free infrastructure and land given to investors. De-subsidising resource use will be an important part of ecological policy worldwide.

Another and related policy tool is ecological tax reform. In a world of growing unemployment and of scarce natural resources it just doesn’t make sense to draw the biggest part of fiscal revenues from human labour while resource use is essentially free of charges. The German government has made some first steps in that direction, as have many other European countries. Perhaps certain details were not well designed so that the programme is not exactly popular.

The EU is now introducing an international trade regime for permits of carbon dioxide emissions. Economists believe that this instrument can be more cost-effective than ecological tax reform.

This is just the beginning. I remain confident that future generations will find it easy to accept market interventions making scare resources dearer and abundant resources cheaper. That is pure economic rationality and should make countries richer, not poorer.

I hope that your innovative branch of industry with it’s fascinating advances in UV/EB and radiation curing will be part of the driving force for a more prosperous and more sustainable society world-wide!

References

• de Moor, André and Peter Calamai. 1997. Subsidising Unsustainable Develop­ment; Undermining the Earth With Public Funds. Toronto: Earth Council.
• Hawken, Paul, Amory Lovins, Hunter Lovins. 1999. Natural Capitalism. Creating the next industrial revolution. Boston: Little Brown
• Rees, William and Mathis Wackernagel. 1994. Ecological Footprints and Appropriated Carrying Capacity. In A.M. Jannson (Ed) Investing in Natural Capital. New York: Island Press.
• Schmidheiny, Stephan and the Business Council for Sustainable Development. 1992. Changing Course. Cambridge, MA: MIT Press.
• Schmidt-Bleek, Friedrich. 1994. Wieviel Umwelt braucht der Mensch? Basel: Birkhäuser.
• Weizsäcker, Ernst von, Amory Lovins and Hunter Lovins. 1997. Factor Four. Doubling Wealth, Halving Resource Use. London: Earthscan.

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.

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.

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.