The conversation took place at the 7th Pioneers of Change Online Summit, and was themed “Future Visions & System Change – WHERE TO?”.

A recording of our dialogue (as well as over 30 other interviews) can be viewed online after purchasing a so-called “Kongresspaket“.

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.

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

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

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

Nearly everybody was happy at the time. After all,

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

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

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

The downside of globalisation

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

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

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

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

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

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

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

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

The joy of the winners and sadness of the losers

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

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

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

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

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

Keeping a balance between public and private interests

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

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

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

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

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

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

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

Democracy, US unilateralism and WTO

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

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

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

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

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

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

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

Global governance and civil society

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PS:

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

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

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

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

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

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

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

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

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

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

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

3. Global governance

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

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

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

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

4. Three pillars

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.