Delta Lloyd Conference
Speech by The Netherlands' Foreign Trade Minister, Frank Heemskerk, at the Delta Lloyd Conference, Amsterdam, 4 June 2007.
Intro
Ladies and gentlemen,
I have been asked to respond to some of the points made by Professor Theeuwes and Mr Friedman. I’ll do my best to keep it short and to the point. Then we can go into more detail during the discussion afterward.
The key areas I would like to talk about are as follows:
One: When economists talk about globalization, they tend to sketch a one-dimensional picture. And I say that as an economist and a politician. As Professor Theeuwes pointed out, there’s more to globalization than what it can deliver in terms of growth and jobs. Globalization is also about people and perspectives.
Two: Globalization is indeed moving fast, as Mr Friedman described. It’s not surprising people are concerned about its impact on jobs at home. We need to take these concerns seriously, otherwise they may lead to protectionism.
Three: Government and business must work together to safeguard public support for an open world economy. That’s only possible if we can combine globalization with a firm commitment to sustainability.
1: One sided economic story
Let’s start by looking at the economic vision of globalization. Generally, it’s a rosy picture. Globalization is leading to higher incomes, more jobs and falling prices. Take the Netherlands. According to the Netherlands Bureau for Economic Policy Analysis, trade with China alone represents twenty-three thousand jobs and an annual increase of 300 euros purchasing power per average family.
But of course this is just one side of the coin: the macro-economic side. The pie isn’t just getting bigger. It’s also changing in substance and it’s being divided differently. We’re seeing jobs and businesses disappear. Indeed, as Mr Theeuwes argued, there are winners and losers.
Another effect of globalization is that distance seems to matter less and less; a point emphatically made by Mr Friedman. In academic circles, where Friedman's book is widely debated, many argue that distance still matters. Their view is that the world is not flat. Indeed the idea that ICT and the internet have made distance completely unimportant is not in accordance with the facts. The Netherlands for example is trading increasingly with nearby markets in Europe. It is not easy to capture the dynamic markets in Asia but it can be done, as shown by other small European countries. Switzerland and Denmark for example trade more with markets that are far away. Anyhow, globalisation is not like manna from heaven and active policies by the government and businesses are needed to reap the benefits of globalization.
In other respects, the world is not flat, either. Increasingly we see unflatness with centres of excellence acting as magnets for economic activty. London is the financial centre of Europe and its position is becoming increasingly strong. It is perhaps the magic of the City, the cosmopolitan atmosphere and the rich cultural life, but investment bankers definitely want to be in London. Likewise in the Netherlands we have the so-called Food Valley, where agricultural scientists and multinational corporations are working at the frontiers of science. Wageningen is another centre of excellence where bright minds like to live, work and discover market solutions.
That is all well and good, but globalization affects people’s incomes, as well as their prospects, in different ways. In its recent World Economic Outlook, the IMF pointed out that blue collar workers are now in a fundamentally weakened position. In Anglo-Saxon countries, globalization is leading to greater differences in income. Blue collar workers can usually find new jobs, but they don’t really profit from all this economic growth.
On the European continent, things are even worse for the blue collar worker. Since 1980, fifteen per cent of their jobs have disappeared. This is not only due to imports of cheap, low-tech goods from low-wage countries, but also because new production methods demand less manpower and more training. Good entry-level qualifications are essential in the new job market.
Until now, white collar workers have generally benefited from globalization, especially university graduates. But, as Mr Friedman and Professor Theeuwes have noted, even they are feeling the pressure. The OECD suggests that in principle, 20 per cent of white collar jobs in the Western economies could now be outsourced to other countries.
So in the Netherlands and beyond, a growing number of people feel threatened by globalization, market deregulation and the outsourcing of production. Despite lower unemployment, many still fear for their jobs, their income, their security. Worse, they fear for their children’s future. These concerns are not easy to dismiss. I, for one, can well imagine the doubts that people are feeling.
2. The threat of protectionism
This brings me to my second point. The insecurity I’ve described can lead to a political climate which encourages protectionism. Didn’t the new French president, Nicolas Sarkozy, recently suggest that he wouldn’t shy away from a little bit of protectionism?
If we’re suffering from competition in the Far East, we could say let’s just close our doors. Let’s ban foreign takeovers for that matter. But of course, the simple solution to a complex problem is almost always the wrong solution. At best, this approach delays necessary change. Politicians know it, but when elections loom, still they’ll sometimes go for the easy option. I say let’s choose the more difficult, but more rewarding path. Let’s join together: our business community, our unions, our civil society organizations. And let’s make certain our society continues to champion open economic borders.
For a return to protectionism would be extremely costly indeed. The costs of non-globalisation are illustrated by the long term scenarios of the Netherlands Bureau for Economic Policy Analysis CPB. In a protectionist environment income per head is about 50 percent lower in 2040 than in a world that continues to globalise.
3. Working together on building support for globalization
So we come to my third point, combining globalization with a firm commitment to sustainable growth. A serious task for government as well as business.
For the Dutch government, this means investing in people and investing in a competitive business climate and investing in the environment. The first brings education to mind. To quote Mr Friedman, ‘Where are the new jobs going to be in the flat world? And what is the right education for those jobs?’ The government needs to tailor education to new requirements and it must do so in close cooperation with the business sector, which has a better insight into rapidly evolving competence requirements.
Investing in people also requires an activating social security system. Those who lose their jobs must be able to count on government support and training for a new position. In turn, I’m convinced that providing this level of support will give us workers who are more prepared to seek new challenges, even take more risks, in their careers.
Investing in the business climate means we need to be able to compete with the best at international level. It means promoting a dynamic job market, advancing our key technologies, easing entry requirements for ‘knowledge migrants’ and improving our modern infrastructure.
Domestic policy is important. But often an international response is needed. And that requires active cooperation with other governments and global organizations. Unfortunately, as Mr Friedman has said, it seems international organizations, as well as individual people, have trouble keeping pace with globalization. Obviously, governance has not become global.
By now, the Doha Development Round should have given a development boost to the world’s poorest nations. But too many countries cling to their own interests, instead of giving the WTO the room to serve global interests. The same is true of our multilateral social and environmental institutions. They, too, need to extend their authority with an eye to taking globalization in a responsible direction.
What can companies do to promote support for open borders? Their primary responsibility, of course, is to stay internationally competitive and so provide work and income.
This means developing new markets and products, investing in the latest technologies and in employees’ education. Because life-long learning is in the interest of employers and staff. It also improves career prospects for those unfortunate enough to lose their jobs.
And as for sustainable economic growth: ‘Being green is not for tree huggers,’ Mr Friedman once said. ‘It is for people who think geo-strategically and geo-economically.’ The world urgently needs solutions to its environmental problems. Working toward them makes basic commercial sense.
Responsible enterprise then, is not just a question of good PR. It’s a question of vision. Anyone concerned with moving his business into the future should be conscious of his social duty. A duty that does not stop at the border. And I’m certain that Dutch multinationals understand this too. In developing nations, I’m sure they offer better working conditions than local companies do. But they could pay more attention to their supply-chain responsibilities, ensuring that their suppliers also meet decent employment standards we take for granted.
Conclusion
Ladies and gentlemen,
It’s discussion time. I’m very curious to hear what scope my discussion partners see for widening support for an open world economy. And what roles they have in mind for companies and governments.
Thank you.