The future of globalization

The Global Agenda Outlook 2013 brought together Pascal Lamy, Director-General, World Trade Organization, and Kevin Rudd, Prime Minister of Australia (2007–2010) and current Member of Parliament. Ngaire Woods, Dean of the Blavatnik School of Government, University of Oxford, moderated the discussion.

Q: What are the best and worst things about globalization?

Kevin Rudd: The spreading of wealth is the key benefit in my view: globalization is lifting economic growth rates and living standards around much, though not all, of the developing world, and in developed countries as well. The worst thing is the disconnect between the volume of activity that now requires regulation at a global level and national political systems incapable of agreeing on global forms of governance to do that.

Pascal Lamy: The best thing to come out of globalization has been poverty reduction, and the worst is inequality. Because globalization is extremely efficient, inequalities within countries and among countries have increased: poverty reduction is absolute, inequality is relative. And if we don’t change these inequalities, the social reaction will endanger globalization. I come at this issue as a person from the left, and think inequalities in themselves should be addressed. But even if I came from the right, pushing globalization for efficiency, I would want to address the problem, so that populist, sovereignist, isolationist reactions do not hinder the positive side of globalization.

Q: How can globalization be made “safe” for the people who are being made less equal?

Kevin Rudd: Inequality is an inevitable consequence of capitalism. The key is managing the level of inequality. Whether you come from the perspective of equality of opportunity or enlightened self-interest, the net consequence of both is a level of social intervention. I do not support the ultimate neo-liberal form of globalization but one based on a social democratic conditionality. That means ensuring that those who are temporarily losers are supported by adequate safety nets and able to readjust to other forms of employment. I think waiting for the magical marketplace to resolve these questions is self-delusional. There are also economic dimensions to this. The net impact on government budgets of large-scale, long-term unemployment in terms of lost revenue through collapsing wages is significant – far better to be more radical in your interventions to get people back to work.

Pascal Lamy: In Europe, Nordic countries have addressed inequality reasonably well, southern countries have not. I think it is necessary and can be done. Governments need to address their debt overhang, which will take time, and make the necessary structural reforms to grow to their potential. At an international level, we need proper global governance that has the necessary tools, power and intervention capacity to recreate a more level playing field.

Q: Is there any part of globalization that you think is improving the ability of individuals to hold those in power to account?

Pascal Lamy: Technology, the infrastruc¬ture of globalization, has huge empower¬ment capacity, and it doesn’t make governments’ lives easier. Governments will regulate globalization if their constitu¬encies give them the mandate to do so – if governments don’t do it, it is because they don’t presently have the necessary political energy at home. The danger for democracy comes from globalization not being harnessed, because people believe there is nothing they can do.

Kevin Rudd: The essence of globalization is the contraction of time and space in international transactions through the platform of new technologies. Citizens, including some of those in the poorest countries, are now globally wired. But managing the business of existing democratic constituencies through regular election processes, and the new constituencies in a more chaotic form through new technologies, makes the business of democratic governance more complex than ever.

Kevin Rudd: A core problem is the WTO’s inability to deliver a Doha Round – the one easy route to providing an extra 0.5% or even 1% in global growth in a growth-challenged world. It’s not the WTO’s fault; it’s the inability of national governments to allow that institution to work by giving it an effective political mandate. The most basic ingredient to globalization is to have open economies, and the most important sub-element of that is open lines of commerce. One way to add confidence to the global economy right now, and to add new activity in a way that wouldn’t cost an arm and a leg, is open trade. If the two leading global economic powers of the Chinese and Americans chose to make this work tomorrow, it could.

Pascal Lamy: I think the environmental sustainability issue is not being adequately addressed at present. I am not saying we don’t have problems in trade – we do need to keep opening it, and the Doha Round was and still is a recipe for doing that. But it is not the only recipe, there are many – if we revamp, for example, the information technology agreement, we could bring a lot more open trade. With trade, so far we’ve succeeded in not receding – we haven’t damaged the system. On the environment, we are moving this planet backwards in terms of well-being, and that’s why I think the environment should be the priority.

Q: Is the G20 the place to get the world to focus on climate change?

Pascal Lamy: After its second meeting, the G20 decided not to talk about the environment anymore – it was too divisive. But we all know the basic components of an environmental agreement have to take place within the G20. This is where the countries that are preventing the agreement happening – because they disagree – are all around the table.

Kevin Rudd: Global institutions provide the mechanism to make globalization work but they require national political governments to work, too. If a large enough grouping within the G20 said “this needs to be done”, it could be. The G20 is not just a clearing house, but a marshalling mechanism.

Q: What is the shock you most fear in 2013?

Pascal Lamy: At the low probability end, but with a very high damaging capacity, is cyber risk. We who follow politics closely know that there is a much higher risk from that side than is acknowledged in public debate. Political instability in the Middle East may have a lower immediate global impact, but a higher probability to create shocks.

Kevin Rudd: A cybersecurity attack that collapsed platforms for engagement in a global context would be catastrophic.

Q: What would you put top of the agenda for leaders to debate at the World Economic Forum Annual Meeting in Davos in 2013?

Kevin Rudd: In terms of the sustainability of globalization, it would be a new strategic roadmap for China and the US. Then, to work on things that they can agree on – globally that would be reaching a compact on delivering Doha, and climate change; and within our region, Asia Pacific, beginning to work out the security rules of the road in East Asia.

Pascal Lamy: The crucial issue is for each to make an effort to understand where the other is coming from. A radical recipe would be for each of these leaders to come to Davos with an anthropologist – the leader saying nothing, the anthropologist explaining to the others the specificities of his or her country. I think once they’d done that, the leaders would understand each other better and probably have a much higher capacity to converge on issues.

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