WTO NEWS: SPEECHES — DG PASCAL LAMY
14 June 2011
Lamy underlines need for “unity in our global diversity”
Director-General Pascal Lamy, in the 2011 Panglaykim Memorial Lecture on “Harnessing Global Diversity” at the Centre for Strategic and International Studies in Jakarta on 14 June 2011, said: “The real challenge today is to change our way of thinking—not just our systems, institutions or policies. We need the imagination to grasp the immense promise—and challenge—of the interconnected world we have created. The future lies with more globalization, not less — more co-operation, more interaction between peoples and cultures, an even greater sharing of responsibilities and interests.” This is what he said:
2011 Panglaykim Memorial Lecture Center for Strategic and International Studies
Ladies and Gentlemen
It gives me great pleasure to be at the Center for Strategic and International Studies to celebrate the work of the late Panglaykim, a renowned economist, with a sharp view of the changing realities of Indonesia. But above all an extraordinary human being, a humanist.
The topic of my intervention today is no stranger to Indonesia. With its more than 17 000 islands, its several hundred languages and dialects, its 300 ethnic groups, its religious diversity and its enormous biodiversity, Indonesia is a perfect reflection of our greatest challenge today: harnessing global diversity, weaving its strengths, managing its challenges.
Globalization dominates our era, but it is an increasingly fragile dominance. Even as global integration delivers enormous benefits — growing wealth, spreading technology, the rise of billions of people in the developing world — it also creates new risks — financial instability, economic imbalances, environmental stresses, growing inequalities, cyber attacks — that we seem to have difficulty addressing. Markets and technologies are pushing us together, but political pressures — economic insecurity, resurgent nationalism, global poverty and power shifts — risk pulling us apart. An integrated global economy requires political consensus and cooperation to sustain it. But nations and societies seem increasingly uneasy with a world on steroids that they feel powerless to control — and international co-operation is under strain. Is globalization outpacing — even weakening — our ability to manage it?
This is not a new concern. Since the industrial revolution, market capitalism’s power to generate both incredible progress and enormous disruption — what Schumpeter called “creative destruction” — has preoccupied governments. And globalization is nothing if not the worldwide technology-driven spread of capitalism — a process that has been unfolding, in fits and starts, for three hundred years.
Karl Marx was wrong about a few things, but he was surely right about capitalism’s inherent tensions and contradictions. “Capitalism has created more massive and more colossal productive forces than have all proceeding generations together”, he wrote in 1848, but it also represents the “uninterrupted disturbance of all economic and social conditions, everlasting uncertainty and agitation”. The same forces that explain capitalism’s power to transform economies — innovation, risk-taking, competition, the survival of the economically fittest — also explain its power to disrupt, overturn, breed social insecurity and conflict. Capitalism, Marx fatalistically argued, contains the seed of its own destruction.
A century later, Karl Polanyi used similar arguments to explain why the open economy of the 19th century suddenly collapsed in the early 20th century — overtaken by war, economic depression, and totalitarianism. Open markets need social and political cohesion to work, he argued, but paradoxically free markets, left unconstrained, soon undermine this cohesion. Individualism and competition are rewarded — but at the expense of equality and community. Labour and capital flow freely to where they earn the most—but capital becomes divorced from production, and individuals become strangers in a strange land. New winners are created — but the losers feel threatened. The result is a backlash against market capitalism among those trying to protect themselves from its harsh effects, the erosion of social and political cohesion, and the rise of insecurity and division.
One can disagree with the details of his argument, but it is hard to dismiss his basic insight: By transforming the economic and social order, capitalism also risks weakening, even destroying, the political foundation on which it rests. His answer was not Marxist revolution, but political evolution — re-embedding markets in a re-invented social and political order.
The catastrophic end of the 19th century’s version of globalization offers a cautionary tale for our age. On many levels — the flow of capital and goods, the ease of transportation, the advent of new transport and communications technologies — international integration approached — and in some ways surpassed — the level of globalization we have reached today. Labour flows were actually freer, as tens of millions migrated to the Americas, Africa and Australia without passports or immigration documents. International finance was anchored to the gold standard, linking the world together in a single monetary order. It was an age dominated by the idea that global markets are self-regulating, unstoppable, and should be left unfettered. It was also a time of great optimism — the so-called “Age of Progress”.
Not only did the world economy grow more in 75 years than in the previous 750, but the circle of growth expanded dramatically — to new economic powers in Europe, in North and South America, and in Asia and Africa. New innovations — from railways, to telegraphs, to steamships — seemed to promise a world irreversibly linked together in prosperity and peace. The optimism about globalization’s inevitability was captured by Norman Angell’s The Great Illusion in which he argued that economic interdependence had made armed conflict between nations impossible and obsolete. His book came out just four years before the world plunged into the nightmare of the Great War.
What went wrong? Beneath the progress of this first age of globalization, tensions were building. The rise of new economic giants, especially Germany, dramatically shifted the balance of power and made the old giants uneasy — prompting new defensive alliances, an arms race, and a scramble for colonial spheres of influence. New economies began to flood Europe with cheap agricultural products —benefiting the working poor but threatening farmers’ livelihoods — while rapid industrialization increasingly divided politics along class lines. Nationalism was on the rise in Europe; ethnic conflict was splintering the Balkans; domestic pressures were mounting to turn inwards, abandon open trade, and block immigration. Many sparks ignited the First World War — as any schoolbook can tell us — but the one unifying cause was the disintegration of international trust and the break-down of political co-operation. It took thirty years — through two World Wars and the Great Depression — for the world to begin to rebuild the economic system it had lost. . . .