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Europe and the World - Are We Still in Demand?

June 18, 2008

Anförande vid ekonomiska konferensen Wirtschaftsrat  i Berlin, Tyskland

 

Ladies and Gentlemen,

 

I have been asked to try to answer the question of whether Europe is still in demand in the world of today and tomorrow.

 

My answer will be that we very much are - but let me start by first looking at the somewhat broader picture and the crucial importance of the policies we pursue.

 

The beginning of the 3rd millennium has been the most prosperous years ever in the history of mankind.

 

World trade has grown at an average rate of 7 percent per year between 2000 and 2007 - which mirrors global growth slightly more than half this figure.

 

Today one third of the global population lives in countries with more or less 10 percent growth rate. This means that they double their incomes in less than a decade.

 

Never has the global economy grown in a faster rate. Never have so many poor people been able to rise from poverty so fast. In fact, approximately 80 % of the world's population today lives in states where poverty is being reduced.

 

Back in 1990 only two persons out of ten in this world were living in reasonably free economies.

 

The political changes underway then - and reinforced in the years that followed - means that today nine people out of ten on this planet are living in more or less open economies.

 

And the transformation that has followed is enormous.

 

This spring it is 30 years since Deng Xiaoping declaring the Open Door Policy in China - a policy that would transform his country from one of the most closed and backward economies of the world to an increasingly open one.

 

As a consequence it has since then doubled its economy every eight years. China today exports more in a day than it did in a year back then.

 

India will this year have a growth rate between 9 and 10 percent and Indonesia - the worlds 4th most populated nation - will reach a 7 percent growth rate.

 

Politics not only matter - politics is decisive.

 

What we are seeing now - in this third wave of globalisation - mirrors what we saw during its first wave in the 19th century.

 

In 1830 - when a new wave of globalisation was about to start - Russia's GDP was app 10, France's app 9 and the Habsburg empire's app 7 bn USD - and Britain at that same level.

 

But six decades later things were very different.

 

The economies of France, Russia and the Habsburg Empire had doubled - but the one of Britain was then four times larger than it had been in 1830.

 

The difference was one of politics - Britain's was a far more open and liberal economy, and thus far better equipped to use the new opportunities created also by the evolution of new technologies.

 

Germany chose a slightly different path and with considerable success in the decades before the 1st World War.

 

But the key to Germany's success was the Zollverein and the consequent economic integration as well as the strong technological performance by the German industry on the global markets.

 

Berlin, with its world leading electro engineering industry, could be seen as the then Silicon Valley of those so prosperous and dynamic decades before the lights went out in Europe in August 1914.

 

While Great Britain, Germany and - catching up - the United States took advantage of the expanding world trade and steadily increased their global competitiveness, other less adaptive countries such as the Russian, the Ottoman and the Habsburg Empires lagged behind.

 

Their policies were simply not adequate for the new era of global economic exchange. So we see that the lessons of the different waves of globalisation are essentially the same. And they are the same as we have learnt here in Europe also in the recent decades.

 

European integration is the greatest force for both peace and prosperity that our history has ever seen.

A continent of strife and conflict has been transformed into a continent of integration, the rule of the law and true peace between nations.

 

And economic integration brought prosperity first to the West of our Europe after the devastating wars of the first part of the last century and are now bringing it to the East of our Europe after the devastating dictatorships of the second part of the last century. But the benefits have been there for us all.There is little doubt that the enlargement of our singly market with the 10 nations and 100 million people from the Gulf of Finland in the north down towards the Bosporus in the south has been important in boosting the competitiveness of all of our economies.

 

New markets have brought new opportunities. New competitors have brought new demands. New integration has created new possibilities. There is little doubt that productivity and growth has been boosted in all of our economies as a consequence.

 

Enlargement has been a true success story in bringing both peace and better prosperity to every part of our continent.

 

As we try to chart our course into the future we should be mindful of the fact that we are likely to be only in the beginning of the third wave of globalisation - and that it coincides with a scientific and technological revolution that seems to be gathering speed by the day.

 

I still remember the day little more than a decade ago when I got the first GSM telephone in my hand.

 

The company - it was Ericsson - wasn't entirely certain it was going to be a huge hit.

 

But it certainly did.

 

For all what we Swedes say about the fact that we are one of the few countries giving 1 % of our economy in development aid, I believe that the GSM revolution has meant more to the development possibilities of large parts of the world than all of that.

 

Today a third of the population of the world has a GSM telephone. The number of subscribers is increasing with 8 million every month in India. The world's fastest growing telecommunications and GSM market is Africa.

 

And we have seen profound revolutions in manufacturing and integration as a result of this technological revolution.

 

A Nokia GSM cell phone of today consists of 900 different components sourced from more than 40 countries and is then sold in over 80 different markets around the world.

 

There is the fear that we will see the massive dislocation of production to distant locations and us in Europe or elsewhere losing out as a consequence.

 

There will be a dislocation of production. That's essentially a good thing. But there is nothing that says that we will be the losers.

 

If you read on the back of an iPhone - another of the iconic products of our age - you find that it is "designed in California and assembled in China."

 

But if you buy it for USD 299 only 4 of those really goes to China, with 160 dollars ending up in different parts of the United States for design, transportation, marketing and much more.

 

And the same will of course apply to what we in Europe can produce in terms of continuing pushing the frontiers of research, innovation and development   forward.

 

We live in a world of fast and profound changes - and we must recognize that the key to a better future is to be open to these changes.

 

Once upon a time we used to talk about developed and underdeveloped countries. Then we changed the terminology  to developed and developing countries.

 

In the world of today and tomorrow I believe it is essential that we understand that we are all developing economies - some faster, some slower, and with profound consequence some decades down the road.

 

This year IMF estimates that more than half the aggregate demand in the global economy will come from so called emerging markets.

 

After a long period in which global demand was driven by the demand of the consumers of America we have now entered a situation in which global demand will be more driven by the emerging economies.

 

It's another sign of the tectonic shifts of our time.

 

There are those fearing that the positive developments that we have seen during the past few decades can't go on.

 

That there are new threats to open societies. That the open trading system might be questioned. That the strains that we see on different resources - energy, food, water - will take us into a Malthusian world of new rivalries and conflicts.

 

Recently we have seen some starting to advance the proposition that we are facing a new political challenge from a new version of authoritarian and capitalist states - with China and Russia as the leading examples.

 

And it is certainly true that China is still a dictatorship run by the communist party, and that the political system of Russia during the last few years has become increasingly authoritarian at the same time as its business climate has started to suffer from more erratic and heavy-handed state interference.

 

But things should be seen in a somewhat longer perspective.

 

We have not only seen countries from Spain and Greece here in Europe throwing off the shackles of authoritarianism as they developed more open economies and societies, but the pattern has been the same in numerous countries as different as South Korea, Mexico, Taiwan, Brazil or Indonesia.

 

And as there emerges a more demanding and open-minded middle class also in China and Russia I am sure its leaders over time will be confronted with demands for more or the rule of the law, more of transparency in governance and more respect for the rights and the freedom of the individual.

 

Setbacks there might well be - but there are few who see any risk of these countries returning to the horrors and miseries of their respective past.

 

They both - in their respective ways - are keen to join with the rest of the world in the great process of globalisation, and they will have to adjust their regimes and their policies to the demands that are bound to follow.

 

I don't see the threat of new authoritarian regimes that others evidently do. I see pressure inside their societies to move in a more open direction - but certainly no pressure within our societies to be more closed and more authoritarian.

 

The direction of change should be an obvious one.

 

And I believe that this in some way will apply also in some of the regions that we have the most reason to be concerned with.

 

The countries of the Arabian Peninsula are now in a period of spectacular growth with their economies set to double every five years.

 

It is oil and gas - but increasingly more than that. The smaller Gulf countries now derive more income from the return of their investments around the world than from their energy exports.

 

They form part of that broader Middle East that we will be more dependent upon for our oil and which is at the centre of some of the most complex issues of our time.

 

The enormously important clashes taking place within the civilisation of Islam.

 

The fear that any lifting of the lid of authoritarianism would unleash a wave of fundamentalism across the region has so far proved unfounded. Elections during the last year or so in countries as different as Morocco and Pakistan have showed only a very limited support for such forces.

 

And when more than a million people of the Iranian middle class go to Turkey for their vacations every year they seems to prefer the bars to the mosques - also knowing that a tolerant and secular and democratic society have room for both.

 

But these are societies, which will face great challenges during the years to come.

 

Today one in four under the age of 25 in the Middle East and North Africa are unemployed. And with a decade and a half the Arab world will grow by app 160 million people. In pure numbers this means adding a further two Egypt to a region which for a long time was growing significantly slower than the rest of the world.

 

If there is peace in the region and a gradual move towards more open economies and more open societies there will be a significant demographic dividend that would translate into new prosperity and new possibilities.

 

That's the good scenario. But there is another one.

 

Continued conflict - hot or cold - and continued absence of significant reform - and the risk of the region falling down in a vicious circle of unemployment, desperation and frustration.

 

With a perfect storm of political conflicts and economic failures there is then the risk of large parts of the region heading for something approaching a systematic breakdown.

 

To be part of the efforts to prevent this must clearly be one of the critical European priorities of the years ahead. To help with the reforms needed to open up their economies and societies. To help with the reconciliation necessary to build peace.

 

Overcoming animosities and divisions of the past in order to create open societies and open economies - always facilitated by the institutions of the rule of the law and representative government - is one of the most difficult tasks of our age.

 

I do believe that in spite of Freedom House noting a setback for freedom across the world as a oil-rich nations are limiting liberties, the march forward of our open societies is not only what will bring hope to further millions and billions - but is also what is likely to happen in the longer perspective.

 

Thus, I'm not overly worried by our open societies being under threat - but I must confess that I am worried by the threat to our open economies represented by the rising tides of protectionism across the world.

 

Within the next few weeks we are likely to know whether the Doha Development Round will have succeeded or failed.

 

I don't need to spend time here to explain the fruits of success.

 

But failure would be truly dangerous. It would be the first time since the Great Depression that a global trade negotiation has failed - and it will come at a time when we see other pressures and uncertainties building up.

 

We can't know in detail what would happen. By I do fear that one failure will lead to further failures.

 

We already see how a free trade treaty with Colombia is blocked in the US Congress and how a free trade treaty with the US is the subject of vigorous protest in South Korea.

 

And in the critically important area of food - where rapidly rising prices are creating new political instability in already fragile parts of the world - we have seen how a wave of populist-driven export and trade restrictions have pushed prices further upwards.

 

Indeed, the International Food Policy Research Institute says that the elimination of these export bans would reduce price fluctuations and could reduce price levels by 30 percent.

 

In a critical important area we thus see how moves away from free trade and free markets are causing prices to rocket and human suffering to increase.

 

And what in this particular case applies to food would of course apply to every other commodity if policies there where to come under the same pressures of populism.

 

We would all suffer the consequences.

 

The story of our Europe in the past decades is the story of the success of open societies and open economies. This has to be the path into the future as well.

 

And it is in pursuing this path that I am convinced that Europe can serve the wider cause of global development as well.

 

Few things are more important than demonstrating to the world that it is by working together that we can build a better future.

 

And here the model of Europe is a model that is seen as increasingly attractive around the world.

Since returning to more active politics as Foreign Minister little less than two years ago two things have surprised me.

 

First - that the Europe of 27 actually works. In some ways it works even better that the Europe of six.

 

Second - that the demand for Europe - the model, the voice, the role of Europe - across the world is as strong as it is.

 

The countries of sub-Saharan Africa can never overcome their challenges if they don't start integrating and working together - and when they created the African Union to achieve that it was our Union that was their inspiration.

 

They have a long way to go. Inter-regional trade in Africa is only on a level a fifth of what we find in Asia - and we know in Europe how critically important that trade is for growth and prosperity.

 

And conflict resolution clearly requires far more of cooperation than we have seen so far. Again, it is Europe that can help and Europe that can serve as an inspiration.

 

But it is not only Africa.

 

At the recent meeting between the leaders of Europe and those of the Latin American and Caribbean countries in Lima the message was the same.

 

As when we somewhat earlier in Singapore meet with the representatives of the half a billion peoples of Southeast Asia.

 

But for Europe to be a model and an inspiration for others it has to continue to move forward. These days the result of the Irish referendum is on everyone's lips. That's natural.

 

We have to take in and respect what has happened - but we also have to remember that this is a sort of situation we have faced numerous times before and which we have found mutually acceptable ways out of.

 

This we will do after listening to what Ireland itself wants to do. And we will do it all together.

 

Let one thing stand clear: We have not united Europe in order to start to split it up again. Our Europe is a Europe of partnership - for the big states as well as for the small ones.

 

But we must also recognize that our task of uniting Europe is not completed.

 

The recent enlargement with a 100 million citizens has been a resounding success - perhaps the greatest of the success stories of European integration.

 

But waiting outside for are a further 100 million citizens of Southeastern Europe - the countries of the Balkans as well as of Turkey.

 

That process of enlargement will be more demanding that the ones that are behind us, but ultimately perhaps even more rewarding.

 

Our market and union will move from app 500 million to app 600 million people - thus consolidating a position for a long time to come as the largest integrated economy on the planet.

 

And we will even more clearly demonstrate that Europe is about overcoming the conflicts and problems of the past.

 

Catholics and Protestants are no longer killing each other. Some Orthodox is even prepared to forget about the Fourth Crusade and the sack of Constantinople. Jews are as natural part of our societies as any Christian.

 

These are achievements that did not always come easy - but they are now firmly embedded in the DNA of European society.

 

And there is no fundamental reason why the tolerance and reconciliation that has been achieved between and within these two Abrahamic faiths should not be extended to the societies dominated by the third of these great beliefs.

 

That would also send the strongest possible message of reconciliation and reform to that wider Muslim world that is our most immediate neighbour - on the map as well as over the street back home.

 

And few things would be better not only for the prospects of our peace and security in the decades to come, but also for our possibilities for prosperity in the future.

 

Europe has already transformed itself. It is today more prosperous, more peaceful and more secure than at any previous time in its long history. This will go on.

 

But increasingly we must also be prepared to look outwards - and see the role and responsibilities we have in the world.

 

By continuing to be a beacon for open societies, open economies, open integration and an open global trading system its task ahead in changing the world for the better might be an even more important one than the one behind us.

 

Politics will be decisive - this is the way we shape the future.

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