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John Howard’s Address To The World Economic Forum

This is the full text of Prime Minister John Howard’s address to the World Economic Forum in Melbourne.

John Howard Address to the World Economic Forum.

Introduction

John HowardI am delighted to have been asked to address this forum. A gathering of so many distinguished participants representing governments and business organisations from around the world is a unique opportunity to build shared understanding and to forge important links for the betterment of all nations.

To our overseas guests I extend a special welcome. Let me characterise to you, from my perspective, the key features of the economy of the nation which is so pleased to host this World Economic Forum.

You are welcomed to a country whose economy is performing better than it has for more than three decades.

An economy whose growth is probably more soundly based than at any time in the nation’s history.

An economy that was resilient and, importantly, flexible enough to ride out the Asian economic collapse.

An economy which has been greatly strengthened by successive waves of systemic economic reform.

Also, you are welcomed to a nation which attaches great importance to a strong social security safety net – as an important ingredient in social harmony.

In the words of The Economist’s current special supplement on Australia, we boast a welfare system that is lean but not mean.

We have a health system with probably a better balance between public provision and private incentive than any in the OECD area.

Our nation derives great economic strengths from ethnic and linguistic diversity.

We are, nonetheless, a nation which has no illusions about the nature of international economic competition.

It is never a race against one’s economic past but only ever a fierce contest with present day economic realities.

The Australian Government, which I lead, will never believe, for a moment, that the economic reform process is ever completed.

The international character of this Forum, of course, mirrors the spirit and unity of purpose that will be evident throughout the Sydney Olympics after its opening in only 4 days time. We are here representing our own interests, as each country’s athletes will, but like them, we are also united in a desire to see the boundaries of human achievement extended.

It’s interesting the Olympic analogy holds true particularly when considering the outcomes desired from globalisation.

It is no coincidence that the great advancements in human sporting accomplishment have only been made since the Olympics facilitated international competition. When the opportunity was created for nations to compete freely with each other, and literally on level playing fields, the standards of all rose.

As an example, in the hundred years between the first modern games held at Athens in 1896 and those at Atlanta the winning time for the Men’s Marathon fell from 2 hours 58 minutes to 2 hours 12 minutes. An incredible 46 minutes had been slashed from this classic Olympic event.

But the real value of this comparison is that in Sydney, all athletes – not just those from nations which are powerful, not just those which are well resourced – can be expected to better the winning efforts originally set in Greece at those first modern games.

In sport, as with economies, open international competition continuously lifts the standards for everyone.

Concept of Globalisation

And just as sport has grown naturally from spontaneous local contests into highly organised international events, globalisation is simply an extension of the tendency throughout human history towards increasing specialisation and trade.

It offers people access to a range of new ideas, technologies, information, resources and, most importantly for developing countries, to markets. If the opportunities of globalisation are taken up they can lead to more jobs, more investment and ultimately stronger sustainable economic growth.

As President Clinton stated at an earlier World Economic Forum, ‘open markets are the best engine we know of to lift living standards and build shared prosperity’.

But, of course, in Seattle, in Davos and now here in Melbourne, we’re reminded by a noisy minority that some do not share this understanding. To some, globalisation is a mere stalking horse, a convenient scapegoat for all that is not right in the world.

The collective responsibility we all hold, in government and in business, is to convince people otherwise. To effectively communicate that benefits are attainable for the poor as well as the prosperous is a crucial issue and one I’ll return to later.

‘Ticket to Prosperity’ for Developing Nations

Those opposing globalisation as a concept, carry as their banner the notion that poorer, developing nations will suffer, that open trade will entrench the misery of their peoples and that its proponents seek only the continuance of economic inequality.

I know it is a source of some frustration for us all that these misguided and ill informed views can persist despite the overwhelming historical evidence to the very contrary.

It is only through building market access that many of the least developed countries can ever hope to lift their standards of living. It is no accident that those developing countries that have grown fastest over the last forty years and made the greatest reductions in poverty are those that developed sound institutions, aggressively pursued export opportunities and aggressively utilised the market openings made available to them.

Put simply, globalisation has been their ‘ticket to prosperity’.

It’s interesting to compare those countries which chose, during the post war period, to abstain from participating in the global economy with those that chose instead to actively trade within it. Their contrasting experiences are profound.

In 1960, South Korea’s per capita GDP was the same as Algeria’s, and its third largest export was wigs! Today, even after the Asian crisis, South Korea is the world’s thirteenth largest economy and its third largest export is computers, earning its citizens more than $US 7.2 billion per year.

This type of example, this indisputable evidence that globalisation can help fulfil the national aspirations of developing nations, is precisely the reason why governments of so many countries are now choosing to turn their backs on past policies and instead actively seeking international engagement.

Continued Barriers

Nevertheless, an important element of the global economic framework remains seriously skewed against the developing countries.

Many developing countries are denied the opportunity to trade their way to sustainable growth and higher ‘core labour standards’ because of the barriers in much of the developed world to their agricultural and other exports.

Developed country protection against agriculture imports is five times higher than protection against manufacturing imports.

Farm protection in the OECD area is about seven times as high as its members’ total foreign aid and almost 13 times as high as the value of the forgiven debts of the heavily indebted poor countries under the HIPC initiative.

I would not be the first to point out that the benefits of debt relief for the poorest countries pale compared to the malign effect of rich country trade barriers in agriculture and textiles.

Indeed, in this regard I note the comments made by the recently appointed Managing Director of the IMF, Horst Kohler that “Protectionism in industrial countries is the core problem in the fight against poverty. If markets are not opened, debt relief is hard work for small change”.

Failure of Seattle / Renewed Call for Equity

One of the great failures of the international community to respond to the challenges posed by globalisation was its inability to launch a new round of global trade negotiations in Seattle last year. The launch of a new WTO round is crucial for developing countries to reap the benefits of the opportunities that globalisation offers.

It is crucial to address the flagrant imbalance in international trade rules that favour most of the world’s rich countries, including the US and the EU, against efficient agricultural exporters, including Australia.

In this respect, there is growing anger in Australia at the unfairness of existing world trade rules. There is a double standard. What applies to manufacturing exports does not apply to agricultural exports. Even within the agricultural sector, Australia is heavily penalised. Subsidies are allowed to American and European farmers which are not permitted for Australian agricultural producers.

To be fully effective, all sectors need to be adequately covered by the WTO rules. At the moment, agriculture has been put in the too hard basket. To be quite blunt, I’m not encouraged to believe that there will be any change of heart within either the United States or the European Union on this issue.

Australia will continue to campaign very strongly for further reform of world trading rules, and especially for further liberalisation of this sector.

Misconceptions

Coupled with this disappointment, were the organised demonstrations that took place in the streets of Seattle.

Some of those very same protesters – protesters who profess to be acting in the interests of the world’s poor – are doubtless outside today.

As I said before, if you want to cripple the future growth prospects of the poor nations of the world; if you want to leave it in the hands of a number of relatively rich and highly protective trade nations of the world; then the way to do this is to suppress free trade.

Activists out to get a better deal for the poor should instead expend their energy pressuring rich country protectionists to tear down their trade walls against the exports of the developing countries.

The fact is that globalization is a powerful force through which to improve the plight of the millions living in misery. A recent World Bank study of 126 countries over 40 years details that openness to foreign trade benefits the bottom one-fifth of the population as much as it does the population as a whole. Indeed, this report argues that “anyone who cares about the poor should favour the growth-enhancing policies of good rule of law, fiscal discipline and openness to international trade”.

The Chief Economist of the ANZ Banking Corporation, Mr Saul Eslake, recently made a compelling point. He noted that the people who are actually elected by the poor – as opposed to their self-appointed spokespeople, who wreaked such havoc and violence in Seattle, and who seek to disrupt today’s proceedings – in fact do favour these policies.

The Prime Minister of India, Atal Behari Vajpayee, speaks – with all the authority that a fair and democratic election provides – for more of the world’s poor than anyone else on this earth. This is what he says: “All of us should realize that globalization is an irreversible phenomenon. No country can keep away fully from it without hurting itself”.

Fernando Henrique Cardoso is the twice-elected President of the developing world’s fourth-most populous country, Brazil. He says: “if Brazil is not prepared to be part of the global economy, it has no way of competing … It is not an imposition from the outside. It’s a necessity for us”.

Mr Eslake properly asked – on what basis, and by what right, and with whose authority, do those who want to ‘shut down’ the World Economic Forum claim to know better what is in the interests of the people of developing countries than the elected leaders of some 1 billion Indians?, or 165 million Brazilians?

Communication and Government Responsibility Vital

At this pivotal point in the development of the world economy, the greatest challenge for governments must be to communicate the benefits of globalisation to their citizens.

Some of the changes that come with globalisation are unsettling and it’s not enough for anyone – in government or in business – to explain that present difficulties are simply for the long term good of the community.

Some of the reforms demanded by globalisation are, for many people, counter-intuitive. Responsive and responsible, democratically elected governments must explain these issues in ways that are relevant to peoples’ daily lives and their aspirations for their children. Why hard decisions have to be taken to open up the economy for the benefit of the entire community.

Business also has a crucial part to play. To explain the benefits — not just in economic jargon — but in terms of higher living standards, more jobs, higher standards of social services such as health and education and a greater diversity of consumer products and services.

We all need to explain that we are not interested in economic reform out of some kind of blind ideology. We don’t believe in economic reform to satisfy a theory or as some kind of exercise in intellectual self satisfaction.

It is a flesh and blood way of delivering benefits for people. The goal of economic reform is human contentment and human achievement and human happiness. And if economic reform does not deliver benefits for people then it’s not worth embracing.

As fundamental as the need to communicate, governments and businesses must also recognise that these changes will produce losers as well as winners, both within and among nations. And in that recognition, policies must be developed to ensure the difficulties of adjustment are eased and new opportunities found.

Specifically, governments will need to provide strong and flexible ‘social safety nets’ and additional resources, creatively allocated, for education and to generally promote innovation.

International institutions also must be capable of dealing sensibly with the consequences of enormous and sometimes volatile flows of capital. When difficulties occur and markets react with the severity and speed that they did in the Asian financial crisis, the international financial institutions must be able to respond in a way that best suits the circumstances.

Australia, for example, was able to push strongly for the International Monetary Fund to adjust the conditions of its package for our close and important neighbour, Indonesia.

This need for intensive, ongoing communication and for the development of appropriate mechanisms to counter transition difficulties is not merely a moral issue.

Without these measures, the future of globalisation, as we know it, as we desire it, could well be cast in doubt.

I raise this plainly because in the past there has been a tendency to regard globalisation as both inevitable and irreversible.

This view has no doubt been fuelled by the remarkable technological advancement over recent years. Certainly, none could disagree with Dr Alan Greenspan’s comments that “By lowering the costs of transactions and information, technology has reduced market frictions and provided significant impetus to the process of broadening world markets”.

However, the world has experienced globalisation before and yet seen it recede in the face of international suspicion and populist calls for renewed protectionism.

The increase in world trade as a share of world GDP was proportionately greater in the 50 years before the First World War than it has been since 1975 and net capital flows were larger relative to world GDP than they are today.

And yet, in the decade following that war, governments around the world deliberately rebuilt trade barriers by raising tariffs and imposing restrictions on the movement of capital.

The direct consequences for the world economy and each of the individual national economies within it are well known. In short, my message is that globalisation, both as a concept and in practice, must be nurtured by governments and businesses who believe in its potential to build prosperity for themselves and for others.

Australian Economic Strength / Our Embrace of Globalisation

For its part, through a combination of good economic management and bold reforms, Australia has set out to position itself to benefit from globalisation.

Over the past two decades, Australia has opened its markets to trade, reformed the financial sector, increased competition in goods markets, and increased flexibility and productivity in the labour market.

Australia is also reaping dividends from a robust macroeconomic policy framework. We have consolidated our fiscal position and sharply reduced the national debt. We have also set in place an arrangement that delivers a transparent framework for the conduct of monetary policy to maintain low inflation.

Most recently we have reformed the taxation system to make it fairer, simpler, more efficient, and I would add more supportive for venture capital and high technology start up companies.

The dividends associated with this sound macroeconomic framework, together with a transparent, liberalised and prudentially sound financial sector, were evident as international confidence in Australia was maintained throughout the Asian financial crisis.

During the Asian crisis Australia also saw the benefits that flowed from the decision some 17 years ago to float our exchange rate. A depreciating Australian dollar ensured that our exporters were better able to divert their products to markets outside Asia, including in North America and Europe.

Looking back over the past decade, the overall value of these reforms has been amply demonstrated by a prolonged period of economic expansion and commensurate improvements in living standards.

The most recent data released by the IMF suggests that over the period 1992 to 2001 the Australian economy will record an annual average growth rate of 4.1 per cent.

An essential building block to the significant improvement in Australia’s economic performance in recent years has been the reform of our labour markets.

Our labour market policies have introduced flexibility at the enterprise level, resulting in real gains for both employers and employees.

It has delivered higher productivity, higher profitability, real wages growth and most importantly strong employment growth. We know that the best way to deliver someone from poverty is to give them a job.

These reforms have helped create a favourable environment to encourage risk taking and innovation and – importantly it has allowed firms to better assimilate the new technologies generated and effortlessly transmitted within the globalised economy.

Australian businesses are innovators in the area of information technology and are increasingly winning overseas contracts to provide information technology services.

One Australian success story is the internet search engine company, LookSmart.

With the assistance of a start up investment grant from the Government, LookSmart was successfully developed by two Australian entrepreneurs and is now one of the top search engines on the internet, claiming over 50 million users a month. And in August last year listed on the US NASDAQ stock market, valued at over $A2 billion.

Many other established Australian companies are embracing the new realities. There is a genuine enthusiasm to apply new technology to existing business operations. There is also a recognition that technological change can have a cascading effect, delivering benefits to the whole of the economy.

This is reflected by the ‘coming of age’ of our financial sector. The Australian Stock Exchange is now one of the largest exchanges in the Asia Pacific region with a market capitalisation of around A$700 billion and the Sydney Futures Exchange is the largest financial futures and options exchange by volume in the Asia Pacific region.

While reform in the financial sector to date has made the sector more transparent, efficient and stable, it stands ready to continue to innovate and use new technologies in response to future demands.

For instance, the Australian Stock Exchange was one of the first exchanges in the world to move to electronic trading, while the Sydney Futures Exchange is also globalising its operations and recently began trading Dow Jones indices.

Of course it is important not to lose sight of the fact that new technology is only as effective as the people who use it.

As I said earlier, in the new knowledge-based economy, education and training have a critical role in ensuring employees have the necessary skills to get the job done.

The Australian workforce has a well-deserved reputation for being highly skilled. Around 40 per cent of the working age population have university, diploma or trade qualifications, and more than two and a half million Australians speak a language other than English at home.

Conclusion

Ladies and Gentlemen, I opened this address with an Olympic analogy and given the understandable pride Australia takes in hosting the first Games in this new century, perhaps you’ll forgive me for concluding with another.

Elite Athletes have always dared to do the impossible. The 4 minute mile, the 10 second 100 metre sprint, going under 15 minutes in the 1500 metre freestyle were all seen as simply beyond the physical limits of human capacity. Yet those limits were conquered and, no doubt, over coming weeks we’ll all watch as more impossible records tumble.

So too, there are those that claim that world-wide prosperity is a mere dream, an illusion, its achievement simply beyond the limit of human capacity.

Your attendance here at this Forum gives hope that this is not impossible.

Over coming years, all of us will be called upon to make decisions which could contribute to its realisation.

I urge you, when that time comes, to believe, as our athletes do, that with determination and courage nothing is beyond our reach.

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