Index: Journal, Spring 2005

 

A WORLD WITHOUT RULES?

 
IS THERE SUCH A THING AS AN INTERNATIONAL COMMUNITY?

DOUGLAS HURD, FORMER FOREIGN SECRETARY

THE CHINA GAP: OF CULTURE, RULES AND QUALITY CONTROL

MINZHE ZHAO, FORMER PROFESSOR, ENTREPRENEUR

PUTIN’S RUSSIA: A RULES-BASED SOCIETY?

CHRISTOPHER GRANVILLE, STRATEGIST, UNITED FINANCIAL GROUP

CLIMATE CHANGE: A NEW ARENA FOR GLOBAL GOVERNANCE

TOM BURKE, VISITING PROFESSOR AND ENVIRONMENTAL EXPERT

A WORLD WITHOUT RULES: A CAPITAL IDEA

DAVID BLAKE, FULCRUM ASSET MANAGEMENT LLP


IS THERE SUCH A THING AS AN INTERNATIONAL COMMUNITY?

DOUGLAS HURD

 

We live in a world of about two hundred nation states. None of us alive today will see the day, if it ever dawns, when there is some kind of supranational authority - some authority sitting above the nation states which provides the power and guarantee of order, prosperity and all the rest of it. These nation states have hugely increased in numbers since the days when I worked at the United Nations almost half a century ago when there were fifty odd. The question now is whether we jostle together comfortably or uncomfortably.

My answer is that these relationships between the nations are governed by a mix of power and rules. History has shown that one without the other is not much good. Rules without power – that is the League of Nations between the two world wars. It crumbled because the cement was not good enough. Power without rules –that was Hitler and Stalin. You need a mix of power and rules. The phrase “international community” implies rules. Usually in the world there are people who question the need for rules. They are usually the people who for the moment are top of the heap.

Today there are some people in the United States who say and without cynicism — the United States is so strong and its purposes so virtuous and honourable that among reasonable people not much else is required in the way of civilisation or rules or an international community. But we should be humble at this point. Before we scoff we need to remember that there have been periods within the last two hundred years when two European powers felt and said the same. I spent a lot of time last year celebrating, in one way or another, the centenary of the entente cordiale between Britain and France, and would make the following point to French and to British audiences alike. If you were sitting in Paris when Napoleon ruled the continent of Europe with the Grande Armée, when he deposed the old regimes, when he introduced the metric system and a great number of modern laws, what need was there to look further for a civilised world order?

When Britain a little later ruled the seas the same sort of question arose here and the same sort of answer was given. Currently I am doing research into 19th century diplomacy because I am writing a life of Sir Robert Peel. He was opposed very much to this line of thought which is quite often associated with the Tory Party, but at that time was associated with Lord Palmerston. I came across a letter which Lord Palmerston wrote to one of Her Majesty’s Consuls instructing him to make it clear to the Arab rulers with whom he had to associate that the slave trade was doomed. Why was it doomed? Because providence had appointed Britain as providence’s main instrument in ending that trade. Now that is exactly what so many Republicans are arguing. Many of them passionately feel that God has appointed the United States for the application of democracy to the Middle East. It is exactly the same feel among the people who are top of the heap.

But what is interesting in the case of the two European precedents is that each of them only lasted fifteen, twenty, thirty years. Napoleon was beat, and the British realised or were made to realise that naval power was not enough. That is the lesson also of today. The United States has a greater superiority of power over anyone else than I suppose any country has had in history since the Romans. My wife and I recently spent a very happy five days walking along Hadrian’s Wall. You cannot do that and visit the forts which are now marked by marvellous museums without being astounded at the self confidence and efficiency of the Roman Empire. In Syria or on the borders of Russia you would find evidence of exactly the same self confident Roman strength. But it crumbled. Military power is not enough and that is what the Americans have found for example in Iraq.

The United States is the superpower and I do not think, although one can discuss the future of China,that anyone of adult age today will live to see a different superpower. The United States has the power to destroy in an afternoon any regime which it dislikes, any axis of evil, and by teatime they could be gone. Yet the United States is not a destructive power, it is not Hitler or Genghis Khan. The United States has a wish to build a world order, to build a better world, to build a freer world. There is nothing bogus about this pretension but what I believe it has learned, what I hope passionately that it has learned, is that in order to build as opposed to destroy you need partners: you need rules.

In this context, I am not writing about other sectors of human life such as trade, environment, energy or social justice, I am talking about questions of peace and war. On what basis in a system intelligently based on rules and power are countries entitled to go to war? Going to war means sending young men and now young women to kill and be killed – a point often ignored by commentators and politicians though not generals. The rules of international law (international law is a fuzzy business as lawyers admit) were drawn up in 1945 in the United Nations Charter. You can go to war if you are attacked, you can go to war if your friend is attacked and he asks you for help, as we went to war to liberate Kuwait –liberate in the true sense of that word – in 1990. You can go to war on other grounds if you are authorised by the Security Council of the UN. That is what the Charter says.

The whole cause of a rule-based community received a serious setback when the superpower supported by a coalition of obedient friends broke these rules and invaded Iraq. The reasons given, at the time persuasive to large numbers of people particularly in the United States and Britain, have since evaporated with great speed and completeness. The right of self defence was extended under this argument to the pre-emptive strike. You had not been attacked but you knew you were going to be attacked by weapons of mass destruction and it was certain that this was the threat and it was sensible to respond to it before it became a reality. We now know these weapons did not exist. Then the argument shifted to the humanitarian case, which is a stronger one, of ridding Iraq and therefore presumably every obnoxious dictator in the world, of a murderous tyranny even though we could not get the Security Council to agree to it. Of course if you act without authority to change a regime you are setting a pretty baleful example to other people who may not have your high standards in judging what regime is obnoxious and what is not. But in any case that argument is now tarnished by what has happened and what is happening.

I do not know whether we have killed thirty thousand or one hundred thousand Iraqis since we invaded Iraq. I have been using the thirty thousand figure. The Lancet research suggests it is one hundred thousand. There is nothing to be said for Saddam Hussein. I met him twice in Baghdad. I met in the course of my duties a good many villains, but most villains I met at least made a pretence to be something different. Milosevic, Mugabe - you could have intelligent conversations with both of them because they were intelligent people. You did not necessarily have to believe what they said but at least they were pretending to be something other than villains. But with Saddam Hussein really there was no such pretence. His only desire was to show you that he was top of the heap and that he was not to be offended. So he filled the cemeteries. Now having got rid of him we are filling them again. Forgive that note of bitterness which I strongly feel. But you cannot end a description or an analysis there. Those of us who feel however strongly against this war and our part in it have at a certain stage to swallow our bitterness and discuss how to proceed.

I believe we must proceed down the tracks I have indicated, a track of rules and a track of power. First rules. We have a remarkable Secretary General of the UN Kofi Annan, with whom I have had plenty to do over the years. He is a very good man in the literal, rather than slang sense of that word. He is of course dismayed by what he has seen and has said that. He knows that this is a massive set back which we, particularly the Americans and British, have administered to the hopes of a rule-based world. He has set up, and this is the way Secretary General’s have to operate, a high level group to consider not in crude ways how to reverse that set back but how we go on from now to deal with some of the issues that have been involved. It is perhaps too big a group, but it is an intelligent and well qualified group. My worry is that it will get bogged down in machinery. Anyone who has experience of administration knows that this is what happens. How many members of the Security Council should there be? How many of them should have vetoes? That kind of thing is unlikely in my belief to make a great deal of progress and anyway is not actually central to the point. There are two questions which are central. The rules of 1945 which I quoted about peace and war, do not deal with specifics, they do not deal with the question of the pre-emptive strike which I mentioned as a bad reason for attacking Iraq and they do not deal with the question of humanitarian intervention.

I was involved with the problems relating to the collapse of the former Yugoslavia, and I cannot look back on that with any pleasure or pride. We were faced there, for the first time on that sort of scale, with a problem. To what extent are we entitled, or is it wise, to send soldiers into a country to kill and be killed, in order to impose a particular solution of their problems on them, because there are things happening there which are intolerable to us, which when we see them on our television we think are unacceptable and we must do something to stop them. We worried about this in Cabinet over Bosnia. Without going into detail I am not happy looking back that we got our timing right. I am sure we were right to do what we did, whether we could have done it a bit earlier I do not know. We were in all kinds of difficulties with opinion and with the situation on the ground. It was an unhappy experience. At the end of that and the later experience of Kosovo people became much more interventionist. They felt of course we should go in, he was a bad man and we needed to get rid of him and liberate his people: it was automatic. And that is what we did in Kosovo. We liberated the Kosovars from the kind of oppression Milosevic was putting upon them. I wrote at the end of that “we are all interventionists now”.

Well, after Iraq, we are not all interventionists now. The experience has been a different one. We have to reflect soberly through the circumstances, the rules, the conditions in which it is right and reasonable for people to go in and kill and be killed in order to change a regime. It is not straightforward; anybody that pretends that it is does not know what they are talking about. But it does need studying. People are not going to sit back and say let this carry on, let them go on slaughtering each other. There is going to be pressure to do something and we need to have better ideas and better rules about how and when this should be done. So those are two big questions which need I think to be studied.

In his second term, I am convinced that President Bush will seek partners, not because of his campaign rhetoric, indeed rather against his campaign rhetoric, but because of his experiences. And there are already some encouraging signs that President Bush will be a second term President. He will not be eligible for re-election so will therefore to some extent be insulated from all the political pressures which blow upon every President and every Prime Minister. He will be concerned with his success and with his place in history. But he will know in his heart, and his advisers - who he may well wish to change, will know in their hearts - that actually to repeat the Iraq experience in dealing with the other crisis which they face, Iran, North Korea and so on, is simply not realistic. In the end realism prevails over rhetoric.

So, I believe that the next President will look for partners, and Dr Rice’s successful trip to Europe was a first, promising sign. Not in any spirit of apology or feeling that they have got things wrong, though they certainly have, but because that is needed for the future. And to some extent these partnerships are already forming. North Korea has nuclear weapons, whether two or three we do not know. It is a tiny country run by an eccentric, to put it politely, dictator. We know very little about it, they know very little about us. It is deeply dangerous. The United States has handled this very cautiously, quite unlike its dealings in the Middle East for obvious reasons, and a reluctant partnership has formed. The United States, China, Russia, Japan and the Republic of Korea are trying, not so far successfully but not yet disastrously, to persuade this little dangerous state that it should give up its nuclear weapons in return for help with its economy and in feeding its starving people. That is a partnership, not a partnership of shared values particularly but a partnership of necessity.

Now go right to the other end of the spectrum and consider the people of Darfur and their sufferings and what needs to be done. Everybody agrees that providing food and shelter and other essentials is necessary but it is not enough. What they actually need is security and they need agreement between the Government of Sudan and the rebels and other assistance on the political side. But they also need security on the ground so that we do not get appalling stories coming out week after week of people in the camps or outside the camps being raped and being afraid to go home. I think anyone with a sense of reality knows that you do not achieve that by having sanctions against Sudan; that simply makes a miserable country more miserable. The only way you do it is by African troops on the ground and that has begun to happen. The Security Council has authorised this, encouraged it, but those African troops need training, transport, logistics of all kinds which has to come, and is to some extent coming through the United States and Europe. So there you have another partnership formed, not out of some great conference or proclamation but actually by the needs on the ground. Maybe too slow, maybe imperfect, but at least that is the essence of it. A partnership is needed and a partnership very slowly is being created.

If you look ahead there are two other crises. Iran is a very big crisis looming. Iran in enriching uranium is going down a road which could lead it to being a military nuclear power. Iranians say that is fine, we have signed the nonproliferation treaty, we are not going to become a military nuclear power but we are entitled under the treaty to enrich our uranium and we need to do that for our energy needs. To which the world says, “come off it, you have got lots of oil and gas, why do you need to do this”, and they say that is our business. And then they say why is Israel, which has signed no treaty and defied many UN resolutions, allowed to be the only nuclear military power in the Middle East? What is that about? And it is not easy to answer that question. So again a partnership is forming in a very ragged way. You have the British Foreign Secretary, the French and German Foreign Ministers getting in a plane and going to Tehran to say to the Iranians, we Europeans, not Brits, French, Germans, we as Europe do not believe you should become a military nuclear power and in return for your giving that up we are prepared to have trade agreements, give you help. And the Americans sit on the sidelines and grumble and say this will not work. That is the hard cop soft cop approach. It may well be the right thing to do except I wish it were done a little bit more in concert rather than in disagreement. But this is a huge problem which needs a partnership. The United States will not in practice attack Iran in the same way it attacked Iraq. It needs a partnership.

Finally Palestine, a problem I have lived with for many years. There will be no kind of stable Middle East until there is a settlement of that question. The United States, because of its particular position vis-à-vis Israel is the key, but it needs again a partnership, it needs Europeans, it needs the Russians, it needs the UN. These are the people who made the road map. I would not be surprised if we saw European – even British forces if we can find some troops – in Gaza if Sharon manages to extricate the Israeli settlers from Gaza. If there is a real danger of chaos, anarchy and more rocket attacks on Israel from Gaza after that I would not be surprised if we find ourselves involved in that in a way which we are not now. The partnership may well produce that. Gaza is the most disagreeable place of human occupation that I have ever seen. But it is crucial to get that right if out of it is not once more to spread poison and violence across the whole area. If there is this need for partnerships and if Europe is an essential component in most of them, we have to be coherent. Here I think the British and the French are the ones with the best chance of leading Europe into some kind of coherence on these matters, whatever the merits, which are considerable in this regard, of the proposed European constitution. But neither France nor Britain is making the effort required. Our Government and our Prime Minister have been content to be the deputy leader of the coalition of the obedient. Tony Blair believes that if he gives one hundred percent public support to the superpower he will be able to exert a lot of private influence. This is entirely familiar. Churchill did this, Margaret Thatcher did this in my time with Reagan and then Bush, and in those days it worked. Even though we were the junior partner we had a substantial influence on the policy. I do not have any sense that that is happening today. The way we have set about it is wrong. But equally some French think that what they need to build is a Europe which is a rival to the United States. Half way hostile, perhaps not half way hostile but certainly a rival and that is unreal in terms of real power and in terms of what the Europe of twenty five want to do. So a partner is neither an obedient follower, at once a satellite and echo of the White House, nor is it a rival. Europe as a partner must have enough power to be worth listening to and engender enough mutual trust across the Atlantic to solve differences within the partnership. This, I am sure, is what we should aim at. It is going to be difficult but it is not unreal. My hope is that we can help on the rules side to produce a modernised set of ideas within the UN, and on the power side arrange regional partnerships which will link the superpower with the rest of the world. None of this will be easy, but I think it is possible and the alternatives are dire.

Lord Hurd of Westwell was British Foreign Secretary 1989-1995 and Home Secretary 1985-89.

 
 
THE CHINA GAP: OF CULTURE, RULES AND QUALITY CONTROL

MINZHE ZHAO

 
During a recent BBC radio discussion in which I took part, serious concerns were expressed that a closer commercial relationship between Britain and China –increasingly known as the world ‘manufactory’ - might be harming the UK economy. Some of the reasons given were as follows:

With its extraordinary manufacturing capability, China will seize on British exports to China, copy the design, and manufacture them there, eventually hurting the UK economy.

· With its huge reserves of labour, China has persuaded many UK companies aiming to lower their costs to move their production lines to China. If this trend continues, or indeed is encouraged, the UK’s manufacturing industry will be totally wiped out, resulting in serious unemployment problems.

· Since China has no effective measures to protect foreign companies’ intellectual property, exports to China of the UK’s technology and high-end products will most likely be pirated, damaging both the exporters’ reputation and their business interests.

These are understandable worries. It is true that many Chinese companies have been copying imported goods and making ‘mimic’ products to compete with the originals, sometimes even replacing them and causing great damage to those exporters. However, the truth is that the market is so big, and the business potential so huge, that no company can afford to stay out of the market. There is no sign that major companies from the Germany, the US or Japan are going to stop moving their manufacturing facilities, or even their regional headquarters, to China.

To avoid products being copied, manufacturers simply have to shorten their products’ life cycles. Generally speaking, for sophisticated products, the Chinese competitors need one or two years to produce ‘mimics’ of the same quality. Even the best Chinese competitors cannot keep up with the pace, and a two-year life cycle should be reasonable for most products, especially electronic ones which are now upgraded or replaced within months. I would also suggest that Western manufacturers focus more on high-tech and patented products, in order to generate revenues from selling their technology and patents. For instance, Philips, Sony and another two companies collect their patent fees on China-made DVD players, with significant profit margins, while the Chinese manufacturers can also make profits as they take the advantage of cheap labour. However, neither Philips nor Sony can make any profit if they produce DVD players in Europe or Japan, given the high labour costs there.

A further reason for taking the Chinese market seriously, apart from its huge and well-educated labour force, is that China is increasingly becoming a huge consuming country. China is already one of the largest consumers for certain luxury goods such as French XO, Scotch Whisky and Swiss watches. I pray that China will not become a country full of drunkards drinking XO like mineral water, but there is no way of stopping people drinking XO or wearing Rolex watches if they have money and they wish to do so. What I mean here is that China is getting rich and becoming a consuming monster with a huge capacity to digest everything made, naturally and artificially, all over the world. In this situation, if UK companies are reluctant to go to China they risk being shut out totally from the market.

As to the intellectual property problem, from my experience and observation, the Chinese government and Chinese enterprises are making serious efforts to improve the situation. Most technology-oriented companies, like IBM, HP and Dell, have no serious law suits outstanding against Chinese competitors in terms of IP infringement. There may be more of a problem for low-end consumer goods, say shoes, where a manufacturer like Clarks does have to be careful, and prepare to take on possible faked Clarks.

At the same time as the West worries about the possible loss of its technological lead and its manufacturing capacity, Chinese enterprises are eager to catch up with the industrialised countries, and expect to bridge the gap quickly. A few months after my BBC programme - BBC Radio Wales’ Wales@Work programme - I was invited on to the Beijing Television (BTV) Zhongguancun Program. To tackle the question: “We Chinese often apply the same technology, follow the same standard and operational codes, deploying the same, sometimes even better hardware, but we cannot produce the same quality goods or achieve the same yields as our Western counterparts. Why?”

My answer is that there are many factors contributing to the gap between China and the West, such as skills, attitudes to work, and above all the question of the enterprise culture, which is in my view what hinders China from achieving the same quality or yield as the West in specific product ranges.

Generally speaking, enterprise cultures around the world vary according to a number of factors ranging from national traditions and culture, to management models, the types of business they do, and so forth. I strongly believe that a country’s tradition and culture plays the critical role, forming the common language for the enterprises in that county. For instance, discipline provides a common culture for German enterprises; loyalty for the Japanese; hard work for the Koreans. I would mention caution for the British. But what is the common culture for Chinese enterprises? I would say it is the spirit of compromise.

Compromise is a motto for most Chinese, originating in Confucianism which has been the de facto national religion in China for a thousand years. Compromise is deeply rooted in Chinese hearts, affecting their thinking and social behaviour. For example, if a Chinese visitor is a guest of a British family, and the hostess offers him a cup of ordinary ‘black’ tea, he will probably say: “No, thanks” the first time it is offered. However, if the hostess has the patience to offer it to him for a second time, he will most likely say: “Yes, please”. Many people might think that the Chinese visitor refuses the first offer out of politeness; actually he has been ready, from the very beginning, to accept the black tea offer. However, it is not totally the case as ‘black’ tea might not be his preference, he may prefer drinking ‘green’ tea or coffee. He agrees to drink the black tea simply because there is an obligation on him to ‘compromise’ with the hostess.

“Compromise is a motto for most Chinese...affecting their thinking and social behaviour”

This spirit of ‘compromise’ is the national culture in China, with its two important derivatives: ‘rapport’ and ‘face’. ‘Compromise’ between two people result in a good ‘rapport’, and a good ‘rapport’ means never injuring other people’s ‘face’. Very specifically for a commercial enterprise, ‘compromise’, ‘rapport’ and ‘face’ can be mapped on three levels: the organisation, the group and the individual, defining the basic rules for handling public and inter-personal relations, and forming the common language of Chinese enterprise culture. Here is how these rules apply within Chinese enterprises.

Rule one – ‘compromise’ applies at the level of the organisation. A general manager in an enterprise, especially in a nationally-owned enterprise, often compromises with his subordinates even if they fail to meet their job requirements. Otherwise, he might become unpopular and eventually be replaced – the government’s interest is to pursue ‘social stability’ rather than good enterprise management. A general manager who incurs complaints even if he is right is not going to impress the government.

Rule two – ‘rapport’ applies at the level of the department. The heads of department in an organisation often prefer to cooperate or support each other on the ground that there is good ‘rapport’ between them. They may work in a hostile manner with those colleagues who have offended them. Operational codes in many Chinese enterprises are often locked away and never really executed.

Rule three – ‘face’ applies to all employees in an enterprise. People rarely say “no” to colleagues. A quality control engineer may close his eyes when he is aware of the quality problem caused by his colleague’s careless or wrong operation. And this might be a real problem, the worst case being that he may help his colleague to cover the problem, and issue false reports about the product quality. In a word, there is no standard quality control being exercised consistently in many Chinese enterprises.

All these unspoken intuitional rules, together with other less than professional attitudes, mean that the majority of Chinese enterprises are not at the same level as their Western counterparts in terms of enterprise management. To this extent, it is not difficult to understand why Chinese enterprises applying the same technology, following the same operational codes, deploying the same or even better hardware, cannot produce the same quality goods.

In conclusion, for the time being and even for the next five to ten years, a majority of Chinese enterprises will only be really good at manufacturing large quantity, low-end products. Western enterprises should still be able to take advantage of their cutting-edge technology and high-end products, enabling them to export to China a narrow but important range of goods from nuclear reactors to airbus planes and Bentley cars, in exchange for thousands upon thousands of electronic, textile and other labor-intensive goods. Looking ahead, this is bound to change. The fact that the British motor industry is looking to Shanghai for its future whilst the Chinese IT industry adopts IBM management strategies shows how important it will be for East and West to understand each other’s strengths and weaknesses.

Dr Zhao was an IT professor and he is currently an entrepreneur devoted to bridging the gap between East and West.

 

PUTIN’S RUSSIA: A RULES-BASED SOCIETY?

CHRISTOPHER GRANVILLE

 
In the international arena, Russia is a conservative power, anxious to uphold a rules-based order. This stance reflects the country’s chastened post-Soviet condition, especially as the rules still nominally in force – first and foremost, the UN Security Council veto – were made at the apogee of Soviet power. The contrast with the United States – now, of course, anything but a status quo power, as it projects its values abroad in good Leninist style –must go down as one of the richer post-cold war ironies. Seen from Moscow, today’s ‘world without rules’ began in 1999 when NATO attacked Yugoslavia because of actions taken by the Belgrade government within its own borders, and did so without a UN Security Council mandate which, had it been sought, Russia would have blocked.
 

Turning to Russia’s domestic affairs, the situation might seem the reverse. President Putin may have little international clout compared to his predecessors in the Kremlin, but his power is unchallenged at home, so it should come as no surprise to find him less inclined to be bound by rules. Three actions in particular during 2004 have created the impression that the rule of law is a low priority. First came a change to the way regional governors are chosen (they will now effectively be appointed by the President instead of being directly elected as hitherto). This reform sits uncomfortably, to say the least, with the federalist spirit of the Russian constitution. Secondly, 2004 saw the destruction of the shareholders’ equity in Yukos by means of tax liabilities arising from repeat audits of the company’s accounts for past tax years which previously had been closed by the tax authorities themselves, and regardless also of the statute of limitations in the Russian tax code. Meanwhile, Putin’s ill-advised intervention in the Ukrainian presidential election suggested that he too is not averse to a little ‘Leninism’ by trying to export his brand of authoritarianism to the near abroad.

In the aftermath of his Ukrainian fiasco, Putin tried to cushion his pragmatic climbdown by scoring a few debating points against western critics. In particular, he has highlighted how US support for democracy in the FSU appears to be driven by expediency rather than principle. Pro-western opposition leaders like Ukraine’s Viktor Yushchenko and Georgia’s Mikhail Saakashvili have been backed by the US, which has not objected to the lack of democracy in other FSU states where hard authoritarian regimes support US economic (Azerbaijan) or security (Uzbekistan) interests. It would be hard to argue with this implied equivalence as regards the way that Russia and the US pursue their respective national interests in the FSU. But even despite the poor credentials of the US as a respecter of external rules, the US (and EU) are right to be concerned about the Putin administration’s respect for the rule of law within Russia. Such concern tends to be focused on the active threat to western interests from a hardline, Belarussian-style dictatorship emerging in Russia itself. But the threat from any such scenario is more likely to be the opposite; a passive threat of Russia becoming chronically destabilised, with the elite (and a good part of the population) resisting regression to autocracy and isolation.

Fortunately, and contrary to recent impressions of the Putin administration as power-hungry and rent-seeking, Putin’s rule does not look likely to end in such disaster. His early career in the KGB is endlessly recalled, but his legal training deserves to be given equal weight in attempts to understand and predict his actions. His declared commitment to the rule of law is unwavering. Especially notable was his formulation in a newspaper interview early in his presidency that given the situation where citizens justified non-compliance with the law (especially tax evasion) on the grounds of the obvious lawlessness of the state itself, the only way forward for the country was for the state and citizens to become law-abiding in parallel.1 The central reform goal here has been to make legality possible by producing laws which are consistent and reasonable. The best progress on this score has come in tax reform. A useful start has also been made in de-regulation, which is at the heart of the fight against corruption. A World Bank-financed study in ten regions has shown that laws enacted in 2002 to simplify new business registration and reduce companies’ vulnerability to official extortion has started to bear fruit.2 It should go without saying that the Putin administration still has many mountains to climb in this crucial area. More fundamentally still, Putin tirelessly denies plans to amend the Constitution itself to keep himself in power after his second and final term ends in 2008. The succession to Putin in 2008 is now the central test of Russia’s progress and status as a law-based democracy.

The credibility of Putin’s commitment to respect the Basic Law – in other words, to renounce destabilising adventurism – has suffered most of all from the Yukos affair. But on close inspection, the original impulse was, paradoxically, a stabilising one. There is a mass of evidence that the attack on Yukos and its controlling shareholders (Mikhail Khodorkosvky and partners) was triggered by a perception that they were buying control of the state – in particular via votes in the State Duma blocking government policies (especially on oil taxation) of which they disapproved. Any such behaviour would violate the original state-oligarch deal – unwritten, but very clearly spoken, notably in a meeting in the Kremlin in July 2000 – whereby the privatisations were amnestied de facto in return for an understanding that the oligarchs would not use their controversially acquired wealth to privatise the state itself.

Seen in this perspective, the underlying goal in the Yukos affair was to uphold the rules of the game in this sensitive area of relations between the state and the massive concentrations of private wealth stemming from the notorious privatisations of the 1990s. The oligarch regime which emerged in Russia in President Yeltsin’s second term seems mild in comparison with Kuchma’s Ukraine, which is the most extreme example yet seen in the FSU of a state being captured by business (‘oligarch’) clans. These established controlling ownership of every part of the media, bureaucracy and (crucially) law enforcement: the judiciary was in the pay of one or other of the inside groups.

An important lesson of Putin’s presidency – and the incoming Yushchenko administration in Ukraine will most likely bear this out as well – is that in post-Soviet conditions of a weak civil society, a strong central state seems to be the only practical alternative to a hollowed-out state captured by business ‘oligarchs’. The ‘strong state’ model can produce even more corruption than an oligarch system. A good micro-example is the City of Moscow under the ever-popular mayor Yuri Luzhkov, whose paternalist largesse accounts for Muscovites’ apparent indifference to what even by Russian standards are high levels of graft in the city administration. This most corrupt corporatist version of the ‘strong state’ model must eventually lead to economic stagnation and failure, and were this to be the outcome in Russia as a whole by, say, the end of this decade, then the risk of destabilisation would rise. If the ruling group was no longer legitimised by strong economic growth, it could try to maintain itself in power without popular consent. The democratic legitimacy of Russia’s political system is well entrenched. That legitimacy is based on one institution – the presidency –which makes sense to people given the country’s political history and tradition of centralisation. All opinion polls show solid majorities in favour of the election of a new President at the end of Putin’s second and final term in 2008. Russians like having the right to choose their Tsar, and good numbers would struggle to defend that right if necessary.

“The ‘strong state’ model can produce even more corruption than an oligarch system”

The temptation to remove that right looks unlikely to arise. Putin has already signalled his plan to “recommend” to the voters a person whom he believes should succeed him. This recommended successor will be given a very fair wind by the state-controlled television: but the lesson of all post-Soviet elections is that propaganda alone does not work if it flies in the face of what people really think. The heavy media bias in favour of re-electing Yeltsin in 1996 and Kuchma in 2000 worked because voters in any case saw them as the lesser evil compared to the only available alternative of unreconstructed Soviet communists (respectively, Gennady Zyuganov and Petro Simonenko). The opposite was true in the cases of Viktor Kebich (the nomenklatura incumbent in Belarus defeated by Lukashenko in 1994) and now Viktor Yanukovich in Ukraine, who were rejected both as individuals and mainly as representatives of a system which had lost its legitimacy. The latest demonstration in Russia came in the presidential election of March 2004, which returned Putin to the Kremlin with 71% of the vote. Contrary to the assumption in most commentary about Putin’s Russia, elections now are fairer than they were in the 1990s. There are much improved rules on free airtime for all parties and candidates, comprising both advertising and debates, and these rules are strictly observed. If there was a genuine majority protest vote to be tapped, then that vote would have been mobilised without any need for heroic samizdat. Liberal and Communist politicians blame their own failure on the system. But their predecessors did better in the elections of 1991 and 1996 with far less media access than today. While life is not easy for opposition politicians in Russia, the main reason for their marginalisation is not the repressive system, but the lack of a protest vote for them to tap.

This is due in turn to Russia’s strong economic growth and rising living standards. The credit for this which naturally (and in part deservedly) rubs off on Putin is reinforced by his active policies such as controlling the oligarchs, and restoring Russian influence abroad. The most serious blow to Putin’s high public approval rating in 2004 was the Beslan tragedy, which left a horrified public feeling defenceless. Now Putin is notoriously focused on his rating as the basis of his power. There was a kind of paradoxical accountability in his authoritarian response to that setback of Beslan, which was to end the direct election of regional governors. Since the Tsar in the Kremlin is held to be responsible for everything that happens in Russia, Putin seems to have decided to reduce his vulnerability by strengthening his control over regional bosses and thereby improve the implementation of anti-terrorism and other key policies.

For now, then, the risk of the Putin version of the ‘strong state’ approach appears at least equalled by its potential reward, which is that it provides a better platform for successful modernisation – including the evolution of a properly liberal democracy – than the ‘oligarch’ alternative. Although some of Putin’s critics seem tempted by nostalgia for the oligarchs, seen as supplying a kind of rudimentary pluralism, an oligarch-captured state will have an inherent illegitimacy. This would disqualify it from implementing necessary reforms, many of them necessarily painful, even on the heroic assumption that the ruling oligarchs had the inclination for serious reform in the first place as opposed to continuing to feather their own nests.

The Putin formula would be much improved in an environment of greater political competition, including freer television (which is not the same as a return to the unscrupulous oligarch-controlled networks of the 1990s). This is clearly not to Putin’s taste. So the most likely outcome is that the succession of 2008 takes the form of another plebiscite for the ‘official’ candidate which is at once a free vote (as opposed to a Yanukovich-style stolen election), but one where – as, say, in the post-war decades of LDP dominance in Japan – the outcome is never in doubt. Yegor Gaidar (the liberal economist and Russia’s first post-Soviet prime minister) has labelled this a ‘closed democracy’. The model entails high levels of corruption and mediocre policymaking due to the lack of political competition and accountability. It also encourages the brain drain. But it looks like offering the most realistic, and by no means hopeless, prospect for an environment of stability, legitimacy, reform and economic growth in which Russia’s society and polity might gradually mature.

Prospects would be even brighter if Putin follows through on his commitment to promote political parties performing their textbook role of representing real social and economic interests as the best antidote to the unprincipled and unstable patron-client relationships of the oligarch system. Until now, half the Duma has been elected in party lists, and the other half in UK-style first-past-the-post districts. In the next Duma due to be elected in December 2007, those constituency members (most of whom are creatures of intertwined local bureaucratic and business clans) will disappear, and the whole chamber will be filled from party lists. Had this new system been in force in the last Duma election, Putin’s ‘United Russia’ party would have 20% fewer seats than it does today.

While this change will help improve conditions for democracy, Putin seems predictably reluctant to activate this competitive system in practice. For example, the logic of this construct is that presidential candidates should be party leaders (or at least nominees); but Putin has already said that this is premature. But he could still do one thing before the next election cycle which would promote political competition while maintaining the control he prizes. This would be to split the present ruling party (‘United Russia’) into two. The resulting centre-right (more economically liberal) and centre-left (more collectivist and nationalist) parties would merge with existing smaller parties and then genuinely compete against each other in the Duma election. Both parties would be Kremlin-approved, with all the media and financial support that entails. This very reliability would reduce the political risks for Putin, allowing him to tolerate the limited uncertainty and perhaps even leading him to signal that his successor would have to form a government with whichever of those two parties had performed best in the Duma election. A procedure on these lines would edge Russia gently and stably away from the present version of closed democracy, with its managed presidential successions and political competition confined to faction struggles within a single ruling party.

1 Izvestiya, 17 July 2000

2 For details, see www.cefir.ru

Christopher Granville is Chief Strategist at United Financial Group, a leading Russian investment bank and the joint venture partner of Deutsche Bank in Russia. The views expressed in this article are the author’s own.

 
CLIMATE CHANGE: A NEW ARENA FOR GLOBAL GOVERNANCE

TOM BURKE

 

The climate is more sensitive to human interference and climate change a threat that is more imminent, more dangerous, and developing faster than we previously thought. This is the grim message from a recent scientific gathering.

It took place in Exeter as the world’s leading climate scientists were brought together by Tony Blair as part of the preparation for his G8 meeting at Gleneagles in July. Its conclusions were clear, if measured in their expression: “In many cases the risks are more serious than previously thought.” and later, “A number of new impacts were identified that are potentially disturbing.”

This latter conclusion was prompted in part by a paper detailing the growing acidification of the ocean resulting from increased concentrations of carbon dioxide in the atmosphere. This is especially disturbing because what is being described is a chemical process. In other words, this is something about which we can be certain that it is a result of human actions.

What it means is that not only are we reducing the ability of the ocean to remove carbon dioxide from the air, thus accelerating climate change, but we are likely to ‘affect the entire marine food chain.’ That is, to place additional stress on the already struggling fisheries that supply essential food for huge numbers of people.

The former conclusion was based on a series of papers which assessed a very wide array of risks to human beings from a changing climate. These ranged from a clearer idea of when irreversible melting of the West Antarctic and Greenland ice sheets might begin – perhaps only decades away although it would be centuries before the full effects were seen – to the possibility that the tropical forests which currently absorb carbon dioxide could themselves become a very large source of the gas.

The force of the three day meeting was to add considerable weight to the Prime Minister’s view that climate change is “the single most important long-term issue that we face as a global community.” It underscores his foresight in deciding to make climate change a top priority for his Presidencies of both the G8 and the EU in 2005. It also poses considerable challenges to our present mechanisms for global governance.

To appreciate fully just how difficult it will be to address these challenges, it is worth examining why climate change is such a different issue from others that the international system has had to tackle. Experts always want to claim that their problem is different. There are three reasons for believing that in this case climate policy analysts might be right.

First, the sheer scale of the problem. It is a truly global problem that directly affects every single citizen of every single nation. Poverty and disease affect billions of people, but there are also billions who lead lives of healthy affluence. We are all caught up in the war on terrorism but, as the people of Britain know from their thirty year war against the IRA, it makes little direct difference to the daily lives of the overwhelming majority of Britons. Literally noone will escape the everyday effects of a changing climate.

It may be possible to opt out of climate treaties, but there is no opt out from climate change itself. This creates an entanglement of interests unprecedented in history. No opt-outs are available.

If the problem of climate change is truly global, so, too is the path to its solution. The largest single source of the gases that cause climate change is the combustion of the fossil fuels we use to generate electricity and power movement. This means that stabilising the climate involves nothing less than coordinating the energy policies of more than 200 nations, or, at the very least, those of the whole of the OECD and the emerging economies of Asia, Eastern Europe and Latin America. This will not be easy. Because of its centrality to economic prosperity few countries are comfortable ceding influence over their energy policy to others.

The European Union, despite all the urgent pressures of creating a single market, has tried without great success for 50 years to align the energy policies of its member states. This was not easy when there were only six members, it is even more difficult now that there are 25. We have seen repeated attempts by governments of the United States to create a Federal energy policy founder on the same reefs of divergent regional and local interests.

The second reason why this problem is different is that it is driven primarily by knowledge – by our understanding of an inexorable natural reality. It is the findings of the International Panel on Climate Change that have compelled governments to act on this problem. This is a very different motivating force from the collisions of national interest or the clash of deeply held beliefs that have traditionally driven international relations.

By comparison with interests and ideologies, knowledge is a weak influence on international relations: it is more complex and less compelling; its thrust is more easily ignored or deflected. Human beings have a well developed ability to avoid what they cannot easily address.

The third reason is that with climate change there is a ticking clock. During the Cold War the Bulletin of Atomic Scientists would move the hands on a metaphorical clock closer or further away from midnight depending on the state of relations between the superpowers.

The climate clock is no metaphor. Its ticking is the growing concentration of carbon dioxide in the atmosphere. Today we live in a world in which this concentration has reached 379 parts per million (ppm), up from approximately 270ppm in the pre-industrial age. Because of the delays in the response of the climate to increasing carbon dioxide concentrations we do not know if even this level will maintain a safe climate for civilisation.

When, as we frequently did, we missed a crucial deadline in the arms or trade talks it was a setback but we could always try again to reach the same goal. Wealth increased a little later than it might otherwise have done, security was at risk for a little longer, but the goals remained available.

It is different with climate change. For all practical purposes we cannot return to the world of 270 ppm or even to the 379 ppm world that we now live in. Once we pass a certain concentration it is gone for good. The climate it represents is no longer available.

Many climate analysts believe that we are already too late to avoid living in a climate shaped by a carbon dioxide concentration of anything less than 450 ppm. We have no idea whether economic development can succeed in such a climate. There is no experience in diplomatic history of having to negotiate under such relentless and implacable deadlines.

Tackling climate change is a comparable diplomatic challenge to the strategic arms control talks or the creation of the World Trade Organisation. Both of these processes took more than fifty years to arrive at their present incomplete positions. We do not have the luxury of fifty years to address climate change.

Structural progress in global governance is traditionally built by trial and error. Failure breeds lessons that are applied to a new effort which over time lead to progress. Rapid movement only occurs when catastrophic events, normally wars, force strategic realignments. Time is too short for the traditional approach to work with climate change and by the time catastrophic events are too evident to ignore it will be far too late to do anything effective about the problem.

Any problem on this scale and novelty is bound to transcend traditional policy boundaries. In particular, climate change blurs, perhaps eliminates, the distinction between foreign and domestic policy. Energy, transport, housing, agriculture, and many other policy disciplines must now be treated as an integral part of foreign policy. Home departments must learn to think, with their foreign policy colleagues, about how to deploy foreign policy assets in support of shared goals on climate. In the UK, this has led to the creation of a symbiotic relationship between the Foreign and Environment Ministries in both the design and delivery of climate policy. On this issue the traditional barriers between the two departments have all but disappeared.

At the same time the advocates within foreign ministries of this new approach to climate diplomacy need to convince their colleagues to take part in this mobilisation. The consequences of climate change will have such a profound effect on international affairs that they will come to shape the context within which diplomacy takes place.

This will happen – is happening – on many levels. Clearly, the physical impacts of climate change, for example the displacement of large numbers of people, will be significant. But, at a deeper level, the international system can only function effectively if everyone with a stake in it believes that they can make it work in their interests, and that others will take some heed of their interests. In other words, there needs to be a certain minimum level of equity in the system.

There is no greater threat to that equity than climate change. It is fundamentally inequitable: those most responsible for the problem are not the same as those most vulnerable to its consequences. As those consequences become more evident, they will impose increasing stresses on the framework within which other international conversations take place. We cannot expect to keep building rules-based international systems for dealing with other challenges – trade, terrorism, drugs, weapons proliferation – without a response to climate that bridges the equity gap inherent in the problem itself.

“If the problem of climate change is truly global, so, too, is the path to its solution”

In the climate diplomacy of the 21st century there will necessarily be a very porous boundary between foreign and domestic policy. Formal arrangements between states will certainly be needed, but the global framework will have to be flexible enough to accommodate states moving at different speeds. Even more importantly, it will need to accommodate many non-state actors – cities, provinces, regions, corporations, and non-governmental organisations – that have a part to play. It will all need the legitimacy that the United Nations provide, but it will need to be a more empowered, efficient and focused UN to deal effectively with this problem.

The core obstacles to more effective global governance on the climate are not those of institutional or policy design. Of course, more horizontal, less silo based, frameworks at both national and global level would make progress easier, but the current lack of political will is a more significant barrier.

The design of the current policy framework, a convention establishing principles, the United Nations Framework Convention on Climate Change, to which has now been appended the Kyoto Protocol specifying a process for achieving agreed targets, is both robust and elegant. Robust, in that any number of protocols to deal with specific aspects of the issue can be attached to the basic treaty. Elegant, in that the mechanisms established under the Kyoto Protocol are flexible, allow for learning over time and identifying least cost options.

If there were unlimited time to deal with climate change, this approach might eventually deliver useful results. Unfortunately, that is not the world we live in. The timescales for action are depressingly short. Additional coal burn in China alone between now and 2030 will push carbon dioxide concentrations above 400ppm – a level we must stay below if we are to have much chance of limiting global temperature rise to the 20C considered safe by the EU.

What is really needed is an application of considerably greater political will. That in turn will require a reframing of the debate on climate change. Two key goals must be accomplished to move the world forward. The first is to align the efforts of the EU, China, Russia and the United States. The second is to escape, as rapidly as possible, investment lock-in to carbon intensive technologies.

To date, the debate on climate change has focused exclusively on developing the regulatory constraints needed to reduce greenhouse gas emissions. Progress so far has been slow because neither governments nor businesses have found it easy to engage on this basis. Furthermore, climate change is not simply another environmental issue to be dealt with as time and resources permit. It affects the fundamental interests of the world as a whole.

A more positive approach must focus on the value of a stable climate, the investment needed to secure it, and the additional benefits that would flow from that investment in terms of innovation, competitiveness and energy security.

This political framework has four advantages:

· the issue in China, India, Brazil and other developing countries is the reliable and affordable supply of energy for growth. Any framework that implies limiting growth will fail. Russia decided to ratify Kyoto largely because it saw the prospect of new resources for investment. China will engage when the question becomes the investment needed to meet its energy needs whilst addressing its growing climate change concerns;

· there will be a business lobby for investment. Significant industrial and financial interests will benefit from investment programmes in China, India, Russia and elsewhere as well as Europe and North America. Crucially, this will include American companies and investors, so it will be harder for a US Administration to stand aside;

· Investment delivers technology. The immediate priority for climate change is not inventing wholly new low carbon technologies; it is rapid deployment of those currently available. This is driven by investment;

· Over the next 20 years, some $15 trillion will be invested worldwide in the supply of energy. An investment-based climate strategy will use public funds to leverage private capital towards low carbon energy systems. It will require governments and international financial institutions to do what they are best at - to provide finance and guarantees - but then work through markets and the private sector to achieve the necessary outcomes.

 

Such an approach offers a new, more inclusive and constructive response to the challenge of climate change. Reframed as a debate about achieving a stable climate, it is a security issue and therefore central to the national interest; it is about investment and therefore about innovation, opportunity, and employment; for the economy, it is about efficiency and competitiveness; and for consumers, it is about widening choice and securing supply.

The current debate, with its focus on burden-sharing and historic responsibility, is backward-looking and exclusive. It promotes a ‘you first’ approach to international cooperation. A reframed debate, with a focus on human creativity and skills, is inclusive and looks forward. It promotes a ‘me too’ approach to international cooperation. Redeeming past and present sins is a pallid prospect politically. Reaching for the ‘sunlit uplands’ of a world in which our many civilizations can continue to unfold within a stable climate is far more compelling.

Tom Burke is a Visiting Professor at Imperial and

University Colleges, London and a co-founder of E3G,

Third Generation Environmentalism

 
 

A WORLD WITHOUT RULES: A CAPITAL IDEA

DAVID BLAKE

 

‘Dreaming of systems so perfect that no-one will need to be good’.

From “Choruses from The Rock,” by T. S. Eliot (1970), included in T. S. Eliot: Collected Poems 1909-1962 (New York: Harcourt, Brace & World)

 
Back in the 90’s, just before the Euro was launched, I was chatting to Hans Tietmeyer at a meeting in Luxembourg. The very first time we had met was many years before, in 1970, when he was a young official in the German Finance Ministry and I was a very young Brussels correspondent for The Times. What brought us to meet on both occasions was monetary union in Europe.

The first time, he had just been appointed to a committee chaired by Luxembourg Premier Pierre Werner which the EU had set up to prepare a plan for monetary union; the 90’s meeting was at a colloque to honour the said M. Werner and to celebrate the fact that 29 years after his report had been published the Euro was finally about to come into being.

And so without wishing to pour rain on the parade, I felt I had to point out that when I had written The Times account of his committee’s 1970 report I had made much play of the fact which they themselves had stressed; that it should be created by the end of the decade. “Well, they’ve finally adopted your plan,” I said “but I wish you had told me which decade you meant.”

“But you are entirely wrong, Herr Blake. This is not the plan which we recommended at all. We believed there would be an economic government for Europe, which would take all the necessary decisions to guide the economy. But states were not willing to give up their sovereignty. So instead we have had to rely on a system based on predetermined rules; and because of that we have had to make the rules much harsher than they would have been if there had been an authority which could be trusted. And we shall see,” (and for the first time in my life I understood what writers mean when they use the phrase ‘his voice darkened’) “we shall see how it works out.”

Not very well I think you’d realistically have to say, and therein lies a broader lesson. Compare the economic performance of Euroland with its near neighbours or the USA. Unemployment is at record highs in Germany and touched bottom in the Euro Zone as a whole in Spring 2001. Since monetary policy always acts with a lag, Spring 2001 is when you would expect Europe’s performance to start reflecting the ECB’s stewardship after the Euro’s 1999 launch. Growth in output has been far less than in the US.

The Euro Zone is the most extreme example of a trend which has been rising as faith in politics has been falling. Instead of relying on men and women, the Euro system set some rigid rules for monetary and fiscal policy, the two main pillars of economic management. Interest rates have to be set to keep prices stable. Unlike the US, where the Fed explicitly states it is trying to maintain growth and employment as well as price stability, the ECB is given just one task and interprets it very narrowly.

It was really fiscal policy that Tietmeyer was thinking of when he was talking to me. The Stability Pact is at the heart of the “rules-based” system. Countries which wanted to join the single currency had to cut their budget deficits below 3% of GDP; the fear was that once inside the system they would let those deficits rise again. So the pact requires governments to keep their deficit below 3% at all times and to aim for a zero per cent deficit on average. There are elaborate rules for deciding if a country has broken the terms of the agreement and even more elaborate rules for deciding punishments if they do. These budget rules in the Stability Pact have played out in the worst possible way. They have been fudged, cheated on, ignored, broken and yet have been tight enough to prevent a proper fiscal stimulus to the European economies in the wake of 9/11. Both France and Germany have had deficits above 3%. Faced with all this, the EU is trying to rewrite them.

But the new version of the rules seems likely to be even more complex than the current one. It is suggested that the Commission should apply 16 special tests to see if a country deserves an exemption from punishment. The trouble is, of course, that there are two directly opposing motives at work in the current debate. Some, like the ECB, the Austrians and the Dutch, are angry that any country has got away with breaking the 3% ceiling and want the Pact to be tougher in future with quicker and harsher punishment. Others, such as the German government, the French and the Italians feel the rules are too tight and are strangling their economy. Now, I side very firmly with the Germans on this issue, regardless of the irony that it was a German government which was so insistent on the Stability Pact in the first place. But what reason is there to think that the new rules will turn out right, or that even if they are right now they will be right in the future?

The instinctive response when rules turn out badly is to try to make them more complex. But that attempt to get more precision is as likely to open up new problems as it is to solve old ones. Give governments 16 possible exceptions and they will try to tailor their spending to find gaps in the rules. Then there will be calls for the rules to be tightened up and 16 rules will soon become 32. And so on. Trying to get more precision is exactly the wrong way to go. What rule building tries to do is very similar to what the very first, most primitive computers did. It takes a set of procedures which solve a problem and then hardwires them into a computer. Trouble is, the problems keep changing. The ENIAC computer had a team of eight whose sole job was to pull out the wiring and put it back in a different order whenever the problem changed. What the computer scientists understood very quickly was that the only way to make computers viable was to make it easy to change programmes by turning them into separate software.

Economic policy is like that. Decisions about the economy are being taken all the time by millions of agents around the globe. What matters to them changes for all sorts of reasons. Sometimes financial markets hate countries with government deficits, sometimes they love them. Sometimes cutting public spending speeds up an economy, sometimes it slows it down. It would make life easier if this were not so. If we always faced the same problem we could just wire the computer up, weld the box closed and not worry about it any more.

We can’t because of a fundamental fact about the nature of modern western capitalism, which happens to be the fact which has allowed it to see off all alternatives. This is that the strength of the system comes from its flexibility and from the fact that it maximises the number of agents who play a part in decisions; maximises the number of times they get to make decisions; and maximises the freedom which they have in taking each decision on its merits.

It’s true that the actual content of the Stability Pact was far too biased towards deflation and took no real account of the need for growth. But that is not the real problem. The real problem is that it reflects a way of thinking whose time has gone, if it was ever there. Economic policymakers love thinking of what they do as like driving a train. “We must get the economy back on track” or “we cannot yet give a green light on inflation.” But the modern economy is much more like driving a car than driving a train. People jump out into the road at unexpected moments; road works mean that it is sometimes necessary to take to the side road; the driver who should be giving you priority does not see you because he is changing the radio station.

In the past few years, starting in Holland, they have tried a new approach to handling the meeting of people and cars. Instead of building more and more barriers to keep pedestrians off the road, more and more kerbs to keep cars off the pedestrians and more and more traffic lights to tell everyone to stay exactly where they are, the new approach uses a simple principle: EVERYONE should look where they are going. Those who have the most power to injure should be the ones who pay special care. So road markings go, as do kerbs and as do traffic lights. Result: fewer accidents. It’s been so successful that a similar scheme is going to be tried in the Museum area of South Kensington in London. No one suggests that this is the right way for all situations, but that’s part of the point; it’s a mistake to look for one rule which fits all.

At best, returning to monetary questions, numerical targets can have indicative status only. Until Europe realises that, then the latest round of problems on the Stability Pact will have many repeat performances. Indeed, the attempt to refine the details of the Stability Pact is in some ways reminiscent of a problem which occurred in the very early days of the US space programme, long before manned flight was tried. Every object launched into space burned up as it re-entered the atmosphere. The scientists knew that the cause was air friction and they also knew that for aeroplanes the answer to air resistance was to make them sleeker and more streamlined. So each space projectile was made sharper and sharper. But as they got more like a needle, they just seemed to burn up faster. Only then did someone realise that they were looking at the problem the wrong way round. Space vehicles have to use air resistance to slow down and the way to do it is to make the front as big as possible. And so they came up with the idea of having the space module enter the atmosphere backwards, blunt end first with a heat shield to protect it.

No such leap of imagination seems likely from Europe’s economic policy makers. And this is a pity.

David Blake is at Fulcrum Asset Management LLP

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