This interview appeared in Het Financieele Dagblad. Download original article (in Dutch) using the button in the right hand column of this page. English translation is below.
OUR CURRENT SYSTEM IS BROKEN
interview by Daan Ballegeer
‘Because we are sticking to obsolete rules for world trade, the West is giving up economic power’, says British entrepreneur Joe Zammit-Lucia. ‘The ideas of the arrogant Western elite are no longer effective.’
The free-market Western model is under pressure, autocratic capitalism is on the rise, and in our own countries the support for populist demagogues that promise that globalization can be stopped at the border is growing. ‘You are therefore expected to be either for globalization or against it,’ sighs Zammit-Lucia. ‘But that is asking the wrong question. People have always traded with each other. There is no reason to stop international trade. The big question is whether the post-war rules are still the right ones.’
The answer is simple for Zammit-Lucia who is co-founder of the political think-tank Radix, and with David Boyle has just published the book Backlash: Saving Globalisation From Itself. ‘We have to acknowledge that the current system is broken and ready for repair.’
Which trade rules are so bad?
‘In the past, trade was mainly in goods for which we know how to establish rules. If this coffee cup meets certain requirements, then we can trade it. With services, it’s not so much about market access but about supervision. Who supervises a US bank that does business in China? That trade is much more complex and the rules are much less clear.’
‘The focus is also no longer on tariffs – which have fallen considerably in recent decades by international agreement. Now trade is impeded by non-tariff barriers. Consider, for example, regulations that create difficulties when different countries have different opinions. Examples of this are data privacy and genetically modified foods.’
‘Finally, in a digital world there is also a national security dimension. When you buy a coffee cup from China there are no big issues. But if you’re buying routers from there, then you want to ensure that they don’t have hidden back doors that allow hacking and security threats.’
‘We must therefore build a new trading system fit for the 21st century.’
How do you reach consensus?
‘If you ask five different groups of people to divide a cake ‘fairly’, you get five different outcomes. Similarly, fairness in trade is a subjective issue. Ultimately there needs to be one powerful party that forces consensus. But what if there is no such leader? How do you determine what fair trade looks like? This is the situation we are now in. China has a different conception of what is ‘fair’ compared to the US and the EU. How can one reconcile these different views?’
Wait until China is so economically powerful that it can impose its trade vision?
‘The US wants to do everything to prevent that from ever happening. But they are no longer as dominant as they once were. The rise of China is a game changer. It’s illustrated by the fact that the EU is now considering whether to stick with the trans-Atlantic alliance or pivot towards Asia. Such a question would have been inconceivable twenty years ago.’
According to Singaporean thinker Kishore Mahbubani, the US must realise that they will become number two and set clear rules for how number one should behave. Serve as an example for who comes after them.
‘Maybe something like that could work in a utopian world. But the US will never give up power just like that. Economic forces have, throughout history, always fought for dominance. I see no reason why it should be different now.’
‘Moreover, I don’t believe that you can shape other countries to your own ideals. That has already failed spectacularly with China.’
‘In its arrogance, the West thought that the whole world would obviously aspire to the Western model of liberal democracy. When China was admitted to the World Trade Organisation in 2001, we thought that it would follow our economic model because it was the best way. But it didn’t happen.’
We are still only seventeen years on. Perhaps the transition from market-led communism to a capitalist democracy simply requires more time to make it work.
‘In that case you are fully convinced of the superiority of our system. Can we at least consider the possibility that that might not be the case?’
‘Before the fall of the Soviet Union, its leaders didn’t believe that their system was wrong. According to them, it was just that they had not been communist enough. They just needed more time to make it work.’
Capitalism and democracy have traveled hand in hand for a long time. Is there any reason to believe that this is a finite story?
‘Politics still takes place at the national level, whereas our economies are now trans-national. This decoupling is problematic if we believe democracy to be important. We are in danger of slipping into a plutocracy where the economically powerful pull all the strings.’
‘Just because the liberal elite and mainstream politicians sweep these fundamental issues under the carpet does not mean that they do not exist. The result is that people increasingly feel that they are not being listened to. This is an ideal breeding ground for demagogues and leaders with authoritarian tendencies. Maybe they offer the wrong solutions, but they still represent a reaction to real problems.’
‘I do not have the answer. But I believe that if we have an open public dialogue about these issues, solutions will emerge.’
You expect a lot from companies when you say that they should be concerned with cultural, social and moral issues. What is wrong with the pursuit of profit within current laws and regulations?
‘There is no divine edict as to what companies are or what they should be doing. That is simply society’s choice. The focus on profits without an important social role is only one option.’
‘The disadvantage is that companies are no longer much concerned about their role in pursuing the national or regional interest. They play governments against each other, dodge taxes, suddenly shift investment and employment. Often this does not benefit citizens.’
‘Other options are conceivable. In China, for example, corporations are often, one way or another, extensions of the state. They believe that they have a responsibility towards their country. Industrial and national interests are still aligned – for the moment.’
‘China also stresses the advantages of localism. And this gives a huge competitive advantage. Not only can China deploy its Red Army, but also its army of companies that are under government influence. What will that mean for the future political and economic power of China and the West?’
China keeps many unprofitable companies alive artificially. The Soviet Union shielded companies from creative destruction – which ultimately led to its own destruction.
‘Just to be clear. I believe in market forces. But we should not just have to choose between extremes. There are many models that we can try to explore. But we must have an open mind for it. Now we cannot even have the conversation because we are convinced that our model of economic efficiency and profit maximization is the right one. Closed minds are the sure road to ruin.’
The privatization of public companies and deregulation are seen as the basis for growth and prosperity in the West.
‘That is certainly the story we tell ourselves. But that doesn’t make it true. If we refuse to believe that we might have made mistakes in the past, then we can never get better.’
‘So, let us have a discussion about whether it’s a good thing that business interests have become totally dissociated from the national/regional interest. But if you dare to suggest that, you are deluged with arguments that the same people have been repeating over and over again for the last seventy years. It’s so depressing.’
What needs to happen to change this?
‘A crisis is always an opportunity for change. But the problem is that our institutions are run by the people who benefit from the current form of globalization. Just look at what happened after the financial crisis. We didn’t look at how we could re-think and reform the financial system. We just focused on propping it up enough so that we could carry on just as before.
‘Maybe that’s why we need a Donald Trump right now. Someone who is ready to sweep all the pieces off the chessboard. But even that may not be sufficient. We may have to wait for an even bigger crisis before we really internalize that change must happen.’