WORKSHOP AT WEF
NOTE: Very important workshop by United Nations heads of state clearly shows the future direction of world integration. Q & A at end of presentation see Joan Veon questions.
MAURICE STRONG, KOFI ANNAN, RENATO RUGGERIO, DON JOHNSTON
Sven SANDSTRUM AND STANLEY FISHER
On behalf of WEF, Governing Globalization, a big subject. Note: On what we mean by governance and what we don't mean. Global governance is not about world government is about how we manage and we being the governments, international institutions that serve them and the vast other actors represented in this room, how they work together in managing processes and issues that no one of them can manage alone. Those which have to be or optimally managed collectively. That is quite different from world government and it is important to underline that distinction this at the beginning of our session.
We will ask participants to give their perspective not just on the immediate issues--Asia--but a broader set of issues affecting the need for better mechanism for global governance as we begin a new century a couple of years form now. Not just national governments, international institutions, but the system ranging from the global to the local level at which we are engaged in various degrees in the process of managing the local level at which we are engaged in various degrees our relationships with each other and the linages.
Each of the organizations have been engaged themselves in the various processes of reform and change. I have had the privilege of serving S-G Kofi Annan in that respect. Is reform a matter of improving the efficiency or do we need phasing out or consolidations/mergers which is the prevailing attitude in the corporate community. Should the international community be immunized against mergers/acquisitions or the creation of new organization such as the proposal by Soros when he identified the need for greater regulation of international investment and financial flows. While he said he was not suggesting a new organization, he said he was merely pointing out the need for hat kind of a structure. What about the system itself. In a world in which the relationship between the sectors are not sufficient to be dealt with by sectorial oriented organizations---how are the international organizations dealing--how are they cooperating and working as a system. How can the OECD and regional organizations work with the global organizations and finally how do we take more account of social and financial impacts of adjustments. When there is a financial crisis like Asia, the people at the table are the central bankers and financial institutions but those who bear the consequences are not at the table--those who have to bear the social and human consequences.
Then, what do we learn about these longer term issues from the immediate crisis that we have been pre- occupied with respect to Asia ---for your organization and the international institutions.
I would like to make brief remarks on what an international system requires to function effectively. I believe economic interdependence among nations places a premium on frameworks and institutions. I am sure that we would all prefer the rule of law to the rule of the jungle. I am confident that we would prefer to have sustainable gains within a stable predictable system over an unstructured, unregulated global environment. We need rules of the road and norms to guide relations between individuals and communities and states. This is a true of the global village as it is of the village you live in today. Technical standard settings such as aviation, shipping, telecomm, provides a very foundation for international transactions if you wish it is a systems...infrastructure. Our advocacy for human rights, natures?, democracy and good governance, two essential weapons in the fight for human freedom and the battle against corruption. Our efforts to eradicate poverty bring...and despair into the market and create new markets and new opportunities for growth. Our peacekeeping efforts try to calm troubled parts of the world, our emergency relief operations in war torn nations bring the stability needed to regain the path to long-term development. We continue our untiring efforts to codify international laws and build societies based on the rule of law that promote regulatory consistency and peaceful change. International law also has a strong preventive aspect, the Law of the Sea which the UN pushed through-- it took about 10 years to conclude--was put in place before any unbridled exploitation of the resources of the marine area. Not only is it in place but we have a dispute settlement mechanism in place.
What I think is important that if we are going to have an international community and trade with each other and cooperate effectively in today's world, we need to share certain values and norms and I think the UN in this respect has been very effective to provide a common basis for action and common values that will guide our activities in this global world. The Charter itself is a very good document to begin with but our emphasis on freedom, justice and peaceful resolution of disputes and social progress and better standards of living, equality, tolerance and dignity, these are the universal values to set in the charter and they define the true human interest. They are also the pillar of the global economy. That is because markets are also a reflection of values. Markets do not function in isolation or vacuum, rather they arise from a framework of rules and laws and respond to signal set by governments and other institutions. Indeed without truth, property rights and contacts, without confidence based on the rule of law, without an overall sense of direction and a fair degree of equity and transparency, there would be no well functioning markets, domestic or global.
The UN system provides such a global framework and agreed set of standards and objectives that enjoy widespread and worldwide acceptance within which markets can function and this explains why many of us are on this stage today. I think Maurice's comment raises the question that we should not be complacent by telling you what we do or do not do and I do not mean to suggest that we are satisfied, but Maurice's challenges us which you businessmen ask each other, not "what our business is," but "what should our business be?" What is the environment, what changes have taken place, is the system working, if it is not what adjustments and modifications can be bought about and this issue is going to occupy all of us for the coming months and years and in trying to reform/refine the system, we have to be aware that there are major stakeholders who in the past have not been effectively or adequately heard who often feel that they are not at the table and this time are going to insist on being heard. It would be no longer possible in the long run to have a situation where important economic decisions, affecting the whole world is taken by a small group of countries whether it is the Group-7 or some group in Brussels or Washington. We will have to accept greater interaction--the Asian countries today will want to be part of any adjustment to the international system. Among ourselves the discussions have begun. We have spoken with the head of the IMF/World Bank and among ourselves - 10- days ago with these gentlemen to discuss these situations.
We need to think about governing globalization and think at the national governments and international organizations and governance. At national levels, the recent crisis is very strongly the need for a much stronger system of financial regulation and control, including control over the banking system. One thing the international community has been able to do is propose a set of banking standards, the so-called BALL standards (BASLE agreement) which appropriate variations could apply on an international scale. We will need in years to come to do more and more of the setting telecommunications standards for the financial sector--that is setting standards that countries should aspire to meet if they are to partake of globalization and its potential benefits. That means getting banking supervision to international standards and systems of corporate governance--accounting, bankruptcy laws up to high levels so that those companies who are playing in the international economy are as transparent as those in the best regulated of the leading industrial economies. There is a whole project which has to take place in the years to come to raise standards of overall financial governance which would include forbidding banks from taking large unhedged foreign currency positions, something which has been a very large factor in the current crisis. It would include mechanisms which we do not have to ensure that corporations do not take dangerous financial positions. This will have to come from the lending side with the supervisors in industrialized countries have a responsibility and from the borrowing side where the supervisors and regulators of the developing countries have a responsibility. The strengthening of standards in the national level will have to include governance--more generally---issues we have already been touched on--including greater transparency -- what happens in the system of government.
AT the international level, there is a need for overall surveillance of the international monetary and trading system. That surveillance takes places to a considerable extent now with the IMF and their annual reports on each economy. There is a very delicate issue which has to be solved of how to share confidential information gained from governance with the private sector and another very complicated issued of how to make warnings from the international community effective at the national level but beyond the surveillance which now takes place, there is a clear need and it was expressed in the suggestions by Henry Kaufman that the aggregate implications of financial flows be examined and the overall picture put together. In happened in this crisis that no countries banking system was particularly exposed to southeast Asia except the largest exposure was that of Japan. In Aggregate the overall exposure of industrialized country banks in Southeast Asia was a considerable factor in this crisis. We have to find and we will find ways to look at the aggregate implications of what is being done in each country and trying to find ways of affecting what is done that is easier in the banking sector where central banks in the industrialized countries have considerable ability to influence what the international institutions do. There is also a more general need for a better provision of information for what is happening in the international economy and the international organizations can and do provide a great deal of technical assistance to developing countries to help developing countries maintain or reach the standards that will enable them to participate more effectively in the international economy. Beyond that in considering the government of globalization, we have to recognize that no amount of information provision, no amount of improved surveillance is going to stop crisis happening occasionally. Crises will happen and that crisis mitigation is bound to be a part of global governance and that means 3 things:
1. Mechanisms to provide backup financing to countries when the private markets turn as they frequently do very, very suddenly against a country to an extent that is virtually impossible to deal with. In the words of the IMF articles of Agreement to provide countries to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. We need that back stop financing, financing of the international organization--the IMF, WB and other regional development banks. We need to find ways of bringing in the private sector more effectively to share the burden of dealing with a panic. There has been a great deal of attention paid to international bankruptcy procedures. These are a long way from happening. What we need are procedures which will deal with problems of a particular country without producing contagion that will spread those problems to other countries as you deal with the problem country. That is a very difficult trick to carry off but it is essential in the design of any such mechanism.
2. Finally let me say that we need mechanisms put in place to mitigate the social consequences of the way these crisis can be dealt with financial which is to buy for a while a reduced growth and to generate balance of payment surpluses. That means improvement of social welfare systems, it means improvement of unemployment systems and it means works to bring those systems up to international systems. Work that both the World Bank and regional banks are capable of doing and have to do in order to help us deal more effectively and at less social cost with the crisis that we should recognize that we can reduce their frequency but we cannot prevent absolutely.
It was Maynard Keynes who taught us that the master economist should study the present in light of the past for the purposes of the future and I sense that is what we are doing. Are international institutions up to the global challenge? I would say they have had a remarkably good record. I would say that the Asian crisis has raised doubts as to whether they are up to the global challenge, but lets look back over the 50 years as Keynes instructs us to do and its a very positive record. A lot of crisis unknown by the public and myself as to international crisis which have been averted by these institutions and effective mechanism. How do we deal with these whole series of issues coming our way as a result of globalization.
All of us are preaching to the private sector--governments, flexibility, adaptability and that his what the international institutions must provide. I do not regard the OECD as an institution. It is a process that supported by the Secretariat and is a consultative process and a model which embraces 29 of the most industrialized countries of the world which represent 60% of the world's GDP and while it is not universal, it is global---it spans Asia, Europe, NorAm, and increasing with non-member countries. The OECD operates in an interesting way. It brings people together to dialogue , establish standards which Stanley Fischer just referred to with regard to the BALL Standards, with respect to banking and I think this may very well be the wave of the future, beyond the OECD, we call this soft law. I could remind you with some areas that you are familiar with such as Export Credit Consensus which is brought about by any enforceable tribunals but very effective in targeting predatory export credit financing, harmful tax competition which we are in the process of developing guidelines, transfer pricing guidelines, cryptography guidelines which is all in the process of being done in this consensual negotiating dialogue way, working through our 200 working committees and/or working groups and I am pleased to say that the IMF observes and the World Bank and UN participate at all of these groups, the development assistance group---the WB is present the UNDP is present , the IMF is present.
We have developed certain modus operandi which will be expanded in the future. I think indeed that if there is a lack of coordination or cooperation at the outset, it may be at the highest level and perhaps we should spend more time together than we do. Certainly at the working level, the WTO, UNCTAD and ourselves--there is a great deal of coordination. Is there a need for new institutions. I would say not. I think the present institutions are sufficiently flexible and adaptable to meet these challenges. Working methods may have to change to make more dialogue and the Asian crisis causes us some reflection which is good. Korea is the most recent member of the OECD and when it happened, we should be much more into the issues which Stanley Fischer referred to--the fundamental, structural and social issues in these countries. Sometimes the macro-economic positive indicators doe not tell the true situation of a patient. Having your temperature normal, and clean bill of heath when you have cancer and the probing was not deep enough.
Require resources, public support and a great deal of criticism--they are all in the process of reform, taking on more responsibilities in many areas with smaller budgets. The wave today is to see if we can't make them more adaptable and flexible and get them involved in the soft law issues like the Ball standards and more coordination at the top as the world becomes more global.
The starting point of a discussion on global governance must be an obvious point which is that national politics are based on national constituencies and economics is more and more based on global needs and objectives. There is a gap and it is becoming wider between economics and politics and this is the real problem that we face when we discuss global governance. I would say that the Asian crisis has increased the awareness of the world we live in and the needs we have about improving the global governance. Why?
The world is more and more globalizing, not just in economics but in hopes, desires, objectives. There are lots of globalized factors which are human and not economic--lot of interdependence and non-economic objectives. There is a growing interdependence among our economics. In 1950, ,,,,,representing of 7% of World GDP, to day it represents 23%. This is extremely important. The growing importance of foreign direct investment. Barriers are falling, they are down. They are lower than people understand. In the advanced economies we will have an average of 4% and more or less 1/2% of industrial imports have no tariff barriers. The North/South division is blurring. When you are in Geneva and you are in the room of the General Council and all the countries of the WTO are there, you see --otherwise you would not explain how in 1997, it was possible to reach a formidable agreement to liberalize 93% of telecommunications, to liberalize 95% of technology products and 95% of financial services IF there was not a blurring of the division between north and south and this is extremely positive.
Then the borderless technologies. More and more we are in a world of borderless technologies. It means that access to information and knowledge and education will increase and more and more developing countries and least developing countries will have the possibility of a leap forward into a real phase of development and these are things that are implying not just millions but BILLIONS of people.
The big challenge is how to master all those developments. Shall we remain in a power-based world -- dominated by relations. On power base, we have to move into a rule-based economic system. This is what we are tying to do in the WTO. We are trying to establish worldwide--we have to accommodate all 30 candidates to the WTO as soon as possible in the organization on rules and disciplines negotiated and accepted by everybody based on consensus with a very sophisticated decision-making process which makes the consensus possible on extremely hard ambitious decision and a system which is enforceable--as it is now enforceable. Why is this absolutely necessary? Why do we have to be satisfied with what we are doing? I think one of the main aspect of the trade system is the problem of interconnectedness and inter- linkages. We have more and more a problem of connections between trade and environmental objectives, between trade and social objectives, between trade, finance and developmental objectives. In a lot of cases there is a request that we should solve environmental problem towards our dispute settlement procedures and this is not possible so what to do?
Without being a revolutionary we can do a lot of things and a lot of things need to be done. We have to improve the connections and coordination among international institutions. The UN SEC-Gen is doing a lot, we can do more and better. We have to improve between national governments and international organizations. The rules that first ./.... in the Lyon summit but there has been no follow-up. The third is to improve the connection and relationship with civil society. We are moving but we have to do more and better. And finally, even between international institutions and national legislators. This too, is an aspect that is important to have people to understand what we are doing and what we have to do. This is an outstanding problem and no one has the answer and it is important that it is being discussed more and more.
World Bank - Sven Sandstrom
Starting point is that we already have a full and extensive system of international organization--the challenge is clearly to make them work more effectively and more efficiently and more cooperatively and not to create new institutions. Instead we need to sharpen accountability and reduce the costs of coordination so that we can focus more on the work and the job that needs to get done. We need to learn more effectively from what happens in the world. We not only react, but change.
We need to form stronger partnerships , not only among ourselves but with the private sector as Stan suggested earlier. With regard to East Asia is that the fundamental reason for their success in reducing poverty over the last 2 decades, those fundamental reasons remain and hold. The focus on the fundamentals of good macro-economic policies and on heavy investment on the social sectors, particularly education and health, those are lessons and experiences that hold and are being adopted by other regions. The lessons from the recent crisis as we go forward lie in the areas of governance--national and global and public and private. This is where we face new challenges and learn and adjust very quickly. Let me list these key areas for learning and change:
Comment by Kofi Annan
I want to put another issue on the table which is one of governance. It is a challenge at all levels particularly at the public sector. Governance has become very complicated both at the national level and the international arena.
One would expect that we would have some of our best people/brains going into public service-but the incentives are not there--yet it is these areas that you rely upon to make the rules, set the norms and pass the bills that govern your lives at the national level and the international level. I am posing the questions, what can we do, what incentives can we provide to attract good and competent people into the public sector....
UCLA - Oxford Business School
The WTO Panel has been criticized on the Kodak disputes with non-barrier disputes
After the ministerial conference in Singapore, we have established working group which is studying the problem and they are making astonishing progress. There are a number of papers which have been presented by national governments in order to clarify the issue of how we can make a connection between the trading system, and competition rules. So we are moving in an area which
is a difficult one, extremely complex, there are a big number of our members who do to have competition rules so they see the program, of course, in a different way. I hope at the end of this year we can have a clarification on the basis of the report by the working group and we can move on. This is a critical area for the progress of the international trading system.
Strong: We are talking about the larger areas of the role of the international institutions in the 21st Century and your question was quite relevant in that respect.
Question - Fellow from Transparency International
No reference as tot he role of civil society of the issues which they can deal with better than some governments, etc. Corruption - the UN and IMF/WB have taken dramatic steps to address the issues which they feel is a hindrance to democracy, I would like to see a similarly strong role at the WTO. What is your vision?
I do believe that we have to improve our role with civil society. To have the best possible relation with the NGO's and civil society. We have done a lot to improve society and we have to do it as quick as possible because it is in the interest of good governance to have transparency.
Annan - We do agree with you that the role of civil society is extremely important and we are working with the private sector, many NGO's, and parliamentarians. I think what we saw with regard to the Land Mine Convention is the new partnerships---where governments, international organizations, NGO's, and civil societies--Red Cross--working together-- can move an agenda and get a lot done in a relatively short period of time. In my reform proposals, I have suggested a Millennium Assembly where heads of states will come together to reflect and look back at the brutal century we have had and to review the steps we need to take to ensure that we do not repeat the errors of this century as we move into the next one.
Parallel to that we have suggested a "people's Millennium" bringing in civil society--people from outside government and international organization--to give us their own vision and feed the input into the Millennium Assembly so we do take them seriously about corruption.
That takes me back to the process. The OECD is really a process more than an institution. Civil society is very much involved as you have been with the OECD and give you credit for keeping this issue alive. In December, we signed an international convention--against the 34 countries--against the bribery and corruption of public officials....This is now being ratified by the various states.
So there are entry points for civil society in this kind of process so that it is a model which we might look at in the future--perhaps it does have broader application because of its capacity to engage civil society and NGO's.
Question: Gordon Smith - International Development Research Center
The Carnegie Commission has just completed a most useful report on The Prevention of Deadly Conflict. Often these reports die on the shelf after a number of months. Do you have any ideas as to what can be done to contribute to the culture of prevention which that report recommends?
I did cooperate with the Carnegie Endowment and we are in touch. We are going to begin something that the UN has never done before. I discussed about 10 days ago with the President of the Security Council if we could not take them on a retreat and discuss the issues we are discussing today. So the Council has agreed and we will be discussing the Carnegie report along with another report headed by Lord Carrington also on the rule of security council. If we can all spend 24-48 hours to discuss it with those who have prepared the report and the Council has agreed to discuss the report and reflect on it.
Noel Brown that the S-G be surrounded with business executives to provide support. He has called for a chamber of industry. Along these lines, Mr. Strong, you have called for a bi-cmaeral framework with a people's assembly. In talking about the role of civil society, the role of parliamentarians, did Rule 61, 62, 63 establish that or are you in the process of adding the People's Assembly as well as the industrial chamber to the UN?
Strong: My role is to orchestrate questions, not to respond to them. I would ask that S-G Annan respond to it.
Annan: I will give you the permission to respond to it. (Laughter)
I think we are proceeding on several fronts. I think business has to consider itself part of the broadly call the civil society. they think civil society is made up of NGO's and other organizations and they a group apart. So we--apart from dealing with NGO's and parlimanentaians, we have reached out to business groups, business and in Davos, we have had a very useful discussion with a business consultative advisory group to international organizations and this is made up of presidents of business organizations worldwide working with us in thinking through some of the changes and problems we are confronted with. Over and above that we are doing joint projects with them. When we talk of the Millennium Assembly and the People's Assembly, that forum would be open to a broad range of people--not just NGO's, business as well, parliamentarians.
(Never really answered my question.)
Q. Perot Systems - About 18 months you gave a commencement talk in Cambridge in which you spoke about how market economies open economies create substantial benefits but also disadvantage a large number of people. In the last 18 months has the situation gotten worse or better for the disadvantaged? Do you trust the financial mechanisms, the improvement in global financial mechanisms and global technology to help the disadvantaged. What more must be done?
A - Annan-
We are the United Nations, UNDP, UNICEF and others are working very hard to create and enabling environment at the national level working with governments to strengthen the institutions to come up with the appropriate rules regarding investment and helping them set up laws with regard to privatization where the governments would want to do it. Basically creating an environment that
will release the energies in the country concerned but attract foreign investments--individuals who have the capital, the technology and management to come in and work with them. We have also been very active in the area of micro-credit, particularly with women, helping them to set up small scale businesses. Graaman Bank - Some of the uniting organizations have started to do this. If you lift people out of poverty...I would encourage those who have not joined to do so.
Q. - South Africa - Drum the cause for Africa. I am very impressed with the WB/IMF have done to help the problem of the Asian countries. We have a country which is forgotten. If you put 20% into Africa you could completely change the continent. If the governments are corrupt, why do you not deal with the private sector?
A - Sven Standstrom - I agree with you and can assure you that Africa is not forgotten. Jim Wolfenshohn was in Africa in the last two weeks to discuss what can be done for Africa. We have through IDA sufficient resources to meet the demands in Africa.
1. I agree with Annan on the importance of attracting the best possible people in international institutions.
2. - Africa - the WTO, even if it is a trade organization, we organized a meeting for the least developed countries which was a very successful one. To have an integrated efforts to link all these countries through website of Internet and World Bank and our data system. It is not a forgotten country.
On Africa - the IMF has programs - providing financing to over 20 of Africa's country's and are at the moment trying to get extra financing to make concessional loans through EASF.
Increasing emphasis on what the fund is doing in Africa on governance - it is done quietly. It has come up very publicly in your country and in a very constructive way and we will contribute to contribute financially and through governance mechanisms. it is delicate and there is no intention to forget about Africa.
1. On the institutions, I said that I am optimistic that they can adopt and the record is strong. While Asia is serious, one can be optimist about the institutions themselves.
2. The quality of people at the international level- most of the people who man the international level come from the national sector.
I think the UN is opening up to civil society, the pubic and business and I think what you have heard is real, is genuine. Stay engaged with us, let us work together after all the Charter Starts with "We the People's" and I hope you would engage us. Thank you.
that is a good place to end. I think you will see that each of these see no real need for new institutions but a strengthening of their own institutions--greater transparency in their operations and that of their clients, greater involvement of the other actors--civil society actors, NGO's, business, greater linkages through the whole system of governance--local governments, national and regional because governance is a system. It is not simply a serious of separate isolated layers. Finally, I believe the most encouraging thing to hear from these people who are responsible not only for running of the major world agencies but for shaping their future is that they all believe that they have a future, that it is a more important future, that they must have a greater degree of involvement in helping governments and other actors to do things cooperatively which they cannot well do together and that they have to move out of their separate turf constituencies and they were created on sectorial lines, largely independent of each other. The Secretary-general of the UN has a broad oversight role in his as chairman of the Administrative Coordinating Committee. He had the first ever meeting of the heads of agencies ever and you heard their desire to work more closely with him in ensuring that the international system functions more as a system in the real world in which the relationships which shape our future are systemic (plan).