Globalisation and Europeanisation: Opportunities, responsibilities and challenges for the Nordic welfare states

Speech by Mr Jonas Gahr Støre, Minister of Foreign Affairs of Norway at Fafo’s 25th Anniversary Conference Oslo, 16 February 2007.

Dear friends at Fafo and dear friends of Fafo,  

Yesterday, in the midst of peaceful domestic reflections on our contribution to the international efforts to help Afghanistan’s future, I had two encounters with Fafo – telling encounters that reflect this institution’s unique character.

irst, I signed off on a paper with proposals for follow-up strategies after the broad-based conference on the Middle East in Madrid last January. Fafo was co-host, backed by Norway, and is now taking the lead on how to take advantage of the momentum from Madrid – helping to shape a regional agenda in the Middle East.

Then, returning home late last night, I ended up at the kitchen, table reading an editorial in my local Oslo newspaper, Akersposten. The editorial reads like this: “Fafo has delivered a new study of living conditions in Oslo – a study that provides a long list of interesting answers and equally many interesting questions.”

To me, this sums up Fafo: global, internationally relevant; national, local, relevant. A list of interesting answers and equally many interesting questions.

And my topic today – opportunities, responsibilities and challenges for the Nordic welfare states – should be approached in the same spirit. There are many good answers to why these welfare states – and indeed the very concept of a modern welfare state – fare well in the age of globalisation. But this success will not be sustained unless we are willing to as and reflect on interesting questions.

To me, Fafo’s international outlook is the core of its strength. And this outlook is even more welcome at a time when we – rich as we are – are becoming more and more inclined to look inwards. To give priority to our own welfare. To forget what the pioneers of the labour movement stressed when they fought their struggle in dire times: We need to keep our feet planted on Norwegian soil, but our faces must be turned outwards.

There are, I believe, European dimensions to the topic we are addressing today.  I believe it is precisely in its confrontation with globalisation that Europe will rediscover its identity. Which I will return to. And by the way, on a personal note, I believe that it will take the full consequences of globalisation for us Norwegians to consolidate our need to belong to Europe, with full rights and obligations. And at the core of this will be the ambition to preserve, renew and develop our welfare state.

This globalised state did not come about by accident, nor is it a naturally given phenomenon that we have to passively adapt to. 

It is true that mankind’s innate desire to innovate and improve living standards has led to important technological developments that have greatly reduced the costs of operating on a global scale.

For example, 25 years ago, at the start of the current phase of globalisation, the price of a one-minute phone call from Norway to Hong Kong was 28 kroner, or 4 US dollars.  Today the cost of such a long-distance connection is a fraction of this, and includes not only sound, but text and images as well - over the Internet.

However, to reap the full benefits of these technological improvements – to create globalisation as we know it today – political decisions have been equally important. 

There has been a common desire among national governments to facilitate global trade and finance.  Not only by removing political barriers, but even more importantly by establishing the rule of law in the global economy. Thus a rule-based multilateral trading system, with an effective enforcement mechanism to ensure predictability for open markets and foreign investments, has been established. It is too limited in scope, but at least it is in place.

In short, we could say that the globalised economy is the Internet and the WTO combined.

And the benefits are immense. Never before have so many individuals in so many countries had such great opportunities to connect with others and to emancipate themselves. And never before has there been so much trade – which is injecting dynamism and growth not only into industrial countries, but increasingly into developing countries as well.  And few countries – let us acknowledge this at the outset – have benefited so much as Norway.

Yet, not every was brought along. The benefits did not reach out equitably. Too many were not even able to grasp the opportunities. And too many have had to suffer from unchecked liberalisation and competition. Too many live in political regimes that have failed to reform in order to perform.

Globalisation is a process that fundamentally transforms the social fabric of societies. It generates new opportunities, but also agony, fear and frustration.

Why? Because globalisation affects the distribution of wealth – nationally and globally.   

While globalisation has helped to lift millions out of poverty, it has also created greater differences between rich and poor - between countries – and within countries.

A root cause of these inequalities is to be found in the political philosophy expressed so memorably by one of the leading political figures behind the wave of neo-liberalism - Margaret Thatcher, who underscored that “there is no such thing as society”.

In this statement she also expressed the philosophy behind the rules governing globalisation in its current form: The individual’s pursuit of self-interest will also produce the common good. She gave a name to the neo-liberal political dogma that has shaped globalisation and won nearly every battle along the road up until today – aided, of course, by the unravelling of the Soviet Union and other totalitarian regimes. And also aided by a strong, prevailing belief that military power can “fix” complex things, that the UN is only as good as it gets, and that the mighty should be prepared to go it alone on short notice.

A philosophy that underpins the market economy has many merits. The strength of the Nordic welfare states is perhaps above all their ability to strike a compromise with the dynamism of the markets.

However, the limitations of this philosophy are obvious, and I believe we are at a turning point when it comes to its influence. Two key words to reflect this change: Iraq and climate change.

Iraq is demonstrating how even the strongest can end up weak if military intervention is not well anchored – when a strong military hand is not included in a policy of engagement that applies all the political tools of diplomacy and the reconstruction of failed states.

Then there is the climate. Even the most dedicated believers in the upper hand of the market now see that unchecked markets will not do – and even worse – that unchecked markets will lead us down the slippery slope of global warming. The Stern report and the latest report from the UN Panel on Climate Change tell all about it - a classic case of “the Tragedy of the Commons”.

The strength of the markets will have to be used at a maximum to address the climate challenge. But daring innovations will have to be made to create the political framework for guiding innovation and sharing the burdens.

So in a way – Fafo’s day – a success story during the neo-liberal years – may yet be ahead of us. It was partly in response to Thatcher’s and Reagan’s sweeping neo-liberalism that Fafo was established 25 years ago. 

Driven by a contrasting vision – a vision of solidarity and community of interest – the Norwegian Confederation of Trade Unions and the founding fathers of Fafo, Terje Rød-Larsen and Gudmund Hernes, understood that these new challenges to the labour movement could only be met by the relentless pursuit of knowledge and serious research.

I would like to congratulate them on their foresightedness. Today we can see that the values and objectives underpinning both Fafo’s vision and its research have played a vital role not only in the labour movement, but also in Norway’s foreign policy and in the world at large. Fafo’s contributions to conflict resolution and state building have been internationally acclaimed.

Fafo’s surveys on living conditions among the Palestinians were a catalyst in the Oslo Accord of 1993 between Israel and the Palestinians. More recently your activities have extended to Africa, the Middle East, China, Russia, South-East Asia and Eastern Europe, providing input for debate and policy-making. Your most recent achievement is your comprehensive study of living conditions in China’s western provinces, which is now being used in China’s own development planning.

Friends,

Increasingly, we are coming to see that a narrow pursuit of self-interest is not – and cannot be – sufficient to solve the major problems of our time.

At the international level we are facing climate change, pandemic diseases, organised crime, terrorism, trafficking and uncontrollable migration. We are reminded every day how our lives are becoming increasingly intertwined with those of people in other parts of the world. 

“Interdependence” we call it, as we realise that we need to cooperate across national borders to find common solutions to common problems. Václav Havel put it this way: “In today’s world everything concerns everyone”.

With globalisation, capital has outgrown society, and policy-makers have less power in the face of transnational profit-maximising investors. 

As a consequence, the balance of political power is altered at the national level, potentially undermining the common interests and the loyalties that existed between different groups within a country before globalisation.

Thus, globalisation is creating challenges to national governments both from outside and within their countries.

Globalisation should make us reflect on the very principle underpinning the nation state -  the principle of national sovereignty. 

This is not to say that the nation state is obsolete or irrelevant. On the contrary, at the current stage of democratic development, the nation state remains the key level of governance. All politics remain local.  

In fact, the structures governing globalisation – free movement of capital and a rule-based multilateral trading system – were created by and are being maintained by national governments, who are voluntarily surrendering part of their sovereignty.

The problem is that globalisation in its current form is based on a surrender of sovereignty that systematically favours capital and wealth creation. This is acceptable to the extent that there are mechanisms to re-distribute wealth creation equitably – a cornerstone of the Nordic welfare model. What we need to address – and study – is how other critical dimensions beyond capital are undermined or pushed aside by the dynamics of global markets.

The main problem with globalisation today is the problem of distribution.

Distribution not only of wealth, but also of cost and benefit, of risk and opportunity. And distribution not only between countries – which is the issue most frequently raised in the international debate – but also distribution between social groups and between generations, regardless of country.

In the globalised world today – where WTO commitments in trade, investment and domestic regulations are legally binding and enforced – the domain of foreign policy is extending into the domain of internal affairs.

Taxation levels and subsidies to ensure redistribution or protect the environment are affected. So are human rights, particularly those relating to health, education and culture, and not least labour market policies and labour rights – both for nationals and for migrant workers.

Therefore, we need to strengthen the capacity of all nation states to safeguard these fundamental rights and to provide basic services.

The obvious remedy is a more advanced and coherent approach to governance, at the national, the regional and the global level. 

Here, I believe, the European Union is showing the way. 

Conceived in the aftermath of a devastating war, the European Community (EC) was a visionary departure from destructive rivalry based on the narrow pursuit of self-interest.

And later, in the face of increasingly global economic competition, the EC evolved into the EU, while welcoming and integrating new members after the fall of the Berlin Wall. 

Enlargement is the EU’s most courageous decision – and most historic success. It may have prevented further deepening “towards an ever closer political union”. But enlargement has given new vision to what the EU can deliver: stability and integration beyond old dividing lines. The challenge of course is to communicate this to the electorate – and we Norwegians could, for obvious reasons, be an example in this regard.

The EU is an advanced, regional example of global integration. And the challenges the EU is facing resemble those at the global level. As squatters scribbled on a building in Berlin in 1989, just after they had torn down the Wall: 

“Die Grenze verläuft nicht zwischen den Volkern, sondern zwischen oben und unten.”  or:

“The divisions no longer run between people of different countries, but between those at the high and those at the low end of the table.”

Friends,

For the Nordic welfare states, this particular challenges as well as obvious responsibilities and opportunities.

Traditionally the Nordic countries have placed great emphasis on fair distribution and real equality of opportunity. And this has been achievable partly because of our ethnic and cultural homogeneity.   

Thus, globalisation and European integration with less developed countries may pose a fundamental challenge for the Nordic welfare states.  We are experiencing the benefits of greater diversity, but also increased economic and social inequalities. 

The people – the workers and the voters – in the Nordic countries have high expectations of the way their political systems deal with these changes.  After all, we have a long history of economic, social and political engineering to make the market our servant, not our master.

But today this history is also equipping us to meet these very same expectations. While our high taxation rates and stringent regulations used to be considered burdens on our economies, today they are increasingly being turned into a competitive advantage. I remember when I accompanied the Prime Minister to Davos in the early 1990s. The Nordic welfare model was associated with the dinosaur: too big a state, too high tax burden, too mighty labour unions. This was the logic at the height of the neo-liberal age.

Now the message is very different, even in Davos. It is not the size of the public sector that matters, it is its effectiveness and its ability to reach goals. Likewise, it is not automatically the size of the tax burden that matters but its ability to promote effectiveness, wise redistribution and clever public investments. And mighty labour movements may be a blessing in helping to anchor technological change and reach agreements that really last.

Jacques Delors, former President of the European Commission, and the driver behind the European internal market, always underlines that the strength of the Nordic welfare states is its strong unions.

To take one example – and again climate change helps to illustrate the difference: Today environmental regulations and CO2 taxes on oil and gas activities in Norway are making our industry and technology more – not less – competitive in world markets. Nobody can really say that these companies have become less competitive due to high taxation– on the contrary. And an active state, in its interplay with cutting-edge companies, can help enable a breakthrough in climate friendly technologies by providing incentives and funding.

It is precisely by acknowledging the limitations of individual self-interest that we have improved our competitiveness in the globalised market economy:

By lifting the burden of change from the individual to society at large, we have shown that active redistribution by the welfare state is also effective in promoting dynamism and growth.  

By promoting ambitious policies for gender equality we have not only provided opportunities for women, we have also increased our workforce, and even the birth rate.

And as the OECD pointed out in its most recent report on Norway’s economy, despite oil and gas reserves, it is our people, our workforce, that is our most important economic resource.                                    

In a recent article, the well known economist William Easterly and his colleagues argued that a high level of social cohesion and trust is vital for building sound institutions, which in turn generate economic development. Investment in social services, employment policies and taxation systems that counterbalance income inequality is  essential for building institutions that ensure not only economic development but also good governance.

Robert Putnam of Harvard has made a similar observation in his detailed studies of the role of social capital – defined as “the collective value of all ‘social networks’ and the inclinations that arise from these networks to do things for each other”.Then we need to remind ourselves that, despite the broader interest in the achievements of the so-called Nordic model, we need to keep a constant focus on flaws and potential improvements. And we need to remember that the experience gained in the Nordic countries cannot easily be transferred or copied by others.

Still, I am a strong believer in the universal relevance of the key principle underpinning the Nordic model: that sustainable freedom and prosperity for the individual is best achieved in community with others.  And this is true not only at the national level, but also at the international level – in relations between states.

Thus, we should not shy away from promoting such values, both within an integrated Europe and beyond. For reasons I have mentioned, time may prove the quality of such values and I believe that European social democracy should actively engage in helping Europe rediscover its identity – combining an open Europe with a dynamic Europe and a social Europe.

Friends,

Let us now move on to the global stage. How can we promote the social dimension of globalisation?

First, we need to reach out to poor, unemployed and marginalised people in various parts of the world, those who have been left behind. Young and marginalised groups in the Middle East, for example, must see that globalisation can benefit them too.

This is not the time to enter into the political complexity of the Middle East – but I will just make one comment: The opportunity provided by the Mecca Agreement between President Abbas and Hamas last week offers a glimmer of hope. All references to the key requirements of the international community are in that agreement. The Palestinians are uniting, avoiding civil war and preparing for negotiations with Israel. We must support this process.

In the Parliament yesterday, a member of the Conservative Party advised the Government to be cautious and wait and see. Conservatism has many merits. This is not one of them. We must now seize this window of opportunity. We must assume that the Mecca Agreement is duly reflected in the platform of the unity government now being formed. On this basis we must be ready to engage. And again, against the backdrop of reluctance, Europe must take the lead.

This has to be one objective key to a broader strategy of engagement – a strategy of mobilizing political visions of inclusion, bringing extremist groups into the framework of politics.

Why? Because the despair of so many will only grow if globalisation is seen to perpetuate injustice and political privilege. Despair will be the result of policies of exclusion, isolation and boycott. Little is to be gained if growing numbers of people see despair shaping their political outlook.

In such conditions, any group that provides shelter, food, security - and not least community and a sense of identity - will exert a strong influence. In some countries, it is fanatics and extremists that now are fulfilling this role. To meet this challenge, we need to acknowledge the importance of social policies.

Francis Fukuyama, author of The End of History and the Last Man, recently made an appeal for US foreign policy to focus more on social issues. He believes that the US is losing ground because it is not providing what is the cornerstone of any peaceful and democratic society – namely basic social services.

I believe he is right, and the very fact that he has written this underscores that change is coming. And again, the Nordic experience of the welfare state is giving us a platform from which to promote investment in social services as a strategic imperative – important for our citizens at home – but also as part of a broader global ambition.

Let me highlight this with a sectoral example. Together with colleagues from France, Brazil, South Africa, Senegal, Thailand and Indonesia, Norway has launched an initiative on the direct and indirect links between health and foreign policy.   

This is the perspective: Numerous health challenges arise from globalisation that have a direct bearing on foreign policy – global health defies borders, triggers security concerns and thus challenges foreign policy makers. The handling of global epidemics, health services in peace-building efforts and health cooperation as a confidence-building measure in areas of conflict, are all examples of where foreign policy and health policy meet. We therefore need a better concept and better understanding of the interrelationship between these two areas of government policy.

Mr Soros has understood this from his perspective, engaging in initiatives aimed at improving health. I have met him once before – when I represented the WHO at a meeting at the White House in 1999 on the fight against tuberculosis – a good illustration of the links between health and security.

Let me give you another example – which is relevant to this setting, as we are gathered to celebrate Fafo’s 25th anniversary – namely the globalised labour market.

The key challenge boils down to the outlook for better global governance. The future relevance of the WTO is the key topic today. In my view, the difficult Doha negotiations are not a sign of failure, but a symptom of the organisation’s success. 

From its beginnings as a rich man’s club with only OECD country as members, the WTO has rapidly attracted an almost universal global membership, with Russia just around the corner to make the picture complete. 

Given this, and given the WTO’s fundamentally mercantile character, where everyone is expected to act on the basis of national self-interest, we should not be at all surprised that consensus on further market opening is increasingly difficult, especially when new and sensitive sectors are brought into play – such as agriculture. 

However, the greatest problem in making globalisation work for all lies in how to approach community with diversity, and not the lack of fast progress in the WTO negotiations.

The greatest problem is the lack of other equally powerful instruments at the global level. I therefore agree with the point made by Mr Soros in his book On Globalization.  We need to complement the World Trade Organisation with similarly powerful international institutions devoted to other social goals. 

I had a similar experience at WHO. The health system is often at the receiving end of problems it  has to deal with all the results of problems in such sectors.

In this overall challenge, the United Nations will be indispensable.

Whereas the WTO has succeeded immensely, facilitating an increase in global trade of 100 per cent and in global output of 53 per cent since its establishment in 1995 – thus creating value for enrichment and for re-distribution - figures from the International Labour Organisation (ILO) show that this increase in trade and output has not reduced unemployment. Neither has it ensured a higher level of what the ILO considers “decent work”.   

On the contrary, unbridled competition for investment, based on a beggar-thy-neighbour approach, has created downward pressure, impairing the quality of jobs in many parts of the world. 

And global unemployment remains at an historical high, nearly 200 million people, according to the latest ILO report, which was published last month. 

As a result, although the Millennium Development Goals may be reached thanks to dramatic progress in China and India, we have miles to go before we have achieved  poverty reduction. The vast majority of workers in developing countries remain working poor. Job security and quality are being undermined.

As pointed out by the World Commission on the Social Dimension of Globalization: This situation is “neither morally acceptable, nor politically sustainable”.

Here I believe Norway and the Nordic welfare states can play an important role. Over the past 50 years, we have made full employment not only the expected outcome of generally sound economic policies, but the key objective of economic policy-making. 

We have achieved this by protecting workers’ rights and by facilitating a flexible labour market through social dialogue, tripartism and ambitious social protection schemes. These are key characteristics of our welfare states.

However, now that the economy has become global, and the labour market too – through outsourcing and migration – we need to move forward.  In addition to constant innovation and reform in our domestic economic and labour market policies, we have to extend our fight for full employment, workers’ rights and quality jobs to the global level.

The good thing is that we do not have to re-invent the wheel. The ILO already has the necessary mandate, expressed in particular through the ILO Conventions.

Under the ambitious leadership of its current Director-General, Mr Juan Somavia, the ILO has adopted the Decent Work Agenda, which puts the goal of quality jobs where it belongs: at the centre of economic governance, at the national, regional and global level.

And this agenda can now be increasingly regarded not only as an agenda for greater fairness and equity – but also as a key argument for better economic efficiency. The Nordic welfare states are there to prove the point.

The problem is that the ILO does not have enough teeth.

In principle this can be addressed in two different ways at the global level: we can equip the ILO with a credible enforcement mechanism; or we can link the ILO more closely to the only existing regime with such a mechanism – the WTO.

I raised the second possibility at the WTO Ministerial Conference in Hong Kong in December 2005. Since then, I am pleased to say that I have noted this question is receiving increased attention, not least from the European Union. And all of this is being facilitated by the Director General of the WTO itself, Pascal Lamy, he himself a social democrat.

The EU has now taken the driver’s seat in the promotion of decent work and labour standards in the global economy. Trade Commissioner Peter Mandelson, who was here in Oslo last Friday,  expressed his constructive views on a link between the ILO and the WTO. The EU is also focusing more on labour standards in its bilateral trade negotiations.

Thus, by joining forces at the international level, Norway, the Nordic countries and the European Union could form a powerful alliance for a more inclusive and sustainable globalised labour market.

The purpose of our common endeavours should be to square the circle, to re-establish the balance of power between workers and capital, this time at the global level. A better balance of power is vital. 

And in this quest for change trade unions have a crucial role to play. Trade unions have a long and proud tradition of counterbalancing capital interests in Norway – but capital interests are becoming increasingly global.  

Trade unions are cooperating across borders – within and outside the framework of ILO.  But I believe that trade unions also have to take this cooperation one step further.  A more systematic linking of workers’ interests across borders is clearly needed.

 

The challenge is to achieve a better balance of power without falling into the trap of protectionism and nationalism. This goes for governments as well as for trade unions.

Friends,

As Norway and the other Nordic countries are world leaders in official development assistance (ODA),  we could also use parts of our ODA to promote decent work more actively, in the form of socially targeted “aid for trade”.

This is a complex issue, and we need to tread carefully, basing our policy on knowledge, research and empirical evidence. 

And here I would again like to turn to you, our hosts at Fafo, and invite you to join me in a partnership for decent work in the global economy. With your 25 years of experience, with your background in the trade union movement, and with a foot in both domestic and international affairs, you are uniquely qualified to take on this challenge: How do we make the globalised labour market work for all, ensuring community while respecting diversity?

Again, the purpose of our common endeavours should be to re-establish the balance of power between workers and capital, this time at the global level.

Only by making the globalised economy work for all, can we make it sustainable. To quote a recent statement by one of our present partners, Professor Moene of the University of Oslo:

“The question is not only whether the welfare state can survive in a global economy, but whether the globalised economy can survive without generous welfare states.”

The main point I have tried to convey in this address was eloquently made 63 years ago by one of Mr. Soros’ fellow countrymen, Karl Polanyi.

In his seminal work The Great Transformation from 1944, he analysed and explained the terrible consequences of unbridled liberalism during the previous phase of globalisation, which ended tragically with two world wars.

He underscored the importance of keeping the economy embedded in society when he reminded us of the observation made by Aristotle more than 2000 years ago:  

Only gods and beasts can live outside society. And man is neither.

Thank you.

(All the speeches and papers from the conference will be published by Fafo in an anthology in May-June 2007.)