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Peter Mandelson speech: Higher School of Economics

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Released 28 Oct 2008

THE GLOBAL ECONOMY: WHY INTEGRATION WORKS

This School is both one of Russia's finest universities and a leading forum for the thinking and debate now shaping the country's economic future and social reform. I'm honoured to be here to give this speech tonight.

The relationship between Russia and the UK, indeed the wider EU, is a long and complex one. Defined as it was in the last century by the twist and turns of politics and history - the rise of Soviet Communism, our shared fight against Nazism, the hard-fought Cold War and eventually the transformation of relations through Glasnost and Peristroika.

Our goal in this new century must be, I believe, to build a deeper partnership - one which achieves both our respective national and shared global interests through greater economic integration and social progressiveness.

Meeting this ambition will not be a simple or straightforward process. And anyone who underestimates the complexity reminds me of the joke by Woody Allen, who said "I took a speed reading course and read War and Peace in 20 minutes. It involves Russia."

The current global economic crisis has demonstrated once again the interconnectedness of the world in which we live.

With enormous amounts of capital flowing across borders, what started with the default of sub-prime mortgages in America last year has now spread to become the biggest economic challenge of the new global age.

The first priority is to stabilise the world financial system. Hence the importance of initiatives to recapitalise banks and get inter-bank lending restarted.

Moving beyond this, all countries need to collaborate to create the conditions for a recovery. And in an increasingly interdependent world we need to co-operate to tackle this shared challenge.

A key component of this will be to keep markets open. We know the links between trade and growth - Russia's renewed economic strength over the past few years is in part due to the growth in the wider global economy.

Sustaining this global growth will be key to both Russia's, and the rest of the world's continued prosperity. So it is vital that we remain committed to open, free trade.

It was always inevitable that with the world facing a severe financial crisis protectionist voices would grow louder. The dramatic events of the past weeks are giving them greater confidence in asserting their claim that prosperity is a zero sum game - one country wins at the expense of others, others benefit at our expense - and it is better to look after our "own" at the expense of "others".

Point by point that case can and should be rebutted. The case for globalisation has to be made. Failure to do so will see the advance of the forces of resource nationalism and economic isolationism at the expense of openness and prosperity.

Over the past three decades the world has embraced globalisation with freer, open markets because it has been the proven way to grow economies and raise living standards.

It has provided a ladder out of poverty in the developing world.
New UN estimates show that the number of people living in extreme poverty fell by 400 million between 1990 and 2005.

India and China are seeing the development of a mass middle class.
A reduction in poverty and growth in affluence to be celebrated.
But the case for globalisation is also one of enlightened self-interest. The success of these economies is also good economic news for the advanced economies. The emerging markets are fast growing consumers of the machinery, goods and services US and European economies are good at producing.

The economist, Richard Freeman has estimated that during the past two decades, the global workforce has grown by one and a half billion people

Those new workers from China, India and other emerging economies transformed markets, jobs, industries and lives around the world.

And alongside the rapid development of new technologies, a global revolution began that is reshaping the global economic map.
More than a third of all manufactured consumer goods we buy are now the result of a global supply chain, and for goods such as computers the figure is well over two thirds.

More than half of all global trade is in intermediate goods. A Nokia phone contains more than nine hundred components sourced in more than forty countries and the phone is then sold on in over eighty markets around the world.

The global supply of services is also growing. In 2003, 25,000 US tax returns were done in India through that country's back office services sector. In 2004, the number was 100,000. In 2005, it was roughly 400,000.

Turning away from these developments and attempting to cut economies off only succeeds in limiting peoples and businesses' access to the latest technologies, the spur of competition and broader opportunity. And holds back the wealth creation that economic specialisation and comparative advantage brings.

It falls prey to the myth that there's only so much prosperity to go round in the global economy, when the reality is that a hundred million new jobs in the developing world have not actually cost Europe a single job on aggregate.

Here in Russia, the world's demand for Russian commodities, and Russian demand for foreign capital has helped drive extraordinary levels of growth since 2000.

As a result, GDP has almost doubled in size, with 7% growth per annum. Investment both into and out of Russia has boomed. And inward investment stock now stands at around $120 billion.

Russian companies have been able to raise capital on foreign markets, allowing them to extend and modernise their businesses. And the import of foreign technologies and techniques has helped Russian companies develop into world-class organisations while helping to boost our exports.

An integrated global economy means more opportunities for Russian investors overseas. And increasingly, Russian companies themselves are making the step to compete on a global scale. The stock of outward investment from Russia topped $200 billion in 2007.

For the Russian people, openness has delivered far greater choice in products and services and lower prices. Perhaps most importantly, it's given many here the chance to travel freely to other countries, for the first time.

The UK too has prospered.

In recent years, trade between Britain and Russia has doubled. In 2007, two-way trade in goods and services totalled over 10 billion. We're now the largest foreign investor in your economy, with over 1,000 UK companies operating here. And UK export of goods to Russia has increased by almost 40% to 2.8 billion.

For generations, the British have gone out into the world to seek their fortune. Our country's outlook is, and always will, be internationalist. And we will continue to build our wealth and success as a nation through global trade and commerce.

Until the recent global financial downturn that started in the US, this open approach helped create the UK's longest period of sustained economic growth for more than 150 years.

Our flexible labour market has helped us achieve one of the highest rates of employment in the EU, as well as find the overseas workers we need to meet domestic skills shortages.

And our foreign investment partnerships have boosted UK talent and improved our competitive edge through the sharing of skills, knowledge and innovation.

As a Government, we have helped deliver stability and growth before, and we shall do so again, starting with the measures of bank recapitalisation introduced a couple of weeks ago.

Taken together, I firmly believe all this puts us in a stronger, more resilient position to deal with the global economic challenges ahead.
Just as - in recent years - by opening their economies to foreign investment, focusing on export growth and producing goods for western markets the economies of Asia and Latin America have leveraged the fastest economic growth and the steepest reduction in poverty the world has ever seen.

But as we know, along with all of these benefits comes anxiety and challenge. People see competition get tougher, their jobs and industries reinvented through new technologies and the planet threatened, as consumption soars and our climate rises.

And it's true that as individuals, we live in a much less certain world.
Yet the answer to these challenges is not to question our interdependence, but to strengthen it, regulate it where necessary, and help our people get the skills and knowledge they need to succeed in this new economic reality.

Any moves to slow or reverse the process of integration as a result of the financial crisis would just impose further costs and restrictions on businesses and people at the very time it would hurt them most.
If we fail, everyone loses. None of us can afford to stand apart.
Unfortunately there's no single, easy solution to all that we face, or to the complex task that you - the latest, bright, generation of Russian economists, lawyers, managers and sociologists - are taking on in building political institutions, a more equal society and a modern, market economy.

However, the incremental multilateral steps currently being taken at a global level to stabilise the global financial system are a significant advance. And it is critical Russia plays its full part in these international discussions in the short term, and to reform global financial architecture to prevent a recurrence of this crisis.
This is in Russia's own economic interest.

Despite a growing economy, Russia's ambitious plans for infrastructure development as a major financial centre are not progressing as fast as the Government planned and substantially more investment and capital will be needed to succeed.

And it is in the implementation of these plans that the UK is committed to work with Russia, now and in the future.

The UK Government's current banking restructuring programme offers assistance to British banks and their customers, but, in addition, gives clear reassurance to global financial markets that our banks and financial services sector are strong and the City of London will continue to play its leading role in the global economy.

Our two countries also share the critical challenge of ensuring dynamic growth and increased productivity in our economies.

Closer economic ties, especially at the level of small and medium-sized businesses, can help create the partnerships and networks necessary to transfer crucial UK skills and expertise - in areas such as Public Private Partnerships and cutting-edge thinking in nanotechnology, biotechnology, civil engineering and project management.

The UK also remains open to Russian investors. Russian businesses are investing money in the UK in sectors as diverse as energy, property, clothing and football. Thirty per cent of all new listings (IPOs) on the London Stock exchange in 2007 were of Russian origin.

This mutual benefit is why we should act to smooth our political relations because deeper economic ties, important to us both, will be held back to the extent that instability exists between Governments.
We want the flow of capital to accelerate, allowing Russian companies to raise the funds necessary to pursue ambitious investment programmes, and allowing British firms access to the Russian market in the goods and services for which there is growing demand.

One immediate priority for Russia in the international economic field must be to conclude its negotiations to enter the WTO.

I can understand how after 15 long years, it's hard not to experience negotiating fatigue. But when 90% of the work on Russia's accession has been achieved, now is not the time to give up, or get complacent.
Russia is the largest economy still outside the WTO. And any further delays to accession have the potential to threaten the painstaking progress we have made already.

A diversified Russian economy, attracting investment and growing trade, can only be built on the back of its full integration into the international trading system. WTO is also an anchor for domestic reforms and the foundation for closer economic ties between the world and Russia.

The rules and constraints tied to membership are not a straightjacket, but a gateway to new markets, trade and investment and a solid means of enforcing rights under international law.

All of which are entitlements which Russia - as its economy grows and expands - will want to draw on increasingly.

The reality is that institutional trade rules will help protect your interests in foreign markets. The overall level and quality of commitments the WTO members are asking of Russia do not differ significantly from those requested of China, Vietnam or the Ukraine when they recently joined. And the benefits to be gained from membership far outweigh their costs many times over.

This whole debate is not about the superiority of one economic model over another. In the modern, global economy, and especially at this difficult time, we all have a duty to minimise further risks - economic, political and social - through dialogue, co-operation and reform.
Not just for the benefit of global stability, but ultimately the individual interests of our countries and people.

And during the current crisis, it would be easy to blame banking failure and market losses on globalisation and market capitalism. However, this false belief fails to recognise the gains the integrated international economy has already achieved, and the global challenges we can only address by working together.

The UK stands ready to work with Russia on these and other issues.
Of course we may not always agree, but I hope we both recognise the increased trade, investment and innovation that can be generated by business between our two countries is fundamental to our future prosperity. And a closer, deeper relationship built on mutual trust, co-operation and openness is essential to the success of our economic partnership.

Department for Business, Enterprise & Regulatory Reform
7th Floor, 1 Victoria Street, London SW1H 0ET

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Textphone +44 (0)20 7215 6740 (for those with hearing impairment)
http://www.berr.gov.uk


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Crown Copyright. Material taken from the BERR- Department for Business, Enterprise and Regulatory Reform replacing DTI - Department for Trade and Industry. Reproduced under the terms and conditions of the Click-Use Licence.


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Article Published/Sorted/Amended on Scopulus 2008-10-29 10:50:27 in Business Articles

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