Monday, 21 December 2009

Copenhagen is a symptom of a wider failure

Copenhagen is a symptom of a wider failure - the failure of the nation state as an organising principle for today’s world, a world that is radically different from the one  in which the nation state principle was devised.

This is closely related to two other modern dilemmas.

Why do people get so angry with their politicians?
Why is there such a big gap between the way people spend their scarce time and money, and the things they say we believe are really important?

The  failure of world leaders  to come  up with a meaningful  and binding agreement on  climate change at the long  planned  meeting in Copenhagen means  that the binding, if incompletely applied, agreement  in the Kyoto protocol  will now expire and will not be replaced in time, if ever.
People get angry with politicians because they see them being unable to match their words with deeds. They see that they are also powerless when trying to eliminate other global problems, like financial booms and busts and the international narcotics trade.
But perhaps it is the gap between peoples own beliefs and actions, as much as the failings of politicians, that is at the heart of the problem. If people did not buy bigger cars, bigger houses further from town, and buy more and more food that goes to waste, there would be less climate change. If people did not borrow so much, banks would not lend so much, and taxpayers would not have to bail them out. If people did not buy narcotics, there would be no international drugs trade, no drug lords, and no Taliban either.

The  gap between  what we do, and what we say,  has become wider because  we  live in a  world that has become  so big and  so complex that often we  see  no link between our own acts or  omissions, and what happens afterwards.   This is because what is done or not done in China  affects what happens in Cork, what happens in Afghanistan  affects what happens in Atlanta, and vice versa in  all  cases.   We are all affected by forces we cannot see or control, but also in our daily spending decisions, we all of us create forces, whose effects in other places, we neither see nor control, and  often do not want to see or control.
That was not always so.
When the concept of the modern nation state was devised in the Peace of Westphalia in 1648, what happened in China had little or no affect on what happened in Europe, and Atlanta was not even a mark on a map. Then the nation state was a perfectly workable means to organise world affairs, and remained so for  centuries. That is no longer the case

Frustration with politicians grows, and people do things that do not match their beliefs, because there are no globally effective rule makers powerful enough to set minimum global standards that will govern behaviour in China, Cork, Antwerp, and Afghanistan. The failure in Copenhagen is a failure to make a rule that would have applied to the whole world.
Hundreds of Nation States, meeting at the highest level in Copenhagen after years of preparation, were unable to make a deal on an urgent and relatively simple matter for the whole world.  Other similar failures are in prospect in regard to world trade and in making a global court on war crimes globally effective. These failures are failures in modern conditions of nation states as a means of getting what the world needs to do, done. They show that the ideology, that says that the nation state is the sole repository of the people’s sovereignty, does not live up to all modern challenges.
Small nations saw that and banded together in groups, like the EU, in an effort to pool their sovereignty so they can make   global deals. But big nations, like the US and China, clung to the old and bankrupt notion than nations should be absolutely sovereign inside their own territory and should not be bound by global rules.
For example, The US Senate was a big obstacle to President Obama making a legally binding  deal in Copenhagen because many in  the US Senate is still wedded to the idea that international rules should not bind the United States and  should never  override US law. This is ironic. It was the United States that pioneered the idea of a League of Nations, of  the United Nations, as  global rule makers.
But now, along with China, it is holding out for non binding political agreements and understandings rather than binding rules. Anyone who studies the history of Europe  between the years  1900 and 1914 will see  how dangerously weak and ineffective  such political  understandings can prove to be.
As in  1914, we now live in an a interdependent  world, but one  where  no one power is any longer  completely dominant, and  where there  is no agreed and properly functioning system  for making  binding decisions collectively between nations. We are now relying on a series of ad hoc arrangements of the very kind world leaders tried before the Great War.   Those arrangements did not suffice when the crisis erupted between Austria and  Serbia in  July  1914.

Wednesday, 16 December 2009

What can we learn from China?

I notice that, in the year  2009 so far, more money has been  raised in  initial public offerings  on the Chinese  stock markets than  on the American markets, almost twice as much in fact. This is a result of  the Chinese economy is  growing at  about  8% a year, while the economy is stagnant in  the  western  world.  It is also  due to the  fact that  Chinese  consumers have a  tendency to save  that is greater  than in the  west, and some of those  savings are  going into the  Chinese  stock markets.
All this suggests to me  that western  countries which  face huge requirements to modernise their infrastructure, their electricity grids,  their  telecommunications networks and  to create new  green sources of  energy,  should look to the Chinese  stock markets as a  source  of funds.
I hope that Chinese investors will be more willing that some western investors to look for long term   returns, rather than expect  big  short term gains on a  quarterly basis.
Some of the western banks , who made  foolish  lending decisions , did  so in pursuit of short term increases in market share rather  than in line with a balanced  growth strategy, and they did so because  investors and analysts were  criticising them  for not  expanding fast enough. But few are criticising the analysts and investors ,while everybody is criticising bankers!
Likewise it would be interesting to know which management consultants designed the  remuneration packages that  led many bankers off in a mad pursuit of  short term  gains? Of course bank boards of directors could, and should, have rejected the consultants advice. But the consultants are all still in business, while some of the bank directors have had to take responsibility and depart the scene.
In essence, our task now is to redesign  western capitalism on a  sustainable basis where long term considerations get  due weight. 
Given that so much investment  activity takes place to  create a future flow of funds  for pensions, one would think that longterm thinking should be  what it is all about.  I believe  Chinese thinkers do look to the longterm and  that  is one reason  why we  should consider  China as a source of funds  for  modernising our economic structures in the  western  world.

Saturday, 12 December 2009

A New Model for Economic Growth

Last week, I was  very busy travelling for Dublin to  Bonn, from Bonn to London  where I  saw my daughter Juliana who lives there,  then by  train to Paris, and finally back home on Friday night.
In Bonn I attended an event organised in conjunction with the EPP Congress. I took part in a panel discussing transatlantic relations, with special reference to innovation in the economic field. I have put my own speech up on the  website below  this posting.
My good friend  Elmar Brok MEP also  spoke. He  emphasised cooperating to protect  intellectual property  so  that  European businesses who invest huge sums  in new products and processes  do not have  all their  work undermined by  competitors who  steal their designs and  brands and  can undercut  them because they  have  not had to expend  anything on  research. He also  praised  risk taking  quoting  Woody Allen  who said that if  you  do not  fail from  time  to time , it is a  sign that  you are not  doing  very much.
There was a very interesting panel on telecommunications . It was claimed that huge new investments will have to be made if the network is to  keep up with demand....350 billion dollars in the US alone. At the EPP event, I also met Michel Barnier, who is about to take on a very important  economic role in the European Commission, and  the  Vice Prime Minister of Ukraine, Hryhoriy Nemyria.
In Paris, I spoke at the French Institute for International Relations (IFRI).   One of the questions addressed was whether we had yet discovered a new post crisis model for economic growth. I concluded  that it  will be  difficult to find a new  economic growth model, until the imbalances that  led to the  crisis have  first been  eliminated.
A Stimulus that prevents  an over rapid economic decline  may be  justified and necessary, but it is an anaesthetic , it is  not a  cure. The cure is to eliminate the imbalances  that led to the  crisis. One of these imbalances is the continuing undervaluation of the Chinese currency, which continues to  cause a  misallocation of  global resources.
The artificially large  amount of Chinese  savings, caused by the  undervaluation of the currency, initially led to  a bubble in  consumer  debt in  the  US, Spain, Ireland  and  some  other  countries. Now  that that  bubble is painfully  deflating,  the  savings are  going  instead into  a new bubble  of  borrowing by western Governments  at  low interest  rates.  It is too easy for Governments to borrow at these rates.  But as soon as the savings are  brought  home  to China, interest rates for  Governments  will rise, as happened in the  1980s. Then our problems will be far more  severe than they are today.
My own strong view is that a new  growth model must involve
1.     radically  raising the retirement  age  so that  our pension and healthcare costs  do not overwhelm    us, and
2.     investing   in early childhood education so  that we no longer have  up to  10% of  children  emerging  from  our school system  without the  abilities they will need to survive in  the modern high tech world.
There were a number of other interesting ideas at the IFRI Conference and I will come back to them in future  postings on this site.

Thursday, 10 December 2009

What sort of relationship should there be between the EU and the US ? December

I believe it is time for new EU approach to transatlantic relations.  That new approach  can only come about if the EU itself works out, as 27 countries together,  what we  want for ourselves, and then  identify  how we together  can harness our collective weight to  achieve that through the  transatlantic relationship, or through  such other means as we decide.
The transatlantic relationship is a means to an end, not an end in itself. That is how the US sees transatlantic relationship, and it is how we  should see it too.
The norms for EU foreign policy making are clear, and binding. The Lisbon Treaty, in article 21,   obliges the EU to follow a policy based on   "democracy, the rule of law, the universality and indivisibility of human rights ...., respect for human dignity.... and respect  for the  UN charter and international law ".
The EU is a  treaty based organisation, so while   EU  foreign and  security policy is  not reviewable by  the  ECJ, it has to  be consistent with these  words in article 21 of  the treaty, and these  treaty obligations  supercede other considerations including the preferences of individual member states..
The Treaty also obliges the European Council, in Article  22, to identify  "the strategic interests and  objectives" of the Union . This means that the  European Council is  obliged by the  treaty  to  work out ,among its  27 members,  what are the strategic interests and objectives  of the  European  Union as a whole in  regard to issues like

  • military action in Afghanistan,
  • the  nature and  dimensions of a Palestinian state,
  • a fair regime to  govern the non proliferation of and the eventual elimination of nuclear  weapons and
  • security and energy relations with Russia.

I believe that the necessary new approach to transatlantic relations can only come about after, not before, we have  worked  out   robust common agreements  binding all  27 of us  on these  strategic issues. This will not be an easy task.  Some of these issues have yet to be discussed in a really profound way in the European Council.  But that is task that  is imposed on the  Council by the Treaty.
In short,  the work  on  EU  foreign  policy must first  be  done in Europe,  not in  Washington,  Beijing or  Moscow. Of course that is not going to be easy. We have  decided  that  policy on this issue  will have  to  settled by unanimity, and  the more members  one has, the more  difficult  does it become to  achieve unanimity.  That is an unavoidable mathematical fact. But is in recognition of the difficulty of reaching unanimity that the Lisbon Treaty has introduced new arrangements and given the Union new fulltime leadership of a  kind  that could not be provided by  Presidencies that rotated  every  six months.
Having represented the European Union for  five years in Washington, I have concluded that the  United States would  welcome a  hardheaded  relationship with the European Union. I believe the United States understands that it will disagree with the European Union from time to time. It may not place the same emphasis as we do on some of the norms we are obliged to follow by  article  21 of our  treaty. Inevitably, US interests and  EU interests will  diverge occasionally.  When this happens, I believe will welcome a honest debate followed by a realistic compromise.
In contrast, I do not believe that the United States is particularly interested in a relationship with the EU that is based on drafting long declarations or on launching new processes and institutions. That consumes a lot of bureaucratic time, but does not deliver much that is concrete.  Nor is the United States  impressed by  EU member states  competing  with one  another  to  show  which of them  has the more special relationship with it,  who can get the  earliest meeting with new US office holders, and who gets the longest meetings in  the White House.

Speech by John Bruton , Former  EU Ambassador to  the  United States, former Taoiseach, and  former  vice President of  the European Peoples  Party  at a  meeting  at  the  EPP  Congress in  Bonn, Germany  at 9am  on Wednesday  9th December

Sunday, 6 December 2009

Book Review for Irish Independent

Title;    Fine Gael, Party at the Crossroads
Author;   Kevin Rafter
Publisher;   New Island

Kevin Rafter is a  journalist  who  has written  biographies  of Neil Blaney  and Martin Mansergh, and  histories of  Sinn Fein and  Clann na  Poblachta.  He has also written a  thesis on  the  Democratic Left.
His latest book is  a  history of  Fine  Gael  which  focuses  mainly on the  period  since Enda Kenny  became party  leader in  2002.
He claims  that , prior to Enda  Kenny’s leadership,  debates  within  Fine  Gael  were about whether  the party should be positioned  nearer to  the  Labour party or to  the Progressive  Democrats but  that  under him the party  has mirrored Fianna  Fail.  Kevin Rafter  says  that  Enda  Kenny understands  that  in modern politics ideology means nothing, and that   the  key success  factors are  perceptions of  competency  and of personality. 
He  argues  that  Enda Kenny  has  worked  exceptionally  hard  to  energise  the  grassroots of  Fine  Gael , build the  competency of the party  organisationally , and  offer a  listening  ear  to public concerns  rather  than lay  down  prescriptions based  on preconceived ideas. He points  to  his  success in recruiting  talented people  from  other  fields like  George Lee,  Mairead  McGuinness and Brody Sweeney.  This success has been accompanied by the necessary toughness in dealing with incumbents who may not have wanted extra competition or  who were interested in doing a lap of honour.
As is well known, all this activity has paid off handsomely. In  the recent  local  elections, Fine  Gael  got more  seats and  votes  than  Fianna Fail for the  first  time in Fine Gael’s history. Enda Kenny has also been able to keep the party united, a far from simple task.
While the book  portrays  Enda  Kenny as a  supreme pragmatist, it  also  draws attention to  courageous  stands he  has taken on  issues like getting rid of  compulsory Irish in the Leaving Certificate,  denying  access to  Shannon airport  to  belligerents in the  Iraq  war,  and  opposing in  2003  the  benchmarking awards to public servants which  have  subsequently  transpired to be  so unaffordable.
Enda Kenny was interviewed for this book.  Readers will find interesting  the   personal   details  that  emerge  of  his  close relationship  with his  wife, with   his  children, and  with  his late  father Henry Kenny TD,  whose  premature  death propelled  him into politics in  1975.  Representing Mayo in Dail Eireann  is a physically  demanding  task  for any TD because of the  size of the constituency and its distance  from the  capital . But it is all the  more taxing  for  someone  who  is a party leader and  who  has  spent  so much  time  travelling the entire  country and building  up a  personal  rapport with party activists in  every  part of  Ireland.  Enda Kenny has been   doing this for seven years now.  He has, as he himself puts it, served an exceptionally long apprenticeship for the  job of Taoiseach.
Kevin Rafter give due credit to others for their contributions to Enda Kenny’s success. Richard Bruton is seen as substantially enhancing the party’s image of economic  competency and  Frank Flannery  gets much  praise   for his work on the organisational and  candidate  selection  side.  There is one probably inadvertent omission. That is of  the vital role of the party’s   exceptionally energetic director of fundraising, Anne Strain.
This is a timely and clearly written book that gives a good insight into the characters that make up what is now the biggest party in the country.  Beyond the issues already mentioned like benchmarking, the book does not, however, offer much analysis of party priorities based on its statements, nor does it speculate about likely choices Fine Gael might make in Government in times when very hard choices indeed will have to be made.  That is the chapter of the book that the party itself will write.

Saturday, 5 December 2009

Will Europe need 50 million immigrants? How should bank executives be paid?

 I was in Madrid this week for a very interesting conference of the Campus of Excellence.
The Campus brings together Nobel prize winners in various disciplines and people   who have been involved in politics to discuss the problems of the world with students from a number of Spanish universities.
I managed to attend three sessions, one on the world political situation, another on  immigration, and a third on  the world economy.
I spoke in the  session on  world politics along with Rosalia Arteaga, a former President of Ecuador,  and  Michel Rocard, a former Prime  Minister  of France.
Rosalia  Arteaga was President of her  country in 1997.
Michel Rocard  is a member of the European Parliament  since  1994, and was Prime Minister  from  1988 to 1991 under President Mitterand.  He  also held various other  ministerial offices including   being Minister for Agriculture in the  1980s.
Rosalia Artega was concerned about the trend towards anti democratic populist politics in some Latin American countries.
Michel Rocard was disappointed at the progress in negotiations with Iran on the nuclear  question. He favoured bringing Turkey into the EU.
In the session on  immigration, it was claimed  that  8 out of 10 immigrant movements in the world are  from one  country in  the  less developed  country in the world  to another  similar country.  Immigrants tended to be treated as objects or as part of a category   rather than as human beings.
Policies to only admit skilled immigrants meant that richer countries were creaming off  benefits from educational spending by  much poorer countries than themselves. It was claimed, for example, that   90% of  doctors educated in Ghana  emigrate to better paid  jobs in  Britain, thereby  subsidizing  the British economy at the expense of  the Ghana.
The European Commission had calculated that  the EU will need  50 million  immigrants  between now and  2060 if it  is maintain current levels of  economic  activity  in  face of the  ageing  of the native  European population.
In the session on  the  world economy, it  was pointed  out that family owned businesses had been more prudent in their  borrowing policies  that had public  companies where management  had been able to  gamble  with  shareholders  funds.
The system of rewarding executives with stock options was strongly   criticised by Nobel  Prize winning economist, Robert Aumann.   He said it encouraged them to be imprudent because they faced a situation where it was a case of

 Heads I win, tails I do not lose”

It would be much better, he said, to reward them  with actual shares, where they took  the  downside  risk, as  well as the upside possibility of  gain.
I think he is right.  The  focus in reforming pay in  the banking system should be not be on the amount people earn, but on how their earnings are calculated and on  whether the  incentives are for  prudence or for recklessness. 

Tuesday, 1 December 2009

Heading for storms in Copenhagen?

It is depressing to see people clutching at straws to deny the reality of climate  change.  This seems to be particularly prevalent in the United States, where there is one of the  biggest  rates of  CO2 emissions per head in the  world…… 20 tons of it per person per  year.
The last climate change treaty was negotiated in 1997.  The United States did not ratify it.
Since 1997, the level of CO2 in the atmosphere has increased by 6.5%.  As a result,   glaciers have been shrinking faster than before.  Since 2000, Greenland has lost 1.5 trillion tons of ice.
In the past 12 years temperatures have been 0.4 degrees warmer than in the previous 12  years.
My country, Ireland has been lashed by storms in recent   days.  I believe these  extreme  weather  events  are  related to our  dumping  of  all  this  CO2 and methane into  the  atmosphere day after day . After all, the atmosphere around the earth is quite thin, and the CO2 stays up  there. It does not disappear conveniently into outer space.
I hope we have a serious and binding agreement on  climate change  in the  UN conference in Copenhagen, not  a document  full of loopholes and let out clauses.