Examination of Witnesses (Questions 220
THURSDAY 2 NOVEMBER 2006
Q220 Angela Eagle: In a meeting recently
with Professor Stiglitz, he said about globalisation that it needs
to be understood, that will not lift all boats, that there will
be losers from globalisation as well as winners and that those
losers are likely to be those who are unskilled or on low wages
within developed economies as well as developing and that the
right response to this is to strengthen social safety nets. Do
you think equity within societies that are developing is a problem?
Do you worry about this or do you think it is just tough?
Mr Tholstrup: I think it is of
great concern but the indications are that inequalities have been
increasing rather than the reverse. I think that is a potential
risk for globalisationsocial unrest caused by ever increasing
inequalities and the disenfranchisement of those people who do
not benefit from globalisation. At the moment, we have had a fairly
benign macro-economic climate for some time but, with the potential
onset of a major recession, some of those strains may become very
apparent. I think it is of great concern.
Q221 Angela Eagle: What is the City
Mr Hawksworth: I would say it
was a concern as well. In the UK context, clearly it does tend
to push up the earnings of people at the top who can, if you like,
franchise their brands across a bigger market. Obviously there
is a case within countries for governments to try, if you like,
to lean against the wind a bit on that by also trying both to
boost education levels to people at a lover level or to boost
their skills and improve various things like, in the UK, the tax
credit system and other types of regime to boost the incomes of
people at the bottom, to do things like better child care to help
people into work, which is important to poverty among people like
single parents and so on. As we have seen in the UK since 1997,
a Labour government has had to sail quite hard against the wind
on that in order to keep inequality more or less constant, broadly
speaking, according to the IFFs and people like that who have
looked at this. I do think that it is an issue and that governments
have to respond to it. It is an issue in China as well because
they have growing inequality between urban and rural populations.
Q222 Angela Eagle: They are very
worried about it.
Mr Hawksworth: They are very worried
about it. It is certainly a major potential downside that needs
to be addressed.
Q223 Angela Eagle: So active labour
markets, strengthened and modernised welfare systems in order
to try to spread, or at least prevent, the extension of inequality
is a stabilising and good thing?
Mr Hawksworth: Obviously how far
you go down that road depends on the politics of the particular
country. Some countries like Scandinavia may go further down the
road than others like the US. Some such action does seem to be
Q224 Angela Eagle: What is the difference
between that and regulation, which you were all talking about
being a threat to globalisation in your answer to the last questions?
How do we distinguish because there is this mantra that regulation
is bad and yet we know we are going to have to have some kind
of system and regulation to prevent catastrophic global warming.
We know we are going to have some kind of regulation and welfare
system to prevent catastrophic social imbalance. Can we have a
dialogue that distinguishes between damaging regulation and regulation
that is absolutely essential to keep societies stabilised instead
of just this use of a word?
Mr Tholstrup: I agree with the
comments. I do not think there was a suggestion that regulation
per se is bad thing. I think it is application of different
kinds of regulation and particularly the sort of regulation which
has negative consequences for a number of stakeholders. I think
you are absolutely right that it covers a huge range of things.
One of my fellow panellists mentioned that regulation does have
a very important role in terms of protecting people and society.
It is not a question of it being a negative but I think it is
one of those issues which, applied incorrectly, can have very
negative consequences for globalisation.
Mr Hawksworth: By regulation,
I was talking very much about things like trade barriers.
Q225 Angela Eagle: That is different,
is it not? Protectionism is different.
Mr Hawksworth: I was certainly
answering the question in the context of protectionism. I think
regulation on things like the environment is a different issue.
Q226 Angela Eagle: It is absolutely
essential, I would have thought.
Mr Hawksworth: Yes. That is a
different type of issue.
Q227 Angela Eagle: Do you worry about
what is happening with the Doha Trade Round, given that you have
raised trade? Obviously the recent failure has some implications.
What is your analysis of what those are?
Mr Oppenheimer: I think failure
in the trade round is partly an impediment to the kind of globalisation
that we are talking about. It is also an impediment to growth
in the poorest countries, and that is the critical issue. It comes
back to your point about where regulation is good and bad, where
protectionism is good and bad. The factors that help to contribute
to growth and growth in the poorest countries of the world, which
are biggest beneficiaries of globalisation, after all, at the
end of the day, is an important matter that we should embrace.
At the same time, you need to have checks and balances and regulation
to ensure that that growth does not impinge on the environment
and promote social inequality because that is not going to be
good ultimately for growth or society either.
Q228 Angela Eagle: Do we need to
strengthen the international institutions to try to bring that
about and prevent these failures? Are there other redesigns, for
example of the world trade system and the way it works, that you
would like to see? We always have these huge, very difficult trade
rounds. The last one went on eight years. This one is running
into the sand and we now have the rise of potentially quite difficult
Mr Tholstrup: It illustrates the
degree to which major economies defend the perception of their
own interests at the expense of broader improvement in globalisation,
so to speak. It does illustrate an underlying threat. This is
the same set of issues and agendas which might drive the protectionist
agenda if and when things get more difficult.
Q229 Angela Eagle: Do any of you
worry about the rise of the protest against corporations and their
perceived dominance of the world, their self-interest in the way
they behave, which is obviously a feature in places like early
anti-globalisation demonstrations which began in Seattle and now
continue whenever there is a world trade meeting?
Mr Tholstrup: I think it is a
concern and it is not just corporations; it is a wide range of
institutions and that may have become a more prevalent feature,
particularly, as we talked about, those people who do not benefit
from globalisation when they lose their jobs and whose relative
position will deteriorate. There is a range of institutions which
they will be showing their displeasure at, and corporations are
clearly one of them. Having said that, there are a number of corporations
that have taken action to try to improve the way that they deal
with their stakeholders in the widest possible sense. There is
a number of examples of good corporate behaviour that are going
on where evidence suggests that companies are thinking much more
broadly about their wider role and how they engage with those
NGOs and other stakeholders in society.
Q230 Mr Newmark: John, your model
indicates that India has the potential to be the fastest growing
economy in the years up to 2050. To what extent does recent evidence
of shortages of skilled labour in India suggest that has not reached
Mr Hawksworth: It is a long-term
thing. The reason why we are relatively optimistic about India
is that, firstly, we think it has relatively favourable demographics
compared to, say, China. It is important to say that when we are
talking about India being the fastest growing, we are talking
about growth in real terms of 5% or so.
Q231 Mr Newmark: When you say the
demographics are favourable, do you mean because a lot of them
speak English, because there are more engineers there?
Mr Hawksworth: I mean specifically
because the working age population growth is projected to be about
1% per annum between now and 2050 in India, whereas it is something
like minus 0.5% per annum projected for China, although that may
change a bit as they adjust their one child policy. Secondly,
if you look at the figures for India, although the educational
level for many of the people is quite low, it has been increasing
at quite a rapid rate, and rather faster than China, over the
last 15 years on average, albeit from a low base. Over a period
time, as the demand for skilled labour increases, I think they
will probably respond to that. There is a number of constraints,
not just on skilled infrastructure but also on infrastructure
around energy, water and transport, which are potentially going
to hold India back in the short term, as well as the fact that
its government finances are still not the strongest in terms of
running quite a large deficit. There are some transitional issues
for India. We are not quite so optimistic in the short term that
it will be China, but we think, looking longer term, once you
get out to 2020 and beyond, it has the potential, if it can maintain
growth-friendly policies, to actually be the strongest. It is
also rather less dependent than China on simple capital accumulation
for growth. China has been investing a huge amounts but I think
that will run into diminishing marginal returns at some point.
With India, I think they have been less dependent on this very
rapid rate of capital accumulation.
Q232 Mr Newmark: What difficulties
will China encounter in sustaining its growth?
Mr Hawksworth: One, the demographic
transition: it has one of the fastest ageing populations in the
world. Secondly, at this point they are currently investing 45%
or so of GDP, and there is a danger, particularly if that capital
is not allocated right and they do not have such well developed
capital markets and banking systems to do that yet, then that
could run into diminishing returns, as we have seen in some other
places like Japan where they used to be high investors, but that
did not always go the right places, and Korea as well. With many
of these countries, you get to a certain point of growth and then
it drops off. Also, they have been relying on imitation for a
lot of their growth and they have to move to being innovators
and actually leading the technology, and that is harder. Experience
shows that as you catch up with the technological frontier, it
becomes increasingly difficult to sustain very rapid growth rates.
I think for all those reasons, China, in my view, would tend to
slow possibly quite markedly on a 20 to 30 year horizon.
Q233 Mr Newmark: That is assuming
that India gets its infrastructure right.
Mr Tholstrup: There is also China's
issue of access to essential commodities and raw materials, which
may well form blockages and bottlenecks in the economy in the
period to come. Of course, the Chinese economy has had a greater
emphasis on manufacturing than India, which has a greater emphasise
on service, and that will hit China more seriously.
Q234 Mr Newmark: Do you think the
emphasis on manufacturing is a long-term weakness?
Mr Tholstrup: It is obviously
associated with a greater demand for raw materials to continue.
It also is more reliant on infrastructure because physical goods
have to be imported and exported to get to market, and so it is
more susceptible to bottlenecks than a predominantly service economy,
which is obviously the direction in which India is moving.
Q235 Mr Newmark: Although in India
still 80% of the population is still in agriculture, which is
a big issue. They still have educational problems.
Mr Tholstrup: I am talking about
the direction in which they are moving.
Q236 Mr Newmark: Which countries,
other than India and China, have the potential to experience rapid
increases in economic growth in the next decade due to their increasing
integration into world markets?
Mr Oppenheimer: Goldman Sachs
has put a lot of emphasis on BRICs, so Brazil and Russia, as well
as India and China, simply because, like India and China, they
also have vast populations and the ability to harness resources,
both human and physical, to generate very strong growth. In addition
to that, there is a whole raft of emerging economies, which again,
if they focus correctly and if they get the regulatory environment
sufficiently set, can have extremely rapid growth as well, moving
forwards. They are much smaller in terms of population, so their
impact on the global economy would be less, but, in terms of growth
rates, countries like Bangladesh, Egypt, Indonesia, Korea, Mexico,
Nigeria, Pakistan, the Philippines, Turkey and Vietnam are all
ones that we would be what we would describe as the next 11 potential
countries that are embracing and benefiting from globalisation
to generate very strong growth.
Q237 Mr Newmark: I am just curious:
does anybody have a view on the Gulf States? They have large oil
deposits and they have tourism coming in: do you see them benefiting
from globalisation, or is this going to be a one-off and in 50
years' time it will all be said?
Mr Tholstrup: I think they are
benefiting from globalisation. Obviously Saudi Arabia's accession
to WTO is fairly significant in that context, and the other issue,
which I think is important, is that lessons from the last oil
price boom have been learnt. In other words, I think they are
thinking much more about creating a productive economy outside
the hydrocarbon sector. In the financial sector, for example,
there has been huge development in the Middle East, particularly
in the Gulf States, and obviously, with the benefit of the windfall
of higher oil prices, they are able to build considerable infrastructure
to support that kind of ambition. I think it is a growing trend
and obviously it is very related to oil price. There is a number
of geopolitical risks associated with that part of the world,
but clearly the longer term trend is towards more integration
into the global economy.
Q238 Mr Newmark: Just as a brief
supplemental, we went out to both Dubai and Bombay and it looks
like they are both setting up two competing financial centres
there and exchanges and so on. Do you see that as complementary
or do you see that as competing with each other and who is likely
to win out on that?
Mr Tholstrup: I think there are
more than two. In the Gulf region alone, we have Dubai, Bahrain,
Qatar and Saudi Arabia all setting up financial centres and there
is obviously an element of competition, intra-regional competition
taking place. On the other hand, competition is a positive in
that sense. We also have to look ahead and think about the potential
for Gulf monetary union and the impact that that would have. Taken
as a whole, the Gulf is becoming a very important and very fast-growing
Q239 Mr Newmark: What impact have
trends in globalisation, such as greater openness of the Chinese
and Indian economies, had on the African economies themselves,
and how are the African economies going to benefit from this globalisation?
Mr Tholstrup: Clearly, having
China taking an active interest in, and participation in, Africa
has some benefits. I think that there are a number of issues around
that which we all need to consider. A lot of it is obviously based
on exploitation of resources rather than creating a sustainable
economic infrastructure in Africa. Clearly the issue we have already
referred to in terms of the failure of the Doha Round and the
inability to provide African countries with open access to our
markets is obviously holding development back. There is a number
of issues there, but clearly, certainly in the short run, the
fact that China is taking an interest and is creating something
of an element of competition