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October - November 2006


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The Challenges of Globalisation - "A Beautiful Friendship" says David Cameron

TORY LEADERS DAVID CAMERON AND GEORGE OSBORNE IN INDIA: AN INSPIRING AND FACT-FINDING MISSION

“At this year’s Davos Conference, India captured the imagination with its slogan ‘India Everywhere…’

Coming here again after a gap of seven years, I can see that it is no exaggeration.

For most of the last half-century we in the West have assumed that we set the pace and we set the global agenda. Well now we must wake up to a new reality. We have to share global leadership with India, and with China. And we must recognise that India has established beyond argument, through its economic and political success, its right to a seat at the top table.

We in Britain should be particularly alive to the momentous changes happening in India. We share so many ties, not least the 1.3 million people of Indian origin who live in Britain and make an enormous contribution to it, both economically and culturally. Our countries are also linked by the Commonwealth in which India is not just the most populous member but also has the largest economy after Britain’s. And the links between our two economies are deep and wide.

A few years ago India was the tenth largest investor in the UK. Now it is the third largest. Five hundred Indian companies are now based in London, and more are opening all the time. So our relationship goes deep. But I think it can and should go deeper.

For Britain, there’s a precedent. Our special relationship with America has been forged through a shared past and shared values. And now, in the twenty-first century as the world’s centre of gravity moves from Europe and the Atlantic to the south and the east I believe it is time for Britain and India to forge a new special relationship, to meet our shared challenges in this new era of international affairs.

So what are those challenges? For me, three in particular stand out.

TERRORISM

First, there is the challenge of fighting terrorism. Britain and India do not have to explain terrorism to each other. A year ago this July, terrorists murdered fifty two people in London. Almost exactly a year later, this July, terrorists murdered over two hundred people here in Mumbai. Both our cities felt the anguish of indiscriminate murder. And both our cities showed great strength and resolve in coping with the tragedy. We know that terrorism cannot be appeased: it must be defeated. Through tough security measures, including armed force. Through international co-operation. And through tackling extremism wherever it is found. The world has admired the calm and measured way in which India has coped with terrorism.  I think much of the explanation for India’s calm response to the terror threat lies in your own approach to sectarian divisions within your own country.

And our countries can learn much from each other about diversity and community cohesion.  

India has a wonderful tradition of democratic secularism. People are free to be Indian and Muslim, or Indian and Sikh, or Indian and Hindu, without any contradiction. Despite terrible reverses such as the anti-Sikh riots of 1984, or those against Muslims in Bombay in 1992 or in Gujarat in 2003, India's great secular plural democracy has magnificently succeeded in weathering the storms - perhaps independent India's single greatest achievement

India is the largest democracy on earth, and it sets an example to its region – that peace will only come when genuine democracy is the norm. India has the second largest Muslim population in the world. Indian Muslims are richer and better educated than those in many other countries precisely because of the benefits of Indian democracy. We see Muslims in senior positions throughout Indian society – from President Abdul Kalam himself, to Sania Mirza the tennis star, to the newspaper editor MJ Akbar. Because of its success in integrating diverse communities, India can play a key role in helping to resolve regional problems.I see this as part of a broader rebalancing of our changing world.

ENVIRONMENT

The second great challenge that our two countries face together is the challenge of protecting the environment. As I have repeatedly argued, the threat of climate change is real and the costs of failing to act are vast. Those costs are financial and social, as well as environmental - and while they will fall on all countries, they will hurt poorer countries the most.

Here in India, climate change is already having dramatic effects. The 1999 tropical cyclone that hit Orissa resulted in some 10,000 deaths. And, as climate change continues, it is predicted that such extreme weather will only get worse.

  Rises in sea levels could displace millions of people and submerge vast amounts of prime agricultural land. As river basins dry up and temperatures increase, agricultural losses could be enormous. Some scientists have predicted that rice yields could decrease by fifty per cent, and wheat by as much as sixty per cent.

So if we are to secure India’s food supplies, it is clear that one Green Revolution will not be enough. In the past we have been able to negotiate environmental agreements that recognise the older, developed economies’ share of the responsibility for environmental problems. For example, in the successful Montreal Protocol on ozone-depleting substances, India and China’s compliance was phased in. There was also provision for substantial technology transfer to help make necessary changes.This should be a model of how to tackle the challenge of climate change today.

The fact is that our planet simply could not withstand the prolonged shock of India and China showing the same reckless disregard for our environment that has been shown by the US and Europe since the beginning of the Industrial Revolution.

I have argued that Britain should be a champion of green growth – economic growth that helps, rather than harms the environment. In the same way, we must find solutions to climate change that support, rather than obstruct the aspirations of India and others for faster economic growth and rising prosperity.

Business will have a vital part to play in this process. Capitalism is the most powerful driver of change on the planet, and I believe that business can and must be an enormous force for good in our world. Responsible business leaders recognise that they have a duty towards the environment, and that they can play a major role in making the changes needed to ensure a more sustainable planet. 

These two challenges we share: tackling terrorism, and tackling climate change, are of course vital issues which I look forward to discussing further during my visit.

But this evening I want to focus on the third great challenge we face together, and the one that is perhaps most relevant to this audience tonight: the challenge of globalisation.

GLOBALISATION

For years, politicians in many different countries and many different parties have stood on platforms like this and parroted a string of clichés about globalisation. I’m sure I am as guilty as anyone. And of course, clichés are not necessarily incorrect.

In a recent speech in California, Tony Blair made an important point about globalisation which I very much agree with.  He said:

“The response to globalisation can be free trade, open markets, investment in the means of competition: education, science, technology.  Or it can be protectionism: tariffs, tight market regulations, resistance to foreign takeovers”. 

He defined a choice between the first option which he called an open economy and the second option, a closed economy.

Faced with that choice, the only option is indeed an open economy in an open society. Both our countries have made that choice. We made that choice in Britain in the 1980s – ironically, in the teeth of fierce opposition from Tony Blair and Gordon Brown. Today, no-one seriously wishes to reverse it. 

Your Prime Minister made that choice when he was Finance Minister in 1991. He now has the good fortune to be in government, enjoying the fruits of his own brave decision. But in the face of the complex economic and social challenge that globalisation represents, I don’t think it’s enough to praise the open economy and leave it at that. That would be simplistic.

It is our responsibility not just to make the case for the open economy, but to take the steps that will make our economies more open and dynamic.

It is also our responsibility to tell not just the truth about the open economy - that it is the best way to prosper in the globalised world. We must tell the whole truth - that globalisation has losers as well as winners, and that open economies must be matched by strong societies.

A MORE OPEN ECONOMY

The reason that open economies are the right and obvious choice to make is that open economies allow enterprise to flourish. Whether in India, Britain or anywhere else on earth, I passionately believe that the enterprise of our people is the source of our progress. It is the power of enterprise - boosted by economic liberalisation - that lies behind the spectacular success of companies like Tata Consultancy Services. The TCS workforce has grown from around 25,000 five years ago to 70,000 today, and TCS is now the biggest Indian investor in the UK.

It is the power of enterprise - boosted by economic liberalisation - that explains the success of companies like JCB and HSBC, two leading British investors in India. They tell me what an amazing place India is to do business in: the fantastic pool of talent and the quality of the local workforce. 

The challenge for the future is to create the conditions in which more people in more places can apply their ingenuity and see their enterprise flourish. For that to happen, warm words in support of the open economy will not be enough.

We need to take steps to promote a more open climate for business and investment.

MARKET ACCESS

In that context, I am delighted to welcome the increased investment by Indian companies in Britain. Our open economy benefits from your investment. 

To give just one example, the Alternative Investment Market – AIM – is benefiting from Indian companies wanting to raise capital in our financial markets. I would encourage you to continue to take steps to open up your economy as you have done in recent years. The upside is huge. 

India received just half a per cent of British overseas investment in 2004, and less than one per cent of our exports. 

I know that British companies are excited by opportunities that India represents and are keen to invest here. But in many areas, such as insurance, legal services, banking and retailing, the barriers to foreign investment are still quite high.

Overseas investment can help domestic business in many different ways, such as spreading best practice and acting as a spur to innovation and competitiveness. We should encourage more of it – in both directions.

TRADE

A more open climate for business and investment also means further measures to promote free and fair trade.

In June this year, our parliament’s Select Committee on Trade and Industry published a report on UK Trade with India. The conclusions were a wake-up call, arguing that:

“The UK is not as engaged with India’s markets as it should be…India’s market is liberalising at a rate not appreciated in the UK…the UK’s institutional arrangements to support trade with India are characterised by enthusiasm but also confusion”.

That is a message that I hope the UK government and British business will heed.

And there is scope, to put it mildly, to go much further on trade. We should remove non-tariff barriers to trade, and the barriers to entry for financial services. This is only fair if we are calling for easier access to your financial services markets. We must try to restart the Doha round. But if we cannot get a breakthrough, we should consider the possibility of an EU/India free trade agreement.

One form this could take is a deal for India - and indeed the other developing countries which opens EU markets in the same way as the 'Everything but Arms' initiative has opened markets for some of the poorest people in the world.

COMPETITIVENESS

Taking steps to make our economies more open and dynamic also means focusing on competitiveness. That in turn means answering a specific set of practical questions. Are we making it easier, or harder, to set up a business? Are we making it easier, or harder, to employ people? Is the overall burden of tax, public spending and borrowing going up or down?

Politicians need to understand the realities of life for the entrepreneur and wealth creator. Does it take an employer more time, or less time, to fill in their tax return? Is an employer spending more time, or less time, dealing with red tape? Are the costs of complying with legislation and regulation going up, or down?

These are the real tests of an open economy. Not the concept, but the conditions.

Although there is much still to do, India has been moving in the right direction in recent years. On the other hand, I am afraid that Britain is moving in the wrong direction.

We are currently ranked 13th in the global competitiveness league table. The trouble is, nine years ago, we were 4th. I believe that there is a dangerous complacency in Europe about our economic position.

In the globalised world, the battle for competitiveness will not be won through impassioned argument about the benefits of an open economy. It will be won through competent implementation of the conditions of an open economy.

So there is much we can do - in terms of market access, trade and competitiveness - to create more open and dynamic economies.

But let us not pretend that openness is a panacea. It is a necessary, not a sufficient condition for success in the globalised world.

THE COSTS OF GLOBALISATION

The case for free trade and a free market as it is conventionally made at international gatherings around the world is the truth, but not the whole truth. 

Of course, markets and businesses and fast-moving investment flows - what our Prime Minister was talking about in California – bring great benefits. 

It is the sheer excitement of the international marketplace which has made Mumbai and London two of the most dynamic cities in the world today. 

But if we are to enjoy all the potential benefits of the open economy, we need to understand why so many people are deeply anxious about it.

For a start, we have to be honest and admit that when the winds of globalisation are unleashed, our societies become more prosperous overall but many people - too many people - can get left behind. 

That is true in India, where much of rural society has so far been left out of the rising prosperity in the cities, and India’s vast population still constitutes a substantial proportion of the world’s poor. And it is true in Britain.  

There is a river called the Windrush that runs through my constituency in Oxfordshire. In the past it provided the power for several mills. Many years ago they used to make cloth, including the world-famous Witney blankets. But as time went on, they found that they couldn’t compete with countries that could make the same products more cheaply. Countries like India as it happens. 

Today, one of these former mills is a small business hub, another makes safety products which are exported all over the world – including to China, and a third is a luxury housing development. 

Losing jobs is painful, but overall we are better off as a community than if we had tried to make the world stand still. But that is Oxfordshire. 

In other parts of Britain there are mills and other proud examples of our industrial past standing empty, abandoned and derelict. 

There are places which used to be vigorous centres of industrial manufacturing. But when their work went abroad they didn’t always see new employment instead. 

It’s not enough just to say that change is essential for the greater good, over the long term. What about individuals and their families, in the here and now?

There are towns in Britain where a quarter of older working men are on disability benefit year after year. Where the winds of globalisation feel like a chilling blast, not an invigorating breeze.

So we can’t just celebrate the benefits of globalisation. We must also be honest about its costs, because the alternative is that people project their fears and anxieties on to other ethnic groups or other countries. 

For example, sometimes blame is placed on immigrants who are thought to drive down the wages of those with fewer skills. But globalisation drives down those wages even without immigration. We cannot have it both ways. 

We can’t argue that globalisation is a massive transforming force, but then pretend that the transformation is always and in every way benign. We must recognise our moral obligation to the people and the places left behind. 

 ECONOMIC EMPOWERMENT

It is an obligation we must discharge not just in words but in effective policy.

The classic policies of the closed economy - subsidy and protection - do not work, and each generation has to make that argument with vigour.

Protection is always tempting, but must always be resisted. We must also be honest and admit that the rising tide of the open economy does not always lift all boats. 

In Britain, we still have a lost generation of more than one million young people who are not working, studying or training. 

I have argued that our response must be to match economic liberalism – our commitment to the open economy – with a new, and in many ways more challenging mission: economic empowerment.

Economic empowerment means fixing the broken rungs at the bottom of the ladder from poverty to wealth.

It means giving every individual the skills, resources and the confidence to take control of their life and benefit from the opportunities of the open economy.

That is why we are investigating new ways of helping young people into work and tackling the complex personal circumstances of individuals who have been left behind. 

Human capital is the most important resource of the open economy. To ignore the talent and potential that anyone has to offer, and to write them off as unemployable, is a terrible waste that we cannot afford.

There are 2.7 million people in Britain of working age on incapacity benefits, many of whom have the ability and the will to work - at least part-time - if the system only supported and encouraged them to do so.

Social justice and economic competitiveness both demand that we empower those people and re-engage them in work and training.

It is why we are investigating social enterprise zones where we can cut back the obstacles to innovation - not just in economic policy but in social policy too. 

In Britain, as in India, there are many thousands of amazing people who have been described as social entrepreneurs. They bring to the challenge of rebuilding people’s lives exactly the same determination, dynamism and imagination that business leaders bring to the challenge of building market share.

I see it as a key task of modern government to find ways of supporting social entrepreneurs, and unleashing their talent for helping excluded groups back into the mainstream of our society. It’s been talked about for long enough. Now we must get on and do it.

Economic empowerment also demands an education system that truly spreads equality of opportunity to all, and reverses Britain’s shocking decline in social mobility. 

We need to increase the number of good school places to create greater opportunities for children, regardless of their background.

That means opening up the delivery of schooling to make it easier for schools to expand and link up with others.

Reading is crucial, too. If you can’t read, you can’t take part in the global economy. This is not just a problem for developing countries.

In Britain today, twenty per cent of children are emerging from primary schools unable to read properly. We have successfully pushed for traditional teaching methods to be brought back into schools so our children learn to read properly.

Research shows that getting children to read competently when they leave primary school is the greatest single contribution we could make to transforming their opportunities in later life.

So I believe that a determined focus on economic empowerment can help to allay the fears of those who see globalisation as a threat.

GLOBALISATION AND CULTURE

There is another fear about globalisation: that it is a threat to our cultures and our identities. 

If we don’t address this openly our citizens will be prey to extremist arguments that promise them a true identity in opposition to the modern world. 

Many people fear that in a modern global economy, we will all become more like each other. I don’t want a world that has become a kind of bland universal mush where our distinctive cultures and histories and identities are gone. 

I want India to be India and Britain to be Britain.

Fortunately, the basic economic principle of comparative advantage tells us that as we trade more, each of us should specialise in what we are best at. So paradoxically, in a truly global economy our different national economies will become more distinctive. 

In fact, it is part of the genius of globalisation that it identifies those things that are most distinctive of a country and tries to turn them to advantage.

 A STRONG SOCIETY

And there is one distinctive strength which India and Britain share. We both have a rich and diverse civil society. A strong civil society enables people to lead fulfilled and satisfying lives.  But it also means that our societies are rich in those qualities needed to run a successful modern economy: an independent judiciary, a free press, a law of contract. 

That great Indian economist Amartya Sen has done more than anyone to remind us of why a strong civil society matters so much.

“One of the remarkable facts in the terrible history of famine is that no substantial famine ever occurred in a country with a democratic form of government and a relatively free press… famines have never afflicted any country that is independent, goes to elections regularly, has opposition parties to voice criticisms, that permits newspapers to report freely and to question wisdom of government policies without extensive censorship”.

A strong society is an essential counterpart to an open economy. And a strong society is built on strong institutions – institutions with a social, not just a practical role.  A company is not just a set of employment contracts. A community is not just a place where people happen to live. A nation is not just a hotel. 

These institutions support the human ties that make life worthwhile. And unless we sustain and strengthen those ties, then globalisation will make us economically rich but socially poor.

CONCLUSION

So let us resolve to meet the challenge of globalisation by renewed effort on two fronts: greater economic liberalisation, and greater economic empowerment.

Taking steps to make our economies more open, creating the conditions for enterprise to flourish. And taking steps to mend the broken rungs on the ladder from poverty to wealth, so we enable those left behind to share in globalisation’s great benefits.

(Extracts from the speech to business leaders in Mumbai, India)

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