Toespraak van minister Ploumen ter gelegenheid van de lezing door Joseph Stiglitz bij de Wetenschappelijke Raad voor het Regeringsbeleid

Toespraak | 06-11-2014

Dear Mr. Stiglitz, ladies and gentlemen,

I read the reports by the United Nations, the World Bank, the World Economic Forum and their Dutch counterparts, and I keep up with the latest economic theories. They give me the facts and the intellectual framework to place them in. But what shapes my image of the world is the trips I make and the people I talk to. And also: literature.

When I think of globalisation, I think first of images, before any facts, figures and theories. Powerful images from How to Get Filthy Rich in Rising Asia by Pakistani writer Mohsin Hamid.

We meet the nameless main character hunched up under his mother's bed, shivering with hepatitis E. Hamid writes, 'It kills only about one in fifty, so you're likely to recover.'

The character does recover. He moves from his poor rural village to the city and works his way out of poverty. With jobs as a video delivery boy, a salesman, and eventually self-employed, he does indeed manage to become filthy rich. Later he loses his wealth, but he finds love instead.

For me, the great thing about this book, besides the breathtakingly beautiful writing, is Hamid's convincing portrait of the new Asia - full of opportunity, but also full of injustice, and completely merciless.

The book is fiction, but the main character stands for a new generation of Asians, Africans and South Americans. People who were once poor in countries that were once poor. Thanks to the economic growth in their country they now have a prospect of a better life than their parents.

I meet young people from this generation on my travels, from Bangladesh to Burundi and Brazil. They are growing up in a world where extreme poverty has halved over the last thirty years. This generation may even see the day when hunger is banished forever. A prospect I never dared dream of at their age.

As encouraging: in 2012 over 60% of all foreign investment went to emerging economies. Access to international markets and technology through trade and investment have proved to be crucial for economic development. I hear it time and again on my foreign travels: people would rather have Dutch investment than Dutch aid. The market is vital in the fight against poverty.

But the market is no cure-all. It does not guarantee a prosperous society for all. By no means everyone has benefited from it. Excessive liberalisation of international financial markets has caused terrible misery. The structural faults in the financial sector, complete with perverse incentives like bonuses that have risen out of all proportion, have cost society dearly.

Wouter Bos, a former leader of my party, was Minister of Finance when the financial crisis hit. He concluded that it was more than simply a financial crisis. It was also a crisis of values. A crisis of the balance between excess and moderation, between the long and short term, between status-seeking and service to society, between recklessness and responsibility.

That crisis continues to this day. Tax avoidance by multinationals runs into the billions of euros every year. Developing countries may lose millions of euros a year from the unintended use of Dutch tax treaties alone. Some companies navigate from loophole to tax haven, through the network of international tax treaties. The winner is the one that manages to pay as little tax as possible.

I say to companies like these: you are tomorrow's losers. You will have to explain why you pay little or no tax in the places where you make your profits, using local labour and natural resources, infrastructure and other facilities paid for by those who did pay their taxes. You cannot justify this. Stop it before it's too late. And so I call upon those companies to review their tax evasion policies. Pay taxes, and pay them where you generate your profits.

Likewise, I call upon countries to review their tax treaties with developing countries. The Netherlands is cooperating actively on the OECD Action Plan on Base Erosion and Profit Shifting, and is currently reviewing its own 23 tax treaties with developing countries to reduce any negative effects.

Ladies and gentlemen, 

The main character of Mohsin Hamid's book does not necessarily strike me as a social democrat. But I fully agree when he drily says, 'There are forks in the road to wealth that have nothing to do with choice or desire or effort.' 

We have seen how international markets push wages down, particularly those of the most vulnerable. We have learned about land grabbing by huge agricultural firms in developing countries, where they buy land to grow cash crops on a large scale for export, driving smallholders off their land. And we have all seen the deplorable conditions some people work in. The collapse of the Rana Plaza textile factory in Bangladesh was globalisation at its ugliest.

In short, globalisation is not a zero-sum game; the pie has grown tremendously over the past few decades. But we have not been able to share it fairly. Income differences continue to rise in many countries. There is a dismal trade-off between economic growth and greater equality of income. Sustainable and inclusive growth does not happen by itself. The trickle-down effect does not exist - wealth does not automatically trickle down to the poorest. 

So, we can identify many downsides to globalisation. But they are not inevitable outcomes of economic laws, as Professor Stiglitz rightly says. They are the outcomes of laws and agreements we make ourselves - or indeed have failed to make.

To put globalisation on the right track, we need effective government that tames, corrects and regulates international markets. We need strong international organisations that are able to reach and enforce sound agreements about how international markets can serve society, not the other way round.

International organizations need mature international relations, in which countries see and treat each other as equal partners. This means that the West will have to make concessions at the negotiating table, and make room for the new players from Asia, Africa and Latin America.

Change is still too slow. In 2010 the IMF agreed on quota reforms. The Netherlands has done its bit, but the US is still refusing to give up any of its power. This has to change. I hope you agree, Professor Stiglitz. I hope you will use your influence in Washington to help ensure this does change.

Luckily, multilateral institutions have taken big steps forward - both formally and informally. Take for example the OECD Guidelines for Multilateral Enterprises, designed to foster corporate social responsibility, and the agreements on tackling land grabbing. 

Another positive development is the fact that growing income inequality is getting high on the international agenda. The World Bank, OECD and even the IMF and World Economic Forum recently highlighted income inequality as one of the greatest threats to social and political stability. Professor Stiglitz rightly points out that the ruthless market ideology of the Washington Consensus has been discredited - largely thanks to him, and I congratulate him on that.

In sum, although we see progress in the area of global governance, there is still a long way to go. And, I would argue, we will not achieve sustainable and inclusive growth at the negotiating table alone. We need more than laws, rules and quotas. Companies and citizens will also have to live up to their responsibilities. As governments, we need to cooperate with them. That is the basis of my agenda for aid, trade and investment.

This agenda for aid, trade and investment aims to respond to the new reality. A reality in which Asia, Latin America and Africa are seeing huge growth in their share of global trade. One of the driving forces behind this growth in trade has been the emergence of global value chains. Production processes have been cut up into different activities that take place all over the world. A country can take part in world trade with just a few activities; it no longer needs to set up an entire industry.

Joining global chains brings new opportunities for development, but there are also risks. It is by no means certain that just a few activities will enable countries to boost their economy and climb up the global value chains. Professor Stiglitz rightly poses serious questions about this kind of development strategy. He has written that free trade forces countries to focus on activities that add little to their economic structure and learning capacity. No country has ever managed to develop without some form of protectionism, he argues. [ turning to Stiglitz: I hope I accurately reflect your position : ]

Therefore, I would like to argue that we have to make direct links between promoting trade and investment, opening markets and pushing a development agenda. Countries can only benefit fully from trade and knowledge once certain basic conditions have been met. Without stability and peace, there can be no development. Without roads and ports, trade is barely possible. And without expertise, it is difficult to recognise useful knowledge, let alone absorb it.

Aid often alleviates the most immediate needs. Combating hunger. Or fighting diseases, such as the terrible Ebola-virus at this very moment. In the longer term, successful aid also helps remove obstacles to trade and strengthen preconditions for development. Let me give some examples. 

One. When we make trade and investment agreements, we must not only agree on market access, but also on facilitating trade and transferring knowledge. With this in mind, over the past year the Netherlands has acted as 'honest broker' in negotiations between the EU and African regions on Economic Partnership Agreements. We brought the parties together and kept the talks going.

Last summer, the EU signed an agreement with ECOWAS, an association of 15 countries in West Africa. Small businesses like cocoa farmers in Ivory Coast will certainly benefit from the agreement, because they can now sell their products more easily in the EU.

The point is this. It is not simply a free trade agreement. It explicitly takes account of the level of development of the countries involved. ECOWAS countries are being given twenty years to remove barriers to trade in goods. And agreements have been made on aid to help create essential infrastructure and build institutions.

The agreement also encourages regional integration and trade between ECOWAS countries. Regional cooperation generally increases the learning effects of trade. It also creates a larger internal market and gives the region a stronger global position. EPAs have now been signed between the EU and Southern Africa, and with East Africa.

Talks are currently being held on the free trade agreement between the European Union and the United States, more commonly known as TTIP. I believe my portfolio of aid and trade gives me a mandate to keep a close eye in that process on the interests of developing countries. I have ordered a study of how we can make sure the agreement is not only minimizing the negative impact but maximizing the positive impact on developing countries.

Another example. To achieve sustainable and inclusive growth, companies must be responsible for their supply chain. Corporate social responsibility is on the rise. Businesses have little choice; the OECD guidelines demand it, and the Dutch government is urging companies in all kinds of ways to comply. But it is interesting to see that more and more business people have a much deeper motivation. If I ask Feike Sijbesma, who runs Dutch chemicals company DSM, or Paul Polman, the top man at Unilever, why they are keen to do business responsibly, they don't even understand the question. It is second nature to them. Attitudes have really changed.

The same is true of local content, my third example. Investment in a country has to have a positive impact on the recipient country. Building the shortest possible road using your own firms and your own people to transport raw materials as efficiently as possible does a disservice to your host country and, I am convinced, will eventually result in setbacks. Build the road in collaboration with the local population and make sure as many people as possible benefit from it. Create jobs and as much spin-off as possible. The material and moral dividends will be huge.

Once this idea takes hold, we can do with fewer rules. Sometimes we see very strict requirements on the local content of foreign investment. Those requirements can lead to shortages of local production factors and serve mainly to drive up prices. So, we need to strike the right balance. 

Sometimes, sharp intervention is called for. That is what my last example is about. Earlier I mentioned the collapse of the Rana Plaza textile factory. For almost twelve hundred people, the race to the bottom in the textile industry ended under the rubble of a ramshackle factory. Along with the International Labour Organization, a number of other countries, NGOs, trade unions and the textile industry itself, we are working to make permanent improvements in working conditions. Safety inspections and better supervision should make workers safer. Longer contracts should give the industry some breathing space in this fiercely competitive global market, so they can make the improvements needed. Meanwhile we are keeping a close eye on developments in low-pay countries like India, Ethiopia and Myanmar. I hope that in a few years' time we can conclude that together we found the path upwards, out of the rubble of Rana Plaza.

Ladies and gentlemen, Professor Stiglitz,

Let me finish where I started. Towards the end of How to Get Filthy Rich in Rising Asia, the ageing main character observes the world around him. It sometimes reminds him of a dark valley teeming with, and I quote: 'bony, mutating creatures […], many of them carnivorous, that feed especially on the old and the sick and the frail'.

Not a pleasant image. To me this is precisely the kind of dog-eat-dog capitalism that we want to, must and will rein in.

Our hero is unable to keep up. But he still recognises one thing for sure, everywhere he encounters it: whether it is in the nice young man from the telecom company, or the confident young shop girl at the chemist's: and I quote: 'You are pricked by a lingering optimism, and you marvel at the resilience and potential of those around you'. End of quote. It is change that he feels. That he smells: the scent of change.

It is the same scent that, a lifetime ago, shivering and weak, made him crawl from under his mother's bed and make something of his life. It is the scent of promise and hope. Here, I believe, Mohsin Hamid touches upon the very core of the debate on globalisation: promise and hope. Because despite all the very serious and sincere reservations that can be made, that is key.

That promise and hope can never be taken away again from the people of Asia, Africa and South America. Even if we could take it away, we should not want to. Globalisation carries a promise. It's up to all of us to make that promise come true.

Thank you.