Global Crises and the collapse of the Doha Round Implications for and Imperatives of Responsible Leadership

Dear Friends, Recent events certainly prove that history does not evolve in a linear fashion. Just think ten years ago: East Asia was in the midst of its financial crisis, the Russian economy (stock market and rouble) had collapsed, shrinking its GDP to the size of Belgium's, while throughout the year (1998) the average price per barrel of oil was $9! Russia was written off, East Asia's supposed "crony capitalism" had crippled the region for some time, while much of the talk was of an era of cheap energy. It was also an era where the consensus was that markets had overtaken states as the key global drivers. And the US was at the zenith of its power. Today, it is primarily the East Asians, the Russians and the Gulf Arabs who command the global financial heights. It is reported that in the last few years Asian export powers and oil exporters have generated a $1 trillion in assets per annum. A good deal of this money lies in national treasuries and is transferred into instruments known as "Sovereign Wealth Funds". Furthermore, against the prevailing consensus of a decade ago that states were out and markets were in, increasingly the op-ed pages feature articles on the rise of "state capitalism"; the question is increasingly raised whether state capitalism and market capitalism can co-exist. And finally, to complete the contrasting picture from a decade ago, the US is in quite dramatic decline on all fronts. Whether the decline is terminal or momentary remains to be seen, but as things stand in the summer of 2008, the outlook is not obviously sunny. As to the title of this message, "global crises" (in the plural), it would be perilously complacent to deny that we are facing a series of simultaneous crises. And in addition there are crises that might be waiting to happen. (A trade war between the US and China, for example, though unlikely, if it were to happen, it would not be difficult to explain its origins!) The current geopolitical crisis in the Caucasus arrives in addition to the financial crisis and to the environmental and humanitarian crises. Demographics can also present important indicators. The Arab region has the world's youngest population and one of the world's highest youth unemployment rates. In the near future there is a need, simply to maintain the present rate of unemployment, to generate 100 million jobs! The population of Africa at present is 925 million. By 2030 it is expected to rise to 1.5 billion. Africa is a region where the Millennium Development Goal of poverty reduction is not being met - as indeed is the case with most other Millennium Development Goals in Africa. It is also one of the regions that stand to be most adversely affected by climate change.

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While Africa may be the most crisis prone, it is, alas, not alone. Though India is heralded as a great 21st century economic superpower (which in many ways it is), leading some to predict that this will be the "Indian century", in the meantime, as the FT recently reported, in the state of Maharashtra alone 5,000 farmers have committed suicide out of desperation - that is more than three per day and it is only in one state of India. Perhaps there is no need to belabour the point. But what needs to be stressed, I believe, is that underlying and to some extent causing the multiple crises there are three fundamental crises: a crisis of trust between nations, a crisis in confidence in global governance institutions, and a crisis of leadership among governments, but also among most stakeholders (including business). And it is in that context that the collapse of the WTO Doha Round (again!) in July reflects these three fundamental crises and further plunges the world even more into a state of crisis. In addition to the paralysis of the multilateral trading system and the fact that in the meantime it remains highly discriminating against developing and poor countries geopolitics is intruding in the trade domain in ways that it was not supposed to. I do not see the logic of suspending Russias application to join the WTO even if, admittedly, Russia itself has chosen to do so by way of retaliation. Nor was it proper to block Irans application for accession to the WTO. The intention of the current trading systems founding fathers was that trade should be as de-politicised as possible. Of course there is, alas, no full-proof guarantee for peace. But an open and fair global market is about as close as one can get. The problem is that the global market is at present neither open (there are multitudes of barriers) and much more emphatically nor is it fair. The Doha Development Round was to address the glaring anomalies that result in poor countries often being the victims of the trade system, while the rich remain the beneficiaries. A legion of examples can be cited. But just two should suffice. I have copied below a table posted by the highly respected Washington based Progressive Policy Institute, showing the degree to which poor Cambodia is discriminated against in the US market in comparison to rich UK and rich Saudi Arabia. The injury caused by tariffs is exacerbated by the injuries caused by subsidies. Cotton is one of the most egregious cases, but by no means unique: it is estimated that earlier this decade the inhabitants of Burkina Faso, one of the worlds poorest countries, lost some $15 million dollars in export earnings in cotton due to US subsidies to its rich domestic producers. The fact that these injustices should persist is scandalous and a terrible indictment. It is also crazy. In noting the demographic figures mentioned above in respect to Africa or the emerging youth of the Arab Region, clearly it is in everybodys interests, including the interests of the rich countries, that everything should be done to try to promote growth, employment and prosperity. By no means is trade alone going to

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achieve that end. We know that. But at the very least what should be happening is that the trade system should not, as it currently does, impede the prospects of poor and developing countries. How can we contribute to resolving or at the very least attenuating the global crises? First must be stressed the point that all those of us who are in a position to contribute, must contribute. Responsible leadership refers not only to heads of governments, heads of institutions, or heads of enterprises, but the responsibility that is incumbent upon every one of us. For its part, The Evian Group at IMD is focusing on three main strategic axes. The first is to seek to enhance and promote an open, sustainable and equitable global market economy. We believe that the rules-based multilateral institutional framework is absolutely critical. It has to be re-enforced and it has to be adaptive to the changing times, especially the entry of new actors, in particular China. But emphasis must also be on the word equitable. At the moment this is glaringly not the case. That alone makes the system unsustainable. Among our activities in this field is that in collaboration with the International Chamber of Commerce (ICC), which will be marking its 90th anniversary, as it was founded in the wake of World War I, in 1919, with the motto world peace through world trade, we be convening a series of meetings (with a major opening at IMD in Lausanne on 3 February) and compiling publications on past perspectives and future prospects for global trade, peace and welfare. The second, in recognition that the tide of growth of the last decades has not lifted all boats, as had been assumed, the Evian Group is working in close collaboration with the Indian Institute of Corporate Affairs (IICA) and the Confederation of Indian Industries (CII) on a long term project on Globalisation, Corporate Leadership and Inclusive Growth, with a launch meeting to be held in New Delhi on 20-21 October. The third (these are not in order of priority) is to focus on means of enhancing national and regional competitiveness. Much of our work in this area is concentrated on the Arab region where, in collaboration with our Arab partner, the Talal Abu Ghazaleh Organisation (TAGO), we are engaged in a research and public policy project on Arab Youth and Capacity Building in a Changing Global Environment. Our next meeting on this project will take place in Amman next April. Anyone interested in participating in these projects or wishing more information is welcome to contact me or Caroline Perrot, Evian Group Co-ordinator (Caroline.Perrot@imd.ch). My missives have been a bit less frequent recently, thus I hope you will forgive the length of this one. I would also like to draw your attention to a piece I have written for the IMD website on The Collapse of the WTO Doha Round: What does it mean to business, which you can find at: http://www.imd.ch/research/challenges/TC077-08.cfm

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Responsible business leadership in the early 21st century includes as a major priority actively participating in the global trade public policy debate. The concluding point is this: we stand on the threshold of what could be an era of unprecedented global prosperity and opportunity. But at the threshold we also see difficult obstacles and looming crises. The obstacles will not be removed or the crises resolved without a concerted effort on the part of all responsible global stakeholders. What kind of world do we want and how do we get there? A more prosperous, just and inclusive world will not just be good for societies at large, it will also be good for business. Responsible leadership is most robust when it is guided by enlightened self-interest. The collapse of Doha in July, even if predictable and boringly repetitive, must serve as yet another loud warning signal that unless we get our global governance act together, unless we resolve the crises of trust, confidence and leadership, we could be facing very, very hard times. I look forward to working with you to try to make sure this does not happen. As the former chairman of the Evian Group, the late David de Pury, wrote in his last article: we must not repeat the mistakes of the past. Kind personal regards

Jean-Pierre Lehmann, D.Phil (Oxon) Professor of International Political Economy & Founding Director, The Evian Group at IMD Box 915, 1001-Lausanne, Switzerland tel: +41-21-618-0348, fax: +41-21-618-0619 e-mail Lehmann@imd.ch www.eviangroup.org ; www.imd.ch

(PPI) THE NUMBERS: U.S. tariff collection, by trading partner:

Britain Per capita income: $37,760 Goods imports: $57 billion Tariff penalties: $412 million Average rate: 0.7% Cambodia Per capita income: $430 Goods imports: $2.46 billion Tariff penalties: $419 million Average rate: 17.0% Saudi Arabia Per capita income:$12,510 Goods imports: $35 billion Tariff penalties: $45 million Average rate: 0.1%

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