Australia & New Zealand: Out for Business or out of Business? Sustainability in the Marketplace The seventh in the annual Sustainability Series presented by Edmonds Management, its sponsors and partners. Focusing in 2004 on the growing convergence of the two major forces rapidly reshaping business, and much of government – globalisation and sustainability. This Series highlights the special opportunities and risks that this convergence poses for business and government, at all levels, in Australia and New Zealand. Speakers identified these opportunities and risks and proposed ways forward for Australian and New Zealand industry, finance and government. Location: Melbourne, April 19 2004 Canberra, April 20 2004 Brisbane, April 21 2004 Sydney, April 22 2004 Auckland, April 23 2004 Opening address - Melbourne: Hon. John Brumby, Treasurer, Minister for Innovation, Minister for State and Regional Development. Opening address - Auckland: Hon. Marian Hobbs, Co-ordinating Minister for Sustainable Development, Minister for Urban Affairs and Minister for the Environment. Speakers Rt. Hon. Mike Moore Director General, World Trade Organisation (1999 - 2002) Moving to a Word Without Walls: negotiating the transition. (Melbourne, Canberra, Brisbane, Sydney, Auckland) James Griffiths Director, World Business Council for Sustainable Development. The Business Path to Sustainability: 170 ways forward. (Melbourne, Canberra, Brisbane, Sydney, Auckland) Dr. Noel Purcell Group General Manager Stakeholder Communications, Westpac Banking Corporation. Managing Beyond the Walls: the role of corporations in leading sustainability. (Melbourne, Brisbane, Sydney) Leon Davis Chairman, Westpac Banking Corporation. Managing Beyond the Walls: the role of corporations in leading sustainability. (Canberra) Ann Sherry Chief Executive Officer, Westpac New Zealand. Managing Beyond the Walls: the role of corporations in leading sustainability. (Auckland)

The case I am putting to you today is that the principles of sustainable development are best met in the conditions of open markets, democracy and an active civil society.

Poverty is the enemy of progress and the environment. Science, technology, good governance, best international practices are not just good in themselves, but they are a prerequisite to sound, sustainable development.

It is not an historic anomaly that the worst environmental and social outcomes come from closed economies of the far left and the far right. Without an active civil society pushing for better outcomes, creating public opinion that politicians and bureaucrats must respond to, then the worst happens. Thus, democracy is a necessity for development, as well as a principle and a human right.

I shall also make the case that the doomsayers have been manifestly wrong. Life in most places has improved, and they have improved the most quickly and sustainably where open societies flourish and have done the worst where open societies perish and are resisted. Where freedom grows, poverty retreats.

The answer relayed by some extremists in the streets, that we need to save poor countries from success by denying them the basic opportunities we have, cannot go uncontested.

The acclaimed Time Magazine essayist Nancy Gibbs wrote in December last year:

“Modern history has a way of being modest with its gifts and blunt with its reckonings. Good news comes like a breeze you feel but don't notice; the markets are up, the air is cleaner, we're beating heart disease. It is the bad news that comes with a blast or a crash, to stop us in mid-sentence to stare at the TV, and shudder.”

The same sentiment was expressed more bluntly, if less elegantly, decades earlier by a newspaper editor when he declared, “if it bleeds, it leads.”

Bad news is good news for newspapers, talkback hosts and opposition political parties. It sells newspapers, inflates ratings, buys votes and makes for stimulating dinner party conversation.

Alarmism sells.

Violent crime, unemployment, poverty, terrorism, hunger, Aids, corruption, cancer. And that’s just the front page.

This alarmist world view is pervasive and taken as gospel by many who believe that the world is in steady and inevitable decline.

The only problem with the alarmist world view is that it is wrong on nearly every count.

It’s an old song.

In 250CE, St Cyprian of Carthage proclaimed:

“The world has grown old. The rainfall and sun’s warmth are both diminishing, the metals are nearly exhausted.”

In 1014CE, Archbishop Wulfstan declared:

“The world is in a rush and getting to its end.”

Let us not forget that in 1900, male life expectancy in America was 49 years. In the 1920’s, the majority of US farms didn’t have electricity. Or that the pollution level of the River Thames contributed to the cholera epidemics between 1831 and 1866 that killed over 35,000 people. In 1861, it carried the typhoid disease that killed Queen Victoria’s husband, Prince Albert. In 1950, large stretches of the river were devoid of oxygen because of pollution, rendering it almost dead.

Now people fish and swim in the river, and pollution counts are hugely down in developed economies. For example, the US Environmental Protection Agency reported in 1997 that, since 1970, ‘the total US population increased 31 percent, vehicle miles traveled increased 127 percent and the gross domestic product (GDP) increased 114 percent. During that same period, noticeable reductions in air quality concentrations and emissions took place.’

In the 1800’s, economist Stanley Jevons predicted that Britain would be destroyed as a superpower because it would run out of coal. Thomas Malthus thought that rising populations would lead to mass famines, while Rachel Carson’s Silent Spring predicted back in 1962 that manmade chemicals would wipe us out within 20 years. Science Digest predicted a new Ice Age in the 1970s. Yet within a few years, equally reputable scientists were suggesting that we were more likely to end up in a global sauna. In 1980, acid rain was going to kill all the forests in North America and Europe. It didn’t happen. Remember the Club of Rome predicting, in The Limits of Growth, that gold would be exhausted by 1981, tin by 1987, petroleum by 1992, and copper, lead and natural gas by 1993?

It may not be fashionable to say this, but if we look at the facts, and discard alarmism in favour of evidence, life is getting better and it’s partly because of the alarmists. Society responds to crisis – public opinion shifts politicians, answers are found. By and large, for the majority of the human race, life is better today than it was fifty years ago.

By “better”, what do I mean?

I mean safer, healthier, more prosperous, and more blessed with opportunity. Let’s look at some key indicators.

LIFE EXPECTANCY
One key indicator of progress is life expectancy. Today, more than 85 percent of the world’s population can expect to live for at least sixty years – more than twice the average life expectancy of a century ago. In fifty years, life expectancy has gone up by 50 percent; infant mortality has halved. The average person in the OECD born today will live to 100 years. This is portrayed as a pension and health care crisis. It’s good news.

Fewer children are dying and we are living longer than ever before. In developing countries, it’s still not good enough, but it’s undeniably better.

SANITATION AND ACCESS TO FOOD
Sanitation and access to food are other good indicators of progress. In the ten years from 1990, the percentage of people with access to good sanitation rose from 78 percent to 84 percent in urban areas, and from 29 percent to 36 percent in rural communities. Over just one decade, this is real progress.

Even as the world’s population has doubled since 1961, we now produce more food per capita than we did then. Food production in the developing world has tripled in that time.

Superwheat and super-rice has saved millions of lives. The man who invented the crops received the Novel prize for peace. Nowadays, some people would want to destroy his laboratory.

The percentage of people suffering from starvation in the developing world has fallen from 45 percent in 1949, to 35 percent in 1970, to 18% in 1997 – and the UN expects that the figure to have fallen to 12 percent by 2010.

Is starvation still a serious problem that the world community must address? Of course it is. A child dies of poor sanitation every second and over 2 billion people don’t have access to a private toilet. But – again – the magnitude of the problem is less than it was, and the situation is undeniably better and can improve.

EDUCATION AND LITERACY
Education and literacy levels have also improved. Of course, there are still huge holes. In developing countries, for instance, one child in three does not complete more than five years of primary education. Not good enough.

But overall the trend is improving. In the decade from 1990, adult illiteracy rates have declined in low income countries from 35 percent to 29 percent for males, and 56 percent to 48 percent for females. Youth illiteracy rates reflect a similar trend.

Distance education and new technologies have given us weapons not at the disposal of earlier generations. Parents everywhere, given half a chance, know that education is the key to a better future. When I say ‘parents’, so often it is mothers. We see it in the stream of migrants from developing countries cleaning our schools and hospitals, postponing their own well-being for their sons and daughters futures. Mothers are never short-termists.

GLOBAL POVERTY
Living standards are also improving world-wide. According to the UN, we have done more to alleviate poverty in the developing world in the past 50 years than we managed in the previous 500.

There are still regions with unacceptable numbers of people in extreme poverty, such as Sub-Saharan Africa, but the overall picture is encouraging.

In East Asia, for instance, poverty has been drastically reduced: in two decades, the number of people living in poverty has declined from 6 out of 10 to 2 out of 10. One person living in poverty is one too many, but we are unquestionably heading in the right direction.

DEMOCRACY
It is no coincidence that this fifty or so years of real progress in the developing world has coincided with an explosion of the democratic space. Thirty years ago, most of Central America, all of South America, were under the jackboot of military/command economies. But within two decades of the Prague Spring, people’s power had exploded in the Phillipines, Indonesia, Peru and Chile. In South Korea, Kim Dae Jung went from reviled opposition dissident of a military dictatorship to freely elected President. Lech Walesa went from the pickets to the Presidential palace, and the inspirational Vavlac Havel, poet, playwright, philosopher and leader, became the democratically elected President of Czechoslovakia and then the Czech Republic.

While there are still many places suffering under illegitimate, corrupt and brutal regimes, modern history shows that democracy has, and will continue to, prevail wherever people crave freedom.

To recap then:

• Poverty and starvation have declined rapidly in the past few decades.
• More people than ever are literate and benefit from a good education.
• We are healthier and living longer than any generation before us.
• More people than ever enjoy democratic rights and freedom.

So that’s the good news. But there is so much more to be done, and the question we should be asking ourselves is this: what barriers remain to prevent developing countries from exploiting the opportunities of the new economy? What’s important here is that we know what works. Which countries do better, and why some countries fail. It’s not globalisation – it’s marginalization.

Most are internal barriers – totalitarian governments, corrupt bureaucracy, an inadequate legal and commercial framework, substandard educational opportunities and so on.

Property rights, an independent judiciary, honest governance, open and accountable markets and leadership. There is a pattern to success, as there is to failure.

Today, I would like to focus on external barriers to progress in developing countries - barriers that have been constructed and fortified over many decades by the wealthiest countries on earth. They come in the form of trade protectionism. However, we ought to remember that many poor countries make themselves poorer by local protectionism.

The protesters are right when they say the world trading system is unfair. But it's not a case of too much free trade; it's a case of too little free trade. Blaming the World Trade Organisation for injustices in the developing world is a bit like blaming the Red Cross for World War I.

100 leaders met at the United Nations for the Millennium Conference. They agreed that we need to reduce poverty by half in thirty years. It was estimated that, if this goal was to be met, it would cost US$62 billion a year. That’s a lot of money.

But it is only a third of what could be achieved for developing countries if we had a successful Doha Development Round. If we could abolish all trade barrier globally, that would result in lifting the world economy by US$3 trillion. It would lift 320 million people out of extreme poverty. It would be like adding more than another China to the world economy.

Unacceptable injustices do exist in the global trading system.

That’s why it was so hard to launch this round.

Take agriculture alone. The rich countries are paying USD$1 million a day to make food more expensive for their people. The average cow in Europe gets a subsidy of $2 a day. A couple of billion people live on less than that.

If we could do the deal on agriculture, that would return to Africa 3-5 times more than what it receives in overseas development assistance.

The rich countries subsidize fisheries, which pollutes the water.

They subsidize agriculture that pollutes the ground.

They subsidize energy that pollutes the air.

When you further examine tariffs on other product lines, you come to understand the degree of economic violence committed against the most marginalized people on earth.

European consumers pay 50 percent more than they need to for their sugar. US protectionism on sugar costs the American consumer about US$2 billion annually. Even the iconic American company that produces Lifesavers has moved its operation to Canada in order to access cheaper sugar from the Caribbean.

The story of coffee is even more disgraceful.

The global coffee market 30 years ago was worth US$30 billion, and growers got UD$10 billion. Today, it’s worth US$60 billion, and growers receive less than US$6 billion. This is hurting the poorest countries the most. Coffee represents 60 percent of the exports of Ethiopia and Uganda.

Even more wicked is a thing called tariff escalation. It means that, if I am coffee grower in Colombia or Ethiopia and I want to package, process or roast my beans, I am hit with an escalating tariff rate. The more value you add to your products, the higher the tariff. Therefore those jobs go to rich countries in Europe or the US.

There is similar story with cotton. The cotton industry in the US is worth US$6 billion, US$4 billion of which is subsidies. Socialism is alive and well in Mississippi.

If we could fix the cotton problem, that would return US$250 million to the four poorest countries on Earth.

The inequity is startling.

Mongolia and Norway both paid the US about US$23 million in tariffs last year.

The total value of Mongolia’s exports was about US$143 million. The total value of Norway’s exports was about US$5.2 billion.

Why? It’s because of product lines.

Mongolians export textiles. For Norwegians, its gourmet food, jet engines and oil.

There is a moral imperative in pursuing free and open markets, not just an economic one.

The developing world does not fear globalization, despite what some NGO activists would have us believe. Their greatest fear is marginalization. This has been the impetus behind the emergence of the G20 out of the Cancun talks.

The G20 is led by Brazil, China, India and South Africa. These 20 developing nations believe time is on their side and point out that within 40 years their combined GNP will be larger than the US, Japan, Germany, Italy and the United Kingdom.

Some suggest the emergence of the G20 is partly the result of the failure of the Cairns Group to become the force we hoped it would be. The Cairns Group of agricultural producers, formed in the 1980s to provide a joint platform for non-subsidised exporters, needs to take centre stage again.

The G20, and the Cairns Group before it, are important to prevent the combined strength of the US and the EU "stitching up" agriculture negotiations.

This was exactly what happened during the Uruguay round, when the infamous US and EU-sponsored Blair House Accord delivered only modest progress in agriculture. If there is a lack of confidence in the Geneva process, then many will look elsewhere.

Most topical of all of course is the free trade agreement between the US and Australia.

As a multilateralist, I'm appalled at this development. As a New Zealander, I see this as an historic point of economic divergence with severe implications and complications.

But, having said that, if I were the Australian Prime Minister, or Trade Minister, I'd bank the deal and see it as the basis for something more comprehensive in the future.

From a multilateralist viewpoint, these deals create a real problem of trade diversion. They distort trade flows; investment decisions are made on the back of deals that could change, and I've yet to see a bilateral deal that satisfactorily handles disputes. These deals hurt the multilateral system, diverting serious time in negotiations and are a bad second best. But if multilateralism and the Doha round of global trade talks are stalled, politicians will seek side and regional deals. I would, and, as NZ trade minister, I did.

One theory is that progress in bilateral and regional deals will put pressure on capitals to focus on getting a result in the Doha round. There's a bit of truth to that, because those left out have reason to worry. But the big loser of the Doha round so far is the Cairns group of agricultural exporters. This group, led by Australia, has not provided the leadership, the compromises, the ministerial papers or the political momentum that was so vital in the last round.

Meanwhile, ASEAN is negotiating with China and India. Talk of an Asian caucus has emerged – a caucus without Caucasians. And, by the way, what happened to the APEC resolutions by leaders? This was to deliver a deal for developing countries by 2010, and developed countries by 2015. APEC covered the whole Pacific basin, Japan, US, Canada, outward-looking a stepping stone for the WTO negotiations.

It's a bit hard to argue for APEC when contradictory timelines, products and rules are being decided bilaterally and in smaller groups. Even more reason to cut through this spaghetti junction of deals and conclude the Doha round.

I believe that this trade round can still succeed. No round has ever failed, they just take too long.

US Trade Representative, Robert Zoellick, sent a letter to fellow trade ministers recently in an attempt to get the Doha Development round of negotiations moving. Saying he did "not want 2004 to be a lost year for the World Trade Organisation negotiations", Zoellick urged his colleagues to commit themselves to an end to agricultural export subsidies. Unless they do so, it will be difficult to conclude meaningful negotiations.

Pascal Lamy, the EU Trade Commissioner, has also made a step in the right direction by dropping two contentious issues for developing countries - investment and competition policies. This leaves government procurement and trade facilitation as outstanding barriers to agreement. Both of these areas can be managed by careful sequencing, a stringent best-practice approach and the option to opt in or out over a set period of time.

With the US and the EU both showing signs of flexibility, we need not allow momentum on the round to be slowed because of coming elections in the US or elsewhere.

I would now like to briefly discuss the question of the environment. There is a cottage industry made up of unelected alarmists who argue that free trade and economic growth are twin enemies of both the developing world, and the environment. They clearly haven’t spent much time in the poor countries, because they would find little appetite for closed markets and economic stagnation.

Poverty, not economic growth, is bad for the environment. Corruption and antidemocratic governments in the Third World are the worst environmental vandals. Therefore, lifting people out of poverty through free trade and open markets, and replacing totalitarian regimes with democracy, the rule of law and an active civil society, are the best solutions to the world’s environmental problems. Let me explain what I mean.

All serious research shows that poverty is the greatest threat to the environment. People don’t live in polluted squalor by choice, nor do they trek miles to strip trees for charcoal because they want to. There is a direct connection between raising living standards and better environmental outcomes. Rich cities are cleaner than poor cities. Every time we lift people out of poverty, we lift environmental outcomes.

Is economic growth, facilitated by trade, part of the problem, or part of the solution? As I said, extremists argue that trade is bad for the environment. But there is no evidence that trade between nations is more environmentally damaging than trade within nations. One major reason why environmental protection is lagging in many countries is low incomes. Countries that live on the margin are simply unable to set aside resources for pollution abatement, or may not think they should sacrifice their growth prospects to help solve global pollution problems, which they say in large part have been caused by the consuming lifestyle of richer countries.

If poverty is the core of the problem, economic growth will be part of the solution, to the extent that it allows countries to shift gear from more immediate concerns to longrun sustainability issues. Empirical evidence suggests that pollution increases at the early stage of development, but decreases after a certain income level has been reached, an observation known in academic circles as the Environmental Kuznet’s Curve.

Of course, pollution is only part of the wider environmental picture. The issue of water conservation is now rightly seen as one of the greatest challenges facing governments in both developed and developing countries. Australia is no exception. The recent drought and the imposition of stringent water restrictions in Sydney, Melbourne and elsewhere have correctly brought the issue of water into sharp focus in this country. Far from chafing at these measures, I am told that Australians have embraced water restrictions and governments are reluctant to relax them for fear of a political backlash. This neatly underscores the point that good environmental policy has become decidedly good politics in democratic societies with accountable governments and an engaged, informed and active civil society. Put simply, growth and democracy is good for the environment.

Environmental sustainability and economic progress are not anathema; they are inextricably linked.

It is not sustainable to rip from poor countries billions in tariffs, and then smugly return a little overseas aid.

It is not sustainable to continue to subsidies agriculture to placate powerful interests in wealthy countries at the expense of poor countries.

As I said earlier, we have come a long way in the past fifty years. There is a lot to celebrate. But there is no room for complacency. The job is nowhere near finished.

The next fifty years offers even greater promise. It is my hope that today’s leaders, and those that follow them, will have the vision and the courage to dismantle remaining barriers to prosperity and progress so that future generations will reap the rewards on offer from living in a world truly without walls.