THE EFFECTS OF GLOBALISATION BECAME EVIDENT from the late nineties onward. It initially became a catch-all phrase for any type of economic, social and cultural changes. Sutherland was one of the early and most prominent defenders of globalisation, which made him a convenient bogeyman for critics across the political spectrum. Very often he was attacked for views that he never held. It is therefore apposite to put in context the type of globalisation that Sutherland favoured and why. One of the most significant achievements of the closing stages of the Uruguay Round was getting the US to accept the creation of the World Trade Organisation. It was something that Sutherland was immensely proud of. In an interview many years later he said: ‘Like Jean Monnet, one of my heroes, I believed that creating an institutionalised legal system is key to creating an institution that will survive. I think that dispute settlement mechanism was the key advance. That is the huge success of the WTO.’ He became the first director general of the WTO in 1994, before leaving a year later.
According to Pascal Lamy, Sutherland’s departure from the WTO so soon after taking up the role, caused disquiet among his former colleagues. ‘And who are we or am I to judge. But for quite a number of people, the fact that he then went to Goldman Sachs and BP – one an investment bank and the other one an energy company, with all that happened with the environment that came to light – is something that, for many people, suggested that he changed sides in a way. I wouldn’t say that, but I think this is the way it was seen by some. And the reason for changing sides was for the money.’ But Richard O’Toole insists that Sutherland made it very clear when he took up the role in 1993 that he would do it for only two years. ‘That was the commitment he gave.’
According to Mickey Kantor, Sutherland’s career path after the WTO is not open to legitimate criticism. ‘He did a magnificent job in public service. Why shouldn’t he go to the private sector? I think it was a perfectly natural move.’
David O’Sullivan says Lamy’s comment is a ‘very French view … But I think you can regret Peter’s departure from public service.’ He wonders how Sutherland would have made his way back, even supposing he had served in the WTO for four years: ‘What comes next? If you were French or German or Italian you could go back and be a minister. As a minister you could become a commissioner again. But there was no path back for Peter, once he chose not to stand for election, in Irish terms.’
Sutherland may have left the WTO and forged a very successful career in the private sector, but just as in the EU, trade was never far from his thoughts. He remained a tireless advocate of free trade, which he saw as one of the most effective ways of lifting people out of poverty. His views certainly resonated with the times. Bill Clinton was the US president, while in 1997 Tony Blair would become the British prime minister; the two leaders would champion the so-called ‘third way’. In the 1990s, globalisation became the commonly accepted description of what was happening at a wider level in trade, commerce, finance, media and technology.
According to Roderick Abbott, who went on to become deputy director general of the WTO, the internet and the internationalisation of finance were more important than trade in pushing the globalisation agenda. However, a very interesting institutional dynamic that became evident during the Uruguay Round would later, he says, have much more profound effects on the political landscape. Up to that point, the political system had been primarily organised around the idea of the nation state. Political accountability resided at the level of national governments, because that was where the decisions were made. But during the Uruguay Round, Sutherland engaged directly with civil society and lobby groups. ‘He started dealing much more with civil society because the nature of a trade negotiation had changed. Now you had all of these separate things like environment, like climate change, like health and education – all of which you could claim were impacted to some degree by a tariff cut or by a decision to eliminate a non-tariff barrier of some kind. Peter’s legacy is that the whole nature of trade negotiations and trade agreements was going through this kind of change. And the stakeholders were absolutely changing.’
The changing dynamic between governments and civil society would have complex and unintended consequences. Most importantly, it changed the concept of political accountability. Key decisions that had very real consequences for the citizens of nation states were no longer the preserve of national governments, but were taken by people like Sutherland, at the helm of multilateral organisations. The rationale for European integration is that by pooling sovereignty, countries can better deal with issues such as climate change; or that, by negotiating as one bloc, the twenty-seven EU member states can strike much better trade deals than if they all individually pursued the same objective.
In the good times, and when the benefits were shared widely, most people were happy to go along with the new global order. After all, globalisation, particularly in the area of trade, greatly increased prosperity. But there would also be losers in this increasingly globalised world. Some industries in the developed world could no longer compete with cheaper imports from developing countries. The deindustrialisation of many developed countries devastated communities, which inevitably prompted a backlash.
Nina Pavcnik is Niehaus Family Professor in International Studies for the economics department at Dartmouth College, a US Ivy League university. Widely regarded as one of the world’s leading experts on trade and globalisation, she says that trade on the whole can be beneficial for a country, but it generates winners and losers; the question then becomes how a government compensates the losers so that they benefit from globalisation as well. ‘People knew that trade would have consequences for income inequality in a country, but the assumption was that a rising tide would lift all boats, i.e. those who were losing out might be lifted.’
After the Second World War, most international trade was between developed countries, but from the 1980s onwards much more trade took place between developed and developing countries. Trade between developed countries tends to be a win-win situation: companies benefit from economies of scale and innovation, while consumers benefit from cheaper goods. In general, says Pavcnik, this creates a lot of benefits and has no stark downsides.
But trade between a developed and a developing country creates a lot more conflict. The downsides are much more pronounced: some industries contract if there is no comparative advantage. Following the Uruguay Round, says Pavcnik, there was a lot more trade between developed and developing countries. ‘And while everybody knew that trade has distributional consequences, I don’t think anybody realised how hard some people would be hit by this. Countries like the US are not well equipped to deal with those made worse off by globalisation. This didn’t become obvious until later on, in the late 1990s, 2000s and now. If you look at how much China impacted the US, it didn’t become obvious until the last decade.’ The effects, she points out, are also geographically concentrated, while the people who are most affected tend to be less well educated and older. It is much harder for them to adjust. ‘Trade from a country’s perspective is still a good thing, but there are also losses, and these are hard to address.’
Because the people hurt by trade are geographically concentrated, moreover, this undermines the tax base of the regions affected. And this has obvious consequences for the next generation, because there is less revenue available to pump into areas such as health and education. In other words, it can lead to a downward intergenerational spiral.
The politically loaded question then was, how would discontent with globalisation manifest itself? National governments were no longer in control of the forces shaping the everyday lives of their citizens. In one sense globalisation has created huge tensions and helped lead to a resurgence in nationalism. This is most obvious in the backlash against the EU. Indeed, the idea of losing sovereignty threatens to unravel decades of European integration of the kind Sutherland so assiduously promoted. Brexit was in part a response to globalisation. Another obvious manifestation of the backlash was the election of Donald Trump as US President. Trump campaigned on a platform of economic nationalism, while his presidency has been punctuated by frequent threats to start a trade war, particularly with China. He has even threatened to withdraw the US from the WTO. It would seem that Trump is an implacable opponent of any form of multilateralism.
Niall FitzGerald, the former chief executive and chairman of Unilever, says open markets are economically desirable, once they are properly managed. ‘Brexit and Trump were not a direct rebuke of what he [Sutherland] stood for in terms of free trade and open markets. They were a rebuke of the political systems in the UK and the US which didn’t ensure that the benefits of those had been more evenly distributed.’
FitzGerald attended Boston University in 2011 ‘to receive an award of some sort’. The title of his acceptance speech was, ‘What happened to the American Dream?’
‘I told the audience that I should probably address them from the door as they may want to punch me afterwards. I am a great supporter of the US. The economy has done many things: it is open and welcoming. The American dream was that each generation would do better than the one that preceded it. Within each generation, if you work hard you can move through the social strata. That was true until twenty years ago. This is the second generation that will be worse off than their parents: 90 per cent of the growth of the total economy has gone to 1 per cent of the population.’
His message to the audience that night was that even if their only motivation was to keep what they had, then they had better play a part in restoring the American dream. ‘Because if you don’t it will come back to bite you and destroy you. If you don’t make a large body of society feel that they are participating in this in some way, then eventually your system will be rejected. That is what we have seen in the US, and that is what happened with Brexit.’
According to FitzGerald, Sutherland’s work on migration was motivated by a desire to ensure that the benefits of globalisation were distributed evenly. ‘Where Peter was less understanding was that one of the consequences is that there was a growing cohort in the developed world who were beginning to suffer. It behoved politicians in the developed world to ensure that the case for global free markets was not damaged by the growing disparity in the sharing of the rewards. Poverty might have been erased at an unprecedented pace in the third world, and that is what Trump has played to. It didn’t need to be like that – that cost to blue-collar workers in the US and the UK.’
Assessing Sutherland’s legacy is almost as complex as assessing globalisation itself. Klaus Schwab is the founder of the World Economic Forum (WEF), perhaps most famous for its get-together every January of the world’s most powerful political and business leaders in the Alpine retreat of Davos. Schwab first met Sutherland at Davos in 1988 when he was European commissioner, while Sutherland was on the board of the WEF between 1995 and 2014 and attended every Davos meeting between 1988 and 2015. He was often depicted in profiles as ‘Davos Man’.
Schwab claims that people tend to conflate globalisation and globalism, even though they are two distinct entities. Globalisation is a process that describes global linkages in trade and other areas. Globalism is a philosophy which believes that everything should be submitted to the neoliberal forces of the markets. ‘In my opinion it is a populist argument to mix up globalisation and globalism,’ he says. ‘Let me be very clear, I do not support globalism and neither did Peter.’ Schwab says that over his close to thirty-year relationship with Sutherland, the two extensively discussed trade and related issues. ‘Peter was the most sophisticated and deepest thinker on trade and globalisation I have ever met. I have never met anybody of his general intelligence. What mainly brought us together was our common philosophy, which was the stakeholder concept. Business should not only serve shareholders. It should also serve society. As a former head of the WTO, Peter was very much in favour of a rules-based, open system. But what I liked so much was his social responsibility. He believed in responsible globalisation, not unfettered globalisation.’
Following his career with the US government, Rufus Yerxa was deputy director general of the WTO for eleven years, and is now president of the National Foreign Trade Council in the US. He says that the globalisation Sutherland helped to create has been ‘remarkably successful’: ‘The Uruguay Round and the World Trade Organisation is only a part of it, obviously. The vast majority has to do much more with technology, technological change, the information revolution and automation, and the remarkable changes that created in the ability to trade things. The interesting thing about the backlash against globalisation is that once people see the stark reality of the alternatives which are now coming out under Trump’s version of economic nationalism, they will start realising how absurd that notion is and that a lot of globalisation is inevitable.’
According to Yerxa, the challenge for societies is not how to stop globalisation but to ensure that domestic policies, in terms of taxes, education, training and infrastructure, are calibrated for living in a more globalised world. ‘I’m not sure that holding all the old structures in place with an old infrastructure of highly restrictive trade norms, in a world of expanding technology, would have worked. I certainly don’t think it would have worked any better than what we have today. If we hadn’t had the Uruguay Round, I think a lot more people would have been poorer. I don’t have any doubts in my own mind that this was the correct direction to go. I do think that governments have been very, very slow in reacting to changing technologies and patterns of trade, and in making it easier and facilitating it rather than fighting it or not adapting to it.’
He accuses the US of being guilty of this more than most countries. ‘I think Europeans have actually done a better job, but my own country is a classic example. And it has obviously led to greater wealth disparity and a certain segment of society that hasn’t adjusted well at all. But that shouldn’t mask the fact that millions of people have adjusted well. That’s the ironic thing, millions and millions of Americans have adjusted well and are doing pretty well. But there is a segment of society that is doing less well than they were, partly because they were so highly protected in the past.’
According to Pavcnik, one of the most tangible benefits of the WTO is the dispute settlement mechanism: ‘The WTO has been very good at focusing on trade-related issues.’ A lot of the bilateral deals agreed over the past two decades, she says, have contributed much more to income inequality and the other downsides of globalisation than anything that was a consequence of the Uruguay Round. She cites the North American Free Trade Agreement (NAFTA): ‘While NAFTA did have clauses that would protect workers’ rights, ultimately they were just there to acknowledge those issues. They were in effect in the agreement to enable multinationals to gain access to those markets. You can’t really say that with the Uruguay Round. There was a backlash, but Brexit was more about migration than trade. In European countries there is a better safety net and they are better able to cope with displaced workers. I think the backlash in Europe has more to do with migration, and by that I mean a clash of cultures. There is less of a backlash against trade. In the US, where there is much less of a safety net, there is a bigger backlash against trade.’
She says that neither Bill Clinton nor Barack Obama made enough provisions to cushion US communities against the downsides of trade when they negotiated NAFTA deals. ‘The interesting thing is that the jobs are being outsourced to lower cost countries, but if that wasn’t the case then these jobs would have been displaced by technology.’ The problem of what to do with the displaced workers would have remained. ‘The difference is there is a much bigger political backlash against trade. I don’t view this as a failure of the Uruguay Round. I view it as more of a failure of a developed country’s social safety nets.’
The backlash against globalisation did not start with Trump, however. From the late 1990s onwards, G8 summits (gatherings of the eight largest industrialised world entities to discuss current issues) were more often than not hijacked by anti-globalisation protesters, and the protests were often violent. The anger might have been inchoate, but it has become increasingly destabilising in political terms. The immediate effect of the backlash was to derail the Doha Round of trade talks.
Doha was supposed to be the follow-up agreement to the Uruguay Round, and it kicked off in 2001 with a much more ambitious agenda. Pascal Lamy was head of the WTO when Doha was launched. But it got off to a difficult start and never gathered the momentum needed for talks of this scale to succeed, generally lurching between crisis and standstill.
The first politician of international significance to publicly attack Doha was Hillary Clinton, who in 2007 was a US senator and had just declared her intention to seek the nomination of the Democratic Party for the 2008 US presidential election. In an interview with the Financial Times, she raised questions about whether it was worth reviving the stalled Doha Round if she were elected US president, and said that theories underpinning free trade might no longer hold true in the era of globalisation. She called for the US to take ‘time out’ on new trade agreements: ‘I agree with Paul Samuelson, the very famous economist, who has recently spoken and written about how comparative advantage, as it is classically understood, may not be descriptive of the 21st century economy in which we find ourselves. I want to have a more comprehensive and thoughtful trade policy for the 21st century. There is nothing protectionist about this. It is a responsible course. The alternative is simply to pick up where President Bush left off and that is not an option.’[1][fn1]
Shortly after Clinton made those comments in 2007, Sutherland took issue with her, also in the Financial Times, saying ‘I was deeply worried by that intervention. It seems to me that the Doha Round is very, very important; it also seems to me that it is in deep difficulty at the moment.’ First of all, he noted, it was often forgotten that the discipline brought by the WTO into trade negotiations, especially the integration of China into the global trading system, had been crucial in providing rules for the worldwide liberalisation of economies, which had led to years of sustained growth and had been very important in the development of the so-called BRICs – Brazil, Russia, India and China. ‘If the Doha development round fails, and at the moment one cannot be confident at all that it will succeed, then this clearly has an effect on the global trading system. One aspect of that effect clearly will be the proliferation of regional, or inter-regional, bilateral trade negotiations, which I think is a bad thing. The so-called “spaghetti bowl” of agreements brought about thereby created confusion and undermined global intra-dependence. So I am very worried about the present situation.
‘So, the way that the Doha Round seems to be taking second place in political discourse, the way that it seems to have been referred to by Mrs Clinton – and others, it should be said, in the United States are adopting a similar line – it seems to be a line that is popular amongst many in Congress – a somewhat more protectionist approach – and we’ve had evidence of it here in Europe as well, is quite the wrong way to proceed.’[2]
The last time Rufus Yerxa saw Peter Sutherland was at a conference in Salzburg in 2011. By that stage, the Doha Round was in deep trouble. Sutherland, he says, had taken the view that it was a mistake to launch the round because there was too little common ground between the major players. ‘His view was now that it was started, it had to be finished. He was a strong supporter of finishing it. If he had still been director general of the WTO he would not have launched it that quickly.’
The commencement of Doha just seven years after the conclusion of the Uruguay Round was in part a misjudgement, felt Sutherland, on the part of the WTO’s Pascal Lamy. ‘He felt that Lamy was not very politically adept at finishing things. And I think he was critical of some of Lamy’s decisions. On the other hand I think he didn’t blame Lamy completely for the deadlock. I mean everybody knows it was more a function of deadlocks among the major players. And at the point we were in 2011, he gave a pretty dismal presentation to the Salzburg Seminar about the prospects for finishing the round and the embarrassment that it was creating for the WTO.’
In 2011, Sutherland was invited to write a report on the state of the Doha talks and what could be done to break the impasse. Titled ‘The Doha Round: Setting a deadline, defining a final deal’, the report was commissioned by the governments of the UK, Germany, Turkey and Indonesia. When Sutherland gave an interview to the in-house TV channel of the WTO in 2011, just after the report was published, he said again that the Doha Round was in real trouble.
‘We find ourselves ten years into this round, even though in 2008 we were within a whisker of striking a deal that would be very important for the global trading system. Why this has happened is that the political will in vital areas has been absent. If this goes on then the round itself is doomed. I think it is a truly dangerous state of affairs. There is only a small distance left to travel. The fear is that multilateralism as an instrument in bringing countries together will be irrevocably damaged – there will be an absence of political will. I have spoken to a number of heads of government over the past number of months. They all express desire to conclude, but are they going to grasp the opportunity? It is insane if it is allowed to fail. Because it is a lose-lose situation if it fails, particularly for developing countries. The gains are incalculable. Putting figures on market access is extremely difficult, but we have seen figures of €360 billion as the minimum that could be expected from increased trade flows. That could be up to €750 billion with additional flows.’
Sutherland continued to say that significant benefits for consumers can arise from a multilateral trade deal – but because the process is as complex as it is opaque, it is hard to get public backing for these talks and that is why fatigue can set in.
‘Businesses which were the motors behind previous rounds have backed away. I think this is tragic. After the war the World Bank and the IMF was created. The one piece that was missing has been the great institutional achievement since that is the WTO. We created a brave new world, which allowed us to integrate China, for example, in a rules-based global system. I remember going there and seeing plans they had which show a move away from a command economy to a market rules-based system. And that is what they have done. If you remove that and go back to the law of the jungle, to bilateral deals, where it is the powerful against the weak, then we are saying something that is very damaging to mankind. I know that might seem like a hyperbolic statement, but it isn’t. What we have here is a demonstration of countries working together with a legal system at its core.’[3]
Sutherland concluded the interview by drawing lessons between where Doha was in 2011 and the Uruguay Round. The deadline system had been very effective in focusing minds in 1993, he said. ‘I think it is needed again, because people are willing to go on negotiating forever in this city. But history will remember them because they can be identified.’
In the event, the Doha talks broke down irretrievably. Globalisation is now at a crossroads. The sort of multilateralism that Sutherland advocated is out of political favour. In fact, Donald Trump is openly hostile to the concept.
The context has changed considerably over the past two decades, says Klaus Schwab; those who support globalisation need to be mindful of the new landscape. ‘We have to be much more aware of our eco-system. Things have to change if we want to leave a world that is still enjoyable for our children and grandchildren. We need to change the structure of globalisation to make it more sustainable.’ He argues too that although, from the 1980s to the early part of the current century, open markets created both winners and losers, there were mainly more winners than losers. Because of this governments found it a lot easier to remove trade barriers, and globalisation lifted hundreds of millions out of poverty. Today it is different, he says. ‘The losers who are left behind have a voice. They are rightly looking for much more social justice and not being left behind. We have to maintain a rules-based open system, but at the same time every government has a responsibility to protect the social cohesion of its countries, so there is a fine balance that has to be made because social cohesion is needed for the functioning of a society.’
Sutherland, with his belief in a rules-based system, never argued for unfettered globalisation, says Schwab. ‘But what we see today is that not everybody plays by the rules, and the rules have to be updated. The WEF has argued that we need international rules on things like artificial intelligence and blockchain. What is missing are two things. I think Peter would agree. We continue to need a rules-based system but we have to update those rules for today. I am a big believer in the Scandinavian model. We need to renew the social contract to look after those who have been left behind.’
Pavcnik says it is impossible to determine the direction of travel for the global economy. Citing the Trans Pacific Partnership (TPP), she doesn’t expect that too many trade deals will be struck over the coming years. Donald Trump pulled the US from the partnership in 2017. Japan and Canada are exploring whether a trade agreement can be reached without the US.
‘I’m hopeful that what is happening between the US and China in terms of a trade war is an isolated incident. In most cases globalisation has gone so far. We have interlinked supply chains and because of that globalisation won’t take a step back. But it’s just so hard to predict what will happen with Trump at the helm. It is very easy to criticise international trade. We have learned a lot from trade policy and the biggest lesson is that people get hurt. Because of this I’m hopeful that countries will spend more time addressing social safety nets in trade agreements.’
The area of corporate taxation and fairness, she says, will become a hugely sensitive political issue as it feeds into the perception of inequality. ‘There was hyper globalisation over the past decade. Looking back now, most economists and policy makers still support free trade, but financial liberalisation is much more questionable. And the most political area of globalisation is migration.’