Ernesto Zedillo, President of Mexico 1994-2000
Landon Lecture
May 3, 2001
More, Not Less, Globalization is the Answer
A few days before I concluded my mandate as president of Mexico, I was reading some correspondence. It was late at night, after a very busy day. I briefly stopped to wonder about my future life, admittedly with a tiny bit of anxiety. Then I restarted by reading. Soon I found a letter from Edward Seaton. I recall reading something like:
Mr. President, "After you finish your term you will be looking for work to support your family. I can't offer permanent employment, but I do chair the patrons of a lecture series at Kansas State University that would be delighted to have you participate." I guess to make his point stronger, Ed added, ... "It pays expenses and an honorarium" ...
I relaxed. I realized that, after all, there was life after the presidency.
Thank you, Ed. Thank you, President Wefald, for your invitation and your extremely kind introduction. Thank you Sen. Kassebaum-Baker. Thanks to all the patrons of the Landon Lecture Series.
Like every speaker before me in this lecture series, I pay sincere tribute to the memory of Gov. Landon. And perhaps the best way I can do this is by addressing, albeit from a somewhat different perspective, a fundamental concern he had as a true statesman of his time: the stability of our world.
Interdependence, prosperity and stability
I start today by submitting that the biggest threats to such stability are violent conflict and poverty among the peoples of this world.
Old and new disputes between peoples, incongruous with the modern moral and political values of mutual tolerance, continue to render ours an unsafe world. This fact is constantly and abruptly attested by means as mundane as the evening news.
Throughout the world, poverty poses an even greater threat to stability than conflict, in spite of the unprecedented economic and technological prosperity that has been achieved since the end of the second world war. According to the United Nations Organization, half of the world's population lives on less than $2 a day; 80 percent of the global population lives on less than 20 percent of the global income. Disparities in people's access to education, health, nutrition and job opportunities are equally dramatic, among and indeed within countries.
Of course, I do not come here, nor am I qualified, to say all that has to be done to overcome conflict and poverty among the peoples of the world. But this morning I do intend to convey to you, with all conviction, that a vital part of the solution consists of promoting among the peoples and the nations of the world more interdependence, or, as they say now, more globalization.
The essence of this assertion is very simple. More international trade, more investment flowing across countries, more knowledge diffused internationally among communities and individuals, by creating wealth, shared opportunities and common interests, will do much to defeat the evils of conflict and poverty during this new century.
Of course, this is an old idea. About two centuries ago Adam Smith and David Ricardo, the most distinguished classical economists, explained how free trade can enhance the wealth and welfare of nations. And in the mid-19th century, Cobden, the British politician and pacifist and an outstanding opponent of protectionism, affirmed that "free trade is God's diplomacy and there is no other certain way of uniting peoples in the bonds of peace."
These are good old principles, but unfortunately not generally accepted and often bitterly opposed.
Just recall the television images of violent protects of a few days ago in Quebec City at the Summit of the Americas or of December 1999 in Seattle at the World Trade Organization meeting. An unusual mixture of extreme leftists and rightists, trade unionists, radical environmentalists and self-appointed representatives of civil society have joined forces in Seattle, Quebec City, on the Web, and in many other places to save the poor people of developing countries from development; that is from prosperity and social justice.
The protesters, whom I like to call globaphobics, will not agree with this portrayal of their motives. They believe they have purely altruistic reasons for opposing globalization. But on close scrutiny their common agenda turns out to be sheer protectionism, mostly targeted against developing countries.
In my view, they are as wrong as those within the political establishments of both developed and developing countries who continue to believe that isolationism is a good policy.
Isolationism never was, and never will be, a good policy.
Throughout modern history, autarky and isolation have been major causes of backwardness, poverty, confrontation, and even political oppression, all with a high toll of human suffering.
The bad lessons of protectionism and isolation are to be found even in the United States, long distinguished for its economic and political freedom. Let us not forget the Smoot-Hawley Tariff Act of 1930, which brought U.S. import tariffs to their highest protective level in the country's history, and prompted widespread protectionism. The Act had calamitous consequences for international trade.
Other countries have not been so lucky. Many in Latin America, for example, failed to develop to their enormous potential in the 20th century because of their protectionist and interventionist economic policies. Lack of competition created very inefficient economies biased against labor and consumers, propitious to corruption, and prone to recurrent balance of payments crises.
In contrast, one can see, based on sound historical evidence, that during the last two centuries, every country successfully emerging from underdevelopment has relied on integration into world markets, exporting to and importing from other countries, and opening up to foreign investment and technology. In a word, every one of these countries has relied on interdependence.
There are plenty of success stories to tell. The prosperity of what are today considered fully developed countries is due in no small measure to their access to world markets. This is the experience of the so-called Quad countries, the United States, the European Union, Japan and Canada, and it is starting to be the case in some emerging economies. Singapore, Hong Kong and Taiwan, for example, which were extremely poor a few decades ago, now have some of the highest per capita incomes in the world, thanks fundamentally to their integration into the global economy.
I have no doubt that this formula will also work in the case closest to my heart: Mexico.
My country's development was much delayed because of protectionism, framed during many years of poor macroeconomic management and asphyxiating state intervention in the economy.
We were able to keep our bad policies for so long because of our relative isolation and lack of the checks and balances usually provided by a truly democratic system.
Happily, those unfortunate circumstances are now a thing of the past. Mexico is now fully democratic and has one of the most open economies in the world. Mexico now has good foundations to attain development in the years to come. Of course, that those foundations can and will be improved, I am pretty sure.
Core to Mexico's new circumstances in the North American Free Trade Agreement. Contrary to the predictions of its early opponents and critics, NAFTA has performed quite well. Since it entered into force in 1994, the agreement has effectively supported Mexico's economic growth, which in 1996-2000 was the highest for a five-year period in several decades.
And NAFTA has been crucial in transforming Mexico into one of the world's biggest exporting powers, within just a few years. Within only seven years, Mexico's exports as well as the inflow of direct foreign investment have increased more than 200 percent. Mexico sells much more, but it also buys much more from its partners. Mexico is now the second-largest market for American exports. Last year alone, Mexico bought almost $130 billion worth of US products. Mexico now buys more from the US than Japan, the United Kingdom and France put together.
But the most meaningful story is not in the figures. It is in the people, who thanks to Mexico's participation in the global economy, now have better jobs to support their families. More than half of the new 3.5 million jobs created in the Mexican economy since late 1995 have been in activities related to foreign trade. Modest workers, skilled technicians, young engineers in many parts of Mexico have told me about their new occupations with enormous pride and satisfaction. I can recall now the glow in the face of many young Mexicans, like Rosa, a worker I talked to while visiting, as president, a huge television assembly plant in Juarez, Chihuahua, Mexico, a few years ago. She proudly showed me the skillful work she was doing. I remember her saying with enormous self-esteem that thanks to that job she was helping her father to provide for the support of the family and that her younger sister and brother were getting a good education. In Rosa, as in many other young workers throughout my country, I saw the real human face of globalization.
Opponents of free trade rush to point out that notwithstanding NAFTA, the wages and living standards of Mexican workers are still much below those of developed countries. They forget that for workers with newly acquired jobs in trade-related activities the alternative is much worse -- unemployment, or a peripheral job with much lower income! They also forget that the new jobs are often an important step toward better opportunities. Rosa, for example, mentioned that she was attending technical school in the evening so she could soon become a supervisor. Surely Rosa knows better than the globaphobics that Rome, or for that matter any of the great pre-Columbian cities, was not built in a day. Perseverance is the mother of achievement.
It is because of the benefits of openness that I decided as Mexico's president to launch negotiations to achieve free trade with other countries and regions beyond NAFTA. We succeeded. By the time I concluded my presidential term, Mexico had free trade agreements with 32 countries, including the members of the European Union. Today, no other nation of the world has free trade agreements both with North America and Europe.
I know Mexico can do well. But that is not enough. In the 21st century, underdevelopment, poverty and injustice must be overcome everywhere. This is a moral imperative but it is also a matter of self-interest to every nation of the world. In the global village, sooner rather than later, somebody else's poverty very soon ends up being one's own problem: of lack of markets for one's products, illegal immigration, pollution, contagious disease, insecurity, fanaticism, terrorism.
Need for further trade liberalization
A key ingredient in this endeavor is to get rid of remaining barriers to the free flow of products, services and investments. Past efforts at global trade liberalization, notably the so-called Uruguay Round, have been big steps forward.
But more and better should and can be done. Immediate action must be taken simultaneously at both the global and the regional levels.
At the global level, a new liberalization round is urgently needed. The previous one, the Uruguay Round, was launched in 1986, and certainly concluded with more pluses than minuses seven years later. Serious studies report that a new round would bring about significant increases in the output of both developed and developing countries. Consequently, the case for a new round should be universally compelling. But purely parochial interests and negligence on the part of the major trading powers have stood in the way. The infamous Seattle World Trade Organization meeting in December 1999 failed to launch a new round, not because of the globaphobics' protests but because of sharp differences of opinion among both developed and developing countries.
There will be a new chance in Quatar in November this year when WTO will hold a new ministerial meeting. Success in launching a new round will not come by itself. The richer trade players -- the US, the European Union, Japan and Canada -- have a particular responsibility to make it happen. They must sort out big disagreements among themselves while addressing both self-interest and generosity, the legitimate concerns of developing countries. Not only richer countries but every party involved will need to compromise. Developing countries must commit to get rid of their remaining protectionism within a reasonable time frame.
Reaching consensus for a new round of trade liberalization will not be possible without a comprehensive and well-balanced agenda of the issues to be tackled. These issues include complex topics such as dismantling the pernicious agricultural protectionism that still prevails in many of the richer countries; slashing the high import duties that still exist on certain industrial products; and preventing the abuse of antidumping measures. Welfare gains would be even greater if the new round also liberalizes trade in services and investment; if it yields a better system for settling disputes; and if it provides for new rules governing the management, transparency and adequate funding of the WTO itself. This is a very ambitious agenda. But its bold undertaking is more than warranted by the scale of the development challenges we face throughout the world.
At the regional level, promising avenues to achieve free trade should also be actively pursued.
In the Americas, the outcome of the recent Quebec City Summit of the Americas must be applauded. Leaders of 34 American nationals reiterated their commitment, first adopted in Miami in December 1994, to have in place the Free Trade Area of the Americas (FTAA) by year 2005.
By the same token, the Asia-Pacific Economic Cooperation Forum (APEC) should be reinvigorated. Late in 1994, the leaders of APEC -- which includes practically all of the Asian and American countries bordering the Pacific -- agreed on the goal of achieving free trade in the region by year 2010 in the case of developed economies and by 2020 in the case of developing economies. This is a goal whose importance transcends the purely economic dimension, considering that the US, China, Russia and Japan -- all of them key players in world security and stability -- are APEC members.
Notice that the three NAFTA partners -- the United States, Canada and Mexico -- are part of all three fora that are of great relevance for further trade liberalization: WTO, FTAA and APEC. It is only reasonable to suggest that the NAFTA partners should agree on a common strategy to promote free trade and should undertake to play a catalytic role in the negotiations ahead. In this task, a firm guiding principle must be that regional agreements must be building blocks, not stumbling blocks, in the construction of the global trading system. This means that regional agreements must have full consistency with the WTO rules, existing and new.
Globalization and political responsibility
Moving forward -- I should say uphill -- in liberalizing world trade and investment is important not only to create new development opportunities, but also to avoid a costly and even disastrous reversal of the progress achieved thus far. Further liberalization is the most effective response to the new wave of globaphobia, to which politicians of the most diverse kinds are accommodating too quickly. Some politicians have joined the globaphobics for short-term electoral gains, under the cynical belief that globalization is anyway an irreversible process, driven by technological change in production methods, transport and telecommunications, and unaffected by politics.
Such a view is mistaken.
I believe, based above all on practical experience, that modern globalization has occurred because of the decisions and actions taken by nation-states -- which are fortunately, by the way, still run by political leaders!
Global integration has been driven by technological progress and economic incentives, but it would be inconceivable in its present form without the host of fundamental political decisions that have been taken at both the national and international levels. The global integration we have today results from political decisions taken by sovereign states -- at the national level to liberalize domestic economies and foster the workings of the market -- and at the international level -- to sign on to agreements to liberalize foreign trade and investment. And the WTO, the European Union, and the NAFTA have not just happened, as the inescapable result of technological progress. They are above all the result of political vision and decisions by sovereign states.
Acknowledging the strong political roots of globalization brings with it both good and bad news: The good news is that notwithstanding their current adverse reputation, politics and the decisions of nation-states are still doing a lot of good.
The bad news is that, contrary to the cynical beliefs that referred to before, globalization is not irreversible. Technological determinism is a fallacy today, as it was before. The remarkable globalization of the late 19th and early 20th centuries, driven by technical progress in communications and energy, was largely reversed during the 1920s and 1930s by political decisions, with dramatic consequences for humankind, even as technical progress continued its forward march.
Beware of the risk that politicians, wrongly more concerned about the next election than the next generation, can still resort to new forms of protectionism, can ignore the urgent need to continue striving for a rules-based international system, or, at the very least, can make economic policy mistakes, leading to a less propitious environment for the expansion of the international economy.
In my bet on the answer to that question, the bottom line -- or, I should say, the dividing line -- has to do with freedom. I deeply believe that people are left behind because they are not free when they lack food, education, training, health, basic human and political rights, security, elementary infrastructure and employment opportunities. Provide the people left behind with these elements, through good social policies designed and applied by democratic institutions, and you will see them empowered to share fully the tremendous opportunities stemming from the market economy and globalization at large.
Rosa, whom I mentioned earlier, told me that she and her parents had migrated from a tiny village in Michoacan state, in the Southwest of Mexico, where she had studied up to the ninth grade in a public school. I was glad to hear that even in a small and very poor town there was a government secondary school. I guessed that without such a modest but meaningful education opportunity, Rosa would have never got her job at the television assembly plant. That secondary school is probably what put Rosa on the right side of the exclusion line.
Of course, erasing the exclusion line is not easy. It requires democratic governments that can successfully combine sound macroeconomic policies -- including inescapable fiscal discipline -- to achieve sustained economic growth, with social policies -- sensible, human-centered, focused on the neediest -- to win the right against poverty and inequality.
And let us admit that in many countries, the poorest ones in our world, good domestic policies and access to world markets will not be sufficient to let people jump the dividing line. International cooperation, much more vigorous and effective than we have today, will also be needed. In that respect, unfortunately, the status of development aid and all other forms of international cooperation is truly dismal. In the late 1960s a commission, headed by the Nobel Peace Prize-winner and remarkable free trader Lester Pearson, recommended better-off countries to provide 0.7 percent of their Gross Domestic Product in Official Development Assistance (ODA) -- a criterion that was endorsed by the United Nations and by many donor governments. It is sad that today ODA is much less than half that figure -- only 0.24 percent of the GDP of donor countries, on average. I sincerely hope that self-interest will soon mobilize the will and the resources of richer countries to provide more aid where it is needed.
Meanwhile the striving for global free trade must continue. Ladies and gentlemen, I hope that my words here today will help to make new allies for this cause. As Gov. Landon recognized on the occasion of the first of this lecture series, the benefits go to both rich and poor. Gov. Landon affirmed:
"Freer trade ... enables people of different nations to become better acquainted with the customs, beliefs, ways of life, and government policies of one another ... When international understanding is thus achieved, political tensions are reduced and voices of reason are easier heard and understood. This way is then prepared to move toward world stability, increased prosperity, higher standards of living and education, and peaceful competitive existence in international markets."
Great vision and courage were needed to recognize and express this promise in 1966, right in the middle of the cold war.
Today, we must be even more courageous. Faced with the threat of rising poverty, disease, environmental degradation and conflict we must grab the promise of freer trade and make it a reality. In countries across the world, we must help millions like Rosa cross the exclusion line. We must make true interdependence the reality of the new century.
Thank you very much.