22
Examination of witnesses
Professor Stefan Dercon and Professor Ian Goldin.
Q83 The Chair: Welcome to this, the eighth session of the committee looking at the issue of multilateralism. Welcome to our two expert witnesses here today; we look forward to this session. It is live on Parliament television, and I believe that there is an audience for it, apart from the large numbers we have in the Public Gallery today. You will get a transcript in due course which you can change for any minor defects that are there. I ask members of the committee to declare any interests that they have before they ask any questions.
I will ask the first question. I was the lead reviewer of the strategic defence review last year, and I think it is probably the only relevant interest to this particular inquiry. Both of you have a lot of expertise in this area, and I just wonder whether, in introducing yourselves to the committee, you might also look at the main characteristics that you believe are in the existing multilateral system and whether or not you believe that it is, as a number of witnesses have said to us, actually in crisis, and if so, why. I will ask Professor Dercon to start off with.
Professor Stefan Dercon: Thank you very much for asking me to comment on this. My background is that I am an academic at the University of Oxford. I was also the chief economist of DfID for a considerable period of time in the 2010s. Then subsequently I advised various Ministers in the FCDO as well.
As far as I am concerned, the way I would look at it is that there is obviously a real challenge in the multilateral system, as you were implying. We should not forget it was built essentially on a bargain between, say, US and European countries and the rest of the world, where the design was done by the West, and in return access and also possibilities for stability in the rest of the world were essentially guaranteed—definitely after the end of the Cold War, for decades, that should be the kind of feature of it. Of course, the geopolitics has changed dramatically. I am not saying that the multilateral system is on the brink of disappearing, but its legitimacy and credibility for a lot of players internationally have definitely been being questioned, and indeed its powers of enforcement of the rules of the game internationally are shortened.
We are in a situation of huge fragmentation that is happening because, when legitimacy is questioned, other countries are looking for alternative ways of doing this. You get proliferation of the G20, the BRICs and new kinds of regional banks and so on in the whole system. In that sense, we are definitely facing huge challenges. In building a credible system, I do not think that you can rebuild the old system, but actually there need to be ways of rebuilding a system and starting again from the bottom, building partnerships and coalitions of the willing to actually make progress.
Maybe, finally, I will make a very quick point on a scene from what is probably my main expertise, around international development. There we saw that the multilateral system of course, plays a huge role, but with massive proliferation and slippage of mandates and huge confusion in the system—who does what and how. A lot of multilateral organisations are not clear any more what their core business is. That creates unhelpful context in a lot of settings.
The Chair: Thank you very much. Professor Goldin, will you introduce yourself and give your answer to the question?
Professor Ian Goldin: Thank you very much. It is a huge honour and privilege to be here, and I appreciate the invitation. I am an economist who spent about half my career in policy and government and the other half since 2006 at the University of Oxford, where I am professor of globalisation and development and started something called the Oxford Martin School, which is the world’s leading centre for studying big global challenges and includes a lot of work in international relations but also on other topics.
I was born in South Africa. I came to the UK in 1978, involved in anti-apartheid, and lived here until 1994, when I was invited by President Mandela to go back and serve in his Government, be his economic adviser and run the Development Bank of Southern Africa. In that context, I was involved in many multilateral negotiations, including with the World Bank, which we barely borrowed from while I was in that role. When President Mandela stepped down, I went to the World Bank, where I became head of policy for the World Bank Group and the special representative to the UN for the World Bank, and also vice-president there under Jim Wolfensohn, was involved in many things with the UN—the millennium declaration, the beginning of the MDG process, and was also invited by Kofi Annan to be on the UN reform task force that he convened, along with Gordon Brown and many others at that time. Jim Wolfensohn retired and was replaced by Paul Wolfowitz. I resigned from the World Bank and, fortunately, the opportunity arose to come to Oxford in 2006, and I have been there ever since.
To respond to the question, I believe that the United Nations, the global multilateral system, is in crisis. You certainly would not want to look to the Security Council for help if you were in Ukraine or Palestine or Sudan. That and many other parts of the system are totally unfit for 21st-century purpose. One should not beat up on the people who work in these institutions, although they certainly are in need of very major reforms. It is the shareholders of these institutions, in the end, the major Governments of the world, that are responsible for them. It is to them that we need to look, which is why it is important that this committee and the UK thinks about its role in them. These institutions should be servants of the Governments which own them.
The World Trade Organization is completely stymied at the moment. The World Health Organization—which, to me, must be the most important of the organisations that we need to save us for the future—is in a worse state than it was in 2019, before the Covid-19 pandemic. The US, of course, is not funding it any longer. Global politics is making it a much more fractured operating environment.
We do not have a ‘united nations system’, but a ‘divided nations system’. Whether it is multilateralism, development or team sports, there is a big tension between the need for Governments to work together and a growing need from taxpayers, from voters, to see their Governments do things that are in their narrow self-interests. That, I believe, is part of the reason that this is happening.
The most sophisticated of the systems, finance, in which I am involved, failed to stop the financial crisis. I was at the World Bank as head of policy in the run-up to that crisis. We never saw it coming. As you know, finance, the World Bank, the IMF, the Bank for International Settlements and other multilateral institutions, along with our central banks and treasuries in our national Governments, are by far the most data-intensive, well-paid and powerful institutions in our countries. The fact that they failed to see the crisis coming led, for many people, to a collapse of trust in multilateralism and in metropolitan elites. Much of what we are seeing in the fractured world, in the democracies, follows from this failure of multilateralism. It is not a new crisis of multilateralism; it is one that has been building and brewing for many years. It is important that we try to fix it, because it is of vital importance for the future of humanity.
The Chair: Why did all these clever people, with all that data and information, not foresee the crisis that was coming?
Professor Ian Goldin: I think one reason, which is very relevant today, was the failure to understand technological change by old men like me, who were in the multilateral institutions but were also in the audit committees and were the CEOs of banks, but did not understand credit derivatives, which were the new gadgets. I did a BBC series called “After the Crash”, in which I interviewed some of these traders and said to them, “Did you foresee that your instruments would lead to this sort of thing?” They said, “Of course we saw that, but we felt like poker players on the decks of the Titanic, and we knew we would get out in time”. So one reason was this disconnect.
Of course, library shelves have been filled with books on the causes of the financial crisis. There were many reasons, and another was the political imperative of, “Do not prick the credit bubble while the party is going”. Politicians did not want to reduce the feel-good feeling that the credit bubble was creating, particularly in the US but elsewhere too. There is a real tension between the advice. When you speak to economists and when you speak to politicians, many of them now say, “Well, we saw it coming”. I think that is a rereading of history. Some individuals did, but clearly the institutional consensus was that this was manageable at the time. It was, I think, a failure of will. It could have taken an undergraduate to work out on the back of an envelope that credit derivatives were not sustainable, but this just was not something that was absorbed into the mainstream.
There was also clearly a failure of information. I think that the UK and Gordon Brown were surprised at the time when Lehman Brothers took a very large sum of money out overnight back to the US. That institutional failure to keep track of what was happening also lay at the heart of it.
Q84 Baroness Blackstone: Can you tell us what you think the UK’s role should be in large multilateral organisations over the next decade? In particular, do you think that there is a trade-off between, on one hand, support for multilateral engagement and, at the same time, the pursuit of UK interests?
Professor Stefan Dercon: It is important to always recognise who we are and what our role potentially can be, but also what our interest really is. We are a medium-sized economy these days, very open and very much exposed to global forces. It is in our interest, as the UK, that there are rules of the game and a clear sense of order.
We should be careful about national interests becoming very transactional—unfortunately, when I was working inside the system, I observed that too often—and about the quick wins. Flag-waving seemed to be leading while you were, in fact, just a smaller player in the whole system. That was very much communicated towards the UK audience, but without constructively building, in the medium term, the stronger rules of the game that are in our interest.
In a sense, a trade-off is not the right language, because it is in our interest that we have some form of functioning multilateral system. We should be willing to be selective, but the main thing is that it is multilateral and multisided. We need to build coalitions. We usually hear, “We’re going to lead the reforms”. Why do we not say, “We’re going to build the coalitions for reform”? Otherwise, we just stand here flag-waving. I find it a bit unfortunate that, yesterday, the Foreign Secretary again said, “We’re going to lead reform of the multilateral system”. Why cannot we use the words that we need, which is to build the coalitions so that change can actually happen, rather than making it about point-scoring and flag-planting?
The UK has to be selective. Professor Goldin has already alluded to that. The UK’s expertise lies in financial architecture; it should lie there and look at the issues. That is what we are strong in; we have been very good historically at setting the rules of the game. Virtually all bonds held by any Government in the world are under UK law. Those are things where we can keep on building, innovating, being stronger, probably doing better scenario planning and being aware of where the weaknesses are.
There are areas that are clearly in our immediate national interest as well, including for our own economy, but it has to be seen not transactionally but from the point of view of building a system that can serve us in the medium term, with coalitions of the willing. We can be a bit more imaginative. It is not just European countries or the US; we can think more broadly: where can we find new partners to build the rules of the game that can help our societies and economies?
Professor Ian Goldin: If one thinks about what the greatest threats to the UK are in the future, there is not one that could be solved by the UK alone. It requires co-operation, whether it is the next pandemic, climate change or the threat of Russia and conflict. Whatever it is—one can think of the growth of Britain and the free trade system—we are going to have to be part of a global coalition of countries meeting those threats. The idea that we could build high walls, insulate ourselves from the risks and prosper is profoundly misguided, although some people seem to still believe it, not least in the US.
That does not imply that we need to rely on the existing system of global governance to solve the problems. Part of the challenge is that the word “global” in that phrase makes us feel that everyone has to be part of every solution and agree to it. Indeed, we find that that is the reason why there is an impasse in many institutions, whether it is the UN Security Council, the World Trade Organization or the World Health Organization.
I believe that the UK should be at the centre of new thinking in creating creative coalitions that work to solve problems. Even if we solve only half the problem, or 80% of it, we should be very proud of the coalition in making these advances and the demonstration effect of working with others.
“Multilateralism” also implies Governments working together. That is very much stuck in the post-Second World War frame that founded the system. Of course, the UK, with Churchill, Keynes and others, was absolutely at the heart of that construction—Bretton Woods, the UN and other systems—but now we have a very different constellation of actors. When we think of the future of the system, we should not automatically think that only Governments should be part of it, or necessarily even in the lead. In the case of pandemics, we have seen the important role of collaboration with pharmaceutical companies, for example, with the UK taking the lead on that. In the case of past successes, like the closure of the ozone layer, it was about working with a small number of companies. In the case of the fight against HIV/AIDS, it, too, was about working with pharmaceuticals. Increasingly, we will have to work with artificial intelligence companies, like DeepMind, based here in London.
Broader thinking about what that coalition would be and who the key actors in it would be to make headway in resolving the problem, is extremely important. It is not only private sector actors but other actors, including professional associations, cities and, in the case of the US, states that have a vital role to play. Starting with the problem and thinking about which minimum set of actors would get us to make progress on this is a better place to start than thinking, “Which other Governments can I automatically talk to in order to make headway on this?”
Q85 Baroness Blackstone: You both implied the need for selection. Can you tell us what your three main criteria for selection would be?
Professor Ian Goldin: The first would be effectiveness and impact: which key actors will impact this outcome, be they Governments or others? Depending on what one is targeting, it would be very different. A pandemic, incidentally, is the extreme case, because it is the only threat the UK faces that requires all countries in the world to be part of a solution. A pandemic could come from the poorest village in the poorest country, or the richest lab in the richest country. That does not mean that all countries need to be primary actors in finding the solution. One could create rapid response taskforces that come from elsewhere, but Governments would have to agree to sharing data and being part of that. That is the only one like that. In the case of climate change, two dozen countries could resolve 80% of the problems of emissions—although not of adaptation—and in finance, it is an even smaller number of countries. So, the first selection criteria, depending on the problem, is identifying the key actors to build a coalition around.
The second would be subsidiarity: what is the lowest level of action one can include? I believe it is extremely significant that we do not aim too high. In other words, you will never get 100% of the solution. What minimum set of actors will make you progress, and how can this be devolved to different groups? Again, depending on the questions, these would be very different sets of actors. As we saw in the fight against HIV/AIDS, for example, non-governmental organisations became very important. In the case of pandemics, philanthropists would have to be part of a solution—the Gates Foundation is now the biggest funder of the World Health Organization. So, the second criterion concerns which group—but the smallest number of groups.
The third criterion needs to be a demonstration effect. Start modestly, build from that and show that you can make progress. There is a tension between being a team player and not waving the flag within these coalitions, because that will certainly alienate all others, and proving to voters and the public that one is getting value for money and that the UK is engaged. That tension should be managed in favour of getting the quick wins first and then advertising them, rather than the other way around. Prove to the public that one is making progress after one has made progress, not before.
Professor Stefan Dercon: Let me try to give some other ones, rather than just agreeing. The way I would go about it alludes a bit to what Professor Goldin talked about earlier on the lack of ability to foresee the financial crisis and so on. I probably have a slightly different view on it. The benefit of hindsight is very good but we need much more thinking about possible worlds and scenarios and what is possible. We have to think about the big challenges in the world and be willing not to say, “This is the scenario”. Sometimes the reviews we have seem to settle on, “This is the challenge in the world”. We are not thinking enough, because there are quite a lot of different challenges in the world and some will dominate over others. It is about possible worlds and trying to identify the key and important challenges where we should focus.
The second one is about asking what we, the UK, can do, which goes to the point about comparative advantage. The comparative advantage we have—where it will filter, even in terms of what may be happening—is in issues to do with the global financial architecture, debt and norm-setting around illicit finance. They are definitely the areas where we should have a comparative advantage. Another one is the area of science and applied science, and the norms and standards that come into issues.
The third one, although I sometimes fear that we are not as good at it as we like to claim, is our role in helping to stabilise the world. I do not mean that just from a defence point of view but from the complementarities in various ways of doing this. I know there used to be an extremely good collaboration between defence and the development side in the UK Government. Now it feels as though they are being played off against each other, which is not very sensible if the biggest challenge in a lot of settings is stability and the externalities that could have on the UK.
Those are the possible areas of comparative advantage. The final thing to say is that you can only do things if you have entry points. Perhaps this is a version of what Professor Goldin was saying. It is about thinking about where there is a chance for change—not just arguing about what the most important things are but asking: where do we have a chance to make something happen? It comes back to the question of where we think we can find some like-minded people around particular issues. If we go back to rebuilding an international rules-based system, we need to understand how we built it at the time. The trade system used to not be there. It took a long time, including GATT processes, endless negotiations and building from below before we got to the WTO and so on. We did not suddenly invent it at Bretton Woods. We need to think about where we can start. Get the entry points right, the right partners to begin to build on it and diversify your portfolio, because some things will fail and some will succeed.
Baroness Blackstone: That was very helpful; thank you both.
Q86 Baroness Crawley: Good morning, professors. My question follows on. You have given us areas where the UK can play to its strengths within the multilateral system. That is the key question for us with this committee inquiry: how should the UK approach multilateral engagement? You have given us some very useful examples. How do you prioritise that in a world where funding is tighter and tighter? We had a very welcome announcement today on UK bus fares, for instance. That was fantastic. Then you look at where the money is coming from and see that it is the international budget: where we were giving grants for climate change in developing countries, we are now thinking about loans. How do you prioritise? Should we engage where our strengths are? You talked about our financial strengths. Should we engage on future opportunities and problems, such as AI? That is always within the context of tightening national budgets.
Professor Stefan Dercon: Sorry, I have a bit of déjà vu of when I was working in government when the cuts came through, having to handle the spreadsheet and find £4 billion in five weeks and of being criticised that we did not do it well enough in five weeks.
There is a reality of tight budgets: they are too tight and choices are being made. But you asked how to prioritise. I will link back to what I mentioned earlier. We sometimes have a tendency to want to do things because they are important. A very typical thing in government that I have observed over all these years as a chief economist is that we identify a problem and think that we can solve it by putting money on it. In between, we do not think hard enough about how we can solve it and generally begin to think it through. That part of reasoning helps with prioritisation. It comes back to the question of whether we generally think through where the entry point is—where there is a chance that you can make an impact, rather than doing everything problem-based.
In international development, there are endless problems and all kinds of things we can spend money on, but we cannot solve all the problems with our resources. The priority needs to be thinking: “Is there an entry point for us to make a difference here?”, rather than saying, “This is an important problem”. Going back to my time inside government, it definitely helps a great deal if we do that a bit more systematically and do not just respond to problems. You mentioned AI. I am not an expert on it, but there is definitely a lot of expertise on it in the UK these days. In which bits and pieces would we have an entry point related to global norm-setting, for example? We can all cry about more global regulation tightening the hands of some of the biggest tech companies and so on, but where is the entry point? Where are the coalitions that can do it?
In my view, as I always tell my students, the “how” is often far more important than the “what”. Having a way of doing something helps you to decide where you will have the biggest impact, rather than having an endless list of problems that we need to tackle.
Professor Ian Goldin: To build on what Professor Dercon has said, I think it is important to reflect on the UK’s soft and hard power, as the late Professor Nye distinguished them. It is often the case that soft power can be generated with small amounts of money and become more important. My personal opinion is that cuts to the BBC World Service, for example, are not in the UK’s interests. One can also debate—Stefan was at the hard end of it—the cuts to the aspiration for 0.7% for international aid and where they have ended up today. They are part of the UK’s global reputation and ability to influence other debates. They get us seats at the table and give us a power that goes way beyond the amount of money involved.
There are other questions around what makes the UK special. I would argue that our commitment to human rights, democracy, anti-corruption and activities associated with them are central to what we are about. Therefore, I believe that easing off on the monitoring of the Bribery Act and of money laundering, for example, undermines in the process not only our hard power but, more importantly, our soft power and standing up for what we are. There is a growing tension between us and the United States on this. It has removed some of these constraints on its activities. There might also be growing tension with other democracies, in Europe and elsewhere. But I believe that at the heart of what the UK is able to offer other nations and people around the world is this question of standards and norms, which Professor Dercon alluded to. Cutting back on them is not in the UK’s interests.
After that, prioritisation is necessarily very difficult. I was involved in it in many countries in my context as head of policy at the World Bank Group. In the future, the UK will be more, not less, dependent on the rest of the world, and forming these coalitions will become more important for safeguarding our future than it is today. A key question is therefore: what budget cuts are we undertaking that will undermine that? Clearly, defence expenditure is one hard power issue, but it is only a small part of the future security of the UK. Pandemics, climate change and other threats are at least as important to the future of the UK, and there is a growing case for AI, too.
Creative coalitions do not mean that we can work only with people who have the same principles as us. That would be impossible because we would have no one to work with on many of the key questions. What it does mean is being clear and grown up in our discussions about our differences, ensuring that they are not swept under the carpet.
Q87 Baroness Prashar: Can you talk a bit about the impact of public attitudes towards multilateral politics and global governance? To what extent do you think the UK’s involvement in global governance and multilateral policies is constrained by public attitudes towards globalisation?
Professor Stefan Dercon: That is a really important question. There has definitely been a failure by many of us to first, properly make the case for global governance issues and issues to do with globalisation, and, secondly, to rethink it in the current circumstances—I will come to that in a moment. There is no doubt that globalisation, certainly around trade and so on, has been a huge driver in lifting the standard of living of huge amounts of people in poorer countries. For us, it has created a massive reduction in the cost of living and the prices of all kinds of goods. We see that disruptions in trade flows are now a big driver in the cost of living crisis.
Of course, globalisation as it was practised and with the rules of the game it had, benefited everybody as consumers, but it hurt some people, as workers and producers in Western countries. Finding a way of balancing these two interests is something that we probably fail to do properly in Western countries. This is also well understood in a lot of emerging economies. It is not just a matter of communicating better the benefits; there is a real task for us to build a case for a globalisation version 2.0 that can handle some of these issues better and that recognises that these liberalising forces in trade have lots of benefits but also come with at least temporary and sometimes longer-term costs, and then begin to build a system. It would serve the world very well and provide ways of building coalitions with all kinds of emerging economies which at the moment look at us more suspiciously, not least with all the trade barriers that seem to be emerging, explicitly in some countries and implicitly in others. There is a real case, and it is a matter of not just communication but design. It is about thinking carefully through what it should look like and not failing to communicate it this time.
Baroness Prashar: Thank you. Would you like to add something, Professor Goldin?
Professor Ian Goldin: Yes; as professor of globalisation at Oxford, I probably should. It is a much-abused term. People have a very different sense of what the content of globalisation is. For me, it means flows across national borders of all types. The good flows are trade, investment and vaccines, and the very bad flows are pandemics, financial crises, et cetera—what I call the butterfly defect of globalisation. It is absolutely endogenous; it cannot be removed. We are entangled increasingly with others around the world. What we do has an impact on them and what they do has an impact on us. There is no reversing this. High walls will certainly not reverse it because, as China found after trying for over a year to keep out a pandemic, they will not stop pandemics, climate change or the big threats that we face.
The question is: how do we manage these flows? The problem arises from the ever-widening gap between the growing intensity of the flows and the governance of them, which is increasingly fractured and national. That is why we have more and more of them and why we face greater threats from pandemics, the climate and other threats.
The political response for domestic constituencies needs to be able to demonstrate both that these flows have been beneficial and that people are better off, as Professor Dercon mentioned, but in multiple ways. We are all certainly better off for these flows. Autarchy is a recipe for disaster for any economy; North Korea is, of course, the extreme case of what it does to you. We need to demonstrate that more forcefully, but we also need to demonstrate that our future depends on this in terms of the need not only for goods and services, ideas, digital traffic and everything else but for co-ordination with others.
It is not going to be politically popular but it is the case that we need more globalisation, not less—but not of everything. We do not need more of the bads, such as illicit traffic or the many other bad things of globalisation—including, increasingly, illicit movements in cyber space—and we certainly do not need any of the bad flows, such as climate change and pandemics. Those require more management. We need to be able to differentiate between them. We need to identify them and work with others both to reduce the harms of globalisation and to enhance the goods.
This is true domestically as well. Communities in our country and in other countries have been hollowed out by these flows. We need to empathise with those people and think about trade reform and multiple other ways in which we can demonstrate to them, too, that they will have a better future not by being less integrated but by being more integrated with the world.
The race to the bottom on taxation is one of the very negative features of globalisation, with the creation of offshore tax havens and islands, and the incorporation of companies in other jurisdictions over which we have no power. The revenue-raising ability of Governments has been greatly undermined by this lack of governance. The OECD is trying to come up with principles as a basic low base for it, but it is being undermined. The UK being at the forefront of that discussion will be an important contribution to restoring faith that we can be integrated and still shape our own destiny.
Baroness Prashar: A recent survey that I read showed that young people in particular are becoming less globally minded, are less trusting of traditional allies and so on. This is against the background of digital, where they get information—in particular, TikTok. How does one deal with that? Where do Governments have to put their efforts? I hear what you are saying in terms of “what”, but it is about the “how” as well.
Professor Ian Goldin: Yes. There is an irony in people using global digital tools to be anti-global, but that is absolutely the case. It is true that many of the anti-globalisation movements are among the most globalised institutions. We—academics, Members of Parliament and businesses—need to be on the front foot much more here.
There is one thing about which I am always surprised. I was involved in the Uruguay round of trade negotiations, which shows how old I am. Businesses did not speak up on the benefits of lower tariffs and removing trade barriers. They were silent. If you read the FT, the Wall Street Journal and so on, there was virtually nothing from business leaders at that time talking in favour of trade reform and lowering tariffs. Those who believe in the importance of these things need to be more vocal in defending them.
Part of the challenge is that we do not use TikTok—I do not use it, anyway; it is a generational thing. Thinking about how we can use influencers is important. The UK was phenomenally successful with campaigns such as Make Poverty History, Band Aid, Live Aid and so on. It used icons of the time, such as Geldof and Bono, to get these messages out to young people, and it had extraordinary success, but we have done nothing like that since. In recent years, we have lost the ability to talk to multiple generations, as has Parliament.
Professor Stefan Dercon: I do not have much to add beyond that. This is an issue not just of globalisation but of the whole way in which we reach people. It is about how we can educate new generations on critical thinking and being willing to be critical. I am generally an optimist about many things but I think that, in a decade or so, we may look back at this period and say, “It was possible”.
I come back to the point that with strong coalition-building, given the expertise that we have in the UK, one should begin to think about what a governance system could look like. However, we should recognise that, if we do not have India or Colombia in this tent, we will undermine ourselves. We need to be willing to build a broad church around these things—not simply an on/off switch but something with a sensible regulatory role.
There are so many parallels here with the role in the economy and in society that robber barons played a long time ago. It took several decades, historically, before we found a way to manage that sensibly. I am optimistic that we can do it, but we all have to work on it.
The Chair: We have a former Chancellor of the Exchequer on our committee; he has a quick follow-up question.
Q88 Lord Lamont of Lerwick: I agree entirely with you that we have failed to make the arguments for globalised free trade and that it has been a great mistake to let the argument go by default. The problem is becoming worse, in a sense, with so much emphasis on security of supply—in some cases, it is just hidden protectionism—but do you not think that, to some extent, the fault lies with advanced countries, rather than the “Global South”? Protectionism is growing in the advanced world and being used very much against, in particular, agricultural producing countries in the developing world. We ought to wake up and be more generous in our trade agreements.
Professor Stefan Dercon: I absolutely agree. We have killed it off against our own interest. The advanced economies have been trying to do this for a while. Quite a lot happened—definitely in the 2010s—and we did not react to it. So, I agree 100% with you. It is on our side and it is where we need to come from.
In fact, if you look at a lot of the “Global South” economies, there are issues to do with China and its role in all this, but the problem goes well beyond that. Other economies have been gradually opening up and doing more, but we are the ones who are going backwards. I agree with you. It is our responsibility to begin to design something that we can get past our own political constituencies so that we can make the case and convince them, because it is one of the best things that we can do. I say this as a development person, but it is also the case for emerging and developing countries.
Professor Ian Goldin: May I add to that? I absolutely agree with you. This is what lay behind the Uruguay round of trade negotiations: lowering agricultural barriers—in Europe, via the CAP and subsidies, and in the US—which has been partially successful. The UK has been relatively good in this respect, compared to the US. We certainly have not followed the US, and, remarkably, the rest of the world has doubled down on the existing agreements, rather than following the US. That is a source of optimism. We have not descended into a global trade war, which we could have done as a result of the US’s unilateral actions.
The new threat is industrial subsidies and industrial policy. More than $2 trillion is now being spent on industrial policies by the advanced economies and China. That is about the total size of the GDP of Africa. There is no way in which poorer countries can compete. Leaving aside whether one thinks that industrial policy is a good idea—I do not, but even if one does—it has once again created a completely unlevel playing field that existed in agriculture and is now being reproduced in other sectors. It not just about tariffs; it is about many other things that are creating a more hostile environment for many developing countries.
The Chair: Perhaps I could ask you to give briefer answers to some of our questions; I ask members of the committee to keep their questions relatively brief as well.
Q89 Lord Bruce of Bennachie: Thank you very much for your answers so far. A lot of countries outside the establishment of the current multilateral system are now agitating for more attention and more focus. They are very different: you have, say, Indonesia, Brazil, India and Nigeria. How do we involve them in a reassessment of multilateralism? How does the UK find a role for that when we have scrapped the aid budget, which was our engagement with them, and are dismantling our diplomatic presence? We have just topped up the BBC World Service slightly, but we have not quite rescued the British Council. What should we be doing to ensure that we have mutually beneficial engagement with those countries that feel that they have been excluded and that the deal has been the West against them? They are becoming more important in the next 10 or 20 years. What would be the priority? What would be the best way to go about it?
Professor Ian Goldin: We have a number of existing instruments that are powerful. The Commonwealth is very much one of them. It is a wonderful convening platform. We will host the G7 and the G20 in the coming years, which will give us a great opportunity to establish priorities and work with others. The danger, of course, is that there is no real institutional continuity in the Gs. Each host country makes bold statements, then the next one makes its own bold statements and nothing happens. We need to avoid that trap by building on previous efforts while demonstrating that we can use those institutions to make effective changes. We have some existing structures. There is a lot of good will in our relationships with many countries that could be nurtured.
It comes back to this question: where is our leverage? On the point you are making, are there one or two pressing global issues where we could make a significant difference? Let us start with those, despite the cuts in budgets and everything else. I would be driven by those. We are very powerful on the climate in many respects, and we are doing the right thing on climate change. It gives us a moral advantage. We are very powerful when it comes to pandemics. We have great pharmaceutical industries. There are certain areas where we are very powerful on AI. Could we leverage one of these things to make real progress that goes beyond statements and into some institutional continuity?
Professor Stefan Dercon: Your question was also a bit about the “how”, given that budgets are low and diplomatic posts are being cut. From my experience of working in the FCDO, I was very surprised by how centralised everything is. As a result, initiatives from extremely skilled diplomats on the ground that begin to build partnerships have very little resonance in London. There is a sense that the system is still designed for a very clear set of global rules and that our role is simply to make sure that everybody follows them, but given that these rules have disappeared, where new partnerships need to be built, as you alluded to, you need a very different type of diplomacy, whether in development or in other areas of multilateral co-operation. You need to have people who have the liberty to try, within a broad and general framework, to build up these relationships and so on.
Whenever I travel—I still do, an awful lot—and I go to high commissions or embassies, I am amazingly impressed by the quality of the people on the ground and their local knowledge. However, it has to go through a desk here, then it goes into a semi-quagmire in the system where those kinds of things do not get translated. For me, a lot of what you are asking around, “How can we begin to do this?”, is about empowering on-the-ground missions much more to do what you just described.
Money does not buy you influence in these countries. It is not about the fact that they have less money. Again, it is about how you use resources to build up partnerships and links with well-meaning Governments. There are plenty of Governments who do not mean well, so you want to be careful and selective in building partnerships up in particular areas where you can say, “Look, we can begin to build here”. You must make sure that you communicate across different missions and embassies in new ways to build, from the bottom up, a rules-based system.
Lord Bruce of Bennachie: I have some quick supplementary questions. We seem to be reticent to use the Commonwealth because it is not the British Commonwealth, but it does share our values. How much more can we do?
You have said two things. One is that London is not only not listening to our posts—what is the point of them in the first place if they are not being listened to?—but dismantling them. Do you agree that we should be reinventing them, particularly in priority countries, and possibly putting more emphasis on how we relate to Commonwealth countries, where the language and the law are understood?
Professor Stefan Dercon: We have to be very careful on the Commonwealth here. I may not necessarily see it as the obvious vehicle, because unity on values is not always there. I would want to keep it more open, but if the Commonwealth is the right vehicle, let us use it. Secondly, for me, this is about not just putting more money into posts but empowering and decentralising them more.
Q90 Lord Grocott: My question follows on from Lord Bruce’s question. One thing on which I am sure absolutely everyone can agree is that the structures of the UN, when it was formed, spoke to a world that would be unrecognisable to what we have in front of us today. Yet the structures now are, in essence, the same. Am I right in thinking that a lot of the growth and interest in the “Global South” is a reflection of lots of countries that are relatively disfranchised within the structures of the UN trying to effect changes that reflect the modern world, not some world from the 1940s?
If you agree with that, my question to you is: should Britain’s role be to put reform of the UN and its structures in the “too difficult” box—I do not necessarily dismiss that, as an awful lot of issues go into the “too difficult” box—or should we be more engaged with the “Global South” on this, recognising the injustice? I do not know whether “injustice” is too heavy a word, but should we recognise the present structure in relation to the “Global South’s” needs and ambitions? Should we take a lead on this, even though doing so would be to our apparent short-term disadvantage, because, relatively speaking, if they grow, we diminish?
Professor Ian Goldin: It is in the “too difficult” box. I say that having been on the UN reform taskforce, which is just gathering dust, like many other taskforces before and after it. That is not to say that one should not say that it is necessary and align oneself with the countries that say, “This is unjust; the shareholding of all the institutions is unjust”. Also, “one country, one vote” is unworkable. We need constituencies. We need different ways of doing things. The whole system needs reform. I do not think that that is going to happen in my lifetime, but that does not mean that one should not be arguing for it and aligning oneself. Again, that is part of soft power positioning.
Whether one can take a piece of the spaghetti bowl of overlapping UN mandates and try to fix it on a particular topic is a different question. One could do so, I think. I would certainly prioritise health and the climate, for example, as areas of need. We need to build institutions that work on these key global challenges. One would get tremendous support, and not only from the “Global South”. Incidentally, I do not like that term because most of the countries in the “Global South” are not in the southern hemisphere and some countries in the southern hemisphere, such as Australia, are very rich, but including countries such as India and China on those two questions would certainly be absolutely central to a coalition of the working.
Professor Stefan Dercon: I would not give up. It is difficult. The current crisis in the UN system—especially in New York, which has a lot to do with finance being massively curtailed—is an opportunity. It focuses people’s minds a bit.
This is probably the right moment to ask ourselves more generally about the relatively overstated position that we have in the system, whether in the shareholding or in the Security Council. We need to be willing to discuss this and, in return, to be part of the designers of the new system and to play a role in it. I am not suggesting a negotiation strategy here, but, again, we need buy-in from some of the other players across developing and emerging economies, as has been mentioned. As Professor Goldin implied, this is a hugely diverse set of countries, but, unless we build coalitions with them on this and give them a bit more voice—as it is often referred to in these organisations—we cannot make them relevant again. The alternative is that we will keep on creating the incentives that continue to emerge, and the system will have even fewer game rules than we would like.
The important thing is that shareholding or voting power is one way of having influence—it goes through power—but, if the power diminishes all the time, that is not very useful. There are other ways of having influence. Again, I come back to the UK. Historically, we are designers; John Maynard Keynes was mentioned. We were designers of the system. We are a place of ideas and convenors. We play that role. Our influence can come from that form of power in the system because people come to us. I remember the way in which they did so when I was in development; the German side said that it would not decide anything until it had checked what DfID was doing first. These are the kinds of thing we can do across the whole system. It is about giving up a bit of hard power for a space in this current crisis to build up our own soft power, with good ideas being the convenors of new ideas.
Q91 Lord De Mauley: Professor Dercon, to the extent that it is still current and relevant, can you comment on the effectiveness of the multilateral development review processes undertaken in DfID?
Professor Stefan Dercon: That takes us back. It started with a multilateral aid review in 2011. The follow-up multilateral development review must have been in 2016 or 2017, but that was another age. Money was going up, and it was right to question whether we would simply put an extra zero on someone’s cheque. We were inspired to ask, “What does that get us?”
The instrument that we were using at the time, so to speak, was the belief that more money on the table gave us more influence; that is a fair assessment. Back then, it was definitely important to review performance and alignment with broader UK objectives. I noticed that the House of Commons International Development Committee was arguing that they should have one. To be honest, at the current time, in this age, I do not see what its role would be, because this is not about huge amounts of resources being shifted. It is now much less than was used at the time. Also, the risk is that, given that the entire environment is a bit more transactional, we start looking at much more short-term benefits. One example is whether people vote in favour of us or support us in a vote. I do not think that that is going to help the system; I worry that the criteria that you would use for assessment would be far more short-term, rushed and transactional in the current age. It will not earn us that much.
There are other processes that are being monitored. It would be much better to focus on rethinking what a reasonable future structure could look like and having some scenarios for that. Using our influence, can we nudge some of these institutions in a certain direction, working with others, rather than trying to think that this process will now decide our ever-smaller cheques? I am not sure that that is the best way of using resources.
Q92 Lord Lamont of Lerwick: We have touched on this a little already, with regard to the Carney speech about middle order powers and forming alliances. Is that realistic when one considers the diversity of middle powers? One thinks of countries such as Indonesia or Japan, as well as European countries. One of our witnesses said that we should not necessarily look for people who have the same values or principles, but surely the middle order powers can be used only on a one-off basis for particular crises. Surely Britain has no permanent allies, only permanent interests.
Professor Ian Goldin: You have put it very succinctly. Mark Carney’s speech was welcome. He articulated what has been part of international relations literature for a long time regarding middle, super and lesser powers. Underlining the point of a more variable geometry—that is, we should not be just bystanders because we have a role to play in addressing key questions—is welcome.
I am not a great fan of the idea of middle powers for two main reasons. First, it is exclusionary: it implies, “That’s the group you’re going to work with”, when, sometimes, you may want to work with both superpowers and with lesser powers—although that is a rather derogatory term; it puts a lot of developing countries’ backs out of joint. They think, “What about us?”, which is legitimate. A bridge power is a more attractive concept to me than a middle power—that is, someone who is able to build coalitions with whomever one needs to do so.
Secondly, it goes back to this idea that it is about just Governments’ powers. As I mentioned earlier, we need to be thinking more creatively about other actors in this, such as the private sector. The challenges that we face will not only be resolved by Governments speaking to one another, whether they are middle powers or otherwise. That is my second concern around how we are going to resolve these issues.
Professor Stefan Dercon: I would briefly add that, as Professor Goldin implied, this was first raised as a concept in the 16th century. It is a pretty old concept going back to Renaissance Italy and the princely states.
I am less negative about it as a discourse for the simple reason that, as seen from the UK, it is a useful disciplining device for us to recognise that we are not simply there as a superpower. We need to build coalitions, and we cannot simply be the top dog in everything. I would not go out and encourage politicians to make speeches like Mark Carney did, but, within the system, it would be useful to recognise that we can achieve things only if we begin to build coalitions of the willing. That could be with Indonesia, Brazil and Mexico—that is, different types of player.
I am probably less negative about it because, if we want to rebuild a global system, we will need to bring some of these countries along. We will need to begin to have that conversation, whether it is about trade, financial architecture or human rights. We need to find coalitions of the willing to begin to reset these things. I am less negative, but I would use it as an internal disciplining device, rather than something that we keep making speeches about.
The Chair: We will now bring together two questions to save time, since we are covering the same ground. Lord Houghton will start.
Q93 Lord Houghton of Richmond: To put this in context, our study is being done in two parts; we are attempting to go into the second part before the first part. The first part is to assess the state of globalisation in the context of the human journey. We will then make recommendations on what to do about all that. It is important to get the first part right because the second part depends on it: you embark either on a set of recommendations that are all about pragmatism and survival or a set of recommendations encompassing idealism and values. During the second half of this morning, we will attempt to clarify our thoughts on the first part. You are our last chance saloon to get this right.
On the start point of our inquiry—the great, macro challenges to globalisation and its place in history—are we still believers in a teleological certainty of human destiny towards ultimate harmony, which is what we grew up with, or do we lean more towards the philosophical pessimism of John Gray? Are there inherent behaviours in human nature that make the establishment of a coherent world order inevitably elusive? Are you two really no more than professors of delusion? Your answer will help us because, at the moment, we are veering all over the place on this; we must anchor it today before going on holiday.
The Chair: It takes a field marshal to ask that question. Hold that in mind while Baroness Fraser asks another, related question.
Baroness Fraser of Craigmaddie: I am not a field marshal, so I will be a bit kinder. Our role is to make a recommendation to the Government, and I am really interested in the question of what the Government need to do. It is about the “how”: how can they do it? Do the UK Government need some sort of strategy? How does that involve the creative thinking and other players about which you have talked today? How does that strategy come together given the fragmented responsibilities across different departments? We are on something like our sixth Foreign Secretary in five years. How long-term can such a strategy, if the UK needs one, realistically be? It would help us if you could say a bit more on the “how”, so that we are not delusional.
The Chair: You have the two sides of the question. Who will go first?
Professor Ian Goldin: On the question of the direction of travel, there is no foregone conclusion. I am with Martin Rees—Lord Rees—with regard to the idea that this could be our final century. The decisions that we make, and the decisions that this Parliament and others make, are consequential to this end. He is perhaps more pessimistic than I am, because he puts a 50% probability on the idea, whereas I would suggest that it is much lower. Even if it were 1%, though, that would be too much. It matters, therefore, and there is no inevitable outcome.
In my short career, we have clearly gone from a world of the millennium declaration and harmonisation agendas—with the seeming utopia of the collapse of the Berlin Wall, the opening up of China and everything else in the 1990s—to a very different world today. This difference is in not only the fractious power structure but the emergence of serious existential risks, such as pandemics and other emergencies, as well as new ones such as AI. There is no inevitability; it all depends on what Governments and people around the world do, which is why this is an important conversation.
The question of “how?” flows from that. For the reasons you have outlined, government grant strategies are tasks that probably absorb too much attention. It is important to have civil servants and government departments that provide continuity and have a road map to what is important. Values are at the heart of this, as I mentioned earlier. What does Britain stand for in all this? Hopefully, that is not something to be negotiated by each incoming Prime Minister.
Where are we in this? Do we understand that we are a relatively middle order and declining power globally, in terms of our size? What can we do with that? What do we want to prioritise? That question can travel from Parliament to Parliament, Prime Minister to Prime Minister, Foreign Secretary to Foreign Secretary, and so on. If we decide that we will be part of fixing the World Health Organization and addressing climate change, we must have continuity. We have always been at the heart of the financial system and trade system reforms. If we commit to that, we will need continuity; this would be reflected in the budgets allocated to different departments, the power given to different Ministers, Cabinet discussions and everything else that flows from that. Clearly, we are also—here, I look to Lord Robertson—at the heart of NATO, which is an extremely important and topical conversation. Those are the high-level strategic ambitions; beyond that, the detail does change, I think.
Professor Stefan Dercon: Generally, I like to judge people’s views based on their actions and behaviours. I do not think that you would be sitting here if you were descending into philosophical pessimism about the future. I am definitely there as well but, as I work in international development, I have to be an optimist; there has to be at least something of an optimistic scenario in there as well.
Where I stand, there are some really dangerous possible scenarios. There are possible worlds that are truly terrible. That may well be deeply challenging, existentially speaking, but there are still alternatives and there is still agency. I would not be working as a Belgian-born economist in the UK system if I did not believe that the UK system can play a role here. My point is that there is still agency—there are still actions that can be taken—but that links back to the question that was asked on strategy. In different departments, I have observed all too often strategy for its own sake and even reviews that were done for the political moment of their launch and nothing else.
Clearly, the incentives to do strategic work inside government are not set very well. You always want a light touch. I am a bigger fan of carefully thinking through possible scenarios of what the world may look like, then asking yourself about the actions that we would do in any case. What would the no-regret actions be? If there are other actions that are contingent on, say, whether Mr Trump gets out of bed on the right leg, you need to have the agility to be able to respond and change direction if needed. It is about having no-regret actions that you can define across a whole series of contingent outcomes; otherwise, make sure that you build enough agility into the system that you can change your mind.
I go back to the question of how to do that in a system. I can never get out of my head one Minister whom I will not name but whom I had to serve. Unfortunately, he refused to have information meetings at which he would be informed about the state of the world. The only meetings he wanted to have were decision meetings, where a decision had to be taken at the end. That is really bad. If our leaders are not willing to be informed about possible scenarios so that they are at least aware that we may need sometimes to change our mind on something, it is very bad. It is about having the right people with the right skills in the system, having the right people in powerful positions in the Civil Service, and so on. We need those who are willing to advise you to change your mind when the situation changes and when the facts change, as John Maynard Keynes said, and we need to build agility. Do we have it? Up to a point; I do not think that we necessarily have it in some of the areas that are required for this.
The Chair: Perhaps if we keep changing the personnel, we will eventually find somebody. On the optimism/pessimism question, I am often reminded that Madeleine Albright was once asked whether she was an optimist or a pessimist. She said, “I am an optimist who worries”; I think that that sums it up for most of us. Lord Alderdice will ask the last question.
Q94 Lord Alderdice: Both of you have mentioned the need to build up new sets of relationships. One of you said, “Who are the people we can work with?” One of the other comments was that we need not necessarily always work on the whole global level but on identifying groups of people. On the other hand, you have said that the G7 and the G20 are great for bold statements but not really for continuity. The Commonwealth has continuity but it also has other problems. You have mentioned that we should be trying to work with others: not just Governments but the private sector too. Should there be new international organisations established to address regional and global challenges and, if so, what might the UK’s role be?
Professor Ian Goldin: I would caution against establishing any new organisations. They are easy to declare; they are difficult to build and impossible to close.
Lord Houghton of Richmond: He is often a pessimist.
Professor Ian Goldin: I do not think there is any part of the UN that has ever been closed, despite the issues that have changed so dramatically over the past 80 years. Organisations are not the answer to the problem. A new organisation is easy, and of course they are wonderful things to declare at summits. It is about the content and the coalitions. There are often issues, including climate, which do not really have an organisation of continuity in enforcement. It has an aspirational content to it, but it does not have an enforcement capability. I would not focus attention on building new organisations; I would rather build new coalitions.
Professor Stefan Dercon: Just to add, and it is in a similar spirit: organisations must be built from below. What has happened in international trade gives a good sense that it was built from below with endless negotiations and slow expansion. At some point an organisation can be established, but do not start with that. I think one UN organisation has closed, actually, which gave support to refugees in eastern Europe after the Second World War.
Professor Ian Goldin: Yes, or it evolved.
Professor Stefan Dercon: That is the one example. Organisations have this problem in that they come and they get stuck. With existing multilateral organisations, what is much more important is that they redefine where their core business is. There is so much overlap between organisations: they do similar things, not least in development. They all do more or less the same thing. Make them focused again—that is definitely the way to begin to rationalise. It does not answer Lord Alderdice’s comment, but I would say: do not start with the end point, start at the beginning.
The Chair: I think that Lord Darroch, our diplomat, wants to have a word.
Q95 Lord Darroch of Kew: This is a question primarily for Professor Dercon, although Professor Goldin may also want to comment. It is a sort of Whitehall question. Professor Dercon, you said earlier in this evidence session that you found Whitehall extraordinarily centralised. At least one of our former witnesses has said that one of the problems in the UK’s approach to multilateral organisations is that every department essentially does its own thing, with no apparent or visible central co-ordination. The result is that we look as though we are pursuing departmental objectives at the cost of any overall strategic approach to multilateralism. In your six or seven years in government, was this something that you noticed and do you agree with that criticism? If you do, do you have any instant ideas on how to resolve it, or how to improve things?
Professor Stefan Dercon: I will clarify. I considered it largely centralised in the sense of its being London-centric. The way that the FCDO works, or our foreign sites, is missions relative to the centre. However, I absolutely agree with you. We have our own problems at a Whitehall level where co-ordination is virtually impossible. Indeed, all these different multilaterals are often governed by different departments with their own objectives.
Without wanting to go into a whole strategy, my best answer would be to have a minimal set of principles that our relationship in all these organisations would need to satisfy. This would ensure that we do not have one side saying it is poverty alleviation above all, while another says it is about protecting nature above all. They can compete with each other at times, and it can overlap. So there is an element of co-ordinating principles that need to be in place. We could go into specific examples, but this is probably not the right place.
I would say we need to get some clearer principles and, to be honest, some interest centrally in the issue of having similar principles. Lord Darroch’s experience is far longer and far richer than mine, but I have found that the instinct sometimes related to multilaterals, or to some of these international issues, very quickly becomes for a quick win as seen from the UK and as projected to the UK. It comes back to the question of whether we have a set of medium-term principles that we want to use in these organisations. They are multilateral organisations and they need to be based on coalition-building and beyond. I will leave it there.
The Chair: I think you are slightly pessimistic on the notion of not closing down organisations. That may be the case in the United Nations, but we did close down the Western European Union, which was alive and well, and consigned it to history. Anyway, thank you so much; this has been a very informative discussion and you have given us a lot of food for thought and very valuable evidence for the inquiry. You will receive a copy of the transcript. If there are any technical details that you want to change, please let us know. Otherwise, I declare that this session is finished.
