Ditchley started its 2005 programme with perhaps the most complex subject of all, the future of the world economy under all the influences of globalisation. The weekend did justice to the huge range of issues which entered the discussion. We were fortunate to have a depth of expertise around the table, not least in our conference Chairman who conducted proceedings with firmness, good humour and tact. And the company doubled the natural warmth of the house in its mid-winter setting with spirited conversation in the break-out rooms and corridors. There was even a chaotic sing-song on the Saturday evening, with the Secretary-General of the OECD at the piano, which went as far in breaching conference discipline as to sing the words of Group C’s report to “Waltzing Matilda”.
We handled the substance in three broad categories: economic prospects, raising the potential of the developing world and the multilateral structures. In all three areas there were differences of view, wholly to be expected with so many economists in the room. The Chairman also reminded us at one point that, with so many participants from the developed world, we were looking at these questions very much through the prism of western values. Nevertheless the discussion was remarkable for its range of insight and in the respect shown for opposing points of view.
The conference took the subject-matter very much in a global and historical context. We were reminded that the pace and global interaction of events meant that a profound revolution was going on. Relationships which had recently changed might change again soon. Capitalism had won, but it brought with it the inevitability of uncertainty. Nonetheless good things were happening just as fast as bad, with prosperity growing rapidly in places like China and India, with only Africa badly left out of the advance. Such accelerated progress was quite beyond the historical experience of the developed world. Wealth, in spite of the disappointments at the lower end of development, was spreading to the poorer as part of this global phenomenon. The conference recognised the importance of unlocking the potential of the developed world, but remained divided about what to do about the losers.
The main apprehensions which emerged from the discussion, some of which we tried to address in our conclusions, covered the nature of the globalised market. No-one was in real control however open the inter-communication; crises were unavoidable and likely to be as big as the strength of global interlinkages; state sovereignty still commanded a high priority, causing tension with globalisation and international cooperation, and newer voices were not getting through; and yet the world’s leading powers were those who won the last World War, now sixty years behind us; and the single superpower, unusually, was engaged in trying to empower other states to look after themselves. Out of this came a strong feeling that perhaps the international system, as presently constructed, had served its time. Economic actors paid lip service to the institutions, but in many ways they were giving up on them. In effect, we were watching economic liberalism develop while institutional rule-making was becoming an increasingly greater challenge.
World Economic Prospects
Against that background, the prevailing view on the world economy in the short term was relatively upbeat. Global growth was respectable, again with the exception of Africa, and inflation was low. But there were downsides and they were fully discussed: US imbalances, of which the weak dollar was a symptom; the inflationary pressure of rising oil prices; uncertainty about where China was headed; the unpredictability of financial flows; and the looming problem of demographic change, which most participants agreed should not just be left to the category of long-term concerns. Managing these risks would depend on sensible adjustments to the main features of global change. China, India and other emerging market countries would need to be sensibly integrated into the global economy, especially in respect of world trade and international capital flows. World economic cooperation could only be improved if international and regional representation in the institutions reflected real economic influences. The US current account and fiscal deficits would have to be addressed, first of all by the United States itself, though there would be consequences for others, not least China. The true role of the private sector would have to be taken into account, with so much business now incorporated on a global basis and with business calling for consistency, reliability and predictability within and between countries. Finally, we discussed the interaction between economic prospects and political change. International stability was hard to organise when national and domestic considerations could often be in conflict with international needs. Doubts were expressed as to whether G8 leaders really understood the workings of the world economy or were consistently capable of rising above the crisis of the moment to focus on long-term strategies.
The working group on economic prospects did not attempt any detailed recommendations. They wanted to see existing international institutions reformed (that is, no great institutional uprooting) to ensure fairer representation and more pragmatic cooperation, including through expansion of the G7/8 and perhaps with the use of a Wise Men’s group to recommend ways of rationalising existing international architecture. They also advocated better dialogue and communication between private sector organisations and between the private and public sectors, if this would help governments to recognise business needs and to establish global principles of governance that resonated with the private sector. The group came back to the overall conclusion that short term prospects were good, if not very good; but levels of optimism and consensus fell off significantly when it came to the medium and long terms.
Raising the Potential of the Developing World
The conference as a whole focussed a good deal on trade, specifically on the objectives for the Doha Round (renamed, as we were reminded, the Doha Development Round in the aftermath of 9/11). The needs of developing countries came strongly into this discussion. The working group gave high priority to market access for developing countries, though they recognised that poor governance and infrastructure were just as much of a problem. Finding a way of developing raw materials without over-dependence on them, let alone avoiding corruption and predation, was regarded as vital. But above all donor countries had to help the developing world to build capacity and a coherent business climate. Vulnerability to disasters, man-made or natural could be reduced through economic diversification; and the Indian Ocean tsunami tragedy suggested that insurance against shocks might be worth considering.
The discussion also examined the relative benefits of development aid and trade, with the experts dividing down the lines of their experience. The tendency of donor countries increasingly to go for bilateral aid arrangements was noted and largely opposed, though the political logic of this was never clearly enough addressed. Multilateral arrangements were considered to be much fairer for the less advantaged countries; whereas the tailored efficiency of bilateral deals had to be recognised. The conference as a whole, by a majority, preferred to see multilateral arrangements take precedence, because this route was more likely to address the multiplicity of inter-related problems affecting the equity as well as the efficiency of the world economy. We looked forward to the imminent publication of the Sachs Report the day after the conference concluded, but without any real conviction that his proposed increase in aid-flows would result. Global taxes were also discussed, with a strong element of wariness about their potential distortionary effects. Conditionality was treated with scepticism because of the resistance which it normally provoked in governments. The interesting proposal was made that conditionality should focus on process rather than substance.
The conference’s main recommendations in the development area focussed on human capacity building, including education and health, and on promoting the voice of developing countries in international fora. This would be particularly important in the trade negotiations of the Doha Round. Finally, there was a collective cry from around the conference table that governments should implement their commitments. This carried a greater priority than any potential institutional change or new initiative.
Improvement to Global Management
The context for this part of the discussion was a general feeling that the current institutions were under-performing. The allocation of functions between them had become a problem. It was essential to identify the overall global objectives and then determine which institution was best placed to address each one, or in some instances whether the market might not be a more effective provider. A strong call was heard for institutions to avoid macro-economic policy coordination and concentrate on their individual micro-tasks. But this was countered by a belief elsewhere that macro-economic cooperation remained essential, not least because the weaker economies could not look after themselves. Concern was expressed that institutions were not promoting data of high enough quality, for instance on demographics, where the variety of different predictions made it difficult to construct sensible long-term policies. There was a debate for a while on whether global rules should be given higher priority than mutual recognition, but a compromise was reached that the two were not incompatible.
The most consistent point of agreement was that the voice of the major emerging countries was not growing with the size of their economies. The industrialised countries could no longer assume that their cooperation could order the world economy. A larger grouping was required, though the conference made no specific recommendation of how many or who. Not only did representation in the core groups need to reflect economic and political reality. An apex institution of some kind was necessary to establish overall objectives, agree on the functions of the institutions and monitor their progress in meeting objectives. Whether this could be made to work in practice was doubted in some quarters, where it was felt that a simpler solution would be to reinforce the institutions in areas where problems were growing: for instance, the environment, migration and labour. But no-one argued with the theory that greater overall global coordination was necessary. Transparency and accountability needed to be features of any arrangement, but the problem of accountable to whom was not solved. The conference regularly came back to cries of “no more summits” and “please fulfil commitments already made”.
Both within the group and in plenary the discussion broadened to consider social equity as well as economic concerns. The politicians in the room reminded us that their constituents more often questioned them on the moral implications than on the effectiveness of world economic management. We managed not to tie ourselves down to a choice between markets and human welfare. There was no reason why markets, which were often better at looking forwards than politicians, should not do their business while policy-makers addressed both the good and the bad consequences. Our Chairman struck a chord when he pointed out that there existed a strongly linked nexus of issues whose interaction with each other had to be taken into account: economic growth, demography, migration, employment, technological advance and the environment. Most participants strongly agreed. The case was forcefully made that economic growth on its own was not an unquestioned benefit. If it also involved population growth, then there were very serious environmental as well as economic concerns. Multilateral activity had to take account of these linkages, which could perhaps be most easily analysed from a focus on migration from the developing world. The substance existed in all this for several further Ditchley conferences.
What participants will mainly have taken home with them, therefore, was uncertainty about the long-term prospects. The prevailing confidence about the short term might be the calm before the storm. The power of the institutions to maintain coherence was likely to diminish; policy-makers were not really in control either; the interaction between economic and political turbulence was unstructured; environmental problems would be expensive to address; the Millennium Development Goals would be immensely difficult to meet. Yet the world and its technological progress had shown itself capable of facing up to great problems in the past and the conference ended a long way from despair, so long as governments proved capable of recognising that the accustomed ways of managing things would have to be adjusted. Recognising the problems and facing up to them honestly and transparently was the most essential requirement of all.
This Note reflects the Director’s personal impressions of the conference. No participant is in any way committed to its content or expression
Chair: Sir Nigel Wicks KCB CVO CBE
Deputy Chairman, Euroclear plc; Non-Executive Director, Morgan Stanley Bank International Ltd. Formerly: Chair, Committee on Standards in Public Life (2001-2004); Second Permanent Secretary, HM Treasury (1989-2000)
Professor Wendy Dobson
Professor and Director, Centre for International Business, University of Toronto. Formerly: Associate Deputy Minister of Finance and Canada’s “G-7 Deputy” (1987-89).
Mr Peter Harder
Deputy Minister of Foreign Affairs and International Trade (June 2003-); Canadian Foreign Service (1977-)
Mr Paul Jenkins
Senior Deputy Governor, Bank of Canada (2003-). Formerly: Adviser to Governor (1989-92); Chief, Research Department (1984-89).
Dr He Maochun
Director, Information Centre of the Chinese Academy of International Trade and Economic Cooperation; Deputy Director, World Trade Organisation Research Center, China Law Society.
Professor Horst Siebert
Professor, Netherland Institute for Advanced Studies.
Dr Kalypso Aude Nicolaidis
University Lecturer in International Relations, University of Oxford; Visiting Professor, Vincent Wright Chair, Institut d’Etudes Politiques de Paris.
Mrs Maria Cattaui
Secretary General, International Chamber of Commerce.
Mr Amar Bhattacharya
Senior Advisor on Poverty Reduction, World Bank.
Mr Ariel Buira
G24 Secretariat, World Bank.
The Rt Hon Donald Johnston PC QC
Secretary General, Organisation for Economic Cooperation and Development (1996-). Formerly: MP for St. Henri-Westmount (1978-1988); Minister of Justice and Attorney General of Canada (1984).
Mr Mark Allen
Director, Policy Development and Review Department, International Monetary Fund.
Sir Nicholas Bayne KCMG
Fellow, International Relations Department, London School of Economics and Political Science (1997). Formerly: HM Diplomatic Service (1961-1996); High Commissioner to Canada (1992-96); Ambassador and Permanent Representative to the OECD (1985-88).
Mr Alan Beattie
World Trade Editor, Financial Times (2004-). Formerly: Chief US Economics correspondent, Financial Times.
The Rt Hon Hilary Benn MP
Secretary of State for International Development (2002-); Member of Parliament, Labour, Leeds Central (1999).
The Rt Hon Paul Boateng MP
Chief Secretary to the Treasury (2002-); Member of Parliament, Labour, Brent South (1987-).
Mr John Drage
Senior Advisor, International Finance, Bank of England.
Mr John Evans
Secretary General of the Trade Union Advisory Committee to the OECD
Mr Andrew Graham
The Master, Balliol College, Oxford (2001-). Formerly: Economic Adviser to the Leader of the Opposition (1992-1994); Economic Adviser to the Shadow Chancellor (1988-92).
Mr Peter Grant
Director, International Department for International Development. Formerly: Deputy Director Asia, DFID (2000-2002); Acting Chief Economist, DFID (1998-2000). Mr Edmund Hosker
Director, World Trade, Department of Trade and Industry.
Mr David Lyscom
HM Diplomatic Service, UK Permanent Representative to Organisation for Economic Cooperation and Development, Paris (2004-). Formerly: Ambassador, Slovak Republic (1998-2001).
Mr Michael Moore MP
Member of Parliament, Liberal Democrat, Tweeddale, Ettrick and Lauderdale (1997-); Member, Ditchley Foundation Programme Committee.
Mr Andre Nilsen
Chairman and Managing Director, Oxford Council on Good Governance.
Professor Avinash Persaud
Investment Director, Global Asset Management, London.
Dr Bill Robinson
Head, UK Business Economist, Price Waterhouse Coopers (1999-). Formerly: Director, London Economics (1993-99); Special Adviser to the Chancellor of the Exchequer (1991-93); Director of the Institute for Fiscal Studies (1986-91).
Mr Dan Rosenfield
Private Secretary to Chief Secretary to the Treasury.
Mr Tom Scholar
Executive Director, International Monetary Fund and World Bank and Minister (Economic) British Embassy, Washington (2001-); HM Treasury (1992-).
Mr Ronald Stewart-Brown
Director, Trade Policy Research Centre.
Sir Crispin Tickell GCMG KCVO
Chancellor, University of Kent; Director, Green College Centre for Environmental Policy and Understanding. Formerly: Convenor of the Government Panel on Sustainable Development (1994-2000); Warden of Green College, Oxford (1990-97); Permanent Representative, United Nations (1987-90); a Governor and Member of Council, The Ditchley Foundation.
Mr Owen Tudor
International Secretary, Trades Union Congress.
Mr David Willetts MP
Shadow Secretary of State for Social Security (1999-); Member of Parliament, Conservative, Havant (1992-); a Governor and Member of the Programme Committee, the Ditchley Foundation.
Sir David Wright GCMG LVO
Vice Chairman, Barclays Capital (2003-); Vice-President China Britain Business Council; Board member UK-Japan 21st Century Group. Formerly: HM Diplomatic Service (1966-2002); Chief Executive, British Trade International (1999-2002); Ambassador to Japan (1996-99); Ambassador to Republic of Korea (1990-94).
Dr Francisco González
British Academy Research Fellow, Nuffield College, Oxford; Lecturer in Political Economy at John Hopkins University, Italy.
Professor Jan Aart Scholte
Professor, Department of Politics and International Studies, University of Warwick.
UNITED KINGDOM/NEW ZEALAND
Dr Ngaire Woods
Fellow in Politics and International Relations, University College, Oxford; a Governor, The Ditchley Foundation.
UNITED STATES OF AMERICA
Ms Sunjin Choi
Research Staff Member, Strategy Forces and Resources Division, Institute for Defense.
Mr Robert Conway
Senior Director, The Goldman Sachs Group Inc; President, Harris Manchester College, Oxford; The Council of the Graduate School of Business, University of Chicago. A Governor and Member of the Council of Management, The Ditchley Foundation; Member, Board of Directors and Treasurer, The American Ditchley Foundation.
Mr Danny Leipziger
Vice President, The World Bank Group.
Hon Dr Philippa Malmgren
President, Canonbury Group (2003-). Formerly: Special Assistant for Economic Policy to President George W Bush and a Member of the National Economic Council (2000-2003).
UNITED STATES OF AMERICA/ARGENTINA
Ms Ann Eiras
Latin America Policy Analyst, Center for International Trade and Economics, The Heritage Foundation (1999-)
UNITED STATES OF AMERICA/UNITED KINGDOM
The Honorable Barbara Thomas
Executive Chairman, Private Equity Investor plc; Deputy Chairman, Friend’s Provident plc; Deputy Chairman, Financial Reporting Council and Acting Chairman, United Kingdom Atomic Energy Authority; a Governor, The Ditchley Foundation.
WORLD TRADE ORGANISATION/CANADA
Mr John Hancock
Counsellor, Trade and Finance Division, World Trade Organisation.