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Table of Contents

Foreword

Preface

Acknowledgments

Introduction

A Note About Terminology

Part 1: The World Today

Chapter 1: Accelerating Change and the Threat of De-Globalization

Disruptive change: The information age

The global economy

Property rights: Not glamorous but still the star

Development under threat?

Water: The new oil?

Fishing for fair food management

Worldwide action

Honest globalization

Chapter 2: The Rise and Rise of China

China: No doubt about it

The global dragon

Chapter 3: Enter India

India vs. China?

Chapter 4: The Islamic World: The Need for Mutual Respect

Defining differences: Malaysia, Turkey, Iran and the Gulf States

The way forward

Part 2: Big Ideas Through History

Chapter 5: Early Consensus Government

Oral and moral leadership

Chapter 6: Democracy—A Universal Impulse?

India

China

Abraham’s legacy

Chapter 7: The Gift of Greece

Democracy—the early days

The Periclean experiment

Rights for some, not all: Women, slaves and foreigners

Chapter 8: “Civis Romanus Sum”: Roman Citizenship and Roman Law

Early rights and duties: Citizenship in republican times

Citizenship under the empire: The example of St. Paul

Rome’s great legacy: The law

Life after death: Roman law after 500 AD

Chapter 9: The Glorious Revolution: Freedom in the Seventeenth Century

A kind of anarchy: The feudal system in the early Middle Ages

Kings and barons: Rights and the law in the high Middle Ages

Chapter 10: Magna Carta and Beyond

“Town air makes a man free”: A new world emerges

Liberty enlarged: Society in early modern Europe

Death and debate: The English Civil War

A triumph for tolerance: John Locke on religion

Liberty to take away another’s: The establishment of the trans-Atlantic slave trade

Chapter 11: Revolution and Reform: 1775–1914

Political revolutions: America and France

The Scottish Enlightenment

Christian gentlemen and French philosophes

The great doctrine of equality: Suffrage in the nineteenth and twentieth centuries

The modern world appears: Trade unions, state pensions and income tax

Painting the globe red: Freedom and the question of empire

Chapter 12: Modern International Institutions

The League of Nations

The United Nations

Parliamentary process and the WTO

The European Union

International organizations—powerful and transparent?

The responsibility to protect

GAT T/WTO

Part 3: The Pillars of Freedom and Progress

Chapter 13: The Need for Good Governance

Credit for empowerment

Building social trust

Advancing Africa

Chapter 14: Openness

Reciprocal advantage

Chapter 15: Free Trade

The open economy

Migration

Tolerance is good economics

Education and freedom of religion

Civil society

Chapter 16: A New Democracy

Individual freedom

Public services and individual choice

Chapter 17: Mobility and the Decent Society

Getting up from being down

Part 4: Enemies of the Open Society

Chapter 18: Power and Manipulation

Spinning deceit

A level playing field

Chapter 19: The Dangers of Absolute Conviction

Beware intolerance

Chapter 20: The Enemies of Reason

Reactionaries and their shallow certainties

Environmental monotheism

Food insecurity

NGOs: The best and worst of us

Part 5: Afterthoughts and Reconsiderations

Chapter 21: Information and Reputation

Chapter 22: Engagement in a Rapidly Changing World

Owning up to the past

Chapter 23: American Engagement

Chapter 24: Climate Change and the Energy Challenge

Summoning the energy

Mutually assured destiny

Chapter 25: What We Must Do

Index

ADVANCE PRAISE FOR

SAVING GLOBALIZATION—WHY GLOBALIZATION AND DEMOCRACY OFFER THE BEST HOPE FOR PROGRESS, PEACE AND DEVELOPMENT

It’s typical of Mike Moore’s intelligence and courage to come forward precisely at this moment of international crisis—that is, when his voice is most needed—with this well founded and finely expressed defense of globalization. It’s encouraging to know that one of the true champions of inclusive interdependence is not second-guessing what both practical experience and serious reflection have instilled in his actions as a national and international leader. Please read this excellent book.

Ernesto Zedillo

Director, Yale Center for the Study of Globalization

Former President of Mexico

The book reflects the qualities of the author—a direct no nonsense confrontation of the major challenges facing the world today and an attractive incapacity to abide sloppy prejudice from whatever quarter it may come. Mike Moore brings an acute historical and theoretical perspective to his treatment of these challenges but his great strength comes from his political experience at the highest level and subsequently as head of the WTO—he communicates on complex issues in an eminently readable form. He argues the case passionately and convincingly for globalization: “It is not a policy. . . it is not a regime imposed by some Wall Street conspiracy. . . it is a process that has been going on ever since our ancestors stood upright.” Moore concludes by describing himself as a “reckless optimist.” Reckless or not the world needs more optimists. The optimism of Saving Globalization is balanced, well-informed and well reasoned. I, who tend slightly more to pessimism, highly recommend it.

Robert J. L. Hawke

Former Prime Minister of Australia

Mike Moore is among a select group of people who have shaped globalization as we know it. As Prime Minister of New Zealand he helped redefined the functions of the modern state and as director-general of the World Trade Organization he steered the process of definition of the global trading system. I learned of his compassion for the poor and the excluded while working with him in the UN Commission for the Empowerment of the Poor. Mike is a champion of the poor who is passionate about bringing the benefits of a truly global economy for their betterment. Despite the gloom and doom painted by what he terms “enemies of reasons,” Mike is driven to see the marginalized empowered and democracy to succeed. In his latest book, Saving Globalization, Mike makes a compelling argument as to why globalization and democracy offer the best hope for those who truly want to improve their lives. This is a must-read for those committed to eliminating poverty through creation of wealth.

Dr. Ashraf Ghani

Former Finance Minister of Afghanistan

Saving Globalization: Why Globalization and Democracy Offer the Best Hope for Progress, Peace and Development is a truly excellent book. This is hardly surprising as there can be few better equipped to write it than Mike Moore. Those who know him will recognize in his writing the lucidity of thought, the pragmatism and the idealism that characterizes him. While the central thesis, evident from the title, is widely accepted, the understanding of the issues is often less than adequate. While, as Moore says, the system provided by the World Trade Organization “is holding firm,” there is no doubt that the current economic crisis is causing strains and there are legitimate fears of a creeping protectionism and nationalism undermining the great achievements of recent years. The book is accessible and cogent and presents its case admirably. It will have lasting value.

Peter Sutherland

Chairman, BP plc and Goldman Sachs International

Michael Moore, having been Prime Minister of New Zealand and Director General of the World Trade Organization, has chalked up extraordinary achievements in public life. He is also an astonishingly gifted writer. In this masterly book, written with a lifetime of experience, he addresses many important issues, particularly the advantages of an open world economy. If only his eloquence had been emulated by the G-8 leaders when endorsing trade liberalization and opposing protectionism. Moore’s book is indeed a tour de force.

Jagdish Bhagwati

University Professor, Economics and Law, Columbia University

Author of In Defense of Globalization

From his vantage point as former Director-General of the World Trade Organization (WTO) and Prime Minister of one of the world’s most open economies Mike Moore is uniquely qualified to describe in great detail the transformational power of globalization and political pluralism and why these processes are so often misunderstood. Saving Globalization also provides a timely and chilling warning of the threats facing globalization as Western political leaders are tempted by short-term political expediency and struggle to adapt to the rapidly changing global economic architecture. Mr. Moore then applies the full force of experience in describing the policies, institutions and strategies required to continue broadening the benefits of globalization throughout the developing world and to maintain prosperity in the West.

Stephen Jennings

CEO, Renaissance Group

Also by Mike Moore:

On A World Without Walls

Mike Moore makes a strong case for the benefits of free trade and open markets. But he warns that global governance needs to be rethought to cope with the challenges of globalization. A wide ranging and thought-provoking book.

George Soros, author of George Soros on Globalization

A World Without Walls is excellent at giving a glimpse of what goes on behind closed doors in the negotiating process, viewed from the position of an official mandated to bring together the different parties and to secure an agreement.

Times Higher Education Supplement

On Children of the Poor

POOR Mike Moore; he has a gut level empathy with the poor that many politicians spend years cultivating, but he holds the unfashionable yet sensible view that the best way to improve their lot is to have more faith, not less, in the market economy.

The Dominion Post

Mike Moore draws attention to the appalling neglect and maltreatment of children in New Zealand and points out that this will lead eventually to social catastrophe. The statistics are depressing and getting worse—crime, drug use, under-age pregnancies, truancy, youth suicide—all the indicators are pointing the wrong way.

The Southland Times

On A Brief History of the Future

Mike Moore is an irrepressible optimist, and his prognostications are far more pleasant. He has a clearer picture than any politician I know of the productive and prosperous place these little islands could enjoy in the next century. His message is one to be heeded.

The Press

This book reflects an unashamedly internationalist outlook. As such, it is not just a job application but represents the expression of an outward looking politician in an increasingly isolationist political context. Moore makes his case that if New Zealand is unwilling to adapt and change to international realities, it will follow in the footsteps of imperial China and Spain.

New Zealand International Review

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To honorable public servants, elected and otherwise.

Cowardice asks the question—is it safe? Expediency asks the question—is it politic? Vanity asks the question—is it popular? But conscience asks the question—is it right? And there comes a time when one must take a position that is neither safe, nor politic, nor popular, but one must take it because it is right.

Martin Luther King, Jr

Foreword

I have yet to meet anyone who has more practical economic and legal experience in the politics of international trade than Mike Moore. I have learned much from him—and this book has taught me more, particularly about the history of global trade, all the way back to antiquity. The book’s common refrain is “this is not new in history” and the author explains with impressive facts, figures and anecdotes how economic migration, expanding local markets across national borders, and other earlier forms of “globalization” have led to greater economic growth and prosperity for ordinary people, particularly the poorest among them.

I first met Mike Moore in Geneva in 2001 at a meeting of the Inter-Parliamentary Union on how to make international trade more equitable and just. We were both keynote speakers, but Mike gave a better presentation—smart, entertaining, and, above all, an impassioned case that free trade was not just about competition and increasing productivity but could be equitable and “good for the people” of poor countries. In those days, advocates for the poor were not supposed to be proponents of globalization. It was a bit of political correctness that annoyed me, a fan of markets who had spent decades working to reduce poverty in my own country, Peru, and in the rest of the developing world. In fact, in my first book, The Other Path, originally published in Peru in 1987, I lamented the inadequacy of the debate over development: those on the left who cared about the poor knew nothing about the market, while those on the right who knew their economic theory didn’t seem to care much about the poor.

At that IPU gathering in Geneva, I had finally discovered a fellow rara avis—an ex-Labor Prime Minister of New Zealand, who as a young man had worked as a laborer and social worker but who had also participated in major trade negotiations around the world as his country’s Trade and Foreign Minister and then as WTO Director-General. When I was asked in 2005 to co-chair (with former U.S. Secretary of State Madeleine Albright) the Commission for the Legal Empowerment of the Poor, I nominated Mike Moore as a commissioner, and there was not a dissenting voice. He emerged as our best speaker, the fastest gun in the middle of a raucous room, who could structure an economic and legal argument as well as any lawyer or economist I have ever met but always with his heart unabashedly on his sleeve. In the middle of every debate, he would always remind us, “This is about people.”

And it is those same ordinary people who are the central concern of Mike Moore’s plan for “Saving Globalization.” We now know that in the past half-century the world has experienced more economic growth than it had during the previous 2,000 years. Central to that global success, he argues, is the fact that some 500 million people have been lifted out of poverty and turned into consumers of goods from all over the world. “The challenge in the next decade,” he argues, “is to do this again by widening the global economic base.” It’s pure Mike Moore: economic development and prosperity for all people. Globalization and poverty reduction.

At the moment, however, globalization is not really working, as the title of this book implies: four billion people of the developing world—two-thirds of the world’s population—are currently on the outside looking in, getting angrier every day. As a Third Worlder with 25 years of experience exploring the shadow economies of the developing countries, let me give you a sense of international trade from the perspective of small businesses in a shanty town in Latin America or Africa. First of all, globalization is not even on their radar screen. In a study of the informal economies of 12 countries in Latin America and the Caribbean, conducted for the Inter-American Development Bank by my colleagues at the Institute for Liberty and Democracy (ILD) in 2007, they found that an average of only about 8 percent of the businesses in those countries had the legal tools to participate in international trade. The ILD has also analyzed the business and property sectors in the Philippines, Egypt, Tanzania and Albania and found their economies to be largely informal: in Tanzania, one of Africa’s most impressive economic success stories, 98 percent of the entrepreneurs were operating outside the law. The economic picture across the rest of the developing world is the same: one of massive informality.

Why? The existing laws and institutions governing property and business in those countries are too burdensome, costly, discriminatory and often just plain bad, making it virtually impossible for ordinary people to gain access to the legal tools that even small entrepreneurs in rich countries take for granted. This is especially true of property rights, forms of business to divide labor productively and identity devices to expand their markets beyond the confines of family and neighbors. Most Third World entrepreneurs cannot even trade securely with someone across the marketplace or bazaar, never mind internationally. So far, globalization has only globalized the westernized elites of the poor countries. Even developing countries with impressive economic growth in recent years, such as Peru and Chile in my part of the world or such African stars as Tanzania and Ethiopia, do not have real market economies.

There is a myth that “the real economy” is about natural resources, production and hard work. Yet in Latin America, we export gold, copper, soybeans, airplanes, cars, natural gas, and oil. Africa, too, is brimming with natural resources. What we Third Worlders are missing is what Europeans and North Americans take for granted: a trustworthy property system with the documentary tools that permit everyone to get connected to the rest of the world. What has bestowed prosperity to the West is the ability to trust and cooperate on an expanded scale, form credit and capital, and combine ingredients from a variety of sources into products of increasing complexity. That requires legal property paper, and therein stands the real economy. Currently, the developing world is full of valuable assets—some US$10 trillion worth, according to ILD estimates—that are languishing as “dead capital,” unable to be leveraged through credit and investment for the lack of legal documentation.

The only globalization worth saving is one that includes the majority of the people of the globe. Up to now, the political leaders of the North Atlantic countries have largely treated globalization as a foreign-affairs issue; they have done little to see how trade works up close at a national level where the actual laws that make doing business possible (or impossible) actually operate. They have also ignored history, particularly the Industrial Revolution, where, as Mike Moore notes in this book, the West solved many of the problems we are facing today. There is also too much talk of the “clash of cultures,” while ignoring the evidence that informal entrepreneurs in Christian Latin America and Muslim Africa operate similarly, creating their own spontaneous norms to do business and protect their assets, proving to the culture warriors that they are ready to take their place in a modern market economy.

Globalization is not about to go away. But we will have to work hard to make sure it proceeds justly and equitably. And that, I would propose, just might be the silver lining of the current recession, which has forced America and Europe to reconsider the international financial system. Those of us who care about poor people and market economics have a responsibility to ensure that whatever “new paradigm” emerges for the 21st-century global economy, the world’s four billion poor people must have a stake in it.

How specifically to address this tragic imbalance? I would advise you to keep reading Mike Moore’s book for some very good answers.

Hernando de Soto

Author of The Mystery of Capital and The Other Path

President, Instituto Libertad y Democracia

Preface

When I was first active in politics, I devoured books and quizzed people to discover how to do things. As I’ve got older the emphasis has shifted somewhat, and I’ve become fascinated to discover why we do things, and where these beliefs and ideas come from. We are what we have learned, a fact graciously acknowledged by the former British Labor leader Michael Foot, whose book Debts of Honor is an elegant tribute to all those who influenced him—family, writers and thinkers, people he met, figures and events from history.

In this book I’ve set out to praise the people, principles and institutions that have helped shape my belief that we can make this world a better place, and to explain some of historical follies that continue to impede progress towards that goal.

While writing my earlier book A World Without Walls, which dealt with the economic and social consequences of globalization, I was struck by the overwhelming evidence that open democratic societies, run by the rule of law, with accountable leaders, honest public servants and an engaged civil society, produced the best results. Human rights, labor standards and environmental outcomes all improved under such conditions. The Kuznets curve famously shows that environmental outcomes improve as living and educational standards are lifted. Just as a free market corrects economic imbalances and provides more effective and prudent use of resources, so a free political market corrects injustices because an engaged civil society and leaders accountable to the people respond to problems. The environmental movement, the women’s movement and the civil rights movement all mobilized opinions that shaped the agenda to which legislators and businesses respond.

How have the rules, customs and habits that govern successful countries evolved? The big ideas of history—democracy, the separation of church and state, property rights, independent courts, a professional civil service, and the civil engagement which drove reform to widen the franchise, promote social mobility, the civil rights movement, the women’s and environmental movements—have all played their part in the creation of our successful modern societies. Far from being pessimistic about the state of the world, I am always recklessly, even dangerously, optimistic. In most areas of human existence things have improved. Life expectancy is up, literacy is up, and human rights have improved dramatically in most places.

Globalization has lifted hundreds of millions out of extreme poverty. This should be a time of hope born of our historic experience. Yet the enemies of reason, with their dark destructive messages of doom and hate, still have a constituency and gain much media coverage by selling the old-time religion of protectionism and anti-enlightenment—anti-modernity. In this book I have tried to put all this into perspective; to examine and explain how it has all happened; to explore some of the great ideas and personalities that have shaped our world; and to offer some ideas for a future that should be faced, not feared.

A world without walls cannot function peacefully if it is a world without rules, standards or values. I write at length of the re-integration of China and India into the global economy because this will change everything. It already has. I have had a grandstand view—from domestic politics to international politics, in business, on the factory floor, at universities and in working men’s clubs—and I have tried to weave those experiences and lessons into this story.

We have seen much progress over the past 30 years that is breathtaking in its magnitude and scope. Thirty years ago half of Europe, most of Latin America, South Korea, the Philippines, and Indonesia were all under the jackboot of command economics of the left or right. Nelson Mandela, Václav Havel and Kim Dae-Jung—individuals I have been honored to meet and admire—were in prison or in exile. The artificial and historic detour that was the Cold War, which had frozen freedom and propped up authoritarian dictatorships, collapsed when the Soviet Empire imploded. People power from Poland to the Philippines changed regimes, as it is hoped will happen in Myanmar too. Myanmar 50 years ago was the richest country in Southeast Asia, but is now the poorest because it is the most closed. The military government has a 400,000-strong army, the largest in the region, and is not reluctant to murder and make more martyrs out of those who seek freedom. Note the difference between open and closed societies as they respond to natural disaster. China, a society in transition, gave open coverage and welcomed foreign aid teams after the tragic earthquake in Sichuan province in May 2008. By contrast, Myanmar closed its borders and let its people despair and die after Cyclone Nargis devastated coastal areas along the Irrawaddy Delta.

Yet what is this common denominator, the big idea across cultures and continents that drives men and women to heroic acts in the human impulse to be free? It is a Western conceit to believe that this is a sudden, triumphant endorsement of the values and systems that have made the West the most successful model in history. Years before Christ, from Mesopotamia to tribal villages in India, Africa and China, people organized themselves along consultative, sometimes democratic, lines, often responding to the will of the people.

In helping to navigate new members into the World Trade Organization (WTO) from the Baltic States to the Balkans, China, Jordan, and Oman, I experienced first-hand the desire of politicians, officials and their public to be in a rules-based system. Theirs was an enthusiasm for more open society and the rule of law, sometimes democracy. Many are cautious, some fearful—they talk of social disruption, public resentment and the privileged fighting back—but the overwhelming direction is clear.

When launching the Doha Development Round as Director-General of the WTO, I was driven by the understanding that we had to speed the virtues and success of globalization to the most marginalized nations on earth. This could be an important factor in lifting hundreds of millions more people out of poverty, creating many more consumers to sustain the world economy. We need to remind ourselves that even in the greatest exporting nations, 80 percent of economic activity is still local. I have worked with the most venal, idealistic, corrupt and honorable of politicians, bureaucrats and businesspeople during my life. Among the best and most decent of leaders, a pattern of private and public behavior becomes clear. Tolerance, respect for differences, accountability, and freedom are good in themselves but are also an economic good. There will be setbacks. History will still throw up future Stalins, Hitlers, bin Ladens and Saddam Husseins. But they rise to fall.

All this got me thinking about the history of freedom, and the personalities, ideas and structures that have created our modern world and its values. It is a remarkable history, from the Greeks to the Geeks, encompassing important technological progress such as the alphabet, the clock, the printing press and the internet, and also the corrections and contradictions between liberty and equality, technology, growth and the environment. Working with economies in transition, those which are emerging from the shadows of political oppression, I was always struck by their idealism, courage, optimism and hope. Heartbroken by working with failed and failing states, seeing dishonest leaders and corrupt officials and businesspeople exploit their own citizens, I wondered just how we could advance a common system and values that could deliver better results knowing that, given a chance, people collectively would fix and improve things.

There have been memorable moments of inspiration. The faces of the German people when the Berlin Wall came down; the girls in Afghanistan smiling when they went to school for the first time; Nelson Mandela’s smile and dance when he was free at last.

I have stood in queues in Timor Leste as over 80 percent of the people lined up to vote for the third time in as many months. In a village far from Dili, I spent time with a Catholic priest who was encouraging reconciliation through the ballot box. “Democracy is the voice of God,” he told me. After the election in 2007, dozens of homes were burned and people beaten by supporters of the party that had won the biggest number of votes but was unable to put a coalition together with minor parties to form the government, and I wondered how my priest was faring.

Under the umbrella of the National Democratic Institute, I visited Bangladesh as part of a delegation meeting with political leaders, one whose husband had been assassinated by the other side’s political activists, and one whose father had been murdered by the first side’s activists. Both had passed their hurt and hatred down to their children, who have become political princes. None had a basic understanding of the principle of loyal opposition—to accept the will of the people, be in loyal opposition and organize for the next election. Each darkly threatened that their supporters and the public would organize general strikes and mass rallies if they lost. Our advice was not taken; they had already ignored the same advice from Nelson Mandela and former United States President Jimmy Carter. The military moved in. At the time of writing, I was preparing to return to Bangladesh to advise on their transition back to democracy and how to manage a free and fair election. Happily, an election was held, it was managed well, and the result was decisive.

We have all witnessed those queuing in the snow of Afghanistan, risking bombs in Iraq or police batons in Zimbabwe in order to vote, and know of heroes who have been imprisoned, tortured, and exiled from South Africa, Russia, Indonesia and Korea to Cuba, the Ukraine and Chile. What makes them tick? It is not rational, as economists would say, to risk and “waste” your life for an idea, the promise of freedom and independence for others some time in the future. These people represent the best of the human spirit, standing up for rights and freedoms many of us take for granted. The beauty of our new information age is that no-one can now hide despotic leaders or corrupt officials and businesspeople.

Challenges like those of the dark days after 9/11, the Bali bombings of 2002, the war on terror (notwithstanding its many errors) and climate change are not reasons to retreat from the promise of freedom. Rather, they are reasons to advance toward it. But how should we respond to these new challenges? How can peace-keeping, peace-making and nation-building work on the ground to create laws, institutions, systems and opportunities that are owned by the people and responsive to them, to liberate people and attack poverty?

The lessons and models from history to the present provide us with a road map, a compass to address these challenges. That’s what this book is about—a small book about big ideas. Isn’t it good that leaders should have to persuade us first, or that businesspeople, through competition and choice, have to convince us to be customers? Global consumer democracy will quickly punish companies and countries that do not behave ethically. The young have more information, choice and taste, and these consumers will use it in the marketplace, at voting booths, and public spaces.

The first 50 years of the last century were the most violent in human history; the next 50 years gave us the greatest lift in living standards ever. Can the first 50 years of this new century continue this progress, and can we create the conditions everywhere and build the institutions to make it sustainable, or will the “dark” side prevail?

With unabashed glee, many commentators over the past year have again predicted the end of capitalism, some even suggesting a worldwide depression due to the global economic meltdown. Anti-Americanism is still strong, with some commentators and politicians gloating about the collapse of the Anglo-American economic model.

In 2008, billions of dollars were written off as many of the financial instruments in the US, and elsewhere, were caught out; overstretched bad loans and reckless lending had been exposed. Trillions have been pledged to rebuild confidence and keep the system afloat. I understand some of this and the choices politicians face. When I was briefly Prime Minister, we prepared a strategy to bail out the Bank of New Zealand. Critics suggested this would reward bad managers and that we should let the show fall over as a lesson. In the meantime, hundreds of thousands of “mom and dad” accounts, football clubs, school committees, and businesses would also fall over. We lent the BNZ the money, charged commercial interest, and did get all the money back: a success. However, that was not the perception. An incoming government implemented our plan and was able to paint us as helping the rich and being irresponsible. Alas, none of this is new. To understand this, we need to consult the history books as much as the textbooks and a crystal ball.

This current crisis will not be like the Great Depression because of what policy-makers have learnt in the interim. Trillions have already been spent worldwide to hold the system together. At the time of the Great Depression, there were few effective government-owned central banks and there was little global economic coordination. Indeed, international trade collapsed by 70 percent within the space of a few years as governments put up tariffs to try and insulate themselves, and indulged in a destructive cycle of competitive devaluations in an attempt to control global market share. This deepened and prolonged the Great Depression from which the twin tyrannies of the last century emerged: fascism and Communism.

No nation is talking of jettisoning its trade obligations under the World Trade Organization; the system is holding firm. Democracy responds; it is that flexibility that is its genius. In the 1930s Franklin Roosevelt emerged with a new deal: a powerful central bank, a new organization to pick up mortgages. (The fact that Freddie Mac and Fannie Mae, the twin mortgage giants, had to be rescued recently from a mess of their own making does not gainsay this point.) Central banks everywhere have pumped more money, liquidity, into the system to prevent panic. As Roosevelt famously said in the US’s darkest economic times, “All we have to fear is fear itself.” It is about confidence. The word “credit” comes from the Latin word for “trust.”

The Bush Administration was guilty of inactivity, despite warnings that there was a fault line in the financial sector. Talk of transparency sounds glib and a cliché. But it’s real. Out of this destructive chaos will come creative chaos as new entities emerge, picking up some good, low-cost, high-value assets, though this is cold comfort for the thousands who are losing their homes and jobs.

The last 10 years have been the most successful in economic history, lifting millions out of extreme poverty worldwide. Economic gains made from liberalized capital flows now equal or exceed those from liberalized trade. Few jobs are lost and many gained because of open trade and financial markets, yet even in the US more people think trade costs jobs, despite all the evidence to the contrary. The lesson of the Great Depression was that governments needed to intervene to protect the virtues of the market; to ensure there was prudent disclosure and proper competition; and to ensure that global markets were regulated through agreements, procedures, and the WTO. Central banks were necessary to even economic cycles and police adventurers who, as they always will, take advantage of existing conditions. Government has a role to ensure social security in times of stress and uncertainty, and to invest in common goods such as skills and infrastructure. Rebuilding must be done in a way that produces both economic and social confidence. There has to be a sense of fairness, of equality of sacrifice.

If the stunning greed and bad judgment of some of the CEOs and corporations results in those most responsible walking away with very few scars and big payouts, workers who lose homes and jobs will be enraged, creating a populist opportunity for politicians to feast off.

Since its beginnings in late 2008, the financial crisis has dominated newspaper headlines, board meetings and everyday conversation. Reputations—even that of former Federal Reserve Chairman Alan Greenspan—have been left in tatters, as the markets indulged in selling debt without regard to their own long-term interests. In this they behaved like those people on very modest incomes who took out 100 percent mortgages to get on the prosperity ladder (in Britain a few years ago, people were offered 120 percent mortgages and a trip to Spain) or like the small investors who, for an extra 2 percent, took risks with dodgy finance houses. Greed is powerful, nasty, classless and, alas, universal.

Bear Sterns had $33 debt for every dollar it owned. Stock markets have crashed, with billions of dollars written off. Governments have acted swiftly, committing trillions to back up banks and to build confidence. Bank failures are not like other bankruptcies; they can bring down healthy companies that have done everything right. Lord Keynes observed that when you owe the bank $100,000, the bank’s got you; when you owe the bank a million dollars, you’ve got the bank.

Bankruptcy is an important part of a functioning private enterprise system because it allows companies to restructure, reform and get going again, often at a lower cost because the company has been sold at a much lower asset price. It’s rough but a necessary part of the genius that keeps business moving. Later, we look at the genius of the idea of the limited liability company and bankruptcy laws that have given such a dynamic boost to enterprise. When this is removed, a moral hazard exists which can encourage, even reward, bad behavior. Alas, in the end, pragmatic policies mean that some institutions, such as banks with investments everywhere, can’t be allowed to fail. This is what Marx would call the “contradiction of capitalism.” The small businessman falls over; the big one gets bailed out. It’s hard to justify, but harder to ignore. It is the conditions, flexibility and fairness of such deals that test our economic leaders. Otherwise, the contagion creates even more unfairness.

With commodity prices collapsing (for a while) and food prices in crisis in many places, some commentators are writing about the demise of the West, just as the Marxists and fascists did in the 1930s. But it’s not the demise of the West: it’s the rise of the rest.

I am part of a group that is currently considering what should be the global response in terms of trading and economic rules and institutions. It is just laughable that Belgium has more power at the International Monetary Fund (IMF) than China. The IMF, in its present configuration, cannot do much, since its resources are only about $300 billion. Compare this with Japan’s household savings and investments of $15,000 billion. China and Abu Dhabi have more reserves than Japan. Russia is a creditor nation now. The world has changed and now needs standard rules that govern the transparency of banks, their write-offs, common accounting rules and disclosure. National rules don’t work when so much business is done beyond domestic law, and financial institutions lend and swap with each other. The chilling truth is that no-one really knows how much is involved, such is the complexity of many global, cross-border deals and the real influence of dodgy financial instruments. Corrective political action is being taken after the event but no-one knows how much will be enough. Mistakes will be made but democracy, the economic and political marketplace, drives up different answers. In the main, our species learns, adapts, improves, and moves forward.

Over the years, I have come to realize that productivity is just about everything in an economy, and competition and choice are its key drivers and innovators. Inefficiencies in these areas are a tax, a tollgate on progress and growth.

In my view, government has a role to provide the legal, physical, intellectual, social and natural infrastructure for growth. It should give people confidence through a system of social security that enables them to raise and better themselves; a basic platform below which no citizen should fall—a hand up, not a hand-out. It should also cooperate internationally to achieve peace and free trade, to handle issues of a global concern beyond the reach of individual governments, and be a useful partner to this end.

Through my years in government I learned much, too often by making the mistakes others had already made. There is a cruel and iron economic reality that cannot be avoided but can be postponed at even greater cost by government subsidies, borrowing or deficit budgeting. Subsidies, protectionism, government borrowing or deficit budgeting are cowardly ways of governments pulling the blanket over our heads, assuming the fetal position or hoping the bogeyman of reality will go away. You can protect old jobs for a while but always at the expense of new jobs, and in the end you have neither. This is hard to explain to those at the bottom who see their lives disrupted and feel victimized by change. Change: the most frightening word in the English language.

Patience has a limit, however. It is important that growth does not falter, and that the rise in incomes is spread sufficiently widely across a country’s population. As we shall see, inequalities sometimes worsen in the early stages of industrialization and economic change. What then matters is that people who have not yet benefited from this growth have a reasonable expectation that their turn will come.

The countries that made reforms are now doing the best. Ireland needs to be mentioned as an example, as the Irish too took the hard decisions. From being almost the poorest country in Western Europe, Ireland became one of the richest in the space of a few decades. Since 1996, the poorest class in Ireland shrank by 29 percent and the number of people in the very top social class increased by 22.34 percent in the five years to 2002.

Yes, Ireland has location and enjoyed European agricultural subsidies, but sound economic policies to welcome investment, to lower taxes, and to join the European currency were political decisions of great moment and controversy. Ireland has a demographic advantage: the youngest population in Europe, so the lowest payments for pensioners. Contraception was banned there until the 1970s, so Ireland’s baby boom was later than in most Western countries. These late baby-boomers, 620,000 of them, moved into a frenzy of purchasing the good life.

However, Ireland, the Celtic tiger, has taken a savage hit because of the global economic crisis; it’s predicted that the economy will shrink by 4 percent in 2008 and unemployment will more than double. Like other successful economies, it’s paying for the indulgences of the past decade. Wages spiraled updward; the property boom gave investors too much confidence. Living beyond your means is not sustainable, our mothers told us.

Banks were once like the family lawyer or family doctor: trusted advisors. These relationship banks became sellers of financial products. Ireland’s property bust has seen some corrective action with the government’s deficit reaching 10 percent. The people are not amused, with more than 100,000 taking to the streets in protest. But it’s a dangerous fantasy to suggest that the progress of the past 20 years should lead to policies that would make matters worse. Just as good global times lift all boats, when the tide goes out it affects all boats, and some will be stranded for a time. As the old Wall Street joke goes, when the tide goes out, you find out who’s not wearing swimming trunks.

As my own experience has shown, it is one of the ironies of democracy that responsible governments who take firm corrective action to create sustainable growth and impose financial discipline create a climate for an opposition party to take power. Building durable, trusted instruments and institutions of democracy, civil and commercial law with a free and active civil society takes time. The core objectives of our reform remain relevant; it’s how you ease and navigate them through that is the question of politics and local conditions. Despite its worthy and proper objectives, the model cannot be directly exported to countries that are socially and politically vulnerable, where corruption, public looting and violence will erupt. This takes political leadership and courage but if we live by evidence then we know what works best.

I am reminded here of the story of the god-fearing person who prayed a dozen times a day, imploring God to let him win the Lotto. After many years, even God grew weary and demanded of the petitioner, “Help me out here—buy a ticket!”

If we want to take the journey to progress, peace and security, we have to buy the ticket. For too many politicians, the short-term cost of the ticket is too expensive and difficult. I hope this book encourages people to make that investment and not to lose their nerve just when the evidence says that, in the main, globalization is a good thing and worth saving by permanent improvement and adjustment.

Acknowledgments

I’m indebted to many for this work, particularly staff and reports from the WTO, World Bank, United Nations agencies, Brookings Institution, Policy Network, New Policy Institute, Centre for American Progress, Foundation on Economic Trends in the US, The Work Foundation (UK), Enterprise Institute and La Trobe University in Melbourne.

The Australian Financial Review, South China Morning Post, Gulf News (Dubai), New Zealand Dominion Post and New Zealand Herald have published my articles over the years, some of which I have built on here. Thanks also go to Cambridge University Press, Canterbury University Press and Shoal Bay Press because I have expanded on previous books of mine published by them. I have drawn liberally on those publications, especially in the Preface and Introduction.

Graeme Colman, David Porter, Scott Bates, Mike Rann, John O’Leary, Philippe Legrain, Matt Browne, N. K. Singh, Peter Watson and Paul Goldsmith are some of the many researchers, advisors and friends who have encouraged and advised me. Many, such as Bill Jeffries and Michael Bassett, assisted without knowing so, in many arguments and discussions. Google, Wikipedia, the Financial Times, The Guardian, The Economist, the Wall Street Journal, and the research of many NGOs have been liberally consulted, appreciated, and occasionally acknowledged.

It goes without saying I owe a debt to the many personalities who appear in these pages as colleagues, and to the historic heroes and thinkers who have led in this drama. Thanks are also due to Lisa Barraclough and Robin Morton-Smith, who tried to make sense and order out of my handwriting and papers; to Peter Dowling for editorial advice; the tolerant team at John Wiley (Asia) led by Nick Wallwork; and John Owen and Joel Balbin who took this monstrosity down by one-third—to my horror cut out all of my stuff on New Zealand! Thanks to John O’Leary whose research on the ancient Greeks and Romans was invaluable because I’ve met very few of them. None should in any way be held responsible for this book’s shortcomings. The many simplifications are my responsibility alone.