SPEECH BY PRESIDENT MARTTI AHTISAARI OF FINLAND
AT THE NATIONAL PRESS CLUB OF JAPAN ON 26.9.1997

"Finland and the European Union Within the Changing Global Order"

I should like to begin by expressing my profound thanks for the opportunity to address the distinguished National Press Club of Japan. My intention is to examine global interdependence, how it is gaining strength, and some of the consequences flowing from it. Here in Japan, you understand the importance of world trade and economic interaction. Japanese export products are a central part of the new global economy. We are now in transition to an era of cultural interdependence created by information technology and global media. I shall try to illuminate globalisation from the perspective of my own country Finland and of the European Union.

The ending of the Cold War a decade or so ago meant a decisive dynamisation of international change. This change involves an interplay of several factors.

First of all, economic growth in South-East Asia, China and India has been hectic in recent years. The door to prosperity has been opened for hundreds of millions of people and they have been able to leave poverty behind. Although several of those countries have in recent times suffered setbacks, the prospect of their economic growth ending and recession setting in is not on the horizon.

Secondly, the launch of a common European monetary unit in the next few years will be the most important change in the world currency system in our time. There are estimates that about one trillion Dollars' worth of investment will be transferred from Dollar to Euro denomination fairly soon after the new currency is adopted. Then the Euro and the Dollar will each account for about 40 per cent of the global financial market, with the remaining 20 per cent shared between the Yen and other currencies like the Swiss Franc.

The advent of the Euro illustrates in many ways the change that is taking place in the global economy. Above all, the Dollar and the Yen are gaining the company of a new strong world currency, regional integration is strengthening and cooperation between the large economic groupings is expanding.

Global interdependence has strongly highlighted a need to develop international cooperation. The dialogue, negotiation and decision-making mechanisms at the disposal of the international community must now be reassessed from several perspectives.

The arrangements that have been put in place to promote international trade and prevent proliferation of weapons of mass destruction are examples of broadly binding systems of norms. The emergence of "tax paradises" or "flag of convenience countries" in various places around the world is indicative of a problem that must be overcome as economic interdependence increases and systems of norms become more comprehensive.

The new system of cooperation to be striven for will probably be a network of overlapping sets of standards and norms together with decision-making methods. Both global and regional arrangements have their place in it. In our own continent we have created basic arrangements like the Organisation for Security and Cooperation in Europe and the European Union. NATO and especially the associated cooperation arrangements designed to ensure military stability in our continent have a central role. Our own history has taught us that states must set aside their historical enmities in order for cooperation to be lasting. Reconciliation between France and Germany is the foundation for European unification. It is now important to develop interaction between the European Union, Russia and the United States.

We shall continue to need closer interaction between strengthening economic and political regions. A good example of the spreading cooperation network between the European Union and Asia that I could mention is the ASEM process.

A feature of globalisation that has been accentuated since the ending of the Cold War is the economic dimension, a global interdependence of production, trade and finance that transcends and bypasses the boundaries of independent states. Liberalisation of trade and capital flows together with technological development have created opportunities for companies to plan the location of their various functions as a strategic, economic weapon; where to invest, where to locate production facilities, where to find labour and in what climate of taxation to operate are all matters in which companies enjoy greater freedom of choice than ever before as they strive to maximise profit in a global market.

It would, however, be a mistake to imagine that world trade could have evolved to its present shape without political development and support. The ending of the Cold War was of cardinal importance. The effect of work done by international organisations can likewise be seen. The American professor Paul Kennedy has quite rightly drawn attention to the work that especially the United Nations has been doing for decades to promote democratic institutions in the developing countries and liberalise world trade by means of universal conventions. Let us hope that the substantial financial gift made to the UN last week by that pioneer of global news mediation Ted Turner is an indication that more representatives of economic life are able to appreciate the services that the organisation has rendered to humankind and world economic development.

Until now, globalisation has been pronouncedly an economic matter, internationalisation of companies and commerce. Now its scope has expanded to include virtually all areas of human endeavour: labour markets, services, culture and ideas.

Among the biggest challenges that we shall have to face from now on is that of ensuring that economic growth and its fruits are divided more equitably among different segments of the population.

Most members of the European Union find themselves in a situation where the principles on which the welfare state is based have been called into question. Unless the challenges that have been posed can be responded to, we face the threat of an irreversible collapse of competitiveness and European unemployment being frozen at a permanently high level. In that light, solving Europe's unemployment and other economic problems and thereby preserving social cohesion is also a matter of security.

Globalisation has already been seen to prompt counter-reactions in countries where its advance is perceived as posing a threat to national identity, benefits that people feel they are entitled to, ways of life, and habits. As the state's grip weakens and confidence in the ability of political decision-makers to guide development wanes, a growth substrate for extreme movements and demagogues comes into being.

One of the most central challenges in managing globalisation is that of adapting to a world in which capital moves freely. We must be able to ensure conditions that will attract foreign direct investment and thereby create new jobs in our own country. A factor that will substantially influence the mobility of capital is development of the world financial system.

As I have already noted, the biggest upheaval in international money markets on the threshold of the next century will be the advent of a common European currency. Europe's Economic and Monetary Union is not an ideological project and an end in itself, but aspires fundamentally to practical goals: it will increase monetary stability and provide protection against currency speculation. Monetary stability in Europe will also have the effect of increasing stability world-wide. Further benefits of a common monetary system will be that it promotes security-enhancing political cooperation and strengthens Europe's international position.

In this situation it is of overriding importance that the United States, the European Union, Japan and international financial institutions begin preparing for the advent of the Euro more determinedly than they have done to date. We must minimise any irrational reactions on the part of the currency markets.

The ability of an economy to attract direct investment has become a central factor in competition. Providing adequate and internationally competitive operating conditions and ensuring that the factors of production are in place are prerequisites for the emergence of new enterprise. In most industrial countries, this goal can be achieved only by reshaping structures and abolishing regulation of the factors of production.

Credit for the dynamism of the American economy and the new jobs that it has created has been widely attributed to market forces having been freed of social burdens and regulation to an advanced degree. Japan's role as a trail-blazer in Asia has been undisputed. Liberalisation and deregulation of the operating environment are crucial in availing of the benefits of globalisation to the full. Japan has made a strong start in this work. As the transition is made to an era of information and high technology, sustainable economic growth and the requisite flexibility of production must be ensured through openness, free markets and acceptance of individuality and diversity. This is undoubtedly a challenge for several other Asian countries.

On the other hand, a view increasingly often adopted in industrial countries is that the principles of free trade can not be extended to products whose prices do not include the unavoidable costs incurred in providing education, infrastructure and social security. Demands that minimum ecological and social norms be included in international trade agreements as a precondition for free movement of goods are being voiced. This is a politically sensitive issue and has a particularly strong impact on the relative interests of the least-developed countries. As studies indicate, foreign trade and producing in developing countries have little effect on the incomes of industrial workers in the developed countries. The central causes of unemployment identified in studies conducted by the OECD, the IMF and other international bodies are the speed of technological development, failure of education to match the needs of the market and the slowness with which restructuring of industry and labour markets has taken place.

Technological change and globalisation intensify competition and, unfortunately, will increase unemployment in industrial societies unless preparations are made to deal with change.

In the next century information technology will make it possible for growing numbers of people to work from home, irrespective of where they live, although estimates of the effects that the spread of distance working will have on the physical location of labour and on unemployment still vary considerably. Distance working enables many services to be produced in places far from the country where the orders originate. Properly handled, it can help to create a more balanced spread of opportunities, enhance quality of life and boost the economy. At its worst, on the other hand, it heightens inequality and leads to growing differences between the income levels of different parts of the world and individuals.

Unfortunately, some of the developing countries have not been able to share in the benefits that globalisation of the economy has brought. Indeed, one can even talk of a new division of the world into regions of stability that are wealthy and integrating and regions of conflict that are disintegrating and spiralling deeper into poverty. We must regard it as our duty to help the poor developing countries to get into the international economy as equal trade partners, thereby promoting world-wide economic development. A prerequisite for growth in the developing countries is an expansion of production that puts their competitive advantage to use.

In the coming decades, a competitive economy will be built on a foundation of ability. Our success will depend decisively on our capacity to come up with innovations. The support that fresh-minded thinking gets from education and work communities promotes innovativeness. In this, Europe could have something to give to Asia and Japan.

In most cases, either large company size or strong support from society is a prerequisite for developing innovations into competitive products. However, information technology provides examples of how inventions have engendered global companies within a few years in an environment that is supportive of innovation.

Finland is a state whose history is a history of civilisation. Since the second world war, our country has attained a respected position as one with a high level of technology, culture and skill. We have the world's highest density of mobile phones and more Internet connections relative to population than anywhere else. Likewise, we rank alongside the Japanese as the biggest consumers of newspapers. Finland has set herself the goal of becoming the leading knowledge society in the European Union, in terms both of ability to apply technology and of innovation. It is an ambitious goal, but a realistic one.

There is no natural alternative to globalisation as a means of achieving growth in the world economy. Sacrifices will likewise have to be made in many industrial countries. Social structures and systems are becoming the focus of great pressures for change. One-sidedly surrendering to market forces and allowing oneself to be carried along by them is alien to the Nordic way of thinking. Reforms that will make taxation and the social-security system more consistent and such that they offer an incentive have become inescapable.

The ongoing birth of a "global village" has imposed limits on the power that nation-states can wield. Many "places abroad" have become "second homelands" in one way or another. Distance as a major cost factor in the economy has substantially declined. Through the medium of television we are able to experience the most remote events in real time.

Curtailment of national room to exercise power must be compensated for by strengthening multilateral cooperation on an equitable basis. There is now a very real need to do so. How, other than by strengthening international conventions and increasing the effectiveness with which they are monitored, can we avert dangers like the pollution hazards that threaten our globe? I shall take this opportunity to express the hope that the climate change conference in Kyoto next December will be a success. If it is, the first concrete measures under an international convention with the aim of improving the situation concerning the climate will have been taken.

The era that we are entering is not one of colliding cultures, but rather of increasing interaction between them. We can all make a better contribution to that development than we have done in the past. In doing so we shall be participating in work to strengthen the security of our shared globe and its inhabitants.

Thank you!