SPEECH BY PRESIDENT MARTTI AHTISAARI OF FINLAND AT THE ZURICH CHAMBER OF COMMERCE ON 27.10.1997

FINLAND, THE EUROPEAN UNION AND THE CHALLENGE OF GLOBALISATION

It is a great pleasure, but at the same time a challenge, for me to speak to the members of the Chamber of Commerce in Zurich, one of the world's major financial centres. If a visit to your country's capital were not also on my programme later today, I could speak more words of praise about your city. That my itinerary includes both your capital and your nation's economic centre is a good reflection of the breadth of relations between Finland and Switzerland.

Finland is satisfied with her experience of membership of the European Union. We were seeking a say in matters that concern us, and we have obtained it. We were also seeking a way of promoting our international goals. Now we can state that membership has contributed to clarifying and consolidating our international position.

The European Union will continue to be an increasingly central channel for influence in advocating Finland's interests and promoting common European goals.

That is not to say that we have ever imagined that the Union would solve our problems for us. For Finland integration is a means, not an end in itself. Nor have we thought that the Union would be a big enough area for us to operate in. Our Europe has always been bigger than the European Union. Integration is a means of uniting our continent into a stronger entity, so that it will be more secure, more stable, more prosperous and capable of succeeding in a globalising world.

Talking to a community of Swiss businesspeople about succeeding in global competition is certainly preaching to the converted. I do not for a moment imagine that I could tell you the recipe for economic success. Instead, I would like to continue the assessment of the effects of globalisation on which I have focused in my recent international appearances.

Globalisation in the economy, media and culture is such a many-pronged phenomenon that deliberation of its benefits and drawbacks can not be entrusted to any single international organisation or institution.

Globalisation is taking place parallel to regional integration. Networks that transcend regions and states are likewise developing. These processes affect our opportunities to pursue our own interests.

What does Europe's success in a globalising world involve? What is the significance and role of European integration, the European Union and its European partners? What consequences can economic and financial globalisation have for the nation-state, our conception of democracy and the European welfare state? Will the democracy whose triumph over totalitarianism we have been extolling in recent years come under threat in the future?

It is in relation to questions of this kind that I would like to continue to share some thoughts with you today, here in a country where democracy is certainly more deeply rooted than in many other places.

Globalisation involves economic interrelations, ideas and information technology, culture and labour. It has advanced strongly since the end of the Cold War. Observers have noted that a law of acceleration has taken also this trend in its grip and we shall face the next change quicker than the previous one, and so on. Perhaps that is the way it is.

Globalisation has opened up markets and thereby increased economic growth. Asia is now taking its place as one of the centres of economic power in the world community. However, many of the development trends associated with globalisation are either problematic, especially for the European welfare state, or pose at least challenges for national and international political processes to meet.

The roots of globalisation can be regarded as being in Europe. Here, economic and technological development has made supranational interaction easy and inescapable as well as successful in the economic sense. The European Union is only one of the ways in which we have tried to find sensible ground rules for spontaneous integration of the economy's own forces and a new kind of regularity.

Integration has now advanced to the global level. There have been many reasons for this development. The same basic factor, technological and economic progress, has been a natural precondition for globalisation. A second precondition has been political: the fact that the market economy has gained acceptance almost everywhere in the world has cleared away the obstacles that the public authorities have put in the way of technological and economic integrative forces. Governments have yielded to those forces by accepting that technology and economics can set their own goals.

Some of the forms in which globalisation appears illustrate what development can mean from the perspectives of power within governments and international intergovernmental governance.

One of the forms in which globalisation manifests itself in international trade is that a growing share - according to the US Department of Commerce, the figure is already over 40 per cent - of the volume reflected in trade statistics is intra-corporation transfers. The development of currency exchange rates affects intra-corporation trade less than trade of the traditional kind. Another similar feature is that trade follows investment.

For an investor a strong currency is a good thing, even though it may impede exports of goods and services in the traditional sense. Conversely, a weak currency may promote exports, but lessens the ability to invest abroad.

Globalisation of the world economy forces national governments to observe stricter economic discipline and cooperate more closely with each other. In conditions of global information flows and trade, floating currencies have created "world money", as Peter F. Drucker has pointed out. The typical feature of world money is that it does not exist outside the global economy and its currency markets.

The volume of world money is, however, enormous and it is money that moves fast. Many national governments and central banks have had to experience its power - most recently in the South-East Asian countries. World money has taken power away from governments. That course of development and its effects on democratic society have begun frightening even those who have benefited most from it.

In the globalising world economy, multinational companies are evolving into transnational corporations. Apart from the legal environment, the only aspects of their operations that are determined in accordance with local circumstances are mainly sales, marketing and service functions; almost everything else is planned from the perspective of world markets.

Transnational corporations need accommodate only part of their activities to national conditions and politics. This reduces governments' opportunities to use companies' business operations for their own political ends. An interesting test case in this sense is the extraterritorial legislation enacted by the United States to promote sanctions against Iran and Cuba.

There is no reason to try to shackle accelerating globalisation as such. At the end of the day, no one benefits from protectionism and trade wars. It is just that progress in the technological and economic sectors on the global level has been a lot faster than the development of the corresponding legal system and general political oversight. There has now been an awakening to the realisation that the global economy requires an intensification of intergovernmental cooperation; not that globalisation should be impeded, but rather than it should be guided. Globalisation should be guided in a direction that makes it benefit people's wellbeing rather than endanger it, as happens if responsibility for the environment is forgotten or, let's say, when copyright is not respected. The way in which globalisation relates to security policy in the next century likewise demands the attention of all states.

Also the European Union must respond to the challenge of globalisation, and it must do so constantly and across the full range of its activities. In fact, that challenge is addressed to the whole of Europe, and the EU must first strive to rally all of the continent's forces so that a more united Europe can be in the vanguard of development.

The most central project in this effort is enlargement of the Union, but the development of integration in our continent does not necessarily have to mean membership of the Union. There are also other forms of cooperation and they must be developed. From this perspective, Finland hopes that the Union and Switzerland will bring their bilateral negotiations to a speedy conclusion.

A second major challenge facing the EU is that of ensuring that economic growth and its fruits are shared in a balanced manner between different groups of the population. Most of its member states are in a situation where the foundations of the welfare state have been called into question. Thus the Union must be renewed from within so that competitiveness is preserved and a downturn in unemployment can be achieved. In its Agenda 2000 proposal, the European Commission has focused attention on precisely the kinds of needs that a changing global environment is creating.

Economic and monetary union is intended to achieve practical goals: it will increase monetary stability and provide protection against currency speculation. A stable monetary policy in Europe will contribute to enhancing stability world-wide. A common currency system will promote security-enhancing political cooperation within the Union and strengthen Europe's international position.

In this situation, it is of the highest importance that the United States, the EU, Japan and international financial institutions begin preparing for the euro more determinedly than they have been doing.

Parallel to globalisation, other regional integration projects like the EU are likewise developing and intensifying. In the future, cooperation between integration projects like the EU, ASEAN and NAFTA will be part of an effort to manage the consequences of globalisation. The European Union can be the core around which to rally our continent's interests in such matters as developing the multilateral trade system.

I can see common European interests of this kind in, for example, the debate on education, social security or incorporating the costs of environmental protection into product prices. In my view, this way of thinking belongs to the European welfare state model. In it, differences within Europe are smaller than those between Europe and the rest of the world.

Is it, then, preordained and inevitable that only the biggest and most developed economic units will be successful in global conditions? Does the same development apply to political units?

Being big seems to help in an economy, but it is not essential. A competitive economy is founded on ability. Success depends on a capacity to produce innovations. And one does not have to be big to be innovative. It is, however, true that developing innovations into competitive products usually presupposes either the resources of a large company or strong support from society. The information technology sector provides us with examples of an invention propelling a company from a small beginning to global stature, provided the environment is favourable. Finnish examples of this include Nokia.

On the level of the state, smallness can likewise confer competitive advantages. Social cohesion and national consensus can be a dynamic resource in a small state.

In politics, by contrast, globalisation can limit the power of large states even more in relative terms than the power of small ones. The advance and acceleration of globalisation has undoubtedly put the basic unit of the international system of political governance, the nation-state, under pressure to change. As I have noted earlier, a transnational corporation can more easily get around a state's attempts to harness it for political ends. The demands dictated by international currency markets force governments to adopt more disciplined economic policies and reduce their room for manoeuvre. If investment steers trade, governments will have to ponder what are the conditions that will attract investors to their country.

Two questions follow from all of this: are market forces usurping the place of democracy, at least in the form that we Europeans regard as our creation, and are market forces excluding inter-state systems of governance?

The greeter freedom of action that governments have given the economy and technology does not at all mean that there is no need for a hand to guide the exercise of democratic power in the global economy. The influence of that hand is now milder than it used to be, but it must continue to exist if we intend to act within the framework of a legal system. For that reason, the importance of the WTO is incomparably greater than earlier. It is equally important that governments intensify their cooperation to globalise other norms, including those applying to the environment. In this, the European Union has an increasingly important task.

Examined on a world-wide scale, the relationship between democracy and markets is a question with many facets. It has been said on numerous occasions since the end of the Cold War that democracy and the market economy won. However, it is not possible to insert an equal sign between "democracy" and "market economy". Arthur Schlesinger, Jr. has summed up the relationship between the two by pointing out that democracy is impossible without the right of private ownership, but that markets are not a guarantee of democracy. Others besides George Soros have noticed the problems of runaway capitalism. If we want to keep those problems under control, we need a channel for political influence. We need the nation-state and we need democracy. But the state must not, through taxes, suppress citizens' independent initiative.

Change in the world has accelerated to such a pace that just keeping up with it has become an increasingly demanding task. The young generation has already mastered the instruments of rapid information technology, above all the Internet. This generation has all of the technical prerequisites to conduct an enlightened and timely discussion of the changes that globalisation has made necessary.

Instruments are essential, but not enough on their own. We also need open discussion of the values that we want implemented, and of the choices that must be made in order for that to happen. Politicians and political thinkers have their own important task here. Sometimes we can allow ourselves to be led too much by instruments, without pondering what kind of world we would wish ourselves and our children to live in.

Democracy is implemented only when there is first an open discussion-in- principle of ends and the means are then chosen together. The frantic rhythm of the present time does not allow for very prolonged deliberations. That is why it is all the more important to grasp new matters as soon as they arise and to analyse them open-mindedly.