Address by President of the Republic of Finland Tarja Halonen at the OECD Council in Paris on 28 October 2004

President Tarja Halonen and OECD Secretary General Donald Johnston. (OECD Photo)

It is a great pleasure and honour to address the OECD Council. Finland has been a member of the OECD since 1969 and I am told that none of my predecessors has addressed this distinguished audience. It is high time to do so.

My main theme today will be globalization, especially the work of the World Commission on the Social Dimension of Globalization. The International Labour Organization established this commission two and a half years ago and I had the privilege to co-chair it with President Benjamin Mkapa of Tanzania.

The commission’s origins date further back, however. There had been arguments in the international community for several years about the need to move from confrontation to dialogue in the globalization discussion. The social dimension of globalization had been a topic in the ILO for some time and subsequently the organization decided to establish an independent commission to deal with the matter.

After two years of work our commission of “not like-minded people” was able to agree on a unanimous report, “A Fair Globalization – Creating Opportunities for All”, which was published last February. All in all the report has been quite well received around the world. One of the main tasks, to move from confrontation to dialogue, was accomplished well. This is clear if one considers the composition of our commission.

Our view of globalization is critical but positive. Globalization has huge potential to improve people’s lives in many ways, but today it falls short of this promise. Too few are benefiting and too many are suffering or are excluded from globalization.

We also tried to avoid getting trapped in the “single truth” syndrome. People’s perception of globalization varies greatly depending on their own experiences. This multitude of opinions and views was clearly present in the national and regional dialogues as well as other meetings organized by our commission.

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There are significant similarities between the working methods of the World Commission and the OECD. We both base our work on research and studies. These are followed by analysis and finally we make recommendations. And there are also certainly similarities in the recommendations, for example concerning the role of the nation state.

The nation state is still the main actor in globalization. People’s ability and possibility to take advantage of globalization depends greatly on the policies of their government. A nation state should provide an encouraging environment for the self-fulfilment of its people, starting with democracy, the rule of law and respect for human rights.

It is possible to combine the effective use of national resources with the traditional demand for fairness. Good governance, social justice and gender equality are central responsibilities of the nation state. Yet corruption is widespread, it seriously hampers economic activity and it is especially detrimental for the poorest and the weakest. A wide income gap weakens society as a whole. Human resources are becoming increasingly important in a globalizing world, and it is therefore essential to provide girls and women equal opportunities for education and careers.

A nation state should provide sound economic policies to achieve sustainable growth. Special attention should be paid to promoting employment. The Lisbon Strategy of the European Union is a good example of a regional attempt to combine improved competitiveness, economic growth and promoting employment, though its implementation has been slow.

The nation state is also instrumental in providing an efficient market mechanism. Markets can benefit everyone only when their proper functioning is secured by appropriate legislation and the implementation of norms.

In addition to providing an enabling environment, the nation state is a key provider of social, health and educational services. These services can be complemented but not replaced by private service providers.

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Since the ILO established the World Commission, it is clear that we took a special look at how globalization has affected employment. This proved to be a difficult task, as always when dealing with statistics from around the world. The latest ILO estimates show that open unemployment has increased globally over the past two decades to about 188 million in 2003. However, employment performance has varied in different regions and countries, so it is hard to draw definite conclusions about globalization and employment.

All the same, there are clear trends in global employment. Production has become more global. The growth in global production systems has been most pronounced in high-tech industries and labour-intensive consumer goods. It is also becoming more significant in some services.

Although the internal dynamics vary between these sectors, they have something in common. Jobs are disappearing in some places and being created in others. Unskilled workers stand to lose the most, but not even skilled workers can be sure about their positions in this global competition.

Employment is probably the most important thing affecting how people experience and react to globalization, both in the South and in the North. Therefore accepting globalization depends very much on its employment performance. It is no accident that globalization is perceived as a positive term in China while it seems to be a negative term in many other places.

Employment is important for people. Governments should pay better attention to economic and trade policies’ impact on employment. Short-term job losses seem to be unavoidable. In these cases governments need to implement active policies like job training and promoting entrepreneurship, which lead to new employment opportunities. Here I wish to underline the importance of preventive measures - sound domestic policies - whether they concern education, the economy or social security. It is always more difficult to take corrective measures afterwards.

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Competition for foreign direct investment has intensified. One implication of this is increased tax competition. This can lead to the better allocation of resources, but in the worst case it can lead to an unhealthy situation where the cost of attracting investments becomes higher than the benefit acquired by investments.

Many local authorities in Finland have found this out when they have tried to attract investments by providing premises, industrial plants, for new businesses. Some of these businesses moved quickly to another place when they were provided even better premises and other benefits. Similar development has taken place and will take place for example in the European Union after the latest enlargement.

At any rate, the purpose of foreign direct investment should be to promote sustainable economic activity and development. Its role can be very positive for developing countries, and it greatly exceeds official development assistance.

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In this era of globalization, capital, goods and services are moving ever more freely around the world. The same does not apply to the cross-border movement of people. Fair rules for trade and capital flows need to be supplemented by fair rules for the cross-border movement of people.

Every country stands to benefit from an orderly and managed process of international migration that can enhance global productivity and eliminate exploitative practices. This not an easy issue, but it will not become easier by waiting and doing nothing. The ageing OECD societies should make us all understand the importance of this issue.

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One of the most controversial aspects of globalization is trade liberalization. Since World War II the world community has embarked on the path of liberalizing international trade. The trade agenda has been expanded from lowering tariffs on manufactured goods to trade in services and to areas that cannot be considered trade issues in the traditional sense.

The motive behind this trend has been to foster economic growth and employment - in other words to improve people’s material well-being. We can say without hesitation that trade liberalization has been successful in this respect.

There are still many challenges and problems, however. First of all the international trade agenda has for decades been determined by the industrialized countries, which by their sheer negotiating power have also dictated the outcomes. Many developing countries feel that the international trade regime is therefore tilted in favour of the industrialized countries.

One example of this is the very modest progress in liberalizing trade in agricultural products. Many countries are seriously limiting market access for foreign agricultural products and engage in trade-distorting subsidies for exports and domestic production.

It has become clear that the Doha Development Round cannot be concluded unless agriculture is addressed in a serious way. The Cancún setback last year was a good reminder of this.

We need to proceed with the gradual elimination of trade barriers. I sincerely hope that the Doha Round will live up to its promise and provide a more equitable international trade regime - one that is also sensitive to the needs and interests of developing countries.

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One major issue is the policy coherence, both in domestic decision-making and in international organizations.
It is clear that policy coherence starts at home. The multitude of interests and pressures in domestic policies quite often lead to a compromise based of trade-off between competing economic, social and environmental goals. When dealing with international issues the situation is quite different.

Negotiations on global governance take place in separate sectors such as trade, finance, health and development co-operation. International organizations focus on their specific mandates. As a result they often loose sight of the impact of their actions on other important objectives.

Mechanisms for ensuring coherence in global governance as a whole are either weak or non-existent. To a large extent this lack of coherence in global governance is a reflection of inadequate co-ordination on national level. Ministers are not fully aware of actions of their colleagues in different international organizations. One answer to this is better scrutiny of and clearer mandates for national representatives by the national parliaments.
Another way to improve coherence would be fuller disclosure of information and better transparency in governments and international organizations. This would make the impacts of their policies and actions clearer and provide the basis for beneficial public debates on these issues.

And there is of course a need for improved co-operation between international organizations.

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I have talked at length about the issues covered in the report of the World Commission on the Social Dimension of Globalization. The report is an achievement in itself, but words must be turned into action. We, the members of the commission, do not have a mandate to act on the commission’s recommendations, but we are convinced and committed. We have been actively promoting the report and its recommendations. That is actually what I am doing here right now.

There is already a good process going on in the ILO, the home of our commission. The issues covered in our report go well beyond the ILO mandate, however. Thus action is also welcome and needed in many other international forums.

Another main venue is the United Nations, where Finland and Tanzania organized a special event on the work of the World Commission in September. We have also presented a draft resolution to the 59th General Assembly, linking the report to the implementation of the Millennium Declaration.

Similar work is under way in other international organizations, including the Bretton Woods Institutions. On the regional level good progress has taken place in the European Union and the African Union, where commission’s ideas have already been adopted.

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The OECD member countries play an important role and therefore bear a great responsibility in governing world affairs, especially in the economic and social fields. To that end, the World Commission calls attention to the OECD Guidelines on Multinational Enterprises in its report. They are an instrument for guiding businesses in their foreign operations - in trading and investing. I urge the OECD and particularly the member governments to make the guidelines better known at the national level within business communities and among other parties.

I am fully convinced that the OECD has a key role with regard to globalization. Your analysis is needed and appreciated. And so are your policy advice and soft law. Sound policies lay the foundation for coping with globalization, taking advantage of the opportunities it offers and minimizing its negative effects.

Furthermore, in my view the OECD is the right venue for global co-operation to combat harmful tax practices, fiscal and financial fraud, collusion in competition and money laundering. I encourage the OECD to continue on this road, strengthen your reach and seek new partnerships with other international organizations. I would like to thank you for your activities in the field of globalization and for your interest in the World Commission on the Social Dimension of Globalization.

I look forward to your comments and hope for fruitful co-operation.