The full text of the speech delivered to the Institute for Public Policy Research 13th October 2008(check against delivery):
Introduction
In February this year, the ippr published an excellent paper on security - The New Front Line, Security in a Changing World.
I don’t think anyone had any idea then quite how fast the world would be changing today.
When I accepted this invitation a few months ago, I imagined I would be giving what you might describe as a more standard foreign affairs speech.
The future of NATO, the growth of international terrorism, the need for international cooperation on climate change…
But this morning I’m going to talk to you about the economic situation in which we find ourselves.
The financial collapse we are seeing all around us.
Because this may become the engine of global insecurity in the months and years ahead.
As history shows, economic insecurity leads to instability and to conflict.
We cannot for a second underestimate the importance of what is happening.
The financial collapse we are caught in may prove to be an economic 9/11.
9/11 was a security crisis, with security implications.
This is an economic crisis but its economic, social and security implications are potentially no less profound.
In our world, economic strength is power.
And we do not yet know, when the dust settles from this crisis, where the power will lie.
For me, one of the most telling moments last week was when Russia lent money to Iceland…
Whose Prime Minister said his country had to look for “new friends” because their old ones had failed them.
The geo-political landscape is going to change radically…
And that change will bring new risks and new threats.
Let me set out the argument I am putting forward today…
I will explore the relationship between economic crisis and political breakdown…
And the ways in which some hostile groups and nations will seek to capitalise on the current disorder…
I will turn specifically to what this will mean for America.
The America we can expect to emerge from this turmoil will be less confident, less self-assured.
America’s transformation from the world’s sole superpower to a superpower competing in a multipolar world predates the credit crunch, but the speed and brutality of the present economic crisis may well accelerate that shift in power…
And that will embolden America’s enemies…
Rogue regimes who will seek to exploit the shift in global power…
And seek to rise as America falls.
Then I want to focus on the challenges this poses for European leaders.
An integrated Europe should be ideally placed to provide supranational responses to a supranational economic crisis.
But that will require political will.
The will to reregulate our broken financial system.
The will to avert any lurch to protectionism.
The will to reinvent international institutions so they reflect the realities of the twenty first century - embracing the new powers of China, India and Brazil - rather than sustaining the post war settlement of over 50 years ago.
And the will to map out a new, sustainable approach to economic growth.
Economic insecurity breeds conflict and instability
Let me start with the basic argument that economic turmoil creates instability.
Any student of history knows this is true.
Think back to the Great Depression of the 1930s.
That Depression created the conditions for the resurgence of fascism that culminated in the Second World War.
It is not difficult to see how deprivation leads to frustration and violence.
Demagogues feed off misery.
Need creates opportunities for populists.
It is much easier to mobilise support amongst those who are suffering by exploiting their understandable sense of grievance.
Extreme economic insecurity creates a demand for extreme political certainty.
We need to recognise this relationship now…
And take the steps needed to restore economic stability and with it political legitimacy…
Or else the outlook for international relations will be bleak.
We see the consequences of economic insecurity all over the world.
The World Bank’s list of 25 “fragile states” is a familiar and depressing roll-call of impoverished nations - Myanmar, Somalia, Zimbabwe, Central African Republic.
The one European country on the list is Kosovo:
A country born out of a war that began with Yugoslavia’s economic collapse.
The Taliban thrive on the day-to-day frustrations of ordinary Afghans…
Extreme poverty has given the Taliban a legitimacy amongst some Afghans they don’t deserve.
There are villages in Turkey where the PKK are hailed as heroes…
Not because of their political aspirations…
But because they build schools and lay electricity lines for people otherwise forgotten by the state.
In Pakistan high oil prices and endemic corruption and mismanagement have left the central bank with enough money for just a month’s worth of imports.
And all the while clashes between militants and the army are on the rise.
And need and instability don’t just threaten security in other countries, in other parts of the world.
Here, in the poorer parts of our own capital, we have seen pockets of extremism…
As fundamentalists prey on men and women alienated by widening inequality.
You see, in the public imagination economic failure is twinned with political failure.
Destitution breeds resentment towards the ruling authority.
And towards the wider political systems that put it in power.
When people from any society fear that they will not be able to satisfy their basic needs…
They don’t just lose faith in the rulers who are meant to protect them.
But also the rules that are meant to protect them.
This is a profound kind of disaffection.
And it’s why the credit crunch has created a distinct feeling that Western, liberal democracies have not passed the test.
We must stabilise the global economy through multilateral efforts.
Or we will leave a space in which extremists can compete.
And they will be much less inhibited by the usual constraints.
Developed nations will spend the foreseeable future mired in debt.
They will be forced to divert their resources to their troubled banks and battered balance sheets.
They will have little to spare for the pursuit of peace.
And counter-insurgency, homeland security, and peace-building don’t come cheap.
The global protection of human rights will slip further down the Western agenda.
In countries where we have seen reticence to intervene from developed nations…Zimbabwe, Burma, Darfur…domestic economic priorities will be another excuse not to act.
Recession could also threaten existing military action.
As my colleague Ming Campbell recently outlined in his review of the UK’s Military Covenant, British forces are already enormously overstretched in Iraq and Afghanistan.
Our troops lack airlift, helicopters and armoured vehicles.
We heard last week from the British commander in Helmand that decisive military victory is impossible.
The best we can hope for is keeping the insurgents ‘manageable’. Afghanistan may need a British commitment for many many years.
But recession could make that impossible.
Economic Crisis is Quickening American Decline
Regimes like the Taliban will try to make the most out of this new mood of introspection in Western democracies.
And, particularly, the troubles enveloping America, which now finds itself at the root of global strife.
America’s role in the world has already undergone great change.
The unipolarity that characterised the post-cold war period has been steadily eroding.
The G8 club no longer reflects the big players.
Countries like China, India and Brazil are fast becoming economic superpowers.
So, even without the shock of this financial crisis, America’s total dominance at the world’s top table is bound to change as other powers emerge.
But America’s relative position to other powers will now be fast tracked by the economic crisis.
The country that has already lost its moral credibility with the war in Iraq…
Now risks losing its economic credibility as well.
We will undoubtedly witness a more introspective, less confident America in the years ahead.
As the American people grapple with the hard times ahead…
Whatever appetite there once was for nation-building abroad may take a back seat.
At best, we will see a less assertive, less unilateral approach from the next US President to world affairs. At worst, we may well see a resurgence of isolationism.
The volatile regimes that stand in opposition to the US will be buoyed by its loss of strategic leadership.
We have already seen Iran crowing over the weakness of a lame President.
Obama has called a Nuclear Iran “unacceptable”, and McCain has said it raises the prospect of “a second holocaust”.
But neither has a clear strategy for how to deal with Iran.
Iran may be just two years away from being able to deploy nuclear weapons.
With America facing deep recession will it be able to contain this highly unpredictable state?
Nuclear arms are an issue in Asia, too.
America’s decision to supply India with nuclear reactors last week risks prompting an Asian arms race they will struggle to control.
North Korea, Russia, Venezuela and others will also look to benefit as the US turns inward to deal with its economic woes.
The American Empire has many enemies at its gates.
Of course the economies of these states will also be hit by the crisis.
Stock markets across the world are suffering, not just in the West.
And, of course, no one should underestimate the pragmatism, the ability to adapt, which has long been a hallmark of American power.
But that does not change the fact that these states may seek to capitalise on the present upheaval.
Whatever your views on the US - I have despaired as much as anyone else at the short sighted unilateralism of the Bush Administration - a sudden collapse in American self confidence, accompanied by opportunism from its foes, is not good news for the world.
The Role for Europe
So, what can we do?
How can the world cope with the unpredictable dispersal of power that we now face?
It is time for Europe to step up to the plate.
Last night, the European Union finally announced a package of coordinated measures to deal with the financial crisis. I suspect it will only be the first of increasingly radical actions which may need to be adopted at European level. Interest rates will have to be cut again, for a start. And European Governments may need to intervene ever more aggressively to remove the massive toxic liabilities which have now emerged at the heart of the banking system.
But such coordianted action has been slow in coming.
We have seen European leaders agree to work together with their counterparts one day…
Only to take unilateral action the next.
Euro-sceptics have argued, and will continue to argue, that Europe has little to offer at this time of financial crisis.
That this is an Anglo-American problem that needs an Anglo-American solution.
They are wrong.
This crisis has proved that in our globalised world…
Chains of cause and effect have no regard for territorial integrity.
The number of banks needing Government intervention to keep them afloat rises daily.
And none of the various national attempts to help have stopped the bleeding.
Much of Europe, including the UK, is on the verge of a recession if not already in one.
Whole countries like Iceland are being driven to bankruptcy.
The risks posed by the financial crisis have been systemic.
Borderless and global.
The solutions and safeguards that we now put in place must be the same.
And when the economic collapse leads to a surge in conflict and cross-border crime…
That’s everyone’s problem.
But the generation of leaders now running Europe seem slow in comprehending the limits to national responses, and the urgent need to act forcefully as a Union.
Brown, Merkel, Berlusconi, Sarkozy - these heads of governments do not instinctively share the values that European cooperation was built on.
Their predecessors, the architects of the European Community, were driven by the traumas of World War Two.
They understood the need for national sacrifice for the wider ideals of peace, prosperity and democracy.
They knew only too well that nationalism and protectionism fuel instability.
But their successors need to learn these lessons anew.
No one more so than Gordon Brown…
Yes, he is calling for a unified European response to the crisis now…
And I support that…
But it shouldn’t have taken disaster to convince him that European coordinated action can be the only way forward.
It infuriates me, as a politician with a lifelong commitment to Europe.
I worked in the European Union for ten years.
As a trade negotiator on behalf of the Union with Russia and China, managing multi-million pound EU aid development projects, and as a Member of the European Parliament.
I understand as well as anyone the difficulties in coordinating a policy response across what is now a 27-country area.
But I also know that despite the challenges it faces…
The EU represents an example of international coordination, pooled sovereignty, and supranational governance, unmatched anywhere on the planet.
As the world braces itself for difficult times…
It is up to European leaders to emulate the courage and cooperation that fixed the global economy the last time it lay in tatters.
There are five major steps that they must take.
Step one. European governments have a responsibility to reduce inequality in their own countries.
And to work together to reduce it across Europe as a whole.
As I have explained, extremists target vulnerable and marginalised groups.
They will only find sympathy for their cause if disaffected groups feel that economic injustice has pushed them right to the edge.
So the logic for creating greater social justice is not one of fairness alone. Because greater fairness creates greater security too.
My party has pledged to cut taxes for society’s worst off…
Paid for by those who can afford it and a reduction in Government waste.
In times of crisis it is up to Government to do whatever it can to reduce alienation.
The only way to do that is through fairness.
And where appropriate Governments across Europe should do the same.
Step two. Europe must agree quickly on a new regulatory system for its financial markets.
We cannot tell yet whether the measures we are seeing in different countries will work.
My suspicion is that the American model, in which taxpayers buy off toxic debts, will prove less successful than rescue packages in which taxpayers get a direct stake in the banks.
We shall see.
But putting the merits of the different bailouts aside…
The point is that any national action is ultimately unsustainable unless it is part of a coordinated international response.
A new European regulatory framework must restore trust between financial institutions…
To get the markets going again…
The scope of Government intervention agreed by the EU last night is already far greater than anything we might have imagined last week.
Next week, who knows what level of Government intervention will be required. Full nationalisation of some banks now seems only a heartbeat away.
Whatever happens, the attitude of the public and Governments towards banks will never be the same again.
Unacceptable levels of executive pay, the flawed assessment of risk, the topsy-turvy world of hidden assets and camouflaged liabilities will have to end - and be regulated at EU, and global, level.
The EU, with its unparalleled ability to develop cross national legislation, must take the lead in creating a new supranational regulatory environment for a footloose, fancy free model of financial capitalism which now stands in ruins.
Step three. We need to radically transform the Bretton Woods institutions: the IMF and the World Bank.
This global financial infrastructure is no longer fit for purpose.
It was created for an economic system that was right for the 1940s.
We must now make it right for the 21st century.
New institutions capable of identifying risk, and intervening to prevent it contaminating the financial system again, will need to be established from scratch.
And, vitally, the new powers of China, India, Brazil and others must urgently be given a place at the top table.
A twenty-first century institutional settlement must reflect the realities of power in this century, not the last.
Any attempt by “the west” to maintain its hegemony over the international system is doomed to failure.
The unfolding crisis in the financial markets must serve as a catalyst for a new concord between the old world and the new. Sentiment, chauvinism and pride can play no role. A hard headed acceptance of the new order of things must quickly be reflected in new global institutions. And Europe must lead the way in spelling out what that will mean in practice.
Step four, the European Union needs to make clear beyond all doubt that multilateral trade will not be replaced with economic protectionism.
It is a tragedy that the Doha Trade talks have broken down so spectacularly.
European leaders must now go back to the table…
And not leave it until they have agreed on a properly regulated, rules-based system of open markets - not least in agriculture - that promotes fairness and cooperation.
Many legitimate comparisons have been made between the crisis we face today and the depression of the 1930s. Protectionism was the poison which drove the economy into a fatal spiral in the 1930s. We must at all costs prevent the same mistake from occuring again.
Step five. European leaders must work together to build a green economy.
Based on the massive expansion of renewable energy.
This is vital if we are going to make the world a safer place.
Safe from the unreasonable expectations of the nations who hold oil.
Safe from the destabilising affects of volatile oil prices.
And better equipped to tackle the dangers of climate change.
That is why in the summer I set out plans to make the UK energy independent in Europe by 2050.
All European countries must now do what it takes to realise this vision.
As the old economy lies in tatters, Europe must take bold steps to create a new, sustainable economy for the future.
Peroration
The challenges for Europe, and the world, are clear.
We are in the eye of a storm.
No one can safely predict what happens next.
Can we step back from the precipice, and avoid economic meltdown on an unimaginable scale?
Yes, we can - as long as the lessons of history are understood, a multilateral response is embraced by everyone, protectionism and nationalism averted, greater fairness within our society is promoted, and a willingness to rethink conventional economic policies demonstrated.
Europe’s leaders showed extraordinary leadership after the ravages of the Second World War.
Today’s European leaders must now stand together.
The events of the 20th century remind us that we must restore economic security today…
To avoid global upheaval tomorrow.
And that the only way to do that is through a multilateral - a liberal - approach.
Global security depends on it.
October 13th, 2008 at 10:41 am
[...] read Nick Clegg’s IPPR speech in full, click here. Share [...]
October 17th, 2008 at 9:56 am
With regards to your stance of terrorism, I have to agree unequivocally, although I have my qualms with your take on the financial crisis. All in all - a good speech.