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Commentary (June 14, 2006)

The External Rules That Drive Internal Reforms

Mike Moore (former Prime Minister of New Zealand and former Director-General of the World Trade Organisation)

Over one 10-day period, I attended a meeting of the United Nations' high-level panel on the legal empowerment of the poor, visited the Baltic states to speak at a European Union ministerial meeting on technology and government, then zipped into Zurich to talk with investors about changes in the Asia-Pacific region, and trade.

Thinking about what successful emerging economies have in common, I have learned two things: where there's an economic problem of poor performance, one should seek more competition; where there's a political problem, seek a more democratic approach. The work of the UN Commission on the Legal Empowerment of the Poor is about how we can promote and lock in property rights and ownership so that the poor can make use of their assets.

The Baltic states have shrugged off their Soviet past. They quickly joined the World Trade Organisation, then the EU and NATO. They established the economic foundations for progress through the WTO; found a political anchor as members of the EU; and developed the security and confidence that NATO membership implies. There can be no going back.

Estonia, for example, had no modern technology when it became independent in 1991. Government offices and most companies were poorly served by old, mainframe computers and the Ministry of Foreign Affairs had only two mobile phones. It was illegal for private individuals to have computers. Now, Estonia is in the top 20 countries for internet penetration. All schools are connected to, and half the population has access to, the internet. Per capita income has increased from US$600 in 1991 to US$6,000 in 2004.

True patriots, and reformers who are serious about progress, sometimes need outside pegs to drive internal reform. Very smart leaders use membership of international organisations, and their rules and standards, to benchmark their reforms. Taiwan had no problem joining the WTO since it had, for years, acted as though it was a member - insisting that its companies and ministries complied with the organisation's rules and mandates.

Looming WTO membership is making some countries, like Vietnam, more transparent and open as they adopt global standards. Turkey has had to change hundreds of laws, advance human and labour rights and adopt new environmental standards as it battles to join the EU.

In the 1980s, the New Zealand Labour government "floated" the dollar and enshrined independence for the reserve bank. Investors had, for a generation, expected successive governments to manipulate currency and inflation for electoral purposes. The greatest outside forces that can punish or reward economies whose leaders succumb to election-year pressures are international investors, share prices, interest rates and currency volatility. The market can be a tyrant.

All this means that good governance, transparency and sound management are at a premium, as good businesses have known for years. International institutions - like the WTO, through its agreements; the Organisation for Economic Co-operation and Development, through its public reporting procedures; and the central banks - have played a vital role in restraining governments during crises. We didn't have such institutions during the Great Depression. They are all creatures born from that experience and, in the main, have worked.

Some suggest this is the end of sovereignty; I argue the opposite. Global rules negotiated by governments guarantee the rights of nations. And if globalisation means that governments don't matter, how is it that Chile has done better than Argentina; and how do you explain the difference between North and South Korea, Myanmar and Thailand?

Successful countries live by transparent, international standards, and are rewarded accordingly.

(Originally appeared in the June 14, 2006 issue of South China Morning Post in Hong Kong, reproduced here with permission.)

Copyright © Japanese Institute of Global Communications