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International Economic Trends and Issues for the next decade (24-25 October 1996)



A fundamental process of civilizational change, which is essential to move us onto the pathway to a more secure and sustainable future in the 21st century.  I am so encouraged at the serious attention Toyota is devoting to these issues.

Remarks by Maurice F. Strong at First Meeting of the International Advisory Board of Toyota Motor Corporation


The processes of radical transformation and globalization of the world economy now underway will undoubtedly continue in the next decade. But they will be accompanied by an increasing degree of turbulence and vulnerability to mega-risks.

The growing interdependence of national economies to which globalization has given rise has made the kind of world wars we have experienced in this century no longer feasible. With the demise of the Cold War, the threat of a global nuclear holocaust has receded. But nuclear weapons continue to exist and will become more accessible to "rogue" nations and terrorist organizations which increase the threats of individual nuclear strikes and blackmail.

Internal and regional conflicts will persist with traditional sources exacerbated by environmental and population pressures, economic disparities and social turbulence. Just to contain these conflicts and ameliorate their consequences, let alone to resolve them, will pose an immense challenge to the international community and to the stability of the regions in which they occur.

The deepening dichotomy between differentiation and homogenization will increase tensions both within and amongst nations. At the cultural level this is manifest by universalization of a pervasive, material, consumer-oriented culture that is largely western in its origins and it is seen as undermining the traditional cultures and value systems of non-western societies.

At the economic level the dichotomies between "winners" and "losers" of globalization will be a source of more and more tension and is bound to be reflected in the political life of nations and in their relations with each other. Already we see, notably in the United States, a reaction against the new liberalized trading regime that has emerged in the last decade and a tendency to attribute economic and employment problems to unfair foreign competition. In the larger context, the widely heralded triumph of market capitalism in the ideological war with communism/socialism will not be sustainable if it is not able to demonstrate in the period ahead that it can be just as effective in meeting environmental and social needs as it is in producing economic growth. In the meantime, the next decade is likely to see the emergence of political regimes that attempt to deal with this dichotomy by appeals to nationalism and new or reconstructed ideologies.

Economic signals

The signals which influence exchange and interest rates, stock and commodity prices are transmitted instantly through the world's financial markets and are reflected immediately in the behaviour of these markets, creating immense shifts in values that affect the policies and prospects of nations and corporations. But while the mechanisms though which this occurs are very well developed, this is much less true of the mechanisms through which major negative impacts can be averted or managed. The fact that there has been such an unprecedented growth in the volume and complexity of financial transactions without a major setback or failure in the system represents a remarkable achievement. But it provides no basis for complacency. A major unanticipated event which triggered a massive response by the financial markets, especially if it discloses deficiencies in the ability of the system to manage the process, could produce a crisis of confidence that would have immediate and major consequences for the world economy. One need not be so pessimistic as to predict the inevitability of this but it would certainly be realistic to envisage it as one of the major risks for the next decade for which governments and corporations should be prepared.

As to the environment, it will become a more pervasive factor in our economic life with the growing acceptance by governments and business of the concept of "sustainable development" which integrates the environmental and social dimensions into economic management and behaviour. Industry is at the leading edge of this process as it incorporates the latest state-of-the-art technologies in its products and production facilities in all of its markets. Public opinion will become the principal motivator for environmental prevention and improvement, particularly at the local level. At the global level the need to reduce greenhouse gas emissions is likely to become more apparent and accepted and this in tum will lead to greater pressures on governments and industry, however reluctant they may be at present, to adopt much stronger measures for emission control.

We have now reached the point in the history of our species at which our future will be determined by the actions we take, or fail to take, in respect of those activities on which the security and sustainability of life on earth depends. We are literally in command of our own evolution, and cannot escape the responsibilities this imposes on us. It does not require world government or centralized control. But it does require that we develop a system for monitoring, understanding and managing these activities so as to ensure that they remain within safe and sustainable boundaries. It will require a degree of cooperation amongst governments, and between government and other sectors of society, beyond anything we have yet experienced. The cause-and-effect system through which our actions produce the consequences which will shape our future is essentially systemic in nature; but the mechanisms through which we attempt to manage it are systemic in only the most rudimentary sense.

Principal of subsidiarity


I am a great believer in the principle of subsidiarity in which responsibility for decision making resides at the level closest to the people affected at which it can be exercised effectively. But for the cumulative results of the decisions of each of these centres to produce the kind of future to which all aspire, requires that each must be aware of how its actions affect and are affected by the whole. Our current system of international organizations, centring on the United Nations and the Bretton Woods Institutions, provide at the intergovernmental level the basic elements of the system but they need major reform to play their roles effectively. However the main actors in this system are business corporations and the vast and diverse number of non-governmental, professional, special interest and other organizations that make up civil society. For all of these actors to function effectively as part of the system through which we manage our future presents a monumental challenge. But it is one we cannot escape.

I believe that the next decade will be crucial in establishing the foundations of this system. And much will depend on the leadership of industry. Toyota, I believe, is well positioned, both by its leading position in the automobile industry, and its unique experience in moving out from its provincial roots in Nagoya to become one of the world's most successful global corporations while retaining the values and the character which have been the source of its success and its strength. I am proud to be associated with Toyota.

International issues for global manufacturing


One of the great sources of Toyota's success has been its capacity to move from being a low cost producer of automobiles to one which is now known primarily for the high quality and reliability of its products. At the same time, it has made the transition from a provincial company to a great global corporation. Toyota, and other manufacturing and trading corporations that have succeeded at the global level, have thus had a great deal of experience of managing the change that this entails. But the corporate culture and management style that has made possible this success in the past will not be sufficient to deal with the much more complex and competitive environment of the future. Corporations will have to learn to be a great deal more flexible in responding at the same time to overall changes in industry conditions arising out of changing technologies and the emergence of new competitors, as well as to changes in local conditions and attitudes in the markets in which they operate.

Successful global corporations will need to develop a new balance between centralized and decentralized decision-making which will enable them to ensure the uniformity of product quality, financial strength, corporate values image and symbols while fostering those measures which identify the corporation with local interest and values in the various areas it serves. This will require a corporate management and decision-making structure that involve a meaningful and visible participation by nationals of key countries in which such corporations have a major presence both in the central decision-making processes of such corporations and in local decision-making. To do this without compromising or diluting the core culture, values and policies of the corporation, will require particularly enlightened personnel policies, internal training programs and accountability and performance systems.

Corporations will need to develop a greater willingness and capacity to consult with citizen and special interest groups that are affected by its activities and to give them a real sense of participation in important corporate decisions in which their interests and values are affected. The most successful global corporations will be those that are successful in developing strong roots in the various communities they serve, being seen as good citizens of these communities and as important contributors to their economic and social well being. The response of corporations to local environmental and social issues will be an important factor in this.

Corporate image and reputation

The attitudes of government, customers and public to a corporation in all of the areas in which its operates will always be profoundly influenced by its overall corporate image and reputation. Maintaining and strengthening this must clearly be a primary priority for all international corporations. The structures and policies they adapt to effect decentralization and localization need to be designed both to reflect and exemplify the high standards of the corporation and to protect them.

Identifying the corporation with certain specific causes which demonstrate its values and high sense of responsibility and which can be manifest both at the global and the local levels can be valuable in developing and enhancing its image and reputation. The environment and sports are two areas of universal interest which could provide basic themes for programs of this kind.

Regional Consultation on the Environment

In June 1997, on the fifth anniversary of the Earth Summit, the United Nations General Assembly will convene a special session to review its results. A civil society assembly, Rio +5, will be held in Rio de Janeiro in March to contribute to this official review the insights and perspectives of a wide variety of non-governmental, business and professional actors. Itwill be followed immediately by the GEA Global Partnership Summit in Japan which will also host, later in the year, the Third Conference of the Parties to the Framework Convention on Climate Change.

It would, of course, be too early to pronounce final judgement on the results of the Earth Summit. For the "change of course" it called for is fundamental in nature and fundamental change never comes quickly or easily. While governments have made some progress towards carrying out the commitments they made at Rio, their performance has, on the whole, been disappointing. I am pleased to say that Japan has to some degree been a bright spot with the enactment of its Basic Environmental Law and in its role as the leading provider of Official Development Assistance.

Particularly disappointing is the fact that most of the industrialized countries will not meet the initial targets set for reduction of CO2 emissions. And developing countries have reason to be especially disappointed that the "new and additional resources" identified at Rio as essential to enable them to make the transition to sustainable development have not been forthcoming. On the whole, despite progress in some areas since Rio, the processes of environmental deterioration continue while its underlying causes persist.

Positive side


On the positive side many developing countries have responded positively to the results of the Earth Summit and some, like China, have enacted their own national versions of Agenda 21 despite the fact that the additional international funding they had expected as a result of Rio has not materialized. Most encouraging is the progress that has been made at the level of business and civil society. Professional societies, notably engineers, architects and educators, have made a commitment to sustainable development. Some 1600 cities and towns are developing their local versions of Agenda 21. Important industrial sectors, including the road transport industry and the tourism and travel industry, have developed their Agenda 21. A reconstituted and expanded World Business Council for Sustainable Development with a growing number of regional and national counterparts, is leading the movement to sustainable development within the business community. Some 100 National Councils for Sustainable Development, bringing together representatives of both government and civil society, have been established in every region of the world as primary instruments for implementation of the results of Rio in their own countries. I am particularly pleased that Japan has recently taken steps to form its National Council.

The rapidly developing countries of Asia and Latin America are leading the resurgence of growth in the world economy. Unfortunately, for the most part, this growth in both consumption and production is following the same patterns established by the more mature industrialized countries. It is a pathway that is clearly not sustainable, either for these countries themselves, or for the world community. Indeed, the battle to achieve a secure and sustainable future for humanity will be won or lost in the developing countries.

Yet we cannot deny these countries the right to grow. Itwould be clearly hypocritical -and counterproductive -simply to lecture them not to repeat our mistakes, particularly while we continue to resist significant changes in our own patterns of production and consumption. They will be far more influenced by our example than by our exhortations.

Disproportionate share

The more mature industrialized countries still account for a disproportionate share of the world's waste and pollution, but the contribution of developing countries is growing rapidly, creating major domestic environmental problems for them and adding ominously to global risks. The significant progress that has been made in industrialized countries in recent years in effecting more efficient use of energy and materials as well as in pollution prevention and control demonstrates the potential for reducing and controlling environmental impacts. But these solutions require capital, technology, skills and training, all of which are in scarce supply in developing countries. International corporations, as the principal source of direct investment, technology and know-how, have therefore a particularly important role in facilitating the transition to sustainability in developing countries.

If private investment does not become a positive vehicle for sustainable development, the prospects for a sustainable future for the human community will clearly not be realized. But we cannot afford to wait until such measures are mandated by national regulation and international agreements. Accordingly, the World Bank has decided to take a lead in convening representatives of industry, other international organizations, environmental and professional interest groups in developing voluntary criteria and guidelines for private investment in each major sector. It is also, particularly through the International Finance Corporation and the Multi-Lateral Investment Guarantee Agency, accelerating the development of a new generation of partnerships with the private sector to leverage and support private investment in sustainable development.

One of the principal factors which affect prospects for the transition to an environmentally sound and sustainable industrial civilization is the role of governments in setting the system of incentives and penalties which motivate economic behaviour. Over the years, all governments have developed a series of direct and indirect subsidies to various sectors of the economy -from energy, agriculture, transport and resource development -to name but a few. While these were designed to serve purposes unrelated to their environmental impacts, it is now clear that many of them, costing literally hundreds of billions of dollars, provide de facto incentives to practices that are environmentally destructive and unsustainable. At the same time, they distort the effective functioning of the market economy, undermine economic efficiency and impose immense costs on consumers and taxpayers. The amounts involved go far beyond the costs estimated at the Earth Summit for effecting a transition to sustainable development and belie the popular notion that at a time of economic and budgetary stringency we cannot afford this transition. It is indeed these perverse or inefficient subsidies that can no longer be afforded and their recision or redeployment to provide positive incentives for sustainable practices, would provide all the funding required to meet sustainability objectives.

Major effort


This is why the Earth Council, with the support of the Netherlands Government, has launched a major effort to focus the attention of governments and the public on the need for major changes in current policies and practices.

The evidence produced at the Earth Summit, and confirmed by experience since then, makes it clear that economic efficiency is the key to environmental protection -efficiency in the use of energy and materials as well as in the prevention, recycling and disposal of wastes. No country has demonstrated this more effectively than Japan and this domestic experience has given Japanese companies a position of comparative advantage and leadership in the worldwide movement to sustainable development through industrial efficiency. The Business Council for Sustainable Development in its landmark report to Rio "Changing Course" called for a major transformation of our industrial civilization based on eco-efficiency. Its author the Swiss Industrialist, Stephan Schmidheiny and his colleagues, have produced a follow-up report "Financing Change" as another seminal contribution to the process of implementing eco-efficiency through the financial markets.

Energy and transport are at the centre of many of our most pressing environmental as well as economic challenges. Meeting the exploding energy needs of developing countries, if they emulate the traditional models, will place burdens on their capital resources as well as on the environment which would neither be tolerable nor sustainable. Energy efficiency is clearly the best investment in both economic and environmental terms. The more mature industrialized countries have a major incentive to ensure that developing countries have access to the resources and technologies they will require to meet their energy needs on an efficient, sustainable basis. Yet as environmental imperatives require us to reduce our dependence on fossil fuels, the energy economies of developing countries are entrenching and deepening their dependence on oil and low cost coal. There is still little being done to provide developing countries with incentives to adopt the best of currently available state-of-the-art technologies and all too little to make a concerted effort to develop alternative fuel sources. Some encouraging technological solutions are in prospect but their development require much greater governmental and industry support than it is now receiving.

Role of the automobile

Inextricably linked with the energy issue is the role of the automobile. While automobiles are becoming more fuel efficient, the exploding automobile population is increasing the overall impact of automobiles on CO2 emissions as well as local air pollution and urban congestion. There is no question that the ownership and use of automobiles will remain the primary symbol of economic progress and personal aspiration. At the same time the automobile will be more and more at the centre of the environmental and urban problems that will become even more pressing in the period ahead. This is why I am encouraged at the decision of industry leaders at the World Economic Forum in Davos, Switzerland, earlier this year, to explore the possibility of an initiative which would focus on the role of the automobile in the next century. The Earth Council is cooperating with the World Economic Forum in developing a proposal, "Auto 21", as a vehicle for this initiative.

As the environmental movement has evolved from Stockholm through the Brundtland Commission to the Earth Summit in Rio de Janeiro, we have enlarged the context in which we must view and deal with the challenge of protecting and improving the environment so as to embrace the complex system of relationships through which our economic aspirations and behaviour must be reconciled with our environmental and social goals. What we have come to call sustainable development provides the larger framework for achieving a positive synthesis between these goals. This, I submit, is no mere passing phase, but a fundamental process of civilizational change which is essential to move us onto the pathway to a more secure and sustainable future in the 21st century. This is why I am so encouraged at the serious attention Toyota is devoting to these issues and I feel pleased and privileged to be associated with you in considering and developing your response to this important challenge.