Sir John Major’s Speech to the Mexico Chamber of Commerce / COMCE – 13 September 2010
The text of Sir John Major’s speech to The Mexico Chamber of Commerce / COMCE, held at the Torre Mayor in Mexico City, on Monday 13th September 2010. The speech was entitled “UK and Mexico – Partners in a Changing World”.
SIR JOHN MAJOR:
It’s always a pleasure to visit Mexico – and never more so than to represent the British Government at your Bicentennial Celebrations.
For two countries – half a world apart – we have much in common, both in the past and – more important – in the future. We were the first European nation to recognise Mexican independence. British engineers helped Mexico’s early development and – I believe – even introduced football – soccer – to your country.
Today, we still have much in common. We’re both democracies. We’re free-traders. We work together to solve problems of climate change and sustained development. We both wish to reform out-of-date international institutions – especially financial institutions.
I could easily extend this list – it would be easy, and comfortable, to do so.
Instead, I want to refer to one other aspect we have in common: the fact that neither one of us has made as much of the Mexican-British relationship as we could – and should.
Yes, trade and investment is growing. Yes, we exchange students. Yes, the political relationship is perhaps closer than ever before. I, myself, am here today at the specific request of the Prime Minister – who could not travel here at this time. Proof positive of the UK Government’s wish to increase the personal links that we know are so important in taking our overall relationship further.
But we could – and should – do so much more. Nor should we be inhibited by the real problems of security and drugs. Both countries are – apart from a few restrictions – open for business, and the opportunities are huge.
Mexico is, for example, far easier to do business with than China, Brazil or Russia. The UK is the 5th largest economy in the world. Mexico is the 14th, and moving up rapidly. The scope for doing so much more is self-evident.
And it is in both our national interests to do so, as the recent economic downturn has made clear. Mexico becomes less reliant on the US; the UK returns to a traditional Latin American market it has ignored for far too long. As a result, we both widen our markets.
In a global market, this could happen spontaneously. But we should not leave it to chance. That is why I am delighted that both our Governments are keen to promote greater mutual trade and investment, and I want to commend our Ambassador, Judith McGregor, and the British Embassy, Pro-Mexico, COMCE and the UKTI, for the work they are already doing in this endeavour, not least with our “Think Britain” and “Mexico Matters” initiatives.
Why is it so important that we act now? Because the world is re-shaping rapidly.
Today, change is brutally swift. The leaders with whom I once worked are now part of history, although I still see many of them, including your former President, Ernesto Zedillo – a good friend whom I cherish.
Another was Boris Yeltsin. Alas, no longer with us. Market economics were a mystery to Boris. Once asked him to tell me “State of Russia” in one word. “Good”, when asked in two words, “Not good”. Today we’re passing through a “not good” phase.
Let me look around the world in which Mexico and the UK must compete: The East, which was not highly indebted, is moving forward swiftly. The West, which was – is not.
A recovery of sorts has been stimulated – but it has left many Western Governments drenched in debt. What does that mean for the years ahead?
Some of this is becoming clear.
America first – since she is crucial to Mexico. The recession ended last autumn, but growth is still weak – and much of it driven by artificial stimuli that will soon be gone. So there is a risk – unlikely, but a risk – that the up-turn will stall – or even fade away.
The UK and the EU are in a similar position, with one important difference which I will come to later.
The UK has a new Government – a novel coalition of Conservative and Liberal-Democrats. It is unknown political territory but it does know what needs to be done – and has the Parliamentary majority to do it.
Economically, the UK – like other nations – is in a difficult situation, and hard decisions will have to be taken in order to stimulate our long-term recovery.
The new Government is already taking these tough decisions, and has made it clear that we see the emerging markets as playing a key role in that recovery.
Thanks to the UK opt out from the Euro, we do so against a more positive backdrop than our European partners, who have the additional dimension of Greece – and Spain, Portugal, Italy and Ireland – all facing debt crises, but who cannot stimulate their economy by devaluing their currency because they are in the Euro. The pain of the recession for them is being felt in slow growth, unemployment and business failures. Some have forecast Greece will leave the Euro or, more dramatically, the Euro will break up. I very much doubt that.
A bail-out package for Greece has been agreed. Personally, I’m not convinced it will prevent a default or a restructuring – but it buys time for other euro debtors to begin to put their finances in order. Nor will Greece leave the Euro – inside its situation is dire: outside it would be catastrophic.
As for the Euro, too much political credibility has been invested for it to be abandoned. I don’t say this as a euro-enthusiast.
In 1991, as Prime Minister, I refused to commit Sterling to the Euro-zone because I did not see how monetary union could work without economic convergence: and I did not believe Greece or Portugal or Italy would match the economic efficiencies of Germany. Nor have they.
It is due to that 1991 opt-out that the UK is now in a much stronger position for recovery than the Euro-zone.
Elsewhere, there is a brighter picture. Although the collapse in Western demand hit the Eastern economies, the larger countries – China, India, Indonesia – were not highly leveraged, and have emerged in good order.
Latin America has changed dramatically for the better over the last two decades. It is now a Continent of increasingly stable democracies. It is not deeply in debt. Its economic fundamentals are stronger much of the developed world: its foreign exchange reserves are at an all-time high.
Its collective GDP is – to within a whisker – the same as China, and three and a half times that of India. Latin America is in a good position to bounce back from the economic crisis.
In the Middle East, North Africa and the Gulf, some countries were barely affected by the financial turmoil: indeed, most grew around 5% despite the steep drop in the oil price.
What can we expect as we look forward?
In the West – more regulation and control. Higher taxes to cut deficits and – in due course – higher interest rates to fund them. Public spending will fall.
So will private spending, as the impact of high unemployment – and record levels of personal debt – encourage the consumer to save more and spend less. All of this suggests a muted recovery.
Over recent years, the world has looked enviously at the energy-rich countries – especially in the Gulf – and the spending power of their Sovereign Wealth Funds.
When oil fell to US$40, OPEC cut output to sustain the price. It has since risen to US$70-80 for two reasons:
– rising demand as growth returns; and
– a growth in investment in oil as an asset. In the medium-term, it is more likely to rise further than fall. This is also crucial to Mexico.
What risks lie ahead?
Of course, the risk of a double-dip into recession, but that is very unlikely, although growth may slow.
A greater risk is protection, which is always a danger at times of high unemployment.
Mini protections – hidden protections – exist almost everywhere. A recent study identified 192 Protectionist measures in OECD countries, with a further 148 in the pipeline: fortunately, many are not obvious or inflammatory. It is gratifying to see that Mexico – under the leadership of President Calderon – continues to promote Free Trade and fight against protectionism in all its forms.
If protection gets out of hand it is dangerous. It risks retaliation: it was, after all, what caused the problems of 1929/30 to become the prolonged slump of the 1930s as world trade fell by two-thirds. The dangers of protection should always be in our mind.
It is easy (and fashionable) to be gloomy about the mature Western economies and to look too much to China and the East. We shouldn’t overdo this: the West may not be able to compete on labour costs but while they continue to lead the technological revolution they will remain the key economic players.
I am here to celebrate the bicentenary of Mexico, but let me touch on some of the areas where there are great shared opportunities for us over the next 200 years:
Consider science: the first integrated circuit – invented by Jack Kilby in America in 1958 – proved to be the fore-runner of silicon chips containing – literally – billions of microscopic circuit elements. Nothing in the 20th century has so accelerated change; it led to the computer revolution; to the Digital Age. Without that circuit there would be no Silicon Valley; no Internet; no laptop; no Google; no iPods; no Blackberrys, no PlayStations – and none of the hundreds of millions of jobs they have created.
As science changes how we live, medical science is changing the quality and length of our lives. A hundred years ago, no-one knew of blood groups, hormones or barbiturates. Since then, medicine has given birth to whole new industries. New technologies are delivering better drugs, healthy food, new pesticides, the control of pollution, and advances in forensic medicine.
Scientists are now examining how to combine computer chip technology with pharmaceutical research so they can target drugs to treat specific parts of the body. Imagine – for example – chemotherapy with only minimal side-effects.
Such science is leading a revolution in medical care: advances in engineering techniques have given us insulin pumps for diabetes; cochlea implants for deafness; and there are realistic prospects of repairing nerve cells for sufferers of Parkinson’s and Alzheimer’s disease. It may soon be possible to replace heart muscle cells.
A few years ago, all this would have seemed like Black Magic. Soon, fantasy will become reality, with commercial prospects that are simply staggering.
One continuing headache will be energy supply and energy security.
We know that coal, oil and gas are going to dominate energy supply for decades to come – irrespective of any advances in solar energy, advanced bio-fuels, fusion and other renewables.
Since this is so, we need to develop carbon capture and store the carbon residue where it is safe – probably for centuries. This R&D challenge is daunting – and so is the cost – but energy security is a policy no-one dare ignore.
So is the risk of climate change. Because hard-to-ignore science tells us the risks of global warming are real. Most scientists expect global warming of between two to five degrees. This sounds small – but isn’t: in the depth of the last ice age, the temperature fall was – five degrees.
Energy security is not the only long-term challenge. In the last fifty years, world population has grown from less than 3 billion to over 6.5 billion. At the birth of Christ, world population was – probably – 300 million. By 1900 – 19 Centuries later – it had grown by something over one billion. We now grow by nearly one billion every decade.
World population is projected to reach 8 or even 9 billion by 2050. This is like absorbing two more nations the size of China. It offers social threats and economic opportunities.
We live in a fast-moving, ever-changing, uncertain world, with many risks and challenges ahead – yet there are so many opportunities.
Over two decades, China and the US have developed a huge inter-locking economic relationship. Japan and China are beginning to repair old scars. Latin America has become a Continent of Democracies. And – until the recession – Africa was growing faster than at any time in our lifetimes. Europe has moved the free market eastwards and southwards.
In a preface to some famous essays, an English philosopher flatteringly observed to his patron that “You have planted things that are likely to last”.
As have the UK and Mexico, by working closely together in:
– Pursuing a global deal on climate change;
– Fighting protectionism and promoting free trade;
– Creating a low-carbon global economy.
But we could do so much more and – by doing so – we will forge a closer, more meaningful relationship between our two nations – for the next 200 years and beyond.