Lords Sitting of 4 June 2003

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Chester.

The Lord Chancellor: Leave of Absence
The Lord Chancellor (Lord Irvine of Lairg): My Lords, before public business begins, I take the opportunity to inform the House that I shall be undertaking a ministerial visit to Manchester on Wednesday. 11th June, when the House will sit. Accordingly, I trust that the House will grant me leave of absence.

Middle East: Destruction of Palestinian Homes and Property
2.36 p.m.
Lord Hyltonasked Her Majesty's Government:
Whether they are discussing with the Government of Israel the destruction of Palestinian houses and olive trees since 1967 and the prohibition on the building of rainwater reservoirs in the Occupied Territories.
The Minister for Trade (Baroness Symons of Vernham Dean): My Lords, we recognise Israel's right to ensure the security of its citizens, but its actions must fall within international law. We deplore the destruction of Palestinian infrastructure and we have asked Israel to cease such activity. Furthermore, steps should not be taken which prevent access to fresh water.
We repeatedly urge both Israel and the Palestinian Authority to implement UNSCR 1435, which includes a call for a stop to the destruction of Palestinian infrastructure. The road map offers a mechanism to help achieve this.
Lord Hylton: My Lords, I thank the noble Baroness for that positive reply. Do the Government agree that the loss of so many homes and so many olive trees, together with recent disproportionate Palestinian casualties, damages the atmosphere for essential negotiations? Will the Government draw attention to the positive points in the Alexandria Declaration and will they seek the support of the parliamentary and other leaders of all the relevant countries for a final agreement that will end the occupation and create two viable states?
Baroness Symons of Vernham Dean: My Lords, of course there has been a substantial loss of homes. According to figures from the United Nations Relief and Works Agency, between September 2000 and
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April 2003, as many as 12,737 people saw their homes demolished in Gaza and the West Bank. In itself that figure suggests the dimensions of the problem.
However, today of all days, I think that we should be looking at the positive. The noble Lord is quite right to say that we need to seek the widest possible support both in this country and from friends overseas for an agreement based on the two-state solution. I am delighted that the meeting in Aqaba today appears to have gone well; that we have the personal commitment of President Bush on seeing the road map through; that Mahmoud Abbas and Mr Sharon have met today and discussed these issues; and of course the welcome given yesterday to the road map by Arab leaders in Sharmel-Sheikh is another positive indication. So, while acknowledging all that has gone wrong in the past, let us now look at the positive indicators for the future.
Baroness Uddin: My Lords, I agree with my noble friend that we should welcome today's developments. President Bush has begun his significant journey towards achieving an outcome for the road map. However, what are our Government suggesting by way of aid for the Palestinians, in particular to compensate them in some form for the regular destruction of the past 18 months? People need to live and have something to do in stable economic conditions and so forth. What are the plans of our Government to make available humanitarian and other forms of aid?
Baroness Symons of Vernham Dean: My Lords, while thanking my noble friend for her remarks, perhaps I may say to her that of course this journey did not begin today. It began last year when the President of the United States and the Crown Prince of Saudi Arabia supported a two-state solution. It is important to acknowledge that what we have seen today is another significant signpost on what will continue to be a very long road.
Food aid has been given by a wide range of donors, including the United Kingdom. The largest contributor is UNWRA, which last year distributed food to the value of some 21 million US dollars, and the United Kingdom plays its part in supporting that. I hope and believe that the Government will now take an active role in supporting the three phases of the road map, doing so in conjunction with the other members of the quartet, as well as through the European Union. For myself, I shall be very interested in any initiatives that we can take on the trade front.
Lord Wallace of Saltaire: My Lords, one of the most useful steps forward over the past few days has been the admission by the Israeli Prime Minister that Israel is in effect the occupying power in the West Bank and Gaza. Therefore, from now on, can we ensure that the Israeli Government recognise the full responsibilities of occupying powers towards those who are under occupation?
Baroness Symons of Vernham Dean: My Lords, at the moment we must be very careful to offer every

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possible encouragement to both sides to do everything they can to lower the temperature in the region and to stop the violence. I believe that, today, Mr Sharon has been talking about the possibility of the unauthorised outposts being removed. Of course that is not quite the same thing as the settlements, but at least it is a step in the right direction. We must be careful about pinning people down on the exact nature of what we mean by an occupying force and precisely what is expected that goes outside the terms of what is laid down in the road map. This road map stands the best chance of success if we all muster around what it actually says and do our best with good will to help both sides make it a success.
Lord Turnberg: My Lords—
Lord Wright of Richmond: My Lords—
The Lord Privy Seal (Lord Williams of Mostyn): My Lords, I think that we should hear from the noble Lord, Lord Wright.
Lord Wright of Richmond: My Lords, is the Minister aware that most of the destruction of olive trees and orchards since 1967 has been carried out on the pretext that the trees concealed snipers in the vicinity of the illegal settlements?
In welcoming the positive news from Sharm el-Sheikh and welcoming in particular a statement attributed to the Speaker of the Knesset in today's Financial Times that Prime Minister Sharon has a plan to withdraw from 17 of the 150 settlements in the West Bank, is the Minister aware of a report in the Guardian on 27th May stating that Mr Sharon had assured one of his party's parliamentarians that,
"the government would continue to expand Jewish settlements in the occupied territories"—
and that—
"the Road Map certainly allows the unlimited building for your children and grandchildren, and I hope even for your great-grandchildren"?.
Do the Government agree with this interpretation of the road map?
Baroness Symons of Vernham Dean: No, my Lords, the Government do not agree with that interpretation of the road map, but I urge the noble Lord again to act with caution regarding reported statements in newspapers at a very difficult time. Those statements were attributed to 17th May. It is now 4th June, and a rather different note has been struck today in Aqaba. We should take the words of those from the Palestinian Authority and the Israeli Government who have travelled a long and difficult path to get to Aqaba today. We should give them every encouragement in what they are trying to do to find a peaceful settlement. Although I understand that there will be scepticism and that people want to go back to things that have
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been said in the past or the very recent past, it is important to concentrate on what the road map says and to do everything we can to rally round it.
Lord Howell of Guildford: My Lords—
Lord Williams of Mostyn: My Lords, I am very sorry, but we are in the ninth minute now.

Northern Cyprus
2.45 p.m.
Lord Faulkner of Worcesterasked Her Majesty's Government:
What legal advice they are offering to British citizens who have bought, or are contemplating buying, property in the Turkish-occupied area of northern Cyprus, following the recent opening of the border between the Greek-Cypriot and Turkish-Cypriot areas.
Baroness Symons of Vernham Dean: My Lords, we cannot offer legal advice to British citizens who have purchased, or who are contemplating purchasing, property in the north of Cyprus. We recommend that before purchasing, British citizens appraise themselves fully of the situation created by the non-recognition of the "Turkish Republic of Northern Cyprus" and the possibility of a future political settlement in Cyprus, and seek their own legal advice. We believe that issues concerning property already purchased in the north can be resolved only through a comprehensive settlement in Cyprus.
Lord Faulkner of Worcester: My Lords, I thank my noble friend for that reply. She will be aware that since the buffer zone was opened, large numbers of Greek Cypriots have visited their former properties in the Turkish-occupied part of the country which have been bought by British citizens. There have been some interesting encounters with the Britons, who bought the properties after the invasion of 1974. Does my noble friend recognise that the restoration of properties to their former owners, or at least a payment of fair compensation to them, whether Greek Cypriots in the north or Turkish Cypriots in the south, must be an essential part of any long-term settlement to the problems of Cyprus, and that people who bought their properties in dubious circumstances, largely against the advice of the British High Commission and others in the European Union, must not be allowed to frustrate that process?
Baroness Symons of Vernham Dean: My Lords, I am of course aware that there have been a number of difficult encounters, but my noble friend Lord Faulkner puts his finger on the nub of the issue. We do not yet have a final settlement on Cyprus, try as we and the United Nations have to find one. The question of the legality of ownership is one for the courts. I do not know what the rule of law may be in a final settlement, but whatever it may be, it should of course be upheld.

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This is a complex legal question, and I suggest that the best way forward is to wait for a final settlement and then see these issues resolved appropriately by the courts.
Lord Kilclooney: My Lords, I declare an interest as chairman of the all-party group, the Friends of Northern Cyprus. Is the Minister aware that northern Cyprus is becoming one of the most popular areas in the Mediterranean for British people to buy homes? Is she aware that of the 1,000 homes bought by foreigners in northern Cyprus last year, 95 per cent were bought by United Kingdom citizens? Is she aware that the while the Church of England may be closing churches in England, there is a scheme out to contract to double the size of the Anglican Church in Kyrenia? With the positive news that Turkish Cypriots now invite Greek Cypriots into northern Cyprus and Greek Cypriots are allowing Turkish Cypriots into southern Cyprus, why, after 30 years, have Her Majesty's Government banned British citizens in northern Cyprus moving into their own sovereign base? This has caused a lot of resentment.
Baroness Symons of Vernham Dean: My Lords, I very much welcome the relaxation on the restrictions of freedom of movement across the green line. I do not think, however, that that is any substitute for a comprehensive settlement on the basis of the UN plan. I hope that the advice of the British High Commission—that anybody seeking to buy property in northern Cyprus does so on the basis of sound legal advice—is taken.
The noble Lord raises the point of what is happening in the sovereign bases. Any person who has entered the island of Cyprus through an unrecognised port of entry is considered an illegal immigrant by the government of the Republic of Cyprus. The fact is that people are being checked if they wish to enter the eastern sovereign base. That is because there is much more traffic across the green line. The government of Cyprus view those who have come in through some of the unauthorised ports as illegal entrants. That is the basis of the increased activity to which the noble Lord refers, as those going into the sovereign bases are being checked. I hope I have made that point clear, because it is an important issue and has raised a certain amount of tension.
Lord Howell of Guildford: My Lords, the Minister is, of course, right that the outcome of this advice clearly depends on the nature of an eventual settlement. Can she bring us up to date with what the prospects are? I think that the Secretary-General of the United Nations rather gloomily said he felt it was the end of the road when the last set of negotiations came to a dead stop. But the offer is still on the table and the ideas are still there. What plans do Her Majesty's Government have for trying to revive the hope that seemed so strong a few months ago that some new kind
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of confederation or arrangement could be achieved and the problems of Cyprus at last be brought to an end?
Baroness Symons of Vernham Dean: My Lords, it is only a short while since the UN plans sadly came to grief. I cannot answer the question as the noble Lord would wish me to without making reference to the fact that I have today answered a Question from my noble friend Lady David on this matter. The Prime Minister and the Foreign Secretary have accepted the recommendation of the noble Lord, Lord Hannay, that his term should end with effect from today, in the role that he has undertaken in Cyprus. The noble Lord, Lord Howell of Guildford, might have cause to chide me gently afterwards if I did not make that clear to him in answering the question.
We take the view, as does the UN Secretary-General, that the UN should not take any new initiatives until the Secretary-General is given reason by all parties to believe that there really is a political will to solve the problem in Cyprus. We all know that an enormous amount of energy has been devoted to the issue in the past few years, not least by the noble Lord, Lord Hannay. I am sorry that he is not in his place, because he deserves a great deal of praise and thanks from all sides of your Lordships' House for the work that he has undertaken. However, the fact is that until there is a real political will on all sides to solve the problem, we are unlikely to see much movement.
Lord Lester of Herne Hill: My Lords—
Lord Maginnis of Drumglass: My Lords, is it not the fact that the decision by President Denktash—
Lord Williams of Mostyn: My Lords, I believe that it is the turn of the Liberal Democrats.
Lord Lester of Herne Hill: My Lords, I am grateful. Reverting to the Question asked by the noble Lord, Lord Hylton, is the Minister aware that the European Court of Human Rights gave very valuable advice on the question? It made it quite clear that the Republic of Turkey is responsible for any breaches of the human rights convention, including the right to property, in the TRNC in northern Cyprus. Is it not the position that, if British citizens are victims of breaches by the TRNC in northern Cyprus, Turkey will be responsible? On the other hand, if they were the victims of breaches in the Greek-occupied part, the Cyprus Government would be responsible. There are complete remedies already under the European convention.
Baroness Symons of Vernham Dean: My Lords, I believe that the noble Lord misspoke when he referred to the Question of the noble Lord, Lord Hylton, which was on Israel and the Palestinian Authority. We are discussing the Question of the noble Lord, Lord Faulkner.
In general terms, I agree with the noble Lord, Lord Lester. However, I am anxious to avoid providing an absolute blueprint for what may be

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difficult questions of property ownership in all circumstances. The fact is that property ownership may happen in a wide variety of circumstances. Speaking from the Dispatch Box, I must be careful about sounding prescriptive about the way in which this issue may be resolved. However, in general terms, of course I can agree with what the noble Lord, Lord Lester, has said.

School Playing Fields
2.53 p.m.
Lord Monro of Langholmasked Her Majesty's Government:
How many school playing fields have been sold in 1998, 1999, 2000 and 2001 respectively; and what percentage of applications that represents in each year.
The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland): My Lords, between October and December 1998, the Government approved seven applications to sell school playing fields larger than a school sports pitch. Forty-two applications were approved in 1999, 32 in 2000, and 22 in 2001. Applications are scrutinised very carefully and can take several months to assess. As applications made in one year may not be determined until the following year, it is not possible to say what percentage of applications these approvals represent in each year.
Lord Monro of Langholm: My Lords, I am grateful to the Minister for her reply, although it is somewhat complicated by the dates overlapping. Is she aware that the figures that I received from the National Playing Fields Association this week for all playing fields showed that, over the four years, 3,809 applications had been made and the majority were approved. Why does not the playing fields monitoring group set up by the Minister publish its figures regularly? What has happened to the Minister's promise to reduce sales when they are manifestly increasing?
Baroness Ashton of Upholland: My Lords, I can say to the noble Lord that they are manifestly not increasing. The National Playing Fields Association is represented on the group that gives advice to myself as a Minister on behalf of the Secretary of State and takes forward the approvals. I am clear about the figures that I stated for the applications. I am also clear that noble Lords will be aware that other pieces of land are sold off that are not school playing fields. They are small bits of land that could not be used in any circumstances for sport.
I fear that some of the figures that are put into the public arena are adding up different figures from different parts of our environment and coming up with a total. The figures that I gave the noble Lord are correct.
Lord Hunt of Kings Heath: My Lords, would my noble friend agree that, while it is important to have
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enough playing fields, it is equally important that those playing fields are actually used? Is she aware that many schools still deny the benefit of competitive team sports? Will she tell me what her department is doing to get the right message across to them?
Baroness Ashton of Upholland: My Lords, it is a delight to have a question from my noble friend. There is no doubt that we wish to encourage all schools to have the right level of competitive team sports as part of a PE and sports strategy. Noble Lords will have heard me speak before about the need to ensure that our children are given the opportunity to have two hours of PE and sport per week to enable that figure to be at 75 per cent. That is part of ensuring that children have a healthy lifestyle and develop the possibilities of having a sport or physical activity that they can continue with for life and which can keep them healthy. That also ensures that we develop the competitive spirit that is necessary and relevant and that we find competitive athletes for the future.
Lord Sutherland of Houndwood: My Lords, will the Minister reassure us that moneys raised from such proceeds of sales will be retained in the educational budget? Especially if the moneys are under the command of local authorities, can we be reassured that they will be used for suitable school purposes—whether gymnasiums, books or musical instruments?
Baroness Ashton of Upholland: My Lords, I am able to give the noble Lord that reassurance by giving an example of what has happened in the applications this year. Half of the 22 in 2002 were in school sites that had already closed; quite a number of the playing field application sales that I have received are from schools that have closed during the past 10 years. From the proceeds from the 11 playing fields sold from schools that were still in operation, we have built four new sports halls, two new all-weather pitches, better quality grass pitches, two new schools and much improved classroom and other facilities. From the 11 that came from schools that were closed, we have built three new sports halls, three new schools and a new autism unit.
Lord Addington: My Lords, the Minister has given us figures showing a decreasing number of sales. However, could she go a little wider and tell us what consideration has been given to the number of playing fields sold off by the NHS in that period, for example—or by any other government body? They are still basically playing fields and must be seen as a whole, not as individual units.
Baroness Ashton of Upholland: My Lords, I cannot answer for the NHS from the Dispatch Box at this time. However, we are keen throughout government to ensure that facilities exist for community activities and sport. Part of the work that is done on the school playing fields side is to ensure that the use to which the playing fields that have been sold could be put does not include community use. In other words, we must

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ensure that neither the community nor the school itself nor other schools lose the benefit. That is a consistent criteria that operates.
It is refreshing to see that a large number of applications enable schools to provide better facilities indoor and outdoor, such as all-weather pitches, which then become used by the community. That is a very important part of this matter.
Lord Davies of Coity: My Lords—
Baroness Billingham: My Lords—
Lord Williams of Mostyn: My Lords, it must be one of them. The noble Baroness, Lady Billingham, can go first.
Baroness Billingham: My Lords, perhaps I may return to the original Question. Is it not the case that the Government have, for the very first time, published an audited account of the number of' school playing fields that have been sold? That answers the original Question. Furthermore, the National Playing Fields Association is delighted with that and has congratulated the Government on reducing the sale of playing fields, which, in the previous administration, was far greater than it is today.
Baroness Ashton of Upholland: My Lords, my answer to that would be yes. We have produced a report which I believe is in the Library of the House; I shall confirm that to noble Lords. I should also be delighted to send noble Lords who participated in this Question a copy of the details we have published. The National Playing Fields Association is an important part of the group that advises me on behalf of the Secretary of State. I have met them and am delighted with the work that they do in helping us to ensure that our children have the facilities they need.
Baroness Seccombe: My Lords, the noble Lord—
Lord Williams of Mostyn: My Lords, I am awfully sorry, but again we are well over time.

House of Lords: Thursday Sitting Times
3 p.m.
Lord Carterasked the Chairman of Committees:
When the Procedure Committee will discuss the arrangements for Thursday sittings.
The Chairman of Committees (Lord Brabazon of Tara): My Lords, in July last year the Procedure Committee put forward a set of proposals arising from the report of the Leader's Group on the working practices of the House. Those proposals, which included changes to Thursday sittings, were agreed to by the House for a trial period of two Sessions. So the
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Procedure Committee may be expected to review the arrangements towards the end of that period unless further proposals are presented to it before then.
Lord Carter: My Lords, I thank the noble Lord for that Answer. I would be the first to agree that a number of the changes that we made—the 10 o'clock finish, the use of Grand Committee, carryover, and so on—should be given time to work through. However, the change on Thursday was a stand-alone change not related to those other changes. May I remind the House that the questionnaire issued by the Leader's Group on working practices revealed substantial support for an early start and an early finish on Thursdays? It is the one-and-a-half-hour break between 1.30 and 3 p.m., with the consequential disruption of business, that is proving so unpopular.
Question Time is certainly not the right time to discuss all the alternatives. May I suggest that when the Procedure Committee considers the matter, as I hope it will in the near future, it should consider all the alternative scenarios for Thursdays and present them in a questionnaire in order to see which one has the support of a majority of the House?
The Chairman of Committees: My Lords, I am grateful to the noble Lord for his Question. I am certainly conscious that the present arrangements for Thursdays do not attract universal favour. I did a canvass myself of the Panel of Deputy Chairmen, a reasonably representative cross-section of Members of this House, and not one of them liked the current Thursday arrangements. Most prefer the pre-Recess Thursday arrangements whereby the House meets at 11 o'clock for Questions and goes straight through to about half past seven. A minority wish to return to the old 3 p.m. sitting but I do not believe that that finds much favour.
Lord Renton: My Lords, will the noble Lord remind the Procedure Committee that membership of your Lordships' House is not a whole-time occupation and that many noble Lords and noble Baronesses have experience and expertise acquired from their other occupations which are of great value in this House? Will he therefore tell the Procedure Committee that having to sit on Thursday mornings deprives Members of the opportunity to carry on those valuable outside activities?
The Chairman of Committees: My Lords, it is not for me to tell the Procedure Committee anything and I would not dream of doing so. I am the servant of the Procedure Committee. This issue was of course debated last July when the changes took place. A vote was very much in favour of sitting at 11 o'clock in the morning. The issue seems to be not so much the sitting at 11 o'clock on Thursdays but whether the lunch break should take place or not.
Baroness Lockwood: My Lords, although 1 do not usually disagree with the noble Lord, Lord Renton, is it not a fact that because noble Lords have outside commitments, having to waste an hour and a half in

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the middle of the day makes them feel very deprived of useful service? They could usefully fill up that time. Is there not also a conflict between those who are London-based and those based in different parts of the country who have no alternative but to do their other work on Fridays?
The Chairman of Committees: My Lords, the noble Baroness is of course right. As I said, I do not think that there is a particular argument about rising at around 7.30 p.m. on Thursdays; that seems pretty popular with most people. It is a question, as I say, of the one-and-a-half-hour break in the middle of the day. The noble Lord, Lord Carter, suggests that the Procedure Committee should perhaps issue a questionnaire to your Lordships, as happened previously on this issue. I think that that is a very good suggestion. The next meeting of the Procedure Committee is on Monday. I do not think that it will be possible to have a substantive discussion of the issue then, but we could certainly do so at a future meeting of the committee and could indeed issue a questionnaire.
Lady Saltoun of Abernethy: My Lords, what is the point of the House rising at seven o'clock on Thursdays in order to enable Peers who live a long way away to get home on Thursday evening when the House is going to sit on Friday at 11 o'clock?
The Chairman of Committees: It is my guess, my Lords, that not all noble Lords feel it necessary to come in on Friday. Too many do tomorrow.
Lord Cope of Berkeley: My Lords, is the Chairman of Committees aware that I agree with the noble Lord, Lord Carter, that this matter is separate from the other aspects of the changes introduced last year and could be considered separately by the Procedure Committee? It is very clear to me that a large number of noble Lords would like to have the matter reviewed. There is slightly less agreement about exactly what should happen, but many would like at least a review.
This is not the only change that is proving less than popular. The 10 o'clock rule, for example, seems to be proving very unpopular with the Government. I speak as one who was here until 20 minutes to one this morning.
The Chairman of Committees: So was I, my Lords.
Lord Grocott: So were the Government.
The Chairman of Committees: Indeed, my Lords. Certain elements in the package clearly go together. For example, the 10 o'clock rising goes together with more Grand Committees—it is a pity that the 10 o'clock rising tends to slip—and pre-legislative scrutiny goes with carryover. However, I agree with
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the noble Lord, Lord Cope, that it could certainly be argued that Thursday sittings can be seen as a standalone issue.
Lord Wallace of Saltaire: My Lords, does the Chairman of Committees recognise that in one major respect the Deputy Chairmen of Committees are not representative of the full cross-section of the House? Without exception, I think, they are all retired. The substantial proportion of the Members of this House who are still earning their living care about this remaining a part-time House. For that reason we welcome in particular the greater use of Grand Committees and very much hope that that part of the reform will be pursued with vigour.
The Chairman of Committees: My Lords, I take issue with the noble Lord's assertion that the Deputy Chairmen on the whole are retired. I would say that they are not more retired than many other Members of this House. This Question is not about the use of Grand Committees—that is just one element of the package—but about the Thursday sittings. I think that the mood of the House is fairly straight on that.

Genetically Modified Crops
3.8 p.m.
Baroness Miller of Chilthorne Domerasked Her Majesty's Government:
What evidence the public will have so that they may form an opinion as to the environmental impact of genetically modified crops and what account the Government will take of that opinion when deciding whether to authorise commercial growing of those crops.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty): My Lords, in relation to the public debate on GM, the information packs and the "GM Nation" website contain information on the environmental impact, and the public's views will feed into the report being prepared by the independent steering board. More specifically, each application for commercial cultivation of a GM crop must include an environmental risk assessment and all applications are subject to public scrutiny through two periods of public consultation. The application and public comments are considered by all EU member states and a collective decision taken.
Baroness Miller of Chilthorne Domer: My Lords, I thank the Minister for his reply. However, does he not think it ridiculous that the Government are expecting the public to form an opinion just before publication in July of field trial results which may have some scientific value? Would it not have been better to publish the field trial results and then to ask the public for their opinion? Is he not also very disappointed that the next round of public involvement—the launch of the public debate—will be a closed session, access to

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which can be gained only by invitation and ticket, I believe? So even if genuine members of the public were interested, they would be unable to attend those events. Will he consider a debate in your Lordships' House to discuss the conduct of this public debate?
Lord Whitty: My Lords, that final point is not a matter for me. On the public debate, most of the sessions would be ticket based but would be available by application so anyone can be party to the debate. We anticipate a widespread debate. That is in the hands of an independent steering board, not those of the Government; that is contrary to some comments in the media. As to timing, the noble Baroness misunderstands the situation. The public debate will cover all aspects of GM and the future use of GM technology in a number of applications and a number of ways, whereas the decision on the cultivation of field crops is a particular decision that depends on the outcome of those trials. One is not dependent on the other.
Lord Livsey of Talgarth: My Lords, will the Minister explain how Ministers in another place have assisted in the process of achieving an objective opinion on GM crops when they have just appointed two new members to the Agriculture and Environment Biotechnology Commission. which is the Government's strategic adviser on those matters? They are Dr David Buckeridge of Advanta Seeds and Dr Paul Rylott, the UK head of bioscience for Bayer CropScience. Both are strong lobbyists in favour of GM crops. How will he ensure objectivity in this debate with that happening?
Lord Whitty: My Lords, appointments to that committee, as with other committees, cover a wide range of' interests. It would clearly be absurd if such committees excluded people with industrial and scientific experience in the area under examination. If the noble Lord, Lord Livsey, examines the full list of members, he will see that many have opinions that differ from those two views. That is the nature of the debate—there is a wide range of views on this debate, which is precisely why the Government want the public to engage more widely on all aspects of the issue.
Lord Haskel: My Lords, does my noble friend agree that scientists wear many hats? They can be independent and objective. The suggestion that they are influenced by other considerations is rather demeaning towards our scientists.
Lord Whitty: My Lords, it is certainly the case that many of our best scientists have at various points in their career been dependent, in terms of employment, research and so on, on the private sector. That does not in any way disqualify their objective scientific judgment.
Lord Pearson of Rannoch: My Lords, when the Government decide whether to authorise the commercial growing of such crops, will they have to
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consult the European Union in Brussels? If so, what would be the influence of the European Union's decision?
Lord Whitty: My Lords, in terms of new cultivations of crops or new products, there was a European-wide system of application. Some of that has been delayed as a result of the de facto moratorium on giving new approvals. New proposals must be dealt with through a European system on which every member state must take a view, after which there is a collective decision. Applications for new crops or new imports go through a European process.
The Countess of Mar: My Lords, the Minister must be aware of the criticism in the media about the first public consultation exercise that took place yesterday. He said that that was organised by an independent organisation. In view of that criticism and the failure of the people organising it to be absolutely clear about the venue, time and date of the consultation exercise, would he kindly convey to the people organising it the intense dissatisfaction of many people who are concerned about GMOs on one side or the other—it is not just the antis who are complaining—about the failure of this exercise to be a proper consultation exercise rather than a cosmetic exercise?
Lord Whitty: My Lords, as the noble Countess herself said, this was the first occasion—the beginning of the public debate. There will be a number of such events. It is in the nature of such events that those with strong views on the issue wish to put their view on the record at an early stage. That certainly happened yesterday. However, I do not believe that that in any way undermines the credibility of the exercise as a whole. It is very important that the Government maintain an arm's length relationship with those who are organising the debate in order to make it absolutely clear that this is not a debate that the Government are attempting to steer. It would therefore not be incumbent on me to pass on such comments to the steering committee.
Baroness Thornton: My Lords—
Lord Mackie of Benshie: My Lords, can we be sure that when—
Noble Lords: This side!
Baroness Thornton: My Lords, will my noble friend the Minister assure the House about the independence of the consultation? I was reassured to learn that Professor Malcolm Grant, a hugely reputable academic, was leading it. I hope that the House will permit me to say to the noble Countess that one can find out about the dates on the website if one wants; they are very accessible. Could we be reassured about the independence of the consultation process and when will it report to the Secretary of State?
Lord Whitty: My Lords, my noble friend is absolutely right. The independence of the consultation

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process is clear. Professor Grant is a person of the highest integrity and I am confident that he will be able to conduct the exercise in a way that draws a meaningful conclusion by the September date, when we expect his report to the Secretary of State.

G8 Summit
3.16 p.m.
Lord Williams of Mostyn: My Lords, with the leave of the House, I shall repeat a Statement made by my right honourable friend the Prime Minister earlier today in another place. The Statement is as follows:
"With your permission, Mr Speaker, I will make a Statement about the G8 summit in France.
"I pay tribute to President Chirac's very skilful chairmanship in guiding our deliberations. We reached significant conclusions on the Middle East, on weapons of mass destruction and terrorism, and on Africa and sustainable development. In addition, we committed ourselves to strengthening the conditions for growth in the world economy. In all, there were 16 action plans and statements released at the summit, copies of which have been placed in the Libraries of both Houses.
"First, on the Middle East, we all recognised that a solution to the Israel/Palestinian problem is not only vital for stability across the Middle East; it would also deprive the terrorists of an issue which they exploit for their own inhuman ends.
"I need hardly remind the House of the bleak pattern of mistrust, hatred and violence that has blighted the lives of generations of Israelis and Palestinians. Children have been growing up in an area with seemingly no prospect of peace. Since the beginning of the intifada in September 2000, until the end of March of this year, 2,300 Palestinians and more than 600 Israelis have been killed.
"There have been too many dashed hopes to be anything other than cautious in assessing the current situation but, since I last reported to the House, the road map for peace has been published, the Israeli cabinet has accepted it and there has today been the historic meeting between President Bush and the Palestinian and Israeli Prime Ministers in Jordan. The whole G8 Summit united together behind the initiative that President Bush is taking and fully endorsed what is now agreed on all sides as the only ultimate answer: two states, Israel and Palestine, living side by side in peace.
"That is an objective of historic significance both for the Middle East and indeed for the whole world community. We in the United Kingdom will continue to support it with every means at our disposal.
"Secondly, on terrorism and weapons of mass destruction, there was striking unanimity of purpose that we must urgently strengthen our co-operation in the fight against these two closely related threats.
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"On weapons of mass destruction, we underlined that North Korea's uranium enrichment and plutonium production programmes and its failure to comply with IAEA safeguards were a clear breach of its international obligations. We called on it to dismantle its nuclear weapons programmes. We emphasised the proliferation implications of Iran's advanced nuclear programme and called on Iran to sign and implement an IAEA additional protocol without delay or conditions.
"President Putin made it clear that in the mean time Russia would suspend its exports of nuclear fuel to Iran. These are important steps to halt the proliferation of nuclear weapons and I welcome them.
"In addition, we took stock of progress on the 20 billion dollar programme launched last year to prevent terrorists acquiring nuclear, biological or chemical materials left over from the former Soviet Union, to which Britain has made a commitment of up to 750 million dollars.
"We put in place mechanisms to improve the prioritisation and co-ordination of technical assistance for countries seeking to assist in the war against terrorism. We launched new initiatives to tackle man-portable surface-to-air missiles and to tighten security controls on radioactive sources. And we agreed on a new drive to cut off terrorist financing.
"Thirdly, on Africa and development, the summit brought about the welcome participation of many African and developing nations. We all agreed that of central importance is a successful outcome to the WTO ministerial meeting in Cancun in September and the successful completion of the development round by 2005. The wealthy nations of the world simply cannot any longer ask the developing world to stand on its own feet but shut out the very access to our markets necessary for them to do so. Reform of the common agricultural policy will be vital in this regard.
"In addition, we agreed to resolve all other outstanding WTO issues, including the compulsory licensing of drugs—the so-called TRIPS question—which is important for poorer countries to access drugs for their people, and is also essential for progress in the Doha round.
"We had extensive discussions about the problem of HIV/AIDS which afflicts 42 million people around the world. All of us welcomed President Bush's recent announcement of a 15 billion US dollar initiative to combat it. I hope that at the European summit in Thessalonika the EU will agree to match the US commitment to the global health fund, potentially up to 1 billion dollars a year. We remain on course, too, to eradicate polio from the face of the globe by 2005.
"I set out in some detail my right honourable friend the Chancellor's proposal to establish a new international finance facility, which could deliver a doubling of current aid flows for recipient countries committed to economic reform and good governance.

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Finance ministers have been asked to report back to leaders on this proposal by September. It is important that we now sustain the momentum behind this initiative.
"G8 leaders also took the opportunity to discuss with President Mbeki and other African leaders the good progress that we have made in partnership with NePAD leaders over the past year in implementing the Africa action plan launched at Kananaskis. Over the past year we have seen the largest ever US commitment to aid for Africa, and many EU countries, including our own, are increasing substantially our aid and development programmes. Consistent with this African-led initiative, we discussed the steps they are taking to resolve the current appalling crisis in Zimbabwe. We condemned the action taken by the Zimbabwean authorities on Monday against their own people and called on the Zimbabwean Government to accept their citizens' right to demonstrate against the regime peacefully.
"I was also pleased that we endorsed the initiative, which I launched last year, to reduce corruption by getting companies in the extractive industry to make public the tax and royalty payments they make to governments, and for those governments to publicise their receipts. I believe that this simple idea could have a powerful impact. Transparency and increased accountability are the best defences against corruption.
"Leaders also had a full discussion on the world economy and agreed on the central importance of fostering macro-economic stability and intensifying structural reform as the essential pre-conditions for strengthening growth. Chancellor Schröder briefed us on the steps Germany is now taking to modernise its health and pensions systems and to increase the flexibility of the labour market. And President Bush expressed confidence in the strength of the US economic recovery based on rising productivity and a pick-up in domestic demand.
"Finally, G8 heads agreed to step up our collaboration on science and technology to help combat the long-term problem of climate change. It is crucial that we tackle this, but in ways that encourage sustainable growth and development. The G8 must lead the way, working in partnership with developing countries. We shall focus, for example, on renewable energy, the hydrogen economy for transport, fuel cells and biodiversity.
"After the sharp disagreements in the world community over Iraq, the summit represented an important coming together by leading nations. In the past few weeks, we have seen the restoration of unity in the UN with Resolution 1483. As important as anything else, on the very issue of WMD and terrorism, there was a renewed sense of urgency and purpose. Of great significance, we have seen the Middle East peace process, despite all the cynicism, moving forward again.
"Whatever the differences of the past few months the summit showed common purpose on these key issues. It is now the task of the whole world
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community to build on the objectives that have been reached which are of such fundamental importance to us all".
My Lords, that concludes the Statement.
3.25 p.m.
Lord Strathclyde: My Lords, I thank the noble and learned Lord for repeating the Statement made by the Prime Minister in another place earlier today.
It was an important summit. Perhaps the most significant thing about it was that it linked the United States in partnership with Europe. I hope that the noble and learned Lord can agree that nothing is more crucial than that relationship and that it should be maintained. Like it or not, the United States will be the predominant power in the world for the rest of our lifetimes.
The concept floated by France and Germany of a multipolar world in which some European power—governed we know not how—could be created to counterbalance the United States is in my view an illusion. The United States has been, and can continue to be, a power for liberty, freedom and democracy in the world. We should work with it. We can, of course, collude against it, as France and Germany did earlier this year. But I believe in working with it. Can the noble and learned Lord assure the House that the Prime Minister made that firmly and unequivocally clear to Mr Chirac and Mr Schroeder at the summit?
Turning to the Middle East, we stand four-square with the Prime Minister in backing the bold initiative of President Bush. We welcome the hopeful and promising declarations made only two hours ago, or thereabouts, at Aqaba. We welcome the road map to peace in the Middle East and sincerely hope that it may succeed.
As the Prime Minister said, a two-state solution is inevitable, and it is right. It is good news that Israel has now officially welcomed it. Terrorism must end. But the search for peace must also be multilateral.
Can the noble and learned Lord explain to the House how Syria and Lebanon will be involved in this process? Does he believe that Iran and certain circles in Saudi Arabia will now cease to finance and support terrorism? Can he also assure us that France, which dabbled so damagingly in Saddam's Iraq, fully supports the initiative?
We greatly welcome the statesmanlike action of President Putin over Iran's nuclear programme. We agree with the Prime Minister and the G8 that the threat of proliferation in Iran and in North Korea is a major one. Can the noble and learned Lord tell us whether our Government have ruled out military action in North Korea under any circumstances? Does he think that it might be helpful for the Government to publish dossiers on the nuclear policies of Iran and North Korea?
Much has been said in the past few days about the case made by the Government before the war with Iraq. Let me make it clear that we on this side need no persuading that the war was justified. And, incidentally, will the

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noble and learned Lord make it clear that we have no truck with allegations about the behaviour of our own troops? Our Government must give no houseroom to the hypocrisy of human rights campaigners who were silent about Saddam for so long, but who now target our soldiers on the flimsiest of evidence.
Saddam was a threat. He did use weapons of mass destruction. He was a merciless tyrant, not least to his own people. We need no persuading that Iraq and the Middle East are well rid of him. But some people did need persuading. That is why the material published by the Government before the war and the Statements made to this House and another place raise issues of trust and parliamentary accountability. Something so solemn as a war must be founded on fact. There can be no suspicion of half-truths or spin.
That is why we believe that an independent judicial inquiry would be desirable to clear up this matter. It would help the Government and underpin the integrity of the Prime Minister. Will the noble and learned Lord use his considerable influence to persuade the Prime Minister of the wisdom of that course? Will he consider ways for Members of this House to be involved in any parliamentary inquiries that might take place?
There is another factor that is peculiar to this House. Many of us regret the unworthy accusations levelled at the noble and learned Lord the Attorney-General that somehow his advice on the legality of war was not as unqualified as the published documents suggest. Therefore, would it not be sensible in any inquiry into the publication of the intelligence dossier for the scope to be widened to explore the background to the advice given by the Attorney-General? An independent examination of that, too, would be helpful. I hope that the noble and learned Lord will also use his influence in that direction.
Can the noble and learned Lord tell us a little more about the likely timetable towards self-government in Iraq?
I wish to press further the noble and learned Lord on the important declarations on Africa. We welcome the commitment of the G8 to further help for that benighted continent. However, we still deplore the generally pusillanimous stand being taken by the international community over the savage dictatorship of Mugabe in Zimbabwe. Words and declarations are fine, but when will effective action be taken to remove Mugabe?
Given the importance of the summit talks on Africa and discussions on medical supplies and relief in Iraq, can the noble and learned Lord give the House any hope of an early debate or a full Statement by the Secretary of State for International Development to lay out in some detail the Government's strategy? We are privileged to have a Secretary of State in this House. Surely, we should hear from her on these matters, at least before the House rises in the middle of July.
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Furthermore, while on the subject of debates, I note that another place is rightly going to debate the crucial issues of the future of Europe before the EU summit at Thessalonika. I urge the noble and learned Lord to press his deputy leader, the noble Baroness, Lady Symons of Vernham Dean, to change the Foreign Office's view—as I understand it—that a debate in this place also is not needed before that vital summit.
President Bush has given inspiring leadership in the world in the past few months. The Prime Minister has been right to support him. So long as he does so and does not veer off to chase the rainbow of integration in Europe before the rock of co-operation with our greatest ally he, too, can rely on our support.
3.32 p.m.
Baroness Williams of Crosby: My Lords, I, too, thank the Leader of the House for repeating the Statement. I begin by picking out certain aspects that we on these Benches very much welcome and which I am sure the wider House welcomes.
First, there are the steps taken, evidently successfully, to limit nuclear proliferation. In that context, like the noble Lord, Lord Strathclyde, I ask specifically whether the noble and learned Lord can bring us up-to-date on whether there has been any response from either North Korea or [ran to the representations made to them: first, with regard to their nuclear programme; and, secondly, with regard to nuclear enrichment facilities. I also echo the question as to whether the Lord Privy Seal is willing to rule out the prospect, at least at this stage, of any military action being considered with regard to Iran.
Secondly, perhaps I may say that we very much appreciate the statement made about the international finance facility, which is a real opportunity to increase the level of investment in Africa. I agree strongly with the statement that this is an initiative by the Chancellor of the Exchequer which deserves strong support from the international community. We wish it well and hope that it can be speeded on its way. September is, after all, for many thousands of people quite a long way off.
Thirdly, I echo what has been said about the road map. In particular, the noble Baroness, Lady Symons of Vernham Dean, was, in our view, absolutely right to express caution and to suggest to us that we need to emphasise the hopeful side of this, which is, after all, the first constructive development towards resuming the peace negotiations in Israel in the past three years. Does she agree that, first, it was not specifically an American initiative but one which was started by the quad, which of course indicates the significance of a multilateral approach, not least when the European Union is bound to be one of the significant financiers of any final peace settlement, particularly with regard to reconstruction on the Palestinian side? Therefore, it is crucial to emphasise that this is a multilateral exercise and that it is all the more important for that.
Finally in that context, I think that all of us agree that the path forward must be pursued by reconciliation and reciprocation between the two sides. We can all hope that any move forward on one

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side will be matched as quickly as possible by a move forward on the other. Therefore, the citizens of Israel and of the Palestinian territories will be able to see a steady move forward in the direction of peace. Anything less than that will sow only disappointment.
Having said that, I turn briefly to Iraq. In particular, I ask whether the noble and learned Lord the Lord Privy Seal can confirm that it is likely that an Iraq interim authority will not be in place for at least another year or 18 months, which is the slightly gloomy indication we have had from that quarter? I raise a matter with regard to Iraq, not least because of the points raised by the noble Lord, Lord Strathclyde, about the current debate on WMD and the doubts about whether the intelligence was based on factual material. I shall not pursue that matter further. It will be pursued on many other occasions.
However, for those on these Benches the issue raises a larger question about whether the involvement of the so-called "Iraq survey group" now being launched—as the Prime Minister said in another place—to investigate the possibility of weapons of mass destruction throughout Iraq and involving, we understand, no fewer than 1,300 people drawn from Australia, the United States and Great Britain, will not seriously feed the problem of credibility since all those people will come from the so-called coalition. Would it not be better to leave the matter to experts who are regarded throughout the world as people who have no axes to grind and who do not come from one side or the other; in other words, the UN inspectors? In that context, we should pay tribute to Hans Blix, who is leaving office today, for all that he attempted to do and actually achieved as an independently-minded and uninfluenceable chief inspector.
I turn from those favourable issues to what I regard as the other side of this Statement. I regard that other side of the Statement—the one that concerns Africa and the developing world—as an utterly inadequate response to a world in which the inequities and unfairnesses are so great that they are now at the level of obscenity. These statements were made by the G8 when the western world—and in particular our own government and that of the United States—took credit for what it had done in Iraq. It cannot I think take credit for producing a peaceful proposal that would begin to limit the sense of profound injustice that exists through much of the world.
In that context, I refer to the 16 action plans of precooked honeyed words that seem to us to add up to extremely little in terms of action. Perhaps I may give two examples. The first relates to what the Prime Minister had to say about the common agricultural policy. I should be grateful if the Leader of the House could tell us why at a time when, unusually, President Chirac of France proposed the ending of subsidies on EU products exported to Africa, particularly of food exports, the United Kingdom was one of three countries that objected to that initiative alongside the United States and, I believe I am rightly informed, Japan. That was the first move by France towards beginning to dismantle the common agricultural
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policy. We on these Benches cannot begin to understand why that was not welcomed and pressed forward in every possible way.
The other example I want to give is equally sad—I would even call it shocking. It is the proposal that was put forward to allow African countries to buy drugs to deal with the major diseases that today rack those countries—HIV/AIDS, malaria and tuberculosis—which led again to an initiative by the European Union for the rules that protect copyright to be relaxed so that those products could be bought at the generic price, and alternatively that they could buy them from other developing countries such as Brazil on the basis of copyright being extended to those countries and the generic price being charged. It is to us a tragedy that it was among others our own country, and in particular the United States, that refused to accept that initiative. Therefore, although the United States has given 15 billion dollars in aid to Africa, which we welcome, much of that money will be absorbed in the fact that the market price for the drugs is seven times the generic price. That means that the profits will simply go back again to the very companies that led the lobbying for that objection.
In conclusion, the medical director of the UK branch of Médecins sans Frontières referred to promises that are mostly unfulfilled. With regard to the developing world we must fulfil our promises and not produce any more words that do not mean anything. Let us be sure that of the 16 action plans at least a few come to fruition. The Government will then have the right to take credit for that part of the Statement, as they have reasonably and rightly taken credit for the earlier part of the Statement.
3.40 p.m.
Lord Williams of Mostyn: My Lords, I am grateful for the responses of the noble Lord, Lord Strathclyde, and the noble Baroness, Lady Williams. There were a large number of questions and I have about five minutes to deal with them, unless your Lordships can be patient enough to let me stray a little beyond.
I was pleased that the noble Lord, Lord Strathclyde, urged me to look for the rock at the end of the rainbow. That is an interesting intellectual conceit that I had not encountered before in my sheltered life. The noble Lord's first point was absolutely right. It is wholly false to suggest that our future lies either with the United States, our historic ally, or with Europe, which is growing in confidence and power. I agree with him entirely that they are not alternatives and that they are not exclusive. Was that made plain to President Chirac and Chancellor Schröder'? I think that they understand quite well.
On the question of President Bush and the Middle East peace process, it is important that we recognise what is happening. There are historic opportunities. The Israeli cabinet has accepted the way forward. That is not an achievement that should be overlooked. It struck me particularly when I was in Buenos Aires for the installation of the new Argentine president that one of the representatives of the State of Israel there

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was a cabinet minister telephoning his assent. That was a truly historic opportunity that we must all work to support. We should not also underestimate in our own interests the extremely persuasive and powerful influence that our Prime Minister and Foreign Secretary have had. There is no doubt in my mind that without their intense commitment we would not be at this stage, however early it may be.
The noble Lord asked about military force being used against Korea and the noble Baroness asked about military force being used against Iran. The answer is to be found in paragraphs 3 and 4 of the G8 declaration on non-proliferation of weapons of mass destruction. Paragraph 3 states:
"We have a range of tools available to tackle this threat",
and, right at the end of that paragraph,
"if necessary other measures in accordance with international law".
Paragraph 4 states:
"While all these instruments are necessary, none is sufficient by itself".
So I think that that gives the answer. France does indeed support the initiative.
The noble Lord, Lord Strathclyde, troubled me as I was paying careful attention by using that dreadful word "dossier". I hope that it is not the result of rogue elements in the Conservative Party. I agree with him that those torture chambers and those mass graves were not built and excavated by the United States or any western power. They were all the result of bestial dictatorship.
The question of accountability in the parliamentary context is very important. It is Parliament that should bring Ministers, governments and executives to account. That is what is being done by the Senate Committee investigation in the United States in Washington, and that is what is going to happen in this country. As the Prime Minster has made perfectly plain, any document called for by the Intelligence and Security Committee will be provided, evidence will be given, and the report that the ISC produces—subject to the constraints of intelligence sensibilities—is going to be published.
The Foreign Affairs Committee may or may not have its own investigation, but if we speak of parliamentary accountability, should we not deal with it in Parliament? After all, we have a Member of this House, my noble and learned friend Lord Archer of Sandwell who is on that committee. His views on the conflict are well known. His integrity is absolute. I think that we should, to use the noble Lord's phrase, rely on parliamentary accountability. Whether the ISC chooses to call for the Attorney-General's advice, I respectfully suggest, is a matter for it.
Have I a timetable for Iraq? No. I suggest with great respect that the conflict has been over for such a short time. It is idle to think of setting a timetable, because timetables, as we know so well in the context of Northern Ireland, have a habit of becoming more important than the process.
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I do not think that the approach to Zimbabwe has been entirely pusillanimous. There was an interesting contribution on the "Today" programme this morning. I am not speaking of Dr Reid interviewing John Humphrys. There was the most fascinating contribution by the brother of President Mbeki. He is the chairman of an independent authority and I think that his remarks deserve careful attention and scrutiny.
Regarding requests for early debates, however passionately they are made, I dispassionately reply that that is a matter for the usual channels. I agree that I am one of the usual channels and I will use my undoubted influence, to coin a phrase, in the appropriate way.
I am grateful for what the noble Baroness, Lady Williams, said about the Chancellor the Exchequer's initiative. He has been well known for his imagination and determination to eradicate the grossly unacceptable—I think the noble Baroness said obscene—discrepancies. She is right. It was a quartet initiative—that is extremely important. We should not forget that one of the quartet is President Putin's Russia. We also should not forget that the other contribution is from the EU. Everyone in this House recognises the overwhelming importance and significance of the role that the United States must be called upon to play. President Bush promised in Hillsborough that he would apply his energies to the matter, and so far, one has to say fairly, that he has. He has been successful. The noble Baroness is quite right to say that reconciliation is the only key. We know that ourselves from Northern Ireland and she is quite right to say that she hopes that one party will not say "we shan't do anything until you have done something first". We should learn the lesson of 30 years past in Northern Ireland on that.
The Prime Minister has made it plain that the survey group of 1,300 will have ample opportunity to detect what evidence there is or may be about weapons of mass destruction. We ought to wait to see what will happen, as the Prime Minister has said. I do not think that all those documents were simply, again I quote, "pre-cooked, honeyed words". It is a great opportunity today for metaphors not entirely unmixed. I do not think that those words should be so described—they are serious declarations. The noble Baroness is right to say that September is a long way away if you are poor and starving, but setting a deadline of September was important. There are many bases for optimism in the documents, not least the fact that they are coming from a large number of different countries that do not always share the same starting point.
I have over-run by three minutes, but I thought that you Lordships desired the answers.
3.49 p.m.
Lord Elton: My Lords, the obscene gap referred to by the noble Baroness is best illustrated by the fact that life expectancy for a baby born in this country is more than twice as long for one born in, for example, Sierra Leone, where the income—the GDP per capita—is

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one forty-ninth of what it is in the UK. It is accepted that that is a great contributor to the ease with which terrorist events are now brought about, because of those perceived iniquities. Therefore, I was glad that the Statement included the sentence:
"We all agreed that of central importance is a successful outcome to the WTO ministerial meeting in Cancun in September and successful completion of the development round by 2005".
I could not find those words reflected anywhere in M. Chirac's summary issued after the summit. I was surprised that when, at 2.20 p.m., the Library told me that the Foreign Office could not produce a final communiqué. No doubt there is a reason for that. It remains the case that the WTO has a crucial role to play in stabilising the world, as well as making it more just and safe. I read that the WTO has 28 or 29 members from countries that are too poor ever to send them to it. The WTO itself funds a number of countries to enable them to attend twice a year. Surely something is needed of the order of Short money—we are familiar with that process in this country—because to be effectively represented means to have someone there able to attend meetings two or three times a week, not twice a year.
Could the project in paragraphs 2, 39 and 40 of the Government Command Paper, Eliminating World Poverty, published in 2000, which allocates money for the machinery of WTO, be focused in such a way as to make those countries more effectively represented? Secondly, as the WTO works by consensus—
Noble Lords: Question!
Lord Elton: My Lords, I think that noble Lords are looking at their watches; I shall content myself with that question.
Lord Williams of Mostyn: My Lords, I am grateful to the noble Lord. There was a final communique, but it is the chairman's statement, which he correctly referred to as M Chirac's statement, which has been placed in the Library.
I agree with the thrust of what the noble Lord said. Earlier this week, when asking a question of my noble friend Lady Symons, he put it extremely eloquently by pointing out that if there is that obscene and indecent disparity, there is not only a moral imperative on us to reduce it, but, to put it at its meanest and in terms of realpolitik, it is in our own self-interest. Trade eventually means internal judicial systems that must be appropriate and proportionate; the increased benefits of doing away with malnutrition for lengthening life expectancy; and that, eventually, we shall benefit in all sorts of not so subtle ways.
It is true that the chairman's summary was simply that, but it refers to the problems to which the noble Lord referred. Paragraph I on page 1 is entitled: "Strengthening Growth World-Wide",
and covers,
"Macro-economics, structural reforms, trade and responsible market economy".
Paragraph 2 is entitled: "Enhancing Sustainable Development". That paragraph contains a bullet point on Africa; a bullet point on famine, which deals in
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particular with emergency food aid needs; a bullet point on water and on health; one on financing for development; and one on debt.
I recognise that few of us have had the opportunity to study the documents in detail, but there are references there to the problems correctly identified by the noble Lord, Lord Elton.
Lord Williamson of Horton: My Lords, in relation to development in Africa, can the noble and learned Lord tell us what has happened to the suggestion that there should be no subsidies for food exports to Africa—a suggestion that has been strongly pressed for by many non-governmental organisations for many years? Further, did the British Government oppose it? I ask that because, if I may say so, half a cake—it is quite a large half of a cake—on the common agricultural policy is something that we should welcome. because we do not usually get a crumb.
Lord Williams of Mostyn: My Lords, I am grateful to the noble Lord for so gently and indirectly reminding me that I have not dealt with the question of the noble Baroness, Lady Williams. In fact, we welcomed the French proposals; specifically, we said that they must go much wider than Africa, because two thirds of the world's poor live outside Africa. We therefore wanted a different approach. So it is not correct to say that we objected to the French proposals; we said that they did not go far enough.
Lord King of Bridgwater: My Lords, will the Lord Privy Seal confirm that the perfectly sensible choice of the Intelligence and Security Committee to conduct the investigation in no way prevents it, if it so wishes, from sitting in public; that it may ask for the attendance of any person—including officials, who are often prevented from attending Select Committees by Ministers; and that the Prime Minister confirmed today that any information that the committee requires will be provided to it?
I did not spot this in the communique, but the noble and learned Lord said that the war in Iraq is over. Recognising the continuing losses of American troops, which are occurring day by day, and the point made by the noble Baroness, Lady Williams, that it may be a year or a year and a half before an interim administration is in place, is not one of the most critical needs at present to ensure that the situation in both Afghanistan and Iraq can be sustained? That will require a considerable number of people and considerable resources. Was there any discussion in the G8 of other members playing a full military and security part to help to achieve that?
Lord Williams of Mostyn: My Lords, I am most grateful to the noble Lord; we all know of his great expertise in the context of the ISC. He knows, because we had discussions on the matter, that I myself gave evidence to the committee and was happy to do so. If the ISC comes to the conclusion that certain areas of evidence could be properly and safely explored in public, we would welcome that.

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The noble Lord is quite right and extremely generous in drawing to the House's attention what the Prime Minister said: that there will be full cooperation. The Prime Minister repeated more than once in the House of Commons that such reports as the ISC thought prudent to make would be published, subject to the usual constraints.
The noble Lord is quite right. He says that I said that the war had finished; I think that I actually said that the conflict, in the sense of the grand conflict, had concluded. But he is quite right; soldiers are still being killed, as are civilians; military and quasi-military activity continues.
The discussions about military and general resistance to which the noble Lord referred are continuing. It was an optimistic development that troops from Pakistan, for instance, are to be committed to the reconstruction of Iraq. It seems to us that the more multilateral the approach, the more likely it is to succeed. However, I agree with his necessary implication that one cannot set a timetable; this will be a long haul. If we were not committed to the long haul, we should never have been committed in the first place.
Lord Hylton: My Lords, I very much welcome the international financial facility. Does the noble and learned Lord think that that will lead directly to universal primary education? Would that not be about the most welcome possible kind of globalisation?
As for Iraq, a Question in your Lordships' House only yesterday about the looting in Basra University drew attention precisely to the importance of policing. Will the Government discuss with the American authorities the possibility of recruiting Arabic-speaking police officers from the rest of the world to serve in Iraq during the interim period? Will they further discuss with the Americans the vital importance of disarming the population of small weapons?
Lord Williams of Mostyn: My Lords, I am most grateful to the noble Lord for his question. I know of his concern about universal primary education; I share his approach. He will know—because both of us have been in the Chamber on previous occasions when my noble friends Lady Symons and Lady Amos made it plain—that it is our long-term aim that that should be a truly universal right, rather than simply a universal ambition.
On the question of police, the noble Lord makes an extremely important point, which is not entirely unrelated to similar helpful observations that he has made about widening the police recruitment base in Northern Ireland, for instance. In reply, I am happy to tell your Lordships that we have already sent police experts out there to see what could usefully be done. His specific point seems to me one of great value and I undertake to transmit it to the appropriate quarter.
Lord Mackie of Benshie: My Lords, are there any plans to help Israel to overcome its major difficulty of
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settlements in which settlers, I understand, are determined to stay? For example, might Egypt be asked to lease some of the Sinai desert, so that they could use their skills on that? It is the most difficult question, and I wonder about the thinking.
Lord Williams of Mostyn: My Lords, the noble Lord is quite right. It is a very difficult question that will require enormous courage by the Israeli cabinet, not least because the cabinet is a coalition and a coalition of views as well as a coalition of parties. What has been done so far is a courageous first step.
We ought to recognise that these matters must initially be for internal decision by the Israeli cabinet. However, we stand ready to assist in all appropriate ways. I think we have made that plain.
It is going to be very difficult on a human basis to ask or require settlers to move. They have committed their lives and their energies, determination and dedication. It is a very difficult problem for the cabinet in Israel to resolve and to try to reconcile different views. Again, I shall transmit the noble Lord's suggestion. It is a suggestion worth considering, but what the ultimate worth of it would be, I cannot say without further examination.
Lord Bruce of Donington: My Lords, in the course of my noble and learned Lord's emphasis on the further inquiries to be made, he was kind enough to indicate the agencies that would provide the information. A little phrase crept in with which I am thoroughly familiar. I think the House is familiar with it too. The words were "subject to the usual constraints". This is a vital phrase. If, for example—as seems likely on the face of it—our intelligence services and other official and governmental services were to provide further and enlightening information, this should not be subject to customary practices and restraints. So whenever I hear governments in this place—and I have been here a long time—talk of "usual constraints", my ears prick up immediately. It will not amount to very much and I doubt whether it will be significant in the ultimate, but I have to inform noble Lords that my ears will be very alert for the sources and nature of the usual constraints that are about to be deployed by the Government.
Lord Williams of Mostyn: My Lords, I know from past experience that the noble Lord's ears are constantly in a state of pricking, but I think he has mistaken the point and the approach made by the noble Lord, Lord King, to which I responded.
The noble Lord, Lord King and I share one thing in common at least; we have both had to read intelligence material. It would be foolish and dangerous to recite it all in public and, for instance, to identify sources who might be in mortal danger. That might compromise future intelligence operations. But one is able to describe conclusions as, "Are the assertions made that the Prime Minister lied? Is that borne out by the material or not?" That committee can come to that conclusion. I personally resent the suggestion—it is more than an implication—that the Prime Minister has lied. If the ISC came to the conclusion that on the

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material available he had not, it is able to come to that conclusion. It does not have to publish chapter and verse on every informant. As soon as you publish an informant's name two consequences follow: he is likely to be killed and you will not get a large crop of informants for the future.

Globalisation
4.6 p.m.
Lord Pestonrose to move, That this House takes note of the Report of the Select Committee on Economic Affairs on Globalisation (First Report, HL Paper 5–1).
The noble Lord said: My Lords, I thank the Clerk to our committee, Christine Salmon, and our secretary Deborah Delacroix. 'Those noble Lords who are familiar with the membership of our committee will be aware of the saint-like character required by a Clerk or a secretary to such a committee. We are most indebted to them. I thank our economic advisers, Professor Venables of the London School of Economics and Professor Wickens of York University. Both are world-class figures in their own right. I also thank two more junior members of staff, Martin Stewart and Adrian Lewis, who were also immensely helpful to us.
As chairman I must thank the committee and say that all the good parts of the report were down to them and the errors I will accept myself.
Since we are discussing globalisation, it would also he remiss of me not to say a word about my right honourable friend Clare Short. She was an outstanding Secretary of State for International Development—probably the best we have ever had in this country. We found on our overseas visits that she did much to enhance the esteem in which our country is held by most countries in the world, especially in the area of globalisation. With no disrespect to my noble friend Lady Amos, whom we welcome very much to her unique position in the Cabinet, it would be wrong of me not to say that Clare Short will be much missed.
Turning to the report, I start with a boast. We are the first committee ever to publish its report and evidence on CD-ROM. Whatever else we have achieved, we are at a technical frontier here and I hope all of your Lordships' committees will follow that achievement. Where we failed is that we did not manage to get all our evidence regularly in good time on the web. I shall try hard in future to make sure that the evidence is more easily available.
I hope I do not have to remind noble Lords that your Lordships' committee always sticks to the highest standards of your Lordships' House. We are totally non-partisan in our approach to this matter. We never have votes. It is often said that that is another way of saying only one person has a vote—perhaps the chairman. Much more important than that, everything we do is evidence-based and I hope that noble Lords who have looked at the report will be impressed by the remarkable collection of witnesses that we had before us. We could have had many more and that shows the
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very high esteem in which your Lordships' House is held world-wide. These top international figures did not have to be persuaded to come to see us. They really wanted to come to see us and tell us about globalisation because they thought it was important.
I turn to our report and what lies behind it. The easiest way to give the background is to quote from three of our witnesses, who had very different views. Dr Noreena Hertz made the important point that,
"it is a matter of making globalisation work in a much better way for many more people."
That is our view of how we ought to approach this matter.
Professor Stiglitz noted "a real sense of hostility towards globalisation". However, he said that in his view,
"it is not hostility towards globalisation. it is really hostility towards the way globalisation has been managed and to a particular set of economic doctrines that have accompanied globalisation on the part of some of the international economic institutions."
That exactly encompasses the committee's view on this matter and I am sure it is entirely right.
Lastly, I cannot refrain from quoting George Monbiot of the Guardian. He said:
"I feel the protest against what has been called globalisation…has brought together an extraordinary array of concerns, some of which are mutually contradictory…it is a very broad and very wobbly coalition indeed".
He referred to seeing vegetarians alongside meat farmers on the protest march. One of the interesting things about the issue is that it produces such strange bedfellows, which makes it even harder for your Lordships, with our dispassionate approach, to come to a rational conclusion.
Some noble Lords may think that some of what we say is controversial. First, we take the view that globalisation is a genuinely new phenomenon and is not simply free trade writ large. I do not believe for a moment that, in the late 18th and even the 19th century, the great protagonists of free trade—I speak as one—ever envisaged a world viewed globally. That is not to say that free trade is not important, but that is not quite the flavour of the thing. Secondly, the committee takes the view—I am convinced that it is right that, although openness to the global economy provides an opportunity for economic success, that success is not guaranteed. Our view is that there is no certain path to success and no simple economic formula such as "Do that and you will achieve economic growth and no inflation. You will reduce inequality and avoid social and political upheaval". There is no simple formula.
It is also our view that there is no single path to success. A public infrastructure is important, but so are free markets. Efficiency and uncorrupt administration are important in the public and private sectors. All of that is partly a causal factor, but it is also a consequence of economic success. The same point applies to the legal system. Someone who says, "All we need is legal reform, and everything will be fine" has neither examined the facts nor thought through them.

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It would be absurd to point a priori to a large number of conditions that must be met before economic advance is possible. The list approach would guarantee that nothing would happen in the world, as we could never meet all the points on the list. The committee takes the view that the correct approach to economic success is a step-by-step path of improvements, rather than just laying down vast numbers of pre-conditions.
The second part of our approach is that the most important thing is to help countries—especially poorer countries—to help themselves. There is a role for a country such as this, for the great international economic institutions and for the European Union. We and they can advise and warn, but we must not threaten. For example, aid is important—no one doubts that—but so is the free movement of capital. In terms of numbers, the free movement of capital is far more important. The second example is that the correct approach is not for us to take over such countries but to co-operate with them. I was interested to see the extent to which major companies saw cooperation as the way forward. I was particularly impressed by companies who said, "We must advance local management, so that it can eventually become the dominant force". It is vital that the countries with which they are concerned feel that they—not us—are in charge of their destiny.
This matter troubles me greatly. We must avoid adopting the contradictory position of, first, rejecting imports from poorer countries because they are produced by cheap labour, while, secondly, attacking our own countries for moving production over there because they have cheap labour. Thirdly, we are against that labour moving to countries such as ours where it could be more productive. We insist that all countries competing with us—the poor ones—have the highest standards of health, hygiene and safety, standards that we never met until after we had become successful. In other words, there is a whiff of hypocrisy about the way in which many people in the advanced world say, on the one hand, that they are devoted to the interests of such countries and that they have got to make themselves efficient, while, the moment that those countries make themselves efficient enough to threaten our production, we find ways of pointing out that it is unfair competition. As my noble friend Lord Barnett is aware, it is as if, every time Arsenal produce a better team, Manchester United say that they want their goal narrowed and the other goal made wider. I bring that in because it is fundamental to the matter. The important thing is that, a belief in globalisation, openness and free movement is a real belief; it is not a "Yes, but—".
I shall turn briefly to three other matters. First, there are the transnationals. I found it interesting—about myself, in a way, and about the committee—that we were open to the evidence. There is no doubt that many of us started with the view that the transnationals were central to the problem. I am not saying for one moment that the transnationals are perfect bodies and certainly not that they are altruistic bodies. However, the more we looked,
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the more we found that the notion that the world's ills particularly the ills—of the poor countries—could be laid at the door of the transnationals was simply wrong. Not surprisingly, there is a mixture. Also unsurprisingly, they do not always tell the truth entirely.
We were always taken aback to hear the overwhelming amount of evidence that there was a great deal of corruption in the world, even though we could not find a transnational that would admit that it ever engaged in corrupt activity. There was a slight contradiction there. However, I say to your Lordships, especially those who are concerned, as we all are, about the problems of Africa, particularly sub-Saharan Africa, that, although there is no doubt that we can do more to help, the notion that African countries that have the potential to be rich and have great resources—I shall not go through the list—are poor because of the appalling behaviour of the transnationals is not right.
We had the same openness with the world economic institutions. That surprised me, given my prejudices. We started off with a ranking list of all the world economic institutions. We took the position that they were all terrible and that the only question was, "Which is the worst?". On the whole, having met them and heard their evidence, we felt that they could do better, as we say in the report, but we also felt that they were trying to learn. In particular, having started off very anti-World Bank, we moved to a more positive position. My noble friends will confirm that. The International Monetary Fund stuck to the old-style religion for many years, saying, "This is the only way to economic success". Joe Stiglitz, in particular, published a book on that. The IMF is showing more and more intellectual flexibility i thinking about different paths to success. I am fairly optimistic about that.
I shall steal my concluding remarks from another distinguished economist, Paul Krugman. He is optimistic. in the sense that he drew to our attention the considerable number of countries that had become successful, despite starting from far back in the line. He said:
"A number of countries have made significant progress—enough so that at least we can say that that permanent division of the world into rich countries and the other quarter is not, in fact, the case".
The emphasis is on the word "permanent". My final message to your Lordships is that he also said:
"All of the success stories are export-led growth. All of them are by getting into the global economy".
Therefore, I end by saying that that is the message—that the global economy is there, that to achieve success one has to go in and use it. That does not guarantee success, but what will guarantee failure is autarchism and cutting out of the global economy. I beg to move.
Moved, That this House takes note of the Report of the Select Committee on Economic Affairs on Globalisation (First Report, HL Paper 5–I). (Lord Peston.)
4.20 p.m.
Lord Howe of Aberavon: My Lords, it is a privilege to follow the noble Lord, Lord Peston, after his most effective presentation of the report of his committee.
I should like to begin by thanking the authorities for making this debate possible so soon after the completion of the committee's report, and to thank the noble Lord and all his colleagues on the committee for the quality of their work.
The House should rather modestly congratulate itself on the availability of the formidable team of people who composed the committee. When we look at their qualifications set out in the report, we see that we are privileged to have such an assembly of talent, and, as the noble Lord pointed out, to be able to attract to give evidence to such a body witnesses of the quality that appeared. The only comment I would make is that we ourselves have no doubt about the quality of the work that has been produced, but a prophet is not without honour save in his own country, and I should like to think that there are some ways in which the quality of this thinking could be more effectively publicised, to the advantage of the House and of those who might read it.
I commend first a very large number of well-balanced and important judgments on controversial issues which are too often misunderstood, beginning with the net benefits—I emphasise "net"—of globalisation as a concept. Of course, there are hazards and down sides, as in anything, but that is the important central message.
Secondly, there is the net beneficial role of the multinational corporations. They are, as one of the witnesses pointed out, in many cases the drivers of economic change, the dynamos—if properly viewed—that help us along. Alongside that, of course, as part of the picture there is the importance of corporate social responsibility.
I am glad that the Committee endorsed so clearly the legitimacy of the role of the International Bank for Reconstruction and Development (the World Bank) though it has had shortcomings historically. I am glad that the Committee rejects so decisively the unwisdom of the so-called Tobin tax, the capital transactions tax. It is very useful to have all the misunderstandings that have had a fashionable following objectively analysed and rejected in the way that the Committee does.
I am also glad that the Committee endorsed the importance of the International Monetary Fund, as clearly set out in paragraph 291, where it says that
"were it not to exist, it would have to be re-invented".
I recollect that—astonishingly—20 years ago, the year when I was chairman of the Interim Committee, we had the task, which I am sure we did not perform fully, of handling the early examples of debt crisis, in Mexico, for example, with enhancement of the fund's resources by a 50 per cent expansion in special drawing rights. If the fund had not been there it would have had to be put there.
I want, like the noble Lord, to focus mainly on the unevenness with which the benefits of globalisation are shared around the world. That is one of the recurrent
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themes in the report. The most grave and wilful example is one that was also discussed in our exchanges on the Statement about the G8 summit meeting: the protectionism by developed countries, above all of their agricultural sectors, on both sides of the Atlantic and, just as mischievously and harmfully, in Japan and other places. It is rightly condemned, in the words of the Committee in paragraph 208, as "wholly objectionable arid unjustifiable".
One asks oneself why that is, and one answer is the inherent selfishness of democracies in protecting their own interests, because their politicians feel driven by the electorate to do that. But it is also because we have not yet got sufficiently in place respect for what should be the obligation of the international community, in many cases the legal obligation, to begin stripping away the protection that exists.
Time and again we have asserted the need to do that, and yet we have not yet fully grasped the importance and effectiveness of international law or international law in the making. Unlike common law, international law is a rather osmotic commodity, but it is important that it should be as effective as possible.
Therefore, it is important to consider the value of an aspect of globalisation that is not touched on in the report. I make no criticism of that. I refer to the globalisation of' law. It is interesting to witness the impact that that is having in many ways that we had not fully anticipated. Can we do anything to enhance or extend that process?
I often cite a non-economic example of the impact of the globalisation of law, starting with the Helsinki Final Act 1975. When I began to try to raise with that great figure Andrei Gromyko the importance of the Soviet Union's commitment to human rights in the Final Act, he told me the first time round that I was lowering the tone of the conversation, and our discussions thereafter continued along the same track. When I raised the matter with Mikhail Gorbachev on the second day of his visit here in 1984, and when a Select Committee of the Commons raised it with him the next day, instead of repudiating the Final Act in that way, he was prepared for the first time to begin addressing those arguments. Within four years his Foreign Minister, Eduard Shevardnadze, who has always earned my immense respect, not least for his courage still in his own state, Georgia, told a diplomatic conference in his own country:
"The image of a state is its attitude towards its own citizens, respect for their rights and freedoms and recognition of the sovereignty of the individual".
That, from a Soviet Foreign Minister, within 13 years of the Helsinki Final Act, showed the impact of law in that field.
Can that be translated effectively into economic terms as well? To some extent we can answer that question if we ask ourselves: why is the flow of foreign direct investment so uneven? Where is it spreading most beneficially? Where is it not spreading at all?
The flow is manifest in the developed countries. We have confidence investing in each other. If we look at the countries of the former Soviet Union, or the central and

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eastern European bloc of the former Soviet empire, we see a very differentiated pattern. In Poland and the Czech Republic, where legal institutions are increasingly well fashioned, the flow is running well. Byelorussia and the hapless Ukraine, with 55 million people, are in a very sorry plight indeed; foreign direct investment flows scarcely at all, because the legal institutions that are necessary to give confidence do not exist.
In Russia itself, in a gradually improving twilight state—I speak as chairman of the Framlington Russian Investment Fund, which has struggled, not very successfully, to make money in that market—investment is taking place gradually and the flow is happening. But, my Lords, compare that with India or the People's Republic of China, where we see the impact of law—law coming into China, for example, from outside.
I had the privilege during the last decade of helping one of the leading American law firms establish offices in both India and the People's Republic. I remember vividly—and I have longed to say this in this House—going with my noble kinsman, which is what I think I should call her, and the noble Lord, Lord Brittan, on a visit to China in 1978. We were looking on that visit for any lawyers at all in the People's Republic. We found two or three struggling to re-create the law faculty in Beijing. We found one criminal court, which had never acquitted anyone, and that was only on the last day of our visit.
In the decade between 1985 and 1995 China trained 70,000 lawyers. The pace of training has doubled in the decade since then. The number of foreign law firms in Beijing in 1992 was 10. Four years later it was a hundred. And the pattern still grows.
Legal infestation is not normally regarded as a manifestation of prosperity, but the fact is that because there is growing confidence in the legal structures in the People's Republic more than 50 billion dollars of foreign direct investment is now going there each year. I am happy to say that the United Kingdom is the largest investor in China of the European Union countries. There are some 3,000 British-Chinese joint ventures in China. This partnership in the commercial field can also spill across into the field of human rights.
Let us look at the more difficult areas, such as Africa, for further applications of this message. We see in Zimbabwe, for example, the extent to which the process of institutionalisation can go tragically backwards. In Uganda, a country that I knew well when I served in the Army in East Africa, what seems like a hundred years ago, in the late 1940s, we saw what Amin and Obote could do to destroy working institutions. But if we look to the other side of the coin. we can see what President Museveni has since been able to do in beginning to restore legal institutions in that country.
The noble Lord was right to pay tribute to Clare Short, as a notable International Development Secretary. I cannot resist the temptation to pay a corresponding tribute to my noble friend Lady Chalker, who is not present in the Chamber today. She has played
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a formidable part in helping countries like Uganda in their efforts to get back on the path towards economic stability.
The magic that I relish from the Ugandan experience comes from a phrase that President Museveni used early on during his time there. He recognised, like the noble Lord, Lord Desai, in his evidence to the committee, that one of the problems of the developing countries is the extent to which they have been plugged in to the least stable part of the global economy—the commodity markets. President Museveni recognised the importance of trying to create within Uganda its own market economy. When he first came to a Commonwealth conference in, I believe, 1987, I remember him saying that Uganda had to become a "self-starting" economy, rather than a "towed" economy. If we bring our help to bear in the right way, that is the kind of change that can be helped by the world outside.
Finally, I have a wider message for the way in which we can help transmit these qualities to the developing countries. Indeed, how we can—if I dare use the phrase—help in "regime change". We cannot do so by way of shock therapy, whether administered in an ill-judged fashion by the International Monetary Fund, as has sometimes happened. For example, the impact of IMF treatment on Indonesia, unduly driven also by political ambition, may have made it much harder for that country to go through the process of transition. My great anxiety is that the impact on Iraq will be carried too far. I have in mind the removal of everyone of any competence from the administrative structure, thus literally having "created a wilderness and called it peace". I fear that replacing the necessary resources that we have removed from the country will prove to be a formidable task.
As the noble Lord, Lord Peston, said, we must apply ourselves to these issues carefully and step-by-step through advice, not threats. At present the western world is increasingly divided in the prescription that it offers as to the best way to handle such problems. There is a gulf between the present American view and the European view, within which I include that of the United Kingdom. Robert Kagan rather dramatically discussed the "Martian" quality of the Americans and the Venetian quality of the Europeans. Venus is actually a bit wet for us. I asked the staff in the Library of the House to try to find a different parallel to set against Mars. I wondered whether there was some attractive goddess who can symbolise justice rather than love. I searched for justice. Apparently, the Greek Gods of justice were either the Furies or Nemesis. That is a bit rough for me. However, I hope that the House will understand what I mean.
I believe that we all wish to see a change taking place by extending the effectiveness of a rule-based system, instead of a rather more raw exercise of military and political power—even though it may have good objectives. In an article in the Financial Times on 21st May, Martin Wolf put it quite succinctly when he said:
"The United States wants to transform the world, Europeans want to manage it".

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It is no good being divided by such ideological arguments. We must bring ourselves together and, if we can, restore the real strength of G7 summits.
God help me, I attended 11 global summits. During that time I saw a gradual deterioration taking place because of the almost inescapable tensions between the charm of empty photo opportunities and the hard reality of getting international leaders to lash each other to the mast of economic virtue—and doing so in a way that would compel them to fulfil their obligations. There is one example with which I should like to close my remarks. I have in mind the most objectionable and unjustifiable maintenance of agricultural protectionism in the leading economic countries of the West. Until we introduce into the conclusions of these international economic bodies a self-enforcing, collective economic discipline, and one that gives us the courage to begin to dismantle such obstacles, we shall not be achieving as much as we could to help the poorest people in the world economy.
4.34 p.m.
The Lord Bishop of Chester: My Lords, I, too, congratulate the Select Committee on producing this stimulating report. For a Member of these Benches to speak on economic affairs, not least sandwiched, as I am, between the noble and learned Lord, Lord Howe, and the noble Lord, Lord Barnett, might seem foolish. However, it has not always prevented my predecessors from attempting to do so. I hope that I shall not lower the tone of the debate in the way alluded to earlier in relation to Mr Gromyko.
I begin by asking whether globalisation is such a predominantly economic phenomenon as the report assumes, although that is understandable as it is a report from an Economic Affairs Committee. With some reservations, I am inclined to agree that the current phenomenon of globalisation is both quantitatively and qualitatively different from what has gone before. My reservation is that it is probably the quantitative scale of the phenomenon of globalisation that also generates the sense of qualitative change.
History tends to speed up, and it can also take us by surprise. I remember being in the United States in 1979 when there was a widespread sense that the period of American dominance, wealth and prosperity was actually drawing to a close. People could only buy petrol in the country on every other day, depending upon their car number plates. The subsequent 24 years have seen a great advance in American economic power and prosperity, both absolutely and relatively, as compared to that of most of its major competitors. With this development has come the great spread of western influence, if I may put it that way, around the world.
I turn to what I believe to be the roots of globalisation. One of the great shaping forces of the modern world probably the greatest is modern science. We sometimes forget that modern science is a comparatively recent arrival in our midst, dating from the 16th and 17th centuries. The report before us seems
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to support the view that the essential catalyst and fuel of globalisation was the invention of the microchip. We are living through a new industrial revolution which is more potent than those based on the invention of either steam power or the internal combustion engine. I am told that there are more scientists practising their craft today than the sum total of all scientists who ever worked previously, such is the power and reach of modern science.
We are still only in the early stages of the computer-based revolution. It has unleashed enormous power—economic, military and cultural—which is different, but, in its own way, comparable to the discovery of nuclear power. Were the equivalent of the Iraqi war to be fought in 20 years' time, we can imagine B52 and Stealth bombers no longer needing pilots, which is rather a frightening prospect. That military power, based upon new technologies, has all manner of economic cousins on which the report naturally concentrates.
So what must we do to be saved? Can we exert any real control over the huge forces that have been unleashed in the evolution of the modern world? The answer to that question may actually be no. Modern man has always tended to over-estimate his ability to control what will happen in the future. However, we can—and must—endeavour to shape the future as best we can. That is our responsibility. Perhaps I may briefly refer to two ways in which this might be attempted and addressed.
The first way would be to recognise, amid the distinctive features of the contemporary world situation, that the process of globalisation probably began around the year 1500. That is when the -death of distance"—to use an expression from the report—really got underway. In that sense, we could see Bill Gates as a sort of modern Captain Cook. In the ancient world, sophisticated civilisations could develop and yet have very little intercourse with each other. Of course, great oceans played their part. But let us take, for example, ancient China and the great Roman civilisations 2,000 years ago, both of which had very little mutual impact over a period of 400 or 500 years.
Even in medieval times, there was just a trickle of trade and a few travellers between China and what became known as Europe. All that has completely changed. We now live increasingly with what the historian John Roberts, in his splendid BBC series 20 years ago, called "The Triumph of the West". Western civilisation is increasingly pervasive globally to the extent that it is becoming difficult to speak of the West as a meaningful concept. On concluding his series and the accompanying book, Dr Roberts said:
"'The West' is hardly now a meaningful term. except to historians".
That was 20 years ago. If it was true then, it is even more true today.
If we are to understand what is happening today in the phenomenon of globalisation, we have to be prepared to dig more deeply into the past; into the cultural roots of Europe and the United States. That

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will include the idea of the autonomous individual, able to escape from fate and external forces of enslavement, allied to the great belief in the possibility of progress.
It is good that the scriptures have been quoted. I shall leave your Lordships with a picture from St Luke Chapter 4, where Jesus of Nazareth went to the synagogue in his home town, took the scroll of Isiah, with its reference to liberating the oppressed, and proclaimed, "Today this word has come true in your hearing". In so doing, he burst through the bounds ancient Greek rationalism had placed on human expectations and hopes and led the world on a course where the striving for perfection and progress would characterise any civilisation based on Christian belief.
That took a long time to take root, develop and get going, but we are living in the latter stages where the momentum is extremely great. I believe it is becoming clearer that it is only as we understand the religious foundation of western culture that we shall fully appreciate its contemporary secular and economic dimensions as they envelop the world for good and for ill. The triumph of the West, as Dr Roberts made clear in his series, is a deeply ambiguous triumph; hence the subject matter of our report.
I shall conclude by trying to appreciate why western culture has been such an ambiguous influence, both liberating—I would not wish to underestimate that in any way—but also destabilising as it has spread around the globe. Western culture has called into question traditional beliefs in the societies it has touched; it has undermined the stable expectations with which many have lived and died. Rising expectations and even the process of beginning to meet them have compensated only partially for the cultural destabilisation which we now routinely export around the globe. Therein lies the root explanation of modern terrorism, still so poorly understood among us.
The destabilising effect of the core beliefs of western culture, whether one chooses to regard them as myths or truths, has been exacerbated by the fact that freedom tends to breed inequality. The report recognises that but suggests that growth in economic equality is more within countries than between countries, although that assessment is too dependent on the fact that China and India are among the countries that are successfully coming to terms with economic globalisation. Many smaller countries are in increasing danger of being left behind.
The growth of inequality—the tendency for some countries and individuals within the countries to grow ever richer as other countries and individuals grow poorer—is a major cause of instability in the modern world. We heard that point at Question Time on Monday and in the earlier exchange between the Leader of the House and the noble Baroness, Lady Williams. Perhaps one cannot buck the market, as someone once said, but one can certainly influence it. The striking revelation in the report that the total subsidies for agriculture in rich countries amount to no less than 350 billion dollars per year—seven times the total amount of overseas aid—influences the market.
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Unless we can find means of expanding international aid in all its forms, not even first and foremost in terms of money, although that must form a great part, and in creative ways and far beyond its present level and vision, the twenty-first century will present our global village with great and increasing instabilities. That is the challenge. It was hinted at in the Prime Minister's earlier Statement: the putting of flesh on those aspirations, hopes and commitments lies at the heart of a successful response to the phenomenon of globalisation.
4.45 p.m.
Lord Barnett: My Lords, I congratulate the noble and learned Lord, Lord Howe, and thank him for his congratulations on the membership of our Select Committee. I have always recognised—as far as the other members are concerned—that we have an excellent committee. I congratulate my noble friend Lord Peston both on his introduction to the debate and on his chairmanship of the committee. I do so even though at times he digresses into matters that do not include what we are discussing; namely football, but I shall not talk about Arsenal and United. He said so much about the report, which spells out clearly the reasons for its conclusions. I will emphasise only one or two points.
First, one often hears a rather silly question: are you for or against globalisation? It is a silly question because globalisation exists. We heard a quote from paragraph 55 of the committee's report, where we referred to globalisation as being a new departure. The "death of distance" is to some extent the reason for that new departure. At paragraph 57 we said that it is true that the same has happened before, but it is quantitatively and qualitatively different. That is what is different about globalisation today.
On this, as indeed on every paragraph of the report, we are told that the Government agree. I shall comment on that point in a moment. They agree on every paragraph, but what they do beyond that is more important. When we started on the report, I and, I believe, many members of the committee, did not expect international development issues to be as central to the report as it turned out. In paragraph 64 we stated that we were appalled by the shameful level of poverty that we learnt about from our witnesses.
Again, the Government agree about the shameful level of poverty. I suppose that all governments have done so over many years. No doubt I have done so and so has the noble and learned Lord, Lord Howe. But what then? What are governments in the developed world doing about the shameful level of poverty? That is at the heart of our discussion. The attitude of the West is shameful. In the Prime Minister's Statement we had more excellent, wonderful words about what the G8 summit wants to see achieved. But what specifically will be done about the shameful level of poverty?
In fairness to the west and the developed world, it needs to be said, as we said in our report, that civil wars, corruption and incompetent governments have played a

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crucial part in why so many people in the developing world are still living in shameful poverty. China and India—I believe my noble friend Lord Peston said—have shown what can be achieved if governments seek to take advantage of what is available to them through both globalisation and the work of the developed world and the TNCs to which my noble friend referred.
But sub-Saharan countries in particular have shown what should not be clone. To a large extent in those countries it is their own fault that they are in this position. Zimbabwe and Nigeria, for example, should be very wealthy countries. The reason that they are now experiencing shameful levels of poverty is not primarily to do with western developed countries. One has to concede that. There are many other parts of sub-Saharan Africa and other areas of the world where that applies.
Members of the Economic Affairs Select Committee were discussing primarily economics and perhaps we had not appreciated—or at least, I had not—that the economics of severe poverty around the world were so crucial to the developed as well as to the developing world. In paragraph 86 we refer to the "failure" on the part of some of the developing world "to integrate", and again in paragraph 6 of their response, we are told that the Government agree. They state that,
"greater integration (especially trade) is a very important factor for growth".
Of course it is; we all know that. But what is the western world doing about it? The plain fact is that the nations of the western world are not doing anything substantial. Indeed, in many cases they are doing the reverse.
We have heard already about what happens in the case of food aid and the unwillingness of western countries—not only the UK; this involves the whole of the European Union and the United States—to do anything. On the one hand, the nations of the western world talk glibly about help and the integration of trade and so forth, while, on the other hand, they refuse to do anything seriously to make changes to the system that would really help the developing world.
As we set out in the report, one is bound to say that there are shameful levels of poverty. Speaking in economic terms, the investment climate is also very relevant. Paragraph 94 refers to the issue of levels of investment. We are told that the Government agree. They welcome our work and say that they are working towards helping in this regard.
As I have said, it is not entirely the Government's fault that people in countries around the world are still living in shameful poverty. But what is the solution as regards foreign direct investment? In agreeing with paragraph 150 of the report, what is the Government's solution there? We are bound to recognise that the Government alone cannot solve it. The real solution is to put more effort into influencing actual action taken within the European Union and the United States. It is not simply a matter of words of agreement.
The plain fact is that, as a percentage of GDP in the West, no nation is yet anywhere near the target of 0.7 per cent in aid currently being talked about. Given
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that our own GDP today in current account terms is probably around £1,100 billion—across the western world GDP amounts to a huge sum—the amount we are providing in aid is abysmally low. I ask myself why that should be the case. The governments of the western world contain decent people who want to help. Over successive governments of all political persuasions there has been the desire to help. So why do they not do so?
I am afraid that I have come to the appalling conclusion that it is democracy which is the problem. The fact that presidents and prime ministers want to be re-elected means that they are not willing to spend more in this regard It has happened to all governments of all political persuasions, not just to the present Government. It is democracy that is creating the problem. I do not suggest for a moment that we should abolish democracy in the West, but it is time that those of us who want to see something done recognise that it is not enough just to talk about it. We have to see governments act and it is up to Members on the Back Benches to try to persuade governments and, indeed, opposition parties, that they must join together in a policy that will truly help, rather than just talk about helping the developing world.
4.55 p.m.
Baroness O'Cathain: My Lords, like previous speakers, I should like to thank our chairman very much—even though, as a non-football follower, I found myself totally out of my depth at least once per session. I thank also our specialist adviser, our Clerk and the staff in the Committee Office, and last but by no means least, I thank our wonderful array of witnesses. All those people combined to make this the most fascinating work that I have ever undertaken in your Lordships' House over the past 12 years. It was a stimulating experience. I believe that the report is a good one and adds to the knowledge of the subject.
At the beginning of our work, our inimitable and rather intimidating chairman stated that there would be three rules governing our behaviour: first, we were to be apolitical; secondly, we must produce a unanimous report; and thirdly, we were to steer far away from Third World issues of poverty and other deprivations. It would be hard to believe that when reading our report.
Obviously we stuck to the first two, but within weeks the realisation dawned that there was no way that we could or even should avoid giving the deepest consideration to the impact of globalisation on the people and not just the economies of the deprived areas of the world. The noble Lord, Lord Barnett, has already referred to the "shameful level of poverty", something which became very evident to us all. I suggest that it was a steep learning curve for all members of the committee. Of course, those self-same issues have been even more in the spotlight since we began our work, as we have lived, and are now living, through a period of huge instability in all the areas that we looked at.

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We tried to arrive at a clear and succinct definition of globalisation. We all know what it embraces, but it is such a complex area that the emphasis put on certain aspects can actually confuse the understanding of all the implications of the term. I think that the phrase used in the Government response to the report—
"an increasingly integrated global economy"—
is one of the better definitions.
Dealing with the government response, I am somewhat disappointed by the rather anodyne reactions to the points made in our report. I support what the noble Lord, Lord Barnett, said on this. It is good to see such a large measure of agreement with our conclusions, but the solutions advanced by the Government to some of the very serious issues are lacking in teeth and rely too much on the pious hopes of the ability of international organisations to change things. Perhaps I am a pessimist, but our recent history of reaching agreement with international organisations does not fill me with hope in this direction.
Before I comment on these points in more detail, perhaps I may in an aside make a plea for greater clarity in such responses, and better use of our wonderful language? Are split infinitives becoming as common as the use of the phrase "road map" in Treasury-speak? Please let us avoid the temptation to make "road map" the next "level playing field".
Speaking in this debate, I feel that, as the weight of sad evidence about poverty in so much of the world is likely to cloud the beneficial effects of the increasingly integrated global economy, I ought to dwell on how we thought, and the Government think, we can or could affect future discussion, debate and legislation with the aim of improving the lot of so many millions—actually billions—of the world's people.
Governments of the richer countries, international organisations such as the International Monetary Fund, the World Bank and the World Trade Organisation, along with the trans-national corporations—the TNCs—all have a responsibility. Whether that responsibility can be translated into action which will achieve the desired effect is a different matter.
There is universal agreement that better governance is required if countries are to benefit from globalisation. In their response, the Government seem to draw comfort from the fact that the codes and standards framework overseen by the IMF and the World Bank are good. They are fine in theory, but what about the practice? In addition, how can we enforce those codes and standards? By their very nature, codes are voluntary and any attempt by the developed nations to influence these countries could be seen as unacceptable interference. Linking aid to the operation of codes and standards would be a difficult task. How would it be policed?
The Government state that:
"On corporate governance, the government will work to pursue convergence towards a globally agreed single set of accounting standards that are capable of consistent application, interpretation and enforcement".
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I am tempted to say, "Physician, heal thyself'. There has not been much success in achieving that in our own backyard. This is really my major concern about the response. The measures have been put in place, the suggestions have been made, but will they improve the lot of workers in developing countries or truly improve education levels?
Since we completed our report, I have been mulling over whether we gave the right emphasis when considering help in the drive for education in poorer countries. I may be quite wrong, but do we concentrate to a large enough extent on technical education or apprenticeship projects when giving aid? Naturally we hope that the basic skills of the three Rs plus IT skills should be emphasised, but the need for skilled workers is so great I believe that even greater emphasis should be placed on technical training.
I can see a possible objection to this emphasis because the discussion on education is dealt with in our report under the heading of "Child Labour". I suppose the connection could be made with the learning of new technical skills over a short period and then the transfer of these children back into the "child labour" market. However, as Dr Superchai Panitchpakdi, the new Director General of the World Trade Organisation, said when he came to see us, the most effective means against child labour, which is one of the key labour rights violations, is to extend compulsory education. The most important word there I see as being "compulsory". Perhaps we should try and get more compulsory technical education over a longer period for people in these countries.
The Government's response to this states,
"since May 1997 the Government has committed £700m to support education for poor people".
Fine, but where? Incidentally, as an aside, the implication of that statement is that the previous Government did not commit any money to support education for poor people. I just do not believe that, but the Treasury response referred to it not once (Conclusion 10), not twice (Conclusion 14), but three times (Conclusion 15). It is such a pity that the Treasury is unable to be bipartisan, like the Select Committee. This is not, nor should it be, a political issue.
About 30 years ago, or maybe a little less than that, the righteous indignation of the critics of capitalism was directed fairly and squarely at the MNCs (the multinational corporations) as they were then called. There were many cases of abuse of power, and certain companies had a really wretched record of slave labour tactics, or almost, particularly in areas such as South Africa.
Since then the MNCs have become TNCs, and there is no doubt that corporate responsibility has become much more important. It is a development which has most often been initiated by the companies themselves in the recognition that the dignity of labour must be regarded and recognised.
What has been most encouraging about the work of the Select Committee is how far the cause of fairness and justice in the labour force has been improved. That

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is not to say there is not a huge amount still to do, but the TNCs have been very instrumental in the raising of living standards in many parts of the world.
More than that, there is now a genuine recognition of the fact that investing in developing countries has to be sustainable on every level and the development of local management, as the noble Lord, Lord Peston, noted, the involvement in training, the provision of good working environments and the commitment to long-term investment in the country are the norm—not the exception.
Although some witnesses expressed real concern about the economic power and influence of the TNCs in democracies, I feel that the contrary evidence was so strong that the fear should be focused on the operation of the democracies themselves rather than the operation of the TNCs. It was pointed out that any country had the sanction to expel a company. I cannot think of any company that could possibly have the power to expel a government.
George Soros subscribed to the view that "footloose capital" could be an issue as the companies could move their investment elsewhere. As an acknowledged expert of experience in the power of moving capital, his statement should be carefully considered. The other side of the argument was just, if not more, compelling, as stated by the noble Lord, Lord Browne of Madingley, the group chief executive of BP, when he said,
"you do not go into business and go into a country for a year. it is just not possible, it is very long term".
This view was echoed by the chairman of Unilever and the then chairman of GlaxoSmithKline.
Our Conclusion 18 and paragraphs 158 to 162 deal with this issue and certainly give me a sense of comfort and pride in the fact that our companies have come such a long way, even if it is not universally acknowledged.
In this debate there is nothing like enough time to deal with all the fascinating aspects of globalisation. I believe the report deserves to be read widely and, as my noble friend Lord Howe of Aberavon recommends, to have greater recognition outside this House. It is thoughtful, authoritative and a most interesting read. It gives many pointers to what could and should be done to minimise the apparent and real drawbacks of globalisation but also to what could and should be done to maximise the genuine opportunities that globalisation offers. It should not be ignored, because there is one absolute fact—globalisation is here to stay.
5.5 p.m.
Lord Skidelsky: My Lords, I was determined to take part in this debate as it is a subject that really interests me, despite the fact that I cannot delay a suddenly sprung commitment. So I apologise in advance to the noble Lord, Lord Peston, and his colleagues, and to the whole House if I slip away a little early.
The report follows the standard characterisation of globalisation as a growing integration of the world economy, chiefly through trade and capital. This means that political borders will be increasingly less
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important in deciding the allocation of goods, services and perhaps labour in what one witness called one giant global economy, although cultural and natural frontiers will always be important.
The logical end of this line is a world government providing the public goods for a world economy which national governments now do for national economies. We are not, of course, there yet, and many fervently hope we will never get there. What is happening is quite different. As time goes on, it becomes increasingly clear that what is shaping globalisation is politics. as it has been from the start. Here is the root of my first hesitation about the argument of the report. It takes the view that technological changes and trade liberalisation are driving the whole process. But trade liberalisation has come about as a result of political decisions—much more importantly, decisions to liberate capital movements were in all cases political decisions taken by national governments. Technological determinists will need to explain the irony noticed by Paul Volcker in his evidence that financial markets really only opened up dramatically in the 1990s following the break-up of the Soviet Union.
Today, it is even clearer that globalisation is being shaped by politics—above all, by the ambitions and vulnerabilities of one hyperpower, the United States. In every area, globalisation takes the form the United States wants it to.
Since the fall of communism, the American ideology of extending free markets has been driving the process. Since 9/11, however, this has to some extent been overshadowed by the war on terrorism, which points in a different direction to what might be called the Osama bin Laden factor, linking security issues, drug trafficking and money laundering in an atrocious mix. This points away from free markets towards more control over trade, the movement of goods, capital and labour.
Where do we go from here? US policy might go in one of two directions. We may see a much more explicit commitment to a pax Americana—explicit in the sense that military force is used more actively to keep the peace and ensure political arrangements supportive of American interests. We may see, for example, some elements of a territorial empire, particularly in the Middle East. If this happens, if a pax Americana is established, perhaps globalisation can proceed under American protection just as it did in the 19th century under the aegis of the pax Britannica. It may even proceed with a large measure of international agreement. On the other hand, there may be a much less benign American nationalism in which the United States uses its immense power to pursue its own interests at the expense of multilateral agreements, if necessary tearing up any already negotiated. There are some signs of that.
Two problems have scarcely begun to he tackled. One is the problem of rogue states and what we do about them, as their existence makes all of us less secure. The other problem, to which noble Lords have alluded, is that of so-called failed states, most of which are located in sub-Saharan Africa. They cannot

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provide even a minimum standard of civilised government; we have examples of that in Zimbabwe and, much more tragically, in the Congo. There are worrying reports of a growing exodus of skilled whites and blacks from South Africa.
There is good sense in the report about the problem of poverty and the role that good domestic governance can play in taking advantage of the opportunities that globalisation opens up. However, such language really fails to do justice to the extent of the collapse of any acceptable form of government in the poorest parts of Africa. We cannot in the end avoid asking a primal question: do we prefer self-government or good government? If there is a choice, which answer do we give, and what consequences flow from giving different answers? In short, one criticism of this admirable report is that it leaves out politics. I wish that it had an international relations dimension, as that would have strengthened it.
More briefly, I turn to a second omission. There is nothing in the report about exchange rates, even though capital movements are discussed. There is of course a relation between capital movement volatility and the exchange rate regime. The logical end of globalisation is the end of national currencies. It is surely a paradox that virtually all economists of Anglo-American provenance are united in lauding the virtues of national monetary autonomy, which is generally interpreted to mean "floating exchange rates", as they also oppose any limitations to free capital movements. That is the line that the report takes, as I interpret it.
I should have thought that it was worth some sacrifice of national autonomy, whose benefits are in any case greatly exaggerated—much good it has done Japan, for example—to keep at least G3 exchange rates as stable as possible. Not only is that more in the spirit of the multilateralism that informs other sections of the report, but it would be of great benefit to the emerging market economies themselves.
Globalisation based on floating exchange rates seems to me a contradiction in terms. In the past year, the euro has appreciated 25 per cent against the dollar. A trader might have lost 25 per cent of his expected revenues, having lost a similar amount when the currency movement was in the opposite direction over the previous year. We are airily told that we can always hedge, but we are told less often that it can be very costly to hedge, especially for a small company.
The report does not deal with exchange rates because they are at present off the agenda: no one is discussing them. That well illustrates the dilemma of that type of inquiry. If it is to be taken seriously, it must not be too stimulating or it will be ignored. To that argument, Keynes gave a classic reply. He said that the realistic mind was an awful thing and that to work out an inspired solution to the problems that face the world requires a person with a crazy mind. In welcoming the report and paying tribute to those who produced it, I would have welcomed a little less realism and a little more craziness.
5.13 p.m.
Lord Paul: My Lords, let me first thank my colleagues in the Select Committee for the earnestness with which they set upon what I can assure noble Lords was quite an immense and challenging task. I would particularly like to congratulate our chairman, my noble friend Lord Peston, who has done a marvellous job in chairing our committee and gave an excellent introduction to the debate.
I am grateful to have a chance to discuss two of the recommendations in the report, which I believe are important to move further toward globalisation. I was born and raised in a developing country—India—and I know that people in developing countries are determined to improve their well-being and are happy with the globalisation process. As all noble Lords know, great and sustained economic progress has produced spectacular engines of wealth creation for several decades. Now, for the first time ever, we live in a truly international market and a global economy. There are virtually no barriers to the free flow of ideas and capital across national borders. Most goods that are in demand also find their way into markets that want them. That is a major change from just a few decades ago.
None-the-less, some nations that hitherto have been champions of the free trade movement try sometimes to reverse the process in certain areas when the heat is on, which has given a confusing message to the developing countries. Economic insecurity has increased and large numbers of people feel left behind. The achievements of globalisation have been outstanding but, unless we correct their focus and moderate their distortions, our successes will recoil on themselves and become endangered.
International economies are consolidating into powerful formal or informal trading blocs such as those in Western Europe, North America or the East Pacific. Countries and economies that find themselves on the periphery of those blocs now have to become exceptionally competitive if they are to be successful in this new world. For them, there is no other option. They have learned that the question is not whether or not to join the globalised world, but how to join it and benefit from it.
The United Kingdom, of course, has been a leader in the globalisation process for centuries. We must realise that, even today, we can help to steer globalisation in the direction of our choosing. Unless we steer it so as to improve the lives of people across the whole world. we will find that it does not benefit us nearly as much as it could.
There are two aspects of this report in particular where I believe Britain should take the moral and political lead. The first aspect is the current regime of agricultural and textile protectionism in much of the western world. Such protectionism runs contrary to the spirit of free enterprise and free markets. More tangibly, it constricts the abilities of farmers and workers in much of the world to make a sustainable living. That is not because farmers in developing countries are working in inefficient sectors. It is

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because wealthy countries are giving huge subsidies to their own farmers to keep inefficiencies going. That denies their own people the choice of better and cheaper products from other sources. If these subsidies are removed, it will be much fairer to everyone and will stop the need to give aid to some of these countries.
Take a country like India, which was suffering famine conditions in the 1940s, and now has a surplus of food. If the developed world stopped propping up inefficient primary sectors, developing countries would be able to trade more of their products. That would give them more pounds, euros and dollars to buy the sorts of goods that we in the western world have to offer. British intellectuals and policymakers have been showing for generations that open markets benefit both trading partners. The Prime Minister has also repeatedly declared his commitment to challenging EU agricultural policies. Let us in this House now help to lead the way in calling for the reduction of artificial agricultural subsidies.
I request that the Government take up this issue more vigorously at the next WTO Conference in Mexico in September. Of course I am delighted that the G8 leaders in Evian have decided to attend to this issue. I hope that they will do something about it.
The second aspect of globalisation that I believe we should actively work to change is the effect of the international movement of educated and skilled people on the economies of poorer nations. The phenomenon of brain drain—where bright people receive their education in their native land, often under state sponsorship, but then move away to pursue higher-paying jobs in wealthier countries—is a difficult problem to tackle. On the one hand, it is unjust to prevent individuals from living where they want to live and working where they want to work. On top of considerations of individual justice, there are tremendous economic advantages to labour mobility. On the other hand, it is unfair that a poorer nation should finance the education of those who will then move away and not generate wealth for that nation.
I therefore applaud the report's recommendations for solving the brain drain problem. Compensating a country for its human capital losses by providing aid to finance education and training seems to be a good temporary solution to what might otherwise appear to be an intractable problem. Given that the United Nations considers education to be one of the most fundamental measurements of development, our foreign assistance could hardly be put to better use. When our Prime Minister said that his biggest priority was education, education, education, I am sure that he meant that for the whole world. So let us show some action.
Globalisation creates more opportunities than dangers. We should be emboldened by the opportunities that it has given to so many countries in the world, especially our own. However, let us remember that we can control the path of globalisation. We should guide the process along the most fair and inclusive trajectory that we can.
5.22 p.m.
The Earl of Sandwich: My Lords, it is a pleasure to follow the powerful speech of the noble Lord, Lord Paul. I warmly thank the noble Lord, Lord Peston, and others for this excellent report from such a wide range of opinion. I have seen many reports on globalisation, and I truly hope that this is the last of them. However, I have not found any as succinct and useful as this one will prove to be.
One important sentence which has already been mentioned, on page 20, drew me to this debate. It is that,
"there remains…a shameful level of poverty in the world".
The committee goes on to say:
"We are appalled at the sheer waste of human potential that such poverty implies".
I can testify to that as a trustee of Christian Aid and a member of the World Development Movement. However, the evidence is unclear as to whether poverty is generally decreasing, as we would all like to believe, because evidently the opposite is true in many countries which are unlikely to reach the 2015 development targets, even the education targets.
The committee accepts that the gap has widened between what the World Bank calls the "new globalisers" and the "weak globalisers". Among the former are the Asian tigers and China, which has paid for it with greater inequality. Within the latter group, African countries have been marginalised. I am sorry that the committee did not spend more time on the problems of the very poorest countries—perhaps because those countries by their nature are not natural allies of globalisation. I am not sure whether McDonalds has yet arrived in Ouagadougou, but I am certain that the beef will not come from there. Listening to some economists, I have a strong sense of a law of diminishing returns whereby trade is only for the advantaged to profit from while aid is a handout to the rest.
In my experience of world development there is no such simple divide; there is more of a tapestry of opportunity in which even the poorest can sometimes develop considerable income on a small scale from sensible economic policies. Research from micro-credit enterprises finds that the poorest in India, for example, are more efficient borrowers and are the first to repay their loans. In my view, those are the entrepreneurs who should be at the cutting edge of the drive against poverty, given the right kind of institutional support. That is where governance is, of course, the key factor. As one would expect, there is much in the report about the building of capacity—a DfID line of thinking which only just falls short of, "We can do it for them". However, it is the system which is wrong. It is the sheer inequality between rich and poor negotiators which strikes me rather than the inherent lack of capacity or ability.
So keen are we, the developed world, to exploit the developing countries that we send vast delegations to the WTO and the IFIs. One NGO at Doha counted more than 500 in the EU delegation compared with small island states with only two each. Haiti, one of the

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poorest nations, as has been mentioned alongside others, had no delegate at all. The cost of providing proper capacity, let alone legal representation in disputes, further demonstrates that inequality.
The committee accepts that the WTO is,
"dominated by a small number of rich countries",
and that that domination is excessive, especially in the case of the WTO. However, it does not come up with a solution. It appears to endorse the World Bank view that without the WTO, matters would be much worse—as the noble and learned Lord, Lord Howe, said of the IMF. The Government are, however, urged to consider how to improve the balance of power and make their decisions more transparent. So far, their response has been weak in the extreme.
The committee, to its credit, goes on to berate developed countries for "objectionable and unjustifiable" protectionism. Those are strong words and will perhaps force EU ministers to reflect a little more, as the noble Lord, Lord Paul, reminded us, on the progressive damage done by the CAP, by last year's US Farm Act and the backdating of the textiles agreement—one of the so-called "implementation issues" which have caused a lot of frustration. We have had several recent debates, notably on NePAD and the CAP, which comes up again next week. However, apart from small advances on the decoupling of our larger farm subsidies, which seems to be going ahead, the only new EU initiative seems to be the new one on GATS. That is obviously to be welcomed, but only if it is not used to condone the privatisation of essential public services.
The noble Lord, Lord Barnett, mentioned the need for substantial action. It is difficult to see, with so little coming out of the G8, how the poorest countries can look forward to Cancun with any enthusiasm. For example, what has happened to the concept of special and differential treatment—the means by which countries with special problems could be given more attention—which was part of the real breakthrough at Doha? The Government have mentioned it in their response. Perhaps it will be mentioned at Cancun. Will we see the end of it?
In that context, President Chirac has surely stolen the Government's African clothes, as we heard in the debate between the noble and learned Lord the Leader of the House and the noble Baroness, Lady Williams. However, why did not the Government give more visible support at the G8 to the French proposal for a moratorium on all subsidies related to agricultural exports to Africa? It has been ignored by almost all but the financial press. That, I understand, was coupled with an investigation into the effects of deregulation on price stabilisation for primary commodities and products. France is also putting forward ideas for the development of regional markets, again with a particular emphasis on Africa. Surely that amounts, as the noble Baroness, Lady Williams, said, to a genuine move by France, which other EU countries which already support NePAD and the Africa Action Plan should seize upon. They should not wait even for Cancun.
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So we move to corporate protectionism, which is a strong concern of Christian Aid. The committee is broadly supportive of the NGO view of TRIPS. I am even pleasantly surprised that it takes a distinctly sceptical if not NGO line on the motives of pharmaceutical companies. I was personally encouraged by Mrs Brundland's comment on page 216 that public money and even a degree of intellectual property regulation would help research into new products and not just less profitable medicines.
There is a lot of suspicion of the TNCs, some of it unjustified. I agree with the noble Baroness, Lady O'Cathain, that the companies have come a long way and that they have further to go. As I said in the debate on globalisation two years ago, a commission on intellectual property rights will be useful only if developing countries believe that TRIPS is designed as a means of benefiting them and is not merely a Trojan horse for multinational companies or a vehicle for unregulated investment.
I am not qualified to speak on many areas of the report, especially on the financial chapter, and I shall make only one point on the IMF and the World Bank. It is an irony that neo-liberalism has coincided with genuine attempts to reform and reflect the views of civil society. The two seemed incompatible and yet advances are being made. I am sorry that the committee did not find time to include that in the report.
Finally, I am relieved to see the dismissal of the Tobin tax idea, which was always unworkable. Let us hope that that red herring has been finally laid to rest. The Government's response ignores it altogether, but does mention the important international finance facility—the Chancellor's attempt to double aid flows. It is another strange result of the Evian summit that that important initiative has not yet achieved the necessary G8 support and may run out of steam, unless the noble Lord. Lord McIntosh, can put us right on that.
5.32 p.m.
Lord Griffiths of Fforestfach: My Lords, it gives me great pleasure to take part in the debate and especially to follow someone who is such an authority on developing countries and the problems of poverty. I should declare an interest. I am involved in a number of companies that could be said to make money out of globalisation.
This is an excellent report. It bears the stamp of a first-class academic in its chair. It is an inherently difficult subject. Globalisation is ill-defined. It is contentious and it has become a slogan. The report is comprehensive and balanced. It confronts difficult issues and makes good judgments. I would go so far as to say that I have read over the years many reports from your Lordships' House and, in my judgment, this is one of the very best.
As I read it, the report says that globalisation produces great benefits at some costs but that, overall, it is creating global prosperity and is therefore good. Let us consider those countries in the world that have

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engaged in globalisation and export-led growth—most recently, in the 1990s, China and India; beforehand, Mexico; and again, recently, Vietnam and Uganda. Those countries and their citizens have benefited in material terms from globalisation. Those countries which have not engaged in globalisation—Nigeria, Ukraine, Pakistan and others—have really suffered. Their GDPs per capita have gone down.
The report also says that globalisation is beneficial but that it is not autonomous. One cannot just leave it to itself. It must be managed. To follow the expression of the noble and learned Lord, Lord Howe of Aberavon, it should be managed for transformation. It should be managed, first, because private benefits may not equal social benefits and private costs may not equal social costs. Secondly, it should be managed because it has a moral dimension. Globalisation raises, whether we like it or not, questions of equity and justice and that dimension cannot be ducked.
The report also says that global institutions should be critical, advisory and supportive, which I wholly agree with, but that they should never be a substitute for national governments.
I would like to make three comments. The first is on the subject of globalisation and poverty. As the noble Earl, Lord Sandwich, said, the state of world poverty at the moment is scandalous and shameful. The report faces that head on. It welcomes the second of the millennium development goals; namely, the achievement of universal primary education, recognising that at present there are over 100 million children who do not go to school.
I would have thought it within the spirit of the report to welcome all of the millennium development goals of eradicating extreme poverty and hunger, of reducing child mortality, improving public health and so on. Globalisation is successful for the countries involved. The gap between them and countries that have not been involved is glaring and is a scar on our world. I was therefore rather surprised by the pessimism of the noble Lord, Lord Barnett. I have been the most enthusiastic supporter of the initiative that the Chancellor of the Exchequer, Gordon Brown, has taken with the international finance facility. That was welcomed and encouraged by the Doha meeting of finance Ministers last month. The communiqué from Evian also suggested that it is on the agenda and will be implemented.
I believe that it helps the situation in a number of ways. First, it recognises that the key to development in the developing countries is the private sector. Secondly, for that to happen, as the noble and learned Lord, Lord Howe of Aberavon, again said, a legal infrastructure is needed. We also need stable policies and a transparent government. Thirdly, developing countries need access to developed ones. I am sorry that the noble Lord, Lord Desai, scratched from the debate because he said that the CAP and the protection of agriculture in the US are nothing less than a crime against humanity. He is absolutely right.
In addition, if the private sector is beginning to take off, and there is the possibility of greater exports from the developing world, the IFF says that there should
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be a doubling of foreign aid to developing countries. Even if the private sector really gets going in, for example, sub-Saharan Africa, I still do not envisage there being universal primary schooling, clean water, better roads and public health simply because of a take-off in the private sector. Therefore, we in the developed world have a responsibility.
The demand for aid, however, does raise problems. Should it he provided in the form of loans or of grants? I see a great advantage in grants. Should it be bilateral or multilateral? Since the aid is taxpayers' money, there is good reason for stipulating that it should be given on a bilateral rather than a multilateral basis.
There is also the very difficult question of conditionality. The millennium challenge account, which is the response of President Bush to global poverty, sets out 16 specific performance indicators—for example, the number of days it takes to set up a business in a country and the output of primary education—as a condition for giving aid. That is maybe a trifle too restrictive, but it has value. In addition, there is the difficult question of what role the private sector and NGOs should play in the delivery mechanism of aid.
The second issue on which I want to touch is that of transnational corporations. It has emerged from the report and our debate that they are without doubt a force for good. I have been involved in a very small way. One sees investment going into a country; jobs being created; training of local people; new systems; new standards in internal controls, audit and compliance; the transfer of technology; and new management ideas. Typically, one also sees many companies from Europe and America giving advice to governments on the regulatory framework and so on.
My one concern about the way in which transnational companies are dealt with in the report involves corporate social responsibility. I am totally convinced that corporate social responsibility is a good thing. On the other hand, I get frightened when I read the European Union's approach in terms of "triple bottom line" reporting, which could easily become a process that is bureaucratic, lacks substance and has a needless increase in cost. Ultimately, if we go that way in terms of increased regulation rather than transparency for companies, it could be a dead hand.
Thirdly, and finally, I should put a rather different emphasis on the IMF and the World Bank. I should have been tougher on the World Bank and a little easier on the IMF. When the World Bank started in the 1950s, it was concerned with infrastructure; then it got into education and health, and then into poverty. Today, it is virtually in everything. As a result, it has genuinely lost focus. It is simply doing too much. It must ask itself, "What can we do best?". The answer is that it should lend to countries that do not have access to capital markets, and focus on advice that is given elsewhere.
The IMF has a very tough job, typically dealing with countries that have got themselves—mainly—themselves into trouble. Its resources are limited. It is never going to be a lender of last resort. It needs

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more sympathy, especially in its monitoring and surveillance roles. Globalisation raises the issue of global governance. A very cautious, step-by-step approach in reform is needed, not something too radical. In view of that—the IMF is currently reforming itself—and the implementation, I hope, of something like the IFF and allowing the market economy to work, I end up much more optimistic than, for example, the noble Lord, Lord Barnett. I did not sense that the report was that pessimistic.
5.43 p.m.
Lord Sheldon: My Lords, the noble Lord, Lord Peston, is to be congratulated on introducing this report. I had not expected at the outset that a debate on a report from the Economic Affairs Committee would lead to a demand for the understanding of the needs of the underdeveloped world. That rather surprises me, and I very much welcome that consequence of the report. It shows the wide-ranging nature of the report. The issue has tended to educate the committee and the whole of this House.
Globalisation is a crucial matter. We share the same planet with many other nations. Globalisation should mean that we recognise the responsibility we have for all of the peoples of the world to share in the increasing prosperity that only part of the world currently enjoys. Globalisation has particularly shown up the inequalities that we see today; that was represented in the speech of my noble friend Lord Barnett and others. As the report shows, although there is not a simple definition of globalisation, there has been a fundamental change. That is largely due to the ease of modern-day communications, whether by transport, telephone or electronic means. Those means have produced an interchangeable world in which trade, culture, language and social advances become rapidly interchangeable. In fact, globalisation effectively means communication—physical, electrical and electronic. Globalisation has brought and continues to bring great benefits, which we must embrace with enthusiasm; they are essential to our future planet. It also brings responsibility for parts of the world that are not achieving the same level of improvements. The benefits of globalisation must mean and must be shown to mean benefits for all. Protectionism of developed countries, as the noble and learned Lord, Lord Howe, mentioned, must be addressed. We cannot tolerate protectionism against the interests of developing countries in our world.
On page 84 of the evidence, Professor Bill Buiter said:
"globalisation is, potentially, a blessing. It is first and foremost about increasing opportunity, choice and freedom. The simple but fundamental proposition that is the cornerstone of this positive judgement, is that trade—voluntary exchange—is not a zero-sum but a positive-sum game".
He is quite right in that. Larger economic and social units mean that each part must accept some responsibility for those in the global community. The
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trend to globalisation must be accompanied by greater awareness of and action in relation to the problems of the rest of the global community.
Globalisation means that we live in one world but we must accept responsibility for the less successful parts. If there are benefits—it is not a zero-sum game—that should create a surplus, part of which should be used to assist less fortunate parts of the world. How is that assistance to be given? That is the critical question before us today. Financial help, yes, but on what conditions? Who organises it? The IMF, the United Nations or some new UN body?
Which countries have benefited from globalisation and which have lost out? We know that China and India have benefited as well as the developed countries. Some so-called developing countries have not been developing at all. Notably in Africa, some have gone backwards. Globalisation means mobility of goods, services, capital and labour.
In its evidence, the Engineering Employers' Federation commented some time ago on the way in which companies are resourcing their products from abroad. It points out that,
"35 per cent of companies currently have at least some of their production located abroad. This is a trend that is expected to continue with nearly half of the survey respondents anticipating some production to have moved abroad in five years".
That is what is happening today. Those developing countries that have some manufacturing capabilities attract investment through their lower wages and standards of living. Those who rely on raw materials are frequently disadvantaged. Developing countries that are dependent on their agricultural sector are the least successful. Part of that involves the quite shameful way in which so many developed countries subsidise their agricultural sector and so deny developing countries their rightful place in increasing world prosperity, which should be their right. The major question is: how do we help with administrative and political reform in those countries, which are frequently a pre-requisite for financial assistance?
Globalisation has the advantage of spreading technology and practices—both good and bad—throughout the world. Efficient methods of working are diffused as movements of people and companies take place. One of the problems of globalisation and the increasing importance of transnational companies is that they can move their profits around. That means that the taxes they pay are less than those which smaller companies are having to pay. Remedying that is never going to be easy and is likely to take a great deal of international effort and agreement as well as time. Much of that may not be forthcoming. Efforts will be made and will continue to be made for very many years to come.
Another aspect of globalisation is that goods are made in one country, processed in another, further processed in another country and then sold in yet another. Textiles are an example of that. Cotton is grown in one country, spun and woven in another—perhaps halfway across the world—dyed in yet another country and made up into finished garments in a further country.

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We never had that sort of thing before. Such has been the pace of change that there are efficiencies that would have been inconceivable even 10 or 20 years ago. Such things are happening all over the world. People who are transporting goods and conveying information through various means, including e-mail and other forms of communication, have transformed the way in which the production of goods and services rapidly move across the world.
It is understandably resented that although many countries benefit from globalisation, some countries lose out as their agricultural exports are subject to the tariffs in developed countries—the CAP in particular. Issues such as opening markets and protection in agriculture must be addressed.
Obviously some sectors need to be considered, but that should be by assistance and a reduction in their protection by, if required, long-term measures. If we are to make a long-term success of globalisation, then the fact of one world must mean one world in the consideration of improvements to all parts of the world. That is what globalisation should really mean.
5.51 p.m.
Lord Vinson: My Lords, it was a great privilege to be a Member of the House of Lords Committee on Globalisation and I pay special tribute to the noble Lord, Lord Peston, for his indefatigable and pleasant leadership.
I should like to major on two particular aspects of our deliberations: first, some thoughts on the possibility of free trade in agricultural products; and, secondly, where aid should or should not be directed.
When our committee visited the director general of the World Trade Organisation, he said that the Doha World Trade talks were "about trade in agriculture". Indeed agricultural commodities lie at the heart of world trade. Here I declare that at one stage I was a substantial grain farmer, but no longer. However, I trust that experience qualifies rather than disqualifies one to talk, as the modish politically correct might appear to wish.
Our report said:
"Protectionism with regard to agricultural products in particular is wholly objectionable and unjustifiable".
That may be the case, but it is my belief that however desirable in theory free trade in such products may be, the reality is that food trade is not wholly driven by natural advantage and prices seldom represent the cost of production—or are ever likely to do so. Agricultural trade or most of it—is bound to be cat's cradled with restrictions for quite understandable reasons.
If one goes back to first principles, one of the primary objects of any government is to ensure food supply. As planning for inadequacy is not an option, food supply in most western countries means food over-supply. Protected agriculture is encouraged to produce, over-production results in falling prices, falling prices call for increased subsidy, increased subsidy in turn causes further over-production. So the cycle goes on until the next generation of politicians
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says enough, and then all restrictions are removed, as they were five years ago in America, and a free market is attempted.
However, prices then collapse still further and, as we saw last year in America and Canada, massive intervention is necessary to avoid widespread agricultural bankruptcy and ensure security of food supply. The food production cycle then recommences and surpluses are dumped at market clearing prices on to the world market.
The paradox is that the world today has never grown so much food. There is no overall scarcity. Food has never been so cheap. Wheat is currently sold below the cost of production. The consequence is that farmers in poor countries are abandoning their agriculture because they just cannot compete with the heavily subsidised foods that are flooding in on the back of world trade rules. Paradoxically prices need to rise to make it worthwhile for them to export.
It might be possible for a nation to follow the theoretical line given to us by Sam Brittan in his evidence, which is:
"If the Americans want to subsidise my breakfast, who am Ito say that that is a bad thing?".
Security of food supply may appear unimportant to smaller nations that can always pick up bargain priced commodities except in times of scarcity. But if we take central Europe as a whole, it produces some 200 million tonnes of food grain. North America produces some 300 million tonnes of food grain. There is absolutely no sensible way that America could produce another 200 million tonnes and substitute completely for European demand. Those are enormous tonnages. Europe could certainly replace its marginal farm production by imports, but overall it is difficult to argue other than that prudence calls for it to remain as a major producer based on its own climatic natural advantage, which it has.
The margins in growing food are extremely line, even with subsidy. A 10 per cent variation in the exchange rate, if the product is unprotected, can lead to farm losses and shortly bankruptcy. In the past year the euro-dollar rate has moved by more than 25 per cent—a point well made by the noble Lord, Lord Skidelsky. Exposing agriculture to the full variations of the exchange rate would shortly mean no agriculture in any country.
In his evidence, the ex Fed chairman, Paul Volker, said:
"I think the instability of exchange rates in terms of globalisation is an important problem that threatens emerging countries…it is hazardous for emerging nations to participate happily due to the instability of exchange rates".
It is hazardous for any nation to expose its long-cycle industries not only to massive exchange rate variations but to worldwide climatic ones as well. The European climate is good for growing grasses. Wheat is a grass. The American plains may be well blessed but they have dramatic climatic swings, as anyone who has read about the dust howl conditions of the 1930s will recall. Australia, which is one of the predominant

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players and the leader of the Cairns group that lobbies for free trade in grain, had a disastrous drought last year and actually imported wheat from this country.
One cannot turn agricultural production off quickly or on quickly, even in an emergency. Once the infrastructure is lost it is gone. It is for those practical reasons that most governments strive to ensure secure food supply. And it is for that reason that Europe will remain a major producer of wheat grain, and is unlikely ever to sign up to unfettered free trade in agricultural products.
However, that does not mean that it needs to grow the surplus that it does, particularly that grown on marginal land. It could and should afford to take limited inputs from other countries.
What applies to western world agriculture applies even more to the under-developed nations. That point was graphically and clearly made by Save the Children and by Dr Carline Lucas of the European Parliament, who said:
"I do not think it is good enough to say that the USA can produce our food more cheaply than we can and therefore we will stop producing food. I think there are certain minimum things a country should have control over, and food production is one of those. Since agriculture came into the WTO the impact for many countries has been negative".
I believe that free trade in agricultural products will never be completely free however theoretically desirable.
That leads me to the second part of my speech—the distribution of aid. Productivity in the production of primary commodities has made them cheaper than ever, which is greatly to the benefit of user nations. But the producer countries are not sharing this golden harvest. The more they produce the less they get paid. How then can the West give meaning to the slogan Trade Aid and help those nations?
I agree with those who say that the only long-term solution is for primary producers to increase internal consumption, to add value and to develop quality of output. It is about turning wood into chairs, not planks. The punch question is how to do that.
It is beginning to happen where aid is routed bottom-up and helps the establishment of small enterprising businesses. Helping local markets develop naturally will solve their problems ultimately as it has broadly solved ours in the West. What poor farmers, street hawkers and others want is the freedom to create wealth in the way in which they best see it without an over-intrusive government. That leads me to the basic problems of many under-developed countries. It has been said before, but nobody really likes to say it: bluntly, underdevelopment is often due to corruption on the one hand and a total inadequacy of the framework of law and property on the other.
Of all the solutions to global poverty, the one suggested by the Peruvian economist, Hernando de Soto is among the simplest, and I believe the best. He said:
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"Give poor people formal ownership rights to the land they live or do business on and you immediately turn their unnegotiable capital into Wealth. They can then take out bank loans or trade on it. In short, they become part of the formal economy".
Without the possibility to prove title to the ownership of land or your house, be it only a mud hut, it is not possible to secure credit, to borrow money, to invest on even the smallest scale; to buy a water pump; to buy a small tractor; or to buy a lathe on which to make furniture.
So, if poor countries can put their internal corruption right, then the initial step is to create an institutional framework where the market, in its smallest form, can begin to develop. Most of our aid flows top down. We need to reverse that and make more aid flow bottom up—sowing the seeds of a simple market economy by developing indigenous enterprise.
Hong Kong has no natural resources, but it has a framework of law and land title. We also only have to look to Singapore to find a shining example of the proof of this concept.
I have tried to make two essential points in this speech: first, food security has an economic rationale and commands huge political support in most countries. Consequently, policies to develop trade liberalisation should and must recognise that fact and work with it. Secondly, such policies need a new direction basically aimed to engender the inherent wealth-creating enterprise that can be found in all societies at all levels.
6.1 p.m.
Lord Parekh: My Lords, I congratulate the Select Committee on Economic Affairs on its excellent report on globalisation. Such a report is only to be expected of a committee consisting of talented people drawn from different walks of life and led by someone of the stature of my noble friend Lord Peston.
Although the report covers many important issues, some are dealt with either cursorily or entirely from an economic angle. As someone who by profession happens to be a philosopher interested in issues of culture and politics, I hope your Lordships' House will forgive me for introducing those angles.
Globalisation by universal consensus is a process by which the globe becomes a single and integrated unit. Interests of different societies are intertwined, such that events in one part of the world directly or indirectly impinge upon another. Globalisation understood in this sense is almost an inexorable and irreversible fact of life. No country can step out of it, either because it is technologically impossible because of Internet and satellite television, or because the cost of so doing is so prohibitive that a government which dared to step out of globalisation simply would not survive.
Globalisation is not confined to the economy. It extends to political life, to cultures, to civil society, to religion and to many other walks of life. In each of these spheres of life it has good and bad consequences. In the economic sphere, for example, it increases

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consumer choices, reduces prices, improves the quality of products and brings them up to international standards, brings in new technology and capital and improves the lives of some groups and even perhaps adds to the prosperity of different countries. It also increases inequalities within and between societies. It bears rather heavily and harshly on those societies that are too weak or have too poorly endowed infrastructures to compete as equals. It gives the transnational corporations a free run of the weaker economies, as happened in the case of Union Carbide and Enron in India. In the short term, it tends also to increase unemployment.
The same kind of balance sheet of good and bad consequences happens in other areas of life—for example, politics. Globalisation creates a common political culture; a common vocabulary of human rights and liberties; and it encourages greater international co-operation. It makes it possible for us, collectively as humankind, to regulate the forces of the market.
But it also leads to the greater domination of powerful countries, especially the United States. It weakens democracy within the countries; it weakens the nation state; and it undermines the protection offered by the principle of national sovereignty. In many developing countries the poor tend to be political orphans because they can no longer rely upon the nation state, upon which they have traditionally relied to protect their interests in the international forum.
In the cultural sphere, globalisation can lead to better intra-cultural understanding, the sharing of ideas, and the possibility of creating a rich and thriving multi-cultural world. But it can also increase the domination of American culture and its cheap cultural products. I do not need to remind your Lordships of how, for example. the US film industry almost wiped out 80 per cent of the cinema studios in France and eastern Europe. The US film industry is able to recover most of its costs from its large domestic market and therefore is able to export films at a price with which the domestic counterparts can simply not compete.
One of the great French writers talked about "cultural totalitarianism of a monoculture". That kind of thing tends to result in cultural uniformity and homogenisation, which is bad in itself. But it also tends to provoke panic in some societies and promote fundamentalism. Some consequences of globalisation—good and bad—are inherent in the very process of globalisation. Others arise out of the fact that globalisation occurs in a world which is so unequal. Yet others arise from the fact that globalisation takes place within the context of neo-liberal orthodoxy.
Therefore, I suggest that globalisation has both good and bad consequences. Although on balance it is a good thing, we should be thinking in terms of minimising its harmful consequences and maximising its beneficial consequences. In other words, rather than asking the question, "Are you for globalisation or against globalisation?", as some anti-globalisation protestors in France, Switzerland and elsewhere have
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been doing, we should recognise that there are repressive or hegemonic as well as emancipatory and progressive forms of globalisation. The question to ask is: how can we ensure that the globalisation upon which the world is inexorably and irreversibly embarked is emancipatory and progressive rather than hegemonic and repressive?
What do I mean by "progressive globalisation" and what are the yardsticks by which we will judge whether a particular form of globalisation is to be welcomed or not? I offer three which I think have enjoyed universal consent. First, globalisation should promote global justice, so that human beings the world over are able to lead decent and fulfilling lives. Secondly, it should increase the space for human freedom and our capacity to control the forces of the market so that we do not feel completely at the mercy of forces we can no longer control. Thirdly, since I believe, and I am sure your Lordships would agree, that there is a good deal to be said for a rich and plural multicultural world, therefore, the third criterion I propose is: does globalisation foster such a rich and culturally diverse world from which we all gain?
Judged by these criteria I suggest that there is not very much to be said for the current neo-liberal orthodoxy which fuels and propels globalisation. Of course it does some good, but it also does some harm. It has not helped the really poor countries. It has imposed unfair burdens on developing countries, to which many of your Lordships have referred. It imposes a single prescription model. Stiglitz talks about that in his book Globalisation and Discontent. He was the chief economist to the World Bank. He shows how the IMF, constantly guided by the so-called "Washington Consensus" and the Structural Adjustment Programme, completely disregarded the cultural context of economic development and prescribed a single model, causing havoc not just in Indonesia, to which the noble and learned Lord, Lord Howe, eloquently referred—but also in several parts of Latin America and elsewhere. Furthermore, TRIPs and TNCs sometimes tend to plunder local knowledge and herbs and export them back at prohibitive prices.
So we should therefore think in terms of new measures, new principles, new institutions which can guide the process of globalisation. In a spirit of great humility, because I am not an economist, I want to suggest four or five solutions.
First, under globalisation today capital is free to move, but not labour. When labour is able to move—for some people labour is their only capital—either in the form of economic migrants or refugees, we make laws to make sure that it does not travel. On the one hand we insist that capital should not be prevented from crossing boundaries. On the other hand the rich countries insist that labour should not be allowed to cross boundaries. That is unfair.
Secondly, at the global level we have forums where rich governments and large corporations can regularly meet and plan their strategies. However, we have no forums where civil associations or civil society

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institutions, which are close to the people and struggle to fight for justice, can meet regularly and plan their response. Nor do we have international forums for trade unions. In that context several interesting ideas have been canvassed by academics and activists. I would not rehearse them but they are worth a careful thought.
Thirdly, developing societies, if they are going to compete in a global world, ought to be able to build up their competitive capacities. Therefore, they need development assistance and not a bail-out in situations of crisis as the IMF tends to do. Foreign aid needs to be increased from the current mean figure of 0.27 per cent of the OECD GNP.
Fourthly, I entirely agree with the report that the WTO is a democratic organisation in the sense that it is based on one country, one vote. However, there are several things about it which leave a great deal to be desired. Its negotiations and modes of resolving conflicts occur in secret. Poor countries have no qualified staff or representation in Geneva. Nor do they even have much technical expertise that can guide them on the implications of various agreements that they sign up to. We have realised that even half of the countries that have signed up to the WTO, including in some cases India, have signed up to agreements whose implications they have never understood, and have been frightened when they realised what they were expected to do. It would therefore be most welcome if there were to be an independent institute or agency which would assist developing countries in matters of negotiations with others in the context of WTO.
Fifthly, the hypocrisy and the economic and political muscle of the rich countries dictate unfair terms of trade to which many of your Lordships have referred. We ask developing countries to open up their markets, but refuse to open up ours. We deny them the right to subsidise their industries, but we use clever devices, including terminological inexactitude, to subsidise our own within the legal framework of WTO. I could give the House half a dozen examples during the past three years alone. Western farmers receive, as the report rightly says, an annual subsidy of 311 billion dollars. Contrast that figure with the annual foreign aid of 11 billion dollars. The West gives that in foreign aid and even some of that is tied.
Sixthly, current globalisation is too much in thrall to corporate interests and is too indulgent towards that misdemeanour. We should put a stop to that sort of thing. A vigorous global anti-monopoly authority linked to the WTO would help. Such a global antimonopoly authority could be built on the existing United Nations Restrictive Practices Code.
We could also think of a global tax on corporate profits to close such loopholes as transfer pricing and offshore arrangements. We could also abolish offshore finance centres and tax havens. We need to find ways of guarding against speculative runs against vulnerable markets and currencies. I agree that although I have long been an enthusiastic supporter of the Tobin tax, there are difficulties with the Tobin tax and in its current form it is not workable, as Professor Tobin himself recognised
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before he died. However, although the economic reality has changed in recent years the tax in principle still remains a good idea, and could be applied if it were suitably redefined and adjusted.
Finally, developing countries themselves need to change a great deal. They cannot sit passively and expect the rich West to adjust or readjust its ways. Corruption in those parts of the world must stop. More importantly, globalisation produces massive changes and causes political and social dislocation. Democracy is needed to debate those changes and how those societies can best comprehend and respond to them. Democracy cannot be exported, and we need to find ways of sustaining local forces.
In conclusion, all that I have suggested so far is largely a matter of detail. The most important thing to realise is that globalisation, sadly, is not working for some countries or some groups within even those countries where it seems to work. Those frustrated groups, feeling that they have been denied the benefits of globalisation, build up hatred of the rich West and threaten it with terrorist and other activities. It is therefore important that globalisation, which can he a great force for good, needs to be so institutionalised and regulated that it can sell the three goals of global justice, human freedom and cultural diversity that I talked about earlier.
6.16 p.m.
Lord Burns: My Lords, along with others I would like to say what a great pleasure it has been to be member of the committee, chaired by the noble Lord. Lord Peston, and that is not only because of the constant chatter about football in the margins of our meeting. We also enjoyed robust debate. We considered challenging topics and, to our greater surprise, we even reached some conclusions at the end of the deliberations. At the outset of the inquiry I was not at all sure what we would achieve, given the confusion on some of the issues. In the end I hope that we have gone some way to help people to understand this immensely complex issue and why it has become so contentious.
First, I have been surprised that the anti-globalisation movement emerged in the way it did and with the force it has, accompanied by the appalling violence seen on occasions. I am one of those people who was brought up to believe in the benefits of trade and closer association between economies. My starting point still is that there are huge benefits to be had from competitive and innovative imports, as well as the rewards from being able to sell goods and services in markets around the world. In the past 25 years we have seen great benefits in the UK from the relaxation of the controls over capital introduced by the noble and learned Lord, Lord Howe, when he was Chancellor of the Exchequer.
We have also seen the great benefit of inward investment from Japan, the US and elsewhere on some of our most depressed regions. I am always astonished to see the extent of the benefits in both the north-east of England and in South Wales. By contrast, it is

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striking that the countries which have made the least progress in terms of standards of living are those that have attempted to cut themselves off from the trading systems and flows of capital that bring so much benefit to the rest of us. If, therefore, a country like the UK can benefit so much from globalisation, why has there been so much concern about the impact on other, usually poorer, countries?
I had my first taste of the protests at the IMF meeting in Berlin in 1988 when there was a considerable show of violence. It struck me at the time as rather strange that the protesters were targeting the bankers of the world while, less than a mile away, a captive population was being prevented from moving to the West to share in its prosperity by the existence of a huge wall. Since then the wall has come down but the protests have, if anything, become worse.
One of the important insights of our study was that the anti-globalisation movement was itself very complex and no more than an umbrella for a whole range of protesters, some of whom it is easier to understand than others. As we dug deeper, a second insight emerged. The movement was not so much antiglobalisation but a better globalisation movement—a point to which the noble Lord, Lord Peston, referred. Even then there is much difference of emphasis. To some, better globalisation was making sure that all countries and peoples might benefit from the increased integration of the world economy. To others, better globalisation was a rejection of some of the economic doctrines that have characterised the recent period—for example, more open markets, removal of controls and the central role given to profit-making transnational companies. Some people wanted globalisation, but in a different way.
We heard from several witnesses on the question of whether the latest round of globalisation was a new departure or whether it echoed similar developments in the past. Although it is not free trade writ large—as the noble Lord, Lord Peston, again mentioned—I prefer to think of it as a continuum.
At the end of the 19th century there was the big push towards more trade, greater capital flows and increased integration of markets—partly through labour mobility but driven by falling costs of transport. As the 20th century came to a close, we witnessed a huge technological push driven by information technology and the communications industry. This time, the process has shown itself in increased trade in services, ideas, information and product brands, as well as continued growth of trade in goods. Not only do we have reduction of travel costs in familiar ways, we also have the new digital world of communication which has virtually eliminated the cost of trading certain kinds of information.
However, when I was being taught about the gains from trade and economic integration, I was also taught that the distribution of those gains was unlikely to be equal and that that could be a matter of political and economic contention. That is what lies at the heart of much of the opposition to globalisation today and of much of what we have heard in this debate. We have
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the growing fear that the bulk of the gains from globalisation are going to the wealthy countries and that the poor countries are being left to their own devices or may even be damaged by the process.
On the one hand, we received quite a bit of evidence that pointed to less inequality between countries, although we are acutely aware of some remaining areas of huge poverty within countries. The conclusion we reached was much more that it was a question of who were the real gainers from globalisation. Rather than many parts of the world having been clearly identified as losers from the process, they simply had not gained as much as others.
The overwhelming feeling with which I came away at the end of our inquiry was that most of the economics I was taught those many years ago (surprise, surprise!) remains valid. There are great gains to be made from trade, capital flows and greater integration, although some countries will benefit more than others. However, that is no reason to hold back integration. Indeed, those countries that seek to cut themselves off from it will probably lose the most. But all members of the committee came to recognise that if the world is to retain confidence in the benefits of globalisation, more urgent action is needed to deal with some of the resulting inequalities. Of course, judging what can be done about that over what time-scale is extremely complex. Many of the committee's conclusions seek to give some direction. As we recognise, the extent to which countries can benefit from globalisation is in substantial part a matter for them. There is also an important role for collective action by the richest countries in the world, but that will come to little unless there is also change within the countries themselves. Most of the action open to countries themselves to take advantage of that new world lies outside the world of economics in the institutions of government and policy making; the rule of law and enforcement of contracts; safety for the individual; and the absence of corruption. I join with others in being surprised that there is great support for lawyers at this stage in the development of some countries.
There are also matters that are very much to do with economics, so it is not all about lawyers. These include the macroeconomic framework; the financial and commercial infrastructure; the extent to which countries are an attractive home for inward investment; and the ability to produce goods and services in an efficient way—all important topics covered in the report. The developed countries may be able to provide assistance, but that requires a willing host.
Where the issues become slightly more contentious is where we move on to the things that the developed countries can do to assist the poorer countries in taking advantage of globalisation. Again, we reached a number of conclusions about which there has been much discussion; I shall highlight only two or three that struck me most.
The first is the willingness of developed countries to open our markets to goods of all kinds, including agricultural and textile products. I do not share the

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view that agriculture must be excluded. It is so important to developing countries. If we seek to remove it from the world trading environment, we shall have the greatest of difficulty in moving forward. I find extraordinary the damage that protectionism by wealthy countries can do to developing countries. We know that, from time to time, imports will create disruption to businesses at home, but I regard that as an inevitable part of the process of development and something with which richer countries must themselves find a way to deal.
A similar issue is likely to arise from the import of services. In today's globalised world that will mean moving some large-scale service activities, such as call centres and back-office work, as well as specialist tasks such as software development, to poorer parts of the world. Again, that will be disruptive and will raise emotive issues about the export of jobs. But access to our market for services will be just as important as the market for goods if we are to develop higher-valueadded jobs in poorer countries.
Several speakers have mentioned health and education and the part they have to play. From my involvement in the water industry, I have been struck by the crucial part that it plays in the health of developing countries. The provision of clean water to the tap and the ability to cope with the disposal of dirty water are a crucial foundation of the health of all societies.
Finally, developing countries need the power to borrow. That in some cases means an easing of capital controls in a careful way, but it also means responsible lending by the western world and an important role for the IMF but also for the private sector to try to resolve problems when things go wrong.
My view—I came to this conclusion having sat through and listened to a great deal of evidence, including some impressive witnesses—is that there is capacity to make progress on some issues. If we can do so, it should be possible to convince some of the doubters of the benefits of globalisation. Through that, we could achieve benefit to an even larger group of people and countries.
6.27 p.m.
Lord Elder: My Lords, it is appropriate to start by saying that the rather disparate—and rather argumentative, at that—group of people who constitute the Economic Affairs Committee would perhaps not have produced this substantive report or retained an ambitious programme for the future were it not for the role played by the chairman, the noble Lord, Lord Peston, who manages, despite provocation from us all, to keep his temper in check—at least most of the time.
The committee concluded that although almost all the elements of globalisation had been about for a long time, what was happening was a new phenomenon, not just the reworking of an old theme. Indeed, the change of pace and acceleration mean that, perhaps for the first time, not only do countries move forward at a
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quite unprecedented rate, but also that those who are not involved drop off the map in a way that has not happened before.
The evidence sessions on globalisation were absolutely fascinating. As the debate has shown, a full range of subjects was covered. Near the end of that debate, I want to concentrate on only a few of them. When we started off the whole process, if I had been asked on what we were likely to spend our time concentrating, it would probably have been the big institutions: the IMF, the World Bank and the World Trade Organisation. I started with the prejudice that they were all pretty grim. I ended up with the prejudice that at least one of them is pretty grim; one of them is perhaps not quite as bad; and that, rather surprisingly, the World Trade Organisation turns out to be OK.
I also ended up realising that one area to which we returned again and again, as has been the case in this debate, and on which I had not expected to spend as much time, was the issue of the poorest countries, sub-Saharan Africa in particular. We ended up in no doubt that, whatever the difficulties, the real problems of poverty in the world were much more the result of those countries being excluded from the process of globalisation than due to the process itself.
In that regard, we heard impressive evidence about the impact on the poorest countries of the agricultural support that we give in the West—in the EU, America and Japan. That has been much commented on in this debate. Both Mike Moore and Clare Short—I echo what my noble friend Lord Peston said about the contribution that she has made to international development over the years—when the latter was Secretary of State for International Development, were perhaps unsurprisingly outspoken. But their views were mirrored by the Chancellor and the Secretary of State for Trade and Industry, who said that developments such as the Farms Bill were not to be welcomed.
In the course of his evidence, Nick Stern gave an illustration of the sort of problems that the developing world faces when describing a series of impediments put in the way of a Mauritanian trader trying to sell camel cheese in the European Union. It would have been comic had it not been tragic. It culminated in a ludicrous decision that in the interests of hygiene it was only acceptable to have that cheese here if the camels could be proved to have been milked by a mechanical device. It was another case of the wealthy West ruthlessly protecting their own while denying by whatever means at their disposal the possibility of advance to a seriously poor region of the world.
There has been a good deal of talk about the need for further aid in the context of the present plight of many countries in sub-Saharan Africa. I do not doubt the need or urgency of that, but following all the evidence we received, I believe that to make a really fundamental difference, we must find a way of ensuring that the benefits of globalisation are available to these countries. That means that they must have a chance of exporting their food and textile produce. That in turn means that the grotesque imbalance

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between the support given to agricultural producers in the leading economies of the world and of the West, compared to those in the poorest countries, must be changed.
Whatever figures are used there is no real dispute about the scale of difference: whether it is the more than 2 dollars a day being paid to every cow in the European Union while over a billion people live on less than half of that a day; whether it is the total aid to farmers in the West being 350 billion dollars while total aid to the third world is one-seventh of that at 50 billion dollars; or whether it is the fact that the third world has to open up its markets while Western farmers continue to be protected behind very strong trade barriers. Whatever it is, it has to change.
In the face of that, aid can alleviate. However, it is not the long-term answer. The rhetoric of support to Africa will remain empty while that issue—by far the most difficult issue—remains unaddressed.
I was a little puzzled by the remark made by my noble and learned friend the Leader of the House in response to a question earlier today on the G8 Statement. When asked about the French initiative in Africa, he said that it was wrong to say the Government had not supported it but that the problem was that it did not go far enough. I have always had difficulty with the argument that says that because we want to take two steps forward, we absolutely must not take one. It has also always puzzled me that people do not appreciate what an enormously helpful thing a precedent is in this. Being able to say as far as the rest of the world is concerned, "but we already do it in Africa", would be an enormously powerful tool. I hope I misunderstood what the noble and learned Lord the leader of the House was saying, but that seemed to be the implication of his remark.
The great issue facing Africa is the loss of life associated with HIV and AIDS. There are firms in southern Africa where all of the workforce are HIV positive. What impact that has on an economy where productive labour is vital is almost too difficult to contemplate.
The latest moves to try to convince pharmaceutical companies to be more co-operative in providing drugs at a price that can be afforded is to be welcomed. It is certainly not enough.
There are many other issues regarding the labour market. There is a real tension here between not wishing to deny trained workers in the third world access to the Western job market while ensuring that the countries do not lose out from a loss of skills in which they have invested so much time and money.
In the West, and North too, there are difficulties. Often those who speak most forcefully for the liberalisation of trade and finance are markedly less enthusiastic when it is suggested that there should also be a liberalisation in the movement of people about the globe. That too should he a consequence of globalisation. The idea of linking aid in some way to the issue of compensation for the loss of trained and skilled workers has been raised by the committee. While I agree that impediments to the free movement of labour are not
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to be encouraged, it may be that the best way forward in a very imperfect world is pointed to in that. It certainly deserves further study.
My final comment relates to the new enthusiasm among TNCs for plans for corporate social responsibility. The Government's view is that a mix of voluntary and regulatory rules might be the best way forward. Perhaps because we were sent rather a lot of CSRs, I began to take the view that they all looked the same in glossiness and approach. I began to wonder whether they were all that useful. There is a danger that CSRs are just seen as something that must be done to appease the shareholders and are more gloss than substance. They must be real and if that takes an element of regulation, so be it.
I had a discussion outwith the committee with the representative of a tobacco company. They said they were happy with the response they had to their report. They were fulsome in the good relationship they had with their workers. However, they seemed unappreciative of the fact that reports of happy workforces do not mean that in producing a product which all medical opinion says kills a lot of the users, could be considered to be far from socially responsible. It struck me that in producing a corporate social responsibility report, it does not necessarily mean that the corporation is acting in socially responsible manner.
This report sets out the range of the problem and the extent of the challenge facing us all. The Government's response was supportive and I am very much aware that the real impact any one government can make is limited. The test of our commitment will be in the extent to which we are prepared to press for difficult changes in agricultural subsidies. Aid will he a necessary palliative, especially at a time of real crisis as now, but tougher decisions will have to be taken if we are to make a real difference. The fact that we know what to do does not make it any easier to do it.
6.36 p.m.
Lord Newby: My Lords, I too should like to begin by expressing my thanks to the noble Lord, Lord Peston, for the way in which he conducted this inquiry. I also thank Christine Salmon and our special advisers and other members of staff who served us so well. I also thank the remarkable range of witness whom we interrogated.
There was a surprising degree of agreement among the witnesses about the nature of globalisation. The differences were, as the noble Lord, Lord Burn, described it, about the nature of better globalisation rather than whether it existed or whether it should exist. No alternative was offered by any of the witnesses to the processes we describe as globalisation. There were differences about how to achieve it but not about the basic principles.
What is globalisation and how far is it qualitatively and quantitatively different? I am afraid I must disagree with the right reverend Prelate the Bishop of Chester about the extent to which this is a qualitatively different situation from previous periods. For example, it is tempting to say that when Sir Thomas More went to

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Bruges in 1514 to negotiate a trade agreement and found that the French were intransigent and it took longer than he expected, it meant he could see Erasmus and write Utopia and so in the end it all came right. To an extent that is how the WTO operates, although perhaps without the intellectual gloss. There are a number of ways in which the current world and the current process is fundamentally different.
First, the death of distance is a huge difference. The fact that from my desk I can send an e-mail to thousands of people in the world instantaneously, gives a different quality to the way in which we interact.
Secondly, the growth of world institutions is qualitatively different from any previous period. In Geneva, we are told by Gro Harlem Brundtland that for many of the world's poor, the biggest influences on their lives were not their domestic government but the interventions of the various international institutions. In my view, that is a wholly new phenomenon.
Thirdly, there is now a single ideological and economic framework which is broadly accepted by opinion formers and economic decision makers across the globe. The economic elite seem to agree about how to do things to an extraordinarily great extent. Whether it was the Russian industrialist we heard, the governor of the Central Bank of South Africa, or many of the other witnesses, there was a remarkable degree of agreement about how things should best be done. This agreement is found among graduates and new economic players across the globe and that again is new.
I would love to have time to discuss the effect of globalisation on culture with the noble Lord, Lord Parekh. There is, in many respects, a predominance of US culture, However, anyone who attended or listened to the BBC World Service's 70th birthday party and who heard Youssou N'dour, a world-class Senegalese band, in London, as well as music from Kabul, from India and from South America, could not claim that there was no cultural diversity and that technology was stifling it. It is altogether so, and we must be cautious about being too critical.
As many speakers said, the economic consequences of what we now describe as globalisation are, on balance, beneficial. There are, of course, huge costs. There have been huge costs here. Whole industries have been decimated by increased global competition. Since the Government came to power, 500,000 jobs in the manufacturing industry have gone, due, in large measure, to globalisation. Service sector jobs in call centres are being lost as a result of globalisation. We all have to bear costs, as well as benefits, but we see major changes in the biggest countries as a result of such progress.
In China, there has been growth of 8 per cent, 7.5 per cent and 10 per cent. China is now the biggest destination for foreign direct investment. It will be the world's largest car market in five years, and it is already the biggest mobile phone market. India, which
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we think of as being relatively sluggish, has seen growth of 6.5 per cent in the first quarter of this year. The software and call centre industry is booming, partly, they claim, because they have been able to move so quickly that the bureaucrats have not caught up with them. That is part of globalisation—they have been able to get on with it. The consequence is that there has been a re-drawing of the world economic map. The emergence of China and India, in particular, and of other countries in the Far East is analogous to the emergence of the United States in the 19th century as a new major economic power. There are major problems as well, as several witnesses pointed out.
As some of my fellow committee members said, we started with some serious concerns about the role of transnational corporations. In the course of the committee's work, they were reduced significantly, although they did not necessarily disappear altogether. We found that the argument about excessive power vis-à-vis governments and the argument about a race to the bottom were not sustainable to anything like the extent that we had expected. In a raft of ways—relating to human rights, corruption, HIV/AIDS, other health and safety issues or the education of staff—TNCs were often far ahead of local indigenous producers. They acted as they did not for altruistic reasons but for sound economic reasons. The NGOs deserve much of the credit for shining a spotlight on many of the unacceptable practices that the corporations followed, but it is wrong to think that they have not responded.
We disagreed about whether we should recommend moving towards triple bottom-line accounting. Should all companies be required to report on their social and environmental performance? Our disagreement has been reflected in our contributions to today's debate. I am a strong advocate of compulsory reporting in those areas. Although the best companies may maintain good standards and report on what they are doing, there is a major free-loader problem, even among the TNCs. If we believe that the way in which companies treat the environment, the way in which they treat their workers and the way in which they inter-act with local communities are important, we need to regulate, as in many other areas of social legislation. It is difficult, and we want to avoid stifling initiative and to avoid box ticking, but there is no alternative.
There are also great concerns about the role of the institutions. Again, we felt that the IMF and the World Bank—for the centre Left, the bad boys among the world economic institutions—had had a chequered history but were making substantial moves. Anybody who heard the evidence from Nick Stern simply could not sustain the kind of arguments about the World Bank that were commonplace a decade ago.
The WTO is in a slightly different category. The noble Lord, Lord Elder, is not alone in being a fan of the WTO, in some respects. The GATT and WTO process has had great success. Industrial tariffs have come down from 40 per cent to 4 per cent in the past 50 years. That has undoubtedly helped world trade.

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There are major problems, and they have been well aired in the debate. The scandal of the continuing agricultural subsidising by the EU and the US ran like a leitmotiv through all the evidence. We agreed strongly with those who wanted the subsidies withdrawn. That is not a shortcoming of the WTO itself; it is a shortcoming of the US and EU, who insist on maintaining the subsidies. The WTO is not imposing them.
The noble Earl, Lord Sandwich, raised the question of bias in the WTO against developing countries. Because of the resource problem, they do not have trade lawyers. That is undoubtedly an ongoing problem. The WTO itself attempts to address the problem, but the resources that they have at their disposal for that are limited. Although there has been some progress, there must be more.
There is a division of view on whether the GATT arrangements are a positive or negative development—an argument between the noble Earl, Lord Sandwich, and the noble Baroness, Lady Symons of Vernham Dean, as it were. The problems with GATT that have been highlighted by the World Development Movement and others are important. The Government believe that those difficulties are nowhere near as great as the World Development Movement alleges. There should be more dialogue between the two sides, if they are to come to a resolution. There is an issue about the pace and irreversibility of some of the provisions in GATT. Undoubtedly, the EU is in a stronger position than individual developing countries as regards negotiations about openness.
The other problem with globalisation that we grappled with was the question of losers. We did not spend much time on losers in the developed world—rightly, as they have other options—but we worried about the shameful poverty in sub-Saharan Africa, in particular. The evidence suggested that, although the number of people in abject poverty had fallen in the past decade, it was still unacceptably high. There is a huge concentration in sub-Saharan Africa. It was argued that 95 per cent of the abjectly poor—those living on a dollar a day or less—lived in sub-Saharan Africa.
Why is that the case? There has been too high a dependence on primary products in sub-Saharan Africa. I was particularly impressed by the evidence given by Niall FitzGerald, who said that, when deciding to invest, Unilever looked for four things. The first was political stability, and Africa does not do well on political stability. The second is good macroeconomic management. The third is attractive financial returns, and the fourth is a healthy, educated and skilled population. At a time when not only is AIDS ravaging Africa but malaria is killing 3,000 children a day—3,000 children a day—it is not surprising that many investors worry about risking their investments and their staff in Africa.
Incidentally, I absolutely agree with those noble Lords who pointed out the lack of progress with TRIPS and in getting the drug companies both to
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make a greater volume of drugs available at acceptable prices and to make a greater investment in research for those drugs that relate to diseases of the very poor.
However, there are sonic positive signs coming out of Africa. The NePAD process, the New Partnership for Africa's Development, by which the leaders of Africa have accepted that they must take responsibility for growth and development, rather than look to the West to solve all their problems, is a major cultural shift which is hugely to be welcomed.
The growth rate in quite a number of African countries—Botswana, Ghana, Tanzania and Zambia, and even in sub-Saharan Africa in recent years—is such that the situation is not all gloom.
To sum up, we found that globalisation was on balance a hugely positive process. There are many losers—far too many—and still far too many non-gainers. The key factors for improving the process involve all the players, not least the major economies.
Earlier today there was much discussion of the conclusions of the weekend's G8 meeting. We should remember that it is only just over a century ago that the European powers were fighting to carve up Africa for their own empire. The fact that they are now concentrating on famine relief, water and sanitation, health, financing development and dealing with debt is surely an advance that should be welcomed. Much more needs to be done and the pressure needs to be maintained.
In the debate today there has been a certain difference between the pessimists and the optimists, particularly in terms of inequality and the effects of globalisation on gainers and losers. As a result of my participation in the Committee's work, I have become more of an optimist.
6.51 p.m.
Lord Saatchi: My Lords, I join my noble and learned friend Lord Howe in saying that one has only to look at the volume of evidence from what my noble friend Lady O'Cathain called the "distinguished array" of witnesses—I think the noble Lord, Lord Newby, called it a remarkable range of witnesses—to see that the report alone is testimony to the rightness of what the noble Lord, Lord Desai, has said on many occasions. The noble Lord believes that it should be compulsory for our schools and universities to have available Select Committee reports from your Lordships' House, either to be read or, now, to be viewed on CD.
The noble Lord, Lord Barnett, was surely rightly impatient that the House should have the opportunity to debate the report, because it is so central to all our lives. As my noble friend Lady O'Cathain said, it is a thoughtful piece of work, and as my noble and learned friend Lord Howe said, it is a very well balanced piece of work. My noble friend Lord Griffiths said that it was one of the best reports he had ever seen in your Lordships' House, and I agree. It certainly is a tribute to the members of the committee, to their chairman, the noble Lord, Lord Peston, and to your Lordships' House itself.

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As the committee says in paragraph 55, and as the noble Lord, Lord Barnett, reminded us, globalisation is,
"a new departure in world affairs."
It is, as the noble Lord, Lord Peston, said, "a genuinely new phenomenon", as the noble Lord, Lord Newby, said, "fundamentally different", and, as the noble Lord, Lord Sheldon, put it, "a fundamental change".
I can certainly testify to that, because I can safely say that globalisation changed my life. When I first read the original Harvard Business Review article, in the 1970s, it was a startling revelation. It struck me as stark, simple, irrefutable logic, because it was, as the noble Lord, Lord Burns, said, the application to the whole planet of the logic of the first industrial revolution—economies of scale, mass production, specialisation and the division of labour.
Before the concept of globalisation took hold, there was the old idea of the country as a profit centre, with a country manager who, if he hit his profit target for his country, would receive a bonus. But then along came that article, which said that companies should and would evolve along a continuum from loose coordination to complete integration. I was particularly struck by its conclusion, which I have never forgotten. It said:
"Companies that adopt this method can literally pave over competitors who are still stuck in the old ways of doing things."
The clear injunction of that article was that if one does not do things globally someone else will. It determined that one should sell the same things in the same way everywhere, and so people have.
Today, 30 years later, nobody doubts the economic power of globalisation, but people share with one of the witnesses before the committee the view that the word has a "menacing ring". That is because there is, as my noble friend Lord Griffiths said, an inescapable moral dimension to the concept.
To assess that moral dimension we should, as I am told English law does, examine the motive of its proponents. What drives these companies? Is it greed? I do not think so; I think it is fear. In his famous book The Origin of Species, Charles Darwin noted the fierce competition between and within the species in nature. He observed, for example, that in birds the bones of the face, the curvature of the jaw, the number of ribs, the gape of the mouth, the length of the eyelids, the width of the nostrils, the size of the beak, the manner of flight and so on all varied remarkably. In what he called their "incessant struggle for survival" he described the process of "natural selection". Those with an advantage go forward. For the rest, extinction inevitably follows: the survival of the fittest.
The laws of Darwinism apply as inexorably and ruthlessly in commerce as they do in nature. That is why to oppose globalisation in economics is as futile as opposing Darwin in nature.
As politics follows economics, governments know this, and that means that they know that there is very little they can do about it. That may explain the
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anodyne response from our government that my noble friend Lady O'Cathain described. But, as the right reverend Prelate the Bishop of Chester said, that is surely a "deeply ambiguous triumph".
It is legitimate to ask, as the committee did and as many noble Lords have done today: does any good flow from this brutal market process?
Here I take my stand with Professor Lionel Robbins of the London School of Economics. Fifty years ago Robbins upheld the market as a "perpetual referendum" in which all vote pound by pound, day by day, between countless goods and services produced by unnumbered suppliers around the world, all competing in quality and price to satisfy their customers. And from that Darwinian struggle for survival better products and higher living standards emerge. "Benefits for all", I think the noble Lord, Lord Sheldon, said.
That is why I was very pleased and relieved to find the committee's conclusion, reached after reviewing all the issues. Despite what the noble Lord, Lord Barnett, and the noble Lord, Lord Newby, called the "shameful poverty" of many countries; despite the lack of education in many countries, which my noble friend Lady O'Cathain spoke of: despite the "exploitation" and "inequality" that the noble Earl, Lord Sandwich, referred to; despite the gap between rich and poor—I think my noble friend Lord Griffiths called it "the scar"; and despite the "grotesque imbalance" that the noble Lord, Lord Elton, described; despite all that, the committee still came to the conclusion, in paragraph 86, that,
"the opportunities created by globalisation outweigh the dangers".
On that note, it is important to question how globalisation and America have become entwined in the public mind. I think that it is because the concept of globalisation has its deep philosophical roots in a uniquely American view of the world. In his famous essay on President Franklin Roosevelt, Isaiah Berlin described what he called the chasm that divides America from Europe. It may explain why America has embraced globalisation, and why so many Europeans, in the words of the noble Earl, Lord Sandwich, are "so suspicious of it". I shall quote from the essay at some length. He said that the American vision,
"is larger and more generous; its thought transcends, despite the parochialism of its means of expression, the barriers of nationality and race and differences of outlook, in a big, sweeping, single view. It notices things rather than persons, and sees the world (those who saw it in this fashion in the nineteenth century were considered Utopian eccentrics) in terms of rich, infinitely mouldable raw material, waiting to be constructed and planned in order to satisfy a worldwide human craving for happiness or goodness or wisdom. And therefore, to it"—
the American vision—
"the differences and conflicts which divide Europeans in so violent a fashion must seem petty, irrational, and sordid; not worthy of self-respecting, morally conscious individuals and nations; ready, in fact, to be swept away in favour of a simpler and grander view of the powers and tasks of modern man".
To me, that world view is perhaps the greatest asset of the great American global corporations that dominate the economic world. It is also their greatest liability in the eyes of their critics.

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We must face up to the fact, as does the committee both fair and square in its report, that the result of globalisation is American domination of the economic world. Critics say that that means not competitive capitalism, which can be admired, but monopoly capitalism—the monopoly of America. For example, in its conclusions the committee finds that "better globalisation" means that,
"strengthened international governance is required".
Critics fear—and many members of the committee who have spoken in the debate reflected that view—that globalisation is shaking up all our institutions and has produced an entirely new version of capitalism, beyond the reach of national governments. Professor Bulmer-Thomas said as much in paragraph 153 of the report.
It is here that dislike of globalisation has merged with distaste for its chief exponent, America. There are now 37,600 Internet sites that deride American global capitalism. To the surprise of the noble Lord, Lord Burns, and as he said, anti-globalisation and anti-Americanism have become one; they have become the conspicuous feature of our age. Critics dislike the fact that globalisation has given America such a competitive advantage. America now accounts for seven of the top 10 investment banks, and eight of the top 10 companies. They disapprove of American unilateralism in foreign affairs. Hence French Foreign Minister Vedrine's expression "hyperpuissance"—beyond superpower—to describe the "hectoring hegemon".. America. As the noble Lord, Lord Parekh, indicated, critics also resent American cultural imperialism. Hollywood and the American media are said to be paving over precious national identities with a homogenised US version of life.
The critics follow Ken Tynan's injunction that we should not,
"sell our souls for a pot of message".
For them, anti-Americanism is a branch of intellectual anti-philistinism. All critics of globalisation link hands under the unlikely banner:
"Join the worldwide movement against globalisation".
Despite the fact that the US Government, very sadly—and, I would say, unwisely—declined to give evidence to the committee chaired by the noble Lord, Lord Peston, I was very pleased to see that the committee did not fall for the pat solutions of the corporate social responsibility movement, neither did my noble friend Lord Griffiths. Instead, as the noble Lord, Lord Newby, reminded us, the committee accepted that,
"often transnational corporations adopt standards higher than local businesses".
The committee report ends its splendid tour d'horizon on this subject on an optimistic note, as did Darwin. Charles Darwin is often thought of as a pessimist; but that is not the case at all. He said something most uplifting at the end of his book, which I quote:
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"All that we can do, is to keep steadily in mind that each organic being is striving to increase at a geometric rate; that each at some period of its life, during some season of the year, during each generation has to struggle for life. But the vigorous, the healthy and the happy always survive and multiply".
As the committee says in paragraph 81 of the report, many countries that have not been successful have failed to adapt to the globalised economy. The noble Lord, Lord Burns, echoed that sentiment today. As the noble Lord, Lord Peston, said at the beginning of this wonderful debate,
"That is the message".
So it is. The noble Lord, Lord Paul, seemed to accept the message on behalf of India. When the noble Lord, Lord McIntosh, responds for the Government, I hope that he will not be anodyne in his comments on the benefits of globalisation. As the committee said, the healthy and happy ones will be those who understand the power of globalisation and embrace it.
7.5 p.m.
Lord McIntosh of Haringey: My Lords, it may, or may not, be anodyne, but the Government's response to this excellent report is very clear. On virtually every recommendation and conclusion, other than that which is a search for information, the Government agree. Having said that, l could sit down at this point. However, your Lordships will not expect me to do so, because I have too much interest in the subject and too much concern for the issues raised in what the noble Lord, Lord Saatchi, rightly called a "wonderful" debate.
This is not just an economic issue. Indeed, it is also an emotional issue for all of us. One part of all of us is with the wise statesmen assembling at Evian, while another part is with the young idealists—and many less than idealists who gathered on the fringes at Annemasse, and also in Genoa, Seattle, and in many other places in the world. In many ways, these are the best of our young people; they are acting out of a profoundly-felt concern. The noble Lord, Lord Saatchi, is probably right: it is partly anti-Americanism and partly the fact that since the demise of the Soviet bloc there is only one major economic power in the world, a situation that may last for another 20 years until China catches up. Nevertheless, we are talking about profound emotional feelings, which we have to take into account.
I was fascinated by the process of thought described by the noble Lord, Lord Peston, in his opening speech. Clearly, the committee started off with a good deal of scepticism, but not about globalisation as such. Everyone agrees with the noble Lords, Lord Bartlett and Lord Parekh, that the question is not for or against. Everyone agrees with the noble Lords, Lord Griffiths and Lord Parekh, that globalisation is there and that the question is: how do we best manage it? It is not about that.
The issue with which the committee started its deliberations was scepticism about the organisations involved in globalisation—that is, scepticism about the International Monetary Fund, about the World Bank, and especially about the World Trade Organisation. However, as is clear from what the

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noble Lord, Lord Peston, and the noble Lord, Lord Newby, said, that scepticism diminished as the work of the committee progressed. I thought that the choice of three witnesses from whom to quote made by the noble Lord, Lord Peston, was most interesting. He chose, Noreena Hertz, Joseph Stiglitz and George Monbiot. I thought that that was probably harking back to his opening steps along the road to Damascus. But that is perhaps being unfair.
The committee must also be congratulated—or,perhaps, in this case, the usual channels ought to be congratulated—on the timing of the debate. It immediately followed the Leader of the House repeating the Prime Minister's Statement on the G8 summit at Evian. A great deal of the work at Evian is relevant to globalisation and to the subject matter of the committee's report. I shall highlight some of the commitments made which show that there is a will to meet the challenges of globalisation on the part of all countries: a new commitment to further work to develop the Chancellor of the Exchequer's proposal for an international finance facility, about which I shall comment in due course; the endorsement of the Finance Ministers' approach to strengthening global growth and addressing the causes of financial instability—that is not a subject of much debate, but I want to say something about it before I conclude—and a range of practical commitments to enhance sustainable development that were agreed at last year's meetings in Johannesburg and Monterrey.
In the chair's summary of the Evian summit there is a commitment to the delivery of Doha goals on schedule by the end of 2004 and a commitment to the results expected from Cancun. I hasten to say to the noble Earl, Lord Sandwich, and the noble Lord, Lord Newby, that that includes a commitment to dealing with the availability of medicinal drugs at a reasonable price in the third world.
The issues discussed at Evian are at the heart of much of this debate and much of the subject matter of the report. I turn to the international finance facility. I was particularly grateful to the noble Lord, Lord Griffiths, for his remarks. It is important that there should be a reliable source of funds for an international development financing facility that can leverage funds from international capital markets to meet the demand for large-scale assistance and to make it possible to achieve the millennium development goals earlier than would otherwise have been possible.
I believe that everyone except my noble friend Lord Parekh is agreed that the answer is not the Tobin tax. I understand why my noble friend had to leave; he has apologised to me. I am glad to see the noble Lord, Lord Skidelsky, in his place. In September 2001, Tobin said:
"The Tobin tax is in Europe now the focus of reform and protest movements. I have had nothing to do with them and am not informed of their platforms. I cannot control the use of the words 'Tobin Tax'. While I assume that most advocates mean well, I deplore the tactics of extremists. I am, like most economists, in favour of free trade and I welcome developmental capital investment in poor countries, both private and public".
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If that is not what the noble Earl, Lord Sandwich, calls a red herring laid to rest, I do not know what is.
The Chancellor's international finance facility—it must be recognised as his initiative, together with Clare Short as Secretary of State for International Development—is of great importance and considerable size. It would meet the 50 billion dollar financing gap by doubling aid from 50 billion dollars per year today to up to 100 billion dollars per year in the years up to 2015. It would provide an important opportunity for donor countries to improve the predictability and stability of aid to the poorest countries to enable them to invest in medium-term programmes such as the development of education—a question raised by the noble Lord, Lord Hylton, in the debate on the G8 Statement—and health systems.
We are making good progress and it is good to see that the international finance facility is in the chair's summary of the Evian summit. That leads me on to aid. It is important that the developed countries should be prepared to increase vitally needed funds to achieve the millennium development goals. It is true, as many speakers have said, that progress on the millennium development goals has been far from uniform. East Asia and the Pacific have seen a rapid reduction in poverty. In sub-Saharan Africa none of the targets is on track.
I accept much of what was said about the reasons for that. I was particularly impressed by the comments of the noble and learned Lord, Lord Howe, about the globalisation of law. I was interested to hear the points about effective financial institutions in the Czech Republic and Poland. But the noble Lord, Lord Vinson, made a point following Hernando de Soto about the need for recognition and securitisation of capital assets that exist but have never been counted. That is an important complementary consideration.
The noble Lord, Lord Barnett, almost criticised the Government for inadequate aid. This is the only party political point I shall make: the spending review 2002 increased our aid programme to 0.4 per cent of GDP by 2005-06, which is above the EU/Monterrey target of 0.39 per cent. It represents a growth in real terms of 8 per cent per year.
The noble Baroness, Lady O'Cathain, and the noble and learned Lord, Lord Howe, were right that we must accompany aid with support, not threats. We must provide incentives for countries to adopt suitable codes and standards. I hope the noble Baroness will be encouraged to know that 70 per cent of the reports on observance of codes and standards are now published. That is becoming more of a standard process.
In terms of amounts of money, aid is insignificant in comparison with trade and foreign direct investment. Those developing countries that have been more open and trade more in the world economy have seen faster growth. That is the fundamental theme of the report and of the World Bank research, which suggests that the elimination of harriers to merchandise in both industrialised and developing countries could result in welfare gains—it says here—from 250 billion US

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dollars to 620 billion US dollars annually, of which over one third would accrue to developing countries. Those figures are beyond my ken.
In agriculture alone, the tariffs and subsidies of advanced economies cost developing countries an estimated 20 billion to 30 billion dollars per year directly, offsetting the value of 40 to 60 per cent of total annual aid flows from rich to poor countries. So many speakers spoke about protectionism and, in particular, the common agricultural policy, that I lost count: certainly the right reverend Prelate the Bishop of Chester; my noble friend Lord Paul; the noble Earl, Lord Sandwich; the noble Lord, Lord Burns; and the noble and learned Lord, Lord Howe, among others. The notable exception was the noble Lord, Lord Vinson, who stands up gallantly against received opinion on the matter.
The noble Earl, Lord Sandwich, and my noble friend Lord Elder criticised the Government for not supporting the France/Africa trade initiative. There are doubts about it; it is not just that it does not go far enough, as the Leader of the House said earlier. There are fears that it would entrench rather than eliminate subsidies in other parts of the world and that it would make Africa in particular dependent on continued protection from other developing countries. We take the view that multilateral liberalisation is a better process.
I agree with much of what has been said about the progress on the Doha round. There have been missed deadlines on TRIPS, public health, special and differential treatment for developing countries—a point that I believe was made by the noble Lord, Lord Newby; perhaps not. G8 has reinforced world leaders' determination to see that we get back on track with Doha and continue with Cancun.
In the debate on the G8 Statement, the noble Lord, Lord Elton, asked me to answer his point about support for smaller countries being present and represented at WTO meetings. I am glad to be able to do that. Agreed at Doha was trade-related and technical assistance capacity building and, as he rightly pointed out, fulfilling the Government's undertaking in the White Paper published in 2000 to contribute £45 million to that process. Some 80 per cent of that has been committed. I can assure the noble Earl, Lord Sandwich, that capacity building does include presence at WTO meetings. Furthermore, at Evian the Action Plan on Trade declared that we shall deliver capacity building technical assistance to developing countries in need to help them participate fully in WTO negotiations, implement trade agreements and respond to the trade opportunities created in co-operation with other bilateral and multilateral donors; 1.7 billion US dollars has been provided in 2002, representing a 16 per cent increase over 2001.
In addition to trade in the traditional sense I shall make only a passing reference to private investment, which is certainly the engine of economic growth. Foreign direct investment is an important source of financing for investment in developing countries and
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provides a vehicle for the introduction of new technologies and skills. This forms part of the corporate social responsibility agenda. I understand the scepticism expressed by my noble friend Lord Elder and on the whole I agree with the noble Lord, Lord Newby, when he said that he was in favour of reporting, even though that reporting is not always as it might be. As my noble friend Lord Peston and the noble Baroness, Lady O'Cathain, pointed out, transnational corporations increasingly recognise that they should attempt to answer these types of concerns in engaging with initiatives such as the UN Global Compact and the Global Reporting Initiative. The Government have been supporting those initiatives.
I shall say a brief word in response to my noble friend Lord Paul on migration. He set out very well indeed the difficult balance to be struck between natural justice—the right to live wherever you want—and the injustice of' developing countries losing those whom they have trained at great expense. He was right to say that the answer lies in support by the developed countries for aid for education in the developing countries. Of course that is a theme of the International Finance Facility.
Finally, I want to say a few words about Financial stability, which was not a subject of debate but is one of concern both to myself and to the Treasury. The right reverend Prelate the Bishop of Chester recognised the fears that might be felt on that. We have done quite a lot on this. Since the Asian crisis of 1997–98, we have recognised the extent of the risks. The links between the economies of the region at the time led to a remarkably swift reversal of capital flows and stalled the most rapidly developing economies in the world. It forced the international community to rethink. As a result, transparency in international institutions and on domestic policy has become central to the management of the global economy and the international financial institutions are embarking on a process of self-examination, which was discussed today.
Yes, things have been getting better. Let us take the example of the crisis in Argentina. If it had taken place seven or eight years ago, it would have spread much more rapidly to countries such as Chile, Mexico and Brazil; it has not done so. That does not mean that there is not much more to do, but for individual countries the lessons to be learnt are to ensure sound policies and institutions, which are domestic issues. However, the international community can help by supporting adherence to internationally agreed standards and codes. To that end, almost 100 countries have now been assessed against at least some of those.
For institutions, the procedures require continuous improvement. I thought that the point made by the noble Lord, Lord Griffiths of Fforestfach, about IMF surveillance was extremely valid. As the noble Lord knows, it is one close to the heart of the Chancellor of the Exchequer. He thinks that the IMF should be as independent of' influence in surveillance as an independent central bank is in its implementation of monetary policy.

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I have reached the limit of what I tried to set for myself. I hope that I have responded to many of the individual points, but I hope that I have also reinforced the point the Government make in response to this excellent report—that we agree with its conclusions. The report has steered an intelligent course around the controversies and emotion produced by this issue. It has brought together an astonishingly wide range of high quality evidence on many facets of globalisation and I congratulate all those involved in its production.
7.25 p.m.
Lord Peston: My Lords, I shall not ruin what the noble Lord, Lord Saatchi, called a wonderful debate by going over the ground again. All the speeches were excellent and all shall have prizes.
On Question, Motion agreed to.

Fire Services Bill
Brought from the Commons; read a first time, and ordered to be printed.

Stability and Growth Pact (EUC Report)
7.26 p.m.
Lord Radice roseto move, That this House takes note of the report of the European Union Committee on the stability and growth pact (13th Report, HL Paper 72).
The noble Lord said: My Lords, as a convenience to the House, it has been agreed that this debate on the stability and growth pact should embrace at the same time the debate on the report of the Economic Affairs Select Committee on the Monetary Policy Committee and Recent Developments in Monetary Policy. This debate will be less wide-ranging and perhaps more mundane than that which preceded it, but it is still important.
My committee decided to hold an inquiry into the stability and growth pact for two main reasons. First, the pact was very much a topical issue, with the two largest member states in the European Union on the verge of breaching it. Secondly, the Commission had proposed reforms of the operation of the pact which we examine in detail in our report. We held eight hearings and received a considerable amount of written evidence. Furthermore, instead of going to see the Commission in Brussels, the Director-General of Economic Affairs, Klaus Regling, came to the House to give evidence to our committee, for which we thank him. I am grateful to all our witnesses, to our committee staff—especially our Clerk and to my distinguished colleagues for their participation and commitment.
The first issue to address is why have the stability and growth pact. The first point to make on this is that while monetary policy in the euro area has been unified and is now run by the European Central Bank, fiscal
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policy still remains a matter for national governments, which are therefore free to decide on their own national expenditures and revenues according to their national preferences.
However, the member states have also set up a framework of fiscal rules in order to co-ordinate their fiscal policies. The Maastricht Treaty lays out the 3 per cent budget deficit criterion and the 60 per cent debt ratio criterion. It was those rules which helped dramatically to improve the EU's fiscal balances during the 1990s.
The stability and growth pact, which was adopted at the Amsterdam European Council of June 1997, complements and strengthens the provisions of the Maastricht Treaty. Member states agreed to commit themselves to maintaining sound and sustainable government finances through the medium-term objective of,
"close to balance or in surplus".
They also agreed to a system of monitoring and early warning. I should mention here that though not a member of the euro-zone, the United Kingdom has signed up to the stability and growth pact and is subject to its rules. It cannot, however, be sanctioned for running an excessive deficit.
One of our witnesses argued that the EU's attempt at creating formal fiscal co-ordination should he abandoned forthwith and it should be left to market discipline to ensure the sustainability of member states' finances. The committee's view, however, is that market discipline alone cannot guarantee fiscal discipline and that formal co-ordination of national fiscal policies is required to guard against the risk of default and to deal with the so-called free rider problem in a monetary union where a profligate government run up large deficits without having to incur penalties.
Co-ordinated fiscal discipline can also help member states prepare for the economic effects of ageing populations while providing overall stability for the European Central Bank and for the markets themselves. However, despite the excellence of these general arguments for the stability and growth pact, it has been much criticised in the past two years as the world economy slowed down and several large member states, as I mentioned before, were in danger of breaching the rules of the pact.
Several witnesses argued that the stability pact itself stifles growth. The TUC told us that the pact had put too much emphasis on stability and not enough on growth, while another witness considered that the pact created a deflationary bias in the longer term. However, the European Commission did not accept that sustainable growth could be stimulated through deficits and quoted the examples of Germany, Japan and Portugal. The committee agreed that fiscal policy was not a good instrument for effecting long-term growth of the economy and that slow growth in Europe is due not to the stability and growth pact but rather to the member states' failure to implement structural reforms.

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We also believe that it is important that the stability and growth pact is not over-rigid. We do not suggest scrapping the pact or drawing up new rules for it, but we strongly recommend that the existing rules are interpreted more flexibly. Indeed, this is the underlying theme of our report. Ideally, we believe it is sensible for countries to aim for broadly balanced budgets so that the so-called automatic stabilisers can be brought to play across the economic cycle without the danger of member states breaching the 3 per cent deficit criterion. But it is important that this medium-term target of budgets being close to balance or in surplus should be measured flexibly in terms of a cyclically adjusted or underlying budget balance and not the current value. We are therefore pleased that this proposal has been accepted by the European Council.
We also welcome the Commission's proposal, adopted by the Council, to allow a small deviation from the close to balance or in surplus budget requirement for member states which, as in the case of the United Kingdom, have low underlying debt ratios and need to invest in physical and human capital. We welcome the new emphasis on low debt ratios.
For the most part, however, our witnesses were much more interested, not so much in the medium-range target of close to balance but in the 3 per cent upper limit and whether this should be relaxed. Our conclusion was that the 3 per cent nominal upper limit should be retained. However, when deciding how the pact is to be enforced, the Council should not treat the 3 per cent as an absolute. Of course the Maastricht Treaty already allows for breaches in exceptional circumstances. In addition, we are proposing that in cases where a country has breached the 3 per cent reference value, the Council's decision whether or not to implement the excessive deficit procedure and all that goes with it, laid down in the Maastricht Treaty, should take account of the member state's underlying economic situation, including its position in the economic cycle and possibly its level of debt.
Looking further afield, we need to ensure that the stability and growth pact works more symmetrically and that member states are discouraged from acting pro-cyclically in times of boom. This merely stores up trouble for the bad times as was seen in the case of Germany and France. We oppose, however, the idea of applying formal sanctions. That would be not only excessively bureaucratic but liable to bring the whole pact into disrepute. In general, we believe that peer pressure—not us, but member states—is the most effective enforcement mechanism available and that the sanction of fines is a nuclear deterrent only to be used, if at all, as a measure of absolute last resort.
The Council should remain the final arbiter of all the enforcement procedures, as part of this peer pressure process. However, we believe that the Commission should have the power to issue an early warning direct to member states rather than go through the Council as it does at present; otherwise there is a danger of Council members refusing to pass on early warnings to their peers, as happened in Germany and Portugal.
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To sum up our report, we are in favour of a stability and growth pact with budgetary deficit targets, but we believe that it should be interpreted in a common sense, flexible way.
I should like to say a few words about the Government's response to our report. We were grateful for the way in which the Financial Secretary to the Treasury answered our questions when she came before us, but we were disappointed by the Treasury's formal response to our report, which seemed to be an extreme version of straight bat-ism. However, I, for one, have been somewhat mollified by the further letter which the Paymaster-General sent to my noble friend Lord Grenfell in which she said that the Government will make clear their views in a study published alongside the assessment next Monday. I hope very much that they take account of our views in their paper.
Noble Lords will forgive me if I end on a personal note. Those who are against the United Kingdom joining the euro will no doubt see the stability and growth pact as yet another reason for being against the euro. As a supporter of British membership, I see it as a necessary part of the development of economic and monetary union, and I believe that any weaknesses can be and, indeed, are being removed. They certainly should not be used as an argument for delay in joining the euro. If further changes are required, we should be there, inside the euro, making the case for them. I beg to move.
Moved, That this House takes note of the report of the European Union Committee on the stability and growth pact (13th Report, HL Paper 72).—(Lord Radice.)
7.38 p.m.
Lord Barnett: My Lords, I feel I should start by saying, "Unaccustomed as I am to speaking on three reports in one day", as a number of us will be doing in this debate. Before I do, I have been asked by my noble friend Lord Peston to move formally the report standing in his name on the Order Paper, and I am happy to do that. I should also like to thank our two Clerks, Christine Salmon and Susan Michell, who have done an excellent job for us, as has Professor Mike Wickens, our special adviser.
I should like to say a few words on the stability and growth pact report that was introduced so ably by my noble friend Lord Radice before I come to our report on monetary policy matters. My noble friend Lord Radice referred to what the committee said in paragraphs 49, 80 and succeeding paragraphs. It supports the stability and growth pact in principle but recognises a substantial need for some flexibility in the way in which it operates. I agree strongly with the committee and with the Government's agreement with the committee as well. That is obviously a sensible way forward, and I hope that it will be followed. There is a crucial need for that kind of flexibility, rather than the rigidity of the present system.

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Like my noble friend Lord Radice, I have no doubt that the stability and growth pact will be used as a sixth economic test. The previous five are not worth considering, but the sixth would be even worse. It is not the place or time to consider whether we should be joining the euro, but it would be wrong to suggest that the stability and growth pact is a reason for not doing so. As my noble friend rightly said, if we are to make changes in the way that the stability and growth pact works, we are better inside than outside.
There is a clear need, as my noble friend Lord Radice and the committee points out, for greater coordination of fiscal policies throughout the euro-zone. Few people can doubt that. There is a need to provide a stability in which the European Central Bank can operate. Unfortunately—although the report does not say too much about that bank—the fact is that the bank needs to have much greater transparency and accountability if it is to be a successful central bank. We need that greater transparency and accountability if we are to know what the bank's actions or inactions are at any given time, and we do not know at the moment how the bank works.
Lord Radice: My Lords, the committee is carrying out an inquiry into the European Central Bank, so I hope that we may soon be able to help him on that as well.
Lord Barnett: My Lords, I am most grateful to my noble friend. I look forward to seeing the further report, which I am sure will be every bit as good as the present one.
The Financial Times, in an article on 13th May by someone called Paul de Grauwe, said that,
"instead of creating clarity, the ECB has managed to create confusion about its true intentions".
That is a very good comment about the way in which the European Central Bank operates.
As regards monetary policy, there has been a definition of a new inflation target. There was one in 1998, when it was to be at the most 2 per cent. Now the ECB tells us that inflation should not exceed 2 per cent in the medium term. There is obviously no point in denying that there is bound to be strong disagreement between 12 central bank governors on the European Central Bank. That is all the more reason why we need a strong UK voice on that bank.
At this point, I turn to an excellent report from our own committee—the Monetary Policy Committee report. It is my privilege and pleasure to congratulate the chairman of our committee, my noble friend Lord Peston, who has chaired all our deliberations so brilliantly, even if he sometimes refers to the wrong football team.
As an aside—and this is nothing to do with our report—we in the UK need to appreciate how low our inflation is on what is called "hiccup" terms. To help Hansard reporters, I should emphasise that I refer to HICP, which is sometimes called "hiccup". I checked on the findings of the Office for National Statistics on
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what the level of inflation would be if we adopted HICP, and discovered that it would be around 1.6 per cent over the 12 months to March 2003, as compared to 3 per cent on the RPIX, which is the figure that we normally use. That would have very substantial consequences for the UK economy generally.
I asked my noble friend Lord McIntosh about the matter a week or two ago, and he thought that it was all theoretical. However, as he must now be aware, the Chancellor indicated in his Budget speech that he is considering whether it might be sensible for us to switch to the HICP index, given that so many other countries are using that index—not only in Europe but elsewhere. I hope that my noble friend might be able to tell us in this debate how far the Chancellor has got in his study on switching the index. That would have enormously serious consequences for pensions and all kinds of other areas of our economy that are indexed. No doubt he will be able to tell us about that. The Chancellor said clearly in his Budget speech that he might consider the matter.
The Monetary Policy Committee of the Bank of England is much more transparent than that of the European Central Bank. Whatever one may think of the Bank of England's Monetary Policy Committee, no one can dispute its transparency and accountability, both in the excellent way in which it has responded to our reports and in the evidence for which we have asked it.
However, the Bank of England's committee can be compared to that of the European Central Bank. The Bank of England committee is obliged primarily to consider the inflation rate forecast that is given to it by the Chancellor of the Exchequer. In those famous three words, only "subject to that" should it consider other economic matters—namely, the Government's economic policies. Although we do not know precisely what the European Central Bank is doing, we are told that "as long as"—another three words—the other objectives do not interfere with price stability, it must consider those other matters. We do not know precisely what that bank is studying because it is not very transparent, but I hope that it may be in the not too distant future.
As paragraph 45 of our report makes clear,
"the time is ripe for some serious research into the operation of monetary policy in the past five years".
There have been substantial changes in how that works. I hope that someone in the Treasury agrees with us, although the Government say that they have already published papers from the Treasury. In practice, as we say in the report, we need a more independent piece of research. We on the committee do not have the resources to do that, but perhaps the Treasury would provide us with the resources and we could do it ourselves. However, on the understanding that the Treasury may not give us that, could an independent piece of research be done by someone else? I note that the Government agree with much in our report, and I hope that they will come to agree with that as well.
7.48 p.m.
Lord Northbrook: My Lords, I add my congratulations to the noble Lords, Lord Peston and Lord Radice, and their committees, for their interesting and stimulating reports. We are debating both reports together due, I understand, to the joint wishes of both chairmen, but two separate debates could well have been merited, as the reports cover very different issues.
In comparing the two reports, the success of the MPC since 1997 may be contrasted with the huge problems of the stability and growth pact. As a failure in the European Community's co-ordinated fiscal policy, it is matched by the ECB's lacklustre direction of monetary policy, which is causing major problems in countries such as Germany and Portugal. I look forward with great interest to the report of the noble Lord, Lord Radice, on the ECB. However, I should like to concentrate my remarks on the MPC report. Paragraph 14 states as the first conclusion:
"Although the operation of the MPC has been satisfactory so far, we conclude that a re-examination of its remit to include broader concerns than inflation alone might benefit the United Kingdom economy".
That is a very sensible conclusion. While I am not an economist—I declare an interest as a City fund manager—I have to be aware of broad economic trends.
I should like the committee to include in its remit broader concerns such as the effect of global disinflation on the UK economy. I believe that the UK economy is experiencing disinflationary conditions, as indeed is the global economy, and that those may well turn to deflationary conditions. Part of the reason is that in many areas of the economy there is surplus capacity and consequently intense competition. Generally speaking, companies find it very difficult to pass on cost increases, having little or no pricing power. The problem may seem esoteric when inflation RPIX is running at 3.1 per cent. However, I believe that that is due to exceptional factors such as higher house and oil prices—both of which, as the MPC itself has stated, should weaken over the next year, as stated also in paragraph 49 of the report—together with higher council tax.
The deflationary problem is in my view a fundamental long-term issue. Its examination would help the committee to have a more global outlook and to consider, for example, whether the problems relating to Japanese deflation are relevant to the UK economy or whether German economic disinflation problems will replicate themselves here. I therefore ask the Minister to use his influence to persuade the Chancellor to broaden the formulation of the MPC's remit to something similar to that of the Federal Reserve Bank of the United States—where, as stated in footnote 4 on page 6 of the report, the remit in the Humphrey-Hawkins Act of 1958 setting up the Federal Reserve is to,
"maintain long-run growth of the monetary and credit aggregates commensurate with the economy's long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates".
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Another important issue with regard to the MPC's remit, which does not seem to have been covered in the report, although it has been mentioned by the noble Lord, Lord Barnett, is the Chancellor's proposed change to the inflation measure from RPIX to the European HICP. This important change would remove in particular housing costs from the inflation figures. As I understand it—and luckily my figures agree with those of the noble Lord, Lord Barnett—that would cut the rate of inflation by 1.4 per cent per annum. However, if adopted, it could cut government payouts to index-linked bondholders and index-linked pensions. Will the Minister, to whom I have given prior notice of the question, both confirm that and say whether the MPC's inflation target will be adjusted as a consequence? Does the Minister agree that the change would also bring forward the timing of interest rate reductions since inflation would fall below the current target of 2.5 per cent? It is for that reason that I largely applaud its possible introduction.
The issue to which I now turn does not seem to be covered in the report but is still important—the accuracy of the M PC's forecasting record. For statistics on that I turn to the Bank of England's Inflation Report of May 2002. On page 53, table 3, we see that the MPC, between February 1998 and May 2001, overpredicted inflation one year ahead by 0.2 per cent and two years ahead by 0.5 per cent. With regard to annual GDP growth, it underpredicted this by 0.3 per cent one year ahead and 0.2 per cent two years ahead. As stated on the same page, the two-year ahead forecast error for inflation is smaller than that shown in the August 2001 Inflation Report, thus demonstrating that the MPC, by analysing its forecast errors, has improved its subsequent performance. The main conclusion of all this is that the MPC has done as good a job as could be expected in its forecasts.
The final area of the report on which I should like briefly to focus is the section on UK fiscal policy. The committee noted:
"We are impressed by the unanimity with which witnesses supported the view that much of the deterioration of the fiscal position is cyclical and that fiscal intervention is therefore not necessary at present. We note that it is extremely difficult to know what is and what is not cyclical and we hope to return to this topic in a later report".
The shadow Chancellor said in evidence to the committee:
"There was beginning to grow a suspicion that the length of the cycle would be determined by reference to the need to comply with the golden rule rather than the other way round".
It is that vagueness in fiscal policy that contrasts strongly with the disciplined approach of the MPC in monetary policy. I believe—this is my one political point—that that is where the Government's economic strategy is most at risk.
My final comment is to emphasise paragraph 3 of the report. It was a great pity that the Chancellor himself, even with good notice, was unable to appear before the committee to enlighten it on this matter. May I ask the Minister to try to persuade him to appear in the future?
7.57 p.m.
Lord Oakeshott of Seagrove Bay: My Lords, from these Benches and following the noble Lord, Lord Barnett, I thank the noble Lord, Lord Peston, for his indefatigable chairmanship of the committee. I also thank our two indispensable Clerks and our specialist adviser.
"The Government's macro-economic policy framework is based on the principles of transparency, responsibility and accountability…The Bank of England has operational independence to meet the Government's symmetrical inflation target".
I am quoting, of course, not from our objective evidence-based report but from page 3 of this year's Budget Red Book. So transparency, responsibility, accountability and independence are the buzzwords favoured by the Chancellor and the Treasury. Tonight I want to scrutinise one constitutional corner highlighted in our report where these admirable principles are conspicuous by their absence—in the appointment of members of the Monetary Policy Committee of the Bank of England. We on these Benches welcomed the Chancellor's Damascene conversion the weekend after polling day in 1997 to independence for the Bank in setting interest rates. However, he is still in my view a sinner who has only half repented. Independence for the Bank of England? "Yes!", says the Chancellor. But an independent or even an open appointments process to pick MPC members? "Perish the thought! Gordon Brown just appoints MPC members by the divine right of Chancellors as invented by the Bank of England Act 1998".
Our Select Committee and its predecessor, in each of the last three reports on the MPC, have rightly raised serious questions about the appointments process. As we put it this time round,
"we favour a more open process, conducted in accordance with a Code of Practice analogous to the Code of Practice for Public Appointments published by the Office of the Commission for Public Appointments. We favour such an approach, partly as a matter of principle and partly as a way of enlarging and deepening the pool of people who might he considered for membership. The Chancellor has always rejected our view on the matter".
We also said:
"Similar considerations apply to the appointment of staff of the Bank of England who become members of the MPC. It is difficult to discern any formal appointment procedures. As far as we can ascertain, posts are not advertised…We therefore recommend, as we have done consistently before, that members of the MPC should be recruited and appointed in a manner consistent with Nolan principles".
The independent interest rate setting policies worked well so far because the Chancellor has appointed high-quality independent economists to the MPC. However, a benevolent individual dictator does not justify dictatorship. We all agree that interest rates should be fixed by independent experts, not by a single politician. How, then, can it be right for Gordon Brown to pick all of those experts personally and in secret, decide whether to reappoint them to a second term, ignoring the Nolan principles and with no advertisement, no application process, no questions asked and no reasons given for his choices?
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My Commons colleagues Norman Lamb and Matthew Taylor established that the MPC is officially an internal sub-committee of the Bank, but do the Government seriously intend to hide behind that technicality? To put the point another way, just because a car has not crashed in the first six years with one careful driver at the wheel, does not prove that the design is right or the brakes are safe in other conditions. How would noble Lords opposite have viewed an MPC packed with nominees such as, for example, the noble Lords, Lord Lamont or Lord Barber?
How can we make appointments to the MPC, which wields great power over our economy, more open and democratic? One way, which was suggested to us by the shadow Chancellor and, I am bound to say, tried so far with more noise than light so far by the Commons Select Committee, is post-appointment public confirmation hearings for newly appointed MPC members. That ex post, second-guessing system is rather the worst of both worlds. If the committee, or a Joint Committee of both Houses, has the formal power of veto over the Chancellor's choice, some outstanding candidates may be deterred by having to jump through the hoop twice and Opposition members of the committee may well be tempted to attack the Chancellor through the nominee. However, if the committee has no veto, the exercise is still basically a sham.
If we really want a transparent and robust way of picking MPC members, why not set up an independent monetary policy appointments committee to do the job? It should not need fresh legislation. The Chancellor could announce that he was inviting it to make a single nomination or renomination of a sitting member if a vacancy arose, which he would accept and appoint to the MPC using his powers under the Bank of England Act.
A membership of nine works well for the MPC, so why should it not for such an appointments committee as well? One could have a representative of the Treasury; the Governor or another representative of the Bank of England; the chairman or other representative of the Commons Treasury Select Committee and the Lords Economic Affairs Committee; a distinguished businessman such as Niall Fitzgerald: and a trade unionist such as John Monks, or people of similar standing from the Court of the Bank. That would make six people so far. The other three members of such a committee should be former MPC members who have done the job already and know exactly what mix of expertise and temperament are needed. Most of us agree that the quality of independent MPC members has been uniformly high so far, even though their turnover seems excessive, with a short term of office of only three years and only one independent member out of eight reappointed so far. The Governor made his views clear in his evidence to our committee two years ago. He said:
"I think turnover is disruptive. In a sense to have an average outcome which is longer than the frequency of turnover we have had would be a positive thing. I do not know quite what one can do about it. frankly".

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Frankly, I do know what one can do about it—one can change the system, let members serve longer and stop Gordon Brown shuffling the MPC pack so often. I would far rather trust distinguished experts such as DeAnne Julius, John Vickers or Sushil Wadhwahi as part of a team nominating MPC members rather than a single Chancellor. Such a committee would shine out as a beacon of Bank of England independence. It would need to meet only once or twice a year and should have no problem in securing the most distinguished names to serve. It could even serve as a model of transparency and independence for future appointments to the European Central Bank.
The main Government argument that we have heard against a more open appointments process to the MPC is that it is "highly market sensitive". That is nonsense. The Chancellor told our predecessor committee that,
"there would be difficulties if it became known that a particular individual was under consideration because that would have an influence on people's perceptions of what might happen to interest rates".
Here I declare my interest as an investment manager. That knowledge could look sensitive only to someone who does not know how markets work. How in practice would one change one's investments to reflect the chance that one person might be appointed to join a committee of nine people in several months' time, working to a very clear policy remit, when so much else would be moving markets far more in the mean time? Sir Edward George, in his evidence to the Select Committee, did not think that the appointments which had been made to the MPC were market sensitive. He must be right.
I end with a brief word of congratulation for the noble Lord, Lord Radice, on his committee's report. We first met 20 years ago when I travelled with my then boss, Roy Jenkins, up to County Durham to help him in his by-election campaign. I am delighted that we are together again in this House. Although we may now sit on opposite Benches, we still march together in the cause of European unity, which is well served by sober, sensible reports of this kind. That is in welcome contrast to the latest crescendos and hysteria in the anti-European press. I support both the analysis and conclusions of this practical and timely report.
8.5 p.m.
Lord Burns: My Lords, my remarks will be directed to the report of the Economic Affairs Committee on the MPC. I, too, express my thanks to the noble Lord, Lord Peston, for his chairmanship of the committee.
I include myself unambiguously in the group of people who regard both the design of the MPC and the execution of the remit that it has been given as a success. That is not to say that it cannot be improved upon but for me it continues to score high marks.
Enormous credit for the successful operation of the MPC is due to the Governor of the Bank of England, Sir Edward George, and I will be very sorry to see him retire from his post at the end of the month, even if Lady George does not share my concern. I saw at close
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hand over a number of years the skill and determination with which he discharged his responsibilities. He will be a difficult act to follow but I also wish his successor, Mervyn King, well in the role. He has done an excellent job in establishing the high level of analytical support for the decisions of the committee in his present role. I am sure that he will also carry out his job as chairman of the MPC extremely well.
A couple of years ago, it was common to say that the economic background had been benign, with the implicit warning that somehow or other we should not be too enthusiastic about the performance of the MPC because it had had a following wind. In one respect, that remains true; that is, an environment of low world inflation undoubtedly makes it easier for the MPC to follow a low inflation remit. But in other respects the MPC has had to cope with increasingly difficult challenges, and we should recognise that. These include the poor macro-performance of the euro zone and Japan, the threat of deflation, the stock market bubble and its impact on credit markets. We have seen huge volatility in the euro-dollar exchange rate and there was the shocking blow of 9/11 and the recent war.
Faced with those challenges and shocks, I continue to take the view that the performance of the MPC has been impressive, although our economy is going through some strains and stresses. On balance, they are rather less than for many other economies.
Most of the issues raised in the committee's report have emerged in previous reports. The key issue remains whether it is right that the primary objective of monetary policy should be to seek an explicit and symmetrical inflation target. It is now more than 10 years since the regime of inflation targeting was introduced. Although there have been improvements on the way, including setting up the MPC, they are still recognisably the same arrangements today, and we now have more than 10 years of evidence, which is an unusually long period by the standards of most policy innovations.
The report raises the question whether this single-minded focus on inflation should remain the approach or whether the remit should be changed so that it includes broader concerns than inflation. I agree that this is a subject that needs to be kept under investigation. Few things are forever in economic policy. However, in my view the present targeting regime is working extremely well. I am far from persuaded of the need for a change, although I think that it is the right time to have another look at the issue.
The period since the introduction of the inflation target has seen the most impressive record of stability of output and inflation that most of us can recall. Output growth has been robust relative to other countries, and the inflation rate has been astonishingly close to its target. The experience of the past 10 years suggests that actions taken continually to meet the inflation rate will generally also be the actions needed to stabilise output at close to its trend growth rate. There is nothing by way of a conflict in those objectives.

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Fluctuations in the exchange rate are a problem for monetary policy and there is often a debate about how far interest rates should respond to a clear misalignment of exchange rates over and above the direct impact of the exchange rate on inflation. But the way in which it has been handled so far has worked reasonably well.
The noble Lord, Lord Northbrook, raised the general question of deflation. But the present symmetrical target means that the MPC would have to respond to any threat of deflation, so there is no need to take any other factors into account, other those already given. If the MPC has to take account of inflation falling below target every bit as seriously as it takes the threat of inflation going above target, it has built into it the safeguard against the type of threat of deflation that we have seen in some other countries. Therefore, I take the view that if the inflation target is not broke, I am not inclined to seek to fix it.
I can see that the approach could come under greater questioning if we had a shock that took the inflation rate significantly away from target. At some point we must face the fact that that is likely to happen. It is unlikely that we shall continue to have the same success in targeting the inflation rate as has been achieved in recent years. The history of the variances around the inflation rate suggests that there will be occasions when we shall see some figure errors.
At that stage there would be room for debate and a judgment on how quickly to bring inflation back to target. The MPC has been given discretion on how to do that, should the circumstance arise. In deciding the speed of response, it makes sense to have some regard to the wider economic environment. However, that is recognised in the Government's response and the drafting of the legislation. A more general objective for the MPC undoubtedly appeals to some members of the Economic Affairs Committee, but it is not something that I wish to support at this stage, although the matter needs to be kept under review.
As the noble Lord, Lord Oakeshott, has described, the Select Committee has again commented on a number of other issues—in particular, the question of appointments made to the MPC. I support the committee's conclusions, although given my experience and background, noble Lords will not be surprised if I say that I fully understand why the Chancellor wishes to maintain a substantial degree of control over the process. I have a certain amount of sympathy for him. After all, he has a high degree of interest in good appointments of members who will discharge their remit with skill. He has decided to delegate those powers, and not surprisingly he thinks that he should be given quite a lot of weight in the appointments to the MPC. I can understand why he does not want a lot of embarrassing speculation in the newspapers about how the process might work.
Nevertheless, given the sympathy that I have for his position, it puzzles me why the Chancellor wants to make a stand on this issue. given the emphasis elsewhere on transparency and openness. As the noble Lord, Lord Oakeshott, said, the arguments against
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impress no one. I could not possibly use the sort of language used by the noble Lord, Lord Oakeshott, about this, but I am wholly unpersuaded by the arguments on market sensitivity. I should be surprised to discover any significant market effect from the news that one member was stepping down, that there was a vacancy and that the Treasury were seeking a replacement in the period ahead. Indeed, I suggest that here there are the makings of a small research study using conventional techniques to see whether any past changes to the MPC have brought about any market movements at all and what their scale has been. We might then hear rather less about its defence for the present arrangements.
The issue of the length of term and whether to have re-appointment is a further issue, which we have previously discussed. It arises in particular when we have the opaque method of appointment. There seems to be widespread agreement outside the Treasury that members' terms should be longer and that there should be renewal only very rarely. So far we have seen a heavy turnover of members of the committee, and, so far, only one has been reappointed. But what are the criteria for reappointment? Why are some people reappointed and not others? Why do some have to be silenced as to whether or not they would have liked reappointment? What does it say about the independence of members? Again, it seems quite extraordinary that we should be seeing stubbornness on this issue in an environment that has otherwise worked well.
The report touches on the issue of fiscal policy. If we had been updating the report. this is one area where opinion may have moved on a little from February. I think that there is no doubt now about the deterioration of public finances. The main issue is how far this deterioration is a function of the cycle and how far it reflects a deterioration in the underlying budget balance. And, of course, there is the implied question of how far the fiscal situation will deteriorate further.
I have two concerns. The first is that the underlying growth of the economy is less than the Government assume and that there is rather less spare capacity than judged. That means in turn that the growth rate in the next year or two might be less than suggested. Secondly, a larger part of the boom in taxes in the late 1990s was cyclical and the underlying level of tax collection is less than projected.
Taken together, the prospects for growth could be weaker; and for the budget balance much worse than hoped on a sustainable basis. In turn. that could pose challenges for monetary policy.
Finally, I want to touch on one subject that our committee did not dare mention: the implication for the remit of the MPC of the Government's policy towards the euro. Clearly, we cannot say much about this today as we do not yet know the results of the Treasury's tests, although we do not have very long to wait to see them. It is not difficult to see that if the Government embarked on a clear strategy to join the euro at some point in the future and wanted to direct policies towards being in a position to join, it could

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have some implications for the remit. At its simplest that might mean a change in the measure of inflation to be targeted to the harmonised index, as described earlier by the noble Lord, Lord Barnett, and at which the Chancellor hinted in his Budget speech.
The issue at its most complex could mean giving some weight in monetary policy decisions to the need for greater alignment between the UK economy and the European economy to put us into a position to join. Maybe this could also be the subject for another day, or it could be taken as part of the proposed investigation in the design of our remit.
8.17 p.m.
Lord Sheldon: My Lords, I want to speak mainly on the report of the committee on the stability and growth pact. There are serious matters that have been mentioned in the report of the Select Committee on Economic Affairs on monetary policy. In paragraph 41 it states that,
"there are substantial imbalances in the economy at present".
These are important and serious matters. They are,
"the imbalance between consumer spending and investment: rising house prices, and the attendant rise in mortgage equity withdrawal; and the trade balance and current account deficit".
It goes on to state:
"In relation to these imbalances in the economy we consider that some intervention in the future may be necessary".
The committee was right to flag up that issue; it is most important.
So far as the stability and growth pact is concerned, I must offer my good wishes to my noble friend Lord Radice, who very ably chaired the committee which produced a valuable report. The concept of the stability and growth pact was obviously necessary. The problem is that the present circumstances are not the ones envisaged when the pact was originally introduced. The pact is inflexible and changes need to be made. The most immediate and urgent problem is that the pact presumed a world where inflation was the dragon. It did not consider that whereas inflation can be a most serious problem—we understand that—it may not be the greatest economic problem at all times and in all circumstances.
The question we must ask is: what are the basic rules and how can they be improved? The stability and growth pact cannot be seen in isolation. It is one part of an increasingly complex process of co-ordinating policies. Since complete integration is unacceptable we have to devise means of making the stability and growth pact more workable.
Member states are free to structure the expenditure and revenue side of their budgets according to their own national preferences. We know that. But, subject to that, member states have agreed a framework in the pact for the co-ordination of fiscal policy—as mentioned by my noble friend when introducing the debate—with a view to maintaining sound public finances. We welcome that and we want to see how it develops. In particular the pact imposes tight limits on government deficits.
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Once the deficit of a member state goes above 3 per cent of the gross domestic product the Council must judge that the country has an excessive deficit unless the breach is due to exceptional circumstances, is temporary and the deficit remains close to the reference value. The regulation spells out what is meant by exceptional and temporary. That shows when the 3 per cent limit may be exceeded. The Commission has to apply tighter rules than the Council for qualifying the deficit over the reference value as exceptional. As a rule a deficit is automatically considered exceptional by the Commission if output falls by at least 2 per cent of GDP in the year in question. In addition, the Council may consider a deficit to be exceptional if output falls by between 0.75 per cent and 2 per cent.
The committee heard four main reasons why the stability and growth pact is needed. First, the overarching reason is that the performance and management of national economies in the European Union are a matter of common interest for the Community. Secondly, an important macroeconomic manifestation of the common interest is that the effect of public borrowing by one economy in the euro-zone may spill over onto other members of the euro-zone and there may be what is known as the "free rider problem". Thirdly, in extreme circumstances a heavily indebted member of the euro-zone might default on its debt, imposing costs on all the euro-zone members. Fourthly, low public debt would better enable member states to prepare for the increasing public pension obligations to ageing populations. That is a most serious matter to which I shall return.
There have been other important developments around the pact. For example, in the Amsterdam resolution the member states committed themselves to the medium-term target of achieving budgets that are close to balance or in surplus. Yet neither the resolution nor any of the other legal instruments of the pact specify the date by which member states must achieve that target of a balanced budget. It has been pointed out that one benefit of the stability and growth pact was that it prepared national budgets for the threatening time-bomb of an ageing population. So far as the time-bomb is concerned, there is the politically very difficult solution of dealing with it by raising the pensionable age, or more practically, having a range of retirement ages.
That is one of the most important economic consequences of an ageing population that is going to pursue the economic arguments over a long period ahead. We only have to see what is happening now in France to see the major problems that apply in many countries. Even in Britain we are not exceptional. We have our problems which are fortunately far less than those of many other countries.
I should mention the need to keep down the level of debt in the European Union in order to anticipate the burden on public finances and the consequences for public services of an ageing population. For the European Central Bank, that was the basic long-term justification of the stability and growth pact. The bank held that sticking to the pact might over time, maybe decades—because it takes take a very long view—create

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the room in budgets to cope with the costs of the ageing of the population which are expected to rise over a 30-year period by something in the neighbourhood of between 5 per cent and 6 per cent of GDP. Those are vast sums of money. So the question is: what realistic penalties can we impose on a country that is not meeting its obligations? Are fines really realistic? If a country were, in effect, found guilty and therefore fined, we have only to think of the political effects that that would produce. It is foolish to establish penalties that will never be used, and I cannot see those penalties being used. So we must consider the matter differently.
Much of the reasoning about the stability and growth pact was based on the over-arching importance of dealing with inflation. That situation has now changed and, as I said, deflation is appearing as a threat—perhaps not for very long. It is nevertheless a threat that must be dealt with. We should not be prepared to accept the decline of the standard of living of peoples all over Europe as the result of getting that judgment wrong. That is one further reason why a more flexible arrangement for the stability and growth pact is now required. My noble friend Lord Radice, who dealt with the matter, is fully aware of the problems that must be faced in the years to come.
8.26 p.m.
Lord St John of Bletso: My Lords, in my short contribution to the debate, I shall focus my remarks on the report of Sub-Committee A on the stability and growth pact. I join in thanking the noble Lord, Lord Radice, for his able chairmanship of our subcommittee. I should declare an interest as a consultant to Merrill Lynch because my personal interests were not declared in the report.
I fear that I differ somewhat in my views on the stability and growth pact from our chairman. Although I am broadly in favour of our joining the single currency when the time is right, I believe that the stability and growth pact is deeply flawed. In fact, I am tempted to call it the stagnation and instability pact. The economic reality is that when growth slows, deficits invariably rise and having to tighten fiscal policy often proves totally counter-productive. In my opinion, excessive deficits should be measured after adjusting for the economic cycle, to allow for the full use of automatic stabilisers in upswings and in recessions. As currently formulated, the pact is far too rigid—a common theme of our report.
Several commentators believe that the pact has been dead for some time and cannot be revived. Although the committee called for reform of the stability pact, my personal opinion is that the pact should be torn up and completely new fiscal rules drawn up. The noble Lord, Lord Barnett, mentioned an article in the Financial Times in May; I refer to the lead article on 7th May headed:
"Patching the pact—The EU should start afresh for stability and growth".
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The central theme of the article was that for every member country, the overriding principle for budgetary control should be to maintain a sustainable debt position.
It is well known that the pact is a political agreement, depending on the willingness of countries to co-operate with the Commission and the Council. Unfortunately, the pact has had a long history of being disregarded for political reasons. It is ironic that France and Germany, who refused to support the military campaign in Iraq, have been allowed to blame their massive budget deficits this year on the war, even though they did not take part. I noted the recent concession by Pedro Solbes, the EU Commissioner for Economic and Monetary Affairs, that the war on Iraq would be deemed an exceptional situation, allowing for short-term breaches of the deficit limits.
Against a backdrop of the severe economic downturn in most of Europe and the recent sharp rise in the euro, the credibility of the pact was severely damaged by the recent announcements by Germany and France that they were abandoning their efforts to balance their budgets by 2006. It appears highly probable that Italy will soon join Germany, France and Portugal in a growing group of countries in breach of the pact's 3 per cent budget deficit limit.
For the pact to have any chance of regaining any credibility, there needs to be far more flexibility. In that regard, I support the main recommendation of our report that the target of being close to balance or in surplus should be measured in terms of the cyclically adjusted budget balance. Members that have low levels of underlying debt should be allowed a small deviation from this target. Each member country's level of borrowing should depend on their initial level of debt. In other words, the lower their debt the less concern there should be about their maintaining budget balance in the medium term.
The noble Lord, Lord Sheldon, spoke on the ageing population in Europe. I understand that 23 per cent of the population in Europe is above the age of 60. With the increasing percentage of ageing population across Europe, future liabilities of governments, particularly from pension promises, need to be included in any assessment of budgetary solvency.
I tend to agree with the proposal of Professor Artis and Christopher Allsopp, in their recent edition of the Oxford Review of Economic Policy, that euro-zone governments should set their own tax spending rules with Brussels simply policing the framework. They call for a looser but still constraining form of fiscal agreement among the member countries.
Even though Eurostat, the statistical office of the European communities, is in charge of providing the actual statistical data to be used for the implementation of the excessive deficit procedure on behalf of the Commission, I have several concerns as to the quality and the accuracy of several governments' accounts.
Some national statistical institutes have scarce resources to compile the government's accounts and are not immune from political pressures. Countries must convince outsiders that their accounts give a true

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and fair view of their obligations. There is a suspicion that some countries manipulate their figures with off-sheet financing.
Given that monetary policy is effectively blocked for dealing with a country's specific shocks, this points to an increasing burden on national fiscal policy to offset and remedy such shocks. For example, Germany is faced now with the problems in its banking system and cannot react with its easing of monetary policy. As we know, this is entirely the remit of the European Central Bank.
Under the stability and growth pact, it currently has to do the converse and tighten fiscal policy, which is effectively strangling any chance of rekindling economic growth in that country. Surely the solution is to allow more of the burden of the adjustment to fall on fiscal policy in Germany, which needs to be more flexible.
It is apparent that if the United Kingdom were now to be in the single currency with the current stability and growth pact, it is highly improbable that our government would have been able to embark on their aggressive programme of raising public expenditure and improving public services.
A central theme in our questioning of witnesses was that of enforcement of the pact. It was generally agreed that fines would not be a satisfactory penalty but that the threat of such fines should remain. There is no doubt—and the noble Lord, Lord Radice, has mentioned this—that peer pressure, not from the House of Lords, but from other member states, is the most effective enforcement mechanism available in the pact.
There is no doubt that the inadequacies of the stability and growth pact, as well as the lack of transparency of the European Central Bank, present a real barrier to the UK joining the single currency right now. We will hear more about this from the Chancellor when he makes his speech next week.
Although I support the co-ordination of national fiscal policies throughout the European Union, so as to maintain sound public finances, market discipline alone cannot be guaranteed to ensure the sustainability of public finances. The maintenance of a sustainable position of debt and effective measures of enforcement are critical. For the European Union to formulate a new set of budgetary rules, a new treaty and new attitudes would be needed. Without both of those, as the lead article in the Financial Times of 7th March said,
"The Euro Zone is doomed to annual damaging fiscal squabbles just as debilitating as those of the past couple of years".
Finally, I again thank the noble Lord, Lord Radice, for his able stewardship of the sub-committee and of the report. I should mention our specialist adviser, Professor John Driffill, and our extremely able Clerk, Dr Richard McLean. It was gratifying to see that, at long last, our report made some headway in the broadsheets. It is always a concern that many of the great reports produced by your Lordships get such scant public exposure.
8.36 p.m.
Lord Lea of Crondall: My Lords, I welcome the innovative decision to put the two reports together. Incidentally, given the whole question of finding time for European Union debates in the Chamber, it is an innovation that, if successful—I think that it has been—could be extended, so that we could cover three or four cognate topics in one debate. That would have the additional advantage that we would not be addressing our own committee all the time. We should consider that. As several noble Lords, beginning with my noble friend Lord Radice, pointed out, this is the lull before the storm. As of Monday, we will have a vast number of documents—some 800 pages—to consider. I do not whether the Minister can comment, but I would like to know how we will debate that lot. We should give some thought to that.
Everything that can be said about the growth and stability pact has been said, but, as was once pointed out, not everyone has said it. I shall not repeat it all. In one sense, it is water under the bridge because the decisions have been made, for the moment. They were made in the European Council in March. Generally, we welcome what it did, but it has less scope for going further, if I can put it that way.
The matter must be left on the table for the reasons touched on by the noble Lord, Lord St John of Bletso. There is also the question of enlargement. I mention it not just because of the mantra that there will be more countries, but, if those countries are to start really to converge, there will be some odd statistical consequences in money terms. They will move from having less than 30 per cent of the current EU average GDP per head and could go in a few years to 60 per cent. That is not an unreasonable figure for countries beginning at a level below 30 per cent, which is, incidentally, far lower than that of the previous entrants—Greece, Spain and Portugal. Some of the growth rate numbers, deficit numbers and inflation rate numbers should be examined. That is also a good reason for having a growth and stability pact.
Some argued that we would open the floodgates and end up paying for Italian pensions or the problems in Germany. The euro has got off the ground precisely because it is clear that there is no question of paying for Italian pensions, as they say in the vernacular, even if it were the case that the markets, without the growth and stability pact, would have been able to say that people could borrow against a single European interest rate and the market would notice the national position against which they were borrowing. There is some truth in that. The fact is that in getting the euro off the ground we have been well served by some of the developments since the Maastricht Treaty, but life now has to move on.
The British position is rather two-edged in some respects. It is that in the euro-zone there are various deficiencies of economic policy and that the pact is not really sufficient to deal with them. Those countries have to pull up their socks before the euro-zone is allowed to join Britain in a wider European scheme. I hear my noble friend say "Fog in Channel"; that quip

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was the other way round too. They may be allowed to join Britain in the new euro-zone once they have pulled their socks up. This is part of the logic of many people in considering the debate.
I was intrigued that Robin Marris wrote in today's Financial Times:
"Arguments against UK entry into the euro-zone based on the Stability and Growth Pact are redundant. The pact reflects thinking of none other than Gordon Brown when in his early days in office he used to denounce Keynesianism. Yet the Treasury now complains in effect that the pact is not Keynesian enough."
The fact is that the four big European economies are now very similar. It may surprise some people to know that the latest GDP numbers at purchasing power parity are as follows: EU 100; Italy 105; Germany 104; UK 102; France 100. At a pub quiz night not many people would get that right. There is not a lot to choose between them.
The fact is that the Maastricht Treaty has worked remarkably well on the whole, but circumstances have been changing. We know that the main problem in one respect is the decision of Chancellor Kohl, though we understand the political reasons why he did it, to have the East German Lander come in at parity with West Germany. There is a huge burden, still, in trying to get the East German economy off the ground in a normal social market economy.
There was the paradox at that time, whose legacy we are still living with, that it was the Germans who were particularly adamant that we should not allow any free riders—hence the original conception of the stability and growth pact and the broadly 2 per cent inflation framework of the European Central Bank. All of this would require a big treaty change to fundamentally change the architecture. We are talking about adjustments to the interpretation of the pact. That is the exercise that we are involved in. Let us be clear that it is not another exercise, although after the Convention there will be another exercise.
Therefore, we reach the very clear conclusion, summarised in paragraph 163, that the "free-rider" problem was one of the overarching reasons for the pact. It would have been difficult to get the euro off the ground without that having been dealt with at that time.
I hope that we have now done enough to counter some of the very widespread nonsense about us paying for the Italian pensions, and so on—nonsense that has been generated by people who ought to know better. However, the British Government are to be congratulated on flagging-up the whole question of the economic effects of ageing. They produced the report entitled, Long-Term Public Finance, which points out that one way of securing the long-term sustainability of public finances is to pursue the comprehensive strategy to meet the challenges of ageing populations.
On the broader debate between the European growth and stability pact and the European Central Bank, which, as my noble friend pointed out, is the next project for Sub-Committee A, there is scope for
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looking more at the linkages between the role of what one might call the "fiscal policy side" and the monetary policy side. Is it not the case that we now have a reversal of traditional views on such matters and that it is the role of monetary policy to stimulate growth by cutting rates? Indeed, it is generally said: cut rates, stimulate growth. But fiscal policy, as in the growth and stability pact, can never do anything to stimulate growth; one can only, as it were, remove restrictions in that sense. A new consensus, as emerged in that respect, should perhaps be questioned.
Before I conclude, I should like to touch upon a matter raised initially by the noble Lord, Lord Barnett, and then picked up later by the noble Lord, Lord Northbrook. I refer to the Monetary Policy Committee. I, too, noticed the reference in paragraph 43 of the report to the question of the retail prices index. Tonight's debate was warmed up by reference to the potential move to the European harmonised index of consumer prices referred to by the Chancellor of the Exchequer in his Budget Speech. My reason for wanting to add a little to this debate is as follows. For several years I was a representative of the TUC on the Retail Prices Index Advisory Committee—not a very high-profile body, but an important one in its own way.
For many years, that committee made recommendations on any change in the RPI. Without fail, I do not know of an example where the government of the day—of either party—did not pick up the recommendations of the Retail Prices Index Advisory Committee, which was a committee of stakeholders that included statistical experts; namely, the Bank of England, the Treasury, and so on. Incidentally, that is why we now have the RPI alongside the RPIX in order to retain the mortgage interest in the RPI. Unlike some countries, we have never had any lack of confidence in the RPI. The TUC is currently worried about whether the RPI in some countries on the Continent is correct, but we have never faced that situation in Britain.
Ever since the First World War, when the cost of living committee was established to deal with the basic wage, there has always been confidence in our index. However, we are now told that there is to be a new index—namely, the European harmonised index—something which I believe to be inevitable. Side by side with that, the Chancellor has talked about regional indices that would be linked to pay bargaining.
Will my noble friend take on board very seriously, much more seriously than the rather brief—I was about to say "perfunctory"—replies that have been given to questions that I have raised on the matter hitherto, the danger of a collapse in confidence in the price index if changes are made without the fullest possible involvement of the stakeholders, as has, until recently, been axiomatic? I urge the Government to recognise the serious need to take that on board when addressing this important change that I believe is probably coming our way.
8.50 p.m.
Lord Peston: My Lords, I thank my noble friend Lord Barnett for taking from me the burden of introducing the Economic Affairs Committee report on the MPC and related matters. Like him, I am unused to debating three reports on the same day and 1 felt that introducing one was as much as I could cope with.
I follow the noble Lord, Lord Burns, in taking the opportunity to mark the retirement of Sir Edward George as Governor of the Bank of England. The MPC ipso facto has been a success and has set a world standard for the conduct of monetary policy. But that was not obviously the case a priori. Many of us, not least me, had doubts. Its success has been due in a large part to Sir Edward. He has assured himself a place in history for that reason if no other.
Again following the noble Lord, Lord Burns, I take the opportunity to welcome the new governor Mervyn King. The noble Lord, Lord Burns, did not point out that for the first time in history a world class economist is heading a central bank. That means that the Economic Affairs Committee is looking forward to interrogating him and the current MPC in the not too distant future.
I wish to comment on three topics on the Economic Affairs Committee report. The first is the need, as my noble friend Lord Barnett emphasised, to undertake a systematic study of how monetary policy has been conducted over the past five years—the George era, so to speak. If it is not undertaken by an independent academic body it is possible that your Lordships' committee might undertake the task subject to the resources being available, as my noble friend said. It has been put to me that we should carry out the job jointly with the Commons Treasury Committee, but sadly co-operation between the two Houses always seems more likely in theory than it ever turns out in practice.
Secondly, we reiterate—as did the noble Lord, Lord Oakeshott—our view that the method of appointment to the MPC is wrong and that a more formal Nolan-based approach is the right way. The Treasury's reasons for rejecting this—I put it far more mildly than the noble Lord, Lord Oakeshott are—simply unconvincing. Naturally I shall take seriously his suggestion about an appointments committee made up of the great and the good, but I have to tell him that all my instincts are against it. A committee that had me as a member, as he knows, simply would not work.
The Economic Affairs Committee had in mind that the Chancellor would continue to make the appointment, but using Nolan methods. I regard it as ridiculous to suggest that a committee of this kind would have its membership appointed by an outside body, to which the noble Lord, Lord Burns, seemed to allude.
Thirdly, 1 am surprised that no one else has raised the important reference at paragraph 41 of the EAC report to the imbalances in the economy. That is a large part of what we were on about. While agreeing
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that they are in part cyclical we have to note that they are not entirely self-adjusting. Yet—this is what puzzles me as an economist—they do not appear to be leading to any kind of crisis.
Lord Vinson: Yet.
Lord Peston: Not at all. Certainly the fall in sterling relative to the euro is not a crisis. Equally, while the fiscal position must be subject to constant scrutiny, even the most sceptical observer would not be inclined to call it critical. And somehow or other, although I do not understand how, in some way we are even getting through the fall in equity prices throughout the world without a calamity.
However, there is no room for complacency and I am confident that the MPC itself is alert to the dangers. However, as I have said, professionally I regard all the questions of imbalance as important but difficult to explain.
I turn now to the stability and growth pact. It is generally accepted that the conduct of fiscal policy should be rules-based, but should have a flexible element too. Economists differ on the right balance, but decision makers in the real and the financial sectors require some reassurance, first, on the medium to long-term fiscal stance being aimed at by the Government and, secondly, on how fiscal policy adjusts to short-term shocks. Although we may disagree on the precise detail, in broad terms we have got the balance right in this country. This does not mean that there is no room for argument on the nature of the cycle and how the fiscal position is to be measured, not least as to what counts as public expenditure and what is the true measure of the public sector's liabilities. But the debate here in our country is open and takes place between people who know reasonably what they differ on and who can also agree to differ.
The same cannot be said about the stability and growth pact. As my noble friend Lord Sheldon and other noble Lords have pointed out, it is set out too formalistically. It is interpreted even more rigidly. Above all, it is not subject to the same kind of critical scrutiny of our own fiscal and monetary arrangements. It fails especially on the criterion of transparency. In this regard one can simply contrast the scrutiny by the European Parliament with the scrutiny of the Treasury Select Committee, the scrutiny of your Lordships' Economic Affairs Committee, and the scrutiny now undertaken by Sub-Committee A of the European Union Committee.
Although I may disagree with one or two noble Lords, I have to say here that I believe, overall, policy has not been satisfactory. While the pact may have brought stability, as the noble Lord, Lord St John of Bletso, pointed out, it certainly has not been conducive to growth. Sub-Committee A received evidence from the TUC making it clear that that was its view and I have to tell noble Lords that it is also absolutely my view.

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Furthermore, the way in which the pact has been interpreted bodes ill for an expanded Union. The problem is not the one of a single interest rate and it is not the one of a single external value for the euro. It is that within such a desirable common monetary framework there must be more fiscal flexibility than at present. Within broader limits, countries must be regarded as the best judges of their own economic needs. I must add here that while I regard reform at the micro-economic market mechanism level as desirable, this, as a matter of fundamental economics, does not solve the macro-economic problem.
I am one of those who has always regarded what might be called the EMU problem, or EMU question, as one of balance. I have argued that, in my judgment, the balance favours EMU and our joining it. But I have never taken the view that those who see the balance the other way are either disreputable intellectually or idiots. I reserve that judgment for those who see that there is no downside and for those who see that there is no upside. Unfortunately, too many people do not have a balanced view.
I have to say that I would have joined at the outset. Despite not being privy to all the marvellous research documents that the Treasury has made available to the Cabinet and which I assume that we shall all be able to access early next week—I cannot wait for this vast amount of material, and of course our detailed scrutiny of it in your Lordships' House, which should not take more than around three weeks working all day—I would still join. Even if I could not see all the documents, I would still do so.
My only doubt, which arises as a consequence of our failure to join in the first place and our dithering since, is that by the time we do make up our minds to join, the stability and growth pact will be set in stone, as well as the way in which the ECB conducts monetary policy. It may be that some will then say that, as a result, joining would be disadvantageous. I would not go that far, but I can say that, were that to happen, we would have only ourselves to blame.
8.59 p.m.
Lord Taverne: My Lords, I read the report of the Economic Affairs Committee on the Monetary Policy Committee with interest. But if I may sound a note of dissent, however convenient it is to combine the debate on that with the debate on the stability and growth pact, I do not see much of a common theme between them. With the exception of the remarks made by the noble Lord, Lord Peston, it is interesting that most of those who have spoken did so about their own committee report and did not cross the border to the other field. I shall therefore speak about the stability and growth pact, except to say that I very much agree with the noble Lord, Lord Burns, that a single inflation target seems more sensible than having two targets of inflation and growth.
The stability and growth pact has been declared to be stupid. No less a person than the President of the Commission called it stupid. Many people have blamed
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it for the period of low growth and relatively high unemployment that we have seen in recent years inside the European Union. Some of those who have attacked it have been very eminent—the Financial Times, the noble Lords, Lord Peston and Lord St John of Bletso. Yet, to my surprise, after hearing the evidence of most of our witnesses, the general conclusion to which our committee came was "not guilty". It should be adapted, it should be made more flexible, but on the whole the report does not find that the stability and growth pact is to blame.
I think our report is very good, and I do not say that in a self-congratulatory fashion. It had a very able chairman and a very good Clerk. It is written extremely well, it is well argued and has a good logical flow.
Let me start with the background. On the face of it, there is a case to be made against the stability and growth pact. Contrary to what many people now state, over the past 20 years the European Union has strongly outperformed the United States. Despite the fact that it is now declared to be sclerotic, it has certainly outperformed the United States in terms of productivity growth and, over 20 years, generally in terms of unemployment. Even today, after a short period of much faster growth in the United States, productivity per hour worked is still higher in France, Germany, the Netherlands and Belgium, and is very close to it in a number of other EU countries. The only laggard is the United Kingdom itself.
That is against a background of a much more attractive form of capitalism. I greatly prefer the European form of social capitalism to what Professor John Kay has called the American business model. There is more security of employment, more consensus, fewer hours are worked, holidays are longer, there is far greater equality and not the same concern for financial engineering and maximising shareholder value. There is more investment and innovation, partly because there has been more security and much more intracompany innovation, a particularly strong feature of the German economy. However, the past five years has seen slow growth in Europe and high unemployment, particularly in Germany, which, after all, makes up something like one third of the total economy of the European Union.
I come back to the question of whether that is the fault of the stability and growth pact. Would we be better off without it? Our answer was no. Everyone agrees that it makes sense to have fiscal policy which is of common concern to all members of a monetary union. The noble Lord, Lord St John of Bletso, one of our witnesses, suggested that we should concentrate on debt, not on deficit, and that deficit was not important. This was very effectively answered by the evidence of a very impressive witness, Mr Klaus Regling of the European Commission. He said that,
"deficit is important for the conduct of monetary policy. When you look at the policy mix and what really affects the European Central Bank, it is the deficit. When they look at this year and see the economic situation, price developments, where the pressures are coming from, it is not so important whether a country has 40 per cent of GDP debt or 80; for the management of monetary policy this year what is really important is how big the deficits are".
He goes on to say:

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"Looking at it another way, even if a country has a very favourable debt situation, no ageing problem, no long-term sustainability problem, if it is a big country and it decides during a normal economic situation to all of a sudden shift from a surplus in the public finances of I per cent of GDP to a deficit of 2 per cent, this has an impact on monetary policy, on the policy mix".
That is a very powerful argument.
If we need to have rules, one obvious way is to have an economic government, but no one is ready for an economic government of Europe. That is not a realistic possibility, whatever the euro-sceptics say. But we need rules. This point was eloquently expressed in a question from the noble Lord, Lord Lea of Crondall, who said, "If we don't have rules, all that lot would spend all our money".
We cannot leave it to the market, either. That was put well in paragraph 46 of our report, which said that where previously—before there was monetary union—interest spreads,
"might have gone up by between 100 and 500 percentage points in reaction to fiscal policies that the market saw as profligate or unsustainable, today in the Eurozone the spreads were 'down to below 50 basis points,' which was 'not surprising' because of the absence in the Eurozone of exchange rate risk".
Therefore, we cannot simply leave it to the market. We must have rules.
Then it is said that the rules are much too tight and rigid. To some extent, that point was conceded in the committee, because we do call for a much more flexible approach. However, is 3 per cent really an unreasonable limit, especially if it is seen as a benchmark for the exercise of peer pressure rather than as an absolute limit? There was a good essay by Barry Eichengreen and Charles Wyplosz, which pointed out that only in exceptional circumstances were there budget deficits of more than 3 per cent in EU countries in the period since the war for more than one year. The evidence that we heard was that the 3 per cent limit—if people manage their fiscal policy sensibly—leaves plenty of room for the automatic stabilisers to work.
The problem faced by Germany and France is that they pursued pro-cyclical policies in boom years. The suggestion that there would be faster growth if they were only allowed to borrow much more has not been supported by most of our witnesses. The ideal mix is a much tighter fiscal policy and a loose monetary policy. The evidence that we heard was that Germany's position would be no better whether it had a deficit of 4 per cent or 5 per cent. The mantra is that Germany has been affected by interest rates that are too high, but historically interest rates are relatively low for Germany at present.
There is no great output gap in Germany, either, because wages are actually rising. It is difficult to know whether there is an output gap, as the Economic Affairs Committee also pointed out. However, there is no particular evidence that Germany's problems at the moment are caused by a big output gap, and that if it was only allowed to borrow more and expand by fiscal policy, its problems would be solved. The reasons our witnesses gave for Germany's problems were structural, and the legacy of reunion.
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In so far as the European Union needs structural change, it does not mean that we should adopt the American business model. The Netherlands has been as successful as almost any European country in reducing unemployment and improving economic growth. It has a much more successful record than this country, I am sorry to say. That has proved that if one combines a degree of flexibility and competition with the consensus model—sometimes known as the Polder rather than the Rhineland model—one can deliver economic success and not lose the many advantages of social capitalism.
In terms of longer term historical context, we have seen a seesaw between the United States and the European Union. There was a time when Europe felt that it was unable to compete with the United States. Many years ago, a hook entitled La Défi Americain was published and asked how we could meet the American challenge. Then it shifted the other way. I remember a speech by the late Lord Jenkins in the early 1970s, before he was Lord Jenkins, when he looked to the United States and saw gloom and Europe was the place of excitement, innovation and growth. "Westward look, the land is bleak-, I remember him saying.
Now, in the past few years, there has been an American success. Some of the gloss has come off that success. Their success has been partly an inflated share price bubble and partly inflated profit figures. Mr Robert Gordon has been a fairly effective critic of the so-called "new economic miracle" in the United States. They may face a lot of problems with the twin deficit. I am not going to make any forecasts. I will not predict whether the see-saw will tilt again the other way. However, suitably modified and flexibly interpreted, the findings of our committee were I think sensibly that the stability and growth pact was not something that would stop that happening.
9.11 p.m.
Lord Saatchi: My Lords, like the noble Lord, Lord Lea, but I am afraid unlike the noble Lord, Lord Taverne, I am grateful to the usual channels for the fact that we are debating these two subjects together. As the noble Lord, Lord Burns, said, it allows your Lordships' House to look at how the euro-zone rules may affect the MPC and UK monetary policy. So I begin by right away joining other noble Lords in congratulating all the members of both the committees, led by their two chairmen, the noble Lords, Lord Peston and Lord Radice, on both their most thorough, comprehensive and excellent reports. Both committees have upheld the high standards set for them and have demonstrated again, I hope for all to see, why your Lordships' House deserves its new role in the scrutiny of economic policy, as the Government have now recognised.
I begin with the MPC. We, like the committee and the noble Lord, Lord Burns, do not propose any immediate or major changes in either the remit or the composition of the MPC. We, like the committee, fully support the fact that the inflation target is a single target and that the approach to it is symmetrical in the

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sense that deviations below the target are treated in the same way as deviations above it. Having said that, there are three questions that I should like to put to the Minister about the report and the Government's response.
First, we think that the committee is perhaps a little modest in its definition of Parliament's role in MPC appointments. I should be interested in the Government's point of view. In the United States, the appointment of the chairman of the Federal Reserve is approved both by the banking, housing and urban affairs committees of the Senate and then by the Senate itself. So while not going anywhere near as far as the noble Lord, Lord Oakeshott, we do propose that the appointment of the Governor of the Bank of England, the Deputy Governor and members of the MPC should be approved by a joint committee of both Houses of Parliament. We think that that would help bolster their independence, make the process more transparent and increase the power of Parliament. I am sorry that the committee does not agree on that. I look forward, as I said, to the Minister's views.
Secondly, our MPC model of monetary policy relies on the single weapon of the short-term interest rate and the one target of 2.5 per cent inflation. I wonder whether the Minister thinks that that model—whatever the resulting definition, as the noble Lord, Lord Barnett. raised the question—adequately reflects the fact that the overall inflation rate is made up of the composite of two inflation rates. I am referring to public sector inflation and inflation in the rest of the economy, the composite of which gives the overall familiar national inflation rate which is targeted by the MPC. That might not matter very much when the two rates are similar, but as the Minister knows, there is now a remarkable gap between the two. It is interesting to ask what the policy implications would be if people were more aware of that. For example, an analysis of official data from the Office for National Statistics reveals that government expenditure on goods and services rose by 7.6 per cent in nominal terms in the first quarter of this year, compared with the first quarter of last year. The data estimates that the real inflation-adjusted increase in the volume of services provided was just 1.5 per cent. So the official figures imply that public sector inflation has now reached 6 per cent per year—up from 5.5 per cent in the previous quarter.
That raises some serious questions. If public sector inflation is 6 per cent and the total is 2 per cent, what does that make inflation in the private sector? Is it zero? Is it deflation? Apparently, shop prices fell by 0.1 per cent in April, which was the thirteenth monthly decline in a row. My noble friend Lord Northbrook referred to the new fears of deflation. That is my first concern and I would be interested in the Minister's view.
My second is that it means, insofar as I can calculate, that nearly £80 out of every £100 of taxpayer's money now being spent on schools, hospitals and other public services is being spent on higher salaries, benefits and administrative costs, with
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only £20 of every £100 going towards increasing the volume of services provided. Does the Minister agree that further scrutiny of the disparity in inflation rates between the public and private sector might be very interesting?
My third concern is that in its document, Reforming Britain's Economic and Financial Policy, the Government time and again praise the MPC for "acting in a proactive manner". Is it not at least curious that, on the one hand, the Government praise the flexibility accorded to Britain by the current MPC system, but that, on the other hand, say that they intend and want to eliminate that flexibility by joining the euro? Is it not a supreme irony that at the very moment when we reach unprecedented, historic, cross-party consensus on the framework for monetary policy, it is only the Conservative Party that is in favour of maintaining that framework?
It is not just the possibility of joining the euro that creates anxiety about the framework. The noble Lord, Lord Burns, drew our attention to that. Perhaps I may draw to your Lordships' attention the fact that the Convention on the Future of Europe raises the question before anything arises about joining the euro. It makes a clear injunction towards the co-ordination of economic policies, but I can find no echo of it in the Bank of England Act 1988. Indeed, the committee restates the familiar remit of the MPC on page 1 of its report, but neither there nor anywhere in the iconic Bank of England Act 1988 can I find any mention of the EU, of the objectives of the EU, of EU guidelines or of co-ordination with the EU. I would be interested to hear the Minister's response to that.
The mention of Europe brings us conveniently to the second report, on the stability and growth pact. I believe that after the great inflation of the 1970s, the priority of policymakers was, as Sam Brittan put it, "to lock the monetary cupboard" to prevent governments trying to expand too fast for short-term political advantage. And so it was, as the noble Lord, Lord Lea, said, that the Bundesbank made its great gift to the euro-zone—what economists called "a pre-nuptial contract written in blood"—the stability and growth pact. The committee's report and many noble Lords who have spoken support the need for some form of co-ordination of national policies to maintain public finances across the EU. The committees says on page 38, in its conclusions, which were supported by the noble Lords, Lord Radice, Lord Sheldon and Lord St John of Bletso:
"Market discipline alone cannot be guaranteed to ensure the sustainability of public finances".
As the noble Lord, Lord Taverne, said, we cannot leave it to the market. I believe that the thinking behind that conclusion is that excessive public borrowing always weakens a currency and that once a country is in the euro, it may be tempted to borrow and spend at everyone else's expense, raising interest rates for all. That is, as the noble Lord. Lord Sheldon said, the famous 'free-rider' problem. However, we have a disagreement about whose rules are to apply: ours or theirs. The Chancellor has set out his two fiscal rules, against which he says the performance of fiscal policy

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should be judged: the golden rule and the sustainable investment rule. Noble Lords are familiar with both of them. The Treasury believes that its model is better. I am not clear whose rules will prevail. I hope that the Minister can shed some light on that.
The committee does not approve of that rule-based approach, as the noble Lord, Lord St John, made clear. While agreeing that,
"the Commission's proposals provide member states with a useful aim and sound objective",
it concluded:
"They should be interpreted as guidelines rather than as rules".
As many noble Lords, including, I believe, the noble Lord, Lord Peston, have said, the mechanism operates too formalistically and it bodes ill for the euro-zone. The committee wants the rules to be interpreted in a flexible way, that:
"takes account of the particularities of each individual situation",
and which is,
"sensitive to the specific circumstances of each country".
Romano Prodi, the European Commission President, agrees with the committee that it needs to,
"implement the stability and growth pact in a more intelligent and forward-looking way".
Mr Francis Mer, the French Finance Minister, also agrees. If noble Lords will allow me, he said:
"Le pacte de stabilité Européen n'est pas inscrit sur le marbre".
The committee says:
"The Council should not treat the 3 per cent figure as an absolute limit".
It should, it says:
"take account of the underlying economic situation, including the Member State's position in the economic cycle and possibly its level of debt".
It goes on to say that it,
"should not be treated…as an enforceable rule, any breach of which would activate the excessive deficit procedure".
The noble Lord, Lord Barnett, referred to that as the crucial need for flexibility. As the noble Lord, Lord St John, said, the current Oxford Review of Economic Policy in the article by Allsopp and Artis, also condemned the SGP's emphasis on what it calls,
"the legalistic imposition of rigid rules with little economic justification".
To complete that happy consensus, the Government, too, welcome any move to a more country-specific interpretation of the pact, as it allows them to continue their programme of priority public investment in public services. In their response to the committee's report, the Government said, in paragraph 165, that they support a "prudent interpretation" of the SGP. So anxious were the Government to make sure that we get the message that they repeated the phrase "prudent interpretation" five times in their two-page response. Why is that? Only a mean-minded cynic would say that the Government's motive is that their own forecast for public debt, on which the committee rightly says there should be more emphasis, has shot up from £34 billion to £118 billion in 18 months.
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It is understandable that when people see those who are either in breach of the pact's rules or are about to be in breach of the rules, they wish to change things. To some people, that crumbling of the fiscal rules underlying the euro will lead to economic disaster. Others respond that in the current economic circumstances, a sustained period of public deficit is just what the euro-area needs. Either way, not everyone is impressed by the quality of the debate. The Economist, for one, said that the pact needs substantial reform,
"preferably to the point where it ceases to exist".
It describes the stability and growth pact—I am sorry to say this to the noble Lords, Lord Barnett and Lord Radice—as:
"The best argument against joining the euro".
9.25 p.m.
Lord McIntosh of Haringey: My Lords, I have the task, which was identified by the noble Lord, Lord Taverne, of trying to find a common theme between these two reports. I also have the much more pleasant task of doubly congratulating the chairmen, members and everybody who gave evidence or took part in the production of these two excellent reports.
The common theme that I look for is macro-economic stability in this country and in Europe through sound fiscal and economic policy delivering, as we believe it has, not only sustained economic growth but low unemployment.
That is the case in this country. Clearly, as the Budget has made clear, no country can remain immune to the effects of global uncertainty. As a result of the economic framework that the Government have put in place over the past six years, Britain is better placed than many of our competitors. We are better placed than in the past to withstand difficulties. We have no intention of being diverted from our priorities of investing in public services and encouraging enterprise for achieving full employment, tackling child and pensioner poverty to build a Britain of economic strength and social justice.
The strength of the UK's economy can be attributed to the sound fiscal and monetary frameworks in place, which ensure that fiscal policy plays its proper role by supporting monetary policy during this period of global economic weakness. It has certainly been tested in recent times. There has been a background of hesitant—to say the best—global recovery, stalled by continuing concerns around the world. But we are on track to meet the fiscal rules over the economic cycle to ensure that public finances are sustainable in the long term.
Specifically in terms relevant to the stability and growth pact, the average surplus on current budget is projected to be comfortably positive over the projection period, meeting the golden rule. Our net debt is set to stabilise at 34 per cent, which is well below the 40 per cent that is necessary to meet the sustainable investment rule. It is at the lowest level in the G7 and among the lowest in the EU.

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Clearly, we are cautious in our forecasts. The noble Lord, Lord Northbrook, raised that point, but I shall not read out tables of figures. But I am prepared to write to him to set out our forecast on the relevant criteria against the consensus. They are set out in table 2.4 of the Budget document, but I am happy to set them out in the terms in which he asked the question. The assumptions behind our public finances, as has been the case for a number of years now, are independently audited by the National Audit Office to provide a safety margin against unexpected events. The cautious assumption for equity prices, for example, rises only in line with GDP, locking in the recent falls rather than assuming that they will be reversed.
I turn to the European side of things and the stability and growth pact. There are assertions about the way in which the pact is being implied. I can best illustrate the situation by reading out the recommendations hot off the press from ECOFIN yesterday when it declared that France came within the situation of an excessive government deficit. The ECOFIN council recommended that the French authorities put an end to the present excessive deficit situation as rapidly as possible and by 2004 at the latest, in accordance with Article 4 of Council Regulation No. 1467/97. The council has established a deadline of 3rd October 2003 for the French Government to take appropriate actions to that end and expects the French authorities to achieve a significantly larger improvement in the cyclically adjusted deficit in 2003 than that currently planned. That gives credence to what was said about the way in which the cyclical adjustment has been taken into account in ECOFIN decisions. The council also expects France to limit the increase in the general government gross debt to GDP ratio in 2003.
In addition, the Council notes the commitment of the French authorities to ensure that the budgetary consolidation continues in the years after 2004 as reflected by the December 2002 update of the stability programme; namely, through a reduction in the cyclically adjusted budgetary deficit by at least 0.5 per cent GDP per year in order to move decisively towards the medium-term position of government finances close to balance or in surplus, and bring back the debt ratio to a declining path.
The Council notes the commitment of the French authorities to ensure a tighter control of expenditures in 2003. It welcomes the commitment of the French Government to achieve the pension reform already in process to secure the long-term sustainability of public finances. I have to say that that is slightly ironic in a week in which there is an immobilisation générale in France against the Felon project. Nevertheless, that is the way in which the stability and growth pact is being operated. It can be seen that it is by no means as rigid as has applied.
The Government firmly support the premise of a strong stability and growth pact which is founded on sensible fiscal policy co-ordination, as set out in the EU treaty. All speakers, whatever their view about the
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details of the stability and growth pact, have supported the policy for co-ordination of fiscal policy and for convergence. Even the noble Lord, Lord St John of Bletso, who was the most dramatic opponent of some of the provisions of the stability and growth pact, was in favour of co-ordination and convergence.
My noble friend Lord Radice and others talked about having the existing rules implemented more flexibly. That is not language the Government use. The noble Lord, Lord Saatchi, chooses to make fun of it, but our view is that a sensible fiscal policy coordination is consistent with the UK's prudent interpretation of the stability and growth pact, which takes into account the economic cycle, sustainability and the important role of public investment. That is what "prudent interpretation" means. It would lock in long-term fiscal discipline and sustainability, enhancing credibility while allowing the automatic stabilisers to smooth fluctuations in output and allowing appropriate increases in investment in public services.
Under those circumstances, that is a stability and growth pact we wish to support. The noble Lord, Lord Saatchi, asked how that relates to the UK fiscal rules. They cannot and should not be compared on a likefor-like basis. Their starting points are different, but their underlying ethos is common—securing and sustaining sound public finances. As the noble Lord said, we have the golden rule and the sustainable investment rule, but, consistent with a prudent interpretation of the stability and growth pact the Government's fiscal rules operating together have both allowed automatic stabilisers to operate fully over the economic cycle; they have contributed to macroeconomic stability: and they have allowed the Government to undertake much needed quality public investment while staying within the 3 per cent deficit limit.
I turn to the committee's report on monetary policy. We are grateful for the very wide degree of support from the committee for the operations of the independent Monetary Policy Committee. We were glad to have at least a modification of the views of such noble Lords as my noble friends Lord Barnett and Lord Peston, who were opposed to considerable elements of the Monetary Policy Committee when we debated the Bank of England Bill in 1998. After all, the Monetary Policy Committee continues to deliver RPIX inflation around the Government's target of 2.5 per cent with inflation expectations anchored close to the Government's target, having fallen from over 4 per cent in 1997. As the noble Lord, Lord Burns, said, this delivery has been going on for a period approaching 10 years, which is quite a long time in the life of an economy.
Long-term interest rates are around their lowest levels for over 35 years. That has reduced the Government's debt interest payments and freed up resources for investment in public services. Again there is a query about the inflation target. There are still those who would wish to go away from a single inflation target to more complex targets. As the noble

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Lord, Lord Northbrook, reminded us, that applied to the Federal Reserve Bank under the Humphrey-Hawkins Act. We do not take that view and I am glad to have the support of the noble Lord, Lord Burns. We think that inflation targets are clearly and easily understood. They make the monetary policy objective transparent, they make it possible for the public to monitor it and they provide an effective anchor for monetary policy and inflation expectations. As the committee discussed, those targets are a weighted average, but they are a weighted average between manufacturing and service inflation. They are certainly not a weighted average between the mythical public sector inflation, to which the noble Lord, Lord Saatchi, referred, and which I hoped that I had demolished for good in the past couple of weeks, and private sector inflation. It is clear that inflation has to be the right target.
I turn to the question of which measurement of inflation is used. The noble Lord, Lord Northbrook, and my noble friend Lord Barnett referred to this point. In the Budget Statement the Chancellor announced only that the Treasury would continue to examine the detailed implications of changing the inflation target to an HICP basis. The implications are being examined from a monetary policy perspective only. We have already made it clear that, for example, the basic state pension will rise each year by 2.5 per cent or by the September RPI, whichever is the higher. We have made it clear that social security benefits will rise in the normal way, and it is certainly true that gilts will continue to be treated in the current way because they are legally tied to RPI. There is no difficulty about having a different criterion for different purposes. Even in the euro-zone, where the European Central Bank uses HICP, the Greek and French governments use different measures for inflation indexed bonds. There is no problem about that. There is a review continuing of which I am not going to pre-empt the outcome, except to assure my noble friend Lord Lea that the review will involve discussions with stakeholders who are concerned, as he is, particularly with wage setting.
The noble Lord, Lord Northbrook, seemed to think that there is a conflict between the inflation target and the Government's objectives for growth and employment. I hope that the summary figures that I have given show that that is not the case. Price stability is a necessary condition to ensure sustainable growth and high employment. There is some evidence to suggest that high and variable inflation can damage growth and productivity. That evidence was fairly strong over a longer period in the 1960s and 1970s when I was in business on my own account. The framework is designed to ensure that price stability is
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the long-term objective of monetary policy. I have to say to the noble Lord, Lord Northbrook, that there is no evidence that it leads to low inflation—or certainly not to deflation.
The noble Lord, Lord Burns, and my noble friend Lord Peston are right that the target must explicitly recognise that external events and temporary shocks may hit the economy. The target does reflect that. The MPC will need to find the most appropriate way of responding to those shocks. It does that in case inflation moves more than one percentage point away from the target through the open letter system.
We have had a valuable debate. It has been inevitably polarised by the interests of those who have taken part, but I hope that I have been able to bring the debate into the context of the broader objectives of UK monetary policy, and to indicate in doing so my support for the work of the two committees.
Lord Radice: My Lords, at this time of night, I shall not make a "right of reply" speech—as noble Lords will be glad to hear. I thank noble Lords for their high-quality speeches. To my surprise, there was overlap between the two subjects—it was not always to my taste, but it was there. Above all, the arrangement allowed both reports to be debated, which might not have happened otherwise, so there was a severely practical reason for it. On the whole, the debate has been a success. I commend the Motion to the House.
On Question, Motion agreed to.

Monetary Policy
Lord Pestonrose to move, That this House takes note of the report of the Select Committee on Economic Affairs on The MPC and Recent Developments in Monetary Policy (2nd Report, HL Paper 66).
The noble Lord said: My Lords, despite having placed the burden on my noble friend Lord Barnett, it appears that I must beg to move as well. Just before doing so, I certainly strongly believe that the debate was worth while, and that conducting it jointly a fortiori was worth while—not least because otherwise, neither of us would have had a debate, but also because the two reports intermingled. I beg to move.
Moved, That this House takes note of the report of the Select Committee on Economic Affairs on The MPC and Recent Developments in Monetary Policy (2nd Report, HL Paper 66).—(Lord Peston).
On Question, Motion agreed to.
House adjourned at nineteen minutes before ten o'clock.