Economics: Centerpiece of 21st Century U.S. Foreign Policy
Assistant Secretary, Bureau of Economic and Business Affairs
Good morning. Thank you, Susan, for that kind introduction. I am very happy to be here in Miami and look forward to speaking to you about the intersection of economics and diplomacy.
We live in a globalized world, which has been a hot topic for years now. Hundreds of books and articles have been written about what globalization means for both governments and businesses. However, it is not a new concept. In fact, it is an ancient one. Historical texts go into great detail about a trade mission that King Solomon and his Phoenician allies sent to a faraway land that many scholars believe was India. From Roman trade with the Chinese to the East India Company to 19th century clipper ships, people, ideas, and goods have been travelling around the globe for hundreds and hundreds of years.
What has changed is that modern technology has greatly sped up the process. The Internet, free trade agreements, and modern transportation networks have broken down physical national borders that hindered the flow of goods, money, and ideas around the globe. For example, I have a Facebook account with more than 20,000 fans from all over the world, only a few hundred of whom are in the United States. My predecessor 50 years ago would never have imagined carrying out his job in a world where facts and rumors can travel at light speed. He also did not have a forum that allowed him to communicate directly with thousands of people globally in real time.
To address these new opportunities and challenges, Secretary of State Hillary Rodham Clinton launched Economic Statecraft. Economic statecraft is a recognition that in an interconnected world, we cannot neatly separate economics and diplomacy. We must move economic tools to the center of our diplomacy abroad and also use our diplomatic power abroad to reinforce our economic position at home. Other countries have recognized this.
While the State Department has a wide range of initiatives to promote U. S. economic policy overseas, I would like to focus on three separate but related overarching goals.
The first, is Creating Economic Opportunity. This means helping individual economies grow so they can more fully contribute to the international system, and helping ensure citizens from all walks of life can participate fully in their economies. By supporting strong, open economies, we also create more opportunities for U.S. businesses. Strong, inclusive economic growth both fosters internal stability and creates more customers and investors for your firms and organizations.
Second, Regional Integration. Because the old boundaries of our world are fading, especially in the realm of economics, we encourage all countries to work and trade with their neighbors to foster economic opportunity.
Finally, Promotion of Values. We believe in transparency, promoting democracy, social inclusion, and a level playing field. Everyone who benefits from the international economic system should respect the rules so that we all can continue to grow.
1) Creating Economic Opportunity
How do we help developing economies grow and encourage their participation in the international economic arena so that U.S. companies have good trading and investment partners?
The private sector, of course, contributes. One way is through the promotion of entrepreneurship. The Global Entrepreneurship Program empowers local people and businesses to become full participants in their economies. Our programs focus on groups of people traditionally marginalized from economic opportunities, including women and youth. As Secretary Clinton said earlier this year in Morocco, “We are promoting entrepreneurship, because new businesses mean more jobs, faster growth, and greater innovation.” In countries around the world, the Global Entrepreneurship Program works with local business and communities not only to foster the ideal of innovation, but also to provide tools for people looking to build a new life for themselves.
Closer to home, in the Western Hemisphere, we have Pathways to Prosperity. What started as a policy dialogue between governments has morphed into something that looks to provide tangible results. One of the priorities under Pathways to Prosperity has been to advocate that the most effective way to accelerate a nation’s economic productivity and prosperity is to enable women to participate. So with U.S. backing, 10 countries have established their own in-country women’s entrepreneurship networks. In Peru for example, The Pathways Access initiative provided market access training to 350 women and encouraged 115 additional women business owners to join the WEConnect network in Peru. WEConnect, a corporate-led non-profit organization, certifies small businesses as high-quality and women-owned. It introduces those businesses to corporations that want to buy from them, forming the global linkages necessary for women to enter the export market. The global corporate partners of WeConnect know that sourcing goods and services from qualified women-owned businesses is smart business. So we connect, focus on training and opening markets for women-owned businesses. This program will expand to Mexico and Brazil in the coming months as part of the Women’s Entrepreneurship in the Americas (WEAmericas) initiative, which Secretary Clinton launched at the April Summit of the Americas in Cartagena.
This brings us to the promotion of small business. Small businesses are often described as the drivers of economic growth. In the United States, we value the entrepreneurial spirit and applaud those willing to take the risk and begin a business. And in this country, the majority of jobs created in the past few years have been created by small businesses.
Here, we have the Small Business Administration and its network of small business development centers. These centers work with small businesses every day to help them grow and create jobs. When I travel to countries throughout the region, my government counterparts often ask me for help in implementing something like the SBA system in their countries. Brazil, Canada, and Mexico have similar national networks of business support centers, with which we are working with to further increase our cooperation.
In El Salvador, Pathways to Prosperity funds have supported entrepreneurs through training at the 14 small business development centers established there since 2009. They have learned how to obtain product certifications, ensure compliance with sanitary standards, identify markets, and utilize technology to expand their businesses and create jobs. Robust small business growth in El Salvador reflects the positive impact these centers can have. These networks are also popping up elsewhere in Central and South America and the Caribbean with more than 2,000 centers now serving more than 2 million small businesses across the Hemisphere. But how do we help them take advantage of opportunities outside their countries?
Well, at the Cartagena Summit, President Obama emphasized that, “We want to make sure that the benefits of trade don’t just go to the largest companies, but also go to the smaller entrepreneurs and business people, because in today’s globalized world there is an opportunity for a small business or a medium-sized business to access a global marketplace and grow rapidly.”
To promote that goal, the President launched the Small Business Network of the Americas to link small business support centers together and create an interconnected infrastructure. Part of SBNA will be a global portal that will serve as a small business super-highway to make it easier for entrepreneurs to get the training and financing they need to take advantage of new business opportunities in the region.
We are looking to help countries make it easier for people to open a business, then more people can participate more fully in the economy. But opening the door is only the first step. Countries still need to ensure that the environment will let you thrive. One major impediment in many societies is corruption, but we are working to help countries combat this too.
We established Domestic Finance for Development or DF4D to create an environment in which the small businesses we are supporting in our other efforts can thrive. The basic principle here is that when countries can fund their own development, they own their own development. This is a three-legged stool. By improving tax systems, cutting down on corruption, and increasing fiscal transparency, a country can harness some real growth and create real economic opportunity. These steps enable governments to allocate more revenue for public services and to strengthen investment climates for private sector engagement. They also reassure citizens that their hard-earned tax money is not being wasted or misused.
One example of where these principles were enormously successful is Medellin, Colombia. Mayor Sergio Fajardo’s investments in education, urban development, and crime prevention elevated Medellin from “one of the most dangerous cities in the world” to a showcase for innovative urban planning and socio-economic development.
When people ask him how he did it, Mayor Fajardo states, “from taxes.” He said, “We improved transparency in the city’s finances, so more people are paying their taxes. When businesses trust that we are not stealing, and they know that we are going to use their money effectively, they pay. Business supports us because they see how much this can help them.”
Mayor Fajardo’s experiences have shown that fiscal transparency and anti-corruption reforms can play a direct role in a country’s ability to generate the domestic financial support that will generate money for essential programs such as security and crime prevention.
2) Regional Integration
When we talk about economies, the closest and most practical trading partners are always our closest neighbors, with whom we have a wealth of shared history and culture.
We are thinking increasingly of the Americas and Asia as an integrated whole – a broader Pacific with commonalities beyond geographic proximity. The Asia-Pacific is central to foreign policy because it is central to economic growth. The Broader Pacific already includes more than half of the world’s population, and many of its most important economies, key allies, and emerging powers.
We are already engaged in the Broader Pacific in a variety of ways, including through the Asia Pacific Economic Cooperation, or APEC, forum. The 21 economies of APEC are united in their drive to build a dynamic and harmonious Asia Pacific region. We are doing this by 1) championing free and open trade and investment; 2) promoting and accelerating regional economic integration; 3) encouraging economic and technical cooperation; 4) enhancing human security; and 5) facilitating a favorable and sustainable business environment.
We are also working closely with our allies in the Americas to increase our hemisphere’s competitiveness and take advantage of the economic opportunities of the growing Asia-Pacific market. Nearly all nations of the Americas are growing markets. The United States exports more than three times as much to Latin America as we do to China. We sell more to Colombia than to Russia. And last year our trade with Latin America increased by 20 percent. In fact, the increase in trade between Canada and the United States last year alone was double our entire bilateral trade with India.
In the Pacific, the Trans-Pacific Partnership will bring together developed and developing countries from across the Pacific – from Asia and the Americas – into a single trading community under a high standards, 21st century trade agreement. It will address new cross-cutting issues, such as helping small- and medium-sized enterprises take advantage of international trade. And we are working to ensure that TPP includes protections for worker rights, the environment, and intellectual property. The TPP aims to promote a level playing field so private companies compete in a fair and transparent system. Our hope is that the Trans-Pacific Partnership can serve as the gold standard for future trade agreements, and will serve as a platform for broader regional integration.
The Pacific region is not the only place where we think trade can help regional integration. We are exploring ways to help the countries of North Africa trade more with each other, and exploring the potential for leveraging new local trade relations into increased exports. As you may know, North Africans trade less with one another than any other region in the world.
3) Promotion of Values
We work with our partners to create economic opportunity and empower countries to compete in a fair, transparent international arena. All of us are better off with more players in the international trade arena provided everyone understands and respects the rules of the game. This means both encouraging everyone to play fairly by all rules, and having enforcement mechanisms in place when they don’t play by the rules.
A fair, rules-based system must apply to all parties equally, even to so called “national champions.” This means any company playing in the arena should benefit from the same treatment as every other company, regardless of any affiliation with its government.
We continue to encourage countries that have state-owned enterprises to treat them like private commercial enterprises. Some of the world’s largest companies are state-owned enterprises. In some cases, these firms built market share in large part because they enjoy financial support, tax preferences, regulatory privileges, and immunities not generally available to their privately-owned competitors. But without competitive neutrality, investors may be less willing to enter foreign markets in countries with government-supported state enterprises. This should be of concern to such countries, especially given that investment carries with it the competitive forces that drive economic growth. The goal is not to question whether countries should have state-owned enterprises – that is for each government to decide. Rather, what we insist on is that SOEs play by the same rules as private companies.
And why do we care if the playing field is distorted? Because we want companies to win based on better performance, business practices, and innovation, not based on government support. History shows that when companies win contracts based on unfair advantages and not on their own merits, it results in inefficient, bloated, and uncompetitive firms that continually need assistance in order to compete. As Secretary Clinton stated recently, U.S. companies today have the best, most productive workers in the world. They have the best technology, the most talented innovators. And many of them are sitting on large cash reserves. They play in the most competitive markets and win. Yet they are still disadvantaged relative to certain foreign state-owned enterprises, because they play by the rules, which means paying taxes, dividends, and rent, as well as getting loans at market rates; and yes still remain competitive in global markets.
Our strategy to meet the state capitalism challenge involves a deployment of a robust set of policy tools that will level the playing field and open markets for fair competition. We are working to implement free trade agreements, bilateral investment treaties, and WTO accession commitments. These policies will counter measures abroad that distort markets and limit market access and competition.
We are also focusing on protecting and guarding access to information for both companies and individuals, particularly on the Internet. Not only has the Internet become central to our daily lives, but it is essential to the health of the U.S. economy, providing economic and social benefits across the globe. The Internet we enjoy today – this marvelous engine of economic growth, innovation, and democracy – did not develop by happenstance. It emerged as the hard work of organizations such as the Internet Society and ICANN. These organizations have succeeded by their very nature of openness and inclusiveness. They are most capable of attacking issues with the speed and flexibility required. By engaging all parties – business, civil society, and governments – these multi-stakeholder processes encourage much broader and more creative problem solving for conventions such as naming website addresses. This system ensures certain standards of use, while at the same time allowing the Internet to remain flexible and free.
But some governments are trying to regulate the Internet within and beyond their own borders. Some countries are seeking limits on freedom of expression and the free flow of information. Others have called for the creation of a new UN body to manage global Internet policies. We will be addressing this at an international conference this December in Dubai.
Our position is simple: don’t fix what isn’t broken. The Internet has grown beyond anyone’s imagination in the last decade. It is an important means of sharing news, doing business, advocating for democracy, and reporting atrocities. That is why we will continue to fight for the current system of governance and work with other countries to preserve this system, and continue to promote Internet freedom, including the free flow of information and freedom of expression on-line. Expect lots of news to come from the ITU Summit later this year. There, we will support the concept of Internet freedom as a core value.
The increased tempo of globalization in recent decades has brought economic opportunity but also exacerbated the effects of the global financial crisis and forced us to relearn the lessons of old – you cannot separate economics from politics or strategy. This is why we are implementing Secretary Clinton’s economic statecraft agenda by updating our foreign policy priorities to reflect our economic priorities; by enhancing our trade, investment, and commercial diplomacy efforts and by increasing our capacity to tap market solutions for strategic purposes. Continued U.S. leadership demands foreign policy be a force for economic growth at home and that economic policy be a force for diplomatic power abroad. And so, we will continue working to 1) create economic opportunity; 2) increase regional integration; and 3) promote American values. Thank you.