Four ways for Britain to shape a better world

By Anatole Kaletsky (THE TIMES, 01/02/07):

Beautiful economy; shame about the ugly politics. This was essentially the message of last week’s World Economic Forum in Davos. With short-term economic problems largely under control, the opportunity now arises to think, and worry, about long-term global challenges. There was a broad consensus on the most important of these among the government leaders, businessmen and political thinkers who spoke at Davos: global warming, war in the Middle East, nuclear proliferation and possible reversals of globalisation and free trade.

I am going to stick my neck out and suggest some concrete responses to these four global challenges, challenges that everyone seems to agree on but nobody is prepared to tackle. Most of these points will simply take to their logical conclusion some of the grand pronouncements of Davos. Most of my unsolicited suggestions will be directed at Britain, where Gordon Brown has a huge political incentive to set new policy directions if he takes over this summer from Tony Blair. But similar policies could equally well be implemented by others.

Let me begin with the relatively easy problems — protectionism and climate change. It is widely agreed, albeit for reasons that are not entirely clear, that global trade is governed by the same bicycle metaphor that is often applied to the European Union: if it stops moving forward, it falls over. As a result, there is much hand-wringing about the apparent deadlock in the Doha global trade round. The Doha sticking points, however, are largely over trade with developing countries. A logical response would be to focus instead on trade between advanced countries, with free movement of goods and services, but most importantly labour, between Europe and the US.

A North Atlantic free-trade area would be an ideal initiative for Mr Brown — first, because Britain’s financial markets would be a huge beneficiary; secondly, because he himself proposed this idea five years ago, with strong support from Spain. At the time there was no interest elsewhere, but recently Angela Merkel has become a champion of this idea and France could well be won over if it elects Nicolas Sarkozy. If Mr Brown wanted to establish his credentials as a free trader, uniting the labour markets of America and Europe would eclipse anything achieved by Mr Blair.

The leadership possibilities on climate change are even clearer. The Stern report offers a clear agenda. All Britain has to do is put into practice its key idea: set a price on carbon emissions through a combination of trading and tax. Mr Brown could campaign within the EU for an honest carbon-trading scheme, with carbon permits allocated through auctions, instead of being handed out free to the most polluting industries. Even in the absence of EU agreement, Mr Brown could easily take the lead by announcing a domestic carbon tax, making it politically acceptable and even attractive by returning 100 per cent of the revenue to voters through cuts in other taxes and higher pensions.

Now for the genuinely tough issues: nuclear proliferation and Middle East war. A surprising consensus in Davos saw the nuclear confrontations with Iran and North Korea as the latest symptoms of a linkage between proliferation and disarmament, recently emphasised not only by such anti-nuclear champions as Mohamed ElBaradei, the chief UN nuclear inspector, but such uncompromising defenders of American national interests as Henry Kissinger and George Shultz. If existing nuclear powers show no intention of disarming, they can hardly expect others to renounce the power and prestige of the bomb.

In a much-quoted article in The Wall Street Journal last December, Mr Kissinger argued that the only way to prevent the spread of nuclear weapons and their eventual acquisition by terrorists would be for existing nuclear powers, including even America, to accept much tighter international controls on their own nuclear arsenals. A good place to start breaking this linkage would be in Britain, where Mr Brown could set an example by suspending the modernisation of Trident and openly repudiating the claim that Britain’s permanent membership of the UN Security Council requires it to enhance its nuclear capacity. As long as the qualification for Security Council membership is possession of a nuclear arsenal, what hope can there be of winning the argument against proliferation in countries such as India, Pakistan and now Iran?

This brings us finally to the most intractable challenge: Middle East peace. The most encouraging message from Davos was that political exhaustion among Israeli and Palestinian politicians has combined with the dread of an Iraq-style bloodbath in other countries to produce a greater readiness to settle the Israeli problem once and for all, through the exchange of land for peace. If Israel would give back the territories seized in 1967 from the Palestinians, the entire Arab world may be ready to accept this as a final solution and agree to a permanent peace.

The question is how to catalyse such a “grand bargain”, which might also involve Iran. With the Bush Administration completely discredited and distrusted, Europe, and even Britain, could take a lead in several ways.

First, by making it absolutely explicit that they would oppose a military attack on Iran in any shape or form — if necessary by imposing economic sanctions in the event of a military strike by Israel without an explicit UN mandate. That Europe is a far bigger trade partner than America for all Middle Eastern countries points to a more constructive strand of diplomacy: the application of economic carrots and sticks. Iran is rightly being sanctioned for its defiance on the nuclear issue. But Israel has never faced any serious sanctions when it has refused to comply with the UN.

While 70 per cent of the Israeli population back a land-for-peace deal, extremist minorities are overrepresented in the Israeli political system, just as they are in Iran. One way to try to break their power is to reinforce the carrot of future peace with a stick that makes preservation of the status quo unattractive.

A threat to suspend the very generous trade privileges now enjoyed by Israel in the EU should only be a last resort in the event of unreasonable Israeli intransigence in a land-for-peace deal. By raising the possibility of trade sanctions Britain could send a powerful message to Israeli business and politicians that simply maintaining the post-1967 status quo is no longer an option.

Politicians often boast of thinking the unthinkable. Sometimes they should just do the obvious instead.