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Lord Chris Patten discusses his new book -

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Lord Chris Patten discusses his new book

Broadcast: 27/10/2008

Reporter: Tony Jones

Lord Chris Patten, chancellor of Oxford University and former British cabinet minister joins
Lateline to discuss his new book is called What next: surviving the 21st century, which explores
many of the challenges facing our world.


TONY JONES, PRESENTER: I'm joined now in London by Lord Chris Patten, Chancellor of Oxford

His new book is called 'What Next: Surviving the 21st Century', which explores many challenges
facing our world.

Chris Patten thanks for being there.


TONY JONES: It's somewhat ironic, isn't it, that with much of the developed world in recession, or
about to go into recession, many governments are still pinning their hopes on China to remain the
global growth engine?

LORD CHRIS PATTEN: Yeah, I think it's always been slightly misconceived to think that Asia, China
in particular, and India, could decouple from what's happening in the rest of the world.

The transatlantic economy, America and Europe, represents about 40, 54 per cent of global output.
Add Japan to that and it's about 62 per cent.

So, if the economies go flat there, it's difficult for China and India to avoid the wind. I think
that China will still be able to grow, should be able to grow at 8 per cent plus.

But there are some people now who are saying that maybe China has come to the end of the really
spectacular heroic period of economic growth, because investment in heavy industries is no longer
as possible as it was given the environmental consequences and some of the political consequences.

TONY JONES: Yes, I'll come to the environment in much more detail in a moment, because we want to
talk to you quite a bit about that.

But what we're seeing right now is a serious slowdown in steel production; it reflects a broader
slowdown in construction and manufacturing. This is coupled with very high inflation in China.

So, perhaps for the first time China's monied class... if you want to call them a middle class you
could I suppose, are starting to work out what it's like to actually lose money on assets?

LORD CHRIS PATTEN: Yeah, I remember having a driver in Xian a few years ago who told me he made
more money playing the markets than he did driving for the State Government.

And I said, 'but what happens when the market goes down?' And he said, 'the market never goes down,
we never lose any money'. Well, look at what's happened to the stock market this year.

There has been which has been the main source of legitimacy for the Chinese Government, a real
feel-good factor in China in the last few years and all credit to the Chinese authorities for that.

But once you start to peel away that sense that things are getting better economically it does
start to put pressures on China elsewhere. But let's be clear, it's in all our interests that China
continues to grow and expand.

It just seems to me unlikely that given what's happening to markets elsewhere in the world that
China can grow at the pace it has in the past.

Its export growth is less than it was, and I don't see many signs that domestic spending is going
to take up the slack.

TONY JONES: I've got to ask you this: having been late adopters to free market capitalism, one
wonders what the Chinese leaders, particularly the older ones, must be thinking when they see
Western commentators talking about the end of Capitalism as we know it?

LORD CHRIS PATTEN: Well, people who talk about the end of capitalism are talking nonsense. Of
course, the phrase 'as we know it' raises a number of issues.

As we've known it in the last few years, there's been this crazy leveraging, which is a euphemism
for borrowing. There's been an inflation of asset bubbles, of credit bubbles, and there hasn't been
regulation of the new financial instruments used by banking.

Now I don't think that controlling those things means you give up on capitalism. It's still the
best way of allocating resources that anybody has yet discovered.

I think it was one of your own Prime Ministers, Mr Keating, who said very wisely that governments
had understood that these days they should steer the boat rather than try to pull on the oars.

And I think that's going to continue to be the case. Though, of course, some of the indiscretions
of the past couple of years will be driven out by regulators when they don't drive themselves out
because they've gone bankrupt.

TONY JONES: Here's another extraordinary fact: vast amounts of Chinese money, as you've actually
put it "borrowed or taken from the savings of Chinese pheasants", effectively helped to prop up the
huge spending splurge in the United States. Tell us how that happened?

LORD CHRIS PATTEN: Well, I said in my book that when I looked at the relationship between Chinese
foreign exchange earnings and investments in American Treasury bonds, I couldn't help thinking
about Herb Stein's first law of economics; that things that can't go on forever, don't.

What's happened in the United States is that for pretty well for 30 years the Americans have had a
flat average earnings. At the same time, Americans have wanted to buy everything which the world
has to offer.

There's no sense, as JK Galbraith said, in America of reasonable sufficiency. And they've been
covering the gap between flat earnings on average and those aspirations by borrowing money.

Borrowing money per household has meant that every household I think has about 13 credit cards on
average. Household debt is over $13 trillion.

And then there's been the national debt, as well, because the American balance of payments has been
a consequence of America buying whatever the rest of the world wants to sell it. So, American
borrowings nationally have reached about $10 trillion.

This is a huge mountain of debt and it has been to some extent sustained in the past by the Chinese
borrowing... spending money, not borrowing, spending money on American Treasury bonds and keeping
interest rates lower than they would otherwise have been.

It's been part of an implicit bargain that the Chinese enabled the American economy to go on
running with these huge bubbles, and in return, the Americans kept their markets open to Chinese

But we've broken that link now. I hope it doesn't lead to greater protectionism in America, which
would be a disaster all round.

TONY JONES: Now one of the worst setbacks to come from the global financial and economic crisis is
that some politicians and some economists are now predicting it'll be virtually impossible to have
serious carbon emission targets agreed to by countries, many of whom are facing or in recession by
the end of next year in Copenhagen. What do you think?

LORD CHRIS PATTEN: I think it is going to be very difficult. I think that finding a global deal to
follow on from Kyoto makes frankly negotiating at Versailles in 1918, or negotiating the Yalta and
Potsdam seem pretty straightforward.

I think these are about as difficult as international issues could be. I think there is a
particular problem for a new American president, I imagine Senator Obama, because there will be a
lot of protectionist pressure on him from Congress.

And at the same time as I hope he will be resisting that, in order to get things moving on climate
change he should be trying to reach a deal with the Chinese which would seem to win many American
critics like making concessions which would increase China's competitiveness.

Now, at the heart of any global deal has to be an agreement between China which is the biggest
aggregate emitter and America which is the biggest per capita emitter, along with Australia and
Canada about four to five times as high as China.

It's going to have to involve the developed world America, Europe, Australia, Canada, Japan
accepting that we have to move before China and India move.

I think all that is going to be very difficult to manage in the course of the next year.

And I suspect that the most we'll be able to get is an agreement on a process for moving
negotiations forward. And perhaps an agreement which would be a big deal on clean coal, on carbon
sequestration and so on.

Of course I'd like to see more achieved than that, but I think it's going to be very difficult.

TONY JONES: Yes, you talk about that deal between China and the United States, and I take it you
sort of mean a side deal as being the next stage in what world history should primarily be about.

What would it actually look like if there was such a deal? I mean, I appreciate all the
difficulties that you're talking about.

LORD CHRIS PATTEN: Well, the truth is... I don't want to sound too French, but the only really
existential question which the international community faces is global warming and climate change
because it is, unless we do something about it, going to change our planet and make life for a lot
of people a lot tougher in the future; make life different for all of us.

So we have to face up to the problem and there are things we can do about it and they're not

But at the heart of any agreement, there has to be a deal between the biggest emitters per head and
the biggest emitters in total and that means to be frank, that China and America are bound to be in
the middle of all this.

Now what the Americans will have to accept and what Europeans and Australians, I think the new
Australian Government, or not so new now, the Australian Government today would accept this.

What developed countries have to accept is that we should move further faster than the emerging
economies, as we did when we were dealing with ozone depletion, CFCs and haylons, with the Montreal
protocol, which was a successful deal on a smaller scale, admittedly.

We've also got to accept that historic responsibility for the carbon dioxide which is up there
already means that we have to do more in the developed countries first, and we have to accept that
countries at different stages of economic development will inevitably make different sorts of

But what's important is to get everybody lined up to start to move, not necessarily at the same
pace but in the same directions. I think it can be done.

I think what we would look to for... to America, in particular, is to unleash the spectacular
creative energy of the Americans in areas like clean energy technology, where a huge amount can be

But it's going to involve in the first place some pretty tough negotiations and it's going to
involve politicians in explaining things to voters which voters may not initially want to hear;
about the amount we use our cars, about the fuel efficiency of our cars, about air-conditioning and
the way we live our everyday lives.

TONY JONES: Well, particularly difficult in hard economic times. I mean, you were actually scathing
of the former Australian Prime Minister John Howard for the way in which he treated this matter.

His essential argument was Australia first; we're not going to move until the others do, because
that will put us at a competitive disadvantage. You described that as a disreputable argument?

LORD CHRIS PATTEN: Yeah, and it was disreputable, I think, for two reasons. First of all because
that wasn't the position that he or Australia had taken over the Montreal protocol on ozone
depletion, which was essentially a problem for the Southern Hemisphere.

And quite rightly Australia and others pressed the rest of the world to act on the precautionary
principle in science.

And to accept that China and India could move less rapidly in getting rid of the production of CFCs
and haylons in banning their use, they could move less rapidly than the rest of us.

So, the principle... the principle behind what we should be doing now on climate change now was
conceded then.

Secondly, I thought that there was a real danger in the early 2000s of Mr Howard and others giving
some legitimatisation or credibility to the anti-science views, the anti-environment views, in my
view, the immoral views pursued initially by the Bush Administration.

I think it was bad enough as the British Government did, which I criticised, supporting Mr Bush in
Iraq. I think in the long term, supporting Mr Bush's views on the environment was much more

But, you know, we can move on from that and I'm very pleased that the Australian Government has
moved on from that and is going to be inevitably a major player in saving the planet.

TONY JONES: Well, Chris Patten, we'll have to leave you there. We know you're going to be in this
country yourself soon. We hope to see again then.

We thank you very much for taking the time to join us tonight.

LORD CHRIS PATTEN: I'm really looking forward to coming again. Thank you very much indeed.

TONY JONES: Great pleasure.