Economics Month Pt. II – Robert Zoellick and Why The People Matter

By Maren Schäfer –

As part of the Economics Month, the HCA and the Alfred-Weber-Institute for Economics welcomed Robert Zoellick to Heidelberg.

Robert Zoellick is Senior Counselor at Brunswick Geopolitical, an advisory service of Brunswick Group, a Senior Fellow at the Belfer Center for Science and International Affairs, Harvard University, and serves on the boards of multiple companies. He was the President of the World Bank (2007-2012), U.S. Trade Representative (2001-2005), Deputy Secretary of State (2005-2006), and Counselor to the Secretary of the Treasury and Under Secretary of State, as well as the White House Deputy Chief of Staff (1985-1993). Mr. Zoellick also led the US Delegation to the two plus four talks on German reunification and had therefore requested to discuss the German unification with German students during a seminar. In the evening, he gave a lecture on The Changing Global Economic Geography.

The unification process occurred extremely rapidly … having something like that done in 11 or 12 months is pretty unusual.

Robert Zoellick

2019 marks the 30^th anniversary of the opening of the Berlin Wall, so Mr. Zoellick expressed the wish to talk to young Germans about the German unification and their perspective on the events taking place 30 years ago. Then 36-year-old Zoellick, who was working under Secretary of State James A. Baker, became chief negotiator for the United States in the two plus four talks. According to HCA director Welf Werner, Robert Zoellick “helped to smoothen the path to German unification” in that capacity. To appreciate what he had done for the country, Germany awarded him the Knight Commander’s Cross of the Order of Merit.

In the seminar, Mr. Zoellick outlined under which circumstances the unification process happened. He mentioned the hope and excitement of Germans, both in the East and West, but also a sense of uncertainty prevalent throughout Europe, Eastern Europe in particular. However, there were complications, such as the issue of short range nuclear missiles stationed in Germany or the fear that Germany, once unified, would become not only dominant but dominating.

We didn’t want future generations of Germans to say: Why are we being discriminated?

Mr. Zoellick then described the Americans’ strategic and political framework for the German unification:

1. German unification in freedom

The goal from an American perspective was to unify Germany within Western, European, and NATO structures. A unification in freedom was important.

2. Avoid a Versailles victory

Having learned their lesson from the Versailles victory, the US wanted to achieve a unification that gave Germany as much resilience as possible. The goal was to have Germany come out of the process as a fully sovereign state without planting the seeds for future problems. At the same time, the process should leave the other parties involved, most notably the Soviet Union, happy in order to avoid resentment and further potential for conflict.

3. The People matter

People in East Germany were a force that was going to shape things.

During a trip to Berlin, Mr. Zoellick, talked to Lutheran pastors who had been part of the East German movement fighting for a unification with West Germany. To his surprise, he found that people in the German Democratic Republic (GDR, East Germany) did not want anything of what diplomats were talking about – an East German state, a third way – but “wanted what they saw on Western TV”. The legitimate state, in the eyes of many, was the Federal Republic of Germany. Thus, it was decided that the German unification was going to be a take-over, rather than a merger of equal states.

4. Two plus four talks

The US decided that a process was needed to manage and achieve the German unification. Following the logic of diplomacy, they focused on the goal – the unification – and put the “two” in front of the two plus four talks (the French and British had suggested “four plus two” or “six” talks). This group should negotiate the process and act as a steering force to achieve a German unification. For instance, they negotiated the conventional forces issues, changed the NATO structure to accommodate the Soviet Union, and determined the new German borders. As part of the process, the term “unification” was chosen because “reunification” – for legal reasons – would have meant a return to 1937 borders.

5. Public communication is key

Public diplomacy for Germany and Europe were critically important.

By setting a framework for the two plus four talks and the unification process and by publicly announcing it, the US managed to both assure Germany’s neighbors and reassure Germans that the unification would be a structured process. In doing so, the Americans were careful to communicate the positive aspects of a unification. At the same time, they made an effort not to highlight that the process would be more of a take-over in order to avoid public unrest.

6. Importance of personal ties

Throughout the seminar, Mr. Zoellick repeatedly stressed the importance of trust. There were trust relationships between the West German government, mainly Kohl and Genscher, and the Bush administration. Despite anxieties among European countries and the Soviet Union, Kohl, Genscher, Baker, and Gorbachev had close ties, and so did their assistants. On many occasions, for example speeches, political actors triggered anxieties among the public. By simply calling his Soviet counterpart, Mr. Zoellick could ask for the meaning of certain statements and understand the other’s positions, rationales, or ways of thinking. These close ties contributed to a smoother unification process. 

7. Timing

Everything moved extremely fast. With events such as the invasion of Kuwait drawing attention away from the German unification, the process is an example of “how timing is critical in terms of policy action.”

8. Good luck

We were very anxious about accidents that could happen.

Much could have gone wrong during the unification process. For instance, many Russian soldiers were still stationed in East Germany and could have caused an incident. The three Baltic States seeking independence also complicated things. Force could have been used to achieve independence and their demand for independence, coupled with the German unification, could have put too much pressure on Gorbachev and could have led to violence.

9. US public opinion – “of course Germany would unify”

Mr. Zoellick also stressed how lucky the US government was that most Americans supported a unification of the two German states.

After outlining the conditions surrounding the German unification, he concluded:

“My own suspicion was that the problems in the East would take decades to resolve” – a change of mindset, culture, identity was necessary. Then, however, “Germany would be the dominating force in Europe.”

At the end of the seminar, HCA director Welf Werner cautioned that, from today’s perspective, we take the German unification for granted. We should keep in mind though that a) “the US was very important” and b) “the people mattered”.

The Changing Global Economic Geography

The significance of the people as well as trust were also part of Mr. Zoellick’s lecture later that day. He emphasized two trends in the global economy: a) Increased globalization and regional shifts in economic growth and b) increased nationalism and fragmentation into regional blocs.

The first trend manifests itself in the shift of economic growth from developed to emerging economies, whose share of the world economy is increasing. While European markets’ share is decreasing, that of Asian countries, especially China and India, is growing. This trend can be seen for example in the share of equity and debt, the number of new patents registered, or the growth of income, wealth, and innovation in an economy.

According to Robert Zoellick, the second trend, increased fragmentation of the world market, is reflected in changing patterns of supply. These patterns may relate to logistics, the supply chain, or for example sales figures. Moreover, technological change contributes to increased fragmentation of markets. Using 3D-printers as an example, Mr. Zoellick illustrated how technology allows for smaller, more customized products which, in turn, changes how goods are supplied. At the same time, data becomes increasingly important and valuable, changing the global economy.

How have the United States been reacting to those changes?

Under the Trump administration, the United States have reversed their policies on trade. They have raised barriers of trade such as taxes and tariffs. In return, other countries have retaliated with similar policies. The result, according to Robert Zoellick, is a spiral of nationalism and protectionism.

President Trump’s transactional and bilateral trade policy focuses on new rules surrounding barriers of trade. It protects jobs at home through higher tariffs, e.g., on aluminum, although the costs per job saved in the aluminum industry amount to approximately $800,000-900,000 per worker, which renders the tariffs very inefficient. In addition, threats voiced by the Trump administration, such as the announcement of new tariffs against Mexico, are a temporal trade barrier. They add uncertainty to the market, for example regarding investments, thereby slowing down the economy.

On the one hand, we have increased globalization and regional shifts in which countries are the growth centers of the global economy. On the other hand, nationalism increases, accompanied by the fragmentation of the global economy into regional blocs. Mr. Zoellick recommended four policy strategies to help countries face these changes:

1. Keep transnational ties resilient

He reminds us of the preservation and development of trustful relationships between the US and Germany that have paved the way for peace and prosperity.

Welf Werner on Mr. Zoellick’s lecture

The United States are more than just the President. So, Robert Zoellick recommended to keep close ties and establish relationships with other groups in the US, may they be members of Congress, mayors, or the private sector.

2. Deal with China but keep open ways to cooperate with the country

According to Mr. Zoellick, greater cooperation between the US, Europe, Japan, and others will be necessary to deal with China. At the same time, it is important to allow for ways to work with China and to reach solutions together.

3. Work on the international economic system

We need an international economic system that appreciates global and regional markets while fighting fragmentation. This includes fighting exchange rate fluctuation, strengthening the WTO, and developing new and advanced rules for emerging markets.

4. Deal with challenges of the European market

The United States and Europe need to work together to somehow integrate the United Kingdom into the European Union after Brexit, to strengthen the monetary union, to foster entrepreneurship as well as innovation, and to initiate necessary structural changes.

In the following lively discussion, members of the audience asked Mr. Zoellick about the following issues:

The role of the World Bank

The World Bank needs to continue to adapt while using its financial resources. It is more than a bank, it is a knowledge and learning institution. As such, “the key is picking projects that have a learning effect,” said Mr. Zoellick.

Longer-term implications of US trade policy on US-EU trade and economic relations

People often underestimate the importance of systems such as NATO and the WTO. The systems need to be reformed regularly, as happened for instance when the Bretton-Woods-System was broken up. President Trump’s approach to trade is purely transactional, focused on the moment, and disregards systemic costs. While this can harm the system, the latter of which we should not take for granted, history gives Mr. Zoellick a certain optimism: At least “in the near term, there is elasticity in the system”.

The real risk, for Zoellick, is a return to the world of the early 1900s with power blocs. If the US is not playing the leading role, who will? The risk lies not so much in disruptive trade policies, but in greater uncertainty of the rules of trade and economy.

The hardest part of the German unification

We needed Germany to unify in a way that wouldn’t plant the seed for future problems.

At the end of the Q&A session, we returned to the German unification. When asked about its hardest part, Robert Zoellick said that it happened rapidly – the process took less than a year. Today, people take the unification for granted but a lot could have gone wrong. Once again, he highlighted the role of trust relationships. After 40 years of US commitment to Germany, the process needed to end with a fully sovereign German state.

The people in Germany, particularly in the East, were the momentum and force for it.

One of the biggest challenges was to stay alert to what was happening on the ground. With things happening so fast, keeping up with what the people wanted was crucial to avoid crisis.

What both the seminar and the lecture have shown are Mr. Zoellick’s expertise on the pivotal connections of economy, politics, and society as well as his keen interest in exchange of opinions and the German perspective on current developments. Closing with a remark by HCA director Welf Werner:

He has not only put his mark on the international economy, but has also shaped history.

Welf Werner on Mr. Zoellick

The next lecture in the series is on June 18, Heidelberg Center for American Studies, Hauptstraße 120, where John Komlos, Professor Emeritus of Economic History, LMU München, will be speaking on The Economic History of the Rise of Trumpism. For more details about upcoming events see the program, and stay in the loop by following along here on our blog where we will be posting regularly.

References:

Berlin Wall in front of Brandenburg Gate by Sue Ream. PHotograph licensed under CC BY 3.0. Online at https://commons.wikimedia.org/wiki/File:BerlinWall-BrandenburgGate.jpg

Bundesarchiv. Image 183-1990-1003-400 by Peer Grimm. Photograph licensed under CC-BY-SA 3.0 de. Online at https://commons.wikimedia.org/w/index.php?curid=5425931

The White House. Online at https://www.whitehouse.gov/wp-content/uploads/2018/07/POTD-July-26-2018.jpg

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