I am delighted to take on the task of delivering the Henry Ford lecture this year.

The Ford motor company has enjoyed great achievements and some vicissitudes over the last century: rapid growth, stagnation and rebirth, under firstly Henry Ford and then his grandson, Henry Ford II.

As a global company it has had to adapt to forces beyond its shores, the Great Depression, World Wars, fluctuations in the oil price, new technology and competition from Japan and Europe. Ford knows a thing or two about trading in a global market place, and I’d like to quote Henry Ford II.

‘I don’t know anybody or any group of people smart enough to mastermind and manipulate our economy without doing much more harm than good.’ I agree with him. I would add however that being a firm believer in the market economy does not imply support for an absence of rules, structures or institutions. Indeed this lecture will focus on the relationship between political structures and the development of effectively functioning regional and global markets.

Globalization is a tidal wave. It is redefining our notions of sovereignty. It increasingly means that economic decisions are beyond national control although national governments still have the means to promote or impair the positive advantages to efficiency and innovation that are the result of true global competition.

There are several schools of thought concerning the mythology of globalisation. The first is that the process is simply a reflection of technological developments which have taken economic and other policy management out of the hands of government. Thus, telecommunications coupled with deregulation supposedly make financial markets almost uncontrollable, with developing countries too often the innocent victims as their currencies fall to speculation. The Internet is making nonsense of cultural barriers. Biotechnology is breaking down traditional forms of farming and taking decisions on health and safety out of the purview of local political consideration. High speed and cheap international transport has helped undermine local production. Who would have thought, fifty years ago, that refrigerated bulk air cargo services would permit fresh flowers from South America to dominate many European markets?

The second piece of mythology is that globalization is, in fact, a vast conspiracy by global corporations to dominate economic development in their own investment interests. The third is that it is a giant conspiracy between corporations, aided and abetted by governments and international institutions like the European Union, the International Monetary Fund, the World Bank and the World Trade Organisation. These latter two notions were the foundation of much of the protest in the streets of Seattle, last year, and since at various meetings of international institutions.

None of these theories bears much examination. They may be good for banners in the streets, but they serve little purpose other than to fuel misunderstanding, suspicion and disquiet. The reality is that globalization is neither especially new – arguably the nineteenth century was more globalized than the end of the twentieth – or the result of any one easily identified trend. Rather, it is the combined result of many changes, some recent and some not so recent. One of the positive influences has been the effects of European integration.

It reflects the gradual decline in trade barriers through the efforts of regional and international bodies such as the European Union and the GATT and WTO over some fifty years. It reflects the only marginally more recent change from fixed to market-dictated exchange rates for the main currencies. It reflects a twenty-year move away from government direction of economies to market orientation through privatization and deregulation. It has been driven by the wish of many ordinary people to travel, to buy a broader range of better goods and services, to enjoy the culture of more than just their own communities. It is often the natural partner of emigration. Obviously the collapse of the Iron Curtain has also been a profound influence.

Yes, it is also the result of technological change. Yes, it is the cause and effect of the desire of many thousands of companies world-wide to diversify their investment and production across nations. And, as companies broaden the international scope of their activities, so private investors follow: not least by virtue of their pension funds. Most of us already have a personal interest in the global economy.

The temptation to dream up the means to stop the process – in that celebrated phrase, “stop the world, I want to get off’’ – is revealed to be the foolishness it is.

What one can say is that all these processes and trends have made the world a very different place and it is clearly going to continue to change, perhaps at an even faster rate. The real challenge is, in fact, not one of stopping the process but of making sure that we can sustain it without conflict. Above all the challenge is to provide the structures and institutions that can provide confidence about change to a somewhat sceptical world and that can secure consensus where otherwise it would be lacking.

In a word we have a very rapidly changing, unstable external world around us, and we have to adapt.

I want to persuade you today that one compelling reason for advancing further towards an ‘ever-closer union’ in Europe is the imperative need for an adequate response to, and contribution to, globalization. Both are at risk. Both are linked.

Indeed without European integration we would not have had a Uruguay Round or a WTO and without either or both of these we would not have globalization. Had the European nation states negotiated individually in global trade rounds we would still be talking with no end in sight and while some elements of globalization might exist today other components in the process would be absent.

Without European integration not merely would we not have had a single voice with which to negotiate but the balance provided by having this voice was an essential element in creating the WTO. One world super power in global negotiations presents no reassurance to anyone, including developing countries, that fair conclusions can be reached. Even though the US and Europe represent the developed world their differences in debate on trade issues assisted in creating a clearer sense of balance for the participants more generally. In addition many of the mechanisms used for international trade liberalization came from the European experience and example.

Without the World Trade Organisation, we would not even have achieved the beginning of a process that can provide a rule based system for global governance. Today for the first time in the economic sphere we are living by rules interpreted by a system of adjudication. Whilst this system is not secured by a capacity to enforce WTO decisions through national courts (as is the case in the EU) it still represents a significant inhibition on the freedom of action of nation states. Sovereignty may not be challenged as directly as it is in the European Union but it is certainly subject to some limitations. We Europeans were the first to learn to live with such constraints on our freedom of action.

I believe in free trade. I believe globalization is a good thing. I think the European Union has been essential for both.

Let me preface my remarks on the European Union by saying that I have never understood the attitude in some quarters that criticize a rule based European integration whilst supporting a rule based global economic integration. At least the late Sir James Goldsmith was consistent. He opposed both the World Trade Organisation and the European Union. Each for him embodied essentially the same objectives. He was essentially correct. Jean Monnet always saw the European integration process as part of a movement towards global structures to develop a functioning concept of interdependence. He saw the various European Communities as initial steps on a road to an admittedly undefined destination but a destination nonetheless shaped by institutions. The European destination itself was undefined and, of course, the ultimate conception of any form of global governance is far further from any possibility of articulation. Whilst the destination may have been undefined however he and the other Founding Fathers recognized one thing: some structures with real authority would be required if real economic interdependence was to be achieved. Not merely this – such structures required a purpose and a substance that had to compromise traditional notions of national sovereignty.

I think it is fair to say that the evolution of the EU’s integration process has probably greatly exceeded the aspirations of its Founding Fathers. They would be amazed to find what we have actually achieved today even thought the Treaty of Rome clearly identified the objective of free trade and competition as key elements in the future construction of Europe. I would say nonetheless that if one looked back to the late 80s, let alone the 50s, that nobody would have foreseen then what we have achieved in the area of liberalization of the European economy. Today we have a single market, free movement of goods, capital, services and people. Indeed we have a more advanced integration in the financial services sector than has yet been achieved in the United States. Furthermore we have a single currency which for me at least is a necessary part of a fully integrated market.

What is happening in Europe has had enormous worldwide implications. So would its failure should it ever occur. Even other advanced regional structures, which have attempted to follow the route taken by the European Union, such as Mercosur and NAFTA, whilst achieving much, have gone nowhere like as far as we in these old countries have been prepared to go in a very brief period of time. Who is to say that what has been done could ever have been achieved, if those who originated the process had not been stimulated by a vision which was in turn inspired by the horror of the dreadful times that they had experienced? People deride this as a motivation today as if it is a historic memory that is irrelevant. I wish that it was irrelevant but we don’t have to look very far to see how close race divisions are to the surface. I think it is very unlikely that today’s generation of politicians could be sufficiently intellectually and emotionally engaged however to support the creation of such a community of nations now. I doubt if we have the vision that was so evident in those early days with Monnet, Schuman, De Gasperi and this greatly concerns me having regard to the challenges we now face.

Without an understanding of the past and a vision of the future articulated to the people, how can we hope to cultivate the response that is now needed for the formidable challenge and indeed the moral imperative of enlarging the EU to include those who, through no fault of their own, could not participate in the original design. Enlargement of the EU is also an element in the mosaic that makes up globalization. So also is a coherent EU policy on external trade more generally. If we in Europe who share so much in heritage and values cannot make a success, with our relative wealth, of our process of integration what hope have we to advance global interdependence? There is a substantial link between the two. However which of the acceding countries are seeking membership of a Union that cannot function because we have not done what is necessary?

Therefore let me turn now to the European Union. As President Prodi made clear last week to the European Parliament two enormous and linked challenges, institutional reform and enlargement, confront the European Union. We start from the reality that the fifteen members of the EU will grow to at least twenty-five in the next few years. The key question is what kind of Union and what kind of institutions are needed to cope if enlargement is not to become – perversely – a cause of instability, counter-reform or even conflict. How can we demonstrate a capacity to deal with this specific aspect of interdependence? An even bigger question is whether we have leaders who are really prepared to address the full implications of the issue including the need to further dilute national sovereignty. They have to confront those who would wish to revert to an earlier world of separation and undiluted sovereignty perhaps simply through inaction. It is difficult to avoid the suspicion that some great advocates of enlargement are partially influenced by a desire to use this process to destroy the essence of the supranational entity that has been created so painstakingly.

To a greater or lesser extent the heads of government of virtually all the major Member States still appear content in the final analysis to rely simply on a minimalist course of an institutional reform through enhancing co-operation between Member States rather than deepening and strengthening the common institutions of the Union. There appears to be very little recognition that this old model of nation states simply co-operating (and more often not co-operating) through their civil servants and politicians, in a manner that places little or no reliance on the development of independent common institutions, is a failed model. It has never been what the European Union is structurally about. There has been an increasing and unfortunate tendency in some areas to bring back European policy-making to national bureaucracies and politicians. Furthermore with 25 members we have to further reduce any requirements for unanimity. We should remind ourselves that the EU’s finest achievements were made possible only because of the supranational character of the institutional framework of the EU. The rule of EC law has to be superior to national laws and above all, where the laws have to be prepared by a European executive in the common interest. This supranational character has distinguished the Union from anything that preceded it or indeed that has followed it elsewhere in the world. It is why it has worked.

The key to the practical administration of the EU structure is and should remain the Commission. Its successes, so often now forgotten, have been enormous. For example, it has truly driven the economic liberalization process in Europe, often in the teeth of opposition from virtually every Member State in the Union. This however was not the anti-democratic action of an unelected bureaucracy as it is sometimes presented. It was the implementation of a fundamental law, initially embodied in the Treaty of Rome and adopted by the peoples of the European Union to promote real competition in economic matters and to integrate their economies. The Commission has been central to the development of the Single Market, without which this continent would be an economic backwater today. Without the Commission as an independent driving force acting within a legal framework the single currency would never have become a reality either. Its critics argue that the Commission is a bureaucratic, corporatist relic and that it should be downgraded to a secretariat for the Council of Ministers. But the Commission has to be much more than a secretariat. It has a combination of vital administrative, executive, legislative and judicial functions and downgrading it will threaten the foundations of the whole edifice.

The public is often presented with a view of the Commission as an unelected bureaucracy making legislation – this is incorrect. It merely proposes legislation, which is then made by bodies with ostensible democratic legitimacy – the Parliament and the Council. Its members are appointed by democratically elected governments and their subsequent independence is to ensure the integrity of their function.

So the Commission’s exclusive right of proposing and preparing legislation is founded upon representing and advancing the collective Community interest. As guardian of the treaties, it acts, supported by the Court of Justice, as a body motivated by common and agreed interests and in respect of common and agreed causes. It is a guarantor for the interests of the weaker Member States as well as the stronger. I firmly believe that the Commission must retain its sole power of initiative. Democracy demands that the adoption of the laws should be the responsibility of elected politicians and that is how it should be. It is this structure that has created and maintains our single market and much else besides.

If the system recedes into inter-governmentalism, all will be lost. This includes our capacity to participate effectively in globalization. To address the democratic deficit, we do need reform but it is primarily reform of the Council of Ministers that is required. They after all make the laws. They are the ones who often do so without adequate explanation or debate at home. Furthermore the fundamental reasons for the relative failure of the European Parliament to establish democratic legitimacy should be addressed by the European Parliament itself. Perhaps there is a case to be made for a second chamber of national politicians if the Council of Ministers continues to fail to provide a sense of democratic legitimization for its decisions through adequate linkages to national parliaments.

Another important reform issue is the degree to which a core group of states may proceed ahead of some others in integration. Flexibility already existed even before the recent Danish vote in the form of the Schengen Agreement and the opt outs from both EMU and the Social Chapter. There already is a two speed Europe. One danger is that the EU could become entirely loose, with countries able to pick and choose which bits to join and which to discard. There must be a core, existing part of the system which cannot be rejected by anyone. For example, it must remain impossible to enter or remain within the EU and to reject competition policy: if countries are permitted to join the EU without being fully capable of implementing competition policy, it will destroy the system. So also would a rejection of the supremacy of Community Law which is the essential core of the whole system. The existing acquis communitaire must remain inviolable.

However, differentiation, with a group of countries committed to forging ahead with closer integration in a clearly defined set of policy areas is not merely legitimate but absolutely necessary. It will create a vanguard which will provide renewed impetus to the integration process. Enhanced integration among a smaller group of countries permits the more ambitious to experiment in a particular policy domain with forms of deeper integration, which may later successfully be adopted by other Member States. It is crucial, however, that the door be left open to other countries to join later if they wish. It is also crucial that the process of closer integration is within the existing institutional model and not outside it. By this I mean that new and separate institutions should not be created to administer the policies adopted in the new areas of activity pursued by the vanguard. The Commission must remain the guardian of the integrity of the process and of the rights of those left behind.

The reality of a division in the European Union can scarcely be denied. There can be little doubt now that there are some countries in the European Union whose scepticism about sharing any more sovereignty is of a dimension that is quite distinct from the rest. There are essentially two definable groups in the EU (although the differences blur from time to time and there are extremes in both camps). To persist with the illusion that we are all heading for the same destination is poppycock. Even though the final destination is ultimately undefined, in one case, the minimalist one, it is little more than a free trade area. In the other, some form of federal entity is envisaged. The position one suspects of the British electorate, and probably that of the Danes and Swedes as well, is the minimalist one. The other position however is not that of a United States of Europe. Contrary to the caricatures presented by some of the Press, not even the most extreme federalist believes that we are on a course to set up something akin to the United States. Their, or should I say our, ambitions are more modest. We must share sovereignty in defined areas relevant to our essential interdependence and these go further than trade. They involve issues such as solidarity as well as defence and foreign policy.

I admit that, faced with the complexity of institutional reform, it is tempting to opt for a minimalist approach providing merely an interim solution. This might permit the Union’s institutions to continue functioning but increasingly inefficiently. But this is insufficient, our goal should be nothing less than an optimal, not merely a barely workable system that will inevitably break down. We need to find ways to improve the speed of the legislative process without reducing transparency and opportunities for democratic review and input. We need to deal urgently with the whole issue of the democratic deficit. We need to provide resources for the Commission and not to starve it to death. We do have to adapt and improve our institutions and not let them stagnate. The model is still the correct model however. The operating philosophy is still the correct operating philosophy. To those whose vision extends no more than to an inter-governmental entity, a collaboration of nation states maintaining traditional sovereignty unimpaired, one must say that such a system was never on offer and was not what they joined. Indeed, even now, it no longer exists.

One of the compelling reasons for advancing further towards an ‘ever-closer union’ in Europe is the imperative need for an adequate response to, and contribution to, globalisation. We have a very rapidly changing, unstable external world around us. The world needs a strong, united, stable, prosperous European Union not merely as an example but as a participant. A more united Europe could not be other than a force for good. It alone can provide stability and security on this continent. The balance provided by the shared vision of a large group of countries, rich in diversity and historical experience, gives an assurance of moderation and generally, of constructive contribution. We cannot afford to be timid in debating this issue, and we are being timid in debating it. We cannot say, “thus far and no further”. We cannot risk disintegration. We must move forward. We cannot allow delay, procrastination or timidity to destroy something as essentially noble as the cause of European integration.

Today we have the historic task of adapting our institutions to enable the enlargement of the EU to encompass 500 million people. We cannot do so without extending the use of majority voting by the Member States. This in turn will demand that the European Parliament, having either one or two Chambers, should have a power of co-decision in every such case. It is already clear that the Treaty of Nice will not go far enough. It should be born in mind that the Amsterdam Treaty demands “a comprehensive review of the provisions of the Treaties on the composition and functioning of the institutions” before the EU exceeds twenty countries. Preparations, however difficult the task, must commence now for this more fundamental review.

It is very difficult to be confident about the outcome of all these discussions. In recent years we have had a hotch potch of initiatives from the Member States all apparently calculated to avoid as much as possible involving the common institutions such as the Court of the Commission and the European Parliament. None of them have succeeded. This is exemplified in the area of justice and home affairs and in foreign and security matters. Javier Solana and Chris Patten, both truly dedicated Europeans, must be pulling their hair out.

Therefore if European integration is under threat it is significantly because it is the victim of a failure to articulate the rationale for its creation and the realities of its functioning. In many ways globalization has the same problem. There is indeed a growing hostility, more marked in some places than others but advancing everywhere, to internationalization that is either regional or global. There is an almost indefinable fear about the pace of change that fuels the extreme Right and the extreme Left in opposing internationalization. In this regard there is a common thread joining European integration and globalization. Both are easily presented as presenting a somewhat similar threat rather than a promise. Nor are protestors of Seattle or Prague alone. Apart from well meaning activists in various NGOs many at home watching their television sets may well feel a certain sympathy for the cause even if they despise the anarchists who rampage through the streets. Globalization is for great swathes of people, across the Northern Hemisphere in particular, the cause of considerable disquiet. So also to many is European integration. They do not see either as a means to increase prosperity everywhere or as an opportunity to provide some sort of equality of opportunity. Nobody appears to be telling them forcefully that apart from moral obligations it is in our self interest to open borders and not to close them and that to do so we have to have structures that work. I vividly recall in 1986 how many in Germany in particular worried about Spanish and Portuguese accession to the EU. They thought jobs would go south. Many in North America had precisely the same concerns about Mexico and NAFTA. The result of course has been a “win-win” situation in both cases. The same applies to the WTO obligations. Who today can really believe that it works to lock the developing world out of the developed economies? Who can believe that the future can be secure for the rich nations without regard for the billions of people, many on our doorstep, who live in conditions so far below our own. However this is categorically not a matter of charity. Regional integration and regional interdependence actually works. Global integration fostering global interdependence actually works also. In both cases growth prospects are enhanced but neither will work without institutions and rules. That is where the protesters are so grievously wrong. The World Bank, the IMF and the WTO, derided like the European Commission, are part of a necessary structure. The law of the jungle will lead to conflict and, as always, the most vulnerable will suffer most.

This is the text of a speech first delivered as the Henry Ford lecture by Peter Sutherland