Remarks at 3d Annual European Family Business Summit Lisbon, November 18, 2016

Thank you for inviting me here today. I feel a special connection with this city. My grandparents, mother and uncle set sail from Lisbon in April 1941 aboard the Serpa Pinto, a small Portuguese ship, bound for New York. They were fleeing Italian Fascism and the 1938 Racial Laws in order to seek refuge in the United States, a country they considered an exemplar of democracy, tolerance and the rule of law.

Many years later my mother wrote about her feelings when she saw the Statue of Liberty on arrival in New York harbor for the first time at age 7:

“As we passed by the statue in the grey dawn of that morning, we were all on deck, our eyes fixed on her….Everyone around me was crying and embracing one another… “Lady Liberty” gave me hope …I wanted at all costs to succeed…I wanted her to be proud of me.”

Some of you may recall that the words engraved on the Statue of Liberty are: “Give me your tired, your poor, your huddled masses yearning to breathe free…” It doesn’t say: “Keep Out: Refugees not welcome.” And it doesn’t say “Only White Christians admitted.” If it did, Steve Jobs would never have existed: his father was a Syrian immigrant.

I am proud to have been an early supporter of President Obama and to have worked under his leadership. He provided the hope and the change we could believe in. President Obama is fond of quoting Martin Luther King, “The arc of the moral universe is long but it bends toward justice.”

What does any of this have to do with European family businesses? Everything. Family businesses are not only critical to competitive, open and free markets and global, free trade that Europe desperately needs to promote growth; they are critical to the strength of the middle class and to the very future of democracy.

Prior to taking up my post as U.S. Ambassador to the European Union in March 2014, I worked with many small and medium-sized businesses, often family owned, in multiple services sectors all over Western Europe. I was active in the private equity industry – first at GE Capital and Bank of America, and subsequently as Managing Director responsible for financing and legal issues in a pan-European private equity firm that provides growth capital to small and medium-sized businesses in a wide variety of services sectors, including financial services, healthcare and education.

I admire entrepreneurs and family owned and small businesses because they are heroes who battle red tape every day. Governments should be giving you the tools you need to grow and trade and prosper.

In the European Union and the United States, small and medium-sized businesses and start-ups are critical motors of growth and job creation. On both sides of the Atlantic they have accounted for most of the new jobs created in recent decades. They are an important source of innovation, new products, and new services.

And it is worth repeating that family businesses in the EU provide more than 60 million private sector jobs and account for more than 50% of GDP. Three-quarters of the more than 14 million family businesses in the EU already operate internationally. And, 75% of them plan to make new investments in the near future, nearly a third on internationalization efforts.

It is partly because of the importance of SMEs on both sides of the Atlantic that three years ago we launched negotiations for a Transatlantic Trade and Investment Partnership Agreement. For the past two and a half years I have made 90 public appearances in 17 of the 28 Member States of the EU to promote the deal.

I read with interest the report published by the German EFB affiliate, Die Familienunternehmer, on TTIP. It points out the many benefits of the agreement, including reducing the costly regulatory divergences between the US and Europe and improved access to cheaper raw material inputs. As you well know, Europe is a high cost place to manufacture, in large part because of labor and energy and raw materials prices.

By negotiating TTIP we have been seeking to create opportunities for companies by making border procedures more efficient, shipping and paperwork simpler, and internet transactions more seamless so entrepreneurs can more easily access new markets for their products. This reduced paperwork and lower duties could mean the difference between growing through exports overseas or remaining confined to local markets. Producers could spend less time and fewer resources on meeting duplicative testing requirements and filling out unnecessary forms.

The future of TTIP, however, is now clearly in question following the drama of the Canada-EU free trade agreement and the results of the US elections.

Family business owners understand the importance of stability, strong democratic institutions, a healthy middle class and free markets. So they should be concerned that free trade and globalization are considered toxic in much of Europe today. They should be concerned about what is happening to politics on both sides of the Atlantic. Many countries in Europe are facing elections this year. The threat of demagogy and populism looms large. The future of the European Project, that has contributed so much to European prosperity, is at stake.

We are witnessing fact-free post-truth politics as entertainment. Everything has become opinion; fiction masquerades as fact. Our elites are mocked; our democratic institutions are questioned. Social media is providing the echo chamber for those who want their own prejudices confirmed. In his speech to the People of Europe this April President Obama quoted from one of my favorite poems of WB Yeats: “The best lack all conviction; the worst are full of passionate intensity.”

We can express horror at what is happening to our political life on both sides of the Atlantic, but we should not dismiss the roots of this rage that we see everywhere around us. We should analyze it and then draw the appropriate conclusions.

Several months ago President Obama gave an important speech in Hannover, An Address to the People of Europe, in which he said this:

“…the economic anxieties many feel today on both sides of the Atlantic are real. The disruptive changes brought about by the global economy, unfortunately, sometimes are hitting certain groups, especially working-class communities, more heavily. And if neither the burdens, nor the benefits of our global economy are being fairly distributed, it’s no wonder that people rise up and reject globalization. If there are too few winners and too many losers as the global economy integrates, people are going to push back.” (Remarks by President Obama in an Address to the People of Europe, Hannover Messe Fairgrounds, April 25, 2016.)

I learned a few things during my promotion of TTIP in Europe.

The first is that when passion meets facts, passion almost always wins. A simple falsehood often prevails over a complex truth. I realized early on that TTIP supporters were showing up with complex facts – fancy, well-reasoned studies – and little passion, and we were being beaten, badly.

Second, I learned that government and business elites have to learn to make things real, rather than abstract. Arguments jobs and growth have not convinced many people, even in a Europe starved of both. There is skepticism about governments, the EU and the elites. Many think the gains too small, too distant, or too uncertain, and in any event of no relevance to many people who would never see any of the gains. Those gains would accrue to others, especially to those at the top who had already benefited from the gains of globalization. SMEs need to be much more vocal in support of free trade and need to do so by using concrete examples of how free trade benefits the work force and the community.

Third, I learned that many people are scared; their lives have been shaken and they are feeling vulnerable. After the long aftermath of a brutal financial crisis, from which some EU member states have still not recovered, what could be more natural than for people to circle the wagons and try to protect what they have from the winds of change?

We made a mistake by describing TTIP as a “revolutionary” deal. People don’t want revolutions at a time of fear and frustration. We should have described it as an “evolutionary” deal – building on the firm foundations of transatlantic trade and investment. We started talking about TTIP as taking inspiration from the EU’s own single market that tore down tariff and most non-tariff barriers and that nearly everyone agrees has generated prosperity.

Fourth, I learned that we were not really fighting for a free trade agreement; we were fighting for free trade, full stop. Support for TTIP in Germany has been sinking like a stone, to less than 20% today from 55% two years ago.(“Attitudes to Global Trade and TTIP in Germany and the United States,” Bertelsmann Foundation, April 2016.) Only 56% of Germans consider trade with other countries to be a good thing, while 27% have a negative opinion; two years ago 88% had a positive opinion and only 9% a negative opinion. This is in Germany, Europe’s export powerhouse, its most competitive economy, that stands to gain the most from free trade and would be the biggest winner from free trade. Amsterdam’s City Council has voted to make Amsterdam a TTIP free zone: Amsterdam in the Netherlands, whose history for centuries has demonstrated how cities can grow rich from trade!

How can one explain this? The resistance to the TTIP message is not only related to fears about free trade, but also about globalization. Globalization has been made a scapegoat for our ills, much more than rising productivity and new technologies.Martin Wolf, (“The Tide of Globalisation is Turning,” Financial Times, September 6, 2016.)

The more I toured and spoke about TTIP, with labor and youth and environmental groups and NGOs, as well as with many parliamentarians in member states and in the European Parliament, the more I realized that many think that free trade is a way to deepen, accelerate globalization; that globalization is optional like an on/off switch; that we can hit the pause button on globalization to allow our businesses more time to adapt. It reminded me of the hit musical in London’s West End and Broadway called “Stop the World – I Want to Get Off.” But of course globalization is here to stay, whether one likes it or not.

Free trade agreements are a tool to shape globalization as we – in the advanced economies and democracies – want to: at a high level of protection for consumers, health and the environment. If we don’t set the rules of global trade together during the next 5-10 years, then other countries whose weight in the global trading system is rising fast will do it themselves – and those rules will not be protective of consumers, health and the environment as ours.

The toxic mood on free trade illustrates a deeper challenge that the US and the EU share. The social compact is breaking down and is in urgent need of repair. More and more people are feeling the system is “rigged”; that the system is unfair; that the gains of trade and globalization are being privatized by the few at the top of the pyramid while the risks are being socialized.

A lot of ink has been spilled on the topic of the social compact under threat. But one recent study by the McKinsey Global Institute (“Poorer than their Parents? Flat or Falling Incomes in Advanced Economies,” McKinsey Global Institute, July 2016) makes more especially interesting and compelling reading. The study found that between 65 and 70 per cent of households in 25 advanced economies, the equivalent of 540 to 580 million people, have seen their market wages stagnate or decline in 2014 compared to 2005; this compared with less than 2 per cent, or fewer than 10 million people, who experienced this phenomenon between 1993 and 2005.

And, furthermore, we are about to embark on a hugely significant – and ultimately positive – era of digitization and Big Data, increased automation through vastly increased use of robots (Martin Ford, Rise of the Robots: Technology and the Threat of a Jobless Future, 2015) – that will have huge immediate consequences for the world of work, and the ability of the middle class to keep up. The demographic challenge – the rapid inversion of the age pyramid in much of Europe – will compound the challenge.

According to the McKinsey Report, nearly a third of those who felt they were not advancing thought that their children would be less well off, and they expressed negative views about trade and immigration.

Those are the roots of rage. This explains why popular confidence in the competence and honesty of business and political elites is vanishing. This poisonous atmosphere provides rich opportunities for the sophisticated Russian disinformation machine to undermine our democracies and split European countries from one another and from the United States.

The Economist put it well recently when it said that the real divide is not between left and right, or between groups based on ethnicity or geography or religion; it is not even between rich and poor. It is between those who want the drawbridges to be up and those that want them down (“Drawbridges Up,” The Economist, July 20, 2016). The drawbridge-raisers can do much harm, not only to the cause of free trade, but also to the free market economy, tolerance and even our democratic systems.

There are surely many ways to address the challenge, but on the list of potential remedies to save the social compact must surely be at least some of the following:

  • more effective trade adjustment and even globalization assistance to retrain or otherwise assist those who lose their jobs;
  • more effective trade defense mechanisms, especially against China, and greater US-EU cooperation in attacking unfair Chinese trade practices before the WTO, and in dealing with substantial imbalances in global supply and demand due to growing overcapacity in China in certain products;
  • continued US-EU leadership to crack down on tax avoidance by multinationals, especially through the BEPS initiative at the OECD;
  • greater focus in bringing European and US business together to partner together to exploit the potential of and the standards for the Industrial Internet;
  • delivery on the EU jobs and growth program, especially a pro-growth and pro-innovation DSM, avoiding protectionist or heavy handed regulation;
  • wider introduction of apprenticeship schemes that have been so successful in Germany;
  • promoting policies to stimulate aggregate demand (especially in countries with fiscal space, such as Germany that is currently running an 8% GDP surplus); and
  • vastly increasing our expenditure on infrastructure.

All of these things are urgent. Family-owned businesses must play a role in repairing the social contract. You are long-term thinkers and planners. Your businesses are builders of bridges, not walls. You can help build a Europe that believes in itself and embraces the opportunities of free trade and a globalized world.