# Rethinking Capitalism Series | Wheeler Institute for Business and Development

Data: 11-01-2025 21:45:31

## Lista de Vídeos

1. [Rethinking Capitalism: In conversation with Esther Duflo and Abhijit Banerjee | LBS](https://www.youtube.com/watch?v=WhdCxOWbThc)
2. [Rethinking Capitalism: Plans to alleviate global poverty | LBS](https://www.youtube.com/watch?v=8X-EWGtAMwA)
3. [Rethinking Capitalism: A fireside conversation with Rebecca Henderson and Ioannis Ioannou | LBS](https://www.youtube.com/watch?v=a1aVARVpxio)
4. [Rethinking Capitalism: In conversation with Thomas Philippon | LBS](https://www.youtube.com/watch?v=Qk2EXeBBqqA)
5. [Rethinking Capitalism: Development funds and the role of business | LBS](https://www.youtube.com/watch?v=C5iIUM-ps94)
6. [Rethinking Capitalism: Economic climate in developing countries | LBS](https://www.youtube.com/watch?v=t6AdbSGsxkg)

## Transcrições

### Rethinking Capitalism: In conversation with Esther Duflo and Abhijit Banerjee | LBS
URL: https://www.youtube.com/watch?v=WhdCxOWbThc

Idioma: en

[Music]
welcome everyone
and happy new year my name is elias
popayuano and i serve as the academic
director of london business school
wheeler institute for business and
development
the wheeler institute was funded with a
generous gift from tony and maureen
wheeler
founders of lonely planet that have
shown the beauties of developing world
and
and our beautiful planet and tony and
maureen are passionate about the role
of business and development more
generally
among funding academic research and
promoting teaching
mostly in low-income countries the
wheeler institute for business and
development
organizes every year the flagship event
this is going to be our third flagship
event on rethinking capitalism
and i couldn't be more glad and happy
and honored to
welcome esther duflo and abihid banerjee
esther and abihid thanks for joining us
thank you for having us
i don't think that esther nabi he'd need
much of an introduction especially
given the discussion that we plan having
today
esther and abigail alongside with
michael cramer
have put the forward and have developed
a very innovative new approach to tackle
some of the world's more profound
impact and for their contribution in
poverty alleviation they were awarded
last year the nobel prize
in economics i strongly
recommend if you have not done so to
read their excellent book food economics
which actually builds on the general
economic perspectives article on the
economic lives of the poor
which i think is a scenic van on reading
if we want to understand the development
more generally
more recently esther and abigail have
written
another excellent book which i have here
the economic
okay good economics for hard times which
i think it was released last year
actually i remember like one week i
think after the nobel prize announcement
but actually it couldn't be more topical
given what's happening in in the world
economy in developing countries
and more specifically nowadays with a
kovi 19
so without much uh let's not lose much
more time and go to our discussion and
actually before i do that let me make
two remarks
actually esther has been awarded an
honorary doctorate from the london
business school a couple of years ago
so we're very honored i asked her to be
part of the
wider and under business school
community and i would
say on a personal level that i was very
honored last year to
to co-teach with abhijit automatic
during my sabbatical
so i want to start our discussion today
with a question of what's happening
nowadays
in developing countries most of us read
in the news what's happening in the us
in the uk with the chaos with
immunization in europe
but can you give us let's start our
discussion with an overview what's
happening i know i behave you have been
working in india yesterday you have been
working
in many settings and what's happening
nowadays health-wise and economic-wise
say
in frontier and low-income countries
um in terms of covet interestingly i
think
as of now uh the death rates
are very very significantly lower
in low-income countries than in the west
uh and that's a that's you almost unique
in
in terms of of
such global events so it's it's it's and
i don't think anybody has
any idea of why you you have some
hypothesis i mean that for example it's
a younger population or there is a
population that's
more exposed to diseases so it has a uh
has more resistance or that it has
you know there's some particular vaccine
that
children get now get in but i i think
none of those stories fully uh explain
what happened because in fact the
infection rate went up quite high
and then fell and so all these
explanations would suggest that there
would be
some you know it could be level could be
low but in fact you see a very steep
rise and a
and a steep fall as well and that that's
certainly somewhat uh
puzzling and i don't think anybody has a
credible explanation of what happened
so that's all now given that
the economic reaction was probably in
retrospect
maybe an over overreaction in the sense
that there was
in several countries including india
the economy was completely shut down
schools are still
essentially closed after 10 months
schools are closed so that's a huge
amount of learning loss so
there's been a series of actions which
in retrospect look more extreme than uh
than they might have been but it's i
also would say that this is 2020
uh hindsight because it's not we didn't
know this we didn't know what's going to
happen so
i don't blame you know people from
taking
you know hardline decisions but the
consequence of that
i think highlights the rigidities inside
the economy so
you know when something like this are
really i think india had a very
well enforced lockdown and
gdp fell quarter and quarter by 24
that's that's a number that's almost
unthinkable
it's it suggests an economy where you
know there is just
uh you know very few margins of
adjustment when you stop
stops certain activities things just
freeze and nothing
nothing comes in its place and then the
question is
could the government have done more to
anticipate that and support that and
one thing we know is and this is a
number from the imf
which is that the amount of support that
the
government's plowed into the uh to the
western economics
is massively higher so if you look at
the number is 20
of gdp in the rich countries six percent
in the kind of the
middle income countries and two percent
in the poor countries
and that just means that you know you
you don't have much of a
macroeconomic pushback against what the
what the
uh government the policy has done and
and as a result uh the economy went into
free fall
it's going to be interesting to see how
long it takes to recover but it's
suddenly
it's it's certainly uh a concern
you know across many countries that we
were going to be uh
i think people have numbers on just how
much poverty has gone up i think though
some of those numbers are
i think based on possibly
you know poverty went up but of course
it could go back down very quickly
the question is not so much did at any
one point of time poverty
climb up a lot but whether that's going
to be
how sticky it's going to be or will the
economic well-being return very fast and
that's where i think
a lot of the speculation is now
i like this optimism that although
poverty has been going up you know it
can quickly go down
so esther do you do you share this
optimism
well starting with the what we know
about the recovery so far
is not only we know that some countries
fall in gdp has been precipitous so for
india is the lowest recorded in the
world
it probably was also so this 24
decline in gdp it's always like the
worst we've seen
that said perhaps ggp is not very well
measured in another african country
where it might just have been
just as high on average uh according to
what the imf calculated
the fall in gdp was actually similar
around six percent
uh for the the beginning of 2020
but what is striking is that the
recovery was not similar and
the richer china if you remove china
uh the the the emerging
and poor economies except for china have
recovered much less than the richer
countries so
if that continues in the same way the
fear is that they will recover
less than the than than the richer
country and that's related
to this point about them not having the
simply the ability uh to borrow
enough to do you know the whatever it
takes that
european likes to do and have been able
to do in this case
and i honestly think that whatever it
takes was the right
approach in both when mario draghi first
said it and more relevant in the car
in the current context not only to to
make the pain less acute during the
crisis but
also to lay out the foundation for
recovery
so for example in in europe
people were able to keep their employees
to the moment that the economy reopened
even temporarily turns out in the summer
people were
able to to go back and start start
working and consuming
in in a country like india for example
even when the number of cases went down
when the lockdown were lifted
or people feel and are very poor
so it is not that i can like immediately
rush and start
spending again and this where we started
the economy
so i think that it is completely
possible to get a restart in those poor
economy because there was
it it came from the sky like the economy
didn't they had their own issues but
they didn't collapse on the weight of
these issues
which is different from the typical
crisis
but it will require uh
action to help them manage this
transition
so i think there is a a lot that can be
done and should be done now
sure and actually if if i was to use the
the last crisis as an example the 2008
2010 11 crisis again
emerging and low income countries were
affected but then there was some quick
rebound precisely i think for the
reasons that you mentioned
and i think one issue that i think you
raise which i think is very topical is
now vaccination proceeds slower
or in some other country faster in the
advanced economies but then many
low-income countries still have not
started the process which means that
it is not unthinkable to see rebound in
western europe
the uk in the us but not so much in
low-income countries and i refer here to
2021
but on what should be done actually um
i read again your piece of the economist
if i'm not mistaken it was in may
actually the economist
every year in december they would send
the most widely read the
articles and it was featured yours
and recently in le mans you had actually
an update of this
of this piece that effectively you are
calling for a new marshall plan
and actually coming from a country
greece that has benefited from the
marshall plan
and we will have the left-leaning
government of syriza in the past years
actually calling for the eu
marshall plan for the periphery actually
i'm very intrigued by your proposal so
can you give us some details please
well the analogy to to the to the
martial plan is the analogy of postwar
recovery
and one thing that is striking that was
striking after the war is
a fairly uh actually quite
quick rebound of economies that were
even profoundly affected so you're
looking at japan you're looking at
germany
and and towns that were entirely leveled
uh
picked up quickly and at the rapid cross
rate so they kind of went back to
wherever
they would have been in a relatively
short amount of time
and one thing that made that that
possible is the marshall plan
which is the original investment that
allowed people to get the economy
humming
coming again so in may we were calling
for the martial plan to
for the poor country to make that
possible uh
because precisely although we didn't
have the number
then we anticipated something like what
happened in reality which is the poor
country being
unable to borrow in order to mitigate
uh the the the shorthand effect of the
crisis and then uh kind of overcome them
as soon as the health conditions were
possible
and nothing remotely like that happened
but then it was may and in a way we were
you know too early for our times it is
pretty clear that in may
rich countries were completely obsessed
by their own issues
uh which you know were severe to be fair
and nobody was ready for that
now i think it's the reason why we kind
of went back at it
at the end of 2020 in le mans we felt
look
now that we see vaccination coming along
now that we see the end of the tunnel
for
us is the right time to put back this
idea the martial plan actually was
people started thinking about it at the
end of the war
started thinking about reconstruction
effort towards the end of the war
and it was launched right shortly after
the war was finished
so it's a little bit here uh the same
thing is kind of helping this process
and maybe i can
i can have a budget i wish it can can
can continue on
what we think are the elements that you
want in a marshall plan
please have a hit i see that you listed
three priorities perhaps you want to
tell us and a bit elaborate on those i
think you should go ahead
so the first one is vaccination uh
so the that seems clear you mentioned it
so a country like india is able to start
their own vaccination program partly
because india is the pharmacy of the
world
so if if someone can manufacture
vaccines that's india um
the in the rest of the world
the at the current pace it is estimated
that africa would finish
vaccinating their population in like 80
years or something like that
and uh that's crazy it's just
uh it can't happen first of all because
that's
that's the uh ethical just
nightmare that we would uh allow
an entire continent to
go without those vaccinations that are
life savings
so second of all because it just
wouldn't make any sense from the point
of view of europe
because as long as vaccination is not
mandatory in europe
and therefore far from universal if it's
in africa it's in europe
it's basically there isn't it's not even
in question if if it's in africa in a
large number it is going to come back
via the the the share of people who
choose not to get vaccinated in europe
or in the us
so it seems it's absolutely necessary
that we've that we vaccinate if we are
not
if a particular country is not willing
to vaccinate their entire population
they have to be for their own
self-interest
from from the purely health point of
view wanting to vaccinate
the as many possible as many people as
possible in the world
and yet despite that there is a there is
a group
the act accelerator that is the kind of
coordinating the purchase of vaccines
for the developing countries and it has
a huge shortfall
the uk actually i should say is one of
the leader in defending of this group
so the uk is doing well uh but the uk is
not going to do this entire effort
on their own so uh the the contribution
of the eu as a group has been fairly low
so far the contribution of individual
countries
has been fairly low so that's definitely
the first thing
the second thing is the economic pillar
uh and there it's you know how do you
how do you help kick starting the
economies like what what can you do now
even if we didn't do it before to help
poor countries relaunch
and that's when you i think not need to
be sized
spending money and basically spending
money on the poor country the same way
that we spend money on ourselves
which is basically via direct transfer
to people
so in europe in the us they are targeted
via the unemployment system or via
furlough
in developing countries they could in
particularly in the poorest they could
be made simpler by a
temporary cash transfer on a universal
basis
just to help people start consuming
producing etc so the economy can be
restarted
and the third pillar is that of
innovation
because the the pandemic has
revealed so much new problems
i mean there are always new problems but
there are even newer problems here like
for example how do you
vaccinate one billion people in india
that's kind of a new problem they
haven't had
they're doing polio every year but
that's a different one with the
uh the condition of a vaccine how do you
deal with education
when kids have been out of school for
months and so on and so forth and for
that we need to be
willing to find new solutions test a new
solution
rollout that works etc and with those
three
you know we could as a world go out of
the crisis much faster
sure so which brings me actually to to
my next
question which regards more broadly your
research and your
important work in the past two decades
given all
what we know from randomized control
trials also from policy experiments like
the one on school construction that you
have worked in indonesia
what do you think should be the
priorities now
can you come up with a couple of micro
and perhaps more macros kind of
interventions that
the low-income countries need and for
example abigail i have a question also
for you given your work on universal
basic income in developing world
what is the evidence so could this be a
good idea nowadays
so i i think that both the
uh i i think both the
evidence and i think the uh what esther
said about the macroeconomic
uh macroeconomic situation in these
countries
point two i think uh the first priority
i think needs to be
just a restart of the economies and
vaccination
i think i think restarting the schools
vaccinating
and restarting the economies are you
know there's no
you can try there's nothing else that's
first order relative to that i think
they're
they're sort of um i think schools have
been closed in many countries
now for almost a year and that's a
that's
that's we know that's from esther's work
that you mentioned in indonesia we know
that's
that's uh seven percent of your income
for the rest of your life that's a lot
of money for
a lot of people we just think of that in
as a proportion of gdp that's a lot of
money
that people lost and i think that that
just the order of magnitude of uh
keeping the economies even half closed
given we know how rigid things are
is also extremely costly so i think the
vaccination is both
a sort of a moral necessity but also
just
to create comfort in the population it's
critical that we have
have people being vaccinated because i
think that that's that
that's where uh you know it's still true
that people are just
nervous to to travel for example in
india one of the issues that
came up and is still remain very salient
is uh you know when the lockdown
happened it happened within
a few hours four hours which was
little maybe extreme and as a result
what happened was that
a lot of you were stranded and they were
stranded in places where the entire
welfare system
was unable to process them they didn't
exist for the welfare so the welfare
system
is uh localized in specific ways so they
didn't exist
so they were starving and literally very
quickly they were starving
and then they walked back that for a
while that the government was
very reluctant to run trains for very
very obvious reasons the right policy
would have been
to find uh just everybody and just hand
out cash to them that would have been
much better than what what happened was
that they took the diseases back to
their districts as a result
what happens next is that they're scared
and they don't want to go back
we talk to some business people
they they say we don't get we in pune
in where but the economy is now back to
being relatively lively
we just can't get workers anymore uh
because
they came from all over the country and
they're in their villages and they're
worried that there'll be another
lockdown
so i think the general sense of you know
the where we are on top of covet
is extremely important and that
vaccination is going to be part of that
story
uh but also i think uh the
sense of you know we are going to this
time we know what to do and we're going
to
whatever manage your economic needs as
maybe it's going to be critical to
reopening the economy so i think the
these pieces of and the education piece
of it
i think that's almost that's the most
unfortunate because
there isn't much evidence that schools
are a major
uh hub of transmission so i especially
primary schools
uh are open in france there's there
doesn't seem to be any particular
feeling that that's the major
uh source of transmission and i i think
it's pakistan opened its schools
a while ago and they seem to be
doing okay the infection rate has gone
up a little but still not
uh so i i do think that there is a sense
in which
but for example in a lot of countries in
africa the schools are
still closed uh they
uh you know while you know you could you
could
maybe in france or in the u.s you can
get classes on zoom
uh this is not about to be the big part
of any any story in india
so that so that's sort of it's very
clear that that's the
landscape and within that i think i
think one of the things we've learned
over the last many years is that if the
education system
really needs to take cognizance of the
fact
that people are lost learning for a long
time there's both
evidence clear evidence that just the
summer causes learning losses
so this is going to create massive
learning losses the question is
do you now treat these kids as being
just
backward students in their grades and
teach the great curriculum or not and
we've been arguing for many years now
that you want to teach what kids learn
to know not what you
want them to know and and i think that
that particular
distinction has become extraordinarily
critical in this context because it's
if you don't teach kids help them catch
up then they'll all drop out and then
we'll get the really catastrophic
uh you know it would be not one year of
learning loss it will be
five years of learning loss so i think
that we're really sitting on the cusp of
that which is the
uh decision to how to transition these
children back into the school system and
that's that's going to be another place
where
the uh the intervention needs to be
tailored to the
problem or or else we could court
disaster
so if i was to sum up the first would be
dealing with a pandemic with vaccination
and health the second should be tackling
the education gap
that you that you discussed there at
nabi
but esther i also saw a volunteer
development in france that president
macron set up
a development innovation fund uh
for development and inequality uh i'll
come back to the
relation between the two and that you
kindly agreed to chair
and there have been so many put forward
my understanding from the french
administration you also mentioned the uk
so i have a dual question first what
will this
fund do in the short and more likely in
the medium run
because these problems will not go away
in 2021 or 2022
and second do you see that the way
forward is those
unilateral kind of approaches or we need
something much
bolder and multinational for example on
the issue that abi had just mentioned
at the wheeler institute i hosted in may
and
our friend pero olivia grinches who they
have put forward a bold proposal to
restructure
mostly emerging markets at that so
what is the way forward for development
policy more generally
that's that's that's a great question so
the answer to whether that's the answer
to
all of the world problem is definitely
no it's uh
it's a small part of of an answer it's
meant to address the third pillar that i
was talking about which is the
innovation pillar
and it's been generously uh funded by
the by the french government
but still at a level that is small even
relative to
the the the budget of the even the
french
aid budget so it's not meant to to
substitute
to what's exists now what it is meant to
do is to
help countries to develop their own
innovative solution
test them out and scale them and it's
not the first of its kind
in the us there is div the development
impact venture that was
started by usaid under michael cramer's
leadership
in the uk there is jif the global
innovation fund that was funded as a
sort of
joint venture between the usaid and the
then defeat
um and but the there was nothing like
that
in continental europe and uh and
the french div is sort of filling that
gap and also feeling that gap towards
countries that have been completely left
out of this type of innovation movement
in particular under
the the cell and countries in
sub-saharan africa
so the reason why it can matter
is the uh is to go back to the
to the question of vaccination for
example
uh i was chuckling the other day because
on my run i was listening to
someone describing the vaccination
campaign in the u.s
and the many problems that it has
and contrasting the fact that we
it was developed a scientific
process that led to its quick
development was was just uh
magnificent and now we are kind of
unable to to get it on in a number large
enough to
into people's arms the u.s is not at all
alone in this
in facing this difficulty by the way and
someone said oh you don't get a
uh this is all about logistics you don't
get a
nobel prize for logistics and as i was
running was like yes you do
that's why that's why we got the nobel
prize
is for this you know what we've been
calling plumbing
which is that uh the most of the the
difference between success and
failure is not so much
is not only how much money there is i
think in this case we do need some money
for sure
but also how
how you organize the details of the
rollout
of a particular policy and this is
particularly obvious in the case of
vaccination because it's something new
and all of the countries are stumbling
including the rich countries
it's of course going to be difficult for
the poor countries as well
although there have been successes of
you know the ebola uh
fight against ebola was a remarkable
success that was in
very very poor countries but we can
expect
issues in in in rolling out the
vaccinations
and then again you're saying you know
getting this plumbing done correctly
will actually require
just as much ingenuity as
uh developing the vaccine itself and
this ingenuity exists
it's present in the countries and there
is
no doubt a huge desire to do this right
uh but it will require a little bit of
help and the ability
for countries to learn from each other
and to learn from experience
and to uh to know what has worked and
what has not worked
and to share uh lessons on what has
worked and scaled that up
and this is where a fan like dave
is supposed to help which is both
financing innovation
and efforts to develop new policies in
health
in gender in the environment in
education where you know we are going to
need
like all of this innovation in droves
and find out whether they work through
randomized control trials in particular
and then if they work uh promote their
their adoption in neighboring countries
elsewhere in the world and so on and so
forth
thank you we are getting also many
questions we'll open the floor four
questions in uh
five ten minutes uh but actually i have
a follow-up question uh
here that for example john janice
cranston is a former lbs a pc student in
finance is asking
so there are two concerns already in in
the comments first
how funding will be secured
uh and second how about corruption or
institutional deficiencies that for
example you know the social allowances
will end up in the pockets of those who
don't necessarily deserve them so i'm
getting a lot of questions
in this regard but i think they are
topical because they touch
a tuition that we also discuss say in
your book funding and in your piece and
foreign aid
and secondly true if countries such as
european countries face
problems in allocating those funds and
you know this problem is way more severe
in countries for example like mozambique
i think that's true and it's not true in
the sense that
i think part of the
part of what we argue in the book is
that these are countries where
you want to simplify xnt you want to
have policies that don't require
a lot of targeting so i i think it's
i think all the evidence from you know i
think
on targeting and on delivering
public subsidies i think we know that
the more
more sophisticated the targeting scheme
is
the more subject to gaming it becomes
conversely if you if you make it
relatively
straightforward for example everybody
gets it
not everybody will collect actually if
you make it
you know uh not trivial to collect you
to stand in line and get it or something
but i i don't i don't think that it's
that hard to
do it and especially in many many
african countries interestingly
one pla one thing that's developed is
the
uh phone based cash transfers and if one
almost every household has a phone and
every almost every household could be
therefore sent i mean you you will
certainly do a lot of uh you know there
will be a lot of complaints of the
margin about who got too much or not
but if you said essentially every
household uh
every address uh will be a geolocated to
a phone number and to that phone number
will send you a certain number of
um dollars or whatever shillings
uh you would get a lot of the targeting
uh result it's precisely the fact that
in poor countries
in a sense the the losses from miss
targeting are much smaller
because many many people even the people
who are not the poorest are
pretty poor and if you if they got some
extra dollars the
and we think of the world welfare
function
i would say it makes no difference you
know there's two dollars a day one
dollar a day
half a dollar a day who cares at some
level all of them are poor
and so i i do feel that at some level
therefore
the problem is in many ways easier than
in in a country where you might think
that you know there are a lot of people
who are
well enough off that you don't need to
intervene so i think that that's
and a small amount of money given how
poor these people are
a very small amount of money will make a
very big difference so in in that sense
i feel that
we're not talking about you know giving
everybody
uh two thousand dollars a week we're
talking about giving
uh everybody twenty dollars a week
at most and that's that's a lot actually
in many countries so it's it's a
you know even five dollars a week would
be a lot in
many countries so i i think that the
amount of money is small
uh you could give it to a lot of people
if the rich countries actually stepped
forward with a certain amount of money
they wouldn't notice
the amount of money that's spent while
increasing welfare
very widely so in that sense i do
believe that the problem
it's easy to get frozen into this
question of course there'll be
corruption of course
i'm going to put my cousin on on the
list of people who get it but if the
list is essentially everybody then
there's less incentive to do that i i do
feel that
that's to me the the greatest attraction
of a universal basic income is not its
moral claims of you know of not being
judgmental which i also support but i i
think but
just a practical experience of trying to
target finally which i think turns out
to be a
often a disaster can i add a uh just
once
on your financing question sure um
so in in normal times actually we vastly
overestimate how
much poor countries rely on the
generosity of rich countries
aid is like a fraction of a small
fraction
of most developing countries budget
even very poor countries it's only tiny
countries that are very poor
and that have strong relationship with
the former colonial power that aid is
quantitatively important
and then it's 15 percent and then it's
15 so it's like
so so i think in normal time we totally
exaggerate
uh the role of the rule of aid in fact
so for for normal time it is
especially from the traditional rich
country like europe
uk or the us is is quickly battling
towards irrelevance it's neither good
nor bad it's sort of in existence
so but we are not in normal times
we are in times where the rich countries
have
felt the need rightly to borrow
tons and tons trillions of euros and
dollars
and pounds to sustain themselves so they
borrow against the future which they can
do the
interest rate is almost zero and uh uh
uh that's this is clearly the right
thing to do
but the poor countries don't have access
to this boring
if your toggle there is no way you can
go on the international market to do the
same thing
so it is the time where basically the
rich country need to add
an epsilon on the amount that they are
borrowing for themselves
to go on behalf of the poor because the
poor can't do it they just don't have
the
the scope to do it and so i think the
financing question is
is is very uh it's not genuine in the
circumstance we are in
because after all we don't feel any
financing problem for ourselves
so in the same way this is how we have
to think about it in the s
it's very much the same thing that we we
borrow as governments because we know
that mom and pop cannot borrow on behalf
of themselves
in the same way we should borrow as the
eu
as the uk because the government of togo
who is perfectly capable
of spending money on its citizen and has
proven it to establishing within weeks
a beautiful conditional cast a beautiful
cash transfer
to the telephones isn't able to borrow
to offend it
so this is how we have to think about
the financing knowing that in the same
way that we are not going to support
restaurants forever in
in paris because at some point they are
going to reopen
we won't need to support togo forever
for their for their cash transfer system
because they'll go back to finance it
for themselves
they do have to to open in order to
enjoy a nice
french bistro but i see from your point
abih that simplicity
pays off especially given the low level
the high levels of of poverty second on
esther points out
interest rates are at record lows if
anything i would add esther to your
point that
the market tends to to want for example
even the imf
or the eu as an entity to borrow
internationally
from the international capital markets
and this offers a unique opportunity
as you point out to assist now before i
go to
to to the questions from the audience
i'm getting many questions thanks a lot
i have a follow-up question which also
relates very strongly to
to the wheeler institute what's the role
of business here i understand that the
business cannot do much nowadays because
they are closed
and they have to be close to but what's
the role of business more generally in
entrepreneurship
in low-income countries in the years to
come
i think that one of the things that
goes back to a question that esther our
point the guest was making before which
is
that if we think that the vaccination
will be done by the very
limited health infrastructure that
exists
i think then we are looking for a very
long
uh 80 years is the number she mentioned
i think that one of the things that
we could easily do is involve private
businesses
they have many of them have a very long
arms
they exist in many places why couldn't
they
be they provide the infrastructure
for you know for uh vaccinating people
you go
i i think that that is this is a after
all this
if if you have to signal that you are
you know this is your you are corporate
you know you you take your
responsibility seriously as a corporate
why this seems like an obvious place to
step up
and to say look you know we we will we
will provide
maybe the there has to be some protocol
that is respected
so that people are assured that the
vaccine is actually
um but even there i think there are
there are
corporates who have good enough
reputation you know amazon will deliver
your package
almost anywhere but why why
aren't they stepping up to say we can
also send vaccinators somewhere i really
do feel that this is a
it's a global challenge and one that if
we actually demonstrated that
the corpora if the corporates took their
opportunity to demonstrate their real
commitment to the global welfare
i think this would pay off for even for
them for the long run i think they are
all under pressure there is all there is
a lot of political violence that's
sloshing around against them especially
against the big corporates
i feel this is an opportunity they
should just see it as an
opportunity to step forward and say look
we'll take care of
the entire supply chain down to uh
you know this part of togo uh where uh
you know we are after all we are buying
our
whatever vegetables there or something
there
why why can't i do the other way around
can i why can't i get
my the vaccination we'll support it
we'll let's write it off as
you know our cost for the year from our
cost for the years but it's going to be
such a wonderful uh you know affirmation
of your corporate social responsibility
sure so actually let me open the floor
and take we have received many many
questions so thanks all of you for for
taking the time so one question i'm
getting from
my friend actually sebastian holman and
many others is about
vaccines trust in vaccines and in
particular trust in vaccines in
in developing countries and i know that
abihit you have been involved in esther
in a nice experiment
in in india uh
and also relate to that uh there is
i guess two questions about the you
mentioned also in your piece that is
going to be important for the rich club
of nations to support
developing counters and vaccines but
typically these are going to be like the
not particularly effective vaccines so
there are some questions about ethics
there
can you comment on that i mean you know
i i i feel that
right now we don't know that the these
other vaccine in par
i think going back to the question of of
uh
getting you know reliable data doing
measuring innovations etc
i don't know that we know that i mean
one of the things that's
been shocking and to me is that the
astrazeneca vaccine
rollout uh was so mishandled
it was like you know why is this data
look like that
and because there are it's possible that
it it has very high efficacy rates it's
just they don't seem to know
so and suddenly it's it's a it's a very
cheap vaccine
and likewise i mean i think the the
noise created by the
bo you know the the chinese vaccine that
was
originally you know what it was 65
percent effective but turned out to be
only 50
effective these things undermine
confidence so i i don't think
i would have thought that rather than a
global competition
for showing who's best there would have
been a
this is a place where the the
externalities are
largely negative you know every every
vaccine that
sort of over claims uh is uh is
uh is a negative externality on all the
other vaccines so
i i i so i want to say two things there
i want to say that
it is not obvious to me that these
vaccines have to be lower efficacy there
are i mean
it's true that the most expensive
vaccines in fact
there those are the vaccines that are
not available to the poor countries and
the poor countries have not
just know that they can't afford them so
they haven't even been
getting in the market for the for the
two most expensive
mrna vaccines are just off the market
and that
the that has a in the long run i think
we're going to start asking questions
over the morality of
what happened there but right now i
think people have just recognized the
reality
which is that we don't have the money
for those those cost thirty dollars per
head and that we don't have the money
for that so we're really now talking
about
you know a bunch of either the uh you
know the chinese vaccines the indian
vaccines
uh astaxanica there are a few vaccines
that seem to be close
close enough to the to the to the
uh threshold and then
whether they are again i would say that
if the vaccination
is high enough
then the a 75 percent efficacy is good
enough
because you get hurt immunity very fast
it's precisely therefore
that if the vaccine is not very
effective
we need extremely high compliance that's
that's the trade-off
because you know high compliance is a
substitute for the
effectiveness of the vaccine if
everybody is vaccinated then you're
getting hurt immunity
and only 25 of them fail you get
hurt immunity pretty fast so i i do
think that that's the
that's the way we should think about is
that we should therefore
invest even more in compliance if we if
especially if we are troubled by the
fact that these vaccines are superbly
effective even a 50 effective vaccine
who admits them
and they admits them because with enough
coverage you can get her to hurt
immunity even with a 50 effective
vaccine yeah i mean if i was to add back
in may
all the forecast said that if the
vaccine would be
a 75 efficient even the
mrma ones it would be a success so yeah
exactly
and there are several there are really a
lot of vaccines
coming down the bike maybe
in the dozens yeah and and
it's a little bit partly because the
research is warped toward the
the interest of the rich country there
has been so much focus on the mrna
vaccine
uh because they they given the
technology they could be developed very
quickly
and it's but they are but at the same
time including in the u.s and in europe
other labs started working on other
vaccines that have
properties that make them better for
developing countries
one of them is cost and the other is
that they don't require
uh to be at sub-zero the deficit vaccine
even if it could be purchased
is of no use for most developing
countries because that that
or it could work in some parts but not
everywhere because maintaining that
that cool the cold chain is so difficult
so so i think and given that nobody
seems to be rushing to giving people
to giving developing countries tons of
money to buying the vaccine
the fact that those these next lines of
vaccines are going to come in the next
few weeks it's not going to be the
it's not going to be the constraining
factor so i don't think we should get
paralyzed by that we should
give we meaning the world should give a
ton of money to act
accelerator and allow countries to
pre-buy doses of this series of
series of vaccine many of them were well
conceived for for the problems there
with on the trust issues i honestly
don't think
the trust issue is any worse in
developing countries than in developed
countries
uh i we don't have that much data on
yet on developing countries we certainly
do have data for
for for france where uh it used to be
that that
less than 60 percent of people were
willing to get vaccinated
this is increasing uh recently probably
as it becomes harder to
to get people to think that it's
something that you should
you should really have we don't have
those those numbers for developing
countries but
there is another factor to take into
account and that's related to this
plumbing logistical issue is uh
is the the even if you're perfectly
willing to do it
you still have to be able to do it and
to remember to do it and this is where
abhijit and i have done a lot of
research over the years
on standard childhood vaccinations in in
india
where we've seen that 98 of parents
absolutely intend to get their kids
vaccinated
but less than half substantially less
than half like 35 percent
get around to actually finishing the
course and get their kids to measles
vaccine
and of those only about 27 percent
within the first year of life which is
what it should what it should be
and so we need to keep that into
consideration as well
and there of course is the just the the
sheer availability there has to be
availability of the vaccine
but that for that countries have made a
lot of progress and presumably they are
going to do the same for kovid
but vaccine is basically largely
available
and gavi has made a lot of progress so
it's available very close to people the
nurses there are mobile camps coming to
people's villages
but after that people aren't doing it's
not a last mile problem it's literally a
last
meter problem and and that last meter
problem is not one of trust primarily
it's one of
uh full understanding of what
vaccination is then how many doses you
need for what which is going to be an
issue
in the covid vaccine because it takes
two doses
and it's also a matter of having many
many other competing priorities
and there we've done research on how to
kind of put it back we and others have
done research on how to put it back at
the top of the mind
which could be uh helpful uh to
uh in this in this context as well
sure so let me ask another question
which is more i guess medium to long run
i'm getting a couple of questions about
among others by julian
so many people stress rising inequality
also in developing countries thanks to
the work of pkt and science we know
about the trends in the rich club of
nations
there seems to be now more and more
evidence from low
income in developing countries so the
questions i'm getting is how about
if low-income countries recover at some
point
hopefully sooner than later but then
this recovery is very unequal
because for example some kids say going
back to to the issue you discussed
before abihid
do manage to send their kids in some
school or some private tutor
and therefore the gaps that we see
continue rising
and the question i'm getting is what
would be the appropriate policies given
your earlier work on development policy
again people keep mentioning the
universal basic income and the
welfare policy i mean i i think that
would universal basic income as we
conceive of
it given the fiscal capacity of these
governments do very much to inequality
no i think the structural forces that
you mentioned in particular
in this pandemic the the amount of
uh the educational the gap but also just
the uh fact that uh you know
the the markets are more and more winner
take all the markets are more
integrated the ones who happen to be in
the right place are
the returns are higher and higher all of
the global forces that are
essentially working everywhere are also
working there so i do i think that
universal basic income is going to be
important in dealing with some
you know some sharing of the procedure
of growth yes do i think it's going to
really do
make a dent on the inequality numbers no
i think if we want
to tackle inequality we really need to
do it head-on meaning
much higher taxes wealth taxes
estate taxes most countries
for i think under the influence of a
particular ideology
coming from the west have moved very
much in the opposite direction so
i i really think that you know i think
we could
we could pretend that we're going to fix
this with universal basic income but
i don't think the fiscal capacity of the
state right now is anywhere near doing
that i think
and the competing claims there's
education to be funded the roads to be
built
the cities to be expanded you know it's
just not
not likely that till we solve the fiscal
problem that these countries raise their
tax capacity that we're going to get
anywhere close
to redistributing as much as we need to
i think inequality
sadly i believe will keep growing uh
until the fiscal capacity is much higher
that's that that's my
uh rather i guess i i i
i'm depressed to have to say that but i
believe it
sure so i actually i
had promised my academic co-director of
the will institute chandi
who is doing a lot of rct work on
marketing to ask a question
he's become on his behalf if you were to
advise young economists
and he wants to think about economies
broadly defined like
at the london business who have a phd
program in marketing in entrepreneurship
in management
what would be your advice right what
should be the topics that he or she
should work on again in the development
sphere
i didn't worry about this potentially
you got
it my advice the advice that then to
gear on this one is that they should do
whatever interests them because
everything else will become excruciating
so that's that's i i really do believe
it
that's first order and i would have said
they should do development that you
already said within development so once
that is once that has been
done you know like within development is
really whatever
they feel uh excited about and
i also would say that to not be
the current times are really difficult
for phd students particular phd students
who want to do development
and it's anything in development because
they cannot even get to a developing
country
they cannot run their survey they cannot
do anything so uh so my second piece of
advice is to not
get discouraged that's going to pass and
then
there'll be so much to do and and
um maybe the the uh
the idea would be to use to this to use
the time if someone has not started to
write a good paper that does not involve
collecting your own data which i always
advise people to do because you need
some sort of insurance anyway so use
this current time to do that
get it out of the way and as soon as you
know you get your vaccine
and the plane reopen and the borders
reopen
get yourself to developing countries
anywhere you
you you want really and spend some time
looking around
uh structure looking around usually
involve working with
other people or finding a foothold in
the business
or in a government or an energy or
anything just
i got so much especially not being from
a developing country
originally just being there
and then i think this question will
answer itself because somehow it will be
so clear like what it's like oh how come
nobody
you know told me this was happening and
that
this is so such a fascinating problem
i'm going to work on it
let me let me post to you the last
question given that we're running out of
time
so i'm being asked by prasma that women
workforce participation has
suffered immensely due to child care and
home care and even the recent statistics
in the u.s were very depressing in this
regard
and prathna wonders what are going to be
the intergenerational effects
of this impact on women and also there
are some concerns about domestic
violence and let me stress also given a
bit my work that there is clear-cut
evidence-leaking crisis and economic
boundaries with domestic violence
in civil conflict more generally so it's
a it's a
it's a great question and one that
i wish we had more to say about in the
sense that i i'm
sure that you're right that domestic
violence
and there's some evidence showing that
domestic violence went up
during the covet times i think there is
absolutely uh simple um
descriptive evidence suggesting that
women
were doing more child care schools are
so i would say
the first order uh has to be to reopen
schools it's extraordinarily costly
and and while every other reform
i would support not reopening schools
is a straight tax on
women and i i think that that's the
sense in which i think
if i had to prioritize one thing i would
go back to reopening schools
um and you know establishing so
the question of plumbing around that is
important establishing the protocols
that
make schools safe you know when when
somebody's sick what you do etc those
are all
important questions we haven't really
done much research
on it but i think it is it's i think
there is some common sense there and
probably some experience
from the u.s and other places where
they've opened and closed and opened and
closed
so i i do think that there is some some
some science that can underlie the
reopening of schools but if
i had to pick one thing i would say
reopening schools is going to be
critical then of course if the labor
market continues to be
down women get displaced it's well known
that
there's a pecking order of employment so
men will get the first
jobs so we need the labor market just to
revive but i think first order
let's start by reopening schools sure i
actually have been bombarded by many
many questions and so
let me post to lester than the last
question which is about
share responsibility so and andini does
for example is my great colleague
ioannis ioanno who works on corporate
social responsibility
they are asking is your idea of the
marsa plan to go back to what we were
before
or it's a bolder agenda to have a more
common responsibility between
emerging low-income and you know
rich countries or generally well i think
it would be
it would set a template for what is the
role of the rich world
with respect to the poor world uh the or
two emerging markets or the poor
countries the way we are thinking about
now is we are thinking about it as
charities you know whenever we have time
and whenever we have the energy and
whenever our political terrors are
aligned then we have some aid budget and
we are
thinking of ourselves as maybe replacing
a part of the
what the country should be doing
themselves so should be doing anyways
and that's just that's like the wrong
way to think about it uh the right way
to think about it is that this these
countries have
very you know competent people
not all of them are equally benevolent
but that's equally true in rich
countries that not all leaders are
equally benevolent so we
should stop looking down at poor
countries and just
looking at countries as countries that
happen to be poor
and therefore don't have the same
capacity
in in the face of a crisis and don't
have the capacity
in investing in sort of the venture
capital
of designing policies and our age
developing our development policies
should be along these two lines which is
when there is a big crisis who is there
to help
when there is uh when there is a need
for you know when and then there is
always a need for innovation we will
we need to help finance that and in
particular that becomes critical when we
are thinking about climate
change i think we need to completely
rethink
the role and the responsibility of the
rich countries vis-a-vis
the rest of the world in the context of
climate change which is mostly produced
in the poor countries and whose
consequences
are mostly felt in the four countries
for producing produced in the rich
countries and where the consequences are
mostly felt in the poor countries
and if we don't start thinking about
what we are what this
what our so far pathetic behavior as
shown during this crisis is that
when there is a climate crisis if we are
not
prepared for it that's not when the rich
world is going to suddenly wake up and
do something for the countries that are
the most affected
so we need to rethink that solidarity in
in this way and
the marshall plan is like a pilot if you
want a template
sure so a dear arrester india
thanks big big time for taking the time
and being with us
in this a third flagship event of the
wheeler institute for business and
development
actually your work has been very
inspiring for the setting up of the
institute
we come from the business school but we
think that there is say
more to be learned and actually apply
insights from logistics
that are relevant for development among
many other things and from business
practices more generally
you

---

### Rethinking Capitalism: Plans to alleviate global poverty | LBS
URL: https://www.youtube.com/watch?v=8X-EWGtAMwA

Idioma: en

[Music]
i read again
your piece of the economist if i'm not
mistaken it was in may actually the
economist every year in december they
would send the most widely read the
articles and it was featured yours
and recently in le mans you had actually
an update of this
of this piece that effectively you are
calling for a new marshall plan
and actually coming from a country
greece that has benefited from the
marshall plan
and we will have the left-leaning
government of syriza in the past years
actually calling for the
eu marshall plan uh for the periphery
uh actually i'm very intrigued by your
proposal so can you give us some details
please
well the analogy to to the to the
martial plan is the analogy of postwar
recovery
and one thing that is striking that was
striking after the war is
a fairly uh actually quite
quick a rebound of economies that were
even profoundly affected so you're
looking at japan you're looking at
germany
and and towns that were entirely leveled
uh
picked up quickly and at the rapid cross
trade so they kind of went back to
wherever
they would have been in a relatively
short amount of time
and one thing that made that that
possible is the marshall plan
which is the original investment that
allowed people to get the economy
humming
coming again so in may we were calling
for the martial plan to
for the poor country to make that
possible uh
because precisely although we didn't
have the number
then we anticipated something like what
happened in reality which is the poor
country being
unable to borrow in order to mitigate
uh the the the shorthand effect of the
crisis and then uh kind of overcome them
as soon as the health conditions were
possible
and nothing remotely like that happened
but then it was may and in a way we were
you know too early for our times it is
pretty clear that in may
rich countries were completely obsessed
by their own issues
uh which you know were severe to be fair
and nobody was ready for that
now i think it's the reason why we kind
of went back at it
and at the end of 2020 in the one is we
felt look
now that we see vaccination coming along
now that we see the end of the tunnel
for
us is the right time to put back this
idea the martial plan actually was
people started thinking about it at the
end of the war
started thinking about reconstruction
effort towards the end of the war
i see that you listed three priorities
perhaps you want to
tell us and elaborate on those so the
first one is vaccination
so that seems clear you mentioned
it so a country like india is able to
start their own vaccination program
partly because india is the pharmacy of
the world
so if if someone can manufacture
vaccines that's india
the in the rest of the world
the at the current pace it is estimated
that africa would
finish vaccinating their population in
like 80 years or something like that
and that's crazy it's just
it can't happen first of all because
that's that's a
uh ethical just nightmare
that we would uh allow an entire
continent to go without those
vaccinations that are life savings
so one of all because it just wouldn't
make any sense from the point of view of
europe
because as long as vaccination is not
mandatory in europe and therefore
far from universal if it's in africa
it's in europe
it's basically there is it's not even in
question if if it's in africa in a large
number it is going to come back
via the the share of people who choose
not to get vaccinated in europe or in
the us
so it seems it's absolutely necessary
that we've that we vaccinate
if we are not if a particular country is
not willing to vaccinate their entire
population
they have to be for their own
self-interest
from from the purely health point of
view wanting to vaccinate
the as many possible as many people as
possible in the world
and yet despite that there is a there is
a group the act accelerator that is the
kind of coordinating the purchase of
vaccines
for the developing countries and it has
a huge shortfall
the second thing is the economic pillar
and there it's you know how do you
how do you help kick starting the
economies like what what can you do now
even if we didn't do it before to help
poor countries relaunch
uh and that's when you
i think not need to be spending money
and basically spending money on the poor
country the same way that we spend money
on ourselves
which is basically via direct transfer
to people
so in europe in the us they are targeted
via the unemployment system or via
furlough
in developing countries they could in
particularly in the poorest they could
be made simpler by a
temporary cash transfer on a universal
basis
just to help people start consuming
producing etc so the economy can be
restarted
and the third pillar is that of
innovation
because the the pandemic has
revealed so much new problems
i mean there are always new problems but
there are even newer problems here like
for example how do you
vaccinate one billion people in india
that's kind of a new problem they
haven't had
they're doing polio every year but
that's a different one with the
uh the condition of a vaccine how do you
deal with education when
kids have been out of school for months
and so on and so forth and for that we
need to be
willing to find new solutions test a new
solution
roll out of that works etc and with
those three
you know we could as a world go out of
the crisis much faster
is your idea of the marsup plan to go
back to what we were before
or it's a bolder agenda to have a more
common responsibility between
emerging low-income and you know
rich countries or generally well i think
it would be
it would set a template for what is the
role of the rich world
with respect to the poor world the or to
emerging market or the poorer countries
the way we are thinking about
now is we are thinking about it as
charities you know whenever we have time
and whenever we have the energy
and whenever our political tutors are
aligned then we have some aid budget and
we are
thinking of ourselves as be replacing a
part of the
what the country should be doing
themselves should be doing anyways
and that's just that's like the wrong
way to think about it uh the right way
to think about it is that this
these countries have very you know
competent people
not all of them are equally benevolent
but that's equally true in rich
countries that not all leaders are
equally benevolent so we
should stop looking down at poor
countries and just
looking at countries as countries that
happen to be poor
and therefore don't have the same
capacity
in in the face of a crisis and
don't have the capacity in investing in
sort of the venture capital of
designing policies and our age
developing our development policies
should be along these two lines which is
when there is a big crisis who is there
to help
when there is uh when there is a need
for you know when and then there is
always a need for innovation we will we
need to help finance that
and in particular that becomes critical
when we are thinking about climate
change
uh i think we need to completely rethink
the role and the responsibility of the
rich countries vis-a-vis the rest of the
world
in the context of climate change which
is mostly produced in the poor countries
and whose consequences are mostly felt
in the four countries
for producing produced in the rich
countries and where the consequences are
mostly felt
in the poor countries and if we don't
start thinking about
what we are what this what our
sophomotic behavior
as shown during this crisis is that when
there is a climate crisis
if we are not prepared for it
that's not when the rich world is going
to suddenly wake up and do something for
the countries that are the most affected
so we need to rethink that solidarity in
in this way and
the marshall plan is like a pilot if you
want a template
[Music]

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### Rethinking Capitalism: A fireside conversation with Rebecca Henderson and Ioannis Ioannou | LBS
URL: https://www.youtube.com/watch?v=a1aVARVpxio

Idioma: en

[Music]
hello everyone and welcome to London
Business School wheeler Institute for
business and development rethinking
capitalism series thank you so much for
joining us my name is Yanni Serrano and
I'm an associate professor of strategy
and entrepreneurship at London Business
School I would first like to thank that
wheeler Institute for hosting us today
with the generous support of Tony and
Maureen wheeler the founders of Lonely
Planet lbs has established a Research
Institute that focuses on the role of
business in addressing social and
economic challenges in emerging frontier
and low-income countries but in addition
to funding research and informing
learning the wheeler institute organizes
public talks and events these evenings
event is the second of the wheeler
Institute public talks under the theme
of rethinking capitalism and therefore
thrilled to welcome a distinguished
professor but also a mentor and a friend
of mine to today's webinar
professor Rebecca Henderson now Rebecca
is definitely someone that needs no
introductions but I'll make some anyway
is Rebecca is the Joan and Nazi
MacArthur University professor at
Harvard University where she has a joint
appointment at the Harvard Business
School in the general management and
strategy units she's a fellow of the
National Bureau of Economic Research and
at HBS Rebecca teaches an award-winning
MBA class titled reimagining capitalism
today lebretia will be speaking to us
about the what I think at least truly
courageous ideas in her recently
published book that's titled reimagining
capitalism in a world on fire we have
asked Rebecca to make some opening
remarks before our far side chat so
Rebecca a very warm well welcome thank
you for joining us today
to share your ideas and insights in deed
for the world in in true fire thank you
over to you
Jonnie thank you very much I'm honored
and delighted to be here and it's a
pleasure to be able to talk about my new
book I've been asked to summarize it in
ahem
10 minutes
so that's 28 one-and-a-half hour
sessions when I teach it or more than
300 pages in the book all of them
exciting and dynamic but let me see if I
can give you the basic idea
capitalism is broken it is not working
as its supposed to
we have half the world's population
saying that capitalism is not working
for them 70 percent of the u.s.
population saying the system is rigged
against them in the US the bottom 50
percent haven't had a pay raise in
approximately 20 years and inequality is
significantly increasing everywhere else
in the world social mobility is falling
more and more people fear that their
children will not have a better life
than they do we are seeing a massive
crisis of exclusion all across the world
people feel people with black skins or
brown skins or who's simply different
from the ruling majority are protesting
that they are excluded that they are
abused we have a major environmental
problem the world is on fire when I
wrote the book California and Australia
were literally burning and there is a
significant risk of catastrophic climate
change submerging the world's major
coastal cities destabilizing agriculture
sending hundreds of millions of people
north in search of food and work don't
get me wrong I am a huge fan of
capitalism I teach at the London
Business School I think capitalism is
one of the greatest inventions of the
human race an unparalleled source of
innovation and productivity and
opportunity but it only works when the
free market is balanced by free politics
and a strong civil society my reading of
the literature in history and
development economics and political
science
is overwhelmingly that a stable
prosperous society a free society
requires three legs yes the free market
but also a capable transparent
democratically accountable government
and a strong civil society a voice for
labor independent judiciary and a strong
free media I think we have forgotten
this in the West over the last 20-30
years we got so rich and so prosperous
and it was so easy to say governments
the problem drown it in the bathtub
and I see where that's coming from I
have 25 years of major board experience
I understand that regulations are
sometimes a nuisance and that paying
taxes is not always fun but we need the
free market to be balanced by government
we need public goods we need a strong
social net safety net strong education
and health system to ensure that there's
real freedom of opportunity
we need decent labour legislation so
that the minimum wage is a living wage
so that there are decent benefits like
paid sick days off we need a strong
government to regulate pollution if you
can throw greenhouse gases out the
window for free why not it's a great way
to maximize returns we need a capitalism
that's run by the rules in which the
large firms don't set the rules in their
own favor and keep out entrepreneurial
firms or ensure that there's a barrier
to entry in their industry we need a
government that's not flooded with money
that reflects the will of the entire
population not just those with resources
so if that's where we need to go how do
we get there well the easy answer is to
say we need a massive political and
social movement to rebuild democracy
everywhere one of the scariest
statistics I came across in my work is
that only about 25% of people under
30 believed that democracy is essential
why do they say that they say that
because they look at the system they're
in and they say well I said they're
working for me let's try something new
half of Millennials say we don't want
capitalism we want socialism why are
they saying that I think they mean they
want decent health care but sometimes
they seem to mean they want state
ownership of the means of production so
how do we fix things in a world in which
governments are so broken first massive
social and political movement to rebuild
democracy as I said but the central the
beating heart of my book is the idea
that business has an important role to
play in rebalancing capitalism now I
know this is a bit of a crazy idea when
I was trying to sell my book to her one
of the major publishers in New York the
editor looked at me and said Rebecca
business saved the world
don't you read the papers and believe me
I know a great deal about what business
has done to destabilize the system we're
in and what they continue to do that is
perhaps not in the best interests of the
entire society but I think there is hope
there are five steps business can take
the first is to become Purpose Driven
not in the sense of throwing investors
out the window as I said I serve on
major corporate points I'm a big fan of
giving investors a decent return but I
think it's time to realize that making
money and giving investors a decent
return is a means to an end and not the
end in itself the end in itself is
building a healthy and thriving Society
business needs to relearn that it's an
old idea we always used to have a social
contract between business government and
labor and ordinary people business was
part of the mix yet starting you
sometime in the 70s we told business
just stick your head down and maximize
shareholder value even if the world
starts falling up around falling apart
around you even if the easiest way to
maximize shell the value is to trash the
planet push wages down to the bottom and
corrupt your local legislature so we
need to rethink the purpose of time
secondly we need to start to build
business models that not only create
profits but also address some of the
major social and environmental problems
we face my colleague Michael Porter
calls this creating shared value the
classic win-win and I can feel your
skepticism it's not everywhere it's not
for everyone
but in many industries we are seeing
firms build billion-dollar businesses on
the basis of the idea that you can do
both
the most successful IPO of the last 20
years was a soy bean burger company
trying to revolutionize the meat
industry a major source of emissions and
of poor health we've seen billion-dollar
businesses in solar and wind renewable
energy in many parts of the world is now
cheaper than fossil fuels even
unsubsidized someone like tests Elon
Musk has revolutionized the entire car
business by doing what he thought was
right all kinds of issues with mr. musk
but he is certainly driving
transformation and has built one of the
most valuable car companies in the world
at the same time so step one step one
develop a purpose step to create shared
value step three whoops if I do the
right thing as a firm that's great
I can make money the fact that I Purpose
Driven mobilizes my employees I might be
running a high road employment system
much more productive much more
innovative seems good but whoops it's
not enough even if every firm on the
planet pursued those opportunities that
can return money and do the right thing
we're not
problems solving inequality requires
really investing in education and health
and inclusion and wage legislation to
make sure the playing field is level
solving the environmental problems
require whoa let me say redoing the
transportation food systems rebuilding
cities retrofitting every house on the
planet massive transformation it's going
to require government involvement so
what can we do what can we do about
problems that we want to address but are
not there's no good business model as I
as a business owner three ideas first
get together cooperate particularly in
the food industry we're seeing things
like the roundtable for sustainable palm
oil the Alliance to reduce the purchase
of conventionally grown soya and beef
from the Amazon in the apparel industry
we're seeing the sustainable apparel
coalition there are hundreds of these
coalition's what they're trying to do is
solve a problem that is in the interest
of everyone in the industry in apparel
no major Western brand wants to be
associated with child labor or
environmental problems or abuse in its
supply chain none of them alone can
afford to move because it's expensive
and complicated but if every brand moves
together then they can make doing the
right thing
pre-competitive the industry benefits
consumers benefit the supply chain
benefits check the only problem is that
while cooperation is super important and
moves entire industries in the right
direction it tends to be unstable so
step four is okay we agreed to cooperate
but there's you know Fred and Mary over
here they're not pulling their weight
they're not interested they are what the
economists would call defective so how
do we make sure everyone cooperates to
do the right things easy to final ideas
one we rewire finance let me just leave
that but we got to rewire the capital
markets if this is going to work
and last but not least we fix the
democracy we address the problems with
our civil society I believe that
business has a strong economic interest
in rebuilding a balanced capitalism and
that both now and historically they have
been willing to exercise that interest
we are seeing hundreds of firms working
with state and local government to enact
regulations and policies that benefit
the entire society why because it's good
for business as well so we can reimagine
capitalism we must over to you yummy
yeah great thank you so much as you said
300 exciting pages of ideas and I'll do
my best in the time that we have today
to to cover as many of them as we can so
I would like to ask as we go along to
unpack some of those very important
issues for us now allow me to start with
a quote from your book which I really
love
you said managers view issues such as
climate change inequality and
institutional collapse as externalities
best left to governments and civil
society and then you argue that as a
result we have created a system in which
many of the world's companies believe
that it is their moral duty to do
nothing for the public good that's a
very strong statement I think but also a
statement that gives us sort of the
sense of the extent of the challenge
here so I would like to ask you Rebecca
to sort of unpack for us what are those
elements of the system that has these
have these negative implications on
companies to to to feel that they should
not do anything about public goods and
in other words where should we start
when we talk about fixing the system and
a bit of a provocative question are you
optimistic that the system capitalism
can fix itself oh no fair that's two
questions let me start with first where
should we start so
those you're working for a firm that's
never thought about these issues its
head down maximize shareholder value the
whole way where do you start first you
start with the short-termism problem
many managers have talked themselves
into believing that they will not
survive unless they maximize short-term
coordinate earnings right here right now
let's be clear they have a point
missing short-term quarterly earnings is
not a good thing
investors tend to think it means that
you don't know what you're doing and
sometimes it does so the problem is the
issue is how do we get firms to think
longer term two ways first we get them
to begin to think longer term you'll be
surprised by how many firms are not
routinely running three or four or
five-year strategic plans they really
are running quarter to quarter and my
belief is that just bad for business so
start to look out start to recognize the
opportunities second step learn to talk
about that to investors it is not true
that investors are routinely myopically
short-term if they were that would
provide an incredible opportunity for
investors who are willing to focus on
the long term they just clean up if you
can give a good story to an investor and
if you can support it with metrics and
milestones you can get the money you
want think of Amazon no money for what
was it seven years and hundreds of
millions in losses think of
pharmaceutical companies billions of
dollars in long-term R&D that doesn't
pay off the ten years investors are fine
with that why because they understand it
I had a friend once who was the chief
technology officer at a major company
whose name you know whose sales had been
falling for fifteen years and she said
Rebecca the market won't let me do
long-term stuff and I'm like like like
Sarah um your sales have been falling
for fifteen years you know it's all
about making the business case so short
termism is the first problem second
problem is many managers I think don't
fully understand the law they genuinely
believe
that they have a legal duty to maximize
shareholder value right here right now
under American law and we could talk
about details in other parts of the
world but under American law that's only
really true when I'm gonna get a bit
technical Revlon and you recall duties
are invoked there are these specific
circumstances when a firm is up for sale
when you gotta maximize shareholder
value the rest of the time care candor
and loyalty build a great enterprise
that's your legal duty so I think so
much of the short term bat value
maximization focus is a creature of
habit and of the fact that you know
people are paid that way but we back off
that that that can be done we can back
off sorry but we actually argue for the
role of corporate purpose so I guess the
natural next question given that you you
just highlighted this idea of
shareholder value maximization right and
often people cast these two views as
antithetical or running or in conflict
with each other
so I guess and also because corporate
purpose has a different definition for
every person that uses it basically so
could you share with us what is what is
corporate purpose in your view and how
do you see this transition happening or
if you want the link between corporate
purpose and shareholder value if
shareholder value a byproduct of purpose
is purpose something that you know some
would argue that companies use purpose
woman they're not doing well financially
so how do you see that these two
conceptually and practically linked the
shareholder value and the corporate
purpose idea imagine a world in which we
had a perfectly transparent well-run
government that was setting the rules of
the capitalist game so that if I
maximize shareholder value the whole
society would be better off this is a
world in which there's strong education
and healthcare there's really good labor
legislation so no one is going to be
pushed down by them with being low the
minimum wage we've got environmental
regulation that sets a carbon price we
have unions or a voice for labor that's
negotiating with powerful companies
so that Labour is is getting a decent
return we've got well enforced antitrust
laws so firms are you know busy
competing with each other in short it's
Denmark okay in such a world I don't
think there's that much conflict between
shareholder value and purpose there will
be occasional conflicts there always be
the temptation to try and walk the rules
in your own favor always be a temptation
to push a little hard but in essence the
problem we face is not shareholder value
as a problem if the rest of the society
is sort of kind of lost crumbled now we
can talk more about why that is part
it's the direct result of how businesses
behaved but if you could get that
balance right there wouldn't be the
conflict so what I'm suggesting in my
book is right now maximizing shareholder
value in the long term and here comes
the weasel word collectively that is if
you were thinking about the well-being
of the entire private sector no conflict
between having a purpose which means
rebuilding the society and focusing on
the democracy all that all the things I
talked about now you're going to say
well that's nice but I'm just a firm and
ret right for me right now you know I
can see all these great things I could
do but excuse me I have to make a living
to which there are two replies one is
that's the reality of where we are
that's why talk about cooperation that's
why talk about how having a purpose
increases productivity and creativity so
push that boundary as hard as you can
another potential reply is we'll change
the rules that govern corporations
let's tell companies that it's okay to
make a little less money if they fulfill
social purpose that's a huge debate on
its own let me just say that I think it
might be helpful and that for firms that
are already moving in this direction
adopting say a B corporate status if you
can that says you know my goal is to
change the world if you're going to
invest money and me that's you should
know that about me and here the metrics
I'm going to use I think that's a great
way to go but I do not think we should
turn to every corporation on the planet
and say hey your purpose is to do good
don't worry about these pesky
shareholders I think that would be a
mistake I'm I'm a hub a Business School
professor I think focusing on investment
returns is important so the Sun kind of
middle ground here with the end state
being let's fix the rules so that this
enormous conflict isn't as strong I
think I became the current times we
would really really have to leave our
imagination run wild to March in a world
where the rules actually work but I
totally understand your point that in
such a world you wouldn't be you know a
reconciliation if you like of the
shareholder value and the purpose idea
now if I'm if I'm reading your your
argument correctly then you're saying
well we don't live in that utopian world
perhaps but at the same time that does
not mean we cannot contribute towards
getting into that role and as you said
fixing the rules of the game however
here's my other question if it's so
obvious then right why are in companies
doing it already and I would use here
one or another of my favorite codes from
your book and and of course we all know
you've been you where the Eastman Kodak
professor at MIT for sometimes I think
that directly relates to that you you
write in your book that the key to this
puzzle I believe is to realize that the
embrace of shared value is first and
foremost an innovation and precisely an
architectural or innovation
architectural innovations change the
relationship between the components of a
system the system's architecture without
changing the components in themselves
could you unpack that for us a little
bit how do you think that these ideas of
of architectural innovation linked to
the firm's ability to or disability
sometimes to to adjust to to to purpose
and into this different world post you
know shareholder value perhaps we need
to build a just and sustainable world
I think we can do that and make a great
deal of money and there's a lot of
opportunity but it is a shift doing that
is going to require completely
rethinking how we do a whole range of
industries meet would be one how we
think that meat is produced by big
animals of bellow and walk around on
legs
no meat could read be produced in a
petri dish it would be exactly the same
physically it's being done now that's a
completely different structure for the
food industry electric vehicles sounds
easy just take out the internal
combustion engines stick an electrical
engine instead we'll wait a moment what
about autonomous vehicles
what about controlling all the cars in a
city so we manage the traffic moving to
electric what about using them as
batteries overnight as storage for our
renewable grid this transition is a
massive transition requiring real change
that's what I call architectural
innovation when it's no longer enough to
simply assume that all you need to do is
take the world for granted and just work
on fixing your bit an architectural
innovation is when everything is
shifting and it's scary as heck firms
faced with those kinds of transitions
tend to have three responses one it's
not happening we have very strong
mechanisms of denial and delay all of us
don't want to work - most of us don't
want to work too hard we don't want to
think that everything we know is
shifting second problem is not gonna
make us any money often a seriously
knee-jerk response completely missing
the point and last but not least okay
maybe it's happening maybe it'll make
some money but you know I am really busy
and I have the wrong people this is why
purpose is so important because when
you're focused on a greater goal you
have the energy and the creativity and
the relationship with your employees
necessary to get through the transition
so yes not easy not a walk in the park
absolutely possible but that's why it's
slow it's I mean Kodak when
bankrupt they couldn't understand the
transition to digital I wrote the book
because I don't want us to go bankrupt I
think everything I think we're on the
same page because I often refer to
sustainability not only as a disruption
but in fact the mother of all
disruptions because in a sense we a lot
of companies out there are lacking the
knowledge the skills and of course the
experience necessary and as much as many
people don't like to hear this what's
the outcome of every disruption a
certain percentage of companies are
going to be able to adopt and other ones
as you mentioned they're going to be
replaced by the Tesla's of the world the
impossible foots of the world and and so
on so yeah I mean I would love to hear
your thoughts if you think that listen
the disruption lends also it's an
interesting way of of looking at this
but let me pose a double question as
well link to that because we also know
that typically the financial markets
often have trouble actually evaluating
or understanding disruption themselves
so some would argue that you know can we
really count on financial markets to
support business through this transition
given that they themselves might not
understand it or another argument these
days is that they're greenwashing
themselves they Itachi is is g labels
and funds and so on so can we count on
to support and engagement of the
financial community with companies in
order to achieve this transition we can
count on the full support of a portion
of the financial community I would say
about a third of the world's financial
assets are already moving and they're
moving fast and here Yanni I want to
draw on your amazing work with my
colleague George Sullivan the work that
you and George and others in the field
have done to advance ESG and to be clear
about why they're so important is
completely path-breaking and and let me
just review why you know I sometimes
joke I did not understand
but accountants hold up the world
civilization I got accountants what kind
of boring no completely wrong I took for
granted financial accounts which are
another you know the absolute beating
heart of capitalism right but a hundred
years ago when P&G issued its annual
report it said in our revenues are
twenty million our profits are five
hundred thousand stockholders wanting
more are welcome to apply to our
headquarters in Cincinnati in person I
mean the financial accounts we take for
granted that allow investors to invest
in thousands of firms all over the world
took a hundred years to build so ESG
environmental social and governance
metrics are absolutely critical they
allow firms to communicate to investors
what they're trying to do and they allow
investors to find the firms that are
managing the disruption that are taking
the leap but of course it's done missed
I'm sorry is that overly technical
yesterday at the moment is in flux there
are all kinds of different metrics
finding something that is auditable
replicable and material in the sense
that it really hasn't a bearing on the
firm's performance that's super tough in
itself it's a major disruption right
accounting is being disrupted so I'm I'm
not worried it's only a third of the
world's invested capital it's on this
wavelength I think that's amazing the
fact that there are asset managers like
Larry Fink or chief investment officer's
like here in mizuna at the Japanese
pension fund saying we need ESG and we
need it now is incredibly powerful I
think there's another aspect of Finance
I'd like to talk about if you're up for
it which is this idea of universal
investors the idea and I can never
decide if this is really creepy or
really good news
I can never you know 15 to 20 people
between them control you name the number
80 percent of the world's assets I mean
it is really quickly and they I think
are increasingly coming to realize that
what we talked about is X
analogies are not externalities to them
if you run the Japanese pension fund 1.6
trillion in assets climate change is not
something you can diversify away from
it's one of the most important risks to
the value of your portfolio most of your
money's in passive funds you're not
going to make money by getting out of
Ford and getting into Toyota you're
gonna make money by making sure the
financial system doesn't crash and we
have the former governor of the Bank of
England saying he thinks climate change
presents a very significant risk of
causing the next crash we are living
through a pandemic a low probability
risk that everyone said was out there
and now it's here climate change is
going to be another major risk and
there's not going to be a vaccine and we
know it's coming so maybe the big
financial people will get together and
say you know we need to address these
issues they in a sense have the
collective interest of the whole economy
at heart so yes there's greenwashing yes
there are problems but I think finance
could play a major role in reimagining
capitalism so Universal ownership as I'm
sure you know it's a it's a an issue
that's been investigated a lot
especially in the finance literature
right all these big questions of whether
universal owners actually promote
competition or actually not and I think
the jury's still out but as far as I
know haven't seen maybe I'm running you
know behind my finance literature
reading list
I haven't seen much on universal
ownership and environmental social and
governance issues right so as you
mentioned these are quite powerful
layers in the global system not just of
the the the national but quite at the
global system and and theoretically it
makes sense because we're dealing with a
massive public goods problem a massive
collective action problem which is
precisely what it is so in your view
then given the power that they have are
you thinking about this more as self
regulation of these universal owners and
in general the financial industry or do
you see a combination of self-regulation
with government regulation and I
and add to that these are global owners
right so they we need to talk about
global institutions as well so how how
do you see this sort of the governance
therefore of the impact that the
financial community can have on this
issue so in my really utopian dreams I
see us managing to build global
institutions that have some degree of
democratic accountability that are built
up from democratically accountable
national institutions at the moment
those institutions are under enormous
stress and given that so many national
institutions are under stress I think
right now we cannot look to those kind
of global institutions although of
course they can be very helpful the UN
institutions like the PRI are making a
significant difference but now in the
short term I'm hoping for self
regulation self regulation in finance in
the interests of the economy and the
society as a whole at a global level
now Elinor Ostrom won the Nobel Prize
for exploring when and where you see
self regulation I think the good news is
you do see it it is possible it is
stable my leading example here would be
the International Chamber of Commerce
which is a completely voluntary self
regulatory body that essentially sets
the rules for all of global trade and
runs its own courts and adjudication
procedures for enforcing those rules so
we have an example of how business can
self-regulate at a global scale and as I
say because finance is so concentrated
which is partly creepy I think they
might self-regulate to address climate
I'm much less optimistic of their
self-regulating to address inequality
and social inclusion
I think they should because I think
inequality and social inclusion together
oppose a mortal threat to the long-term
health of our society and I don't think
anyone should want to end up living in a
walled compound with guards at the door
and the hoi polloi outside I don't think
that's healthy for anyone but will they
do it I don't know
and let's be clear we have to keep the
social and political pressure on why are
so many firms moving because their
employers have been insisting that they
do why are so many firms moving because
while very few customers will pay more
for sustainable goods they will switch
they will switch brands so I'm not
saying that business can save the world
I'm not saying this is a done deal but I
think if we keep on the social and
consumer pressure business will move
business
well everything we're talking about is
happening so yes to answer your question
I'm not sure I'm optimistic but I am
hopeful wonderful that's a fantastic
code I think I'm gonna use it as your
help we talked about self regulation and
regulation Rebecca and I'm a cognizant
that we need to switch to the Q&A as
well although I've been reading the
questions so some of them have
indirectly ask you as well so politics
is an area in which few academics dare
approach unless you are a political
scientist right let alone a Business
School professor it's a bit of a taboo
subject but you dare go there in your in
your book and very bravely so write a
strong thesis of your book I would say
is that and some would maybe call this
an oxymoron and is that business should
lobby to get business out of politics or
at least money out of politics right and
I understand the idea that you're
suggesting is that business should not
take an active stance on one particular
policy but essentially business should
support the political process right and
the Civic's of it all can you unpack
that aspect how do you envision this
role of business and and it's at the
intersection or within politics to fix
the system it's easiest to start by
focusing at the local level many cities
in the world have groups of business
people that talk regularly with local
politicians governors mayors and talk
about issues like the transportation
system the educational system the
healthcare system and so we have a
history at the local level nearly
everywhere of business engaging
with politicians in the interests of
broadly the social good historically
when societies have broken business
associations have come to the table with
representatives of employees and with
government and sat down and said well
this is not working if you think about
what happened after World War two in
Germany the country was in ruins the
German business association was tempted
to go back to we're in charge we run
everything that's how they were running
to nothing and could see that such a
course would lead to social breakdown
and probably take you nowhere
economically so there are these moments
historically where business as a whole
has realized that the system is in
balance and I don't say it in my book
but I believe and coronavirus has really
increased the strength of that belief
but we are approaching such a moment now
that our societies are cracking that
business has a strong self-interest
enlightened self-interest in addressing
these issues so while it sounds crazy
business should lobby to get money out
of politics it's happening business
should attempt to fix a democracy it's
happening we saw Twitter just today give
its employees a day off to vote it's a
small move it's a fundamental move just
as business leaders are stepping up and
saying it's unacceptable to discriminate
against LGBTQ ex policies and I think
they played a role in the recent
incredible Supreme Court ruling which
said you know you're right so business
should be stepping up when they see
voter suppression when they see jerilyn
during when they see an active attempt
to subvert the democracy and this is
hard but they should pull back their
money you know what got me walk writing
this in the first place was the fact
that firms were pumping hundreds of
millions of dollars into climate
denialism
and into climate denial as politicians
that felt to me morally completely
unacceptable but more importantly it
felts
stupid if we had addressed climate
change 15 or 20 years ago we would have
it nailed by now at a cost of two or
three percent of the economy slowing it
down has you know he's going to cause
untold harm on generations of people so
yes it's a stretch but I went there
because hey the world's on fire well
being at 31 degrees Celsius in London
today I can tell you that it feels very
close to being on fire but unless you
stand Thank You Rebecca I was great I
think bridge into the questions and
usually the questions are pouring in so
I'll try to share it or add you to pose
them to you in some sort of theme like
structure to make sure that we cover as
many of them as as possible so I think
some of the questions are if we start
with the last component when we talk
about politics and institutions a number
of our questions basically tell us that
look you talked about global
institutions but there is an obvious gap
between the Western world institutions
and the institutions in developing
countries is one thing to be a company
in Denmark as one of our participants
said and it's quite another to start
this in Sierra Leone so how do you see
this gap playing out between West
Western world sort of institutions more
developed institutions and perhaps in
less developing countries how do
companies navigate if you like those
institutional nuances as at when they
try to have this sort of impact that
you're describing we have some good
research evidence suggesting that
purpose-driven companies who hold
themselves accountable using things like
ESG metrics so it's not just talk it's
the real thing but these kinds of
companies when they engage in less
developed regions can make a positive
difference certainly on the industries
in which they work with but also perhaps
more broadly on the governor
this is a tricky issue right because you
don't want business fixing government
that's I'm saying is a no-no I want but
perhaps you do want business standing up
for democracy for freedom of speech for
real data for the independent judiciary
so one of my hopes is as we move forward
the large global multinationals will
begin carefully and appropriately and
transparently to engage with local
institutions and to be a positive ally
in trying to develop what the
development economists call inclusive
institutions into institutions that can
really raise the economy in society you
know in a powerful way that's my hope
clearly lots of other things need to
happen clearly issues very enormous lis
between different countries but that's
the general direction in which I hope we
might we might move so I think we're
getting a lot of questions related to
Corbett 19 Rebecca passes as expected
and there are basically three three
issues here so people are asking look we
have seen government's respond in
particular ways and we see you know the
European Union is already arguing I'm
arguing about the green new deal we're
as well say the less Green Deal of the
US it's also another right you know a
two trillion dollar fiscal package right
so government's had adopted a set of
reactions that covered 19 companies have
and NS is often tell to my students as
well we are going through a period where
literally the world is watching right
you have just capital tracking corporate
responses you have to value labs you
have so many other companies that are
paying very close attention to how
companies are responding and of course
there is the potentially behavioral
changes that we as individuals are
experiencing through the crisis so given
corporate responses government responses
and impact of individuals if you were to
assess to value it take all of those
things together would you be more or
less optimistic
that indeed we can reimagine capitalism
now that we have this crisis which is a
know a mini testing ground if you like
about given all these responses what
would you say to that
Cobin 19 makes me more optimistic it is
a terrible event hundreds of thousands
of people are dying millions of people
have lost their jobs
firms are shuttering many of us I think
deal with moments of despair and
isolation it's a really tough time it's
easy to see how things could get worse
it turns out by the way that humans are
hard-wired to focus on negative
possibilities because those are the ones
that hu on the savanna so we tend to
focus on everything that can go wrong
that's who we are
but I actually think there's a silver
lining here kovat has highlighted the
weaknesses of capitalism like with an
enormous spotlight suddenly inequality
is not just a word it's essential
workers who have to keep working because
they don't have health care or savings
suddenly climate change is not just a
mumble mumble it really makes it
viscerally real how many millions of
people the burning of fossil fuels kills
every year because sudden you can see
the margins and your lungs feel clearer
it has completely torpedoed the idea
that free markets can work without
government I mean like Wayne our moment
government turns out to be really really
really important and to be able to
generate trillions of dollars and you
really hope you have a good one so I
think all that works for us and I think
there's another more subtle aspect which
is we've all been unsettled we're all
thinking about the world in a new way
when I talked about this work and this
book six months ago I would tiptoe up to
the idea of systemic change and business
means to work on rebuilding democracy
I'd spend most of my time working about
climate change and you can make money
focusing on climate change because to do
anything else everybody would just like
glaze over that has changed people want
to talk about changing the system
they understand completely what I mean
when I say we need a capable trans
democratically accountable government so
I hope I hope I hope COBIT has a silver
lining
I'm personally very sad to say but I'm
not as optimistic but you definitely
increased my degree of optimism with a
dancer Rebecca because if you do throw
the parallels you know this week with
Kovac we had public buy-in and
understanding and that climate and when
it comes to climate change not only do I
have to deal with the problem but we
have to deal with climate change denier
and funding of pseudoscience and stuff
like that but perhaps this is this is a
strong wake-up call for all of us about
the the challenges ahead now a couple of
the questions that came in related to
the the theme we touched upon which is
that is this idea of the financial
markets and and people basically have
questions about the specifics but Allah
allowed me to kind of bring them a bit
summarizing a bit so there is you know
should we demand more transparency from
asset managers about their engagements
should we demand more transparency about
their proxy voting practices in other
worlds in other words what can we do to
make essentially the investment
community better stewards of capital
right and I'm sure you're aware the UK
has if not the were world leading a
stewardship code for the investment
community so what can we do to enhance
if you like that sense of stewardship by
the investment community two things
first we can insist on transparency we
want to see everything or at least a
summary who are you talking to what are
you talking about how are you voting
secondly we can vote our dollars our
personal savings should be in
responsible funds again or ESG oriented
investments an enormous fraction of the
world's wealth is about to change hands
as an older generation dies and a
younger generation inherits those of us
who are fortunate enough to be in that
generation not me my father
bankrupt but those of us who are
fortunate enough to be in that
generation must insist you know as we
talk about business doing the right
thing there is no substitute for
businesses customers insisting they do
the right thing so transparency and
retail and pressure pressure from asset
owners right so I would like to ask you
one more question Rebecca we didn't
touch it through our conversation but I
think is a fascinating one and if only
we had more time
clearly you are one of the world's not
only leading researcher and voices on
this issue but one of the leading
educators on these issues so if you were
to stay take a step back and reflect on
what do you think is the role of
business education then and business
schools perhaps in in terms of
accelerating this saving of capitalism
or this reimagining of capitalism what
could these educational institutions do
in order to avoid the world on fire or
put out the fire in that sense yeah
you're super kind I'm just a researcher
and just a teacher all of us are just
individuals doing what we can I talk in
the book about the temptation to despair
to think that individuals can't make a
difference and I think one of the things
we can do as educators is really double
down on the idea that changing the
entire structure of the world's economic
system is going to take all of us and
all of us matter so of course I think
MBA education is important I taught my
course reimagining capitalism because at
Harvard we write cases and I was hoping
not only that it would make a difference
to the students at Harvard but the
students at business schools across the
country
but I'm so aware that there are hundreds
of business schools moving in this
direction that there are thousands of
academics like us trying to talk to
their students about the business
possibilities that exist raising the
question of cooperation as a way to deal
with externalities talking about the
fact that a strong capital
requires us from government in a strong
civil society so at Harvard we
definitely are trying to make a
difference we have more than 300 cases
on shared value I was asked to take over
the required course in leadership and
corporate governance and so we're
opening all these questions with the
students what is the purpose of the
corporation we try hard not to tell them
what we think it's all about what do you
think and really opening the questions
should you respond to these issues you
know do this case study is this guy
saving the world or has he lost his mind
I mean you know those those are the
kinds of cases we're trying to teach but
while watching out of the window I want
to just reflect on you know everyone
who's thank you everyone who tuned in we
can all feel so small particularly now
when we're all shut away from each other
but we we can change the firm's we work
out so many of the stories about
sustainability have a hero CEO but in
reality many firms switch because
someone on the ground said you know we
could cut our waste in half and make
money we could raise how much we pay to
our entry-level employees and they would
be more productive and we would be
better we could recruit at different
places and get more diverse more diverse
employees and by the way diverse people
are going to be half the workforce in 20
years and we should start recruiting
them because we're going to be selling
to them too so people can make a
difference as employees they can make a
difference as customers where you spend
your money makes a difference as
citizens vote vote organize organize I
have a friend who started a group called
mothers out front at her kitchen table
she says you would not believe Rebecca
20 angry mothers talking about climate
change that show up at the hearing after
hearing and make a nuisance of
themselves and have done the homework we
are passing legislation and there in
eight states
I mean local groups real organization
huge difference and last but not least
yes your own behaviorism
important it's important because you
want to be internally consistent at
least I do I don't want to talk about
this and then do egregiously stupid
things but because we know social
behavior works that way if you don't fly
or you choose to fly less your friends
will fly less the research is quite
clear on this point so there's lots that
we can do and let me close just saying
one thing any and then I will stop I
don't think this is a done deal
we may not succeed in stopping climate
change fast enough to arrest serious
damage or in fixing inequality in our
lifetime or in solving the
hundred-year-old problem of racial
inclusion that's not a reason not to try
I can promise you that working on these
issues is a road to hope and to joy it's
super hard but I need the most amazing
people thousands of people are trying to
drive change and that's where the future
is that's where our kids are going we
have to make this work Rebecca that was
a brilliant ending and a very heartfelt
ending as well so thank you so much for
that and allow me to say that it was
truly an honor and a privilege to have
you today and to talk about this this
book the book is already out and I would
highly recommend to everyone to read it
and it's a in addition to of course a
great reading I thought it was also a
fantastic call to action exactly what
Rebecca just told us and as you said
Rebecca you know nobody is an extra in
this in this fight nobody is an extra in
this attempt to imagine the system and
hopefully put all of us on a path and
they more as sustainable or and more
responsible future so thank you so much
again for sharing your with us your
views your insights your experience in
this fast evolving very hugely important
topic and I really hope that very soon
not only do we have you back but we can
be even more optimistic about not only
how we put out the fire but how do we
rebuild after putting out the fire so
thank you so much
and Rebecca thank you you're welcome
thank you very much for having me here
I really enjoyed any pleasure
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you
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you

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### Rethinking Capitalism: In conversation with Thomas Philippon | LBS
URL: https://www.youtube.com/watch?v=Qk2EXeBBqqA

Idioma: en

[Music]
good evening everyone I am Ellen a
professor of economics at the London
Business School welcome to this wheeler
Institute event the winner institutes
have been created thanks to the support
of stony and Maureen wheeler who are the
founders of Lonely Planet it is a
Research Institute focusing on the role
of business in addressing social and
economic challenges in the frontier
low-income and emerging economies this
evening the event is the first of a
series which is about working in
capitalism so welcome and we are
extremely fortunate to have with us
today two mahi people and the Martin
walls
Tama is the professor at NYU Stern and
he is recipient of multiple academic
awards in macro economics and finance
Kumar also a distinguished career in the
policy world he was in particular a
senior economic advisor to hold French
Minister of Finance in 2012 and 2013
I actually met tomorrow a long time ago
when he was a student at MIT I remember
the French expects community in
Cambridge Mass having very interesting
and heated discussions at the time
comparing the European economy and the
US economy and interestingly such
comparison played a very important role
in Tamar's fascinating new book which is
the great reversal how America gave up
on free markets and this is the book
we're gonna discuss today in that book
to mark paints a picture of the u.s.
pegged with monopolies and oligopolies
and this is very much in contrast with
the European Union being better able to
guarantee competition in product markets
who would have thought what a great
reversal in heat but to ask too much
tough questions well so very privileged
to have Martin work with us today
since everybody in which Martin scholar
and est
he doesn't need any introduction really
everyone knows the sharpness and
analytical power of his mind when he
discusses important economic issues he
brings sanity and clarity in the world
that needs it more and more by the day
so I just want to mention that that
Martin actually worked a pretty glowing
review of Thomas books but I'm really
hoping that Martin and Tamar will today
find some very interesting things to
disagree about so that we have a great
discussion finally my colleague jilted
by Martinez professor of economics who
is an expert in technological change and
who happens to be also to my students
will moderate the Q&A and explain the
ground rules over to usually back thank
you all and good evening everybody
or afternoon or morning depending where
you are I'll add my welcome thank you so
much Tom ah Thank You Martin for joining
us today
so the ground rules are as follows
tomorrow we'll give an overview of the
book for about 15-20 minutes and then
followed by a discussion between Martin
and Tomas finally at the end we'll have
a Q&A with the audience which I'll be
moderating so please throughout the
presentations throughout the discussion
post your questions on the Q&A function
and I'll put those to Tom on to Martin
and if you'd like to tell us your name
and your affiliation we'll try to
mention those as well
ok that's it for me so without anything
further tomorrow it's a great pleasure
welcome and thank you again well thank
you very much for having me it's a
pleasure to see everyone I wish I could
be there with you physically but I know
we're going to have a great discussion
nonetheless I shall do my best
I learned to disagree with Martin
although it is not always easy for two
reasons one is that usually agree with
Roy rights and two is whenever I
disagree he happens to be right most of
the time nonetheless I'll tell you about
the book so the
to tighten the great reversal to some
extent animals already mentioned a
little bit the motivation so when I
arrived in the US 20 years ago he was
striking that the US had more consumer
friendly markets than the neuropath when
we say competitive market what we really
mean is consumer friendly this is
followed form of foreign economies the
market is competitive if consumers have
low prices and lots of choices that's
exactly what we mean and it was tracking
me so in the US you could get cheap
internet connections you could get cheap
laptops computer equipment all kinds of
electronics you could buy a cell phone
the cell phone plan was cheap and you
could fly to conferences because
airlines were competitive and airline
tickets were cheap enough that even me
as a student you know I could afford it
so that was the u.s. twenty years ago
where actually I met Ellen for the first
time in in Cambridge Massachusetts and
the book is called the greater Russell
because this has changed so let's start
with one of the prime example the cost
of Internet access at home so this shows
you the broadband cost per month for the
same speed right so for the same quality
of product as you can see every country
in the world is somewhere between 30 and
40 dollars per month so France Korea
Germany the UK Japan all of these
countries Italy Spain all of them are in
this ballpark but the u.s. is twice as
high as everybody else
okay so literally if you're a u.s.
household and you want to have a
broadband connection at home you think
twice what the same household would pay
in London or in Manchester okay so that
is a big change in fact it's a reversal
because the u.s. used to be cheaper now
how did that happen well in a telecom
industry over the past 20 years there's
been a wave of consolidation in
increasing markups so mm that's a sweet
spot that's where I got arrived in the
US as you can see concentration and
markups are very low so markup is in
green
read the mark-up is you can think of it
mostly as a profit margin like how much
they're making for each unit of revenues
and it is as gonna buy what 40 per 40
percentage points which is a very large
increase concentration measure on the
right is your eight that's the market
shell the top eight films this is very
volatile for many reasons but you can
see there is a clear upward drift by
about 20 percentage points overall this
20 or 30 over this sample period so very
large increase in concentration a very
large increase in profit margins and a
very large increase in prices so what is
it just that they come in this way or is
it more broadly true in the u.s. well
let's do mat let's look at the entire
non-financial business sector and this
is the profit margin so it's profitable
value-added it used to fig flipped wet
around 7% of course profit models are
cyclical every time there is a recession
profits tend to go down faster than GDP
so profit of a very odd that tends to go
down the few patients that you can see
tended to occur around 7% now they still
frequent but around the higher mean of
something like 10% so again a sharp
increase in profit margin that's for the
entire non-financial business sector
concentration is harder to measure
correctly because we don't always have
the same level of granularity that we
would like so these are proxies using
industry codes Brooke here I break down
by manufacturing in green non
manufacturing in red as you can see in
both cases an increase in concentration
by about something like 6 points maybe 7
pounds to give you a sense because the
baselines 1.2 it's a little bit like if
you had an industry typically that had
for large firms
20 years ago today in the should have 3
large firms
that would give you a sense of what
happened for the median industry so
these facts are not that controversial
although they are measurement issues
that we can come back to what is very
controversial is what they mean is the
interpretation and you know at the risk
of simplifying a bit I'm gonna call them
good and bad concentration these are the
two polar interpretation the good
concentration is when you think that the
increase in concentration that you see
is happening because firms are already
very good that were already industry
leaders have just become even better ok
so then as a consequence of that their
market choice is gonna grow you're gonna
measure higher concentration but it's
not really a bad thing it just means
they they are just getting better maybe
they are running faster than the rest
therefore their productivity is going up
and so is the productivity of your
industry so maybe everybody's benefiting
from it typically it comes together with
a lot of intangible investment when you
see that in the data if the bad
concentration explanation is exactly the
opposite it says that none of the reason
these films managed to maintain such
high profit margins and market shares is
because they are preventing entry they
are preventing competition and therefore
you don't expect any good outcomes and
in fact under the bad concentration
hypothesis you would expect high prices
and low productivity it's not how to
find example of both in the u.s. clearly
if you look at the retail and wholesale
trade sectors they'll if they fit very
well the good concentration story if you
look at telecom Airlines and healthcare
they fit quite well the bad
concentration story but you know what
about all the industries in between are
they more or less in the good camp or in
the bad cap ok so that's what I'm trying
to do and once we understand that we can
start asking questions about technology
of this policy is there something we can
do about it or is that some unavoidable
consequence of technological change
so just so that we all agree on the
basic principle this is an example of
good concentration from the perspective
of consumers
so Walmart entered the market I started
to grow very quickly in the 1980s its
market share went from essentially zero
to sixty percent over a span of twenty
years
that's an amazing growth it was all
driven by innovation by investment in
information technology just-in-time
inventory management in fact many of the
technologies that are used today in
retail around the world were invented or
pioneered or developed at least improved
by Walmart but as Walmart expanded its
profit margin in Green was flat if
anything slightly falling but that's
telling you is that every 1% increase in
productivity that was achieved by this
new technology was passed on as a
one-person drop in prices for consumers
that's why it was a good deal that's why
this is the kind of concentration that
we think is good concentration it
doesn't mean that it doesn't hurt it
doesn't mean it doesn't put many other
businesses out of business it doesn't
mean it doesn't have potentially you
know difficult consequences on the labor
market sure it can but at the very least
it brings improvement lower prices and
higher standards of living to consumers
the other thing that's interesting with
Walmart is it also exemplifies the way
capitalism is supposed to work because
by the early 2000 when Walmart is at 60%
of its market and people start to worry
about antitrust issues with Walmart the
fact that it's becoming too dominant
there's too much market power and maybe
actually we should do something of it
maybe we should have an antitrust action
against korma right at the time where we
started to worry about it
the solution came from the market itself
in fact in the name of Amazon who
entered that space from a completely
different perspective from the online
retail space and started competing
successfully with Walmart so in fact we
never had to do something drastic and
völva because competition was created by
the capitalist system this is how it's
supposed to work my main claim in the
book is that this is not working like
that dream so I go through all kinds of
measurements of competition in the US
and I show that whether you look at
profit margin prices
investment in intangible asset
productivity growth investment entry
turnover at the top of industries all of
these points toward the fact that
there's been less competition in many
industry now if you look at the data
very broadly with all these proxies at
the same time you can construct an index
of good and bad concentration the one
called intangible pc1 so it's the first
bulk of data based on intangibles it's
because it loads heavily on intangible
it tells you this is concentration but
it comes together with intangible
investment and fast for acute evil and
as you can see it's increasing in the
90s and then it's kind of flat so I'm
not saying is disappearing I'm not
saying that there is no industry today
that goes through this good cycle of
concentration they are they are always
some but what is striking is that the
other type of concentration the one
where we don't see all the good stuff we
don't see the productivity the low
prices and stuff like that
this has become relatively more
important in recent years and today it's
actually more prevalent than the green
type okay so that's my main claim about
the u.s. at this point you want to ask
yourself well is it more technology or
is it more policy is that something we
should be doing it's not a tricky
question obviously because you know we
don't know exactly what's driving this
concentration and it's very hard to
disentangle technology from policy
because typically the to move together
that's why Europe is especially
interesting because there are some
industries in fact most industries while
you're up in the u.s. use the same
technology if you think about the
telecom industry there are lines
essentially all the transportation
industry all the consumer good pretty
much the technology is exactly the same
in Europe and in the u.s. now that's not
exactly true for the big tech firms
because Google and Amazon is different
but Google and Facebook are purely
American companies we don't have the
equivalent so I'm gonna forget about
Google Amazon for the next three or four
slides I'm excluding them from the other
IDs I'm looking at all the industry that
have the same types of firms on both
side of the Atlantic and I'm gonna see
whether the aversion is the same in
Europe and it's not
it's part because Europe has tried to
push to make its market more competitive
over the same period of time so starting
in the late mid to late 90s as we move
toward a single market we start to
implement product market reforms Sophia
Mao is a product market freeform index
and this is telling you that at the peak
run mm we have one major reform per
country per year
what's the PM our reform well here's a
one of my favorite example the telecom
reform in France so this is when we
introduced a false competitor in an
industry that we used to be dominated by
three incumbents so throughout the 2000
we have three major wireless carriers
and classically hopefully they will
charge the same price there's a fourth
entrant free mobile who's asking for a
license got the net gets denied it's
licensed under heavy lobbying by the
incumbent and then in 2011 the regulator
give free license a bunch of spectrum
for the connector when they enter they
enter exactly had half the price of the
income of the incumbent we are providing
the unlimited texting voice and you know
Bertram gigabytes of data for 20 euros
per month free so for 40 euros per month
sorry free enters at 20 euros per month
so half the price and within two years
the incumbents had to match right
because they were losing customers so
that what that means that even if you
did not change your cell phone plan then
the price on your mobile mobile plan
would essentially be divided by two in
two years so that's a huge improvement
in your philosophy
that's all because of entry so that's
what is opted of PML if you create the
pms over time it looks like that so this
is an index of the level of regulations
on the level of you know regulation that
hurt competition in Europe for would be
the worst a zero will be the best and
every Green Dot is a conf in Europe the
US is a red line you can see that the
first vintage of data we have from the
second half of the 90s every country in
Europe has more regulation
anti-competitive regulation than the
u.s. except for one country and I'm sure
you can guess yes this is the UK right
the UK was the only country in Europe
with a traditional free-market
and you know if you follow from one
vintage the next may be you I wouldn't
blame you for not noticing much because
it doesn't change very quickly but if
you curate over 20 years you see it's
always move in the same direction by the
other sample every country in Europe is
about the same as in Europe in fact if
anything slightly less regulated and so
that's the that's what happened in
Europe and then consumer so what were
they so lower prices thanks to that so
if you look at the markup changes so
this is the markup the surprise
qualitative to unit cost of labour
it's about flood shall study declining
in you know it's increasing in the u.s.
it's increasing and my based on this
analyzes my estimates my best estimate
is that prices in the US about 7% too
high
so 7% too high that's about three
hundred dollars per month per household
it's about six hundred billion dollar of
consumer spending per year which you put
12 months and all the households
together and it corresponds to a waste
of a trillion dollar private GDP in the
following sense suppose you took the
economy as it is today and you made it
as competitive as it was 20 years ago so
you would get rid of this extra seven
percent distortion then standard
macroeconomic model predict that private
GDP would go up by about one trillion
dollars and on top of it because you
would push down profit margins you would
push up labor income so labor income
would go up by in fact more than a
trillion dollars profit would go down by
a quarter of a trillion and labor income
would go by a trillion and a quarter so
the main beneficiary would be the middle
class for the middle class for people
who earn around fifty thousand for
households earning about $50,000 per
year that will be a ten percent
improvement in the standards of living
so what happened well I'm sure we can
come back to what happened in Europe
happy to answer any question there is a
paradox of course it's weird but it
happened like
in Europe but I'm happy to explain that
afterwards um the u.s. is more
complicated I don't think I have a full
understanding of what happened why it
happened when I can point to a couple of
proxy explanations and the main one is
lobbying which is if you think about
what is it that change in mm together
with all these negative evolutions well
clearly lobbying did okay so this is the
abrasion of lobbying in the US and now I
have data going back further I can show
that it was quite stable as a share of
GDP for instance in the 90s and late 80s
but somewhere on 2000 it start to
increase a lot and which levels that are
about two or three times higher than
Europe okay so no being is not something
firms do for fun they do it because they
have a definite goal in mind okay and
usually this goal is to influence
regulations regulators or policy makers
in their favor and for whatever reason
started doing more with no mm and they
started to be more successful in the
2000 this is how you sustain a system
where prices are high profit margins are
high you may get a bad deal and somehow
the policy maker don't do anything so we
said 15 to 20 minutes so I'm done and
I'm happy to answer any questions and
that was a very good summary of some of
the conclusions and I know Elaine is
going to be desperately disappointed but
I gave it a very favorable review
because I thought it was a very good
book and so I'm gonna have to work quite
hard to find points of really big
disagreement I think before we go into
sort of some of the issues I think will
be very very useful because it's so
fascinating if you elaborated your view
on why and how the political why the
political economy of competition policy
in Europe evolved in the way did and and
was special about the relationship
between the member states that drove
this after all very surprising outcome
it's 20 years ago or 25 years ago the
idea that the whole EU would become so
much more competitive would have seemed
almost like a joke so what you think
yeah so it's striking that if you read
the papers the books written at the time
nobody saw it coming I don't think I
would have seen it if we had been
writing at the time for sure so the
product is as follows suppose you take
18 countries which as you saw in the
data right except for the UK none of the
other ones had the traditional free
market and by n3 market is an ecosystem
right free market means that the the
protocol system supports independent
regulators and the other parameters are
there to enforce free market by being
tough on competition so none of the
countries in Europe had this tradition
of free markets now you put 18 of them
or depending whether time twelve or
fourteen or let's say 18 you put 18 of
them around the table and you ask them
to design institution for the EU
now think about it and you know what's
the first thing that comes to mind well
I think most of us would or intuition
would be well they're probably gonna do
the same thing they were doing at home
just gonna on the latter scale okay so
that's the basic the theory of the EU as
being some kind of average of
pre-existing conditions and what's
striking about each institutions is that
to a large extent this is not true
the EU institution is not the average of
the Member State institution that is not
true for the ECB and it is not true for
the digicomp so what's the game why is
it that it's like that I think the
answer is that countries understand that
once you played the game at the ear
level the game is different so if you're
if you're the Ministry of Finance and
friends and you deal with French issues
then you want to keep your power that is
you want to have the right to influence
your drills to influence industrial
policy so you don't like regulators to
tell you what to do there is no
controlling force to that except of
course you I comfortable to citizens so
they're going to vote if you do a really
bad policy that out then they're going
to vote you up but at the margin you
gotta balance it now if you do the same
thing at the EU level you still have
your desire to influence the EU okay
every country would love to influence
the EU in their in their favor in that
direction obviously but they understand
that there's a controlling force which
is the other countries could team up and
influence the you against them that did
not exist at the local level that did
not X is at the members that one that's
only on the EU phenomena and so what
happens is that if you know you're gonna
be in a union with eighteen or twenty
eight members then it becomes even more
important for the referee to be
independent if you know you're gonna win
the game you might you're happy to bribe
the referee but if you're going if you
in a game with other people and you
can't predict the outcome then you want
the referee to be fair and independent
and so that's what happened the French
were worried that the Germans could
influence the Commission against them
the German were worried that the French
would be able to impress the Commission
against them the order of motor
countries were worried of joining a
union with two large countries who could
you know team up and influence the
regression in their favor and so if they
were to agree
on anything you would have to be over in
the parent referee which is exactly what
they did for the digicomp and by the way
that tilt what they did with the ECB for
the same four associate the same reason
which is that's how we solve the paradox
of the new my opinion so the the result
I mean one way I was thinking about this
after discussed this before but in a way
it suggests that there is a competition
benefit to having a political dissent
rolla politically decentralized cetera
that if ve you had a had the federal
government that many people want then
the logic would suggest it would might
well be captured in the way that your
argument suggests the US federal
government has ultimately been captured
yep that's that's one of the example
where the lack of some lack of political
unity can be a good thing in these guys
it's an interesting it has an
interesting resonance for people who
know the debate about the Renaissance in
Europe and why is that Europe was the
invented modern capitalism one argument
that historians have given is precisely
the lack of a centralized power yes I
mean it's it's what they are all furious
but one of the interesting theory for
China versus Europe in explaining why
Europe you know became so much richer
than China you can't explain that based
on technology with the Chinese were if
anything more advanced and bureaucrats
they had better writing they had better
everything the state was running more
more efficiently so based on this you
would prick China is the one who
shouldn't become much richer and some
what happened in Europe and one argument
we'll give is that precisely the fact
that all of these local kingdoms we are
fighting against each other so if you
have a good idea and your local King
doesn't like it and try to put you in
jail well you can move to the next
Kingdom and that means that good ideas
could not be trapped
technological improvement could not be
trapped inventions to not be trapped and
that's why a Europe became richer so
that's one of the example where maybe
not having the fully centralized power
can be a good thing would the
implications that be in your view if
we're looking to the future that even
though there's now a lot of discussion
in Europe in the context in the last few
years and continue now that we need more
than Europe neatly you I can't use the
word we' anymore that the that you need
more industrial policy you need economic
champions you need more protection
against foreign competitors that
actually this is very unlikely to happen
on your analysis because the French
would say well if there's going to be a
national and European Chairman it'll
probably be a German company and we
don't want that and vice-versa
but maybe against that you could argue
well actually they might agree to grade
an Airbus in every in every major
industry and that would be pretty bad
how stable in other words do you think
is the competitive equilibrium that you
describe actually years yeah so I think
it's been tested but not free tested so
if you think about the thing that could
make it less less stable one clear was
the UK actually because it's very clear
that one of the reason we have pro
market institutions in Europe is that
the UK was very much at the center of
the negotiation when these institutions
were created that's very clear now you
might ask us a well if the UK leaves now
where does it leave Europe I mean now
we're going to revert to old fashioned
policies
I mean it's who knows my own my own
guess is no it's not because it's a DNA
issue it's like it is in the DNA of the
you know and that's not going to change
you would have to change the treaty and
they will never be agreement so I think
that's fine the one that worries me more
is actually China and I know that's all
worried at you you write a lot about
because China is so large and powerful
that it scares the heck out of many
people and it can push them to adapt
very silly policies I mean we know
policymakers and to make city policies
when they are scared or and in the case
of China there are reasons to be worried
but there is also a host of lobbyists
ready to use these reasons to push for
bad policies so to some extent we had an
early test of that in the Siemens
Alistair merger
you know enlightenment prevailed so I
think to me is a very strong test that
but it's not guarantees not foolproof I
think on the other hand that it would be
useful to have a bit more of an
aggressive trade policy at the Europe I
think that there are issues with trade
agreements and the lack of reciprocity
in public market and I I wouldn't mind
it you to be more assertive in that
dimension like I'm worried sometime that
if we are not assertive on the trade
side we're going to think of it as a
second best solution to start to curtail
competition to create national champions
and I think that would be bad calm I
don't see it as a big threat right now
but it is a threat if you go back in
history I was reminded one of the first
folks on political economy I read with
seven Schreiber's with the TV America
which is talking about the Chinese
equivalent of that so it has been a
recurrent theme in Europe indeed for
quite a while that you're falling we're
falling behind whoever the technological
leader of the moment is and that leads
to these strong temptations towards
Industrial Policy and the creation of in
this case European champions that's true
although the thing with the u.s. is that
to some extent the fact that we were
falling behind
let us to think about it what is that
they are doing right and thankfully at
the time where we asked ourselves that
question in the 90s we saw the u.s. as a
place of free market and we thought
maybe free market is a good idea so I
think
the value in looking at what other
countries are doing the the travel with
China is that money is a bit less
applicable and also I am there is
another dimension to that which is you
know we shouldn't think that China is
right is gonna continue smoothly forever
like I think there's also an excess team
ISM about I mean there is no China
didn't change the law of gravity if they
crack down on private enterprise if they
come back with state-owned enterprises
and they prevent you know private
entrepreneurs from innovating they will
go back to slow growth you know it's
just that is not going to happen
overnight and in the meantime much
damage can be done I actually think it's
already happening but that's another
subject we can we can forget that let's
turn to the US side of your story so the
US was seen I think for pretty good
reason as a highly competitive economy
for most of the 20th century actually
after the the trust-busting at the early
20th century this wasn't the big problem
that FDR was trying to deal with the
failure of any sort of welfare provision
and of course the Great Depression so it
sort of really surprising that as it
were suddenly from your the this point
of view in the last 20 years that of a
lobbying exploded and your your story
and competition eroded so rapidly so
what's the political economy explanation
of this probably the alberto al the
senior questions is we are mourning his
death i just thinking about this um
what's a political economy that
transformed America in your story is
these are ideas that these the product
of ideas of ideas about competition
ideas about put the political power of
companies about put corporate donations
and well to what you attribute this
extraordinary turnaround
very good point in fact I because of
writing the book I did spend more time
talking to a girl to elizena
in recent years it was always a pleasure
and amazingly insightful little did I
know that the last time we talked to him
so I think that so first of all let's be
clear that made people who have been
looking at anti-trust don't think that
this is the phenomenom of the 2000 they
think it goes back to the seventies in
fact they think it's it's a slow erosion
of antitrust and out following book and
excess trust in market from the Chicago
School clearly unwarranted in some
aspect so they think of it as something
that starts in the 80s and start with
essentially teaching generations of new
judges how to think in a way that
concludes the murderer always okay and
monopoly power is nothing to worry about
because if profits are highs that
competition is going to solve the
problem for you I think it has given so
they think that this kind of mind
washing is too strong but this kind of
influence under the ideology of judges
has started in the 80s and then what we
see today is just the long-term outcome
of that I think there's some truth to
that some other industries it's clear
there are some shocks so I still I'm
still puzzled by September 11th to be
honest I think we underestimate the
shock how deep it was I mean in some
proxy sense it's obvious that he had a
huge impact on the airline's so the if
you just want to understand why Airlines
went from 84 with a huge increase in
market power well clearly the trigger
point was 9/11 so that's clear but it
also had it shook the political system
to a large extent and it allowed a bunch
of laws that would have been unthinkable
in the u.s. parallel to be put in place
I think probably there is something
there but it's how to be sure because I
don't know how to test these ideas but
what do see in the data is somewhere on
that period of time we see
edition of pro competition policies
across the board and the only question
today is you know can we go back in
terms of going back that would seem to
be two requirements first the
transformed political environment rather
difficult to wish though you could
possibly change ideas and then a change
in the operation of political institute
of regulatory institutions in an
environment where you don't have this
competition among governments that you
describe in Europe can you imagine any
way that those two things could happen
and if so what the regular with the
regular tree institution the end of the
this look just like the Europeans is
that actually the right way to do this
well there's there's many ways to be to
be very pessimistic in when you think
about these questions the best way to be
pessimistic is to think that he has to
start in Washington because if you think
of us we start in Washington then you
know it's a non-starter so the reason
I'm not fully pessimistic is because I
don't think it has to start in
Washington I think for for different
reasons the first one is within the US
you seem you see some improvement at the
local level at the state level you see
governor's trying to simplify their
codes remove some licensing requirement
that had been piled up for the past 20
years and they understand it's better
for their citizens
I think states still compete to some
extent for good institutions so I think
that at the state about there is more
room there's also less ideology if you
look at the the it's very striking that
the order of generation of Republicans
although it is the one that are left the
one the one that I left in power i
extremely ideological extent which is
kind of scary but it's not true of the
slightly younger generation many of them
on issues of climate change or
inequality
well there are console
they are Republican but they are not
ideologically blind okay so I think that
there is much more room there for what
used to be the for me at least key
feature of the u.s. which is the
pragmatic middle core approach where we
can reach across the aisle to just get
something done okay so to me that was
the hallmark of the u.s. I think that
can be regained not in Washington
anytime soon I agree with that but at
the state level where Washington's going
to become a big issue is the Supreme
Court because I think it's hard to
imagine a sustainable solution without
some kind of regulation of campaign
finance and campaign finance ought to go
through the Supreme Court so that part
is very huh the second reason I'm
slightly optimistic is because the u.s.
I mean what happened in Europe was used
to shuns but also a lot of watching
whether all neighbors do like a lot of
benchmarking like you know every time we
talk about the labor market in France we
start by talking about Denmark you know
every time we talk about pension reform
start by talking about Sweden every time
we talk about how to bring young people
the skills required to be successful in
the labor market we stop by talking
about Germany so that's actually
happening and I am beginning to see a
bit of that in the u.s. in the debate
about the health care system finally you
know the first argument is look look
let's look at what happens in other
countries and people are more aware of
that the telecom when I give my books in
the u.s. usually this the price of
telecom is something that people are
acutely aware of they know they are
getting ripped off I mean when they paid
300 when you paid two or three hundred
dollars per month for your telecom bin
that is just for having broadband and
say one or two cellphones yes you think
it's crazy and people are aware of it so
I think that that's kind of a good stuff
and hopefully you know I do believe we
have we have room for you know it's not
cookie stud cooperation internationally
it's just you know useful competition
here's another example I guess that's an
even better you know think about two
great examples of the u.s. helping the
EU and the Europe in the US if it was
not for
small bunch of kids you're running an
NGO and letter for the California
regulator we would still be killing
people in Europe with diesel engines
okay the diesel gate was entirely
uncovered in the US and why not in
Europe
pure corruption of course everybody knew
they were to spread to look the other
way
with utter corruption at the EU level in
fact in every member state and the true
scam from from from the US okay so great
in that case it's obvious that EU
citizen benefited greatly so probably
good but we didn't pay for any of that
and we got the information thanks to the
guys on the flip side if you think about
regulation of data privacy Internet
giant's the US has done nothing in the
past ten years because of corruption or
because of glue being shown to be polite
but this isn't about the regulator of
the about the British and nothing has
happened Europe doesn't have the same
issue so we try to do a few things so
when now there themself want to you know
try to improve their legislations at
least they can get inspiration from
Europe and they can also see what didn't
work in Europe so you don't do the same
so I think it's kind of cross you know
exchange of ideas I think it's useful
again here my main main issue is China
because I don't know if we can do that
with China that's a certainly a very
interesting question which I'll put
aside from one moment now
when you present this in America I
imagine that will well I want to explore
this but imagine okay is sort of push
back which was sort of say well this
isn't basically a fairy story and we're
we are more productive here we are
productivity growth has not been great
but it's certainly match that of Europe
recently and that's continued to be true
after the financial crisis we're the
country with all the great new global
companies you just listed a whole slew
of them and none of which existed thirty
years ago we remain the land of high
innovation what's coming out of Europe
they're all dead old companies and so
really it's a fairy story isn't it
Thomas yeah so when you give the book in
the u.s. you're two types of you have
two types of reaction the people who are
mostly consumers and workers they say
yeah that's right that's exactly what
are my expenses every time I buy
something it gets ripped off thing that
matter no not like you buy a past I the
supermarket yeah that's cheap okay but
if you buy if you want to get again
access to Internet travel energy cost
health care to be just to keep your
family healthy they know they are
getting a horrible deal and they can't
afford it so the convincing is actually
very easy to some extent when you talk
to people who are more like CEOs then
it's about it's more mixed then it's
then you get more granular you get okay
is that true for that industry not that
industry for people who know the telecom
industry I think there is no doubt
that's easy Airlines I think after a
while the people are convinced to then
the big issue is the big tech and but
they are I think I'm totally happy to to
to argue that the u.s. is going to
remain at the leading edge of tech with
or without China over the over the next
20 years my point is just that you know
the u.s. used to have a system where
with three pillars knowledge center
university private research lab I an
ecosystem for nurturing companies with
funding and access to a single market
immediately and very competitive market
that give pochomil a good deal these
three pillars where are the greatness of
the US economy they just lost one pillow
they still have to sew the two is better
than one in Europe so I think in that
Sunday still the minute but it could do
better so you're one of the points then
is you would still go to Europe and say
look the u.s. still has some pretty damn
good things and you should be trying to
get them oh yeah
we successfully copied their their
antitrust and and now we need to do the
same thing for universities private
research labs and and found for markets
let's talk about because it's such a big
subject conversation I have these
discussions almost every week at the FT
on tech but I mean one could think I was
interested in you repeated this very
into discussion of good competition good
concentration and bad concentration so
is it clear which side the tech firms
lie because I would have thought that
sort of both yes I think I I don't think
anybody could argue that they're all on
one side or on the other I think that
first of all there is very little doubt
that the way they got there was mostly
good in the sense that you know they
they just there is out competed there
there will be competitors initially so I
think the reason we have Google Facebook
and these other guys and I'm assuming
particular is because it just got it
just showed that they were better than
the rest so that's the way they got
there now how they are staying there
that's a lot more controversial
I think the way they are staying there
because now they are spending a lot on
lobbying they are fighting every
regulation that could you know have an
impact on what they do and they do a
bunch of you know well from Keylong
acquisitions to making sure that you
know they have a reputation for for
getting rid of any kind of would-be
competitor I think that's what they do
today to prevent competition so to make
it look as if there are natural
monopolies I don't think the ominous one
more please I think it's a market where
naturally the firms have to be loud but
I think the idea that they are natural
monopolies I think it's too strong
beyond that I think you have to go from
by film for instance I actually have a
much more bullish on Amazon that I am on
Facebook
I think Amazon if you look at the big
picture
it's mostly value-added I mean I think
maybe you could make the case that they
did cheat on did they skip taxes they
cheat on their taxes like every big
company does I think that's a shame I
think it's a global problem we should do
something about it but by and large you
know they operate in two businesses
retail and and the cloud the retail is
very competitive the amounts are not
that high and the reason they are
successful is because they are done good
the cloud is still competitive so I
think that you could have a question
Marcus you know how many competitors do
we need to keep the cloud competitive
two three four I don't know but if you
look at Google I think it's hard to look
at the Google if you have to look at the
entire online advertising market without
seeing a massive conflict of interest
especially if you like me you come from
the fountain market side and you look at
what they do did their own auctions so
look something like you know like you
would do for trading stocks or bonds but
they run an auction but they can advise
and passive in the auction at the same
time like that just makes no sense this
is kind of conflict of interest to me is
very problematic so I think that's where
I would like to see margin now that
suggests a number is going to come that
you see the solutions as regulatory for
big tech now there are other people who
think a crucial element is preventing
acquisitions particular acquisitions of
potential competitors if you there's a
long list you can think of whatsapp
Instagram so lots of them that have been
so naturally just be stopped in fact
they should be forced to disgorge these
companies the some proposed
comprehensive break ups and then there
are people who who are talking about
detailed behavioral regulation what
where do you fall or is it actually
going to end up firm specifically
because they really are operating in
quite different markets
I think it's gonna end up being from
specific I think that the pragmatic
approach there is pretty to try a bit of
everything I think most people think
most people who know this market
understand that the antitrust tool is
very very blunt it's also very slow and
you know so even if today you tried how
to break up to separate say Instagram
from Facebook you would take many many
years the HD outcome would be very
uncertain doesn't mean it's not worth a
try just means you don't want to put all
your eggs in the same basket you can't
just rely on in honor antitrust so I
think you I would fire all of them I
would try to do some clear antitrust
based on principle that either market
dominance or the fact that if you're
running a platform a marketplace you
cannot also operate in that marketplace
as a as a bi or cetera so that seems
like to be principally are pre sensible
we could try to apply that and for
separation if if needed
oh just regulate them you know that like
we do internal markets which one is
gonna end up being successful I do not
know but I I don't think that is
potentially a solution without doing
both okay in some case files on if you
want to slow down the ayahs ition going
forward I think we all agree that needs
to happen that's going to be antitrust
on the other hand on tetris is very slow
and very blunt so the only way to keep
to keep up with what they are doing is
some form of regulation so I think you
need to do both I don't think there's
much much doubt about that one of the
points you make in the book which we
which I thought was very interesting is
that these companies which we think of
as such colossi are not actually more
dominant than the super big companies of
the past could you discuss that and
because you know you sort of people
think there's something about google
which is unique and different and but
you talk about General Motors and she
said explain that point yeah let's say
all right right now to Rogoff argument
this time is different you know it's a
very dangerous sentence or it's mostly
wrong yeah I think by the way that might
that's the one thing in the book that
might age a little bit because of kovat
because all of the data i looked at was
pre Kovic so let's you know let's keep
that in mind yes certainly yes yes it
had a very large composition effect
there so maybe I would have to revise
that chapter but yeah what I did was
think when I'm pretty sure people
overestimate the extend these firms are
great there's no question they are great
the question is are they great by
historical stand out and so what I did
is I looked at all the top firms in the
US for the past 50 years they get by
 and if you look at the top
firms of the 50s or 60s the names are
going to change now General Motors or
electrics AT&T Procter and Gamble and
IBM 70s but if you look at this set top
five firms in the economy at any point
in time they share very similar features
to Microsoft and Google today they are
the extent to which they are more
productive by the rest the extent which
they are more profitable than the rest
the extent with the market value is
higher than the rest that's all the same
essentially and again until coffee'd if
you looked at the market value of the
top five firms in the US he was ten
possible stock market that was to 1980
it was true in 2019 the names changed
except for one Exxon Mobil
which is there throughout every
otherwise they all change but you know
it's like ten possible stock market so
it's big but it's not unprecedented big
so I think that's the usual you know
biased people have in mind they always
think that whatever we do today is so
much smarter and greater than what our
grand turns but doing that is not true
they were just as smart as we are and
you know they are they were just as
innovative and in fact if you look at
the data in terms of real outcome if
anything they were doing better
like the time period of GE and GM
productivity growth was faster and in
fact thanks to these companies they were
they were the seem to have been better
maybe not so much at inventing new stuff
but at spreading it throughout the
economy that's that seems to be true now
couvade has increased the concentration
so now I think today yes they are higher
than than than the average and the other
difference of course which is not
related this is the old Colossus colossi
employed a lot more people than these
guys yes and that's tried in significant
in terms of the social effect of these
businesses that's true but there is one
exception Amazon Amazon does employ a
lot of people controversially I've liked
him before we end I'd like to turn to a
sector which I thought a lot about and
you have which is finance and in the US
case it's a complicated story but
certainly in banking the market has on
most of the measures I've seen become
notably more concentrated over time and
the financial crisis accelerated that
the u.s. of course has a lot biggest
what's called shadow banking I know what
you call it financial intermediation
outside the banking sector so there
would seem to be more competition there
the Europeans are much more Bank
dependent but they have lots more of
them but they seem many of them very
financially weak but they're maybe
that's shows there's a real competition
the Americans would say certainly Jaime
dam would say well we are so big and
profit because we're so great I have so
I have an interest and my interest is is
is the the banking sector in the u.s.
dangerously concentrated and what are
the implications of that in your view in
either direction for financial stability
which is one of the concerns people have
they're obviously also the concerns and
you have very interesting material on
this which I'd like you to explore on
profitability in the financial sector
which as far as I can see seems to be
quite a general phenom
but maybe it's more the us so I just
like you to in the last five minutes to
explore your perception of what's going
on in finance which is in some ways in
your book pretty horrifying so I think
finance also exemplify some of these
this trend I think that if I think about
the u.s. wonderful system today if I am
a small or medium sized company or if I
am a large company I probably want to be
in the u.s. rather than Europe I will
have better funding opportunities and I
would have title spread on the other
hand if I'm a consumer a household
there's absolutely no doubt that I'm
much better off in Europe like the
quality of services and the cost of
services as a 4 for households is much
higher in Europe I think it was already
to some extent true a little bit before
the crisis but you know back Britain
banking has become very competitive in
Europe and in and very not non
competitive in many respects in the US
and very antiquated - like we think of
the US as the place where IT system work
better but that's true except for retail
banking it's yeah it's really readable
and I think the only reason is lack of
competition now if you trace it back
they haven't benefited the same to the
same extent as Europe of what we know
called free banking or the fact that you
know some of these FinTech firms on the
retail side are really competing with
the banks to try to provide good
financial services for cheap and in
Europe that's been encouraged by the
regulator to status and successfully I
would argue actually and so that now as
a consumer I get I got a pretty good
deal in the u.s. they killed they that
means the big banks successfully killed
all of the attempt to meaningfully
increase FinTech competition by
essentially preventing any kind of data
sharing so that's so that's cruffin
other surprising if you had told me 20
years ago that banking lobbies would be
more successful in
u.s. than in France I would have not
believed you because I the way I grew up
in France was like the banks had such
close proximity with the politicians and
they always get their way that's not
true anymore
and I think that's also to a large
extent because of the fact that we
transfer regulation to the ECB and in
its arms and regulation you know like
the rule in Europe now is the head
regulator of any kind of large bank has
to be from a different country
the Hendra got off of pen paper by
cannot be French that we get off
Santander cannot be Spanish I think
that's just extremely healthy and so
that's on the other hand if you look at
transformed markets then clearly the US
is better even for consumers so the one
place where as a consumer much better
than in Europe is asset management I get
asset management product are extremely
cheap super efficient so as the Vanguard
effect I'm still waiting for the
Vanguard effect in continental Europe
the UK of course is a bit better in that
language so it's a mixed bag of the
tooth and I think it's one of these
places where both side of the other they
could learn from the other if they were
so inclined do you think the regulation
at the last question do you think the
regulator's could finance is really
important because it has the stability
aspect and the concern and the
efficiency and the it's a very
complicated sector do you think that
regulators in both sides have been so
concerned about stability that they've
sort of forgotten about competition
since the crisis and I don't think that
that I don't think that's I think the
one that I've forward on what
competition is because they've been
lobbied to forget about competition
because in Europe if anything you would
think in Europe we had more of an issue
financial stability and yet we have you
know if you look at profit margins on
banks they are not very high consumers
get a good deal so I think I think it's
fine on the unconference ability I mean
maybe it's too early but honestly I
think we should be proud of ourselves I
mean we can always need peak and say oh
maybe we really should have put the
capital ratio to 20 percent of 16
percent but on the other hand think
about it like
just ten years ago we had the major of
Funchal crises now we have kovat we're
gonna have a recession of the other 10%
like probably the biggest macroeconomic
shot ever and we don't have a food one
financial crisis and this is thanks to
the reform with putting per since 2010
so at least on that one I think we can
be very proud of what we've done we I
mean as a community of regulators and
academics writing on these topics I know
we can always be you know we always a
condition of saying oh we should have
done more
and I agree there's plenty of stuff I
would change at the margin that would
finish the banking Union here and and
it's not perfect but on the other hand
if you take a look at the big picture if
you had told me okay now you know we in
film in 2011 okay 10 years later we're
gonna happen
huge micro economic shock how likely is
it that you will not create the
functional panic another I and yet we
are here and there is no financial panic
and I think honestly it's an achievement
well I hope it lasts but it certainly
makes me realize that we're very very
fortunate that we didn't have kovat in
2006 that would have been a pretty
spectacular and disastrous mess now I
think I've exactly exhausted
my time in this very interesting and I
think pretty embracing conversation I
think we've really elucidated I haven't
gone into health because it's so sweet
generous American and so completely
insane have been so I haven't gotten
that but yeah the main topics we've
covered so I'm gonna hand over I think
to your Sabre who's going to moderate
the discussion now are the questions
from the the audience yes thank you
Martin Thank You Tamar for a wonderful
discussion since we're all stuck at home
and I both have lots of free time I'm in
a lobby you both maybe start a podcast
or something so we can continue to talk
about health and everything else so I
expect to be lobbied Martin and
awareness that said we have lots of
fantastic questions
on the QA let me start with a question
from our very own red s Chandi and it's
a question that we talked about the
regulatory approach we talked about
murder policy this is a little bit of
question about the kind of private
sector approach to fixing this so Rajat
asks if I'm an entrepreneur seeking to
compete against entrenched incumbents in
a particular industry in the US what
should I do
given the situation you've described
assuming I can't hire an army of
lobbyists you go you go find another
place to enter I mean like mostly that's
what they do you just give up now of
course it's not completely true so I
think that it depends a bit on the
industry in the telecom case I think if
you say you you think you have a better
technology or it's a cheaper way of
providing no fiber and broadband access
to household you can stop you can try to
enter slowly that some in fact some new
companies are trying to do that but if
you don't get help from the regulators
it's very hard if you think about the
wireless business it's very impossible
because you can't enter with a small
wireless network you have to come Jesus
to enter with the coverage for the
entire country so if you don't have a
leg up from the regulator that's
impossible now in some other sectors I
think I think the recipe is always the
same which is you you try to find a good
product what I found why some is more
what the VC referred to as the kill zone
which is that there are there is a set
of activities that they will not fund
because they know they will interfere
too much with the existing big players
and so they don't want to compete
head-on so I think that's the main issue
ok so related to this but maybe zooming
out more of a big picture question and a
few questions in the queue and I have
touched on this so in the book you write
that one of the lessons you took said
you were surprised to learn how fragile
free markets are and this begs a
question and I think it's a big topic
nowadays is this fragility an intrinsic
feature of capitalism that sort of
Doom's capitalist systems to eat
themselves from the inside out or is it
the case that for instance and you guys
touched in this a new discussion that
for instance Europe has created a better
type of capitalism and perhaps there's a
way to fix capitalism relate to that
what is this how does Chinese capitalism
fit into this big picture yeah I think
the reason is fragile it goes back to my
Colson's idea of the logic of collective
actions which is you know it's the fact
that an outcome is desirable and might
be better off for everybody does not
mean it's gonna prevail because to make
it prevail all the beneficiaries we need
to coordinate and it might be difficult
if it's a small gain for a large number
of people they will have no incentive to
coordinate and so the correct direction
will fail and in fact if another
scenario exists that would benefit many
fewer people but a lot more per capita
then they might be able to coordinate
and impose it so I think that's the core
of the issue and that's the logic of
collective action is with the key issue
now we design institutions to be able to
counter some of these issues
my takeaway is that institutions of
course we've known that for a long time
obviously that institutions matter a
great deal but I think in that case it's
the fact that in the market decisions
are one among many and competition is
also some kind of public good subject to
the same you know logic of collective
action issues so we all have an interest
in having competitive market but none of
us individually would have versions that
if to do anything by ourselves so that's
why you need to protect free market and
what that means to me is keep the
regulator's independent I didn't fully
appreciate that Angela but the book I
think having
in the parent regulators that can engage
with market participants because you
need to share the information it's not
as if lobbying is evil lobbying is
necessary you need lobbies to explain to
make the case for the industry that's
normal so that's democratic but the key
is the regulator I need to have enough
of a backup and and support from their
politicians and citizens that I think
I'll remain strong and independent I
think that's the key and I just add two
little points well one is quite big I
saw it I mean I I am an immense admirer
of man's roles and so I agree with
everything my new quite well but of
course this idea that competition that
capitalism or the market economy will
eat itself is very prominent in Adam
Smith's Wealth of Nations so right at
the founding of capitalism he talks
about conspiracies against the public
and the even broader point and Douglas
knows a lot about this is the use of the
political system any political system
try democratic of to critique whatever
by well-connected people who have wealth
may be created in the market in order to
buy monopoly positions it's pretty well
as ancient as the market system they
were doing it in ancient Rome we have
some quite good stories on that though
yeah I mean a pure market system which
is operates independently of political
processes in a neutral way completely
neutral way and doesn't exploit its
resources incumbents don't exploit
resources in many ways to protect
themselves
Isabeau idea they out but it's not it
one has to fight for it I think when
it's to fight for it in every generation
he doesn't that's one of the great
mistakes of the libertarians to think
the capitalism just is all on its own
and will continue to be that without
effort and of course the problem is that
the political system
work against you and yet you have to use
it so related to this and we talked you
talked about this a little bit both in
the presentation and a discussion but
quite a few people when I dig into this
a little bit more so Richard Porter's
for instance asks you know what happened
in the US
how did competition policy go so badly
off the rails it seemed to be working in
in the past firms were deterred from
even trying anti-competitive M&A does
Europe not have lobbyists should we
expect Europe to follow the path that
Martin has described or is this
decentralization either going to break
Europe or save it from these from this
we can all agree a bad outcome so the
first thing is I I want to be honest
that I don't have a full story for the
u.s. I have a full story for Europe
because it's slightly easier to
understand because there's a clear
timing there is once you create a single
market it's such a momentous event that
you know there's a before and after so
you can clearly sumit appeared
understand deeply what's going on and
then your full explanation the US stays
no obvious breaking point apart from
maybe you know September 11 that had a
big impact on popular market the
airlines and a big impact on the
protocol system maybe created some new
dynamics I think the more plausible
story is that it was a long time coming
and it was a consequence of the Chicago
School I mean at some point is a saying
ideas matter
they just don't matter next year the
matter over the next 20 years so that's
what we saw and I think that explains
part of the aversion in the u.s. now
whether for Europe its kind of we're
gonna follow the same path that's
already I hope not
I don't think so for two reasons one is
I don't think the u.s. is gonna get
stuck there I think the u.s. is gonna at
some point get back to its sensors and
people it's about making consumers happy
so at some point you think there would
be some kind of you know political
majority in favor of that the only
tricky question there if you think about
it carefully is that it is you can reach
when the distribution of wealth becomes
cued enough you can reach a point where
the wealth weighted median voter doesn't
like competition anymore because if you
get so much of your wealth from the
stock market study from dividends or
share buyback then lack of competition
mostly hurts labor income you could have
a lot of wealth in the hands of people
who actually don't benefit from from
competition and even though clearly
would benefit GDP so that disconnect is
possible so you have to be careful there
but I think my sense is the u.s. is
gonna go back to a more sensible policy
in the future and in Europe they are
again that's the develop had with Lu Jia
Xing LS many times it's you could argue
that every system is gonna get corrupt
just a matter of time so we are ten
years behind the US and in ten years
will be just as corrupt that's one you
and the other of you is that maybe not
because we created a set of institutions
that are their own logic and are gonna
prevail I think they are not foolproof
this entity they could be undone but I
think they have a strong logic and as
long as we keep vigilant I think it's
likely to stay that way I hope one needs
all the good I'm at the moment I'm I
mean I pray that we you is going to work
in all respects because it's the last
bit of human civilization as far as I'm
concerned and so that really matters to
me
so I'm Thomas is right and did you ask
about China
I was about to actually yeah well okay
now I think I'd like to hear mountains
view about China because China China us
revelry is something that's been read
write writing about you know I think
it's to me is the big unknown it's the
big story so let me ask about that and
you can both tell me what you think so
indeed the this conversation about
market powers in the shadow of this
enormous giant rising and not only is it
an enormous power but also with some
justification it's been accused of not
necessarily favoring a level playing
field for its own firms
and so is it naive to think that Europe
in the u.s. can keep fighting the good
fight if it's not a fair fight
globally I'll tie the same with a with a
question on a QA about South Korea which
is often held up as an example of a
country that did great things through
creating national champions so is is it
naive to think that Europe in the u.s.
should fight the good fight while not
necessarily everyone is following those
rules
well this there are two questions there
both and I think I'm one of the most
profound questions there is how far can
the success of broadly speaking the East
Asian economy so that's Japan Korea
Taiwan and now China be explained by
successful industrial policy and this
would then get us into a an hour long
debate but my own view is not that much
which doesn't mean not at all and the I
mean one of the most obvious points is
lots of the things they focused on and I
give you a lot stories failed colossally
so there's a real survival bias
obviously the ones they promoted which
turned out to be world success like
Samsung Electronics which is just one
firm out of enormous number well we
turned out to be spectacular in line
with their comparative advantage in the
competitive advantage of the firm it's a
tremendous success but who remembers
fifth generation was it fifth generation
computers and high-definition TV and
lots of Japanese failures so I think I'm
fairly persuaded by the people who think
that the government's played role they
did some very important things but you
can't say that Japan became Japan
because the government's chose to chose
the winners quite a well there are many
examples and the China case is I think
even more striking this the view I'm
gonna give you is the view of all the
Chinese economies I know and respect
I don't think anybody has done work like
Thomas on China if they have I've never
seen it so I really don't know but my
purse very strong view of China is that
it was the opposite that it's great
success was the opening up of the
markets to foreigners which the Japanese
or Korean suppose didn't do the the the
success of the creation of a completely
new private sector none of these firms
existed 30 years ago none of them they
were all operated essentially outside
the system
the credit system didn't support them
they nobody really planned for them they
exploded and if you look at the growth
of the Chinese economy over the last 30
years it's overwhelmingly dominated by
new predominantly private firms well the
state sector track dramatically and the
great companies you know you think of
the tech alibaba's and so forth but had
nothing to do with the state but the ten
central Lee's work and I've been to
these firm talk to the people creating
them they they they were operating
outside the system it was
anarcho-capitalism them a most extreme
kind now
then of course it was so and there were
many reasons why it was so competitive
by the way many many reasons but one of
them was just the economy is growing so
fast and so quickly that every industry
was opening up and they were all new
players because there weren't any others
in the play didn't exist before but then
of course the state realized what was
happening and I see mr. XI I've written
about this often and that be a long
discussion it's the state striking back
across the board and I think he's gonna
kill China I think because China is a
monster with the immense numbers of
hard-working enterprising brilliant
people killing it will take quite a bit
of work but I think there's lots of
evidence that's that's what he's doing
he's monopolizing the economy he's
turning the private sectors into
monopolies he's doing it with the state
enterprises but of course that doesn't
mean that China won't become the biggest
economy in the world because even if
it's got half the productivity of the
u.s. in Europe it
be as big as them both together that's a
reality so I have a very strong view
that this view that we're competing with
the Chinese state is wrong we should be
if you like if you're a European
American well you should be praying
you're competing with the Chinese state
but probably you would really have
trouble if you're competing with the
private sector of China
that's sensation I think I must agree I
mean from from reading many books and
talking to people involved in the
process I think that you could make the
case that the most competitive private
sector in the world was the Chinese one
in the 2000 exactly I mean if you think
cutthroat capitalism had a meaning these
people we are not sleeping I mean if you
look at the hours worked that is the
extent of competition and some time you
like dirty tricks to steal ideas workers
everything somewhere in between 2000 and
2010 in the Chinese private sector it
was amazing I think it's just pure and
in the private competition even could
say even exists to some extent and I
think that's what drove the growth and
if I think that I tend to agree with
Martine that you know the law of history
haven't been repelled like you know the
same thing that doomed the USSR if you
repeat them in China they're gonna do in
China as well it doesn't work you can't
have the ramen run the economy so the
problem is then let me ask the other
since Martine so reality and so the
first hand for the question let me talk
about the second half
what yes it does create a huge political
economy problem in Europe and the US
there's no question about that here in
Washington a language that is exactly
the same I heard in Europe 20 years ago
which is the language of national
champions - the language of big firm
saying you have to let us alone because
otherwise you you can't expect us to
help you against the Chinese unless we
have a big fat monopoly at home and I
think that's very wise because I think
it's wrongheaded this is the historical
evidence shows that the best firm to
compete globally are the ones who start
by having a fiercely competitive market
at home I mean talking about $0.10 and
Alibaba they were engaged in the
fiercest of all complete
and then they warned in their home
market there they were really good at
exporting it because they had become so
fit so I think that that argument is not
true that you need big fat mother please
at home to compete globally but it's an
easy argument and therefore it tends to
win politically and on top of that you
have the thread war issues which is not
going away but not only that I think is
only going to intensify over the next
year that's the main one thank you both
so sadly we have time for one last
question and not certainly we have time
for this is our last question but I
wanted to ask on a topical note you
touched on it how is this covert crisis
going to shape market power and
importantly how is the policy response
to the college crisis going to shape
market power so obvious every recession
tend to kill more small firms than big
firms this one is no exception in fact
this one is very even more that way
so there is a danger that you're gonna
have a lot of SMEs failing and not
brought back to life once we exit the
lockdown while the big firms they can
tap liquidity in all kinds of markets
and therefore they are more likely to
survive so that in and of itself means
there's gonna be a tendency for higher
concentration right there but I don't
think it's a foregone conclusion in the
sense that I think policymakers can do a
lot if you look at many of the programs
implemented in in Europe in in Germany
mostly and actually many of the other
countries in Europe France and Italy got
directly inspired by Germany they have
rolled out programs to just make sure
the SMEs don't fail and I think that can
be quite successful so that's the first
line of defense the second line of
defense is that you know you want to
make sure the don't the the big front
don't get a free pass after the crisis
is over that's gonna plow differently I
mean clearly you can already see that
you know Lufthansa and air force of
treated very differently from
easyJet
Ryanair that's clearly a bike band
competition now I think it's I think
it's a pity on the other hand I think
Ryan Ryan and easyJet are strong enough
that they're gonna be fine but you could
already see there that there's a you
know return to programs that don't work
come manufacturing it's a little bit of
the same issue potentially but these are
I think temporary issues and I'm not too
pessimistic on the tech side it's a bit
different well the textile I think they
get the stakes are very high because it
so happened that this recession is the
one that benefits the firm they were
already strong before and - just to
visualize that it's not obvious imagine
that instead of having a physical virus
biological virus we had a you know a bug
in the information system right an
electronic virus that would have brought
down the Internet in various ways when
killed I would have hurt the business
model of Google and Amazon more and it
would have made the business model of
mom-and-pop shops and small restaurants
better right so it's not inevitable but
in these particulates that it so
happened that the shock was a shock that
totally was very big but much weaker or
much more benign if sometimes and
positive shock actually for the business
models of firm that were already
operating online so that creates a
conundrum x-force which is another
family we're already dominant before
they're going to be one more than me not
as we exit what can we do about it I
think to me two things first make sure
that zoom is not a target okay so we are
using zoom right now zoom is a brilliant
company this the product is obviously
fantastic ever loves it and you know
it's clear that this company needs to
remain independent and start to compete
with the big guys that's one thing and
the second thing is you know let's push
for faster digital transformation in the
rest of the economy I think that you
know now every single CEO of every
single medium-sized company understand
that it's critical to have a very good
you know online system so they could
can operate efficiently online and with
a little bit of help they can do it so I
think instead of in that case I think we
can we can exit at the top by just
helping the rest of the economy Ketchum
thank you tomorrow
on that note I'm afraid that's all we
have time for thank you so much
Martine and Toma and sorry told it for
all the questions we didn't get to but
I'll put them to your speakers in the
upcoming podcast on that note I'll hand
over to thank you very much amazed when
you didn't push back on the certificate
of trauma you know on the banking
regulation side but okay the end of the
discussion at the last minute that's
cool that's cool and I was quite
impressed that you are both less trained
and didn't talk at all about Greg's it
and the effect on the future of British
competition is the UK gonna fall on the
US side or is when you take on a fall on
the European side I think that that
could be a great topic for for another
day butt-naked I think well it was
really super to continue you have given
us I think the right intellectual
apparatus to think about the coming
months in fact because I do live I was
pointing out we live for thirty
Darwinian moment to some extent so
there's gonna be rapid shift in market
shares and it's not here but we develop
a skill ability where given the amount
of subsidies that we are seeing being
poured in the in private companies by by
governments so in order to think that
rule I think we we learn to love tonight
and yeah extremely grateful and they
said again thank you so much that was
great have a good evening
and they say to everyone
right
[Music]
you
you

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### Rethinking Capitalism: Development funds and the role of business | LBS
URL: https://www.youtube.com/watch?v=C5iIUM-ps94

Transcrição não disponível

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### Rethinking Capitalism: Economic climate in developing countries | LBS
URL: https://www.youtube.com/watch?v=t6AdbSGsxkg

Idioma: en

[Music]
what's happening
nowadays in developing countries most of
us read in the news what's happening in
the us
in the uk with the chaos with
immunization in europe
but i know i if you have been working in
india you have been working
in many settings and what's happening
nowadays health-wise and economical i
say
in frontier and low-income countries
um in terms of covet interestingly i
think
as of now uh the death rates
are very very significantly lower
in low-income countries than in the west
uh and that's a that's almost unique in
in terms of of
such global events so it's it's it's and
i don't think anybody has
any idea of why you you have some
hypothesis i mean that for example it's
a younger population or there is a
population that's
more exposed to diseases so it has a uh
has more resistance but i i think none
of the stories fully
uh explain what happened because in fact
the infection rate went up quite high
and then fell
and so all these explanations would
suggest that there would be
some you know it could be level could be
low but in fact you see a very steep
rise and a
and a steep fall as well and that that's
certainly somewhat uh
puzzling and i don't think anybody has a
credible explanation of what happened
so that's all now given that
the economic reaction was probably
in retrospect maybe an over overreaction
in the sense that there was
in several countries including india
the economy was completely shut down
schools are still
essentially closed after 10 months
schools are close so that's a huge
amount of learning loss so
there's been a series of actions which
in retrospect look more extreme than uh
than they might have been but it's i
also would say that this is 2020
uh hindsight because it's not we didn't
know this we didn't know what's going to
happen so
i don't blame you know people from
taking
you know hardline decisions but the
consequence of that
i think highlights the rigidities inside
the economy
i think india had a very well enforced
lockdown
and gdp fell quarter and quarter by
24 that's that's a number that's
almost unthinkable it's it suggests an
economy where
you know there is just um you know very
few margins of adjustment when you stop
stops certain activities things just
freeze and nothing nothing
comes in his place and then the question
is could the government have done more
to anticipate that and support that and
one thing we know is and this is a
number from the imf
which is that the amount of support that
the
government's plowed into the uh to the
western economies
is massively higher so if you look at
the number it's 20 percent of gdp
in the rich countries six percent in the
kind of the
middle income countries and two percent
in the poor countries
and that that just means that you know
you you don't have much of a
macroeconomic pushback against what the
what the
uh government the policy has done and
and as a result uh the economy went into
free fall the question is not so much
did at any one point of time poverty
climb up a lot but whether that's going
to be
how sticky it's going to be or will the
economic well-being return very fast and
that's where i think
a lot of the speculation is now
i like this optimism that although
poverty has been going up you know it
can quickly go down
so esther do you do you share this
optimism
well starting with the what we know
about the recovery so far
is not only we know that some countries
fall in gdp has been precipitous so for
india is the lowest recorded in the
world
it probably was also so this 24
decline in gdp it's always like the
worst we've seen
that said perhaps ggp is not very well
measured in other african countries
where it might just have been
just as high on average uh according to
what the imf calculated
the fall in gdp was actually similar
around six percent
uh for the the beginning of 2020
but what is striking is that the
recovery was not similar
and the the richer china if you remove
china
uh the the the emerging
and poor economies except for china have
recovered much less than the richer
countries so if that continues in the
same way the fear is that they will
recover
less than the richer country and that's
related
to this point about them not having the
simply the ability uh to borrow
uh um enough to
do you know the whatever it takes that
european likes to do
and have been able to do in this case
and i
honestly think that whatever it takes
was the right
approach um in both when mario draghi
first said it and more relevant in the
car
in the current context not only to to
make the pain less acute
during the crisis but also to lay out
the foundation for
recovery so for example in in europe
people were able to keep their employees
to the moment that the economy reopened
even temporarily turns out in the summer
people were
able to to go back and start start
working and consuming
in in a country like india for example
even when the number of cases went down
when the lockdown were lifted
uh people feel and ah very poor
so it is not that i can like immediately
rush and start
spending again and this where i started
the economy so i think that it is
completely possible to get a restart in
those poor economies
but it will require
action to help them manage this
transition
so i think there is a a lot that can be
done in jupiter now
so in in normal times actually we vastly
overestimate how
much poor countries rely on the
generosity of rich countries
aid is like a fraction of a small
fraction
of most developing countries budget even
very poor countries it's
only tiny countries that are very poor
and that have strong relationship with
the former colonial power that aid is
quantitatively important
and then it's 15 percent and then it's
15 so it's like
so so i think in normal time we totally
exaggerate
uh the role of the rule of aid in fact
so
for normal time it is especially from
the traditional rich country like europe
the uk or the u.s is
is quickly barreling towards irrelevance
it's neither good nor bad it's sort of
inexistent
so but we are not in normal times
we are in times where the rich countries
have
felt the need rightly to borrow
tons and tons trillions of euros and
dollars
and pounds to sustain themselves so they
borrow against the future
which they can do the interest rate is
almost zero
and uh uh that's this is clearly the
right thing to do
but the poor countries don't have access
to this boy
if your togo there is no way you can go
on the international market to do the
same thing
so it is the time where basically the
rich country need to
add an epsilon on the amount that they
are borrowing for themselves
to go on behalf of the poor because the
poor can't do it they just don't have
the
the scope to do it and so i think the
financing question is
is is very uh it's not genuine in the
circumstance we are in because after all
we don't feel any financing problem for
ourselves
so in the same way this is how we have
to think about it in the s
it's very much the same thing that we we
borrow as governments because we know
that mom and pop cannot borrow on behalf
of themselves
in the same way we should borrow as the
eu as the uk
because the government of togo who is
perfectly capable
of spending money on its citizen and has
proven it to establishing within weeks
a beautiful conditional cast a beautiful
cash transfer
through the telephones isn't able to
borrow to offend it
so this is how we have to think about
the financing knowing that
in the same way that we are not going to
support restaurants forever in
in paris because at some point they're
going to reopen
we won't need to support togo forever
for their for their cash transfer system
because they'll go back to finance it
for themselves
you

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