Jeffrey Sachs: China, the Game Changer

tonight's forum is the public finale of a month-long project which included the publication of the East Asian Forum quarterly we have our editor here the quarterly special issue on China's investment abroad because you are here we are providing a free copy for you at the back of the room and a day-long roundtable discussion and debate on foreign direct investment our bound investment from China today we will with developing to the changing face of Chinese investment causes and consequences both for developed and developing countries as further evidence of the very global importance of our topic tonight that we have the pressure of hearing from our keynote speaker professor Jeffrey Sachs director of the Earth Institute here at Columbia as well as a panel of distinguished speakers from US China South Africa and Australia Jeff Sachs is a renowned professor of economics and one of the very few economists who's a household name in the world a leader in sustainable development and a senior advisor to successive leadership of United Nations he has done a very important work on the fight against poverty has been to in the last count 100 25 countries perhaps 10 more since last week perhaps after professor Sachs our steep steamed panel will join us to give their take on the on this subject please join me in welcoming professor Sachs sang-jin thank you very much and Wow it's wonderful to have all of you here and an honor for us at Columbia University to be hosting you and many friends from China and Australia and Africa and overseas in many places I want to say a word about Jerry Jason who I don't think is here with us today if he no okay Jerry's a it was a longtime trustee of Columbia University and a great business person and a person with the profound concern for the world for the arts for business and he obviously made a marvelous contribution by establishing this Center at Columbia Business School and I just wanted to pay tribute to his leadership for for doing that I'm Eric are you so I know that you had a wonderful discussion today already in the internal roundtable and I'm delighted to be a brief opening act for a great panel I'll just speak for a few minutes and I won't speak mainly about this extraordinary topic of China's own outward foreign investment which is by itself a game changer everything about China deserves superlatives in terms of its rate of change and its scale of impact and the stock of outward foreign investment we know is one of those superlatives having risen roughly tenfold within a decade from 2000 to 2010 everything about China's growth though has been a world changer and I'm at least of that school that says this is fundamental it is not a bubble it's not something that's going to be reversed it's part of a an underlying very deep trend of catching up of China after you could say 200 years or 150 years of not such great luck or you could date it to 1433 if you want and say a few hundred years more than that but china is catching up and because of its size and importance and fundamental role in global culture and science technology and history it's changing the entire world there's nothing more important in the world economy over the past generation and I would say the next generation then China's development some of the numbers you know but I think they bear mentioning in 1980 according to the IMF data the US was twenty four point six percent of the global GDP measured in purchasing power terms and China was 2.2 percent of the world GDP this year the IMF has estimated that the US has gone from twenty four point six to nineteen point eight percent whereas China has gone from two point two percent to fifteen percent and on the estimates of the IMF out to 2017 of course to be taken with the wide band of uncertainty the IMF puts the u.s. at seventeen point seven percent down from nineteen point eight and puts China at eighteen point three in other words larger than the u.s. already by 2017 this is of fundamental transformation significance it has many implications for inside China probably the most dramatic is that in 1980 the poverty rate in China measured by the World Bank's of poverty level was seventy three point five percent poverty rate in 1980 and according to the World Bank's most recent a estimate of 2008 the poverty rate was at 7.4 percent there is no doubt in my mind that material conditions for the overwhelming majority of people in China have improved phenomenally and in an unprecedented manner at an unprecedented speed and magnitude in the 30 years after 1980 now there's another side to it which is very significant and that is that in 1980 US carbon dioxide emissions were four point nine billion tons and China's were 1.4 billion tons less than a third of the US and in per capita terms therefore less than a twelfth of America's by 2009 China had overtaken the u.s. to become the world's largest carbon dioxide emitter and the largest emitter of greenhouse gases overall as of 2009 China emitted 6.8 billion tons of co2 compared to the u.s. 5.2 billion tons China more than any other part of the world will determine the future health of the planet and the future of climate change and our ability to get it under control something of significance for the whole world but of fundamental significance for China itself because there are a few places in the world more vulnerable than China as a highly populous not only populous densely populated country with roughly 19 20% of the world's population and about 7 percent of the world's land area and something like 7 percent of the world's water supply and not evenly distributed within China climate change will have huge impacts within China and China's the main driver in the world right now by no means the only one but it's about a quarter of total emissions so it seems to me that China not only is making fundamental Changez but has become not only an important player but a key driver of fundamental global scale development at this point and I want to mention four of them and then talk about the coming two weeks because they're of significance for the world in many ways first China has fundamentally affected the global division of labor and my own view is that a lot of the slow growth in the United States and in Europe has its counterpart in China's fast growth that's an unpopular view some of my colleagues at Columbia University will consider me absolutely heretic 'el for saying it I'm not saying the China did anything wrong I'm just saying that the rapid rise of manufacturing highly profitable in China had as its counterpart some hollowing out of US manufacturing over the last thirty years and to think that it didn't - my mind is would be surprising US employment in manufacturing decline from 19 million to 11 million jobs from 1980 till the fill basically now and while some of that is general technological change some of that is the loss of competitiveness especially to China but to the emerging economies in general this doesn't mean that globalization isn't good or the trade isn't good it's just one facet of how an adjustment to this phenomenally important economic transformation is is taking place and my own view is that some of the slow growth that Japan began to experience 20 years ago and the slow growth that the United States has experienced in the last 10 years and in Europe as well was partly the phenomenon that in this tradable goods industry China was more competitive and had higher returns and there was a tremendous on the margin a tremendous shift of the new production capacity and so forth that had a global scale effect now China's also had a global scale effect in spurring Africa's growth and in spurring Latin America's growth in the last ten years I think it's been the major reason for the higher growth rates in the primary commodity exporting regions which have both experienced a tremendous last decade I should add by the way in my own way of thinking that the United States and Europe already experienced a significant slowing down of job growth 15 years ago and part of it was this tremendous burst of success of China and I'm not begrudging it for a moment I just want to be very clear about this I'm just describing I applaud China's success completely but one of the ways that the u.s. reacted to the weakening of jobs in the tradable sector was by trying to spur jobs in the non traded sector especially construction so it's not in my opinion a complete accident that we had a housing bubble in the 2000s because the Fed put the accelerator on in order to overcome chronic labor market weakness in a significant part of our economy and this is a policy follow-on to how globalization has evolved and my own view is the United States has done a miserable job of understanding globalization and responding effectively to it and it has responded through creating bubbles and then a boomlet in construction which has more than disappeared obviously and it has not been able to focus on real competitiveness and a real long term strategy that is compatible with the new world economy the second thing that China has done is create a completely new environment of almost all primary commodities whether this survives or not depends on whether we have a collapse of the world economy or not and I'll come to that in a moment but since around 2004 all primary commodity classes have experienced a dramatic increase of real prices this is in agriculture in staples and non staple agriculture it's in virtually all minerals and it's in hydrocarbons this is an astounding change now it's only eight years in the making it's had two cyclical declines 2009 and 2012 so there have been Corrections as the world economy has weakened but my view is that we've entered an age of high real primary commodities prices on a persisting basis if that's the case it's nearly unprecedented in modern economic history because 150 years was characterized by gradually declining real prices of commodities and my view is basically that the world economy has gotten very crowded the planet has not gotten bigger but the world economy has gotten bigger and it's pressing hard against conventional supplies and land and water and many of the other underpinnings of agricultural production minerals production and conventional oil production and that this is therefore a fundamental driver other people disagree with that we don't have a long enough time series to prove this one way or another if the world economy were to collapse because of the financial crisis for example that starts in Europe next Sunday and then becomes a worldwide crisis and it's not impossible commodities prices will go down what I'm saying is that at a nearly full employment world economy commodities prices will be high in real terms compared to historical norms and this is because most importantly the rise of China but more generally the rise of the world economy and the fact that the emerging economies have really emerged the third aspect of this that I think is fundamental is what the geologists call the age of the Anthropocene what some college is called the planetary boundaries what we call the challenge of sustainable development and that is that we do not have a world system and a set of technologies in place that can accommodate the kind of growth that we expect in the world economy in a sustainable manner so if China continues to grow rapidly and that might mean six or seven percent per year rather than ten percent per year but if it does it following mainly the development track that it's following which means lots of automobiles and big automobile based cities the world will absolutely and I would include China within the world face a crisis within decades of unprecedented severity and complication because climate change water scarcity loss of biodiversity ocean acidification and many other human driven anthropogenic forcings on the world will create havoc they're already creating havoc but not in the core economies right now they're creating havoc in the weak places in the world already the Horn of Africa and the Sahel are virtually unlivable and unn governor before tens of millions of people and that is in part because they are very dry and that is in part because the dry places in the world like those places are getting drier right now because that's what one would expect from climate and we're already seeing catastrophe from this but it will spread to more core parts of the world I'm also considering Texas not a core part of the world but some odd periphery with some very strange ideas that somehow emanate even to New York on occasion but Texas is having one of its greatest droughts of modern history and this is in I think best evidence a reflection of a deeper ecological footprint China's will be the major player in this change this is not to say that there's something especially pernicious about China's role in this because from a per capita point of view the United States is much larger in its contributions to these changes but China is big and it is coal based and it needs food and it's got the water scarcity and it imports a lot of feed grains and it does a lot of things that affect the anthropogenic drivers all over the world the most important of which is its co2 emissions the fourth point that I would say a fundamental change of course is geopolitics China is simply central to global developments now politically militarily security economic financial and I think in my own interpretation this was not China's timetable China wants 30 more years of quiet so that it can finish the catching up it wants to be a good global citizen it wants to have a world that is accommodative to continued rapid growth Chinese leaders and Chinese people know that china is still a middle-income country not an economic powerhouse there still is tremendous difficulty and fragility internally and my own surmise is that from the Chinese leaders point of view the greatest thing in the world be quiet for another 20 or 25 years China is a good system player in my opinion which is that it wants to follow the rules support multilateral institutions it just wants also energy food and other things that it needs and it wants the time to grow but I don't think the world timetable will fit this hope anymore China is too large not to be an major protagonist not just a background supporter and this will certainly be the case when China is the world's largest economy which if it's not 2017 will be 2020 or 2025 and it is already the case when China is the world's leaders the world's largest emitter of greenhouse gases and so and voracious in its appetite for coal oil copper iron ore and many other things now all of this could change if China went into a crisis I believe China will not go into such a crisis and that this was not a bubble that's going to burst and we're all going to rub our eyes and say how could we ever have believed that I think what's happening is far more fundamental there's a recent book by their own Acemoglu and James Robinson which Clinton which says that China is basically following the Soviet model don't get too excited about this it's all going to collapse I think this is wrong fundamentally knowing the Soviet experience the Soviet Union did not develop in a context of globalization and so when its crisis hit it was not part of a global system at all this is completely different in my view from China's reality because China is developing as part of the world productive systems the world technology systems it's contributing to them it's a part of it which was not true of the Soviet Union so I think the analogies are very very weak and poor in the analysis that says it's all about to come to a screeching halt or that this is like Soviet buildup I believe that China's development is driven fundamentally by technological improvements that are the same technologies as the whole world is using that's good news from the point of view of this not being evanescent it's not a complete answer from the point of view of us destroying the environment and the planet and just to remind you if China were actually to mimic the US and catch up there would be a billion more cars on the road of course given China's size China would be nothing but a parking lot or a traffic jam so there's something impossible with that scenario but China is already the world's largest automobile market and it's likely to remain so for the next 20 years but China has to have a strategy that that accommodates this all of this is to say the timetable for China to just be a good player in a world system somehow managed by the US or by the g8 or by nobody that's gone China is now fundamentally a protagonist given that we have a real issue which is that there really are kind of three models of global politics that we can imagine there could be a kind of balance of power politics which is peaceful and mutually respectful of space and power and influence a kind of a concert of Europe vision that maybe Henry Kissinger would like that could work there could be a competition model in which China's growth drives the u.s. absolute we'll be crazy and the us craze drives China into greater nationalism and we've had that dynamic twice in the 20th century with Germany and it's just absolutely the most risky thing that the whole world can have and the third which I believe by the way is the only thing that can work is something we've never had before and that's close global cooperation the reason I think that that is necessary is that I believe that these environmental challenges are unprecedented and that they are a different kind of problem from the problems that humanity has faced in the past in the past humanity had enough space to leave each other more or less to do their thing and the question was whether the Kings idiotically went to war or not or whether the rulers of the tyrants idiotically went to war we're in a very different situation in my view right now which is that we actually need to do something humanity has never done before and has no taste to do and that is to transform fundamentally the world's energy and technology systems within the next 40 years I say we don't have a case to do it in the shadow of the next two weeks so let me say something about the next two weeks the next two weeks have three big events one is the Greek election on Sunday and that by itself could be could be the start of the biggest financial crisis not since 2008 but since 1929 because if the eurozone implodes or explodes right now the ramifications of that for the world I think could be extraordinary and when Chinese major investors have said in the last few weeks were out of Europe right now we'll just wait and see and when the money is fleeing Spain Italy Greece Portugal in what is really a banking panic within the eurozone taking place it's very fragile what's happening and if Greece just to throw a scenario out which you all know but if Greece elects a a government that is committed to tearing up agreements with Europe not that I have any admiration for those agreements but if it elects a populist government that says this is absurd we default and so forth which is by no means you know sure but is a possibility the ramifications that in my view would be very large and the contagion would be not contained to Greece I don't see any way that Greece could have a rupture within Europe a collapse a default without devastating Spain Italy and others that's my own macro economic view so that's event number one then number event number two was the g20 meeting in Los Cabos in Mexico which maybe will be a great exciting meeting to pick up the pieces after the Greek disaster and so I'm looking forward to that meeting I'll be there with Secretary General I hope it will not be devoted to that the g20 has proven to be at some moments rather impressive I've been to almost all of the g20 meetings one thing I would say about them is that the presentations of most of the leadership are strong and serious it's it's actually a little frightening to be in these rooms with all the leaders there they're not necessarily solving the problems but the meetings are quite serious actually and so I've been impressed by them but the level of cooperation and practicality that has come out of them has been extremely low and so we've not really had practical problem-solving come out of the g20 at least not since 2009 in 2009 wasn't really cooperation was mostly a lot of countries pointing in the same direction for their own reason rather than a lot of cooperation so the g20 will meet next and then after that will be the Rio +20 summit it's quite a lineup because the Rio +20 summit is 20 years after the Earth Summit the Earth Summit produced three major treaties one on climate change one on Biological Diversity and one on combating desertification not one of these treaties had any effect I would say or almost any effect they have been more or less a bonanza for conferences over 20 years diplomats have had a great time negotiating what's legally binding what's measurable what's verifiable but nothing has changed except that climate change has gotten worse biological diversity has continued its collapse and desertification has roared forward in the Sahel and the Horn of Africa so the record is miserable actually and to add to the misery after the climate change convention was signed and actually ratified by the US Senate believe it or not because the US Senate would never ratify anything right now anything that involves another country is inherently suspect in the United States much less something for the whole world that means that it's come that must mean that it is absolutely a dire threat to the United States so in 1995 1997 the Senate voted 95 to 0 don't agree on anything on climate change until China does the same base this was the bird Hegel amendment that's an example of being driven a little crazy by the competition with China because under the law of the treaty the US was to move first under the practicalities the US should have moved first under historical responsibility the US should have moved first under technology the US should move first but it was absolutely saying we cannot move our competitor is gaining on us and so this is the kind of thing that absolutely can break the logic of the system Oh God it would be great if we could meet in two weeks and see whether we're still here and where we're going I'll tell you what I'm hoping for I still am hoping maybe naively I'm told constantly for that cooperative approach because I don't really see another way and because I actually think all of our problems even Greece and Spain even climate change are eminently solvable that is what I feel is the most persistent deeper truth of our time we're actually in good shape in the world in the most important way which is we have the know-how we have the spread of literacy awareness information to actually solve all our problems that's phenomenal and the spread of information technology and connectedness is mind-boggling the villages that we work in Africa seven years ago didn't have a phone of any kind and now mobile and 3G and soon 3G will be completely pervasive our ability to solve these problems is absolutely at hand what I'm hoping will come out of Rio +20 something that I've been working on and Secretary General Ban ki-moon is leading is the concept that the world will adopt sustainable development goals not for the lawyers and the diplomats not to be ratified by the US Senate but actually for us humanity civil society the people of the world the schoolchildren the universities the businesses so that we can move beyond these empty negotiations and actually move to solve real problems and I know that that's exactly the spirit of this conference and I know with so many friends here it is the spirit that has engaged so many of you for many many years so let's keep good heart let's hope that Greece the g20 and the world in that order in the next two weeks does its job and then we can get to the real problem solving thank you very much we can take two questions why don't I collect both questions and I tend to die Jeff well it goes looking panel instead of demand Peter two questions just just on on the commodity terms of trade you mentioned the huge impact that China has had my Africa and Latin America and surely that's importantly a supply response to the shift in the commodity terms of trading and and will bring the real price of promoting back like the comments on that because it relates to the basically limits of growth dimension to your presentation the second one is is really on on global cooperation and where the locus of change might be there I mean pretty pessimistic by implication on the established forums where you see it coming from what you suggested at the end was a movement for sustainable development Besson that's a whole collectivities of national political agendas in somewhere how do you do that okay good um it's about the adjustment being a response to what you said earlier expansion of the economy and then we ran into the financial a global crisis so my own assumption is live we got into big trouble we probably need to take some pain in order to go up but you look at one the world most of the countries governments and the central banks are very reluctant to take it up in whenever the economy is slow they started bringing their money again a fiscal deficit in fact the ironic thing is that the Chinese government is the only one who was talking about maybe silikal isn't necessary what's your point right thanks thanks a lot so on the question of resource prices and supply as I mentioned briefly and as you know over a very long period of time roughly a hundred fifty years real commodities prices tended to decline and this seemed to indicate that the Malthusian fear of the finitude of the planet was somehow wrong in the sense the technology could overcome the limits that that the world faces after 1970 that downward long-term trend became quite volatile and erratic we had high commodities prices in the 70s and limits to growth we had a collapse of commodities prices in the 80s and 90s then we've had a restoration of commodities prices starting from the early 2000s so it's a little dangerous to proclaim a new era and the first thing that would be said is that when commodities prices are high they elicit a supply response they elicit substitution they elicit new technologies I have to say I'm a bit of a conditional Malthusian and biconditional Malthusian I mean the following a lot of what got the prices down over time was learning how to mine nature better so it's not that we economize Don resource use we just were able to dig it out better and and fish it out better and mine it out better and pump it out better and so forth and I and persuaded certainly because I had an environmental Institute as well filled with hundreds of ecologists and and climatologists and so forth to believe that we've really reached some very serious supply challenges that can't anymore be met by better mining pumping dredging and so forth now in the United States were in the middle of a very exciting boomlet on shale gas which is supposed to disprove this proposition I think if you look at the numbers you see that this is something real but it's several parts hype for each part fundamental solution because even if it's there it's not really a fundamental game-changer if the world economy continues to grow fast which is by no means assured but I'm asking the question can the world economy continue to grow as the world hopes it will that means developing countries catching up in a way that would be compatible with our current technology base and I think the answer is no climate change will destabilize a lot of food production ocean acidification will destabilize marine environments even conventional supplies of some key resources probably conventional petroleum will make a big difference certainly the conventional supply the supplies of fossil water will be depleted that means the aquifers in major areas of the world and if not fossil water at least slowly recharging aquifers like northern China like the indo-gangetic Plains like the Ogallala reservoir in the American Midwest are on a downward course right now so my view is that we've entered a new era even with supply response now what's also true is that we have no limit to energy if we were to harness solar power on a massive scale because insulation is about ten thousand times our energy use right now our global power supply we tap almost none of it much of it we won't be able to tap economically but there's a lot of solar power there's a lot of potential nuclear power but we have huge problems to mobilize those or to accept their costs and I'm not persuaded therefore that we really can avoid rising marginal cost curves for a lot of commodities right now that's my basic take we're seventy trillion dollars annual production right now with the world that if you add it up in terms of what is seen as quote normal would grow at about four percent per year and four percent per year growth means doubling every 18 years so by 2030 we would be at a hundred forty trillion and if we did that one more time for example which would that then well you can double it again the point I should make is that if the whole world were to converge at the high-income levels from where it is right now in the rich countries were never to grow again but just to be stay where we are which may be optimistic by the way but if that were to be the case that would be a four-fold increase of production and then if you add in the momentum on population that would be another 40 percent or so so we have built in to the political DNA of the world maybe a six-fold increase there's no way on current technologies that our resource base can support that either our ecosystem services or I believe a lot of crucial commodities so I think that this is a real issue that is persistent a lot of places that grow out of food right now we talk about increasing it as if we can surely hold the production but we can't necessarily even hold the production in a lot of places as the climate changes as the water situation gets more concerning and so on I'll put together these two questions of accepting pain or getting out of this how to get out of this crisis and how to create some kind of movement of sustainable development oh it's very hard because we're working on the politicians timetables right now and we're not working on the realities of the world right now the United States is a great example of a country that has everything everything you could ever imagine and yet seems determined to squander a lot of it because we can't even have a grown up discussion in this country anymore and the level of our political discussion is so abysmal that it's unrecognizable in my view the word climate probably won't be mentioned for the next four months President Obama will not go to the Rio +20 summit even though 150 other world leaders will be there because nothing could be worse for him than to attend a UN function and so this is really bad because we need some cooperation and if the president can't even see fit to go to a meeting where a hundred fifty or so of his counterparts are discussing the future of the planet you can judge how difficult this environment is right now the problem is that or not the problem the good part is the public is way ahead of the govern it's actually I believe that maybe a little optimistic but at least partly ahead but the noise factor is phenomenal and the noise factor is very powerful corporate lobbies which finance most of the noise and which are absolutely out to confuse everybody on just about everything and this if the if companies would behave themselves that would take us about 80% of where we need to go because nothing has done more damage in the United States than corporate propaganda and everything is propagandized right now every political message is driven by luck big money and it's all confusion top to bottom there's not a sensible message in it and we built a world and China's becoming increasingly comfortable and part of it of tax havens and and hiding income and you look at where most of China's overseas foreign development goes it's the British Virgin Islands it's the Cayman Islands it's Hong Kong and it's other tax havens and this is the phony world that the real world is supposed to live on and solve our problems no one's immune to big money in politics and it's the most destructive thing of all because if people would actually understand the problems be explained and told what's at stake for their children we'd actually solve these problems so that's why I come back to the idea of more of a social movement and a ended educational movement and an awareness movement rather than a political movement I've been part of something called the Millennium Development Goals for the last 12 years and while those to fight poverty hunger and disease while they haven't succeeded they've succeeded a lot more than those three international they've had real effect because the lawyers and the diplomats weren't discussing what's legally binding what's verifiable who has to do what it was a call to action globally that has resonated quite deeply my view is most of the world would like a future for the planet future for their children future for climate change most of the world would like to tap renewable energy we have a lot of polling data to show all these things and we can't get it done because of the big money in politics right now and so if we can put society back to where it's supposed to be and this is no matter what form of government democracy not a democracy this is really about voice of people versus voice of interests I we don't have a working system right now and I'll just end by telling you one story that 95 to 0 resolution and the bird Hegel amendment which said we won't do anything until China until the developing countries do was the basic amendment and every senator signed up to this one of the authors of it was Robert Byrd who was in many ways a great senator Byrd gave a speech on climate change one day which is completely remarkable he was the senator of West Virginia West Virginia is a major coal state and he gave a speech I need to dig it out again because it was so stunning it was two pages in the in the Congressional Record sorry in the congressional record which said climate change is the most important issue for the world for our children it could threatens the whole planet it's terrible its disaster and so forth and he literally two pages and the last paragraph is therefore it is with great regret that I will have to vote against this legislation and the reason he was voting against it was he represented a coal state and he could count the interests and so forth and everything was there except the vote at the end and this is a little bit what we face with the politicians and if we can bring the people to the forefront we can help the politicians out of their agony right now I have no doubt that President Obama would love to talk morning noon and night about climate and I have little doubt that he won't even mention the word for the next four months and that's our problem that we have to help solve Thanks you

Channel: Columbia Business School

Views: 10,819

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Keywords: china, chazen, Columbia Business School, Jeffrey Sachs, earth institute, Columbia University

Id: 8Ou5zPGBj5U

Length: 50min 40sec (3040 seconds)

Published: Fri Aug 03 2012