The Future of Capitalism

this series brings together economic experts from booth and beyond to discuss the ways in which our economic systems are evolving as expectations about the role of business and society are keep changing so the series will explode the evolution of capitalism from the perspective of investors uh academics entrepreneurs uh professionals and just thought leaders in general we have an amazing program today and i'll introduce the panelists in just a bit just want to thank them in advance as team panelists we have chicago booth professor program rajan economist menu shafiq uh i want to thank them for being here to share their insights and my thanks of course to deputy d and randy krosner for moderating the the panel today so we're thrilled to be celebrating the spectacular chicago booth campus in london via our leading in london open house programming which is going to include in-person and virtual opening events plus hybrid events such as this one a booth's new campus which is located in the heart of the city of london is a place where students alumni local business leaders innovative thinkers and organizations from across emea can come together to share ideas and collaborate on thought leadership i encourage you to visit our website chicagobooth.edu to learn more about our leading in london events i also wanted you to save the date of october 27th uh for our next future of capitalism virtual event and that's going to focus on esg and climate change uh we'll have deputy dean randy krosner along with the nobel laureate in chicago booth faculty member lars peter hansen so be on the lookout for more details and information about registration coming soon so today we look forward to a great discussion on the future of capitalism uh it's really my great pleasure to introduce our panelists uh raghuram rajan is the katherine dusak miller distinguished service professor of finance at chicago booth uh raghu served as the 23rd governor of the reserve bank of india from 2013 to 2016 between 2003 and 2006 prague was the chief economist and director of research at the international monetary fund prague has written on a wide wide variety of topics primarily is interested in banking corporate finance and the role that finance particularly plays in economic development and he's currently a member of the group of thirty minute shafiq is director of the london school of economics and political science and her career has straddled public policy and academia by the age of 36 she had become the youngest ever vice president at the world bank and she started georgetown university and the wharton school she later served as permanent secretary of the department for international development deputy managing director of the international monetary fund and deputy governor of the bank of england thank you finally our moderator randy krosner is deputy dean for executive programs at chicago booth and the norman bobbins professor of economics randy served as a governor of the federal reserve system from 2006 until 2009 he chaired the committee on supervision and regulation of banking institutions and the committee on consumer and community affairs randy took a leading role in developing responses to the financial crisis and undertook many initiatives to improve consumer protection and disclosure once again i'm just thrilled to have so many of you here and with that let me hand it off to randy thanks so much motherf this is really really particularly thrilling for me uh because i have been in london since the fall of 2019 uh i was expecting to launch this series and uh welcome you all to uh this spectacular building in march of last year uh the building arrived on time under budget but it was also the same week that i gave the work from home notice and and so for much of the last 18 months it's been 40 000 square feet and me in this uh in this building and now it's not just me it's all of you we've had a few sets of students through for the the new executive mba students as well as the continuing executive mba students we've had the our non-degree executive education programs that have now started we've had faculty members through so many visitors alums and others from the community i couldn't be more thrilled as the staff here know i've been just smiling from ear to ear since the uh the month began and i look forward to leading in london opening for the for the whole of the fall um there'll be events in as might have mentioned we have another future of capitalism event coming up but we also have lots of other events that are coming up so i look forward to to see you those of you who are here and those of you who are in on zoom to the extent that you can you can get to to london uh can't wait to have you in i can't wait to have you in i was gonna say have you in class i like that too but uh also have you at uh have you in the building last year uh this month we had that we celebrated the 50th anniversary of milton friedman's famous essay on corporate social responsibility and um and in great university chicago fashion he posed a question really sharply give a very sharp answer that many people i think today around the world might disagree with including many people at university of chicago but that's what chicago is about stating the clear question and making it as as much as possible timeless 50 years on we're still debating these these issues and whether you agree or disagree with friedman i think he really helped to ignite a debate and that's what we really want to do here at the university and that's what we do with uh this is really what the future of capital is about to kind of get at these and get these sorts of fundamentals and um and so i i don't want to uh get too much into uh to that before we get to minutian and ragu but um i do want to mention that um we have we've had thousands of people register for this uh which is wonderful we've already had hundreds of questions come in um you can still send in your questions through the chat function for the sorry the q a function on zoom or here if you're in the room through the qr codes obviously i'm not going to be able to get to many of those questions only a fraction of them but it's really interesting to see what people are interested in so please do uh do send those those in because i want to try to make this as engaging and lively as uh as possible and uh and now i want to turn to um manoosh and ragu who i couldn't be more thrilled to have with us ragu has been a co-author and good friend for we have to dare say now 30 years um three decades uh and amunouch is also a an old friend from central banking days but also well in addition to being a director of the the lsc but something that's very very important that's recently changed is uh minutia's become a parent of a university of chicago undergraduate and so that's so that's very important [Applause] but i want to start with um with humanoush um you've just published an excellent book on what we owe each other and you talk a lot about the social contract and i think that's an important aspect of thinking about the future of capitalism because often when people think about the future of capitalism they kind of say well there's sort of the capitalist part there's the economy part and then there's this other part that's over in some other uh somewhere else and i don't really think that that makes sense and clearly you don't think that makes sense and you talk a lot about the role of the social contract in capitalism and in society so maybe you could um kind of define what you mean by that and what are we trying to achieve with this you know what's the objective of having a social contract why would we want to have one okay so i think the social contract is an essential underpinning to capitalism and it is the mechanism through which we provide collective goods and those collective goods can be provided by the family by the community by the state or by the private sector and just i'll sketch out for you the 20th century social contract and i'll tell you why i think it's broken for most of the 20th century the social contract looked like this you had a predominant a male breadwinner in most households women were available to care for the young and the old for free most people got an education from the age of about six to their let's say 20 that lasted them enough for their entire working life they would work for two or three employers over the course of their life they when they retired they would live just a couple of years and during those years if they needed care that would be provided by their family and then they died that was the basic model as i've described that to you you're probably sitting there thinking that doesn't resemble my world we live in a world in which more more women actually go to men more women go to university than men around the world today women are no longer available to provide free care services to the young and the old and the opportunity cost of them doing that is very high now given that more of them are educated our relationship with our employers is fundamentally different people now don't work for two or three employers in a lifetime they might well do that in a week and the expectation that the social insurance that you need in for life health insurance pensions is provided by your employer is no longer the case as more of these flexible jobs are don't include any benefits and in the advanced economies people expect to spend a third of their adult life in retirement and yet the number of years they're working is nowhere near enough to support a third of their life being in retirement and of course when they get very old the need for care becomes a huge problem because their daughters and daughters-in-law are busy working and not available to care for them so the social contract that we currently have is still responding to that 20th century model and yet we need something that's very different to respond to really the fundamental changes brought about by the changing role of women and the changes in technology which have changed work and education and what we want from education fundamentally great i think that's uh that's something that's really important sort of putting capitalism into this broader context a couple of years ago you wrote a book uh the third pillar that that also tried to put capitalism into this broader context of the third pillar that was often somewhat forgotten of community so i don't know if you might have some remarks on um both on your view of minutiae's view of the social contract as well as the context that you see is important and thinking about the issues on the future of capitalism sure well first i i think the social contract is obviously very important i think that uh as minou says earlier on uh a lot of it was provided by the family by the community by the locality you grew up in and it prepared you for a world of capitalism i mean capitalism didn't emerge uh sort of um you didn't get into capitalism as a baby you grew up and at some point you become became an adult and you could participate in markets at that point but something looked after you over that period and the question is who or what prepared you for capitalism uh and and i think this is where uh you know through the 20th century we had an increasing role of the state in doing some of this and some of it was brought about simply because the family or the community was unable to cope so think about the great depression and the social security expansion that that happened then various forms uh we didn't get health care in the united states but we certainly got um sort of a provision for the elderly and and that happened because communities were overwhelmed earlier it used to be each community looked after its frail and it's weak and as meru says it wasn't for a very long time because people sort of stopped working and then a little later and you had the dickensian view that you know to separate the able-bodied from the um from the lazy uh we have to make sort of some of this uh really really um you know the workhouses really terrible places so you go only if you had no option and uh the able bodied would still stay at work the um but but but what happened during the great depression is that there was a sense that this has to be made much more um arms length much more governmental in nature uh this had happened earlier of course in the uk what i think it also did was frayed some of the existing ties you know jim poterba has this study which shows that the elderly stopped caring so much about education in their district because yeah that was a quick pro quo the the young get their education paid for by the elderly in the district and then look after the elderly in their old age well that broke down once you had social security because the elderly were independent essentially all these arms length contracts as they expand they reduce the need for relationships and and and so to some extent we have to constantly think as we expand the size of the markets which are again largely amsterdam contracts as we expand the size of government and both go together it's not one against the other they typically feed on each other what do we do about the gaps we've seen in the pandemic a whole bunch of gaps spring up where neither the government is present not the markets who looks after the elderly and gets the groceries for them when they don't know how to sign on to the internet they don't know how to use all these services it's the young who sort of stepped up and started doing it who looks after the migrants in india as they find that they have no social security in the big cities voluntary organizations step up and do do it so in a sense i think we're both agreed that society has to step up every time the formal structure breaks down and i think fill the holes and that has to constantly evolve because the holes constantly evolve and and sometimes the growth of markets and governments crowds out the ability of society to do this because it it shrinks the places and society has to find new places where it can it can come back so how do we do that what are the ways from an economist perspective we always think in terms of incentives so how do we try to get the balance right to make sure that we we have the three pillars of uh government uh the typical pro the standard private sector um business uh business part as well as the social part more broadly in the social contract how do we make sure that we get the the right institutions the right incentives so that we get right things being done for what we owe each other yeah i mean i think it's a dilemma that what raghu just said about the the state sometimes crowding out the community and the family uh it's it's a real dilemma because on the other hand part of the reason the state got into this business was because they were very uneven outcomes and if you were born if you were unlucky to be born into a poor family or a dysfunctional family you didn't get any support in this so the state has been trying to fill in those those gaps and even out life chances which is a good thing i mean i guess what i'd say in terms of what do we do and how i guess i i think it's a combination of norms and regulations so i'll just give an example you know we are we are in a world in which i don't know let's just say a quarter of workers in this country or in the us are on flexible contracts of some form or another with no benefits um and one of the things that we've done as workers have become more mobile is to provide portable pension schemes so as they move around they can carry their pension and time seems to me that we're getting to a place now where workers need portable benefit schemes and less of their social insurance needs should be bound up with their employer and frankly we should mandate that employers provide benefits to all workers regardless of their employment contract so even if someone works for you for two hours a week you need to put a little bit into their pension pot and then their sick leave entitlement and so on and so i think that's an example where you could use regulation to adapt to a different structure in society that continues to deliver a social contract in a different way that's adapted to the reality of people's lives but does that lead to some sort of crowding out this as you were talking about rigoo so when you have the government say okay people have to do this then the support that might have come otherwise from family and such may not be there would you agree agree that's the right solution i mean so uh it is true it it disincentivizes private action but the question is would the private action be sufficient and in cases where it would be insufficient maybe we need a public action i i do think that in this environment the issue of inequality which minus again brought up is is really important right why why do we care about inequality i mean in general we we hope and believe that in a capitalist world outcomes may be unequal but everybody has the opportunity to participate and this is where it's very important to recognize you participate not as a baby but once you've sort of grown and got the capabilities etc so it seems as if part of the social contract is everybody should have acquired those capabilities should have access to the best ways of getting those capabilities and if they don't this is an unequal society and and and so people naturally feel aggrieved we didn't even have a chance to get to first base we didn't even get a chance to you know forget level playing field it's unlevel all the way and societies especially as the demands for education have increased have become increasingly unlevel right i mean our students are fantastic but you know they've come there from having a great childhood education a a a great you know structure behind them supporting them to get where they are so i think one of to make capitalism work to make it work along with democracy otherwise they get opposed you need a certain level of equity within society and and that doesn't mean socialism it does mean that when you're thinking about capabilities you have to have more equity in generating those capabilities both whether you're talking about schooling and healthcare or about safety nets uh in case you do fall off uh uh off the track and and how do you do that i think that's where we have to be much more sort of clever in design so minutiae and i were talking before the panel but you know we always have this view that okay if it's government it has to come from on top and dump uh stuff on uh you know here is the program you have to take and give and that is the natural tendency of the centralized bureaucracy you have if i'm giving you money you do it my way right bureaucracies don't want to give people money without having control over how it's spent sure and ideally i would say what we need to do and to minutia's point about inequality between communities is maybe a certain amount of funding is also required but it could be done in a way that the ideas come from bottom up with a lot more sort of light-handed monitoring that is not misused but not too much second-guessing on how it's used because communities often figure out and and empowering them by giving them uh you know greater resources could be a way of equalizing opportunity please can i just react to something i mean i very much agree with what raghu said one of the and in your book you talk a lot about the failures of education the educational system in in the u.s in particular for social mobility one of the interesting pieces of research i said in my book done by a colleague at the llc with colleagues at harvard is is called lost einsteins and they look at children in fourth grade in the u.s who have exactly equivalent maths and science skills and then you combine that with data on patents and income taxes to look at how many of those kids go on to become inventors and have patents same skills to start and what it shows is that if you happen to be born in a rich family you're 10 times more likely to have a patent if you happen to be born in silicon valley you're 10 times more likely to have a technology patent if you happen to be born in minnesota you're 10 times more likely to have a medical patent and so the family you're born into and where you're born have huge consequences even though from a skill point of view you start at the same place and if we could even out the life chances of those lost einsteins we could quadruple the rate of innovation and productivity in our economy and so one of the i think distinctive things in the in my book was i don't talk a lot about redistribution i talk a lot about what economists call pre-distribution which ragu is calling capability how do you invest in those people early on and give them equal life chances so that capitalism's promise of opportunity is actually realized i think that's excellent and actually one of the questions that we got in advance was on exactly this issue and i think you've done a great job of answering it can democracies that support capitalism survive without addressing growing disparities in income and wealth and sort of getting at this and i think it's a it's a very you know the easy solution is oh we'll just take from one gift to another and make everyone equal we know that's actually very difficult to do in practice and doesn't actually have the the best the best incentives but giving people the right opportunities so thinking early on in their their careers i mean james heckman from the economics department one of our nobel prize winners has done a lot of work on this also to show how important it is to invest in people early and that's how you make sure that you get ahead and it gets also to rego's point about how did you get from being a baby to being a a full-grown worker well there's a lot in between and that early investment is is very very important um there's a brief mention of we have a lot of questions that were related to that uh um sort of capitalism and socialism and and so i think because a lot of people think well future of capitalism well the alternative is socialism and and so how do you when when people say okay should we have a socialist future or capitalist future how do you respond to something like that well i say there are many flavors of capitalism capitalism in denmark looks very different than capitalism in the united states and the beauty of capitalism is that it's evolved we used to have child labor now that's considered unacceptable and so i think there are many flavors of capitalism and i think we're at a moment when capitalism has to evolve dramatically in order to sustain public support yeah no i i agree um i mean it seems to me that when capitalism ceases to offer opportunities uh obviously there is there is more of a demand for redistribution as opposed to pre-distribution right so um when people find they can't get jobs then there's talk of why don't we do go to a universal basic income it sounds a lot like the old sort of nirvana of the socialist right everybody gets money regardless of whether they work or not and uh i i you know one of the new rationales uh supposedly new rationales is technology technology has built all of us out of a job and it turns out that the first mention i could find of of the demand for universal basic income was in the 1960s president johnson had a commission maybe it's earlier than that but we said that look we robots are going to take over we none of us are going to have jobs let's go to universal basic income and you know when i look around they still haven't taken over that said uh i i think they mean [Laughter] i think that we have to be clever uh about how we uh you know think about jobs i mean certainly it seems to me even today man plus machine or woman plus machine is much better than machine alone or or human alone right so so we need to figure out how we sort of aid humans in in doing better jobs it doesn't mean every human has to be a phd but we need to figure out work processes so that they can work better and work more effectively so that's that's number one and when people say there's no jobs to be there's nothing to do i mean there's so many so much in terms of unfiltered unfulfilled demand right i mean try getting a medical appointment in chicago it takes three months to get to see a doctor that means that there is an unfulfilled demand there right but we need to think cleverly about how to fill that demand how much do we do telemedicine so why should i necessarily wait to see a doctor locally it may be something that somebody in philippines can think and tell me but that guy that doctor in philippines hasn't got a license to practice in the us and you know how do we sort of filter only those demands i mean there's a lot we can think about reorganizing work that said i think even with the best of efforts there will be some people who simply don't fit in i mean the fact that we have had so many people leaving the labor force the participation rate certainly in the united states has fallen suggests some people feel that they simply cannot cut it where they are now that said i i think again there's hope that with all this distance work that even people in remote areas can work but there may be some people who have absolutely no skills in the current environment i think rather than see them as collateral damage we have to figure out how do we bring them back into the workforce so that i mean work has become such a big part of having meaning in life so it seems to me that that just saying this you know there will be some people who will uh who we can't do anything about we have to think about that and and that's where i think we we need to look again at unmet needs and see if we can do them better now one example which uh i was talking to a a ceo the other day and we were on the same path we talked about you know maybe the the need for elderly care is a place we could use a lot more people it's relatively unskilled however it's not it's not bereft of of you need attributes you need to have empathy you need so can a 50 year old worker who's been laid off from a manufacturing plant sort of be retrained into that i think it's possible the ceo said no no wait no chance it's not going to happen you know forget about it well we'll have to try we'll have to try different things yeah yeah and because you've talked a lot about especially women's changing role in the labor force and so so how do you think of that that role evolving particularly post pandemic because obviously there's going to be a reorganization of work and reorganization of women's role in that yeah i mean just to build on what rugby said from i mean i'm also not a fan of universal basic income both because it's economically inefficient to churn all this money through the state to redistribute it to people who don't need it you're going to tax it 20 of gdp it's just it's very inefficient but i think more fundamentally in every society in the world part of the social contract is that if you're an able-bodied adult you're expected to contribute in exchange for being cared for when you're young and you're old and i think universal basic income undermines that basic principle and i would much rather if someone has very low skills and earns a very low wage i'd much rather give them an earned income tax credit top up their wages so they have a decent minimum standard of living than say take the universal basic income much better for people to feel that they're contributing to society something that milton friedman had very much advocated yes that's right that's right i mean in terms of women um you know the fundamental issue for women being able to contribute in the labor market is child care when you look at what happens to all these women who now go to university they get actually they tend to do a little bit better in terms of grades i hate to tell you well at least at the lsu we see women on average do better the men the distribution is wider so the men either you know get first or the women on average but anyway they do equally well at university let's say they earn the same as soon as they get out as soon as the first child is born incomes diverge because the women's shift to part-time flexible working and that means they have less experience they get promoted more slowly and the pa that's that is the explanation for the pay gap and that child penalty can vary between 20 to 50 percent depending on the country and so the key is providing decent child care and when you think about you know i i hadn't really ever thought about it so systematically but the model of child care is so socially determined if you offer maternity leave you're saying to women stay home and take care of your child if you offer a voucher for private child care or you provide publicly funded high quality child care you're saying to the family society is going to help you take care of your child and those models tend to result in much higher levels of female labor force participation the other piece of the story in terms of women's contribution is unpaid work so on average globally women do about two hours more on paid work per day than men that varies from about 20 more in norway to over a thousand percent more in pakistan so so dealing with the problem of unpaid work is another key element of equalizing and get and tapping into the talent of all these women in the labor market and of course the kobit pandemic brought this home to roost for many people because of course who ended up doing the homeschooling and that sort of thing uh was uh was often the women some people are now calling this the she's the she recession but uh but you know homeworking does provide opportunities but i'm a little worried that if women end up doing all the flexible working and that men all go to the office that that will cut them off from networks and opportunities that will result in an even exacerbated gender gap and we had a question come in another aspect of the job market in the labor market on uh how best to respond to international competition so of course some countries towards protection and said you know getting back to some of what both of you are discussing with all the changes that come in um people don't have necessarily have skill sets and and so some of the traditional jobs are moving offshore and so a natural response is well let's prevent um let's do some sort of protection to protect your jobs at home there has been some economic research done in the u.s suggesting that um that some of the competition with china has had a very big impact on the the labor market so i'd love to get your perspective on what's the best way to respond to that is sort of trying to provide some form of protection the best approach are their other approaches so i think emerging markets in developing countries have benefited hugely from trade they've been able to grow with limited domestic demand catering to demand across the world and and certainly this has benefited developed countries also much cheaper goods than they would otherwise have access to so the question is how can we uh continue this and it's it's going to become more important post pandemic the emerging markets aside from you know china taiwan uh south korea have had a terrible pandemic i mean the pandemic has been terrible for every country but more so in the emerging markets and developing countries where you haven't had much government support you've had immense scarring of households many households have dropped from the lower middle class into poverty you actually have hunger now in a number of countries um you have children who've been out of school for a year and a half and that doesn't mean that they they're a year and a half behind because they also forget so they're actually three years behind and and think of these kids i mean are they going to go back to school no because at some point the parents are going to say not worth sending them to school and the dropout rate is going to be tremendous so you've got scarring you've got very little support and uh you've got a lot of damage many small and medium firms have gone out of business because they haven't been able to survive uh stock markets are doing fantastically because they price the largest firms large firms now have more space to operate they they've raised resources uh but the and if the lower middle class the uh the poor are unhappy and are unemployed that leads to social conflict so i would predict the level of political conflict in many emerging markets in developing countries is going to increase tremendously as we have the opportunity to protest on the streets once more once the pandemic wanes this has gone going to be uh more fraught and fragile than we thought so i i think the it's in the interests of the developed world to keep its borders open to give i mean biggest source of demand for these countries going forward incremental demand will be exports we've seen a recovery based on exports in a number of countries but it will be even more so going forward and so rather than thinking of closing down we have to think of what more can we open up uh if we want a reasonable world and it's in the interest of developed countries not just because of demand there and you know people there demanding developed countries goods which they do i mean they uh they do buy a lot also and will buy more but it's also what's the consequence if you don't allow that well if there are big differentials between countries people move to equalize those differentials it's called immigration it's called illegal immigration because you don't want so many people coming i mean think of what happened in europe in 2015 2016 it was a reaction to the droughts in sub-saharan africa which pushed a lot of people to look for a home here and i can assure you if we don't have growth back in those countries they will look for a better future in the developed world if you don't create growth there they will look for growth here so i think it is in i mean i'm an immigrant myself so i don't want to dump on immigrants i think they're doing what is what what comes naturally looking for a better life and often they they actually contribute but i think it's going to be hard to manage that level of immigration for economic reasons as a result of the pandemic as well as the effects of climate change which are again going to push in the same direction they're going to make agriculture unviable in many of these countries push people out of agriculture and then there aren't any jobs in services or in industry they're going to look for a new home so going forward i think protectionism is just a you know we've always said this but particularly at this time a way of shooting ourselves in the foot in in the developed world i would think that it's better to think about how we keep the levels of trade going but do more for the people who have been hurt by the china trade and so on at the same time how do we expand our ability to create win-win situations across the world and you know i think there are ways of doing it i mean we've always as economists have had a hard time explaining why trade is good uh and beneficial but we need to make that case again and much more strongly because i think it is ourselves it is going to be our salvation in the world what's your perspective on this on both the immigration issues that's you know opening you can open borders to people as well as open borders to goods and services yeah so you know i do i do agree that economists have kind of failed to cover themselves in glory because our argument has always been well trade is good open economy is good and we can compensate the losers with the benefits and a we never really compensated the losers and b who wants to be a loser so and so we kind of failed to grapple with that reality i do think that we can do better it's an interesting to note that the most open economies in the world tend to have bigger welfare state cushions because if you're going to be subject to shocks you have to be able to cushion your population and if you look at say the united states you know when when the u.s signed nafta and they knew that there would be a shock to say the automobile industry in in detroit they had something called the trade adjustment act which you read it and it looks perfect it says if you're unemployed as a result of the impact of the signing this free trade agreement you will get reskilling you'll get relocation grants you'll get wage subsidies all the ingredients that a good economist would have designed but the truth is congress never put any real money behind it and you can point to the same thing here in the uk there was something called the migration impact fund which was supposed to support communities that had big inflows of migrants and again the government never resourced it properly and so i think you have to think really hard about resourcing these things properly if you want to avoid the political backlash that we've seen in so many countries against both immigration and open and free trade that's very interesting well you mentioned china and we have a number of questions about china um so we're thinking about the future of capitalism well it seems that china has been very successful in many many dimensions and whether it's pandemic response at least by some people's measure although that's that's controversial certainly in terms of economic growth uh great great success and bringing a lot of people out of of poverty so is that the model for the future of something that is um that has more of a role of the state um there's a number of questions that sort of raise that issue because obviously there have been certain successes in china that we don't want to ignore what's your thought on that in terms of kind of the chinese model of capitalism and whether that's yeah that well do you consider that a model uh that has some aspects of capitalism in it would you call that capitalism would you call that socialism uh and um and then when people say well isn't that a model that we should be striving towards shouldn't that be the future of capitalism something that's more like like china because we certainly got a number of questions related to that i mean i guess anyone who's watched what's happened in china over the last six months would uh would i guess take a view that it's a it is not what we would traditionally call capitalism uh that the state has been quite interventionist often with a a kind of social equality angle to those interventions but also a kind of putting people in their place kind of angle to those interventions so it's a it's a different one yeah i don't think one could call it a traditional capitalist model it's also but it does pose a kind of challenge to western liberal democracies who had all you know who had thought that capitalism and democracy are kind of married to each other and and complement each other and i think china's developing a model where you you do have market forces and in some areas but you have you don't have a democracy you have a someone someone once called it uh the communist party is not you don't have an electorate you have a selectorate a small group who select leaders uh through a you know internal mechanism and i think the the the challenge it raises for democracies is can we can we make our democracies work better so that we develop a better form of capitalism and i think that's in some ways that's the crux of what we're debating today is how do we how do we get a better form of capitalism and can democracies deliver that and if we can't then the chinese model looks more attractive because although you may not have the the good of capital of democracy uh you know they certainly know how to grow so i i think just taking off from what milo said i i think democracy and capitalism are integral to each other in the liberal capitalism that that you know we think is is reasonable and i think it's useful to pay attention to what's happening in china precisely for that well for that reason i mean my sense of what they're trying to do is what you know a lot of people in the united states want to do right cut the big tech platforms down to size uh make them more responsible for content um stop young kids playing video games forever uh do that you know common prosperity which is the the sort of coal let's bring the billionaires down and elevate common people i mean china didn't do that its early path of growth was low wages and low uh cheap capital which he capital on who's back the savers which was the common household got really awful returns on their deposits that was china's modus operandi they want to move away from that and and it makes sense both from you know a broader perspective of keeping people happy but also from the sense of uh you know geopolitically they can't rely on demand from the us lifting them forever in fact uh you know there's pushback therefore they need their own people to start consuming more and as their people consume more they also draw foreign companies in and have a form of leverage over them you behave otherwise we cut off your access so all this is is is well you know fits well the problem is how they go about it it's some bureaucrat some regulator who's been given license to act and in out of the blue without any checks and balances thou shalt not do this thou shall not do that that shall not do something else now it seems like you know there seems reasonable things but who determines whether you know kids should play video games shouldn't that be a broader consensus in society rather than a 45 year old bureaucrat who basically says my kids are playing too much and this is a bad thing who determines whether kids can have private tutoring again that same bureaucrat who says my kids are getting uh i mean there are no checks and balances and that to my mind is the problem with the system so long as the people in the authority make all the right decisions great but the whole point about liberal democracy is we don't think they make all the right decisions every once in a while they make wrong decisions and we need checks and balances to prevent that from happening so if you look at what's happening in washington today and contrasted with the chinese wait i actually want to make a case for washington you know this debate amongst democrats and you know how do we get consensus on the spending bill etc if there were no checks and balances if it was the progressive wing of the democratic party which said my way or the highway and put that into place which would have been consistent with you know the u.s is is sort of structured as to not get too much done but that has a value in its own right i mean just because democrats hate big tech doesn't mean you you break it up tomorrow uh you have to go through the course you have to go through just you know a process and that prevents you from from destroying very quickly in a way that you may regret later on i don't think that exists in china and you know maybe they're making all the right decisions maybe not yeah i think it was here in the uk i think it was uh winston church churchill said his democracy is the worst of all form of governments except for all the others yeah and and obviously there's a lot of challenge with it and i think that's right i think very much about um the democratic process is about disagreement it's about bringing people if everyone agreed that's that's easy in some sense that's very easy to get things done um it's in areas where not everyone agrees and a good political process is one in which people disagree come together with their disagreements and then come to some sort of solution rather than one wins one loses and that's it and so i think that's something that's uh that's very important technology is something that's come up with a lot of the uh a lot of the questions that uh that i've i've gotten in and and it also relates a lot back again to to the job market and uh inequality issues and um so i'll kind of summarize a few of the questions which is just with the development of things like um artificial intelligence with the development and and certainly uh post pandemic with the much greater reliance on on technology in all sorts of jobs and a further drive towards uh towards mechanization rather than having individuals traditional workers do do many many jobs what opportunities are there for people in a capitalist system to be able to uh to be employed to be optimistic and to be you know a part of society rather than be disgruntled and be angry and uh and perhaps try to disrupt that that capitalist society i mean i think uh i'm a strong believer that you know jobs won't disappear jobs will change and the key is to help people through those changes and most countries in the world under-invest terribly in skills development you know if you look at the kind of oecd data on spending on what are called active labor market policies which help workers transition from one job to another you know the standout country is denmark they spend 0.7 percent of gdp all the other countries in the world you kind of it's like not point zero and then like disappear there's nothing on the the number is so low that it kind of doesn't even show up on the table uh and it is absolutely key in an era when there will be massive disruption in the job market that we make that happen what's interesting is that people often think oh this is like you know state regulated bad actually the labor markets in many of these nordic countries are super flexible there's no notice period you don't get severance they have the highest rates of labor turnover in europe people get fired all the time employers have huge amounts of flexibility but they have to pay more tax and that tax pays for generous unemployment insurance and generous reskilling and you get a year and if you don't find a job you get put in one and they have the highest rates of employment in the world so they have figured out a model which is flexible but doesn't generate the insecurity that we have seen in so many countries that and the political consequences of that in security so i i think that's a big part of the model i also think that because employers and employees are less attached in these more flexible labor markets employers under under-invest in skills because they worry that they're going to lose people and so from a social point of view the investment in skills is lower than what it should be and so i think it's a space but we know the best training happens in the workplace not at some training center and so and so we need to find a way to incentivize employers to invest beyond their own interest be it human capital tax credits or subsidies to employers to over train their workforce beyond their own needs and i think that too is part of a new social contract pretty cool i mean one of them i think while we're in a love fest about scandinavia though my my colleague bob topel has has a lot of uh would be uh would set the balance here if we could hear him but uh i i think what perturbed me you know this is book janesville for example about the gm plant closing down and she talks about gm workers not knowing how to use a computer in this day and age people don't know how to use a computer i mean that means you really haven't kept up now you know denmark or sweden what they do is they keep assessing your skills what if you were fired tomorrow where could you go and so in this idealized situation you have a career counselor you meet with every so often then the career counselor says look maybe you should do this course or maybe you should do that course so that you keep up and then if there's a layoff they come in and these are not government servants these are often private uh sort of contractors who come in and then talk with you about what else you need to do to go to the next job and it's it's not that you need to learn about computers because you've kept up it's more take this course and that will help you get a job there so there's a lot of active labor market it's really about supporting workers but but also not letting them get complicit in their current job and one of the things that that helps in in the scandinavian countries is the volatility right i mean as minor said i mean because you're a small country you know you're the classic small open economy and therefore you're buffeted by every trade flow that comes and you have to figure out what to do in response and so these workers there are really nimble uh now can every country become that way it requires a fair amount of investment but but we need to move in that direction i'd also say that we dump a lot of on technology technology can also be a source of many of our solutions and so we need to people seem to have a very at least from the tenor of the questions that are coming in it's much more negative about technology rather than positive and i think there are definitely some positives i mean look at the innovation that we've had in in health care over the last lesson just amazing what has happened no so certainly uh and and i think what we need to do is obviously figure out how to make it more accessible and that will require technology so for example education uh i mean we now have i'm currently visiting harvard business school they tell me they can run cases online without human intervention so people actually can you know they've structured the case such that you can have a case discussion without without a faculty faculty involvement uh i mean it seems to me that we can make a lot of progress on education and skilling through technology and it's not that old you know what's a mooc course which you take and then you do two two lectures and then you we've found ways to combine human interaction along with the so we can teach a lot of people but we can have enough pressure on the students to actually finish to learn and finish i think we can do a lot more i mean think of the classroom it's the same old prof sitting up there giving a lecture to the same students this has been going on for 5000 years a lot of schools now thinking of flipping it over right which is lectures at home you you you see the best teachers in the world to give you that lecture and then you go into the classroom and do your homework because then you have actual physical support of your teacher who comes and customizes her or his uh advice to you here's what you need to do here's how there's so much we can do i'm a techno optimist i i think we can do so much with technology but we have to guide it we have to work with it it won't happen naturally and there may be some investments governments have to make also give some particular thoughts on how we could make those investments to sort of move technology in the right direction and get the most positive out of them yeah i mean i first of all we have to think of these as investments uh in human capital that are going to make technology more effective and um you know so often i find people's attitude is oh this is extra cost we can't afford this and it's like one this isn't these will have very high returns um in terms of increasing the productivity of our teachers of our doctors um you know you mentioned health it is extraordinary the huge leap that telemedicine has taken in this covered year i'm not sure if any of you have tried it but it's uh incredibly efficient and and also creates the possibility of tapping into medical experts around the world at much lower cost um so so yeah so i think these things will improve our quality of life but they have to be you know just as we've invested in developing these great technologies we need to invest in the people i think ravi said you know you have human and machine is the best combination or other people have said it's high tech and high touch you need to invest in the people that not just in the technology bit so that you get the best outcome so since we're talking about technology and we have three former central bankers sitting here you know where i'm going i've got a lot of questions in about crypto and uh and so and you know and that is something that's getting an enormous amount of attention uh central banks are seriously thinking about um introducing central bank digital currencies obviously china seems to be fairly far along in this we've just had a crackdown on um on on bitcoin mining and trading and holding and so so i think it is um it is something that that we have to deal with and we have to think very seriously about so a few different questions um on one a general question on how do you see bitcoin and other cryptocurrencies affecting the future of capitalism and um and will digital trend more broadly will the digital transformation change capitalism so i don't know who wants to do that first let's start first look uh i i think these are interesting technologies i think uh the uh distributed ledger behind blockchain the fact that you don't have to have um a central trusted um authority and uh you can get um you know consensus um to work in a situation where nobody trusts each other these have applications uh i mean this the central uh uh sort of uh idea behind this i don't buy that uh you know the world is engaged in the race to the bottom in in in devaluing currencies i mean i you know i i i do worry a little bit about the extent to which we have accommodative policy you've heard me in different but it's not i don't think the u.s is is out there trying very hard to run the dollar down to zero so i don't think that's the i do think these technologies could have a lot of value in certain situations uh where there is little trust or it's just impossible to get that trust in a short period of time so cross-border transactions where you have two different uh a lot of them could be accomplished uh and are being accomplished now through uh various forms of crypto the ripple network for example um but i think also uh we can do more uh you know payment versus delivery you give me shares i make your payment we can do through that through a smart contract without the necessity of having you know a variety of intermediaries substitute and and i think there are many other possibilities one can think of have we found that killer app yet not yet but i think it's useful to let those technologies flourish um now a lot i mean i think when you view any of these cryptocurrencies you have to ask you know what's the value right and often the value seems to be oh some sort of this will take over the world and all the payments will be done well payments if you have enough competition is not a very highly profitable sort of uh thing to do if that's going to hold up the value of your current your crypto it's not clear to me that there's there's much there there's so many competing sort of forces but are there applications coming yes and lastly let me end by saying cbdc central bank digital currencies if we introduce them as central bankers we have to be very careful we don't snap out the private sector because the private sector has been very innovative the problem with the central bank digital currency that's not well designed as it hoovers up all the data and essentially provides a competition to even traditional private sector activities and we have to be careful because when the the state authority takes up all that uh it has an unfair advantage but also may not do it very well and that becomes a problem i mean think of you having your deposit accounts with the federal reserve now how much customer service are you going to get on that it's not clear to me i mean it's safe but you know you may not go get a lot of redress if they make mistakes or something happen so i i would say we have to be very careful about displacing uh with a central bank digital currency and central banks are thinking carefully about it so it comes back to your earlier point about crowding out that even if something may be well motivated it could potentially crowd out private sector innovation and private sector last point i think the idea behind the chinese cbdc is precisely to crowd out and financial and 10 cent at least to some extent and that's where again i think uh there may be a difference between how some of the uh democracies are thinking about cbdc and that's certainly consistent with the crackdown on bitcoin yeah banoosh i'm the last word on this oh so i think the other thing about crowning out that i would worry about is uh what happens in a financial crisis and everybody flees to the central bank and you end up disintermediating the financial system and exacerbating a financial crunch rather than and so you know central banks have talked about capping the amount of central bank digital currency you could hold to restrain the risk of that happening um but i think that is a that is another dimension of the crowding out problem i mean i think the only other thing i say is i agree on the innovations and payments and products and use cases around everything from contract enforcement to payments but uh i'm very skeptical about the store of value argument uh the idea that bitcoin is going to be more stable than the dollar i mean you just you know look at the look at the track record as just is all i would say uh and um and i am concerned about the kind of the secrecy aspects and what it's being used for is it a coincidence that all the ransomware attacks uh you pay your ransom in bitcoin uh do we want to be encouraging that actually um and i think you know some of the more illegal uses of this i think it's legitimate for the for governments and central banks to be cracking down on it because it's it's just illegal great well we've covered a wide range of issues from uh from the family to the role of women in uh in the household and in the workforce to broadly china u.s and protectionism technology we haven't touched very much on on climate and esg and that's because the next in this series is going to be focusing on that as modev had mentioned on october 27th we have one of our nobel prize winners uh lars peter hansen has been doing a lot of work on the challenges of trying to to think about uh modeling uh modeling climate and the challenges in general for that as well as in particular for for central banks so we'll be having that discussion with uh with some others so hopefully you uh if you uh we've wedded your appetite for the future of capitalism we have a lot more in the future for you and uh and that's it the next one will be on the 27th with um uh with lars peter hansen and so thank you so much for being here thank you so much for being on the uh on zoom and uh i look forward to um ultimately welcoming all of you here to this great facility just a stone's throw away from st paul's cathedral in the heart of the city of london chicago booth london i'm so delighted to be here thank you for for being with us [Applause] you

Channel: The University of Chicago Booth School of Business

Views: 3,375

Rating: 4.927928 out of 5

Keywords:

Id: 3afjjmKMC2s

Length: 66min 53sec (4013 seconds)

Published: Thu Sep 30 2021