Paul Collier: The Future of Capitalism

really Jones I'm an associate professor of public policy here at the school and it gives me great pleasure to welcome you all here for a book launch and of a book that has an impressive title no less than the future of capitalism which i think is all a pressing topic for all of us at the moment and I'm delighted to introduce Sir Paul Collier my colleague and the speaker for this evening and the author of this book it probably needs no introduction but I'll give him one anyway and Paul Collier as you mean as you know I'm sure is the professor of economics and public policy here at the Blavatnik School of Government he's the author of the bottom billion which won the Leno Gelber prize and the author Ross prize awarded by the Council on Foreign Relations he's the author of the plundered planet Exodus and refuge he's held chairs at Harvard University jion's PO in Paris and in 2014 he was knighted and awarded the president's medal of the British Academy the book itself and if you haven't had the chance to read it I encourage you to do so um George Akerlof Nobel laureate in economics from 2001 said this about the book he said the future of capitalism is the most revolutionary work of social science since Keynes let's hope it will also be the most influential these times are in desperate need of Paul Colliers insights so please join me in welcoming professor Cole polyak Collier to the podium thanks and professor Collier it's kindly agreed to speak for about 40 minutes or so and then we'll open up to questions and answers so please have your questions ready thank you well thank you very much for all coming on such a lovely evening right I know you've got alternatives so I'll try and say something that's useful but it's not going to be so useful that it's a substitute for reading the book right a book is a book the the subtitle of the future of capitalism is facing the new anxieties and that's really what the book is about that it's a it's it's about how neglect of important economic forces has produced new anxieties and why we neglected them and then the the most important part of the book which I probably talked least about is how we can actually effectively address these new anxieties and heal our society and it's not just about written the same process is happening in pretty well all Western societies so it's called the future of capitalism and that has to be our future in the in the broad sense of meaning capitalism as a decentralized process of economic decisions with competition it's the only system we know that actually delivers rising prosperity but it can't be left on autopilot capitalism periodically derails and sometimes it derails very very badly the the first time it derailed was was in the the 1840s and let me describe that briefly it was capitalism as Adam Smith described people coming into factories peasants coming to work in cities and factories where they were much more productive than they had been on the farm and that's what brought them in higher productivity higher income but they came into cities these cities formed and the cities were productive to work in but they were killing fields to live in because once you brought people together without any public health without any adequate infrastructure they started dying like flies the average life expectancy of a rural laborer in the 1830s and 40s was about 33 pretty pathetic in the towns it was 19 these were killing fields and it got worse and worse and worse so that by the 1840s the society was in crisis that was the first day or a derailment and we'll see what what happened and the second derailment is you know almost within living memory which is the derailment of mass unemployment in the nineteen thirties and the third derailment is within the memories of all of us we date it from 2008 but actually it had deep antecedents that I would date back from about 1980 and it sir notice that all three of those derailments are very different capitalism doesn't always derail in the same way so the solutions are not always the same but they're always our solutions and what's gone wrong this time obviously the banks blew blew themselves up but it's much more than that since about nineteen aging three big divergences have occurred which anew and in which which would be very dangerous so one is a spatial divergence within within Britain within America within France within Germany and it's a spatial divergence between a booming metropolis and broken provincial towns and cities the the second big divergence is the emergence of the new class divergence and it's not the old class divergence between inherited wealth and those without it the new class divergence is in terms of education it's those essentially who've got a college education and those who've got less education and those with a college education have been on an up escalator of rising incomes and those on the with less education have been on a Down escalator in which their skills are getting less and less valuable so those are the two big divergences within each of the major Western countries and then there's a third global diversions that I'm not going to talk about tonight that is very real and that's between a lot of countries which are converge upon the richworld very fast most obviously China but a bunch of countries which are called the bottom billion which are still diverging and indeed sometimes falling apart and so that there's a there's a divergence between the the newly successful rising countries now called emerging market economies and the the the countries that are that are falling further and further behind now called fragile states what's driving these processes and and it's it's to process of economic processes one is rising complexity rising complexity is the price we pay for rising productivity the great centers of research in the world such as right here Oxford are producing technological innovations organizational innovations which take us to higher and higher levels of productivity but very obviously they are not obvious solutions to higher productivity they can't be the obvious solutions already been had and so they're difficult a complex and so that require new skills which depend upon having higher education tertiary education and then using on the base of that higher education you acquire specialist skills in the educated class that gives you the the rising escalator you're getting more and more specialist skills and and you're also needing to cluster those skills together and that produces bigger and bigger agglomerations that's London it's image for its the metropolis where all these differentiated skills you can find together in one place so that's the complexity story an upward escalator of rising skill what what's driving the downward escalator and that's globalization globalization is good on average but my profession owes the world the big mayor Cooper because we were sort of lazy we said oh oh globalization produces mutual benefits and we knew that what that meant was the people who gain can compensate the losers and still be better off that's the the yardstick economists use right and then we get off the hook we say okay that's the politics to sort out the distributional bit what we aren't excited about is the efficiency bit and so we ended up saying globalization is good my colleague Tony Venables is one of the top three international economists on earth is very conscious of this he says you know we were lazy we oh we oh the world our mayor call / no because some of those redistributions that's needed to compensate the people who lose from the people who gain really politically extremely unlikely and if compensation isn't made there is no theorem which says globalization is good it just depends who you are and it certainly wasn't good for everybody it certainly wasn't good for the manual skilled in developed countries they were on the down escalator and an example of that is my own hometown of Sheffield and Sheffield it had a steel industry a cluster especially steel for about 700 years it was actually mentioned in Forsyth there's a line in Chaucer this knife a Sheffield knife and it was killed in about five years in the early 1980s you'll all or nearly all of you will know about it you'll just did not connected because you many of you would have seen the film The Full Monty it was such a good film with such good scenes that you loved forgotten that's Sheffield there are much sadder cases than Sheffield few months ago I was invited to stoke the which was the world pottery center and the same thing happened there but in a even more devastating way and so we've got this globalization and complexity which are producing the move to bigger and bigger metropole like London globalization of course leaves fewer places able to be the world's best because more and more things are completed on world markets rather than national markets and so the more and more of these cities that were are the national clusters or even global clusters get knocked out by the emergence of East Asia so complexity and globalization have produced a pattern of winners and losers and with very big games in the fur that skilled in the metropolis and some very painful losses for the unskilled in the provinces by by a fluke I actually straddle all three of these divides and the most obvious one is that I straddle the rich the developing work with the world that's catching up and the poor countries that are falling apart because ninety percent of my day job is basically working on the poorest countries that are struggling to avoid falling apart and yet I live in some of the most prosperous societies in the world um but as you heard I grew up in Sheffield so I straddled the spatial divide or my family is still in Sheffield so the tragedy of Sheffield is broken City was a tragedy for my family and then I straddled the education divide I kind of epitomized the highly educated rising escalator I've had a an increasingly comfortable life there both my parents left school when they were 12 and had no opportunities in life I haven't got a copy of the book to show you but when you open the book there's a picture the photograph oh sorry here we go you went without to see it but it will tempt you to buy it and and this photograph is of two little children aged about four and one is me and what is my cousin and we were born on exactly the same day and at 4:00 we were really very much the same at 14 we were very much the same poor kids who's managed to get to do grammar schools and then we diverged I went sort of onwards and upwards and she 14 it was 1963 those of you who like Philip Larkin will perhaps remember what he said about 1963 sexual intercourse began in 1963 which I seem to remember Larkin said was was just too late for me but it was certainly too early for me so it wasn't and so she became a teenage mother her daughters became teenage mothers and this is sort of a cumulative acutely painful and avoidable divergence that's why if you get round of reading the book you'll find the book is is actually it it's pragmatic and it's analytic but it's actually got an edge of passion because I've lived through these divergences and I feel we've got to do something just to heal them so those are the divergences why were they not addressed and that's that's a very very important question to ask they've they've been a slow burn in the last 40 years it's been these comedy world continuous divergences why did governments not do anything about it and remember over the last 40 years both the left and the right have been in political power so what happened neither of them addressed these new anxieties and I think both the right and the left got captured by new intellectual agendas that diverted them from what had originally been something pretty close to common purpose so let's start with the right where there was the right before Thatcher and all that stuff right and and we go let's go let's go back to the 1840s because actually that's where as where the the compassionate right emerged and in the 1840s in the northern cities remember they became killing fields the build city of Europe in the eighteen forties was Bradford and the mayor of Bradford was an industrialist he'd invented a new technology he became fabulously rich Sir Titus salt was given an item and and so Titus salt was mayor of Bradford in nineteen in 18-49 when cholera struck and so Bradford became not just the usual killing field but a devastating environment and he was as socially very concerned liberal mayor who that inspired him to become in fact the first Bill Gates so he became a massive philanthropist gave all his fortune away partly to clean up Bradford but also to establish the first new industrial town built to be healthy City healthy town that was salt air and a few decades later that got copied Cadbury Leverhulme and it's its modern incarnation is John Lewis and that's the tradition of a business business with purpose business with a sense of obligation to workforce and obligation to a community so that was the tradition we had and where did that tradition morph into where did he get got hijacked and it got hijacked by two forces one was from the front from the the the Friedman height right in America Friedman famously came out with the proposition that the sole purpose of the firm is to make profit that's all it needs to do because as long as all the firms make profits this is wonderful Mickey Mouse version of Adam Smith which is actually a complete travesty the variance with the profit seeking would produce everybody better off and that was the cliche that summarized that was greed is good greed just meant you were you were driving harder to make profits and so you were driving everything right and and then you get a another trend also on the right which is the sort of libertarian right and the libertarian right basically says we don't need a state it denigrates the state starts with with Ronald Reagan saying government is the problem and so that's what's going on in the right on the right and and on the Left realized neither of those movements is in any way capable of using public policy to fix these anxieties it's just a public policies off the agenda and on the left so again let's go back to the 1848 at the same place the cities of northern England the same crisis that was producing this social tragedy and the same response peasants had come into cities my goodness they got new anxieties right where are we gonna live very obvious concern that we tend to forget is I'm going to die soon and am I going to get buried and so ordinary workers banded together to build a new form of of institution began in Rochdale and that was the co-operative movement and it was reciprocal obligations very like what salt built with his workforce reciprocal obligations he had recognized he felt obligations to his workforce when he delayed the whole abandoned turnout that his funeral the statue of him in Bradford he was seen as a as a fine man whom they could be loyal so reciprocal obligations both on the right hand on the left right what will the private what did the co-operative movement seek to fix it seemed to sort of fix things like well how you gonna get somewhere to live Halifax building Society which grew to be the biggest Bank of England how you're going to be buried the co-operative funeral service which came the biggest funeral service so that was the tradition it was addressing real anxieties it was finding pragmatic solutions to those anxieties there wasn't ideological and it was built upon this idea of reciprocal obligations the genius of reciprocal obligations is that the same machine that's producing rights is producing the obligations to need the rights and what did the left morph into well again two trends on the right it was Friedman and the Libertarians on the left it was The Economist's Ione tribe got in the act and we embraced the utilitarian philosophy why did we embrace utilitarian philosophy in honest and the honest answer is so damn convenient because economics had developed a technology the mathematical technology for maximizing stuff in order to maximize stuff you need stuff to maximize you need something that you can add up and utilitarians provided utils people got utility and we we had a little model of what were people like well they were greedy and lazy and so they got utility from consumption and they want disutility from work so that was the basic economic description of of man greedy completely selfish and lazy right now of course economists as human beings know we're not like that it's just that that's what our models do and then we just maximize the utils and because people individual people are greedy and lazy if it's just left to them things will go wrong they'll be they'll be rich people and poor people and so what we need is some photonic Guardians to just redistribute the the consumption so that we will get more utils here and we won't lose many utils over here right and that became the agenda for social democracy exemplified most clearly in new labor alright let the city rip tax it and put the north of England on benefits Street because all all that people need is consumption right that's obviously a complete travesty of what human beings are bite human beings are about dignity from work self respect from work but also human a human beings a moral agents they are perfectly capable of taking responsibilities and obligations and I'll give you a a great little result from this as recent real work in social psychology and you can all try it tonight and it's a survey which asks a very simple but actually rather brutal question think back on your life what are the three things in your life that you most regret in a quiet moment and light fry it and write it down all right so the psychologist got these responses and then clustered them into inter classifications it's quite clear what sort of regrets we should have if were all economic man you know if I only I bought that house if only I'd bought Apple shares if only I hadn't messed up that job interview right they'd be material concerns they don't feature at all pretty well everybody their three biggest regrets a roll of the same form I let somebody down you know we are moral creatures anyway so that wasn't recognized by the cons The Economist's disagreed with Plato in one respect all right Plato created this idea that because ordinary people couldn't be trusted you needed these these super Guardians who would actually take the decisions but he thought they were philosophers and economists put him right on that one then we get another trend on the Left which is contributed by the lawyers and that comes from rules and the idea of rights and especially rights for groups and especially rights for victim beliefs and so what these two forces have in common the intellectually they're very different the roles in lawyers and the utilitarian economists but what they have in common is what they do to obligations and rights and in both cases the remember we started with reciprocal obligations the obligations match the rights they weren't amongst people but what happens with the utilitarian machine and the and the rules your machine is the obligations go up to the state and then what showers down from that from the state and the gentle rain from heaven is the right but the showers are stronger in some areas than others you know and so we detach the process of obligations from the process of rioterz is it's that the moral equivalent of printing money we can recreate rights detached from any proper process that's matched to people being willing to take on obligations so that's what goes on on both the right and the left in each case they move away from this pragmatic agenda of meeting real anxieties they're both actually ideologies what's the consequence of that it's that the anxieties go unaddressed and so they turn into anger and what happens when people have got real anxieties that are unaddressed when they become angry they mutiny they mutiny and that's what brexit is it's what Trump is they're mutant ISM right as with all mutinies they are not about what happens next they are not forward-looking things that bring their own solutions some of you will know about mutiny on the bounty right you remember what we're the mutineers on the bounty ended up they ended up on Pitcairn Island stuck in the middle of nowhere right so they weren't mutinying in order to go and live on Pitcairn Island right they were mutiny because the ship the bounty was they regarded as intolerably uncomfortable and they were mistreated but the course those anxieties are being unaddressed and people are angry then that's a political opportunity for the extremes and so we get around the Western world the extremes of the right and the extremes of the left talking the right talk talking the talk of the new anxieties the extremes the right and left are neither capable of coming up with solutions to the new anxieties nor even do they intend to that is not their real agenda we know what the agenda of the far right and the far left are then nothing to do with the anxieties that people have nothing but they are flourishing because they are the only ones who are actually even talking the talk of addressing the new anxieties so what can be done what their and my proposition in the book and most of the book is that there are practical solutions to these problems they're not on fixable problems and by pragmatism I don't mean make it up as you go along pragmatism is a very solid philosophical tradition goes back really to to Hume and and the it the proposition of pragmatism is that there are no permanent utopias there is no manual that will tell us how to get to utopia and we then stay there forever the proposition of pragmatism is we're in a dynamic world that is each time coming to two new problems that we've not had before maybe we won't have again and there isn't the timeless Immanuel which you just have to look up and it solves everything you've got to work it out in the context of the time and say you've got to use evidence of the the present context and analysis to come up with a something that works just as we did in the 1840s in response to those killing fields in the second half the 19th century we came up with practical solutions public health regulation of factories and so forth big in big infrastructure investments the clean up cities in the 1930s we eventually little belatedly that we came up with Keynesian economics that worked from about 1945 to about 1970 which I regard as a sort of golden period and then it then it didn't work anymore anymore and it's sort of deep it itself derailed so what can be done well you pays your money and you takes your choices in terms of whether you think I've got solutions or not Emily was kind enough to read out the assessment of George Akerlof Nobel Prize winner in economics who seems to think that I've found some useful solutions or you can take Dominique Lawson's assessment in the Sunday Times on Sunday which am probably not have you read that he said if this is the solution and there isn't there isn't a future to capitalism the solutions worse than less than disease yeah so um so let me let me sketch three or four solutions probably probably three and I can only sketch them right and I'll start with the with the no-brainer the obvious one and that is that Britain in particular that quite a few other countries but Britain in extremis has mismanaged our education system for people over the age of sixty we have got put huge resources into those who want to continue with developing their cognitive skills which is now the half of the population with the with the best cognitive skills and that we are just superb you know I mean Britain has three of the top ten universities in the world including this one and that's the highest ratio relative to population anywhere in the world so we do that the the cognitive staff brilliantly at least in the in the in the better universities not everywhere what we utterly failed to do is the more difficult transition so if you're not in the most behalf of the population that's most cognitively gifted what you have to do is switch track completely from cognitive skills to non cognitive skills that's harder not only is that harder but you the people who are doing it are less cognitively gifted and so it's especially harder and so that's where we should be putting our biggest resources and instead it's being pathetic and there is a model of what we should do and and it's pretty close to hand it's Switzerland Switzerland 60% of young people take that non-cognitive vocational route why do they do that first of all it's very prestigious it's at least as prestigious as the cognitive route some of the chief executives of the Swiss banks took the vocational route not the cognitive route that's despite the fact that Switzerland also has a top 10 University so 60% of Swiss children choose to go the vocational route the party it's very equal esteem it's a four-year training course with recognized credentials for years and probably most important of all students have paid for those 4 years and half of all the costs are borne by firms if firms are paying half the costs they make damn sure that people come out of those 4 years knowing something you know being productive so that's the elementary thing that we should be doing it's a no-brainer and then let's go both sort of downstream and upstream from that we'll go upstream to the the pre 16 the pre 16 and the tragedy here is that we and we again we're at one extreme we have neglected the obvious point that the people best suited to raise children are their parents and that is so politically incorrect to say that if it wasn't for my confidence in the Dean of the Blavatnik school I'd fear a dismissal notice right but it there is overwhelming scientific evidence for that's the now proposition that the best people to bring up children are their parents but bringing up children if you're a couple of 19 year-olds who you know you didn't planned for for anybody to get pregnant but they did and that's tough that's really difficult and what we need from that moment onwards is what I call social maternal ISM we do not need more social paternalism the top-down authoritarian stuff that basically tries to do white fingers at young families we need massive amounts of support and mentoring all the way along from pregnancy through to 16 and actually a little beyond right and I'm very conscious of the value of mentoring mentoring comes as a as a hidden asset in the social networks of the successful there's a very good book by Robert Putnam called our kids which compares the social networks of the successful in the unsuccessful and the answer the unsuccessful winning only one active were in one occupation janitors and the most extreme divergence is professors the successful all know professors and the unsuccessful known on when I was seventeen I desperately needed to ask somebody because I wanted to know whether to come to Oxford to read law or to read economics and I couldn't find anybody in my family who was in any way equipped to give me advice and so I asked my dentist and he was completely useless I needed a mentor and I didn't have one right and so there are social maternal ISM you support children from birth right through to sixteen and then you give them vacation or training and then what this is a final point people want to work in the place where they belong they belong where they've grown up recently I was invited to address a big public audience in Stoke and the people invited me were telling me tell me Stoke is is a desperately sad place because all the bright children in Stoke just leave they just leave they don't want to leave but there's nothing for them and a humane form of globalisation brings jobs to where people belong not people to where the productivity is we move productivity there the market forces uncorrect 'add will drive everybody to the vast metropolitan agglomerations that is actually inefficient because the big metropolitan a clamor asians become congested and so this is a case where market forces drivers in the wrong direction as incidentally they do with vocational training the if we leave occasional training to the market firms well frame it's much more sensible to poach somebody else's trained worker and so we know from training you've got to have active public policy we know from rearing or failing to real real children that you need active public policy and in reviving bringing in knowledge clusters in broken cities you need active public policy because it's a huge coordination problem that in the default option is all the knowledge clusters basically end up in the big metropolis very inefficient active public policy and there are examples from Ireland from Singapore active public policy that produces these knowledge clusters and so it's perfectly feasible to do it's just that we haven't done my final point which suffuses the book which i've not had time to talk about is ethics and that that the book is about the ethics of reciprocity reciprocal obligations within families within firms within the national society and we need at all those three levels state firms families we need an ethics of reciprocity what we've got because of these divergences is the society that's being pulled apart we desperately need to restore that ethics of reciprocity thanks very much [Applause] simulating tour tour of your book set absolute magic thank you we have about 30 minutes now for questions and perhaps we'll open up the floor I think we've probably got mics on the floor yeah and I can already see a hand straight up there at the bottom of the foot of these stairs here I think that's far far there so let's take that question over there thank you please do briefly introduce yourself Dee Phil's student here thank you so much really looking forward to the book it sure it's gonna be incredible um so I wanted to just ask about one thing that you didn't talk about as much I think tonight which is the relationship between finance and banking and the real economy and how your kind of central arguments relate to reform and transformation in that particular domain yeah good question um so the book does discuss these things and in a talk you can't do everything right I think I already overrun my time so Emily it was desperately signaling shut up the let me give you one little well researched finding about bankers and this is done in experimental games and so experimental games of very clever things you can you can run games where you can measure whether people cheat or not as a group even though you can't say you're the one who cheated you could know whether people in the group cheated and because nobody knows we can't identify who it's sort of uncommon contaminate the individual decisions so this has been done for a lot of professions and you can the psychologists who do this thing can prime an identity that is they can find bring one aspect of your person to the top of your mind they can talk about you know your kids and they can bring up to the top of your mind the idea that your parent equally they can talk about your profession and say what's top of your mind is your profession when they do work that with bankers when they bring to the top of the bankers Minds the fact that they're bankers they increase they cheat more when they think of themselves as bankers the norms that are dragged into their mind and norms which say good to cheat isn't it smart to cheat and that is a devastating comment a number of it's not just it's not unique to bankers I'm sure I'm going to tread on people's toes but accountants you know when I grew up accountants were the most upright people you could imagine in society and we've had a series of appalling scandals in which and the culprit was the auditors who signed off on completely bogus accounts and and so there's been a an erosion in professional cultures the there's a companion book coming out by my friend and colleague Colleen Mayer who is professor of finance coming out in November I think called prosperity and we're doing a joint lecture series for the British Academy around Britain and so I gone light tonight on firms because that's very much the theme of his book is the collapse of ethical purpose in firms and the vital importance of recovering it so it's a theme of my book as well and that I've just gone light on it tonight what then should we do with the financial sector I think you talk extensively in the book about Mutual's and cooperatives I mean that is that what we need to think about them a bit to ownership and shareholders and who what with incentives our land in the financial sector repurpose firms and first of all it's the decline in purpose is relatively recent its saw the last 50 years it's back to Friedman and so it's not intrinsic to capitalism people actually prefer to work for purpose an example I give him the book is Imperial chemical industries I see I which in my day was the most admired company in the country and it was one of the finest chemical companies on earth and then around 1990 it changes its mission statement from we want to be to find his chemical company on earth – our mission is to maximize shareholder value whoever got up in the morning saying today I'm gonna maximize shareholder value right I I gave this lecture in Pakistan in February on it an old guy came up to me and he said I was a senior manager in IC I so I prepared to apologize and instead he held out his hand he said I saw that company being destroyed by this absurd mantra of maximize shareholder value which deflected us from a sense of purpose we've had the same phenomenon with taking away discretion from jobs just as economists have tried to do say we don't need people to have a sense of purpose because we can just use carrots and sticks lawyers say we don't need purpose because we can just write it all in a contract and what we do want that produces is the sort of tick-box performance we see in social services where people are you know you go into a situation you identify 20 different observable characteristics of the situation you then look down the manuals and say ah this is the decision and so all discretion is shredded because you've no autonomy you cannot have a sense of purpose in your job the same has happened to teachers so we can get back and we can get back partly with Public Policy heavyweight public policy that says we need to change the board composition of firms and we need to change the the legal requirements on board members but you can also change it from a much more sort of decentralized process of individual leaders resetting resetting norms great thank you already see many more hands going up let's let's take those three in first three in the middle here so the lady glasses yeah and then there's two gentlemen we would take the three questions together hello yeah sorry I'm Michaela DPhil and politics here I very much enjoyed the talk I was wondering if you could perhaps comment on a set of arguments that I think have become more current of late and that also speak to issues of the failures and crises of capitalism and in particular I was wondering if you could speak to concerns that actually class inequalities are growing but not because of this education educational divergence indeed it seems like many graduates who are at the top institutions are not finding jobs so that might not necessarily lead to the inequalities we're seeing today but that we're seeing profound divergences and wealth and income and that that inequality has grown steadily and also accelerated following the 1980s notably with changes in the financial sector and the possibility of greater wealth accumulation for if you that that incurred thank you thank you Andrew Woodcock local resident you mentioned stoke Bradford Sheffield we might add Liverpool Glasgow and a host of others was the decline not really inevitable because of loss of empire we lost I failed to find a role and perhaps at least as importantly did fail to find new markets for what these great cities were producing okay yeah but you can go back sorry we'll come back to you in the next round she's just walking back with the microphone yep yep whoever the mics nearest to yeah thanks my name is Jamie death or student Blavatnik and one of paul supervisees and so you talk about reciprocal obligations it seems now that in most of the kind of countries in the West people are starting to find other people like it's becoming more tribal people are developing hatred for each other in their group do you have any practical solutions not just in terms of the kind of policies or in education but how can you recreate like common cultures within communities three meaty questions there okay um good questions so wealth and income inequality yeah so this is partly consequential upon the erosion of a sense of reciprocal obligations in firms if we look at the ratio of median earnings to chief executive earnings in finance that's grown from 20 to one to five hundred to one with no change in overall performance and but clearly that moved from 20 to 1 to 501 constitutes a huge erosion in in ethics at the top and if if we want to develop the sense of reciprocal obligations we have to be able to generate a we and you can only generate a we if your language your narratives that say we're all in this together a consistent with your actions and if yours is no good saying we're all in this together if at the same time you're moving your own pay from 20 times average earnings in your firm to 500 times average earnings you're not all in it together you can't you're not in you're not able credibly to use we and so that's the bonus story the other big big driver of wealth which I've not a chance to talk about but is a big thing in the book is metropolitan land and metropolitan skill the metropolis has made both both application and skills in that location hugely productive and people actually think they they sort of learn that there's a the famous theorem in economics called the Henry George theorem which says who who gains from that at glomer that those gains from agglomeration who captures what's called the rents of agglomeration and Henry George said it's the landowners m20 Venables and ironwork just published the beginning of this year showed that that's actually wrong once you introduce skill into the story a lot of the games are captured by the highly skilled in the metropolis sort of highly educated lawyer who's living in a bedsit they don't pass much of the games on to the land landowner as it were but those two groups the people who owned the land and the people who have the skills in the metropolis are the new the new rich and they should be taxed I mean the point about economic rents in a nagamma in an agglomeration is they're just that their rents they're not earned in the sense of being deserved they're not a return on effort they're a return on all the things that's made the agglomeration possible which is all of us and so rents need to be taxed and taxed heavily am there the equivalent of oil the new North Sea oil is London the not to put luck not to put them on fences on benefit street but to finance the creation of clusters now your question is was that feeds straight into it was Stoke inevitable and I mean the decline of spoke and I think there's two reasons why we can say no some of these activities would have crashed anyway some wouldn't if we look at Germany Germany has managed to retain pretty well most of its most of its high skilled manual clusters so we lost them we lost into Asia but Germany didn't and the reason why Germany wanted to keep them was it moved up the manual skill escalator thanks to very effective vocational training not I think as good as Switzerland but it's a bit in that ballpark and so you can up you can put your non cognitive skills on a rising escalator just as you can put your cognitive skills but we didn't they did and that ties me into the second point which we have this enormous asset of our universities we have some of the best universities in the world so if the future of high productivity is knowledge clusters we've got the is whether the engines that are generating those knowledge the knowledge that can then become those clusters and we've done a very poor job of providing a connection between the the fundamental research which is generating the knowledge and the enterprise in the the cities that most needed and we could do much better job with their tribal hatreds yes obviously I mean this is the ultimate fantasy of the of the Silicon Valley group was that by producing all these social media they produce one big global happy family and what they produced is echo chambers of hatreds these people are technologically savvy and socially completely ignorant they still believe in what we need is state and nation the right believes in nation without state the Left believes in state without nation and Silicon Valley believes in neither nation nor state it's all Bitcoin you know what can we do about the tribal hatreds these all these social networks have what is called nodal actors that is this huge asymmetric power of communication in these networks there are celebrities who communicate with millions and most ordinary people communicate with 150 and so the people who are nodal actors in these networks have a huge responsibility to make sure that the narratives that they peddle and the action the visible actions they take are actually actions which heal rather than divine and they don't realize that they've got those responsibilities so partly I just want to create a movement the pressurizes then the celebrities as it were to behave more responsibly great thank you let's take another round of questions I promise this gentleman the mic and now I'm gonna go to the lady at the back and then those in there another hand yep lady here and then the gentleman there at the back my is less client a member of the public it seemed to me that some of your solutions would require a significant amount of public investment for example the vocational training and it also seems to mean that since probably the Wilson years what you call the end of the golden area there's been a lot of reluctance to have increases in certainly impersonal taxation in fact that moves been to reduce from what was it ninety percent down to forty fifty percent and so if the personal taxation can't be increased and if businesses are not as responsible as they used to be are we looked and to give you more money or threatened to move out of your country how you actually go in the short term next few years how you going to fund the required solutions great thank you I wasn't sure how you characterized the crisis in terms of the global South given that in 2008 you know before 2008 it had stagnated is it because that due to the stagnation it was sort of immunized from what is happening in the rest of the world and also just a follow-up question to that does it then mean that there's a crisis then present an opportunity to bring the global South to perhaps the same level of disadvantage as the rest of the world in trying to address the issue the next round I'm gonna come right onto this side so sorry you had the chance for the mic for a minute but yeah just here and then we'll let Paul answer and then we'll come to that side of the room MBA student another Business School and I'm from Chile and if you look at the history of recent history of Chile in the last 40 years we moved from poverty to almost being a developing country in every in in every metric that you want to look in life a quality of life my question is now the metropolis that you're talking about Rik not really different speed Berlin London San Francisco so what do you how do you feel that how do you see the future of the developing developing countries we can see that were that were almost there now that we are as lower than none these metabolic okay so the public investment point yeah you quite right and also note that indeed tax rates in the you know that that period 1975 nineteen forty five to seventy will right up there eighty-three percent that sort of level people grumble but actually people paid them because we were coming out of having fought uh this massive war together there was a great sense of shared identity around shared purpose and so reciprocal obligations were were accepted and they transformed lives you know we got the the National Health Service etcetera etcetera transformative and the and we've walked a long way from that business as part of a repurposing business business has to pay sensible taxes I mean it is it is in completely indecent that companies like Google and Starbucks and stuff pay three percent corporate tax rate is just indecent and and they need to be shamed out of this sort of behavior well it's that if you want to tax the City of London they've threatened to move so we've got a problem where the polity if you like the instruments we've got our internationally based but a lot of these companies have been global and I was brought in for the British g8 of 2013 and and indeed David Cameron who I work with very closely secondly what what is going on with Starbucks you know what what what are they doing so I explained to him and he got it straight away said you so the message should be you know we need proper firms which means get rid of all these shell companies and so he introduced a compulsory public register of all the companies in Britain true beneficial ownership revolutionary move proper firms proper rules and proper taxes and and he he I was with him in Davos shortly after that and this global businessman who smugly think they're saving the world and he said we expect you to pay your taxes smell the coffee and that was quite a brave thing for a g8 Neda to save a front of global business you know you say the only way we can get corporate taxes moderately low is if everybody pays them now we've got to move in the OECD base erosion and profit shifting so it's starting to spread because even the even America's now sort of waking up to the fact that it it doesn't advantage anybody if corporations evade tax now of course America's a little bit peculiar at the moment so let's see but where is the tax to come from it's a it's the big idea in economics and it's very much in this book is we shift from taxing effort we tax renders and there are huge untaxed rents in metropolis you just look at the rise in asset prices and price of land price of property we're just supposed to have done something revolutionary by introducing a 3% tax when foreign owners of property in London CEL right three percent capital gains tax I mean that this is absurd yeah it's absurd that you know I'm a professor at Oxford I pay a marginal tax rate of forty five percent and some billionaire in Chelsea pays three percent on his capital gain I mean this is just crazy actually her that you can crazy fortunately when things are politically crazy it's relatively easy once you make them prominent to change them that's how we got changed the the shell companies stuff with the g8 because once it was prominent nobody was willing to stand up and say it's a good idea to keep the true come true ownership of companies secret it's a good idea to keep the bank accounts that they own secret the only people who benefit from that acrux and the crooks didn't want to stand up and say please can I keep my account secret and so once you make these things prominent they fall like a house of cards hence what we achieved with beneficial ownership quickens from the global South it's such a huge topic and then I want to take a couple of questions one is the global South question and and the chena question right I'm going to apologize and I've got stuff on it in the book but over this this this last summer I read a new book is called the eye of the needle which will be coming out this time next year hopefully I'll launch it this time next year and if that directly answers your questions right this is the the reason I'm jacking it tonight is that this is my day job talking about answering those questions and incidentally I think two or three people have said rather apologetically I'm from the general public you're the people I most want to talk to my my first email this morning was a somebody said are nineteen and a care worker in Exeter but I've read your books and I want to ask you about something you know and that's the sort of email that makes me feel proud that you're longing for we'll save a seat at the front yeah absolutely take ya to questions from the Front's yeah and then thank you very much I'm Raymond Phalke I'm an architect and environmentalist you you said that there wasn't a manual for how to make the world work there is in fact a manual is called the operating manual for spaceship earth from Richard Burton mr. fuller from the 1960s I just wonder whether you might be familiar with this and if not whether it might be worth having a look at there's not a long book it does get to the heart of a lot of the issues that you've been touching on and a lot of the issues are touched on by people in your kind of situation in trying to find ways to make the world work one thing he doesn't deal with which I'd like to raise with you is the conflict with our system of democracy there's a kind of an inbuilt sort of contradiction where we want democracy nobody wants it nor denied who call or indeed that but mr. fuller would have wanted it but how do you reconcile the problem of the short-termism of democracy with the need for long term solutions where politicians have only got their eye on the next election I could go on but I mean that's a very fundamental question if that could be solved we might get ways of making the world work everybody thank you for your talk I have a question in regards to you mentioned that one of the things that needs to change probably is the structure of boards of companies so that they have more representative interests not the interests of shareholders and I think the labor proposal was to do something along those lines to have like a third of the board of large corporations to be represented by the workers and the interesting thing is that this proposal is being painted as socialist you know this is the end of capitalism I'm sure Germans would be surprised to realize that living at a socialist system because that's the rule there so I think my question is I think the left has a lot of interesting solutions to a lot of the things you've talked about today but my concern is that they're often just painted a so these are just a being extreme people right with actually proposing real solutions democracy and short-termism you know governments have elections but people have children and so ordinary people voters naturally think long term and and so a perfectly viable discourse for a political party is to talk about the long term the the politicians who talk short too and it's certainly not confined to Britain I mean some of the short termism in in Germany has been terrible but the politicians who talk short termism actually insult voters because all of us who have children naturally our horizons are long-term and so it's not an inevitable future of democracy I think it's an inevitable feature of lousy political leadership one of the things this school was created to do was to produce a more educated vintage the political leaders around the world and where I think we're doing that right I think the people who leave our school are actually not they're going to play the political car finally the on on boards the I I want to get away from the the issue of which parties got the right answers I don't think either the parties have got I've got serious answers at the moment certainly Labour's talking the talk of the new anxieties and it's coming up with you know some solutions that sound right for couple of minutes and maybe maybe even a bit longer bit and the I've got a discussion in the book on how do you actually get boards to be repurposed which is very important it's not enough to repurpose a company there are about five different things you can do that all push a company towards a better sense of purpose but if you're dealing with boards and the composition of boards I'm sceptical of putting as it were a British trade union on a board I think that's given a lot of the history of British trade unions as very oppositional identities and the tradition of German trade unions who are indeed on boards but the tradition of German trade unions is very much grounded back in their reciprocal obligations world and so and it's not good enough just to have a third of the board that's saying Yabu you know we hate a company you've got to have say my own preferred solution is to change the legal obligation on all members of the board so that all members of the board should be required to consider the public interest the local community interest and the workforce interest and we'll just finish with going back to responsible capitalism the firm's that lasts longest tend to be the most responsible firms and in America one of those firms is Johnson & Johnson and there was an old Western Johnson who in 1943 set down the ethical principles of his company he set them in in stone they're still they're called our credo and and there was there were four big principles of which which profits to sustain the company were ranked the fourth the least important of the four and it went workforce community and society basically and then in was that all just turned out not to be in the mid 1980s somebody went and put poison in tiny lot tylenol bottles which was johnson & johnson's best-selling product some listen delicious start with doubtless there was going to be some blackmail coming out of it and what happened straightaway this doesn't sound as remarkable it was at the time it's strayed away local Johnson & Johnson workers just went into the supermarkets took all the title off Michelle's said to the supermarket don't worry you'll be fully compensated be fully paid and it cost Johnson & Johnson 100 million in liability because they admitted this lie but they were the first country to actually say when that sort of stuff happens we take responsive we didn't put the poison in we're going to be responsible for the consequences why did ordinary workers do that and the management then eventually and subsequently said yeah that's the right thing why did they do it because they knew from that credo that their first responsibility was actually to their customers and so you can get ethical firm which really do establish an ethical norm I think John Lewis has done the same thing so I don't want a board to be an oppositional battle between one faction and another I want a board to be united in trying to serve multiple purposes profits are necessary because if you don't add profits your business is not sustainable but they're not the objective they're a constraint not the objective thanks so much thank you can see there were a lot more hands we didn't get the chance to hear your questions but I can invite you upstairs after this for drinks I believe your books going to be on sale is that if it is also somebody but please join us upstairs in a moment but before we do that please join me in thanking [Applause]

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