Capital | Friday 7 June at 7.00pm
Chair: Ian Goldin
Speakers: Ashok Vaswani, Caroline Kende-Robb, Maria Ramos, Gayatri Chakravorty Spivak, Lord Adair Turner
Ashok Vaswani: Maybe we get started?
Good evening ladies and gentlemen and welcome to tonight’s discussion which is a part of a series of lectures on global citizenship by the Zamyn Cultural Forum.
My name is Ashok Vaswani and I am the CEO for the retail and small business bank at Barclays and I am really delighted that Barclays has decided to sponsor these lectures and it’s really my pleasure to introduce the panel and the speakers tonight.
But before I do that I think it’s really important we thank a couple of people. In particular, Michael Aminian, the founder of Zamyn Foundation and Sir Mark Moody-Stuart, the chairman. Sir Nicolas Serota, the director of the Tate, for hosting us. Marko Daniel, the convenor of the audit programme who has developed this series of lectures and debates and our partners, SOAS, Accenture, the African Progress Panel and, of course, the Tate for making tonight’s event possible.
These lectures are very timely ahead of the G8 Summit in bringing together leaders from the world of politics, business, academia and in the arts to explore new perspectives on citizenship, in particular those facing African nations.
At Barclays we recognise that businesses can only thrive if the communities in which we do business thrive. Citizenship is not a side project or something that we do on the side of our desks. It is an integral part of our business and we seek to build it in to our business model.
Finance and banking can play a critical role as key enabler of social and economic progress, growth and development. This requires us to ask ourselves how are decisions impact broader society and how we create products, service and solutions that also have a benefit to wider society.
Therefore the business decisions we make will be informed by our purpose, our values and the changing expectations of society. This is a critical part of building a go-to bank for all our stakeholders. And for society it means we can serve as an enabler for greater, more inclusive prosperity for current and future generations.
Tonight’s topic is capital. We know that capital is flowing into the African economies but all too often the benefits are flowing straight back out. Therefore if we are to realise long term and sustainable growth in sub-Saharan Africa then we need wide ranging, international solutions. That’s the challenge facing tonight’s panel which is made up of extremely high calibre set of speakers.
Firstly, Maria Ramos was the chief executive of Absa Group and Barclays Africa. Maria, of course, is a colleague of mine and I know her very well and I am sure she will bring her unique insights in the role of finance on African economies.
Second, Lord Adair Turner of who many of you know as the former chair of the Financial Services Authority and someone who has huge experience of governments and regulators can influence economies.
Thirdly, Gayatri Chakravorty Spivak, the distinguished Professor of Humanities from Colombia University and a widely recognised expert on globalisation.
And finally, our chair tonight, Ian Goldin, Professor of Globalisation and Development at the University of Oxford. Ian was previously vice-president of the World Bank from 2003 – 2006 and also served as an advisor to President Nelson Mandela.
So without further ado, please give a round of applause for tonight’s chair, Ian Goldin.
Ian Goldin (IG): Thank you very much and thanks to you all for coming on this wonderful spring evening and spending it in an amphitheatre talking about subjects which are not normally what we talk about on Friday evenings when we want to have fun. But I hope we will have a fun time. I hope that you find it worthwhile and I’m actually convinced that the panel that’s been invited can provide the stimulus for a fantastic conversation.
We are very fortunate to have people that have worked, and Maria, on both sides of this, as the Treasurer-General in South Africa, the Director-General of the Treasury and now in a bank. Adair Turner who’s a regulator and also has wide ranging interests and in Gayatri who has thought about this from the bottom up and she has actually just come off a plane from the areas around Calcutta without her luggage! She’s exhausted and particularly grateful to you for making it despite all of that!
The topic is capital and by capital we don’t mean a wonderful capital like London, in case any of you have come for that you’re in the wrong place, and we also don’t mean what economists sometimes mean by capital now which is human and physical capital. We are thinking about the capital that’s the fuel of economic activity, the capital that flows through your bank accounts, the capital that people want as money but the capital as well that drives firms, that governments need to finance investments and which is increasingly virtual around the world.
And the question we are asking is, is this a beast that we have let become the fuel that is now enveloping and leading to instabilities and of course we have just suffered and have still suffering the biggest crisis that we’ve all known in our lifetimes and certainly competing now with the great depression which many ascribe failures of capital, failures in capital markets, in regulation of capital and a symmetry in the controlling of capital with those in governments that are trying to regulate it.
So it’s absolutely part of globalisation. Interestingly enough many of the economies which have been most effective at benefiting from globalisation, like China, have had very strong capital controls and regulatory environments around it but other’s have not. And of course for Africa and that’s part of the conversation we want to have this evening, what can capital do for development, what can it do for poor people? The problem is often too little capital, not too much and we’ve for many qualified people to talk about this problem of capital and development.
So I am going to give the floor to our panellists. We are going to have a little bit of discussion up on the table and then we’ll open it up. I’ve asked them to be very strict with time so I am telling you that they are not allowed to speak for more than five minutes. You can all look at your watches and start tapping them if they do.
And I am going to start with Adair Turner and then turn to Maria.
Adair Turner (AT): Ian, thank you. Well you have given us a bit of a challenge because I see that our suggested discussion points include the free movement of capital, the reform of the global financial system, regulation and restriction, immigration, rising inequality and a tax haven and all in five minutes.
I’d like to make the following points. I think before the latest financial crisis of 2007/2008 we had reached the real apogee of a certain self confident economic liberalism that we knew the answers. That if we unleashed processes of financial liberalisation and market liberalisation both between countries in terms of capital flows and within countries in terms of liberalisation of financial markets that the processes of economic catch up by which poorer countries achieve rapid rates of economic growth and catch up to richer countries, that that was almost inevitable.
I think there are three problems with that proposition.
The first is that I think we have learnt a very big lesson in the financial crisis that finance is different and that the propositions in favour of free markets which I think are pretty good in the market for restaurant or the market for cars are not so good in the market for finance for some fundamental reasons. We know that things went seriously wrong with the financial systems of the developed world but we also know bluntly or we ought to know that the case for total free movement of capital including short term bank cross-border capital flows is not very good. There’s no economic evidence that it is favourable. It’s one of those myths that get propagated and the easy movement of in particular credit capital across borders has been behind a lot of financial crisis over many years. That’s point one.
Point two is that I think we just need to be a bit cautious at believing that the processes of economic catch up are inevitable and that we know what the formula for that success is. It’s quite intriguing that if you think about the process of catch up to developed world standards of living, there are only three significant population countries which are clearly either there or on a path to do it, i.e. to catch up with the initial economic leaders which were in Western Europe and North America. Those three countries are Taiwan, Korea and Japan. I discount Singapore and Hong Kong because I think the economic possibilities of small city states are quite different from the economic possibilities of large population countries. And if you actually look at the story of how they achieved catch up in the ‘50’s and ‘60’s is they broke pretty much every rule of the neo liberal Washington consensus model. They did not have totally free financial systems, they had very significant internal direction of capital. As for the rest of the world I think we are really unclear as to whether there is a sort of middle income trap. If you look at countries like Thailand. They spurted in economic growth but they then seemed to have stalled in their catch up process, so have the whole of Latin America. So I am not as confident as some that we have the total answer to catch up. As for countries like Africa, where there is a lot of confidence at the moment, I think we are growing from a very small base and I think there are some absolutely fundamentals of economic growth. Things like too rapid demographic growth which I think could still be fatal for the economic prospects of countries like Niger or even Uganda.
My third point is inequality. Even if we are being relatively successful in achieving some aspects of economic growth and in particular the transformative fact of the last twenty years has been the growth of China from which I have just come from spending a week there last weekend. It is being accompanied by very significant inequality. Essentially the inequality between countries has diminished. That’s bound to happen if China grows at 10% and the developed world grows at 2% then China’s standard of living relatives the rest of the world or indeed Africa’s or India’s goes up. Inter-country inequality has actually declined but intra-company, both within the developed world and the emerging world, has gone up very significantly. I think we understand some of the reasons for that and some of them are inevitable. When you have a world of free movement of capital and of goods and even if you don’t have free movement of labour, then it will be the case that the available wage rate of a low skilled in America is somewhat impacted by the wage rate of someone in China. And it will also be the case that the wage rate of a very highly skilled person in India or Africa is pulled up by the wage rate of what that person could get if they emigrated and that is the group of people whom we broadly speaking do allow to emigrate, if they emigrated to the developed world.
So we understand some of these things and some of them are quite fundamental and very difficult to know what we would do about it. That I think defines the problems that I want to talk about and I guess we are going to talk about whether there are any solutions.
IG: Thanks very much. Maria?
Maria Ramos (MR): Well thanks Ian and I thought I would chose from the many, many topics you have given us. You’ve really, as Adair said, you have really given us a lot to choose from and we have got two hours this evening and if we want to talk about all of them we will be here for a lot longer than that.
So I thought I would just talk a little bit more about how national leaders and international institutions work together to ensure sustainable growth that is inclusive, reversing the trend of rising inequality in most countries in the world and I’ll talk a little bit more about Africa because that’s where I come from and that’s where I thought I could be a little bit more knowledgeable and more helpful about.
And I talk about it not just from the perspective of capital because I think capital is fundamental to this equation but if we think about it just narrowly from a capital point of view and whether or not this is about capital controls and capital flows freely then I think we begin to miss a much bigger set of issues in economic development and sustainability.
You know I think the first point I wanted to make is that we have seen over the last two decades coming out of globalisation a much higher degree of interconnectedness than we’ve ever seen before. And there are many positives to that but there are also many things we need to concerned about and Adair’s already referenced some of those growing inequalities and certainly in our part of the world we’ve seen some of that as well.
We’ve seen out of that half the number of people living in extreme poverty being halved but we’ve also seen in sub-Saharan Africa much progress in terms of the number of countries that are actually growing and you’ve seen many of the statistics coming out of the IMF showing that actually Africa is now the second fastest growing region of the world, that five out of the seven fast growing economies in the world are in my part of the world. So keeping that in perspective is really important. A lot of this has come but solely from commodity prices. There are other things that have played an important role here.
One of the things that has played an important role is what governments have done to create macroeconomic stability. Now we all can say that macroeconomic stability is a necessary but not sufficient condition for sustainable growth but without it we’re not going to have sustainable growth.
I think the other thing that’s important is that we have seen many governments across the African continent take important decisions about how they allocate fiscal resources. We’ve seen great improvements on the fiscal side. We’ve seen African governments cut foreign debt from some 82% of GDP to 59% while we’ve seen budget deficits come down and that makes a big difference in the way governments spend, how they spend, what they are spending money on.
We’ve also seen great improvements in political stability. All of these are important for development and for sustainable development in particular. We’ve also seen important developments in the other important macroeconomic variables such as inflation. Now the reason I raise this is because all of that put together is important for us to create sustainable growth and for ensuring that overtime we get the improving and rising levels of equality in many of the countries we are talking about.
Having said all of that, inequality continues to be an issue and so thirty two out of the forty three African countries still have geneco efficients higher than medium countries are globally.
So what else needs to be done? In my mind there are three things. You need to continue ensuring that macroeconomic stability is maintained because that’s the one important way that we can extend and consolidate the gains. We need to ensure that fiscal stability is maintained and that the benefits of that are distributed more fairly and with both more reliable revenue bases in each of the countries that are on the continent, that we see more and improved distribution on the expenditure side. And thirdly and importantly in Africa, we need to ensure that the investments in infrastructure happen. Without the investments in infrastructure we are not going to get the improving and rising living standards that we need on the African continent. And it’s in that space in particular that capital becomes an important variable in this equation. You cannot finance investment in infrastructure without capital flows and you cannot have the capital flows without having a high degree of capital moving across Africa, between African countries and externally into Africa and for that the importance of both private markets, the institutions such as the development institutions and increasingly I think greater stability in the financial markets and clearer rules of the game are what makes a difference.
So I wanted to make those three points.
IG: Thanks very much Maria. Gayatri?
Gayatri Chakravorty Spivak (GCS): First of all sorry I can’t be a little more ethic for you but he’s given me, Jacksonville Florida here I come!
I believe, thank you Michael for inviting me, I believe I was I invited because I do speak of course a completely different language because I am not in fact an economist, I am not a money maker, I am not in the service of money making institutions, although these days one can hardly tell from universities, and I don’t teach making money or anything of that sort.
On the other hand I very much take your point that one cannot just talk about free markets if one is taking about finance capital and that is I suppose because I live in the United States. Because when in 1976 Ronald Regan slowly turned by pulling Gerald Ford, slowly started undoing the New Deal it finally ended in the collapsing of the separation between investment banks and commercial banks, The Glass-Steagall Act 1933, and some of us were absolutely horrified. Most people did not realise that this was actually presiding something that was absolutely lethal and of course slowly today when in fact people talk about, and you’ll excuse me for talking like someone whose doesn’t know an economics, I mean on the other hand I dare say that they kinds of things I am convinced of, you could probably excuse me for saying this I’m an old lady I can now say something’s with confidence, you could probably not be able to discuss what I would broach. You would probably dismiss what I would broach as impractical but indeed that is the only solution I believe and I will come to it.
Anyway when today we talk about austerity or stimulus nobody in the United States talks about bringing Humpty Dumpty together again, re-establishing something like the Glass-Stegall Deal. It’s gone. But that’s how it began and it seems to me if one looks even at counsel given to the federal government in the United States by the various states when the subprime crisis was at its height, pleased to regulate a bit more, I mean you can read this in congressional records not just sort of blazing red newspapers, it was not possible for the federal government, for the centre to listen to them. It’s part of the record because of the fact that, as you pointed out, the borrow and lend, borrow and lend, borrow and lend, borrow and lend trade in foreign exchange so that you have to keep certain kinds of borders alive even as you are borderless this sort and then the transforming of the world trade sector through futures and so on and so forth into what we call specturalised, sorry different kind of language, that sort of thing has the states in various kinds of nation states in such hock that it’s not really possible even to listen to people who are not at all on the left of centre when they ask for a little more regulation in order to keep things moving.
So it seems to me that we are, I have used up four minutes now, so let me at least say, let me at least read what I’m a little afraid to read because it sounds so impractical, anyway. Our task is to, see I’m interested in producing problem solvers rather than solving problems. And of course our idea of what can global capital do is for it to be done constantly in to the social and I would describe capital as something completely different from the way you distinguished it, from not just human capital and so on and so forth. The Random House Dictionary says capital is wealth but I can’t really say what I would say normally about what capital, how capital might be described. But at any rate in order for this to be done what we need is a change in desires in order for, I’m sorry to say that this is not something just impractical, it’s inconvenient but unless this kind of thing is done it is not possible that we would have indeed a socially just world with global citizenship.
I can’t say anything more. I have used up my five minutes. But let us in fact think about some of these things. I did not mention GDP, I didn’t not mention macroeconomics, but I think I would be able to answer your questions as to why it is that I don’t believe that’s where ultimately the full solution lies and I would like to say something about Africa but then I think I would go into six, so thank you for listening to me.
IG: Thanks very much.
All the speakers will get now a few minutes to elaborate on the points that interest the other speakers because we’ll have a discussion amongst ourselves first. But perhaps I could just begin by trying to drill down on a couple of the areas that were raised.
So Adair, you sort of set out the problem and you said now I have run out of time I don’t have time to tell you the solution. Let me give you another two minutes to give us the solution.
AT: The proposition in favour of free market approaches which are very strong in other sectors of the economy do not apply to the same extent in finance. In particular the tendency of the financial system to create too much debt, too much credit and money is fundamental and a subject which modern economics, the economics of modern neoclassicism has dangerously ignored for the last thirty years although there are brilliant insights on this subject in Hyman Minsky and in earlier economists such as Wicksell or even Hayek. Insights which cut across what people usually think of as the different schools of economics, you know, Minsky as a Keynesian, Hayek as definitely not but you read that you will find things about the dangerous unstable dynamics of credit creation which are fundamental.
We need, even compared with what we have done so far, much more capitalised banking systems, much higher capital ratios. We need to control fairly directly the tendency of banking systems to create too much credit in the upswing and that may require uncomfortable things like maximum loan to value ratios, maximum loan to income ratio’s and on a global basis we have got to deliberately recognise that whereas Maria is absolutely right to say that movements of capital can be very important to enable investment in countries which don’t have high enough savings to do that themselves. It makes a huge difference as to whether those capital flows take the form of foreign direct investment or long term equity and a debt commitments or whether they take the form of the most dangerous form of capital flow of all which is short term cross border, a bank credit flows. That is what caused absolute chaos in the Asian financial crisis in 1997. You had banks able to lend money across borders often into commercial real estate developments rather than into something more sustainable and long term. We should therefore completely reject what was the dangerous tendency of the IMF until recently to believe that all forms of capital flow are absolutely equal. In 1997 the IMF was actually on the verge of suggesting that total free movement of capital of all categories should be an article requirement of IMF membership. That shows just how extraordinary far that a fixation with a totally free market approach has gone. Many countries round the world are saying no we are not going to accept that now and I think they are absolutely right. I think one of the most important things we should do is to distinguish within capital flows a real difference between different categories of capital flows and accept that countries, emerging countries in particular, may want to put limitations on the most short and volatile forms of capital flows.
So I hope Ian that’s a few ideas....
IG:...Absolutely. I think in the same spirit Maria you spoke about the things that countries, the reasons that countries need capital and what they need to put in place but you began by talking about what I characterise as the butterfly defect of globalisation which is hyper connectivity leads to the super spreading of bads as well as goods.
How would you if you were in charge of the world or if you’ve been in charge of the finance of at least one country and now you are in charge of a big bank, what would you do? What would you push for to both increase the capital flows but to not also increase vulnerability in the process?
MR: Well you know it’s interesting what Adair’s just said because I was still in the treasury actually when the IMF was pushing really hard for exchange controls in South Africa to be lifted and we had a different approach to it. South Africa still has exchange controls actually. We didn’t believe that we needed, that we could afford to lift exchange controls in that way. We wanted to lift exchange controls in a measured way. In a way that allowed for us to develop our own regulatory environment and to strengthen the regulatory environment and the country has done exactly that. It’s lifted some exchange controls and it’s done that as it’s been able to strengthen its own institutional framework and it’s done that at a pace that meets its own developmental needs. So South Africa still has some exchange controls on capital and it’s got no exchange controls on trade so you can trade, you can buy and sell things. We’ve eliminated a lot of exchange controls for inter and intra-African trades because that’s where we are and that’s where we want to see development and so I think one of the ways of dealing with it is to make sure that you set your own pace. That you build your own institutions, that you strengthen domestic institutions and that domestic institutional frameworking capacity and capability rather than just follow some prescript that says this is the right thing to do because, as Adair points out, actually everything suggests that there isn’t one size fits all. It’s what is good for a particular country and that you must move at the pace that makes sense for that country. So, you know, you interact in a globalised world but you must interact with it in a way that to allows you to grow and develop as well. So you have to set your own terms within that.
IG: Thanks. Gayatri, I am going to push you a bit as to try and understand what you are proposing. You know you don’t like this system. Are your proposing a sort of barter system? In the conversation we had before I asked you whether, you know, you are thinking about things like BRAC Bank or Grameen Bank as viable alternatives and you said you didn’t like them. So, I am interested in what...how you would see an economy functioning in your ideal world.
GCS: Ok, I think I’m really not the person who can answer that particular question but I am certainly not proposing a barter system, no! In fact, as I said, I think what should happen is that the capital should in, and I don’t believe you disagree, should in a proportioned way be constantly turned around in the interest of social welfare. I mean who doesn’t believe this? That’s the question. At least in one way or another people say in public that they believe this unless you really count the horrifying republicans today who are not even expanding medicare. Let’s forget Medicaid. Let’s forget the United States. It’s hard for me to do so. I have lived there for fifty two years. But at any rate, no of course I am not proposing a Barter system. What I am suggesting is that in order for this really to happen, because quite often when one speaks about sustainability, I am after all Jeffrey Sachs’ colleague, quite often one forgets what it is that is being sustained. What it is that one is minimising for what. And I agree with Maria that it is not one size fits all. It is in fact something, for me it’s not even each country has to have a different kind of fitting but in fact sectors within a country have to have.
I’d like to tell a story here, after all I am a narrative type of person right not an economist type of person. I’m constantly asked, as indeed Michael kindly has asked me here and as I told you Michael, I want to come to these things, I’m on the Council on Values of the World Economic Forum because it’s a certain kind of exceedingly sophisticated fieldwork to which people like me who are taken to propose barter systems in the face of economy, you know, to people like me in fact never get a chance to enter these enclosures. So therefore I come for my own instruction and to you that we are not just Luddites sitting in the corner and weeping because there is capitalism no, but... thank you!
So at any rate I’m asked to these places and I was asked by the Global Development Network to go to their meeting in Arusha and I was...there are always people who think, you know, perhaps someone will listen and so I was listening to these RND people and policy, agricultural development, African academics on one side, the policy folks on the other side. I was very quiet. I was very quiet because I always know what I don’t know at least after all these years of university teaching. But the end after everything was over I asked the best, we asked the best people, if they actually went to the people for whom supposedly, and these are African academics alright, for whom supposedly they are supposedly doing work in the agricultural sector and the answer was yes and I was delighted and I said well talk to me about how because I believe statistics are produced at the expense of ignoring texture. I could give you many examples. So the answer that I got was roughly this, we first established our figures, you know, we verify, we do all kinds of things. We collect data and we produce our figures. We train research assistants. Then we send out the research assistants into the field, into the areas to find out, to verify the date and so on. And I asked each one of them separately are there ever any surprises and the answer was universally no and it seems to me this particular thing, the RND and policy going in circles in that way and something being left out completely when one talks, which as I say is texture, we work with, I am not saying you should, but I am saying that rather than think of us and to that extent we ourselves also ought not to think of us and you but you also ought not to think of us as expendable, impractical and, if I may keep on quoting you Adair you really gave me...you will be quoted outside of the room, but at any rate as long as you don’t think that we are hopelessly impractical and looking backwards it seem to me that given, you see I was invited to sort of give a talk in Athens by the Nicos Poulantzaras Institute, the sort of new broad left ,and I read very carefully, I gave as my title ‘Europe and Bull Market’ and I was looking at very carefully for people who are uninstructed in economics but sound not completely dumb. I was looking way in which world markets are defined. Each and every one of them finally, even the most incredibly incomprehensible textbooks, finally I mean this is why Obama to an extent has chosen Samantha Powell for his UN Ambassador. We each and every one of them finally went into somewhere and, affective description, investor confidence. That’s an affective description. So too an extent what we are talking about is a genuine and careful textural training of affects so that it is not just we doing something top down for the poorest sectors, the poor people of the world.
Rather than that have a feeling, have accountability which comes from actually engaging ourselves with large sectors of the electorate and as you know, as you say, one size does not fit all. The world has a great wealth. We cannot talk about global citizenship unless there is a certain kind of uniformed governmentality across the field. So as the World Bank used to talk about people and I remember Andrew Steer saying to me in 1993 that the European Parliament Professor Spivak you are summarising and I said to him of course I am summarising. When you use the word people what do you think you are doing? And in the same sense when we talk about global citizenship we are assuming these kind of things that are then dismissed as impractical.
So I’m really proposing that we work with you so that your solutions do not but that you listen to us and it will involve that there will be some kinds of compromises. You know we cannot all depend on different sectors having different kinds of assumptions and I can see on some of your faces a great deal of impatience here but it does seem to me that you have to really put your money where your mouth is. You cannot simply carry on talking constantly about how to keep the worlds poor happy and bring them up and emphasise the social productivity of capital and always somehow ignore bad statistics when it comes to what happens when one produces social productivity at one end. It’s not something that one can...the statistics are available. So that it seems to me that’s what I’m talking about. That we create, we work with you so that those whose problems are regularly solved and I don’t want to talk to long but I want to come around to Africa at some point when the discussion continues so that we create a certain kind of...we keep on trying to create a certain kind of possibility in those who otherwise remain simply the possible benefactors of the growth of the rest of the world. That’s really what I was talking about and it is a solution. Not impractical, very inconvenient, interminable because each generation is born afresh and we have many, many languages, many, many planes but if this is about people and citizenship you have to actually face up to it. Not all the solutions are macro. I’ll stop there.
IG: Thanks’ very much. I am glad I...
I am glad I provoked you to unpack some of that. So that was the purpose of it so thank you in that.
I am going to give the panel now an opportunity to sort of probe each other a bit and discuss this issue and I don’t know who’d like to go first.
I have never known these people stuck for words.
Well I can keep it going if you want?
AT: Why don’t you ask another question and then...I didn’t know you were going to ask us to do that. We can think about that.
IG: Yeah, Ok. Well we don’t we start with that. I mean so what I’m picking up from you, Gayatri, is sort of a belief that obviously capital should be the servant of development, of individual needs, of people and that one needs to start with that. With an understanding of people, values in that. And I think that’s something that we would certainly want to subscribe to and the question is operationalising that with capital, banking or other capital and when I speak to someone like Muhammad Yunus or the others that do micro lending and start these incredible institutions like BRAC or Grameen and those institutions they will say that’s what they are trying to do.
So I am interested in why, you know, your perspective on why you think that maybe they are not achieving that. Where would you be that’s different to them on it?
GCS: Well thank you. You asked me that question and I didn’t want to take more time. I don’t think capital should work for individual people. I actually was talking about two different kinds of things. I was saying that capital should be turned around constantly so that in certain just proportion, I mean people shouldn’t become Jesus Christ suddenly, capital should be constantly turned around for social ends. That’s not individuals. Social is something quite other than talking about individual people. Then in another context I was saying that in order for this to happen people must want, and I’m not alone in saying this, this has been going on now for I don’t know two hundred years people have been saying, people collectively must and today in the United States , in India, the two countries I know best, people must want to do this because in fact, I am sorry audience, but I am the kind of person who reads a little bit of Kant every morning and every night and you’ll see that these arguments are very, very old indeed.
AT: That was Cant rather than Kant...
CGS: Hey come on. I got bartering from this guy....
AT: I just wasn’t sure to start with....I was thinking the idea of reading Kant every morning before breakfast is very, very exhausting and dangerous.
CGS: Well there are different kinds of people in the world. It cheers me up believe me to see that I might not be completely wrong in the face of people like you. But at any rate...
IG: It’s good to know that this is being live streamed....
CGS: Now, to go back to what I was saying, jokes aside. What I was trying to say was that on the other side one can indeed be and one can acknowledge that these desires have to be in you, in me, in us, in the poorest. It’s not like somehow the poor are either better or worse or, as you folks used to say in the nineteenth Century, deserving or undeserving. It’s not like that.
IG: Not me folks. I was one of the migrants.
AT: Can I ask...when you say ‘these desires’ I am still not getting the argument. I have to say. What desires?
GCS: The desire to give up something in order that the many can be served. That’s the social. It’s not just individual. I mean once again...
GCS: To take the capital and make that happen for individuals, that is once again a very altogether impractical and Luddite notion. No. The idea of the relationship between capital and social, you know, the breakdown of socialised medicine. Privatisation over against the social etc etc. That word socialism is not unknown even in common conversation so when Obama was talking at the Press Club he made a very nice joke. He said well, you know, I mean I thought of myself. I believe I have changed a little bit. I thought of myself as a socialist Muslim. So that was a joke. Ha ha ha ha.
So this is the meaning of social that I was thinking about. Nothing particularly. That has to be based...this is why socialism failed. Because after freedom from there was no development of freedom to. So the freedom to somehow give up something to help others sounds a little bit like you shouldn’t be so, so tired of what I am saying. You know what I mean? Pay a little attention alright.
Hang on. Let me just finish Grameen Bank and I will come back to you.
IG: Well. One minute...
GCS: So what happened with Grameen Bank was this. I am agreeing with Mohammed Yunus but as you will know at first I was working with Fady Joudah, who was his student. At first the reason for lending money to women was because their rate of return was very, very much higher and then what happened was slowly the argument, and this is very distinct from Savar [Dev] as I said before. Slowly the argument changed into a gendered argument and if you actually went into the actual places where these microcredit undertakings were taking place and looked at the video opportunities and so on and so forth. It was not possible for the women to say anything apart from what they were saying. So therefore I am speaking from the experience of being spoken to by hundreds of women in Grameen Bank configurations who could speak in Bengali to me knowing that there was no camera, no nothing and so the kinds of routines, and this is also in Bengali language newspapers all over Bangladesh, so the kinds of routines, it’s a very old argument that some of you at least have seen already in that terrible turgid essay ‘Can the Subaltern Speak’. No engagement with the actual mental production of these people, these women into something other than the recipients of an extraordinary gift from an extraordinary man giving proof on television of how this is happening when our...it’s nothing against Muhammad Yunus. He can’t be present at every little Grameen Bank all over the place but this is not something I am saying alone.
And so therefore my general argument about microcredit, which I will hold because a minute has passed, it takes time to explain, relates to this but is not completely identical with this. I am not against microcredit. It’s better than locked up garment factories but I believe once again if microcredit is going to succeed you folks have to work with us. That’s really my bottom line.
IG: Maria, You’ve worked a lot on trying to make capital work for poor people. What’s your sort of take on this conversation and what capital can and can’t do?
MR: I think there is, there are some issues here because you know you can’t...again it’s one of those issues where you can’t just generalise. I think you have to be sensitive to the communities you are trying to serve, to what their needs are. You can’t just assume that a Grameen type model is going to work everywhere. That it hasn’t...I remember walking around villages in Bangladesh, looking at microcredit schemes with women and asking myself a lot of questions about why it works, if it works, and if it’s delivering on the promise. At one level of course it did because there were, you know, women had access to credit. They needed to put their kids through school, to provide education etc. I can speak the language so I saw what you saw, what you spoke about. So clearly some parts of it that serve a particular need in the community and there is no doubt that lots of things in Bangladesh that were very successful.
IG: Why couldn’t you do that in South Africa? Why couldn’t you get microcredit going in South Africa?
MR: Well there is microcredit in South Africa but it doesn’t look like the Grameen model, simply because South African society doesn’t operate in the same way as Bangladeshi society. You can’t structure the credit schemes along a community based credit scheme where ten people get together and they form a club and you can lend there into that club and people stand surety for each other etc. So it’s not the structured in the same way and therefore you can’t just transplant the same model.
I mean we try different things. One of the things for example we are trying is we know that women who trade every single day selling fresh fruit and vegetables are on the streets of Johannesburg and trading cash need very, very small loans. We are just piloting a scheme at the moment where we give them very small loans and we help them maintain the cash slips from buying the fresh produce at the fresh produce market. But it’s an individual loan and then we helping them with cell phone banking so that they can begin to transact on using cell phone banking so that they don’t have the cash with them so that they are not exposed to all of the issues that women carrying cash at the end of the day on a dark night in Johannesburg are likely to be exposed to.
It’s a different thing. It’s not the same model. You can’t just take a model that works in Bangladesh in a village and transport it to Johannesburg. We’ve just been in Nairobi and in Kibera and they’ve got a model, they’ve got multiple models there, but they certainly have the model there that looks a lot more like the Grameen model and it’s working incredibly well there.
So I think microfinance’s has an important role to play but you have to understand the circumstances, you have to understand the environment, you have to understand who the customer is, you have to understand people’s lives and what their needs are and then you can service them. If you don’t, I don’t think you’ve got the right model and that’s, you know, that’s an important issue that we have to understand as banks as well. Can’t just produce a product and then go and try to sell it. I don’t think that works.
IG: Adair, let’s go from the micro of understanding people that you want to serve to the macro. You were the regulator in the UK. I presume you understand the needs of the British people for finance. What do you think you can do at the macro? What can government do? You know, the individual banks can design their products and you can or don’t get cooperatives going and that’s all sort of an organic process and a competitive market process. But what can governments do? What can a regulator do to better serve the British people in your view?
AT: Well, I mean I can argue that...I could answer that in relation to British people but I am not sure that that’s.....
IG: Or in general...
AT: All that interesting in terms of development because I think the needs, the financial needs, of rich developed societies are totally different from the needs of emerging and growing economies. I mean in the UK, you know, you’ve got to work out what you expect the financial system to do itself freely, what you have to stop it doing and what you’ve got to do to compliment what its doing.
At the moment I think we have a financial system which left to itself it’s banking system will have a huge skew towards lending money against real estate and lending money to people who want to consume immediately. We have iconic stories in banking and you will find this in almost any economic textbook. It says what does a bad bank do? Takes money from savers and intermediates it through to businesses to invest.
Well the UK banking system lends 1.7 trillion pounds. The element of that, which is reasonably described by the 'I take the savers of households and turn it into loans to businesses other than commercial real estate’, is about a hundred million or so out of that seventeen hundred billion. That’s a fact. That’s how much is going on. The vast majority is lending against mortgages to enable people to buy houses, usually pre-existing houses. That’s about 1.2 trillion. About hundred and fifty billion is consumer run secured credit which is essentially lending to people who want to consume today rather than consume in one year’s time and about three hundred million is lending to commercial real estate development. Nothing wrong with that in many ways. The process of good commercial real estate development can be part of a modern economy but actually an awful lot of it is actually buying already existing commercial real estate investment. So an awful lot of it is actually financing what in economics we call an asset play or impatient consumption. Only a small amount is actually, you know, funding real investment.
Now there’s several reasons why these may be perfectly good things to do but there not what we often describe as the iconic activity of what a bank does. I think some of these we will do too much of if we leave it to regulate to banks freely to chose and we need to constrain it and conversely I think there are issues as to whether the banking system or even the capital markets totally left to itself will provide adequately long terms capital for some of the infrastructure developments or green technology investments which we need to deal with for instance with the problems of climate change.
So my general point is you simply cannot assume that you know the processes of credit creation left to themselves will end up serving what we would think is the most fundamental needs of a society unless we regulate and manage in quite a significant extent. And that’s why if I were in an emerging market I’d be wary not only about too rapid as Maria described it liberalisation of short term capital flows. I’d also be wary of some of the domestic liberalisations as well. If you go back to how Korea and Japan achieved extraordinary rates of economic growth in the 1950’s and ‘60’s and just remember this fact – in 1950 South Korea was poorer than the Congo. Right? In 1950 South Korea had a lower per capita GDP than the Congo. And if you look at what they did, they were actually very tight in terms of allowing the liberalisation of consumer loans because they said well if you do that the whole banking system will focus on consumer loans for short term consumption and they actually made sure that there was a preference for the investment in their industrial base.
These are things which the consensus has moved hugely away from over the last fifty years but they are important. One thing I would say on micro investment, microfinance can be very important but don’t knock big finance as well. The process of economic growth, and we can argue about whether we want economic growth or not. I mean my basic point of view is that once you get to the standard of living as the rich developed world further economic growth, further growth in GDP per capita is not terribly important. I think it’s very, very important when you’re on a thousand dollars a day, two thousand...a thousand dollars a year. Sorry!
IG: Those terribly poor people!
AT: I’ve spent too long a time with investment bankers!
So there’s a curve here, you know, growth in its most straight forward per capita income terms matters a lot in the early stages of economic transition and then you get to a stage where it doesn’t matter much. And those transition processes they can’t be done, I don’t think, just on microfinance and micro businesses and there is a danger sometimes that in our iconisation of small businesses, because small and medium enterprise businesses is one of the great icons of this world. When a politician can’t think of anything else to do they give a speech about SME’s because, you know, there these things we all love. The economic development process involves lending to and the development of small enterprises but it also involves well run and well regulated big businesses doing some of the economic functions which only can be done with large economies of scale and we must remember that as well.
IG: Great. Well I guess the one problem for the rich countries, even if they are on thirty or forty or fifty thousand dollars per capita is when they are in crisis so one couldn’t really imagine Europe or the UK not growing because it has such debt but that gets us back to the beginning of the conversation we had which is how you stop crisis’s.
Let’s open it up. If you have a specific question for an individual please do say so otherwise I’ll use my discretion and if you feel like identifying yourself please do.
Yep, the gentleman with the hat on.
Audience 1: [Inaudible]
IG: Sorry, the mike’s not on....now talk.
Audience 1: Ok cool...thank you.
My question is directed to Maria Ramos. I think talking about specificities, countries of particular histories and circumstances like South Africa for instance and there for the past seventeen/eighteen years been trying to address the legacies of apartheid. How does capital relate to addressing social and historical injustices?
IG: Ok, thanks. I’ll collect a couple. You’ve set a wonderful precedent. Keep your questions to questions and keep them short. So thank you for setting that precedent.
The gentleman over here.
Audience 2: Thank you. My names Mend. I am a post-colonial studies student and my question is for Maria Ramos. What surprises me is that she keeps....you’ve been talking a lot about microcredits and infrastructure but you haven’t actually responded to one of the points Spivak made which is on social welfare and so while I understand your argument that you are trying to put forward I have a problem with like understanding how microcredits can actually be useful for people if they don’t have any social welfare system that they can benefit from. Because for many people if they don’t have social welfare it simply means that they are going to die. So whatever micro credits are there for them they are not going to be able to use them.
IG: Ok, I’ll take one more question. The lady down here.
Audience 3: Judy Moody-Stuart. I come from the NGO world really with some interest and gratitude to the world of capitalism. I’m a kept woman.
My question is where do you get your information from because I know you don’t want a statement from me but hidden in here is an impression I’ve got that when tranches of money are given, say by divid which is capital nonetheless, the business of evaluation and monitoring is done by a sort of cadre of a peer group of people who study with great emotion and time spent with the people that Gayatri is talking about and this happens actually in the criminal justice system here in Britain but they tend to write for one another and the trustees of the donors think oh good we have done an evaluation but the people are not involved in a sort of feedback loop with the information that’s measured.
This is the impression I’ve got. I’m sorry if it turned into a statement. So where do you all three of you get your numbers from.
IG: Great. Alright, we’ll keep the responses as short as the questions please because there are quite a few more hands up and we’ll have many rounds of this if we keep short.
Go ahead Maria.
MR: On the first question on addressing historical injustices. I think it’s been a combination of things. I think South Africa in the post-democracy periods did a number of things. It took a lot of discipline and actually a significant amount of political leadership by initial President Mandela, followed by President Mbeki and subsequent governments to keep the country focused on what it needed to deliver and to do the right things politically and to take business along with it and other social partners and I think it’s been a combination of taking the right decisions, making the right choices from an economic point of view, from a social point of view and staying on that path. It hasn’t been easy but I think over a period of time we have got there and it’s not something you can do...you cannot change the social injustices of apartheid in ten or fifteen or twenty years. It’s going to take a long time but I think one of the things we have learnt is that we have been able to take a whole range of people along whether they’re in business or globally or domestically...so I think...and made some very important and very difficult decisions actually internally on what the right sets of policies are.
So I think on that, on microcredit, we’ve spoken a lot about microcredit this evening but I agree with Adair. It’s not the be all and end all. In my opening comments I did make the point that you have to have fiscal sustainability as well and you have to make the right allocations in your fiscal budget. I can only tell you from my own personal experience that one of the reasons why we needed to get fiscal sustainability in South Africa was because in the first few years we ran the danger of ending up spending more money on debt service costs that we had available to spend on health, on education and social welfare and we needed to change that balance. So we needed to make some serious decisions. We needed to cut the budget deficit. We were spending too much money on the wrong things. If you look at that budget now, the bulk of the spending is actually on health, education and social welfare. So you do need to have a rising floor of benefits for people who otherwise would be excluded from the mainstream of society. So you do need to have that otherwise there are too many people who fall behind.
I also have to say though that if that is all that’s going to happen in society you are going to overtime have more and more people falling behind. So you need to have both. You need to have economic growth, you need to create opportunities, you need to be able to make sure that that economic growth is inclusive so that young people who don’t have jobs today overtime will have those jobs but in the interim you need to have a social welfare system that cares and caters for people who otherwise would be excluded from society.
IG: Great. Do you want to comment?
GCS: Yes. I want to agree with you that the injustice of apartheid can’t just be undone in a few years but what I think I would want to add to what you said, you know, just as in the case of the different kinds of countries requiring different kinds of microcredits stuff, I mean what you give the loans to the South African women selling vegetables and then banking through cell phones and so on, but some of the things that I would say would be is go from there even to texture and I’ll talk about it more when the moment comes. But going back to how to undo the crimes of apartheid, and you can’t do it in twenty, thirty years, I completely agree with you but what then we have to also think about is that the kinds of crimes that these kinds of things do and I am thinking for example of the millennia caste system in my country. That is a kind of apartheid which is also horrifying. What they do is they do cognitive damage to the people and that’s where I began to undo cognitive damage it can take, in fact not just especially if you think about the castes system for example, to undo cognitive damage of that sort you cannot have a solution that’s around the corner but you also have to engage with where I began. It’s not impractical. This kind of complete denial of the right to intellectual labour, production for manual labour, punishing for intellectual labour and so on and so forth. I know I’m coming from both schools. I’ve been doing this kind of work time and skill given for thirty years. If I were a sociologist you would call it intense case studies. I don’t. I’m simply a teacher at both ends of the spectrum. But that’s what I guess I’m very happy that you actually mention that because in order to undo it you don’t just invest, you don’t just give credit, you don’t just say more is being spent on social welfare and I think that’s very, very important to recognise that it’s undoing cognitive damage, sometime millennial and that’s a different kind of argument from the arguments that you are proposing. Number one.
Number two. What you were saying about DFID. I have a lot to say about the NGO world and since I’ve said it in writing over the last few decades I won’t say it again. But in terms of the DFID I have nothing against them. I don’t blame anybody who belongs with them etc etc. I just know that they came to the same places where I do my work. They would come, they would produce statistics by having, I am talking about the education sector, primary education, having whatyamacallit workshops and so on and the guys, the primary school teachers who were absolutely useless, they would be very very happy to go, you know, good clothes etc etc . Those management style workshops and so on and what would happen is good statistics would be produced. Just as you were saying, how, where do you get your numbers because they were very good at these workshops? They were having a grand time. But nobody, nobody followed through by looking at what happened then so when you say it’s spent on schooling, what schooling? When it’s you own children you go around looking at the quality of schooling and when it is even the human development index its quantity. How many years of schooling. I mean it is common sense what I am saying. So you know they would produce these statistics and you would find [inaudible] talking about it, you would find it in Seminar Magazine, all of these credible statistics. You go back to the schools, nothing. Exactly what used to happen before the workshops came. So I would say, I would certainly say, and I mentioned it in my first few remarks, learn to look at how statistics are produced by ignoring texture and the idea that economic growth is not necessarily a description, I mean this is not something just coming from me. I was looking at the newspaper, The International Herald Tribune and the economist, Turkish, American economist, discussing the idea that Turkey has become so wonderfully democratic because of economic growth. Look at it! It’s the most recent International Herald Tribune, where he is talking about the fact that what was necessary was people being trained into being able to participate in the structures of the state and protesting, objecting and so on and so forth and it seems to me these are not just superficial arguments. These are arguments that are common sense and have actually held good and at the bottom there is what I was saying, training people to want other kinds of things rather than just justified self interest as often in the international civil society but that’s another argument.
IG: We’re going to have to keep our responses short if we get around to more questions.
Do you want to add anything on evidence Adair?
AT: Well I don’t think I’ve got much to add on evidence. I mean I’m not at all an expert on the evaluation of, you know, divid type expenditure. I mean the only thought I have is that I think when your operating in a developed world the statistics have a certain credibility. You know they tell you what...they appear to tell you in the sense of, you know, I’m pretty sure that my statement as there is 1.7 trillion of bank lending is a good statement and that the breakdown of that between different categories is meaningful. I also think that our figures for what is GDP per capita are meaningful but only go far as they go. I mean they are what they are. They add up a certain set of productions across the economy and they say well when we add these up they were worth a bit more this year than they were last year but that doesn’t really tell us much at all about whether that was good for humanity, whether that’s likely to increase the welfare of people, whether that’s likely to make people happier or have better, you know, a real better standard of living.
Indeed I think increasingly one ought to think, and it actually raised a point Ian said earlier that once you’re in a rich developed country what matters in terms of this thing that we measure through GDP, is that we don’t have big setbacks to it because when we have big setbacks to it, when we make a mess of our macroeconomic management people become unemployed or they lose a house that they have already bought and that really does upset people. It causes pain. But actually this thing that we’re measuring is not finely enough measured for us to really, for it be worthwhile getting worked up about whether over the next twenty years it’s going to grow at about 1.7% or 1.8%. I have not the faintest idea which of those will be better in terms of the average level of welfare and happiness.
So I think there’s a difference between...there are some parts of the world where you just don’t know whether the figures are true or not and there are others where you can be fairly confident that the figures are what they are as long as you understand the clear limitations of them in terms of what they are telling you about the fundamental things that you need to care about.
IG: Thanks. Yep, the gentlemen in the back. Yep...
Yeah it’s on. Is it on?
Audience 4: [Inaudible – microphone not working]
IG: I think they want you to swap the mike there sorry. That one doesn’t seem to be working.
Audience 4: Yes. I was saying one example of Mozambique is just because of coal and natural gas you are going to have a development of one thousand railway line, one thousand kilometre of railway line, ports, airports and then energy is attracting a lot of investors. We are speaking to the major financers of this world because of the resource boom. This is not happening only in Mozambique but other places.
Just one last comment that I would like to hear some response from the panellists is...well actually what I wanted to say is Africa as a continent and the regional blocks are working on programmes for infrastructure, development and attract investment. What would you have to say on what they are doing? There’s a master plan for SADAC infrastructure, there’s a master plan for the continent. What can you tell us about this? I think we should study them more.
IG: Thank you. Alright, a lot of hands up. Not much time left. So short questions and short answers and we’ll be able to get everyone.
I’m going to take that little cluster of people there. So the gentlemen behind there.
Audience 5: I’m Kevin. I’m a PHD student, cultural studies. My question, I suppose like Gayatri started her speech by pointing out this, but I found myself in this position today that pretty much, let’s say 90% of what has been said is in a language that I don’t really seem to understand. So, perhaps, you know, the sources that people read also indicate a lot of, you know, how they also speak.
So my, you know, as a fifteen year old I was probably, I would consider myself privileged to have on my school desk, you know, I had Dante’s Comedy, Marx’s Kapital, which is what I thought the title of the seminar would be about, as well as Kant’s Critique of Pure Reason. Really chunky big books that probably a fifteen year old shouldn’t read.
So my question would be just to Lord Turner and to Maria since they have had big positions in the economics world, whether they have read Marxist Capital, what their opinion of it is and that’s all. Thanks.
IG: That’s great. I am very impressed by your reading. I wish my son would read as well as you.
Yeah, the gentleman over there.
Audience 6: ...question and it’s to ask really what...is there a lot of scope for mutuality. I mean we are talking about these big financial flows. One hundred and fifty years, two hundred years ago there was a real space for mutual’s to set up where ordinary people were able to try and control capital and put it to their own uses.
And then the second very quick question is that we are taking about globalisation and the huge financial flows that are moving across the world and some of those are being sent by ordinary people and lots of migrants are moving, about half a trillion dollars worth of remittances are sent across the globe, and that hasn’t been discussed at all. Remittances have been very important in the story of India coming back and China coming back. So I wanted to know whether Maria particularly, whether that’s something that African’s and somebody that’s running an African bank, whether you’re interested in harnessing.
IG: Great. The gentlemen...just take those two there.
Audience 7: Very quickly. Alexis Flynn, I’m a journalist with the Wall Street Journal.
On globalisation and a rise in inequality, I mean it seems that a big part of this is due to the trade imbalances in the world and that’s an issue that never really been addressed properly. I mean I’d be interested to know the panel’s view on that particular thesis. If they do indeed see, you know, the current account issue, current account imbalances as kind of a critical issue around the flow of capital and a way of perhaps addressing this inequality, possibly by, I don’t know, re-evaluating you know this international clearing house idea that Keynes came up with at the time of Bretton Woods. That’s something that particularly now I think would be quite appropriate and perhaps even to, you know, take into account things like remittances as well which are obviously a very interesting thing for capital flow. But yeah, something on that would ...
IG: The person in front of you...
Audience 8: Thank you. Just a question on medium sized businesses. At the cold front of these implementation of these capital flow restrictions are a lot of medium sized businesses. You can talk about hot money. Maria, as you know in South Africa we’ve done is liberalised hot money while the constraints on small businesses remain incredibly tight even if not on paper in practice. It’s almost impossible. So entrepreneurs, and the same applied in Nigeria and Kenya and so on, who want to build the next Google step number one is to leave the country. And in fact even if I want to run a hedge fund from Cape Town it’s impossible. I’ve got to go and set it up in Mauritius or somewhere else.
So that we’ve created this quite arbitrary constraint on domestic citizens and completely freed up everybody who’s not a South African, a Nigerian or a Kenyan to plough money in and out of the country as they feel like which surely must harm development.
IG: Thanks’ Frank. Let me just see a show of hands of who still wants to ask questions.
Person there, person here. Ok. Person there.
So that’s great. Not too bad.
But be very short in your responses otherwise we won’t have time for another round.
Maria...you’ve got the most questions so why don’t you think first.
MR: I am hoping to share my [inaudible] I have no intention of answering all of them myself.
So let me start with some of the issues around capacity and then I will try and take all of the capital flow kind of questions together.
I think capacity is an issue. I think the gentleman, the...from Mozambique, made that point. And Mozambique is one of those seven fast growing countries in the world and in part because of all the resource finds. I think one of the challenges actually is not necessarily going to be whether the capital is going to be there to finance all of the projects. I think one of the big challenges Mozambique is going to have is going to, potentially going to be around whether it’s going to have all of the resources from a people point of view to support all of that development and also whether it’s going to be able to develop all of the institutional regulatory frameworks that it’s going to need in order to manage and harness all of the benefits of such rich resource findings and I think the governments doing a lot of really good work but all of the gas and all of the coal resources have been discovered quite quickly and you need to put all of that regulatory framework in place very fast and these things take time and they take time to put the regulations in place, the regulations take time to mature, the systems take time to mature, and it’s not so easy to do.
So there is quite, I think there is quite a bit of challenge associated with that and I think it’s the ability to work across a number of sectors to try and attract the right skills to take advantage of other experiences, to learn from other people and other countries mistakes and to work regionally as well with their regional bodies who were doing the work on this.
You mentioned the regional institutions and the work that they have done in terms of putting together the infrastructure plans. I think they are there. They are pretty well defined. I think the biggest challenge from a regional point of view is to make sure that they actually implement that. And if you don’t they are just interesting plans and without the implementation it’s a nice planning exercise. So I think that’s one of the challenges that we face.
Let me say that I think the second question was from the, you don’t look like a fifteen year old anymore, but I was really impressed that at fifteen you were reading Das Kapital and Dante and I was disappointed that you weren’t reading Keynes at the time.
But yes I was an activist at one point in my life so I probably read a lot of, I don’t know how much of Marx you read, I hope you read much more than just K. But I did actually read quite a lot of Marxist economics and wrote a thesis on Keynes. I won’t bore you with the details. But happy to discuss it afterwards.
On capital flows, I think Stuart you make an interesting point and I think of course your right. There are challenges because what we’ve done is we’ve got no real capital constraints on inflows, on portfolio capital. Some of that because we’ve got very well functioning, very deep domestic capital markets and you want to have some of that. That does bring in foreign investors into your domestic bond market for example, into your domestic equity markets. But we still have capital flows on South Africans investing offshore, particularly if they are investing outside of Africa. And that is part of the complexity. I think one of the challenges comes back to the point I made earlier on and that is how to...the governments always been quite cautious about insuring that they’ve got the right regulatory environment in place to ensure that if people are investing offshore that they understand where that investment is going.
Now that doesn’t always work for medium sized enterprises and I think they get that but it’s about how you liberalise and what pace you liberalise and how they do it in a way that they can still manage.
So I think that those are some of the issues. The portfolio flows, the portfolio liberalisation was designed to liberalise the domestic capital market and we’ve had lots of inflows of foreign holders of our domestic debt and I think that that’s sort of...
IG: ...stop there. We’ll let Maria come back to the other questions in the next round otherwise we are not going to have a next round.
Gayatri, do you want to...
GCS: I’ll be much briefer than I have been, ok?
First of all, I now understand why I am agreeing so much with Maria because of your very far activist past.
IG: You should be agreeing with me too then!
GCS: Well good! I am trying. I’ll try next...
Ok you know the reason why there was all this kind of talk about what good can capital do etc I was trying to kind of keep to the provocation ‘how can global markets serve the global good’ which I was given.
I mean I normally don’t talk about what good capital can do. So please don’t think I am just a kind of moralistic person.
Second of all, I wanted to say, I wanted to ask you a question, two questions. We haven’t talked about gender at all really and, you know, you talked about Taiwan as one of the models right? And I have just been working with a Vietnamese researcher, a woman, who’s talking about how Vietnamese women are showing their own reality as decision makers by willingly going into marriage brokerage to Taiwan, learning Chinese so that they can move into a more driving capitalist society. I’ve got the thesis with me. She just gave it at Columbia.
And so my question to you would be what would you propose for a place like Vietnam so that it doesn’t produce this kind of admiration of Taiwan in the gendered sector by producing a description of free choice on the part of women by going into marriage brokerage and learning Chinese in order to go to...we haven’t talked about this very microcredit, yes, but not these kinds of very peculiar problems of gender liberation...
...and I think we do ought to think about everything.
IG: Adair, I am sure that’s a question you have been asked before.
GCS: My third question. You see because it works and this is why housing is so important. Also all of the idealistic stuff around housing. Believe me fifteen year old, one can talk about it in terms of Marx, I’m controlling myself.
Now my final question is you know you describe yourself again and again as these very rich developing countries, developed countries. Very sorry that was also very poor Freudian error. Very rich developed country you are. But anytime I come into my usual haunts here and talk to university students, what I hear about the privatisation of the universities does not come from, you know, all of these student loans, how that would be free choice and so on. What I hear from the students does not describe a very rich country that is kind of completely to be distinguished from all other parts of the world and on the other hand when I am in China let’s say or in India we don’t talk that much about Europe. All we say is the Eurozone is a collection of credited countries and debted countries that enter union. That’s how that part of Asia talks to the common kind of person about Europe.
So three questions. Can one talk about this Taiwan stuff, you know, in terms of a full gendered idea. And the other question, it wasn’t a question, that the benevolent stuff came because of the provocation given. And finally...
AT: Sorry, which benevolent stuff?
GCS: You know when you saying you can’t just talk about...you Adair cannot just talk about is it doing good for people. It’s such a...you can only say...
AT: Did I say that?
GCS: Yes. Indeed. You said...
GCS: Let me finish my sentence!
AT: I’m really getting confused as to what it is I’ve said that....
GCS: Let me finish. When you said that in our part of the world the very rich developed countries, all we can say is the statistics are correct. That’s...
GCS: Ok. So we can’t really make these statement about that will do good...
IG: I think you agree on this point...
AT: No, no, no. Your completely...I think we have got crucially to ask the questions as to whether our development process is serving good or not and I am saying the statistics do not answer that question. So if you thought I was saying we can’t ask questions about the end objectives of society and whether the economic growth process is serving the needs of humanities deepest needs, that is precisely the questions which I am attempting to put on the table and saying the statistics don’t answer it. So it sounds like you must have just completely misunderstood what I said.
GCS: Absolutely and also...
AT: And I am afraid I have really very little to say on Vietnamese women going to Taiwan...
Other than, other than, you know, I think successful development processes once they are successful and this is why although I doubt the materialist proposition that relentless growth is required I do think the fundamental transition from low levels of income to the sort of levels which the rich developed world, i.e. us, America, Europe, got to twenty or thirty years ago. I think that process is important and it tends to be also associated with the ability of women not to feel that they’ve got to make those sort of choices in order to pursue their life chances and that’s why, you know, although I am not a sort of growth, growth, growth forever person, indeed absolutely believe that that is not right and that we’ve got to ask searching questions about the long term objectives of economic growth.
I also believe that one shouldn’t flip into a sort of romanticisation of poverty which tends to be something which rich people fall into rather than poor people themselves.
So that’s my attempt to answer those questions.
Can I say something on Das Kapital?
GCS: Das Kapital! Good heavens!
IG: I think we could all say something.
AT: You know cause we were asked this sort of what was our reading list etc type stuff...
GCS: I teach it of course.
AT: Yeah well I am sure you do. But I mean I think I score two out of three and a dip into the other. Yes I have read the Critique of Pure Reason and I did predict earlier that we’d get on to Kant with a K as well as Cant with a C.
I did read Das Kapital and I think I dipped into Dante’s Comedy. Das Kapital. I think it’s sufficiently long since I read it that I cannot recall which bit’s of Marxist thought are in Das Kapital versus what’s in the Kant Communist Manifesto and things like that.
But very briefly, I think Marx has a crucial insight that the ultimate basis of all that we call economic value must be labour and that capital is only stored or previous labour. I think that is absolutely right. But I think unfortunately it doesn’t answer fundamental questions that and I don’t think Marx does answer fundamental questions about first of all why are different categories of labour, even as pure labour, paid so very different rates and why are the rates for different categories of labour diverging so dramatically at the moment. Because quite a lot of the divergence of inequality at the moment is the remuneration of something which is clearly current labour rather than simply the remuneration of capital, which is where Marx tended to think. You know the fundamental drivers of inequality would be. And I think there are so there some huge unanswered questions.
Secondly I think Marx’s view of history, that there is a fundamental role to understand the dynamics of history by understanding the economic conditions of production exchange is fundamentally right but massively oversimplified in the sense of any theory of history that becomes undimensional and I’ve got the answer, I’ve got the formula, is overstated.
But most importantly, and I am not sure whether this is in Kapital or in the other writings of both Marx and Engels, I think when it gets to the practical explanation of what will happen to socialist, communist societies and to capitalist societies Marx is completely wrong in two respects.
First because he believes that it is possible to have a successful extreme socialist societies which do not recognise a legitimate role for self interested motivations. Because those self interested motivations exist and if you do not allow them open expression in a market economy they will be expressed in a socialised economy in destructive fashion, in the corruptions of the Soviet Union.
And secondly in his prediction of the inevitable collapse of capitalism, in a sense he was right that completely free market capitalism left to itself would have been destroyed, but he failed to realise that the very processes of political exchange would lead to reactions which saved capitalism. I think saved capitalism was fundamentally saved in the 1930’s above all by people like Roosevelt and by the introduction of the fundamental institutions of forms of welfare state which moderated the hard edges of capitalism and made it work for enough people so that it didn’t lead to the relentless immiserization of the working class.
And that is why I would very strongly agree with Maria, because if you want to understand a statement of an understanding of mankind as both part selfish and part altruistic and of a market economy which has a certain dynamism but which has to be saved and managed by the organs of the state and political processes, read Keynes, John Maynard Keynes, who I think is a greater economist and a greater philosopher than Karl Marx.
IG: We won’t have that particular debate here. What I am delighted to find is that I think all of us have read Marx. In fact when I did economics, I did Marxist economics as well. It was part of economics and part compulsory and one of the tragedies of economics is that it’s got so lost that people now only read certain things in a very narrow bandwidth and they don’t read, and this relates also to the topic of this evening, they don’t even read John Stuart Mill or Alan Smith because they are much more nuance and they believe for example in the free movement of labour and that goes to the point of the remittances which are clearly absolutely key.
One of the big advantages of remittances is that they are not captured by the state and one of the most dangerous things that’s happening is states trying to redefine them as aid or public flows when they are really private flows and of course for many economies they are very big numbers. But I don’t think we have time.
I am going to try and squeeze one more round in but that really depends on your cooperation, asking very pointed and short questions and the panels very quick responses.
So the gentleman here, gentleman here, lady there and gentleman there and then we’ll draw to a close. Please keep your questions to under a minute, otherwise there just won’t be time.
Audience 9: My name is Ken Theron. I’m a psychoanalyst.
On the resources platform Simon Taylor of Global Witness talked about or illustrated actually the siphoning off and the illicit or unethical movement of capital by people who really ought to know better in sort of political office and very often businesses...
IG: ...keep it short otherwise I’m not going to get everyone in...
Audience 9: ...and I am just wondering if you thought that this was enough of an issue to be concerned about.
IG: Ok, thank you. The gentleman here.
Audience 10: My name is Joe Cooper. I work in international development. Is this working? Yes? I just wanted to ask a little bit more about inequality. We’ve heard about how the sort of free movement of capital is causing greater inequality both in developing countries and in developed ones.
Adair has mentioned how here the problem is therefore more of a distribution of wealth rather than absolute levels of wealth.
What can we do with capital controls to reduce inequality?
IG: Ok. Lady over there.
Audience 11: Thank you. I just wanted to see if Lord Turner could just follow up on Gayatri’s last question with respect to the internal discrepancies in wealth in rich countries which I think you were asking about with the university students. So if you could just comment on that.
IG: Thank you. And the gentleman there, final question.
Audience 12: Alberto Tuscano, Goldsmiths College.
My question is about the concept of capital and the abstract for the talk seemed to use it in a sense that is almost synonymous with wealth and we know that historically the accumulation of capital often depended on the destruction of wealth. The industrialisation of other countries and so on. And in the present there are forms of wealth, housing in Spain, food being left unsold, products being left unsold and so on, which in order to make the circulation and accumulation of capital is destroyed or devalued.
So my question is really a) shouldn’t we really keep the concept of capital analytically very distinct from wealth and b) whether it isn’t the case that the link between wide spread social welfare and capital accumulation that seemed to be suggested by Maria Ramos is actually a very contingent, historically contingent and geographically contingent, link and then in fact the certain forms of human wealth and certainly human needs might be radically incompatible with accumulating capital at certain rates.
IG: Thanks very much. It’s been a fabulous set of questions so I’m going to give Adair the first response and we will just go this way.
AT: Can I just first of all, cause I meant to on the previous round, also pick up this issue of resources, natural resources. Because I meant to say on the previous round.
I think long terms economic success is extremely difficult for large population countries which have large natural resource endowments. It’s the great irony that there is a curse of natural resources and that you need a set of management processes to make sure that you are not dragged down by it.
I mean if you are Qatar and you’ve got a population of three hundred thousand and you’re sitting on the biggest gas resource in the world then whatever you do, you know, you can keep everybody rich because it just, you know, the money’s just coming out Gusher on a massive scale. But if you’ve got a significant scale of population natural resources are very much, you know, they're a difficult thing to manage because they create streams of income, what economists call economic rents, which are quite easy to grab hold of by corrupt practices of by the way that mineral rights are auctioned etc and it is a fact of economic development that many countries which are reasonable natural resource rich do very badly because the very processes of having those natural resources and having to manage that. First of all it tends to stymie the development of others sectors of the economy, in part from a macroeconomic reason that your currency goes up to a level to make the other areas uneconomic and secondly because of some of these processes of the corruption of the process.
These are very difficult things to manage. I think the process of the appropriate behaviour of international investors is part of it but it’s not the whole of it and I think, you, know countries which have large natural resources have to, they really have to try very hard to make sure that the short term benefit of that does not have some long term disadvantages. I mean the great stories of successful economic catch-up of Japan, Korea and Taiwan are of countries which had very few natural resources, not many.
IG: Adair, we are going to have to end there and then let the others respond as well...
AT: Ok, sorry. I’m finishing. That’s it.
IG: Ok, thanks very much. You can follow up Gayatri afterwards if your questions aren’t answered...
GCS: To go to the internal discrepancies in developed countries of course I know much more about the occupy Wall Street folks, I mean who have now gone quiet. But this 99%, 1% thing that is the slow...see I agree with Adair in terms of Roosevelt when I said that the breakup of the New Deal began and then finally Glass-Steagall was undone. I was actually talking about, I mean the left response to that is well Roosevelt did that because so that workers then could become soldiers for an imperialist war and I think that’s nonsense. That’s the kneejerk leftist response in the United States. Believe me I go to enough left forums. But I’m with you. That’s what went wrong.
Ok. And it seems to me that that kind of thing, then the slow dismantling of welfare, number one. I can’t say more.
Number two, that’s what’s happening as we say we are fully developed and wonderfully rich. I mean...number two, the idea of thinking about capital. You see one has to be understanding of capital which is very broad, which is that it arises out of the fact that a human being can make more than its needs. He or she. And out of that rises something which then can be kept and then of course the olds Marxist argument was that the person who made was given back less so that he or she could subsist and of that difference what was taken was capital. And the argument was that if the agent of production could voluntarily give that capital then it could become, that could be used in, capital free, that could be used to create the welfare state and that was where the mistake was. I agree with you too.
The desire to do that, to somehow having got, they never got the means of production, the history of communism, you’re quite right. But having received this, the desire then to use it for the general good, that bridge was never crossed. If one had time one would talk about Gramsci but one doesn’t.
But at any rate...I know I am with you...so therefore these are the two things that I think I could speak to at this point. The bringing capital into the political is a very important issue but I am afraid I won’t be able to say anything about it very briefly. It’s a very long...
IG: If you go to Gayatri’s website you’ll find out more.
MR: Well we’ve run out of time. So I just want to pick on two things.
One is on the question of capital controls and whether you can use capital controls to deal with the big questions of inequality. I don’t think you can pick on one thing alone. If we just use, if we pick something like capital controls we would not address inequality. That alone is not going to deal with it. You have to have a set of measures. A more holistic approach to it.
Countries are complex. Economies are complex. And you have to resolve for a number of variables simultaneously. And you also have to understand that on those short term solutions so you’re doing it, you’re doing it domestically, you’re doing it regionally and you’re doing it in a global environment. Picking one thing alone is not going to resolve it. It may be that capital controls are part of the equation but capital controls on their own are not going to resolve the problem.
I think the only other issue I wanted to very quickly add onto what has already been said on natural resources and the financial flows arising from natural resources is part of the answer to the Mozambique question. I think you do need to have solid regulatory environments. I think you do need to be clear both domestically and then also with your international investors. I think you need transparency. And I think you need involved communities. I actually think that that’s also what’s changing globally and domestically in many countries that are resource endowed. And it’s not just resource endowments. It’s involved communities, it’s a younger generation, many of you. I look round this auditorium and it’s this much younger generation who are all connected, who are asking the tough questions, who keep politicians and the owners of firms on the line and asking what’s happened, who’s benefiting, where are the flows from the exploration, where are they being credited to, why is the local community not benefiting. Because that’s what really is going to keep people honest and that’s also what’s going to make sure that the benefits flow to the right places.
No point in making resources, as Adair says, if local communities don’t benefit from them.
IG: I think that’s an excellent point to end on.
I do want to thank the panel for what’s been at times surprising but also surprisingly fun panel, not least on a Friday night. That’s what one needs. But also because of the wonderfully stimulating questions that have been posed by the audience. So thanks to you, thanks to this wonderful panel and thanks to Zamyn for putting this together and to the sponsors who’ve made it possible to go out on a Friday night for free and have a wonderful intellectual conversation.
So thanks to all of you and have a good evening.