Name: CEO Initiative 2019: A Conversation About Capitalism
Uploaded: 2019-06-11
Duration: 18 min 50 s
Description: Former IMF chief economist and head of India’s central bank Raghuram Rajan argues that capitalism needs both top-down reforms and bottom-up policies to maintain trust in a market economy.

We have your book and your thesis on the state, the markets, and the community as our agenda. But I thought, given the conversation we just have, I'd start with a curveball and ask you is capitalism in crisis? Well, I think I'll agree with the audience. It's not in a deep crisis, but it needs change and this has happened historically time and again. There have been peters maybe every 60, 70 years when technological change hits it. It has to adapt. It has adapted in the past. It can adapt again, but it requires some significant change. I'm sure this is Obvious to many. But given that you're a scholar, it'd be helpful to quickly give us an example of a past adaptation and how that might apply to our current time. Well, think about the second or third industrial revolution, depending on how you come. When we had big chemical factories coming on board, we had auto manufacturers coming in. Around the turn of the 19th to 20th century. And what you needed then was factory workers, factory workers who knew more than just how to read and write. But who knew trigonometry, algebra, and so on. They required a significantly higher level of education. What happened then was we had an adaptation in the US which was the free high school movement. And a lot of the potential workers went there earlier on in life, got an education and were capable of taking those jobs. Interestingly, there was also [ INAUDIBLE ] if you recall of very high migration. But the immigrants were largely experienced craftsmen, plumbers, carpenters etc. They could work in these factories because the native born children had a much better education Were much more capable of working. That alleviated the immigrant pressure for some time, at a period of very high immigration. Interesting, so problem, solution, which leads us to now. The way you've summarized the problem writ large is that there is an imbalance In our society and you're talking now about the industrialized world. So would you explain the imbalance please? Well the book is really about how capitalism finds balance again and again. And the balance is between what I call the three pillars, the government or the state, markets, And the community. Now, every time technological change happens, it upsets the balance once again, and it's doing that again. And what we require now is significant significantly higher education capabilities for workers to get the kinds of jobs that are being created, the good jobs that are being created as opposed to the low scale jobs of which many are being created. Now in order to make that leap it seems to me that where it starts is in the community because that's where you get your early education that's where you get your early nutrition That's where you get your values. By the time your 10 or 12 my colleague, Jim Heckman, who won the Nobel Prize a number of years ago, basically says you're done for. It's very hard to a change then. And often we try to make the change at high school, or in college, when, in fact, Early education has really doomed these kids. And study after study shows that when you move from a poor community and stay there regardless of who your parents are you benefit tremendously. Community matters. And what I would argue is that across the industry board not just in the United States We have failing communities, when they fail, they fail the people and the people cannot make the jump into that next level which the technological revolution requires. What I thought was such an epiphany for me in your book. If you could take half a step back I think everybody understands we have problems in our community. But why and how did we get there? When we got there? We have had a number of shots. If you think about what the failing communities are often it starts with an economic shock. In Chicago for example, in the 80s it was when the industrial Mills closed down Gary, closed down and steel plants etc. A lot of workers often African American were laid off, and then you start getting the problems in the African American communities were even after civil rights. In fact, ironically after civil rights You get the social break down, marriage is breakdown, divorce as teenage pregnancies. All the [ INAUDIBLE ] is substance abuse. You see that same thing happening in a lot of Americans [ INAUDIBLE ] communities today for the almost the same reasons. Economic breakdown causing social breakdown. But, it's worse because we have a technological revolution which has partly is responsible for the economic breakdown Demands much more of the community. Your high school education no longer cuts it, you need a college degree. But in order to get the college degree you first need a good primary education which you're not getting because the community is failing you. So It seems to me that the onset to some extent is trivial, education, everybody agrees on that. But every American president since Gerald Ford has been the education president, hasn't worked The education president. The education president. Yeah Yeah, and partly it is because you can't start at a centralized level, it has to be much more decentralized at the local level. That's not happening. So let's get to the heart of the matter about what people in this room can do. We Brad Smith, the president of Microsoft spoke very interesting last night about what Microsoft is doing, and it's Community, a meme that has gone around in the business community is that government is broke, and therefore we need to do something, you have a prospective on that >> Well I'd say you can't substitute for the things the government has to do, in a number of emerging markets or developing countries, companies do that, but. We are first well country, the government has to step up to do what it does. However there is a role for other entities also, but what I think is most important is that the solutions had better be bottom up because the problems that each community faces is very different across the country. What? You know, granite city, Illinois faces is quite different from what the problems in Arkansas. I sort of talked about a community in the book community called Pilsen in Chicago. Their problem was crime. They had really a war zone in their in their locality, many murders. In that kind of situation, no amount of money flowing through opportunity zones. First of all, it won't flow in, but even if it did flow in, it won't make a difference, because unless you solve the crime problem, business is not gonna move in. So they first had to solve crime. And for that, local community needed to be empowered, to know what to do To get their leadership together and to start tackling the hard points where you solve crime, close down the bars where the criminals congregated, get people out on the street so that crime was crowded out. He did a lot of things, but what is important is they knew what the answers were. And I think centralized solutions, you know, some large fortune 500 company saying we're gonna do this all over the place It's helpful, but not as helpful as when it dovetails at the bottom, with what that community itself wants. That community may have special needs. It may say, we need to have this kind of training for our kids, so that they can get into a better job situation. Let me gage how your thesis overlaps with some of the hot button, Political debates because one conclusion that one might draw from what you're saying is that government is the solution, but it isn't the federal government. We in fact need to drain the swamp and the action has to happen at the local level. Is that a fair paraphrase? Well, I would say the federal government is important in the things that it does But render unto the government the things that belong to the government. And what is important is what is local, what I would argue is, over time, as market has grown, market has also grown, and crowded out local initiative and social security. In the 19 century used to be local, now it's federal. There is a reason for it. Because local was incapable of handling the big calamities we had. Nevertheless I think as far as possible I would argue for more local empowerment. That would get you a local engagement, Think about what Brexit is about. Brexit is about taking back control. That's because these people feel they've no control over what's happening. A lot of power has migrated to London and from has migrated to Brussels. They want Some power to affect their livelihoods themselves. So for that I think decentralization is better of funding of power. But also you can decentralize a certain amount of control. Let the local people make sure their officials aren't corrupt. Today every time you talk decentralization there are two worries. One, the local officials will be corrupt and misuse the money, and two, if you're gonna talk about decentralizing education, of course they will start teaching creationism, evolution will go out of the window. Well my argument is, it's not that bad If they're not in the hospitals, they're not looking after your health, doesn't matter if they believe in Creationism. That's a small price to pay for the kind of engagement that comes when you control a lot more locally. So I would say decentralize, of course you can have checks and balances And with technology we can have far better checks and balances today than we used to be able to have. It's powerful and provocative point. One more corporate question, and I want to throw it open. I feel like in times passed big companies were very good, At helping their communities, in a paternalistic way, and I'm assuming you think there's nothing wrong with paternalism, that's sort of what Microsoft is doing in the Puget sound area for example. But what about communities where there isn't a well- meaning paternalistic corporation, and they're just left out. The flow the money flow at least Well, first, I do think paternalism suggests my view my way or the highway and that's what I'm resisting that. Understand what the local ones and try and work with them rather than against them. But I would argue that What has happened is, that the large corporations is now much bigger. Not relative to size of the economy, but relative to size of the community than it used to be and much more widespread. A lot more corporations identified from the community they emerged from. We're also small enough to work in that community. Fact. If you look at the Keef our act in in 1950, it's all about keeping cooperation small, so that they can be, you know, more beneficial for the community. I think we've moved beyond that. But I think when large corporations think about these things, I think decentralizing that decision process within the corporation itself, what can we do? Well let the local branch think about what works best in the local area. That's seem to me more effective that here is our large corporate plant, determine in the sea sweet and we gonna spread this all across our branches. It may not be that effective if the local people don't really think it valuable. You think it almost harkens back to the earlier days of the Republic In the United States anyway, questions please. Yes, in the back please. The mic will come to you please stand and identify yourself. [ BLANK_AUDIO ] Patrick Quinlan is conversing, so curious, kind of looking back in history there's been obviously other moments where society has gone through these upheavals. I think one of the things right now when you look at the urban- rural divide, which is also not a new divide, there seems to be an impact of drugs, an impact of literally drugs and death, which is a huge amount of destabilization in the rural areas. And if you look backwards in those other divides, there doesn't seem to be that added component that we're seeing with opioids right now. Which are truly reaching tragic proportions, How do you, I'm curious, how do you think about where we are today versus those other times when you add that additional level of oppiorism ?>> It's a great a question, i think it's a difference ofdegree, because remember there is alcohol then. And the big issues then were alcoholism in these areas. And there were rebellions, [ LAUGH ], around the taxation of alcohol and so on. But I agree that drugs adds a new dimension. Now Again, if you look at the history of the United States, the recent history, the first community to be affected was the African- American community, by this economic decline then the drug abuse. I think if you want to reverse this vicious cycle, You have to start by creating a more virtual cycle. And that means tackling first the problems that impede business from going in from creating activity and then starting more sort of start at the lowest layer of business and move up over time. That's in fact what this Pilsen community that I talk about. They had a drug problem. And they had a drug plus crime because with the drugs comes the criminals who spread it around. And they slowly have turned it around, by attacking the crime then attacking economic activity which then starts bringing down. The level of drug use but it's there is a chicken and egg problem here you gotta work on all dimensions at the same time. That's the way you get out of these chicken and egg problems. But it's fixable And it comes to my town right behind you I've been asked to ask you to stand, so I'm just following orders. Okay, Allen Murray can you talk about the inequality of resources? We talk about inequality. But really the differences between the communities, the successful cities and the left behind towns. Do they have the resources to do what you're talking about? They don't put i would say the most important resource they don't have is committed people that money is important but first you have to have a leadership a plan people getting behind an idea and i think even poor communities sometimes find that leadership but i keep coming back to the chicago example but that's exactly what happened. They found a body outside the church and the Pastor said, " Who is going to take responsibility for this community ?" And a bunch of young lads stood up and for twenty- seven years they've been working at it and it's changed the nature of the community. But, leadership is important. One of the questions we have to ask is how do we prevent these communities from losing good people? Because the good people are the most mobile. And as soon as it starts deteriorating, they start leaving. How do we get people to go back to their communities? And that's where I think some federal programs have, you know, we forgive college loans for people who go back to government, why not people who go back to the original community Please. [ BLANK_AUDIO ] Ravi Saligram with the Ritchie Brothers. It's good to see you. Regardless of one's brand of politics today, it's clear that the country seems very polarized and divided. Do you think this breakdown of communities, and the communities of haves and have nots, has been a major part of this polarization? I would put it as two pieces. One, yes. I mean, but inequality certainly has been, of this kind, has been growing. But. So long as people believed the system was fair, they had a chance I think they still live with inequality. The United States always had that you have a chance because we're gonna give you a chance to participate in that market and you can rise quite quickly there. What is happening now it the sense of despondency, I don't think I have a chance. Because in order to get those fine jobs I need to go through this process, which I start so far behind. I can't get into good schools. I can't get into good universities. I have no chance that. That's the problem. In the United States right now, and to my mind, that's why I keep saying again and again, the answer starts with the community. And let's end on, dovetailing with that, you have a perspective on what happened with Amazon's second headquarters effort here in New York City. How does that fit in with your thinking? So Amazon as you know was looking for HQ2 and it was something every mayor, every governor, was Killing for, right? Please come, please come. 25 thousand jobs, each paying $ 150 thousand a piece. Who would refuse that? And yet, Long Island Swift CIty Queens said sorry, we're not interested or at least at first Us the local politicians won't jumping over each other to say, yes. So I asked a community activist, why do you think they said, no? And the first thing was, they never talk to the community in detail Before announcing it, they should have said okay, here are your worries, here's how we deal with them, and here's the plan for the community. What would that entail? The existing community members, make sure they're not displaced because rents are gonna go up, housing costs are gonna go up Probably prices will go up but only the ones who own will benefit the others will get hurt. How do you make sure the communities stays in place? What about the disruption to the schools? Are we going to have an Amazon school that nobody else can else can get in. Or is it going to be an Amazon school that everybody else can get in and benefit from because of the benefits to the community from that wonderful capacity that's brought in. These are the kinds of conversations that didn't happen if they did happen, there would be so much more buying. And that's why I keep saying bottom up is also very important top down. Well you're not convincing people. Well I think it has been such a wonderful way to start the day with a global economist who's decided to focus on the community [ UNKNOWN ] Thank for being with us this morning. Thank you. [ APPLAUSE ] [ BLANK_AUDIO ]

CEO Initiative 2019: A Conversation About Capitalism

Finance

Former IMF chief economist and head of India’s central bank Raghuram Rajan argues that capitalism needs both top-down reforms and bottom-up policies to maintain trust in a market economy. 