Andrew Sheng: Will the Pandemic Spark a New Scientific Revolution?

After the Thirty Year’s War, Europeans turned to rationalism and ushered in the Scientific Revolution. Talking to Rob, Andrew Sheng, Director of the George Town Institute of Open and Advanced Studies in Penang, says that the pandemic could do the same, as experts and scientists recapture lost esteem. But it would be a different science, which focuses more on the interconnectedness of everything.


Rob Johnson:

I’m here today with Andrew Sheng. He is currently the Director of the George Town Institute of Open and Advanced Studies in Penang. He has formerly been very, very involved with INET, through the Asian Global Institute, used to be called Fung Global Institute. Andrew, you’ve just done an extraordinary presentation to our Young Scholars Initiative, about the implications of the pandemic, how to see it, how it propagates, and I guess, I’d like to share with the audience here today, what are your thoughts? What do you see happening? Where, all around the world, who’s doing things well? Who’s doing things poorly? Are we missing the whole picture? What do you suggest? And what do you see?

Andrew Sheng:

Thank you, Rob. It’s a great honor to be on this. The COVID has, well, we still don’t know when exactly it started, but it broke out in Wuhan, China, and within less than, today’s April the 20th, and it’s already spread to more than nearly two and a half million people, and still spreading very, very rapidly. We’ve never seen anything that fast. Whether it is that lethal or not, is being debated. But, essentially, it’s a great wake-up call for literally all the population of the world. Suddenly, everybody is vulnerable. The virus attacks everybody. Of course, the impact on the poor and the weak, and those in poor states, what I call the precariat, is going to be tremendous. Very, very bad. Devastating.

Because those who do not have access to good health, good water, good food, will suffer most from this. But, we have not had a… globalization was never so impactful in the sense that every one of us were hit and suddenly became aware of our own mortality. And as much as half the world’s population is in some form of lockdown. So, the impact is a epidemic, not just on a medical term, but it is on emotional term, it is on a personal term, it is social, economic, and political. Now, the last one is, of course, where all the blame game starts, and makes life even more complicated. But I think, all of us who are humanitarians, realize that the lives comes first.

Economics is important, and livelihood is very important, and someone put it very, very well, “It is not a choice between life or livelihood, but life and livelihood.” But the economic impact now, means that unemployment is now shooting up very, very rapidly, 22 million in the United States alone. The International Labor Organization thought it was going to be as much as 25 million, is 22 million in the United States alone. So, the depth of the economic depression is profound. Some peoples compared it with the 2008 financial crisis, global financial crisis, I say it’s far, far worse. The reason is very straightforward, the 2008 financial crisis was a crisis of a financial sector that was highly overleveraged, but show the similarity in terms of viral contagion with the rest of the world. But at that time, the real economy was reasonably healthy.

Governments had fiscal and monetary space, and this time round, the rich countries’ debt to GDP ratio is nearly already 100% of GDP. And the Fed alone has increased its balance sheet by over two trillion in a matter of a month. And how much is two trillion? Well, world GDP is 88 trillion. So, you have some clue of how big this impact is, given the numbers. I think, who has done well? Who has done badly? The answer is nobody, even though we were warned. And in the Obama regime period, he already warned that one of the biggest risk is not war but pandemics. And in October last year, there was a global health security index that indicated that we must be prepared for this. And clearly, the top two countries that were supposed to be well prepared, turn out to have amongst the highest mortality rates.

Now, I think everybody made mistakes, and there are no winners, but all losers. It’s only relative who has suffered more. Let me highlight the ones that seem to be doing well. Nothing is final. China, after blundering for about month or so, finally got its act together, implemented very draconian, some people call it authoritarian lockdown, and contained the deaths to the 50 million province of Hubei and Wuhan where it happened. And that’s because they were able to test, trace, and contain, mainly using mobile phones. This was very rapidly adapted by the South Koreans, who were the first to implement this, and they had a few clusters that they controlled very, very well. Singapore and Hong Kong, Taiwan also. Taiwan, because it’s an island, adapted very well by shutdown very, very early, from people coming in from the mainland.

Hong Kong and Singapore did very well because they learned from the previous 2003 SARS. Japan initially look very well, but I’m very worried because Japan didn’t react as fast on the lockdown, and today, the numbers are already over 10,000. So, it’s got a serious issue. The countries in Europe, all had very high standards of medicine, and tackled this very, very differently. Italy and Spain are the two most badly hit, but in terms of numbers now, the United Kingdom and Germany and Sweden’s are over the 10,000 mark. Now, the Swedish model is the most interesting one, because they basically did not practice lockdown. And it suffers 1,000 over deaths, but the debate over this is very, very critical.

I believe, so far, amongst the European countries, Germany has done the best. It has a high level of infection, but because it does test, test, test, it has deaths, but the death rate is significantly lower than Italy, Spain, France, or the United Kingdom. So, let me give an insight to where I think COVID has taught us. First, amongst of cooperation, innovation, at a global level, at a local level, amongst professionals, scientists, and medical people, is just amazing. One has to applaud the sacrifices, the heroism of medical workers who go front line, and the people who are doing the medical support services, cleaning, essential services, fantastic. But unfortunately, I think the politicians, in my view, bungle everywhere, almost everywhere, particularly those who did not listen to the medical professionals.

There was a very interesting matter that has now brought up for economics, which is the use of modeling. I think, now, it’s very clear that if you have got good data, and you have fairly sophisticated models, you can actually track and predict the outbreak of a viral transmission fairly well. And so, COVID, from economics theory and practice perspective is, in fact, a, I won’t say a wake-up call, but it is a very profound moment, very much like the Thirty Years’ War, which then triggered off the rationalist movement in Europe. As we recall, the Thirty Year’s War was devastating, high death rate, high devastation of the European economies. And it coincided with the mini ice age, by the way, which then transformed the thinking of Europe towards science and technology. And some people claim that it sparked off the Industrial Revolution.

I think COVID will do the same for us. It is a very profound wake-up call, certainly for me. It compressed and clarified all my own probably confused thinking, as I shifted out of my previous very neoliberal free market own background in finance, towards a complexity view of the world, in which everything is entangled, connected together, interdependent, interactive, and reflexive. So, that, to me, is the biggest shaker that COVID has brought. It has brought the connection between individuals, the role of individuals in society, and how the interaction and connectivity between individuals and society, interacts in extremely complex ways that cannot be explained linearly or mechanically. It can only be explained through what I call a complexity network perspective.

And it takes the, if I may put it very simply, the lowest common denominator, the virus, to illustrate that we are all connected, we are all interdependent, and we have to work together to, in fact, deal with this. And it’s not just a static perspective, but it is dynamic, in the sense that change happens. Change happens through emergence. And it can either emerge chaotically, we’ve now, all of us now understand exponential growth, how infection can double, treble, in a matter of days. That part, mathematics has now become very clear. It’s no longer linear algebra. It’s not a straight line anymore, it’s actually logarithmic and exponential. And that basic training in mathematics at a personal level has changed everything.

And of course, COVID has accelerated the online economy, and is having profound effect on the old mass venues, such as football stadiums, cruise ships, big malls, the large crowd gatherings, et cetera. But we’re still going through it, so, I would be arrogant if I know what’s going to come out of the end of this. But, it’s a great time for reflection, it is a great time for us to rethink, and it’s a great time particularly, and that was my message to the YSI, the Young Scholars Initiative, that the young, who are going to inherit the world, needs to imagine what our new society, our new economy, our new individual responsibilities are, to each other, in this post-COVID world.

Rob Johnson:

Yeah. What is the old saying attributed to Mark Twain? “It ain’t the things that you don’t know that gets you in trouble, it’s the things you know for sure that just ain’t so.” And I think there’s a propensity right now, of many people, who are, which you might call aware of sounding convincing as an expert, at a time when people are anxious, creates what you might call popularity or market share. But an awful lot of expertise is very, very shallow. And for precisely as the reasons you’ve described, it’s broken away from a paradigm that relied on a mathematics or a logic that had very little to do with how things actually are interconnected. And there are a lot of unknown unknowns out there right now. This is not an experience that’s happened 140 times before and we have a bell curve, we’re flying in the fog right now.

So, I think your humility is laudable, and I hope as I make my first 100 podcasts, that other people rise to that awareness just as you did. Andrew, what do you see… I’ve watched your discussion with YSI and how you see the, what you might call the economic losses accumulating, how does this, what you might call cascade through time, I remember your PowerPoint emphasized a great deal on, which you might call the difference between flows and stocks, the difference between the income statement of a company, or a family, or anything like that, and the, which you might call deterioration of wealth, and the depth of the duration of the crisis certainly turn those flows into depleted stocks.

But, describe for me how you see the economics unfolding, and then the relationship between economic support, on the one hand, and obviously, the fighting of the disease, on the other.

Andrew Sheng:

Well, I think the fighting of the disease, and I’m not a specialist in medicine at all, I can only surmise or deduce from what the experts are saying. If the experts tell me that we are 12 to 18 months from a vaccine, and I can say that we will only go back to some semblance of normality, I mean, the all normal, some semblance, I’m not even saying that we’re exactly there, when we find a vaccine. Because, nobody is going to go out, if they know that they have a random chance of getting infected, and that the medical impact on people who are of a certain age is much, much higher, and that there are a lot of people out there who are asymptomatic, which is that they look perfectly healthy, they don’t even have any symptoms, but they are carriers.

So, this issue is, we are looking out of probably a lockdown, sorry, a major lockdown to flatten the curve, followed by periodic lockdowns at as when clusters reappear in the system. So, within the next two years, because, let’s say we find this in 12 months, the vaccine, it’ll take us six months to roll out, and maybe another six months before it gets out to the poorest countries, put it this way. So, everybody would have the chance of getting that vaccine. And as we all know, the vaccine does not necessarily work immediately because the coronaviruses are still evolving.

Now, that means that if we use the rule of thumb that OECD is using, which means that it costs a loss of 2% of GDP per month of lockdown, if we’re talking out of a six-month lockdown, at the moment, people are working on what the IMF calculation is, that advanced countries will have 6% GDP decline, which works out at a three-months lockdown, which seems reasonable, because that’s what’s happening right now. But if you extend that, to let’s say 8% to 10%, we’re talking about very serious numbers. And the flow in stock really shows you that if you have some understanding of the balance sheets, what the neoliberal and the free market environment has taught us, is that we have been blind to the precariousness of the median population.

There’s a phrase that’s used here in Malaysia called B40, the bottom 40 people. But actually, it’s the B50, because the bottom half of society, actually, especially the bouch in the middle, actually is living in what is now famously called the precariat. These are the people who have only somewhere between zero cashflow, zero spare cash, to, at most, a month of savings. And that the minute that they have a lockdown of a month, they immediately fall into debt, and they may never recover. And even if they physically recover, they may come out to a job that no longer exists, because the business that was there, has gone.

And what is the solution at the moment? The solution is that the central banks and the ministry of finance applied. They fought the last war. They took the lessons they learned from 2008, 2009, and started printing money, and scattered helicopter money. And as you know, if the transmission mechanism from the central bank to the masses is not perfect, because the central banks don’t understand how to rifle shoot. That means the transmission mechanism is very efficient. You give a dollar, it gets down to what the little Abner said, you give a dollar, a dollar goes to the poor. Instead, you give a dollar, only 10 cents gets to the poor, then that 90 cents goes somewhere else, then you’re in deep trouble. And that’s exactly the situation where the helicopter money may not work.

And even if the money temporarily stalls, stalls the bleeding, it’s not a cure. I used to say, when it happened in the Asian financial crisis, and then I looked at the 2008 crisis, liquidity from a central bank is like giving blood to a patient on the table. And you can stop the bleeding, you can give new blood, the guy survives, but has it cured the disease, or the trauma, or whatever caused the shock in the first place? The answer is no. So, we really need to go much deeper into what caused all this. And what caused all this is that the old paradigm promised free markets, freedom to choose, forgetting that actually, it’s deal. There is no free lunch, there are costs, there are second-order, third-order consequences, you see the law of unintended consequences.

What the law of unintended consequences means, is the law in which, is Murphy’s law, something happens where you weren’t looking, the areas where you weren’t looking. What may happen, actually happens. So, essentially, we now really need to look, we cannot look at the world partially. We cannot say, “Let’s look only at GDP flows.” We must look at the stocks, because the stock flow is actually a substantive hole. But when we look at the stock flow of an institution, or a country, we realize that countries operating within the geopolitical system, the geopolitical system operates within a planet, the planet operates within the universe, and we are interactively interconnected and interdependent on each other.

Walter Jevons, one of the top English economist or the founders of the neoclassical school, used to say that the agricultural cycle was dependent upon sunspots. And he was using his observations then to do this. Today’s quantitative economics would completely rule out the impact of sunspots on global aggregate demand or supply. But actually, you’ve ruled out the context of climate change. Our consumption affects carbon emission. Our fossil-based consumption affects carbon emission. Carbon emission creates global warming. Global warming has a major temperature change, then has coral bleaching, together with pollution, the destruction of biodiversity, then, involved in evolution of new viruses like coronavirus, which has then created the pandemics.

So, we’re not seeing the end of… Even if we were to find the vaccine to COVID-19, there will still be more pandemics to come. Which, what does that mean? It means what Toulmin, this philosopher in history of science, Stephen Toulmin said about the postmodernism. When he looked at how the world became modern, he looked at the historical trend from a Thirty Years’ War, that was so cruel, created rationalism. So, Descartes, the French mathematician, suffered so much from the Thirty Years’ War. He said, “Let’s cut out the humanistic part of rationality and go for a mathematical, scientific, perfect world, for which we can strive and hopefully eliminate these terrible emotions that gets us.” And of course, the Descartes’ Newtonian philosophy of science and a worldview, created a paradigm of science and technology.

But, Toulmin basically also said that, “We’ve overdone this. Because, once you rule out what is human, you actually see the world like a blind man feeling an elephant. When you touch the part of the body, you say, ‘This is flat.’ When you touch a tail, you say, ‘This is round.’ And you’re only seen part of it. Whereas, for a whole, we need to go back to before the enlightenment, in which philosophers dealt with the practical, dealt with the humanist part of things. And what does that mean, is that we need to see the world in its total complexity. It’s not just quantitative, it has to be qualitative. There has to be a narrative, it has to be adaptable, it has to be robust, it has to be immune, it has to be sustainable.”

And what the neoliberal paradigm of free markets, which was very attractive, it was a rejection of totalitarianism, after the Second World War. And when it started, it was wonderful because it started with FDR creating the New Deal. And the depression, as you know, in the 1930s, was a combination of dust bowl, poverty, collapse of the banking system, the real depression, that then brought Keynesianism. It was no longer, “While we do nothing, the market will take care of itself.” Keynesianism, New Deal, meant that the government needs to intervene. But the governments always intervene, and so, there was a reaction to Keynesianism in the 1970s, and there rose neoliberalism, particularly the Milton Fried, Chicago school, which married neoclassical, “Let the market be free. The market knows best, the market would take care of everything.”

And neoliberalism means, in very crude terms, although it’s much, much more sophisticated than that, that government is bad, market is good. And this simplistic philosophy sounds extremely attractive. And under the free markets, is also very good, but there was a small elite, well, a small number of people, who understood that we can actually capture the system using this philosophy or ideology or mantra, and actually concentrate resources more and more into our hands. If you really look at the United States as an example, because that’s the best data, over the last 40 years, the income and wealth was transferred from 90% of the population. 12% of total wealth of the United States and income was transferred from 90% of the population, to the 10%.

But actually, the 9% out of that 10%, which are the professionals, the elites, who were the intellectuals, who were supposed to be the stewards of society, they did not serve the 90%, they assisted in the transfer of that 12% wealth to the 1%. And so, the United States became extremely unequal. But that inequality actually happened across the world. If you really look at the global trend, the world itself, narrowed between the rich countries and the poor countries, but really each country, intra-inequality worsened. Then you look at the whole world as a complete whole, what has happened is that if you think through it, how did we get into global warming? Well, my conclusion was, global warming came from excess consumption.

But, if you have excess consumption, excess fossil fuel consumption, you get excess carbon emission, which then gets climate warming. But what permitted excess consumption? Answer, the creation of excess debt. So, as long as you are, if you are not able to borrow, you will not be able to consume more than what is necessary. But as long as I’m able to create debt, and there is a hard budget constraint in restraining debt, you will not be able to consume so much. But the United States, being, and, in fact, all reserve currency countries have this huge advantage of being able to issue debt, what appears to be infinitely. In the old days, the monetarists basically said you can’t do this. And you can’t do this because you can’t do this in a closed society.

But the minute the world opened up, since the 40 years ago, suddenly, more than half of the world’s population, previously under some kind of state planning, the China, the collapse of the Soviet Union, India, Africa, Latin America, they all joined the global economy. So, there was a huge labor shock, as well as a production shock. They produced so much goods in exchange for the dollar. Because they wanted dollar, they wanted euro, they wanted yen, they wanted pound sterling, so, the global trade boomed. And if you then look at how global trade grew, relative to global GDP, you suddenly found exactly like that exponential curve. It rose faster than global trade, rose faster than world GDP, and the poorer countries caught up with the richer countries.

But, in catching up the richer countries, the poor, B50, the bottom half of the rich country people, started becoming poorer, because jobs were exported out of the rich countries to the poorer countries. So, the result was, there was huge inequitable redistribution in the system, and that really created this whole transformation. So, as part of the global commission, the Commission on Global Economic Transformation, I was trying to understand all this. And I then realized that the reason for why we were blind to all the problems of post-2008, was because we did not see it in complexity, systemic and reflexive terms.

And once you take that complexity perspective, in which the neoclassical copied their model from the Newtonian, Cartesian-Newtonian mathematics, but, in 1905 to 1925, we moved into a physics terms, and mathematical terms, into quantitative, sorry, in quantum theory, and that changed the physics and the biology and the scientific paradigm, which the economics profession was slow to adapt. Now, I’m not anywhere near understanding what’s happening in quantum, but because I come from an Eastern background, in which I studied Taoism and I Ching. And if you really look at the Indian Dharma, Buddhist thinking, all this are very close to modern physics entanglement ideas, in which nothing is perfect, everything is probabilistic. We live with uncertainty, and there is no perfect knowledge. And in fact, there are more and more unknown unknowns.

So, how do we now use this paradigm, to start looking at the things that we’re dealing with? Firstly, I think Stephen Toulmin was absolutely right, we can no longer look at mock static models of the world, we need to look at, not just about so-called rationality and efficiency, we need to think about adaptability, resilience, robustness, and sustainability. And that comes from an understanding of the whole, in what the Chinese call, the Chinese expression for entanglement is, “I am in you, as you are in me. Whatever I do, affects you, and whatever you do, affects me.” And that’s very reflexive. And that shifts the perspectives of this world, from an overnarcissistic view of individualism, towards the responsibilities of an individual in society.

And the minute the individual is in society, the individual is not the society’s master, the individual is not the master of the planet, even though we’ve got signs, we need to move out from a master-servant principle agent, to a stewardship. We exist on this earth because we are stewards, not the masters of our environment, of our society. And once we shift to that, we suddenly realize it’s not about debt, which is about risk transfer. When I give money to you in the form of a debt, you have to pay it back. I transfer my risks to you. And if you can’t pay me back, I need to take your money and your collateral. And then, if you can’t pay me back, you work to me for life. And that’s the meaning of the word bondage.

Bondage came from the word slavery, in which the slave owner owns the slave. But today, we are slaves to banking system, in which, we spend all our life being bonded, because we are told we can spend and we can have credit anytime we wanted. Whereas, the risk sharing stewardship is about equity. When I own equity in you, your loss is my loss, your win is my win. We share. And therefore, the whole perspective of the steward is very different, it shifts your complete worldview out of an individual, to an individual within society, and society within individuals. And that changes the perspective. Now, that perspective has a fantastic implication for the way the global supply chains, the distribution system, the way we earn money has been changed.

I just wrote a piece of paper for Project Syndicate, in which I asked myself, why is it, I’m not saying that the Chinese system is good or bad, I’m just saying, why is it different? Why is it that the People’s Bank of China has not done the massive QE as the Fed during this period? And the answer was that the Chinese banking system is less advanced than the American one, and it’s much more connected to the mass population. So, for argument’s sake, most people in China, 70% of the people in China have bank accounts, but that’s still not complete. What everybody in China has is a smartphone. So, if you have a system in which the government transfer of the money, the subsidy, the aid can be transferred directly to your smartphone, you’ll get the money straightaway.

Whereas, as you know, in the American system, the last few days, the Fed is printing all this money, providing all these programs, but it can go to a bank account, but if you can’t go to an ATM, you can’t get the cash, and if it goes to a check, the poor guy who doesn’t have a bank account, may have to discount that check at a substantive discount, maybe 10% off, or some people, 20% off, just to get the cash to survive. So, we really need to see how the different networks are connected to the masses, and to ensure that the new supply chains are not, the distribution chains, the supply chains, and the income chains, are not broken, when another pandemic or system occurs.

It changes completely. This is why this COVID is so powerful and profound, because it has forced us to completely rethink the way that we should reimagine the post-COVID world. Can we make it better than the previous one? And can we make it more resilient than the previous one?

Rob Johnson:

Now, we look at the, what you might call all hands on deck, kind of war preparation sensibility that this pandemic has brought to the surface. But I also see many people saying, “Well, it’s darkest before dawn,” things like that. And the way I’m replying to that right now is, “Yeah, and it might get darker before we see that light at the end of the tunnel.” What I find fascinating is, Andrew, you’re really underscoring and adding a great deal of insight to how the notion of ideas and the modes of thinking have just been scrambled. But I think there’s another piece of this, and I’ll use the war preparation analogy, which was that, after the depression, and the New Deal, government leaders, we’ll use Franklin Roosevelt as the leading visionary, they looked like stewards. They looked like they were putting together a society in balance.

So that, eight, nine years later, when the war preparation started, there had been a big boost in confidence and trust in the integrity of governance. I think in the aftermath of 2008, where, say, in the United States we saw Occupy Wall Street on the left, we saw the Tea Party on the right. We saw the House, the Senate, and the presidency switched from Democratic to Republican control. My sense is that the faith, the trust in the integrity of governance and expertise is in tatters. And I’m curious how you think we restore, we resurrect the faith, first, the integrity, and then the public’s faith in expertise, particularly, given such, you’ve used the word complex and reflexive phenomena, that are so threatening to the health of mankind.

Andrew Sheng:

Well, you see, that’s why I went back, when I started on this journey, and thanks that to you, Rob, for giving me all these references. Because, I spent all my life in finance. I thought I understood finance. I worked in the freest of markets in Hong Kong, and I was a great believer in the neoliberal. And then, what happened was that, after being able to have an opportunity to work in China, and then come back into the work in Malaysia, I rediscovered that we have quite a lot of blind spots. And I agree with the idea that, if you’re an optimist, you think that we’re darkest before dawn. But, if you think through the quantum theory, quantum theory means that anything is possible.

And suddenly, those of us who use the analogy, black swans, well, it says, well, this is a one in 400 event, a 400 hundred-year event. And how come, for the last three years, four or five of these one in 400-year events happen, creating one in a 10,000-year event? Well, think about this, we have been fortunate that the internet has continued working during this pandemic. What happens if there was a cataclysmic event maybe due to a massive sunspot that wipes out all our internet at exactly the same time? We won’t be, in short term, or electric power, or a drought. Somebody’s already predicting on the possibility of another drought. And in emerging markets, because people can not collect the food in the farms, we may be suffering food drop.

So, yes, an optimist would say, “Well, it’s dark,” but it could get darker. And we cannot rule all these issues out. Now, you can’t plan for all this. But, what it does take is this idea of stewardship. Now, when you said, why is it that we have lost trust? Well, the reason why FDR was such a great man, and people forget this, or lot of people forgot this, was that he was a victim of polio, which is a viral thing. And because he suffered, he had a human suffering, he understood what it meant to suffer, the humiliation of people against polio victims, thinking, “Wow, it’s this.” And he was extremely privileged person, as we know, but he suffered.

And because he suffered, he did not go the normal way, he went out of his way, to rethink the New Deal, the Marshall Plan, and set forth truth and trust, and believe in the moral goodness of man. This, I think, is what has been fantastic. Which is why, I’ve suddenly realized that all good ideas, if carried to its extreme, can be abused by the few, for their own gain, because the masses, the 99% of the people may not understood, have no clue. This is not a bias, this is because the information that they have been fed in the media, in education, in everyday experience, did not understand some of the consequences. I asked myself, why was I, every day, I cannot leave food on the table. The answer is, I would not allow the food to go to waste.

And the answer is, when I grew up, I lived through rationing. My parents told me that they were refugees during the Second World War, that, if you don’t have enough food, remember, tomorrow you may have no food. But we have lived in an age of plenty, as certainly for the people who are wealthy enough. And so, the experience level of many people, of even today’s generation of policy makers, those people who went to the elite schools, who have come from well-to-do families, who are now running the bureaucracies, the policymakers, they have forgotten how the people at the bottom live and struggle.

Because, the image always was, you are free to choose, and you can become the next billionaire. Forgetting that the chances of a lot of people is that the environment chooses for them, not they. They are, in many ways, hopeless in dealing with these situations. What can a Syrian refugee be free to choose? Of course, he is free to run. But within the environment that he or she lives in, he is in a situation of total chaos, where there’s no law and order, and they don’t know where the next food is coming from, the water’s coming from, even if they get sick, whether they will get the hospital to help, et cetera, et cetera. So, we have, there has been a growing disconnect. The growing disconnect is that the elite has forgotten their role as stewards, and think that they write more rules, they will solve problems.

Whereas, actually, it’s not about writing laws, it’s actually about going down to the grass root, to see whether the law actually is being enforced. The law says, everybody is equal. But actually, when you go down to the homeless, the poor, are they being treated equally? Now, if those people on the top live in their own little cocoons, in the French Revolution, somebody asked Marie Antoinette, and then said, “Let them have bread.” Not realizing, the people who stormed the Bastille didn’t have bread. And today, I’m being facetious, the idea is, why don’t they take a tiramisu and order it online? And the answer is, they don’t even have computers, and they can’t even buy basic rice or bread.

So, I think that we have not realized, to what extent in which there is now a misinformation war going on, in which, every day, different ideologies are now pumped out to the masses and they are confused, and they don’t know who to trust. And when they are very angry, they lash out on each other. So, we, unfortunately, our generation of leaders today, has lost a lot of the empathy that FDR had. And until they themselves begin to understand the problems of the poor, the problems of the weak, the problems who are in the dark that you do not see, are actually your problems, or our problems. We share all this together. Our way of thinking cannot deal with the need for, as Gandhi said, we will always have what we need, we will never have enough for our greed.

And that is what the current paradigm has created inequalities and abuses of the environment, in which, of course, what is easy to blame the elite, the 1%, but all of us are responsible. And it’s because the collective, the thought collective, the social thinking, which is our social capital, has been given a paradigm that is unsustainable. And it’s our job, I certainly see this for whatever I can do, is to try and steer this back onto a real connect with the people. I’m not a revolutionist, I’m just, I feel that, I need some clarity in my understanding of the world.

Rob Johnson:

Yeah. You give a very succinct statement of what the diagnosis is, and the remedies that follow on. Let me extend the discussion to a realm that you’ve alluded to a couple of times in this conversation. But, we were at a point where I would say belatedly, people were starting to recognize that we’re on a relatively short timeframe, given the scale of the transformation, to address climate change. And the climate deterioration that James Hanson and others have been talking about, just started to seemingly accelerate and move closer, and the tangible evidence of climate deterioration, and that way I say, the symptoms of social disharmony and disruption that would accompany, were emerging before our eyes.

We’ve now had a pandemic, and we’ve had to make very substantial contributions of our fiscal capacities all around the world, to address this disease. Some people feel that the exhaustion of fiscal capacity and the fatigue of the population, many of whom have been displaced from their jobs in order to diminish the propagation of the disease. But many jobs are going to change structure, in light of what’s been induced in this coping. And so, are these people going to say, “We just can’t do climate now, we’ve got to stabilize things,” and well, will lose valuable time? Or, alternatively, as the people who you might call optimists, say, “The paradigm that wasn’t addressing climate change is in tatters, and the pandemic has awakened us, and now we can turn towards climate change, and the collective action, collective responsibility, and accelerate the transformation.”

And in essence, using the awakening of the pandemic to facilitate climate change, and possibly using climate change transformation as the fiscal program or mission that’s used to reinvigorate employment and in a profound transformation of the structure of the economy, at a time when caution in deficient aggregate demand would be the likely outcome absent in such a mission. How do you see climate change and the energy to address it, in light of what’s unfolded?

Andrew Sheng:

I’m an optimist of the climate change issue. Actually, in my view, the pandemic is a first rate wake-up call to everybody, to say that the old model of economics and market-solving climate change is gone. I mean, we wasted years, because somebody said that as long as we create a carbon market, the carbon market would solve everything. And we solve nothing. And the reason why we solve nothing is because the carbon market may work working in Wall Street, but it doesn’t work in the Amazon, it doesn’t work in the Great Barrier Reef. Because, ultimately, that money that revolves around Wall Street, trading carbon, is not going to go down to the person who is going to deal with stopping cutting down trees in the Amazon, stopping people polluting rivers, et cetera, et cetera.

The pandemic, anyone who has watched the satellite pictures of what’s happening in Europe, and in China, including in India, over the nitrogen oxide concentration, carbon dioxide concentration, would see that actually, the slowing down of human economic activity, actually is slowing down carbon emissions. Now, it won’t last forever. As China begins revive economic activity again, and human travel restart again, we may go back to the old normal, which is going to be very sad. But think about this, and I want to use the Angkor Wat and the Maya civilizations as examples. Human beings tend to forget what they did was good, and what later on they did to glorify themselves was bad. The Mayan civilization started because they actually learned how to use water properly. The Incan invented irrigation, et cetera, et cetera, created agricultural produce, and then started building pyramids.

In Angkor, civilization grew based upon water irrigation, which increased food production. And then the elite started building greater and greater temples, taller and taller pyramids, and then neglected the irrigation. The mosquitoes came back, malaria came back, society became corrupt, and the civilization collapsed, just as in the Mayans. And this is exactly what we are doing as human beings. We are building higher, taller and taller, tall and steel and glass buildings are temples that worship money. The biggest, the tallest buildings in the world, often are banks, bank buildings. But, what do they do for the masses, other than creating jobs in building them in the first place?

So, why don’t we use human energy to clean up the ocean, to clean up our rivers, to clean up the plastic, to build new plants that actually are much more economically, environmentally sustainable, to make our cities grooming, to actually use solar energy and replace the fossil fuel-based carbon? I’m personally working on the idea that power is related to sunlight. Because, ultimately, if you really think through where energy comes from in our planet, it actually, most of it comes into sunlight, and sunlight is through photosynthesis, become fossil-based energy, which we learned to burn inefficiently, to get back the energy. So, actually, if we then think through it, because sunlight is free, we can actually use that solar energy to power a lot of things that were going on, and could become much more economical. But that’s another conversation.

Essentially, what I meant is this, is that human beings learned to use the cheap, what was thought to be cheap fossil-based power, to power human consumption, that is hugely damaging to the environment, and at the same time, a device mechanism which are hugely damaging to other human beings. I think we can rethink this game. I think that COVID-19 has forced us to rethink this game, and rethink it out of the box. That means we need to change the paradigm. And I’m not smart enough outthink this paradigm, but I’m trying to, what I was trying to do in YSI, was hopefully, to spark some young minds, who have not been as embedded with the old paradigm, to rethink the system, so that we will be able to find our way out of this.

I’m totally convinced that the days of individual polymaths are gone. That means, the days of Plato, Aristotle, Confucius, or Jesus Christ, or Muhammad, and all these, are increasingly less important than the social capital, the brain power of many, many people. Of course, there is, very often, one or two leaders or a few amongst them. If you look at those, all the scientific papers, some of them have 20, 30 names with them. And some of these papers are really profound, are very, very good. What does it tell you? It tells you that social intellectual capital may be the savior to finding our new paradigm. And that’s where maybe we will find this, out of this Darwinian contestation from diversity.

It’s going to be a much more bottom-up paradigm change, than a top-down, having somebody like Hayek or Keynes, trying to describe what’s going on.

Rob Johnson:

And I sense that, in the context of that bottom-up, the question of globalization and global governance will come into, under a great deal of scrutiny. Because, on the one hand, what you see at the very local level, is people who are sensitive to the conditions of the citizens around them, but they don’t have the power. Given that the domain of the sovereign is much smaller than the scope of the market, they don’t have the power to alleviate the maladies or address things credibly. And on the other side, you have global governance, where everything is under one roof, but the distance from the people, it’s a top-down type solution. And in recent years, that top-down type solution appears to have, which you might call been structured so that financial capital and technology can have wings. Whereas, people are not as mobile, thinking of people now as a fact of production, or that’s only part of their being.

But the relatives bargaining power shifted towards capital and technology and a way from people/labor during this preceding episode, and the diseases of despair, the geography of where they’re located, the despairing voting, we might call it, to leave in Brexit, for Donald Trump, for Marine Le Pen, for the AFD and more, all correspond very closely. And so, I think we’re going to have to reconsider, in light of the bottom-up imperative, how to organize this planet in the, what you might call unbridled, unrestricted free market notion that a traditional economist was taught to believe in “free trade,” has, how would I say? I think it’s run into an awful lot of conflicts or contradictions that make it hard to understand where we go from here.

Andrew Sheng:

I think you’re absolutely right. But I am not a pessimist about globalization. What is COVID-19? COVID-19 has become global. It started local, and it’s spread around the world in maybe less than 90 days. And maybe within six months, it will be a very large part of global issue. Somebody wrote the other day, that we’re dealing with two pandemics or epidemics. One is the viral, and the other one is fear. But actually, what he has described is information is also viral. And global information nowadays, through the interconnection of the internet, is now spreading very fast as a countervailing power to the pandemic. Never before had we seen the explosion of spontaneous research done by people from all over the place.

If you really think about it, in the old days, it may take three months to six months to design a face mask and bring it out to market. Today, with 3D printing, and a little bit of ingenuity, a little backpack shop is making face masks almost within 24 hours. So, in my view, the COVID, the viral image of the COVID is actually an information viral. Information has become global. You almost cannot stop it. Even though there are people who track for political or for whatever means. But, then it started reflecting, I started reflecting on this, and I just been reading a paper on what does truth economics mean? And there’s a wonderful paper by Frank Knight on the subject.

I am not totally pessimistic over globalization. I think there will be a lot of fights, as human beings will fight over different beliefs, different experiences, but the viral nature of information, that now spreads around the world. And the fact that sunlight is available everywhere, which is, energy is everywhere. It’s only a matter of the technology, how to harness that energy from sunlight, rather than relying on fossil fuel. Means that anybody anywhere, under any condition, if they actually help, and through crowdfunding, we can help this. I mean, can you imagine, a war veteran in the United Kingdom, nearly 100 over years old, I think, can walk around his house, and raise 20 million pounds in a matter of weeks, shows that crowdfunding is possible, and people are generous. Some of these ideas.

So, there are a lot of the ideas that, somebody in the Amazon, who has some equal access to the internet, may be able to raise funds to change their livelihood, if they have some ideas that can help them, and it can help the rest of society. I am not totally pessimistic on what is happening. I realized that we will always, human beings, there’s always the struggle, and a very complex interaction between the few and the masses. And I don’t want to sound like a Marxist or a socialist or whatever, all I’m just saying, we do need to take care of most of our people, and we cannot have these social injustices that we are increasingly witnessing. And the reason is not because it is not good for individuals, but because we have to think about the complex whole.

So, it’s exactly my own work in progress that I’m trying to research for what I believe must be the right way forward. All I know is that there’s no going back.

Rob Johnson:

Well, I’m, how would I say? I can feel you going forward, you’re at the vanguard of new economic thinking, you’re a dynamic impetus to the Commission on Global Economic Transformation, co-chaired by Mike Spence and Joe Stiglitz, both of whom greatly admire and appreciate your yearning and your search. As I listened to you, Andrew, I’m always reminded, and this is about the fifth or sixth time, of a verse in a song by Leonard Cohen. The name of the song is Anthem. But the verse goes, “Ring the bells that still can ring. Forget your perfect offering. There’s a crack, a crack in everything. That’s how the light gets in.”

Our paradigm is broken, it’s cracked, it’s in tatters. That perfect offering was a mask. And I don’t know anybody on this planet right now that sheds more light on to where we have to go than you do, and I want to thank you for being with me this evening and exploring these issues that I hope to talk with you again in this forum, before too much time passes. Thank you, Andrew.

Andrew Sheng:

Thank you, Rob, for allowing me to share this journey. I mean, it’s been a fantastic journey and exploration of fantastic minds, that, hopefully, we will see some light at the end of the tunnel. The perfection cannot be the enemy of the good. And I think there is still a lot of good out there, and we should go and search and find the light. Thank you very much indeed.

Rob Johnson:

I look forward to continuing to work with you as always. It’s a pleasure. Thank you. Bye-bye.

About the Host

ROB JOHNSON serves as President of the Institute for New Economic Thinking.

Johnson is an international investor and consultant to investment funds on issues of portfolio strategy. He recently served on the United Nations Commission of Experts on International Monetary Reform under the Chairmanship of Joseph Stiglitz.


About the Guest

ANDREW SHENG is well known in global financial circles as a former central banker and financial regulator in Asia and a commentator on global finance. He is Distinguished Fellow of Asia Global Institute, the University of Hong Kong. Andrew is the Chief Adviser to the China Banking Regulatory Commission, a Board Member of Khazanah Nasional Berhad, the sovereign wealth fund of Malaysia, a member of the international advisory council of the China Investment Corporation, the China Development Bank, China Securities Regulatory Commission and the Securities and Exchange Board of India. He is also an advisor to the United Nations Environment Program Inquiry into the Design of a Sustainable Financial System.