Danny Quah: Why the Ferrari Economy Failed


Danny Quah—Dean and the Li Ka Shing Professor of Economics at the Lee Kuan Yew School of Public Policy in Singapore—talks to Rob about why the fast-moving “Ferrari” economy we’re used to is ill-suited for the pandemic, and why we now need a sturdier “Jeep” economy that can handle bumps in the road.

Transcript

Rob Johnson:

I’m here today with Danny Quah, who’s the Dean and the Li Ka Shing Professor of Economics at the Lee Kuan Yew School of Public Policy in Singapore. Danny is also a Commissioner on the Commission on Global Economic Transformation that is sponsored by the Institute for New Economic Thinking. Danny, I’ve known, going back as far as INET goes, when he was at the London School of Economics, and we explored working together, he sees things from many dimensions and he integrates them well. And I’m very happy to welcome you, Danny. Thanks for joining me for a conversation this evening.

Danny Quah:

Thank you for having me.

Rob Johnson:

It’s my pleasure. Obviously, here we are in late April of 2020, and this pandemic, if you will, has torn the mask off of our societies and revealed shortcomings, it’s revealed dimensions of challenge that were not on the table of conversation, or debate, or in working papers or research program, and I think it will profoundly change the way we see things. What are you seeing around the world? What is being unmasked in your mind? Who’s doing things well in response? What more would you like to see?

Danny Quah:

I agree, Rob, that this is a situation that will profoundly change the way the world operates going forward. On our Commission on Global Economic Transformation, we have always been concerned about, in effect, trying to get the world to come to greater cooperation, either on economics, on climate change, on a range of collaboration issues. There are many situations that you and I and the commission have encountered, where we think this is a zero-sum game, or the actors think it’s a zero-sum game, or it’s inadvertently become a zero-sum game, and collaboration is then tricky. But this situation, the COVID-19 pandemic, is one where you would think collaboration and cooperation ought to be relatively straightforward.

The enemy is not some other nation, the enemy is an invisible coronavirus, doesn’t care about nationality, doesn’t care about geography, it doesn’t care about income class, it doesn’t care about the status of wealth. Here, one would think our global economic transformation work ought to be more straightforward. But it’s not been. And part of it is that we’ve come into this situation on the heels dragging on the floor of an already in progress US-China conflict. It is a geopolitical confrontation that has spillovers into economics, into trade, into culture, education, a whole set of other issues. End of it, we entered the COVID-19 pandemic with a world that mistrusts each other and has profound disbelief about one another. And this is the worst possible state to be in.

The science on COVID-19 has actually been in my reading relatively clear. As early as January, Chinese scientists were telling the world that there was pandemic potential here. High mortality was to be expected, death counts would be increasing rapidly. Many nations did not respond quickly. Singapore, as it turned out, did. Because of our history of experience with SARS, Singapore very quickly set up quarantine facilities, we started contact tracing, we did extensive testing, we rolled out social distancing, we did our best and we were able to keep things in check for a while.

China locked down, but many nations did not. Or, if they tried to, they did not do so very well. India announced a lockdown that was supposed to come into effect four hours after the announcement, leading to hundreds of millions of people in total panic and disarray. Around the world, even after the news of this human-to-human transmission, many nations did not take immediate action. The outcome now is a global pandemic, where, in some parts of the world, deaths have been kept in check, but in other parts of the world, the number of deaths, the number of confirmed cases have gone through the roof and show no signs of flattening. So, we’re in a very difficult situation. The world needs to come together, but it needs to come together, unfortunately, out of a background of mistrust and disbelief.

There are many lessons we should be learning from each other, and unfortunately, it seems to me that a lot of political leadership has not been able to overcome the situation of mistrust, to fully take on the lessons. We need to do this. We are now faced with a world where national circumstances in terms of preparedness, healthcare infrastructure, medical care systems are widely varied across the world. I think we’re going to see a further second, third, maybe even fourth wave of increases in confirmed cases and deaths, even if at the same time, we’re trying to keep our economies together, because the shutdown has led to millions of people being thrown into unemployment, jobs being left vacant, investment plans unable to follow through. So, we’re not in a very happy situation at this point, Rob.

And our commission is one that is, I think, well placed to begin to bring together the different strands of thinking, so we can take the next step to heal the global systems that we’ve got.

Rob Johnson:

Well, I think you raise a lot of interesting questions that we’ll explore. But I do think the economics profession or ideology has focused on the individual as if the individual is sovereign or the individual’s freedom is what’s being achieved. And provided you, at least, have a little money, demand goes into a market and the market is the arbiter that delivers what you deserve. But we’re also in a kind of place, unlike what you said in your wonderful article in The Straits Times of April 23rd, it was called, Could It Be Time to Swap the Fast Car For a Slower, Sturdier One? Everybody should go online and hunt this down and read this article.

Because, what you underscore is that individuals, at some level, are not little modules that are separate and free from a system, but we’re in a global society and everything is at a real and personal level. And as we prepared for this talk together, we talked about my experience as a young man, where the politics of the antiwar movement related to Vietnam, reflected even in my neighborhood where many people I played touch football with and everything got drafted, is that everyone had skin in the game, whether it was neighbors, friends you loved, or what have you. But the antiwar movement took place because of a contradiction.

When America was leading the world, had done a beautiful job, or whatever, at the end of World War II and whatever, there was this contradiction between, “Why is my son, or best friend, or boyfriend, or whoever, going to war, when no one can explain to me why we’re there?” And so, when I read your writings about individuals in a global society are being engaged at a real and personal level, this is a much more powerful and different politics. But because of the prevalence of externalities, meaning, how you and I affect each other, how we’re all in the same boat together, this is a really powerful time for the transformation of the vision of what happens to society. And I haven’t read a better exploration of that than the article that you did in The Straits Times. I think you’re right on the button. But why don’t you just share-

Danny Quah:

Thank you very much. Thank you, you’re very kind. The couple of points that I wanted to draw out as well from what you said, I think that your emphasis on how the economics discipline has approached the problem of individual action, your emphasis is exactly the right one. Economics, of course, also tells us about externalities, and I think that it’s always been a bit of a schizophrenia in our profession, are you one of those economists who works on externalities, or are you one of those economists who doesn’t think externalities really matter?” I think the question that COVID-19 has thrown up for us, is that, that issue of externalities, their pervasiveness in the systems that we operate in, it’s not just an academic question, it’s not just a question of research approach.

What COVID-19 has done, is make the challenges of entire systems personal and upfront. And it’s done this, this COVID-19 crisis, has done this in a way that few other crises have allowed to search it. I think, for many of us, Rob, you and I first got to meet each other in the throes of the 2008 global financial crisis.

Rob Johnson:

That’s right. That’s right.

Danny Quah:

And at that time, all of us were worrying about what the GFC was going to do to individual livelihoods, was going to do to our social and economic systems. But one of the things that a pandemic crisis brings home is the tight connection between individual responsibility and outcome. In a pandemic, you violate social distancing, you behave irresponsibility, the consequences are immediate. You could get sick, you could suffer terrible respiratory failure, you could face your own mortality. And that happens very quickly. In the global financial crisis, as each of us worries about our jobs and about our savings, the connection that we make is, “Oh, this is related to a foolish investment decision I made five years ago. Oh, this is due to a large institution taking on excessive risk. Oh, this is due to the corporation not behaving responsibly.”

The owners of blame, responsibility, and actions, take on very different forms in a pandemic like COVID-19 and in a global financial crisis. This time, really, is different. In a global financial crisis, even as that each of us suffered, we looked to governments, we looked to financial institutions, we looked to the banking system to fix things for us. And very unfortunately, often, the incentive to fix those things were not properly aligned with the circumstances that individuals within society found themselves in. So, a decade after, many large financial institutions have not really reformed the way that we all thought they should. But the COVID-19 pandemic makes the distance between our actions and the outcomes very minimal. And we are all incentivized to want to change things.

The fault is not just an economic one, that overly focuses on individuals and the distance between how social outcomes emerge. A political system, a political way of thinking that emphasizes individual rights to an over-exclusion of social responsibility, also has to take some of the heavy lifting in the outcome that we have seen here. So, we’re in a very, I think, we’re in a period where a great transformation can occur in the way we think about the relation between individual responsibility, individual actions, social outcomes, and epidemic is the very archetype of what spillovers and externalities are.

There is no longer a question of whether spillovers are real, it’s actually happening in the way millions of people around us have been confirmed cases on COVID-19 infection transmission, the way hundreds of thousands of people are dying around us. Spillovers, externalities are very real, it makes this crisis very different from a financial crisis, and it ought to put a sense of urgency in all society, in all individuals taking a new look at public health systems, at medical systems, at healthcare, to see whether the systems that we’ve got are really fit for purpose, will really take care of all of society going forwards. This is a profound change from how we thought about how financial systems ought to be repaired in previous global crisis.

Rob Johnson:

Well, you use a wonderful metaphor, at least, for a guy that grew up in Detroit. In your piece, in The Straits Times, where you talk about the difference between the equivalent of like a Ferrari, a race car, and a little bit slower, more resilient car, I’ll call it a Land Rover or a Jeep. And using that analogy, we’re seeing right now, that the finely tuned, delicate kind of high, strong and fragile car like the Ferrari, it’s not all that we need. And that the resilience of the system, the clunkier Land Rover that doesn’t require smooth pavement, but can bump around through the hills and off-road, plays an important role. Tell me a little bit about that perspective in your mind.

Danny Quah:

Okay. You’ve described it really well, an analogy that I try to use to communicate how we can think about economic systems around the world. There are those that are honed to perfection. There are those systems where every single piece is gleaming, it is fine-tuned to perform at maximal efficiency, and all the parts hang together to deliver the fastest time possible going around the track. In such a system, it is natural for the owners of the car to pay great attention to the whizzbang, most modern pieces of the system, because that is what that pulls the car forwards, and what drives the engine ever faster to break new speed records.

The older parts of that car, the old school greasier pieces, I think that typically will see less care, because they are mundane, they are every day, they are ordinary. It’s not what makes for the best performance in a fast car. Contrast that with a different kind of economy, where things are robust. In this other kind of economy, they look across to the fast kind, the fast cars, and they see that if there’s a tiny bump on the speed track, the shutters that go through that car will drive it to failure. If any imperfection shows up, then that fast car will no longer be able to cross the finish line, because it is geared to cross the finish line quickly. It is not geared to take into account bumps along the way.

The makers of the second car say, “Well, we don’t want that kind of a system, what we want is a car, a sturdy one, that always crosses the finish line and brings every part of the car along with it.” In this alternative system, yes, care, proper due care is paid to those parts that drive the engine forwards, but due care is also given to the greasy bits of the car, because the makers of the second car realize that the strength of the system comes out of how strong the weakest link turns out to be. It is that weakest link that we need to be sturdy, that will bring all of society, the entire vehicle across the finish line. So, if we allow ourselves to think about systems that are long-run robust, long-run resilient, then we no longer think about sweating the small stuff.

What we want is a system that’s resilient for the longterm, that’s sustainable, that will bring us past the finish line. In the real world, what does that mean? That means that we take care of the weak and vulnerable in our society. Those are the everyday bits of our sturdy car, that we need to be strong because it is those parts that will eventually bring us, all of us across the finish line. We pay proper attention to the parts that are gleaming, and modern, are real, but we don’t fetishize the superstar nature of them. This taking care of a sturdier alternative system, automatically flattens the income distribution. We’re no longer fetishistic about an economics of superstar effect in those parts of our economic system that are constantly pulling at the front here.

We recognize that those are useful, but we recognized too, how the weakest links in our society need to be made strong. That’s the metaphor that I try to use to think about how different societies are responding in different modes of resilience to this COVID-19 attack, this big bump in this track, as we go around trying to bring our cars to the finish line.

Rob Johnson:

In your article, you also talk about how, what you might say the market vision which emphasizes efficiency just in time delivery and what have you, is a, how would I say? Kind of a pure vision, whereas, in the healthcare and health security systems, which are rife with the problems that people like Joe Stiglitz and others have talked about of adverse selections, asymmetric information, those systems do not inherently reach to a social optimum, they cope with the kind of imperfections that you articulated in your article. And I guess we could extrapolate from the health system, maybe some of those imperfections are more rife, more plentiful in the economy, and that this kind of extreme optimization, I think was the phrase you use, is not really where it’s at when you’re trying to take care of a whole society.

That the superstar system of huge economies of scale and efficiencies, but working on razor-thin margins is not what takes care of a society entirely. And to be like economist, which is what this podcast is about, it’s very awkward when you need what I’ll call contingency insurance, to expect private sector entities to be the providers of that insurance, when that’s more of a public good than a private good in terms of how incentives are structured.

Danny Quah:

Absolutely. What you’ve described in terms of maximal efficiency, is something that, let me put my cards on the table, is something that I subscribe to. I subscribe to it in the fall in the same way that I continue to subscribe to the best of globalization. I subscribe to them in an ideal sense, because, optimally efficient systems, globalization, those are ideas, those are constructs, architectures, that seek to make humanity better off. There are things that try to make everything, that’s the best that humanity has been able to create, available to everyone in human society, at the lowest cost possible. There can be nothing objectionable in that. But the way in which human society in reality, tries to implement this, we need to take into account exactly as you say, Rob, the kinds of imperfections that Joe Stiglitz and other writers have been concerned about.

Externalities are rife in the world. Adverse selection is a huge problem in healthcare. Imperfect information more generally. Healthcare provision, medical systems, all public goods, all global public goods that we can think of, our systems are commodities that bear huge increasing returns. Set up costs are significant, time to delivery is large, every individual ends up and gaining more than they have to put in. Externalities, public goods, the world is filled with these. And if all of that seems abstract, we can drill down to something very specific, something that everyone is thinking about right now with COVID-19, vaccine development. Why is it that in the 21st century, with science and technology developed the way that we’ve gotten it, vaccines against the world’s most infectious diseases are hard to come by?

When we try to unpack that, we realize, there’s a high setup cost, research development costs are extensive, the time to development is large because human tests take up to 18 months. While all of this is going on, any private company involved in vaccine discovery and production is facing a drumbeat of dissatisfaction from its shareholders. Its board of directors is pressuring management and scientists, “Where are the returns on my investment?” And then, if a vaccine did come about, and were applied to the world, there is every chance that the global pandemic vanishes very suddenly. The vanishing of the pandemic means market returns dry up, no further profits. This extensive development, which might have caused scores of billions of dollars, have paid a very low rate of return.

The economics of externalities of increasing returns, explain to us why vaccine development is so difficult, why vaccine development is concentrated in just a few very large companies, who do not find it profitable to, in the normal course of events, continue extensive vaccine development for these black swan type outcomes. So, this is a situation of extreme market failure. The globalization efficiency scenario that I drew at the beginning, making everything that humanity has been able to create available to everyone at the least cost, that is a vision that we need to continue to try and uphold. But in the reality is implementation faces all kinds of bumps.

And in the reality, the need for an oversight body, whether we think about that as a national government or an international organization, something like a beefed up World Health Organization. The role for those in economics is very clear. But what we have not been able to do is design mechanisms that implement these optimal outcomes. We will not be able to do that if we continue to be beholden to just a simple-minded version of how markets operate.

Rob Johnson:

Well, and I think that notion that which I might call the state, has to play a role in providing those public goods. At least, in the United States, comes into tremendous conflict with where the body politic feels is the way the state operates, which is what in the current economic terms we call capture. Where the state isn’t providing basic scientific research to provide public goods, the politicians and the appointed officials are collecting, fundraising to allocate public money to subsidize things that particular companies want, that may or may not be a part of that market imperfection.

And I think, when people talk to me in the current circumstance, using the analogy of war preparation, I try to remind them that Franklin Roosevelt came to power as a man who had suffered from polio, but was considered an Orthodox, elite, oligarchic, if you will, inherited wealth, conservative. And he rose to the occasion. And the New Deal, the escape from the depression, created a confidence in government that it could create the equivalent of what we would call a win-win game. That’s the antithesis of what’s happened in the United States. Whereas, Joe Stiglitz, our co-chairman of the global commission, said, “We did a bailout and the polluters got paid.”

Well, you saw the energy around the Obama administration created Occupy Wall Street, the Tea Party, a turn of the control of the House from the Democrats to the Republicans, a control of the Senate from the Democrats to the Republicans, and the outgrowth was the election of Donald Trump, who ran around our country and talked about the system is rigged. That was his bumper stick. The system is rigged. And people felt that. I’ve often tried to prescribe a way of seeing a public sector differently. And Danny, this is interesting to me because I’ve cited the Government of Singapore as an example. Public servants are well paid, they’re well trained. Their departments have adequate budgets. They’re disciplined if they become corrupt. And I guess I’m asking you, but in this long winded way of exploring, what do you need to do to underpin a public sector so it can focus on those public goods that are in short supply in the Western world today?

Danny Quah:

That’s a really profound question. There’s so much dogma across nations as we debate the advantages and disadvantages of different political systems, that it’s a really tricky area to try and get into. I think that your example of President Roosevelt is overcoming adversity to become the wonderful political leader that he turned out to be. It’s very instructive. It’s the kind of skin in the game traction that we need our political leadership to understand. I mean, systems that emphasize the individual, I think, ultimately are the right system, because it is the individual whose wellbeing we are all concerned about.

What I think different nations have different views on, is how much individual rights are also automatically social rights, whether individual rights are truly private and personal always and everywhere, or whether the spillovers that they show in political and social systems are so clear, that we need a different theorem, a different architecture to try and manage the individual and the social. Isaac Asimov, one of my favorite science fiction writers, in 1980, he wrote that too many of us have the mistaken belief that equality in political systems, the importance of the individual in political systems, there’s a mistaken belief that what that implies is my ignorance counts as much as your expertise. It shouldn’t.

Society should still understand that there are different roles that different individuals, different responsibilities play. And I think one of the lessons that I’ve learned from participating in the conversations in Singapore, is how much each of us feels that we are part of the society here, and the actions that we undertake have consequences for everybody around us. In other words, the way that society has been constructed here, impresses upon the each of us, how the individual rights have social consequences. And I think many people here, take that into account. We try and act responsibly. And we understand that when a government that is well-performing, that is benevolent, that’s able to explain and articulate what it seeks to achieve, when it explains to us what the situation is, what we need to do, many of us take the right action.

Not all of us. Every now and then, somebody will break the rules, and there have been instances where quarantine break, where people have violated social distancing, circuit-breaker rules. So, it’s not automatic, and all of society behaves the same way kind of effect. But I think, an understanding of the relation between the individual and social outcomes, understanding how what each of us does, has consequences for all of the rest of us. That is something hugely important, that, when I was growing up, civics lessons tried to impart to us that somehow, the disciplines, the academic disciplines at university level seem to not pay as much attention to. I don’t think that it is without hope, I think that, in economics, we have the second welfare theorem, that tells us the relation between the individual and the social outcome, but we also learn about externalities as spillovers.

It seems to me that many other social science disciplines get a flavor of the second welfare theorem, that individual actions that are optimal lead to social outcomes that are efficient, but then they never seem to quite learn the other things that in economics we learn about externalities as social spillovers. All the things that Joe Stiglitz and others have written so much about, economists know, many other social science disciplines need to fully absorb as well.

Rob Johnson:

Yeah. Well, it’s interesting you say that, when you look at sophisticated researchers, you mentioned Joe Stiglitz, your own work, and others, the notion of externalities. I mean, I’ll quote you in the last line of your paper on, it was time to swop the fast car for a slower, sturdier one, that appeared in The Straits Times. COVID-19 has shown our economic world is rife with externalities, where we ourselves rise by lifting others around us. The question, I guess that when I read that, I thought, “Do our textbooks reflect the notion of rife with externalities?” Usually, in chapter 37 in some little place in a major textbook, they talk about externalities like it’s an anomaly you have to cover to span the logical spectrum of things that could happen, rather than something that’s on center stage.

Well, this pandemic maybe changes that emphasis, but so does climate change, and the public good of climate change, something that is, which I might call troubling for national governments, because you can do your best and you can still end up in a dreadful place if others don’t as well. How do we see what the pandemic’s awakening provides us insight to the challenge of climate change?

Danny Quah:

That’s a really important question. I think that there are short-run consequences and long-run implications. Short-run consequences will look like our attention, global attention, as it will be diverted away from the other global challenges that confront us, among them, the most pressing, global climate change. If only in a very mechanical way, when our attention, our resources are devoted to fighting the COVID-19 pandemic, social distancing alone has prevented the kind of civil, constant civil action that’s needed to impress upon people, society, governments, the actions that are required for preserving our environment, for continuing to combat global climate change.

Native peoples around the world, for whom frontline first order concerns on the environment was how they operated for the last few years, they see those concerns displaced by social distancing rules, circuit-breaker regulations, attention paid to COVID-19 pandemic. So, in the short term, it will seem like the world has taken his eye off the ball, in terms of these other large global challenges that we face. But my hope, Rob, and I think yours as well, is that longer term, this wake-up call that COVID-19 has impressed upon all of global society, I hope all of our political leaders as well, is that, you cannot wait until it is too late. You need to take action ahead of time, on these global challenges that are not specific to individual nation, that only the entire world by coming together, we’ll be able to treat.

So, my hope is that longer term, after we’ve gotten past COVID-19, we’ll realize that the world faces a sequence of these kinds of critical global challenges. We cannot wait for those challenges to grow to an extent where it becomes too late to repair them, we need to work on those as soon as we can. So, longer term, I am hopeful that the world will come around and take the right approach to these ongoing set of global challenges. I think, actually, since I’ve used the word hopeful, we see around us now in the world, many different incidents and events that are extremely worrying. We see national governments and political leadership ignoring the lessons from signs, ignoring warnings that medical doctors, the World Health Organization have brought to us.

We see that months after the first 50 confirmed cases of COVID-19, some nations have still not taken appropriate mitigation circuit breaking social distancing steps. We’re looking with horror at the possibility of a second, third, fourth wave of peaks in the epidemic curve. We see frontline health workers being attacked by elements of different societies around the world. We see elements of different societies denying the good work that scientists, frontline medical people have been putting in, to take care of the wellbeing of society is by ignoring social distancing rules, by telling each other that COVID-19 is a hoax. All of this is very disconcerting.

But the optimism that I continue to carry for fellow citizens, for the people I see around me, is how, at the same time, we have all come together to support frontline workers as best we can, to support the weak and vulnerable in society, even as it is that segment of society that’s carrying forwards the rise in confirmed cases. I think that what humanity has been able to find in these isolated incidents, and I believe this is the majority of how humans are behaving, is that we are learning that by caring for each other, we make ourselves individually better as well. We keep all of us safe by taking care of the weak in society. And I think that’s an abiding lesson that humanity will have to carry forwards.

Rob Johnson:

In the context, what I will call the historic context of learning to care for each other and support each other, you described at the outset, a very, very powerful rift, I’ll call it, between the United States and China. I remember my friend, Orville Schell’s book, Wealth and Power, where he talked about the Chinese society, which was humiliated at the time of the Opium War by the British government, and by the Japanese invasion in the ’30s, and there’s a very strong sense of what you might call a national identity in regaining the stature which we once called the Middle Kingdom. On the other side, you have the United States with a Cartesian enlightenment framework of thinking from the West that’s been the leader, and now we look at the United States and China, two philosophical systems, one rising perhaps in a wounded way, seeking redemption, the other, not wanting to cede control with a certain pridefulness desire to be emulated.

We place all of these policy issues in this tension, in this cauldron of the historic circumstance of these two countries, and things have not, how would I say that? Collaborative spirit has not been evident, or it’s been deteriorating rather than strengthening. But, for the planet to survive vis-a-vis climate, to handle things like the global economic division of labor in the context of the United States and China having different philosophical systems, in the future of potential alignments, which team are you going to join if it’s polarized between the two of them? You live much more closely and sensitively to this fault line or this potential stress point in the world economy, but my intuition is, a whole lot that matters a lot depends upon the United States and China recovering from this rivalry and understanding, as you’ve said in comments to me, that we raise ourselves by lifting each other.

Give me some help here, how do you see, how can we evolve the U.S.-China relationship into a constructive direction?

Danny Quah:

Yeah. That’s one of the great multi-trillion-dollar questions of the geopolitical, geo-economic system now, and it forms a background, a very, very unsettling background to all of the COVID-19 pandemic discussions we’ve been having. Time was, I mean, I’m of a generation, I went to the United States for my university education and for my postgraduate education and for my first job, the United States was the nation all of the rest of the world looked up to. Its soft power was unchallenged. And what was better than it all, there was no reason to challenge that soft power. The whole world was happy that the United States was the unrivaled leader of the entire world.

There’s sometimes a narrative that says America is the leader of the free world, but for those parts of the world that America might not have considered free, they actually didn’t care, because America was the leader of the world in every single dimension, in science and technology, university education, in useful knowledge, in management systems, in cultural iconography, in movies, everything that the United States did, it could do no wrong. And when we look at the world today, I think many of us say, “What a terrible waste, that we should move from a world with a benevolent leadership that the United States showed, to one where it is about almost petty squabbling in the midst of a crisis that threatens all of us.”

In 2010, the U.S. security establishment rewrote what it viewed American foreign policy should focus on. It said that America should move away from an overriding concern about international terrorism, to instead, geo-strategic rivalry. And in one fell swoop, it removed the idea. In doing that, the security establishment removed the idea that America should be the leader of the world, taking the global economy to ever better livelihoods for everyone, to making the world essentially a zero-sum game. One way, it is paramount important, who is number one and who is number two, rather than holding on to a narrative of how the America is number one. Because, we do good things in the world, and the rest of you, if we ever held an election, would vote us number one.

So, we moved from that kind of a world where leadership was both supplied by the United States, and in high demand by the rest of the world, to one of zero-some petty rivalry. Against that background, COVID-19 emerge, and so, the space for international cooperation and international collaboration was a narrow one. All the rest of the world felt that the way the U.S.-China conversation was going, at some point, we were going to be forced to choose between two different camps. And for the rest of the world, we considered it such a terrible waste because we didn’t know what to choose. We felt that both nations, both great nations had wonderful things to contribute to the wellbeing of global society.

So, if that were ever needed to be made concrete, the competition or the squabbling over 5G technology. America did not have a 5G alternative to offer the rest of the world, China, through Huawei, already did, but America was going to make damn sure, nobody was going to be allowed to choose Huawei’s 5G technology. So, that was the background that we entered the COVID-19 pandemic against. It is not the best of situations for the world to try and combat something that is attacking everybody simultaneously. And we have not been able to set aside these narrow differences. When America says, it no longer feels that the global system that we had previously benefited it, how wrong is America?

The entire rest of the world felt that America was the acknowledged unrivaled leader. We paid it the respect and the tribute befitting someone who was a benevolent leader. But the MAGA approach to running foreign policy has not allowed the rest of the world to continue that narrative. For the rest of the world, we feel that our American friends that we want to continue to be friends with, tell us that the American political leadership does not want us to be forced to choose, but we feel we are being forced to choose. And we feel that we’re being forced to choose now against a background, we look out in the world now and we see parts of the world paying attention to science and technology combating COVID-19 with the best ideas about keeping epidemics in check.

And we look at a different part of the world, they’re talking about Clorox, and the possibility that UV light be injected somehow into the human body, would be a possible antidote to COVID-19. And that is not the kind of choice we want the world to be making.

Rob Johnson:

I look at the many thoughts that you paint in this portrait of this conversation in your recent writings, and I’m impressed by how much, how would I say? I don’t want to say it’s for an economist, but how much you’re seeing the interactiveness between nations, countries, people within each society. And yet, as economists, we were taught to ignore that, we were taught to let the market be the arbiter, as though the tool, the instrument, the market had become a deity. It had become somehow what you might call benevolent and fair. And with all of the improvements in market efficiency related to information gathering, digital economy and so forth, and the efficiencies that are forward, at the same time, we saw a narrower and narrower segment of the population doing better. You referred in your article, to the superstars.

And this notion of broad-based prosperity, this notion of social sustainability like environmental sustainability, or financial sustainability, becomes, how do I say? It’s like the awareness that you’re speaking to me with tonight, conveys the profound importance of that interaction and that holistic coherent design. Is this pandemic going to launch us in the direction of the vision you’ve shared with me? And can we realize that across national borders, within the otherness-

Danny Quah:

Thank you.

Rob Johnson:

I mean, in the United States, we talk about the otherness, men and women, black and white, Hispanic, et cetera. Can we make a whole together as what everybody is just called a human being?

Danny Quah:

The broad canvas that you’ve set our discussion against, Rob, is very helpful. I think that the way in which individual scholars, individual writers can help carry the conversation forwards. Personally, I take my cue from, first, the neoclassical understanding of markets and the good their markets can do, and I put that together with the lessons, the discoveries from writers like Joe Stiglitz and Mike Spence on how imperfections and realities that we see in societies around us, should make us rethink the mechanisms that we learn from idealized systems. And it is that constant back and forth. Driven forwards, I have to say, by intellectual activists like yourself, that I think help us create a better story, a better narrative about the world.

I think that COVID-19 has definitely moved that conversation along, but it’s part of an arc that goes back decades now, punctuated by things like the global financial crisis, punctuated by things like the realization that the world cannot continue to become ever more unequal, stagnant, immobile, driven ahead by how the changing geopolitical system makes small nations like Singapore, that continue to seek agency in the international domain, need to navigate when large nations disrupt or seek to recalibrate the international system. I think there are lots of these changes going around in the world around us, I think all what all of us need to do is to be sensitive and aware of how these changes impinge on individual livelihoods, individual wellbeing.

And out of that, I hope COVID-19 will be one of the actors that drives us forwards to a social science that INET and others have been pushing us towards for a long time now. So, I am very hopeful that we will come out of this better for it.

Rob Johnson:

Well, and the reading and preparation and conversations that we had, it’s as often my propensity, I started to hear a song. And I often hear a song for, I don’t understand when I hear it, it’s like a premonition or something that comes through to me. And what I kept hearing was the fourth chorus of the song, One, by U2. And the lyrics of that are, “One love, one blood, one life. You’ve got to do what you should. One life with each other, sister, and my brother. One life, but we’re not the same. We’ve got to carry each other, we’ve got to carry each other.” That, Danny, you’re talking about being sisters and brothers, being one love and one blood. You’re talking about carrying each other. That doesn’t sound like the economists that I’ve known from my, how do I say? At least until I met Joe Stiglitz.

So, I’ve really enjoyed our conversation tonight. I think you’re opening doors, I think you’re seeing things as vividly and clearly. And what I love is, because you are so rigorously trained, you are able to isolate and articulate the contradictions between the orthodoxy and what’s happening, and therefore, zoom in on the need for what you might call repair of consensus thinking. And maybe even not that, I mean, we know what externalities are, relative to market phenomenon, but you’re sensing that the proportion of weight that we should be putting on externalities, both positive and negative externalities, is much larger than the consensus would suggest. And I love the way you’re opening the doors. I really think you’re right at the cutting edge of where we need to go. And I want to thank you for being with me tonight.

Danny Quah:

Thank you, Rob. I can hear incidentally as you were reciting those lyrics, I couldn’t hear the stylings of Bono and the guitar riffs of Edge playing as you were saying. And I think that the lessons that I take from Joe and Mike and yourself, all of this goes into trying to understand what the world is showing. And so, it is both hopeful and very frightening what the world is going through with COVID-19, but again, I am confident for reasons that you’ve described so clearly, that we will come through this well.

Rob Johnson:

Yeah. I think, how would I say? The commission and the people, how would I say? The people in the community of INET are Young Scholars Initiative, all of this energy is very powerful. And I’m also reminded by another song, as I’m thinking this, of Jackie DeShannon’s book, What The World Needs Now Is Love. And I think, I don’t mean love in some kind of silly sentimental way, but it’s that kind of love that they always say, the world really breaks down into two things, love and fear. And when there’s plenty of fear around us right now, and we all have to dig deep, and we have to find that love. And as you say, as Bono sings, “Carry each other.”

Danny Quah:

Yes, absolutely.

Rob Johnson:

Anyway, thank you for being here, Danny. I’m sure we’ll come back together, we’ll explore in other chapters a little bit over the horizon as after the pandemic has unfolded and hopefully, how do I say? Allows us to move on to, how do I say? Other challenges. But thank you again for being here tonight.

Danny Quah:

Absolutely. I look forward to those future conversations and thank you very much.

Rob Johnson:

My pleasure. Good night.

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.

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About the Guest

DANNY QUAH is Dean and Li Ka Shing Professor in Economics at the Lee Kuan Yew School of Public Policy, NUS. His research interests include income inequality, economic growth, and international economic relations. Part of Quah’s current research takes an economic approach to world order - with focus on global power shift and the rise of the east, and alternative models of global power relations.

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