I’m here today with a friend of INET for a very long time, the associate editor and columnist at the Financial Times, Rana Foroohar. Thanks for joining me, Rana.
Thanks so much for having me.
So, Rana, I get up in the morning and I think about people like you, Martin Wolf, Gillian Tett, and how daunting the challenge must be in light of the pandemic, in light of the questions it raises about what you might call all the recipe books and ideologies that we’ve counted on or believed in.
And in the context of social unsustainability, in the context of concerns about the integrity of the financial system, in the context of climate change and resource sustainability, I believe the pandemic has unmasked all kinds of things, and you’re one of those people that’s supposed to put it back together and explain it to us. And like I said, I think this is a daunting task, but I don’t know many people who I think are better suited to the mission than you.
Oh, well, that’s very kind of you. I wake up in the morning and think about calling you, so I’m glad that we’re on this call together. It’s a daunting time, but frankly, it’s an incredibly interesting and fruitful time for people, as you know, that have been thinking about all these things for a while now.
I mean, what really has struck me is, all the things that I would have probably been writing about anyway like over maybe a two to five year period, suddenly the virus has, as you say, unmasked and really sped up, put on steroids, whatever the metaphor you want to use, the trends that many of us thought were coming down the pike anyway, end of a neoliberal era, movement into some new paradigm, the decoupling of the US and China, some measure of de-globalization, grappling with a new world of an intangible economy movement to a digital virtual economy, all the myriad things that come with that, shifts in the way trade is done, capital flows, labor paradigms.
And it takes me back to 2008 in some ways. And at the very beginning of the great financial crisis we had this very nascent conversation that started around some of these things and then was quickly squashed for a variety of reasons. And we moved on, and the economy was able to, in a surface way, move on, but now we can’t move on. Now we have a real economy crisis, a markets crisis, a crisis of ideology, a crisis of, what Arch [Lessinger 00:03:07] would’ve called crisis of the old order.
And so we’re right in the thick of it, and I think we’re going to come out into a different world. And I feel very interested and also privileged to be part of the conversation about what that’s going to look like.
Well, you’ve made two substantial contributions with, in addition to your columns, the book Makers and Takers in relation to finance and the book Don’t Be Evil pertaining to the technological transformation of society that’s been so profound in recent years. Let’s start with technology.
I have a home in Northern California where when I’d go out there everybody nearly worshiped all the tech entrepreneurs. And then we started seeing things related to the 2016 election and monopolization and concern about intellectual property rights, lawsuits to deter innovation and what you might call the yin and yang of these sectors, the good and evil were all brought to light. But now with the pandemic the use of these technologies seems to be accelerating, the intrusion on individual lives seems to be what I call increasingly tolerated in the name of protecting the collective.
There was some of that going on in law enforcement before the pandemic, but I’m just wondering how you see this unfolding and what it portends for the change in the quality of life in our society, both positive and negative.
Great questions. Maybe I’ll just start with your point about law enforcement, because, as you say, that’s an area in which the use of digital technologies for surveillance was pretty far advanced actually.
In my book Don’t Be Evil I actually have a case study of the LAPD and how they are using various surveillance technologies both on platforms that we all use, information on things like Facebook, combining that with existing criminal records, even bits of data like tax records, traffic tickets, things like that, and then bringing in companies like say a Palantir which typically does rather shadowy government type operations around surveillance intelligence, combining all this data and then creating a digital avatar of people in order to…
The non nefarious idea is to allocate resources better, but at the end of the day you end up with a system where someone who doesn’t even have a police record could find themselves under surveillance.
Very minority report, to go back to the Tom cruise film, you start with a benign idea, hey, I want to try and help policing use resources better, I want to try and get rid of racism even in crime fighting. One of the reasons that surveillance technology was used in police departments is that there was a concern about targeting people by simply looking at their color, a policemen watching an African American kid versus a middle aged white guy sitting at home.
The problem is you end up with different kinds of bias and algo-racism, which is something that I’ll just give a shout out to a friend of mine, Cathy O’Neil, covers quite well in her book, Weapons of Math Destruction. So these things obviously pose huge questions for civil liberties, and they were coming under fire well before the virus.
Then you come right up to the point before we saw covid really hit, and there was already a lot of concern, a big debate about whether the largest tech platform companies, the Googles, Facebooks, Amazons and so forth should be able to come out of the realm of targeted advertising, and social media, and search, and e-commerce and start going into entirely other areas like healthcare, like finance.
So you already saw these companies attempting to move into these new areas competing with very large incumbents, major financial institutions, major healthcare organizations, again, to grab more data, which data being the oil of the new economy, it’s a metaphor that’s often used, and to layer that data and create an ever more powerful picture of individuals, which can then be sold to the highest bidder and used in ways that are very, very opaque.
And as I’ve talked about in my columns, my colleague Gillian Tett has also talked about this, essentially what happens is you get this opacity on either side of the transaction where we think we’re getting all these products and services for free, and I put free in quotation marks, but in fact we are paying for them. We are paying for the search, we are paying for the convenience, we are paying for these wonderful apps that we pick up and click and quickly click over the long caveats about how our data might be used and say, yes, yes, yes so we can get to the product and service that we want, but we are paying.
We are paying with our data, and that’s a barter transaction. And as you well know, as any economist would know, in barter transactions the usual economic laws of gravity start to break down. You don’t have a clear transaction, you don’t have equal information on both sides, you probably don’t have a shared moral framework for what’s happening. So that is hugely problematic, and that surveillance capitalism is of course something that many other intellectuals, Shoshana Zuboff namely in her book, The Age of Surveillance Capitalism have written a lot about. And it’s an entirely new era.
And one of the things, even before the virus, and then I’ll get to what I think is happening now, but even before the virus one of the things that was so problematic is this wasn’t limited even just to the largest platform firms, surveillance capitalism was on route to becoming the business model for really almost every company. So you look at a company like Starbucks, it knows quite a lot about you, your healthcare data brokers know a lot about you, your financial institutions know a lot about you, average retailers, e-tailers know quite a lot about you.
So data is the oil of the new economy. The move from a tangible economy to an intangible economy with all of these new rules and all this need for entirely new structures around trade, around tax, around labor rights, data ownership, that conversation was happening pre-covid. Boom, the virus happens, and you’re in a situation where health and safety are the immediate and most important priority. These firms, many of the largest platform firms, Amazon, Google, have become essential to delivering services that we need.
The only commerce that can be done, the only economy that can run is virtual. And so they suddenly become Teflon. You get a lot less concern about surveillance.
But I would say, and we can stop and break all this down, I would say that we’re just at the beginning of a curve that I expect will come back to concern about surveillance, about privacy, about the size of these companies because if they were owning most of the value in the economy before, and there’s a really wonderful stat from McKinsey Global Institute that tallied up in terms of corporate wealth, about 80% of corporate wealth pre-covid was living in roughly the top 10% of companies that were the most data and IP rich. That’s going to then consolidate further.
You’re going to get more concentration. You’re going to come out the other side of this crisis with decimation of labor markets. Some of these companies, companies like Amazon, have been doing a lot of hiring, but they’re also treating workers badly. There’s no social safety net. So I think we’re just at the beginning of seeing actually a turn back as these companies get bigger and more powerful to having them under the microscope again. Now, I think it’s going to differ from region to region how that happens.
Well, I once in recent weeks had the head of the Centre for International Governance Innovation in Canada, Rohinton Medhora, on as a guest, and he recommends, and I’ve heard him present this both at the Vatican in Rome and on our podcast, that we should have something analogous to the food and drug administration where we don’t go run experiments on society and then have to, what you might call resume the powers that people in the private sector think that they earned. We need a testing and approval process for technological innovation.
I don’t know how to do that, assess that. I’m not nearly a deep enough technologist to say whether that’s feasible, but I thought it was an interesting notion because at very least symbolically it raises the question of social design in technology as a means to social ends rather than an entity unto itself that, how we say, that we have to bear the consequences of.
Well, no, 100%. I mean, there are some very obvious and immediate reasons why that’s a good idea. The health and behavioral effects of surveillance technology, of platform technologies are, it’s a pretty nascent field and there’s a lot of lobbying right now against the data that’s coming out that says, look, these technologies are addictive and they can cause changes in the brain and individuals can be manipulated in such a way that you can question whether you even have free will when you’re in the midst of some of these apps and platforms and engaging with them.
That’s something that an FDA like body for technology could certainly address. Just as a personal story, I mean, one of the reasons I got interested in this topic was learning about the field of persuasive technology, which is an entire area in which software designers basically take lessons from, say, casino gaming techniques and behavioral modification psychology and incorporate them into apps. And the idea is to capture you, to keep you in the game, in the app, on the platform for longer so that your data can be harvested, and mined, and used in whatever the way the company wants to use it.
That has led to all kinds of things for children, shortness of attention, reading scores are going down across the nation, I could go on and on. Now, lobbyists will say, well, this research has only been done for about 10 years, it’s new, it can’t be trusted, but frankly, anybody that has a kid is pretty… and particularly right now in the midst of a world in which we’re all at home, we’re all doing online learning, some doing it better or worse, and I can testify to that in my own household, kids spending a lot more time on screens, this is a huge issue from a health standpoint.
I also though like the idea of the single regulatory body because I think that there’s so many different intersecting vectors right now that we don’t fully understand. When you pull at one string around antitrust, you unravel another string in the area of free trade or in the area of how tax structures should be changed for the digital era. And so I think it’s really important to have the broadest possible conversation right now and bring in all these different aspects of the problem in order to come up with policy that really, really makes sense.
And again, I’m hoping we don’t end up with a regionally balkanized internet, but I do think the different regions are going to make different policy choices based on their own political paradigms. I think that we probably are going to end up with some different regulatory regimes and some different thinking about what is acceptable around surveillance technology in the US versus Europe versus China and some of the emerging markets.
I remember maybe 2017 meeting with some of the very highest level people in China in a private meeting, and one of their leaders said to me, “I can see your society is now starting to understand the concerns that we had about letting your internet platforms come in our country because you’re concerned about them in your own country.”
This was the aftermath of the 2016 election and theories of the Russian intervention and manipulation of Facebook and all these things, but I think it’s very interesting now because in the context of the United States and China we don’t just have two powers, we have two systems that are grounded on different philosophical foundations and presuppositions.
And we talk about globalization and we also talk about cyber security, and this what you might call balkanization of the internet based on suspicion and hacking and cyber security and property rights theft is not what you might call the same kind of architecture that economists talk about where they remove constraints and integrate and build a one world economy to create efficiency.
So I’m interested in how you see the clash of these things, and then we should really reintegrate this with what you might call global concerns, like a Green New Deal or a system for mitigating financial propagation in the event of a financial crisis somewhat like we went through in 2008.
Just as an aside, Andy Haldane, who I know you know, and I took a walk many years ago and Andy said to me, “Rob, we’re looking at all these spillovers in finance and everything an economists acts like is the only thing that’s out there are goods, so you need to remove all the constraints so everything can be good, but biologists understand bads and they compartmentalize. And how do you reconcile these two visions of what creates a healthy society?”
And Andy’s a very imaginative man, but I look at this global system, philosophical different parts and then the realm of technology that you’re talking about, which… And technology contributes to taking apart the nation’s state anyway, capital technology, financial money, they all have wings, people don’t.
They all have wings, and they all collide and speed up the other trends. I mean, you can basically pinpoint from the 1980s onward and look at the, it would be impossible to figure out causality, but you could look at the associations between globalization, financialization, the speeding up of technology and the technological disintermediation of all kinds of markets. And you can see that these things are all acting in tandem.
I love that you bring up Andy. You would actually, by the way, turn me on to him for the first time for my book Makers and Takers. And the thing I love about Andy is he’s a classically trained economist, but he is so confident at going off-piste, and that’s just exactly what we need right now, is someone that is completely grounded in every possible historical paradigm but totally open to new paradigms.
And I love the biological paradigm, I mean, I think my own starting point as a non-economist but as a business and a finance and foreign affairs journalist for 30 years is I don’t start with perfect markets, I start with the world, and it’s a messy place that looks a lot more like a mucky pond in which lots of different organisms are acting together in unexpected ways than it does anything rational to me, and it always has.
But to go back to your original question about this splintering world, how technology is speeding that up, and where we might end up in terms of a new post neoliberal paradigm, and how do we get to some of the things that we know we need to deal with, climate change, sustainability, Green New Deal.
I had a really interesting conversation this past year in Davos actually with a very high level European policymaker. And we were talking about Europe’s efforts to carve out a third way in the realm of the digital economy and surveillance in particular. And if the US has been, thus far anyway, pretty laissez-faire of let the big get big. Our antitrust laws are designed to look at consumer pricing, that’s not really relevant anymore in an era in which transactions aren’t even being done in dollars, they’re being done with data, but that’s where we are.
And then you’ve got China on the other hand where you have a top down surveillance state, there’s no assumption of privacy. And the big can get big, but they also have their own state instituted quid pro quos. If you’re Alibaba, you have to build out rural broadband, etc. So those are the two paradigms we’ve got. And then Europe’s looking at that and saying, we want to carve out a middle path that is respectful of the values of liberal democracy, respectful of enlightenment values basically. But how do we do that?
And so this policy maker was running me through some of the ideas about their thinking, all of which made sense, but I then stopped and asked, well, right now you’re in a pinch because the US is pushing you to use Qualcomm equipment in your new technology build out in 5G, in 6G, China’s pushing you to use Huawei, whatever side you come out on, do you even have autonomy at this point to make a decision about what you want your own system to look like? And I didn’t get a great answer to that question.
And so that really, I think, addresses some of what you’re getting at, which is that we are not working with perfect markets here. We’re working with markets that are incredibly political. We’re working with institutions that are far from being perfect, in fact, they’re breaking down and being rebuilt in ways that are certainly less than optimal at this point.
What I would love to see happen, and I do think I am a little bit hopeful that there are the seeds of potentially a new kind of transatlantic alliance or possibly a new OECD country Alliance around the shift to a digital economy and climate change.
And I say this because I see a group of, in particular, young millennial politicians, the AOCs of the world here in the US would be case in point, but also some of the green party members in the European countries that think a lot alike. And they think in some ways that they have more in common with each other than they do with some of the older voters and older politicians in their countries.
And I think that if these people began to rise to power, which it seems that they are doing, if we get a new administration post-November, if we start to see an understanding that, look, we have got to rebuild trust in institutions, we’ve got to use this opportunity, never lose a crisis, right, use this opportunity to rebuild priorities around things like what would a trans Atlantic digital free trade agreement look like, what values would we want to protect, what might a Green New Deal look like, how could that be a basis of both employing people locally on the ground but also crafting some new trade agreements that could do better than we did in the ’90s and not have some of the Palestinian bargains that we did back then. I think that’s where we need to be going.
Boy, it’s complicated though. I don’t want to underplay how difficult at this political moment it is to find agreement on anything. And you can see that frankly playing out right now with the virus, countries everywhere going their own ways, all of these different experiments in real time.
Well, I think, how would I say, while you were talking I was grinning again. Yesterday morning I had a long talk with Perry Mehrling, who’s a scholar, works in the financial realm, and he’s writing a biography of the man that inspired me to an economist. I was studying aeronautical engineering, thought about becoming a naval architect when I crossed paths with Charles P. Kindleberger.
Oh wow. Oh my gosh. I didn’t know that that was your story. I love it.
Yeah. And it was a very interesting thing. I was taking an elective with him, and then he said to me, “Well, I heard you were on the sailing team.”
And I said, “Yes.”
He said, “Well, when you write your junior paper, I want you to come to me because you’ll know a lot about maritime technology, and I’ve got all the data, so we should write a paper on how different technological strategies affected the pattern of trade between the Dutch and the British empires.”
So that set me off. I worked as a research assistant for him and things like that during the petrodollar recycling era with he and Morris Edelman, who at the time was the most famous oil economists in the world. But Kindleberger had a saying, and Perry Mehrling, who’s writing right now under an INET grant, a biography of Kindleberger’s life.
He said the thing that Kindleberger used to say, the thing that bothers me about economics is the fallacy of misplaced concreteness, and the idea of pretending to certainty, especially when you’re looking out over the horizon and thinking about what economists call dynamic programming, the idea that you shouldn’t regulate finance because all the rocket scientists can do the statistical work…
… have value at risk measures and the management could all sleep well at night, and basically until those bell curves break down. We hear about black swans and various other contexts, but the notion from Keynes’ Treatise on Probability and from Frank Night’s Risk, Uncertainty, and Profit is the notion of ontological or what we call radical uncertainty. You don’t know the probabilities and you don’t even know what the outcomes look like.
And I guarantee you, when I was in high school I didn’t think about the internet. And so it’s a really interesting challenge in light of the surprise and the scale of change related to technology, change related to climate, to have a discipline that pretends that the future is known and knowable and-
Oh gosh, 100%. You’ve made that point many times, and you’re one of the, I got to say, I wish this wasn’t the case, but you’re one of the few economists of standing I know that makes this point regularly. And that is something, I think, that really needs to change, because the profession has not been welcoming of those that would question the status quo, I mean, until quite recently. And I think that it needs to still do a lot better.
It’s funny though, as a journalist, I’ve always found that asking the dumb questions, the obvious questions, gets you to the truth. And in both books that I wrote, the genesis of these books was asking the dumb question, not getting a very good answer, and then digging a bit further and finding, oh, wow, there’s a whole interesting story here to be told.
I mean, Makers and Takers which looked at essentially financialization and why we now have a financial economy that’s four times the size of the real economy, and what that means, and how distorting that is, that started post crisis with a conversation I had with an ex Obama administration policy official who’d come to talk to a bunch of eminents and journalists, mostly financial beat journalists about how the crisis had been solved, and was wrapping a bow around the whole thing.
And at the time the re-regulation of the financial sector and the Dodd Frank legislation was, this is probably about 2010, 2011, maybe 2012, it was only half written, had been years and years of wrangling. And so I was shocked that he was putting a bow around everything.
And I said, “Well, how can we say that things are fine and the sector is under control when 96% of all the consultation meetings have been taken with basically a handful of large banks and their CEOs.”
And he looked at me with true bafflement and said, “Well, who else should we have been talking to?”
And I was like, wow, that was just this scales falling from my eyes moment. And I looked around because I figured everybody was going to be scribbling in their notebooks, this was such a big statement, and nobody was. And that was such a shocker to me.
And I’ll tell you just to bring it back to this fracturing world what surveillance is going to look like in different parts of the planet, I’ve been going to China since the 1990s, I’ve been many, many times, and I remember being there pre-financial crisis, over 10 years ago, and having some meetings with different CEOs, but also different state officials. And I remember meeting with a PLA general, and we were talking about digital technology and the ways in which the private sector and the state worked together.
And, it was actually a woman, interestingly, this general, and she said to me in China there’s just no assumption that there would be privacy within individual companies, that there’s always an assumption that the state and the private sector are working together in surveillance and in everything else. And I remember thinking, wow, of course, this is an entirely different system with entirely different assumptions.
And I remember thinking a lot about why European and American CEOs weren’t thinking more about the risk factors in things like supply chains and in things like how the trade system might eventually fragment or the financial system might eventually fragment once China felt it had reached a level where it could go it alone.
And the truth was that a lot of those complaints were being aired, but nobody wanted to put their hand up and be the one to say, hey, there’s a problem here, until there was. But it was hiding in plain sight, the fragility of supply chains, the fragility of the one world two systems, a paradigm period, the fragility of neo-liberals, and was all there in plain sight, but nobody wanted to raise their hand and be slapped down or made to look foolish by the powers that be. And frankly, everybody in the US anyway was just thinking about the next quarter of profits.
So, in this globalized world, I know Joe Stiglitz, Danny Robert are working on my INET commission of global economic transformation and they’re very concerned about how globalization has weakened governments in their ability to protect people. And we’re seeing in some of the authoritarian and nationalistic backlash a reaction to those excesses. But we’re faced with a very interesting dilemma.
I believe that we have, at one level, if you go to global governance, all the things that affect humankind are under the rule of the global governance, but the sensitivity to people is not likely to be high. The ability to detect suffering and pain is not likely to be easily accomplished from on high. But if you go to local governance, people can see what’s painful, but the domain of the sovereign is much smaller than the scope of the market. And so when you get to local governments you can find out what’s wrong, but you can’t fix it.
How do we strike this balance between local… I know Raghuram Rajan’s book, The Third Pillar is about government markets and local, how do we work, especially given the tensions between US and China, on the energy transformation and climate change, which will affect everybody and requires everybody from on high to do their part. If India doesn’t get support and make changes it will affect Ohio and Los Angeles and Brussels. And so I find these dilemmas of governance. And as we’ve talked about a little bit earlier, the technology accelerates the tensions.
It does. I mean, it absolutely has accelerated the tensions, it’s very much like the advent of the printing press where, okay, great, suddenly everybody can read the Bible in their own language, but now you’ve got 150 years of religious wars. It feels very much that we are in that period right now. But just to look on the bright side for a minute, I would say that there’s also a possibility that technology could be a vehicle to bring forward some of the more positive aspects of decentralization.
I actually see two countervailing trends there, and let me explain what I mean. There’s a school of thought, and I would say it’s probably conventional wisdom that, look, we’re living in this age in which whoever has the most data will be able to plug it all into the algorithms and come up with the best AI and own the high growth industries of the future, and that’s why we need these giant tech companies to be our national champions. And certainly that’s explicitly the paradigm in China with the bats. The tech companies themselves in the US in their dealings in Europe are trying to use the same argument.
You probably remember it was over a year ago now when during one of the Senate hearings around antitrust and privacy, Mark Zuckerberg, the CEO of Facebook, was asked to testify. And after he was done arguing that, oh, you can’t possibly regulate us, you can’t break us up, it’ll destroy the business model, it’ll destroy all the wonderful things we’re doing for society, I believe it was a Reuters’ reporter, snuck up and took a picture of his notes. And it had a talking point that if he was asked about a breakup of Facebook, that he should say, no, Facebook is the national champion in the fight against China, which is just so ridiculous and hypocritical in so many ways.
I mean, and it also underscores the point that these companies and many of the people that run them are… They may, I mean, who knows how they vote these days, but in the past Silicon Valley has voted liberal, it’s libertarian. These companies are profit-making entities and they will go whichever way the political winds favor them. So to think of them as national champions for anything is ridiculous. But then you get into what I think is a more interesting and fruitful technological argument about is top down centralization the best model in the new world, is maybe de-centralization the way to both innovation and to protect liberal democratic values.
And just on the point about innovation I would note that there’s a lot of research to show that most innovation happens in small organizations, in smaller companies, certainly before they go public, it’s individual academics that fuel innovation. So smaller tends to be better from an economic point of view, growth point of view, but in terms of protecting liberal democracy, a really interesting counterpoint to the top down Chinese surveillance state model is what’s happening in Taiwan.
And there you have an incredibly sophisticated political economy that’s been digitalized in which people can weigh in online on any number of topics, you have huge amounts of digital voter participation. It’s not surveillance, it’s participation via all these decentralized technologies, which then builds more trust in government as an institution, which is something that we desperately need in order to elect politicians that can work cohesively within their national systems to come to these agreements at a global level that you’re talking about.
And so I see some potential there, and it’s interesting, there’s a bunch of fascinating roots up movements that are happening where technologists are trying to develop these tools to both empower small companies, but also to empower people that want to support democracy, liberal democracy in their countries, in their… Glen Weyl, you probably know, has done a lot of work on this. His book Radical Markets is a terrific one to read. So there’s a light side and a dark side, and frankly, I don’t know which one’s going to win, but we’re right in the thick of it.
And the virus, of course, has created this added complication opportunity where everyone is focused now on, okay, we are going to come out on the other side in a totally different economy. We’ve got to shift structures and institutions to that, but you also have companies really better poised even than governments, in some cases, to collect data, to be involved in some of these mass surveillance projects around public health.
I am very hopeful that we’re going to see some strong legislation that whatever data is being collected right now to fight the virus has to be used only for that purpose. There have to be some really hard walls put into place. You do see, just in the US, you see on both sides of the aisle bills coming up along these lines, but you also see a lot of squabbling about the details. So it’s a very tricky time. I don’t have a silver bullet answer.
What’s, how would I say, I don’t know anybody that does.
I mean, I’m going to walk the walk of saying I don’t know, which Janet Yellen-
… used to say that a lot which it-
… is grinning in heaven right now as you say that.
… always made me really respect her. I would do interviews with her when she’s Fed chair. And I’ve asked her-
Let’s talk a little bit-
… this question, she’d say, I don’t know.
Your earlier book-
Sorry, go ahead.
I’m sorry. I was going to say your earlier book Makers and Takers, that title seems quite apt today as I watched the structure of the bailouts as a lot of people see this, and rightfully, as quite a different circumstance than 2008 where excesses in the financial sector created a financial crisis and the bail outs had to do with preserving the financial system from going bankrupt and failing, which would then spill over and take the world into a depression.
In this instance, it’s not like there was an excess or a failure. I used the phrase earlier, the alien invasion called the covid-19 is affecting all fronts, but it still asks the question, how do we distribute public resources, and who gets supported, and who bears the burden of the pain? I saw a report from Jesse Eisinger at the ProPublica the other day which indicated that a lot of the private equity firms’ stock prices were skyrocketing. And at the same time, many, many small businesses in America are closing. What are the makers and takers doing right now?
Well, I wish that book would have come out right now actually, because a lot of the stories that it outlined, the color stories and the predictions are actually coming to the fore at the moment. Just to step back for a minute and give a little bit of history that is, I think, relevant when we talk about who’s getting bailouts now. If you look at the last 10 years or so of stock market gains and you strip away various factors, the number one thing driving asset inflation has been share buy backs, right?
So companies have been using a lot of their free cash during the boom years of the last decade, using their spare cash to buy back stock that’s propped up equity prices. We’ve had a low interest rate QE, easy monetary policy for all kinds of well-intentioned reasons. But at the end of the day, central bankers can’t spend money in the real economy, they can simply put money into the economy, they can lend, they can’t build.
And so we’ve had, as we have arguably for the last 40 years or so, you’ve had an economy that’s being built on asset price led growth rather than income growth. All right. So fast forward to the crisis and the initial market collapse, which again, many of us thought was coming.
I mean, I actually got into cash last summer because I just thought, gosh, this market is so far out of whack with what I know is happening on the ground, and the fact that there’s been hardly any wage inflation, maybe a little bit at the lower levels, tremendous tech-related job destruction happening everywhere, new industries will be created, but they haven’t happened yet.
So I got very nervous that we were going to have a major, major correction. And I thought that the collapse might come from, say, a cold trade war turning into a hot war or some kind of energy shock. I didn’t know it was going to be a virus. Nobody did. But to me, it was only a matter of time before a record corporate debt bubble and a main street economy in which many people, probably at least half the population hasn’t really felt a recovery. But those things were going to collide, and the markets would eventually reconnect with main street.
So they did, and then who is at the front of the bailout queue? Well, you’ve got the airline industry for starters, which has spent 95% of its free cash on share buybacks in the last decade saying, oh, sorry, we didn’t save for a rainy day. And here we are, we want federal aid. And we also don’t want any restrictions on how we treat workers or whether we continue to provide healthcare and unemployment. I mean, the lobbying efforts have just been stunning.
And of course big companies have the machine, the lobbying machine to get to the front of the queue. Meanwhile you’ve got SMEs that are responsible for 60% of the job creation that are having all kinds of trouble with the box ticking, with having to fulfill labor standards, environmental standards that the bigger companies are responsible for, and then you have individuals that… Yeah, I mean, we have more unemployed people in America right now than there are in the entire country of Australia by some sizable amount.
The idea that these people are going to be able to be okay simply with just one off payments that expire is laughable. And meanwhile, we live in a 70% consumer spending economy. There’s been some wonderful new NBER research, I just was reading the other day, showing that amongst the jobs, the layoffs that are happening, as many as 42% of those jobs may not come back. So then you’ve got this light speed fast forwarding to an economy that we knew was coming, in which there was going to be a lot of technological destruction higher and higher up the food chain, suddenly that happens overnight.
So we are absolutely going to need more stimulus. We are absolutely going to need more state support, but we have to make sure, I mean, honestly, I think the future of social stability in America depends on making sure that we do not have a situation in which vested interests suck up all this pie. I mean, we have got to start monitoring how the stimulus is being doled out, who’s getting it. There is widespread report of fraud in the system. When I think about what I wake up and worry about, it’s that sense that oligopoly has just eaten our country. That frightens me a lot.
Donald Trump got elected, what was his slogan when he beat 15 Republicans before Hillary Clinton? And the answer is the system is rigged. He said that over and over all the time. And he’s now the president of the United States. His diagnosis appeared to be appealing to a significant number of people, perhaps his prescriptions are not quite addressing the diagnosis that he offered us in 2015 and 2016. But I think this is a very critical dimension of our social challenge now, because in our money politics and corporate personhood world, the notion of broad based representation has largely disappeared, and what I’ll call the diseases of despair, despondency.
There’s a gentleman named Stuart Zechman, he’s a former musical artist, and he made a podcast a few years ago where he took on the notion that economists often use as though the organization society is a choice between the market and government. And then obviously many in the economy view the government as inefficient, incapable, etc., and that the public, even Democrats, don’t trust the government.
Well, Zechman went to Gallup polls to try to understand the nature of the distrust of government, and what he found in his exploration was the reason people didn’t trust the government as they thought it was controlled by the wealthy and the corporate world. So the market was corrupting the government, and so people had no faith in the government, but that didn’t mean they had faith in this highly concentrated financial sector.
This was, I think, 2011 roughly when he did this. But I think we are really at a tough place now where the unfettered free market model in the financial system blew up, but the response to that was unlike Roosevelt’s new deal.
As Joe Stiglitz said, the polluters got paid and the despondency leading to occupy Wall Street, the despondency leading to the tea party, the change from Democrat to Republican of the house, the Senate, and then the white house suggests to me that we’re not in a place where people are particularly receptive to a change in governance structure, because they don’t have faith in the government doing the right thing and maybe would accuse the government of exacerbating the inequality, making it easy.
It’s not tax evasion and illegal to keep your money off shore. They changed the laws so it’s now just tax avoidance or tax deferral. And then everybody says we can’t afford it. And as wealth becomes more and more concentrated, more and more money is off shore, and the economy is getting bigger, but we can afford less than we used to, and we don’t pay municipal pensions or whatever in this what I’ll call plutocratic arm wrestling.
How, in light of the pandemic, in light of climate change, in light of this despondency, do we reinvigorate credibility of governance, credibility of expertise. I mean, some of that’s happening in the medical sphere right now, but how do we put ourselves on to a healthy trajectory that re-engenders the faith of the body politic here and around the world?
Yeah. So big question, and again, I don’t have a silver bullet answer, but one of the things that I think is a beautiful thing that’s happening right now is that the challenges are also creating tremendous opportunities to move in the right direction. All right.
So the virus has just pulled back this curtain and suddenly we see, wow, this is what it would be like to live with more people able to work from home, this is what it would be like to live with less pollution, there might be ways to restructure labor markets that could bring down housing prices, maybe we don’t need to build up three or four incredibly expensive commercial real estate centers where all the wealth is hubbed and have huge swaths of the rest of the country where there’s nothing.
I had a fascinating conversation the other day with James Manyika, who I think you know, who is that McKinsey Global Institute, but also sits on the California’s Future of Work Committee. And he was telling me that an interesting thing had happened, and it’s conversations about automation. Labor unions are understandably often anti automation because they’re trying to protect the jobs of their existing members, but they’ve become very, very concerned understandably with health and safety. And so they are now more interested in being open to different kinds of automation in the interest of health and safety.
Well, one could imagine taking that a step further and saying, hey, if we’re going to introduce automation in ways that might create some job displacement, while we’re adding technology, let’s also add some training, let’s also think about how to use the resources of the training centers that are owned by unions all over the world to transition to a new economy. Let’s take some of the schools that are struggling with online learning and add them into that mix.
I will just say, as the mother of two kids that are in state school in New York city, I’ve been stunned at how spotty, I mean, great in some places, terrible and others, how spotty the transition to online learning has been. That’s a tremendous opportunity. That’s also an opportunity to start to bend the curve on educational fees. I see a number of class action suits springing up now against $75,000 a year colleges where parents are saying, you know what, we don’t want it, and we don’t think we should have to pay full freight for Zoom classes.
That might be the beginning of a bigger discussion about why inflation in education is three times the national average. So I could keep going, but there’s a beautiful cohesion here with problems and potential solutions. And I think one of the keys is to making sure that the conversation is really inclusive this time around.
I mean, post 2008, Elizabeth Warren told me this actually, she said this very succinctly in her own book, but when I was interviewing her for Makers and Takers, she said, “We never really got a clear and honest narrative in 2008 about what happened.”
And that was in part because there were just a few voices in the room and the vested interests very quickly turned it into a technocratic debate which was designed to keep out people that didn’t have the same opinions. We need to make sure that that does not happen this time. And actually this podcast is one of the great ways to do that. The conversations that we’re having here, some of the conversations that we’re trying to have at the FT in columns, this is all part of getting to a better place.
I would like to see the Democrats start to put together, I would like to see Joe Biden start to put together a potential cabinet, a group of advisors that’s really reflective of a much broader coalition than what we’ve seen in the past from the left.
Yeah. I’m always reminded of Charles Ferguson’s famous documentary film Inside Job that I think won the Oscar for best documentary about the financial crisis. And early in the film the notion that you brought forward moments ago, that we’ve never seen the story or the narrative of why this happened.
And Ferguson asked Nouriel Roubini, “Why didn’t we see this investigation?”
And Roubini need looked at him with a wry grin on his face, and he said, “Because they would have found the culprits.”
They didn’t want to.
That’s a great line. I forgot that line. That’s terrific.
And especially when you look at the scale of donations from the financial sector relative to other sectors in the economy, the politicians are not inclined to want to understand those problems because it’s to the detriment of their own survival. And I know Elizabeth Warren, I would say quite courageously, stepped into that fray when she ran the congressional oversight panel for TARP and then moved on into the United States Senate.
And while I think in a broad base coalition she might be a very, very qualified and interesting person to pair with Joel Biden, I’ll be very interested to see wall Street’s reaction to her being a nominee. And I-
You know it’s-
… imagine they would-
Well, yeah, you might hear some complaints, but it’s interesting. I wonder, I feel that we might be, and all right, you can jump in and tell me I’m being way overly optimistic, I feel like we might be at a little bit of a tipping point there where even Wall Street is beginning to see that the system is so broken and we are at such a turning point geopolitically, probably in terms of the entire monetary-
… system. I mean, we haven’t gone to that wonky conversation yet, but are we going to a post dollar world at some point if we don’t fix things? I mean, I’m seeing even some high level financier’s say, wow, we need some change.
Yeah. I think at this juncture you may be right that people will look for people who have what I’ll call public integrity to stabilize the system and try to reinvigorate things that are quite in tatters now. But I think we saw even in the democratic primaries that there’s still, though that was pre-pandemic largely, there’s still a great deal of resistance to what you might call a more progressive turn.
But even, I mean, like Thomas Friedman in the New York Times has asked for a proactive what I’ll call healing coalition on the democratic side by including people across the spectrum from Sanders and Andrew Yang and all kinds of people to suggest that the party does stand together for a larger purpose.
Yeah. 100%, has to happen. And what’s great is that there are so many talented individuals. I mean, there wasn’t one perfect candidate, but there was a lot of talent on that stage.
That’s right. I think that’s right. And I think, what would I say, I think in addition to good people we have to change the systemic structure of governance, so that good people can do good things and survive.
Yeah. Well, that-
Survive in office. And I think that is going to require leadership, and from the more affluent, stewardship. I’ve watched a couple of Mark Cuban’s videos recently, and he’s speaking very, very vigorously in that tone. And I think, how would I say it, the broader sense of responsibility and governance has to be reawakened, the parochial-
… arm wrestling and commodification of social design just deepens the despondency.
Absolutely. I think reforming the primary system would be a good place to start.
Well, Rana, what’s your next book going to be about?
Well, I am at work on another idea. I’m not going to tell you the title or give away too much right now, but it’s going to grapple with what I think is probably the biggest geopolitical and economic shift of our lifetime. You might say it’s the opposite of the world is flat and what that’s going to look like and what that might mean in the US and in the rest of the world.
Oh. Well, we all can look forward to that. And as those ideas crystallized in your mind, I hope you’ll come back and join me for subsequent chapters of economics and beyond. But I want to tell you that I’m very grateful and very much enjoyed speaking with you here today and encourage everybody to keep reading your columns and go back and get Makers and Takers right now. It probably resonates more than ever, but thanks for today-
Thank you so much for all this.
… and we’ll see you again soon.
Thanks. Thanks for having me. Thanks for all-
… your wisdom. Bye.