Good morning and welcome to Davos.
My name is Jim Frederick
and I'm the International Editor
at TIME Magazine.
It is my great pleasure to welcome you
to one of the kickoff sessions
of the 2012 World Economic Forum in Davos.
As you all know, Davos is the forum
where some of the world's
most distinguished minds come together
to discuss the world's biggest,
broadest and most pressing problems.
And I think, as this past year has shown,
some of the problems we are facing today
are more pressing than they have been
in a long, long time.
As a bit of a departure
and in an attempt to foster
a more spirited discourse,
the World Economic Forum and TIME
have framed today's panel
as a debate centered on discussing
the premise,
is 20th century capitalism
failing 21st century society?
This morning, I am honored to be flanked
by some of the finest minds
who have convened here today to help us
get some traction on these issues.
In alphabetical order,
but not necessarily in seating order,
we have Sharan Burrow, General Secretary of
the International Trade Union Confederation,
we have Brian Moynihan, CEO Bank of America,
we have Raghuram Rajan, the  Eric J. Gleacher
Distinguished Professor of Finance
at the Booth School of Business at the
University of Chicago,
we have David Rubenstein, co-founder
and managing director of the Carlyle Group,
and Ben Verwaayen, CEO of Alcatel-Lucent.
My thanks to all of you for joining us.
Some specifics
of how we're going to run this morning,
in keeping with the spirit
of an Oxford-style debate,
I'm going to begin soon with a vote
that I will throw out to the audience
about whether they agree, disagree
or are undecided about the resolution
that 20th century capitalism
is failing 21st century society.
Then, because I don't really think
that Oxford-style debates are designed
to be answered in turn by five people,
and I think it would get quite tiresome
if we went all the way down the line,
do you think this is true,
do you think this is true,
I'm going to break the session up into
smaller, more generalized mini-postulates
and see if our panelists will be willing
to take positions for or against.
After a couple of rounds of that,
we'll have more some info
to see where our panelists stand.
I might have some follow-up questions
and then, with anywhere between
20 and 25 minutes to go,
I can open the panel all up
to questions from the audience.
Finally, with only about
two or three minutes to go,
we'll close the session
with another round of voting
to see if anybody in the audience
has changed their position
on whether or not they think,
in Oxford debate style,
that 20th century capitalism has failed
21st century society.
That's a lot of material to get through.
Thanks again for being here.
Just as a reminder,
because we do have so much to talk about,
if both panelists and audience members alike
could be complete,
yet succinct in both their questions
and answers,
even probably more succinct
than I have just been.
In order to begin,
I am going to offer the resolution.
20th century capitalism is failing
21st century society.
From the audience
could I please see a show of hands,
those who agree with the resolution?
I'm going to say that's about 40% to 50%.
How many disagree with the resolution?
That's probably 20% percent.
Could we have a roll-call vote?
What?
Could we have a roll-call vote?
Well, we could.  Unfortunately, this a room
without the little voting machines.
Because it is an option,
how many are undecided?
Oh, at least it's a resolute group.
Actually, I'm curious from the panel
if I could just throw this out,
how many of you are in favor of the
proposition
that 20th century capitalism
is failing 21st century society?
We have one vote, one against four.
Okay.  So we know where Sharan will stand.
She will be the confrontationalist.
I think I'm outnumbered.
There's something slightly unfair about this.
I assume it's not
a gender-related issue either.
Oh, it could be.
As promised,
because I donג€™t think it necessarily makes
sense to have them answer in turn
the same question five different times,
I'm going to throw out a smaller premise
that I hope will get us some information
moving towards the larger premise.
Here's a concept that's been much discussed
in the press including TIME and other places
in the aftermath of the economic crisis.
These premises are necessarily vague
and generalized.
We can drill down deeper into them
as we discuss, but here's a premise,
corporations have too much power.
And here I'm not just talking about
arguably under-regulated companies
in Western liberal democracies
but also resurging state capitalism systems
in China and Russia, the Middle East
and elsewhere.
Now Sharan, as probably
the designated confrontationalist,
I have a feeling that you would agree
to this premise?
Absolutely.
We believe in a principle called fair go
all round
and when you have extremes of power
on any side of the equation,
then whether it's capitalism or governance
or governments,
the balance gets out of whack.
Right now, we've lost a moral compass.
We think you need to reset,
redesign to some extent, capitalism.
We believe, by the way,
in sustainable business and secure jobs.
So it's not about the system, it's about
the model of the system.
When you have the greatest inequity,
since just before the '30s Depression,
this is actually bad news for capitalism
because their prescriptions
are actually eating themselves up potentially.
If you look at Europe,
you have now got the latest predictions
of negative growth.
Yet we warned that rushing mindlessly
to austerity,
listening to the obscenity of the marriage
between the Ratings Agencies Three,
an oligopoly in the world, too much power if
there was ever any example of that,
and the bond markets,
without sitting down
and looking to a growth strategy
would fail both business and workers.
So think of some of the statistics.
Greatest inequity since before 1930
and the Great Depression,
you've actually got 17
of the richest countries in the world
who've gone backwards in equitable terms.
What's that do to demand?
Then you've got 210 million people out of
work.
So the market's lost its capacity to actually
soak up people who need to be employed,
to have a job, to create that demand,
to generate sustainability.
And we have 45 million young people,
our children and grandchildren,
entering the labor market every year
to economies that can't accommodate them.
You know I could go on.
There is the greed.
We must redesign the model,
but we must reset it.
Stop the greed of the high-worth individuals.
There's something like $11 trillion plus
in offshore assets.
That's $250 billion of tax.
In fact, it's something like three times the
amount of aid
provided to the developing world.
If you look at taxation, this is now a
national sport everywhere, avoid taxation.
We actually need to say, if capitalism is
going to sustain itself,
if it's going to provide secure jobs,
it has to distribute wealth evenly and it has
to make a contribution to the common good.
Let me say finally, on the power piece,
greed, profit above all,
unless you actually reinvest in social
protection,
the Social Protection Floor now endorsed by
many of the world's leaders and ourselves,
unless you actually invest in minimum wages
on which you can live,
and unless you reinvest in collective
bargaining to distribute the wealth,
then frankly, those who want
to have greed at all costs,
to not work with unions and other civil
society groups in terms of the common good,
whether it's bargaining with unions
or aid and development with others,
then you're actually undermining
your own future.
Absolutely, too much power
and it's time to reset, redesign.
Let's see some innovation and let's get
a seat at the table for the real economy.
Will the real economy stand up?
The financial sector is killing you.
Unless employers and workers actually sit
at the table with governments
and redesign the system, then it will continue
to fail our societies.
It's as simple as that, and nobody will like
the social unrest that will follow.
Thank you.
Ben, I was going to ask you about this
question
because we talked about it a little bit
in the Green Room.
You pointed out that this was
a very vague concept,
power meaning what, corporation meaning what.
But framed within her response, she talked a
little bit about inequity,
she talked a little bit about greed.
There was an implied critique of governments
and the late '90s-style capitalism profit mode
of above all.
Would you care to respond to the concept that,
admittedly vaguely,
corporations have too much power?
For the sake of the debate, my answer would be
they have not enough power.
Great.
The question is not enough power for what?
I understand, this is a debate about
who's the villain, who's the culprit?
And first of all, maybe the culprit is the
philosophy, so the culprit is capitalism.
If you travel the world, you'll find places
where the aspiration is to go to capitalism
because it has lifted millions
and hundreds of millions out of poverty.
So maybe it's not the philosophy itself,
it's the way we execute it.
I've heard people say well okay, if that's the
case, maybe it's the corporations.
I heard the discussion.
It was interesting to talk about
securing jobs.
Secure jobs is the problem.
If you're in a job, you get the unions
to secure where you are.
But if I'm not in a job,
how about creating jobs?
Creating jobs is something completely
different from a philosophical point of view
than securing jobs.
I think we have to have a real discussion.
At the end of the day, we are living in a
world that is shifting.
Power is shifting from West to East.
Reality is shifting from a physical world
to a digital world.
People are 24/7 involved.
The young people have
a very different set of criteria
than the people who are in power today.
We need to talk about innovation,
sustainability, real sustainability
and we need to talk about reform,
not just about corporations and greed.
It's too easy.
It's about decision making.
Why does it take Europe two years
to come to a conclusion that they knew
that they had to face?
And anyway, the only way it happened
is bad news became worse
because we waited two years to do
the inevitable.
Unless we're going to take
the hard questions seriously,
to be honest, this is a great let-off of
frustration but it doesn't solve anything.
Can I ask just one follow-up question?
That was a fantastic answer and it provides a
lot of fodder for the rest of our discussion.
But you introduced it saying,
the corporations don't have enough power.
What would you like your corporation
or other corporations to do
that you feel that they're unable to do?
I took three points.
The first point that I took was, let's see
what we can do in innovation.
Innovation means creating.
If you look to legislation and regulation,
I'm a green believer.
So if we want to do
what we really need to do,
we bump into conflicting priorities
from all kinds of regulators,
the EU, the American government
and all kinds of others.
On one side, they say this is what we want.
But the rest of the world, their own world,
isn't there yet.
There are all kinds of conflicts there.
That's why I say, not enough power.
We need to choose.
Got it.
There's a lot of great information here
and we will get back to a lot of it.
I'm going to move on to another premise.
I like the way that Ben framed it
because let's be frank.
He said, really, a lot of what
this panel is about is who is the villain?
Who is to blame?
Frankly, banks have received a lot of the
blame for a lot of the problems
that the economic system has suffered
over the past several years.
I have a premise here that large banks can
cause harm to the social good
because they enjoy a disproportionately
favorable risk-to-reward ratio.
I guess it would be reward-to-risk ratio.
This is the too-big-to-fail syndrome.
Then there seems to be an ongoing
social bitterness and resentment
that being too big to fail
is both a real and a vicious cycle.
Professor Rajan, I'm going to ask you
whether or not you agree with this premise
because, if I'm not mistaken, you have written
about this quite extensively
including, most recently,
in the most recent issue of TIME.
So would you take a for position on this,
that to a certain degree, banks do have an
overly favorable reward-to-risk ratio?
I think the answer is yes for large banks,
but let me come to that in one second
as I want to address the previous debate
a little bit.
This issue of inequality
and whether warped corporate governance is the
cause of this inequality,
I think that was the premise
that we first heard.
I would argue that there are deeper forces
which are driving the inequality.
Unless we tackle those deeper forces,
we have no chance of rectifying it.
I think three big forces,
the fact that technology
has required greater and greater skills,
second, the fact that we have
a global market now,
and therefore the competition for talent
is global
and talent is more important because it has a
global arena in which it plays,
and third, that clearly over time
the rewards for innovation,
the need for innovation is also increasing
again the demand for skills.
So technology, competition, globalization,
need for innovation,
all these are pushing for higher pay
at higher levels of skills.
This is not to say that this explains what is
happening at the top .1%.
But clearly when you look at the top 90th
percentile,
why that's running away from the 50th
percentile,
it's ultimately because of these forces.
These are not going to be affected
by corporate governance.
Doctors and lawyers today
are earning much more than they used to.
A lot of the people in the top 1%
are not necessarily just corporate executives.
They're lawyers, they're doctors,
they're professionals.
The returns to skills have increased.
But the minimum wage in America is $7.20.
That's lower in real terms than in 1969.
How can those people buy your product?
That is a different question.
The question is whether the skills
are being rewarded justly
or whether this is a complete failure
of corporate governance.
I donג€™t think it's a failure of corporate
governance by and large.
Not to say there arenג€™t egregious instances
where corporations overpay their executives,
those are problematic.
But I donג€™t think by and large you can explain
the rise in wages of the upper levels of the
population
simply by bad corporate governance.
Now to the question that you asked me,
a minute on that.
Clearly, large banks have had an advantage.
They are too big to fail,
they are too complicated to fail.
That is not to say immediately that the answer
is to break them down.
You may replace too big to fail by
too many to fail and we have seen instances,
certainly during the Great Depression
in the United States.
The big question was,
why do we have so many small banks
because they're failing like flies?
We need to find ways to revive them.
We got deposit insurance then.
So the immediate answer
is not shut to down the large banks
and create a lot of smaller banks.
It is to make the larger banks better managed
and second, have the larger banks carry better
buffers
and third, make the larger banks more
failable, so to speak, more easy to fail
so they donג€™t enjoy this premium
which I think is a travesty of capitalism.
When any entity survives
regardless of how bad it does,
when there's no chance of it being destroyed,
it prevents entry, it prevents competition.
And that ultimately is the cause
of the demise of capitalism.
Okay.  Now Brian, I think that you might be
interested in taking the opposite side
of whether or not banks enjoy
a disproportionate reward-to-risk ratio?
I think you have to go back, and it's embedded
in all this,
to the role we play as an institution.
So we play a role where we transmit in society
basically what goes on.
We reflect the economies of whatever country
our bank is in by and large.
And so when capital markets are going strong,
you'll see capital markets activity heat up.
When consumers are borrowing,
you'll see that heat up.
So we do that for everybody here,
I mean literally, the clients like Alcatel
or clients like the university he works for
and clients like unions.
With our relationships with the unions
around the world,
we do things like credit cards where they
receive revenue from that stream
to help in providing what they can do.
So we reflect the economy.
So the power that we have or the size that we
have comes from the size of the economies.
And so that's a reality.
Now against that is, we also reflect the
excesses.
So what you saw as the economic excess has
built up,
the financial service system in the United
States and around the world reflected that.
So the amount of leverage that the
consumer is taking on and transmitting that,
we've done a lot to pull that out.
And the regulations and rules that the
societies have developed around the world
have changed that, whether it's the Basel III
on the one hand or whether it's Dodd-Frank.
I think that there's been a lot done on that
and that's the kind of corrective course
of capitals.
We have a boom and bust.
But I think the idea that we enjoy some sort
of special thing,
we also pay a lot of special things so that
the FDIC insurance in the United States
is paid for by the system
and the cost of that is largely in small bank
failures today.
But that's the reality of what goes on and
we're fine with that.
So I think if you think about it, our power
size capabilities come from our clients,
the 285,000 people employed, what we do to
transmit that in society.
Every piece of revenue is a representative of
economic activity taking place.
The amount of things that went on that would
have been considered to be excessive
and off to the side have largely been
constrained.
Most of the people running institutions
that survived, and took over
the institutions that largely were outside the
regulatory schemes and failed,
have brought that into a more sober-minded,
more direct thing.
And the third thing is, we are also going to
reflect the pluses and minuses of capitalism.
So in our excesses, you have boom and bust
cycles,
real estate-related in the late '80s in the
United States, foreign debt-related,
Latin American debt-related,
emerging debt-related in another decade.
But the job is to continue to learn from that,
correct it, and try to keep it.
And there's times when innovation stuff gets
ahead and makes it harder to do
and that's what we're going through now.
Sharan, you're shaking your head.
Look, I just find this incredible.
You know, too big to fail is about socializing
your losses,
not about sustainability in a genuine sense,
not about serving the real economy.
And in fact, what it is is about being so big
that when it works against good governance,
works against competition in terms of the
price of credit to small to medium enterprise,
for goodness' sake, I actually agree with Ben.
This is a bit scary really.
But much of what
he said about sustainability, innovation,
small to medium enterprise
and the relationships are right.
However, if you've got a group,
29, I think the Financial Stability Board
says,
that are too big to fail, what does it mean?
It means that you are the biggest bullies on
the planet because when your governance fails,
then in fact you actually demand of
governments because they donג€™t have any choice
to bail you out with whose money?
With our money, with taxpayers' money.
And who is bearing the sovereign debt costs
now?
Sovereign debt didnג€™t create the crisis.
Crisis created sovereign debt.
And you know what?  We stupidly bought into
it.
We actually promoted the stimulus packages
that the then-director of the IMF called for
and government heads said would actually
help leverage demand.
In some countries it worked because it went to
jobs, it went to the real economy,
the retail sector, the construction.
In many countries, it went to bail out the
banks
and that's still the debate three years on.
In fact, the second wave of the crisis,
the fact that we got now a bigger crisis of
unemployment, greater impoverishment,
is because governments were too coward to move
to do what they said they'd do.
You remember them saying at the heart of
2008-09, never again
or the financial sector being in control
of the real economy?
Guess what?  Inaction.
Government inaction is the reason we're now in
this situation again.
That segue is nicely to my next point, and
I think that things are going lively enough
that we donג€™t necessarily need to hold
to the debate premise format.
But I do have a question for you, David,
then,
because you were going to be
one of the people that I picked out.
Sharan just mentioned government regulation
and I think in your roles at the Carlyle
Group, you might have a thought
about whether or not increased government
regulation is possible, desirable
and a solution to the current economic crisis.
Before I address that, I'd like to everybody
to just think back.
Suppose this panel was being held 100 years
ago and the question was, in 1912,
is 19th century capitalism ready for the 20th
century or going to help the 20th century?
And look what happened in the 20th century.
We really couldnג€™t have predicted in 1912
what happened throughout the entire
20th century, nor can we predict now where
21st century capitalism is going to take us
because we're only 12% into this century.
But what happened in the 20th century was that
you had fights
between communism and socialism and capitalism
as the prevailing economic model for the world
and more or less capitalism prevailed,
not because capitalism was perfect.
Nobody said capitalism was perfect.
As Winston Churchill famously said about
democracy,
it's the worst form of government
except every other form.
Capitalism may be the worst form of economic
system except every other system.
Capitalism prevailed at the end of the 20th
century and now in the 21st century
because it more or less provided more wealth,
more productivity, more jobs for people
than anything else that man could come up
with.
However, it has its imperfections,
and those imperfections are seen best
when you have the current environment we have.
We've been in a very deep recession,
the great recession.
When you look at something in the trough
of any kind of economic period of time,
it's going to look very bad.
So as a result of this recession which has
lasted much longer than anybody predicted
and will probably go on for a number of more
years,
and in fact we really never got out
of the great recession in my view,
we're going to have a lot of economic disparity.
The two greatest problems that capitalism has
produced
and capitalism still will produce
for many years into the 21st century is
it doesnג€™t have the ability to modulate
risk and reward and growth and lack of growth.
So you have these boom and bust periods of time.
For a while, in the latter part of the 20th
century,
we thought we were so smart
that we eliminated the economic cycle.
We haven't really done that.
So we still have to deal with the economic
problems of boom and bust
and we're seeing the problems of the bust
right now still affecting many of the people
that you're worried about.
Many of these people are really hurting
and this is one of the problems
that capitalism produces.
Secondly, we have the problem that economic
disparity
is very, very bad in many parts of the world
and capitalism has not solved that problem.
Capitalism has many great virtues,
and many people are wealthier
than they ever were before,
but we haven't solved the economic disparity
problem.
The question is, how do we deal with it?
How do we eliminate the economic boom and bust
cycle in capitalism
and how do we eliminate economic disparity?
Obviously nobody in this panel has this
answer
and nobody in the world seems to have this
answer.
The question is, how can we work through this
problem?
And my view is that government is supposed
to be the leader.
We elect people to be our leaders and
government because they are the ones
who are supposedly the ones who have the ideas
and want to lead us.
And I think what we'd like much more in the
business community
is leadership from the government,
officials that we elect.
In the West, we have seen a lot of inability
to provide leadership during this recession
and I think that is one of the problems that
has created the continued economic disparity
and the continued the lack of our ability
to get out of this recession.
I wish we had more economic leadership
in terms of regulation.
Everybody thinks they're overregulated.
I have never met anybody who says,
"Please regulate me more.  I need more
regulation.  I need your help."
Nobody ever says that.
Nobody ever says, "Tax me more.  I want more
taxes."
With the possible exception of Warren Buffet,
nobody ever says, "Tax me more,"
and nobody ever says, "Regulate me more."
So I donג€™t think that I want to be more
regulated.
My concern is that whenever there is an
economic problem in the United States,
we had Enron, we had the recession,
what we do afterwards, at least in the United
States,
is we regulate and we pass legislation.
We passed Dodd-Frank with is 2,300 pages,
the regulations for which have not been
issued.
The Volcker Rule, the most famous part
perhaps of the Dodd-Frank,
hasnג€™t had any regulations that are finalized
as yet.
The business community doesnג€™t really know
what the rules are
that we're supposed to live by.
So yes, we donג€™t mind regulations in the
business world.
We think regulations are appropriate.
But tell us what they are in a reasonable
period of time, in a simple way
so that we can actually operate under what the
government wants us to do.
Right now, many people in the business world
think that we donג€™t know
what the government really wants us to do.
If we do A, we're going to be criticized.
If we do B, we're going to be criticized.
Just tell us what you want in a simple way
and we'll try to comply the best we can.
So I donג€™t think we have too much regulation
in some respects
and I think we just donג€™t have clear
regulation and it's not timely in many ways.
In my own business, the private equity
business,
we would say we have a fair amount of
regulation.
Maybe people want more regulation.
I think in the banking world,
there's no doubt a lot of regulation.
But I think the principal problem we have now
is the lack of clarity
on what the regulation really is and getting
this regulation done in a timely manner.
It frustrates the business community
more than anything else I know.
It's not the fact that regulation
is going to occur.
Great.
Private equity could do two things without
any more regulation.
They could pay the taxes they should pay.
Look at the Romney scandal overnight,
but that's just a tip of the iceberg.
So just pay the taxes.
Stop cheating on what is already a
requirement.
They are paying the taxes.
I didnג€™t write the law.
I donג€™t know who made the law but whoever made
the law, nobody is paying their taxes.
If you change the law, they'll pay the taxes.
Romney simply said,
I'm not his defender,
he's paying whatever the law required.
If you want to change the law, change the law
but donג€™t criticize him for paying the taxes
that the law requires him to pay.
But we can show you the figures where
the corporations are not paying their tax.
In the UK, you know, $14 billion.
Then change the law.
It is the law, it is the law.
But you're right, there are loopholes.
But why can't we have governance
that is just fair dinkum?
Normal people pay their taxes.
If they've got a bill to pay, they pay it.
And the second thing they could do is actually
stop with the shadow trading economy.
There are over-the-counter products...
These are all wonderful Twitter lines and it
underlines one basic issue that I find here.
We suffer from nostalgia because we want to go
back to the world that we knew.
No, that's not true.
Well, guys, listen.
We're not going back to the world that we
knew because we are not in an incident.
We are in transformation.
That means the world that we knew, we leave
behind and we go to the new world.
So all these wonderful things of pointing
fingers and saying taxes
and all the rest of it,
it's not the issue.
It is not as easy as David says,
just tell us what you want us to do, we'll do
because the problem is, our governments
donג€™t know.
We donג€™t know, they don't know.
So it's not as easy to say what do you want to
do.
We have to go in transformation
and the transformation is different, in my
view, only by three things.
First of all, we are more connected as a world
than we ever have been.
So what happens in one part of the world has
an immediate impact on the other.
That was never the case.
The second thing is, we are in a 24/7
information drill.
Whatever happens here has an impact
immediately around the world.
We have no safety barriers there.
There is no time to react and there's no time
to think.
And the third element, maybe the most
important thing,
it's all about creation of jobs
and technology is creating new jobs
that are very different than the old jobs
and maybe in very different places
in the world.
So instead of getting the battle of nostalgia,
could we please move on
and talk about the transformation because in
the meantime,
governments are still organized as they were
in 1912,
institutions are still organized
as they were in 1950,
and companies maybe were
as they were in 2011, something like that.
So we have to move on on all those three
layers.
Transformation is right, but for what?
What are the values there?
What's the value set of a society
where capitalism should serve the cohesion,
the growth, greater equity?
These are the questions we should be asking.
But if you start to admit
that it is transformation,
you don't talk in the first line about
job security, you talk about job creation.
You talk about the next generation.
You talk about young people who have no chance
today, that need to get chances in the future.
I'm absolutely up for job creation.
In fact, we can show you 2% invested in the
green economy,
which you profess to actually enjoy,
over 12 countries by five years equals 55
million jobs.
Why can't we have it right now?
The money's there.
It's on the balance sheets
of companies that are not investing
in non-financials in the US, $2 trillion.
There's a capital strike here.
So we can talk about that, Ben,
but let's talk about what the function
of the market is.
What's the function of business?
I'm not talking about anything other
than jobs for people who don't have them,
secure incomes so that they can buy
your product and we have sustainable demand.
We want a seat at the table.
You can't wipe labor off to the side.
We've been through, in Australia,
one of the most stable economies,
all of these structural adjustments.
We are at the table.
We've created the skills revolution
in Australia.
Who did that?  The unions, government
with business.
When people work together,
when we accept responsibility,
and you don't just have the 1%,
the wealthy folk that can actually say
well, you know,
we'll decide what's good for us,
when you have people sitting
at the table, taking responsibility.
So my challenge to business is,
come to the table, real economy.
I'm not interested in the
greed of the financial sector.
I am interested in a financial sector that
serves the real economy productive wealth.
But we've got to actually stand up
and say, how do we generate those jobs?
How can we provide secure incomes?
How can we sustain demand?
And by the way, how can we move, Ben,
to a low carbon future?
Well business must have come together in
Australia, I assume,
to do what you wanted, right?
They must have come together
and you're happy with what happened.
Is that right?
Well, I can tell you the vulnerabilities
of the two-speed economy in Australia
but what I'm pointing to is when people
work together, you have a solution.
When people work in the interests
of their own greed, their own direction,
when there is too much power
in any one part of the spectrum,
government, workers, or indeed
representative labor or business,
the world gets out of whack.
And right now it's out of whack because
business, particularly the financial sector,
has lost its moral compass.
Well in Australia, the business community,
I guess, came together
with the labor community
and you're reasonably happy with it.
So the business community couldn't
have lost its moral compass in Australia.
Presumably the model of Australia
may be a very good one.
Maybe other people should
take a look at it.
So the business community,
I don't think it's lost its moral compass.
I think the business community
wants to create jobs.
The business community wants
to create jobs and create wealth.
The more jobs they create,
the greater wealth they're going to create,
their shareholders are happier,
the executives are happier.
So they're not exactly sitting there saying,
how can we reduce jobs and reduce wealth,
we want to make sure
that the system doesn't work.
Business people want to make the system work.
Now it's not easy to do.
Maybe the Australian model is one we should
look at
but it's not that business people
are sitting in their boardrooms saying,
how can we find our moral compass?
We don't really have a moral compass.
We're against creating jobs, we're against
making sure workers have enough to live on.
They don't want to do that.
They want everybody to be happy.
They are pro-short-termism
and short-termism won't work.
Well short-termism is not something that
the business community invented, for sure.
There's no doubt there can be improvement
but the Australian model is perhaps something
that the business community should look at.
Okay, this is great stuff and clearly we're
having a debate.
So this is fantastic.
You asked for it.
Absolutely.
No, this is great because these are clearly
hot-button issues
and these are some of the things
that this entire meeting
is going to be talking
about for the next four to five days.
If I could just back up a little bit and
summarize some of the things
from my standpoint
that I think we've been talking about.
Some of the key words that keep
coming up again and again
are inequality and prosperity and disparity,
innovation, globalization,
a shift of power from West to East.
I regret the fact that we don't have a
representative
from a major governmental power to talk
about the role of government here
but I also think that either the role of
government
or the lack of clarity from government
are interesting concepts.
But I think this entire discussion keeps
coming back to jobs,
job creation versus job stability
in what sounds like developing versus
already developed countries
and anxiety, especially in the Western
world, about income inequalities
when in fact jobs are moving to developing
economies rather nicely, it would seem like.
Professor Rajan, do you want to chime in on
anything having to do
with some of the summarizations
or what you've heard here so far?
Sure.
Thanks for giving the chance to speak.
I think we have to step backwards.
I think nostalgia is a bad thing
but the past does affect where we are.
Where are we?
Why are we in this situation?
In some sense because growth has failed
us relative to the promises we made.
Governments made a ton of promises
in the '60s when growth was very high.
We had the welfare state
across the industrial world.
And then growth started falling
off in the '70s, in the '80s.
Some countries, the UK and the US,
tried to revive it through
deregulation and managed for a while
but in general, the real issue is our growth
is too slow in the industrial world
relative to the promises we have made.
Therefore, just saying that the government
should go out and spend and create new jobs
is not the answer.
We have to revitalize growth.
That is the long-term answer.
How do we do that?  Two essential
ingredients.
One, we need more innovation, more
productivity growth in the industrial world.
That means giving entrepreneurs
the right to go out and innovate,
to create new companies and so on.
We have to make sure we don't destroy
that environment.
That's very important.
Otherwise we'll be stuck
in a negative spiral in these countries.
The second thing is we have to improve
the capability of the workforce
and I think that is very important
for the kinds of jobs that will be created
when we have this innovation.
There, I think, a partnership between
government, industry and labor
is extremely important.
This is something that we have neglected
for a fair amount of time,
especially in the United States where the
capabilities
are falling behind tremendously.
But my sense is if you put these two
together, you have a chance of leveling up,
reducing inequality by leveling up
which I think is the way we want to go,
rather than reducing inequality
by leveling down
which I think would be
detrimental to longer-term growth.
The final thing
I would like to say here is
that even though you have inequality
rising in industrial countries,
as you pointed out, one of the reasons for
this
is because some of the emerging markets are,
in fact, rising in wealth
and therefore globally, some of this is
having an effect
in reducing inequality rather than
increasing.
But that is not to say one shouldn't feel
for the worker in industrial countries
who is now seeing wages not rise.
But I think the answer to that is improve
capabilities, longer-term answer.
It's not a short-term answer
but it's the most sustainable answer.
Brian, do you have either something
to add or elaborate on that
or where the Bank of America can fit in,
in that?
Look, just going more broadly,
we have thousands and thousands
of companies and corporations
so we get a pretty good insight
on how they're thinking.
But I think one of the fundamental
things is, first of all,
I disagree with the premise
that we've lost our moral compass
but that's a different thing.
I think the fundamental thing
we're dealing with is most of the ways,
and I think it's embedded
in some of the dialogue earlier,
that we defined systems
is country by country.
The reality is even relatively
mid-size companies are now global citizens
and so the shift in demand
is actually the difference
in the cycle we're in now
versus other cycles.
Take a classic American company
who would, quote, offshore workers
and all the things that people would talk
about.
The difference now is, the actual demand
they're filling is outside the country.
So the way we define
the success of capitalism or not
is usually country by country
by how they have applied it
whereas the reality is that participants
are no longer single-country citizens at all
and it's relatively modest-sized companies
that are involved in the global change,
not only from where they get
their products, which is traditional,
but where they sell the products.
That then changes the scheme.
So when you talk about a moral compass or
creating jobs, is it great to create jobs?
You're creating jobs all over the world
and so the difference
between creating jobs in Country A
who the people in Country A
may feel good or bad about,
versus Country B, same thing.
The issue is from a company's
perspective they're trying to grow.
They're trying to fill
the demand where the demand exists.
They're trying to drive that growth.
They're trying to innovate into that growth
and that then leads to this problem
that in some of the societies
where they're suffering the types of things
the Professor talked about,
the reality is, they're filling
the same demand that they used to fill.
It's just over here.
That's going to be tough for us to deal
with in the more developed societies.
That's not the debate, though.
The debate is how do you create jobs
everywhere?
It's not about pitting worker against worker
or company base against company base.
I'm a global labor leader.
It's about creating jobs everywhere.
But I think this is the globalization issue.
We absolutely agree that it's about creating
jobs everywhere
but the reality is, when demand moves,
the simple discussion about taking
something, raw materials,
shipping someplace else, manufacturing,
shipping back
when you can take the raw materials,
convert them there to the final product
and selling that final product,
changes this dynamic...
We have no argument
with you about that, Brian.
In fact, this is the dialogue we want
to have.
How do you create jobs everywhere?
What are the strengths of modern economies?
What's the financial base that actually
serves productive wealth, the real economy?
And that's what's not happening.
So companies feel defensive, I get that.
I don't feel defensive at all.
No, no, but people get upset, you know.
The 99% versus the 1%, social unrest is
growing.
Take any part of the world.
You know, the North African revolutions,
despite the kind of absolute need for
democracy,
those young people are now
absolutely having their hopes dashed
because the jobs aren't there.
The scale and urgency of creating
jobs requires all of us,
and all of us, to take responsibility
mot to simply say well,
we've moved our production here.
That's not the argument.
The argument is what's the productive
future in every country
that will give our kids and our grandkids
jobs with wages on which they can live.
Brian first, and then David.
One second.  So I agree with creating jobs
as a principle.
And now I want you to come back to why we
have to have size and scale
as an institution is to be able to support
people who are operating in talent,
to support people to operate
all across all those economies.
That then leads to a larger size
because our scale is not defined
by the United States economy,
which is one of the largest.
It's defined by the worldwide economy
which is multiples of the United States.
So this too-big issue that we're talking
about, we are a result of that.
So that's the linkage I think people
start to lose.
We're not big because we're big.
We're big because our clients
are operating around the world
and we have to be able to support them.
I think that when the Cold War ended more
or less, and the Soviet Union collapsed,
the view was in the world that
Western-style capitalism had prevailed
and that more or less the United States
and Western European-style capitalism
was to be the model for the future.
Unfortunately, the people
who were in those economic systems
probably got a little complacent
and they didn't do as many things as they
should have done to create new jobs.
And as a result, the people
in the emerging markets said
well, we followed the ideas
of the Western capitalist system
but we can do them even better.
And so they worked harder,
they innovated more,
they did many of the things
that we said that they should do
and they basically ate our lunch
for about ten years or so.
As a result, you now have two types of
capitalism competing with each other,
the Western-style capitalism
which is largely laissez-faire,
though to some extent in Europe
there is more government involvement,
and more State capitalism that you now
see in China and other governments
where the government is much more
heavily involved in trying to create jobs.
It's unclear which model will prevail.
Right now there seems to be a view that the
State capitalism model creates more jobs.
They may not be high-paying jobs,
they may not be the jobs that
many people in the West would like to have.
But they seem to be able to create jobs
at a greater rate than we are in the West.
What we have to do in the West is recognize
that we have some severe problems.
We have to solve our debt problems.
We have to solve our deficit problems.
We have to solve some of our entitlement
problems.
We have to make our government much more
efficient.
If we don't do that in the West,
in the United States and Western Europe,
this State capitalism model will prevail,
and while that is probably good
in some respects for people living there
compared to what they had before,
it is not going to create
the kind of high-paying jobs
with the kind of retirement security
that people in the West have come to want.
All right.  Ben's been waiting so patiently.
I'm sorry.
I think the essence of any form of
capitalism
is the consumer who has a free choice.
Now the consumer is also the citizen.
There is however, unfortunately, no law
that they have to be consistent.
So the consumer goes to
the grocery shop and buys globalization.
Then with his two bags full
of globalization,
turns round to the government
when he leaves the shop and says,
protect me against the results of this.
And that's their right to do that
because as a citizen,
you have different emotions than as a
consumer.
But at the heart of everything we do
is a buying consumer with a choice.
Now I think the uncomfortable truth is
that yes, we have pockets of disillusion
and unfulfilled promises
that we have to deal with
because there are so many
new consumers on the market now
that have their rights
and their day in court.
I mean, we talk about
doom and gloom here in Davos.
If you would go to Brazil today
and you would talk about where the world is,
they have a very different view.
And if you look to young people
in the megapoles of India,
they have a very different view
of where the world is.
So this is a very different discussion
depending where you are
and how you look at it.
On globalization, I think
the real, uncomfortable truth
is that we think that we take
decisions on a national level.
Well, the reality is that most of the
decisions are taken
either regionally or globally
and that the other component
is not national but local.
So there is a handshake
between global and local
but unfortunately,
we still have the assumption
that everything has to be
translated on the national level
and they're in the middle and squeezed.
So that's why there's this
uncomfortable decision making
because if you want to get really talking
about jobs, it's not on a national level.
You have to do it locally.
You have to have one university and one set
of innovation
and one cluster that works together.
That is the local power that brings
globalization to reality.
Raghuram?
Yeah, two things.
One, on the State capitalism,
I do think it is another form of capitalism
but I think it has natural limits.
It is very good for catch-up.
It is very good when the innovation is
already out there, you can take it up.
But when you have to innovate yourself,
large, state-owned corporations are
miserable at it.
And that is where, I think, these State
capitalist models will reach their limits,
when they reach the frontiers.
Then, at that point, they will have to
look for something different.
Even in China today, the small and medium
enterprises are contributing a lot to growth
and I think that is where we should see
hope in the emerging markets,
that they, in themselves, will embrace
the free enterprise capitalism
that the West has embraced.
That said, I think the West
has one significant strength.
It has already a large
number of innovative corporations.
It has to make it possible
for the innovation to take place
and allow that to feed through the economy.
However, it has one challenge
we haven't talked about yet,
I think Ben referred to it a little bit,
which is that demand is shifting.
More and more of demand,
Brian also talked about it,
is coming from the emerging markets.
In the past, it was very easy
to run businesses here
because demand was outside the window.
You look at what's going on,
all your innovation takes place here,
all your finance, marketing,
everything can be done here.
When the markets move there, a lot of
those activities will start moving there.
That's when the challenge
for creating even skills sector jobs
in industrial countries will become harder.
This is an interval of about ten years
when the industrial countries have
the time to improve their capabilities.
They have to use it well, not spend it
in frittering away government spending
but use government spending to improve
the capabilities of the workforce.
I think the West...
Excuse me, go ahead.
No, I was just going
to pick up on this point.
We think the only
inclusive growth models at the moment
can be found in places like Brazil,
Argentina, Uruguay to some extent.
If you go over the border to Chile,
its profit or growth figures look fantastic
yet you have to take out a loan
as a middle-income parent
to send your kids to school
or to get a health treatment.
So the unrest there is enormous
and that's where the inequity plays into an
inability to make growth work for societies.
But I want to come back to two points.
One is the fact that it's not as simple
as saying the demand's moving there.
If it was, it would backwash
and we'd all be a lot more comfortable.
But China, India, Brazil to some extent,
emerging economies,
cannot pull the world out of a growth slump
that now in Europe is going into negative
figures indeed
because they don't have a growth strategy.
They have an austerity strategy
but not a growth strategy
and globally, it could be as low as .5%.
This is just going to get worse, not better.
So I don't disagree with the optimism for
emerging economies, and that's fantastic.
But it's not going to help the
globalization, Ben,
in terms of sustainability or stability
that you want to help.
And your point about consumerism is right.
I mean, like it or not,
capitalism is based on consumerism.
Now when the wage's share has actually
fallen relative to profits
by a third over the last three decades,
we're in trouble.
When the US president wants
to raise the minimum wage in America,
one of the biggest countries
in the world, to $9.50
and corporations and, indeed,
the Republicans are fighting him,
it would do more for demand overnight
in the US than almost anything else.
If you had a minimum wage on which
people can live in every nation
and a social protection floor,
you secure a basis of demand and then of
course, you're not bargaining
for distribution and so on based on
collective and productive wealth,
over and above that.  Fantastic.
But the American corporate model
is doing two things.
It's actually smashing wages
because it's exporting its own aggressive
opposition to collective bargaining.
And if you don't have collective bargaining,
I don't know what the answer is
to fair distribution of wealth
because that's when people sit at the table,
talk about what companies can bear.
And I might add on the downside,
safe companies,
without the unions in the US in
the collapse of 2008-9,
car companies would have gone under.
Without the short-term working model
in Germany,
then you would have seen unemployment
in one of the most successful economies
absolutely collapse.
I could tell you the same about Australia,
about the Netherlands.
You know, there are models here that work,
but unless people sit at the table
on both the distributive side and the
solution side when things get rough,
you're not going to have 
sustainability or stability
or generate without wages 
a growth that consumerism
that will hold the capital (inaudible).
But what worries me in this speech
is that you are,
at least you portray to be, 
the owner of the solution.
No, we're willing to be part of it.
No, no.  What I'm missing totally 
is the fact that in a world where...
Look to the youth.
I mean the youth is not running to the
unions to join.
So there is something there
that we need to...
A lot of what you say makes sense but a lot
of what you're missing is,
reform is not just on one side,
the other side of the table.
If you're sitting around
the bargaining table,
it is unfortunately necessary for all
parties to think through how we reform.
Absolutely.
-What I hear you make a speech is,
we are already in the solution phase because
you have the wisdom and the other side,
if they would only do what we want,
then we go back to where we are.
We don't go back to that situation.
So what I would like to add is a little bit
of perspective from your side.
What is the reform that we can expect from
the labor side?
I mean, I'm stunned to hear you say that
work that goes from one country to the other
is a bad thing because it is new jobs
in markets that may need them very much.
No, I didn't say that, Ben.
You said I said that, I didn't say that.
What I'd like to hear is, what is the new
approach that labor is going to take?
Sure.  Okay.
Well first of all, I'm a global labor
leader.
We have a global labor market.
For me, jobs should be everywhere,
decent work everywhere.
There shouldn't be exploitation.
I'm not orthodox about State capitalism
and I would argue that something like
Dubai Ports
actually serves the private sector
capitalism very well
and operates probably more effectively in
terms of bargaining with unions and others
in some of the private sector.
Nevertheless, that's a model
that no one here would support,
21st century enslavement where migrant workers
often don't have their papers to move,
let alone be able to have a cup of coffee
with you or a meal in a restaurant.
They're taken home to labor camps.
This is the basis on which capitalism is
going to generate societies we can accept?
No, and I don't believe that any of us has
all the solutions.
That's just infantile.
What we do have is a responsibility.
If we don't say, how do you generate jobs,
if we're going to ride the wave of the green
economy which we have to,
there are no jobs on a dead planet.
How's that for reform, Ben?
We want the green economy.
We want investment and innovation that comes
from it.
You know, Germany has created the single
biggest industry policy.
Now I know Americans don't like talking
about industry policy.
We quite like it in Australia,
a much smaller market.
But industry policy, or any other
term you can put on it,
in Germany has been created by political
decision forced by people.
No more nuclear energy, be for it
or against it, it doesnג€™t matter.
It will generate billions of dollars
into innovation, new export products.
It will keep Germany's export
kingmanship alive for decades to come.
But you've got to invest.
No, I'm not saying again it's all government
investment, on the contrary.
With the balance sheets sitting
in corporations, we can do a lot.
The climate tax fought by corporations
everywhere,
in Australia particularly the resource
sector,
but in fact that will do more to generate
the 2% to 3%
and that's our demand for Davos.
2% to 3% of investment in jobs in the
productive economy, in the real economy,
with employers and unions and government
actually sitting at the table.
It doesn't have to be government
expenditure.
On the contrary, it can facilitate
unleashing the talents
and the wealth of corporations.
But what about also the informal economy?
If we're talking about entrepreneurism,
all we're doing with this model is actually
shoving economies,
including the developed world,
into the informal sector.
People are desperate to survive.
So you've got an informal economy, some of
it shadow economy in the developed world,
but you've got between 30% and 90%,
depending on the developed
or the developing world.
How can capitalism sustain
itself if it's not formalized?
I agree we should have this
forum next year in Australia
because obviously there are
a lot of good answers there.
I actually live in Belgium these days.
Okay, we'll do it there, too.
I was the Australian labor leader.
I have a million and one questions
that I could continue to ask.
Raghuram's been waiting patiently
for his response
and then I'm going to open it up
to the floor to questions,
so if you want to start thinking
about what you want to ask.
Now, Raghuram?
Well, just that ultimately,
if you boil down capitalism to its roots,
it's about paying people
the marginal product of their wages.
You can rail about that all you want,
but if the marginal product of people's work
is less than the wages you propose
to pay them,
firms make losses and ultimately
can't employ those workers.
So the critical question we have here
is, how do we increase the marginal product?
That's the way to get wages up.
How do you do that in the industrial world?
That's the debate we should be having.
By all means, we can transfer, we can
raise the minimum wage, etc.
But if that exceeds the marginal product,
you're essentially driving firms into penury.
So I think the right debate is
how do we get the innovation,
how do we get the productivity,
how do we get the job creation
as a result of that?
But how do you distribute the profits?
Eventually those profits will get
distributed
but sure, there is a margin
that you can distribute.
But you can't distribute more than the
marginal product of somebody's labor.
Ultimately, they have to be productive
citizens.
It's called bargaining.
Bargaining takes place.
But all I'm saying is you cannot legislate
a minimum wage
which is more than what a person is
producing.
Let's put, again, the facts on the table.
We are all involved as labor leaders
in either advocating or bargaining for
both minimum wages and collective agreements
and you cannot bargain more than you
can afford.
So I'm on your table about that
but come on.
The wealthiest country in the world
where people have to borrow to actually pay
for groceries
can't afford more than $7.20 an hour?
It's not helping capitalism because they
don't have the money to buy the product
but it's actually leaving people
impoverished.
But again you're switching
to affordability rather than productivity.
No, I'm in for both.
Let's get the productivity.
But I can show you the productivity figures
and what makes it grow
and what makes it collapse.
We can show you what's happened.
Demand, you're all suffering from a lack of
demand.
Yet no one wants to talk about wages.  Why?
Because it might just take a sliver
of the profits that have been exorbitant
in the major companies.
Now for small to medium companies,
it's absolutely a balancing act
and you have to bargain your way
through all of those factors,
productivity, innovation, skills,
and indeed the productive wealth
distribution of wages after that.
So anyone who wants to put us in a camp
and say, well they're over here,
they're against capitalism,
they want to break the bank,
that's not true.
What we want, though,
is a sense of the fair go all around
and right now there are corporations that
are way too big with way too much power
and it is about that global reach.
I'm actually certainly not against
globalization.
That's my job, and we believe in everybody
having a chance at development.
But if you have global corporations that can
buy and sell governments effectively now,
you're right, the model needs to be
re-looked at.
David, did you want to cap things off?
Then we are going to move to the floor.
My main point is,
well first, if the minimum wage were
increased in the United States,
that would be fine with me.
I just don't think it will solve
all our economic problems.
Our economic problems are very deep
because of the debt and the deficit
and other things.
I think we've got about
three to four years in the West
to improve the economic model we have.
And if we don't do that soon,
I think that we've lost the game
in competing against emerging market
capitalism or State capitalism
because I think they just have
a more efficient model right now
which is going to take
a lot of jobs away from the West.
So I think we've got
to work through these problems.
If we don't do it in three or four years,
when we have this kind of session
three or four years from now
the game will be over
for the type of capitalism
that many of us have lived through and
thought was the best type of capitalism.
Okay, we're going to reward the front row
here.
So we're going to go one, two,
and then in the back there.
So we'll do the first three this way.
Good morning.
My name is Jeff Jarvis.
I've found this to be incredibly frustrating
for what I've found is the institutions
of the economy,
corporations, equity, unions, banks,
universities,
taking zero responsibility for the state
that we're in
and you're right looking nostalgically
at some past that is now completely gone.
The people who are not here among
the disrupted are the disrupters,
the entrepreneurs, technologists and young
people who are creating that future
in that next economy,
the economy we should be talking about.
So Iג€™m going to ask them what the economy is
and I'd like to compare that with
what you think the future economy is
because I haven't heard a single thing
today,
not only about responsibility
for the past or vision for the future,
somewhat from you, Mr. Verwaayen,
but otherwise I've heard no vision,
just a lot of nostalgic debate by
the old institutions
that frankly deserve to be disrupted.
It's very difficult in an hour-and-a-half
or hour and 15 minutes with five people
to give somebody the complete view of how
the world is going to change in the future
and how we can make the world better.
So I apologize that we didn't make
it more interesting.
But you know, next year, you can be
on the panel and I can sit there
and I can tell you that
I'd like to hear different answers.
It's not that easy to encapsulate all the
world's wisdom in an hour and 15 minutes.
But you do make some very good points.
Clearly, many of the people who are changing
the world are not on this panel.
Many of the people are young people
and many of the people who lead the social
networking revolution are not on this panel.
Clearly, over the next five
or ten years, the social networkers,
the people who are communicating
with each other through that mechanism,
and the disrupters, are going to be
the people that change the world.
What we've learned over the last 100 years
or so is,
you're never able to predict who is going to
make these changes
and how the disruption is going to occur.
People in our large kind of organizations
are not generally the disruptors.
The disruptors are people who are
entrepreneurs,
small organizations that we havenג€™t heard of
today.
So five years from today, none of us
probably would be invited back
and different people will be up here
because we will have been disrupted out of our
positions.
We don't have five years to not be asked
back.
But there are two things.
First of all, all those people that you
want to talk to are here in Davos.
So it's not that the WEF hasnג€™t organized
for it.
You have the 20-year-olds, you have the
30-year-olds, you have the new entrepreneurs.
Second, your last sentence was a great
sentence, listening to the applause.
But I would think twice before you
get what you wished for.
Because disruption is great but when you
said, destroy what we have,
I'm not so sure that you will live with
the consequences.
But you know, be my guest.
But he didnג€™t say destruction, he said
disruption.
I think that's right.
I think that is a really valid debate.
It wasnג€™t the one we were posed with but I
actually think it's a really valid debate.
How do institutions evolve, reset,
redesign themselves for a 21st century?
That will be very different.
If we don't see the political courage to
tackle the climate challenge,
then this is all pretty irrelevant for our
kids and grandkids, frankly.
They are pretty frustrated with us.
If we don't see the capacity to do
something genuinely about people,
to lift them out of poverty so we end
civil wars,
then the disruption to the old
institutions will happen anyway.
It's the same for us.
I don't think unionism is the same brand
of product.
You certainly wouldnג€™t have seen a woman
global leader 20 years ago,
let alone 50 or 70 years ago.
And you wouldnג€™t have seen women's
participation.
You wouldnג€™t have seen, despite what Ben says,
young people arguing for different models.
But some of them, back to the future too,
cooperatives, working together,
social networking across barriers
that once they physically networked around
in a shared wealth production environment.
So I think your premise is a very good one.
Sadly, it wasnג€™t quite the debate we were
posed with.
Anyone else?  Okay, go ahead.
I think there is a very real problem for
the young today.
I think you can see it across countries,
40% unemployment in Spain, 45% in Greece,
largely concentrated amongst the youth.
I think the point he raised about the
future being important,
about visualizing it in a way that these
people have a chance,
I think that is the central question,
the central threat to some extent to
the capitalism system.
If you don't draw people along, they are
going to disrupt it, they are going to fight
not in the innovative way you're talking about
but in just overthrowing the institutions
and perhaps trying to get a new set.
Who knows what that might be?
So I think it's extremely important we
solve these problems.
It may be that some of the solutions
are the plain boring ones that weג€™ve been
talking about
rather than some innovations that we
havenג€™t anticipated as yet.
But who knows, it's probably a mix of 
both. -Certainly jobs.
Brian, you want to make it five for five 
or are you good where it stands?
Inside large organizations, the disruption
goes on every day.
So on the one hand we have branches,
on the other hand we have 9 million mobile
banking customers
and the people who help fund all that
entrepreneurial society out there
but also do it inside.
So one of the challenges of running a large
organization is
how do you refresh and do that?
And that really goes down to the question
of talented people,
treat them well and give them the spirit.
So we have people who look like what you're
posturing
and we have people who look like me and
everything in between.
Our job is to hustle that, both internally
and externally,
for the benefit of our customers.
So I think these premises that get thrown out,
large companies arenג€™t innovated,
weג€™ve got to think that through
and that's the thing we need to think about
because the largeness is here and inevitable
because the economies are globalizing.
The question is, how do we make the jobs,
how do we make the fairness?
Second point is, youג€™ve heard me say it
before,
here you're going to hear me say,
the people who run the institutions
that you don't think take both very
seriously, the issues in the past,
we absolutely do.
You should rest assured that how we run
our institutions is so different than we
ran them a few years ago,
even if the people are (inaudible).
So that's not an acknowledgment.
We are trying to move forward though and
we know that and we've learned from it.
So don't ever, in my mind, discount the fact
that we wear the scars still today
and will continue to wear them for the rest
of our careers.
And we understand that.
Will we get it right next time?  God only
knows.
We can't predict the future.
But we all understand that.
What weג€™re trying to do is move forward
to where the puck is going
as opposed to where it's been.
And that innovation, all the stuff you're
talking about,
it doesnג€™t mean we don't remember what
happened, really.
Another frustration is that weג€™ve all
spent many years of our lives
trying to get to the point where we get
invited to be in this panel
and now somebody wants to disrupt us out
of this, but okay.
The gentleman here has the microphone now
and then the gentleman in the back after.
Hi, I'm Hammad Haleem, I'm part of the
Global (inaudible) Community
and I'm from Egypt.
I have a question.
We no longer live in the industrial age
and everyone acknowledges this.
Why are we insisting on managing it in the
same old manner?
I don't know if the new name is capitalism
or something else but what I care about,
how can we have a practice that ensures a
platform for young people
to create these jobs?
So instead of we creating the job for the
younger or the older sort of things,
how can we create a platform that enables
the young to create jobs
for themselves and for others?
Because it's about talent
and if we enable that talent to do that,
then maybe that's the solution.
So what is the system, what is the
practice that can enable such platform?
It's a question to the panel.
Can I just both support that and challenge it?
Absolutely, we need the young entrepreneurs
and they are going to create new companies
we havenג€™t dreamed about yet
and they should be supported.
But don't dismiss what you call the old
industrial age, call it what you like.
We have to produce twice as much food by 2050
as we do now, some people say three times,
on less arable land.
That is about innovation but it's also
about production, traditional production.
So we have to get that right and that
requires a sharing around the globe.
If you were a slightly younger labor
leader like me in the early '90s
and we heard that the technology was going to
change the face,
there were not going to be these old dirty
jobs,
it was going to be a whole new world based
on skills and talent,
I'm a teacher by trade and I've spent my
life in the skill sector
so I'm passionate about talent.
But we heard, you need to all go in and be
computer programmers and so and so forth.
What we used to say is, look that's really
important and we need those people
and particularly the young minds.
But they're going to graft their knowledge
on traditional industries,
to mining, to manufacturing, to agriculture.
And now I say to people when they say,
with a green economy, there's going to be no
more traditional industry,
well you can't actually build six-star
buildings without aluminum,
cement and steel, at least today.
Now what you will do is have to graft new
technologies and new production cycles.
So I hate it frankly when people pit each
other against one another.
It isnג€™t about whether or not you should
be supported.
Of course you should.
Platforms should be there,
the skills, the investment in education which
weג€™ve sadly dropped off
and it's the biggest productivity figure
we could deliver to the world.
But also let's look at how we actually
shore up
the best of the traditional world we know
that's going to be required for the next
50 or 100 years
and where does the innovation replace that.
You know, manufacturing always amazes me.
People say oh, you know, dirty manufacturing
(inaudible).
To some extent it is.
Even in the raw materials sector, you go
into a pot smelter now or a foundry
and frankly you will find computers
dominate most of the work.
But in fact bio-manufacturing is simply a
translation of product
or packaging or whatever it is into
new products that are more sustainable.
So that's where we need the innovation.
But the workers will still be there along
with the technology
and along with the new industries you're
going to create
off the back of that innovation.
One of the principal changes in the last
ten years in the way society operates
in the West at least, and I think all over
the world,
is that the people who rise to the top of
these large organizations,
business, labor, whatever it might be,
are now looking over their shoulders and
saying,
what are the innovations of the future
that I need to adapt to?
And those innovations are going to come
from young people.
So increasingly, large organizations are
saying,
tell me who the young people are who are our
customers?
What are our young people who are our
employees doing,
what are our young people doing in terms
of changing technology?
So much greater than 50 years ago,
these large organizations are now saying,
tell us what the young people want to do.
This World Economic Forum is adapting to
that to some extent as well.
It used to be that everybody was invited
to the World Economic Forum
and we were called whatever we were
called.
Then they come up with Young Global Leaders
and you had to be under 40 for that.
Now they have a new thing called New Shakers
which are people under 30
and probably next year they'll have something
under 20.
The people like us are the old shakers, I
think, because we are not that robust anymore.
But clearly the World Economic Forum, I
think, recognizes this
and I think all corporations and unions
and other organizations recognize
that change is coming from people who are
your age
and we are much more focused on your 
thoughts then we ever were.
Ben, did you have one capstone and then we
need to move on?
We've only got five more minutes.
So I have one line.
You come from Egypt.
I think you don't have to wait for permission.
There is one thing that I think is really
the big change.
Maybe in the past it was asking, give me
the platform, give me the tools.
Today it's just doing. -Which is what the
free enterprise system is about, right?
You don't have to ask permission.
It creates competition
and you go out and build your enterprise
and you compete with the big guys.
The places where we have tremendous youth
unemployment, Spain, Greece,
are places where the free enterprise system
is not working as it should.
Too many of the services are clogged up
because the incumbents are protected.
That's what, in some sense, we need to
change to give the youth a chance.
Do we have another question there in the back,
and then weג€™ll come over here?
I'm Joe Schoendorf.
I am a partner with Accel Partners in
Silicon Valley.
I've spent 45 years there, the last 25 in
venture.
I don't like to say that venture capitalists
create jobs.
We don't.
We provide money and we provide mentoring
and we make a bet.
We pick somebody and we get behind them.
A big issue has not been discussed up here.
We're one of a couple hundred venture firms.
You go on our website today, accel.com.
We probably have a 100 active companies
that we have provided the funding and the
mentoring for
over the last three to five years.
We post the jobs for all of those companies.
I looked this morning, 1577 jobs open,
many of them paying six figures,
most of them needing a degree of education
and training
that is in short supply in the United States.
Now we get into a political issue.
We said all right, give us green cards,
we need to bring in engineers from other
places.
It got stopped in the US political system.
But for that engineer who doesn't get hired,
you all run companies with technical people.
That's probably five or six other people
who weren't getting hired
that would get hired to support that engineer.
This is a real problem.
If I'm one venture firm and I properly
invest in what, David,
you'd say .1% or 1% of the market?
I've got a 100 companies and I've got
1577 jobs
and most of them are way, way, way above
minimum wage, many of them in six figures,
weג€™ve got a problem where our government
is basically preventing the creation of those
jobs.
And weג€™ve got a training issue.
We've got $1 trillion in US debt for people
who have paid for college educations, getting
degrees where one,
they could be employed in this world if we had
more engineers
or they shouldג€™ve gone out and tried to do
something in the math and sciences.
The disruption rate of big companies is about
to increase.
We're going to lose a global brand this year.
You all bought Kodak film at some point
in your life?
The story you may not know is, Kodak
invented the digital camera, 1975,
.1 megapixel.
They took it to the board.
The board said, good idea but please don't
tell anybody about this.
So that's true, we talked a lot about
competitiveness.
We might have mentioned training but we didnג€™t
use the word education, I don't think once.
That's a good point.
Well one of the scandals of the world and the
undermining of productivity
is the lack of investment in education and
training, no question.
But I want to also say that the venture
capital model that you just heard described,
not all are like that.
But it is absolutely important to think
through.
What do they do?
They actually support someone and they mentor
them
and they get those start-up companies to a
point where they are self-sustaining.
That is really good work because they
create jobs.
You're right, most of them are good jobs etc.
I want to say that for the labor movement,
part of what we bring to the table is $25
trillion of workers' capital,
our pension funds.
And $14 trillion of them are co-managed by
labor leaders and business leaders.
That is part of lifting the burden of
government debt
and indeed, of course, of creating
productive investment.
If we have more comments on this
particular question,
I'm afraid this is probably where weג€™re
going to have to leave it.
So I'm sorry we won't have time for
any more questions.
Once we cap this out, weג€™re going to
have to end the session.
Joe's in a quiet period, but one of his
companies they invested in
was a company called, you might have heard of
Facebook.
I think you've heard of that.
Just a small one.
On the issue of education, that's clearly
something that's very important
but of course, there's education and
there's education.
There's some education which doesnג€™t get
you anything in the workforce,
doesnג€™t get you any pay.
And there is some education, science,
technology, engineering, math
which is very crucial in the United
States, very important
and we need more of that.
It's easier said than done.
I think changing education has been on
every president's agenda since Gerald Ford
and we havenג€™t really made an impact.
I think it is something that we have to
take a very close look at.
I think President Obama is looking at it.
But it is something that there is a lot of
resistance to change
from within the educational industry.
I belong to that industry.
We would like to do more, we should do
more and hopefully we can do more.
But it is clearly in many ways the central
problem that we face.
One of the points that has been raised
recently
that is a concern to me in the Western
publications
is that education is not a good thing.
Increasingly people are saying, you don't
need to get a college degree
and you can do just as well without it.
I think that is a very, very misleading
thing
and if people believe that, they are going
to be very disappointed.
The better educated you are, the better you're
going to be prepared for the 21st century,
whatever form of capitalism we have.
I think people confuse education and training
and those are two different concepts.
I think theyג€™re both important.
Theyג€™re both important but they're two
different concepts.
So affirming the importance of education,
I think that weג€™re going to have to end it
here.
I want to thank the panelists for an
incredibly engaging debate
which I think sets the tone for the rest of 
the week.
I want to thank the audience.
On behalf of TIME and the World Economic
Forum, thank you, everyone.
Please enjoy the rest of your week.
