The roots of our crisis presentation to the thunderbird school of global management european alumni association annual meeting 2016
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Explores globlal trends to identify the roots of the current crisis, as well as to promote some possible solutions which have the potential to carry the day.
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The roots of our crisis presentation to the thunderbird school of global management european alumni association annual meeting 2016
- 1. The Roots of our Crisis: Global Trends and what you can do about them Professor Prabhu Guptara prabhusguptara@gmail.com
- 2. McKinsey Global Institute, this morning: •The era of easy growth is over •The world economy enjoyed an exceptionally brisk pace of growth over the past 50 years, with corporations and households alike reaping the rewards. •But in the next 50 years, global economic growth will slow by almost half, falling from 3.8 percent annually to 2.1 percent.
- 3. Asia Pacific China, Russia Launch South China Sea Naval War Games By THE ASSOCIATED PRESS SEPT. 12, 2016, 5:42 A.M. EDT Photo released by China's Xinhua News Agency: a Russian naval ship arrives in Zhanjiang in Guangdong Province, southern China, Monday, Sept. 12, 2016
- 4. Which is the most important geo-political development to watch? •The future of China? •The (mis)fortunes of ISIS - and the Islamist threat generally? •Brexit and the future of the EU? •The outcome of the US election? •....
- 5. The Economist Intelligence Unit Current view of the USA Headline: “The US economy will expand by around 1.6% in 2016”. Caveats: The strong dollar and weak business investment will prevent faster growth. Prediction: The Federal Reserve will increase the policy interest rate once in 2016, and tighten only gradually in 2017-18 Assumptions: Strong private consumption will be supported by steady job creation, decent real wage growth and higher consumer borrowing.
- 7. The Economist Intelligence Unit Current view of China Real GDP: This year: 6.6% Next year: 6% 2018: 4.2%
- 8. The Economist Intelligence Unit Current view of China Real GDP: This year: 6.6% Next year (2017): 6% 2018: 4.2% (but “some recovery is likely in subsequent years as investment stabilises”)
- 9. The Economist Intelligence Unit Current view of China Real GDP: This year: 6.6% Next year (2017): 6% 2018: 4.2% (but “some recovery is likely in subsequent years as investment stabilises”) Question: is China politically sustainable at anything approaching 4.2%?
- 17. With expansive monetary policy’s lack of impact, nothing is now taboo! •Negative interest rates •The abolition of cash •Helicopter money
- 18. Crisis: seven symptoms 1. Debt, instability
- 20. Crisis: seven symptoms 1. Debt, instability 2. Unsustainability
- 21. Crisis: seven symptoms 1. Debt, instability 2. Unsustainability 3. Exponential inequality, pay differentials
- 22. Crisis: seven symptoms 1. Debt, instability 2. Unsustainability 3. Exponential inequality, pay differentials 4. Financial economy vs. real economy
- 23. 1. Debt, instability 2. Unsustainability 3. Exponential inequality, pay differentials 4. Financial economy vs. real economy 5.Corporations that are irresponsible Crisis: seven symptoms
- 24. Crisis: seven symptoms 1. Debt, instability 2. Unsustainability 3. Exponential inequality, pay differentials 4. Financial economy vs. real economy 5. Corporations that are irresponsible 6. Crisis in care for the elderly
- 25. https://www.weforum.org/agenda/2016/09/5- ways-to-prepare-for-tomorrows-ageing-population There will be more elderly than children, as The number of people aged over 60 is set to double by 2050. Are we prepared?
- 26. Crisis: seven symptoms 1. Debt, instability 2. Unsustainability 3. Exponential inequality, pay differentials 4. Financial economy vs. real economy 5. Corporations that are irresponsible 6. Crisis in care for the elderly 7. Family breakdown
- 28. The underlying cause: Our global economic and political structures make unrealistic assumptions
- 29. The underlying cause: Our global economic and political structures make unrealistic assumptions: •People are mainly decision-making units
- 30. The underlying cause: Our global economic and political structures make unrealistic assumptions: • People are mainly decision-making units •Money is the most effective measure of value
- 31. The underlying cause: Our global economic and political structures make unrealistic assumptions: • People are mainly decision-making units • Money is the most effective measure of value •Relationships are no more than political or economic connections
- 32. The underlying cause: Our global economic and political structures make unrealistic assumptions: • People are mainly decision-making units • Money is the most effective measure of value • Relationships are no more than political or economic connections BUT: •People are more than individuals
- 33. The underlying cause: Our global economic and political structures make unrealistic assumptions: • People are mainly decision-making units • Money is the most effective measure of value • Relationships are no more than political or economic connections BUT: •People are more than individuals •Wealth means more than money
- 34. The underlying cause: Our global economic and political structures make unrealistic assumptions: • People are mainly decision-making units • Money is the most effective measure of value • Relationships are no more than political or economic connections BUT: •People are more than individuals •Wealth means more than money •Society and Community are more than mere connections
- 35. Call for a Copernican Revolution
- 36. Relational Thinking™ means: •A different worldview: seeing issues through a relational lens
- 37. A relational lens… "...if our relationships are so fundamental to our well-being, why do we keep forgetting to take account of them in our strivings? Wouldn't we be better off if we got into the habit of viewing all our endeavours through a lens that focused on their implications for our relationships?" Ross Gittins, Economics Editor Sydney Morning Herald
- 38. Relational Thinking™ means: • A different worldview: seeing issues through a relational lens •New goals, values and working practices for individuals, organisations and nations
- 39. The credibility question •Can a focus on something as ordinary as relationships really make such a difference?: “Get relationships right and the economic, social, environmental issues are more likely to sort themselves out!” •Really? •Look at the fruits!
- 42. Relational Thinking™ means: • A different worldview: seeing issues through a relational lens • New goals, values and working practices of individuals, organisations and nations •A new way of measuring, influencing & managing relationships: Relational Proximity Framework
- 47. The Roots of our Crisis: Global Trends and what you can do about them Professor Prabhu Guptara prabhusguptara@gmail.com
- 48. ADDITIONAL SLIDES FOR Q & A
- 49. Economic policy proposals: 1. Households: from bank mortgages to shared equity for housing finance; debt counselling 2. Companies: move to delivering stakeholder value, not just financial returns to shareholders/ directors; Relational reporting by companies/parastatals 3. Financial institutions: reconnect providers and users of capital: “No investment without involvement! No profit without participation! No reward without responsibility!” 4. Government: Remove tax incentives on debt finance to encourage equity in corporate finance; support co-location of relatives & family associations; non-debt finance of university fees
- 50. Mckinsey Global Institute hopes - 1 Demand: Given near-zero interest rates, fiscal policy must explore new infrastructure- and social-financing models, monetary policy may need more unorthodox ideas, and microeconomic policy makers must continue to assess regulatory barriers to growth. Private-sector leaders can also adopt new mind-sets and strategies to find opportunities for productive investment.
- 51. Mckinsey Global Institute hopes - 2 Productivity: Digitization could contribute more than $4 trillion by 2025, at a conservative estimate. Expansion of global flows could spur further growth: if all countries had matched the top quartile of connected countries over the past decade, global GDP today would be $10 trillion, or 13 percent higher. The Internet of Things could usher in the next wave of technology-driven productivity growth.
- 52. Mckinsey Global Institute hopes - 3 • Inclusion. To realize the benefits of broader-based economic growth and halt growing inequality, all leaders must help boost labor-market participation and smooth social costs that are a by-product of growth. • For example, equalizing labor-market participation by women could add up to 26 percent to global GDP by 2025.
- 53. Relational Thinking & Personalism •Same understanding of reality, and the same normative values •Same concerns about individualism and collectivism, and many aspects of materialism •Different starting points: individualism & collectivism vs. capitalism/statism •Different view of personal & public relationship •I-Thou encounter vs third party impact
Editor's Notes
- Well, dear Chairman Kristin, Dear members of the conference organising committee, and Dear John Many thanks for that introduction and for kindly inviting me to speak to this distinguished group of Thunderbird alum. My topic is: The Roots of our Crisis?: Global Trends and what you – and I - can do about them. Let me begin SLIDE 2
- Demographic aging alone could cause growth in employment to slow by up to 40 percent Demand remains weak, investment growth is stalled, and consumption growth is subject to the rebalancing of key economies (in other words, not soon!) Future growth seems concentrated in ICT-related sectors – which at present account for 41 percent of profits, despite constituting only 22 percent of global revenue (how long can such an anomaly continue?) Consensus is fraying at the seams, because of growing inequality. Finally, political volatility has increased, in a time of increased security concerns and migration (and terrorism!).
- Draw your attention to the Soviet-Chinese military wargames which started in the East Asian seas last Monday and will continue till this coming Tuesday. A sign of growing cooperation between their armed forces against the backdrop of regional territorial disputes. The "Joint Sea-2016 maneuvers” include ships, submarines, ship-borne helicopters and fixed-wing aircraft, along with marines and amphibious armored vehicles all conducting live-firing exercises,. This week's Joint Chinese-Russian effort is the fifth since 2012. Russia has been the only major country to speak out on China's behalf in its demand that the U.S. and other countries stay out of territorial disputes in the East Asian seas – in the fact of a ruling by the Permanent Court of Arbitration in The Hague, Netherlands, invalidating China's claims to virtually the entire area - a result that Beijing rejected. Following the ruling, China vowed to continue developing man-made islands in the disputed Spratly island group and said it would conduct regular aerial patrols over the strategically vital sea through which passes an estimated $5 trillion in trade each year. Adm. Scott Swift, Commander of the U.S. Pacific Fleet, described them as part of a series of actions "that are not increasing stability within the region." Why start with this? Because politics always trumps economics – if you don’t remember anything else from my presentation today, let this be etched in letters of fire right in front of your eyes “Politics always trumps economics” So let me ask a tough question regarding the geo-politics of our world: SLIDE 3
- Which of these is the most significant geo-political issue of our time? How many of you would vote for the 1st? How many for the 2nd? How many for the 3rd? How many for the 4th? We could discuss these in detail, my topic today is not exclusively or primarily politics, but let’s just consider the US for the moment SLIDE
- That headline is neither interesting, nor news, but its always worth attending to the caveats & assumptions around forecasts, isn’t it? So here the caveat is that the growth rate may actually be lower unless the dollar weakens (do you see any signs of that, whoever is elected?) AND unless there is greater business investment (I don’t know if you see any great signs of that either).
- HBS/ Michael Porter study released Wednesday: majority of the school's alumni surveyed (82% Republicans, 74% independents and 56% Democrats) agreed the U.S. political system was hurting the economy. "Only a minority of members of either party felt that their own party was acting in a way that supports economic growth". Will either candidate overcome gridlock in Washington? U.S. GDP growing about 2% since 2000 (cp 3 - 4% average in the prior half-century). The study cited strengths in higher education, entrepreneurship, innovation, management and capital markets as key areas where the U.S. still leads. But, it said, "these strengths are being offset by weaknesses“: the corporate tax code, the K-12 education, transportation infrastructure, health care, and a broken political system. No thought for capture of both parties by the policital elites in the US.
- So let’s turn from the EIU’s view of the US to their view of China. Keep in mind that a developing country needs a growth rate of 8% if it is to employ all graduates coming out of its universities – in China’s case, that’s some 8 million fresh graduates each year, not far off the total population of Switzerland. SLIDE
- *NO* idea why the EIU thinks “some recovery is likely” if there is no greater investment when according to Huang Yiping, an adviser to the People’s Bank of China, China’s central bank, on Friday: “China needs more capital inputs to create every one unit of new GDP than a couple of years ago. The capital input needed is 5.9 today, compared with 3.5 in 2007"
- Please note that I am not a doom-sayer, but I would like to draw attention to the dubious quality of all data in relation to China. Its regime may well have a better picture of the realities ther, but, in the absence of freedom for intellectuals and the media, I have no basis on which I can be confident that even the regime knows what’s going on.
- Here’s a good example. On the basis of official figures, China’s debt-to-GDP has been ballooning, from 2 Trillion to 28 Trillon – that’s 121% of GDP in 2000 to 282% of GDP in 2014. But as Huang Yiping, the man I quoted earlier, advisor to China’s Central Bank, says, it seems likely that China’s bad loans are underestimated SLIDE
- Perhaps you see a link between all that and increasing social unrest in China? And perhaps it becomes clear to you, if it wasn’t earlier, why the Chinese regime needs to maintain tight internal control, and why it might find it convenient to have external enemies.
- All this is of course related to wider issues regarding the continuing fallout of the crisis which started in 2007.
- Whose consequences are still reverberating and, just the other day, the fall of Korea’s Hanjin Shipping Co. (one of the world’s largest) has revealed how vulnerable is global shipping, that cornerstone of the global economy. The fall of Hanjin Shipping is similar to the 2008 collapse of Lehman Brothers Holdings Inc. and has materially impacted the shipping industry, said Gerry Wang, CEO of a competitor company, Seaspan.
- Greenspan yesterday acknowledged that he has no idea how to come out of the current U.S. trajectory toward stagflation -- a combination of weak demand and elevated inflation” We live in weird times the world is hooked on ultra-loose money policy/ quantitative easing/ printing money – call it what you will – at the same time as we have far too much money swishing around the globe. Its called liquidity. And when you have too much of a good thing, you know what happens. BUT risky asset classes got off to a surprisingly good start to the second half of 2016! Post-Brexit UK stocks & housing.
- Central Banks (along with the big banks) call the shots – no more! Institutional investors have $100 trillion – half of that managed by just the top 20 companies! A flood of liquidity, much more focused on speculation than on the real economy Near-convergence between asset-classes. What’s happening with bonds! For an unprecedented period in the globalized economy, we’ve had Zero or even Negative returns. A flat or declining yield curve –threats to pension funds, insurance, social and political stability. At the same time: a new ambitiousness about SDGs, the “tragedy of the horizon”: “as individual companies, we want to look good - so we have to do things that are stupid from a global perspective”. This is not Adam Smith’s “invisible hand” doing good, this is the modern-day invisible hand producing real evil.
- Some people put their hope in hope itself – in other words, in miracles. Certainly, miracles do happen. But some people aren’t waiting for those and are rather rushing headlong into totally uncharted rapids – great fun, maybe, but only IF you come out alive at the other end.
- Are we facing what Otmar Issing, until 2006 a member of the Executive Board of the European Central Bank, calls “acts of desperation”? If so, why are facing them? What are the consequences? Are there alternatives?
- The Relationships Foundation UK has a ‘Cost of Family Failure Index’: the economic cost of family breakdown in 2016 was £48bn or £1,820 for every taxpayer. That’s more than UK’s entire defence budget, which was £35.1bn in 2016. Some claim the costs are even higher. In 2010, Iain Duncan Smith estimated the costs to society as a whole through truancy, anti-social behaviour, teenage crime, addiction, lost productivity and tax revenues to be £100bn. Even allowing for the paucity of research and the difficulty in quantifying the true financial cost of family breakdown, if you add the human cost to the economic cost, you have something which by any definition is a full-blown crisis. Fathers are three times more likely to die after separation than mothers, and suicide is now the biggest killer of men under 50
- Chairmen and CEOs have the benefit of a dashboard showing the health of their key relationships. Equally, if particular relationships are hurting, then – given goodwill by each party – the relationship can be be improved by specific steps – and then re-measured to check whether it has improved – and, if so, in what dimensions.
- You may have seen Philip Stephens’ article this morning in Financial Times this morning, “How to save capitalism from the capitalists” (whom Greenspan called “the crazies” yesterday); if you like intelligent capitalism, responsible capitalism, conscious capitalism, etc – it goes by many names – you will find much here to read, mark, inwardly digest and enjoy, you will also find yourself fired to action because you will know how to make the world a better, more fully prosperous place in which all humans can flourish.
- Well, dear Chairman Kristin, Dear members of the conference organising committee, and Dear John Many thanks for that introduction and for kindly inviting me to speak to this distinguished group of Thunderbird alum. My topic is: The Roots of our Crisis?: Global Trends and what you – and I - can do about them. Let me begin SLIDE 2