Inspiring People. Shaping the Future.
A Wave of Growth That Doesn’t Lift All Boats 7th annual Bertelsmann Foundation-Financial Times conference explores how stronger global growth can promote more widely distributed prosperity
Photo by Kaveh Sardari
Madeleine Albright
WASHINGTON, DC (April 16, 2015) - A healthy US economic recovery is providing a foundation for overall global growth, but many regions around the world are lagging, and inequality is on the rise within many developed nations, participants in the seventh annual Bertelsmann FoundationFinancial Times conference warned. They were, however, divided on the causes
of the uneven wealth distribution, and a consensus on reversing the trend proved elusive. Despite the differences, there was agreement on one point. In the face of slower growth in Asia, stagnation in Western Europe and armed conflict in eastern Ukraine, the US was seen by many participants
as the driver of global growth and best positioned to re-invent itself through technological change. (continued on page 2)
For all 2015 conference materials, click here.
DCene is the Washington, DC-based Bertelsmann Foundation’s occasional internal newsletter. It’s designed to inform our colleagues in Gütersloh, Brussels and Barcelona of some of the Foundation’s North American activities. ©Copyright 2015, Bertelsmann Foundation. All rights reserved. 1101 New York Avenue, NW, Suite 901 s Washington, DC 20005 USA s Tel: +1.202.384.1980 s www.bfna.org
2015
SPECIAL CONFERENCE EDITION
S P RI NG
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“The Bertelsmann Foundation has identified rising inequality as one of the four megatrends that we believe will be a defining challenge for our future.”
Aart De Geus President and CEO, Bertelsmann Foundation Photo by David Hills
From left to right: Ukrainian finance minister Natalie Jaresko, Hang Lung Properties chairman Ronnie Chan and Alonso Segura, Peru’s Minister of Economy and Finance
“The US is showing greater economic vitality,” said Bertelsmann Foundation President and CEO Aart De Geus. “But the US alone cannot sustain the global economy.” It cannot even close the wealth gap within its own borders, which shows no signs of narrowing even in times of higher growth.
But even in the US, the current wave of growth is not lifting all boats. This observation provoked an energetic debate about the influence of education systems, labor laws, monetary policy and trade on wealth distribution within a country.
Exploring the reasons for these uneven developments was the goal of this year’s conference, “Shifting Gears: Merging Growth and Prosperity”. The meeting at the Washington, DC headquarters of the US Chamber of Commerce brought together finance and trade ministers, diplomats, and representatives from the World Bank, the US Congress, European institutions, think tanks, and the media.
Former US Secretary of State Colin Powell pointed out that those with fewer skills were losing out in today’s high-tech driven world, and he complained that the American education system had not caught up to this reality. “I want youngsters who know how to fix robots not be robots,” he said. He also called for labor-market policies aimed at creating jobs that provide a secure income and dignity. “Growth has to be accompanied by the creation of jobs, not just minimum-wage jobs.”
European speakers conceded that the US was in much better shape than their own continent. European Investment Bank (EIB) President Werner Hoyer bluntly warned that the EU was falling behind. He emphasized the continuing gaps in European investment and innovation, adding that “…my main concern is that we won’t act fast enough to close [them].”
Thomas Mayer, Deutsche Bank Group’s former chief economist who now runs the Cologne-based research institute of wealth-management company Flossbach von Storch, disagreed with Powell’s analysis. In Mayer’s opinion, labor-market interventions such as minimum-wage laws create “barriers against inclusion” by leading companies to exclude newcomers.
Belgian Finance Minister Johan Van Overtveldt joined in the self-criticism. “The way societies deal with change is crucial for growth,” he said. “Even compared to Asia, the US is in pole position, and certainly when compared to present-day Europe.” Ronnie Chan, chairman of the Hong Kongbased Hang Lung Properties, was ready to bet on the US as the safest place for longterm investments. “The US will become the manufacturing center of the world that it once was,” he said.
Mayer also drew attention to the winners and losers of an expansive monetary policy. In the years after the crisis of 2008, the Federal Reserve relied on low interest rates and quantitative easing to stimulate growth, a model the European Central Bank is now emulating for the eurozone. Mayer pointed to research by the Bank of England that showed that the wealthiest 10 percent in the UK gained the most after the central bank drove up asset prices with its bond purchases. On the other side of (continued on page 3)
“I do consider myself very much a symbol of the Euro-Atlantic alliance, a person born in Europe, grateful to be an American, and pleased to see this unity work.” “Perhaps the cliché is valid that Americans are from Mars and Europeans are from Venus, but we should remember that Mars and Venus actually got along rather well.” Madeleine Albright Chair, Albright Stonebridge Group and Albright Capital Management LLC, and former Secretary of State, United States
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Quotes of the Day
Winners and losers also dominated a debate over free trade. New Zealand Trade Minister Tim Groser pointed to a “paradoxical explosion of interest in giant multilateral trade deals” in the years after the Great Recession. Groser concluded that the prospect of strategic gains must have outweighed concerns about the negative impact of trade for those countries that joined the negotiations. “At times of slow growth, people are looking for growth opportunities of even modest dimensions wherever they can get [them],” he said. New Zealand is a party to the proposed Transpacific Partnership (TPP) agreement, which received a jolt after US congressional leaders struck a compromise on the day of the conference to give President Barack Obama so-called trade-promotion authority (TPA) needed to fast-track a trade deal with 11 other pacific nations from Australia to Vietnam. The debate over TPA pits Obama against many in his own Democratic Party. The conference audience got a sense of the battles ahead from listening to Congressman Sander Levin, who predicted “a difficult passage” for TPA despite the compromise. The liberal Democrat from
auto-producing Michigan is his party’s ranking member on the House Ways and Means Committee. He fears that a trade agreement with Asia-Pacific would lead to further job loss in the American manufacturing sector. To the Europeans on the panel and in the audience, New Zealand’s Groser pointed out that the success of the Transatlantic Trade and Investment Partnership (TTIP) would ultimately hinge on the outcome of the TPP negotiations. If TPP fails, he warned, the anti-trade forces in Europe will make the European Commission’s job more difficult. Former European Commission Vice President Viviane Reding agreed that public opinion is a big obstacle for TTIP. “In Europe, the naysayers have [taken] over, and no one from industry, the member states or the Commission has gone out and explained why we need TTIP,” said Reding, now a member of the European Parliament. In the US, a possible free-trade deal has yet to stoke public interest. “TTIP is essentially unknown in the US Congress,” Levin admitted. A trade agreement with the US may add to Europe’s growth, but it won’t solve the continent’s structural problems. Greece is still struggling to meet its debt obligations, and none of the panelists would rule out
the possibility of the country’s exiting the eurozone. But the EIB’s Hoyer assured the audience that the risks of a socalled “Grexit” or “Graccident” are more manageable given recent steps towards a eurozone banking union and stronger crisis-resolution mechanisms. “If Greece decided to leave the eurozone we would certainly encounter political spillover effects but not economic or fiscal effects,” Hoyer said.
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the equation, middle-class savers and pensioners were hurt by falling interest rates and yields.
Challenges also abound for Ukraine, which the country’s energetic, American-raised and Harvard-educated finance minister, Natalie Jaresko, freely admitted. But she committed herself to budget consolidation and structural reforms amid continuing conflict in her country’s eastern regions. She said failure to achieve these aims was not an option. “At some point the Minsk agreement will work, and at some point we will find peace again. And when we have peace, our investment needs are only going to grow,” she added, taking a longerterm view. The discussion about Ukraine was a stark reminder that the smartest fiscal and monetary policies have their limitations if the most basic prerequisites for growth and prosperity are not in place: peace and political stability.
Keynote Speaker “The best aspirin for global headaches is the trans-Atlantic partnership.” The United States should become more actively involved in the conflict in eastern Ukraine, Albright told the audience at the Foundation’s annual spring reception at the National Portrait Gallery in Washington, DC the evening prior to the conference. According to Albright, “unity and resolve against Russia’s revisionism” is “one of the most pressing challenges” for the trans-Atlantic partners. She warned that Europe would not be able to solve the crisis on its own. “Time has come for the US to play a more direct role,” she urged. Albright also praised the trans-Atlantic cooperation and “skillful diplomacy” of American and European negotiators that led to the recent deal with Iran. She said that only the right balance between economic sanctions, diplomatic pressure and the threat of military force made it possible to shut down Iran’s pathway to a nuclear weapon. “Diplomacy cannot take actions off the table. This is the key lesson from the Iran negotiations,” said Albright. For a full report on Albright’s address and the reception, go to: http://bit.ly/bfna2015albright
For video of Albright’s address and the reception, go to: http://bit.ly/bfna2015albright-video
SHIFTING GEARS: MERGING GROWTH AND PROSPERITY
Madeleine Albright, Chair, Albright Stonebridge Group and Albright Capital Management LLC, and former Secretary of State, United States
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Quotes of the Day
PANEL 1 Mind the Gap: Prosperity in a Globalized World
“It’s no secret that we still have racial discrimination in [the US], and some [black] youngsters are in schools that are as segregated now as they were 50 years ago.“
in cooperation with The World Bank Group
Colin Powell former Secretary of State and former Chairman of the Joint Chiefs of Staff, United States
“One of the reasons inequality went down in Brazil is because of education and schooling.”
Branko Milanovic Senior Scholar, Luxembourg Income Study Center, City University of New York
Photo by Kaveh Sardari
Panelists Marcelo Giugale, Senior Director, Macroeconomics and Fiscal Management, The World Bank Group Thomas Mayer, Founding Director, Flossbach von Storch Research Institute and former Chief Economist, Deutsche Bank Group Branko Milanovic, Senior Scholar, Luxembourg Income Study Center, City University of New York Colin Powell, former Secretary of State and former Chairman of the Joint Chiefs of Staff, United States Moderator: Gillian Tett, US Managing Editor, Financial Times Branko Milanovic stated that inequality between countries has declined due to the progress of emerging economies such as China and India. At the same time, the distribution of wealth within countries has become more uneven in developing and developed countries alike. For developing countries, Marcelo Giugale highlighted technological advances that helped governments to better tailor social policies to help the poor. While Colin Powell stressed the role of education and labor-market policy to lessen income inequality in the US, Thomas Mayer warned of the negative impacts that an expansive monetary policy with governmentbond purchases and low interest rates can have on wealth distribution. Mayer cited evidence that such policies favor investors and put savers at a disadvantage. For a full report on this conference session, go to: http://bit.ly/bfna2015session1-report
For video of this conference session, go to: http://bit.ly/bfna2015session1-video
“It turns out that the most important predictor for success in life is your mother’s education.” “The average developing country spends more subsidizing gasoline for the rich than it spends on public healthcare.”
Marcelo Giugale Senior Director, Macroeconomics and Fiscal Management, The World Bank Group
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Panels
Quotes of the Day
PANEL 2 Trade-Offs: The Path to TTIP, TPP and Other Regional Pacts
“Trade is a disruptor. It increases economic welfare, but you also have to accompany it with policies which help people adapt and make the changes needed.”
David O’Sullivan European Union Ambassador to the United States
“We need these [trade] agreements because we do not want to be standard-takers. We want to be standard-makers.”
Photo by Kaveh Sardari
“Our people–the vocal ones, millions of them–are very much afriad of TTIP. They are afraid because there is vanishing trust that our [European] politicians can get it right with their American counterparts.”
Viviane Reding
Panelists Tim Groser, Minister of Trade, New Zealand Sander Levin, US Congressman (D-Michigan) and Ranking Member, House Ways and Means Committee
Member, European Parliament and former Vice-President, European Commission
Emma Marcegaglia, Chairman of the Board, Eni and President, BUSINESSEUROPE David O’Sullivan, Ambassador of the European Union to the United States Viviane Reding, Member, European Parliament and former Vice-President, European Commission Moderator: Shawn Donnan, World Trade Editor, Financial Times The US is moving ahead with negotiations on multilateral regional trade pacts, and the Trans-Pacific Partnership, with nations in Asia and Latin America, will be the test case for the Transatlantic Trade and Investment Partnership that the Obama administration hopes to conclude with the EU. In the US, all eyes are on Congress, which is debating Trade Promotion Authority to fast-track negotiations. Sander Levin warned that he would not approve TPA without stronger protections for potential losers. His arguments mirrored those of trade skeptics in the EU, where “the naysayers have taken over,” according to Viviane Reding. The European panelists described the biggest challenge as convincing a skeptical public of TTIP’s potential benefits. In the US, the biggest challenge seems to be just putting TTIP on the radar. “TTIP is essentially unknown in the US Congress,” Levin admitted. For a full report on this conference session, go to: http://bit.ly/bfna2015session2-report
For video of this conference session, go to: http://bit.ly/bfna2015session2-video
“The best way to go back to growth without higher public spending and higher public debt is free trade.”
Emma Marcegaglia Chairman of the Board, Eni and President, BUSINESS EUROPE
“We have tried [for] many years to build into the trade equation standards [for] environmental and worker rights.”
Sander Levin US Congressman (Democrat-Michigan)
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Panels
Quotes of the Day
PANEL 3 Economy Class: Looking to Upgrade Global Growth
“[China is] adding more to the global economy now at seven percent [annual growth] than they were when they were growing at 12 percent.”
David Rubenstein Co-Founder and Co-CEO, The Carlyle Group
“The United States will become the manufacturing center of the world, which it once was.”
Ronnie Chan Chairman, Hang Lung Properties
Photo by Kaveh Sardari
Panelists
“If Greece decided to leave the eurozone, or take political decisions which make that unavoidable, then we will certainly encounter political spillover effects, but not economic or fiscal spillover effects.”
Werner Hoyer
Ronnie Chan, Chairman, Hang Lung Properties Werner Hoyer, President, European Investment Bank
President, European Investment Bank
Natalie Jaresko, Minister of Finance, Ukraine David Rubenstein, Co-Founder and Co-CEO, The Carlyle Group Alonso Segura, Minister of Economy and Finance, Peru Johan Van Overtveldt, Minister of Finance, Belgium Moderator: Gillian Tett, US Managing Editor, Financial Times The world economy is again growing at a healthy speed, but investors David Rubenstein and Ronnie Chan singled out the US as the most promising long-term success story. They also agreed that China will remain a major driver of global growth despite its recent slowdown. Panelists were less optimistic about the EU and the eurozone. Werner Hoyer pointed to recent successes in getting Europe back on a path to moderate growth. He also assured the audience that the spillover effects from a potential “Grexit” would be manageable since steps towards a banking union and establishing resolution mechanisms in the financial sector have been taken. But Hoyer, and Johan Van Overtveldt, deplored Europe’s lag in technological innovation. For their parts, Natalie Jaresko and Alonso Segura forcefully made the case for their countries as investment locations. For a full report on this conference session, go to: http://bit.ly/bfna2015session3-report
For video of this conference session, go to: http://bit.ly/bfna2015session3-video
“I couldn’t have taken the position of minister of finance, given the situation that my country finds itself in, if I was not an optimist.” “I believe that at some point the Minsk agreement will work, and we will find peace again. And when we have peace, our investment needs are only going to grow. We’re going to have to rebuild.” “We want to start focusing on the 93 percent of our territory that is free and open for business… so that we can be in a position to do the rest later.”
Natalie Jaresko Minister of Finance, Ukraine
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Panels
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Photo by Kaveh Sardari
Photo by Kaveh Sardari
Photo by David Hills
Photo by David Hills
Photo by Kaveh Sardari
Photo by Kaveh Sardari
Photo by David Hills
Photo by Kaveh Sardari
Photo by David Hills