DCene: 2014 Bertelsmann Foundation - Financial Times Conference

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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 2014, Bertelsmann Foundation. All rights reserved.

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Despite a recovering world economy, speakers at the 6th annual Bertelsmann Foundation– Financial Times conference warn of structural deficiencies and geopolitical risks amid sluggish

and precarious rates of growth

S p e c i a l c o n f e r e n c e e d i t i o n

World Bank President Jim Yong Kim

The US manufacturing and energy sectors

are booming, and the American economy

is on track for solid growth. In Europe,

Greece raised $4 billion with its first bond

sale since the onset of the eurozone crisis.

There are signs of recovery on both sides

of the Atlantic. But the momentum is

uneven as income inequality rises, political

cohesion remains lacking, and geopolitical

challenges place new burdens on Western

societies. At the same time, the Ukraine

crisis is a reminder of the swiftness with

which significant changes in the political

order can emerge. That reminder, coming on

the centenary of the outbreak of World War

I, has raised questions about a repetition of

history that could lead to a breakdown of

the international order.

These issues formed the core of debate and

discussion at the sixth annual Bertelsmann

Foundation-Financial Times conference, held

on April 10, 2014, at the Andrew W Mellon

Auditorium in Washington, DC. The

gathering, entitled “A World Out of Balance:

A Surplus of Politics, a Deficit of Ideas”,

photo by Kaveh Sardari

“We are going to be that organization that gives every person in the world a chance.”– World Bank President Jim Yong Kim

(continued on page 2)

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brought together high-ranking current and

former Obama administration advisers and

Republican Congressman Charles Boustany, Jr., MD (R-LA) with senior European and

Latin American decision-makers in economy

and finance, among them Italian Finance

Minister Pier Carlo Padoan, Turkish Deputy

Prime Minister Ali Babacan, Bank of Mexico

Governor Agustín Carstens and former

European Central Bank Executive Board

Member and Chief Economist Jürgen Stark.

World Bank Group President Jim Yong Kim,

who officially opened the conference the

evening before at the Foundation’s annual

spring reception, focused his address on the

moral imperatives of ending global poverty

and inequality.

Conference participants agreed that political

stability depends on economic growth from

which broad portions of the population can

benefit. But panelists’ views diverged widely

on if and how this aim can be achieved.

At the same time, rising global levels of

income inequality unsettled many of the

speakers. White House Council of Economic

Advisers Chairman Jason Furman spoke

about the Obama administration’s efforts to

raise the US minimum wage and efforts to

foster closer research collaboration among

universities, business and government. That

is a model, he noted, that “works extremely

well in Germany”.

For the trans-Atlantic community as a

whole, a Transatlantic Trade and Investment

Partnership (TTIP) could provide an

economic boost. Bertelsmann Foundation

President and CEO Aart De Geus spoke of the

potential of a deal, but any agreement faces

headwinds from domestic considerations

in the US and many EU member states.

Those challenges were highlighted by a

Bertelsmann Foundation-commissioned Pew Research Center poll whose results were

presented at the conference.

Despite unsettling parallels between

today’s world and that of a century ago,

historian Christopher Clark, author of

“The Sleepwalkers: How Europe Went to

War in 1914”, does not see an imminent

conflagration today. He said that

cooperation and communication within

the EU and throughout the trans-Atlantic

community are now institutionalized. He

also described post-Cold War Russia as

weak.

Still, strengthening the trans-Atlantic

alliance in the current uncertain global

environment is critical. Italian Finance

Minister Padoan warned that “a major crisis

in Ukraine would have implications not

only through trade channels… but financial

channels.” Turkish Deputy Prime Minister

Babacan echoed the sentiment, calling the

situation potentially highly destabilizing.

“What is happening in Ukraine is very, very

worrying,” he said.

photo by david Hills

Strengthening the trans-Atlantic alliance in the current uncertain global environment is critical

Jim Yong Kim, President, The World Bank Group

Speaking as the guest of honor at the Foundation’s spring reception held at the US capital’s

National Portrait Gallery the evening prior to the conference and two days before the World

Bank’s Spring Meeting, Dr Kim said that ending global poverty is not just a moral imperative

but the basis for future economic growth. He warned of the disruptive consequences of the

blatant inequality in today’s world and noted that even the poor in remote areas know how

the rich live. “You might think that the notion of inclusive growth is just a nice idea, but now

there is clear evidence that high levels of poverty are a drag on economic growth,” Dr Kim

said. To combat this, he proclaimed that the World Bank is “going to be that organization that

gives every person in the world a chance”.

for a full report on dr Kim’s address and the reception, go to: www.bit.ly/bfna2014kim

Keynote Speakers

“…before many wealthy people had some sense of how the poor lived. It’s really only today that just about every single poor person knows how the rich live.”

The 2014 Bertelsmann Foundation-Financial Times conference

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Jason Furman, Chairman, White House Council of Economic Advisers

In another one-on-one conversation with Financial Times US Economic and Trade Correspondent James Politi, Dr Furman said the US economy is enjoying positive momentum, and its fiscal policy sets the stage for continued growth. But challenges remain, and one of them is sustaining the American economic recovery. To do that, Dr Furman believes the government should refrain from becoming involved in determining the right balance of consumption, savings, investment, housing, manufacturing, finance and exports for the economy. But he had strong words for reforming US tax code. “We should... set up a neutral tax system so people are investing in things based on what has the highest returns and not what has the best tax advantage,” he added. “Our international system right now is so badly broken that we’re getting all the distortions associated with it and none of the revenue.” Dr Furman also said that the White House is going to take any action it can to combat social income inequality. But in his view “[y]ou haven’t just seen a higher fraction of income going to the top. You’ve seen growth in the middle slowing a lot, and incomes falling at the bottom.” Dr Furman called long-term unemployment the US’s top cyclical challenge.

Christopher Clark, Professor of Modern European History, St Catherine’s College, University of Cambridge and Author, “The Sleepwalkers: How Europe Went to War in 1914”

The events leading up to World War I hold lessons for political leaders concerned about the current emergency in Ukraine, but the historical parallels can be carried only so far, according to Christopher Clark. Although the parallels that exist are unsettling, he does not believe that Europe is on the cusp of another major conflagration. Prof Clark cited firmly established institutions, such as the European Union, and multiple levels of communication among world leaders as two major differences between the 1914 and 2014 crises differences that help keep the Western powers and Russia from descending into conflict. “The danger may be the converse, mainly that in striving to avoid an escalation and possibly to avoid the discomforts associated with a strong sanctions regime, Western leaders risk failing to send the kind of unified signals that are required to make it clear to Mr Putin that there are limits to their indulgence,” he said. The situation presents “an argument for calm, considered, determined and unified action.”



Charles Boustany, Jr., MD, US Congressman (R-LA)

In a one-on-one conversation with Financial Times US Economic and Trade Correspondent

James Politi, the Congressman, who sits on the US House of Representatives’ Ways and

Means subcommittee for Trade and Human Resources, said he is hopeful that Congress

will approve Trade Promotion Authority (TPA) – considered a precursor to more free-trade

treaties, such as the Transatlantic Trade and Investment Partnership (TTIP) – by the end of

the year. Dr Boustany, a cardiovascular surgeon before his first election to Congress in 2004,

praised President Obama for his strong endorsement of TPA. But the congressman added

that the president must step up efforts to get more Congressional Democrats on board,

noting broad support for a deal among Republicans in the House of Representatives. Dr

Boustany said his faith in free trade stems from his southern Louisiana district on the Gulf of

Mexico. About a third of all US oil and gas runs through Louisiana. The state, he said, needs

free-trade agreements to take full advantage of its position as an energy leader.

“The best approach to energy security for the United States is to embrace open markets and diversified supply.”

for a full report on this conference session, go to: www.bit.ly/bfna2014boustany

for a full report on this conference session, go to: www.bit.ly/bfna2014furman

“This year we have a much more neutral fiscal climate. The deficit is continuing to come down but at a more gradual pace. And as a result that leaves much more room for the private sector to drive the overall economy.”

for a full report on this conference session, go to:

www.bit.ly/bfna2014clark

“The specter of 1914 is useful and compelling as a reminder to us of how terrible the costs can be when politics fail, when conversation stops and compromise becomes impossible.”

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Quotes of the Day

“…at the beginning of the 21st century, there are a lot of questions about where exactly… growth is going to come from.” – Financial Times Assistant Editor Gillian Tett

“I’ll put in a vote of confidence for the developing world. I still think there’s an enormous amount of growth that will come [from there].” – Holsman International Chairman and CEO Henrietta Fore

“...the historical record [for] countries that chase self-sufficiency and try to make themselves fat on their own natural resources [is that they] usually end up corrupt and wasting a lot of resources.”– Peterson Institute for International Economics President Adam Posen

“…inequality is a huge moral issue not just for the US but for every country in which this is occurring… I don’t think it’s sustainable as a social or political matter to have the kind of inequality that we have in [the US]… – Willett Advisors Chairman Steven Rattner

“…it’s important to separate the tone and the sentiment of financial markets in Europe today from the underlying reality… market sentiment has gotten ahead of the reality.” – Partners Group Chairman of the Americas Charles Dallara

Panelspanel 1 Building an Engine of Growth: The Key Economic Sectors in the 21st Century

for a full report on this conference session, go to: www.bit.ly/bfna2014engine

Panelists

Charles Dallara, Chairman of the Americas, Partners Group

Henrietta Fore, Chairman and CEO, Holsman International

Adam Posen, President, Peterson Institute for International Economics and former

Member, Bank of England Monetary Policy Committee

Steven Rattner, Chairman, Willett Advisors and former Counselor and Lead Auto Advisor

to the US Treasury Secretary

Moderator: Gillian Tett, Assistant Editor and Columnist, Financial Times

With the world economy still on the upswing of a fragile recovery, panelists in this session

agreed that a potential for growth exists even if they disagreed about its source. Henrietta

Fore predicted that entrepreneurship and consumer demand from women and the millennial

generation will drive economic expansion. Don’t count out the US as an engine of growth,

said Charles Dallara. The combination of entrepreneurship, energy, creativity and capital

gives the country an advantage. All panelists expressed concern about the stunning income

inequality worldwide, but especially that in the US. They cited moral concerns and the

difficulty in sustaining long-term growth when only the top one percent is accumulating

wealth.


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Quotes of the Day

“Do we deal with globalization to see if there’s a chance for more trade, better standards, better cooperation internationally, better understanding? …If we manage to build that, then indeed it [would] be historic.” – Bertelsmann Foundation President and CEO Aart De Geus

“I dare say there are probably more Germans who believe in space aliens than trust American standards.” – Pew Research Center Global Economic Attitudes Director Bruce Stokes

“…we live in a time that globalization also creates the risk that people lose their connection with their identity at home. If we do not deal with that… then we will fail.” – Bertelsmann Foundation President and CEO Aart De Geus

“…most people don’t have the time to think about [trade issues]. They don’t have the expertise. Frankly, they don’t care. But they have emotions about them. We have to deal with their emotions.” – Pew Research Center Global Economic Attitudes Director Bruce Stokes

“I can promise the Americans that the standards [for beer] in Germany are extremely high, [but] we would like to drink beer at American prices.” – Bertelsmann Foundation President and CEO Aart De Geus

panel 2 TTIP Off: Is A Comprehensive Trans-Atlantic Free-Trade Agreement Possible?

for a full report on this conference session, go to: www.bit.ly/bfna2014ttip-off

Panelists

Aart De Geus, President and CEO, Bertelsmann Foundation

Bruce Stokes, Director, Global Economic Attitudes, Pew Research Center

Moderator: Frederick Kempe, President and CEO, Atlantic Council

Slim majorities of Americans and Germans support a US-EU trade pact, according to a Bertelsmann Foundation-commissioned Pew Research Center survey released at the

conference. The poll also revealed, however, that Germans and Americans take issue with

many of the specifics of a potential Transatlantic Trade and Investment Partnership (TTIP)

and distrust product-safety and privacy standards on the other side of the Atlantic. “There

is a regulatory nationalism on both sides of the Atlantic,” said Bruce Stokes. “There are

more Germans who believe in space aliens than trust American standards.” Such distrust

is all the more reason why TTIP negotiators must strive for transparency as the treaty is

negotiated, said Aart De Geus. He added that a realistic goal is to conclude just a first round

of negotiations in the coming year.


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Quotes of the Day

“The real challenge that many of us are facing is how are you going to balance as you move forward the issue of preserving financial stability and at the same time promote growth.” – Bank of Mexico Governor Agustín Carstens

“If we declare that we are stable we may end of giving license to people like Agustín Carstens to go and take vacation, and this will be terrible…” – JP Morgan Chase International Chairman Jacob Frenkel

“Certainly the Fed is facing unchartered waters…. And they have a… very important challenge as we move forward.” – Bank of Mexico Governor Agustín Carstens

“…a significant slowdown in the Chinese economy is probably a much greater risk to the overall state of the global economy than… the debate we are seeing with Russia.” – Commerzbank Chairman of the Board of Managing Directors Martin Blessing

“Can I wish for a new Congress?” – Citigroup Global Banking Vice Chairman Peter Orszag

“There is no way in which the real issues that [face] us today can be addressed in six months. But by the same token, I think we better start [addressing them] tomorrow.” – JP Morgan Chase International Chairman Jacob Frenkel

panel 3 Touch And Go: From Fragility To Stability

for a full report on this conference session, go to: www.bit.ly/bfna2014touch-and-go

Panelists

Martin Blessing, Chairman of the Board of Managing Directors, Commerzbank

Agustín Carstens, Governor, Bank of Mexico

Jacob Frenkel, Chairman, JPMorgan Chase International and Chairman of the Board of

Trustees, Group of Thirty

Peter Orszag, Vice Chairman, Global Banking, Citigroup

Moderator: Gillian Tett, Assistant Editor and Columnist, Financial Times

World governments and financial markets are in a stronger place now than in recent years,

agreed the session’s financial-sector representatives. But monetary policymakers should

sustain pressure on governments to continue structural reform and should carefully handle

the transition from expansionary to neutral monetary policy. Agustín Carstens said “the

sense of vulnerability of global financial institutions is behind us” but “the main challenge

many of us are facing is how are you going to balance moving forward the issue of preserv-

ing stability but moving into growth.” Jacob Frenkel was more cautious. “It’s important to

refrain from declaring that stability is restored because that might remove the pressure

to continue on the current, prudent path,” he warned. Panelists shied away from predict-

ing when interest rates will begin to rise. But they stressed the importance of the Federal

Reserve Board’s tackling uncharted waters ahead. Some signs, such as a return of housing

stock to pre-crisis levels, are pointing to the end of fiscal retrenchment and deleveraging,

Peter Orszag said.


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Quotes of the Day

“A continent which has for a long period of time millions and millions of unemployed with no hope cannot stay together for long.” – Italian Minister of Economy and Finance Pier Carlo Padoan

“We still have a European Union treaty with the results of the Maastricht negotiations. And in parallel we have inter-governmental agreements on new commitments and on new institutions. This cannot last for long. At a certain point in time we need a consolidation or we need a new European treaty.” – former European Central Bank Executive Board Member and Chief Economist Jürgen Stark

“We are very happy to observe the recent improvements in the eurozone and also [in the] European Union overall. Finally, the eurozone seems to be out of recession.” – Turkish Deputy Prime Minister Ali Babacan

“…a major crisis in a country like Ukraine would have implications… not only through trade channels but also through [the] price of oil and financial channels.”– Italian Minister of Economy and Finance Pier Carlo Padoan

“It is very likely that Greece will depend on the support from the other European countries for about the next 10 years.” – former European Central Bank Executive Board Member and Chief Economist Jürgen Stark

panel 4 A World In Balance: New Ideas, Less Politics

for a full report on this conference session, go to: www.bit.ly/bfna2014world-in-balance

Panelists

Ali Babacan, Deputy Prime Minister, Turkey

Karnit Flug, Governor, Bank of Israel

Pier Carlo Padoan, Minister of Economy and Finance, Italy

Jürgen Stark, former Executive Board Member and Chief Economist, European Central Bank

Moderator: Martin Dickson, US Managing Editor, Financial Times

Though the most acute phase of the eurozone crisis has passed, immense stresses persist.

Pier Carlo Padoan said the common currency’s architecture was incomplete when introduced,

and he called for meaningful market regulations, an efficient mechanism by which regulations

can be enforced, and a judiciary system that can follow up swiftly and effectively when they

are not. Otherwise, he predicted, results will be elusive. Jürgen Stark questioned recent

concern about the prospect of eurozone deflation by objecting to the use of the term itself.

He offered a substitute expression for the current economic situation: “benign disinflation”.

On Ukraine, the panelists voiced significant uneasiness. Ali Babacan advised against too

relaxed a response to the continuing crisis despite the lack of a strong market reaction.

The situation is potentially highly destabilizing, he suggested. Mr Padoan said effects on

financial and trade channels were possible if the crisis expanded.


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photo by Kaveh Sardariphoto by david Hills

photo by Kaveh Sardari photo by Kaveh Sardari photo by david Hills


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DCene: 2014 Bertelsmann Foundation - Financial Times Conference