TRANSCRIPT: The Dangers of Deglobalization
Ian Bremmer:
Hi, I'm Ian Bremmer, and welcome to the GZERO World podcast. I'm the host of the weekly show GZERO World on Facebook Watch. In this podcast, we share extended versions of the big interviews from that show. This week I sit down with global economist and author Dambisa Moyo, who studies the intersection of geopolitics, business and economics in an increasingly unstable world. She serves on the board of Barclays Bank and Chevron, and she's advised more than a few Fortune 500 companies. She was named by TIME Magazine as one of 100 Most Influential People in the World. In Dambisa's free time, she likes to relax by her running marathons. I'll ask her about her increasingly bleak views on the future of the global economy. Let's get to it.
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Ian Bremmer:
I'm with the global economist and bestselling author Dambisa Moyo. She is on many boards, Chevron right now, Barclays Bank, has been on the TIME 100 Most Influential People in the World list, and delighted to have her here with me today.
Dambisa Moyo:
Thank you. Happy to be here.
Ian Bremmer:
Dambisa, so much to talk about, but I think about where we are in the global economy right now, and you have been decidedly more negative than most. Let me start by asking you that. First of all, how concerned are you ... I thought that things were starting to get better ... and why?
Dambisa Moyo:
It's absolutely the case that tactically, in the short term, things have improved. We've seen median incomes in the United States improve. We have seen the stock market reach record highs. We've seen the VIX, which is a measure of volatility, at record lows. There is this sense that we're moving in the right direction. Of course, there's a whole suite of policies that have been promised that actually also buttress this positive mood, from tax reform, infrastructure spending, and also this idea that there'll be a large repatriation of capital into the United States.
Ian Bremmer:
In the U.S. specifically, yes.
Dambisa Moyo:
Of course. If you look more generally around the world, there is definitely buoyancy. I mean, the IMF has just revised their forecast for 2017 and '18. We'll certainly be seeing a three-handled GDP number, but I think the expectations by many people are that we'll see even higher numbers when you factor in the global economy.
Ian Bremmer:
You think over 4% global growth?
Dambisa Moyo:
Certainly. I think you can get a 4% print before we start to worry about ...
Ian Bremmer:
In 2018?
Dambisa Moyo:
I would say end of 2018, yes. I'd be quite optimistic that you could get that, but a lot of things have to happen.
Ian Bremmer:
Then so far, I'm feeling pretty good, from what you're talking about.
Dambisa Moyo:
Yeah. However, that's very short-term. It's very tactical. Of course, on the back of on historically never-before-seen loose monetary policy, we've got very low interest rates. We continue to have this quantitative easing, which of course is being withdrawn, but it's still very unique circumstances that have created these very buoyant economic conditions.
Dambisa Moyo:
The reason I remain deeply concerned is that there are a whole host of structural factors that we all know and are aware of, but are not being addressed. Things like technology and the jobless underclass, demographic shifts that are adding hundreds of millions of people, in terms of expectations, in the next several decades. Natural resource scarcity. Income inequality. I mean, the implications of income inequality for politics and for political dynamics continue to be quite worrisome. What about the debt burden? Virtually every single class of debt ... sovereign debt, household debt, auto loan debt, student debt ... is now at record highs. There are some big structural factors that are not being addressed.
Ian Bremmer:
Those are a lot of things. There's always things, of course, that aren't being addressed in the global economy, but it's a long list. Maybe before I ask you about them individually, let me say, what kind of urgency do you think there is? I mean, because some of these things, when you talk about demographics and you talk about automation, they're longer-term. I mean, is this an environment where we could easily have a run-up of five, ten years that feel pretty good before you start really getting squeezed? People thought Europe was a disaster for decades, but it had a pretty good run while it did. Is that the kind of thing you're talking about here?
Dambisa Moyo:
No. I'm more concerned, and I'm largely concerned because there's been a convergence from over the last 15 years we've been talking about demographics, but now obviously the chickens are coming home to roost. India's adding a million people a month to their population. We're adding over 60 million people a year, closer to probably even 80 million, which is close to the German population, in the world population. I mean, the forecasts coming out for the global population are not so far-termed that we shouldn't be concerned.
Ian Bremmer:
What's the most urgent? What's the thing proximately, under the next one or two years, that you think people aren't paying attention to, that you say this is a headline that would worry you?
Dambisa Moyo:
I think that the question, maybe if I could restructure your question slightly, is why is this time different.
Ian Bremmer:
Right, why now.
Dambisa Moyo:
A lot of these aspects of things, why is it problematic? For me, from a perspective of being an economist, it's particularly problematic because policies become impotent. The idea that you can inflate the economy by either massive government spending or you could have this situation where you have low interest rates may be good in the short term, but longer-term it's not to strategy.
Ian Bremmer:
What's the first that you think could actually hit?
Dambisa Moyo:
I think the trigger will be a rate path that's expected next year, so higher interest rates, which will impact the enormous debt.
Ian Bremmer:
From the U.S.?
Dambisa Moyo:
In the United States, but many other countries are also expected. As you know, in the United Kingdom, Bank of England's already planning and has been sensitizing the market for a rate hike there. I think absolutely the implications of not just a path of rate hikes, but also the withdrawal of quantitative easing, which has supported this great environment, I think those things could be trigger factors. Beyond that, there's a whole host of other factors, dominoes that start to fall once you have slower growth. I mean, the political implications you're very aware of, in a situation where income inequality is widening, but also ...
Ian Bremmer:
Your scenario is end of 2018, we could have 4% global growth, and 2019, 2020, suddenly it looks dramatically worse?
Dambisa Moyo:
Those forecasts are heavily hitched on what happened in the United States with public policy. I can sit here and give you the most optimistic scenario and say, yes, it could be a 4% print next year, but that really relies on getting some reasonable tax reform. I mean, there already is speculation that it might be much more of a drip feed as opposed to a massive overhaul in terms of taxation. Those types of implications have really deep impact in terms of what capital allocation decisions and investment decisions corporations are making.
Dambisa Moyo:
You know, I'm sure, that the dividend-to-retained earning ratio for many of the big corporations ... so this is the amount of money that companies are paying back as dividends ... is now over 100%. To me, that is very emblematic of a concern by CEOs, that they're worried about the reinvestment prospects and generating capital.
Ian Bremmer:
That implies that if you bring back an awful lot of money, you repatriate it, why are the companies going to do anything different with it than they do right now?
Dambisa Moyo:
Well, I think you will need a policy diktat. I mean, in the past we have seen a situation where money was allowed to flow back into the United States in the 1980s, but a lot of that money was simply used to repay shareholders in terms of dividends. I think in this environment, there are ways for government to say, "Well, we're happy for you to bring back your money at a 10% tax rate, but you have to spend X percent of it on retooling or in infrastructure investment," or something.
Ian Bremmer:
If it's simply a repatriation with them paying taxes, that would not be an effective policy?
Dambisa Moyo:
It's not enough. I think, given the global growth and specifically the growth in the United States, the prospects for growth in the United States and the challenges that I've mentioned ... low participation rates in labor, et cetera ... we need more aggressive public policy, it would seem, than just very superficial plans.
Ian Bremmer:
Do you think that a significant reduction in the corporate tax rate is the right policy, should be a priority, with growth being what it is right now in the U.S. and the markets being what they are?
Dambisa Moyo:
I think it may certainly mask, in the short term, what I consider to be more structural long-term problems. For example, if you are the CEO of ... take your company, X, Y or Z ... you could see a vast amount of money coming back into the company, but you have to still make a pitch to the board and to your fellow colleagues that there are reasonable growth prospects, whether in the United States or globally, that could actually generate a significant return to the cost of capital.
Dambisa Moyo:
I think a lot of CEOs are worried, because the policy environment is so incredibly volatile. I mean, it's not obvious what happens in terms of globalization. There's still a lot of ambiguity into whether companies are going to have to be more siloed. This idea of being able to ... what they call the carry trade ... borrow money cheaply in the U.S., invest in Brazil.
Ian Bremmer:
That's what I'm saying.
Dambisa Moyo:
Those types of trades are under threat. It's not simply money just coming back. It's much more about the need to see fundamental structural change to the global policy environment that we have right now.
Ian Bremmer:
You sit on a lot of boards, and they're having these conversations. From their perspective, is it just, "Give us this money right now, we are happy because we are the ones that see the gain," or are they equally worried that this isn't sustainable? How short-termist do you feel these boards and this leadership are?
Dambisa Moyo:
Oh, I think the short-termism has absolutely seeped into the psychology of not just the corporations, but also of investors. Investors not only want to see dividends coming back to them in the form of capital gains or even share buybacks, but they also are deeply concerned about the long-term longevity of these corporations. I mean, just look at the data. In the past 10 years, we've gone to half of the number of companies that are trading on the stock market. People don't have a lot of faith, or they're deeply concerned about what the prospects for companies that have quarterly earnings are.
Dambisa Moyo:
We've also seen the tenure of CEOs decline quite dramatically. In the 1970s, a CEO hung around for about 10 years. Now it's much shorter, not just for the CEOs but for CFOs as well. That to me is very reflective of this cultural concern around long-term investing, but also in terms of viability of these companies.
Ian Bremmer:
Is capitalism working, from a American or from a global perspective, in your view?
Dambisa Moyo:
Well, I think it's absolutely clear it needs to be reformed somewhat. I mean, I myself am a red-blooded capitalist. I do believe in investing in innovation and really trying to encourage the differentiation of expertise, and I think that that really is a backbone of capitalism. It's fair to say that we do have reasonable concerns around the short-termism that has come in and seeped into the psychology. Also we can't overlook things like income inequality, which is so deeply entrenched. You cannot have viable businesses in a place where people are feeling that they're unable to participate not only today, but their prospects for social mobility and improvement of their livelihoods is not good. I mean, that is just not a viable strategy for a capitalist ethos.
Ian Bremmer:
Let's go back now to your list of concerns and woes for the global economy, and hit you on each of them and see how you respond. The first, you said demographics.
Dambisa Moyo:
Yes. Right.
Ian Bremmer:
You talked about the explosion globally, the explosion in India, and I remember that book, The Population Bomb, I think it was in the '70s.
Dambisa Moyo:
Yes. Maybe even earlier than that.
Ian Bremmer:
Yes. Of course, it was massively alarmist and it was massively overstated. Not only did people, as they got wealthier, stop having kids, urbanization, women and so forth, but also technology allowed us to create a lot more food a lot more cheaply. Why is this time different?
Dambisa Moyo:
Well, first of all, I wouldn't dismiss the forecasts of that period, and I'm not a naysayer about what has happened. If you take a more clear-lensed view about what has happened over the last 30, 40 years, let's take from the 1970s, we have delivered economic growth, but it's quite precarious economic growth because we've been able to finance it through debt, massive amounts of debt.
Dambisa Moyo:
The notion that everybody's better off I think is not entirely correct, because a lot of people are struggling. Their livelihoods have materially deteriorated over the past 30 to 40 years. Their prospects in terms of social mobility, in terms of the prospects of their children, have been materially impacted. I think it's a bit simplistic to just say, "Oh, it's all been wonderful and they were wrong." In terms of where we are today, the UN forecasts that by I think it's 2075, 40% of the world's population will be from Africa.
Ian Bremmer:
From Africa.
Dambisa Moyo:
I mean, that is an enormous shift.
Ian Bremmer:
Right now it's what, 15?
Dambisa Moyo:
It's about 15%, yes. If you just think about that statistic, I mean, how many companies do you and I interact with which don't have that on their radar? It's not that far away. I'm picking on Africa right now, but if we don't actually take that seriously, we could have population implications in terms of disorderly immigration. There are lots of knock-on effects that could emerge if we don't have a very strategic and powerful solution to creating economic growth globally.
Ian Bremmer:
Isn't the question of African demographic growth rates massively uncertain on the basis of how much growth, how much famine, and all the rest of it? I remember Hans Rosling, the great Swedish physician before he died. I mean, he had these incredible graphs showing just a hockey stick of African growth, but then also said, "We really don't know very much about where this is going to go." Do you feel like that's become clearer?
Dambisa Moyo:
Yeah. Look, so the beauty with geopolitical discussions as well as economic discussions is that we don't know with certainty, but the problem or the challenge of public policy, and also business to a large extent, is to devise strategies that work within some reason or some range. On the one hand, is it absolutely, to the point, going to be 40% of the world's population? We have no idea. Are there deep concerns, given where the rates of growth are in terms of the population, not just in Africa, but I mentioned India earlier? Of course, and I think it would be foolhardy of any policymaker to assume that they're not possible.
Dambisa Moyo:
If nothing else, a lot of the statistics that we're looking at, not just in population but a whole range of other things, have actually shown up later, but they've shown up to the downside, to bigger risk than we had expected. I think the financial crisis is a good example, not of demographics, but how when bad things show up, they do show up later. When they do show up, later and they're much bigger than expected, as-
Ian Bremmer:
To the extent that we're concerned about demographics going forward, in your view, it's overwhelmingly the African concern long-term that we have to think about?
Dambisa Moyo:
I think the skew is absolutely in Africa, but it's also in places like India. I think that they have in the past adopted quite aggressive policies to manage their population growth, much earlier than China with their One Child policy, but I think this is absolutely one of the key drivers for the projections for global prospects in the next century.
Ian Bremmer:
Now, a second piece of that, which you also mentioned before, was the issue of where do the jobs come from, given automation, AI and all the rest. Now, Jeff Bezos, a few weeks ago, told me that he believed that AI was going to create even more jobs than we have now, and that this is nothing new. You see it differently?
Dambisa Moyo:
Well, it may very well be the case, but once again, from the lens of public policy, we cannot form public policy or opine on future growth based on things that are not entirely clear to us today. In 1900, 60% of the American population was involved in agriculture. Today it's less than 3%, but some more aggressive estimates say it's less than 2%. That has been a transition over a hundred years, through manufacturing and through into the service sector. Today, as you know, over 80% of American workers are involved in the service sector.
Dambisa Moyo:
I think to sit here and say, "Oh, we should really shouldn't worry about automation and AI because it'll create jobs," is not a strategy for potentially what could happen. If we have the service sector transition into anywhere close to where manufacturing is today, around 18% of the workforce, or some less than 3% in agriculture, we do have a question to answer about what it is we're going to do with a lot of people who are not just the unskilled workers, but also skilled workers.
Ian Bremmer:
It's happening a lot faster.
Dambisa Moyo:
Absolutely. I'm not going to stick my neck out and say it's absolutely not the case that AI will create jobs, but I think there's a bit of nuance that's required here in terms of that job creation.
Ian Bremmer:
Where are the policy solutions in all of this? Do you see anyone out there with real power, that gives you hope that we're starting to address the issues?
Dambisa Moyo:
That's a brilliant question, and I think that there's two answers to it. On the one hand, as I intimated earlier, it is absolutely the case that public policy has become quite impotent. The tools that we traditionally use, particularly in economics but also in geopolitical engagement, are no longer valid. In economics, both fiscal and monetary policy have become more challenged. From the perspective of geopolitical engagement, as you will know better than I, I'm sure, the emergence of non-state actors, and I'm not talking about ISIS only. I'm talking about wealthy philanthropists who are underwriting public goods. That whole change in the dynamic means that these tools that we relied on in the 20th century need not apply as effectively as they have in the past. That's one issue.
Dambisa Moyo:
The other issue really pertains to the fact that governments have tried the toolkit that we have used in the past, meaning we've had left-leaning policies, so tax and redistribution, and frankly, they have failed to deliver in terms of long-term sustainability. Think about income inequality as an example. We've also tried the more right-wing approach, which is much more about supply-side, low taxes, but that has also not worked. We're in this world now where public policymakers are really driven, I think, by ... nefarious is probably too unfair, but they're driven by the short-term need and desire to be reelected. The implications of that in a world where the toolkit is ineffective is much more traumatic.
Ian Bremmer:
If the corporations are driven by the short term and the politicians are driven by the short term, don't tell me you're just holding your hope out for the Pope. I mean, who's doing long-term?
Dambisa Moyo:
Well, we do have sovereign wealth funds. Pensions ostensibly should be thinking about the long term, and I do think that there is scope in that regard. I'm not a big bureaucrat. I don't really love lots of government interference and involvement, but I do think in these types of environments, government does have an important role to play.
Dambisa Moyo:
For example, just to give you a very specific policy initiative, if governments in the United States said, "You know what? Pension funds, this is our money as the average citizen. We're putting money into these pension funds. We should care about infrastructure, for example, and so we're going to insist that X percentage of the pension money goes to support infrastructure," I can't imagine that the average citizen will find that hard to swallow. Of course, there'll be people who say, "Well, I don't want the government interfering," but I do think there has to be some kind of a match of assets and liabilities that works for society. I'm quite optimistic that mood is coming.
Ian Bremmer:
One other thing you raised was resource scarcity. Not something I hear about much, given that commodity prices have been comparatively depressed recently. You see that turning around.
Dambisa Moyo:
Yes. Again, this is really structural. I think that the skeptic or naysayer may say, "Well, come on, for God's sake. In the 1700s we had Thomas Malthus talking about natural resource scarcity. We've had the Club of Rome in the 1970s talking about natural resource scarcity. Why is it now that this should be different?" It's really because of the population boom. If you read the literature, the scale and the speed of the population growth that we're witnessing right now has never happened before in history or pre-history. The forecasters, the demographers, estimate that it will never happen again, once the world's population plateaus out in 2100. We are in this very unique period of time, and it's absolutely the case that potable water, arable land, minerals and energy are scarce, finite and depleting.
Ian Bremmer:
Now, in the previous two issues, you talked about short-termism and a lack of policy response was a real problem. Here, you could at least argue that the efforts to create technological responses for inexpensive food, for cleaner water, for solar power, all these things, that's happening full steam ahead. Wouldn't you say that?
Dambisa Moyo:
Well, I wouldn't say full steam ahead. I think there are certainly efforts. I think my concern is that the leaders of things like desalination are largely emerging-market countries. Take China, take Saudi Arabia. This is not to say it's a bad thing. I mean, I hope for a world where innovation and transformation come from anywhere on the planet, but it would seem to me that you want the countries that have a legacy, a great history of delivering on R&D, to be at the forefront of developing a lot of the innovation in healthcare and education and natural resources. I worry quite a bit that we don't see a lot of the big Western countries, United States and other countries, really at the forefront of some of these innovations.
Ian Bremmer:
Why do you think that is, given that so much of the new technology developments are happening through the entrepreneurship of Silicon Valley and biotech around Boston, Pittsburgh, Chicago, you name it? Why do you think that these issues aren't being addressed?
Dambisa Moyo:
I wouldn't say they're not being addressed. I think it's questions on rank order, why are they not a priority. I think that a large reason for that is that in these other countries, the government is a leader. We've seen this in the United States before. The United States has a history, through DARPA and through past innovations, of being a leader, building out infrastructure. For whatever reason ... and I think a lot of it has to do with short-termism that's crept into public policy and politics in the United States, that's gotten more aggressive ... I think that the U.S. government is taking a much more of a back seat in supporting a lot of these innovations. Whether it's nuclear or some of the other areas that you mentioned already, I think that there's much more scope for government there.
Ian Bremmer:
Dambisa Moyo, a heroine of the Tennessee Valley Authority in the United States. We'll promote that, but wonderful being with you today.
Dambisa Moyo:
A pleasure. Thank you.
Ian Bremmer:
I'm sure we'll do it again.
Dambisa Moyo:
Thank you.
Announcer:
The GZERO World is brought to you by our founding sponsor, First Republic. First Republic, a private bank and wealth management company, places clients' needs first by providing responsive, relevant and customized solutions. Visit firstrepublic.com to learn more.
