Good morning everybody.
I am going to brief you in a moment, but I am
going to go and do a live promo,
promotions, we call it, for the debate,
which is going out live on BBC World News,
literally as it happens here.
So, I'll tell you how we will do it when I
have done this,
but let's get this out of the way first.
First of all, can you all remove your
badges?  It's my moment of power.
But do not lose them, because otherwise you
will not be able to get anywhere
in the building afterwards.
We are just going live, so can you stand by,
please.
We are going live at the World Economic Forum
in Davos.
What about the optimism, can any of us have
any optimism,
that the deepening world economic crises will
be reversed any time soon?
What must change to achieve it?
What is the outlook, join me after this
short news summary for the BBC World Debate,
The year for reinventing capitalism.
If any of you have spaces, if you could
come in a little bit. 
Because of snow security and everything else,
it would be better,
if we did not have any large gaps in the
audience at this stage.
We are never quite sure if 150, a thousand
people or 50 people will turn up at this time,
on a Friday morning, when many of you have
been up till two o'clock.
We are going live in about five or six
minutes.
Let me just tell you, we are going to
encourage you; this is a bit of an experiment.
I am not going to tell you to switch off your
Smart phones, or your laptops or iPads.
There will be a hash tag up there, and you
 sitting in the audience,
can help contribute to that.
I can get the messages coming up here, so you
can contribute
without necessarily raising your hand.
We have been soliciting for contributions, and
several people have offered to speak already,
and some of them were in the front row.
So donג€™t think we pre-selected them, but they
took up the invitation which is widespread,
to contribute beforehand,
so we have an idea of the kind of things
people want to talk about.
If you are a bit jet-lagged, or you had a
great party till four in the morning,
and you have come here to sleep, please don't.
One or two of you heard me say this before,
but there is a great piece of video,
of someone sleeping and snoring during a
debate.
Not because the debate was bad, but because
they were jet-lagged.
If you feel you will have to leave before five
to 10,
could you just position yourself on one of
the fringes.
We are going to be live, it would be much
better
if you didn't disturb the feeling in the
audience by just moving across
because it looks pretty impolite.
Now, I have said in the past, don't look at
your iPhones and so on,
but this is now integral to this kind of
discussion
as we discovered in the first brainstorming.
It's great to have your kind of input.
At the end, please, even if you really want to
rush out, donג€™t please,
until I say, that's it,
because the music will run, and it will see a
wide shot of the audience, of all of you.
So just please, stay in your seats.
We're not going to rerecord it, but just
please stay there,
so it does not look, as though you are so
desperate to get out.
This will be live, but it will be broadcast
several times over the weekend,
on BBC World News, on television, and also on
BBC World Service,
across the multiple BBC global platforms, of
video, sound
and of course the digital platforms as well.
Now, there are microphones, there are two
 Swiss International people who have them.
I will try to get that microphone to you.
Not everyone will be able to speak, of course.
That's about it, I think.
Remember there is a Jibb (ph) up there. 
Please donג€™t get up or it might hit you.
That is a health and safety announcement for
you.
Just to tell you, if something does go wrong,
the exits are over there.
Thank you all for coming.
Which way would you like people to move,
quickly?
-Which is the other side?
-Iג€™ll go to the left.
What would you have been on that side, you
would like them to move to this side?
Could I just, in two minutes, ask if some of
you could move to here please?
Angel, could you just look at camera One which
is over there, thank you.
We are moving people.
Mark could you help?
Thank you very much indeed.
It is really because of the way the cameras
are shooting.
Pascal, could you please check G-Docs is
working please.
Don't worry there are not mosquitoes in here.
This is a way of syncing up stuff,
(inaudible) is our editor as well.
The spirit is very much one of exchange,
trying to get to the heart of...
Welcome.  At the end of a week when the
international monetary fund is warned
that the global economy is in the danger zone,
because of the unresolved Euro zone crises,
and faces a 1930s moment, because things
remain so bad.
We are joining our World Debate in Davos,
Lael Brainard, under secretary of the US
 Treasury. Ms Brainard is chief advisor
to treasury secretary Tim Geithner for
international affairs.
Nouriel Roubini, is the economist renowned for
predicting the dire impact
of the 2008 financial collapse.
His gloomy predictions earned him the
nickname, Doctor Doom.
Angel Gurria is Secretary General of the
Organization for Economic Cooperation
and Development, which analyzes the economies
of 34 countries, most in the developed world.
Plus Anders Borg, Finance Minister from
Sweden.
He was voted European Finance Minister of the
year, by the Financial Times Newspaper.
Before helping to rescue Swedenג€™s economy, he
worked in the Banking Sector.
That is our panel, welcome to you all.
Well, we've invited our global audience to
raise issues,
and questions to our World Debate Panel, via
email, Facebook and Twitter.
Whether in this room in Davos, or around the
 world,
you can tweet your thoughts during this live
debate.
The hashtag is BBCDavos.
Well our debate issue is 20-12, the year for
capitalism to be reinvented ג€“ question mark.
Let me just check with our audience here, who
thinks capitalism is without flaws,
and does not need to be reinvented?
Does anyone think that?
There are two or three people here, we'll hope
to here from you later.
How bad are things?
Well let us get a swift view please, of the
way things are moving.
Angel Gurria, the view from the OECD?
Capitalism, with a K, it used to be a bad
word.
I am going to talk about market economies,
rather than capitalism,
and I donג€™t think we have to reinvent it,
we just have to have good policies.
If we have good economic policies, fiscal
policies, growth policies,
employment policies, social policies,
environmental policies,
we are going to get it right.
So it is not a question of reinventing
capitalism,
or substituting it for some of the
alternatives we know did not work in the past.
Are you optimistic or pessimistic?
Yes, I am optimistic that we know what the
solutions are, I am less optimistic
about whether we are actually taking the right
decisions to put them in place.
Lael Brainard what is your assessment at the
moment from the US Treasury?
I think the big challenge for us in U.S., and
I think it is the same challenge
for different characteristics for China, and
for the Euro area, is to grow differently.
Going into the crisis, there were large
imbalances,
and growth was increasingly unfair, unequal.
Going forward we are very focused on charting
a path of growth that is more balanced,
and more fair.
In the U.S. it means really restoring the
American dream,
making sure that American families have a fair
share and a fair shot,
not through excessive leverage that they
cannot afford,
but through the ability to raise their
earnings and their children to school,
and to reinforce social mobility in the US.
Does it need a new form of capitalism, or not?
I think it requires a large and difficult
reforms, and let me say also,
that China needs to address some of its
imbalances, internal inequality.
If it does so in a way that boosts the role of
the domestic consumer,
it will also help address some of the
international imbalances
that led to this crisis.
Anders Borg, your assessment, how difficult
are things?
Well, I think we need to reinvent the way the
companies and economies are functioning.
I think there will be no legitimism for the
market system
if we are only talking about short term
profits.
So companies have to have responsibility to
their employees, to the society.
We cannot have a situation where the companies
are only concentrating on bonuses
and not paying the taxes.
We need to have more of a social market
economy.
A different type of capitalism, can it
redefined, or reinvented?
More social, more responsible,
but we also need to understand that also the
political side of things,
the wealfare states need to be reformed in the
years ahead of us.
Nouriel Roubini.
I would say that it is a crisis of capitalism,
but there are many different types of
capitalism.
There was the Anglo-Saxon model of laissez-
faire, free market,
not even prudential, regulation supervision of
the financial system.
That model was proven broken, during the last
financial crisis.
We need proper regulation supervision.
The other model is the social welfare state of
continental Europe.
Now we are seeing that the Social Welfare
State is also in crisis,
you have deficits and it is becoming
unsustainable.
Now, there's a third model that is emerging of
what people refer to as State Capitalism.
This is what is being done in China, and,
maybe, in part in Russia.
In some emerging markets, it is sort of
working now in China,
but the Chinese themselves say,
that this is not the model that is sustainable
and balanced.
Eventually, having too much reliance on state-
run enterprises, even in these economies,
is going to prove dangerous.
We have to really rethink whether we have the
right balance in markets, government,
public policy and private enterprise.
Well let me put a few points that we have been
getting in, here from Howard Buffet,
who is the grandson of one of the world's
richest men, Warren Buffet,
now running his own foundation.
He emailed us beforehand saying that
capitalism is the greatest driver
for development and wealth creation, but at a
cost.
How to make it much fairer for the long term,
values based.
Angel Gurria, you are not in agreement.
Absolutely, because that is the great 
challenge.
It's not that we need to change the base of
the philosophy of a market economy,
but we need to do it, not only stronger, we
need to do it cleaner in many ways.
That's environmental, but also getting rid of
some of the uglier aspects,
the darker aspects, but we need to make it
fairer.
And fairer is something that is missing.
Inequalities are growing,
unemployment and inequalities together are
creating the indignados,
and people taking Tahir Square, people
occupying Wall Street, all over the world,
because we are in danger of frustrating a
whole generation.
Lael Brainard, just picking up on the issue
from Howard Buffet,
there is a cost at the moment, a cost.
There, the grandson of one of the richest
men in the world.
Well, in the US you saw it going into the
crisis.
We did not have supervision in the financial
system.
we had all kinds of unsound and predatory
practices in consumer finance.
The incentives in the financial system, were
terribly skewed,
to the accumulation of leverage,
financial institutions operating unsound
capital buffers,
and we are engaged in a very fundamental
overhaul of our financial system,
under the Dodd-Frank Act, that will lead to a
very different set of incentives,
and we hope, the set of incentives will
nurture the real economy,
will nurture investments in job creating areas
in the US economy,
and that it will lead to a much more fair
pattern of growth.
But, I think I would go back to the
interdependence among some of the major areas
of the world economy.
The story in the US, in the middle part of the
last decade,
is very difficult to disentangle that from the
very unbalanced growth model
that the Chinese were engaged in at the time,
which was extraordinarily resource intensive,
depended heavily on cheap labor, cheap credit
excess utilization of resources,
an under valid exchange rate, and led to
massive under consumption in the economy
and excessive dependence on exports in the
advanced economies.
Lael Brainard, thank you, but let me move on
with that issue.
We have had facebook, Faith Katungei (ph)
here,
saying, Capitalism is some sort of economy
tyranny.
Anders Borg.
I think, to be clear; you can combine
efficiency and high growth,
with low inequalities.
Sweden is a country with high growth, and high
social mobility,
with very low degrees of inequality.
Paradoxically, this is partly due to the fact,
that we spent the last 20 years
reforming our welfare state.
It's not only that the market has to be more
social,
it is also that the social side of the
economy,
the welfare state, has to be more market
based.
Nouriel Roubini.
What has happened in the last few years
is that there has been a massive increase in
income and wealth and equality,
not only in the US, but as the OECD has
suggested, in many other advanced economies.
We have also seen rise in equality, also in
China, and other emerging markets.
That's becoming a social and political
problem.
Now, inequalities are due to many complex
events.
You have 2.5 billion children, joining the
global labor supply,
and therefore the wages and the jobs and skill
workers in US, Europe and Japan are affected.
You have (inaudible) effects.
You have the effects of aggressive taxation.
You have technological changes biased towards
skill workers, rather than unskilled ones.
There are many factors at work, but unless we
deal with this rise in inequality,
we'll see a lot of instability.
As pointed out, there is the Arab Spring, is
occupied Wall Street, is the riots in London,
it is the middle class in Tel Aviv, saying
I cannot afford a home.
It's the Chilean students saying, I cannot
afford education.
Even in China, on the micro blocks, people are
saying,
I am tired of corruption, of inequality and of
this problem.
So the phenomenon is global.
Let us pick up on that with Salil Shetty from
Amnesty International,
you want to build on this point, Salil.
Thank you, Nick.
I think, certainly the view on the street, of
the ordinary people,
is that what we have seen in the last year, is
corporate greed,
bankers, financial sector people, really
getting away with murder, literally.
Government complicity, governments and
corporations being in bed with each other.
The question is where is the ג€“
Is that capitalism?
Is your worry about capitalism, or the way
they have been behaving?
From Amnestyג€™s perspective, it is not an -ism
issue.
It's an issue of what is the impact on human
rights, and I think that what we are seeing,
it's moving from a financial crisis, to a
human rights crisis.
The two questions, one is to the panel, where
is the accountability?
A lot of the people who actually caused the
crisis are walking around here,
in the World Economic Forum?
Is there any accountability?
And the second part is, are we going to repeat
the mistakes all over again?
Because the response to the crisis that
people are proposing to cut further,
and the poorest sections, the most vulnerable
sections, and women,
are going to be further affected due to the
response, which is to cut back on expenditure?
Are we going to repeat mistakes?
Lael Brainard.
Well I think there is an inherent tendency in
capitalism,
during periods of boom to excesses, that we
see recurring crisis.
But what matters hugely, obviously, is the
balance between the sector of the society
which is supposed to hold the financial sector
accountable,
and how strong is your supervisory and
regulatory environment.
In the U.S., we clearly had massive
distortions in the system of incentives,
and we are working hard to fix those.
And, I think, if you look at in a year of
compensation, for instance,
some of the reforms that we're putting in
place would say on pay,
and risk-based incentives.
Again, if you look at the attempts
to address predatory practices
in the consumer finance areas,
these are fundamental reforms.
If we'd had them in place
leading into the crisis,
we would have had a much different experience.
Angel Gurria, your reports are pretty brutal
about this issue.
Yes, indeed, and I'm reminded, was it he
that said the unacceptable face of capitalism?
Well, I think compensation is one of them.
But it can be regulated.
It can be codified.
The only problem is it looks like
we didnג€™t learn very much.
You know, you have to read Nouriel's book
 about what brought about the crisis.
And this was one of the things that brought
about the crisis, unchecked greed,
and now, it's happening again.
So we donג€™t seem to have learned the lesson.
This is a warning shot.
We need to continue to focus
on that particular issue.
By the way, this is not going to solve
the problems.
It is simply causing this enormous social
irritation and adding to the polarization
of public opinion and to the indignation
of the public.
Picking up Salil Shetty's point there,
Anders Borg, you have to sit with a lot of
finance ministers,
and other ministers around the European Union.
Are they going to make the same mistakes?
Are they going to allow this kind of mistakes
to continue?
Well, I mean if we're looking at Greece,
Italy, and Spain,
they have not had too much of a flexible labor
market than globalization but too little.
And it's not clear that structural reforms
need to increase inequality.
For example, Italy, they need to get females
on to the labor market to improve
gender equality.
That is a hidden resource of the Italian
society.
And if that will happen,
it will also equalize income.
So, the right reforms can also improve cohesion,
if they are implemented in a good manner.
Nouriel Roubini, do you believe
that those at the top
have learned from their mistakes,
and therefore Salil Shetty will get
a positive answer
which is we're moving in a different direction
which won't repeat these mistakes?
I'm not sure.  The reforms they have done
in the financial system are not enough.
They showed distorted compensation of
bankers and traders.have not being addressed.
How we regulate derivatives, we'll have to
see.
Banks were too big to fail now,
because of consolidation,
have become even bigger to fail.
Are we going to be able to break them up
if another crisis does occur?
I think there are many question marks
about this issue.
And, in the meanwhile, we have recurrent
not only a situation which
there's too much private debt.
The crisis was caused by too much debt
by households, by banks, by corporates,
not because of the policy response,
we have too much debt in the public sector
and too much deficits,
and therefore there is now risk of
sovereign debt crisis as well.
So we are in a very fragile world
in which there is a lot of macroeconomic,
financial, fiscal, regulatory taxation,
and uncertainty,
but now also political policy and also
geopolitical.
So it's a very delicate, uncertain world.
Angel Gurria, just before we go on to
a few more tweets and Facebook coming in,
This issue of leadership,
You have been very critical in your reports
about leadership,
its ability to learn from what's happening
and not to repeat it.
There is an asymmetry.
We know what the solutions are.
We know we got to deal with Greece.
We know we got to deal with the banking system
capitalization and liquidity,
we know we have to deal with the firewalls,
and we know what size of firewalls have to be
to be credible,
and we know we have to deal with unemployment.
We know we have to deal with inequalities,
and we donג€™t.
And it's been 18 months and two years
and 30 months and we still donג€™t.
And that is causing an enormous cost to
society.
Uncertainty has already cost maybe 20, 30, 50
times the total size of the Greek debt.
Let me move on with Facebook from
Richard Johnson.
Capitalism hasnג€™t failed.
This is an opportunity to improve it.
A more moral capitalism should emerge.
Profit, but not at any cost."
Anders Borg, you're not in agreement?
No, I strongly agree to that.
We want to have strong owners and
entrepreneurs,
but they must direct their energy
and their force also to society,
investing in long-term technology
and also behaving in a way that they are
strengthening their employees by providing
education.
This issue here of profit?
In other words, profit, there's too much of it
but not at any cost.
That's what that Facebook says.
Well, I definitely agree.
If you see profit by taking money
out of our Swedish society, for example,
and putting them in Channel Island
and avoiding your taxes, that's bad.
If you're providing profit by an
entrepreneurial product
that is improving the world, that's good.
But there must be a moral difference
between this kind of profits,
and the business side must behave
in a much more moral and sensible manner.
I would add that in addition to the moral
aspect of unfairness of inequality,
is not even efficient because we are
redistributing right now income from labor
to capital, from workers to firms,
from poorer people to richer people,
but those who are workers and poorer
have a great marginal propensity
consume and spend,
while firms and richer people
have a greater propensity to save
rather than spend.
So that redistribution of income
is reducing overall aggregate demand
and it's using jobs and income growth,
and therefore growth rate of the economy.
So in addition to the moral issue,
the unfairness of it
from an economic point of view
it doesnג€™t make sense.
Today, the share of labor income
in the United States is 58%,
the lowest we have had in decades.
It used to be 64%.
That has an economic effect.
That's one of the reasons why there is not
enough consumption and demand.
We have to reverse it.
Lael Brainard, that is you have profit.
That's the perception of it.
There's too much profit.
The cost of profit is simply too high
certainly, and that's what this current crisis
is showing.
Look, in the U.S. system, let me just speak to
that, capitalism, that's not the issue.
The issue is how does U.S. society
and government create incentives
on the one hand to ensure that capitalists
directed to productive uses
that generate jobs, that invest in the long
term competitiveness of our real economy,
and essentially attack system that ensures
that that core U.S. value of social mobility,
equality of opportunity is safeguard.
Of course, we didn't have that
under the previous administration.
What we had were tax cuts for the wealthiest
part of society which, as Nouriel said,
was already gaining the largest shares
of the gains.
And so we have to go back to the critical
reforms that we're undertaking right now,
looking at the tax system,
looking critically and making deep,
I differ with Nouriel on this,
we are making deep fundamental reforms
to the structure of our financial system
that will make it sounder and safer
in the future.
Angel Gurria.
I think this is perhaps one of the problems.
It's not capitalism,
and it's not even profits.
Frankly, it's absolutely legitimate
to have the proper kind of profits.
The problem is, you mentioned, leadership.
In the case of the United States, for example,
because we focus too much on Europe,
it seems that, today, because of the political
polarization, it's difficult even to agree
on the time of day, much less to make these
very fundamental changes that are required.
Now, President Obama has been pushing job
projects, he's been pushing for healthcare.
He's been pushing migration issues.
All of them are either stalled or being
challenged by a very polarized public opinion.
This is uppermost in the minds of people.
It's not challenging capitalism or profits.
It is whether the governance of the process
and that is in Japan,
whether we've had seven governments
in the last six years,
or in the 13 or 17 changes in the 34 countries
of the OECD ,
and the people who are leading politically,
or the problem of the lack of capacity
to agree in Europe or in the United States.
This governance issues is just as important
as challenging capitalism ideologically
or talking ill about profits.
Right. We're getting a lot of tweets
and other things coming into the mode.
George Manju, who is actually
here in the auditorium,
is saying that We need a cleaner,
responsible capitalism,
take away some of the uglier aspects."
Why are you saying that?
Because I think the focus has so far
been on profits,
and not too much on some of the issues that
already the panel talked about,
which is inequalities, unemployment,
particularly youth employment, et cetera,
and that's the reason why I say that.
But capitalism itself,
are you against capitalism?
No, I think we should make money
because that's efficient.
There's an economic reason to it,
but we also need to look at the other aspects
that we have mentioned before.
But what do you think
needs to be worked on then?
I think going back to the governance point
that was mentioned,
I think that's where how policies are set,
how the leadership thinks,
how the decisions are made.
I think that needs to be different from how
it was done so far.
Can I move across to Ngaire Woods,
who is from the School of Government in Oxford
University.
You have worries about jobs.
Yes, I've got two concerns.
But one is what about the short-termism
of capitalism?
At its core is the publicly owned company.
At Davos last year, it was a discussion
which said, look, the CEOs are only there
for three or four years.
The shares change hands four times a day.
The boards are not independent or expert.
Who is holding them to account?
Where would each of you begin to make the
companies
which fire capitalism more long-termist?
And what have each of you done personally?
What's the most significant thing you've done
in the last year to create jobs?
This issue of long-termism.
Angel Gurria.
Well, we have been looking at the
multinational enterprise code of conduct
at the corporate social responsibility
of enterprises, at the corporate guidelines.
We updated them. We upgraded them.
And precisely, with an eye
on the medium and the long-term
and the permanence of governance structures.
Does anyone take any notice though?
Yes, they are taking notice more and more.
I think millions of people are better off
because these things are happening
even if they donג€™t know who they owe it to.
We won't charge them for any author's rights
anyway.
Anders Borg.
Well, we actually had the highest
private sector employment growth
of the whole OECD area last year
so I think we did pretty well
in creating progress.
Why was that?
Well, I mean, we have been very consistent
in doing structural reforms
and also investing in education.
So I mean education I think
is a very important thing here.
We have the highest degree of social mobility.
For one reason, that is because
we're providing free good public education for
everybody.
And the lowest inequality.
And the lowest inequality.
This issue of long-termism there,
Lael Brainard.
When you're sitting in Washington,
and you have to look at short-term
versus the long-term, this worry of
Ngaire Woods there, about long-termism.
Well, I tell you, our concerns about the
long-term have to do with the ability
in the U.S. of our political system
to come to grips with the long-term challenges
of growth and fairness in our economy.
And so, you see it in a debate over our
fiscal future.
We have to be able to come together
across the political spectrum
and agree that the solution has to be balanced
over the medium, over the long-term.
Entitlements need to be on the table,
but so to do revenues
in order to invest in the long-term financial
solidity of our country.
With regard to the competitiveness
of our economy, infrastructure investments
in the U.S. have been neglected for too long,
and we need to find a way for us
to come together across the public sector
and the private sector
to invest in the fundamental long-term
competitiveness of our economy.
Nouriel Roubini, this long-termism
versus the short-term problem
as Ngaire Woods has pointed out.
It's a problem as was pointed out, both in the
private sector
given governance of corporation, of banks, and
so on.
And in addition to that, there is also
the problem
that we have privatized gains in good times
and socialized losses in bad times.
But there's also a problem in the public
sector because we live in democracies
that's good, but there are these electoral
pressures, and you have to be reelected,
and doing the kind of policies that imply
short-term cost and benefits only
in the medium-term or long-term is hard
because you might not be reelected.
In the case of the Eurozone, unfortunately,
we have 17 countries, 17 governments,
17 coalitions that cannot agree within their
own coalition let alone with the opposition,
let alone internationally, and that's a source
of gridlock, of delay in the policy response
and market then reacting to it.
And we need also to coordinate policies
at the international level
because many of these problems are
not national. They are super-national.
So we need those international policy
governance at the international level.
Let me give you an idea of some of the
responses we're getting in,
certainly on Twitter here.
From Adelina Marini, okay, profit but not at
any cost. Who is going to say how much?
From Florian Irminger, is capitalism to allow
corporations to violate human rights?
Let's rethink a market economy that respects
rights.
And another one here, where do the youth fall
into this equation?
The next generation, in other words.
No one is talking about how they can be part
of the solution.
You're nodding your head in agreement there,
Lael Brainard.
Well, you know, in our country, this issue of
youth comes right back to the same question
about making choices across generations.
Our fiscal debate is fundamentally about
how do we share the gains and the losses
across generations?
Are we going to make the longer term cuts
raise the revenues
that will enable our young population to get
the skills they need,
for instance, to be productive members of
society?
But you know, we go back also to this
earlier question that was asked about
in some of the Arab Spring countries.
It was not those countries had too much
or too little of capitalism.
They had a set of institutions that were not
democratic, not accountable.
So you had youth, women who were not included
in the decision-making.
As a result, you had an economy
that did not provide real opportunities
for youth, for women, and that is
the fundamental shift in fairness
that's being addressed, we hope, right now.
Nik, on the question of how much profit?
It's very simple.
Competition, competition, competition.
Innovation, innovation, innovation.
That will bring profits down to its natural
healthy level, I would say.
You can't define arbitrarily.
It depends on each sector.
It depends on whether there's a market leader
or not or whether they're taking advantages
of open it to competition, block all the
disadvantages, the obstacles to competition.
Have more open markets internationally.
Eliminate protectionism, trade protectionism,
investment protectionism,
foreign exchange protectionism,
and we'll be better off,
and we'll find the right level of profits.
Lael Brainard mentioned Egypt.
Let's go to Mohamed El Haw of
Global Shapers they call here,
between 20 and 30,
one of the new entrepreneurs.
You've been tweeting during this debate.
You're a Founder and Chief Executive of the
Taleeda Foundation and you come from Egypt.
One of the things that actually made the
revolution getting stuck right now in Egypt
is that there was no vision.
And if I recall from Alice in Wonderland
when she was lost and she asked the rabbit,
where do I ought to go?
which road do I ought to take?
And he asked her, where do you want to go?
She said, it doesnג€™t matter.
Then he told her, it doesnג€™t matter.
which road do you need to take.
You're speaking about developing leaders.
We're constantly debating what is the method,
but we donג€™t know where we're going. 
What is our vision?
We need to develop leaders to be visionary.
We lack visionary leaders,
and then we can start discussing the method.
So I think we need to change the question:
Where are we going?
You've also tweeted that you need a new
capitalism
that quote is inclusive of the new world
dynamics.
What do you mean by new world dynamics?
What I mean by that is that the young people
are no longer looking for the one leader,
the savior.
They need inclusion.They need collaboration.
They need open platforms.
These old things of structured programs,
structured curriculums
are not working anymore.
So we need things that are more open
and include more people in the decision-making
rather than having one person deciding
everything.
Anders Borg, the perception from the 20 to 30
year-olds who are already very successful,
uncomfortable about the state of the economic
system at the moment.
Well, I agree that we need to see less of
inequality,
because it is also a political factor in this
crisis.
Societies that are divided are not able
to deal with crisis,
or continue to reform it in the long-term.
So we need to find broad based political
support for going forward,
and that means that social cohesion
is also a political asset in terms
of being able to continue to reform.
So, for any country to build an inclusive
political and economic strategy, I think,
is at the core of starting a long period
of growth and sustainable development.
This need for a real new adaptation,
Nouriel Roubini,
this coming from the next generation which
I've been hearing a lot of here in Davos.
Well, I think that social media
can make a big difference
because in addition to traditional democracy
I think that from the Arab Spring
to what happened recently in Russia,
to the fact that in China you have
300 million people on their own version
of Twitter complaining about the inequality
and corruption to the effect that
even in the United States a recent law
was pushed back by having a popular movement
just last week saying over the internet,
Twitter, Facebook, we donג€™t want certain
policy laws, and so on.
I think there's ways to have more direct
democracy in which people
can express their views.
The young, those who are not in the political
system is going to make a difference.
So we want democracy that's more inclusive,
but more inclusive
means to give voices to the young, to women,
to poor,
to people that are not in the traditional
political process.
And from this point of view, I have to say
the internet, the social media,
can help to make a good difference.
Anders Borg, you're a politician.
Are the politicians listening to the social
media,
some of which we're getting here on the World
Debate?
Well, I strongly think that accountability
has been stepped up for the last few years.
Do the politicians realize the obligations
now?
We have an obligation to listen obviously.
I mean, an open society is based on the fact
that criticism and discussion can take place.
And if you look at Europe, for example,
it has been quite clear that a government
that has not been able to tackle the crisis
has not been re-elected.
So I think also the political game
is changing here.
You need to be, long-term, to be able
to have voters' support.
Lael Brainard, let me come to you
because a recent Pew Research Center polled in
the U.S. said,
that only 50% of Americans react positively to
the term capitalism, 40% reacted negatively.
Among Americans aged 18 to 29, more had a
negative view of capitalism
than a positive view.
Now, this at a time when, for example,
one Facebooker, Neus Serentill, is saying,
we need stakeholder capitalism
instead of shareholder capitalism.
But that point particularly about
understanding the new generation out there
who are disillusioned because they can see
what's going on.
Well, I think in the U.S. the answer
is very clear.
We've seen increasingly skewed
income distribution.
We have an educational system that is not
doing its traditional job
of providing equality of opportunity
regardless of the child's parents' incomes.
And we have a lot of work to do to redress
the imbalances,
the unfairness that's growing up in our
system.
And we'll do it in a way I think that will be
very responsive to young generation.
Just going back to this question about
open platforms though,
it's not just a question in places like Egypt
of open platforms for governance,
which I think are critically important,
but also creating the ability for young people
to start businesses. 
And that goes right back to the form of
capitalism.
Can young people in the Egyptian economy get
access to finance to start small businesses?
So it's really democratizing capitalism,
as well as the political system.
But let me put it to you,
is there a kind of generational time warp,
even in Washington, where you're thinking
the old-think rather than the new-think,
which the next generation is clearly wanting?
Well, I think, in fact, in Washington
it's very much focused on opportunities
for the new generation and looking forward
to the future of our country,
and realizing we've got to get ourselves out
of some of these stale debates
and move forward on a fiscal compact that is
fair and balanced,
and move forward on addressing the long-term
competitiveness of our economy.
Public perceptions here, Angel Gurria.
Frankly, I think in Washington
it's the other way around.
President Obama is the one who is leading the
charge, and the time warp is right there,
and the two will not mix.
Just a question about ruling or governing,
and listening to the social networks.
This is fine, but in the end rulers
are elected to take tough decisions,
even if they may not be popular.
And if you're looking at the polls every day
of every one of your decisions
and seeing whether it's going to be popular
or not, the result can be rather disastrous
because you end up not taking
the necessary decisions.
And by the way, I donג€™t agree that in the
Middle East they donג€™t know what they want.
We get the same recurrent demand to say
that is ways to encourage jobs,
and for us to create jobs, governance,
anti-corruption, transparency,
the things that will underpin
a healthy and vibrant economy,
a healthy, vibrant democracy
again and again and again.
It's the same demand even from governmental
change, they come back the same.
The fight against corruption in particular
is one very, very strong one.
Let me give you one tweet we've got here
from Tsuda Shoken,
I think that the main issue is how to
regulate the incredible greed of Wall Street
of the City in four ways.
Now, I'm putting that on the agenda
because, of course,
for the last three years that has been the
issue, but that is still the perception,
Nouriel Roubini.
Certain there is a perception that nothing
changed, that in the good times
there were profits, there was a risk taking,
there was excessive compensation,
that we privatize those gains.
And then when the mess occurred, we socialized
the losses, and we put them on the balance
sheet of the governments, and we have created
a massive public debt problem.
We also have a question of fairness of the
taxation.
In the United States, labor income is taxed up
to 35% while various sources of capital income
whether it's capital gains, dividends,
estate taxes, or carried interest,
is tax much low, as low as 15% or even lower.
So a worker may pay a 35% marginal rate
while a private equity investor pays 15%.
That's not fair, and it's becoming a social
and political issue.
So, those are the kind of things that
throughout the world we have to address.
Otherwise, there will be a real backlash
against it.
But this issue again of the Occupy Movement,
it hasnג€™t really taken off in many ways
in terms of numbers, but it's made an impact.
Is this a real hostage to what is coming
for politicians.
Lael Brainard?
We've had it here in Davos as well.
I think that if you look at the changes that
are moving forward in our financial system,
they are profound.
The Dodd-Frank Act is profoundly
transformative.
Do the public understand that?
I think it will take time for us to see
the full impact of that.
Do you have time though?
Look at Occupy Wall Street.
Look at Occupy Movement
Let me just point out, our banks
are already running with capital buffers
that are three times as great as they had
going into the crisis.
Leverage is much reduced.
We are now seeing rules being written to
regulate for the first time
the derivates markets to bring them out
of the shadows,
to subject them to the same kind of
transparency
that we have on many bank transactions.
I think you're seeing already the impacts
of some of the compensation reforms,
and we're hoping to move forward on this very
significant transformation of
consumer finance practices in the U.S.
So I think those things will take time.
These are structural changes,
but they are extraordinarily significant.
And I think you will see the result
being a much better allocation of capital
towards productive uses in the U.S. economy.
You say take time, Lael Brainard.
But on the other hand, the perception out
there is not enough is being done fast enough.
It's not just in the financial area.
It's in so many areas.
You're the politician here on the panel,
Anders Borg.
Do the politicians get what is happening?
It's cold in many capital cities
at the moment.
Spring is coming.
There's a lot of anger.
A lot of people in the public sector
are going to start losing their jobs
around the world.
Is this something which is looming
as a dark shadow for the politicians?
Well, I think we must also see this as that
the voters are grown up and very realistic.
I mean, we're now, for example, in Italy
they've done substantial pension reforms.
They have actually seen a very mature reaction
from the voters.
It's very important that when we're talking
about reforms and social cohesion
that we're not naֳ¯ve, we are not going to
recreate unemployment traps and poverty traps.
We need to have a society based on cohesion
that also brings out the growth.
We cannot see Italy or Spain moving ahead
without becoming more competitive
and growing better.
But the public is wanting growth,
and expecting it much quicker
than can be really delivered by the dynamics
of capitalism.
That's a contradiction almost.
Well, I think we also must be fair
about democracy.
Democracy is about anchoring your political
decisions among the voters,
and voters want to see
what are the consequences?
How are we going to deal with different
principles?
How are different interest groups
going to deal with this?
So, democracy means also that we're not going
to do a systematic change over all our system
but that we have to do gradual,
peaceful changes.
How much is this, a looming shadow
at the moment, do you think, Angel Gurria,
the public and their concern,
the Occupy Movement,
even though it's quite modest
at the moment?
This is a very obvious part of the problem
today.
Take the question of firewall you mentioned
a while ago.
Well, what is the condition?
Well, there will be a bigger firewall to the
extent that there is a de facto fiscal union,
and maybe a de jure fiscal union
at some point in time.
The discipline has to be there.
The discipline has to be there.
Le Rigour has to be there.
Le Rigour must be de rigour.
Okay. The problem is that
it takes years to put together,
and the firewall needed to be there
six months ago,
and it needed to be big, credible.
A big bazooka had to be in place.
It's not there yet as we speak today,
and the credibility is not there yet.
The losses continue to accumulate.
The uncertainty continues to accumulate.
The trust continues to be destroyed
because of this asymmetry between the timing
considerations.
There has to be a bridge,
and there has to be a lot of explanation
has to be political capital expense-saying.
It is not possible to get us out of this thing
in three months, in six months.
But there is a clear roadmap,
and that roadmap has to be explained
for democratic purposes to get legitimacy.
There's irritation out there.
A lot of people are still not convinced.
Here, for example, from Alkasim Usman,
Capitalism as a concept is good,
but the problem is the capitalists, cabals
that hijacked the capital from society.
Nouriel Roubini.
Well, in the latest IMF reports they worried
about maybe a repeat of the 1930s.
If you think about it in the 1920s -
Do you agree? You're Dr. Doom.
I say there is a risk.
In the 1920s, there was a Gilded Age.
There was rising inequality.
There were financial and speculative excesses.
Then, when the stock market crashed,
because of the wrong policy response,
it led to the Great Depression.
Then were trade wars, currency wars,
capital controls, defaults, inflation.
And then because of the social and political
instability that came out of that,
with the rise of a bunch of authoritarian
regimes in Germany, in Italy, in Spain,
in Japan,
we ended up with World War II.
Now, I'm not saying that's what's going to
happen, but we have to think about the fact
that if we donג€™t resolve the fundamental
economic, financial, fiscal, social and
political problem we're facing today,
there is a huge amount of source of
instability within countries,
and across countries.
So the challenges we are facing are serious,
and we have to take this problem seriously.
Well, let's get a voice from those who are in
difficulties, who live in difficulties.
Sheela Patel, Chair of the Slum Dwellers
International,
do you think those you represent
who are some of the poorest in the world
will be convinced by any of the arguments
you've heard up here?
I'm sorry, none of these would make any sense
to any of them
because they're beginning to lose complete
faith, not only in their own politicians,
but these global market forces
that are supposed to transform their lives.
That's what they hear.
I just want to bring to your notice the fact
that
there are three things that are happening
simultaneously.
Market forces are making cities the growth
engines for development,
not only in these big economies
but all over the world.
And all the protests that you are talking
about are also coming from cities.
And there are younger economies
which are trying to follow all the mistakes
that all of your countries have made.
And they are producing cities in which more
people are living informally, in slums,
and informal settlements.
Youג€™re talking about infrastructure in the
United States,
you have to see the crisis in the all these
cities in the Global South.
Livelihoods are getting informal,
there is no way by which informal
entrepreneurs can get anywhere.
So what weג€™re talking about here is,
that is something the OECD has been warning
about, income disparity.
Thereג€™s greater inequality which is emerging
with capitalism,
something your president talked about
literally a few days ago
in the State of the Union.
Lael Brainard, this issue of inequality, itג€™s
haunting the capitalist system.
And in a recent risk report here at the World
Economic Forum,
they said that not terrorism, not climate
change,
income disparity is the biggest threat now,
the biggest risk to the world.
Yes, I think certainly in the U.S. context,
if you look at the gains in the earlier part
of the decade, leading up to the crisis,
and over a longer term, you saw a
disproportionate share going to the wealthiest
with the lowest part of the income
distribution losing.
And during that time changes put in place to
the tax system that we enforced,
rather than offset those transients.
So we need to turn that around in the U.S., we
need to turn it around internationally.
We are working with our international partners
to do that.
I think the single most important thing youג€™ll
have to say that we can do right now,
to lift the people in the poorest countries,
is to get our own economies back to more
sustainable growth.
To create jobs at home which creates demand
around the world.
But it's also the poor people in your country,
the people in the sink areas who can't even
afford bus passes at the moment.
Absolutely.
We need to be creating jobs across the U.S.
economy
in such a way that we bring people back into
the labor force.
You know, unemployment in the U.S. is a
terribly destructive force.
It puts stresses on families,
it essentially undermines that whole positive
spiral of social mobility.
And so that has to be our number one focus in
the U.S. economy,
itג€™s got to be putting people back to work.
Angel Gurria.
The labor market is a source,
the largest single source of these
inequalities that weג€™re seeing,
the whole world over.
So, that is where the target should be.
I just wanted to comment on the Slum Dwellers
representative.
The process of urbanization, we're not going
to turn it back.
The question is, how do we plan the cities,
how do we provide the services,
how do we provide the green, how do we provide
the proper taxation,
how do we provide the proper water, the
electricity.
And how do we make it possible that there is
good quality of life in the cities.
Because the cities, if anything, are going to
continue to grow,
and the growth is in the developing emerging
economies.
Actually, in the developed countries, the
cities are coming, theyג€™re sprawling.
And we can work with them a lot better.
But in the developing countries we're going to
have to work very seriously
and plan the cities.
Cities are where everything is happening,
where emission, et cetera,
everything is happening in the cities.
Anders Borg.
What I think we also must understand the
perspective, for example, from the Germans.
I agree we Angel on the firewall, but letג€™s
also remember,
we are seeing and writing populace reaction in
North Europe to this.
If people are perceiving that money is wasted
in bureaucracies,
inefficiencies and corruption...
And that capitalism is failing.
Well, we must also have conditionality and
tough love here.
It must be the case that people are also doing
the necessary things,
otherwise it will not be a firewall.
But thatג€™s happening already, policies are
changing.
Thereג€™s a lot of change.
Itג€™s starting to happen.
Tough decisions are being taken.
Let me go to China, because one of the
interesting debates,
literally in the last few weeks, has been
about state capitalism.
Letג€™s go to Fu Jun,
whoג€™s dean of the school of government at the
Peking University in Beijing.
What kind of capitalism are you comfortable
with in China?
China is relative speaking, very new to the
theory and the practice
of capitalism or market.
But the question that we have is, we are
instilling the idea.
And we are doing practice of capitalism, of
market area in the capitalism.
But now the question is, itג€™s a very serious,
question.
To what extent have we gone wrong in theory
and in practice?
And then the question is,
to what extent can we continue to learn from
advanced market economies, and vice versa.
Do you have a clarity of what kind of
capitalism is emerging?
Well, we have been reading very carefully
about the great economists,
like Adam Smith, Douglas North, and Ronald
Coase.
And we are sensitive to the fine line between
the hierarchy and the markets.
And during different stages of development,
different countries probably will have
different proportions
to the two lines market and the hierarchy.
Right. Weג€™ve come to the end of our
discussion.
We are never going to resolve the issue of
what future of capitalism.
But letג€™s get a sense of where you think weג€™ve
got to, and what had to be done.
Lael Brainard, quickly if you can, please.
Well, I think we have a system that tended
towards large imbalances,
very uneven distribution of the gains.
And going forward we have the same challenges,
I think,
whether youג€™re in China, in the Euro areas,
and certainly in the U.S.,
we have got to move forward with growth that
is both more balanced and more fair.
Nouriel Roubini, can that growth come from the
current capitalist system,
with all its flaws at the moment?
Well, all the various variants of capitalism
have that problem.
The Anglo-Saxon, the safer model, has failed.
The social welfare system of continental
Europe now is a fiscal crisis.
Even state capitalism eventually is going to
be problematic
for China and countries following it.
We have to find the right balance between
the fact that economic activity is going to
occur mostly in the private sector,
private enterprises.
Because for those private enterprises to
thrive you need to have skills, education,
investment in human capital, infrastructure,
public investment,
and the right balance between a state that
provides efficiently
a variety of public goods that make them
productive activity private sector balance.
So you have to find the right balance.
Angel Gurria
Balance and sequence.
You know, in the euro crisis,
we decided to build a common currency before
having a common fiscal policy.
Now weג€™re finding out that we have to do it
all over again
and maybe put the sequence right.
So itג€™s sequence, but I would say the
politics, the politics, the politics.
Let me put this to you. We just had a tweet 
from Eric Prenen.
We donג€™t need elected leaders, we could manage
ourselves.
Youג€™re an elected finance minister, Anders
Borg.
We need democracy, we need stable societies,
we need more social cohesion and reforms.
We cannot create a solidaric society by
building welfare traps.
So cohesion, but also continues reinventing
our own welfare models in Europe.
Welfare models within capitalism.
Can it be fair?
What we are getting here is tweets which
clearly indicate theyג€™re not convinced.
Well, Iג€™m European.
We have a societal model, where we are trying
to build a social market economy.
To combine the societies, with good chances
for those worse off, with social mobility.
That is a good model.
Democracy and a welfare state combined with
the market
is a good mold that we have to renovate, but
we have to bring forward also.
Renovate, but bring forward.
Thatג€™s a great way to end.
Andres Borg, thank you very much indeed.
Angel Gurria, Nouriel Roubini and Lael
Brainard, thank you very much indeed,
For joining us.
We havenג€™t reinvented capitalism, but thanks
to all of you here in Davos,
and those who contacted us from around the
world, weג€™ve only heard a small selection.
We may not have heartened you about the
prospects of what lies ahead,
but I hope at least weג€™ve enlightened you in
the enormity of what still faces us all.
From me, Nik Gowing here at the World Debate
in Davos in Switzerland, bye bye.
