DCene: 2014 Bertelsmann Foundation - Financial Times Conference

Inspiring People. Shaping the Future.

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

Photo by Kaveh Sardari

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

“We are going to be that organization that gives every person in the world a chance.”

– World Bank President Jim Yong Kim 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”, (continued on page 2)

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.

1101 New York Avenue, NW, Suite 901 • Washington, DC 20005 USA • Tel: +1.202.384.1980 • www.bfna.org

2014

Special Conference Edition

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Strengthening the transAtlantic alliance in the current uncertain global environment is critical 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

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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.

The 2014 Bertelsmann Foundation-Financial Times conference

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.

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.”

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”.

Photo by David Hills

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

A WORLD OUT OF BALANCE: special edition

Jim Yong Kim, President, The World Bank Group

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

Photo by David Hills

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

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.

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

Jason Furman, Chairman, White House Council of Economic Advisers “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.”

Photo by Kaveh Sardari

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

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.

“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.”

Photo by Kaveh Sardari

For a full report on this conference session, go to: www.bit.ly/bfna2014clark

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.”

A WORLD OUT OF BALANCE: special edition

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”

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Quotes of the Day

Panel 1 Building an Engine of Growth: The

Key Economic Sectors in the 21st Century

“…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

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Panels

“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

Photo by Kaveh Sardari

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

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

“…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

A WORLD OUT OF BALANCE: special edition

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.

“...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

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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

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Panel 2 TTIP Off: Is A Comprehensive Trans-Atlantic

Free-Trade Agreement Possible?

“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

Photo by Kaveh Sardari

Panelists Aart De Geus, President and CEO, Bertelsmann Foundation Bruce Stokes, Director, Global Economic Attitudes, Pew Research Center

“…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

Moderator: Frederick Kempe, President and CEO, Atlantic Council

“…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

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

“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

A WORLD OUT OF BALANCE: special edition

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

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Panelists

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Panel 3 Touch And Go: From Fragility To Stability

“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

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

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

“…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

A WORLD OUT OF BALANCE: special edition

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 preserving 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 predicting 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.

“Certainly the Fed is facing unchartered waters…. And they have a… very important challenge as we move forward.”

– Bank of Mexico Governor Agustín Carstens

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“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

Photo by Kaveh Sardari

Panelists Ali Babacan, Deputy Prime Minister, Turkey Karnit Flug, Governor, Bank of Israel

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Quotes of the Day

Panel 4 A World In Balance: New Ideas,

Less Politics

“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

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.

“…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

A WORLD OUT OF BALANCE: special edition

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

“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

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A WORLD OUT OF BALANCE: special edition

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