Davos 2022: What next for global growth?

The recovery from the COVID-19 crisis has been deeply uneven within and between countries, depending on their access to fiscal resources and vaccines. Food, fuel and resource crises now risk further derailing an equitable recovery.

How can a broader set of foundations for growth ensure long-term economic prosperity and a return to international convergence?

This is the full audio from a panel discussion at Davos 2022 with Tom Keene, Managing Editor, Bloomberg Television & Radio; Jim Hagemann Snabe, Chairman, Siemens AG; Mariana Mazzucato, Professor, University College London (UCL); Gita Gopinath, First Deputy Managing Director, International Monetary Fund.

This transcript is computer-generated and may contain inaccuracies,

Tom Keene: And we welcome all of you to a hugely anticipated panel. I can't say enough about that. And in all my years of doing this, there've literally only been four or five panels as interesting as this and the incredible success of the World Economic Forum. And thank you, John, for putting together this intelligent and eclectic and varied group.

I'm not going to go through lengthy introductions. I lobbied for a three-hour summit and I didn't get it. It's not a TED talk, is it? We can go a little bit longer than that. But this is a stellar crew and I urge you to read what they do.

Jim, you just came back from from the North Pole. Something like that. Gita has been very visible with the responsibilities for the International Monetary Fund. Mazzucato is a virtual machine. She brought along her book and what's great about this "Mission Economy". Matt Damon has just signed for the movie 2024.

But seriously, I'll mention some things along the way to advance your understanding of growth, which I think it's important to leave the panel today with a desire to understand this mystery very quickly. A guy named Solo, MIT, a few years ago invented the modern lexicon. Somebody called Stan Fisher, the North Star of economics, Olivier Blanchard, at that the other day. But there's a guy named Chad Jones. I can't remember if he's at Berkeley or Stanford - he goes back and forth every ten years - who maybe owns my high ground on growth. And what you learn is this is a borderline religious experience. The maths gets you so far and then there's a huge mystery with it, which in the corporate world James now is working on. Mariana Mazzucato hitting us over the head with our economic history. And the challenges to modern capitalism. And Gita Gopinath has brought an exceptional acuity to her service at the International Monetary Fund.

Dr. Gopinath, let me start with you on growth. We are in a set of crises, including a war. It has been hugely challenging, including your spring meetings. Can you give us, not a single point update on growth, but the vector right now moving into 2022. And growth, is the vector up or is it diminishing?

Gita Gopinath: Tom, firstly, it's a real pleasure to join all of you here on this panel.

The war in Ukraine has been a major setback to the global recovery. We had a serious downgrade in global growth in April. And the world continues to face headwinds because we have a cost of living crisis as prices of commodities, including fuel, food, are going up around the world.

Central banks are trying to tackle this. High levels of inflation are raising interest rates very sharply and that they need to do. But that has consequences for global finance and trade. China is also slowing because of the new waves of infections that are hitting that population and the lockdowns that go along with it. The weaknesses in the real estate sector. So we have a confluence of shocks hitting the world and we are still not out of the woods. But the point I would also like to make is that this is all happening at a time when we have very divergent recoveries in the world. So we have the advanced economies that, based on our projections, will basically get back to where they would have been in the absence of the pandemic in 2024. So, literally, no output losses. But we have emerging and developing economies that will be around 5% below where they would have been in the absence of the pandemic. And it is this gap that's going along with now a food crisis. Cost of living increases the risk of financial turbulence on a much greater scale. That's really worrisome.

Tom Keene: Is the use of technology, the ability to affect technology within a system, key to recovery. The haves have the technology and the have nots don't have the technology.

Gita Gopinath: It's a combination. So there's always been a gap in access to technologies. There's a gap in access to digital infrastructure, which has been crucial during the pandemic, because if you didn't have the right digital infrastructure, then remote working and remote learning was not an option. But also the lack of access to finance, the ability to not being able to do the kind of fiscal support that one needs to do, is also a major issue. And I would also add that when it came to solving the pandemic, which required getting vaccines everywhere, in tests everywhere. The world failed in making that happen. And we still are. That is still unfinished business that needs to be done.

Tom Keene: The New York Times this morning reported that in New York City, roughly one-third of renters are severely rent-burdened, meaning they spend more than 50% of their income on rent. That is according to Mayor Adams in New York City. This week I heard the same thing from the former prime minister of Ireland about Dublin today. Mariana, our fractured growth amid these crises buttressed up against the labour model that you study. And I don't think labour models within those algebraic equations of growth, does it?

Mariana Mazzucato: Well, the fact you just talked about came from the Financial Times.

I think, is one of the many symptoms of the kind of growth we have. Right. You can have different types of growth. Just break down GDP, which we know is not a perfect indicator. But you can use that indicator to even look at whether economies are growing through investment-led growth, consumption-led growth.

And what we have in many countries is that we have growth that is private debt-fuelled, consumption-led growth. So the ratio of private debt, we always obsess about public debt. Private debt to disposable income is back at a level very close to what it was just before the financial crisis. And guess what caused the financial crisis that you'd think we'd all be talking about it? It's hidden. It's not talked about even in election manifestos in terms of what to do to make sure that the bubble won't burst again and how to become resilient.

You know, we use this word resiliency. For example, with climate, we're not using it again in terms of making sure that people's incomes are growing. Real wages have not been growing for the last 30 years. Even during the COVID-19 recovery, we had, for example, loans being given out to small companies, to people with help-to-buy schemes. We're talking mainly here about the West. That's not necessarily what you want to do, just pile on even more debt.

So I think really for this conversation, the question is how can we have investment-led growth and have that investment directed towards the biggest problems of our time – the digital divide, pollution, weak health systems. You just talked about the vaccines. You know, the reason we have vaccine inequity is not due to some sort of deterministic force.

We have made really bad decisions in terms of how to govern our innovation systems. So the mission is not the vaccine. The mission is to vaccinate everybody in the world. Currently, we have what Dr. Tedros, the head of the World Health Organization, calls vaccine apartheid. It doesn't have to be that way. Why do we continue to allow patents, intellectual property rights to be used as basically value extraction tools? Patents should be narrow, they should be weak, and they should be more downstream than they currently are. And we have allowed the patent system to basically allow the value that is coming out of what is really a collective investment effort to be siphoned off by a few companies.

Tom Keene: Which institutions do you look to provide a cohesive response to assist in all these social needs? As Dr. Bremmer would say, it's every nation for itself. Which institution do you look for to begin to lead us towards more productive innovation?

Mariana Mazzucato: Well, we definitely need multilateral institutions. I think we need the state and states to really rethink their role. They shouldn't be there as just fixing different types of market failures, because then they will always be kind of too little, too late. Actually, actively co-creating and co-shaping our economy requires a very different type of tool. So in terms of innovation, you know, for example, everything in our iPhone that makes it smart and not stupid was actually state funded, the Internet, GPS, touchscreens, Siri. But then we didn't manage to govern that system to make sure it actually is really benefiting people. So today, it's just not as Zuboff says. You think you're searching Google for free will, Google is searching you for free. That should be seen as an ex-post thought-through regulation. We can think about these things ex-ante in terms of how we govern co-investment through conditionalities and that kind of shaping towards a direction.

Tom Keene: The Paris Accord is maybe a primal scream of corporations to say, we're going to do it or we're going to do it micro because macro institutions won't work. You have within the corporate architecture of SAP and to Siemens and Maersk as well, you've tried to find solutions for this through incentives to get it jumpstarted. What do we need to do now to jumpstart a new growth?

Jim Snabe: Well, I do believe that while this Davos and the time we live in is a time of uncertainty, the goal of the decade is still the same. We need to decarbonise all of the value chains in which we operate.

And so in that sense, while in the short run we have uncertainty, if we keep that goal in focus, we don't need to be then that uncertain. Now, what does it take to get there? First of all, I agree that policymakers actually create frameworks for business to operate. And the most, let's say, sharp knife in the arsenal of policymakers when it comes to decarbonisation is to put a global price on CO2. And with that you incentivise the right behaviour of any business.

But the good news is that we are actually at a point in history where the technologies necessary to decarbonise all of these value chains, and I argue all of them and I've tried a very different difficult one of them. We can talk about that later. Those technologies are there and they are getting to a price point where it is becoming good business to decarbonise.

So my answer to the growth opportunity is that we need to dramatically accelerate the investments in decarbonising all of the critical infrastructures. This is the energy systems, the food systems, the transportation systems, the healthcare systems. We can make them more affordable and we can decarbonise them. And that, in my mind, is the biggest growth opportunity. And I am convinced that those companies who take the lead in driving that through innovation, re-skilling their workforce and engaging in global cooperation – those will be the winners when we come out of this phase.

Tom Keene: And how do we do that? I looked at Newcastle Coal the other day, northern Australia. It's not even a standard deviation study. It's a moonshot of the price of coal straight up amid the crises we're in right now, where it is every nation for itself with it. Within these crises, how do we come out of it? Where price can assist us to a better growth?

Jim Hagemann Snabe: Well, a higher price on coal and oil is a good incentive to rethink the supply chain. Not if you provide the coal or you provide the oil, but if you consume it. And so it suddenly becomes a very good business case to actually think about.

Tom Keene: Do you think we'll have a seismic change here? Finally, corporations will be incentivised?

Jim Hagemann Snabe: I think that we are already at a stage where major corporations invest in this because they can see that it will make them more competitive. We have this wrong assumption in mindset that decarbonisation is something philanthropic, some of you like green or you don't like green.

This is the best business opportunity we have ever had. My example is from Maersk. Maersk is the largest container shipping company in the world. In 2018, we decided to decarbonise shipping, have zero carbon shipping. We had no idea how to do it at the time. Only three years later, we now know exactly how to do it. We ordered the first 12 vessels and we are going to use Power-to-X , which is the conversion of green electricity, green fuels. And my prediction is that the demand for green fuel is going to be dramatically higher than the supply over the next 10 to 15 years as companies go down this path. And that sounds in my business like a great business opportunity. If demand is higher than supply, there's a great opportunity for anyone.

Tom Keene: Well, this is really important. And these are rich people's problems. How do we transport these incentives, a greater investment, a marginal investment to the nations that don't have the advantages of majors or any other company?

Gita Gopinath: Now firstly, I would say that we're at a point where all countries in the world, regardless of their level of income at this point, recognise the importance of addressing climate change. Now, in some parts of the world, like in Africa and sub-Saharan Africa, it's about climate adaptation rather than climate mitigation. But in all of the parts of the world, including India, where they still have a big growth story ahead of them. They very much recognise the importance of tackling climate change.

But what I would also say that in addition to climate, they have many other investments that they need to make. They need to make investments in health, in education.

I just want to point out that the pandemic has been terrible for learning. We've had two years of 2020 and 2021 when 1.6 billion children have lost school time. And this is the cohort that will make up about 40% of the labour force, you know, past the middle of the century. So we can do all the investments we want in our physical infrastructure, but we don't have the human capital to and the skills to work with it. We won't get the growth that we need. So I think that's another area where big investments are needed.

Tom Keene: De-globalisation is the theme here. It just seems like everyone's apart or falling apart as well. How does an institution like the IMF incentivise people to begin to solve these problems but do it within a framework that isn't de-globalisation?

Gita Gopinath: So firstly, I think it's important to recognise that every country in the world has benefited from the integration that we have seen. Yes, there are segments of community and communities within countries that have been negatively impacted by the kind of integration that we have seen.

But when you look at the country as a whole in terms of the cost of living, in terms of those who work in export sectors making much higher wages than those that work in mostly domestically oriented sectors, it has been a plus for the world as a whole. We were able to bring more than a billion people out of extreme poverty over the last three decades. So there have been many positives that have come with global integration.

Now, yes, it's not perfect. We need to do a lot more to fix the model, to fix the system. We need to clearly build resilience in our supply chains, security that we need in terms of our sources of supply, but and also with the domestic policies at home in terms of how we help the people who are left behind. So there's a lot that needs to be done.

But let's just make a couple of points. What people don't realise is that while yes, there's been a lot of integration, around 85% of inputs the companies buy abroad from other domestic companies. So if you do want to build resilience to the kinds of shocks we're seeing around the world, you need greater diversification. And so that greater diversification actually comes with more global trade, not less. And this is a very important point.

Tom Keene: I throw in what we talk about over the years, that a lot of children, older now, who said, shut up and read this. And this was the wonderful work by Fareed Zakaria. If they were young cherubs today, I would throw at them a book called The Value of Everything. In the first six or seven chapters, Professor Mazzucato walks through how we got here. It's the clearest description of the path long before Adam Smith. You finish that book, Mariana, The Economics of Hope. What is the hope that we have in growth? What you've been hearing, these two very different people speak of the issues at hand. What is the hope that we need right now to jumpstart growth?

Mariana Mazzucato: Well, the reason I wrote the other book was really to continue that Economics of Hope, which is to say that, you know, actually having a discussion, which is often a local discussion at the city level, it can be at the regional level, at the national level and at the global level of what are we even trying to do? What are our missions, what's the purpose, what kind of growth do we want if we want inclusive and sustainable growth? What does it mean for the investment pathway?

All of this just remains kind of as Greta Thunberg says, "blah, blah, blah", unless we get serious. And getting serious about hope means actually transforming these global challenges like the Sustainable Development Goals, 17 of them with 169 targets beneath them, into concrete missions and moonshots.

Right know, getting the plastic out of the ocean is one of the concrete moonshots that could help us tackle SDG 14 Life Below Water. Having carbon neutral cities across the nation but across the world is a very concrete way to go after SDG 13, the digital divide, which, as you know, as Gita was saying, during the lockdown, many students globally stopped accessing their human right to education. There are concrete things we can do to go after those, but it doesn't happen just by coming to Davos. As much as we all love to come here and talk about purpose and stakeholder value.

The question is, what does it actually mean for how the public sector, the private sector, increasingly the third sector, actually work together concretely towards a goal. And it's interesting, if you go back to the moon landing, it was really well designed. The first thing that Ernest Brackett did, the head of procurement, and that was to change costs plus contracting to fix price with a challenge. And then you'd get extra incentives for innovation and quality improvement. So it was a challenge-based kind of procurement. We often don't do that with normal procurement policy. Sweden does today because they have, for example, a very high level challenge of a fossil-free welfare state, which then lands the very particular like school lunches, which have to be healthy, tasty and sustainable. With that kind of target, then the procurement of the school lunches helps to foster sustainability through something as normal as, again, lunch. It’s not just a big climate strategy, kind of carbon prices, but just the other thing is that they really cared also about the contracts. They had a no-excess profits clause in ESSA. In other words, we're going to do this together, so we're not going to turn it into a gambling casino.

Tom Keene: And just so everyone understands, I lived this. My father was directly involved with the Hubble Space Telescope. This was a raging debate, which I lived through at the dining room table over over the quality of the contracts. How do the progressives use the language of America substituted for yours? How do the liberals, the progressives, drag distrustful conservatives over to some of these thoughts? I do not see it occurring.

Mariana Mazzucato: My experience at least, and going to the US also to talk about the other book, The Entrepreneurial State, was that it was actually a thesis that was equally appealing to Republicans and Democrats, because the idea of also stop wasting money on policies that don't work because you both talked about incentives, but sometimes policies that are geared around incentives really just increase profits and not investment. I've seen this in my own area of economics, innovation, policy, many R&D tax credits. If they're badly devised, they're meant to sort of incentivise innovation and they're simply increasing the profits of companies, but not actually helping to reinvest the profits that are being made back into the economy. In fact, many companies, say in the pharmaceutical industry, are ultra-financialized. Something like $4 trillion has been used just for share buybacks in the last ten years by the Fortune 500 companies. That's an investment problem. That's a reinvestment problem. And it's really interesting to go back to the kind of military-industrial complex kind of institutions which today really need to be much more geared towards our social problems. Bell Labs, which I'm sure you know, was a really important private sector R&D laboratory inside AT&T. It came about in a phase of American history where the government was much more confident in order for AT&T to retain its monopoly status. It had to reinvest its profits back into the economy, back into innovation and big innovation on telecoms. And that kind of conditionality is something I've become really interested in, because the word conditionality, especially if we think of the kind of IMF conditions, doesn't always inspire great thoughts, but conditions in terms of truly building back better so that every grant loan bailout scheme is conditional on actually working together towards something, not micromanaging.

Tom Keene: Jim, this is critical, that there was Bell Labs, Arthur D. Little, Rand – was maybe the key item. These were think tanks. And there was a linkage of business in business technology with government technology. How shattered is it?

Jim Hagemann Snabe: Well, first of all, I think technology is the secret sauce that we need to get accelerated.

Tom Keene: So Robert Solo agrees with you, I believe. I mean, that's where can we all agree that growth comes from technological progress?

Mariana Mazzucato: Yeah, but solar's model was about technologies exogenous. What we're talking about is technologies and endogenous function of investment.

Tom Keene: How do we get exogenous again where we get a better good, Jim?

Jim Hagemann Snabe: Well, I'm in that sense, very optimistic. And I believe that the technological development that we've seen over the last 20 years has put us in a place where we can basically track every single physical item on this planet. We can we can create energy cheaper with solar and wind that we can with, you know, fossil fuels. We can reinvent entire value chains. Well, the problem is that we have an incremental approach. And when you have that, you put technology in play incrementally. And what we need is almost like we need the big dream of a rewired value chain and then work backwards. Who needs to be around that table to figure out how to do that and how to accelerate? For me, it's about the acceleration that needs to happen and we cannot let the uncertainty that we see right now that comes out of the war in Ukraine and the pandemic distract us from the fact that we need acceleration. So I'm optimistic because we have the technologies, we know the problems, we have the solutions. And what we need is leadership and collaboration, which is why I totally agree we cannot let globalisation reverse. I will leave you with a thought that we will need more collaboration. We have a billion people that need to come into the innovation cycle because we need to connect to them. And they have often the big ideas because they have economic boundaries that are very, very limited. And those are the people with the big ideas. So, I am optimistic, but it can only happen through leadership where we have the courage to think big, imagine a better future, and then work backwards to dream and then collaborate. Nobody can do this alone.

Tom Keene: I look at inflation data where it is, and the area below an x axis is called the integration. And the integration in America of negative real wages is absolutely appalling. I mean, it's the duration here of the negative real wages tangible. I want to go from as a shadow and bring it over to the prism you have at the IMF with this dangerous word exploitation. Within this uncertainty, are the poor being exploited? Is the rich just trying to survive through these selective crises?

Gita Gopinath: So, firstly, the poor have a very different experience depending upon which part of the world they live in. That's what we've seen over the last couple of years in the advanced economies. They've received a lot of support from the governments in terms of cash transfers, being able to keep up their spending. So, in fact, if you look at where real wages are actually going up in the US, it is in the bottom most income decile where you've seen the most increase in real wage growth. And it's in the other upper deciles where you've actually seen the the decline. But in emerging economies, on the other hand, where governments weren't able to provide the kind of response at the scale that the advanced economies did, it has been particularly tough. We know that there are 75 million more people in extreme poverty in 2021 because of the pandemic. So it varies depending upon the part of the world that you live in. You know, I've heard people worry about the fact that, well, wages going up is a problem because that can feed into inflation. This has to be very clear, prices going up. What is inflation? You could absolutely have a scenario where wages could go up, but all that means is that corporations have lesser profits and prices stay exactly the same. So let's just be very clear about that, that, you know, we suddenly could see an environment where wages go up. But that doesn't have to necessarily spiral, generate a wage price spiral very high.

Tom Keene: And I want to speak of institutions like the IMF that have huge responsibilities to their clients, to basically the developed world. And I would suggest their clients are inherently conservative, which makes institutions like the IMF conservative. How do we get those institutions and their clients to risk to take the gambles that Jim is talking about? How do we get the client states of these institutions, including the World Economic Forum, to jump off the cliff into the Mazzucato world? How do we get them to do that? You're laughing about it, but it's not happening.

Mariana Mazzucato: First, Gita just said something really important. Can I just repeat that. Something we want to remember is that the labour share of global income is low, the profit share is high. There's nothing natural to that. That is an outcome of decisions we are making. And I just gave a talk at the L7 – you know, there's the G7, well the L7 is all the global trade unions. And, you know, this is a huge issue. And part of this is, in fact, I think personally, due to this ultra-financialized form of corporate governance that we have, if profits are not getting reinvested back into production, but being used for share buybacks, workers don't benefit from that. David Ricardo, just coming back to some of the economic history you were prodding me with before, David Ricardo wrote Principles of Political Economy in 1821, had a Chapter 31 called “On Machinery”, where he was already looking at what people are looking at today in terms of what happens with AI and digital tech, in terms of workers wages and employment. And he was just looking at in terms of the effect of mechanisation and industrialisation. And he already kind of foresaw the problem, which is a lot of technological change. Is Labour displacing? But then what happened for 200 years was that those profits that were being made from technology that was labour displacing were being reinvested back into production. So you actually had what Schumpeter called creative destruction – new jobs, new sectors, new skills needed. That basically stops in the 1980s with this idea that the best way to run companies is just to maximise shareholder value. That is a huge issue. And if we can't talk about it here when we're talking about climate, I mean all these important problems. And if we don't look at the structures we have on the ground, which are also the structures of government, which I think are really poor. It's not just about business, but this really needs to be, I think, a conversation about what are the new types of governance structures in public and private, and also how can the relationship between them be really symbiotic and mutualistic and not parasitic? In Italy, where I'm from, we have a parasitic public-private relationship in subsidies, guarantees going to the private sector with no kind of condition about transformation, about structural change, about investment.

Tom Keene: Has Mario Draghi been good for Italy?

Mariana Mazzucato: No comment. No comment. Definitely. Definitely better than previous ones, because the problem is he has a very difficult situation like many countries, when you have coalitions where you're basically blocked from doing anything. But he's definitely brought stability and that in Italy is a great thing.

Tom Keene: I want to spend six minutes here on a theme that started on the 24th of February with the war in Ukraine. And then we'll open it up for some observations and take questions from the floor. I want the questions short to these wonderful panellists so we can use the last 15 minutes here productively. February 24, I'm guessing screaming phone calls. And we got David Lando on the phone quickly here, the shock of a war in Ukraine and someone who's done so much on capital flows and thinking about how company countries respond. Lando was adamant there would be a massive fiscal spending after the war in Ukraine and the shifts that we're seeing right now. I want to talk about a concept away from capital deepening, which is almost a fiscal deepening. What kind of fiscal spending do we need or are we going to see to give us the growth, the sustainable growth we need? Is there going to be a new fiscal spending after this war?

Gita Gopinath: I mean, the recipe for growth hasn't changed. You know, you mentioned technology. And yes, technology is a big part of it. But the other very important ingredients include human capital, just having a productive workforce, which requires having a healthy workforce, too. So all of those pieces haven't changed is no mystery to it. I think the challenges that countries face around the world now is after having dealt with two years of the pandemic. Countries have record high levels of debt. They don't really have the fiscal space to do the kinds of investments that are still needed. And they're getting hammered by more shocks. So how do you deal with this? As, for instance, you think about the parts of the world where it's a bigger constraint, which is developing countries. Firstly, these countries do need to increase their own fiscal capacity. There's no doubt that they just aren't able to collect enough revenue in a progressive manner. That's not something that they can function with. They will need to increase their tax base. They will need better collection of tax revenues. And also they will need to improve how they spend. They prioritise spending in the kinds of sectors we just talked about. The second thing that is very important is that we have countries who have debt at high levels of debt distress. In fact, some of them need their debt to be restructured. And we have a hole in the international financial architecture, which is we don't have a good debt resolution mechanism. The common framework the G20 came up with is one such proposal that is supposed to close that gap in the international financial architecture. It is promising, but it has yet to deliver. So I think it is very important to be able to address that piece. And lastly. The wonderful international corporate tax agreement that was signed together by more than 130 countries needs to be implemented, because that's the kind of revenues that you can get that will also help with the investment.

Tom Keene: How do you respond to the president's recent trip? And I don't need you to comment specifically on United States politics. That's inappropriate. But TPP went down in flames. There's been a couple other acronyms that have been discovered, and now it's in the Pacific. When you see this phrase in the media, in Indo-Pacific, how do you respond to that and the real world?

Gita Gopinath: So the Indo-Pacific economic framework, I mean, has the positive that there is engagement between the US and the Asia-Pacific region, including India. And, you know, while there is still not much there in terms of the trade piece and the point is to build on it. But I think, you know, given the times we live in where there is so much talk of fragmentation and so on, I think when I hear of countries coming together and working, even if it's, you know, there's a lot more that needs to be done. I think it offers hope.

Tom Keene: Jim, I want to talk to you about how you've lived this big. How many employees in total have been under you in Europe between Siemens and Maersk?

Jim Hagemann Snabe: So Siemens has 300,000 people. Well, Maersk is 100,000 people worldwide. And both companies reacted, I think, very responsive and responsible to the situation.

Tom Keene: Within your optimism, can you be optimistic about Europe with the new fiscal spending that will be required, including on defence?

Jim Hagemann Snabe: Well, we did already have recovery funds coming out of the COVID situation, which were earmarked, digital and green, which is a good thing. This is building the future and not trying to build the past. What I see from the corporate side and the Russian situation is that many companies reacted by pulling out of Russia, even some beyond the sanctions. And that is possible because most companies have roughly 1% of their revenue in Russia. So it's not a disaster. You can react to that. You can deal with that. And they are. Now, if you take that further and say, well, what if this was China? Completely different situation, completely different dependency now. That indicates to me that business, global companies have an important role to play in enforcing peace. Because if the economic consequence of sanctions, because you begin to have wars or trade wars are too big, it may actually hold back the idea of even starting such a war. So I think in many ways the situation in Russia and Ukraine for me is a wake-up call to everyone. And hopefully it's a wake-up call to collaborate more. That's why I enjoyed the fact that the US went to Asia and discussed, and in India. I mean, we could never solve decarbonisation without getting India on board on that, which is the largest population in the world. And we need to reinvent the food system. I have two concerns with this thing. It's energy which will give Europe a dramatic disadvantage over the next years because of the dependency on the Russian gas, and its food systems, where we haven't seen the impact yet, but it is about to come and it's going to be pretty bad. So on the inflation, for instance, for me, it's not the salary issue. It's three things. It's our supply chains. We can fix that, you know, fix the ports in the US, fix the COVID lockdowns in China, and we can get supply chains to work again, multi-source instead of single source. It is the energy system where a dramatic investment in renewable energy will bring down the cost of energy, not up. And then, of course, we have the food system, which is not so easy to solve. And the way I see the biggest concern actually, because this will hurt the poorest countries the most.

Tom Keene: It'll have to let us go another hour here, which they're not going to let us do. Maria, I look at this discussion, and the backdrop to me is, to borrow a phrase, the rise of autocracy. And I'm going to leave the countries’ names out of it. But there's any given number of countries where we're seeing a democratic outcome that is less than friendly. Can we get to a better growth, a new growth that you describe with the rise of autocracy that we see now?

Mariana Mazzucato: But autocracy has both a kind of a business model side of it as well as a political one. And you know, currently, if there was an election in Italy today, it's very likely that the equivalent of Le Pen's party in France would win. So a very rightwing conservative, xenophobic, racist party basically would win tonight in Italy. And why is that? The level of dissatisfaction for many of the different reasons that we've been talking about, many people have been left behind. You know, coming back to that statistic, the labour share of global income is at one of the lowest levels it's ever been. This is setting people off. And, unfortunately, what we know is that in those periods and then also the cost of living crisis, when you then don't have leadership coming from a progressive side, forget the left-right distinction, progressive meaning. We actually want progress. We want more sustainable and inclusive societies when we don't have leadership, that has clear agendas on that. And you have other leaders who are just kind of stoking fear, blaming immigrants, blaming a certain country, setting up walls that, you know, makes it look much easier in terms of how you actually battle your own problems. And I think this is a huge issue, to treat people, I think of Trump's America, in a condescending way. But if you look at the dissatisfaction and the disillusionment amongst so many people in America who simply have not necessarily had those cash transfers, who don't have the kind of jobs that are decent jobs, that allow you to have a certain life where you don't worry about tomorrow. The uncertainty amongst the American workforce in one of the most rich countries in the world is huge. And so I do think that, you know, bringing labour to the table in a new way, but also reinventing the welfare state, which we haven't really talked about, but we have weak welfare states. The reason this crisis, the pandemic, was so much worse than it had to be is because our global health systems, in both the developed world and the developing world, were weak. And if we can't have a COVID recovery, a global COVID recovery, which strengthens global health systems, that that'll be a massive failure. And we know that we're only as healthy as our neighbours, literally on our street and our cities and our nations and globally. And yet have we actually seen a lot of attention on strengthening every health system globally? Had this crisis begun in Africa and not in China, we would globally be worse off. So I do think there's a huge opportunity for change, but we need to be kind of pointing our fingers and the microscopes in the right places.

Tom Keene: Let me have a question from the first. Try to get two questions in here. Anyone questions, sir? Right there.

Jim Hagemann Snabe: Thank you, Chris Giles from the Financial Times. I'd just like to ask the panel how the unexpected rise in inflation over the past year has changed their view, both on the scope for global growth and government's role in it.

Gita Gopinath: So, yes. So there has been a run-up in inflation that the characteristics of it vary depending on the country. You're looking at the parts of the world where it's being driven mostly by higher energy prices, higher food prices, and so the more the headline rate. And there are other parts where we've seen a much stronger increase in all the other parts of inflation. So kind of much more broad based. But I would say that over the last three months, the kind of the more broad based feature of inflation has spilt through the global economy, and we're seeing it much more widely. I think the surprise element has been that we've been used over the last decade to living in a world where we worried about demand being too low, and most of macro stabilisation was about controlling the level of demand in the economy. And then you get hit by the pandemic. And even before the war, you have major supply shocks, global supply shocks. And so I think as policymakers to then figure out how much imbalance there is in the system between supply and demand became a major challenge, not just in terms of good supply, but including labour market supply because people were staying out of the labour market. So I do think that the lesson that we have learnt from these last couple of years and which is important going forward, especially if you know what we worry about, which is that we could have many more supply shocks, especially coming from climate change but also from further viruses and so on, is that policymakers have to now realise that it's not just the demand piece but the supply part that's moving also dynamically. And now they are in the situation where they find themselves having to move very rapidly to deal with a persistent set of shocks.

Tom Keene: Chris, thank you for that question. Mariana, I'm going to go to you. And it's real simple: are we going to a new inflation regime? Do we need inflation to solve some of these growth problems?

Mariana Mazzucato: Well, one thing that I've said before, which is really important is the source of this inflation is not higher wages. Right. So just increasing interest rates, hoping that people can spend less is kind of mad in terms of actually what's happening to their own cost of living. And in that case, then they've just had an increase in their mortgage rate. So the question is who pays for these higher prices? Who pays for the inflationary effect? And you see very different strategies being implemented right now in terms of taxes on windfall profits of energy companies. So, you know, this is a distributional question. Any time you have inflation, it affects distribution. And that, again, is not deterministic, like there's no economic law that decides what happens. That is, it does come back down to decisions that need to be made based on, again, taxes, interest rates for specific industries that are benefiting massively from this particular price hike. What to do about it? You see very different reactions globally.

Tom Keene: I hate these short seminars. I could go for another two hours. Jim, you get the last observation here. Just to get to the better outcome, do we need bigger inflation? Is 3% run rate inflation better for us than 2% run rate inflation.

Jim Hagemann Snabe: So I think zero inflation, 0%, is bad because when money is cheap, you invest it in stupid things. And so I'm not so concerned about a very high inflation scenario because some of the reasons for the inflation, like the supply chain issues we have, this is about container vessels waiting in front of ports that take out capacity from transportation. And if we just fix those bottlenecks, we get the flows again and the prices go down dramatically. So I'm actually optimistic. And I think we need a solid healthy inflation rate around 2%. And then we need to dramatically shift our investments. It's not like we need more investments, but we need to shift our investments from the fossil world to the decarbonised world. The opportunity is big. I'm a concerned optimist, concerned because right now we talk more about the issues than the solutions, but optimistic because we have the technologies and we could now inspire for the collaboration necessarily. It's a leadership moment. Thank you.

Tom Keene: Dr. Gopinath. And since we're going longer, it's her fault.

Gita Gopinath: I am sorry. But while I like to agree with the latter with Mariana on the point of what policy needs to be done, I just want to be clear, I do believe there is an important demand component to inflation and monetary policy does need to react to it.

Mariana Mazzucato: Yeah, but not in a knee-jerk kind of way. Right. I mean, mild inflation has always been a result of growth. We had disinflation for 200 years before World War II, kind of until Keynesian economics came in. So it's a question of what's the kind of right or wrong.

Tom Keene: Going back to classical economics. Is that what this is really about as we're leaping now?

Mariana Mazzucato: But the surge of inflation, I mean, the source of the inflation matters to the kind of policy design that you have and just this fear of inflation and just immediately in a knee-jerk kind of way, increasing interest rates, etc.

Tom Keene: So in this conversation, do you want to give us a new outlook of three decimal points. [Laughs] No? Thank you so much for attending today.

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