The Financial Times’ View from the Top conference this year focuses on “The future of America”, with business leaders, politicians and economists exploring a variety of factors that will shape America including the economy, the influence of China and power.
While there was an appropriate balance of positive and negative outlooks for the future of America, all the speakers called for an end to the political wrangling that threatens to derail the economic recovery.
The final session of the day features a debate between Laurence Fink, chief executive of BlackRock who winged his way in from London, and Michael Spence, Nobel Laureate and professor of economics at NYU’s Stern School of Business. They will be going head-to-head, with Martin Wolf moderating a discussion about the future of American in the global economy.
17.00: Mr Wolf’s reflections on the day:
* Up to now, US macro policy has dealt with short-term pressures. “I think the Fed has been superb”. On the fiscal side, they could have done a much better stimulus. The overwhelming orientation of American policymaking has been to cut back. Sharpest, tightest fiscal tightening.
* Ultimately the US economy reinvents itself. The US will prosper if in 35 years, the largest companies do not currently exist.
* Immigration story remains a central issue.
* The Chinese really don’t want to run the world, but they are not quite sure that the US can either. Different transition of power from historic ones, slightly different dynamic.
16.44: Question time!
Mr Fink: There is a great case for rebuilding trade jobs and community colleges. How do we assure we have the proper educational systems to provide those trade jobs.
Mr Fink: Financial regulation when it is done singularly has an impact. We should expect you lose more global competitiveness if you are more aggressive. “We don’t know how it is going to play out” in reference to Dodd-Frank and Volcker rule. There is not a question that in the European economy, the UK and the US that they are going to have much more substantive rules. Less difficult in Hong Kong and Singapore. If the markets find the cost of doing business in Europe, the UK and the US too high, you are going to see the movement of people and trading activity to Asia. There is an outcry for more protection, but it could defer some job creation in this country.
Our banks are in quite better shape than European banks, our capital is much higher. Banks want to lend, but they are inhibited right now by the regulators. Sometimes the Federal Reserve spends too much time on monetary policy and forget they are the primary regulator for the banking system. Does it not make sense to relax some of the supervisory standards for loans? Because of Dodd-Frank and Volcker they are going to have to find ways to make profits … and they are really inhibited by their regulators
16.37: Mr Wolf says there is a cyclical element here and that things will get very interesting in the next few years and for the next US administration. Why have corporations piled up so much cash during the past few years?
Mr Fink: The average chief executive in the US has a term of five years, so when he or she reaches that position they only have a very short period of time to show what they can do. They believe this is the rational thing to do to preserve their job. This is an outcome of being frightened for not having funding. They can’t feel comfortable with a five year view. There is that fear. Hearing business is quite good, but it feels terrible. They can’t find their footing. Atmosphere is terrible. America cannot find its footing. So much about leadership and clarity. Politicians have not been as forthright as they could have been.
16.25: Mr Wolf says the panellists are being “wildly optimistic” and he is challenging them on tradable employment. Future of tradable sector is US is relatively small and the vast majority of jobs will be in nontrades.
Mr Spence’s response: To solve this problem we are going to have to dismantle global value added chains and find out where the pieces are to create real growth. In the context of the global economy, you don’t have to move the needle very far in your favour to improve employment. The US must find out where the margin is and where the opportunities they may have missed are.
Mr Fink’s response: We should have a 10-year policy on North American energy to become more independent. I see those opportunities in front of us, we may miss them, we may strike out, but it would be a shame — we have some opportunities for job creation (in energy, auto industries, especially). The United States is a cathartic nation. In the 1970s, we were worried about Japan, there was a collapse in the east, concern about Washington. Not saying we can repeat it. We showed that resiliency many years ago and we should have the same capacity.
16.00: Mr Wolf just introduced Mr Fink as the world’s most successful asset manager. Hard act to follow. The first portion is for each person to lay out their views on the economic future.
Mr Spence’s “Programme for America”:
* The balance of looking at the long run seems to be in place, defining a problem directly is an important part of getting a solution.
* If you go to the tradable side of the economy, you see a set of industries in which the US is competitive: finance, consultancy, designing computers, etc. They are drawing talent and play in the global economy and people feel pretty good about it.
* Lower value added sectors moved offshore. The US was running an economy that did not have an employment problem until the crisis. Generated on non-tradable side with abnormal growth in government coupled with excess consumption. Will the world have a consumption driven economy?
* Tradable sector must be turned into an employment engine. The American economy has a political policy and framework from being dominant during the post-war period. The US has to adapt to not being dominant within the next 15-20 years.
* Attitudes are going to have to shift. When you are in China or India, you discover they have a five-year plan, which is the long-term agenda. A look into the future, what are the forces operating in the global economy and what are the trends.
Mr Fink’s “Programme for America”:
* There are two big issues; consumerism and housing. Neither will come back any time soon, at least for two or three more years. More worried about second homes and because there isn’t the wealth creation any more who is going to buy all these second homes. A major concern is also the large chunk of Americans who use their homes as their financial stability and they are now very slowly rebuilding their savings.
* Our corporations have not been in this good of a shape in decades, sitting with trillions of dollars in cash and they are frightened. The average chief executive does not know how to plan out the next five years in this period of political uncertainly. The behaviour of politicians is “unAmerican“. We need a better embrace between business and politics to have a strong recovery.
* He proposes zero tax for long-term investment and policy can encourage long-term investing instead of the current climate of short-term investing.
* A proper tax structure and a proper investment policy can transform this economy from one of spending and dependant on housing to an economy that isn’t. The resources are there. Will not be unlocked until we have governmental policy that works along with business.
* Very encouraged by protest on Wall Street, surprised it hasn’t happened sooner, we have had protesting from the right side and now we have protesting from the left side. It’s good to have balance. We should not turn our back on this protest movement, it will be a mistake, when we create austerity plans, losing 30K jobs a month lost in local government. We have to embrace the private sector for job creation, a dramatic part of our society is disenfranchised. Corporations are going to have to be larger proponents of voice, corporate America has lost its voice in the last 10 years to be an advocate.
The fourth panel features Robert Kaplan, senior fellow at the Center for a New American Security, Joseph Nye, Harvard University distinguished service professor, James Steinberg, former US deputy secretary of state, and will be moderated by Gillian Tett, US managing editor of the Financial Times. They are discussing the future of American power.
Topics include the rise of China and other Asian nations, the shift of economic power in the world, the role of military power, and the future of diplomacy.
15.20: Can America afford its current military regime?
Mr Kaplan: It can afford it, but it must get a lot smarter in how it does so. If they cut $400-500bn, they can handle it, but upwards of $800bn it would be trouble. A reduction from 288 warships to about 238 warships and one or two less aircraft carriers and that would really impinge on US influence. The American instinct is to pull back, but Hillary Clinton says the US needs to pivot and pay more attention to Asia and less attention to the Middle East.
Mr Nye: You don’t just triple the budget, you have to change the strategy. Make sure you preserve the domestic economy where much of the strength comes from. If the US changes its strategy, it could afford more and it would be smarter.
15.15: Ms Tett changes the focus to the Eurozone and how its problems will influence the US.
Mr Steinberg: There is concern from Washington when it sees that Europe is not able to function properly, the loss of a capable partner is worrisome.
14.55: The panel opens with the question: Have the last four years permanently damaged the influence of America’s power?
* Mr Nye: It is a cyclical decline, but you must distinguish between relative and absolute decline in power. The power shift has been from west to east and this crisis has followed that shift … It does not mean that China or anyone else will replace the US.
* Mr Kaplan: Decline be so gradual and play out over so many decades that the US may have its key and pivotal decades ahead. Do not sell short military power.The strength of the US’s air and naval forces are so far ahead of any other country … We are entering into a much more complex multipolar situation in Asia in the next few years.
Martin Wolf, the FT’s chief economics commentator and an expert on China, will be leading the third panel featuring Victor Chu, chairman of First Eastern Investment Group, Stephen Schwarzman, chairman, chief executive and co-founder of Blackstone, and Michael Spence, Nobel Laureate and professor of economics at NYU’s Stern School of Business.
The theme is America and the rise of China, with topics including the Chinese renminbi, US treasury bond holdings, and the politics underlying an increasingly complex economic situation.
14.50: Mr Wolf’s closing words are that China is a responsible stakeholder in the world system, but they are not confident that the US is.
14.40: The non-performing loans issue is not as big of a problem as many people think, both Mr Chu and Mr Spence say. They are manageable and the government has enough reserves to handle any problems. Mr Chu estimates the total at $1,000bn.
14.30: Will the renminbi overtake the dollar?
Mr Schwarzman: I don’t think they want to do that … There is almost a quizzical nature from China about the structure of the US where it believes the system isn’t working. Why isn’t the US looking for a more effective solution or a new structure? They are still in the waiting and seeing – they are basically rooting for us to clean up our act – for the US to fix the problems and be back and functioning – because now it leaves the world in an unprotected place.
“The connection of China to the global economy means that the global economy is almost a one country bet. If China is doing well, you will have almost every resource country well. They are single handedly boosting the price of every commodity, including oil. Can you imagine what countries would be remaining in their current form in the Middle East if oil was at $30-40 a barrel if China and India did not have the demand? Every one of these areas is booming with people moving up into the middle class. It is a one country economy, if China was to go down, you can take that other 50 per cent of the world that is developing, that economy would drop like a stone. You have to believe that China will drag everyone along and that is the balance for global GDP.”
14.25: The last four years has smashed China’s fear of the world and economic powers, Mr Wolf says. Does China need to get more involved in the world economy?
* Mr Chu: The train has left the station, joining the WTO was a huge cost to the domestic economy, but was a way to strengthen domestic reform. It is the pace of accelerating reform that is being thought through. China needs to learn how to behave in a responsible and constructive way.
14.15: What does the transformation of the Chinese economy mean?
* What they are really worried about other than a US economic downturn is that it will influence market reforms within China.
* China is the most important export destination for Brazil, India, Japan and many others. Problems in Europe and elsewhere will affect the growth and development of this export system.
* On the exchange rate, this may be the one area where they have been paying the most attention to domestic development.The rate of appreciation do not necessarily match the development needs.
* If China succeeds in this stage of its growth over the next five to 10 years, it will export 85m jobs, which will have massive global economic impact.
14.00: What the challenges and opportunities that the rise of the China makes for the US?
* On the business side, there is almost no company that does not have a China strategy. It is socially unacceptable and commercially absurd. With the lack of growth in the developed world, everyone has a strategy to provide products or services.Coming from the Chinese side, there is a new imperative for large Chinese companies to expand outside of China and they are aggressively cultivating resource-based countries in Africa and South America. They come with support from the government and development bank.
* Social stability in China is a key issue and if they don’t produce a promised 10m jobs, there will be concern about future. The five-year plan calls for development of interior and a shift to a consumer-based economy, way of saying that the current export-model cannot stay forever and will create major imbalances.
* Increasing per capita income is a huge issue, China needs to get to about 75th from its current position of nearly 100.
13.50: Where is China itself? Are there serious frailties in China’s economy? Mr Chu, who is based in Hong Kong, says the US-China relationship is the most important bilateral relationship in the world and while there are many points the two countries see eye to eye on, there are many key ones they don’t – specifically protectionism. China is now in a “dollar trap” and there is nothing that they can do, because there is no alternative.
13.45: Mr Wolf kicks off the panel with the controversial point that the renminbi will replace the US dollar as the leading global currency in the early 2020s, a point he says he disagrees with.
A quick recap from the morning sessions, the main topic of conversation has been about how to keep the US competitive in a world with developing economies gaining more and more strength. Difficulties include the growing skills gap among US workers, corporate tax and regulation and the strength of the US recovery and how that will fuel business. This question of competition will inevitably come up in the first session of the afternoon.
The second panel features Steve Case, chairman of Revolution and the Case Foundation, Richard Gelfond, chief executive of Imax, Antonio Perez, chairman and cheif executive of Eastman Kodak, and Steven Rattner, former counselor to the US treasury secretary. Moderated by Gillian Tett, US managing editor of the Financial Times, the panel is discussing the future of American business, with topics including US company competitiveness in a globalised economy, research and development, and the role of the US government.
12.05: Is the current administration anti-business and how will this affect the election?
* Mr Rattner: What has happened in Washington in the last 3-4 months has done more to destroy the economy that anything I can remember. More significant that 9/11, Katrina and Lehman Brothers. How can you feel confidence as an investor in this environment.
* Mr Case: Everyone knows what the answer is, but the process to get to that is frustrating and difficult. I don’t think there is enough outreach to business, but there has been a market improvement. More of a level of engagement recently, but will we get bipartisan support for it?
* Mr Perez: The business community goes with issues they think will help and develop business. Often hear “this is not about policy, this is about politics”. It has to end.
11.45: What about corporate tax reform?
* Mr Perez: The tax code for businesses is old and full of patches and the US “never had the guts to review it in its entirety”. Tax rate needs to be the same no matter where it is.
* Mr Gelfond: It is myopic to focus just on taxes. Corporate tax rate is just one way to change corporate climate. Needs to look at ways to create creativity. It is a cop-out to say if the US lowers the tax rate that growth will improve.
* Mr Case: There need to be more incentives around risk capital. Almost everywhere you go, companies are discussing how difficult it is to expand. Other concerns about regulation, especially Sarbanes–Oxley, which is deterring companies from going public.
* Mr Rattner: The share of government revenues coming from corporate taxes is declining and has been for a long time. We live in a competitive world, if we try to tax companies in vastly different ways, the US will not remain competitive.We have to be competitive globally. If not going to tax corporations at higher rate, need to talk about taxing shareholders at higher rate. It is likely there will be some kind of deal on corporate taxes to get this jobs deal passed.
11.30: Ms Tett asks the panel if the US is a good place to do business.
* Mr Gelfond, of Imax, said developing markets, deleveraging and innovation were key elements to his company doing business here and could be implemented in most companies.
* Mr Case looks at the question in view of entrepreneurship in terms of small companies and large industries. There is a need to redouble commitment to entrepreneurs. There is a role for Fortune 500, medium and small businesses.
* Mr Rattner says American companies are doing just fine, but the question is really about jobs. Is the S&P 500 the right barometer to measure success of American companies?
* Mr Perez said much needs to be done to make working in America more attractive, but there are benefits including higher education institutions and work ethic. Issues are lack of growth within the country. The US must be more of a participant in the rest of the world with development and trade. In favour of taxes that are competitive and beneficial to business.
The first panel of the day includes Randall Kroszner, professor of economics at the University of Chicago Booth School of Business, Peter Orszag, former director of the White House office of management and budget, Laura Tyson, former chair of the president’s council of economic advisers, and will be moderated by Martin Wolf, chief economics commentator for the Financial Times. They are discussing the future of the American economy, including optimum government action, coping with sustained high unemployment, and American economic competitiveness.
11.05: Mr Wolf closes the panel with the point that the failure to deal with short term problems is leading to structural problems that are quickly becoming long-term problems. Fundamentally mismanaging the short term and did not let the solutions work for both short and long term.
10.45: Mr Wolf moves on to the long-term issue — what can be done about the imbalance in the US economy.
* Ms Tyson says one of the biggest concerns is the mismatch of skills requirements and the US is not providing enough Americans to fulfill the needed skills. The global competitiveness issue is also a major problem and will continue to be a challenge.
* Mr Orszag said the US has no choice but to remain open to the world, but policymakers must work on a political solution to increase education and advanced skills training. Many still hold out false hope that policy can fix the skills gap and the job shortage problem, but they must recognise the reality that the economic situation is not going back to the 1950s and that competition will disappear. China and other economies will just continue to become larger competitors.
10.35: Martin Wolf asks Ms Tyson about private sector involvement in the housing market. She said there needs to be an active set of policies about dealing with housing debt. Otherwise it has to be dealt with foreclosures. She said the creditors are going to take a hit and what will the ripple effect be. And what will the contagion effect of the housing market collapse be. The lack of policies is making the sector’s recovery that much slower.
The debate turns to Mr Orszag. He says the two major problems are the fact that there are about a million homes for sale than in regular conditions and there are a significant number of homes with negative equity. There is a suggestion of some kind of agreement with the government to help motivate private sector buyers help reduce housing stocks.
10.30: Martin Wolf asks about the role of the Fed and Operation Twist and if the US central bank has done enough. Mr Kroszner says central banks have impact on many elements, but deflation and high inflation make it very difficult to actively improve the economy from a policy standpoint. The Fed is trying to avoid deflation and have been fairly successful, especially with first round of quantitative easing. Operation Twist has helped to nail down the short range and enable the bringing the long range down to a lower level.
10.20:Mr Orszag discusses the mistakes in both administration and independent economic predictions that the recession would be deep and quick, with a V-shape recovery.The inaccurate economic forecasts affected the nature of policy discussions and led to overly optimistic expectations of a rapid recovery.
10.10: Martin Wolf asks the panel where the economy is now and where it is heading. The panellists all discuss the necessity for bipartisan co-operation and the need to end legislative gridlock in dealing with the economy and all topics.
The opening session is a keynote address from Gene Sperling, the director of the National Economic Council and assistant to President Barack Obama for economic policy.
10.05: Mr Sperling focuses on the situation on Capitol Hill and the debate on the president’s jobs act. He said politicians have to try to think of solutions outside of ideological constraints. He said the US is getting to a place that if something is a cut on the public spending side, there is more significant group that will cast it as a non-starter. This viewpoint is worrisome and will limit what the US is able to do.
10.00: For business, the US could justify the stimulative bang to giving a large tax relief to all large companies, but it is different for small businesses that have been hit by a perfect storm with economic difficulty. These issues with small business is why the US cut payroll taxes in half for a year on the first $5m of wages. This is part of Obama’s larger commitment to entrepreneurship. There is no question that the best one-two combination to aid the economy is to get the large, bold demand injection through the jobs act and then in the context of the larger fiscal discipline plan that would give the confidence that we are stabilising the debt.
9.50: There is more to do as a country, but the jobs plan is a “significant and serious” start to solving the economic problem. There is nothing fiscally disciplined about deferring action. The cost will be borne later if the US does not fix schools, hospitals, highways now. Fixing things sooner is more responsible and less costly than later.
9.42: If politicians will not support the plan, they should not be arguing about the necessity of taking bold action and restarting momentum for the recovery. Something must be done that addresses the crisis of long-term unemployment in the US. The administration does not agree that another one-time repatriation holiday will have a discernible impact on job growth because it cannot reach the people and companies that need it.
9.40: The big focus needs to be on unemployment, especially those without jobs for the long-term. He says Obama disagrees that this is a problem that will solve itself. The jobs act is a “fundamental economic necessity” and it is a responsibility to separate moments of political posturing and moments of economic imperative. He said jobs and jobs growth will be the key to staying out of a double-dip recession.
9.30: The climb back from recession is longer and slower than was inspected, but he disagrees with the viewpoint that the slowdown can be blindly accepted. The situation the US faces today is entirely different than was hoped for at the beginning of the year. In this scenario, the case for a major effort – like Obama’s jobs act – is overwhelming. Even if the current projection of 2 per cent growth was too bold, it would still be “inexcusable” to not act.
9.25:Mr Sperling is taking the stage and starts by saying that the US is facing a very serious situation both in the short and long term. He says it is extremely important that the US takes the action that they can to help strengthen the recovery as soon as they can.
9.15: Gillian Tett, the FT’s US managing editor, is giving the opening remarks for the conference and asking whether America can be made to work and can we find a way to get Americans back to work? Not just a question of whether America can be made to work, but also the system, the political system, the financial system and the economic system. She take a quick poll of the audience about views on the American economic outlook. It is gloomy according to the crowd.