As the global economy faces enormous uncertainty,
we're bringing together some of the brightest
minds in finance and economics to talk about what
the recovery could look like.
Today, we're speaking with Jim O'Neill.
He's the former chairman of Goldman Sachs Asset
Management. To start out, what do you see as the
current state of the global economy and how long
is it going to take to recover?
First of all, I don't know.
And I encourage your audience to be careful about
anybody that claims with too much confidence that
they do. Secondly, with that in mind,
I'm pretty sure that we've seen the worst on a
truly global basis, it's quite easy to say that
given that the last decade, 80 percent of global
growth has come from just China and the states
and China almost definitely saw the worst of
their economy as far back as late or
mid-February. And of course, we're talking when
the lockdown's are starting to be eased around
the world. If you look at very high frequency
data, a number of places are probably coming out
of the absolute abyss that most of the Western
world has been in in March.
So I think we're on some kind of way back.
And, of course, the impossible question is, is is
it going to be a famous V?
Is it going to be W, is it an L?
Is it a U? Etc etc etc.
So what would it take to get to that notorious V
that so many economists are coming out against
now? I could imagine for later this year we could
have an economic boom.
I think without a vaccine, it obviously suddenly
gets a lot trickier.
But the other obvious thing is that we have
enormous amounts of economic stimulus put into
the works, which for most of the time has been to
try and maintain the size of the drop into the
abyss. But it all may play some impact on the way
back to. But, you know, I wouldn't want to bet
like the rest of my life on it being a V shape,
but I wouldn't dismiss it.
What's it going to take for consumer spending to
return to levels that we were seeing previously
before the pandemic hit?
I mean, I think this this issue about the
consumer is almost definitely ultimately the key
thing part, partly because, of course, in
virtually every economy, the consumer is the most
important. I think it relates to the lack of this
confidence that if you go into a restaurant, you
know, you might just get it.
So that is tricky. Which is why the vaccine issue
is so important.
It's not entirely impossible that a lot of these
emotions we're all expressing as was stuck inside
our homes and make us think that we'll never go
to these things ever again, that once we do
venture out and start to see that those that run
restaurants and other places where we consume
have got themselves in a pretty, you know, COVID
19 friendly environment, that we do start doing
it again. However, as I'm sure you've experienced
and so many of us are, we are consuming of a lot
of things in a different way than we would have
done before. And so it might well be that
once we have more confidence about some kind of
employment and the economy more broadly picking
up, we might all start consuming even more
online than we have been doing before.
How does that change the jobs that might be
available in the future and the outlook for
employment and more in the near term
unemployment? People have gone really successful
businesses have to be thinking about something a
bit more than just an outright obsession with
maximization of profit and playing their own role
in trying to deal with some societal challenges.
I suspect some of the dilemmas that this crisis
has shown such a huge spotlight on is going to
force some of those kinds of ways of rethinking.
So the oddity of where we are right now is, of
course, our governments end up owning for the
near future so much more of our business than
they ever dreamed they would do.
Flipside of that, it means they have a chance of
shaping how some of these businesses and
industries actually might reach broader societal
goals going forward.
And I certainly think in that regard, things like
the quality of employments and how companies
deal with issues about income inequality or
payment issues within companies.
I think that might mean there'll be more focus in
the next decade on the quality of employment
rather than just the sheer number of people that
are being employed. So companies focusing on
those environmental, social and governance
issues, that's going to have to be a longer term
priority, you expect?
I think that almost definitely the climate change
and the environmental issues is definitely one of
the things that will get more focused.
Again, if you bring in another angle to it, with
the brutality of this shutdown and the apparent
incidence of the infection, you know, the younger
generation yet again is being penalized,
in essence, at the expense of the older
generation. And this comes on top of, you know, a
good 10 to 20 years of other trends with
dramatically rising house prices all over the
world, making it more and more difficult for
young people. And at some point, it's kind of
payback time for younger people.
And, of course, what is it that young people seem
to care about, quite understandably, so much
compared to older people and it's the
environments in climate change.
And so I think for elected politicians
or all politicians that are trying to think about
what they are supposed to be doing.
There is going to be probably huge political
appeal of trying to think more about these things
in terms of trying to guide and encourage
business that is more responsive about these kind
of issues. But will businesses be able to afford
those types of investments, given how cash
strapped they are already in the current
situation? It does give governments a pretty
unique position to take, for example, the airline
industry that if you're in a country like the one
where, you know, I'm from the UK and you have a
declared intention of net zero carbon emissions
by 2030 and beforehand, you think, well,
how am I going to be able to influence the
airline industry and the auto industry.
Right now,the british based or airline industry
has no future unless government gives it support.
Is there a risk that governments are too involved
in those private companies, that there's
inefficiencies, and that would be certainly the
tradeoff and others have point to, is that a
concern? I certainly think if you had the
government and government employees doing it
directly, then the likelihood of wasted money and
inefficient decisions would be very, very high
and sort of take us back to the 1960s of the US
and the UK. But I wouldn't be surprised if these
kind of things did emerge.
But it will be tricky for the states, that's for
sure. Do you think companies are going to be more
hesitant to set up business in China after the
pandemic based on these tensions that we're
seeing? It's very fashionable to say that.
But it depends what kind of companies they are at
the end of the day. And in this context, let me
emphasize how dubious I am about this such
widely bandied phrase deglobalization.
You know, globalization has had so many different
eras and phases where globalization
evolves or is dominated by one theme or another.
But the thing that commonly unites them all.
It bases itself around the role of the consumer.
And so long as individuals want to consume and
find the best things that they want at the most
affordable prices.
Essentially, that's what drives globalization.
And if China does manage to recover itself.
And its own consumer starts to pick up more.
The Chinese consumer is the single biggest global
game in town and it certainly has been for the
past five years.
And I can't imagine, whatever our politicians
say, that the world's greatest consumer companies
are going to want to miss out on that.
Where I do think it is very likely that there will
be change, is that a lot of companies that use
supply chains around the world to feed back into
their own consumers will be very wary of having
too much of it in China in the future.
Do you think countries like the U.S.
will try to move supply chains back to the US?
There's a difference between the rhetoric that
comes out of the US president's mouth and what
will happen. I mean, at the end of the day, and
without wanting to get to too much like an
economist about it, if you're a country with very
low domestic savings, what always happens or
usually is that that means you have a surplus of
capital coming in, which means by definition, you
have a deficit in the current account, which
typically means you import more than you export.
So unless the US is suddenly going to start
saving a lot more.
It will need capital from overseas, which means
it's going to import more than it exports.
And yes, they can stop importing from China, but
unless the savings rate goes up, it will simply
mean that they end up importing from a lot of
other places. And it's great rhetoric, of course,
or certainly worked in 2016 to say that you're
going to bring all this stuff back to the
heartlands of America, but without a defined
policy to deliberately raise domestic savings, it
isn't going to work. Could China's economy
continue to grow to a pace that it does
eventually exceed the U.S., you know, is on track
to become the world's biggest economy?
Will we get back there. And how long do you think
that could take? I still think it's pretty likely
that sometime in the next decade, China will
become bigger than the US.
But I have to say, there was a couple of things
that were giving me doubts before COVID 19.
And this this is definitely an enormous test.
And the only way that China will get to the
position of overtaking the US, in my view, is
indeed, if they're consumer not only recovers,
but then increasingly becomes a bigger and bigger
share of their own economy.
And there's two reasons why I say that.
One is because I think what is clear from the
politics of this mess is that China's historic
role of being such a big, low value added
exporter is past us.
And secondly, more importantly, there's been
enormous number of Chinese middle classes created
the past 15 years or so, maybe over 300 million.
And the whole sort of bargain between Chinese
people and their governments sort of links to
that. And if the Chinese can't sustain more that
increase in the consumer, then ultimately I think
there will be political uncertainties
and possible instability in China.
And then there will be a whole new future.
That is not one that I would really have thought
about in the past. So I think my best guess is
that, yes, China will still become the biggest
economy in the world within the next decade.
But it's not risk free, that's for sure.