Kelton & Mazzucato

V:

bit later i'd like to ask professor mariana matt sucato who holds the chair in economics of innovation and public value at the university college london here and uh marianna you also are a special advisor for the european commission on research science and innovation so just give us some opening thoughts you are renowned for rethinking the role of public policy in shaping both the rate of growth and its directions so within the context of external finance what can we do where's the money going to come from sure

M:

 so i think first it's important to recognize that actually there's never really been a lack of finance it's what finance has been doing and where it's been going and so that whole question of the direction of finance i think is key in the financial crisis there was huge amounts of trillions were poured into the system most of that actually ended up back in the financial system itself and this is true in many countries like where i'm sitting today in the uk only one pound out of every 10 that the private banking system puts into the system actually even goes to the real economy the rest goes to fire fi finance insurance and real estate and so really the question is how can we also make sure that central banks themselves start focusing just as much on the allocation of credit rather than this need just for more liquidity and the other point is really you know again lots of finance but the type of finance is often problematic in both developing and developed countries there's plenty of inpatient finance what you actually need to really spur development but also innovation and investment-led growth is more patient long-term committed finance and that's the kind of finance that actually often does come from different types of development banking institutions but there too i would say you know kind of a third problem is sometimes with those institutions we've sort of lost the opportunity to create stronger conditionality and so you know if we want to take the sustainable development goals seriously kind of walk the talk about those really ambitious goals the 169 targets beneath them we really need much more conditionality in the way that governments and different transnational uh financial institutions provide that finance and so i think what's really curious right now with covid is that we're waking up to this in some countries in denmark by the way they've refused to give bailouts to companies that use tax havens in france the bailout that was provided to both renault and air france was based on commitments towards lower carbon emissions of those sectors 

and in the u.s you might know that another fantastic woman elizabeth warren has been talking about conditionalities on value extraction kind of lowering the amount of profits that are being used simply for things like share buybacks as a condition for again the funds that are coming from government 

so that really requires also aligning the way we think about finance and the role of finance with really industrial strategy and it's also quite useful that industrial strategy is back after decades of being almost a blasphemy but it's not enough to think about industrial strategies like picking sectors or types of firms 

it really should be about industrial transformation and you know across all sectors and this role that public financial institutions can play in creating conditions for industrial transformation even in old sectors like steel is key and just one quick example of how that happened in some recent years in germany instead of a public bank just kind of handing out money to the steel sector and steel is a sector that does tend to ask for money there's conditions attached in germany for steel to reduce its material content to repurpose reuse and recycle the way they did it was up to them so that can spur innovation but that conditionality is really what we need to properly get what people call stakeholder capitalism stakeholder governance and today the german steel industry is innovative not because it woke up one day and said we need to be more stakeholder driven but there was conditions attached to the finance they received.

V:

thank you very much.

let me go to professor stephanie kelton um from stony brook university who's written a book on modern monetary theory a new approach to economics and you just be taking the world by stormer stephanie and your most recent book which is out um just now the deficit myth modern monetary theory and the birth of the people's economy is already on its way to becoming a bestseller and you very much challenge existing thinking on economic policy so just picking up on what various song we said sir do you go along with that?

K:

 i do i i loved those remarks in fact i think that you know this idea that um somehow we're doing all we can to assist developing countries um by providing them a a way a vehicle primarily through exports through which they can earn a foreign currency very often the us dollar which they then turn around and hand over to creditors in service of perpetual debt.

and i think that was her point so that we are not doing i think what we ought to be doing to help developing countries actually get out of the developing country status and uh.

and so what would some of those things look like i think the us can play a very important role here and must in fact uh as a leader we can act as a global leader in terms of the way that we participate in creating and reforming trade arrangements.

we can help set standards um in deals that help that we help craft like you know we can demand stricter ecological standards.

we can ensure that there are robust labor protections we can share with developing countries green technologies and intellectual property we can help poor nations develop food and energy security,

so that they aren't dependent upon the rest of the world for critical imports of medicines technologies food and energy uh.

and i and i think the providing financing is part of what needs to be done.

but there are also um non-financial commitments that the developed world can and i think needs to um make to the rest of the world.

um i could go on for quite a bit longer i know you have a lot of other voices important voices that we need to hear from but for just a few ideas.

V:

 to stephanie kelton stephanie we heard minoosh there uh talk about the fact that um richer countries have taken massive unorthodox measures uh you know when we're talking within this context of debt but i just repeat what ken foreign the finance minister of ghana has said whilst the richer countries are doing that african countries are expected to play by the rules so do we need a rewriting of the debt rules.

K:

 i i think that transfers are better than loans and i think that this trapping developing countries on a treadmill of perpetual debt and debt service.

um you know we have the results we've got decades upon decades of results we end up with countries that are never permitted to fully develop.

and so when and i think it's important to to recognize a couple of things.

one is that there are um some developing countries that have more fiscal capacity than others.

um the more dependent you are i mentioned this a little while ago the more dependent you are on the rest of the world for critical imports energy food medicines technology the more likely it is that you are going to end up in a one of these treadmill situations where you're forced to borrow in foreign currency.

and then you have difficulties as interest rates rise it becomes more and more difficult to service those debts then you end up at the imf then you end up with more debt over time and and struggling to either grow your way out of it or take one of these alternative um measures you know inflating the debt away and and so forth and so what i think is so critically important is that we recognize that you know madame lagarde said this is an all hands on deck situation.

and we are fighting a common enemy right now it's not like world war ii when we fought one another we are fighting a common enemy.

and and yet we need something i think akin to a marshall plan.

we need the the stronger countries the developed world to step forward and to provide the aid and assistance.

and um and help these other countries along because you know i don't want to end up in a situation where we've got a divided world and we've got developed and developing countries and the developing countries look the same as they did 10 and 20 and 30 and 50 years ago as we move.

you know uh forward in time i don't want to look back in 30 years and see the same group of developing countries still in a developing country status.

so um you know i think uh i'll i'll stop with that i think aid is critically important and i think we should start to shift away from this model where we continue lending as the primary means of trying to provide aid and assistance there are real ways that we can help countries rather than constantly thinking in financial terms we've got to do it with real resources.

V:

 let's go to mariana mariana your views on debt briefly 

M:

sure i mean one thing which i think we all know but it's just good to say that even though we talk about public debt the real problem right now is private debt that's what actually caused the financial crisis and in many countries like the uk its private debt to disposable income is actually back at record levels literally to the extent that it was just before the crisis and unfortunately with some of the coveted relief because it hasn't actually been about debt relief but just delaying you know mortgage payments for example that's actually just going to make this problem even worse furthermore because real wages have not been rising many people have actually been taking out increasing amounts of debt just to retain their existing living standards so until both those questions of real wages are taken on board um you know that's not gonna be solved but also in a country like where i'm from italy you know again people talk about public debt but the deficit the actual deficit in italy has actually been relatively modest debt to gdp has been rising why because the denominator has not been rising why because they haven't actually been spending and investing in all the strategic areas like human capital formation education research and development which are long run drivers of growth.

so instead of having conditionality attached to lowering deficits which unfortunately in europe we've had and still have there should actually be conditionality on investing and all those drivers of long-run growth and you know that would completely change the conversation.

V:

let me go to you.

stephanie kelton if you're there please just a quick final comment from you.

K: 11:05

well okay so i think that you know one thing to keep in mind is that exports are a real cost and imports are a real benefit and so when vera's talking about the export uh the exportation of of rubber from the continent.

and saying now we don't have the ability we can't get rubber gloves your exports are your real cost and it isn't to say that trade is not beneficial and there cannot be gains and benefits to countries through trade but you just have to be very careful are you orienting your economy around production for the sake of export for the sake of earning a currency that you need in order primarily to service debt and so when we're talking about you know safety nets and and transfers i think that what vera is is getting at here is that the safety net is really for the creditors.

that's what the safety net is for the safety net is there to ensure that the dollars continue to flow so that they can be recycled and returned to the hands of the creditors.

so i'll stop there.

V:

mariana matsukato your brief closing remarks one minute starts now i mean.

M:

one of the issues is how do we govern trade and so i mean the most obvious misgovernance of this is around healthcare and healthcare products so how intellectual property rights are abused i mean um you know vaccines right now yes there's a race for the covert of vaccine but unless we make sure as the wh is arguing that we need a common patent pool then actually we're going to see the same kind of rent seeking which vera was talking about and by the way just this week we've learned that jillian is going to be charging 3120 for its coveted drug remembers veer.

and that drug was actually developed largely by the u.s taxpayer so 70 million uh us dollars went to that and the fact that even though we all talk about public investment if we can't then govern that investment to actually achieve inclusive and sustainable growth it's a massive failure.

and lastly don't forget that adam smith when he talked about the free market he met free from rent.

and you know all this intermediation that vera is talking about is rent.