One Earth, One Family, One Future

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Transcript

Rob Johnson:

This is Rob Johnson, president of the Institute for New Economic Thinking. I’m here today with a longtime friend and the chairman of the INET Board, Rohinton Medhora. Rohinton and I met when he was the director of the Center for International Governance Innovation. He provided tremendous leadership there and they were very, very concerned about something that I think we all have to be concerned about today, which is how does technology change the world that we live in and how does governance innovation play a role in light of these new technologies? As we approach the end of the G20 leadership, what we explore today, what have they taught us, what are they handing to the next leadership, which is Brazil, and what are their, how would I say, through the example of India, lessons for the global South and for the world in this very, very anxious time. Rohinton, thanks for joining me here.

Rohinton Medhora:

Always good to be with you, Rob. Thank you.

Rob Johnson:

Well, we have a slogan, I’ll let you cite it from the Upanishads, that sets the meta picture. I say, O, O, O, oh my.

Rohinton Medhora:

One Earth, One Family, One Future. This is a quote from a 5000-year-old text, the Maha Upanishad, as you pointed out, that the Indians have very aptly selected as the theme of their year. When you and I were in India and met various officials and non-officials, it was evident that this kind of ancient definition of globalization was a very apt way to describe the G20 currently and India’s vision of it. That’s exactly what the G20 was created to steward. How any individual country as chair can make a difference is something you and I might want to reflect on.

Rob Johnson:

Yes. Well, starting with the three Os, it’s emphasizing that we’re all in this together. The notion of property rights and incentives, which we’ll talk about particularly as relates to technology as this conversation unfolds, are embedded in a world where the side effects, what they call externalities and public goods, are pervasive, whether it’s climate or whether it’s diffusion, meaning learning from innovation and diffusion of deployment. I can see in Africa right now the appetite that people like the Luohan Academy that we’ve worked with and others are emphasizing for building the baseline, the infrastructure for that young population’s education and development. So I think they hit exactly the right note. They were excellent composers in creating the three Os for us to frame the conversation.

Rohinton Medhora:

Yeah. At the time that the phrase was portrayed in Sanskrit, Sanskrit was a live language. That’s how long ago it was, right?

Rob Johnson:

Wow.

Rohinton Medhora:

And it was an era when, as a bold generalization, I’d say technological progress was slow. It was equated with two things, how to farm and herd and that side of things, and second, how to live better, how to use abodes and natural elements to improve family and community life. A lot of technological change then, historians will tell us, was actually through word of mouth and through learning by doing and actually by sharing, because the sense was that if my neighbor is better off, then we’re all better off. And that’s almost the direct opposite of how we see technology today and rightly so. I don’t mean to suggest that somehow going back to that system of sharing farm techniques is the only way forward. R&D today requires a lot of upfront investment, requires a lot of sharp brains, and involves a lot of risk. So the question is how do we balance compensating for risk with the public good that many technologies bring?

Rob Johnson:

Yes. Yeah. In essence, if they’re building something with their own wallet that has positive side effects, they do reserve some support from the outside to augment the size and scale or the intensity of what they’re creating.

Rohinton Medhora:

And back to the India question, I thought we, as the global community, missed an opportunity when early in the COVID crisis, in middle, end of ‘21, India and South Africa came up with what was a very simple but creative and controversial suggestion, which was, if not revisit at least to waive key elements of the TRIPS agreement. The TRIPS agreement is the main governing document for intellectual property-related issues at the WTO. Initially, dozens of countries signed on, 64 or something countries within a matter of days, including the incoming Biden Administration. And so there was a sense that this self-driven innovation in governance might have legs. And then it was, of course, pitched to the WTO for adjudication, and what happened there was what you would expect to happen at the WTO. It was effectively sandbagged by some European nations, where Big Pharma is prominent.

I think in the US itself, there were some second thoughts about the enthusiasm of some members of the Biden Administration, including the president himself, and what we got was a pale imitation of what should have happened. So think about that. In the midst of the biggest health crisis that we’ve seen in about three generations, the best the world could do was take two years to come up with a watered down version of an agreement that is said to be behind the times anyway. When we think about why doesn’t the global South buy into all the things the West stands for, including taking sides in the Ukraine war, one reason is I don’t think the global South has been dealt into global governance processes as well as it could and should be. And I hope that the Indian stewardship of the G20, coming off a series of weak presidencies of the G20, by the way, Indonesia, Saudi Arabia, Italy, good countries, but they’re not going to move the needle on global governance, I hope that India, followed by Brazil, can make a difference there.

Rob Johnson:

So the ancient wisdom illuminates the current challenge. And it’s time for us to, we might want to call it evolve or shift gears in light of the, how do I say, understanding of this challenge that they have made clear to us in their leadership. What institutions do you think need to change? What global institutions need to be restructured or realigned or augmented with other incentives? I know Larry Summers and a team of people put together a report on this that I’ve read recently. The scholar, Duncan Foley, made a beautiful presentation to UNCTAD about how when there are, which you might call negative side effects for the people who are producing negative externalities, we need to take them on, not demonize them, but take them on board to lift them into partnership of the evolution when otherwise their resistance may stop it from taking place. You might call it the pace we need for human survival. Where do you go now? Where are the institutional changes that you would emphasize here at the conclusion, given the philosophical insights that India has presented to us?

Rohinton Medhora:

We live in an era in which the appetite to create new global institutions is low. In fact, I don’t know anyone, other than some well-meaning academics and activists, who think that somehow a global environmental agency or a global technology agency is the way forward. I’ll come back to that in a second. I think there’s a lot we can do with our existing ecosystem of institutions that dates back to Bretton Woods and a few years thereafter.

Take climate change. Climate change has two or three elements to it, but central to it would be getting the price of carbon right so that you don’t have carbon dumping, countries don’t export their carbon restrictions to others by saying, you produce the dirty stuff and we’ll buy it from you and then hector you, by the way, about your emissions. There’s a relatively straightforward solution to that which is border carbon adjustments.

Now that’s a regime that can be housed at the WTO, negotiated and housed there so we have a mechanism to deal mostly with carbon prices. If we adjust prices at the border, then presumably domestic prices adjust as well. Similarly, on the lending side, I think both the IMF and the World Bank, although they do consider sustainability in their lending decisions, could be induced to take that more centrally on board and we would be there. I think many of your guests in this series have pointed out that the 3-1/2 trillion dollars that we need to make an energy transition isn’t going to come from the IFIs. It’s going to have to deal in the private sector. And I think there’re mechanisms that the IFC at the World Bank and others can use to do that dealing in. It’s essentially to create public-private leveraging partnerships to fund it.

The bit that’s missing, of course, is what we do if there’s a breakthrough technology in some aspect of climate change, where do we get bogged down the way we did with COVID vaccines or do we simply find a way to move forward? And on that, I think there’s lots to be learned from the COVID experience. That’s one.

The second piece on institutions is how they’re funded. And the one that strikes me is one where, if you look at the IMF compared with the World Health Organization, the IMF gets about 80% of its funding from guaranteed self membership dues, if you will, 20% is discretionary. At the WHO, it’s exactly the opposite, 20% of its funding comes from what I’d call guaranteed sources, 80% comes from vicarious sources. If the WHO were funded the way the IMF is, imagine the transitions in global health and in global public goods that we would see.

So I think there’s something about the way we fund existing institutions, let alone creating new ones. That would be a step in the right direction. The one area where I think we are missing, as I’ve been alluding to for some time is on technology. And on that we have, I think, one of two ways forward, and the Indians are aware of both of them. My understanding is they would be sympathetic to both of them. The question is to what extent will they succeed? One is to revisit TRIPS and start a process to actually reinvigorate how we manage intellectual property globally and how we manage innovation globally.

The second is borrowing from the creation of the Financial Stability Board some years ago to create what I’d call, at CIGI, we called it the Digital Stability Board, which is to say this is a gap in global governance because the issue didn’t exist when we created that ecosystem of institutions two generations ago.

Do we need an organization that exchanges best practice on issues to do with new technologies that perhaps over time names and shames bad actors and incentivizes good actors? And do we need a multilateral, as opposed to ad hoc regional process to manage the various facets of new technology? That’s the missing piece on which I don’t expect there to be global consensus anytime soon. But if you ask me, I’d say this is where the conversation should be headed. And if we’re having this chat 10 years from now, I think an OECD for new technologies is where we might be headed.

Rob Johnson:

In the question of, how would I say, governance, one of the things our Commission on Global Economic Transformation has talked about is what you might call the metaphor of the Treaty of Westphalia, that the national government has the power to create and implement things to protect its citizens is certainly in question now with nanosecond redeployment of capital and all kinds of other aspects of globalization. How can we be one family, one world, unless we recognize that collaborative global government that addresses consciously these side effects is a necessary condition for a healthy future?

Rohinton Medhora:

I think it’s a bit of a buzzword in the governance world, but multi-stakeholder governance is the way forward. So we often talk about institutions as not being inclusive or unbalanced in their ownership. That’s certainly the charge, rightly so, made against the IMF and the World Bank, for example. On the other hand, if all you have is a consensus-driven process, like the WTO, then you will get the kind of sludgy progress that you see there. The way the G20 has dealt with inclusion is first of all, the 20 or 19 countries plus the EU that formed the 20 represent about 80% of all the major aggregates that matter economically. And then you kind of invite, often for photo ops, a bunch of smaller countries and other international regional organizations. The Indians are making a big deal about inviting the African Union. But what’s missing is both, as you pointed out, the private sector, which is the main driver of so many issues in both economics and technology, and civil society or some version of civil society.

So I think when we think about inclusive governance going forward, it’s not going to be about more countries belonging. It’s going to be about different players belonging that represent the different sectors. And I don’t see us doing anything in the technology sphere without dealing in, however much some of us or some people might disagree with the global digital platforms and so on. They have to be at the table. So does, in fact, governments and so do some version of either the scientific community, the ethics community or civil society, or the consumer community. You need all three.

And if you think of AI, and I thought your chat with Michael Spence was very revealing on what regenerative AI is likely to do, now, if you want to manage this, you’re not going to do it by having many, many countries involved, that too, but you’re going to want the major players in AI. And you’re going to want scientific ethicists involved to make sure that we have a framework within which all of this rolls out at a pace that we can’t control, but at least in a way that we have a handle on.

Rob Johnson:

I think that this is very, how do I say, I find this very satisfying what you’re saying because I guess I’m a doctor’s son. So the first thing is you have diagnosis before you have remedy, and maybe the ancient Upanishads flashed a light, India carried it to center stage, and the diagnosis, which many say, how would I say, is a romantic fantasy or whatever, but it’s becoming clear. More and more people across the spectrum are acknowledging that the question is not …. Now, you might call the design of remedies is one dimension, but the institutional frameworks for implementing remedies when you have powerful interests, who we might call on balance would lose relative to the current system. How do we illuminate the need for change in the direction of public goods and how do we implement it, I think, is the stage we’re at. A lot of people I know, very sophisticated, whether they’re civil servants, lawyers, financiers or whatever, are quite cynical right now.

We can see what to do, but we have no chance of doing it. And I don’t think, in light of India’s leadership, that we should essentially be demoralized or whatever. We should be invigorated and carry that ball into the future, carry that momentum, and keep striving, as you talk about, for the institutional needs. And the one that’s the most mysterious, obviously, is technology because it’s kind of a world we don’t know.

I just made a recent podcast with Simon Johnson, he and his co-author, Daron Acemoglu, Power and Progress, are talking about the analogies from history of when you have technical change. What are the side effects and how does society evolve? And they’re trying to use the past as, we might call, a window into the learning that we need to embrace now. But I think you’re bringing the technology element alongside the climate element for things like education, economic development all over the world. I mean, it exists in suburban New Jersey and it exists in continental Africa that technology could make a difference, improve the learning, improve the quality of human capital. The optimism of people could contribute to public health, all kinds of things of a better world. Or I would say implement can be envisioned for implementation, but how do we get over that political economy of what I used to call the commodification of social design implementation enforcement?

Rohinton Medhora:

Yeah, no, that’s well put. By the way, you alluded to the Larry Summers group.

Rob Johnson:

Sure.

Rohinton Medhora:

And I think one of the many things they got right was the emphasis on the production of global public goods, that if we had global institutions, they should be about addressing global public bads and producing or encouraging global public goods. So if we work backwards from there, then you have an agenda for even the existing ecosystem of institutions that is close to but not fully there yet for them. I still think these countries, these organizations, see themselves as dealing with national governments one by one rather than laterally on what we do on cross-cutting issues. But I think that’s a design question that the G20 is amply capable of because it controls, in many ways, the voting structures in these institutions, both established powers and emerging ones, well.

On the question of social design and innovation, you’re quite right, and I think I go back to the point I made that historically technological change has created winners and losers. But the gains to the winners far exceed the losses to the losers. That’s why technology keeps holding. And there are episodes when the losers are adequately compensated in a Hicks fashion from the gains.

Rob Johnson:

Yes. Yes.

Rohinton Medhora:

And there are other cases more Pareto-like, where it tends to be a bit of a zero-sum game in which there will not be change unless everyone wins. That simply is not the way technological progress can be judged because there’s no technology whatsoever where absolutely everyone’s better off. And so we need mechanisms that recognize the risks and the upfront investments that the players who create technological change face. And second, we need to compensate the losers. The good news is that the gains from existing technological progress are so large that it is not meant to be a zero-sum game. If we had the wherewithal, we could, in fact, have a much more broad-based technological frontier and still compensate the few losers as there would be.

I think going back to the COVID vaccines case, I mean you and I have written about this too, and on the commission we dealt with it. At one level, vaccine inequity is what The New York Times called a vast debacle. Just the way it rolled out demonstrated their fault lines, not just between countries but within countries.

Rob Johnson:

That’s right.

Rohinton Medhora:

Hence, your New Jersey point. But more broadly, vaccine development is actually a triumph of public-private partnership. The initial basic research on Messenger RNA was funded over decades in the US, the UK, and the EU. That’s the platform on which the private sector then built, and we then used advanced market commitments to guarantee a market for the end products that Big Pharma produces. So we’ve de-risked at two levels, at the basic research level, which is always going to be underfunded unless it’s publicly funded, and then at the market level where you say, but you do have a guaranteed consumption base and here’s the money, it’s in the bank, just give us the vaccine we need.

It’s the middle, and I think it’s the middle where we need to think more carefully about whether we have the incentives right. I don’t think negotiating vaccine agreements in the kind of secrecy and the rush of crisis was the way forward. Perhaps next time we can prearrange some of these things. There are trials that will start soon, if they haven’t already, on the first new vaccine for TB in over 100 years, which are being co-funded by the Gates Foundation. If we structure that right, we will have a new generation of TB vaccine. And if we plan ahead on who gets it at what price and how much, what would be the contract and is that all public, then we’d avoid some of the friction that we saw in the case of the Gates/Oxford/ AstraZeneca vaccine, which is actually again an example of how what was a scientific success got bogged down in governance issues.

Rob Johnson:

Yeah.

Rohinton Medhora:

And so there’s a series of things in the governance of technology that I think we should manage when there’s no crisis rather than wait for the next crisis.

Rob Johnson:

So Rohinton, I think you’re talking about really important dimensions because people who feel that governance, whether it’s within a country or across the world, is not taking care of them, it fosters cynicism and some would say an appetite for totalitarian alternatives, that representative governance isn’t working, and therefore, out of despair, I have no alternative. What I find fascinating is saying, when I go to West Virginia, people remind me that I grew up in Detroit. And they know climate change is needed, but to decarbonize, for them to give up coal, they want compensation, they want transformational assistance.

I used to, before the tensions, meet with leaders in China multiple times every year, and they’d say to me, we know we’re a big country. We know we started at 140th the per capita income of the United States back in the 1980s, and what we know is that there’s adjustment assistance, but we have no control over it. And now, in this case, President Trump is demonizing us when the idea is everybody’s better off and no one’s worth off with free trade is only true if there is compensation for the losers. Chinese leaders are telling me they have no power to compensate the American losers, and yet they’re being demonized when the problem is within the governance of the United States. Now, one might also say it’s a global problem. It’s not an American problem entirely if how property rights are deployed around the world doesn’t keep in mind the negative externalities for the American people or for the Canadian people or for whoever.

Rohinton Medhora:

Yeah, the former industrialized world. Look, I think the hollowing out of the Midwest in the US and Midwest’s equivalents in many or early industrializers is a fact. And it was driven by the fact that capital was and remains way more footloose than labor or the ability of governments to manage globalization. Second, the West Virginia/Detroit example you gave, which is very current, is a good example of two things. One is Hicks versus Pareto optimality, and the second is even in an era of globalization, national policy has an important role to play. So I would argue, and I think many would, that the answer wasn’t to stop China or Vietnam or whoever from taking on some of the industrial load. It was to have stronger social safety nets in the US. It was to have better education and human capital development policies there because overall the US growth rate recall has not really decreased. It’s reached a long run, if you will, steady state. But it’s the inequality within the US that got way worse after globalization, and that, one could argue, is a domestic social policy issue.

So governments, especially of large countries, have two levers that they have to operate at the same time. One is to get the global governance system right, and the second is to get domestic policy right. I think Chinese leaders are right to say to you, we have no way of compensating losers in the US. On the other hand, if we had, and I think the agreement that was reached by the G20 last year is a good start, if we had a sensible taxation regime so that companies are not finagling on their taxes through tax havens, then governments would have the resources they need from the huge wealth that’s been created by new technologies to actually provide the domestic global public goods for which they exist.

Rob Johnson:

Yes. There’s a study that was done last year by the Economic Policy Institute in Washington, which shows the growth and the rate of technological change in the United States going back to 1960. And what it shows is that well over half of Americans are worse off than they were in 1985, 38 years later, and 1% to 2% of the population has had tremendous gains. And people attribute that to two things, well, three things, technology, money in politics, and globalization. And so, how would I say, despondency, which many think Donald Trump’s election was a symptom of, it was a response to that, are the kind of challenges that we need to undertake now.

I want to focus with you, though, on where we visited, where you grew up, where India is now the largest country in the world in terms of population. They have been very creative in technology related to banking and other things. They are consciously aware of the global South. They are consciously aware of what’s happening in climate. How you say, moving away from the G20, but also recognizing as Brazil takes over the G20, what can India be as a leading example to the whole world in its own development strategy, in light of these echoes of the kind of things like Detroit and other US/China-related issues and other things that we’ve explored today? What’s the pathway for India, in your mind?

Rohinton Medhora:

There’re a number of things that come to mind on this. One is that India has gone through, and many people would argue has not fully come out of, a phase of intensive inward lookingness. India was the spoiler in many people’s views in negotiations at the WTO. It was seen to be an introverted economy that focused often at great public expense on building indigenous institutions when, in fact, there were ready-made foreign solutions out there. And so if only India would open up was the mantra. And I think the successful opening up since, including last week, putting a capsule on the south pole of the moon, is an example of that, that you create indigenous, scientific, and other capacity because in the short run, it’s a cost. There’s no question that there was a Hindu rate of growth stuck at around 3.5% on which India coasted for decades before it moved into that 7%, 8%, 9%, 10% year. Right now, it’s falling back again.

But I think, as every industrial country in history has done, using a period to consolidate national processes and institutions and being protectionist is part and parcel of success. And the trick is when do you let go of an infant industry and open it up? When do you let go of that introversion and become extroverted? And India’s at the cusp of that and has been for some time. And so we’re watching that, I think, with great interest and often pride to see where that lands. Second, India has kind of managed its own form of economic globalization while remaining a democracy. Now, I’m not unaware of the very many flaws in the Indian democratic system. I’m not unaware of the very many critiques that are being made, especially of the current government and how it’s using cleavages, historic cleavages in the country to its advantage. But the fact is it is still an example of a very populated poor country that’s largely noisy and democratic. It might be backsliding, and that’s always a cause for concern, but it is still that.

In other words, it is not China and it is not Russia. I think India, South Africa, and Brazil, if I could group them, and I might add Indonesia in that mix as well, form a core of a global South in the G20 that represents what people would like to see succeed, but they recognize deep down has not succeeded yet. And so I think what India has to do as …. And that’s exactly what I suspect it will do, is to see the G20 presidency as just one stepping stone in the longer journey. And that longer journey is to create an Indian model of development in which domestic science and domestic innovation play a larger role in which social policy often trumps what I’d call narrow economic efficiency and in which its global stances are heavily calibrated by what it faces domestically.

And so what many people see as posturing by Indian diplomats overseas is actually driven by domestic policy considerations. And that’s no different than how any country’s diplomat is going to present his or her country’s views in a global forum. How that all comes together is still an open question, and I think it could go hugely South or it could really take off. And a lot depends on how much momentum India creates towards the end of its G20 presidency, how it comports itself thereafter, and what Brazil and South Africa do in the G20.

Rob Johnson:

Well, I think, how would I say? I see the example as a global leader that India has set for the G20 and now becoming an example within for others to understand and emulate is important. One of the things in our travels together that I found very interesting is how much interest there is in the Young Scholars Initiative, how much I thought imaginative, brilliant young creative minds, for instance, looking at what’s happening between China and India because of the breakdown between the US and China.

There are scholars and so forth that I would like to see amplified in the conversations all around the world from within India. And if those people are respected for their insights, whether about their country or about the world, then they will be more respectful of the rest of the world rather than feeling ignored or suppressed and what have you. So I think there is an intellectual common good that may have to precede what we might call the commercial and material common good. But I thought from our travels that there was a very promising group of people within that country and a very hungry young group who wanted to learn, wanted to address, wanted to solve along the lines of what you’ve described today.

Rohinton Medhora:

And you would know from your travels as I do from mine that that same set of statements you just made could be made of China, that there are young people in China who see the world differently than their parents and grandparents and who see a kind of soft tissue globally as being important for everyone’s well-being. And then soft tissue also reminds me of soft power. I think one thing that the US and the UK have used and created so successfully is soft power, their cultural institutions, their educational institutions, their history and culture.

India does that much better than China does, and I think that’s one more thing that India has going for it, whether it’s of Gandhian ideals, whether it’s Bollywood movies, whether it’s rough-and-ready democracy. There’s something about soft power in India that’s appealing. And when you blend that with investing in future generations, it’s probably a good thing to end on a hopeful note and say that these things take time and there will always be currents that [inaudible 00:38:47] bash you during, the current ones being post-COVID, Ukraine, and whatever happens through those two shocks. But I am still fundamentally optimistic for the reasons you said, which is that so long as we have Young Scholars Initiatives and similar things around the world, there will be growing up a generation of leadership that perhaps sees things differently than their parents and grandparents do.

Rob Johnson:

Well, I want to conclude with reference to a novel. The name of the book was A Fine Balance by Rohinton Mistry, not Rohinton Medhora. But his book was written about all kinds of turmoil. But the punchline, the parable that led to the title was, life is a fine balance between hope and despair. And I think we are in treacherous times. And the way in which you illuminate how to invigorate hope, I think, it is a great contribution to the direction we need to go. Thank you, Rohinton, for all the work you do around the world, for INET, for CIGI, and for the G20 in India.

Rohinton Medhora:

You could never go wrong speaking to a reading of a Rohinton, Rob, remember.

Rob Johnson:

Excellent. Well, we’ll see you again soon.