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Meine Welt von morgen: Daron Acemoglu

29. Juni 2009

Was kommt nach der Krise? Die FTD fragt prominente Ökonomen. Heute: Daron Acemoglu (42), Wirtschaftsprofessor am renommierten Massachusetts Institute of Technology (MIT). Der amerikanisch-türkische Ökonom gilt als eines der bedeutendsten Talente der US-Wirtschaftswissenschaften und forscht zur Entwicklungs- und Wachstumstheorie. Im WirtschaftsWunder finden Sie alle Antworten von ihm in Original-Länge und -Sprache.

 
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* Has the time of the United States as the world’s leading economic power come to an end? 

This is an idea that has been floating around since the beginning of the crisis. But I doubt it.

First, who will replace the United States? Even though the crisis is US-made, it has even more seriously affected developing countries because of their export exposure. European banks and economies have the same problems as in the United States, and there is little evidence that central banks and regulating agencies are taking more decisive action in Europe than in the United States.

Second, when the crisis increased the demand for safe assets, the demand for the dollar and dollar-denominated assets increased, because the market still views US assets as safer than the alternatives, even with all of the trepidations of the Chinese.

Third and most importantly, being the world’s leading economic power is not, and in fact should not be, related to expertise in and depth of financial services. It should be related to the innovation capacity and the technological leadership of a country. The United States has been the world’s leading economic power because it has been at the frontier of many of the most major technologies of the past century. At some level, the past 10 years have been an aberration, where the United States misallocated talent towards relatively unproductive Wall Street jobs away from the dynamic innovative sectors of the economy. Even with all of these distortions, there are many new ideas and products in biotech, nanotechnology, software, hardware, retail delivery, health delivery, and green tech, many being developed in the United States, that will spearhead economic growth during the coming decades. The crisis, at some level, should be a wake-up call for the United States, and should solidify its role as a world economic leader in innovation. This scenario of course leaves the potential danger that Wall Street, because of its political power, will avoid downsizing and start becoming a bigger drag on the US economy. Then all bets are off.

* In 2020, will China be the world’s economic superpower, or will it have collapsed just like Japan and other former would-be economic powers of the world?

Even 10 years is a long horizon for making political predictions and where China will be in 2020 is mostly about politics.

Yes, it can collapse because the political system can collapse or can clampdown further, damaging the great economic potential of this nation. It can become more militaristically aggressive, destabilizing the region and the world. There is even a small probability that China will open up its political and economic system even further, thus unleashing its economic potential to its full extent.

But my guess, a very crude one and one on which I would definitely not wager a bet, would be that in 10 years time China will still be an authoritarian regime and suffering the economic consequences of this political choice. Growth under authoritarian regimes often takes the form of „crony capitalism“ and China is no exception. Crony capitalism can deliver growth for short periods. But it is not the best arrangement for innovation and transition to new technologies, and certainly it’s not the best system for the welfare of the majority of the citizens.

Having said all that, China is still growing and the Communist Party elite still have a firm grip on political power, and the nationalism card is further strengthening their hold on this power. So even if elements of crony capitalism slow down growth in China, the regime need not be destabilized and hence my prediction that politics in 10 years is likely to be more or less where it is in China today. Economically, we should then expect China to grow, but at somewhat more modest rates. Taking into account that the reported growth rates in China are most likely exaggerated (perhaps quite a bit), this means China growing 4 or 5% a year for the next 10 years. This is hardly enough to make China one of the richest countries in the world per capita.

* What economic policy strategy would you recommend to the new US president Obama?

Well I guess it’s too late to make many recommendations. The Obama administration has been very quick in charting its course and implementing policies. I sympathize with many of them, but I see also many mistakes and many danger signs. I’ll mention only the most important ones.

·         I think the stimulus plan was largely wasted. A new one would be a bad idea.

·         The financial system has not been cleaned up properly, and the initiatives taken by the administration, which were almost direct continuations of those started by Hank Paulson, are being effective, but at a relatively high cost. National debt is ballooning and this will become a major problem for the US and the world economy. High national debt will become a break on economic growth in the near future. Policies that will increase indebtedness even further should be avoided.

·         In this light, the tax cuts proposed by Obama and the health care reform, unless managed extremely carefully, could become very costly. The health care reform is something this country badly needs. But the current plans are unclear in their details, and all the details that come out suggest that they will increase the health care spending in the United States even further, and with taxpayer money. This would be a disaster. A nationalized, single-payer health care system with appropriate cost control mechanisms, for example like the one in Germany, would certainly be a system I would support. But there is no evidence that this is where we are heading. Instead, it seems like the health-care reform will be a mixture of the current system, with even less cost control, together with additional government funds to reduce cost control even further.

·         A true and honest environmental policy is also essential. Carbon tax and support for research on new green technologies are important parts of a viable strategy. But the carbon tax has been sacrificed to politics, and replaced by the porkbarrel cap and trade system. The cap and trade system is economically logical, perhaps even preferable to a carbon tax. But at the moment, it is being used as a way of delivering political favors. It is a sad situation.

* What is the most radical change in our global economic system that you would like to see?

I’ll mention two.

1.  More democracy and economic growth around the world. There is so much poverty in sub-Saharan Africa, in parts of South Asia, in Central America, in the Caribbean and in other parts of the world, and the citizens of these nations live not only with few economic resources but also with few civil and political rights. There is nothing inevitable about these outcomes. They can be changed. And yet, change can only start from bottom-up entrepreneurial activities and democratic movements in these countries, but also needs support from the developed world—us. But we still continue to throw foreign aid around the world just to feel good—rather than achieve anything. We still continue to support dictators because they are our „supposed friends“. At the end of the day, the main initiative has to come from the citizens of these countries. All we can do is to encourage and facilitate such a transition.

2. Viable green technologies. Global warming is a real threat and new green technologies will not only help us avoid an unsustainable growth path, but can also act as a platform for future economic growth and innovation, the same role that the silicon chip and computer technologies played over the past 35 years.

* What sort of major step would most likely prevent the most disastrous effects of global warming?

I guess I answered many parts of this question already. In one word: Green technologies. They are feasible and they can become cost effective with further innovation. Carbon tax, or an appropriate cap and trade system, is important in the short run, but is not the long-run solution, because it would ultimately have to reach a high level and would become a break on economic growth. We do not want to sacrifice economic growth; in fact, as I noted above, the world badly needs economic growth in many of its poorest parts. What we want is sustainable economic growth, and this means developing new technologies to break our dependence on fossil fuels.

* Would it be better to regulate capital markets as heavily as before 1980 again?

Yes and no. There have been important financial innovations, reducing the cost of capital for many firms. We do not want to restrict their use or prevent the emergence of new financial innovations.

Moreover, I don’t see any need for regulating private transactions, as long as they do not create systemic risks and misaligned incentives. The problem of the past 15 years has been the combination of lack of regulation, astronomical leverage and implicit and explicit guarantees given by the government and the Fed to financial institutions. Most banks receive explicit subsidies and support from the government because of deposit insurance. Deposit insurance is a crucial part of our financial system and not something we would like to give up. But if there are such subsidies, then they must come with regulation. The other part of the dysfunctional picture were the implicit subsidies because of „too big to fail“ or „politically too connect it to fail“ features of many banks. Combine them with unrestricted leverage, and we have an explosive mix.

Regulation is also needed because of systemic risk, and because of fraud. I don’t think the investment behavior of a wealthy individual through a hedge fund should be regulated. If he or she wishes to invest in risky assets, I do not see any problem with that. But even the wealthiest individual needs some guarantee from the government that the hedge fund is not just running a Ponzi scheme (or should we say a Madoff scheme?) or is just a fly by night operation, getting ready to run to the Cayman Islands. But more important than fraud is systemic risk. Real problems arise if this hedge fund then borrows further from institutions that have deposit insurance in order to make leveraged bets using the money of the wealthy individual as seed funds. Thus leverage, especially leverage coming from institutions that have deposit insurance and other subsidies from the government, is the real problem.

Of course, the type of regulation that I am suggesting can always be blocked by the financial industry if they continue to have as much say in political matters and in their own regulation. So the regulation of finance must go hand-in-hand with the regulation of the politics of finance. The US political system has not passed through the crisis with flying colors to say the least.

Bottom-line: I think we need smart regulation rather than excessive regulation. A big element of this is to limit leverage and deal with systemic risks. Another important part is to make sure that institutions that receive deposit insurance are properly regulated. And perhaps the most important part is the regulation of the political power of the corporations that need to be regulated.

* Will globalisation suffer a major setback in the next few years?

I fear so. But not because of the financial crisis. The biggest fear I have for the future of our world is a setback in globalization, with all of its economic, political and social dimensions, coming from the rise of extremist views. The rise of nationalism and the rise of religious extremism are with us, pure and simple. We are far from the end of history as Fukuyama envisaged. We may be reliving it. There is tremendous amount of extremism in the Middle East and in Pakistan and Afghanistan. But as dangerous is the national extremism breeding quietly (and sometimes not so quietly) in Russia and China, and in other parts of the world.

Europe is not immune to this new tide. European Union’s reaction to the accession of Turkey sadly illustrates the strength of nationalist and religious feelings in Europe, even though most would like to deny them. Greater nationalist and religious extremism will weaken the ties across nations, and globalization will be its first casualty.

This is my fear, but this path is not unavoidable. Advances in communication technology are making the world more and more connected, and perhaps they will overwhelm the rising extremist tide.

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