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November 23, 2011 at 07:00 PM
Former British Prime Minister Tony Blair said the resolution of today’s global economic and financial challenges could get derailed by short-term political thinking, though he remains optimistic that leaders can address long-term issues. Blair spoke Nov. 2 to about 2,100 financial advisors and about 2,000 other guests as the keynote speaker at Schwab Impact 2011 in San Francisco, noting that economic and security issues are the world’s greatest problems.
“The best short-term politics do not make the best long-term policy,” said Blair, who was prime minister from 1997 to 2007. “Right now is a moment of big decisions and key decision makers. And there is a danger that short-term politics get in the way of the best long-term policies.”
He described the challenges and changes affecting the world as similar to those affecting the financial-services industry. “The speed, scope and scale of change and the challenges themselves are immense. Challenges come together, though — when I was in office — I had hoped they would be sequential,” Blair explained. “And if you think the [financial] markets are tough, try the Middle East,” he added.
Asking the ‘Right Question’
“In a world defined by uncertainty, anxiety and low predictability, the challenge for leaders is trying to get the right answer,” said Blair. “That is the toughest job of the prime minister.” To get there, he explained, you have to first ask the right question.
In terms of the global economy, it is not productive to focus on who caused the financial crisis and how we can prevent a recurrence, in his view. “These are not dominant issues,” said Blair. “The key is how to get the economy moving and create jobs. All else should be subordinated to that.”
In responding to this, he continued, leaders need to tackle deficit reduction and also “regulate sensibly knowing that a vibrant financial sector is part — a constructive, important part — of our recovery.”
While many businesses are flush with cash, “business needs confidence to invest,” Blair said. “We also must use the crisis [as an opportunity] to make changes to our systems and government,” including that of the European Union and Monetary Union.
The crisis “has exposed problems, and we need to deal with those problems,” he explained. “I welcome what leaders there did a few days ago. We must put into place a long-term framework for fiscal and monetary coordination … and make reforms,” Blair said.
The European monetary union, he explained, must “function effectively with fiscal coordination and … the authority … to impose and implement changes that [need] to happen, or we’ll end up where we are now,” shared the former prime minister. “We have wanted to pretend that the Greek and German economies were run the same way, and they were not, so now we have to adjust.”
Occupy Wall Street
In terms of protests on Wall Street and audience questions related to economic inequality, Blair suggested that looking globally for answers was important.
“We must get China to consume more and shift to help the U.S. to revive industry,” he explained. “It will be hard but is essential to do.”
Education is another way that inequality and the forces of globalization should be dealt with by the West. “The force of globalization is unstoppable,” said Blair.
“I know that people are having a tough time. Thus, we have to improve education and educational equality,” he explained. “People will have to adapt and adjust several times in life. Education cannot be just for the elite or the top 40 percent but for all.”
Hoping people meet global pressures via education, can also help more individuals find long-term benefits from opportunities emerging from economic expansion worldwide and growing interconnectedness, said Blair. “I oppose protectionism,” he noted.
As for the issue of high executive compensation in the United States, Blair said it was important to keep in mind “that those that shout loudest do not necessarily deserve to be heard most,” he shared.
“Regulating compensation is not the right debate,” Blair said. “The corporate sector needs to better align compensation and achievement. Instead, there should be a greater focus on the stimulation of jobs.”
Values Based
As with businesses and advisor practices, nations worldwide are facing fast-paced challenges and change. The rise of China and other powers, he says, should not be seen as overwhelmingly negative.
“I’d say, we are not an empire based on territory or interest alone,” Blair shared, “and a fundamental strength of the U.S. and U.K. is that [our systems] are based on values and way of life, which are based on law, liberty, justice and a society that protects the weak and as well as the broad mass of people. These values will not be made historically redundant.”
In the Nov. 1 opening session at Schwab Impact 2011, both Bill Gross, founder and co-CIO of PIMCO, and LizAnn Sonders, Charles Schwab’s chief market strategist, spoke bluntly about the global markets and the economy, with Sonders a bit more optimistic than Gross.
Gross handled the first question from moderator Tyler Mathisen of CNBC, who asked if he should be worried that “my money seems hostage to a Greek prime minister?” “You should be very worried,” Gross responded, in reference to Greek Prime Minister George Papandreou’s suggestion that the latest eurozone bailout plan should be put to a referendum by Greek voters. “At this point,” Gross continued, “it’s a question of when rather than if Greece will default.”
As for how advisors and individual investors can respond to such volatility, Sonders suggested that the worst thing was to “try and shorten your [investing] time horizon,” and that investors should try to make volatility work for them partly through regular rebalancing.
Responding to Mathisen’s request for how Gross and Sonders might help solve the U.S. and developed world’s debt problem, Gross said that at PIMCO “we call it the time of ‘new normal’ minus,” that while the United States is doing better than its European developed countries counterparts, “we’d have to grow at 4 percent for a couple of years” to significantly reduce our debt to GDP ratio.
Sonders said the “developed world has a debt problem” consisting of high debt and low growth plus an eased monetary policy, which in turn has “weakened growth in the developing world as they tighten their monetary policies. We’re in a cul de sac” that may be difficult to emerge from while we’re in a ZIRP environment (zero interest rate policy).
When an advisor attendee asked what the Occupy Wall Street protesters want, Gross said they are sending a message: they want a job. “Globalization used to work for the U.S., he said, “now it’s working for countries with lower labor costs who have taken advantage of technology. People just want jobs.”
Echoing Sonders’ suggestion of an underreported story, Gross charged that “for 20 years we’ve been making paper rather than things, and in the process we created a number of liabilities. We’ve been like bad squirrels, not putting enough away.”
China in Focus
Joshua Cooper Ramo of Kissinger Associates told advisors and other guests at Schwab Impact that, in order to meet the challenges of the 21st Century, they need to come to grips with the abundance of shifts happening globally — especially in China.
“The rise of China is one of the most important changes of our lifetime, and the outcome remains uncertain,” said Ramo, author of The Age of the Unthinkable. “For the U.S., it involves the challenge of ideas, economics and values and also the opportunity for cooperation,” he said at the Nov. 3 session the conference, which was attended by some 2,100 Schwab-affiliated independent advisors and 1,900 other guests.
The Chinese, explained Ramo, see the major U.S. news from Sept. 11, 2001 and Sept. 14, 2008 (when Lehman Brothers went under) as related. “They are markers of big, powerful events,” he said. Like the Arab Spring, the Chinese work to stay abreast and to understand the connections between events that cause organizations to change and/or collapse under new and different pressures.
“How do Chinese look at this? It’s the nature of the age. Looked at from their worldview, they are looking for instability. This is one of the fundamental cultural differences between the United States and China,” Ramo explained.
