Today we are in conversation with the authors of Perma Crisis, A Plan to Fix the fractured World, joining us as Gordon Brown. He is currently the United Nations Special Envoy for Global Education. He was Britain's Chancellor of the Exchequer for more than a decade before becoming Prime Minister. Michael Spence is currently a Senior Fellow at the Hoover Institution
at Stanford. In two thousand and one, he was awarded the Nobel Memorial Prize in Economic Sciences for his contributions to the analysis of markets with asymmetric information and renowned economists. A good friend of ours Mohammad al Ariam currently President of Queen's College, Cambridge, and is also the Chief Economic Advisor at Alliance, the corporate parent of PIMCO, where he served as c EO. Gent's good to see all three
of you. I said this a few times already. It speaks to the modesty of the three of you that the first line of the first page reads, this book is not meant to be a substitute for melatonin. I can tell all three of you it wasn't. I've read this one as fast as I can. Let's start with the title god On what's in a name? What is the perma crisis?
I think it's a cascade of crises. You've got pandemics because climate, You've got recession, you've got wars, and you've also got the state of British politics, the state of American politics, the state of European politics, and a general malaise amongst the international institutions. And what I think is unique is we used to talk about shared problems and then common problems. We're now talking about global problems. So climate,
infectious diseases, financial stability. None of these things can be resolved without globally coordinated action. They can't be solved by one country on their own. They can't be solved by a group of countries. You've got to find a way of the world working together. So we emphasize the importance of cooperation and how it can be brought about.
Mike, there's a feeling that that's not Hamnick, and it's odd to many that our interconnectedness over the last few decade has increased, but cooperation seems to be declining.
Why is that the case.
There are a lot of different causes, Jonathan, But you know the rise of China. The rise of this sort of threatening strategic competition between the two is part of it. Part of it was that the globalization patterns that ran for several decades produce some or contributed to some unequal outcomes in terms of economics. So that's now reflected in politics and causes an increase in nationalism, an increase in populism, a kind of negative attitude toward globalization in its previous form.
So I think what Gordon's talking about, we're all talking about, is trying to reinvent a fit for purpose version of globalization that is respectful of the realities and practicalities of strategic competition, national security, and other things.
One thing you engage with in the book and try to navigate is the crisis into the next crisis at the next crisis. How it's something that's popped up in conversations we've had over the years is whether this is just the sequence of unfortunate events, whether these are self inflicted words, or if there is something structural about the changes we're witnessing at the moment.
So we argue in the book it's all three.
There certainly has been bad luck, but beyond that, there is something structural, which is the inability to grow and grow in an inclusive manner and one that respects our planet.
And then we have.
Shot ourselves in the foot several times with policy mistakes. So if you look at the three contributing factors going from globalization to fragmentation and lack of cooperation, repeated policy mistakes, and the lack of growth, then you get the sense of going from one crisis to another. And what united us was worries about the world we were going to
leave our kids. And what made us write this book in an urgent fashion is a realization that the longer this world continues, the harder it gets to solve it.
Using mistakes are that high.
I think the stakes are very, very high.
So what we need is three things. We need a new theory of growth that takes into account environmental needs, equity good jobs. We need a new theory of economic management that balances fiscal and monetary considerations but also is aware of the problems related to financial instability. And we need a new theory of international cooperation. We need to find a way where countries which don't share the same ideologies don't necessarily share the same narrow interest can find
a way of working together even when it's difficult. Otherwise you cannot solve the problem of climate change. You cannot deal with infectious diseases. You cannot do, as we try to do in two thousand and nine, bring people together to deal with a financial problem that was global and not simply American or Western or Chinese. You have to find a way of doing these things if the world is going to work better.
I wanted to pick up on China. There's a start in the book that jumped off the page for me.
Mike.
Back in nineteen ninety China's share of global manufacturing with three points five percent. Twenty years thirty years later, twenty twenty one, it's thirty point five percent. Is it any wonder the electorates in the West have become disillusioned with liberalism and globalization.
No, the globalization was, and my profession is partly complicit in this was conducted with relatively little attention to its distributional effects. And I think one of the messages of this book that we tried to convey is that's not a good idea in the past, but going forward. So if we try to tackle climate change without paying attention to the distributional impacts of the various strategies for going forward,
There'll be resistance and it will ultimately fail. So but yeah, China became the dominant manufacturer in the world over an astonishingly short period of time.
There is an underlying optimism in the book, and as I'm reading it, Gordon, I'm wondering if others reading it will share the underlying optimist Is nationalism just too tempting now?
It's dangerous. I mean, if people see life in terms of a struggle between the US, the insiders, and then the outsiders, you cannot make progress. There's no chance of a great deal of international cooperation if people are protectionists, if there's xenophobic, if they're isolationists, if they're mercantilist. But I think when we take Mike's point, globalization was open,
but it wasn't inclusive. If we can have a managed globalization that is inclusive, that shows it can deal with environmental issues, can have a sense of what good jobs are about, and a sense of equity, then I think we can move forward. And the interesting thing is if you listen to Chinese, American, Western leaders, they all in a sense want the same thing. They want a globalization that works for the citizens. They want one that produces
prosperity and therefore growth. So there's no point in being anti growth. That's the way to actually get Sanders are living up. But they also want it to be inclusive. Now, there must be sufficient common ground for people to be able to work together on some solutions. And I can
look at sort of issues famine and Africa. You can look at climate change, droughts and all the sort of digreies where it experience with floods and climate change, and you can think, yes, most countries around the world share the same aspiration to do something about these things. We've got to find a way of coming together.
Do we have a willing, enabled hedgemon that can underpin that effort?
I think it's multilateralism that needs to underpin it. I mean three things have changed really in the globalization we're talking about. We're in a multipolar world and not a unipolar world. So it's not that every country has got the same power, because America is still by far the largest and most significant power, but there are now multiple centers of power. We're in an age where as Mike
and Muhammad said, neoliberal and liberalism has been discredited. So we're in a neo amercantilist period where states are taking far more control of the economy. So if economics dictated politics thirty years ago and ten years ago and twenty years ago, there's now politics dictating economics. And we're in a globalization light world, not so much a globalization heavy
world or hyperglobalization world. What's happened is you have shorter supply chains, You're going to have some re shuring, you're going to have friends shoring and everything else. Now, all these changes mean that the kind of cooperation that is going to happen is going to be different from what it was thirty years ago, when America was the undoubted hegemon, and when, of course, people accepted what you might call
the Washington Consensus. So we have got to work out a new multilateralism for a new world, given that these are changes that have already taken place, and we've got to respond to them. But it's not impossible, and I do believe it can be done.
Well, let's dig into that just a little bit more. If you think about events of the last eighteen months, Muhammad, to some extent, the issues with Russia the war that they've started proves that trade does not prevent war, and if anything, at this point there might be an argument to be made that national security now Trump's comparative advantage. How do you convince countries to cooperate with each other when it's unclear what the benefits will be.
So, first, you're absolutely right. I mean, we have this image of who's driving the car decades. For decades it was the economy, and national security and domestic politics were passengers, were co pilots, but they didn't have the wheel.
Today it's very different.
It's national security and domestic politics that's holding the wheel, and economics is in the back seat, if not even further out.
From there.
So, yes, this isn't We've got to recognize that there's been a change in the ranking of priorities.
However, these are not mutually exclusive.
And what we point out in the book is that in order to have strong national security, in order for you do domestic politics to work well, you've got to get your growth correct. It's got to be more inclusive, it's got to be more respectful of the planet. You've got to stop making policy mistakes, and you've got to have more global cooperation. Otherwise it's not that they they compete with each other, or three will.
Not be met.
Mike, we talked about what had happened with manufacturing over the last three decades or so. Let me ask you this, and I know you explore this to some degree. Will AI do to services what globalization has done to manufacturing?
Yes, I mean I think there is the straight answers. Yes, there is the potential there. I was pretty sure that digital you know, including the breakthroughs that through last year, I guess in AI were a basis for producing a productivity surge that really relieved very substantial supply side constraints that we're driving all kinds of things that are dysfunctional, including inflation and other things. It was a different world
than the one we lived in. But when when jen Ai came along and I saw it sort of multi domain capability, the fact that you can use it with no technical training, just a little bit of you know practice, you know, creating prompts, and it's applicability pretty much everywhere.
I thought, you know, even though it's early days and we're in a period of exploration and experimentation, I think it's a reasonable forecast that this tool is an important part of a future productivity surge, and if it comes, it'll make it a lot easier to do inclusive growth patterns because it won't be a zero sum game. It'll be easier to invest multi trillions of dollars in the
energy transition. It's going to be terribly difficult to get that done with fiscal space declining, the rising debt levels and rising interest rates. So that's why we spend a fair amount of time. It's not that the growth by itself is the only thing, it's that it enables an awful lot of what we want to accomplish.
It.
Yeah, I think we're heading for a low growth decade if we don't have the productivity surge that AI can give us. And I think what Mike is pointing out is it can transform a whole range of industries. Never see the accountancy or legal or even medical professions or
teaching profession be the same. Again, if EI has the impact that I think and Mike thinks that will have, but equally, we've got to have that productivity surge because without that, the inflation, the fiscal space being narrowed, the debt that we're running, and of course the supply side shocks and constraints that are in existence mean that as things stand, we're heading for a low growth decade. AI is the way forward to take us out of growth, and I think Muhammad agrees with that totally.
And it's critical because we have a debt issue that has to be resolved with an inequality issue. We need resources for critical transitions. So you know the notion, as Mike and Gordon correctly said, that higher, more inclusive growth and most sustainable growth is a massive enabler to deal with all these other problems, all three.
If you understand the risks involved.
Though, if globalization hollowed down manufacturing bases domestically in places like America in the United Kingdom to some extent as well, and I'm asking the question, why wouldn't AI do the same thing to services? My question, if I'm a member citizen, someone who's got to vote, is why would I trust the same people all over again? Who should I trust to manage that transition, that integration of those technologies.
That's what my children say, my young teenagers say, you guys have messed it up. And it is true that we tried to create a more inclusive system. We tried to deal with the problems of environment, but we couldn't get the agreement that we needed, and we tried to have more equity and better jobs. But I do think when I talk to young people, they want to see
this change. You know, the issue is not whether you have change or not now the issue the issue, the issue is what kind of change, And we've got to make that change inclusive.
Mike agree.
I mean, you know, Eric Brynarlsen talked about the touring crap. You know, the touring test basically pushes you in the direction of automation. We want to push in policy should be pushing in the direction of augmentation, of giving people powerful tools that make them more productive. So this is the journey we're setting on. But it's not I don't think right to just capitulate and say productivity produces employment problems. It's at least more complicated than that, Jonathan.
But our global institutions have got a reform to be capable of dealing with this. They're not fit for purpose at the moment, and the IMF has got to be a crisis prevention mechanism to proper surveillance of the world economy. It can't just be there for a crisis resolution. The World Bank has got to become a global public goods bank and deal with the energy transition as well as
human capital. The World Trade Organization's got to find a way of diplomacy and negotiation and arbitration working better than it has in the past. And we need a better concept of burden sharing. I mean, I cannot understand why when you have a humanitarian crisis, and we have many around the world at the moment, all we seem to be able to do is pass the begging boat and
hope that someone's going to produce some money. We've got a system of burden sharing, whether it's for the environment, or whether it's for public health, or whether it's for some of the other global public goods we want to do. Now, if you talk to people around the world. I've just come back from the United Nations, they all want this to happen. So what we need to do is sure that this can yield the best results and then create the political will for this to happen.
As I'm listening to I'm getting the same feeling that I got when I read the book. This makes a lot of sense, And then I end up in the same place. Is there any evidence that people are willing to vote for it? Now you say it's incredibly popular, you go around, you speak to people and.
They're convinced by it.
I don't see any evidence from recent general elections that anyone wants this vision that the three of you have.
I think people want hope. I think the lesson of COVID and of the energy and food crisis and people's reaction to the war in Ukraine is that things have got to be better than this, and I think those leaders that can show that there is a hopeful future. Now you see me and Motley in the Caribbean producing her plan for global growth. You see now politicians in
Africa talking about green growth. I do think that there's a movement now that says, look, we cannot have politics just as a negative sport where people are just attacking each other and it's all sort of about sound bites. I think people want politicians that can give them hope, and that's the next generation.
Manet.
I think he's absolutely right. I mean there's a people want hope. I think there's a world recognition that the world we're on is unsustainable and it's getting more and more bumpy. And third, we're dealing with a loss of trust, and if we don't directly re establish trust in our institutions and our policy making in global cooperation, things are going to go and get worse. I think the reason why we've wanted to put this down is hoping to start a conversation on a set of steps, and we
keep on saying there is no silver bullet. This is not a big bang, you do something tomorrow and then everything's fine. This is bilding a foundation that turns vicious cycles into virtuous ones.
Well, let's take the Feller Reserve as one example. You've written about this extensively over the last eighteen months. I still remember a conference we did together in the summer of twenty twenty one when you warned about what could possibly becoming and how ill prepared the institution that is the Federal Reserve was for this moment. How do they recover from the mistakes they've made in the last eighteen months to help contribute to the vision the three of you have.
So to a recovery starting.
I think there's much broader recognition now that there's been five failures analysis transit or inflation forecasts consistently too optimistic, action too late, communication muddled, and regulation had We almost had a big banking crisis just six months ago. So I think there's now there's more understanding, and what we propose is a few steps that reduce the chances of that happening, things that minimize group think, things that increase accountability.
And without accountability, the independence of the FED is going to be challenged going forward. So the FED has huge interest in embracing the few things we propose in order to restore trust in an institution that's absolutely critical and that must have political autonomy.
God, and this is your world.
Do you help deliver independence to the Bank of England in the late nineties. Do you see that as something that's under threat.
No, I don't think it should be under threat, and I think you can fight off the threat. So the moment is under challenge. I think people will fight, will fight back. But it's right that banks have got to recognize that they operate within a democratic system. They've got
to be properly accountable. We tried to do something a bit different from the FED and the ECB, where the government sets the inflation target and takes responsibility for it and where there's a system of open letters and everything else that makes the organization far more accountable. So you've got to combine the expertise that the bank has, and that's why we wanted it to be the setter of of interest rates. We wanted to take, if you like, monetary policy out of short term politics, and that I
think succeeded. But you've got to have proper accountability otherwise the system breaks down. People lose faith in it. They blame the bank for decisions that are probably other people's fault. But equally, the bank can make wrong decisions if it becomes too elitists. And it's no longer, of course that Mohammed wrote a book called the Only give in Town. I don't think central banks are anymore the only gave
in town, that's right, ma'am. And they've got to show that they can work with the fiscal authorities, they can work with the financial stability issues that have got to be dealt with. I think they've got to prove themselves in a new kind of world.
I do want to give them what you've written, Mike, whether they're set up for failure the two percent inflation target, the world that you're expecting in this book is one of insufficient supply, which ultimately leads to higher inflation and higher real interest rates.
Is that right?
Without relaxing the supply side constraints the way I think about it, And then you'll have to forgive me if I'm not a great macroeconomist. Is I don't have any doubt the central banks will get inflation under control, whether they settle up at two percent or decide the journey from three to two is too expensive and without saying it, you know, go for it. But with the supply side looking the way it does, there'll always be a threat
of inflation. Any surge in demand will produce inflationary pressures with a low elasticity, you know, characterizing the supply side, which is where we come out thinking it's probably true. Interest rates will be higher, cost of capital be higher,
valuations will be different. And so part of what we're trying to do in the book is just lay out the parameters that have shifted on us and help people think through the implications, you know, for how they're going to conduct themselves, whether they're central banks, governments making policy.
And so on.
Did you get the impression, Mohammed that this central Bank, the Federals have as identified the kind of shifts that you've written about in this book.
I think that getting down.
I think they were in a world of deficient aggregate demand for a long time, including in twenty twenty one. Look at the monetary framework adopted in August of twenty twenty, all about insufficient demand. I think that's a slow recognition that supply is much more of a problem now than demand is. But there's also an issue of mindset. The
word mindset keeps on coming up in the book. You deal with people that come on your show that truly believe that just next week we're going to go back to the old world where interest rates come down, where liquidity it would be abundant. And what we try to point out in this book is that the last fifteen years were extraordinary. In fact, the last thirty years were extraordinary, and that we shouldn't just extrapolate on a period that
was extraordinary. Things have changed structurally. As Mike often says, there is no new China, there is no new Eastern Europe coming on to the global market.
Things are fundamentally changed.
And one thing that I think the finance the finance sector hasn't on This good is that the liquidity regime going forward is very different from what we've lived in the last fifteen years since the global financial crisis.
You have coin the term together with the team at pim COD the new normal?
Are we just going back to the old normal?
So the good news if we could go back to the old normal, I think we're looking at a very uncertain future. You know, we often ask what does this mean for CEOs, and we told them we have to think about a whole distribution of likely outcomes with very thick tails, very fat tails. This is not the old world of a normal distribution with thin tails. I mean, how often on your show do we talk about something
we couldn't have imagined a few weeks earlier. It just shows you the sort of world we're living in.
The moves in the bond market speak to that.
I wanted to ram things out by talking about the climate transition and perhaps identify what some people might call reality checks.
Gordon.
The Conservative Party riches seen at the Prime minister pushing back certain targets from twenty thirty to twenty thirty five. The strikes that we're seeing right now in Detroit speak to the difficulty of making this transition, perhaps overlooking the price that we might have to pay, particularly for labour who want job guarantees.
Are they reality checks for you?
I think what's happening is that climate change is becoming a political football. And I think if you take the British government's decision that they're going to roll back on some of the promises when we used to have an old party consensus, it's all for electoral reasons. What I would like to see is cross party cooperation to take a long view look. If one party's in power and another party is not in power. We've still got to
make a decision about the future of electric cars. We've still got to make a decision about heat pumps in Britain. You've still got to make a decision about how quickly the transition is going to be done by companies like Ford and everybody else. So you do need people to get round the table to talk about this. You cannot actually lead it to one politician or one party for electoral advantage, simply to make a decision one day and
then it be reversed the next day. So we need a debate on what climate change means for each member of the public, and we need to have a plan that both parties in Britain and parties and other countries can agree on. And I think it's really important. All these long term decisions are becoming the victim of, if you like, immediate political campaigning, and that's the big mistake we're making. These are long term issues, have got resolves.
I'm talking about how we can fund climate change and the poorest countries, so you've got mitigation and adaptation in Africa and elsewhere. For fourteen years we've been making promises to do something about it, and actually the money has not been forthcoming. I'm suggesting today, well, maybe start with the windfall oil and gas revenues and do something. But we've got to have a burden sharing that helps the
poorest countries mitigate and adapt to climate change. And again that's a long term problem, short term political decisions once of it.
You've mentioned they put forwards of electoral cycles and one way navigating that with central banks to offer them independence. When you describe some of the pitfalls of democracies to deal with the environmental transmission, are you describing a feature of democracy or a buck.
Well, there's got to be you know, vigorous debate. There's going to be argument, But I think you've got to get your politicians to focus on the long term and not the short term. Look, the reason we made the Bank of England independent was not because we thought it would be better fiscal and you know it should separate fiscal and monetary policy. In fact, there should be better coordination. It was because we saw that politicians were making decisions
purely for the short term. So you need that long term view and you will get politicians now, leaders now that realize that they cannot win in politics unless they actually show people that they've got a vision for the times ahead. And we're trying to suggest, Look, here are real problems that can be dealt with. Don't give up on it. Don't give up on the possibility of solving them. It can be done.
There's a word that's used at the very end of the book, and I might butcher the word. Is it Kulsugi can sue the art of Japanese pottery making, picking up the pieces?
What is it good and what's that worth?
I wouldn't be able to produce it better than news. I leave you leave it to your pronunciation. But we've got to bring things together. It's a simple point.
The three of you, gentlemen, Thank you, thank you very much for joining us in London.
Thank you very much.
Thank you.
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