CHAPTER 7
Humanity at a Crossroads
In the 2005 Woody Allen film Match Point, a tennis ball hits the top of the net—and hesitates between the two sides. Depending on which side it falls, one of the players will lose, and the other will win. Will humanity reach such a point? “Against a global background with no historical precedent, the near future is particularly indecipherable,” Michel Cicurel, then CEO of the private bank Compagnie Financière Edmond de Rothschild, observed in 2007.1 Now, more than ever, “our planet wobbles between various perspectives.” Tempted by fear, courage, and hope, we should not let chance or fate decide for us. On which side of the net will the ball fall?
Not Letting the Wrong Story Enter the History Books
Today, the future of globalization is at a crossroads. Our actions can still lead to the worst or to the best time in history. It is up to us to make it good and avoid the easy route out—down the slippery slope with the force of gravity. It is not the first time in our history when we have faced such a choice, but perhaps it is the first time we have encountered one when we are so much more interconnected on a global basis. Being surefooted in our way forward is critical.
If we leave the active forces at play, if in our weakness we simply leave it up to future generations to clean up after our mess, we could leave an inheritance that could be made up of debts rather than as-sets, and these will act as disruptive forces that inevitably prevail over the forces of unity. Do we really want to replay the scenario of the 1930s by letting things spin out of control?
Resistance to O-H-I-O
By letting nationalists, imperialists, protectionists, regionalists, and individualists thrive—by letting each country close its borders, fill the gaps, establish currency reserves, and wait for things to get better, according to the lonely O-H-I-O (own house in order) strategy referred to by David Lipton,2 we will let the mediocre run the show. By letting the English—more likely than the Scots or the Irish—go their own way outside Europe and dissolve the Schengen Area, by letting China and Russia maneuver within their zones of influence, by letting the Islamic State grow, by letting the planet heat up, by letting GAFA appropriate our data, by letting Greece starve, by letting the refugees drown, by letting the poorest countries flounder—in short, by renouncing political, economic, and international financial cooperation, by cutting the connections we so carefully tied, one after another—we will do nothing more than fall into a new version of the 1930s.
Remember Churchill’s famous warning: “A people who forget their past are condemned to repeat it.”3 Europe should not manage the refugee crisis the same way the Roman Empire did 16 centuries ago, faced with an influx of what were then called “barbarians,” meaning the populations pushed toward the west by the Huns whom we could compare to the Islamic State today. The sated, decadent empire collapsed under its own weight because it could not find a way to absorb these populations intelligently and reconstruct the social contract.
The Alternative of Evil
The American political scientist Ian Bremmer, president of the Eurasia Group, sees three possible trajectories for globalization, two of which are nothing to celebrate. The first is a top-down trajectory (an oligar-chic model), whereby the elites suppress the base, and globalization slows or even stops for a “global subclass” (those citizens deemed unproductive or destitute), under the effect of real or virtual borders erected by governments and societies to exclude these citizens. This is a path that I compare to that of the Roman Empire: līmes (defenses) at the borders to keep out the barbarians and panem et circenses (bread and circuses) on the inside to contain the population; this worked for several centuries, but of course, neither Twitter nor Facebook existed at the time. The second is a bottom-up trajectory (a revolutionary model), whereby the base takes the power from the elites: globalization slows or even stops for the rich, social instability spreads, and cyberattacks along with forced transparency (among other asymmetrical responses) hinder institutions blocked from operating effectively. This scenario would somewhat echo a French Revolution–type path and would mean an abrupt elimination of privilege.
Although the future will doubtless take a less clear-cut trajectory, we should not believe that these types of extreme risks can never happen. That was the error of the financial players in 2007, who were persuaded that a financial catastrophe would occur only every hundred years, that a crisis of this type would not happen (the last having been in 1929). This is an example of Nassim Nicholas Taleb’s black swan theory. People were convinced that swans had to be white until someone discovered a black specimen in Australia. Taleb, a leading expert in the epistemology of probabilities, shows how random and highly improbable events punctuate our lives.4 Who would have said, even five years ago, that the conflict in Syria was going to produce millions of refugees to the point of endangering Europe, including Germany, where it is a central issue? Who would have predicted that David Cameron would announce holding a referendum on Brexit in the middle of a terrorism crisis on European soil—and who would have bet even on the eve of election night that the out vote would end up winning the next morning?5
We should also not believe that catastrophes happen only to other people. We are all living on the same planet. We cannot, at least not yet, break free from this blue sphere immortalized in 1972 by NASA. Our destinies are all linked: if some threats caused by centrifugal forces come to pass—geopolitical, economic, financial, climatic, pandemic, or digital—we will all be affected. We cannot escape globalization; regardless of the trajectory it takes, we will not be able to wriggle out of it.
An Ambitious Third Way: The Redesign of Our Condominium
The third trajectory, which Bremmer called “condominium,” would work like co-owned residences: under pressure, despite antimarket forces, governments (and companies) remodel the social contract to reduce inequality and enable the middle class to regain its position and prospects; globalization continues in its current form, seeking to benefit everyone while adapting to localization of supply chains. It would be neither the collapse of an empire nor a revolution but rather the owners carrying out building maintenance: repairing the elevator, clearing up the stairwells, and getting the neighbors to talk to one another.
This is one of the alternative versions of history that humanity still has the chance of writing today: one for which the outline was defined in 2015, the history of a tamed globalization that grants all humans, without exception, access to a better life. Clearly, we will never fully achieve this objective, which remains an ideal. But the objective can create positive energy. It sets out an asymptotic path toward a happier world, toward humanity entering a new Enlightened Age, a new Renaissance.
This version of history will require even more effort. As self-fulfilling as the worst options are, the third option will require even more courage, engagement, responsibility, and leadership to write. Choosing the path of hope will be difficult.
A Lesson from History: The Worst Is Never Certain
But choosing hope will be worth it! In May 2010 Jacques de Chalendar,6 inspector general of finances, was the oldest of us attending a lunch I had organized at Crédit Agricole. Around the table sat a broad sampling of the French administrative and economic elites discussing the Greek crisis, which was then reaching its peak for the first time. Jacques de Chalendar spoke toward the end of the meal, saying, “I joined the administration during World War II, at a time when things were truly going badly, when the future could not have looked bleaker. At that time, no one would have thought that France would see its best years afterward, with the Trente Glorieuses. You, who are in charge today, instead of lamenting, roll up your sleeves. Work to rebuild your country!” This plea overwhelmed me. It put things in perspective: those of us who are managers are often so immersed in the immediate future that we have a tendency to overvalue bad news and pass over good news. What if Europe and the world, instead of shrugging their collective shoulders, said that this is the dawn of their best days? Wouldn’t that be more courageous?
“Run Toward Our Own Risk”: Times of Opportunity
This is a historic moment. The financial and economic crisis left behind a world where growth stagnated and where we may never find the stability of the Trente Glorieuses or the Great Moderation. Yet it is a world where there are still reservoirs of growth,7 which we have the means to integrate into the international system. Demographics, in particular, remains a major force. The population of the planet will increase by 3 billion in the coming decades! Still, in this postcrisis world, interest rates are so low that yields are almost nonexistent. Banks have ceded their dominance to institutional investors, which will soon be managing $100 trillion: these players will unquestionably have a role within the macroeconomic equilibrium. The world also has a unique cooperative institution in the G20, which in 2009 was able to respond in historic fashion to the global financial crisis. While not all voices are represented at that table directly, the role international organizations must play is critical in enabling global cooperation.
At the same time, the UN has set out a sustainable development plan for the next 15 years. These common objectives are ambitious and vulnerable, but they are there, ratified by three international agreements. Debates and new approaches proliferate around the idea of ethical, socially responsible financing that is capable of leaving the dictatorship of quarterly reports behind and thinking in the long term, to direct investments toward viable projects, full of meaning and offering a future for humanity.8
Climate change in particular concerns an increasing number of financial players who have the power to make a difference—starting with international insurers. Mark Carney, governor of the Bank of England and chair of the Financial Stability Board (FSB), delivered a historic speech in this regard in September 2015, in which he insisted on the need to take climate risk into account in global finance:
The need to manage emerging, mega risks is as important as ever. . . . While there is always room for scientific disagreement about climate change (as there is with any scientific issue) I have found that insurers are among the most determined advocates for tackling it sooner rather than later. And little wonder. While others have been debating the theory, you have been dealing with the reality: Since the 1980s the number of registered weather-related loss events has tripled; and inflation-adjusted insurance losses from these events have increased from an annual average of around $10 billion in the 1980s to around $50 billion over the past decade.9
Global financial stability, and in the long-term the wealth of the global community, will be threatened by these upheavals. Mark Carney identified three great risks:
» Physical: “current consequences of climate—and meteorological—events on insurance liability and on the value of financial assets, such as floods and storms that cause property damage or disrupt trade.”
» Liability-related: “potential risks to come, if parties who suffer losses or damages due to the effects of climate change seek compensation from those they hold responsible. Such procedures could occur in a few decades and they could hit carbon extractors and emitters the hardest and, when they have liability insurance coverage, their insurers.”
» Transition-related: “financial risks resulting from the process of adjustment towards a lower-carbon economy. Changes in policy, technology, and physical risks could prompt a reassessment of the value of a large range of assets as costs and opportunities become apparent.”10
At these three levels, finance and climate are closely linked. We cannot address one of them without the other.
Has the time come to reinvent the financial system, redefine the role of the players in the global investment ecosystem, and rebuild the foundations of cooperation? Many decision makers agree that we need to act. What are we waiting for? We are running out of time. The fast pace of technological change, combined with geopolitical instability and the consequences of a warming climate, form a short-term threat to the world economy. As Mark Carney emphasized in September 2015, “The window of opportunity is finite and shrinking.” We need to act today; we should always run toward our risks, to paraphrase René Char’s poem.11 Let’s not wait until it is too late! It is time to regain control.
“Them” Means Us!
“Us” means each and every one of us. “Them” means the politicians, directors, executives, and managers whom we sometimes judge, a bit too quickly but sometimes quite reasonably, as being irresponsible.
Of course, “they” have a duty to set a good example. They have responsibilities: as citizens, shareholders, or employees, we have tied ourselves to them by contract and delegated responsibilities to them. They have the duty to represent us well. They need to have the courage to get their hands dirty instead of seeking to keep them clean at all costs, which is the best way to do nothing in a world that is by definition imperfect.12 They need to stay on the bridge facing the storm, fending off emergencies, and scanning the horizon. During the financial crisis, I put it this way: “It is for holding the outposts that directors receive their benefits and compensation—not for being ‘pencil- pushers’!”13 They have the duty to withhold signs of cynicism when signing partnerships, treaties, and national or international commitments, to have the political courage to implement them, and the dignity to respect their promises.
Despite everything that happened in the financial crisis and everything I witnessed, I still believe in the international agreements, the power of symbols, and the virtue of declarations of principle. It is a way to tackle reality, even if it is not enough. The world would be better off if we took treaties more seriously. For example, in the case of the Helsinki Accords in 1975, when the Soviet Union at the end of the Brezhnev era agreed to sign the Declaration on Principles Guiding Relations between Participating States (including human rights and fundamental liberties), who could have imagined that this would open up a breach that would contribute to the breakdown of the Soviet system? When a government signs a paper, it is committed, sometimes for much longer than it expects.
But for this reason, we must remember that our representatives’ signatures also commit us: whether as citizens or users of public services, we must comply with them. When a head of state signs an agreement like COP21 or the United Nations agreement on sustainable development initiatives, when they commit to sustainable development in the name of the country they lead, this signature commits us all: public authorities, companies, NGOs, and citizens. We all have the responsibility to take ownership of the subject ourselves. We all have the responsibility to stay alert and play our role by monitoring the actions taken to ensure that these agreements are fully implemented. We must remember that we have all the power, through our ballots, but also through the choices we make when we invest and consume, and when we use our own voices, in this era of social networks, to sanction the key figures in our society. We cannot waive this essential right, which is also a responsibility.
“We” Are All in Charge
We are all riding the wave of the globalization movement that swept our planet—none of us can escape it. But globalization in itself is not good or bad: like finance, it does not have a soul; it simply is what it does. In other words, don’t submit to it. We all have the power to control globalization, too. If we must assume that we are committed collectively, by the democratic political system as well as by circumstances, then we must also assume we can commit ourselves individually to recognize our capacity for action in the world, each at our own level, as a power and a responsibility inherent to each and every one of us.
“Them” means us! That was the other great lesson that Michel Camdessus taught me: we are all responsible—some more than others, certainly—for the dawn of a better humanity. Every person on earth, no matter where they live, has a share of responsibility: This is true whether they are the leader of a country, city, company, institution, or NGO, a citizen with a vote and an ability to invest in public spaces or pay their taxes, an individual exercising their freedom of speech on the Internet, a member of an association paying their membership fees, a consumer making purchases, an employee making charitable contributions through their paycheck, or a shareholder, saver, or pensioner putting their money in shares or savings accounts. Inhabitants of poor and undemocratic countries will have much less freedom to act, but my time at the World Bank convinced me that every man and every woman, even those in remote areas, can change many things where they are. But obviously the more you have, the bigger the responsibility.
If we want to collectively create a good history together, all of us must exercise our individual power.
The Time to Reboot the Global Financial System So That It Can Serve the Common Good
What we need to do, then, is to recognize that we cannot act alone in this interconnected world where the problems keep getting bigger and more global.
The immense yet necessary ambitions the global community drafted for itself in 2015 will become reality only if we can unite all the intelligence and energy of countries to one another, and within. We need cooperation between the public, private, and community players collectively. We must succeed in moving away from the O-H-I-O strategy to the “C-A-lifornia strategy: Collective Action (or we could opt for Ian Bremmer’s “condominium” idea).
However, we must recognize that nothing is harder in an individualistic world: the reciprocal mistrust is so anchored, so tenacious (particularly in countries like the United States or France, where the divide between public and private culture and mentalities is still deep—but this is really the case in most of the “united” nations). It is so much easier to oppose on principle, to stand firm on your interests and positions! But I believe that such movement is possible; I have seen it in all summits, projects, meetings, and working groups in which I have participated in the past 15 years, and particularly in the Paris climate change conference.
Finance still harbors the potential for integration—despite the disillusionment of the past decade. This poor master can also be a good servant: although it was once part of the problem, now it can be part of the solution. And this is not only because finance, like technology, is a universal language, an inventive tool that when used well allows wealth to circulate, unify, and create value, to help people and their various institutions work together. It is also because, as mentioned earlier, in our roles as citizens, taxpayers, consumers, investors, shareholders, savers, pensioners, association members, and so forth, we can all work on humanity’s investment portfolio. Thanks to the largely free circulation of capital, the actions of each of us can have a positive impact on the planet. The same financial globalization that, starting in 2007, led to stagnation could well be a globalization that puts the world back on the right path.
But to get back on the right path, we need to take the opportunity we are offered today to reinvent the international financial system. That is, to build a controlled system, with not too much and not too little regulation, where the lines of solidarity between countries are reconsidered. A system where Wall Street or the City of London does not decide for the rest of the planet, giving no one else a say, whether advanced or developing countries, investors or regulators, central banks or savers. A system where innovation competes to find the best answers for financing the world’s needs. A system that relies on existing institutions, properly reformed, and that knows how to use them best and reengages with the spirit of 2009 displayed by the international community at the height of the financial crisis, when they created the G20 and before everyone went back to their own domestic agendas and made it no more than a powerless talk shop.
We have yet to repair the system undermined by the 2007–2008 crisis, other than to plug up the breaches. We have not followed through on the reforms needed. As Jacques de Chalendar rightly said: Let’s roll up our sleeves and rebuild now: all the tools are here, within our grasp! The ball can and will fall on the side of the net we choose. But like improving our game in tennis, improving the financial system means that we need to go back to the basics.