Kenneth Arrow,
Nobel Laureate, Economic Sciences, 1972; Professor of Economics and Operations Research (Emeritus), Stanford University
Gary Becker,
Nobel Laureate, Economic Sciences, 1992; University Professor of Economics and Sociology, University of Chicago; FasterCures Board Member
Myron Scholes,
Nobel Laureate, Economic Sciences, 1997; Chairman, Platinum Grove Asset Management; Frank E. Buck Professor of Finance Emeritus, Stanford University Graduate School of Business
Moderator:
Michael Milken, Chairman, Milken Institute; Chairman, FasterCures / The Center for Accelerating Medical Solutions
Moderator Michael Milken's posed an expansive question for the luncheon plenary panel of Nobel Prize winners: What is the future of global capitalism? The result was a wide-ranging, big-picture discussion of the role capitalism has played in increasing society's welfare, and whether this development is likely to continue.
Although the panelists foresaw some potential difficulties on the horizon, the consensus was one of optimism and hope that the spread of capitalism can continue to improve the lives of people around the world.
Nobelist Gary Becker noted that the good news outweighs the bad when it comes to the future of global capitalism. His two areas of concern for global economic development were radical religious movements and government intervention in free markets. In fact, Becker said, he believes that capitalism has the ability to solve most global problems, provided that governments refrain from overregulation or meddling in areas better left to private industry.
Becker also refuted the common misconception that capitalism and democracy go hand in hand. There is no proof that a democratic society fosters economic growth, he argued, citing various examples of countries with democratic governments, but poor economic growth, and nations where authoritarian or military regimes had overseen strong economies. Instead, Becker argued that as a society undergoes economic growth, it tends to adopt a more open political system, often evolving toward democracy. He predicted that if China continues its rapid economic growth, it will move toward a more open political system in the not too distant future.
Kenneth Arrow was also optimistic about the future of capitalism. His major concern, he said, was that societies must learn to adapt to their aging populations. He spent some time discussing the ways in which the diverging demographic trends in the developed and developing world might evolve. Although this could lead to difficulties down the road, he said, he believes that societies should be able to overcome this problem.
Myron Scholes credited the remarkable rise in global living standards over the past 150 years to the rapid spread of technology and communications. These advances have enabled millions of people to raise their living standards. Scholes also discussed the continued development of China′s economy, noting that China has recently moved away from an export led economy toward growth driven by consumer demand, which he sees as a positive trend. He expressed some concern that China's economy may prove to be more volatile than India's -- chiefly because in China most economic decisions are driven from the top down by a small group of political elites. It is extremely difficult, he said, for a small group of decision makers to consistently make correct choices over a long period of time; thus, the odds of China making an economic policy "mistake" are greater than they are in India.
With private equity being such a popular media topic, Milken asked the Nobelists for their opinions of trends, particularly as they apply to governments. The panelists were unanimous in claiming that the entry of governments into the private equity arena was a negative development. Arrow questioned whether the presence of so many participants chasing excessive returns would cause these returns to revert to the mean. Meanwhile, both Becker and Scholes felt that governments generally do a poor job when they participate in private industry. Therefore, governments should not attempt to invest in private equity themselves. If they have surplus capital, they should return it to citizens or outsource its management to private sector professionals.
The session ended with Milken asking each panelists what he viewed as the most important role of capitalism in shaping society. Scholes responded that capitalism can help the poor when the cost of capital is driven lower by such systems as microfinance. He feels that lowering the cost of capital to the poor will have a greater effect on global development than top-down policies implemented by governments and aid organizations. Arrow suggested that governments can improve upon capitalism by intervening in certain situations where the free market does not establish optimal solutions. Finally, Becker stated that the main accomplishment of capitalism is to reduce global poverty and improve quality of life by facilitating economic growth.
The responses to this final question reinforced the panelists' overall optimism on the future of capitalism and global development. The consensus was that the spread of capitalism has contributed to widespread increases in human welfare, and that these advances should continue in the absence of excessive government interference.
Global Conference 2013
Former Prime Minister Tony Blair, philanthropist Bill Gates and Strive Masiyiwa of Econet Wireless discuss advancing prosperity in Africa.
