Glendon’s New Centre for Global Challenges Welcomes Nobel Prize Winner and Top International Economists to Inaugural Conference
The March 24th inaugural conference of Glendon’s new Centre for Global Challenges (CGC) provided an ideal milieu for a discussion on the recent global economic crisis, what went wrong and how it might be averted in the future. The CGC’s mandate is the promotion of public discussion on key issues through bringing together leaders of current ideas, in order to explore the implications of major challenges for Canada and the world at large.
Right: George Akerlof
Under the title After the Meltdown: The Limits and Possibilities of Economics, the conference welcomed three internationally recognized economists as its panelists. Nobel Prize winner in Economics (2001) George Akerlof, currently a professor at the University of California, Berkeley was joined by Tim Besley, professor of economics and political science at the London School of Economics and director of the Suntory & Toyota International Centres for Economics & Related Disciplines, and Pierre Fortin, economics professor at the Université du Québec à Montréal and past president of the Canadian Economists’ Association. Eugene Lang, consultant, policy advisor and vice-president of Bluesky Strategy Group, as well as co-founder of Canada 2020 acted as moderator for the discussion.
Left: The book cover of Animal Spirits
For his presentation, George Akerlof used the framework and premise of his recent, award-winning book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism (George A. Akerlof and Robert J. Shiller, Princeton University Press 2009). Akerlof explored why economies falter under the effects of strong psychological forces, which can alter human and corporate behaviour against their own best interest. Through five topics: confidence, fairness, corruption, money illusion and stories, Akerlof explained how irrational behaviour and belief in ‘snake-oil’, corrupt market forces can lead economies into the near-disaster we have just experienced. The meltdown that occured in 2008 was in large part a result of stories economists, government officials and investors wanted to believe: that our financial institutions were solid and that our investments would keep increasing in value. “Every boom and every bust has a story and people are willing to believe these and act upon them. Economies fall into depressions as a result of cycles in psychology - indulging in over-optimism - and because they fail to understand the risks involved.” Akerlof maintained that we must harness and control human psychological forces and dismissed the idea that unregulated markets are the best way to go. He called for clearly-defined government regulations, founded on a modern, psychology-based Keynesian approach, in order to restore prosperity.
Right: Pierre Fortin
Pierre Fortin’s exploration of the recession, demographic change and economic growth examined the lessons to be learned from this event. Fortin pointed to the United States’ under-regulated financial system as the major cause of the world-wide financial crisis, much as did Akerlof. He praised Canada’s solid, well-regulated financial system, as well as the Bank of Canada’s quick reaction in making tens of billions of dollars of liquidity available to institutions which needed it.
Fortin drew three lessons from the 2008 recession and its aftermath. First, that Canada should have confidence in its superior financial system and continue to maintain strict financial regulations. Second, that restoring the balance between budget revenues and expenditures - eliminating the huge deficit we are accumulating in order to deal with the crisis - should be a priority as soon as the economy regains strength. And third, to give serious consideration to raising the target rate of inflation from the current 2% to 3 % or 4%, in order to have more elbow room for regulating the availability of credit.
Left: Tim Besley
Quoting University of Toronto economist David Foot, that “[…] demographics explains about two-thirds of everything”, Fortin also addressed the issue of the demographic shift, as large numbers of baby-boomers approach retirement age, while Canada’s birth-rate remains low. He proposed a number of different ways to confront the resulting decline in tax revenues, slowing of economic growth, and exploding health care costs. After a brief overview of the Japanese, Scandinavian and American approaches to this challenge, he presented his ‘Canadian solution’ of revising the health system to reduce the high cost of the current bureaucracies by providing economic incentives, establishing independent and transparent evaluation mechanisms, and intelligent use of private-sector participation.
Right: York University President Mamdouh Shoukri
Fortin’s suggestions for accelerating economic growth included keeping older, experienced workers at work by making continued work more attractive; providing more effective training, technologies, equipment and work organizations for increased productivity; and promoting a greater culture of innovation.
The third panelist, Tim Besley, a policy-maker at the Bank of England during the recent economic crisis, quoted Keynes, who said that "[…] practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist." Besley outlined the gradual deregulation of financial markets, especially in the U.S. and the U. K., based on a sense of optimism in finance’s role. “Countries opened up their markets, believing that this would lead to the free flow of capital, from rich to poor countries”, said Besley. “But in fact the opposite happened, with capital flowing from the poor to the rich and this should have been a warning.”
The panel: from left to right, Tim Besley, Pierre Fortin, George Akerlof and Eugene Lang
A light touch on regulations became an international trend, pressuring Canadian institutions to follow suit, which the Canadian government managed to resist. Besley commented that the central banks were ‘fighting the last war’ – the last crisis – by targeting inflation as the major concern. Markets experienced a divergence between the surplus countries: Germany, China and Japan, and the deficit countries, namely the U.S. and the U.K. A significant increase in household indebtedness, huge world-wide rises in housing prices, and the emergence of a new ‘aristocracy’ of financial sector specialists were some of the results of unregulated transactions.
What followed were distortions in the supply of risk capital - global imbalances, which have not been resolved since the meltdown. Besley also acknowledged the demographic implications over politics, policies and structural changes. “Governments have little appetite for increased involvement in financial regulations. A review of the role of the state and finding local solutions will be necessary. In the challenge of global financial governance and taking a central political action, Canada can have an important seat at the table.”
Left: L-r: Director of CGC Alex Himelfarb, Glendon Principal Kenneth McRoberts and donor Paule Doré
A lively question period, eliciting remarks from students, faculty and interested visitors demonstrated the need for such discussions and the depth of interest on this topic among all the constituencies.
In his opening remarks, Alex Himelfarb, who co-chaired the conference with Chaviva Hošek, President and Chief Executive Officer of the Canadian Institute for Advanced Research (CIF AR), stated that the new Centre was the brainchild of their shared concerns. Himelfarb, who is the Director of CGC, as well as Director of the recently-opened Glendon School of Public and International Affairs (GSPIA), explained that the CGC was created in order to establish a bilingual think-tank, a place for civil discourse on the major issues of the day, where collaboration could take place between academics and other interested individuals from different disciplines and across the generations.
Right: Co-chair of the conference Chaviva Hošek
Himelfarb expressed the view that the political discourse and the media’s debate on the current Canadian scene fail to deal with the challenges facing this country. “Canada is undergoing profound changes without a public debate”, he said. “The issues which confront us and shape our future are complex, with local and global implications. Yet complexity always loses in the media and in public discourse. The problems that challenge us are new and unfamiliar and old solutions are inadequate for dealing with them. These challenges also bring out the fault lines in [Canada’s] federation, which represents profoundly different regional and generational interests. […] Instead of solutions and collaboration, what we tend to get is noise.”
“After the economic meltdown, many questions arose which need public discussion”, said Hošek. “Why are some countries rich and others poor; is there a contradiction between human progress and economic growth; what happens to public institutions during an economic meltdown? These are topics we need to address in a serious way.”
L-r: The Honourable Mr. Justice Paul S. Rouleau; Kevin Page, First Parliamentary Budget Officer of Canada; The Honourable Mauril Bélanger, M.P.; and Nicholas Rouleau
Himelfarb acknowledged Glendon Principal Kenneth McRoberts as a driving force behind the creation of the Centre. He also recognized the vision and generosity of corporate director Paule Doré, in attendance, whose financial and spiritual support enabled the Centre and this conference to transform from idea to reality.
York University President Mamdouh Shoukri praised Principal McRoberts’s long-standing vision of a School of Public Affairs at Glendon, which is the host institution of the CGC. “Debates such as these are important, not only for their subject matter, but for the mere fact that such public discussions can take place“, said Shoukri, who affirmed York University’s continued support for this endeavour.
In addition to CIFAR, other major supporters of the conference, and of the Centre for Global Challenges, include the Hennick Centre for Business and Law, Canada 2020, the GSPIA and York University, as well as The Mark and Global Brief – two publications dealing with current Canadian and world affairs.
Article submitted by Glendon communications officer Marika Kemeny