During the inaugural edition of a speaker series from Pembroke College and Cambridge Judge Business School, Shriti Vadera discussed some of the significant challenges facing governments and business in light of COVID-19 and longer term structural changes in economies and societies.
The speaker series is a collaboration between Pembroke College and Cambridge Judge Business School, and the inaugural event on 10 December – entitled Post-Globalism: COVID-19, Economic Policy & Globalisation – was moderated by Lord Chris Smith, Master of Pembroke College, with an introduction by Cambridge Judge Dean Professor Christoph Loch. The series is part of a wider collaboration which includes the annual appointment of a prestigious Pembroke Visiting Professorship of International Finance at the business school and support for Pembroke PhD studentships in the field of international finance.
Ms Vadera became chair of financial services company Prudential plc in January 2021, and was previously chair of the board of Santander UK. She was centrally involved in dealing with the 2008-09 financial crisis and the G20 as a UK government minister in the Department for Business, Innovation and Skills and the Cabinet Office.
Here are some edited excerpts of the inaugural event in the speaker series:
Lord Smith: How useful is it to compare what happened during the financial crisis to what is happening now?
Ms Vadera: I think it’s now a profoundly different crisis from the last one in some very fundamental ways. In 2008 it was a banking and credit crisis that created a demand shock and a recession in the real economy. Now we have the deepest and widest post-war recession caused by a dramatic suppression of demand in the real economy, which may of course lead to secondary issues in the banking sector. Another way that the crises are different is in scale: in the UK during this crisis the peak-to-trough fall in quarterly GDP was 20%, and that compares to 6% cent during the financial crisis. Over the two-year period during the financial crisis the fiscal stimulus in the UK was under 2% of national income, and now we’re 10 per cent and still counting.
Lord Smith: How do you view the state of international cooperation today and where do you think that will lead us as we try to build out of the COVID-19 experience?
Ms Vadera: Many people feel we’ve gone from the zenith to the nadir in terms of international co-operation. In the financial crisis, there was a common recognition amongst leaders in the world that this was a financial contagion – that if banks were global and capital flows were international, how could a national response on its own possibly be effective? This health contagion has become an economic contagion too: there are more countries in recession now than at any time since 1871, including the poorer countries.But today there’s a greater sense of globalisation’s pain rather than its gains; and if you’re a populist explicitly elected to be an anti-globalist, it’s pretty hard to propose measures for global support and coordination. What I hope for is that the election results in the US are a chance to reform some international institutions including the WTO and Bretton Woods institutions. Most attempts to reform international orders have been borne of crises.
Lord Smith: What does this all mean for globalisation? Are we deglobalising in the face of all this populism and so-called patriotism?
Ms Vadera: I wonder if going forward there will be more a fragmentation of globalisation, rather than deglobalisation, a fragmentation across sectors as well as across geographies. Trade is a lot more proximate than we think it is, in goods as well as services.
Lord Smith: What are the challenges in the way in which businesses and governments around the world work together to respond to all of this?
Ms Vadera: Challenges such as healthcare, climate change, economic disruption and huge demographic changes are all in the realm of externalities and global public goods and, by definition, this requires a greater role for governments domestically and greater cooperation between them internationally. What does worry me is a tendency to think that these challenges can be wholly or even mainly filled by the private sector. That’s not to diminish the recent watershed change to a more responsible and purposeful approach of business which is very welcome. But we shouldn’t think that a more mature view of reputational risk will suddenly lead companies to solve these global problems by themselves, or think that the private sector has no hard trade-offs between short-term returns and long-term decision making or between pure financial metrics and taking into account wider societal needs. So I worry about giving companies a seemingly independent mandate of making these trade-offs without clearer directions, standards, hurdles, regulations from governments.
Lord Smith: So, are we facing a crisis in capitalism or are we simply seeing capitalism changing into something a little bit different?
Ms Vadera: We’re facing a profound challenge to the workings of capitalism that could go quite deep. We’re trying to understand the role of labour in the economy, and that means the role of people that capitalism is meant to serve. It was straightforward in the industrial age that labour was a critical productivity driver and it needed to be invested in. We don’t seem in the current disruptive state to be able to value the contributions of people in a satisfactory way. It really struck me as sad and odd that we were prepared to go out and clap every week for the NHS workers saving lives but weren’t able to find a system that pays them fairly. Something similar might be happening to capital: we used to focus on its careful utilisation because activities were so capital intensive, but today it’s not so capital intensive and we have a surplus of capital. So, if it’s hard to sell labour services in a way that is fairly recognised in the economy and if the nature and the availability of capital has changed, what is our version of capitalism and how does it deliver what society wants? And these are not the sort of questions you want business to tackle on its own without a direction from mandated governments.