Sam, let’s talk about the economy. And, one of the things that we learned, certainly with the 2008 crash was that the economy really is a global economy- its all connected. So, there’s no sort of fortress you can build around a given nation state. I wonder what your perspectives are
on our current economic situation today and where you see things heading. I think we must first recognize that the economy today is in state of flux. Mainly because of globalization, privatization, liberalization, free market economy. Products and services move across borders. Money also has to move across borders. People, also have to move across borders. And all of these things require whole new framework. The earlier idea of money was based on my money, your money, every country has their own money, and then exchange rates, and somebody plays with it, and somebody sitting at the exchange decides what is the exchange rate… and very few handful of people really know how to play this game. Today, something happening in one country has huge impact on the other country. Local events become international. If there’s a flood, or lots of snow, in Chicago, people all over the world know it instantly. Markets are global. So electronic way of settling market is very different from the way we did it in the past. So we need to understand little bit about how did we get here. We got here, because everybody looked at only their economy as the way to solve their problem. Some people took advantage of capitalism. I sincerely believe that capitalism has been hijacked in many countries, by a handful of people. I mean, I have nothing against all the great investment banks, but sitting there one little guy somewhere is trading billions of dollars worth of instruments and they get paid hundreds of millions of dollars. It just seems little odd, okay, but I’m sure they can justify it, you know. In that kind of an environment, what does global economy mean today? I think we got here, mainly because the instruments have changed. See, earlier we were doing barter. Which was easy to deal with.
I give you wheat, and you give me fruits, or whatever. Then we got cash, but everybody had their
own cash. How do you value your cash versus my cash? Complicated. Then comes credit card. As soon as you introduce plastic instrument, you all of a sudden had trillions of dollars- notional money that you never had. See, with this plastic card I can go borrow ten thousand dollars which I don’t have. So all of a sudden you’ve got a whole new instrument which is different from cash or barter goods or services. Then you got debit cards. Then you’ve got all these financial markets, and derivatives, and instruments, and complicated stuff, and stock markets, you know. And then people started hedging in a big way. I mean, I remember internet bubble not too long ago. And everybody had all kinds of valuations of companies which were in billions and billions. And all of a sudden it just crashed. So people lost notional billions. Then the US mortgage crisis. People just gave homes without really checking their financials. When I was growing up in the US, and we went to buy a house the normal formula was that if you earned $10,000 a year you can buy a house worth only $25,000. 2.5 times your annual salary. Because then it fits into your tax, and this and that, and this is all you can afford. But during mortgage crisis, we gave people making $50,000 mortgage for a $400,000 home. It doesn’t require intelligence to say this is going to crash. And it did. You don’t need brains, OK? Then comes European financial crisis, you know. Because there also people have borrowed, and they are spending more than their means, or whatever I’m not a financial expert, I’m not an economist, so I really don’t understand lot of these things.
But I’m looking at as a layman. For example, today’s students loans in America is a major, major challenge as far as I’m concerned. Millions of poor kids have borrowed huge amount of money. I mean it’ll cost you $100,000 to get an MBA! You want to go to medical school, you probably borrow $300,000 before you graduate. How do you pay that money back? It was okay when you could get a lot of jobs and high salaries. But that picture has changed, because the world economy has changed. So earlier everyone assumed that US will drive the world economy. So when EU was set up, according to me, people in EU also felt that we will be the back of the US, US will drive it. #1; we’ll be #2. There’s no longer bipolar world. It is a unipolar world. And everything is going to be great. And then comes 9/11. Everything changes all of a sudden. And then comes rise of China, India, and few other countries. And world is not used to this. World gets in panic, saying what do you mean? These guys are becoming powerful. But I think world forgets the fact that India was the largest economy in the world in 1760. 27% of the world economy was from India. And 1760 wasn’t too long ago. Then comes British Raj. Indian economy goes from 27% to 2%. So some day, Indian economy has to come back.
Might not be to the same level. Same with China. If you have 1.3 billion, 1.5 billion people, There’s nothing you can do. So you have to accept the fact that Asian economies, because of the size
of the population, are going to be dominating economies. And people don’t know how to deal with it. Europeans don’t know how to deal with it. They must recognize that perimeters of the past will have to change. We’ll have to learn to do things differently, you know. I don’t think world is ready to create new financial model. Is gold the standard? Is dollar the standard? Is basket of currency a standard? In that basket of currency, how much weight you for Chinese money, Indian money… Or, at some point in time do we need global currency? I mean, these are big ideas! People panic. Everybody has their Federal Reserve. Maybe we need global Federal Reserve. What is this exchange rate business, who settles exchange rate? I remember once, in India, somebody had come once to see me and we were talking about manufacturing of telecom products. And then, I was focused on indigenous development in 80s to create Indian manufacturing and all. So this gentleman was really very upset that I’m blocking import of telecom equipment I wasn’t really, but that was his perception. And he said to me, he said “Do you realize? India is bankrupt!” So I listened for a while. And I said what do you mean? He said, “Your foreign exchange reserve is down to nothing.” And I said look, I understand. But what happens if I sell our Taj Mahal? To somebody. Or what about gold in our temples. What about all these artifact? How do you value all this? You can’t value just what you want to value. There is lot of asset in the country. Great deal of natural resource. Great deal of tradition, you know, culture. Wealth, which you don’t measure in your system. So the point I’m making is we will have to create a new system of measurement. That takes all these various dimensions of wealth into account. Absolutely. It is not
about what you have in your bank account. You know, and, it sounds little strange to many people, but we have seen in the last few years how banking has changed. You know earlier, computerization of banking started from the back office. Because people were doing manual books, now you got computers. Then computers moved from back office to front office. You know, teller had… Then, it moved to the street corner, ATM. Now, with mobile phone, it is going to move onto your individual. So every individual will become a bank. We will be able to transfer money, subscribe to this, subscribe to that, you know, you’ll exchange money and you’ll spend bits and bytes. So when you change bits and bytes and spend bits and bytes, your concept of money changes completely. Concept of bank has already changed, according to me. I never go to bank! You don’t need to go visit a bank anymore. So what do you do with all these fancy buildings that they have built. Lot of banks are closing their, you know, offices, their facilities, I know that I when I was in London Natwest closed lot of their, you know, sort of offices, because nobody goes to banks. You go to ATM, you deposit money through check, or through electronic transfer, and you’re done, you’ve got a credit card. So the concept bank will change. Concept of money will change. Concept of measuring nations will change. So we need a whole new model of global finance. It will be interesting to see if that new model of global finance shifts the rules some, so that what we’re seeing today, the gap, between rich and poor, is actually getting bigger around the world. Whether shifting the rules in this new model will enable more equity. Absolutely, it has to! It has to. That’s why you have to create new measurement. OK, because if you just look at cash,
who has how much in the bank, poor guy will have no bank account. You know, there are millions and millions in the world, without any bank account. They have no identity,
they have no bank account, but they exist. They need to eat. They need to survive. You can’t say that they are not part of the economy at all, because they don’t have bank account.
They are very much part of economy. They produce your goods and services. They are the workers. And rich are there because these people work!
And I think we lose sight of these things. So people talk about free trade. People talk about intellectual property. And people talk about basic needs.
When you look at all of these issues, every one requires new thinking. Take for example intellectual property. The other day I was having a conversation with group of people from US business on intellectual property. Their argument was India is the out-liar on intellectual property. I told them I said look, I have lots of patents, so I understand little bit of it and let me tell you my view, I said. My view is that the entire global intellectual property regime is obsolete. Today, if I file a patent in US, I can file a patent on incremental innovation. I get patent in couple of years, maybe 3 years. Then, if I want global protection, I need to file PCT. Then they’ll tell me to select countries. France, Germany, Italy, whatever. Then every country wants me to translate in their local language. And as a little inventor, not a big corporation it may cost me $100,000 before I get done with the patent. So it is discouraging a little inventor. 2. Some countries will say, look, this patent is not valid here. You will get 20 claims in US, but the country
will come back and say no, this claim is not valid here. Make up your mind, if it is an invention in US, it is an invention everywhere else. So you have global trade, global technology, but local patents. Don’t make sense! You cannot have local patents and global trade. You need global patents. Today with internet, I should be able to file a patent in global court global judges will decide, or patent officers will decide whether it is patentable or not. If it is patentable in US,
it is patented everywhere else. I don’t understand why we can’t do it. But people have interest in their local borders. Everybody has vested interest. So when US looks at India, in terms of patent, is one view.
When India looks at US, in terms of patent, it is totally another view. So everybody has their own little agenda. It is time to begin to think of global economy, global intellectual property, set up new institutions to respond to the needs of the 21st century, in terms of maybe global federal reserve, in terms of global patent office and 10 more things. Somebody has to do it. Nobody is willing to accept this. Everybody wants to protect their own little thing. So the pressure will continue to build until something new emerges. It’s about time to do it. I mean, how could we be going into 21st century with all these great potential new ideas, young talent, huge success stories in the 20th century, and not think of the future? We are too locked up in the 20th century mindset. We need to release this energy and build a requirement for the 21st century. You know, when I look at leaders going to G8 and G20 meetings, and this friend of my Kishore Mehbubhani, from Singapore, talks about it at great length, most of the leaders go to these global platforms not for global gains but for regional gains. Oh, absolutely. They only talk about what is good for their country, They never talk about what is good for the world. What is the sense in having a world forum, if you’re not going to talk about what is good for the world? And I think that’s the challenge in economy. We need to create lot of jobs for all our young people all over the world. Whether they are in Spain, Africa, India, China, US, how do we do that? Because they have to live comfortably. And the disparity is not only between countries. I think within countries, there is also great deal of disparity in every country. Even in US, we have disparity. You know, just in the City of Chicago, I go a little bit south from the University of Chicago, and the world is very similar to world in Africa or India or anywhere else. Illiteracy, poverty. You name it, you know. So it’s not that there’s disparity between countries- I think that is disparity between, or within country, in different communities. And all of this requires a new look at economy, you know. Thank you!