Latest / Trumponomics / Why the Rise of Mega-Companies May Damage the Global Economy

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Why the Rise of Mega-Companies May Damage the Global Economy · Trumponomics

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  Speaker 1: I'm Emily changes everyone just going to his Bloomberg technology
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  Speaker 1: coming up in the next hour. Apple sales crush Wall
• 0:05
  Speaker 1: Street estimate second border revenue surging to any nine point
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  Speaker 1: six billion dollars, plus a huge revenue beat for Facebook,
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  Speaker 1: the social network reporting sales of twenty six point seventeen
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  Speaker 1: billion dollars, growing more than seven percent, marking at least
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  Speaker 1: nine Street revenue beats. Hello and welcome to Stephanomics, the
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  Speaker 1: podcast that brings the global economy to you. And it
• 0:32
  Speaker 1: has been a bump a week for America's tech giants,
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  Speaker 1: with Amazon, Apple, Facebook, Microsoft, and Google all reporting yet
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  Speaker 1: another big jump in sales and profits in the first
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  Speaker 1: three months of the year. Between them, those five companies
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  Speaker 1: now make more in sales in a week the McDonald's
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  Speaker 1: manages in an entire year. The economist Philippe a Yon
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  Speaker 1: thinks the rise of big tech was great for US
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  Speaker 1: innovation and economic growth for a while. Now not so much.
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  Speaker 1: He's written a book about creative destruction and the wealth
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  Speaker 1: of nations, and he has a plan for getting the
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  Speaker 1: best out of capitalist You can find out what it
• 1:09
  Speaker 1: is a bit later. France economy reporter William Horribon is
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  Speaker 1: also going to explain why the campaign to extract tax
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  Speaker 1: revenues from the tech giants just got a lot more interesting.
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  Speaker 1: But first, let's set the scene with some new research
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  Speaker 1: from Bloomberg Economics which brings home just how big the
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  Speaker 1: world's largest firms are today compared to a generation ago.
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  Speaker 1: The biggest fifty businesses in the world make profits of
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  Speaker 1: nearly eight hundred billion dollars. That's close to one percent
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  Speaker 1: of global GDP. That may not sound so much, but
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  Speaker 1: that's three times higher than it was thirty years ago.
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  Speaker 1: Thirty years ago, there were also no Chinese companies in
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  Speaker 1: that group of fifty. Now there are eight, and surprise, surprise,
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  Speaker 1: tech firms much more evident than they were. Twenty one
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  Speaker 1: of the top fifty businesses are in the tech sector,
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  Speaker 1: up from just three in and as a prize at
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  Speaker 1: the end for anyone who can name those three, here's
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  Speaker 1: what else we know about those firms. They employ fewer workers,
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  Speaker 1: and they pay less in tax. These fifty companies, on
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  Speaker 1: average pay a tax rate of seventeen percent of their
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  Speaker 1: profit and earn an average profit margin of eighteen percent.
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  Speaker 1: Back in it was thirty four of their profits that
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  Speaker 1: were taxed away and the profit margin was a puny
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  Speaker 1: seven percent. So the numbers make clear why the tax
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  Speaker 1: authorities around the world should be so keen to do
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  Speaker 1: a global deal on corporate tax. More on that later,
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  Speaker 1: But there are broader implications from this changing global landscape
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  Speaker 1: for policy and for the shape of the economy. So
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  Speaker 1: time now to dig deeper with chief economist Tom Ulick,
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  Speaker 1: who co wrote the research with his colleague Justin him Enis. Tom,
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  Speaker 1: Welcome back to Stephanomics. At at one level, I guess
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  Speaker 1: it's not surprising these numbers showing that the biggest firms
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  Speaker 1: are now much bigger than they were. But when you
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  Speaker 1: went through the numbers with Justin what stood out for you?
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  Speaker 1: You you hit a bunch of the big takeaways Stephanie.
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  Speaker 1: The big firms are getting bigger, They're getting tech here,
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  Speaker 1: they're getting more Chinese. A couple of other things which
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  Speaker 1: stood out for me. Firstly, that shift east has come
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  Speaker 1: mainly at the expense of Europe. If you look at
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  Speaker 1: the geographical composition of the top fifty, the US is
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  Speaker 1: holding onto its share, China is rising, Europe is shrinking.
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  Speaker 1: That's pretty striking, especially when you consider the hostility to
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  Speaker 1: China that we see coming out of Washington, d C
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  Speaker 1: and the relatively friendly approach that we still hear from Berlin,
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  Speaker 1: Brussels and other European capitals. The other big thing which
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  Speaker 1: I took away from it, and perhaps this is something
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  Speaker 1: we can get into in the conversation, is that with
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  Speaker 1: their increasing profitability, big firms are now sitting on a
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  Speaker 1: huge stash of cash. Back in cash holdings for the
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  Speaker 1: biggest fifty firms in the world was about nor point
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  Speaker 1: three percent of global GDP. Fast forward to and it's
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  Speaker 1: all the way up to two point two of global GDP.
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  Speaker 1: And that has pretty far reaching implications, especially for central banks.
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  Speaker 1: If the bigger firms are getting bigger and they don't
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  Speaker 1: really need to borrow, well, that raises some questions about
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  Speaker 1: the effectiveness of interest rates as a policy tool. Yeah,
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  Speaker 1: there's there's a lot to get in there. I mean,
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  Speaker 1: I guess one thing is that I already mentioned that
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  Speaker 1: they paid less in tax and they have got a
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  Speaker 1: higher profit margin. I guess one clear result of that
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  Speaker 1: is it's maybe not surprising that they're sitting on a
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  Speaker 1: big mountain of cash. But I guess another reason why
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  Speaker 1: they've got lots of cash is that they don't invest
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  Speaker 1: as much as maybe they're sort of predecessors might have
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  Speaker 1: done the other big companies of of into your thirty
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  Speaker 1: years ago. Is that something that's borne out in your
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  Speaker 1: research not just fewer workers, but also a bit less investment,
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  Speaker 1: less capital, that's right stuff. So as we've seen the
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  Speaker 1: rise of the tech platforms, we've also seen capital spending
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  Speaker 1: starting to come down. Back in the top fifty firms
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  Speaker 1: in the world, and back then we're talking about big
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  Speaker 1: industrial firms like g E or x on, they're spending
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  Speaker 1: the equivalent of about seven percent of their revenue on
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  Speaker 1: capital spending digging new oil wells, building new factories. With
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  Speaker 1: the rise of the tech platforms, who are more likely
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  Speaker 1: to expand by buying more capacity in the cloud than
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  Speaker 1: they are to do so by building a new factory.
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  Speaker 1: KPEX in twenty is just above four of revenue for
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  Speaker 1: the biggest firms. So less workers, less capital spending as well.
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  Speaker 1: That's an important change in the way the economy operates.
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  Speaker 1: You know, if monetary policy is is partly about increasing
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  Speaker 1: growth by making money more or less expensive to borrow
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  Speaker 1: for investment, say, you know, that's what when we learn
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  Speaker 1: what monetary policy is that's one of the sort of
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  Speaker 1: traditional ways that you would learn you reduce interest rates
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  Speaker 1: if you want to encourage businesses and households to borrow
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  Speaker 1: more and do more investment and support growth. I mean,
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  Speaker 1: I guess the message of these numbers is that that
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  Speaker 1: is a very old fashioned way of looking at the world.
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  Speaker 1: So at least when it comes to these big businesses,
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  Speaker 1: because the cost of borrowing isn't going to make any
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  Speaker 1: difference to them because they don't need to borrow at all.
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  Speaker 1: They have always cash. We talked about the dropping capital spending,
• 6:33
  Speaker 1: we talked about the increase in cash. Now, if you
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  Speaker 1: put those two trends together, one of the really interesting
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  Speaker 1: things to come out of the data is that back
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  Speaker 1: in kpex was about three times cash on hand for
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  Speaker 1: the biggest firms in the world. In the biggest firms
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  Speaker 1: in the world have enough cash easily to cover all
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  Speaker 1: of their kpex for the year. They just don't need
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  Speaker 1: to borrow. And that immediately raises questions about how effective
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  Speaker 1: interest rates are as a tool for managing the ups
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  Speaker 1: and downs of the business cycle. Now, central banks could
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  Speaker 1: argue there's also a portfolio rebalancing effect right when you
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  Speaker 1: cut interest rates yes, you're not going to change the
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  Speaker 1: investment saving decision for these firms, but you are going
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  Speaker 1: to encourage them to move their cash out of money
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  Speaker 1: market funds, for example, and put it into risk assets
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  Speaker 1: like equities, for example, and that will have an impact
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  Speaker 1: on risk appetite and drive growth for the broader economy.
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  Speaker 1: There's some truth in that argument, but relative to the
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  Speaker 1: kind of textbook definition of the kind of the muscular
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  Speaker 1: way in which interest rate policy changes investment decision by firms,
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  Speaker 1: that's a pretty weak read on which to lean for
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  Speaker 1: central banks. I mean, we're going to hear more about
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  Speaker 1: creative destruction um later on in the program, but you know,
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  Speaker 1: obviously there is a big debate about where they're having
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  Speaker 1: these big firms actually is good for for growth and
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  Speaker 1: good for your economy. One of the things which comes
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  Speaker 1: through in the data is that the process of creative
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  Speaker 1: destruction is still at work. If we look at the
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  Speaker 1: top fifty firms in and compare that to the list
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  Speaker 1: of the top fifty firms in about of the names
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  Speaker 1: and new and of course that's related to the capacity
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  Speaker 1: of firms, especially in technology, to innovate on new products
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  Speaker 1: and new services and sweep away the position of what
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  Speaker 1: looked at the time like unassailable monopolies tomblic Thanks very much. Now,
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  Speaker 1: regular listeners will know this isn't the first time we've
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  Speaker 1: talked about the challenge of extracting a bit more tax
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  Speaker 1: out of big global companies, big tech companies in particular
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  Speaker 1: are France economy reporter William Horrobin gave us the heads
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  Speaker 1: up at the end of the year about the global
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  Speaker 1: talks on this that were underway at that think tank
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  Speaker 1: headquartered in Paris, the O e c D. And we
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  Speaker 1: also in that program had an exclusive interview with the
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  Speaker 1: top O e c D official who was tasked with
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  Speaker 1: getting this big global deal. He said that this was
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  Speaker 1: going to be a make or break year for the
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  Speaker 1: global corporate tax debate. And I think I thought at
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  Speaker 1: the time that I've heard that before, but you know,
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  Speaker 1: it just might be thanks to President Biden. So will
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  Speaker 1: Horribin is back with us now to explain what's happening. Well,
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  Speaker 1: you might have to talk very slowly and carefully, but
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  Speaker 1: what has happened and why does it matter what President
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  Speaker 1: Biden has done? Okay, so it is notoriously complicated how
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  Speaker 1: to unpick these negotiations that are going on. But I
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  Speaker 1: think that I found a simple way of thinking about
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  Speaker 1: it is to say that we're looking at how much
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  Speaker 1: big films pay worldwide and tax and where they pay it. So, um,
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  Speaker 1: these are the two things that basically, really the O
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  Speaker 1: c D has been negotiating for years and years, but
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  Speaker 1: they've been blocked in sort of political in transigence and
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  Speaker 1: impossibility of getting a deal with Trump mainly. Um. So
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  Speaker 1: along comes Biden and he says, look, I've got I'm
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  Speaker 1: going to make two proposals, one for each of your
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  Speaker 1: problems of where do you pay tax and how much
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  Speaker 1: is paid? So let's start with the question of how much.
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  Speaker 1: Which is this idea of a minimum tax? Actually that
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  Speaker 1: was actually pretty uncontroversial in these talks. Everyone agrees that
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  Speaker 1: would be a great idea to have a minimum tax.
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  Speaker 1: But what Biden does is he really gives the proposal,
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  Speaker 1: gives it some teeth because he's putting he's suggested a
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  Speaker 1: twenty one minimum tax rate, while talks until now had
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  Speaker 1: been focusing on twelve and a half percent. So how
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  Speaker 1: does the minimum tax work? Very simplistically, and this is
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  Speaker 1: very simpathically, Um, say a US company pays ten percent
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  Speaker 1: corporate tax in in country A with a minimum rate
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  Speaker 1: at the US would then be able to say I'm
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  Speaker 1: going to take the missing eleven in tax, so effectively
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  Speaker 1: they're going to be paying. Now the question is will
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  Speaker 1: this actually happen. Our countries are quite optimistic on agreeing
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  Speaker 1: on the architecture of how you can put this together,
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  Speaker 1: although the rate may not end up being partly because
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  Speaker 1: that would depend on the US Congress Um and Biden
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  Speaker 1: getting agreement there. Also, there are countries like Ireland for
• 11:39
  Speaker 1: years have made themselves competitive places to attract investment by
• 11:43
  Speaker 1: having rates as I think they're rate is twelve, So
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  Speaker 1: you may end up with a rate that's you know,
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  Speaker 1: a bit a bit below that, a bit below if
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  Speaker 1: there's an agreement, I mean, I guess we should ask
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  Speaker 1: ourselves what's at stake here? How much more tax could
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  Speaker 1: this use for the world's government. Well, according to the
• 12:03
  Speaker 1: o e c D at the end of last year,
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  Speaker 1: before Biden made the proposals, based on their work, that
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  Speaker 1: with this minimum tax of twelve point um, you'd be
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  Speaker 1: increasing global tax revenues by one billion dollars. So it's
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  Speaker 1: a pretty big question. Now Biden comes along with a
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  Speaker 1: rate that's you know, significantly higher than that, and so
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  Speaker 1: you're talking about potentially much bigger numbers. And what about
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  Speaker 1: where now, where where this tax is paid? Where? That
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  Speaker 1: has for a long time been the much more trickier,
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  Speaker 1: much thornier issue. That's been a bigger divide intellectually between
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  Speaker 1: the US and Europe, with Europe saying, hey, the big
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  Speaker 1: winners are the digital companies, and we want to go
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  Speaker 1: after them. We want we want a chunk of the
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  Speaker 1: tax that you get to collect on Google, say, because Google,
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  Speaker 1: Google sells all this stuff in our country and we
• 12:54
  Speaker 1: don't get any technvenues from Google doesn't really have a
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  Speaker 1: physical presence maybe in our country, but it's re work, right,
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  Speaker 1: it's it's it's really like embedded in our economy, and
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  Speaker 1: we want, we want to share of that um now
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  Speaker 1: for for all ways, the US had said we're not
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  Speaker 1: ring fencing digital companies, Europe had been saying we want
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  Speaker 1: digital companies. Biden comes along and says, look, actually, let's
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  Speaker 1: just be honest here. What we're trying to do is
• 13:21
  Speaker 1: go after the winners of globalization. So rather than worrying
• 13:24
  Speaker 1: about what a company does, we just say we'll will
• 13:27
  Speaker 1: take the hundred biggest companies, look at their profitability as
• 13:31
  Speaker 1: a measure and maybe their revenue and work out what
• 13:33
  Speaker 1: who the hundred biggest are, and then we divide up
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  Speaker 1: the rights to tax them based on their presence in
• 13:40
  Speaker 1: their the business they do in countries. And so it's
• 13:44
  Speaker 1: relatively simple, relatively elegant. Um has lots of advantages, it's
• 13:51
  Speaker 1: easier to enforce, it's easy to understand. Politically, it sells
• 13:55
  Speaker 1: well because you know, people people want to go after
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  Speaker 1: the big guys. They don't want to go after the
• 14:00
  Speaker 1: small tech company that's perhaps doing a few millions of
• 14:03
  Speaker 1: business in country X, but not paying any tax there. Now,
• 14:06
  Speaker 1: there's one thing that they're working on now is the
• 14:10
  Speaker 1: parameters of how do you decide what these who these
• 14:12
  Speaker 1: hundred companies are? And that's when it gets tricky. And
• 14:16
  Speaker 1: so that's that's what's going on the moment is you know,
• 14:18
  Speaker 1: the lots of technocrats behind the scenes in various European
• 14:21
  Speaker 1: governments trying to work out exactly exactly who which companies
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  Speaker 1: they might get to tax a bit off if if
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  Speaker 1: there isn't a deal at the o c D, all
• 14:30
  Speaker 1: these countries are going to go ahead with these taxes
• 14:32
  Speaker 1: on on digital revenues, which everyone agrees even though they're
• 14:36
  Speaker 1: using them, are a sort of unfair and economically inefficient taxation.
• 14:41
  Speaker 1: I had the sense that the Biden proposal, the sort
• 14:45
  Speaker 1: of change of approach coming out of the White House
• 14:49
  Speaker 1: and response on on on these issues, was kind of
• 14:52
  Speaker 1: opening the way to a deal on both pieces, including
• 14:55
  Speaker 1: this digital piece. But is that is that not quite right?
• 14:58
  Speaker 1: I mean, is it still looking quite difficult to get
• 15:00
  Speaker 1: a deal in the next six months or so? I think.
• 15:03
  Speaker 1: I think the big change is that there is now
• 15:07
  Speaker 1: political will to get a deal. Whereas before the Trump
• 15:11
  Speaker 1: administration has made things very difficult. It was a game
• 15:14
  Speaker 1: of cat and mouse. We didn't really know what was
• 15:15
  Speaker 1: going on, and the whole thing stalled. But now there
• 15:18
  Speaker 1: is a clear political will um to get a deal
• 15:22
  Speaker 1: on both these on both these issues of of where
• 15:25
  Speaker 1: they pay and how much they pay these big multinational companies,
• 15:29
  Speaker 1: and it's for a similar message. That's the political message
• 15:33
  Speaker 1: that's coming out of the crisis, which is that you know,
• 15:36
  Speaker 1: these companies have benefited it hugely from globalization without paying
• 15:40
  Speaker 1: the cost. And so I understand it. Part of the
• 15:43
  Speaker 1: narrative in many countries is explaining how globalization is still
• 15:48
  Speaker 1: is still the answer for for the middle classes. So
• 15:53
  Speaker 1: there's this will that comes from Biden and is shared
• 15:56
  Speaker 1: by many European countries to find a sort of political
• 15:59
  Speaker 1: solution that they can sell to their cell to voters. Well,
• 16:02
  Speaker 1: and we're going to get into that in a in
• 16:04
  Speaker 1: a broadway with our next interviewee. But Will I could imagine,
• 16:09
  Speaker 1: you know when you read sort of history books around
• 16:12
  Speaker 1: about foreign correspondence, the Paris job has got a great
• 16:15
  Speaker 1: sort of romance to it. I bet when you when
• 16:18
  Speaker 1: you got this gig, you weren't necessarily thinking that you
• 16:20
  Speaker 1: were going to have to become a tax expert. That
• 16:23
  Speaker 1: wasn't it wasn't necessarily my intention. But you know the
• 16:28
  Speaker 1: Marshall plan put it well, you're getting out a lot
• 16:35
  Speaker 1: of stories these days, the time in the time of
• 16:38
  Speaker 1: the sun when it comes to textiles. Will Horribor, thank
• 16:40
  Speaker 1: you very much, thank you. I'm delighted now to be
• 16:51
  Speaker 1: talking to Philippe Aguillant, professor at the College de France
• 16:54
  Speaker 1: and INCIAD and the London School of Economics, who is
• 16:57
  Speaker 1: one of the most respected experts on the economics of
• 17:01
  Speaker 1: innovation and growth. He has a book out which pulled
• 17:04
  Speaker 1: some of that thinking together, the power of creative destruction,
• 17:08
  Speaker 1: economic upheaval, and the wealth of nations, and he seemed
• 17:12
  Speaker 1: like just the person to talk to on this podcast
• 17:15
  Speaker 1: about the pros and cons of this changing global landscape
• 17:20
  Speaker 1: that we've been talking about with the rise of these
• 17:23
  Speaker 1: enormous firms. Thank you very much, Philippe Professor Aguillon for
• 17:27
  Speaker 1: joining us. You have always focused on innovation in your
• 17:32
  Speaker 1: work and the relationship between innovation and growth. If you
• 17:37
  Speaker 1: think about the rise of these of these global mega firms,
• 17:41
  Speaker 1: should we think that's a good or a bad thing
• 17:44
  Speaker 1: for innovation or does the size of companies not really matter?
• 17:49
  Speaker 1: The rise of these big firms, I mean it took
• 17:54
  Speaker 1: place very much, you know, with the with the advant
• 17:57
  Speaker 1: of the A T and A A revolutions. That helped
• 18:00
  Speaker 1: a lot because with the information technology and artificial intelligence revolution,
• 18:05
  Speaker 1: you can do many more things. It allows anybody to
• 18:08
  Speaker 1: do many more things. And some firms that had better connections,
• 18:13
  Speaker 1: better networks, more advanced social capital, they could do that
• 18:17
  Speaker 1: better than others and they took huge advantage of it.
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  Speaker 1: So at first that was very good for growth in
• 18:23
  Speaker 1: the US. Between nine and two thousand and five, growth
• 18:27
  Speaker 1: went up in the US when those firms you know, pervaded,
• 18:31
  Speaker 1: became like a Germany invaded all the sectors of the economy.
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  Speaker 1: But then what happened is that once they did it
• 18:38
  Speaker 1: inhibited innovation. It discouraged innovation and entry by other firms,
• 18:44
  Speaker 1: and that's where growths started to go down. And since
• 18:47
  Speaker 1: two thousand and five in the US you observe a
• 18:49
  Speaker 1: growth decline very much associated with the fact that these
• 18:53
  Speaker 1: mega firms somehow they discourage others from innovative. That there
• 18:58
  Speaker 1: is a discouragement effect. So is it good or bad?
• 19:01
  Speaker 1: It's always good to have innovation, but you have to
• 19:04
  Speaker 1: make sure that the firms that innovated yesterday will not
• 19:08
  Speaker 1: discourage future innovations. And that's really much the should better
• 19:13
  Speaker 1: day dilemma. You want to give rants to innovator, but
• 19:16
  Speaker 1: you want to make sure they don't use these rants
• 19:18
  Speaker 1: or these runs of situation rants to prevent subsequent innervation.
• 19:23
  Speaker 1: So you always have this contradiction. The book is called
• 19:25
  Speaker 1: The Power of Creative Destruction, which is the class Shumpeter phrase,
• 19:29
  Speaker 1: and I guess that is the dilemma. You want a
• 19:32
  Speaker 1: company to be destroying others and providing that kind of competition,
• 19:36
  Speaker 1: but they're not just destroy all future competition as well.
• 19:39
  Speaker 1: I guess when people hear that description, they might well
• 19:42
  Speaker 1: think of Amazon in particular exactly. And in the book
• 19:46
  Speaker 1: we explain how the triangle between firms, the state, and
• 19:50
  Speaker 1: civil society. That triangle may succeed in averting should better
• 19:56
  Speaker 1: specific should better thought that inventors would be con conglomerates,
• 20:00
  Speaker 1: and that the conglomerates with the successful preventing subsequent innervation.
• 20:04
  Speaker 1: So it was very pasimistic. In this book we show
• 20:07
  Speaker 1: that you can overcome that pasimism. You can replace it
• 20:10
  Speaker 1: by an optimism of the will, and that you know,
• 20:13
  Speaker 1: the state with competition policy, with barrious with the separation
• 20:16
  Speaker 1: of powers, can lose a lot that it needs. Also,
• 20:20
  Speaker 1: the control of civil society and state and ciel society
• 20:23
  Speaker 1: together can avolt the basimistic prediction of better and have
• 20:27
  Speaker 1: creative destruction could be an ongoing process. Well, you and
• 20:31
  Speaker 1: your book is very optimistic at least about the potential
• 20:35
  Speaker 1: for for governments to to sort of see this this
• 20:37
  Speaker 1: process with civil society. We'll get into that in a minute,
• 20:40
  Speaker 1: but I guess just to step back a little bit.
• 20:41
  Speaker 1: You know, we're both sitting right now anyway in Europe,
• 20:45
  Speaker 1: and there tends to be a lot of soul searching
• 20:47
  Speaker 1: in Europe about the lack of big global firms that
• 20:51
  Speaker 1: have come out of Europe, and even a discussion around
• 20:54
  Speaker 1: wanting to have European champions to sort of take on
• 20:57
  Speaker 1: the US. What you're saying, maybe the Europeans shouldn't be
• 21:01
  Speaker 1: so concerned about having a smaller number and that top fifty. No,
• 21:06
  Speaker 1: in fact, they should be very concerned because when the
• 21:09
  Speaker 1: problem in the US is they are very good. They
• 21:11
  Speaker 1: have a fantastic ecosystem of innovation in the US. In biotech,
• 21:15
  Speaker 1: for example, you have the National Science Foundation, the National
• 21:18
  Speaker 1: Institute of Health the word used medical institute only that
• 21:22
  Speaker 1: is for fundamental research in biotech. And you have ventual capital,
• 21:26
  Speaker 1: you have institutional investors. You have a huge, fantastic ecosystem
• 21:29
  Speaker 1: of innovation in the The problem in the US is
• 21:31
  Speaker 1: competition policy. You have to adapt competition policy to the
• 21:35
  Speaker 1: digital era. For example, when deciding whether to allow or
• 21:38
  Speaker 1: not a merger and acquisition, you should ask whether it
• 21:42
  Speaker 1: will stiffen future innovation and entry. That's where the US
• 21:46
  Speaker 1: the problem is called lack of competition and no being
• 21:50
  Speaker 1: you know, that's where the problem is in Europe. The
• 21:52
  Speaker 1: problem is that we don't even have the ecosystem of innovation.
• 21:55
  Speaker 1: You see what I mean. We tend to be good
• 21:57
  Speaker 1: on competition through EU, the Competition Commission or do I
• 22:01
  Speaker 1: don't always agree with them, but we don't have the
• 22:04
  Speaker 1: ecosystem of innotion, what you want is both you want
• 22:07
  Speaker 1: the innovation and the competition. Europe they don't even have
• 22:11
  Speaker 1: the ecosystem of innovation, So competition without the innovation and yeah,
• 22:17
  Speaker 1: they have competition without innovation, and US have a big
• 22:19
  Speaker 1: innovation without the without have the quate competition. But I
• 22:23
  Speaker 1: mean the most difficult is to set up the innovation system.
• 22:26
  Speaker 1: Just thinking briefly about this global tax debate. You know,
• 22:29
  Speaker 1: we see the numbers that show these big companies overall
• 22:33
  Speaker 1: paying much less in tax than years ago. If we
• 22:39
  Speaker 1: actually got better at taxing these footloose global firms, is
• 22:43
  Speaker 1: that Do you worry about them? That making them less dynamic,
• 22:47
  Speaker 1: less innovative? No, I think at that stage I think
• 22:50
  Speaker 1: would be very good to have. You know, I'm not
• 22:52
  Speaker 1: for taxing. In France, for example, we used to over
• 22:55
  Speaker 1: tax you see what I mean. In France, we all
• 22:58
  Speaker 1: with taxing inputs. Even if you make zero profit and
• 23:01
  Speaker 1: you buy some inputs, I tax you already. That I
• 23:03
  Speaker 1: think is very bad. So France was on the other extreme.
• 23:07
  Speaker 1: But starting from the you know, the end of Trump
• 23:10
  Speaker 1: period in the US, Biden is right to raise tax
• 23:13
  Speaker 1: and the I m F is right to recommend that
• 23:16
  Speaker 1: everywhere the corporating contacts be no less than twe. I
• 23:20
  Speaker 1: think that's very good. You need taxation for various reasons.
• 23:23
  Speaker 1: You need to tax to finance education system, public health, infrastructure,
• 23:29
  Speaker 1: good active employment policy, active labor market policy, all that
• 23:33
  Speaker 1: you need to tax for that and uh, and that
• 23:37
  Speaker 1: you know that that Biden is right to do it,
• 23:39
  Speaker 1: and uh. But on the other hand, you need also
• 23:42
  Speaker 1: competition policy. And you need also not to discourage innovators.
• 23:46
  Speaker 1: So over taxing is not good. Taxing some is good.
• 23:50
  Speaker 1: Over taxing discourages innovation. But innovation is very interesting. It's
• 23:54
  Speaker 1: good for growth, is good also for social mobility. That's
• 23:57
  Speaker 1: what we explain you the book. It is a very
• 23:59
  Speaker 1: spirit defense of capitalism in that sense, the sort of
• 24:02
  Speaker 1: the right kind of capitalism. You say in the book,
• 24:06
  Speaker 1: the governments can get the growth benefits of innovation without
• 24:10
  Speaker 1: the inequality. But how how do you do that? You
• 24:13
  Speaker 1: have to make sure I mean inequality to to make
• 24:15
  Speaker 1: sure that you have inclusive growth. That's what you're after.
• 24:18
  Speaker 1: You want growth to be inclusive. So you have to
• 24:21
  Speaker 1: add at several stages. The first stage is education. You
• 24:24
  Speaker 1: need good quality education for everyone, like in Finland. You
• 24:28
  Speaker 1: know Finland is a model of education system. So you
• 24:31
  Speaker 1: need very good education system because at school you don't
• 24:34
  Speaker 1: know lied on material. You learn to learn, you learn
• 24:37
  Speaker 1: how to learn and more and more. When you are
• 24:39
  Speaker 1: in an economy of creative destruction where you change jobs often,
• 24:42
  Speaker 1: you have to continuously recycle, retrain, learn new things, adapt.
• 24:48
  Speaker 1: That's what you learn at school. Your your school, you
• 24:50
  Speaker 1: learn to learn, You organize your mind to learn to learn.
• 24:53
  Speaker 1: So the education is crucial. Then in at firms, you
• 24:57
  Speaker 1: have to eacourage firms to create good jobs, jobs that
• 25:00
  Speaker 1: valified workers. And we know that more innovative firms create
• 25:03
  Speaker 1: more good jobs. We showed that in the book. That's
• 25:06
  Speaker 1: very important. And then you have, of course the other
• 25:10
  Speaker 1: instruments like competition policy. We I told you about the
• 25:13
  Speaker 1: big firms in the US. Competition policy is very important
• 25:17
  Speaker 1: because it allows entry of new of new people. We
• 25:19
  Speaker 1: know creative destruction is also not only UH force of growth,
• 25:25
  Speaker 1: but it's also a level of social mobility. So it's
• 25:29
  Speaker 1: important to have good competition policy and to five lobbies
• 25:33
  Speaker 1: in order to have entry. That's a very important dimension.
• 25:37
  Speaker 1: Another dimension is to prevent the rich to bribe governments
• 25:42
  Speaker 1: or to finance campaigns. I thought it was a bad
• 25:45
  Speaker 1: thing when in the US the Supreme Court allowed private
• 25:49
  Speaker 1: companies to finance political compaigns without limits, because then you
• 25:53
  Speaker 1: bias the rich yaur the system. You don't want that.
• 25:57
  Speaker 1: In Scandinavia, for example, it's very really difficult to do that.
• 26:01
  Speaker 1: You know, in Sweden minister had to resign because she
• 26:05
  Speaker 1: had both a double row and chocolate with UH with
• 26:09
  Speaker 1: the credit. Cauld of the Ministry I think was something like,
• 26:12
  Speaker 1: so that's you know what you have to be like
• 26:14
  Speaker 1: Sweden in that our dendmark, you know, in that respect.
• 26:17
  Speaker 1: So it's very important that you know. I am not
• 26:20
  Speaker 1: against having riched people. In Sweden, you have rich people
• 26:23
  Speaker 1: because then you can reach renovating. But I want I
• 26:27
  Speaker 1: don't want them to create a stiffen competition. I don't
• 26:30
  Speaker 1: want them to bias the political game. And I want entry,
• 26:34
  Speaker 1: and I want opportunities coroll So that's education, competition, that
• 26:40
  Speaker 1: was progressive taxation rules, propological complies. All those things are
• 26:44
  Speaker 1: in fighting lobby's are important elements of a competition policy
• 26:49
  Speaker 1: and inclusive goals. You have. You have a great phrase
• 26:52
  Speaker 1: in your you say, capitalism is a spirited horse. It
• 26:54
  Speaker 1: takes off readily, escaping control. But if we hold its
• 26:58
  Speaker 1: reigns firmly goes where we wish. If you look at
• 27:02
  Speaker 1: what President Biden's been doing, bringing out packages that we
• 27:05
  Speaker 1: discussed in the previous program, worth trillions of dollars, some
• 27:10
  Speaker 1: of it paid for by big taxes on companies, big
• 27:14
  Speaker 1: increases and taxes on companies, do you think he's he's
• 27:18
  Speaker 1: seizing the reins in the right way. Look what I
• 27:21
  Speaker 1: can say, it's a bit early to say, Okay, I
• 27:24
  Speaker 1: have sympathy from him. Uh, it's a bit early to say.
• 27:28
  Speaker 1: I mean, what's true when the COVID crisis revealed is
• 27:31
  Speaker 1: that the social model in the US is broken, with
• 27:34
  Speaker 1: so many people losing health insurance because they lose employment
• 27:38
  Speaker 1: because they lost employment, with so many people going because
• 27:43
  Speaker 1: going into poverty because they lost their their other job,
• 27:46
  Speaker 1: and so the social model is broken in US what
• 27:49
  Speaker 1: the COVID reveal is that the innovation ecouse system in
• 27:52
  Speaker 1: Europe is not working, so US has to build a
• 27:55
  Speaker 1: new social model. Now by then will by then succeed
• 27:59
  Speaker 1: We will see is spending a lot of money. But
• 28:01
  Speaker 1: I think what's important is to see whether and the
• 28:04
  Speaker 1: jury is still out, whether Biden will succeed in setting
• 28:08
  Speaker 1: up it's labor marketing institutions like you have in Denmark.
• 28:11
  Speaker 1: You know, in Denmark, when you lose your job, you
• 28:15
  Speaker 1: there is no negative effect on health. You know why
• 28:18
  Speaker 1: because they have what we call flex security. When someone
• 28:21
  Speaker 1: loves loses our job or his job, they are perfect
• 28:24
  Speaker 1: income insurance and they are retrained and the state helps
• 28:28
  Speaker 1: them find a new job. If they refuse too many
• 28:31
  Speaker 1: job of first and they lose the subgery, but at
• 28:33
  Speaker 1: least they are never left on the road. If you
• 28:36
  Speaker 1: lose your job in Denmark, the state takes care of
• 28:39
  Speaker 1: you and helps you retrain and find a new job.
• 28:41
  Speaker 1: If the US could put a system like the Danish system,
• 28:45
  Speaker 1: that would be a big progress, you see, to to
• 28:48
  Speaker 1: really have and to and also guarantee health access and
• 28:52
  Speaker 1: education to everyone, that would be major progress. They are
• 28:56
  Speaker 1: still very far from it, so it's good Biden is
• 28:59
  Speaker 1: aware of that. I don't know if Biden will be
• 29:01
  Speaker 1: able to set up governmanent welfare state. You know, with
• 29:05
  Speaker 1: this kind of institution there that the jury is still out.
• 29:08
  Speaker 1: I hope he will. It's not yet the case. It
• 29:10
  Speaker 1: will take very long. In Europe, the big problem is
• 29:13
  Speaker 1: to set up innovation institutions. We need the equivalent of
• 29:16
  Speaker 1: the band of the DAFT Power, the Defense Advanced Peche
• 29:19
  Speaker 1: of Project Agency. We need the equivalent of the American
• 29:22
  Speaker 1: universities of the nset of the National Sens foundation of
• 29:26
  Speaker 1: the we We need all that to to be You know,
• 29:30
  Speaker 1: venture of capital is underdeveloped in Europe. Institutional investors are
• 29:34
  Speaker 1: under developed compared to US. We need this ecosystem of innovation.
• 29:38
  Speaker 1: So it's very interesting. US needs to reinvantage social model.
• 29:43
  Speaker 1: Europe needs to reinvantage innovation model. And my dream capitalism
• 29:47
  Speaker 1: is one that would combine the innovation model of the
• 29:50
  Speaker 1: US and the Danish social system. That would be fantastic. Stephanos,
• 29:56
  Speaker 1: we give you our dream capitalism. Thank you very much,
• 30:00
  Speaker 1: Professor Philly Young, thank you so much. I have to
• 30:09
  Speaker 1: say for a different take on creative destruction and Amazon,
• 30:12
  Speaker 1: you could do a lot worse than read my colleague
• 30:15
  Speaker 1: Bradstone's excellent new book Amazon, I'm abound. And in case
• 30:19
  Speaker 1: there's anyone out there who was waiting to find out
• 30:22
  Speaker 1: who the three tech companies were in the top fifty
• 30:25
  Speaker 1: global firms, they were IBM, Japan's NYC Corporation, and the
• 30:33
  Speaker 1: French tech company alcatel M. I don't know about you.
• 30:36
  Speaker 1: I only got one of those. Now. That is it
• 30:39
  Speaker 1: for this episode of Stephanomics. I'll be back with more
• 30:42
  Speaker 1: next week. In the meantime, please rate the program. Thank you.
• 30:47
  Speaker 1: Also get more news and analysis from Bloomberg Economics by
• 30:50
  Speaker 1: following at Economics on Twitter. This episode was produced, as
• 30:54
  Speaker 1: ever by Magnus Hendrickson, with special thanks to Professor Philippe Begyon,
• 30:58
  Speaker 1: Tom Orlick, just In, him Menace, and William Horribin. Lucy
• 31:02
  Speaker 1: Meekin is the executive producer of Stephanomics and the head
• 31:05
  Speaker 1: of Bloomberg Podcast is francesco league mm hmm