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Panelists discuss the cost of China’s zero-COVID policy, the country’s dwindling economic growth, and the consequences of China’s economic slowdown at home and on its international economic relations.

Martin Wolf discusses the global economy, the repercussions of the Russian invasion of Ukraine, and economic recovery from the COVID-19 pandemic. The C. Peter McColough Series on International Economics brings the world's foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.

Lawrence H. Summers discusses the U.S. economy and inflation, recovery from the COVID-19 pandemic, and the global economic consequences of Russia's invasion of Ukraine. The C. Peter McColough Series on International Economics brings the world's foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.

Roger W. Ferguson Jr., Steven A. Tananbaum distinguished fellow for international economics at CFR, leads a conversation on the future of capitalism.  FASKIANOS: Welcome to today’s Winter/Spring 2022 CFR Academic Webinar Series. I’m Irina Faskianos, vice president of the National Program and Outreach at CFR. Today’s discussion is on the record, and the video and transcript will be available on our website, CFR.org/academic. As always, CFR takes no institutional positions on matters of policy. We’re delighted to have Roger Ferguson Jr. with us to talk about the future of capitalism. Roger Ferguson is CFR’s Steven A. Tananbaum distinguished fellow for international economics. Previously, he served as president and CEO of TIAA, and before that he was head of financial services for Swiss Re and chairman of Swiss Re America Holding Corporation. He is the former vice chairman of the board of governors of the U.S. Federal Reserve System, and he currently serves on the board of several corporations and organizations, as a fellow of the American Academy of Arts and Sciences, and is an advisor with various private fintech companies. So, Dr. Ferguson, thank you very much for being with us today to talk about the future of capitalism, and it is kind of astonishing that we are talking about the future of capitalism. Can you talk about this area and what you see the strengths are and weaknesses as well? FERGUSON: So thank you very much, and I’m going to actually start with a quote. I think this is a quote from 1938 that roughly captures why we are talking about the future of capitalism. So this was from FDR, a famous U.S. president. In 1938, he said, “Democracy has disappeared in several other great nations, not because the people of those nations disliked democracy”—or you might say capitalism—“but because they had grown tired of unemployment and insecurity, of seeing their children hungry while they sat helpless in the face of government confusion and government weakness through lack of leadership in government.” Now, that is a strong statement. It is not exactly where we are today. But there are a few points here that are relevant and resonant with where we are today. So the reason that we’re looking at and talking about this question of the future of capitalism is that there are many surveys that suggest that young people, in particular, are not sure that capitalism is the system that they want to use to organize their economic life. We know that capitalism has been very successful in many ways. It has brought, literally, hundreds of millions, if not billions, of people around the world out of abject poverty. It has created some of the most iconic and successful companies that the world has ever known. We’ve seen dramatic transformations in our lives in terms of our ability to do everyday tasks using smart phones, and they’ve only been around twenty years or so. All these things are the outcome of a capitalist system that is very robust, that has created new entities, that has allowed other things to grow—business, et cetera. Having said that, for many people, capitalism is still a bit of an enigma. They look around and they observe, at least here in the United States, that income has been gradually rising and inequality, starting, roughly, in the mid-1970s. They’ve seen very unexpected crises here in the U.S. and in other countries emanating from mysterious and misunderstood financial tools such as subprime mortgages. They see longer-term challenges for many people around health inequities, which became very clear during the COVID-19 crisis that is still with us in some ways. And, obviously, there are for many people, the ongoing challenge of climate change with very extreme weather, and we’ve experienced that as well. And so while capitalism is, I think, really recognized as the organizing force that has brought many people out of poverty, allowed new tools, new capabilities, a very comfortable lifestyle for many, it’s also seen as, perhaps, not doing everything it’s supposed to if you have increasing income inequality, increasing wealth inequality, and you look and see health inequalities and different outcomes, that they guess maybe the system should be somewhat better. The second point I’d make is, for me, it’s really quite ironic because I grew up at a time when there was conflict between capitalism and communism, and then in late 1980s, early 1990s, communism disappeared. The Soviet Union fell apart. And since that time, capitalism is the way that almost all societies have organized themselves. In the United States, we have capitalism that is regulated market capitalism, and Europe tends to be the kind of capitalism that leans a bit more towards social democratic norms. In Japan, there’s a kind of collective capitalism. Even China, sometimes called communist China—when I was growing up called Red China—under Deng Xiaoping. He had this famous phrase, “It doesn’t matter if the cat is black or white as long as it catches a mouse,” and people took that to be a dramatic move towards a capitalist kind of system, even in communist China. And so capitalism, for a period of time, was and still is the dominant way of organizing all—almost all of the major economies of the world. There are a few outliers. But the major economies have different versions of capitalism. There are five or six versions of capitalism. And now, suddenly, here we are in 2020, 2021, 2022, and we had an election in the United States when some of the candidates were talking about socialism. We see in China a reversion back to some skepticism about the kind of capitalism they had and the great wealth inequality that resulted. We see other surveys that suggest people around the world are less enamored of capitalism. So it would seem to me a very important topic to say, well, what is the future capitalism? The system that was the dominant system in the world for, roughly, thirty years is under question in almost every location and why is that? And so, that is what we’re looking at. Now, I know that we sent out some readings to the individuals who are joining us here—the academics, the students from around the country—and if you look at those readings you’ll see that we don’t really know the answers yet. And so one of those discussions was a discussion I led with Glenn Hubbard, the former dean of the Columbia Business School. And Glenn’s solution was to go back to the very early days of capitalists, to go back to Adam Smith and to adopt, as Glenn would say, the little “l” liberal view of capitalism, which is, basically, one in which he used the phrase, we should be building bridges and not walls, driving, I believe, for a kind of empathetic opening where we understood each other better and saw that we had our futures all intertwined. And so that’s, certainly, a view of, perhaps, how the future of capitalism might evolve, where it looks very much like a small “l” liberal view, going back to Adam Smith and the book that he wrote on so-called moral philosophy. If you look at some of the other readings, you’ll see that some people are saying, gee, one of the challenges that we have now is businesses are being allowed to sort of drive much of the agenda. And this discussion in businesses about the purpose of business and should it be so-called stakeholder value and stakeholder—so-called stakeholder primacy, thinking not just about the shareholders, but employees and the communities and the supply chain, et cetera. And so, that article suggested, well, maybe we really need stronger government influence as opposed to leaving the fixing of the system to the private sector, with maybe stronger antitrust regulation, perhaps, more progressive taxes. And so we have that as a question.  One of the articles looked at the most recent G-7—Group of Seven—discussion that seemed to move from the notion of free trade being best to maybe thinking about different metrics to make sure that the wealth of capitalism is distributed more evenly. I wrote another piece that said, in this period of inflation let’s make sure that we don’t go back to wage and price controls. So what the Council has been doing through these roundtables, through publications in Foreign Affairs, through posts on CFR.org, is, really, looking at and mixing up lots of different ideas, bringing many different views on what is it going to take to return to a position where everyone, both in the U.S. and more broadly, still believes that capitalism, for all of its flaws, is still the best way to organize our economic activity. At the end of the day, I think everyone would agree capitalism has done a really good job of getting us out of poverty. But the challenges now are how to think about the inequality that seems to have emerged in almost every country, and is the answer to that sort of more regulation or less regulation—more taxes, different taxes. Here in the United States, we’ve seen under President Biden a number of proposals that, while they are described as being fiscal stimulus, are really about social policy that, in many ways, are meant to fix some of the challenges of capitalism. For example, the question of should we have early childhood education as free for all—would that help to drive better outcomes in terms of income and wealth inequality. Obviously, the notion of investing more in infrastructure, particularly twenty-first century infrastructure as well as the older infrastructure is allowing us to knit the society together a bit better and maybe in a more equitable way. So it’s not just think-tank individuals and academics and business leaders, but government leaders as well are really coming to ask this question of what systems—what could we change in the system of capitalism to make it more resilient, to make it more robust, and to solve some of the issues and challenges that we’ve seen emerging only gradually over the last several years. And so those are some of the things that we’re focused on when it comes to the so-called future of capitalism. But let me emphasize that while I’m talking about this in terms of the future of capitalism and capitalism has been adopted in many different kinds of political environments—democracy, presidential democracy in the U.S., parliamentary democracy in the U.K., obviously, state-controlled in China—one of the reasons that I think, at least in the United States, we should be focused on the future of capitalism, going back to that Roosevelt quote that I started with, is that it may well be that capitalism and democracy are intertwined, and I believe that it is really very difficult, challenging, maybe impossible, to have a representative democracy where individuals go to the polling place and trust their government and trust their government leaders and trust the outcomes of democratic systems themselves if they don’t think that the economic system works well for them. Back to the point that Roosevelt was making, in societies where it looks as though the economic system isn’t working well, where unemployment lingers, where income and wealth inequality become major problems, where the individuals think that their children will not have better lives than they did, perhaps they’ll say, hmm, this is not just a problem of capitalism, this may be a problem in our political leaders. And maybe we might need a very, very different political system. And so I think, without panicking or creating hyperbole, the linkage between capitalism and democracy, I believe, is a fairly tight nexus, and some of the challenges that we’ve had, perhaps, around trusting elected outcomes, et cetera, may well be due to the fact that people feel that the economic system has worked well for a few but not for most, and they may see in many ways their lives are improved because they have new technologies and they can use Zoom and other things to communicate. But they may also think they’re stuck in a job where they are a so-called essential worker and confronting health crises and health challenges on a daily basis, and maybe that’s not the outcome that they’re looking for. And so we should recognize that this question of the future of capitalism is important unto itself. We don’t know yet the answers. But it may be tied a little bit to the question of future democratic institutions, at least in the United States. And the final point I’d make by way of opening is to say this is not the first time that we’ve seen questions of capitalism on the table. If one thinks about the economic history of the United States, there are many times when we’ve had rollercoaster rides in the economy. If we think about the beginning of the Industrial Revolution with child labor and individuals forced to work in very, very unsanitary conditions and, indeed, not being sure of the quality of food, and we had novels written about those kinds of challenges, yet, we came through that. We rebuilt capitalism in a different way. We added a social safety net. We created government agencies to think about food and drug safety. We thought about and developed laws around occupational safety and health. We created antitrust mechanisms to make sure that—in Teddy Roosevelt’s era, we had the so-called trust busting that institutions didn’t get too large. We had antitrust regulations about price fixing, for example, and rules about the hours that individuals could be made to work. And we’ve had—so we see that, at least in the United States, the capitalist system has historically righted itself when it seems to get a little bit out of kilter. So I close these opening remarks by saying while there may be some issues and questions that people have, while a number of us are even studying the future of capitalism, I, at least come at that with a sense of optimism, knowing that in the history of America, during some of the challenges when capitalism was at its roughest and most unfair and even dangerous to people, our leaders and our society stepped forward and created a kind of capitalism that was fair, more equitable, and smoothed out some of the rougher edges. So count me optimistic that the younger people listening to this and my own children will continue to live in a capitalist system. It might be a little different from what we have today. But I have every great confidence that with the goodwill of the people that we’re working with and millions of others we’ll end up with a modern capitalism that is suitable and fit for purpose for generations to come. So with that, let me stop and see if there are any questions, comments, from the audience. FASKIANOS: Great. Thanks so much, Roger. And now we’re going to go to all of you for your questions and comments. We already have a couple or several written questions in the Q&A box and raised hands. So if you are typing a question in the Q&A box, if you could also include your affiliation, that would be great. The first raised hand goes to Joseph Bower, and just be sure to unmute yourself and say who you are. Q: I’m Joe Bower. I’ve been teaching at Harvard for a long, long time. And around our centennial, which was 2008, in the run up we talked to business leaders all over the world about this problem and they identified major factors which they thought would disrupt the system. First of all, by the way, they did not talk about capitalism. They talked about the market system and—because China, basically, has a state market system. We have a private market system, which has something to do with ownership.  You’ve done a very good job of pointing out that, in fact, our government has played, historically, a very important role in influencing that system. We started dismantling that. We did not have a financial crisis in the United States until something like 2000 since the 1930s. But we dismantled that apparatus that, in fact, protected the market system and we’ve done that in a—I mean, when you and I went to school we were taught about countervailing power. That was dismantled. In a whole series of areas we have, in fact, undermined the infrastructure of law, of public health, and a whole series of pieces that made—enabled the market system. The market system doesn’t work by itself. So I would think that it’s a very hard problem and our—I have grandchildren who feel the way you described, that our system is—capitalism is problematic, but they think—they’re talking about the state arrangements. They’re not really talking about the value of markets. And I wonder if you can help us—can you talk about where your group has gotten to about that distinction? FERGUSON: Well, first—and Joe Bower is being modest. He’s—(laughs)—one of the most distinguished professors at Harvard Business School and, Professor Bower, it’s an honor and pleasure to have you here. And so, our group, I think, fully recognizes that the kind of capitalism we have here, as I think I said, is regulated capitalism and regulated free—a regulated market, so to speak, as opposed to state-driven markets or other things. I think the challenge for all of us—and you know this, Professor Bower—is in the history of America the pendulum swings back and forth, you know, on regulation. So I identified, that Teddy Roosevelt-, FDR-aligned regulation that came in and sort of saved capitalism and saved the markets at the very beginning of the nineteenth century—of the 1900s—the twentieth century. And then you fully understand that there have been periods of time here in the U.S., starting recently in the 1980s, when both parties, Democrats and Republicans, agreed that to some degree large government was the problem—that we needed to be deregulatory, and that is not—that was not one party or the other. It was a bipartisan consensus starting in the 1970s that, perhaps, regulation had become too much. And I think where you may be right and it may be part of the solution to this question of well-regulated capitalism is maybe the pendulum needs to swing back a little bit. Perhaps we do need to have—and there are folks who, certainly, think we need to have—a more progressive tax system to redistribute income. We had an election where there was debating about wealth taxes. They don’t work very well in other countries but it’s an important debate. We also, clearly, are right now having a conversation about it in the Congress under the president’s proposals about spending more on a social safety net, early childhood education. So I think you’re pointing out something that’s real important: In the swinging of the pendulum in democracy here in the United States, where that pendulum often swings around the question of how big should the state be versus private citizen initiative? How much should we have redistribution versus not? How much should we have government regulation versus not? And it may well be that is where it feels that’s part of where the debate is. And we can look back over history and say, all right, is it time for that pendulum to swing back—have we gone a little too far in the deregulatory mode and getting away from the well-regulated markets that have allowed us to be the envy of the world. So a good question, and it will be one of the things that I know we’ll continue to debate as a society and in the groups that we’re working. FASKIANOS: Thank you. So we’re going to take the next question from Willem DeVries, who got five up-votes. He’s a professor of philosophy at University of New Hampshire. You say capitalism has done a good job of getting us out of poverty. But who is the us here? Colonialism, a form of capitalism, certainly, did not help get the colonies and the colonized out of poverty. FERGUSON: Very good question. And so, to be fair, when I say global capitalism has done a good job getting us out of poverty, you point out something that’s real important, which is when economists say that they’re often thinking about a dramatically larger middle class in China. There is an intellectual class in India that is tied to global capitalism. We see in some of the Eastern European states, again, technology-driven jobs that are more middle income. And so one of the points that you’re making, and it’s one of the points that one of the articles made, is this free trade environment created by the WTO may have helped some people get out of poverty if they could get themselves linked to the U.S. economy and the U.S. engine, but not everybody. And one of the points that some of the articles made is free trade and the WTO process may have been very good in some places but there were costs paid, perhaps, here in the United States and other places in terms of jobs—manufacturing jobs, in many cases—that had existed here in the United States and then were moved overseas or moved to other countries. So you’re right to say be cautious. A global statement that millions and maybe billions have been lifted out of poverty is not the same as saying that everybody is made better off and there, certainly, are individuals here in the U.S. and we’ve had these discussions, obviously, in our process around bringing manufacturing jobs back, increasing tariffs on goods from other countries. And so, a very, very good point. And, finally, let’s be quite clear. Some of the joys that we have here in capitalism come, as you point out, from other countries that, perhaps, where they’re giving up their natural resources, where the nature of agriculture has changed, and all that to support our habits, and it may well be that there are places where individuals’ lives have been disrupted, not just in the U.S. but in other places, in a way that aren’t good. And so I think that is one of the things that drives some people to question what’s the future of capitalism when you look at global inequality and when you look at those who are feeling left behind here. So all of that is very much on the table. Thanks for raising it. FASKIANOS: Thank you. I’m going to go next to Horace Bartilow, who has raised—a raised hand, from the University of Kentucky. Q: I’m no longer at the University of Kentucky. I’m at the American University School of International Service. FASKIANOS: Great. Q: I’m an international political economist, but I am—my question today—and thank you, Mr. Ferguson. Excellent opening. Is—capitalism came from—it evolved out of a feudal era. It came from somewhere, right? FERGUSON: Mmm hmm. Q: My concern is, and don’t take my question as if I’m against capitalism. I live in a home that is, technically, owned by a bank. I’m paying a mortgage and my retirement is wrapped up in the stock market. But my concern and my question is, is that the very fact that we’re asking the question about capitalism’s future is that we are worried that it might have a future, and the question is it might not have a future and that the next stage of human evolution could be developing a system that doesn’t look like capitalism. I don’t know what that system is. But it just seems to me that from your exposition over the period of capitalism’s life there have been different attempts to make it compatible, make it more legitimate, make it more egalitarian, and then the question is what happens when we run out of options to make it more egalitarian, to make it more legitimate. Then what? Because it just seems to me that we’re dealing with a system that we are trying to tame against its own self, that if we let it be itself it could destroy itself, right. It’s almost as if you’re trying to stop an addict that needs to be fed. (Laughs.) And so what happens when we run out of options? FERGUSON: So I think to put it in historical context, you’re, certainly, true that capitalism came from someplace. As you say, it came from feudalism. That was a system that had even more brutal inequality than anything you can imagine. And knowledge evolved. Ideas evolved. You know, Adam Smith, various things, emerged, and there was a whole intellectual ferment around how the system should be or the economic system should be organized in a way that it was perceived to at least overcome some of the obvious limitations of feudalism. To be very honest and transparent, it may well be, to your point, that out of what we currently have will be a gradual evolution towards something else whose name we haven’t even imagined yet. You know, it could well be that someone’s going to write the book that’s the functional equivalent of The Wealth of Nations that Adam Smith wrote to help drive a view of the way markets should be organized or that there should even be markets. And so I think that’s—the reason we’re having this conversation is that many people, some of whom have already spoken, are looking at the current way we organize the economy kind of globally and say maybe there is a better way. And so, the process of talking about the future of capitalism is to start with what we understand and, in your word, taming the beast. So we’ve seen this beast in operation for, roughly, three hundred years. We’ve tamed it many, many different times—creating new institutions, central banks, creating new laws, creating progressivism, all of which has tamed capitalism, so to speak, to use your analogy. And so I think we’re in the process of seeing how that we can continue to do that. You may be right that someone, an Adam Smith type person or whoever she may be, may come along, imagining a brand new world and all of us will rally around that or our children will. But right now, perhaps because of the lack of creativity or imagination, I think we are attempting to do what our forefathers and predecessors did, to your point, continuing to sort of manage and tame this beast as best we can. The reason I think that’s important is we also know that there were—there was a different view of how to organize economic activity called communism. That, obviously, didn’t work very well. And the point that I made, and I think Joe Bower jumped in as well, even in so-called communist China they adopted a market system allowing elements of capitalism to flourish. So the other reason, I think, to continue this discussion is we did have an experiment with a different system and the folks under that system, clearly, didn’t like it and it eventually fell on its own weight. So, right now, having had that experience, the absence of, that author who is going to imagine the new future, I think it behooves us to see, to your language, if we can continue to evolve this one to hold on to some of the strengths and ameliorate some of the obvious problems. FASKIANOS: Thank you. I’m going to go next to Kate Landino, who is an undergrad in—majoring in political science at Skidmore College. One of the main reasons capitalism is under fire is that it’s benefiting some and oppressing most. How would you suggest that within the U.S. we can address the wealth gap and redistribution of wealth within the capitalist system? FERGUSON: Well, look, we know how to do that is through taxes, and the challenge is always—and it’s been challenging us forever—how much should we tax the rich and redistribute and is there a point at which individuals say, oh, gee, I know I don’t want to work because that last hundred dollars, thousand dollars, whatever, is mainly going to the government and not staying with me. And to be quite clear, we had a point in this country when we didn’t have an income tax and that required a constitutional amendment to drive it. We’ve had periods when the marginal tax rate—the tax rate on the last $100,000 whatever the number would have been at the margin—was well over 50 percent, in some cases 70 percent, and that was true in the late 1950s and the early 1960s. So, John Kennedy and his team came in and reduced the marginal tax rate and that drove quite a bit of growth. We’ve had more recent tax cuts where some people felt you’ve gone too far. And so I think we know how to deal with this question of income inequality, at least, and redistribution, and the main way that we do it is through the tax system. Now, having said that, you could also look overseas because people have talked about taxes on wealth, and it turns out that many countries have tried that. Right now, I think, only two other major developed countries are using it. Many tried it and reject it—rejected it. So, we can also learn something about tax structures that, perhaps, didn’t work as well as their creators had hoped. And the final point I’d make is, even at our marginal tax rates one can look to Europe—when I say our I mean in the U.S.—one could look to Sweden and the other Scandinavian countries to see countries that have a much higher tax rate and they seem to do all right with that, and maybe we can learn and understand how that works as well. So the answer to your question is it all runs through the taxes. It’s a big debate here in the United States and has been going back to should we even have an income tax, and I expect that, and we saw it in this most recent election, we’ll continue to debate what’s the right level of taxes to do what we want to do when many of us, I think, want to maintain the capitalist system, but to your point, smooth out the edges so that it doesn’t feel as though a few of us benefit at the expense of others. FASKIANOS: Terrific. I’m going to go next to Ken Mayers, who is a senior adjunct professor at St. Francis College. You mentioned different forms of capitalism in your introduction and Professor Bower mentioned different market systems. One can argue that all systems are mixed and that systems in many places around the world today involve mixtures that include elements of oligarchic capitalism. Can you point us to people within your group who are taking the role of oligarchic capitalism in the emerging future of capitalism globally into account? FERGUSON: Well, so this project started with a paper that I wrote with my research associate, Upamanyu Lahiri, and we identified six types of capitalism in the world and they may be market systems, to pick up on Professor Bower. So, in the U.S. we describe that as a regulated market system. In Western Europe—we’ve heard her talk a little bit about it—it has more of a social democratic nature to it but very much capitalism, not too much state ownership; a bit more than what we have. I would describe Russia as, to your point, an oligarchic capitalism. You know, some people would say that. We looked at Japan, and I think I would describe that as being a collective kind of capitalism. Obviously, China, to Professor Bower’s point, I think, is very state-directed capitalism, and we have in other countries a bit more of a bureaucratically-driven capitalism. So that is where we’re thinking about it. We’ll have someone talking on each one of those. I would say most of us don’t believe that an oligarchic capitalism where a small number will get the wealth of the society, an even smaller number than we have here—that doesn’t look like it works. It, certainly, doesn’t feel—if we’re worried about the inequality of the current system we have in the United States imagine if we had a system where even a smaller number of people controlled the major industries and were not paying taxes. So we will take a look at all of these. I don’t think we’re going to look to an oligarchic capitalism system as the way that we want to go because the evidence suggests that that probably is not the best for the vast majority of people. But we will, certainly, look at all of them and figure out if there is, to your point, an admixture that works better for more people than what appears to be the case now for many. Thank you. FASKIANOS: Next one is Valerie Luzadis, who is at SUNY Environmental Science and Forestry at Syracuse in New York. One might easily understand that climate change is a direct result of the dominance of capitalism in which homogenization requires additional use of energy to homogenized globalization. When considering this, huge questions arise about the ability of the offending system to, truly, address the problem, especially when the power distribution is not adequately addressed. Comments? FERGUSON: Well, I find that very interesting because it feels to me, after some fits and starts, that there’s a consensus that’s emerged that we have to confront climate change. Some folks may still debate is it man—is it caused by human interaction, what it may be. I think, in general, the consensus is we must figure out numerous ways to attack this problem. To put it another way insofar as climate change or climate degradation is due to a market that doesn’t work very well, we’re finding people say we need to create a new market. We’re finding investors saying we must invest in—in mitigation processes. We find shareholders saying to companies, what are you doing about this topic? It feels to me as though a consensus is strongly emerging that this is an existential threat, and what I find fascinating is some of the answers are regulation, but some of the answers are also markets. And, how that’s going to work I’m not sure. But, there’s a great deal of talk about putting an adequate and accurate price on carbon, which would drive up the price that we all pay for, a number of commodities and services that are driven by, the use of carbon for energy. There is an ongoing effort to create a better market for what’s called carbon offsets—using different ways to reduce carbon in the atmosphere and paying people to do that. So I actually find it fascinating that this big existential issue is being confronted more directly now than ever and that some of the answers are around regulation but some of the tools of capitalism are being called in to help drive solutions here. And so this feels to me as though to some people, many of us, it took too long to get there. It feels to me very much as though this is a place where insofar as climate change is being driven by poor markets, there’s an effort to make better markets as well as better regulation to drive as quickly as we possibly can a solution to this really daunting and, potentially, existential challenge. FASKIANOS: Great. The next question comes from Steven Jones, who’s at Georgia Gwinnett College. How would you respond to critics of capitalism such as Piketty, who advocated transition from capitalism to socialism? FERGUSON: Well, look, I think we start by saying, as Piketty did, what is the thing that seems to be the fundamental Achilles’ heel of capitalism, and I think all of us agree—and it’s come up a few times and Piketty and his co-authors have identified it as well—which is the tendency in capitalist systems for income and wealth to become increasingly unequal. Now, we know how to deal with that. As I said, it’s through tax arrangements, different kinds of tax arrangements, and all of them don’t work equally well, and so we can create an overlay that ameliorates those effects. Now, is that still capitalism? I would argue it’s, certainly, still capitalism. Just as we have more progressive taxes in Scandinavia and other places, they still have, fundamentally, a capitalist system where it’s still primarily individuals who control the means of production, if I were to use that phrase. And so I think we should be cautious here that just looking around the world there are already different types of capitalism and we’ll probably end up picking and choosing—every country will probably pick and choose. And I wouldn’t be surprised if we start to sort of coalesce globally around a kind of capitalism that meets some of the challenges of inequality as best we can without creating so many disincentives in the private sector that we also don’t have the opportunity to have the kind of really creative growth and development of new ideas and new technologies that we’ve had. So that’s sort of the way I think about it, and when I read Piketty’s work it feels to me as though what he’s looking at is something that’s a more European-style capitalism with more progressive taxes and I don’t know if one wants to call that socialism. I think that’s a little strong. Socialism involves state ownership of many of the means of production. But it may be what he’s talking about is something that looks like a social democratic kind of capitalism, which major societies have found quite comfortable and quite amenable. FASKIANOS: I’ll take the next question from Gabriela Rivera, who’s an undergrad at the University of Notre Dame majoring in economics and global affairs. To what extent do businesses influence environmental and social change? Is a massive change needed to create equity and reduce carbon emissions possible through corporate responsibility without extreme government regulation? I think you did touch upon this. But— FERGUSON: Yeah. So one of the articles talked very much about that, and I guess I believe it’s a both/and. So I think we need governments to set regulations, as we’ve had in the past. One of the best government regulations that we had was around sulfur dioxide emission when we had a big concern about acid rain, and so we’ve seen the government can set regulatory constraints. We’ve seen governments setting—creating markets that deal with some of these problems, and we also need, as we do now, as we have now, to have companies that are also voluntarily thinking about how to reduce their carbon footprint. So I think the answer is a both/and. We still need government regulation. We’re going to need markets to be created to give prices to carbon that all of us will have to pay to consume less of it. But we also need—and we need businesses that understand they’ve got a responsibility to manage their carbon footprint and they’re doing that—these businesses—in part because their investors are asking for it, their consumers might be asking for it, and, certainly, in many cases, their employees are asking for it as well. And so, I think one of the good things about the current system is pressure, internal and external, can get businesses to think about these big long-term issues as well as having government regulation and having new markets come into existence. FASKIANOS: Great, and I—that does segue nicely into Dick Cavanagh’s question from Harvard. How does stakeholder capitalism address economic inequality? FERGUSON: We’re very lucky today because we have distinguished Harvard professors and I—total transparency, I’ve known Dick Cavanagh for decades. So, I think it’s very interesting to me to think about economic history, that there is a great deal of talk about that famous Milton Friedman article that said the purpose of businesses is to make a profit and that drove this notion of shareholder capitalism was always the dominant capitalism. Well, the truth of the matter is—and you know this—there were always people that said, oh, wait a minute, businesses have other responsibilities as well. And I think, for sure one cannot create a long-term viable business without thinking about impact on the environment, impact on communities, impact on employees, and all that is wrapped up in this new concept of stakeholder capitalism. But there’s always been that discussion, as you well know. And so I believe fully that the resurgence of the question stakeholder versus shareholder is a good thing and my view is that businesses have always been forced to think about their environment, think about their shareholders, thinking about their stakeholders, as it’s now called, in order to be successful. And, ironically and most importantly, you know and all of us know the story of Henry Ford, who raised the wages of his workers so they could afford to be good consumers and wanted to buy his automobiles. And so this notion of stakeholder capitalism goes back in the history of America and I think it’s one that’s been resurfaced and I think it’s an important way to think about the future of capitalism. FASKIANOS: So this goes to the next question from Deborah Burand, a professor at NYU Law. We’re in proxy season now. Do you see the market increase in shareholder proposals in 2021 related to ESG and the support many of those proposals garnered as another way that markets are moving to fill gaps or augment shifts in corporate purpose? FERGUSON: Absolutely. Again, as a person who believes that capitalism will continue to right itself, that is one of the examples. So, shareholders, particularly, our large institutional shareholders, fought to get proxy access, fought to get say on pay. We’re now finding that they are voting around some of these social issues quite a bit more. We’ve also seen a case of a small fund—I think it’s called Engine No. 1—getting access to the proxy at ExxonMobil and, I think, replacing two or three of their directors. And so, through capitalist mechanisms and through the ownership of shares, which is an essence of private market and private capitalism, we’re finding individuals, institutional shareholders, and others really forcing change even to some of our largest, most important, and historically iconic companies. So I do think that you put your finger on one of the ways that capitalism is righting itself, which is using a capitalist tool, the proxy. FASKIANOS: Great. The next question from Skyler Ruderman, who’s an undergraduate student at University of California Santa Cruz. You mentioned earlier the linkage between capitalism and democracy as almost being inherent, yet we see that the United States is propping up or supporting dictatorships like Pinochet, Suharto, and kingdoms like Saudi Arabia, protects or advances financial interests of the state and its major corporations. Given this direct link between authoritarianism and capitalism, along with the drive within the U.S. to inhibit voting and with historic regulations around restricting voting and participation in democracy, can we say capitalism can be conflated with democracy? FERGUSON: So I think what I said was it’s hard for me to imagine that we’re going to continue to have sort of a well-functioning representative democracy if people think that the system doesn’t work for them economically. That is back to that 1938 quote from Roosevelt and I agree with that. So one of the reasons that it’s important to drive an improvement in capitalism is that people have got to believe that the system, broadly written, is fair for them, and in a democracy, if you don’t believe the system is fair, what do you do? You go to the ballot box. You may end up listening to the most extreme voices and that, potentially, could lead to an unraveling of capitalism and democracy, and that was sort of the point that Roosevelt was making. I want to associate myself with that point, that there’s a certain amount of determinism that comes from economic outcomes that in a representative democracy spills over into, frankly, the democratic system. Having said that, I’m not in a position to defend every foreign policy decision that was made back in the 1970s about supporting dictatorships in different places. And, to the point around the hydrocarbon economy, there, obviously, are decisions that people make and the markets make around supporting different governments, different regimes, in part to get hold of raw materials that are necessary. I can’t defend or attack any structure of government any place. But you, certainly, make a point to observe that in the history of the United States we’ve had various different kind of alliances that maybe to the modern eye don’t look—isn’t that consistent with who we are and what we stand for. On the question of voting, I’ve said publicly and signed letters that say that literally, 1.3 million Americans, I think, have died in various wars defending democracy and the right to vote, and I continue to believe that that’s a sacred element of our democracy, to have everyone have access to the ballot. I grew up in the civil rights era when people, literally, were killed, if not beaten, around this question of access to the ballot. So, count me fully committed to having the largest possible legitimate vote that we possibly can. And I emphasize legitimate vote and as large as we possibly can, because I think that’s one of the hallmarks of democracy and because, as I said, more than a million Americans have died so that all of us had the right to vote. FASKIANOS: Thank you. There are many more questions but we only have time for one because we have a hard stop to let you prepare for your 2:00 p.m. So I’m going to give the last one over to Laila Bishara, who is an assistant professor at SUNY Farmingdale, teaching international business. Your thoughts on the role of educational institutions to lead on ESG issues and, hopefully, its impact on industries. I think this is a good way for us to close. FERGUSON: Absolutely. So I have said many times that education in general is the great leveler. It brings all of us up. I, personally, have benefited from that, and I fully understand that education institutions are often where some of the rough and tumble as we move forward goes forward. So I’m not at all surprised to see that on educational campuses, educational institutions are driving some of the heaviest debates around ESG. That was true when I was a student back in the late 1960s through the 1970s. One of the great joys of universities is that is where ideas are felt most passionately and people sort of drive to make change from the academy, both the students and faculty. So, I fully expect to see more of that because that’s simply one of the great benefits of having the kind of robust higher education systems, the state schools such as SUNY and with private schools as well, driving all of us to think more critically about what we do. And, by the way, I also think that a functioning democracy depends on individuals capable of thinking critically for themselves, based on having a solid foundation of a liberal arts education with the right degree of science and technology and math and engineering as well. FASKIANOS: Great. Any last words before we close, Roger? FERGUSON: Three things. One is I really want to thank all of you. I know we didn’t get to all the questions but, clearly, a very, very thoughtful group with wonderful questions. Two, this is really an important topic for all of us to engage in, not something that the elite can establish but all of us need to have a point of view about our system. And three, I continue to be optimistic, knowing that there are weaknesses and failures.  We’ve tried other solutions. None of them would seem at this stage better than capitalism. Something better may come along. But until that happens, I, at least, will continue to try to think through how we can improve the capitalist system that we have. FASKIANOS: Great. Thank you, Dr. Roger Ferguson. We really appreciate your taking the time to be with us today. Again, my apologies to all of you for—who had your hands raised and we couldn’t get to them. But we will have to invite him back to talk about how his project is going. So, as I mentioned at the outset, we will be posting the video and transcript to this so you can revisit it or share it with your colleagues who are unable to join.  Our next Academic Webinar will be on Thursday, March 10, at 1:00 p.m. Eastern Time with Rose Gottemoeller, who is at Stanford University, talking about international security and cooperation. Please continue to follow us at @CFR_academic and visit CFR.org, ForeignAffairs.com, and ThinkGlobalHealth.org for new research and analysis on global issues. Again, thank you all for being with us, thank you to Dr. Ferguson, and we hope you have a good rest of the day. (END

Afsaneh Beschloss discusses her distinguished career in finance, including her roles as founder and CEO of RockCreek, a leading global investment firm, her time as treasurer and chief investment officer of the World Bank, and as managing director and partner at the Carlyle Group. Lessons Learned is a roundtable series, open to term members and younger life members, which features distinguished speakers who reflect on their career experiences, the choices they made along the way, and the lessons they have learned from them.