Noreena Hertz, a Visiting Professor of Business-Society Management at the Rotterdam School of Management, is the author of internationally acclaimed books on economic globalization. She was in Brussels for a seminar organized by the Erasmus University and hosted by Alexander Italianer, Deputy Secretary General of the European Commission.
Hertz is quite pessimistic about capitalism as we know it. “At this, the first full crisis, the first collective ‘lose-lose’ the real economy is hurting, the public is angry, and politicians are searching for a new way forward. It is our responsibility as academics in leading institutions to help shape this. Which means doing all we can to secure both a softer landing, but also a just and sustainable world for us all.”
Death of Gucci Capitalism
According to Noreena Hertz, the era of Gucci capitalism is now over. That era started in the eighties, with the laissez-faire capitalism of Ronald Reagan and Margaret Thatcher. At this moment, we are experiencing a paradigm-shift. “The positive sentiment has now gone. The public are angry. This anger will soon be directed at big businesses in general. Nowadays, not even half of the population in the US says that the market should function freely. The old narrative that business is good and government is bad, is not going to work anymore. People expect and want governments to intervene now to restore trust. This mandate is absolutely new. And, I am sorry to say, economics over the past two decades really lost its way. They reduced people to maximum utility machines. Its underlying ethos that we are essentially individualistic is essentially not true. I believe that there will be a time of pulling together.”
What is Needed Now?
In a sense, the crisis is tangible to all. How should the economy be transformed to prevent further crises? “For government, it is very tempting to take measures meant to protect the economy. As we have seen the catastrophic consequences of such a strategy during the Great Depression, governments should be smarter.”
Governments now stand for the challenge to address the problems in a meaningful way. “They will need to create a narrative so that the public understands what sacrifices will be needed.” Part of necessary reforms has to do with wages. Hertz, who is consulted by senior UK-politicians on how to deal with super earners, thinks that super earners should pay more taxes. “Paying taxes should be seen as a privilege. For the more taxes you have to pay, the more income you actually have.”
Hertz also thinks that taxes for the lowest incomes should be lowered. “In the UK, nurses are so badly paid that many of them cannot even afford to pay fuel to drive to work. If you pay them more, they will spend it. That way, you serve a dual purpose: you help the poor and stimulate the economy at the same time.”
Hertz pleads for a reorientation on values. “There should be more attention for the environment. At Oxford University, every students will be obliged to take a course in climate change from next year on. I think that is great.” Herz also thinks that institutional reform is needed. The WTO was meant to bring equity in the world, but has served too much the interests of the already rich capitalist countries. Not capitalism should be promoted, but the welfare of all people. Hertz urged the public attending the seminar to show leadership: “Each of us is capable to use its networks to ensure that the next form of capitalism is much better. You have the ability to lead”.
After the seminar, ScienceGuide spoke to Hertz and Italianer.
Ms Hertz, Over the last few weeks, different governments have announced big investment plans to get the economy going. How do you assess the utility of such measures?
“It is essential for governments to keep in mind the long-term view and formulate a clear narrative. At this moment, these investment plans are best articulated in the USA. A 800 billion fiscal stimulus, together with investments in infrastructure, roads, but also the green economy, that is a quite clear narrative. In Britain, where the situation is worse than anywhere else, the stimulus is not as effective. In the Netherlands, investing in the green economy makes real sense, because the Netherlands already has a cluster of relevant industries and expertise, such as on wind-energy, the management of flooding dangers as well as on bio-agriculture. For the Netherlands, being for example the largest exporter of flowers, it should be very easy to transform into a green agriculture.”
Mr Italianer, you have been working with the European Commission for quite a number of years. How do you assess the arguments of Noreena Hertz?
“The kind of values that Noreena Hertz is promoting has been part of the EU-philosophy for the last 50 years. She argued for the handing over of sovereign powers when this is beneficial for our common good. In the European Union, we have not been doing much else.
Therefore we do recognize her argument for green reform. The EU has been a pioneer on climate change. We have been taking up leadership roles not only for the environment, but also for the economy. For example, we have suggested the US to convoke the G-20, the second meeting of which will be in London shortly.
I was curious as to what Hertz would say about disconnecting economic growth and environmental pollution. Where Hertz speaks of a lose-lose situation, we of course strive for win-win situations. Hertz mentioned the WTO as a rules-based organization. I think the EU is much further ahead, having at least a Court of Justice in Strasbourg. What Noreena Hertz is arguing for is in my eyes a very continental philosophy.”
At the dinner buffet Hertz was praised for her provoking insights. Erasmus-professor Kees van Paridon says that her engagement reminds him of the seventies, when he was himself a university student. “Being a student is not only about learning a discipline. You also have a social responsibility. As a student myself, I did engage in politics. It was fun and a learning experience. Among the youngsters of today, that feeling of social responsibility seems gone.” Van Paridon as well as Italianer observed in the discussions about this that Hertz’ ideas seem closer to the ‘Rhineland-model’ with its close deliberations between social partners than to the Anglo-Saxon model in which CEO’s dominate.