Is there a glimmer of hope in the greatest economic crisis since the Great Depression?
We are in the middle of the biggest economic crisis since the Great Depression – but does Covid-19 bring us only misery or is there a glimmer of hope? We asked a true optimist Peter De Keyzer.
In 2013 you wrote the book “Growth Makes You Happy” in which your vision is expressed as: optimism + free market = progress. Can you tell us how you came to that vision?
“I was often irritated by how the importance of economic growth, international trade or the future of the European Union dominated the public debate. The working title of the book was first “The 50 Biggest Misconceptions About the Economy,” but that sounded a bit negative. So I wanted to make something positive out of it. Hence the title: “Growth Makes You Happy”. The book is a plea for optimism, ambition, self-reliance, entrepreneurship, progress and intelligent growth.”
Has your vision changed since you wrote the book or does it still stand?
“It has only become sharper in recent times. I strongly believe in individual freedom, individual initiative, the power of innovation, technology and flexibility. Society is conservative by nature. There is a kind of dictatorship of the status quo within companies and the society. Only when there is a crisis does the politically impossible suddenly become the politically inevitable. Those processes have always fascinated me.”
What can CFOs do with this approach?
“You can score with bad news. If I say “the Eurozone will implode tomorrow”, I will be on the front page of the newspaper. When I say “it will be fine”, no one writes about it. We have the tendency to be mainly negative and pessimistic. That gives you an aura of credibility. An optimist is usually viewed as an ill-informed pessimist. What I find important is that you can assume that people will always do the right thing, that there are more opportunities than threats, and that we have a natural tendency to mainly see the threats. The primitive man who first looked at the tasty fruit and only then at the threat of wild animals, has become extinct. We are descendants of the species that saw threats first and foremost. We must try to counteract this tendency. People in governance or management positions must above all see the opportunities and try to convince the rest to follow. The optimism that we are able to do that ultimately benefits us much more.”
In light of what is going on in the world right now, how is the optimist in you doing? What positive developments do you see?
“Digitalization is something we have been talking about for a long time but have done very little about it. Now you can see that development accelerating. The external environment serves as a catalyst. That’s good. It’s not just a way to cut costs, it’s also about finding new ways to collaborate. Another positive side is that due to protectionism, we are left to our devices. That offers opportunities for companies that used to have to compete with companies from China or elsewhere. And finally, at the macro level some developments are taking place that can turn out very positively. Everyone is looking for growth and where the government should invest, such as infrastructure, mobility, 5G, digitization, local production and so on. Besides a crisis, covid can also mean a big economic leap forward. That there will be a crisis sooner or later, is inevitable. How you deal with it is a choice.”
We have had the lockdown, the economy is gently picking up again. How do you look at the remainder of 2020?
“The virus is still there. The vaccine is not yet available. The jury is still out on what the best way is to reconcile three things: health, economy and freedom. You get to choose two of the three. China opts for health and economy and is sacrificing freedom. In the US, people go for the economy and freedom: health is suffering. In Belgium, there is more resistance to an app, so the economy is suffering more from corona. That is the choice countries have to make. My take on it is: what is your freedom worth if you are at home and have nowhere to go? The Netherlands is doing this quite well. ”
What long-lasting effects of covid do you expect?
“Government spending is huge, so a lot of debts are incurred. Central banks will absorb them to a significant extent. Therefore, I expect short and long term interest rates to be zero for a very long time. This has the effect that the large corporates can finance themselves seemingly free of charge, and small and medium-sized businesses – restaurants, event organizers or clothing stores – will go bust. How quickly we return to economic growth will depend very much on the evolution of the virus and how soon a vaccine is developed. For CFOs, this uncertainty means that they will have to ensure sufficient cash flow and agility. It may take a while.”
And what is the long-term impact on the financial sector?
“There are two opposing elements. First of all, when it comes to stock market trading and equities: they are doing great business at the moment with interest rates being low. On the other hand, banks can expect credit losses in the near future. Companies that go bankrupt and cannot pay off loans. There is also the risk that because of those credit losses, and the impact on their capital, banks will be stricter with lending. Finally, you can see also here that digitalization is getting a boost and banks are focusing on it even more.”
What can governments do to drive intelligent growth?
“In the long term, growth comes from higher productivity. That means research and development, innovation, research, further training, reschooling, et cetera. That’s where growth comes from, so I would continue to focus on that. In the short term I would opt for infrastructure, smart mobility, self-driving cars – good things regardless of what will happen with the crisis. In other words: invest smart. Don’t spend billions to keep people working in sectors that are doomed, but invest in the future. Make sure that you reschool people, teach them new skills,educate them on how to deal with digitalization. That is how a country can make a difference today: by leading the transition of companies, sectors and citizens to a new economy. ”
In addition to the corona crisis, there are currently other major events taking place, such as the election in the United States. What is your view on that?
“The election result has a major influence on globalization, openness and international treaties. Someone like Joe Biden shares our view of the world more than Donald Trump does. Strongmen such as Putin, Erdogan and Bolsonaro thrive in the current circumstances where countries are left to their own devices. But that is not our business model. Europe has a hard time functioning in such playing fields. We don’t engage in power politics. It would help if the US returns to the direction of multilateral dialogue.”
And what does the corona crisis mean for emerging markets, such as in Asia?
“They were relying on globalization and free trade. They’ve had a huge blow. That is a primary problem for them and they are now building up huge debts. These countries aren’t always that stable, so we cannot rule out a debt crisis. And what’s more, you also get protectionism, which is increasing in the US, but in Europe as well. If there is no growth, how can you explain that you keep buying products from low-wage countries? That will pose a threat to them in the medium term.”
What is your view on the climate crisis which hasn’t really disappeared from the arena in spite of corona?
“Typically, there is a coordination problem. It’s actually the same kind of problem as overfishing: every fisherman wants to catch as much fish as possible, everyone is pursuing their own interests, and the sea will be empty soon. The same with CO2. Everyone wants unlimited emissions and the rest just have to adapt. But of course that won’t happen, so the planet will soon be unlivable. I think we are waiting for an American president who will take on more leadership and tackle this problem together with the rest of the world. We need to make agreements with each other: this is how much we’re going to emit; that is how much we’re going to pay per a ton of CO2. In that regard, one might wonder whether the billions we are handing out to the aviation industry should not have been better spent on the development of high-speed trains or other sustainable alternatives. Now we are pumping money into an industry that will never return to pre-crisis levels. It’s as if we were giving billions to Kodak so they can compete with the iPhone. Or putting money to back a horse and cart because the car is coming.”
Later this autumn, the Understanding Global Macroeconomics program will take place again at the Amsterdam Institute of Finance. What are you going to discuss with the participants?
“I have prepared a number of topics, including inflation, central banks, international trade, exchange rates, and so on. And I always provide a number of current cases from The Economist, New York Times and Financial Times that we discuss during the program. Covid-19 and its impact on the economy will of course be dealt with extensively.”
The Understanding Global Macroeconomics program, taught by economist Peter De Keyzer at the Amsterdam Institute of Finance (AIF), helps executives and managers see the world through a different lens and understand the impact of economic trends on their business. We may be glued to our devices for the latest developments in Trumpian politics or an update on the ongoing trade disputes between China and the US, but while the everyday details claim our attention, we often don’t see the full picture with its complexity, interconnections and consequences. “People who can see the bigger, more complex picture have a head start over people who simply respond to the news headlines,” says Peter De Keyzer. “The world is not a simple place. In this increasingly interconnected world, management decisions depend on both macro developments as well as policy decisions. Domestic and foreign alike. ”
Understanding Global Macroeconomics will be held at Amsterdam Institute of Finance 30 November – 1 December 2020
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