1 00:00:10,290 --> 00:00:19,920 Good afternoon, ladies and gentlemen, and a very warm welcome to the Oxford Martin School for this wonderful afternoon of two lectures. 2 00:00:19,920 --> 00:00:26,880 I should explain that for those who are mystified, I am not Sir Charles Godfrey, who is the director of the Oxford Martin School. 3 00:00:26,880 --> 00:00:31,650 I'm the being called off the substitutes bench. My name is John Krebbs. 4 00:00:31,650 --> 00:00:40,260 I've served in various roles in the university. Most recently I was principal of Jesus College and like Charles Amos, I will adjust my background. 5 00:00:40,260 --> 00:00:45,660 In fact, my main claim to fame is that I taught Charles when he was an undergraduate. 6 00:00:45,660 --> 00:00:54,450 So this afternoon, as as you know, we have two very distinguished speakers, both based here in Oxford. 7 00:00:54,450 --> 00:01:06,330 So we're extremely fortunate to have two members of the home team talking on the overall theme of the future of the corporation, economy and society. 8 00:01:06,330 --> 00:01:12,390 And I should. In case Paul and Colin are too embarrassed to do their own marketing, 9 00:01:12,390 --> 00:01:23,850 I should mention two fantastic books that have been published relatively recently won by Colin and won by Paul on related themes. 10 00:01:23,850 --> 00:01:32,700 And I am not sure to what extent they'll cover those topics in today's talks, but I highly recommend them in recommending Paul's book, 11 00:01:32,700 --> 00:01:38,730 I have to add a caveat it's proved so popular that actually it's sold out in hardback. 12 00:01:38,730 --> 00:01:45,810 But if you can just be patient and hang on till the Fourth of July, you can slake your thirst on the paperback version. 13 00:01:45,810 --> 00:01:56,010 So, but Colin Collins book is available here and now, and there'll be copies available afterwards, as well as copies of Paul's earlier book, 14 00:01:56,010 --> 00:02:04,830 The Bottom Billion, which many of you may have read an absolutely fantastic book about why a billion people in the world are stuck in in real poverty. 15 00:02:04,830 --> 00:02:11,100 So without further ado, I will introduce our first speaker support, Collier, 16 00:02:11,100 --> 00:02:18,780 professor of Economics and Public Policy at the Blavatnik School of Government here in Oxford, Professorial Fellow of St. Anthony's College. 17 00:02:18,780 --> 00:02:25,680 He urged me to be very brief about singing his praises, so I'm not going to say really much more. 18 00:02:25,680 --> 00:02:28,890 Other than that, he has written well. 19 00:02:28,890 --> 00:02:38,760 I've already mentioned this fantastic book, The Bottom Billion, which won numerous prises four for a distinguished book of that time. 20 00:02:38,760 --> 00:02:45,480 And he often writes in newspapers such as the New York Times, Financial Times, The Wall Street Journal and Washington Post. 21 00:02:45,480 --> 00:02:54,250 So without further ado, I'm going to hand over to Paul for the first of these 25 minute talks, and then I'll introduce Colin in the second part. 22 00:02:54,250 --> 00:03:07,130 Over, would you both? Bill, thanks so much for coming. 23 00:03:07,130 --> 00:03:20,600 The current I. Work fits together, wrote the books at the same time, sort of it was loosely coordinated and I do the society and and broad economy. 24 00:03:20,600 --> 00:03:37,750 And Colin does the the the corporation firm and so that the themes are very much in common and so am the future of capitalism and. 25 00:03:37,750 --> 00:03:47,320 Does he have a future and it needs to have a future, because in the 10000 years of human civilisation all around the world, 26 00:03:47,320 --> 00:03:55,840 there's only one system that's been discovered that actually kind of has the capacity to work and drive up living standards fairly continuously. 27 00:03:55,840 --> 00:03:57,410 And that's that that's capitalism. 28 00:03:57,410 --> 00:04:10,040 Because capitalism by that I mean decentralised decisions taken in firms subject to some discipline of market competition. 29 00:04:10,040 --> 00:04:16,090 And we're in that works is that the the miracle of productivity, 30 00:04:16,090 --> 00:04:22,300 which is the only thing that drives up living standards is the miracle of productivity, requires scale and specialisation. 31 00:04:22,300 --> 00:04:32,920 So you need big. And for most of that 10000 years, we only had small household production. 32 00:04:32,920 --> 00:04:40,510 So you need big. But we tried a different form of big, which was communism, the Soviet Union. 33 00:04:40,510 --> 00:04:50,290 That's certainly very big, and it just didn't manage to show that it was productive or even equitable because it 34 00:04:50,290 --> 00:04:54,610 didn't have this discipline of decentralised decision taking subject to competition. 35 00:04:54,610 --> 00:05:00,580 So that's to my mind, sort of the miracle of capitalism. But and this is a big part. 36 00:05:00,580 --> 00:05:07,780 It doesn't work on autopilot. Periodically, capitalism derails and then it's a matter of public policy. 37 00:05:07,780 --> 00:05:21,310 Putting it back together again, put it back on the rails. And I'm a pragmatist in the sense that I believe there is no guidebook that gives us a. 38 00:05:21,310 --> 00:05:27,820 Route to Utopia. In fact, there is no utopia. Our world is subject to radical uncertainty. 39 00:05:27,820 --> 00:05:33,700 We don't quite know where it's going. And periodically capitalism will derail. 40 00:05:33,700 --> 00:05:40,870 And then the best you can do is the philosophy of pragmatism is in contrast to ideology. 41 00:05:40,870 --> 00:05:49,420 There is no utopia. There is no permanent guidebook. All you can do is study the context of the time as best you can. 42 00:05:49,420 --> 00:05:55,830 Try and understand what seems to work at the moment through a bit of experiment trying to never. 43 00:05:55,830 --> 00:06:02,310 And then let's do that, and it'll work for maybe 20 years, maybe longer. 44 00:06:02,310 --> 00:06:08,520 But don't think it's going to live forever, it's going to derail again. And then you're going to have to go back to study the context. 45 00:06:08,520 --> 00:06:15,930 That's the philosophy, pragmatism, right? So capitalism, in my view, is derailed. 46 00:06:15,930 --> 00:06:24,480 It started 250 years ago. It's derailed big time at least three times in that 250 years. 47 00:06:24,480 --> 00:06:30,270 And my talk is mainly going to be is derailed now. 48 00:06:30,270 --> 00:06:38,640 But I just want to get users to think about what should happen by talking a little bit about the first derailment of capitalism, 49 00:06:38,640 --> 00:06:51,600 which most people don't know much about. And this was in the 1840s, and it occurred in the the cities where I grew up. 50 00:06:51,600 --> 00:06:58,260 The north of England, I grew up in Sheffield and the industrial cities of the north of England were the first such cities on Earth, 51 00:06:58,260 --> 00:07:04,710 the first industrial cities and the most booming city in the whole of Europe. 52 00:07:04,710 --> 00:07:05,490 At that time. 53 00:07:05,490 --> 00:07:15,960 The first half of the 19th century was Bradford, where my German grandfather moved from some impoverished little village in southern Germany, 54 00:07:15,960 --> 00:07:29,010 and he was booming factories very productive and that Bradford turned into [INAUDIBLE] on Earth, as did the other northern cities. 55 00:07:29,010 --> 00:07:36,300 Because when you crown people together and you don't have public policy, which we didn't. 56 00:07:36,300 --> 00:07:39,480 What happens is you've got a health crisis. 57 00:07:39,480 --> 00:07:46,740 The drinking water gets mixed up with the sewage, and people get contagious diseases because they're all so close together. 58 00:07:46,740 --> 00:07:56,070 And so I'm going to take us to Bradford in 1849, and Bradford was run in every sense by Mr Big. 59 00:07:56,070 --> 00:08:04,200 Mr. Big was tied to salt, and I to soap was the billionaire industrialist of the time dominated the city. 60 00:08:04,200 --> 00:08:09,120 He was also the mayor and he was also the local MP. Mr Big. 61 00:08:09,120 --> 00:08:17,840 And there is, in 1849, more ATMs in Bradford Cholera. People are dying. 62 00:08:17,840 --> 00:08:27,850 Hundreds of his workers, thousands of his citizens, cholera just know what to do, but what it does do as far as we can see, is it as his sole? 63 00:08:27,850 --> 00:08:35,580 Because he becomes the first billionaire philanthropist, he gives his entire fortune away. 64 00:08:35,580 --> 00:08:40,630 And he does. First, he recognises that he's got obligations to his workforce. 65 00:08:40,630 --> 00:08:47,150 And so he builds the first ever purpose built town on Earth for employees. 66 00:08:47,150 --> 00:08:51,940 That's Saltaire now World Heritage Centre. Quite rightly so. 67 00:08:51,940 --> 00:08:57,370 And then the rest of his fortune, he goes to cleaning up Branford parks. 68 00:08:57,370 --> 00:09:02,140 And so when he dies, he's the local hero. His work forces loyal. 69 00:09:02,140 --> 00:09:08,800 The community responds with a big statue, and he's still very well regarded in Bradford as the local hero. 70 00:09:08,800 --> 00:09:17,850 That was business. Responding to the new anxieties generated by the derailment of capitalism. 71 00:09:17,850 --> 00:09:23,370 Then you go a few miles away still in the 1840s, and you get to Rochdale. 72 00:09:23,370 --> 00:09:28,140 Hopefully, you know what happened to Rochdale and here is not business. 73 00:09:28,140 --> 00:09:32,730 It's families. Families face the new anxieties. 74 00:09:32,730 --> 00:09:39,940 Life expectancy has fallen to 19. On average, you're dead at 19. 75 00:09:39,940 --> 00:09:45,850 So one of the new anxieties is, do you go to a funeral? People are really poor. 76 00:09:45,850 --> 00:09:52,240 Do you get a funeral and people, families start the gang together and say, I'll tell you what, 77 00:09:52,240 --> 00:09:56,290 I'll accept obligations against you if you accept obligations against me. 78 00:09:56,290 --> 00:10:02,020 That's the birth of the co-operative movement. The world birth. 79 00:10:02,020 --> 00:10:06,700 A couple of years ago, the Belgium co-operative movement, which is huge, it runs the health system. 80 00:10:06,700 --> 00:10:16,150 It's as far as I can see the only thing that works across the two linguistic communities and they are awarded me the the Belgian Citizenship Award. 81 00:10:16,150 --> 00:10:21,730 And so I asked them, How did you come to get all these cooperatives? 82 00:10:21,730 --> 00:10:29,230 They said, Oh, people came from Rochdale to Ghent and they taught us, you know, and it's now the world movement. 83 00:10:29,230 --> 00:10:36,100 So what was happening in Rochdale and of course, in Halifax, they got together the other big anxiety. 84 00:10:36,100 --> 00:10:40,810 What are you going to the liver building society, becoming the biggest bank in the country? 85 00:10:40,810 --> 00:10:45,370 So this is the business response to these new anxieties. 86 00:10:45,370 --> 00:10:50,830 This is a type salt and the family response. 87 00:10:50,830 --> 00:10:55,600 Rochdale, Halifax These have the same basic structure. 88 00:10:55,600 --> 00:11:02,890 They were recognising the new anxieties dealing pragmatically finding solutions. 89 00:11:02,890 --> 00:11:09,430 And what were those solutions? Reciprocity. Recognising obligations to others? 90 00:11:09,430 --> 00:11:13,410 That was then. Let's go to them now. 91 00:11:13,410 --> 00:11:22,360 Right. They recognise that the actors in those stories of firms and families. 92 00:11:22,360 --> 00:11:24,500 Not just individuals. 93 00:11:24,500 --> 00:11:34,100 Films from families, I'm going to be awfully important because remember, we need scale and specialisation to achieve our purposes. 94 00:11:34,100 --> 00:11:41,000 If you want if your purpose is you want to produce, you want goods, you'll need firms. 95 00:11:41,000 --> 00:11:46,700 There's only one organisational form we know works for raising children and those families. 96 00:11:46,700 --> 00:11:55,600 So these two organisations larger than the individual achieve the purposes that we all have. 97 00:11:55,600 --> 00:12:07,030 So let's move from then to now. And we're now living in the third derailment on the second am, not so unemployment, right? 98 00:12:07,030 --> 00:12:11,200 Each time capitalism derails is different. What's the derailment now? 99 00:12:11,200 --> 00:12:20,530 Well, it's two divergences, social divergences that started around 1980, and it just got worse and worse. 100 00:12:20,530 --> 00:12:28,360 And one divergence is spatial, and it reverses 200 years of spatial convergence. 101 00:12:28,360 --> 00:12:37,780 Poorer regions catching up with richer regions from 1980 onwards, exactly the opposite happens, and the richest regions, 102 00:12:37,780 --> 00:12:47,920 which are always the metropolis, start to boom and diverge from the periodically the provincial cities get broken. 103 00:12:47,920 --> 00:12:53,950 The emblematic, broken city is unfortunately my own Sheffield. Many of you will have seen the full Monty. 104 00:12:53,950 --> 00:12:59,650 You just have forgotten. That's Sheffield. Right? And it's a very funny, poignant film. 105 00:12:59,650 --> 00:13:05,560 But if your relatives are living through that, it was very painful. 106 00:13:05,560 --> 00:13:09,580 So that's the spatial divergence. 107 00:13:09,580 --> 00:13:17,050 It's not complicated to understand what caused it, it doesn't matter very much globalisation, there are fewer of the bigger cities, the winners. 108 00:13:17,050 --> 00:13:22,240 I love the booms because it becomes the global city for finance and Sheffield, 109 00:13:22,240 --> 00:13:29,110 the the steel industry, which was there for 700 years, crashed because it moved to South Korea. 110 00:13:29,110 --> 00:13:38,230 The other divergence again reverses 200 years of convergence, and it's between the less educated and the more educated. 111 00:13:38,230 --> 00:13:45,790 And what's driving that is rising complexity productions getting more complex, that's the price you pay for higher productivity. 112 00:13:45,790 --> 00:13:56,780 But that complexity requires new skills. Well, specialist skills and they have to be built on the back of a decent tertiary education. 113 00:13:56,780 --> 00:14:06,860 Meanwhile, the people who didn't get much education, they've invested in manual skills and the same process of rising complexities, 114 00:14:06,860 --> 00:14:10,780 making those manual skills less valuable in the market. 115 00:14:10,780 --> 00:14:17,680 And so for 40 years, we've had the divergence of the highly-educated from the list that you take, 116 00:14:17,680 --> 00:14:24,450 these two divergences then get correlated because if you're. 117 00:14:24,450 --> 00:14:31,860 Well educated in the provinces, when you go, you go to the metropolitan. 118 00:14:31,860 --> 00:14:44,760 And so we've had 40 years of the skilled metropolitans on a rising escalator and the less skilled provincials on a falling escalator, 119 00:14:44,760 --> 00:14:51,540 the puzzle is not why it happened. Is why nothing's being done about it? 120 00:14:51,540 --> 00:14:58,580 For 40 years, that divergence has continued pragmatism. This is not working. 121 00:14:58,580 --> 00:15:06,310 That's the puzzle politically is no harder to heal these rifts. 122 00:15:06,310 --> 00:15:16,580 Then it was to fix the health crisis in the 1840s with the mass unemployment in the 1950s, know how the both of those. 123 00:15:16,580 --> 00:15:23,080 But we've just let this run for 40 years. What's the consequence of letting these divisions run? 124 00:15:23,080 --> 00:15:28,990 Mutinies eventually, the neglected. Get angry. 125 00:15:28,990 --> 00:15:40,570 You can't blame them. And the tragedy is the mutinies, Brexit, Trump, of course, a backward looking strategies reflecting anger of neglect. 126 00:15:40,570 --> 00:15:44,320 They're not forward looking strategies of solutions. 127 00:15:44,320 --> 00:15:54,560 The most famous mutiny of all time mutiny on the bounty was provoked by the fact that the sailors on the boat were going through the tropics. 128 00:15:54,560 --> 00:15:59,920 It was only so much for drinking water, and the drinking water was being used to keep the plants alive. 129 00:15:59,920 --> 00:16:09,700 So the breadfruit will be brought to the botanical gardens and the sailors eventually, as they get hot and thirsty, start to find that unreasonable. 130 00:16:09,700 --> 00:16:15,060 And, you know, maybe I would, too. Right. And. 131 00:16:15,060 --> 00:16:20,330 What it wasn't about was let's all go and live on Pitcairn. 132 00:16:20,330 --> 00:16:28,440 Huh. That's what happened. So rage left them, they ended up in a little island in the middle of nowhere. 133 00:16:28,440 --> 00:16:35,390 All right. And maybe Brexit has the same overall structure. 134 00:16:35,390 --> 00:16:44,120 But you can't blame the people who mutinied the mutiny is caused by neglect and the political puzzle. 135 00:16:44,120 --> 00:16:48,350 I'm going to address in my last little while. Why did it happen? 136 00:16:48,350 --> 00:17:03,710 Why did it happen? Why was there this time? Neglect and abuse two processes to two things that diverted the politics from its usual mechanism of. 137 00:17:03,710 --> 00:17:10,970 Is the anxieties the new anxieties emerging is the pragmatic response this time it didn't happen. 138 00:17:10,970 --> 00:17:21,030 Why not? Well, one thing. That brings it on is is a divergence of identities. 139 00:17:21,030 --> 00:17:30,000 So the we get a new ideology of which basically allows the successful to exit their obligations. 140 00:17:30,000 --> 00:17:33,960 And it's a sort of ideology of individual success. I deserve it. 141 00:17:33,960 --> 00:17:46,260 I deserve it because I'm so productive. And that move from recognising obligations to to my god, I'm clever. 142 00:17:46,260 --> 00:17:51,960 I'll give you one example of this, which is the finest political commentator in the country. 143 00:17:51,960 --> 00:17:55,920 My view is John Ganesh, the Financial Times political commentator, 144 00:17:55,920 --> 00:18:06,560 but he very accurately describes them and indeed exemplifies the metropolitan skills. 145 00:18:06,560 --> 00:18:15,470 And so in one of his articles, he gave a view of what from now from London, what the what the provincial Britain looks like. 146 00:18:15,470 --> 00:18:20,890 And he describes it, he says it feels like being shackled to a corpse. 147 00:18:20,890 --> 00:18:31,860 Hmm. Shackled to a corpse. Huh. The London perspective and everything he's done on prevention, but you hear the empathy. 148 00:18:31,860 --> 00:18:38,190 You hear the recognition of obligation. You hear the shared identity. 149 00:18:38,190 --> 00:18:46,440 I mean, my goodness, if this guy had written something like that about one of the favoured victim groups, he'd have been out of his job in two days. 150 00:18:46,440 --> 00:18:52,360 But no, not a ripple. Yeah. Shackled to a corpse. 151 00:18:52,360 --> 00:18:59,440 That's the exit from shared identity of the successful it exemplified. 152 00:18:59,440 --> 00:19:09,550 So that's one of the problems that the metropolitan skilled set themselves up in in a new ideology of personal success, 153 00:19:09,550 --> 00:19:19,210 personal achievement and wonderful. You know, and and of course, they then take on pet projects of victim groups who come to the victim groups. 154 00:19:19,210 --> 00:19:28,870 And so and and the other current is economic man contributed by the wonderful subject in and 155 00:19:28,870 --> 00:19:35,680 are those have chairs in economics and economic management American discovered in the 1950s. 156 00:19:35,680 --> 00:19:43,630 And it's and it's it's the economists reading of evolutionary biology of the time. 157 00:19:43,630 --> 00:19:55,990 And they think what the Darwinian process of the survival of the fit leads to is the inevitable survival of the [INAUDIBLE]. 158 00:19:55,990 --> 00:20:01,300 And what is the shape? He's greedy and he's selfish, and he's lazy. 159 00:20:01,300 --> 00:20:09,560 Right. And that's it, we are all a bit greedy and a bit selfish, easy, but economic man. 160 00:20:09,560 --> 00:20:15,800 That's it. There's nothing else, right? Greedy, selfish, lazy, huh? 161 00:20:15,800 --> 00:20:25,620 And notice one consequence of that is economic man is incapable of being morally load bearing. 162 00:20:25,620 --> 00:20:31,800 It can't be. He's just greedy, selfish, lazy. 163 00:20:31,800 --> 00:20:38,740 And so that's a problem for economists. When you come to public policy. 164 00:20:38,740 --> 00:20:45,850 Because public policy, the economists that we're all trained to maximise something, so you need something that you can maximise. 165 00:20:45,850 --> 00:20:53,320 And obviously utility. And then we reached to utilitarianism is. 166 00:20:53,320 --> 00:21:01,150 Ridiculous philosophy dreamed up by two, truly, we had people Fensome and Mill, 167 00:21:01,150 --> 00:21:11,980 right then some so weird that he has himself stuffed and put in a case so that he can continue to chair meetings at UCL after he's dead. 168 00:21:11,980 --> 00:21:19,070 All right. I mean, you got to be seriously creepily weird. And Bentham, just sort of. 169 00:21:19,070 --> 00:21:31,840 I've been the founder of the his his his disciple mill is brought up so that he's separated from other children. 170 00:21:31,840 --> 00:21:40,000 Brought up to be able to speak ancient Greek and read it. But he knows nothing about his own society, so these people are seriously weird. 171 00:21:40,000 --> 00:21:44,470 Utilitarianism would have never caught on, except it has one wonderful property. 172 00:21:44,470 --> 00:21:55,300 It instructs you to just adopt the utils. Add up utility and economists are really good at us, so we do constraint constrained utility maximisation. 173 00:21:55,300 --> 00:21:59,440 We will learn that from birth, you know, and so great. 174 00:21:59,440 --> 00:22:04,060 We got the sigma sum of utilities and we just maximise it. 175 00:22:04,060 --> 00:22:09,550 Now there's a little problem in that. Who the people we're trying to get to behave well. 176 00:22:09,550 --> 00:22:14,860 We know what they are. They're greedy, selfish, lazy. And so that's a problem. 177 00:22:14,860 --> 00:22:19,570 They're not going to maximise global utility. They're going to maximise their own interest, right? 178 00:22:19,570 --> 00:22:29,090 So the what you need is some sense. And here Plato comes in handy because he thought that to you need seems platonic guardians. 179 00:22:29,090 --> 00:22:35,410 You hold me a little bit mistakenly thought they were philosophers, but we soon put him right about that. 180 00:22:35,410 --> 00:22:42,550 So you've got a state where at the top you got economist saints, not lawyers like to get in on the act as well. 181 00:22:42,550 --> 00:22:53,010 See what economists and lawyers at the top. And then our problem is, how do you control these wretched people underneath? 182 00:22:53,010 --> 00:22:59,130 The greedy, selfish, lazy and the answer comes out from economics and law and economics, 183 00:22:59,130 --> 00:23:02,250 we pioneer whole block a theory called principle agent theory, 184 00:23:02,250 --> 00:23:12,420 which is to say, Well, you provide high powered incentives and you link those incentives, those carrots and sticks to monitoring of performance. 185 00:23:12,420 --> 00:23:19,470 And the lawyers then very helpfully write long contracts to say this is the performance that matters, right? 186 00:23:19,470 --> 00:23:25,200 And so we move to a system which is called which I call social paternalism. 187 00:23:25,200 --> 00:23:35,760 The top knows best, and it's got this control problem, which it solves by the carrots and sticks and the monitor performance. 188 00:23:35,760 --> 00:23:43,050 That's what happens across society, and it's taught in business schools calling. 189 00:23:43,050 --> 00:23:51,270 Explain that and and it pervades the public sector because the public sector the things Oh, 190 00:23:51,270 --> 00:23:56,700 if it's good for the private sector, it must be good for us. We must ape the private sector. 191 00:23:56,700 --> 00:24:03,450 So just as evidence for that is a survey called the Jobs and Skills Survey, which is an annual survey done in Britain. 192 00:24:03,450 --> 00:24:11,070 It has the same question for 25 years. Do you have enough power of autonomy and discretion to do your job properly? 193 00:24:11,070 --> 00:24:15,900 And 25 years ago, most people say yes, there's been a 40 percent drop in. 194 00:24:15,900 --> 00:24:26,540 Yes. Now, most people say no. Because most people are now in prison to this carrots and sticks to monitor performance. 195 00:24:26,540 --> 00:24:34,640 You see it in the social sector, and there's a very good book by Hilary Cottam called Radical Help, 196 00:24:34,640 --> 00:24:41,360 which is a detailed analysis of how the social sector works or rather how it doesn't work. 197 00:24:41,360 --> 00:24:49,190 And 86 percent of social workers time is taken in administration. 198 00:24:49,190 --> 00:24:59,390 Servicing the system of monitoring and control that is 14 percent for contact with the families who need help. 199 00:24:59,390 --> 00:25:08,470 So at least at 14 percent that actually it isn't because what that contact is used for is to get the information you need in this 86 percent. 200 00:25:08,470 --> 00:25:15,830 All right. So it's no surprise that the social sector utterly fails. 201 00:25:15,830 --> 00:25:25,010 It can't do anything but fail. What's the problem with this? It denies that people are capable of morally load bearing. 202 00:25:25,010 --> 00:25:31,490 It denies you don't trust people because if you trust them. 203 00:25:31,490 --> 00:25:35,990 They'll run off, they'll be greedy and lazy. Right? 204 00:25:35,990 --> 00:25:49,430 And so there is a is a complete tragedy, and it's also wrong if we turn to modern evolutionary biology, there's a wonderful. 205 00:25:49,430 --> 00:25:57,920 There's two wonderful new books on this list the 2016 Joe Heinrich or The Secret of our success, 206 00:25:57,920 --> 00:26:07,990 which is all about the social brain, the collective brain that we build and the others just come out this year. 207 00:26:07,990 --> 00:26:14,540 And Christopher, his talk is. 208 00:26:14,540 --> 00:26:25,900 And or Christakis shows, is that we are basically hardwired to be pro-social, we're hardwired to their obligations to each other. 209 00:26:25,900 --> 00:26:39,950 And I would. I'll close with one with one experiment the social psychologist do, and you can all do tonight on your own. 210 00:26:39,950 --> 00:26:49,400 And I've tried it and I don't recommend it for the over60s, as can be really painful. 211 00:26:49,400 --> 00:26:57,010 All right. So it's this and you get a piece of paper and a pen. 212 00:26:57,010 --> 00:27:05,290 And you write down the three decisions you took in life that you most regret. 213 00:27:05,290 --> 00:27:13,810 You have to do it honestly. You only got three the three most. So what the social psychologist do is. 214 00:27:13,810 --> 00:27:19,000 They produce various buckets. So here's the bucket for economic man. 215 00:27:19,000 --> 00:27:23,800 We know what the decisions are. The economic man regrets, huh? 216 00:27:23,800 --> 00:27:29,560 If only I hadn't messed up that interview with Goldman Sachs, huh? 217 00:27:29,560 --> 00:27:42,150 If only I bought that house. You know, if only I bought Apple shares, you know, and you got to look in that bucket is empty. 218 00:27:42,150 --> 00:27:47,010 We all make mistakes like we all regret those decisions, sort of things. 219 00:27:47,010 --> 00:27:52,210 They don't, frankly, don't make it to the top three anywhere near. All right. 220 00:27:52,210 --> 00:28:01,210 And there is one bucket that is overflowing, and that's why if you're over 60, don't do it right. 221 00:28:01,210 --> 00:28:08,180 That's the thing that says. I let down my mother. I let down my wife. 222 00:28:08,180 --> 00:28:13,560 I'm down my colleagues, my friends, is the breaches of obligation. 223 00:28:13,560 --> 00:28:22,760 We are hard wired evolutionarily to bear moral obligations, and that's why when we occasionally breach them. 224 00:28:22,760 --> 00:28:30,240 We suffer them. And so we are naturally. 225 00:28:30,240 --> 00:28:31,890 Morally load bearing. 226 00:28:31,890 --> 00:28:42,030 And we need to get back to a society in which moral load bearing is properly distributed, not just at the top of government, the Saints. 227 00:28:42,030 --> 00:28:47,250 Those things are no more cynically than any of the rest of us, right? 228 00:28:47,250 --> 00:28:53,010 But we need to get back to a system where families are morally load bearing, 229 00:28:53,010 --> 00:28:59,670 have responsibilities and have the assistance which enables them to to bear those responsibilities. 230 00:28:59,670 --> 00:29:04,620 So the secret of social care is to separate out the business of help completely 231 00:29:04,620 --> 00:29:09,720 from the business of scrutiny so that the helpers can actually be trusted. 232 00:29:09,720 --> 00:29:15,000 And finally, it means the films have got to be load bearing, morally load bearing. 233 00:29:15,000 --> 00:29:30,510 And on that note, I'm going to hand over to call. Thank you. 234 00:29:30,510 --> 00:29:37,470 Thank you very much. All that was absolutely riveting and brilliant and inspiring and raises lots of questions 235 00:29:37,470 --> 00:29:45,720 that we will have time to put to our two speakers after Colin Mayor has finished his talk. 236 00:29:45,720 --> 00:29:49,200 Colin is also a professor at Oxford. As I mentioned at the beginning, 237 00:29:49,200 --> 00:29:57,120 he's the Peter Moores Professor of Management Studies at the Side Business School and a professorial fellow of Wadham College. 238 00:29:57,120 --> 00:30:06,840 He's done many important things in his distinguished career, both in academia but also more broadly in relation to public policy. 239 00:30:06,840 --> 00:30:10,440 For example, as a member of the UK Competition Appeal Tribunal, 240 00:30:10,440 --> 00:30:18,330 the government's Natural Capital Committee and the International Advisory Board of the Securities and Exchange Board of India. 241 00:30:18,330 --> 00:30:22,320 Again, I won't go through all the many achievements that I could have referred to, 242 00:30:22,320 --> 00:30:26,190 call it in the interests of people wanting to listen to you rather than me. 243 00:30:26,190 --> 00:30:30,750 But I'd now like to hand over to call in to continue the story. 244 00:30:30,750 --> 00:30:35,790 And as I mentioned his book Prosperity, That's a Business Makes the Greater Good, 245 00:30:35,790 --> 00:30:41,040 which came out last year, will be available afterwards in the reception to you. 246 00:30:41,040 --> 00:30:51,840 Call him. Thank you very much, John. 247 00:30:51,840 --> 00:30:59,400 I'm going to be talking to you about one of the most important institutions in our lives. 248 00:30:59,400 --> 00:31:05,940 It's not the state, religion or even Oxford University. 249 00:31:05,940 --> 00:31:15,710 It's an institution that clothes, feeds and houses us that employs us and invest our savings. 250 00:31:15,710 --> 00:31:23,290 It's the source of economic prosperity and the growth of nations around the world. 251 00:31:23,290 --> 00:31:30,710 But it's also been a cause of growing inequality. Environmental degradation. 252 00:31:30,710 --> 00:31:41,390 And mistrust. Every year for the past thirty five years, Ipsos Mori, the market research company, 253 00:31:41,390 --> 00:31:50,460 has undertaken the survey of which professions in Britain people trust to tell the truth. 254 00:31:50,460 --> 00:31:57,330 At the top alongside doctors, nurses and teachers. 255 00:31:57,330 --> 00:32:06,960 I'm pleased to say, come university professors, we might not have much power pay or prestige, 256 00:32:06,960 --> 00:32:18,190 but at least people trust us to do nothing, earn nothing and take no credit for it. 257 00:32:18,190 --> 00:32:35,740 But at the other end come business leaders just ahead of estate agents, professional footballers, journalists and rock bottom [INAUDIBLE] politicians. 258 00:32:35,740 --> 00:32:43,780 They come below trade union officials, bankers and the man in the street. 259 00:32:43,780 --> 00:32:52,190 And it's not just a recent phenomenon, dates back pretty much to the start of the survey. 260 00:32:52,190 --> 00:32:59,860 Mistrust in business. Is profound, pervasive and persistent. 261 00:32:59,860 --> 00:33:09,730 Why is that the case? I'd suggest that the reason is this what is sometimes termed the Friedman doctrine. 262 00:33:09,730 --> 00:33:14,630 That there is one and only one social purpose of business. 263 00:33:14,630 --> 00:33:20,980 To increase profits so long as it stays within the rules of the game. 264 00:33:20,980 --> 00:33:31,060 And that has been the basis of business, practise, business policy and business education ever since. 265 00:33:31,060 --> 00:33:40,620 But it wasn't always. Indeed, the corporation was established under Roman law as the associates public general. 266 00:33:40,620 --> 00:33:53,420 Some 2000 years ago to perform very public functions of collecting taxes, minting coins and looking after public buildings. 267 00:33:53,420 --> 00:34:04,600 And for nearly all of its 2000 year history, it has combined its commercial activities with such public functions. 268 00:34:04,600 --> 00:34:16,580 It's only over the last 60 years that this idea has emerged that there is only one purpose of business to make, money has arisen. 269 00:34:16,580 --> 00:34:25,650 And that is the cause of growing inequality, environmental degradation and mistrust. 270 00:34:25,650 --> 00:34:37,520 And it's going to get worse before it gets better, because while technological progress offers remarkable opportunities for improving our well-being. 271 00:34:37,520 --> 00:34:45,860 It also poses serious risks, not least in terms of, for example, artificial intelligence, 272 00:34:45,860 --> 00:34:51,140 where people talk about risks associated with the future of work. 273 00:34:51,140 --> 00:35:00,960 But actually, there are much more profound risks associated with the control of our minds and who takes decisions. 274 00:35:00,960 --> 00:35:09,320 And in relation to biotechnology, which raises similar issues in relation to species. 275 00:35:09,320 --> 00:35:23,420 The question is to who controls and for what motive those machines and those processes is, of course, of growing critical importance. 276 00:35:23,420 --> 00:35:25,540 But things are changing. 277 00:35:25,540 --> 00:35:36,260 At the beginning of this year, someone who's got the real power to influence our lives said that every business needs a purpose. 278 00:35:36,260 --> 00:35:43,900 Not a strap line or a marketing campaign, but a statement of its fundamental reason for being. 279 00:35:43,900 --> 00:35:56,740 What it does on a daily basis. Purpose, he said, is not the sole pursuit of profits, but the animating force for achieving them. 280 00:35:56,740 --> 00:36:02,080 That person was Larry Fink, who is the CEO and president of BlackRock, 281 00:36:02,080 --> 00:36:10,860 which is the largest investment management firm in the world, with some seven trillion dollars under management. 282 00:36:10,860 --> 00:36:21,750 And leaders of some of the other multi-trillion dollar investment management firms, such as Vanguard State Street have said very similar things. 283 00:36:21,750 --> 00:36:30,230 And it's not only leaders of multi-trillion dollar investment management businesses who are saying this, so too are policy makers. 284 00:36:30,230 --> 00:36:37,580 Britain led the world in terms of the standards of corporate governance, as it's termed, 285 00:36:37,580 --> 00:36:48,390 by which management was deemed to be accountable to one particular group in society, namely its shareholders. 286 00:36:48,390 --> 00:36:56,700 Corporate governance was all about. Aligning the interests of management with their shareholders. 287 00:36:56,700 --> 00:37:08,000 But last year. The UK brought out a new corporate governance code, which says that actually that is not what corporate governance should be about. 288 00:37:08,000 --> 00:37:16,400 It should be about aligning the interests of management with their corporate purposes. 289 00:37:16,400 --> 00:37:22,190 And some of the main political leaders have been saying similar things. 290 00:37:22,190 --> 00:37:27,320 Elizabeth Warren, the presidential candidate in the US presidential race, 291 00:37:27,320 --> 00:37:33,920 has put forward the notion in her Accountable Capitalism Act that every business should 292 00:37:33,920 --> 00:37:45,650 have a public statement of its purpose if it has revenues in excess of a billion dollars. 293 00:37:45,650 --> 00:37:59,140 And President Macron in France has put forward the notion of raison d'etre, an intrinsic notion of purpose as being at the heart of French Civil Code. 294 00:37:59,140 --> 00:38:12,340 Now, all of this is indicative of the scale and the speed of change towards a recognition of the importance of why business is created, why it exists, 295 00:38:12,340 --> 00:38:16,810 what it's there to do and what it aspires to become, 296 00:38:16,810 --> 00:38:28,260 namely its purpose and everything should follow from that in terms of business, practise, business policy and business education. 297 00:38:28,260 --> 00:38:34,540 The purpose of business is not to produce profits. 298 00:38:34,540 --> 00:38:43,690 The purpose of business is to produce profitable solutions to the problems of people and planet. 299 00:38:43,690 --> 00:38:49,410 And in the process, it produces profits. But profits are not per se. 300 00:38:49,410 --> 00:38:56,590 The purpose of business. Everyone who runs successful businesses knows that to be the case, 301 00:38:56,590 --> 00:39:05,900 and they do not profit from producing problems from for people and planet, and they don't profit from it. 302 00:39:05,900 --> 00:39:11,390 Instead, what they do is they commit to their corporate purposes. 303 00:39:11,390 --> 00:39:22,340 And they commit to those who help to create those corporate purposes and those people in turn commit to creating that could propose. 304 00:39:22,340 --> 00:39:31,040 And that gives rise to reciprocal relations of trust, the sort of reciprocity that Paul was just talking about. 305 00:39:31,040 --> 00:39:36,340 And that, in turn, gives rise to mutual benefits. 306 00:39:36,340 --> 00:39:44,380 For the parties, to the firm and to the firm itself, it creates more engaged employees, 307 00:39:44,380 --> 00:39:53,530 more reliable suppliers, more supportive shareholders and communities, more loyal customers. 308 00:39:53,530 --> 00:39:58,880 And that, in turn, gives rise to greater revenue, lower costs. 309 00:39:58,880 --> 00:40:08,290 And will profits. And underpinning that is the trustworthiness of business to uphold those corporate purposes, and that, 310 00:40:08,290 --> 00:40:21,630 in turn is dependent on their values, values of integrity and honesty and cultures of commitment to those corporate purposes. 311 00:40:21,630 --> 00:40:36,330 And it's those notions of purpose, trustworthiness, values and culture that underpin a real conceptualisation of business for the 21st century. 312 00:40:36,330 --> 00:40:45,030 To bring this about, one needs to have four pairs of key policy changes. 313 00:40:45,030 --> 00:40:50,800 The first is in relation to law and regulation. 314 00:40:50,800 --> 00:41:00,280 At the moment, corporate law is about the alignment of directors interests with those of the shareholders 315 00:41:00,280 --> 00:41:06,770 and the fiduciary responsibility of directors to uphold their shareholder interests. 316 00:41:06,770 --> 00:41:12,240 That is not. Well, corporate law should be solely about it, 317 00:41:12,240 --> 00:41:23,550 should be particular about the fiduciary responsibilities of directors to state that purposes and to demonstrate that they're upholding the purposes. 318 00:41:23,550 --> 00:41:30,630 Regulation is regarded as being about the rules of the game that define how business can behave. 319 00:41:30,630 --> 00:41:39,850 And the enforcement of those rules to penalties and criminal offences. 320 00:41:39,850 --> 00:41:44,080 But it shouldn't just be a crime and punishment system. 321 00:41:44,080 --> 00:41:55,660 Regulation should be about aligning the corporate purposes with public interest in those companies that perform vital public services. 322 00:41:55,660 --> 00:42:03,340 For example, the utilities, banks, auditing companies, companies that perform public services. 323 00:42:03,340 --> 00:42:13,010 Those are companies which an alignment between their private interests and social interests are critically important. 324 00:42:13,010 --> 00:42:18,650 This second pair of policies relate to ownership. 325 00:42:18,650 --> 00:42:25,050 And governments at the moment, we associate ownership with the rights of shareholders. 326 00:42:25,050 --> 00:42:28,050 But it shouldn't just be about the rights of shareholders. 327 00:42:28,050 --> 00:42:36,630 It should be about the importance of security companies in which investors invest their money, 328 00:42:36,630 --> 00:42:44,460 and institutions have a critical role to play in terms of not only upholding the interests of their investors, 329 00:42:44,460 --> 00:42:51,020 but also promoting the successful implementation of purpose in companies. 330 00:42:51,020 --> 00:42:58,310 And governance, as I've just described, is traditionally viewed about aligning the interests of management with our shareholders. 331 00:42:58,310 --> 00:43:04,890 But it should be about aligning the interests of management with corporate purposes. 332 00:43:04,890 --> 00:43:10,650 The third set of policies relate to measurement and performance at the moment, 333 00:43:10,650 --> 00:43:20,540 what we measure is the financial capital of companies and their material capital, their buildings and the plants and machinery. 334 00:43:20,540 --> 00:43:29,810 But increasingly, companies are moving away from being businesses that fund large expenditures on buildings, 335 00:43:29,810 --> 00:43:40,500 plants and machinery to bring about the human assets, the social assets and their dependency on their environment and natural assets. 336 00:43:40,500 --> 00:43:49,610 And we need to measure those as well and account for them and performance at the moment we evaluate in relation to profits. 337 00:43:49,610 --> 00:43:57,680 But what we should be evaluating is the performance of firms in relation to the fulfilment of their purposes. 338 00:43:57,680 --> 00:44:02,820 The final area is in relation to finance and investment. 339 00:44:02,820 --> 00:44:14,010 Finance at the moment is viewed in terms of the efficiency of markets and the contractual relations between providers and users of finance. 340 00:44:14,010 --> 00:44:21,510 We need to recognise the importance of building relationships between providers of finance and users of finance, 341 00:44:21,510 --> 00:44:27,480 and also the fact that private capital markets cannot on their own. 342 00:44:27,480 --> 00:44:35,420 Offer the levels of investment that are required in particular in large scale infrastructure projects. 343 00:44:35,420 --> 00:44:41,870 We should be looking to build real partnerships between the public and the private sector in achieving that. 344 00:44:41,870 --> 00:44:53,140 And that means aligning the private purpose of companies with a public interest in companies that perform those infrastructure functions. 345 00:44:53,140 --> 00:45:01,120 Now, those four policies in relation to law and regulation, ownership and governance measurement and performance, 346 00:45:01,120 --> 00:45:06,940 finance and investment offer the potential for really bringing about the type of 347 00:45:06,940 --> 00:45:13,400 transformation that I'm talking about in terms of creating purposeful businesses. 348 00:45:13,400 --> 00:45:25,380 Now, I want to illustrate this in relation to a company that has been one of the most successful companies in the pharmaceutical industry. 349 00:45:25,380 --> 00:45:32,520 It's a company that produces insulin. It's a Danish company called Novo Nordisk. 350 00:45:32,520 --> 00:45:41,180 And it's been extremely successful in producing insulin, except that a few years ago it recognised that there was a problem. 351 00:45:41,180 --> 00:45:50,980 And that was that it wasn't reaching the market where the type two diabetes, which is designed to treat was most serious. 352 00:45:50,980 --> 00:45:58,130 85 percent of diabetes is found in low and middle income countries around the world, 353 00:45:58,130 --> 00:46:05,800 and they simply could not afford to purchase the insulin that was necessary to treat patients. 354 00:46:05,800 --> 00:46:11,770 So what Novo Nordisk did was to say, right, OK, well, we should cross-subsidise. 355 00:46:11,770 --> 00:46:17,880 The price at which we sell insulin in the developing world from the profits we make in the developed world. 356 00:46:17,880 --> 00:46:23,160 That was a moderately interesting development, but not particularly profound. 357 00:46:23,160 --> 00:46:29,610 What he then realised was that his purpose was not to produce insulin. 358 00:46:29,610 --> 00:46:38,820 It was to help to treat people who got type two diabetes, which insulin might be one approach, but there were many others. 359 00:46:38,820 --> 00:46:44,020 And so it started to work with medical practitioners, with doctors, 360 00:46:44,020 --> 00:46:48,300 the universities around the world in terms of thinking about what was the most 361 00:46:48,300 --> 00:46:55,520 appropriate form in which to provide treatment for diabetes in different locations. 362 00:46:55,520 --> 00:47:03,600 And then it realised, well, actually its purpose was not just to treat people who've got diabetes. 363 00:47:03,600 --> 00:47:13,590 Its purpose was to try and prevent people from getting type two diabetes in the first place, which was often a matter of lifestyle changes, 364 00:47:13,590 --> 00:47:28,260 so it worked with local communities, with NGOs to try and find ways of influencing the lifestyles of people in different parts of the world. 365 00:47:28,260 --> 00:47:32,070 Now, you might say, well, that's all very noble, 366 00:47:32,070 --> 00:47:41,860 but isn't it rather unfortunate for Nova know this business model because it meant that it was going to sell lessons. 367 00:47:41,860 --> 00:47:44,290 The answer was, of course not. 368 00:47:44,290 --> 00:47:55,060 It is exactly the opposite, because what emerged from that was that Novo Nordisk was deemed to be a trustworthy supplier, 369 00:47:55,060 --> 00:48:04,270 not just of insulin, but of health products much more generally and for advice and assistance in finding real solutions. 370 00:48:04,270 --> 00:48:16,070 It demonstrated a real interest in the benefits it was conferring on its customers, its patients and the various parties it was working with. 371 00:48:16,070 --> 00:48:17,750 And as a result of that, 372 00:48:17,750 --> 00:48:28,340 it's business bloomed and flourished on the back of the trust that it created with the various parties with which it was working. 373 00:48:28,340 --> 00:48:42,850 I want to take a second example. It's of an institution that operates in one of the most unsuccessful sectors of the world's economies over the last. 374 00:48:42,850 --> 00:48:47,160 Ten or 12 years, namely banking? 375 00:48:47,160 --> 00:48:55,470 It's a bank that's been one of the most successful banks in Europe in terms of its financial performance and in terms of its financial stability, 376 00:48:55,470 --> 00:49:03,510 it needed no bailing out during the financial crisis. It's got a very clearly defined purpose, 377 00:49:03,510 --> 00:49:13,880 namely it views itself as a humane bank in terms of the way in which it treats not just its customers, but also its employees. 378 00:49:13,880 --> 00:49:19,400 And indeed, it has some of the most satisfied customers of any banks in Europe. 379 00:49:19,400 --> 00:49:25,610 Repeatedly, according to surveys, and as a result, some of the most loyal customers. 380 00:49:25,610 --> 00:49:32,030 Which is again, an illustration of this notion of reciprocity that Paul was talking about give to others, 381 00:49:32,030 --> 00:49:38,050 and they will give it to you in terms of providing you with a loyal customer base. 382 00:49:38,050 --> 00:49:46,380 But what's more interesting about it is the way in which it illustrates another principle that Paul was just talking about. 383 00:49:46,380 --> 00:49:48,830 Because the model that. 384 00:49:48,830 --> 00:50:00,230 Handelsbanken has used for running the bank is exactly the opposite of the way in which nearly all British American banks run their businesses. 385 00:50:00,230 --> 00:50:10,220 And that is in terms of running everything from the top issuing rules from the top, then permeate through your organisation. 386 00:50:10,220 --> 00:50:14,500 What it does is exactly the opposite. 387 00:50:14,500 --> 00:50:26,500 It delegates all decision taking down to the individual branches and the mantra of the bank is the branch is the bank. 388 00:50:26,500 --> 00:50:36,920 And what's the effect of that? The effect of that is that it thereby allows people working those branches actually to take decisions. 389 00:50:36,920 --> 00:50:45,650 They don't simply have to refer decisions up the organisation, wait for them to come back down again and then have to tell their customers, 390 00:50:45,650 --> 00:50:51,650 I'm terribly sorry, I can't give you approval for the loan that you've just requested. 391 00:50:51,650 --> 00:51:03,320 So, of course, this allows them to build up real relations with their customers in a way in which if one has this authority only coming from the top, 392 00:51:03,320 --> 00:51:16,440 it's impossible to do. And what underpins that ability to say that the branch is the bank is the way in which they treat their employees, 393 00:51:16,440 --> 00:51:22,580 that humane notion not only in relation to their customers, but in relation to their employees. 394 00:51:22,580 --> 00:51:30,800 They select the branch managers very carefully. They instil the values of the bank in their employees, 395 00:51:30,800 --> 00:51:40,230 but then they put trust in people who can take decisions at the level of the individual branches. 396 00:51:40,230 --> 00:51:46,260 And again, it's this notion of trust, which is critically important. 397 00:51:46,260 --> 00:51:55,260 Now, a common feature of both Novo Nordisk and Handelsbanken is the way in which they are owned. 398 00:51:55,260 --> 00:52:02,360 Novo Nordisk is owned by what is termed an industrial foundation. 399 00:52:02,360 --> 00:52:13,730 The families who created Novo Nordisk for some reason or other decided not to pass on the company to their descendants. 400 00:52:13,730 --> 00:52:24,920 Instead, they put it in an industrial foundation, a foundation that not only gives money away to charities but actually runs the company. 401 00:52:24,920 --> 00:52:37,040 And Handelsbanken has the structure by which it's listed on the stock market, but is tightly controlled essentially by the bank itself. 402 00:52:37,040 --> 00:52:46,760 Now, that notion of ownership as being essentially one in which it's possible for a company to take a long term profile because it's 403 00:52:46,760 --> 00:52:56,630 got a stable ownership is a key feature of the success of those companies stands in marked contrast to what happened in Britain. 404 00:52:56,630 --> 00:53:04,010 Britain once had some of the most highly regarded companies family companies in the world. 405 00:53:04,010 --> 00:53:17,340 Companies such as Rowntree, Cadbury, Bootes, Beecham, Ricketts, Coman's, nearly all Quaker companies with very strong ethical principles. 406 00:53:17,340 --> 00:53:24,180 But because they did not have a similar stable ownership structure. 407 00:53:24,180 --> 00:53:29,190 They've all disappeared as independent family farms taken over. 408 00:53:29,190 --> 00:53:40,190 Gone bankrupt. All sold out. And that aspect of them finding a way in which one can really create the ownership and 409 00:53:40,190 --> 00:53:47,600 the governance of purposeful companies is critical to the success of those films. 410 00:53:47,600 --> 00:53:55,650 But is also critical for the issue that Paul was talking about capitalism, a capitalist system. 411 00:53:55,650 --> 00:54:04,260 And let me just end by restating, reinterpreting some of the notions of capitalism that Paul was talking about. 412 00:54:04,260 --> 00:54:13,140 The traditional view of capitalism is that it's an economic system of private ownership, of the means of production, 413 00:54:13,140 --> 00:54:21,660 and that operation for profit and ownership is regarded as being a bundle of rights 414 00:54:21,660 --> 00:54:29,290 over the assets of a firm that confers strong authority on the owners of these firms. 415 00:54:29,290 --> 00:54:38,170 Firms regarded as being nexuses of contracts that are managed by the boards of companies for the benefit of their owners. 416 00:54:38,170 --> 00:54:45,190 And that's a consistent, coherent description of capitalism, which says it's all about private ownership. 417 00:54:45,190 --> 00:54:55,080 Profit. And strong forms of control of the rest of us who are employed through contracts. 418 00:54:55,080 --> 00:55:00,140 But what I'm describing here and what Paul was talking about. 419 00:55:00,140 --> 00:55:10,070 It's a different parallel world. It's a world in which capitalism is an economic and social system. 420 00:55:10,070 --> 00:55:17,090 To provide profitable solutions to the problems of people and planet by private 421 00:55:17,090 --> 00:55:25,630 and public owners who do not profit from producing problems for people or planet. 422 00:55:25,630 --> 00:55:37,790 And ownership in this context is not just a bundle of rights, but a set of obligations and duties to uphold those purposes. 423 00:55:37,790 --> 00:55:45,650 And firms are not just nexuses of contracts, but nexuses of relations of trust. 424 00:55:45,650 --> 00:55:50,730 Upheld by the boards of those companies. Now, 425 00:55:50,730 --> 00:56:00,420 what underpins the traditional view of capitalism is that it comes in the context of competitive 426 00:56:00,420 --> 00:56:09,180 markets that align the interests of companies with our interest as purchases of employees, 427 00:56:09,180 --> 00:56:17,750 as investors in them. And if those markets failed for some reason and regulation moves it. 428 00:56:17,750 --> 00:56:27,500 But what was the alternative parallel view of capitalism suggests is that between that market efficiency and regulatory effectiveness, 429 00:56:27,500 --> 00:56:32,120 there is a void that is increasingly becoming a chasm. 430 00:56:32,120 --> 00:56:39,900 As technology accelerates, regulation gets further and further behind and governments become ever more dysfunctional. 431 00:56:39,900 --> 00:56:46,500 Well, both markets fail and governments and regulation. 432 00:56:46,500 --> 00:56:48,660 And in that void, 433 00:56:48,660 --> 00:57:06,270 we increasingly rely on business to convert individual self-interests as economic man into a collective cooperative interest in a common good. 434 00:57:06,270 --> 00:57:13,180 And to do that, we rely on the trustworthiness of businesses to uphold them. 435 00:57:13,180 --> 00:57:24,410 Because ultimately, trust is one, if not the most important and yet unrecognised assets of companies. 436 00:57:24,410 --> 00:57:33,620 Because trustworthy companies are competitively successful companies and the competitiveness 437 00:57:33,620 --> 00:57:42,470 of our nations depends on the trustworthiness of our companies for the benefit of the many, 438 00:57:42,470 --> 00:57:47,090 as well as the few for the future as well as the present. 439 00:57:47,090 --> 00:57:58,760 Thank you very much. 440 00:57:58,760 --> 00:58:10,670 Well, again, thank you, Colleen, for a brilliant exposition about the company and very neatly weaving together in your final few minutes. 441 00:58:10,670 --> 00:58:16,370 Your theme and and pulls. Now we do have time for some questions. 442 00:58:16,370 --> 00:58:20,780 And there's a roving microphone that Claire is holding up at the back. 443 00:58:20,780 --> 00:58:26,120 If you wish to ask a question, please, could you raise your hand and I'll pick you out. 444 00:58:26,120 --> 00:58:32,750 And when you before you answer, could you just say who you are so that it's picked up for the rest of the audience? 445 00:58:32,750 --> 00:58:37,070 So I'll start right back there next to you and then I'll come to come to you. 446 00:58:37,070 --> 00:58:42,170 Hi, my name is George. Missed you and environmental governance. 447 00:58:42,170 --> 00:58:51,770 So my question is mostly for Colin, which is the CEO of Coca-Cola, was in Oxford last week and he was answering a question about purpose, 448 00:58:51,770 --> 00:58:57,410 said, Well, of course, the purpose of Coca-Cola is to make the world a better place. 449 00:58:57,410 --> 00:59:03,080 And that was this old ripple of laughter throughout the room, which he appeared slightly shocked. 450 00:59:03,080 --> 00:59:07,520 But I think what people were responding to was the idea that, of course, 451 00:59:07,520 --> 00:59:12,590 the purpose of Coca-Cola is to produce beverages and excite these kind of products, 452 00:59:12,590 --> 00:59:20,270 etc. So when a company states the sort of wishy washy, pompous light to make the world a better place, 453 00:59:20,270 --> 00:59:29,420 what do you think they need to do to really articulate that? And you know, what counts as a good part is that people can actually believe in that. 454 00:59:29,420 --> 00:59:34,040 It's not just that doesn't just come across as a sort of corporate tagline, so to speak. 455 00:59:34,040 --> 00:59:41,500 Yeah, OK. And that is a typical example of what people term greenwashing in this area. 456 00:59:41,500 --> 00:59:46,820 So, so there are three types of purpose statements the one. 457 00:59:46,820 --> 00:59:53,030 The first one is a descriptive statement. We produce cars, we produce washing machines. 458 00:59:53,030 --> 01:00:01,830 That's our purpose. We that to produce the most efficient and reliable cars with the lowest cost refrigerators or whatever. 459 01:00:01,830 --> 01:00:10,780 That's not very helpful. The second is exactly along the lines of what you're describing, which one might term aspiration, where to save the world. 460 01:00:10,780 --> 01:00:21,980 Right? That doesn't help very much, either. So that's why I was very careful in terms of defining what a purpose statement should be about. 461 01:00:21,980 --> 01:00:34,070 It should be about identifying the type of issues and problems that you are there to solve and whose problems you are trying to solve in what way. 462 01:00:34,070 --> 01:00:43,270 And to in the process make it clear that you're not going to profit from creating problems in doing it. 463 01:00:43,270 --> 01:00:55,660 OK, so if you come back to the example of Coca-Cola, it might go on to talk about providing people with enjoyable, low cost forms of beverage. 464 01:00:55,660 --> 01:01:00,620 But at the same time, what they're doing is creating a great deal of ill health. 465 01:01:00,620 --> 01:01:08,640 Indeed, probably one of the main suppliers for the example I was giving of Novo Nordisk providing insulin. 466 01:01:08,640 --> 01:01:15,300 And that element in terms of damage and profiting from damage means that 467 01:01:15,300 --> 01:01:21,900 actually the profits that Coca-Cola are reporting are what I term fake profits. 468 01:01:21,900 --> 01:01:29,070 They are not a true reflection of the costs incurred from cleaning up the mess. 469 01:01:29,070 --> 01:01:33,330 And that element is both critical to that purpose. 470 01:01:33,330 --> 01:01:37,980 And also critical to the way in which they account for their performance. 471 01:01:37,980 --> 01:01:47,290 All you wrote about it. I just wanted to add a little story of Goldman Sachs. It's been a court case because Goldman Sachs has a very noble purpose. 472 01:01:47,290 --> 01:01:52,330 We are we work in the interest of our clients, interest of our clients. 473 01:01:52,330 --> 01:02:02,250 So one of their clients is unfortunately suing them on the grounds that whatever you were doing, you clearly wasn't in my interest. 474 01:02:02,250 --> 01:02:10,420 But the interesting thing is Goldman Sachs defence, because I think you bring the lawyers in and you say also the defence, 475 01:02:10,420 --> 01:02:15,540 what you you could say it was really they decided that wasn't a good idea. 476 01:02:15,540 --> 01:02:22,540 So they then always could say this is a rogue employee and we distance ourselves from what he did. 477 01:02:22,540 --> 01:02:30,810 You know, they didn't do that. So their defence was, of course, we don't work for the interests of our clients. 478 01:02:30,810 --> 01:02:35,330 Of course not. Don't be crazy. Of course not. 479 01:02:35,330 --> 01:02:42,590 We work in our own interest, and but not only did we know that all our clients knew it. 480 01:02:42,590 --> 01:02:48,080 They didn't believe this [INAUDIBLE]. It was meant to fool the general public. 481 01:02:48,080 --> 01:02:51,470 And so the course, he says, 482 01:02:51,470 --> 01:02:55,190 unfolded he lost his money because he knew that we weren't looking is it is an 483 01:02:55,190 --> 01:03:03,590 infrastructure that is sort of the greenwash am to right to a higher order of the. 484 01:03:03,590 --> 01:03:15,750 Thank you. The next question just here. So I do wonder if sorry, could you just say here? 485 01:03:15,750 --> 01:03:21,420 Oh yes, sorry, my name is Ross Warren and I live in Oxford. 486 01:03:21,420 --> 01:03:27,570 And my question is really, I guess, for for calling. 487 01:03:27,570 --> 01:03:33,840 But I just wonder, do we, as customers of these companies, get the world that we deserve? 488 01:03:33,840 --> 01:03:41,700 I'm just thinking, why is it that John Lewis's business is booming and Amazon is doing so well when we all know? 489 01:03:41,700 --> 01:03:45,420 I mean, you know, there's been a lot about how much tax Amazon pays, 490 01:03:45,420 --> 01:03:53,820 and John Lewis is always held up as the exemplar of a company that actually does have a purpose and does treat it stakeholders well. 491 01:03:53,820 --> 01:03:58,770 And so I'm wondering if we are sort of overdoing that role of trust. 492 01:03:58,770 --> 01:04:06,330 And the other example I was thinking of was when there was the outbreak of BSE and the price of beef 493 01:04:06,330 --> 01:04:12,270 starts to fall because people stopped eating beef because they didn't trust it until it fell so much. 494 01:04:12,270 --> 01:04:16,560 The people beef became cheap enough that people actually started to eat again. 495 01:04:16,560 --> 01:04:27,120 So actually priced from Cross Trust. OK, so price by no means always trumps trust. 496 01:04:27,120 --> 01:04:35,310 And actually, John Lewis is a very good illustration of how it doesn't always drop because one of the 497 01:04:35,310 --> 01:04:42,750 features of John Lewis is the way in which it has survived through very turbulent periods. 498 01:04:42,750 --> 01:04:46,380 Now is currently quite a turbulent period for it. 499 01:04:46,380 --> 01:04:56,310 But the response that it gets from the party for which it's basically established, namely it's established as a trusted. 500 01:04:56,310 --> 01:04:59,670 It is one of the examples of what I was talking about earlier on. 501 01:04:59,670 --> 01:05:03,930 It's actually owned by a trust. It's sometimes described as being an employee owned. 502 01:05:03,930 --> 01:05:09,750 It's not. It's owned by a trust that is there to act on behalf of the employees. 503 01:05:09,750 --> 01:05:15,900 And the reason why that is an important distinction is because it does create the 504 01:05:15,900 --> 01:05:22,290 stability over a long term that even employee ownership doesn't necessarily do. 505 01:05:22,290 --> 01:05:27,720 Namely, that the trust is there not simply to look after the current generation of employees, 506 01:05:27,720 --> 01:05:32,670 but to look after future generations of employees as well as the current. 507 01:05:32,670 --> 01:05:39,240 And that means that it is looking from for sacrifices periodically from the 508 01:05:39,240 --> 01:05:44,610 employees in terms of the extent to which they're willing to take lower bonuses. 509 01:05:44,610 --> 01:05:51,900 And that's precisely the sort of response that John Lewis gets and a willingness to accept 510 01:05:51,900 --> 01:05:57,570 that type of necessary adjustment to allow for the long term survival of the business. 511 01:05:57,570 --> 01:06:04,800 The other the other company that illustrates very well that sort of thing that you're referring to. 512 01:06:04,800 --> 01:06:09,810 What I'm describing response is, of course, Marks and Spencers, 513 01:06:09,810 --> 01:06:21,270 which at one stage had exactly that same feature of being a highly trusted business, not just by its customers, but also by its suppliers. 514 01:06:21,270 --> 01:06:30,730 And the reason why it was so highly trusted was the way in which it built up relations with local suppliers on a long term basis. 515 01:06:30,730 --> 01:06:36,990 It was a change in the in particular, the sell off the see family of the ownership of the company. 516 01:06:36,990 --> 01:06:45,860 It became a listed company. It became subject to exactly the same pressures as most companies are subject to and the nature of the philosophy. 517 01:06:45,860 --> 01:06:55,410 The company changed fundamentally to a point where it has lost not only that element of trust, but a huge amount of value for its shareholders. 518 01:06:55,410 --> 01:07:04,710 In the process of all, successful organisations need to build a capacity that when times get tough, 519 01:07:04,710 --> 01:07:12,510 they can say we now need to make a common sacrifice for a better future. 520 01:07:12,510 --> 01:07:15,570 And Bill's willing compliance to do that. 521 01:07:15,570 --> 01:07:27,300 And that's what John Lewis has been able to do, thanks to years of demonstrating that common purpose and sacrifice for a better future works. 522 01:07:27,300 --> 01:07:30,930 And so they built the we. It's very, very interesting structure. 523 01:07:30,930 --> 01:07:35,000 The John Lewis. The bonus system is, is, 524 01:07:35,000 --> 01:07:43,710 is is is standard across the the bonus for the chief executive relative to pay is the same as that for 525 01:07:43,710 --> 01:07:49,620 everybody else and are very proud of that because the chief executive for many years was Garry Marshall, 526 01:07:49,620 --> 01:07:58,410 the student and and so it's it's ethical that he can actually use the word we. 527 01:07:58,410 --> 01:08:07,950 And it sounds silly. And of course, when the chief executive of a bank is paid 500 times what they average employees, you can't use that we. 528 01:08:07,950 --> 01:08:12,440 And be taken seriously. And. Sure. 529 01:08:12,440 --> 01:08:22,520 We still use the services of those companies that have these huge different sets of sites that have those who have those huge salary differentials, 530 01:08:22,520 --> 01:08:28,760 and Amazon is still, you know, really people use Amazon now more than they used John Lewis. 531 01:08:28,760 --> 01:08:39,830 So I mean, that's five things. Did you want to comment on yet with the consumers that and that is exactly what a is beginning to change. 532 01:08:39,830 --> 01:08:50,720 And B is the way in which we can influence change in this area because what concerns companies as much as 533 01:08:50,720 --> 01:08:59,060 a hedge fund activist buying up shares and threatening to throw out the management does is a campaign, 534 01:08:59,060 --> 01:09:04,820 a social media campaign which undermines the reputation of business. 535 01:09:04,820 --> 01:09:10,490 So we are now in a position where we're able to influence as consumers, 536 01:09:10,490 --> 01:09:17,820 as employees the decision taking of companies in a way that doesn't exploit that trustworthiness. 537 01:09:17,820 --> 01:09:22,250 And if and if we use that, then we can really bring about some change. 538 01:09:22,250 --> 01:09:26,480 OK, I'd like to do a lot more questions and we've got probably Claire. 539 01:09:26,480 --> 01:09:32,600 I'm about to run over a few minutes, so we've probably got about five five minutes plus to go. 540 01:09:32,600 --> 01:09:37,520 So let me see there was born just on your left, Clara. 541 01:09:37,520 --> 01:09:43,910 Hi, my name is Clint Bartlett. I just moved from South Africa has a very interesting relationship with exploitation. 542 01:09:43,910 --> 01:09:52,940 I mean, the impact investment environment at the moment. So my question, I think, is probably to Paul, you spoke about the morality behind business. 543 01:09:52,940 --> 01:09:59,960 How do we achieve that without having regulation that forces firms to provide public goods in one way or the other? 544 01:09:59,960 --> 01:10:08,330 And then the second aspect of that is the holders of the actual capital who who require the profit maximisation are often pension fund holders 545 01:10:08,330 --> 01:10:16,220 who eventually is going to have to come to us as the end recipients of pension funds to say we will not accept 15 percent return every year, 546 01:10:16,220 --> 01:10:22,490 we will accept seven or eight or nine percent because the alternative is the kind of exploitation that we were facing. 547 01:10:22,490 --> 01:10:25,260 You know, I think this is real. 548 01:10:25,260 --> 01:10:34,930 As Colin said, the real limits to regulation and it's the game that the banks are played is a sort of whack a mole type thing. 549 01:10:34,930 --> 01:10:43,100 But what we can be absolutely sure of is the next time the banks go bankrupt, which they will. 550 01:10:43,100 --> 01:10:48,920 Not a single chief executive or senior executive will be guilty of anything 551 01:10:48,920 --> 01:10:55,700 because we've got one team of very well-paid lawyers making the regulations. 552 01:10:55,700 --> 01:11:00,860 And then there's another team of even better paid lawyers, 553 01:11:00,860 --> 01:11:12,350 really seriously well-paid lawyers who are making sure the tick box applies so that the regulations are followed to the letter. 554 01:11:12,350 --> 01:11:18,290 But of course, not to the spirit. And I've got to leave the pension so. 555 01:11:18,290 --> 01:11:24,080 So there's been a really interesting development in this regard. 556 01:11:24,080 --> 01:11:36,590 You know, to the extent we invest in stock markets tend to do so through index funds, funds that invest globally around the world. 557 01:11:36,590 --> 01:11:41,960 So the sorts of things that I was referring to in relation to BlackRock, Vanguard, et cetera. 558 01:11:41,960 --> 01:11:48,390 Now those funds therefore basically hold the global portfolio. 559 01:11:48,390 --> 01:11:52,360 And as investors in those portfolios. 560 01:11:52,360 --> 01:11:58,270 We are not in the slightest bit interested in the performance of an individual firm, even if it's Apple, it's not. 561 01:11:58,270 --> 01:12:03,460 It's frankly not negligible in relation to the size of the total portfolio. 562 01:12:03,460 --> 01:12:11,040 What we're interested in are the things that affect the world stock market as a whole. 563 01:12:11,040 --> 01:12:16,170 Which is essentially political risk. Regulatory risk. 564 01:12:16,170 --> 01:12:27,690 Trade war risks. Environmental risks, precisely the systemic issues that companies should be taking on board. 565 01:12:27,690 --> 01:12:32,550 And so the reason why Larry Fink was made that sort of statement that he did 566 01:12:32,550 --> 01:12:37,990 and BlackRock was it's a recognition that actually what is in the interests 567 01:12:37,990 --> 01:12:49,420 of these customers is investors isn't precisely dealing with those types of systemic risks that companies should be beginning to internalise. 568 01:12:49,420 --> 01:12:55,380 And so that sort of move is an illustration of how it's not just customers who can exert influence, 569 01:12:55,380 --> 01:13:03,530 but we as investors have an interest as well in addressing the sorts of problems to which I was just referring. 570 01:13:03,530 --> 01:13:07,290 And I know there are a lot more questions on people's minds. 571 01:13:07,290 --> 01:13:09,180 But I've just got time for one more. 572 01:13:09,180 --> 01:13:18,300 So if somebody particularly got a pressing question, yes, at the back there and you that there will be an opportunity. 573 01:13:18,300 --> 01:13:26,700 I think both Colin and Paul will be at the reception afterwards to follow in the A-League cafe, which is just through the door to the right. 574 01:13:26,700 --> 01:13:31,200 Yeah. So you can nailed it at that point and put your question to the person. 575 01:13:31,200 --> 01:13:34,710 Grab them by locals. So thank you very much. 576 01:13:34,710 --> 01:13:38,730 Thank you very much for an excellent discussion. My question is for you. 577 01:13:38,730 --> 01:13:44,220 Sorry. My name is Rohan. I'm working in a research consultancy here in Oxford. 578 01:13:44,220 --> 01:13:45,990 My question is for Paul Collier. 579 01:13:45,990 --> 01:13:55,350 You rightly mentioned the divergence between the educated and less educated people, and you also explain why it is growing progressively. 580 01:13:55,350 --> 01:14:04,080 I was just curious to know if you could think of any any pathway or how we can reduce 581 01:14:04,080 --> 01:14:10,920 this particular gap or what can be to be based on what happened in the previous season. 582 01:14:10,920 --> 01:14:17,400 Yeah, that's a good question. We're not. And as I started by saying these, these divergences are entirely fixable. 583 01:14:17,400 --> 01:14:22,260 So let's take the the the less well-educated half of the population. 584 01:14:22,260 --> 01:14:35,190 And let's try and think why that less educated twenty four year old is unproductive or not very productive, and let's try and change it. 585 01:14:35,190 --> 01:14:43,320 And the challenge is to take a baby is born with the individual endowment of the brain. 586 01:14:43,320 --> 01:14:50,540 It's turned that baby with a brain into a 24 year old with a mind. 587 01:14:50,540 --> 01:14:55,770 That mind is a social construct. The brain is a physical endowment. 588 01:14:55,770 --> 01:15:02,700 The baby with the brain doesn't have a mind. All right. The 24 year old has a mind that is produced. 589 01:15:02,700 --> 01:15:07,670 All right. Twenty four years of social interaction. Now what? 590 01:15:07,670 --> 01:15:15,870 We want to end up with a 24 year old that is capable of being productive and motivated to contribute to society. 591 01:15:15,870 --> 01:15:26,520 That's what we want to end up. And this would chain of a entities that produce that 24 year old school. 592 01:15:26,520 --> 01:15:31,530 I call it the social maternal chain zero to three. 593 01:15:31,530 --> 01:15:35,370 There's only one formula that works the family. 594 01:15:35,370 --> 01:15:45,690 If the family fails the by three, the child is full of dysfunction that is largely irretrievable from three to five or six. 595 01:15:45,690 --> 01:15:53,370 It's in pre-school in various forms, and this is one form that works very well. 596 01:15:53,370 --> 01:16:00,870 And that's the French system they call maternal. It's free. It's standard state provided because it's free and standard and sleep provided. 597 01:16:00,870 --> 01:16:07,800 Everybody goes because everybody goes. The children in the pool go. What you learn pre-school is socialisation. 598 01:16:07,800 --> 01:16:18,060 Then you go from six to to sort of 17 and don't do the British model top down scrutiny. 599 01:16:18,060 --> 01:16:21,870 Bonus performance measurement of teachers. 600 01:16:21,870 --> 01:16:34,320 No trust. Finland does exactly the opposite, decentralise everything to the teachers, no scrutiny monitoring, all decentralise. 601 01:16:34,320 --> 01:16:42,350 Don't even test test, test the children. Just wait till the end. They do the only thing the only time we've got in common is the PISA scores. 602 01:16:42,350 --> 01:16:47,820 There they are. We're down there. All right. And then finally, post-school, what really, really matters? 603 01:16:47,820 --> 01:16:55,160 It's vocational training. I live in Britain and have occasional training has systematically been dismantled the last 40 years. 604 01:16:55,160 --> 01:17:03,440 It was never great, but is now hopeless. The world leader in Switzerland, who does it, a lot of the money is is from firms. 605 01:17:03,440 --> 01:17:10,370 Half the money is from firms. It's very expensive and it's a combination of college and firm. 606 01:17:10,370 --> 01:17:19,340 Because the firms are putting so much money in, they make damn sure that this thing works, is prestigious, is paid. 607 01:17:19,340 --> 01:17:27,190 You can become a chief executive of the Swiss bank. Screw that route. So that's the social and eternal chain. 608 01:17:27,190 --> 01:17:32,260 We know what to do, and we know we're not doing it right. 609 01:17:32,260 --> 01:18:12,497 On that note, I would like to thank our two speakers for excellent presentations really inspiring.