 We heard earlier in the conference about this idea of dual economies. Really, there is not one economy, but increasingly two, with very different dynamics. One in which people are living comfortably, where the rich are getting richer, and another in which the poor are getting poorer. And in this panel, we're gonna discuss not just some of the dynamics that are causing these dual economies, but also thoughts about solutions. And with that, we're gonna start with Bill Lasonic, who has really been one of the biggest critics of the financialization of the modern economy, and whose pioneering work in that area has, I think, begun to finally tip the scales to people recognizing just how serious a problem it is. Okay. Well, thanks. And thanks to INET for funding this research, as we have the slides up there. Okay. I'm, oops. Can we get the final reset? Yeah. Yeah. I'm gonna go through the first part of this really quickly, because I wanna get to the economics and of what I have to say, and what academics can do about it, which is what I'm gonna end up on. So first of all, we want stable and equitable growth. What I call sustainable prosperity. We want growth, so we have higher standards of living. We want stable employment. We want an equitable distribution of income. We want equitable use of the planet's resources. That's not what we have. And particularly where I live and work in the United States, it's certainly not what we have. We have unstable employment, inequitable distribution, slowing productivity growth, and particularly the inequity and the instability has been going on for about three decades. You see it in measures of income inequality, a change from a trend toward relatively more equality in the post-war two decades to from the late 70s extreme inequality. This is from the New York Times. This is using the Piketty-Says data. The gray line is showing the percentiles of the income distribution, and there are gains between 1946 and 1980, a 34-year period, and then they looked at the same types of statistics, income gains from 1980 to 2000 and 14, and you can see the red line. So this is not actually a dual economy. This is a cruel economy when all the income gains are going to the people at the top, and I'm gonna talk about why. You also can see this, and this is a well-known graph that I've used and many other people have used, that in the post-war two decades, wages, growth and wages, track growth and productivity, and then there was a widening divergence that continues to go on. I used this to open up an article that I had about three years ago in a Harvard Business Review called Profits of Prosperity, Stock Buy Backs Manipulate the Market and Leave Most Americans Worse Off. I helped turn Harvard Business Review into a radical economic journal. You can break this down in terms of the type of analysis I do focusing on the business sector into an era of retain and reinvest when companies retained corporate profits or enough of corporate profits to reinvest in labor force, keep people employed, and by keeping people employed, having careers with one company, blue collar, white collar, getting more experience, getting higher pay, sharing in the gains of the companies. The company made profits, they shared the gains. That's how you had wages, tracking productivity. That's what broke down from the late 70s, early 1980s. You get into a regime which I call downsize and distribute. You cut wages, you downsize labor force offshore and distribute corporate cash to shareholders. And you go crazy doing this in terms of dividends, which is a traditional way of doing it but something new from the early 1980s stock buybacks. I elaborated this argument in a paper in Brookings put out after the Harvard Business Review article and you can read more about that here. Here's the main graph that shows the looting of the U.S. Industrial Corporation and that's what it is. This is net equity issues, federal reserve funds data. It starts in 1984. This is because of a change which I indicate there in an SEC rule under the radar that still exists. And it goes crazy, particularly starting the late 1990s but in 2003, 2007 that net equity issues is mostly stock buybacks. It's almost all stock buybacks. If you look at this, I turn those numbers that were in that graph into a decadal numbers real terms, $2015. You can see the growth in buybacks decade to decade and I just did it as a percentage of GDP just to give you some sense of the wealth of the size of the economy over time how that's changed. So you can see it's gotten worse and it's gonna get a lot worse. This is looking at the same company if those are net equity issues these are gross equity issues maybe in negative buybacks basically. And that's the blue line, the blue space on top of that is dividends. In the early 1980s, buybacks were not done or done on a very minor scale. This is again same set of companies, S&P 500 companies over from 1981 to 2016. This is just the last decade if you take the S&P 500, it's $4 trillion almost in buybacks, 54% of net income and then another $3 trillion almost in dividends, 39% of net income. A lot of the other profits are being held off shore to avoid taxes. And basically you get this big boom in 2003, 2007 it goes down somewhat the red line buybacks then goes up to well over a billion dollars per year on average for these, in this case, 461 companies. And it's the last few years it's been over 100% on average of net income buybacks and dividends. You can look at the largest repurchasers and every once in a while, including last night we heard of people talking about the firm is a black box is the firm is a black box and you don't understand the economy. The business enterprise at the center of the economy and I can tell you stories which I don't have time to do. We've written a lot of this stuff about almost all these companies and how buybacks feed into other things that these companies are doing to damage the economy. How they've gone to from retain and reinvest to downsize and distribute. The concentration of income at the top the loss of middle-class jobs are part and parcel of the same thing. They're not two separate phenomenon. And so if you're gonna talk about a dual economy you better talk about the concentration of income at the top which is generally missing from the skill bias, technical change arguments. In terms of the business from the picketing and sales data a lot of not all but a lot of the income of the top one-tenth and one percent is so-called salaries of top executives but the reason it spikes let's say in 2000 and 2007 is because it's most of that is stock based. We use the executive comp database to get the actual pay because it's not actually what's reported in the media that's another story of the 500 highest paid executives in each year 2006, 2015, 2015, over $32 million. 84% of that is stock based and it's paid and done in a way stock option, stock award that encourages incentivizes top executives to loot the industrial corporation. In this they're aided and embedded and encouraged by many hedge fund activists just here compared the top 10 executives in 2014 to the top 10 hedge fund managers in terms of pay they're kind of envious but they're all involved in this looting process. Okay the damage it does it's not just plant and equipment and of course the modern age it's not main thing not all companies do research and development it's fundamentally you're not keeping employed you're not training and retaining employees including on-the-job training which is the most important way in which you raise people's income and create a middle class. I have an analysis in the paper I just referred to before of the changes in employment relations that occurred since the 1980s what I call rationalization, marketization, globalization which all have productive rationalities behind them Americans were challenged by the more productive Japanese there was a move from a closed system proprietary system, open system architecture with the new economy there was lots of people who have lots of capabilities in India and China and why shouldn't they participate in the gains from an innovative economy? The problem is not that the problem is that when profits have been made and lots of profits been made it's gone into the pockets of a few people and it's been done through the looting of the business corporation. These corporations of large we're not talking about small entities this is nothing new it goes back 100 years if you go back to the 1920s you have Chandler's Alfred Chandler's managerial revolution later people like Peter Penrose write about this managers at one point led these companies in a retain and invest allocation regime but along come economists known as agency theorists and they say no they're running these companies inefficiently it's rooted in the new classical theory of the market economy and the critical assumption of agency theory which argues that companies should maximize shareholder value is that there's a nexus of contracts out there everybody's getting an income on those contracts and only shareholders bear risk and since they have some notion that risk bearing has something to do with more efficient economy although absolutely no theory about the relationship between the two they say okay when companies make profits they should all go to shareholders they can reallocate them to more efficient uses the guru of this a guy named Michael Jensen who made these arguments and said that the problem is how to motivate managers to discourage the cash rather than investing it will blow costs or wasting on organizational efficiencies when he uses the term discourage he's somehow saying that that money shouldn't be there well how did it get there and whose cash flow is it free cash flow you lay off 5,000 people you avoid taxes you can price gouge customers you can create lots of free cash flow that's what's going on and that's what's feeding this looting of the industrial corporation okay now here's the problem is this all comes out of neoclassical economics it's first of all erroneous theory that only shareholders invest without a guaranteed return I've written lots about how taxpayers and workers I'll always take risk in funding companies or in working for companies about whether they're gonna get the return and in fact shareholders, public shareholders do practically nothing all they do is buy and sell shares the prime mode in which they've been extracting value stock buybacks along with dividends now I wanna talk about Milton Friedman people might know this article appeared in 1970 New York Times Magazine where Friedman said there is on and only one social responsibility of business to use its resources engage in activities designed to increase its profits so long as it stays within the rules of the game which is say engage in the free and open competition without deception or fraud now this is the actual lead into that article from the PDF of the way it appeared in the New York Times and it said a freeman doctrine of social responsibility of business is to invest in profits now this guy is the chairman of General Motors and he's talking to people who were inspired by Ralph Nader called Campaign GM who wanted GM to address car safety and environmental pollution and they were demanding that there be three public interest people on the board director so Rob Johnson the other day said we have to put these things in context if you know this Friedman article it's a very famous article you have to put it in context it was actually published in response to this demand and to say that company shouldn't do this and to give the Friedman doctrine and airing in the New York Times these are the people some of them well known who were wearing these tame GM buttons in Campaign GM there were 13 members of Congress who were behind putting public interest people on the board of directors three people including Shirley Chisholm who this article in the New York Times talks about now here's the thing Friedman was telling US corporations how not to be innovative in the global economy what was the future of the automobile industry in 1970 it was safe cars, fuel efficient cars all kinds of dimensions of quality that he was telling them it's socialism if you invest in these things and then as the New York Times repeated pure and unalterated socialism this was a future of the innovative automobile industry this is nonsense this is a guy who wins a Nobel Prize for telling American companies how not to be innovative now here's the problem the theory of the firm that everybody and probably a lot of people here are teaching is that the most unproductive firm is the foundation of the most efficient economy if you call that absurd it's called neoclassical economics and it's in every economics textbook including those of Krugman's Signets and many progressive people okay now where does this come from we don't want upward sloping supply curves from firms we want downward slope we want economies of scale and then those companies grow big then we have to govern them okay so you have to have a theory of the innovative firm so I've been doing this teaching this for some time I don't have time to go through it other than to say there is a something where we talk about strategy, organization and finance where we can talk about this theory okay let me go back here I just went too fast which okay because I'm trying to stay in my time but I'm gonna go a minute or two over basically what you have in the textbooks if you have a theory of that U-shaped cost curve is that the most efficient economy is when you have no or low productivity workers so I have some pictures of this an overcrowded sweatshop, Ludi's smashing machinery some guys falling asleep at his computer or a woman making little airplanes while she's doing work this is the theory that is the theory of the firm in perfect competition the proof of this is supposed to be a monopoly model but it doesn't make any sense because it uses the cost curves of perfect competition to say that monopolies charge higher prices and have lower output it's nonsense, totally illogical but it's in every economics textbook around the world okay I'm not gonna get into because I don't have time the theory of innovative enterprise you can read about the stuff I've written on this but I wanna get into just two last two slides what we need to do about it we need a theory which is not teaching millions of people around the world that the most unproductive firm is the foundation of most efficient economy how are you gonna deal with the economy if that's the world that you're teaching that way you're teaching students as a result, neoclassical economists have a trained in capacity to understand firms and operating firms they call it a black box it's not a black box you have to learn how to study them okay it's what it does actually it makes the market omnipotent and the firm impotent in the economy so you start talking about market allocation of resources we have to worry about how firms allocate resources and it's actually destroying the US economy and other economies so last what can we do about it we can debunk this absurd body I've called it no less called neoclassical economics it really is absurd when you get down to the microeconomic foundations build a rigorous and relevant economic perspective based on a theory of innovative enterprise supported by a developmental state train academics to integrate theory and history academics do not, economists do not learn how to study the economy because they don't know how to combine facts and logic and then attack the ideology built on neoclassical theory of the market economy that companies should be run to maximize shareholder value it's not an abstract ideology it's actually putting people out of work it's responsible for the concentration and then come to the top the stagnation of everybody else's wages, thanks serve us storm from Delft University of Tech okay thank you very much I will never be able to come up to this speed and actually I also want to make a difference I am going to remain seated partly to myself slow down and maybe also have you slow down after this enormous interesting and powerful presentation my take is going you don't disgorge his ideas yes, in a way it was a flood yes anyway my take is going to be different not micro but macroeconomic there's a paper on the iNet site and on the conference site it's called the new normal demand, secular stagnation and the vanishing middle class and in a way it's going to do some of the things which builders also did at the micro at the firm, at the business, enterprise level I'm going also to try and debunk some of the macroeconomic myths which happened to sort of in a way sort of blur our minds well anyway the setting is the US economy and I'm basically arguing that the US economy suffers from two diseases there's a large literature on the secular stagnation of potential output growth the US is on a slow moving turtle that's one large literature the other one is we have the vanishing middle class we have all these problems which come with the precariat and precarious jobs Peter Thammin and Guy Standing have made these arguments very powerfully well my contribution or my take is that these two separate diseases have a common root and that is basically some it's technology, aggregate demand shortfall coming out of what I call unbalanced growth and I try to convince you that I have a point yeah first of all this is a graph showing that there indeed is a long if you use the data there is a long run declining trend in potential growth I mean we can always talk about what is potential growth but if we for now accept the definition we can see that over time the potential growth rate of the US economy has gone down potential growth in the standard sort of setting depends on demography that is labour force growth labour force participation and it depends on technology technological change which is basically defined as total factor productivity growth I will not go into the demography the labour force participation it's not an important actually many people dropping out of the labour force and so on so it's not that it's not important I will focus on technology that is total factor productivity growth which is actually the main reason why we see this declining now economic theory about total factor productivity growth is in a way there are two takes one is the soul of residual that is total factor productivity growth is basically exogenous it is the residual if we do growth accounting the other take new growth theory total factor productivity growth is endogenous but it is mainly determined by supply side factors could be anything R&D or education or whatever but it is so what it means is if we see total factor productivity growth declining potential growth declining it means we have a supply side problem and we have to sort of address the supply side of the economy and in a way the demand side is sort of short run, business cycle whatever but it's not this is a structural thing and it is supply side that is the standard diagnosis and it's actually wrong now to make my point I go into the growth accounting in the paper I sort of do all the growth accounting actually I have some news for you that is the standard idea textbook idea that there is a solo residual is wrong there is no residual if you do the accounting correctly and actually my discussant Lance Taylor with Kodrina Radha have written a paper in which they also do this Lance took as a title putting some beef in growth accounting I could never have written that paper because I'm a vegetarian so that is but I'm using it and the point is that if you look at what TFP growth actually is it is basically either weighted average factor payment growth mostly real wage growth or it's weighted average factor productivity growth mostly if you look at the empirical data labor productivity growth so when we see potential growth going down it is actually what we see is a long run decline in labor productivity growth per hour or the same thing long run decline in real wage growth now two things happening at the same time which one is driving which well standard theory would argue in fact the labor productivity growth is going down and that is why wage growth is going down this is the marginal productivity theory of income distribution anyway there's a long story to tell but that is falsified it's wrong and the point is it is the other way around it's real wage growth slow down of real wage growth which is driving down the growth of labor productivity growth and again I'll try to make that point on the real wage growth there is a very nice quote by nobody else then Alan Greenspan he also introduced a notion of traumatized workers workers traumatized by job insecurity and he noted in the end of the 1990s that there is very atypical wage restrained going on and my argument here is that is actually driving down labor productivity growth but the story is slightly more complicated because as Lord Daterna mentioned in his talk on during dinner average is over yeah we it doesn't make sense to look at average aggregate labor productivity growth or average aggregate real wage growth the point is we have a dual economy this is one of the themes of the conference and I want to go into into that issue now we have to look deeper we have to look at the structure of the economy itself now this is sort of part of the growth accounting exercise which I do in the paper we look at I look at sectoral in industry wise productivity trends and what I find is that there is no secular stagnation in labor productivity growth whatever happening in what you could call the core economy of the core sectors of the US economy which is manufacturing and finance and information actually where there is a big decline long run secular stagnation of labor productivity growth is in what we could call the peripheral sector low wage services these are not an important source from a social point of view social from a social point of view not an important activities not at all but they have a very low wage and they inherently have low labor productivity the jobs I mean people say look out the window what what what kind of what what is the world are we talk about which people are we talk about we are talking about people who work in fast food who work in cleaning healthcare education old-age care personal services Paul Samuelson in 1998 called these mediocre jobs it's very interesting Katzen Kruger called these alternative work arrangements that is the euphemism David Graeber who's in a way more honest calls these bullshit jobs it's like we have a whole range of terms Samuelson is in the middle mediocre jobs the point is it's dualization yeah we have a fast growing high wage higher wage high productivity core and we have declining stagnant low wage survivalist precarious sector okay now in the paper I build a model to explain how the dynamics of this corporate this dynamic sector and the stagnant sector is interacting I won't go through the equations I actually try to write up what's in words what the basic logic is it's like okay suppose we have a technological improvement in the core robotization artificial intelligence actually productivity growth goes up in the core employment is not going up so the jobs are actually people the sector starts to shed the workers these workers also there's no welfare state these workers have to find a job and they all become hamburger flippers let's see okay now this means that productivity in the employer of the stagnant sector which is the employer of last resource productivity goes down wages go down yeah that is with wages going down in the biggest part of the economy aggregate demand goes down and now it becomes interesting the fact that aggregate demand I mean these poorly paid workers cannot afford to buy I mean anyway they have a more difficult they have a difficult time paying for the goods coming from the from the dynamic sector I mean maybe they buy but the point is it's huge that if they buy mobile phones they won't spend on other things anyway the point is that aggregate demand declines and this is also going to hurt productivity growth in the core sector itself because it's like what Adam Smith is saying the division of labor is limited by the extent of the market that this specialization cannot happen and that is productivity growth itself in the core sector will also be hurt by the fact that we have a very unequal sector this is obviously a bomol type unbalanced growth this is also Arthur Lewis type of dual economy the whole point of course is Arthur Lewis was speaking about industrializing economy and we are in a way speaking about at least in terms of employment shares of a de-industrializing economy okay this is the conclusion there's actually one more slide this is so in a way it's not just a conclusion but I think this is basically the summary of the point I want to make that is yes we have a dual economy we have we don't I mean it doesn't make sense to speak about secular stagnation at the aggregate level because in a way the technology dynamism is very much there the point is it's not sort of it's actually creating a problem in the so-called non-dynamic sector there's job insecurity there are the mediocre jobs but it's very important is this fact that the slowdown of aggregate demand because of high wage inequality the fact that we have a precariat is slowing down the division of labor and the rate of labor-saving technological progress in the dynamic sector itself very importantly again I have no time to go into it but monetary and fiscal policy in the US actually reinforce this dualism this unbalanced process of unbalanced growth and in a way what they do is they put have these policies or in any case keep the US economy on the slow moving turtle now we have to also be a little bit forward-looking and positive so that was a big request what can we say to sort of reverse the unbalanced growth and the two problems well I've given a list first one is well we need some policies to keep up wages in the stagnant sector I mean these are very socially productive tasks think of healthcare, old age education, schooling, whatever I mean all these jobs are extremely important they have huge social value the whole point is they are not being paid properly at the same time I mean I said Caldor talks about an income policy the income policy has to do with speaking about what is a minimum wage floor but also what is a maximum wage floor but how much I mean all these rents in the financial sector these very high incomes in the financial sector for instance to what extent do we think as a society is this to what extent is this acceptable I just want to point to work by a colleague of mine Gerald Epstein who did a sort of incremental cost-benefit analysis of the social efficiency of the financial sector in the US and he finds that for every dollar of extra profits in the US financial sector there is a dollar loss for the real economy and that is when we do not count the cost of the financial crisis I mean that would actually mean a dollar profit for the financial sector five dollars loss for the real economy but if we forget about the financial sector then it's sort of totally parasitical it's one dollar of profit for the financial sector means one dollar of loss for so it's like why are we allowing this this is Caldor's income policy we have to devise institutions to do something about this second thing is I think nothing will work if we don't create countervailing power for workers which is exactly what has been demolished after 1980 the way to do it I don't know there is an old idea by two Swedish economists Reijn and Meitner who were talking about a wage earners fund which is basically socializing so this is not at the end of pipe universal basic income this is not taxing robots which is still maybe a sort of end of pipe this is actually go for the radical interpretation of the second theorem of neoclassical welfare economics that is we reallocate property rights before we exchange yeah this is what it means it doesn't it's not the same thing as giving shares to individual workers it's giving shares to workers as a group yeah and workers as a group have to sort of they become not individual shareholders they become a group a shareholder of anyway I'm not sure whether but this might be totally infeasible true anyway but so many things are infeasible anyway the that's what we're all about here anyway then the the Keynesian idea about the socialization of investment Keynes was not very outspoken or clear about what he meant so we have a lot of liberty to interpret what he actually meant so I'm going to sort of put in my own interpretation here that is I think it basically means we have to we have to get rid of the liquidity the excess liquidity which is actually running around in in the global financial system the shadow market system which is sort of being used by whatever spec speculators in OTC derivatives which is actually being ensured by collateralization securitization and so anyway this is all told as Gerald Epstein is saying totally unproductive so that is one step try to sort of put some the limit to what the finance is actually doing make finance socially use useful and it will mean industrial policy I will not say much about it new forms of industrial policy we have to guide the financial sector because they cannot do it on their own the final sheet is two more things and that is actually also wrong because during the conference I actually have five more things one is my argument is not lead-eyed I'm not saying we should stop the robots because they are taking American or European jobs actually I think I fully understand the civilizational benefits of ICT I mean each morning we enjoy the product of the latest ICT technologies in the form of Donald Trump tweets I mean sort of a high point of of civilization so that is not the point I'm also not saying higher wages alone will do the job no socialization of investment wage under funds and so it's much more industrial policy much more complicated okay I'll stop with the two points here I think if we don't the cost disease that is higher wages for socially extremely useful activities I mean in the 1970s we were much poorer and we could pay for many of these things we are much richer today and then there is the story that we can't afford I mean I anyway there's a I can't see why so there is a I call it visionary pragmatist the reforms which I'm proposing the Dutch prime minister I'll said that if you have a vision you need to go to an eye doctor that is the what he says but I think if you don't have a vision in these times you are actually totally irresponsible we have to think about what like to see like I said about the grounds well of popular discontent which we are actually experiencing main topic in this conference anyway the dual economy unbalanced growth is the major motor force of this grounds well and if we don't attack it or address it it will not stop thank you next up we have Mariana Mazicato who I know as the author of the entrepreneurial state which is for me one of the books that I wish all of my peers in Silicon Valley would read study internalize and act on thank you tell them to do that fire for them right so this is great because I'm gonna pick up at the end on the details about the socialization of investment point of Keynes which has definitely been under theorized but and similar to Bill but sort of the mirror image of that I'll argue that unless we have a theory of the state not just as a counter cyclical sort of investor of last resort but a theory of the state throughout the whole business cycle as he was saying we need a theory of the firm then we actually get less innovation much more financialization and more inequality and I'll talk about that in terms of actually also rethinking where value and wealth actually come from and admitting that it's very collective and the role of the state has not just been sort of in the background fixing things and leveling things but actually taking this investor first resort role and what happens when we don't admit that and so first talking about vision as you were that we need visionaries you know to be to be honest there is actually quite a lot of vision out there if you go to either the European Commission or the OECD they talk about that we actually need a particular kind of growth directed growth they don't use that word but when you talk about you know sustainable inclusive innovation led smart growth that's actually talking about you know it's not enough to have growth for growth's sake we have these sustainable development goals which you might as some do including myself sometimes think that kind of look like a shopping list of all sorts of things actually they're very concrete there's 146 targets underneath them and the great thing is that more than 100 countries have actually signed up to them so whether you like them or not the fact that they've actually been signed up to presents us with the real opportunity to rethink how we are directing economies and investments in both the public private and increasingly the third sector and of course after the financial crisis this need to rebalance economies this term that's often thrown out there also presents us with an opportunity to provide vision what I want to argue is that's impossible all that stuff is absolutely impossible without having really kind of bold ambitious interesting public policies that are really able to think outside of the box and you know we are part of the problem even those cool people that talk about innovation and innovation systems and talk about the role of public policies is simply de-risking or enabling or facilitating whereas I hear all the time even in my Schumpeterian community we have a problem right so words matter Tony Jutt was very good on this he said that the kind of you know fall of the state in some ways the whole kind of Rager sorry Ragan Thatcher era was accompanied by a change of words he says that you know all of a sudden this word administration pops up in the 1970s the state administers you know how boring is that and so you know is the state really just setting the rules of the game creating framework conditions which the European Commission talks about all the time solving and fixing different time types of screw ups like market failures and system failures or is it doing something different and if it is doing something different and this isn't always but in the times in the last 200 years in which capitalism actually produced growth innovation and big increases in productivity if we don't get that then we have a huge problem not just for innovation but I want to argue for inequality and so as I said the wrong theory of the state does lead to less innovation more financialization more hoarding and more inequality obviously this is not the only source of these problems but it absolutely is part of the solution to rethink what we even mean by public administration public governance and bureaucracy why does the word bureaucracy often sound like a bad word there's all sorts of interesting writings out there that we could go to which I don't think have been listened to enough by economists including Keynes Keynes was not just about counter-cyclality as I've already mentioned he really talked about the role of the state as needing to have big ideas really doing what's not being done out there and what's not being done out there is not just a market failure it's a lack of investment and opportunities a lack of really pushing technological frontiers and also getting new types of relationships and that's I think the relationship issue is part of what he actually meant by the socialization of investment Carl Polanyi of course was one of the leaders in this really arguing that actually you know markets were forced into existence from day one the capitalist market was forced into existence so even the word intervention makes no sense whether you like interventions or not whatever side of the political spectrum one might be in the word intervention is wrong because markets are actually outcomes they're outcomes of public private third sector even civil society actions we wouldn't have the weekend or the eight hour work day without trade unions and that absolutely shaped and co-created the market so we should be very careful with our use of the word market and actually I learned a lot about this from Bill who always says don't confuse business with the market the markets are outcomes of business public and and other interactions so when I first started writing about this sorry little self-promotion here but I love the German title TAS Kapital of the Stat it was very much about not just admitting the role that the state played in the history of technological revolutions but really rethinking what does this mean in terms of portfolios investment theory of the state is active market shaper market creator not just market fixer the new book I'm writing that's out in the spring kind of takes that one step further and says if we don't get that then actually a lot of value extraction and you know Bill's work and other people's work on this panel have talked about different forms of value extraction actually happen in the name of value creation this is what's new by the way value extraction is not new but how it happens in the name of innovation and dynamism and competition and creativity is what's new and unless we debunk the underlying theory of value underneath those arguments we're going to have a problem you don't just tax wealth as Piketty's book taught us that obviously should be done we also have to have a new theory of where that wealth actually came from anyway so I want to sort of unpick this into four questions which I'll go through very quickly I have just over eight minutes to go through them so not more than two minutes per point but this you know what I'm trying to do in these four questions is really to say let's even change the questions we're asking it's not just that the answers are wrong the questions are wrong so this first one about you know should policymakers pick you know make decisions that actually direct the economy or just level it's just completely the wrong question you know what actually led the creation of all these you know general purpose technologies which we know have been key drivers of growth forget whether that growth was sort of right or wrong depending on what some of you know how these technologies then were used the way that these technologies actually came about was actually through directed change you know the internet would not have happened if the state was just leveling and fixing things and don't worry I won't go through my usual iPhone example but you know the iPhone example in my book was not to say that Steve Jobs and John Ives who I've actually become friends with were not geniuses is you know how can you have an 800 page book on Steve Jobs without you know one page, one paragraph, one sentence one little word on how all the tech in these smart products internet GPS Siri touchscreen was actually funded by ambitious strategic directed public policies which doesn't mean that you go out there and you pick one technology one firm and you know really narrow down your investments in the state but unless we actually understood how those ambitious programs came about often through not even worrying about this stuff not worrying about commercialization but really going for the mission right so go to the moon don't worry about how that's gonna end up in the iPhone but then surprise surprise you do get all these spillovers and one of the big risks today is increasingly some of these organizations which you probably can't see up here but the you know the DARPAs of this world are increasingly being pressured actually to think of commercialization first this is absolutely happening in NASA I have a couple papers out with Doug Robertson talking about NASA itself its mission has almost become commercialization and that's gonna be a problem for commercialization itself this isn't just you know defense it's not just Cold War it's health, it's energy it would be very hard to talk about you know great innovations and pharmaceuticals and nanotechnology and biotechnology in the clean tech sector without seeing the role of these public mission oriented organizations this includes of course public finance you know this exit driven VC industry which Bill and others have critiqued as having actually created quite a few problems in industries like biotech you know even the death valley phase of the innovation chain can last 10 to 15 years and when the VC guys just went exit in three to five years through a buyout or an IPO what does that actually do to the innovation process in some new work I'm doing with Gregor Semenyuk who I think is here at the conference we've been looking at this also in clean tech and you basically see the same thing the very high capital intensive high risk high uncertainty phase of this industry which is still emerging has absolutely been led by different types of public actors interestingly in this sector unlike in IT you also have the role of public banks public banks which used to mainly be focused on infrastructure and catching up and counter-cyclality but increasingly precisely because of the short termism the financial sector have been having to supply even the kind of VC kind of money so the high risk early stage high risk investments and these are basically four banks the Chinese, German, European and the Brazilian bank before things went completely crazy in Brazil a year ago and this is you know the example of the KFW1 which again is not just providing counter-cyclical lending but is directing that finance and we have a very hard time with this you know these kinds of actors which aren't just public banks I often argue even the BBC gets accused of this of crowding out the private sector when you have these actors actually having not just you know this leveling role but actually having an ambitious role of directing finance in this case not just to the SME population this generic word that we think is always a good thing but actually you know picking in some ways the willing not the winners the willing firm small, medium or large that are actually willing and able to co-invest alongside alongside different public actors around these visionary ambitious programs the Chinese Development Bank again fascinating this might look like a lot of money that they're pouring into particular companies but you know Elon Musk got five billion nine zeros from the US government for Solar City, Tesla and SpaceX and obviously lots of these funds don't always do well right entrepreneurs are often bragging about how they're willing to take risks and of course that's very important you have to be able to take risks but as soon as you know things go wrong in a public entity like a public bank or the cylinder example we get very worried and again tell governments to step back don't pick don't pick Cylindra but guess what the government also picked Tesla Tesla got a similar amount of money a Cylindra but no one knows that and also it wasn't actually constructed then as a portfolio I'll say this on my last slide which is well what would have happened had the government actually admitted it wasn't just a lender of last resort but an investor of first resort in that whole kind of clean tech space by the way fracking as well was initially government financed in terms of literally how it constructs the portfolio so it doesn't just pick up the downside but also perhaps in different ways get some of the upside to fund the inevitable downside and the next round so really quickly this also requires talking about the actual organizations this is not just public money this isn't just money thrown out there this occurs through particular organizations most recently through ARPA-E and it's very curious that Trump actually hasn't yet cut the budget for energy but he's going after the organizations and money by the way comes and goes right you can increase a money one year you can implement austerity the next year if at the same time you've killed off the public organizations that are crucial to this directed investment that could take up to 50 years to come back and I don't think we fought that battle enough I won't go through this but again all the organizations I mentioned before actually have had missions including these public banks this doesn't mean it's necessarily good I would argue Trump also has a mission but we have to understand how some missions are sent who decides what does this actually mean again for that whole portfolio and also we need a theory about this we need a theory about organizational public organizational capacity building experimentation, exploration in the same way that we have dynamic capability of the firm from Edith Penrose's work we should have a dynamic capabilities of the state because it matters otherwise obviously we're gonna get the problem of creating lots of failures if in the same time we've outsourced all the capabilities and I would argue that part of what Bill was talking about was rationalization, marketization, privatization, etc has also led to an outsourcing of state capacity which also makes it by the way much easier to capture so Jamie Galbraith's book The Predatory State yes we know the state does get captured a lot especially when it doesn't have a theory of its own role equally important is assessing this stuff there's no point in doing it and by the way it's often not done country where I'm from Italy is not today making these kinds of investments it's just subsidizing it's not co-investing subsidies often create predatory and parasitic relationships but if you do do it if you do do the BBC Learning Program of the 1980s or the kind of green vision that China, Germany, Denmark have today how do you measure this stuff? Well surely if we have a critique of market failure theory which I think lots of us have contributed to we then also need a different way to assess a market shaping, market creating role and I don't have time to read this but Keynes was very good when he said actually out there we don't really have all these wolves and tigers and lions that you would think of when you think of the word animal spirits but there's lots of domesticated animals gerbils and hamsters and pussycats and so how do you actually dynamize and get business excited to even want to roar in that animal spirits way while providing this mission oriented strategic direct investments which then are followed by the private sector how do we measure that and isn't it interesting that even the good stuff which is crowding in not crowding out still sounds negative we actually don't have positive kind of action oriented words even when we want to describe that crowding in process so how do we actually capture that pushing the market frontiers which is absolutely what DARPA did it is what the BBC has done in its own space how do we get a different type of crowding in crowding out analysis as opposed to immediately worrying when there's any of this ambition well that's part of the research agenda my time's up but these guys went over at least two minutes I will too not more than that I promise and this actually does require a new theory or even a theory of public value isn't it interesting that philosophers talk about public value but we don't we have this word public good and of course it's very useful but we put it in the context of correcting a screw up right correcting when you have positive externalities and that creates under investment so we need to fix that public good problem versus really giving that word an ambitious again action oriented visionary understanding of what public goods are so this is what we're trying to do in this new institute of setup at UCL we think public purpose and public value lastly and I won't take more than a minute to do this we need to think of this whole inclusive growth agenda which has become quite rightly so trendy lots of people talk about it what does this actually mean and how do we relate that back to the understanding of where wealth comes from because if we continue to have this kind of idea that business creates value and the state either just redistributes that value or it best facilitates enables and de-risks it this agenda is extremely hard to do Herb Simon talked about this when he said that if we're generous with ourselves a large part of the income that we pretend is coming from marginal incomes is actually coming from this socially distributed creation of wealth this is a quote I've never actually seen discussed by people who talk about Simon Bill Gates and Warren Buffett who important investors have admitted this but what does this literally mean for the concept also that some have talked about in terms of pre-distribution and what's very interesting about Piketty's analysis is that period in which after the 1970s in which inequality rose so much there was lots of really regressive taxation policies like capital gains tax falling by 50% in just four years which were as I said in the beginning done in the name of value creation in the name of wealth creation so this great quote by Buffett saying well why did you do that why did you reduce my capital gains I don't even look at that he's actually talking about what Keynes said that actually what we need are public policies that create those opportunities versus in the name of opportunities reduce things like capital gains which actually only increased inequality as he says here only decreased the number of jobs didn't actually affect investment and Keynes' concept of socialization of investment I think also goes to the heart of this this isn't just saying we need more public money spent on green or health this is also changing the characteristics of that investment and I'd like to argue that this is about changing the deal or the contracts patents are contracts they're not rights so what does it mean when we talk about the state as one of the lead creators of value not just redistributor for literally all these different types of contracts Bill was talking about share buybacks well you know Bell Labs you know which was a reinvestment by AT&T of its profits actually came out of government at the time being quite confident in saying in return for this you know monopoly that we've given you you have to reinvest your profits in the real economy in innovation and big innovation are we asking that today of our monopolies or again you know patents we are patenting the wrong things we are increasingly patenting upstream the tools for research are being patented that's new and that's a failure of negotiation between public and private precisely for this publicly granted 20 year monopoly lots of regressive taxation policies are innovation policies the patent box that's crazy wrong kind of contract again patents are already 20 year monopolies why are we reducing the taxation paid on the profits generated from a 20 year monopoly we should really be thinking of incentives that lead to more innovation and that doesn't happen through that I would also argue we should sometimes not always retain equity had the government actually retained three million shares in Tesla which is what Obama said he was gonna do had Tesla not paid back its loan completely reverse thinking had they you know because then Tesla did pay back the loan in 2013 took it out in 2009 465 million guaranteed by the taxpayer had they done the reverse then the price per share went from nine to 90 in that period multiply that by three million shares that would have more than paid back the salindra loss and the next round of investment the reason we don't even ask these questions is because we haven't admitted this collective value creation process and until we do that we will have more inequality more financialization and less innovation I'm done all right we are adding up the no we're adding up the message here it's pretty powerful now mario saccharaccia you are going to have to deliver the knockout punch oh god and then serve us gonna bring I mean thank you thank you I'm not sure if I got knocked out first there from all this thank you very much I am going to speak on an issue which in some ways is I mean it's directly connected with all these issues pertaining to dualism and growth and so on but it's usually presented as a kind of all purpose in a policy tool there to ultimately bring back the economies to some sort of golden age almost kind of a world that we had in the early post war period and eliminate the kind of dualistic structure that has been plaguing you know most in industrial countries now for the last 40 years let's say now let me just say that there has been you know a lot of discussion in the last while over this issue of dual economies and what is clear is that this kind of distinctive sort of structure of dual systems is in fact what we saw as a phenomenon right at the beginnings of the industry you know the first industrial revolution here I mean if you're thinking of this city here and you had an observer like Adam Smith looking at what was going on during the first industrial revolution well what we had in fact was a kind of growth process that looked a lot like what we're imagining dual economies as Arthur Lewis later I'll try to theorize about and where you had basically an enclave sector growing a manufacturing sector in that case and the rest of the economy pretty much on a sort of stagnant subsistence income so to speak and now this of course kind of decoupling of growth in productivity and real wages was in fact very typical of that industrial era and in fact it was used almost as a model that we should be in essentially a pattern and on in terms of Rostovian type takeoff here towards industrialization and all that that was once seen in that light and this kind of phenomenon though of decoupling of real wages and productivity growth and the polarization of incomes and all that really has reappeared in more recent times and in fact there was however one period an exceptional period let's call it during the well right after the Second World War that is sometimes referred to as the glorious 30 years in French I prefer that term than the golden age because it actually provides a historically specific period when this happened and it allows us to be able to understand what were the institutional features and policy framework that took hold during that period that led to this kind of recoupling let's call it productivity growth and real wages so that if you look at these are graphs you've seen had Peter Teman showing it as well I took one for Canada and the United States alone and what we see here there's that whole period let's say from this is from 1950 only but you could see all the way to the mid 1970s you did have this kind of pattern of growth where you had real wages and productivity moving somewhat in tandem but then you got this huge bifurcation that we've never come out of basically and that is connected with this dual structure now the purpose of what I want to do in this paper here that you could read up online I guess so once it will be put online is that what we've seen here is that this pattern that used to be pretty much familiar to all the classical economists in the early period going back to the late 18 and early 19th century has returned I mean for what reason and secondly does this all purpose idea now there are different forms as we're gonna see in a minute of guaranteed income proposals will they be able to address these kind of disparities and get it back on track so to speak as we saw during that kind of 30 glorious years of growth now if you look at it back just to go back very quickly to the 19th century views here all these classical writers basically had a belief that there was a kind of general tendency for wages to be you know that was called the iron law of wages they had all kinds of terms for that but basically the idea being that there was some sort of natural normal level of wages that pretty much kept them around a subsistence level and it wasn't obviously a physiological kind of view that we find in Malthus and all these early classical writers most of them including Adam Smith basically had something akin to a kind of a bargaining power theory of how this would happen and in essence all of them whether it be a Smith all the way to Marx at least during the 19th century what we see is a view basically that real wages are determined the sort of subsistence wage here that tends to be around which were wages will gravitate will be determined by both legal kind of societal norms as to what it should be that are often dictated by the state or by certain conditions or frameworks that allow this to happen but also of course their bargaining power themselves that is often related to the growth process as such the high growth or not in an industrial economy and in fact the traditional sector formed the backdrop really for what you would have in terms of transfer mechanisms as well when real wages in the industrial the enclave sector perhaps when below even subsistence then that kind of traditional sector would be the one that would provide the transfers to maintain this labor force so that it was an equalizer so to speak as well now this kind of classical vision of the dual economy of course is what you also find in Lewis and he tries to interpret it in a way that indeed I would argue is similar to the way these classical writers not completely there are neoclassical features of his model but nonetheless what we find is a vision that where you have a subsistence sector the traditional sector as he calls it and the capitalist sector and also of course the real wages that he imagines in the subsistence sector again that are determined by normative kind of factors they're not in the neoclassical sense of demand and supply mechanisms okay now I will jump into basically I'll go for that now this kind of Lewis model that remember this he originally wrote that paper in 1954 it was basically used as a way to say look that's the way the economy was in fact evolving and developing countries should try to pattern that because what was in the early post-war period happening was in fact this kind of elimination of dualism taking place as a result of the high growth the golden age period that we were talking about earlier where we had this coupling of productivity growth and real wages and therefore there was this idea basically that we should embrace this kind of classical model of growth in order to be able to ultimately achieve what was then deemed as the you know the way in which these economies were evolving and clearly this is now what happened on the contrary what happened was the complete opposite as we saw since the 1970s and mid 1970s and 80s but during that early post-war period though what we did have is some important developments some of them having to do with full employment type policies in place that basically depleted labor reserves in these traditional sectors in the industrialized countries at the time and also you had a whole support system in place that actually percolated already in the early inter-war period and during the Second World War that led to important changes right here in Britain for instance a good example is the Beverage Plan that led to these major legislative reforms at the time so these two elements here that came into play in the period of the post-war period of course were allowing this to happen now there was a retreat I don't have time to get into the retreat because I do wanna get to the guaranteed income here but the retreat we know what happened globalization financialization et cetera et cetera now what the point that I wish to address at this point can a guaranteed income which has been something that many in fact where I'm coming from right now in Ontario in the province of Ontario we have a whole experiment going on a three year experiment in trying to set up something that is akin to the negative income tax type income that I'm gonna mention in a minute but I have a diagram here where you have total income on the vertical axis and employment income on the horizontal one just to give you a kind of stylized view of these different types of proposals and I have two types there there's the UBI which is the universal basic income and the other one which is the old Friedman type guaranteeing annual income negative income tax kind of proposal going back to 1962 and what I did there is I just took something that is close to what is actually being proposed in Ontario what we have there in fact it's not 15,000 it's 14,000 US dollars or around 17,000 Canadian dollars in this case as the minimum guaranteed income the little G.O. there that G.O. amount that flat line there and you got at the other hand you got as income rises now the way it works is literally what we had in the Friedman one which is that there's a tax back rate of 0.5 so they deduct against that income I'm sorry they deduct the income I went half of that income against your guaranteed income and so you could see that bridge if you could look at that kinked line there and you could also see the transfer which is that extra amount vis-a-vis the basic income one is at the bottom there are 15,000 so in the example I have there if somebody also takes up a $15,000 job then he, for the individual income earner in this case by the way not for the family one but for the individual one they would give you 22,000 or whatever so what we have here is one type the UBI instead of the universal basic income is just simply see it as an add-on there where I have it summing both here simply so in that case there's no negative income tax effect here I didn't indicate the actual income tax I would insulate it obviously but in terms of the transfer side there it will be the full amount added period so you could see that line on top there that gives you the full amount for UBI otherwise they're very similar needless to say now the difference between these two types of programs of course has to do with the fact that one is gonna give you a considerably higher usually it's proposed by the left the UBI and it's gonna be considerably higher than that which is of course the gay NIT proposal so to speak here but all of them are what Pauline used to call aid in wages or a simple add-on to employment income and that's important now one of the byproducts I call this here of these programs of course would be whether or not it could form a basis of the certain subsistence income flows here that we saw in the 19th century version of a dual economy and if it could provide a basis that could move it upwards and eliminate it ultimately and here of course if you look at what neoclassical economists have been saying of course they worried more about the disincentive effects of these schemes in terms of work, disincentives, et cetera, et cetera but most non neoclassical economists more heterodox economy tend to of course take the Polanyi sort of view here which is that they look more on the demand side as in terms of incentive effects that arise if you create these kind of conditions under this framework of policy and what I try to show here basically is that if you look at the way in which these programs are put in place, okay the question then is and I just gonna jump into the really important aspect here which is that there are certain incentive effects on the employment side if you wish that are critical that were first highlighted actually it wasn't just Polanyi Polanyi was one of those who talks about the SPIOM land effect, okay but in fact this goes way back to some of the early historians of the Industrial Revolution like Paul Montu I referred to one example who refer to these problems that arise as a result of these demand side incentives that are created as a result of the existence of a guaranteed income because what it does is that it generates what we call these compensating in fact and remember Milton Friedman, Frederick Von Hayek, George Stigler all these people supported this type of income support here and obviously they weren't trying to get more people on welfare through guaranteed income what they wanted to do was to get them off welfare in order to be able to take up jobs out there and why because of course as in fact I quote Friedman from 1962 it argues that this would not distort the market the labor market or impede its function with the existence of a guaranteed income because what it does is it creates more flexibility on for market wages to take hold as a result of that and what I've argued here over the years is that there's a kind of compensation effect these guaranteed incomes that would basically reduce workers' resistance to cut in market wages because you have this compensating effect in place and what I try to show here and I know time is up already but I just want to highlight two things and then I'll leave it at that which is that this compensation effect is affected to some extent by the tax back rate how much it would be and you could see that there are different types of tax back rates that could appear but more importantly it also is critically dependent on the size of that minimum income obviously if you pay everybody $100,000 to workers you're not gonna get these kind of incentive effects but if you pay them $5,000 then you're gonna end up because they cannot possibly live on 5,000 so you have this effect taking hold depending on what would happen there and as you know the original forms that were proposed by Milton Friedman and others basically wanted to eliminate all other forms like minimum wages, et cetera, et cetera in order to eliminate these floors to the system and this is the whole logic of this is how can this happen in the context of a guaranteed income and the point that I've made is that unless you have both these floors that exist because of other institutional arrangements in the system and also if you have full employment kind of policies in place that would reduce these kind of incentives from actually taking hold then you would get back to this kind of recoupling if you wish there would be more like the old golden age kind of scenario that you had in the early postwar period without that you're gonna end up you're just gonna make it worse in the market sector by creating even further dualism. I'll stop there. All right. So. Thank you. We got started quite late, but we're running late so now we're gonna ask Lance Taylor to respond and give us some perspective on these issues. Well, thank you very much. I'll try to keep within my time, although I may not. Tim was asking was I going to talk about my own research or was I going to comment on other people? And I think I'll do a little bit of both. The first point, one point I want to raise is that we US and other rich countries don't just have a dual economy but they have a trial economy. There are funny words in the literature like trialism or triality and I just want to sort of emphasize a couple of aspects of this three way structure in the US. What we did in our own research there's the well-known Congressional Budget Office income distribution study and essentially what we did was merge that with the national accounts and the Federal Reserve accounts on the financial system. And what comes out quite clearly from the data is that the US really has a sort of three class economy divided among the classes in several ways. The main income of the top one, CBO only goes to the top 1% as opposed to the top 10th or top 100th but the main income sources of the top 1% are capital gains, proprietors income, interest and dividends and wages, what you're called wages as Bill has emphasized a lot of that is actually bonuses and other payments to capital. So the top 1% are essentially capitalists. Then in the data between the 60th and 99th percent you have a middle class who get 70% of their income from wages and sort of 10% each from transfers, finance and proprietors incomes. And then the bottom 60%, you could draw the line someplace else 50 or 40 but the bottom 60% get half their income from wages almost half from transfers and a little bit from these other sources and I just have some data to illustrate what's been going on between these three classes. There's a guy, Gavriel Palma at the University of Cambridge who was proposed taking the ratio of income at the top to raise to people at the bottom and notice the upper line is the Palma ratio for the top 1% versus the bottom 60% and now that really shoots up that's sort of almost 10% growth over 30 years. The Palma ratio is a bit more fair to the middle class but nevertheless there's been enormous redistribution which the other panelists have pointed to in various ways. You have then here's the real income of the top 1%, capital gains to the top, transfer income doesn't count, interest and dividends, proprietor's income and labor compensation. Notice that the labor compensation has gone up pretty sharply but it still is a relatively minor part of the real income of the top 1%. The other sources are capital. You can see the same thing here, indexes of labor compensation, 2005 at 100, the top 1% shoots up and there's much less growth of the other two classes. The other thing that's important in terms of, for example, the Piketty study is that there have been enormous capital gains to the top. Here is where part of the capital gains are coming from is the Q ratio. Notice very rapid growth between the 1970s and the stock market boom and crash and now it's come back up again so capital gains become an important transfer vehicle as it turns out capital gains, capital losses of business of the business sector in the Fed data exceed retained earnings. So in fact, profits have been more than transferred away from business to the other groups in particular the top group. Now here's a sort of typical slide for a PowerPoint presentation which you cannot possibly understand. But the stuff highlighted in yellow, I just like to point out, this is essentially what we did was take Fed data and then apply the existing studies to try to break that down across the income classes and there's sort of two or three points I'd like to make. First, the Fed data don't add up. The yellow highlighted boxes at the bottom there should have zeros with holdings of assets or holdings of claims being offset by issuance of claims. That's not true with the data. And then look at the breakdown at the bottom. You see essentially that real estate is mainly, the bulk of real estate is held by the middle class. The bulk of equity is held by the upper class and in terms of the distribution of wealth, roughly 40% goes to the top 1%, 60%, let's say 59% goes to the middle class and 1% goes to the bottom. I might add that nationally, if you try to look at the consumption, at the uses of income data, the bottom 60% have negative saving. And that's true in the OECD countries for which data exists. Negative saving essentially means they can't build up wealth. Now I'd like to talk briefly about how these data relate to the existing papers. Service's model I think is very interesting in the sense that he assumes it's a dual economy model and he assumes essentially that if people get crowded out of the rapidly growing sector, if they go into the stagnant sector, then what happens to the overall distribution and what happens to productivity? As it turns out there was a debate in the 1960s inspired by Arthur Lewis in part between Theodore Schultz and Immortal Sands. What happens in the stagnant sector, the subsistence sector, if labor departs, if it goes into the advanced sector? Sands said that in fact, output would not go down because of job sharing. That is if people get crowded into stagnation, into the stagnant sector, their wage payments go down. If they go out, their wages go up. So that there's an inverse relationship between employment and productivity. Now that I think is a fairly realistic view. Now it's obviously offset by other things like by transfer payments, universal basic income. But if you take that view of how the world works, then there are a couple of conclusions that follow. One, what is going on in the modern sector? There is a well-known model by Nicholas Caldor which says that productivity growth is being stimulated by output growth. What happens if the productivity growth schedule shifts upward? Will that generate enough profits to promote investment and pull people into the advanced sector? Or will people be crowded out by higher productivity? That depends in part, then this goes into complications of macro. That depends in part on one of the modern sectors, wage led or profit led. If profits go up, does that stimulate output demand in the modern sector or does the wages stimulate demand? In fact, you can show that if the modern sector is wage led and here service and I have a little fight that's been going on for a few years about whether or not it is wage led or profit led. If it's wage led, in fact, people will be crowded out. They will go into the subsistence sector, that will force down productivity in the subsistence sector and you will then end up in a stagnant situation. And then the question is, how do you try to offset that? You come back to the things the other people have been mentioning that you can think about expansionary policy, policies to promote productivity growth and policy coordination. Economists usually understand policies as sort of let's play with taxes and let's push this lever, that lever within the economic system. But policy is more a question of institutional steps. How do you offset monopoly power, prices rising against wages? How do you offset monopsony power, wages fall against prices? And those are the kinds of institutional innovations that the other panelists have been talking about. And one could ask how they would fit into a macroeconomic picture, which I think would be an interesting thing to do. With regards to Mario, he draws very heavily on Carl and Cari Polania, I think, in what he has to say. And I think what I try to do is say something about what would be the macro implications of the kind of proposals that he's been making. If you look at US data for 2014 and look at transfer programs that exist, the big ones are Medicare, Medicaid, Social Security, and more recently the Affordable Care Act, but there are around 60 government transfer programs in the US which don't relate to each other very effectively. But if you try to estimate total transfers to the three classes, the bottom 60% were getting around 1.9 trillion in 2014. The middle class was getting 550 billion, the top 1% were getting 20 billion, which is a small drop in a big bucket. But nevertheless, you can ask how a transfer package with how it's sort of UBI system would stack up against those programs. The US working age population around 200 million. If you give everybody of working age $10,000 each, $10,000 each, the total would be 2 trillion. That's as big as existing programs. And sort of 10,000 is not that much in the US context. Of course, and there are complicated issues of tax buybacks and that kind of thing. Estimates of tax back for people in the bottom income distribution in the US are over 50%, some are up to 100%. And that is, so that there are a whole series of fiscal engineering issues that would arise. And but nevertheless, $10,000 each is not going to be very much in the American context. Just to give a, I worked at the top of the social security payment level for all my life. I'm getting about 40,000 per year. And that doesn't add up to a lot in terms of trying to maintain a living standard. Actually, I'm on a waiting list for a Tesla. And I may not live long enough to get it. But that's gonna be a lot more than 10,000. Anyway, most people don't buy Teslas. With regard to Bill, I guess I would have maybe two or three comments. His emphasis on the surge in stock-based pay is absolutely correct, of course. But on the other hand, the total labor compensation of the top 1% is comparable to capital gains. And less than proprietors incomes less than interest and dividends. So they're quote unquote wages, which are not really wages as he emphasizes, are not the dominant income source. That is the key point is the top 1% basically relies on income from capital broadly interpreted. And it may not be the top 1%, could be the top 2%. In the Econophysics lecture literature, there's a shift, people in the Econophysics like distributions with fat tails. And there's a shift in the distribution from exponential to Pareto and around the 98th percent. So maybe the capitalist class is 2% as opposed to 1%, but nevertheless they're the ones at the top. Now, another important point that Bill makes is that maximizing shareholder value has been very influential in how corporations have been operating. But I think the point he doesn't make, which is a little bit surprising, I would say, is that shareholder value really is an ideology. It's interesting how the word value gets applied in various ideological contexts. Of course, just think back to Marx. And the question I would ask is whether innovative enterprise can replace creating value as a dominant ideology and the same thing you could ask to Mariana. And it's not clear to me that that will happen. That is basically the comment I would have about what Mariana has been saying, that it's all microeconomically, extremely sensitive. But whether it becomes a phrase it can pass along to the masses and they will uprise and will post-innovated enterprise, I think is very much an open question. That's what I have to say. Thank you. Oh, let me add one more point about my own stuff, which one does, except the slide is not advancing. The main point is that if you try to project what's happened forward using a simple macro model what do you see are the effects of various kinds of policies on Palmer ratios? And sort of policies that apply only to the labor market essentially make the Palmer ratios go down roughly half the amount that they rose over the last 40 years. If you then have some kind of wealth fund you can the Ren Meidener fund or something like that which builds up wealth transfers resources to the bottom 60%. You can also have some impact on the distribution of wealth and get it down from growing to 60% in the middle side of the bottom. 60% share back down to something like 40% over 40 years. So if you want to reduce 40 years of increasing inequality it's not going to be very easy and it was likely to take quite a bit of time. Now I'm done. Oh, well, thank you very much. I think it's been a fascinating discussion. I think we probably have a dual economy now of people who would like to ask questions and people who would like to go to lunch because we actually used up all the time for the session. So if you would like to leave I think nobody will be offended but if you want to ask questions we can take a couple. So okay, we have mics going down. There's a mic over there so just kind of one here. So come on up. Actually from all your different interventions I understand that the role of the state has to be increased in order to regulate the repartition of wealth. But the issue is that you have this vicious circle which is like an increased financial sector funding politics we're actually keeping the policies in place and thinking about Trump and Macron election which looks pretty different but actually are the same in term of preserving the wealth of the top 1%. So yeah, I wanted to know if you could give us some hope on this change and yeah, what was your opinion? You know, I can take that one. I think that until there is a real understanding that right now we've got populist politics who are wolves in sheep's clothing I think we're not gonna change that. I think we do need to actually create a new constituency around progressive politics that is not nationalistic, that is not plutocratic but that it is actually about the issues that we've been discussing in Inet. Anyway, over to you guys. Yeah, just, and this is in part responding to Atlanta's statement, it's not how much the executives are getting paid, it's what they're incentivized to do. Okay, and it's, you might pay them $1,000 more and they might do three billion buybacks to get the $1,000 more. And certainly, I certainly everywhere argue shareholder value, maximize shareholder value is an ideology. Okay, so and obviously anything is an ideology that when you put it in general terms, the question is what is the implication for reality? And the reality is that if given the power of business organization, we can't do without them but we have to govern them, somehow we have to get the business leaders to be responsible to the organizations and to creating value in those organizations and sharing the value if we're gonna move forward. Because I think what the question was just raised, if you don't, they're gonna have their own pockets and they're gonna get politicians to do what they want and the politicians will go along with that. So, but if you don't even understand what that is, I mean, it's to come back to the economists. If they don't have this sliced idea and they teach that the unproductive firm is a foundation of most efficient economy, it's in every textbook and it's been there for 70 years without just reflexively talking about this, you're not gonna even be able to move one step forward as we're talking to economists here, as economists to how to address this question. Yeah, I want to respond to the question from the audience if I may. I think it's an extremely important point. The answer obviously is not simple, but I think both in the US and in France and actually in the Netherlands and in Germany, what we have seen is total collapse of social democracy and I think that is the main item. It's like the social democratic movement or the left or whatever has to reinvent itself. It basically needs new thinking and it needs, as Mariana was saying, new words and new concepts. We have to rethink and the fact that these things, these populists, whatever, big changes and ultimately just reinforcing the status quo are happening is by default, by the fact that the alternative is actually out of fuel.