 John Kaye is one of Britain's leading economists, well known in this part of the world for his articles in the Financial Times, not to mention the occasional court appearance. Economics, Finance and Business, an interesting mixture, which occasionally blended with statistics. His career has spanned academic work, think tanks, business schools, company directiveships, consultancies, investment companies. Today, these days, his main focus is on writing. He has been a Fellow of St. John's College Oxford since 1970 and has held chairs at the London Business School, the University of Oxford and the London School of Economics. He has been a member of the Scottish Government's Council of Economic Advisers and chaired also the well-known review of equity markets and long-term decision making, which reported to the UK Government's Department of Business Innovation and Skills. Since the outcome of the referendum on membership of the EU in 2016, he was appointed a member of the Standing Council in Scotland and you're appointed by the First Minister, Nicola Sturgeon. He's the author of many numerous articles and has contributed to the Financial Times for over 20 years. His many books, I won't list them, but there are several of them. One of them titled Obliquity in 2011, he's fond of that term because he also has a separate article titled Obliquity as well, which is an interesting phenomenon and he has his own particular definition of it. His definition is the process of successfully achieving complex objectives indirectly. But it also can mean deviation from moral rectitude or sound thinking, which is an interesting contrast I thought. Anyway, Professor Kay has been honoured in the Queen's New Year's Honours List of 2014. He's an honorary fellow of really too many bodies, bodies which are too numerous to mention and with that I'm going to hand over to him for today's talk in the exciting times that we live in. Thank you. You asked me here a few months ago to talk about Social Security and Welfare Reform. I wondered whether I might substitute a talk about Quantitative Easing and the Zero Lower Bound in monetary policy, but I suspect none of these are what we actually want to talk about today. I think there's probably only one subject on our mind. Now, consistent with a broad title I took for this talk, you might want me to talk about what's going to happen next. You know what our President Trump's economic policy is going to be? How will the global economy respond to all of this? Well, I'm bound to say I don't know the answer to any of these questions, and I'm pretty sure that President-elect Trump doesn't know the answer to any of these questions either. So I think we should perhaps postpone for a little speculation about what's happening there, although these are subjects which we are going to have to come to. But I want instead to talk about the broader phenomenon of which this is part, that the election yesterday in the United States follows the Brexit referendum in the UK back in June. We are going to have before the end of the year a rerun of the presidential elections in Austria, a referendum in Italy. We're going to have next spring an election in the Netherlands in which the party led by Geert Wilders is currently the largest polling party in the opinion poll. We're going to have a French presidential election in which it seems highly likely that Marine Le Pen will at any rate be the candidate and one of the two candidates in the second round of that particular election. And of course we have an election in Germany later next year in which Alternative for Deutschland is gaining share. Most of these things will turn out the way I think most of us would wish them to. But if we think that all of them will turn out the way we would wish them to, we have not learned the lessons of the Brexit referendum or yesterday. What's going on? Why do we have this rise of what seemed certainly in the two cases where it's gone the way we would mostly not have voted for? Why is it that we have this populist upsurge? And the standard as it were, liberal minded story about what has been happening, runs something like this that is really primarily an economic phenomenon, that it's the product of globalization in large part, that what globalization does is it influences the economies of Western countries by widening the dispersion of earnings in these countries. There are quite a lot of people then, even if people are aggregate in these economies have gained, there are quite a lot of losers for this. And what the populists, whether they're Trump or the Brexiteers or Wilders or the opponents, the Bepo-Grillers-Chinkus-Teller movement, what they've been able to do is to pick up these kind of sources of discontent. My view is that that story isn't completely wrong. There is something in it, but it's only quite a small part of the story. And I'm also worried by that approach because it points to me what are the widely advocated solutions to it, which I think will not be enough. That is the story is that if these are the causes, what we need to do is actually to spend more on easing the transitional problems of disappearing manufacturing industry and go back to the subject I might have talked about, which is social security and tax reform, how we can do that in order to reduce the distribution impact of these developments. So I think we should actually be looking at this in a much broader context. Firstly, we should realize that not all, as it were, the newcomers who are winning large shares of votes or making a large impact on the political scene, not all of them are, as it were, these kind of right-wing populists. Not all of them are xenophobes. We've also had the phenomenon of Corbyn emerging as Labour Party leader in the UK. We saw the startling fact that Clinton's main rival for the Democratic nomination was Bernie Sanders. Obviously it's extraordinary that there wasn't a mainstream Democratic contender of any serious kind. But it's also even more extraordinary that in 2016 a highly successful US presidential candidate would be someone who was a self-declared socialist, even if his brand of socialism is not necessarily one that Lenin would have recognized. We have in Podemos in Spain, now potentially part of that government, we have Syriza in Greece, which has been the government. That is we have the emergence of new movements tackling into all kinds of sources of political support, not just these xenophobic parties of the right, those xenophobic characters on the right, on which we're focused in the moment. Secondly, people have rightly drawn attention to the fact that Trump, according to today's polls, won by four to one among white, non-college educated men. And we're identifying that as the Trump phenomenon. Let us be clear, however, that there are not so many white, non-educated men, non-college educated men in the US population. Most of the people who voted for Trump did not fall into that category. And while it's true that what pushed Brexit over the edge in the UK and made it successful was the extent to which they won over naturally Labour voters in the north of England. That was not where the bulk of the support they obtained came from. We know, in fact, that people who voted for Brexit are not poorer than people who voted for the UK to remain in the European Union. And we also know that polling evidence suggests that people who voted for Trump on average have higher, not lower incomes than people who voted for Clinton. In the Brexit case, and I suspect we believe much is the same true in the Trump election case, in the Brexit case, the two most powerful indicators of propensity to vote for Brexit were age and education. So these are not actually simply people who have been economically depressed by what is going on. One has said of referenda that you can frame the question you ask the people, but you cannot frame the question the people will answer. And in the UK case, I think the question was framed, as do you think Britain should remain within the EU, but the question which was answered was, I think, are you happy about what's going on? And that is roughly the question which I think people were voting on in the US presidential election as well. Thirdly, what has happened to inequality in Western economies is not as simple as the generalisation that what we've had around the Western world has been increasing inequality would suggest. What has happened to inequalities is actually rather complicated. And I'm sure many of you will have bought, if not as many have read, the Piketty book on inequality, which has been extraordinarily successful by pandering to people's impression or their desire to believe that inequality has been increasing and that is a bad thing. Well, these things may be true, but the totality of the very large amounts of evidence on that in that book in general is not that clear cut. First of all, we need to distinguish between inequality of income and inequality of wealth. And if one looks at inequality of income, what has happened across Western economies differs radically from country to country. For example, in both Britain and the United States, the share of the top 1% has increased very markedly over the last 30 years, which in my view is primarily a phenomenon of what has happened in the financial sector and related developments in the corporate sector, which have led to small numbers of senior executives being paid a great deal more. In both countries, we've heard rather a lot about what has happened to the median wage. Now, that's a rather subtle observation because one thinks of the median as being what happens to the representative household in the economy. But it's not because the median household, who are the median household, does not remain unchanged when the makeup of the population is changing. And the makeup of the population has, in most countries, been changing. So the result of the formation of new households, smaller households, in many cases, the arrival of immigrants who are distinct units. So that what is happening to the median income is not in fact representative of what is happening to people in the middle of the income distribution. And these statistics have been simply misleading in the way they've been quoted in relation to that. And then there is the issue which preoccupies Piketty, which is about what has happened to the distribution of wealth. Now, the truth is in modern economies, in modern developed economies, the most wealth is either housing or pension rights. It's also unfortunately true that the best data we have in distribution of wealth comes from data which is obtained at death. And at death, the value of people's pension rights is by definition zero. So that what we get is in that sense a fundamentally misleading picture. But also the main thing that has happened to wealth over two centuries that Piketty talks about is that wealth has shifted from being in agricultural land to being in urban land. And most of the wealth in urban land is actually in unoccupied housing. And from that perspective, there is now a distribution of wealth which is unequal because the percentage of a housing that is in unoccupied although well above 50% in Britain and Ireland is also well below 100% in both countries. But that has actually produced a dispersion and a relevant sense of wealth much greater than was true before. But what is also true is that the number of people who enjoy wealth outside significant wealth outside pension and retirement saving wealth and housing wealth is in fact very small. Everywhere around the world. These are in my view the main facts about wealth distribution. And although they lend a little bit of support to the thesis I'm describing about the causes of populism, they don't in my view lend very much. It isn't then a simple matter of rising inequality doing it. And finally, the policy prescriptions which are arising out of this now that we tinker a bit more with the tax system and we spend rather more on structural adjustment in industry. Well in most countries we spent quite a lot of money on structural adjustment in the industry, basically trying to prop up manufacturing industries on the way out in order to delay this kind of decline. That has proved in the main not to be money very well spent and has done little or nothing to relieve the long run effects of these kind of regional maldistributions. So I think the policies prescriptions are not in a sense very persuasive. I think the explanations of what's happening have to go well beyond economics. And what we're really seeing is a collapse of the legitimacy and structure of existing political institutions and structures. And that is the essence of what is happening. And this is true not just of the conventional party political structure. It's also true having a debate yesterday about the collapse of authority and above all respect for the two institutions which even 20 years ago everyone would have regarded as a model of technocratic independence, the judiciary and the central bank. These no long, there was essentially until quite recently almost a taboo on public or media criticism of the activities of these bodies. Yet we had in Britain last week when the Court of Appeal ruled on some of the Brexit processes that famous headline that said enemies of the people in the Daily Mail with pictures of the judges concerned. Helpfully pointing out that one of them was Jewish and another of them was gay and this is something that not only seems unacceptable in any democratic society but is something that one simply could not have imagined happening a few years ago. So that is where we are in terms of this loss of confidence in political institutions. And if we ask what are the origins of that, I think we can find quite a bit of it by going back 25 years now to the end of the Cold War, the collapse of socialism, the collapse of socialist regimes and moving into the world, which Francis Fukuyama famously described as the end of history. With the idea that a combination of likely regulated capitalism and liberal democracy was not only something that was prevalent in many western economies then but was essentially the model which was there for good and which most countries would over time learn to move towards. I think we've now learned that the kind of hubris that surrounded that had in it many of the seeds of its own destruction. And I want to pick out two themes from that. One which I will mention only briefly because I've written quite a bit about it elsewhere is to say that the idea that the model of likely regulated capitalism which should prevail was one in which you basically welcomed individual greed, encouraged people to be as selfish as possible within a limited framework of rules, encouraged companies to focus on shareholder value and believed that the growth of an economy was facilitated by the speed of growth of trading and financial markets. That was a model of capitalism which actually was a comprehensive misunderstanding of what the strengths of a market economy were. And if we didn't learn about that within the collapse of the new economy bubble in 2000, which is when I must say I thought we had learned about it. We had to learn about it again in the global financial crisis of 2008. And we will unfortunately have to learn about it again in the global financial crisis of some time or other, which may be rather more imminent today than it was even 24 hours ago. We pursued a misunderstanding of how markets worked that actually undermined the legitimacy of the market system itself. There was a second significance of that development, which was if one asked how European politics had mostly been organized for the century that preceded the going down of the Berlin Wall in 1989. The answer was you typically had a party of the left, which a loosely socialist ideology, which certainly favored a relatively large role for the state, and which worked in combination with a largely unionized trade union movement that produced much of the vote and some of the leadership for these particular parties. These parties were opposed by parties of the right, which consisted of coalitions of the group of people who felt themselves threatened by the parties I've described. That is, they were conservatives of various kinds, social conservatives, Burkian conservatives who thought that nothing should change very quickly. People with religious views, people, social conservatives, with religious values and the like. And that formed the basis, essentially, of European parties of the right. The collapse of socialism, I'm suggesting, destroyed a very large part of the rationale of these parties of the left. And what a characteristic European party of the left now consists of is a kind of well-educated elite whose views on important issues are mainly concerned with things like discrimination, the environment and the like, combined with a traditional working class base for whom that agenda does not really resonate at all. And these parties have, in this sense, lost that kind of coherence and both groups are peeling off in order to find roots elsewhere. What the left in Europe has failed to do is find a coherent narrative to reconcile their kind of progressive views with acceptance of the primacy of a market economy. And if that's created problems on the left, it's also created problems of the right. Because if you're a coalition to fight an enemy and the enemy disappears, there is not very much you have left in common to pursue. And that's how we've seen in Britain the internal battles within the Conservative Party that have resulted in the Brexit referendum and equally in the United States, the ructions in the Republican Party which have ended in the most improbable possible way, improbable way imaginable, with Trump being elected as Republican president. So that we've had, in this sense, the collapse of traditional political structures on both left and right, and it's into that vacuum that people like Trump, the Brexiteers, Corbyn, Podemos, all these other fringe parties from around the world have moved. And that is the story and large part of this collapse of political authority. At the same time, this has been supported by changes in the media. I've already described the abandonment, essentially, of social restraints on what it is you can say, both about institutions, central banks and judges, and about people, so that everyone is aware of the phenomenon, the trolling and abuse through social media that simply enables dialogue to progress outside the traditional, rather constrained structures of our traditional media. That's created the world that favors derision of experts, has this concept of truthiness, a nice word I've rented by Stephen Colbert, to describe the observation that something is true, if you feel it is true, independently of the objective facts, which might be relevant to a traditional assessment of whether something is or is not true. And that's what takes us to the ability to identify judges, which is to slow a process down, or indeed throw it back to Parliament as enemies of the people. So what I've been trying to do is describe the rather, in my view, complicated explanation of what has brought about the situation in which we're finding ourselves today and a situation which is probably not going to get better, but may in well-important respects get worse over the next year, because one of the things I think we are likely to learn is that there is an element of contagion in these populist movements that Brexit probably made the election of Trump a bit more possible, and the election of Trump makes these improbable events around Europe more probable as occurring in Europe. Is there any hope in all of this? Well, there may be some hope in the idea that we're having a wave of destruction through our political system, which in the long run may actually enable us to create something that is more stable and more relevant to the 21st century. It may be, for example, that it will enable us to have a meaningful and effective attack on the excessive role of corporate interests in dictating political issues, which has been one of the problems that we have in getting sensible policies adopted today, most of all, I think, in the financial sector, and which is behind quite a lot of the popular dissatisfaction with the way in which the political system is operated. The fact that Hillary Clinton had been earning $225,000 per time for speeches to Goldman Sachs was significant and by no means properly the relevant event took public attitudes to her. I regret that the institute is unable to pay $225,000. But perhaps in a different world, they might be able to. What is going to happen around Europe might well waken us up to reconsider the realities of the European project to recognise that it was going down a route in which the answer to every problem was, as it were, more Europe, which was taking it further and further away from the popular legitimacy and popular desire for more Europe, which brought the European Union into existence in the first place. There are many better unions. In fact, there are almost no better European unions which we could create, which would not, in many respects, be better than the present European Union. And perhaps there is some hope that actually Brexit might be one of the catalysts towards a more fundamental consideration of what it is that Europe is really about. But one finds it difficult, standing today, to feel any optimism about what is going to happen in the three or four years ahead. And that is a note on which I fear I should sit down and let you express your views. Thank you all.