Financial Markets

Panelists discuss the cost of China’s zero-COVID policy, the country’s dwindling economic growth, and the consequences of China’s economic slowdown at home and on its international economic relations.

Martin Wolf discusses the global economy, the repercussions of the Russian invasion of Ukraine, and economic recovery from the COVID-19 pandemic. The C. Peter McColough Series on International Economics brings the world's foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.

Lawrence H. Summers discusses the U.S. economy and inflation, recovery from the COVID-19 pandemic, and the global economic consequences of Russia's invasion of Ukraine. The C. Peter McColough Series on International Economics brings the world's foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.

Roger W. Ferguson Jr., Steven A. Tananbaum distinguished fellow for international economics at CFR, leads a conversation on the future of capitalism.  FASKIANOS: Welcome to today’s Winter/Spring 2022 CFR Academic Webinar Series. I’m Irina Faskianos, vice president of the National Program and Outreach at CFR. Today’s discussion is on the record, and the video and transcript will be available on our website, CFR.org/academic. As always, CFR takes no institutional positions on matters of policy. We’re delighted to have Roger Ferguson Jr. with us to talk about the future of capitalism. Roger Ferguson is CFR’s Steven A. Tananbaum distinguished fellow for international economics. Previously, he served as president and CEO of TIAA, and before that he was head of financial services for Swiss Re and chairman of Swiss Re America Holding Corporation. He is the former vice chairman of the board of governors of the U.S. Federal Reserve System, and he currently serves on the board of several corporations and organizations, as a fellow of the American Academy of Arts and Sciences, and is an advisor with various private fintech companies. So, Dr. Ferguson, thank you very much for being with us today to talk about the future of capitalism, and it is kind of astonishing that we are talking about the future of capitalism. Can you talk about this area and what you see the strengths are and weaknesses as well? FERGUSON: So thank you very much, and I’m going to actually start with a quote. I think this is a quote from 1938 that roughly captures why we are talking about the future of capitalism. So this was from FDR, a famous U.S. president. In 1938, he said, “Democracy has disappeared in several other great nations, not because the people of those nations disliked democracy”—or you might say capitalism—“but because they had grown tired of unemployment and insecurity, of seeing their children hungry while they sat helpless in the face of government confusion and government weakness through lack of leadership in government.” Now, that is a strong statement. It is not exactly where we are today. But there are a few points here that are relevant and resonant with where we are today. So the reason that we’re looking at and talking about this question of the future of capitalism is that there are many surveys that suggest that young people, in particular, are not sure that capitalism is the system that they want to use to organize their economic life. We know that capitalism has been very successful in many ways. It has brought, literally, hundreds of millions, if not billions, of people around the world out of abject poverty. It has created some of the most iconic and successful companies that the world has ever known. We’ve seen dramatic transformations in our lives in terms of our ability to do everyday tasks using smart phones, and they’ve only been around twenty years or so. All these things are the outcome of a capitalist system that is very robust, that has created new entities, that has allowed other things to grow—business, et cetera. Having said that, for many people, capitalism is still a bit of an enigma. They look around and they observe, at least here in the United States, that income has been gradually rising and inequality, starting, roughly, in the mid-1970s. They’ve seen very unexpected crises here in the U.S. and in other countries emanating from mysterious and misunderstood financial tools such as subprime mortgages. They see longer-term challenges for many people around health inequities, which became very clear during the COVID-19 crisis that is still with us in some ways. And, obviously, there are for many people, the ongoing challenge of climate change with very extreme weather, and we’ve experienced that as well. And so while capitalism is, I think, really recognized as the organizing force that has brought many people out of poverty, allowed new tools, new capabilities, a very comfortable lifestyle for many, it’s also seen as, perhaps, not doing everything it’s supposed to if you have increasing income inequality, increasing wealth inequality, and you look and see health inequalities and different outcomes, that they guess maybe the system should be somewhat better. The second point I’d make is, for me, it’s really quite ironic because I grew up at a time when there was conflict between capitalism and communism, and then in late 1980s, early 1990s, communism disappeared. The Soviet Union fell apart. And since that time, capitalism is the way that almost all societies have organized themselves. In the United States, we have capitalism that is regulated market capitalism, and Europe tends to be the kind of capitalism that leans a bit more towards social democratic norms. In Japan, there’s a kind of collective capitalism. Even China, sometimes called communist China—when I was growing up called Red China—under Deng Xiaoping. He had this famous phrase, “It doesn’t matter if the cat is black or white as long as it catches a mouse,” and people took that to be a dramatic move towards a capitalist kind of system, even in communist China. And so capitalism, for a period of time, was and still is the dominant way of organizing all—almost all of the major economies of the world. There are a few outliers. But the major economies have different versions of capitalism. There are five or six versions of capitalism. And now, suddenly, here we are in 2020, 2021, 2022, and we had an election in the United States when some of the candidates were talking about socialism. We see in China a reversion back to some skepticism about the kind of capitalism they had and the great wealth inequality that resulted. We see other surveys that suggest people around the world are less enamored of capitalism. So it would seem to me a very important topic to say, well, what is the future capitalism? The system that was the dominant system in the world for, roughly, thirty years is under question in almost every location and why is that? And so, that is what we’re looking at. Now, I know that we sent out some readings to the individuals who are joining us here—the academics, the students from around the country—and if you look at those readings you’ll see that we don’t really know the answers yet. And so one of those discussions was a discussion I led with Glenn Hubbard, the former dean of the Columbia Business School. And Glenn’s solution was to go back to the very early days of capitalists, to go back to Adam Smith and to adopt, as Glenn would say, the little “l” liberal view of capitalism, which is, basically, one in which he used the phrase, we should be building bridges and not walls, driving, I believe, for a kind of empathetic opening where we understood each other better and saw that we had our futures all intertwined. And so that’s, certainly, a view of, perhaps, how the future of capitalism might evolve, where it looks very much like a small “l” liberal view, going back to Adam Smith and the book that he wrote on so-called moral philosophy. If you look at some of the other readings, you’ll see that some people are saying, gee, one of the challenges that we have now is businesses are being allowed to sort of drive much of the agenda. And this discussion in businesses about the purpose of business and should it be so-called stakeholder value and stakeholder—so-called stakeholder primacy, thinking not just about the shareholders, but employees and the communities and the supply chain, et cetera. And so, that article suggested, well, maybe we really need stronger government influence as opposed to leaving the fixing of the system to the private sector, with maybe stronger antitrust regulation, perhaps, more progressive taxes. And so we have that as a question.  One of the articles looked at the most recent G-7—Group of Seven—discussion that seemed to move from the notion of free trade being best to maybe thinking about different metrics to make sure that the wealth of capitalism is distributed more evenly. I wrote another piece that said, in this period of inflation let’s make sure that we don’t go back to wage and price controls. So what the Council has been doing through these roundtables, through publications in Foreign Affairs, through posts on CFR.org, is, really, looking at and mixing up lots of different ideas, bringing many different views on what is it going to take to return to a position where everyone, both in the U.S. and more broadly, still believes that capitalism, for all of its flaws, is still the best way to organize our economic activity. At the end of the day, I think everyone would agree capitalism has done a really good job of getting us out of poverty. But the challenges now are how to think about the inequality that seems to have emerged in almost every country, and is the answer to that sort of more regulation or less regulation—more taxes, different taxes. Here in the United States, we’ve seen under President Biden a number of proposals that, while they are described as being fiscal stimulus, are really about social policy that, in many ways, are meant to fix some of the challenges of capitalism. For example, the question of should we have early childhood education as free for all—would that help to drive better outcomes in terms of income and wealth inequality. Obviously, the notion of investing more in infrastructure, particularly twenty-first century infrastructure as well as the older infrastructure is allowing us to knit the society together a bit better and maybe in a more equitable way. So it’s not just think-tank individuals and academics and business leaders, but government leaders as well are really coming to ask this question of what systems—what could we change in the system of capitalism to make it more resilient, to make it more robust, and to solve some of the issues and challenges that we’ve seen emerging only gradually over the last several years. And so those are some of the things that we’re focused on when it comes to the so-called future of capitalism. But let me emphasize that while I’m talking about this in terms of the future of capitalism and capitalism has been adopted in many different kinds of political environments—democracy, presidential democracy in the U.S., parliamentary democracy in the U.K., obviously, state-controlled in China—one of the reasons that I think, at least in the United States, we should be focused on the future of capitalism, going back to that Roosevelt quote that I started with, is that it may well be that capitalism and democracy are intertwined, and I believe that it is really very difficult, challenging, maybe impossible, to have a representative democracy where individuals go to the polling place and trust their government and trust their government leaders and trust the outcomes of democratic systems themselves if they don’t think that the economic system works well for them. Back to the point that Roosevelt was making, in societies where it looks as though the economic system isn’t working well, where unemployment lingers, where income and wealth inequality become major problems, where the individuals think that their children will not have better lives than they did, perhaps they’ll say, hmm, this is not just a problem of capitalism, this may be a problem in our political leaders. And maybe we might need a very, very different political system. And so I think, without panicking or creating hyperbole, the linkage between capitalism and democracy, I believe, is a fairly tight nexus, and some of the challenges that we’ve had, perhaps, around trusting elected outcomes, et cetera, may well be due to the fact that people feel that the economic system has worked well for a few but not for most, and they may see in many ways their lives are improved because they have new technologies and they can use Zoom and other things to communicate. But they may also think they’re stuck in a job where they are a so-called essential worker and confronting health crises and health challenges on a daily basis, and maybe that’s not the outcome that they’re looking for. And so we should recognize that this question of the future of capitalism is important unto itself. We don’t know yet the answers. But it may be tied a little bit to the question of future democratic institutions, at least in the United States. And the final point I’d make by way of opening is to say this is not the first time that we’ve seen questions of capitalism on the table. If one thinks about the economic history of the United States, there are many times when we’ve had rollercoaster rides in the economy. If we think about the beginning of the Industrial Revolution with child labor and individuals forced to work in very, very unsanitary conditions and, indeed, not being sure of the quality of food, and we had novels written about those kinds of challenges, yet, we came through that. We rebuilt capitalism in a different way. We added a social safety net. We created government agencies to think about food and drug safety. We thought about and developed laws around occupational safety and health. We created antitrust mechanisms to make sure that—in Teddy Roosevelt’s era, we had the so-called trust busting that institutions didn’t get too large. We had antitrust regulations about price fixing, for example, and rules about the hours that individuals could be made to work. And we’ve had—so we see that, at least in the United States, the capitalist system has historically righted itself when it seems to get a little bit out of kilter. So I close these opening remarks by saying while there may be some issues and questions that people have, while a number of us are even studying the future of capitalism, I, at least come at that with a sense of optimism, knowing that in the history of America, during some of the challenges when capitalism was at its roughest and most unfair and even dangerous to people, our leaders and our society stepped forward and created a kind of capitalism that was fair, more equitable, and smoothed out some of the rougher edges. So count me optimistic that the younger people listening to this and my own children will continue to live in a capitalist system. It might be a little different from what we have today. But I have every great confidence that with the goodwill of the people that we’re working with and millions of others we’ll end up with a modern capitalism that is suitable and fit for purpose for generations to come. So with that, let me stop and see if there are any questions, comments, from the audience. FASKIANOS: Great. Thanks so much, Roger. And now we’re going to go to all of you for your questions and comments. We already have a couple or several written questions in the Q&A box and raised hands. So if you are typing a question in the Q&A box, if you could also include your affiliation, that would be great. The first raised hand goes to Joseph Bower, and just be sure to unmute yourself and say who you are. Q: I’m Joe Bower. I’ve been teaching at Harvard for a long, long time. And around our centennial, which was 2008, in the run up we talked to business leaders all over the world about this problem and they identified major factors which they thought would disrupt the system. First of all, by the way, they did not talk about capitalism. They talked about the market system and—because China, basically, has a state market system. We have a private market system, which has something to do with ownership.  You’ve done a very good job of pointing out that, in fact, our government has played, historically, a very important role in influencing that system. We started dismantling that. We did not have a financial crisis in the United States until something like 2000 since the 1930s. But we dismantled that apparatus that, in fact, protected the market system and we’ve done that in a—I mean, when you and I went to school we were taught about countervailing power. That was dismantled. In a whole series of areas we have, in fact, undermined the infrastructure of law, of public health, and a whole series of pieces that made—enabled the market system. The market system doesn’t work by itself. So I would think that it’s a very hard problem and our—I have grandchildren who feel the way you described, that our system is—capitalism is problematic, but they think—they’re talking about the state arrangements. They’re not really talking about the value of markets. And I wonder if you can help us—can you talk about where your group has gotten to about that distinction? FERGUSON: Well, first—and Joe Bower is being modest. He’s—(laughs)—one of the most distinguished professors at Harvard Business School and, Professor Bower, it’s an honor and pleasure to have you here. And so, our group, I think, fully recognizes that the kind of capitalism we have here, as I think I said, is regulated capitalism and regulated free—a regulated market, so to speak, as opposed to state-driven markets or other things. I think the challenge for all of us—and you know this, Professor Bower—is in the history of America the pendulum swings back and forth, you know, on regulation. So I identified, that Teddy Roosevelt-, FDR-aligned regulation that came in and sort of saved capitalism and saved the markets at the very beginning of the nineteenth century—of the 1900s—the twentieth century. And then you fully understand that there have been periods of time here in the U.S., starting recently in the 1980s, when both parties, Democrats and Republicans, agreed that to some degree large government was the problem—that we needed to be deregulatory, and that is not—that was not one party or the other. It was a bipartisan consensus starting in the 1970s that, perhaps, regulation had become too much. And I think where you may be right and it may be part of the solution to this question of well-regulated capitalism is maybe the pendulum needs to swing back a little bit. Perhaps we do need to have—and there are folks who, certainly, think we need to have—a more progressive tax system to redistribute income. We had an election where there was debating about wealth taxes. They don’t work very well in other countries but it’s an important debate. We also, clearly, are right now having a conversation about it in the Congress under the president’s proposals about spending more on a social safety net, early childhood education. So I think you’re pointing out something that’s real important: In the swinging of the pendulum in democracy here in the United States, where that pendulum often swings around the question of how big should the state be versus private citizen initiative? How much should we have redistribution versus not? How much should we have government regulation versus not? And it may well be that is where it feels that’s part of where the debate is. And we can look back over history and say, all right, is it time for that pendulum to swing back—have we gone a little too far in the deregulatory mode and getting away from the well-regulated markets that have allowed us to be the envy of the world. So a good question, and it will be one of the things that I know we’ll continue to debate as a society and in the groups that we’re working. FASKIANOS: Thank you. So we’re going to take the next question from Willem DeVries, who got five up-votes. He’s a professor of philosophy at University of New Hampshire. You say capitalism has done a good job of getting us out of poverty. But who is the us here? Colonialism, a form of capitalism, certainly, did not help get the colonies and the colonized out of poverty. FERGUSON: Very good question. And so, to be fair, when I say global capitalism has done a good job getting us out of poverty, you point out something that’s real important, which is when economists say that they’re often thinking about a dramatically larger middle class in China. There is an intellectual class in India that is tied to global capitalism. We see in some of the Eastern European states, again, technology-driven jobs that are more middle income. And so one of the points that you’re making, and it’s one of the points that one of the articles made, is this free trade environment created by the WTO may have helped some people get out of poverty if they could get themselves linked to the U.S. economy and the U.S. engine, but not everybody. And one of the points that some of the articles made is free trade and the WTO process may have been very good in some places but there were costs paid, perhaps, here in the United States and other places in terms of jobs—manufacturing jobs, in many cases—that had existed here in the United States and then were moved overseas or moved to other countries. So you’re right to say be cautious. A global statement that millions and maybe billions have been lifted out of poverty is not the same as saying that everybody is made better off and there, certainly, are individuals here in the U.S. and we’ve had these discussions, obviously, in our process around bringing manufacturing jobs back, increasing tariffs on goods from other countries. And so, a very, very good point. And, finally, let’s be quite clear. Some of the joys that we have here in capitalism come, as you point out, from other countries that, perhaps, where they’re giving up their natural resources, where the nature of agriculture has changed, and all that to support our habits, and it may well be that there are places where individuals’ lives have been disrupted, not just in the U.S. but in other places, in a way that aren’t good. And so I think that is one of the things that drives some people to question what’s the future of capitalism when you look at global inequality and when you look at those who are feeling left behind here. So all of that is very much on the table. Thanks for raising it. FASKIANOS: Thank you. I’m going to go next to Horace Bartilow, who has raised—a raised hand, from the University of Kentucky. Q: I’m no longer at the University of Kentucky. I’m at the American University School of International Service. FASKIANOS: Great. Q: I’m an international political economist, but I am—my question today—and thank you, Mr. Ferguson. Excellent opening. Is—capitalism came from—it evolved out of a feudal era. It came from somewhere, right? FERGUSON: Mmm hmm. Q: My concern is, and don’t take my question as if I’m against capitalism. I live in a home that is, technically, owned by a bank. I’m paying a mortgage and my retirement is wrapped up in the stock market. But my concern and my question is, is that the very fact that we’re asking the question about capitalism’s future is that we are worried that it might have a future, and the question is it might not have a future and that the next stage of human evolution could be developing a system that doesn’t look like capitalism. I don’t know what that system is. But it just seems to me that from your exposition over the period of capitalism’s life there have been different attempts to make it compatible, make it more legitimate, make it more egalitarian, and then the question is what happens when we run out of options to make it more egalitarian, to make it more legitimate. Then what? Because it just seems to me that we’re dealing with a system that we are trying to tame against its own self, that if we let it be itself it could destroy itself, right. It’s almost as if you’re trying to stop an addict that needs to be fed. (Laughs.) And so what happens when we run out of options? FERGUSON: So I think to put it in historical context, you’re, certainly, true that capitalism came from someplace. As you say, it came from feudalism. That was a system that had even more brutal inequality than anything you can imagine. And knowledge evolved. Ideas evolved. You know, Adam Smith, various things, emerged, and there was a whole intellectual ferment around how the system should be or the economic system should be organized in a way that it was perceived to at least overcome some of the obvious limitations of feudalism. To be very honest and transparent, it may well be, to your point, that out of what we currently have will be a gradual evolution towards something else whose name we haven’t even imagined yet. You know, it could well be that someone’s going to write the book that’s the functional equivalent of The Wealth of Nations that Adam Smith wrote to help drive a view of the way markets should be organized or that there should even be markets. And so I think that’s—the reason we’re having this conversation is that many people, some of whom have already spoken, are looking at the current way we organize the economy kind of globally and say maybe there is a better way. And so, the process of talking about the future of capitalism is to start with what we understand and, in your word, taming the beast. So we’ve seen this beast in operation for, roughly, three hundred years. We’ve tamed it many, many different times—creating new institutions, central banks, creating new laws, creating progressivism, all of which has tamed capitalism, so to speak, to use your analogy. And so I think we’re in the process of seeing how that we can continue to do that. You may be right that someone, an Adam Smith type person or whoever she may be, may come along, imagining a brand new world and all of us will rally around that or our children will. But right now, perhaps because of the lack of creativity or imagination, I think we are attempting to do what our forefathers and predecessors did, to your point, continuing to sort of manage and tame this beast as best we can. The reason I think that’s important is we also know that there were—there was a different view of how to organize economic activity called communism. That, obviously, didn’t work very well. And the point that I made, and I think Joe Bower jumped in as well, even in so-called communist China they adopted a market system allowing elements of capitalism to flourish. So the other reason, I think, to continue this discussion is we did have an experiment with a different system and the folks under that system, clearly, didn’t like it and it eventually fell on its own weight. So, right now, having had that experience, the absence of, that author who is going to imagine the new future, I think it behooves us to see, to your language, if we can continue to evolve this one to hold on to some of the strengths and ameliorate some of the obvious problems. FASKIANOS: Thank you. I’m going to go next to Kate Landino, who is an undergrad in—majoring in political science at Skidmore College. One of the main reasons capitalism is under fire is that it’s benefiting some and oppressing most. How would you suggest that within the U.S. we can address the wealth gap and redistribution of wealth within the capitalist system? FERGUSON: Well, look, we know how to do that is through taxes, and the challenge is always—and it’s been challenging us forever—how much should we tax the rich and redistribute and is there a point at which individuals say, oh, gee, I know I don’t want to work because that last hundred dollars, thousand dollars, whatever, is mainly going to the government and not staying with me. And to be quite clear, we had a point in this country when we didn’t have an income tax and that required a constitutional amendment to drive it. We’ve had periods when the marginal tax rate—the tax rate on the last $100,000 whatever the number would have been at the margin—was well over 50 percent, in some cases 70 percent, and that was true in the late 1950s and the early 1960s. So, John Kennedy and his team came in and reduced the marginal tax rate and that drove quite a bit of growth. We’ve had more recent tax cuts where some people felt you’ve gone too far. And so I think we know how to deal with this question of income inequality, at least, and redistribution, and the main way that we do it is through the tax system. Now, having said that, you could also look overseas because people have talked about taxes on wealth, and it turns out that many countries have tried that. Right now, I think, only two other major developed countries are using it. Many tried it and reject it—rejected it. So, we can also learn something about tax structures that, perhaps, didn’t work as well as their creators had hoped. And the final point I’d make is, even at our marginal tax rates one can look to Europe—when I say our I mean in the U.S.—one could look to Sweden and the other Scandinavian countries to see countries that have a much higher tax rate and they seem to do all right with that, and maybe we can learn and understand how that works as well. So the answer to your question is it all runs through the taxes. It’s a big debate here in the United States and has been going back to should we even have an income tax, and I expect that, and we saw it in this most recent election, we’ll continue to debate what’s the right level of taxes to do what we want to do when many of us, I think, want to maintain the capitalist system, but to your point, smooth out the edges so that it doesn’t feel as though a few of us benefit at the expense of others. FASKIANOS: Terrific. I’m going to go next to Ken Mayers, who is a senior adjunct professor at St. Francis College. You mentioned different forms of capitalism in your introduction and Professor Bower mentioned different market systems. One can argue that all systems are mixed and that systems in many places around the world today involve mixtures that include elements of oligarchic capitalism. Can you point us to people within your group who are taking the role of oligarchic capitalism in the emerging future of capitalism globally into account? FERGUSON: Well, so this project started with a paper that I wrote with my research associate, Upamanyu Lahiri, and we identified six types of capitalism in the world and they may be market systems, to pick up on Professor Bower. So, in the U.S. we describe that as a regulated market system. In Western Europe—we’ve heard her talk a little bit about it—it has more of a social democratic nature to it but very much capitalism, not too much state ownership; a bit more than what we have. I would describe Russia as, to your point, an oligarchic capitalism. You know, some people would say that. We looked at Japan, and I think I would describe that as being a collective kind of capitalism. Obviously, China, to Professor Bower’s point, I think, is very state-directed capitalism, and we have in other countries a bit more of a bureaucratically-driven capitalism. So that is where we’re thinking about it. We’ll have someone talking on each one of those. I would say most of us don’t believe that an oligarchic capitalism where a small number will get the wealth of the society, an even smaller number than we have here—that doesn’t look like it works. It, certainly, doesn’t feel—if we’re worried about the inequality of the current system we have in the United States imagine if we had a system where even a smaller number of people controlled the major industries and were not paying taxes. So we will take a look at all of these. I don’t think we’re going to look to an oligarchic capitalism system as the way that we want to go because the evidence suggests that that probably is not the best for the vast majority of people. But we will, certainly, look at all of them and figure out if there is, to your point, an admixture that works better for more people than what appears to be the case now for many. Thank you. FASKIANOS: Next one is Valerie Luzadis, who is at SUNY Environmental Science and Forestry at Syracuse in New York. One might easily understand that climate change is a direct result of the dominance of capitalism in which homogenization requires additional use of energy to homogenized globalization. When considering this, huge questions arise about the ability of the offending system to, truly, address the problem, especially when the power distribution is not adequately addressed. Comments? FERGUSON: Well, I find that very interesting because it feels to me, after some fits and starts, that there’s a consensus that’s emerged that we have to confront climate change. Some folks may still debate is it man—is it caused by human interaction, what it may be. I think, in general, the consensus is we must figure out numerous ways to attack this problem. To put it another way insofar as climate change or climate degradation is due to a market that doesn’t work very well, we’re finding people say we need to create a new market. We’re finding investors saying we must invest in—in mitigation processes. We find shareholders saying to companies, what are you doing about this topic? It feels to me as though a consensus is strongly emerging that this is an existential threat, and what I find fascinating is some of the answers are regulation, but some of the answers are also markets. And, how that’s going to work I’m not sure. But, there’s a great deal of talk about putting an adequate and accurate price on carbon, which would drive up the price that we all pay for, a number of commodities and services that are driven by, the use of carbon for energy. There is an ongoing effort to create a better market for what’s called carbon offsets—using different ways to reduce carbon in the atmosphere and paying people to do that. So I actually find it fascinating that this big existential issue is being confronted more directly now than ever and that some of the answers are around regulation but some of the tools of capitalism are being called in to help drive solutions here. And so this feels to me as though to some people, many of us, it took too long to get there. It feels to me very much as though this is a place where insofar as climate change is being driven by poor markets, there’s an effort to make better markets as well as better regulation to drive as quickly as we possibly can a solution to this really daunting and, potentially, existential challenge. FASKIANOS: Great. The next question comes from Steven Jones, who’s at Georgia Gwinnett College. How would you respond to critics of capitalism such as Piketty, who advocated transition from capitalism to socialism? FERGUSON: Well, look, I think we start by saying, as Piketty did, what is the thing that seems to be the fundamental Achilles’ heel of capitalism, and I think all of us agree—and it’s come up a few times and Piketty and his co-authors have identified it as well—which is the tendency in capitalist systems for income and wealth to become increasingly unequal. Now, we know how to deal with that. As I said, it’s through tax arrangements, different kinds of tax arrangements, and all of them don’t work equally well, and so we can create an overlay that ameliorates those effects. Now, is that still capitalism? I would argue it’s, certainly, still capitalism. Just as we have more progressive taxes in Scandinavia and other places, they still have, fundamentally, a capitalist system where it’s still primarily individuals who control the means of production, if I were to use that phrase. And so I think we should be cautious here that just looking around the world there are already different types of capitalism and we’ll probably end up picking and choosing—every country will probably pick and choose. And I wouldn’t be surprised if we start to sort of coalesce globally around a kind of capitalism that meets some of the challenges of inequality as best we can without creating so many disincentives in the private sector that we also don’t have the opportunity to have the kind of really creative growth and development of new ideas and new technologies that we’ve had. So that’s sort of the way I think about it, and when I read Piketty’s work it feels to me as though what he’s looking at is something that’s a more European-style capitalism with more progressive taxes and I don’t know if one wants to call that socialism. I think that’s a little strong. Socialism involves state ownership of many of the means of production. But it may be what he’s talking about is something that looks like a social democratic kind of capitalism, which major societies have found quite comfortable and quite amenable. FASKIANOS: I’ll take the next question from Gabriela Rivera, who’s an undergrad at the University of Notre Dame majoring in economics and global affairs. To what extent do businesses influence environmental and social change? Is a massive change needed to create equity and reduce carbon emissions possible through corporate responsibility without extreme government regulation? I think you did touch upon this. But— FERGUSON: Yeah. So one of the articles talked very much about that, and I guess I believe it’s a both/and. So I think we need governments to set regulations, as we’ve had in the past. One of the best government regulations that we had was around sulfur dioxide emission when we had a big concern about acid rain, and so we’ve seen the government can set regulatory constraints. We’ve seen governments setting—creating markets that deal with some of these problems, and we also need, as we do now, as we have now, to have companies that are also voluntarily thinking about how to reduce their carbon footprint. So I think the answer is a both/and. We still need government regulation. We’re going to need markets to be created to give prices to carbon that all of us will have to pay to consume less of it. But we also need—and we need businesses that understand they’ve got a responsibility to manage their carbon footprint and they’re doing that—these businesses—in part because their investors are asking for it, their consumers might be asking for it, and, certainly, in many cases, their employees are asking for it as well. And so, I think one of the good things about the current system is pressure, internal and external, can get businesses to think about these big long-term issues as well as having government regulation and having new markets come into existence. FASKIANOS: Great, and I—that does segue nicely into Dick Cavanagh’s question from Harvard. How does stakeholder capitalism address economic inequality? FERGUSON: We’re very lucky today because we have distinguished Harvard professors and I—total transparency, I’ve known Dick Cavanagh for decades. So, I think it’s very interesting to me to think about economic history, that there is a great deal of talk about that famous Milton Friedman article that said the purpose of businesses is to make a profit and that drove this notion of shareholder capitalism was always the dominant capitalism. Well, the truth of the matter is—and you know this—there were always people that said, oh, wait a minute, businesses have other responsibilities as well. And I think, for sure one cannot create a long-term viable business without thinking about impact on the environment, impact on communities, impact on employees, and all that is wrapped up in this new concept of stakeholder capitalism. But there’s always been that discussion, as you well know. And so I believe fully that the resurgence of the question stakeholder versus shareholder is a good thing and my view is that businesses have always been forced to think about their environment, think about their shareholders, thinking about their stakeholders, as it’s now called, in order to be successful. And, ironically and most importantly, you know and all of us know the story of Henry Ford, who raised the wages of his workers so they could afford to be good consumers and wanted to buy his automobiles. And so this notion of stakeholder capitalism goes back in the history of America and I think it’s one that’s been resurfaced and I think it’s an important way to think about the future of capitalism. FASKIANOS: So this goes to the next question from Deborah Burand, a professor at NYU Law. We’re in proxy season now. Do you see the market increase in shareholder proposals in 2021 related to ESG and the support many of those proposals garnered as another way that markets are moving to fill gaps or augment shifts in corporate purpose? FERGUSON: Absolutely. Again, as a person who believes that capitalism will continue to right itself, that is one of the examples. So, shareholders, particularly, our large institutional shareholders, fought to get proxy access, fought to get say on pay. We’re now finding that they are voting around some of these social issues quite a bit more. We’ve also seen a case of a small fund—I think it’s called Engine No. 1—getting access to the proxy at ExxonMobil and, I think, replacing two or three of their directors. And so, through capitalist mechanisms and through the ownership of shares, which is an essence of private market and private capitalism, we’re finding individuals, institutional shareholders, and others really forcing change even to some of our largest, most important, and historically iconic companies. So I do think that you put your finger on one of the ways that capitalism is righting itself, which is using a capitalist tool, the proxy. FASKIANOS: Great. The next question from Skyler Ruderman, who’s an undergraduate student at University of California Santa Cruz. You mentioned earlier the linkage between capitalism and democracy as almost being inherent, yet we see that the United States is propping up or supporting dictatorships like Pinochet, Suharto, and kingdoms like Saudi Arabia, protects or advances financial interests of the state and its major corporations. Given this direct link between authoritarianism and capitalism, along with the drive within the U.S. to inhibit voting and with historic regulations around restricting voting and participation in democracy, can we say capitalism can be conflated with democracy? FERGUSON: So I think what I said was it’s hard for me to imagine that we’re going to continue to have sort of a well-functioning representative democracy if people think that the system doesn’t work for them economically. That is back to that 1938 quote from Roosevelt and I agree with that. So one of the reasons that it’s important to drive an improvement in capitalism is that people have got to believe that the system, broadly written, is fair for them, and in a democracy, if you don’t believe the system is fair, what do you do? You go to the ballot box. You may end up listening to the most extreme voices and that, potentially, could lead to an unraveling of capitalism and democracy, and that was sort of the point that Roosevelt was making. I want to associate myself with that point, that there’s a certain amount of determinism that comes from economic outcomes that in a representative democracy spills over into, frankly, the democratic system. Having said that, I’m not in a position to defend every foreign policy decision that was made back in the 1970s about supporting dictatorships in different places. And, to the point around the hydrocarbon economy, there, obviously, are decisions that people make and the markets make around supporting different governments, different regimes, in part to get hold of raw materials that are necessary. I can’t defend or attack any structure of government any place. But you, certainly, make a point to observe that in the history of the United States we’ve had various different kind of alliances that maybe to the modern eye don’t look—isn’t that consistent with who we are and what we stand for. On the question of voting, I’ve said publicly and signed letters that say that literally, 1.3 million Americans, I think, have died in various wars defending democracy and the right to vote, and I continue to believe that that’s a sacred element of our democracy, to have everyone have access to the ballot. I grew up in the civil rights era when people, literally, were killed, if not beaten, around this question of access to the ballot. So, count me fully committed to having the largest possible legitimate vote that we possibly can. And I emphasize legitimate vote and as large as we possibly can, because I think that’s one of the hallmarks of democracy and because, as I said, more than a million Americans have died so that all of us had the right to vote. FASKIANOS: Thank you. There are many more questions but we only have time for one because we have a hard stop to let you prepare for your 2:00 p.m. So I’m going to give the last one over to Laila Bishara, who is an assistant professor at SUNY Farmingdale, teaching international business. Your thoughts on the role of educational institutions to lead on ESG issues and, hopefully, its impact on industries. I think this is a good way for us to close. FERGUSON: Absolutely. So I have said many times that education in general is the great leveler. It brings all of us up. I, personally, have benefited from that, and I fully understand that education institutions are often where some of the rough and tumble as we move forward goes forward. So I’m not at all surprised to see that on educational campuses, educational institutions are driving some of the heaviest debates around ESG. That was true when I was a student back in the late 1960s through the 1970s. One of the great joys of universities is that is where ideas are felt most passionately and people sort of drive to make change from the academy, both the students and faculty. So, I fully expect to see more of that because that’s simply one of the great benefits of having the kind of robust higher education systems, the state schools such as SUNY and with private schools as well, driving all of us to think more critically about what we do. And, by the way, I also think that a functioning democracy depends on individuals capable of thinking critically for themselves, based on having a solid foundation of a liberal arts education with the right degree of science and technology and math and engineering as well. FASKIANOS: Great. Any last words before we close, Roger? FERGUSON: Three things. One is I really want to thank all of you. I know we didn’t get to all the questions but, clearly, a very, very thoughtful group with wonderful questions. Two, this is really an important topic for all of us to engage in, not something that the elite can establish but all of us need to have a point of view about our system. And three, I continue to be optimistic, knowing that there are weaknesses and failures.  We’ve tried other solutions. None of them would seem at this stage better than capitalism. Something better may come along. But until that happens, I, at least, will continue to try to think through how we can improve the capitalist system that we have. FASKIANOS: Great. Thank you, Dr. Roger Ferguson. We really appreciate your taking the time to be with us today. Again, my apologies to all of you for—who had your hands raised and we couldn’t get to them. But we will have to invite him back to talk about how his project is going. So, as I mentioned at the outset, we will be posting the video and transcript to this so you can revisit it or share it with your colleagues who are unable to join.  Our next Academic Webinar will be on Thursday, March 10, at 1:00 p.m. Eastern Time with Rose Gottemoeller, who is at Stanford University, talking about international security and cooperation. Please continue to follow us at @CFR_academic and visit CFR.org, ForeignAffairs.com, and ThinkGlobalHealth.org for new research and analysis on global issues. Again, thank you all for being with us, thank you to Dr. Ferguson, and we hope you have a good rest of the day. (END

Afsaneh Beschloss discusses her distinguished career in finance, including her roles as founder and CEO of RockCreek, a leading global investment firm, her time as treasurer and chief investment officer of the World Bank, and as managing director and partner at the Carlyle Group. Lessons Learned is a roundtable series, open to term members and younger life members, which features distinguished speakers who reflect on their career experiences, the choices they made along the way, and the lessons they have learned from them.

Panelists discuss how companies can focus on long-term value creation while meeting shareholder expectations for quarterly profit, whether capitalism should be reformed to encourage companies to ensure durable growth and sustainable investment, and how companies can plan and invest for the long-term while managing short-term pressures.  

The 2021 Robert B. Menschel Economics Symposium discusses how behavioral economics can help explain decision-making during a pandemic. The full agenda is available here. The Robert B. Menschel Economics Symposium, presented by the Maurice R. Greenberg Center for Geoeconomic Studies, is made possible through the generous support of Robert B. Menschel.

Scheffer: Thank you, Julissa, and good day everyone. I am David Scheffer, a visiting senior fellow at the Council on Foreign Relations and the Tom Bernstein fellow at the U.S. Holocaust Memorial Museum. I'm working on a project for both the museum and the Council on the subject of today's roundtable. Today's discussion is part of the Council's Roundtable Series on Human Rights Issues, and it is on the record. Before I introduce our speakers, I want to convey to you that for several years, I've been exploring the social bond market for the purpose of enhancing the funds available to meet the needs of international criminal justice and the victim populations of atrocities. At the beginning of this inquiry, the idea of social bond funding seemed almost bizarre to most of my audiences, whether they be tribunal or humanitarian organization officials. But within the last two years, the social bond market has exploded, not only in its magnitude, but in its range of social policy objectives. The COVID-19 pandemic, and the surge of social bonds in Europe, including with the European Commission, has been a shot in the arm, no pun intended, for this form of private financing for very worthy public causes. Now in the result, bonds that address social themes and appeal to the rapidly expanding class of socially concerned investors have continued to be the fastest growing sector of the bond market, and they have become a pillar of humanitarian investing. The rising appeal has been influenced by evidence that sustainable investments can outperform traditional ones. So while COVID-19 catalyzed the rapid rise of social bonds issued in 2020, the interest in these bonds is expected to last far beyond the crisis, and to increase further in 2021. Meanwhile, victim populations are suffering not only from the pandemic, but also the atrocities inflicted upon them in the past, and currently, such as vast victim groups in South Sudan and Central Africa, the Rohingya of Burma, the civilian population of Yemen, the Syrian people writ large, and the nearly eighty million refugees and displaced people usually fleeing atrocities across the globe. Are their opportunities to meet these challenging needs in the social bond market? To help us answer that question today, we have two experts, one on the social bond market, and the other on the needs of atrocity victims, who, by the way, seek not only reparations, and basic support for their survival, but also justice. And those are expensive propositions. Our first speaker is Maud Le Moine, the head of SSA debt capital markets at Goldman Sachs and based in London, SSA standing for sovereign, supranationals, and agencies. She has a fifteen-year track record at Goldman Sachs and worked on one of the very first social bonds, which she'll describe, and in this position, she interacts with many international organizations, including the World Bank, African Development Bank, and European Commission. She has provided invaluable advice to me over the years about the social bond market. The second speaker is Maya Shah, the head of operations of the Global Survivors Fund, which focuses on victims of sexual violence arising from atrocities in Africa and elsewhere. So she is on the front line along with GSF’s Dr. Denis Mukwege, who won the Nobel Peace Prize in 2018 for his work with victims of mass sexual violence. Prior to joining GSF, Maya worked for twenty years with Médecins Sans Frontières in field positions and headquarters where, until recently, she successfully ran large-scale innovation projects. I've asked Maud to go first and provide her perspective on the social bond market, including briefing those in the audience who may not know much about this specialized market. Maud the floor is yours for about ten minutes. Le Moine: Thank you very much, and good morning. Good afternoon, everyone. And thank you again, David, for having me today to discuss such an important topic in the market. As David mentioned, my name is Maud Le Moine. I'm responsible for debt capital markets coverage of public sector clients at Goldman. And as such, I've worked with a number of multilateral development banks in structuring and issuing debt products in the markets including social bonds. So perhaps I thought I would start with a little bit of background on the ESG bond market as a whole and the evolution of the social bond market specifically. Really, it has started fifteen years ago with the first social bond at the time, not called a social bond. But IFFIm was really the true first social bond issuer. The International Finance Facility for Immunization issued the first bond with a specific use of proceeds at the time directed towards vaccination programs in poorer countries. It has since evolved to include: the European Investment Bank issued the first climate awareness bond in 2007, then the World Bank issued the first green bond. And from sporadic issuance, the market has grown to represent around €400 billion of issuance for 2020, which to give a little bit of perspective represents a huge increase from only five years ago, where it stood around €90 billion. So this is obviously a substantial growth in a very short period of time. But just also to give a little bit of context, it's still a fairly small portion of the overall bond market. It's sub-10 percent of the overall bond market. So really, what are ESG label bonds and what role do they perform in the markets? ESG label bonds are fixed income debt instruments, which means that they are issued in the market with a specific use of proceeds. This is the key difference with any normal debt instruments, where usually the use of proceeds are for general corporate purposes. In this case, they are issued with a specific purpose. They can take several forms. The most common are still green bonds with proceeds directed towards environmentally friendly projects. And in the family of ESG bonds, you’ll also find the likes of sustainability bonds, social bonds, and many subcategories (climate transition, climate resilience, education, sustainability in bonds, etc.). They all perform a very similar function, which is to direct investments towards a specific set of projects. I think that's incredibly key, as they perform the role of aggregating demand towards a specific set of projects that have a social outcome. And since 2017, ICMA, which is the International Capital Markets Association, has worked on a set of guidelines called the Social Bond Principles that really lay out the objective criteria for social bonds. And they are based on four pillars: the use of proceeds, the project evaluation, management of proceeds, and reporting. And the purpose of the Social Bond Principles is to set out a common base for the definition of social bonds and really ensure the transparency and accountability. So the way they work is the issuer, if we take an international organization, such as the World Bank or the African Development Bank, will set out a framework in which they describe the types of projects that they intend to finance. Sometimes they'll have very clear exclusions as well. But generally describe the types of eligible projects that will be financed under that framework. And they also usually explain the performance metrics and also how they will report. The reporting is very key, as investors at the point of investment do not necessarily know exactly how their funds will be allocated into certain projects. They will only know later on when it's reported by the issuer. So the social bond also performs the function of issuing upfront for needs of projects that will be dispersed over time. This is a key element, which was the entire construct of IFFIm at the time, as the needs are usually very important to tackle quickly. And so there's a need to raise money upfront. And projects can be dispersed over time. To give you perhaps an idea of the types of projects that are included as eligible projects under the Social Bond Principles and what most social bonds finance, these would include, for example, affordable infrastructure, access to essential services, affordable housing, employment generation, food security, or any social or economic advancement or empowerment. This is a broad definition of what the project can include, but to give you an idea of what they have financed in the past. So why are they so important? And I think that's quite an important topic of discussion here. And I think, for me, the key is that really any of these projects would not normally be financed directly. They would be too small, too risky for any investors to be financing directly or at attractive economic terms. So really what the World Bank or African Development Bank or any other multilateral development institution, the role that they perform, is to aggregate demand for this product and therefore ensure the deployment of capital in the most needy places. So if we take an example of the World Bank raising a billion bond, for example, they'll manage their balance sheet dynamically. Therefore, this billion will really serve to finance a number of different loans. And over time, the World Bank is able to access the market thanks to its high credit rating, their standing in the market, their global investor following, and their longstanding market presence. They're able to raise this billion at very favorable terms, and they're therefore able to lend at very favorable terms, and this is the key to the entire construct. Given the COVID crisis, somewhat unfortunately, it has resulted in a significant surge in the social bond market last year as a portion of the overall ESG market, given all of the difficulties that countries have faced to cope with lockdown measures and generally the effect that it had on people, small businesses, the healthcare sector, etc. So if we take the difference between 2019 and 2020, the social bond market has almost increased tenfold. So it's a huge increase. And one of the biggest portions of this development was the EU SURE program, which has become one of the largest social bond issuers in the market since they created the program in the summer of last year. The SURE program is a €100 billion temporary support to mitigate unemployment risk in an emergency, and it is intended to be entirely financed in social bond format. They have already issued €53.5 billion of that program and have an entire envelope of €100 billion. So they can fund the rest over the course of this year. It was entirely created as a result of the pandemic and is designed to urgently provide financial assistance in the form of loans to member states. And so, I think the question that we are often asked about social bonds is really, who buys social bonds? What is the appeal for investors? What is the difference between a normal bond in terms of payout structure, and things like that? And so, first of all, I think the background is that, generally speaking, what we are seeing is there is an increasing realization from both public and private sector market participants that a lot more needs to be done in the field of sustainability as a whole. ESG investors and social bond investors can really be any investors. What we're seeing in the market is central banks, asset managers, pension funds, retail investors, foundations, etc. can be interested in this product. Generally, the investor community as a whole is increasingly putting in place sustainable investment strategies, and as such, they're trying to find suitable financial products to fit their strategies, and social bonds are one very good example. How are investors repaid? Well, social bonds themselves are really used to finance loans. So the purpose of these multilateral organizations is to aggregate the demand. They have the expertise on the ground. They are able to do the due diligence of the project, and they have backings of governments that are their shareholders and, therefore, have higher credit ratings and are able to access the market at favorable terms. As such, the projects themselves really finance loans and therefore generate a return themselves, part of which is paid to investors in the form of usually a fixed rate coupon. Some instruments have been designed to have a slightly different payout structure with predefined targets. For example, it's been seen in KPI-linked bonds, where there is a step-up or step-down coupon when the targets are met or not met, depending on what the targets are. But the very vast majority of social bonds issued in the market have a fixed coupon and therefore fixed return to investors. I think that's quite an important point because the growth of the social bond market is also driven by the depth of the fixed income investor base. And this is an investor base that's generally focused on the liquidity and generally conservative in their risk profile. And therefore, it's important that there is a fixed return. For example, there are other types of instruments that exist in the market, such as social impact bonds, and it's important to differentiate those two social bonds that I'm talking about, because social impact bonds are slightly different instruments. They're generally much smaller in size, and they have a payout structure that's directly linked to the successful outcome of pre-agreed social benefits, but they are much more similar to equity products in nature, and they are much higher risk instruments, and they do not have a fixed return. So they are different instruments. They are called bonds as well but generally not issued as broadly in the market as social bonds are at the moment. Scheffer: Maud, if I may, perhaps another thirty seconds or a minute, and then we'll move on to Maya. Le Moine: No, of course. I mean, I think that's a broad overview. I think you wanted to discuss specifically, the application that it can have on international criminal justice, but I can take it as a question afterwards. Scheffer: Exactly. Thank you so much. That's an excellent brief. I'll share that with every student I ever teach. Maya, the floor is yours. Shah: Thank you. So good morning, and good afternoon, everyone. And thank you, David, for inviting me today. And as you mentioned, yes, I'm the head of operations for the Global Survivors Fund. So this is a global fund for survivors of conflict-related sexual violence. The fund’s mission is to enhance access to reparations and other forms of redress for survivors of conflict-related sexual violence across the globe. So the fund was established in October of 2019 by Dr. Denis Mukwege and Ms. Nadia Murad, a survivor herself, after they both received the Nobel Peace Prize in 2018. It is also the realization of a vision that was long held by survivors through the SEMA network. So this is a network of survivors from over twenty countries in the world that have been lobbying for reparations. Additional to this, the fund was endorsed by the UN Secretary General in his statement to the Security Council in April of 2019, where he strongly encouraged governments to support this fund. So what is the purpose of the Global Survivors Fund? Well, it's to fill a gap in addressing the rights of survivors by providing interim reparative measures, and this is when states are unwilling or unable to do so. And while we recognize that it is a government's responsibility to provide reparations, often they are not able or not taking this responsibility. But we cannot leave survivors behind, because reparations are a right. So the main principles to the fund’s approach are, one, a survivor centered approach, and this is really to co-create projects with survivors, so not for survivors but really with survivors. The second fundamental approach is local and contextualized solutions. So really looking at the different countries where there are projects and the local solutions available in those countries with survivors. The third is a multi-stakeholder approach. So that's including survivors, civil society organizations, activists, local authorities, and UN agencies within what we call the steering committee that runs the project, so that there is a lasting impact of these projects. So the three main pillars of our work at the fund are what we call act, advocate, and guide. The act pillar is really to provide interim reparative measures. So we work with local civil society organizations that are our implementing partners, and we provide interim reparative measures in the form of compensation. Currently, we have three projects in the Democratic Republic of Congo, in Guinea, and in Iraq. And we're looking later this year to open in Central African Republic and Nigeria and possibly South Sudan. I was in the Democratic Republic of Congo three weeks ago, where there is an estimate of between 200,000 and 400,000 victims of conflict-related sexual violence. And I was discussing with the head of the National Survivors Movement there what it means. And she basically said that survivors, what they want really is an acknowledgment of the crimes that were committed against them, to not be blamed for what happened to them, and to receive some sort of compensation. And whilst at the fund, there is no way we're going to be able to cover all the victims of conflict-related sexual violence in the Democratic Republic of Congo. What we can do through our project is to show that interim reparative measures are possible and to act as a catalyst then for governments to take on the responsibility. The second pillar of our work is called advocate, where we really want to make survivors’ voices heard in order to influence at the international, regional, and national level policies that will then prioritize reparations and allow governments to take their responsibilities in providing reparations. And that leads me to the third pillar of our work, which is the guide pillar. And in this pillar, this is where we look to provide technical assistance and expert advice to support governments who want to put in place reparation programs, but to ensure that these programs are really survivor-centric and that they have a survivor-centered approach. Another part of our work is we are currently doing a country mapping study of over twenty countries to look at the state of reparations in different countries around the world and then to be able to make a better informed decision of where we want to put in place projects. So currently, the fund is funded through institutional funding, so through government donations. But in general, there is not a lot of sustainable funding for human rights abuses, but specifically for conflict-related sexual violence. And the needs in this field really vary from the immediate life saving needs of health care and psychosocial support, then to much more long-term needs, such as restitution of livelihood, education, support, and financial compensation, which these require, of course, substantial resources and extended periods of time. And as I mentioned before, when you look at a contextualized approach, these kinds of reparations are going to differ whether you're doing it in Ukraine compared to Central African Republic compared to Iraq. You know, one size doesn't fit all in these different contexts. But I don't think that this should be a deterrent to start providing reparations, and neither should having to put in place all the transitional justice mechanisms before. We strongly believe at the Global Survivors Fund that reparations are a right. Survivors have a right to them. And therefore, in fact, when you put in place interim reparative measures, often you are empowering survivors by making them reestablish dignity, have livelihoods, have health care, and so to be able to benefit from this, to be able to then go through the transitional justice mechanisms. But of course, all these need some form of sustainable financing and innovative financing mechanisms. So I hope that we'll be able to discuss this further today. Thank you. Scheffer: Thank you so much, Maya. That is excellent. I'm going to ask a few questions and then at the thirty-minute mark, or approximately that, we'll open it up to the audience. Maud, could you dip into what we worked on for a couple of years whereby we were looking at a particular type of social bond that is of an endowment character that's generating annual revenue. That could be extremely useful either for a tribunal or for an organization like Maya’s that might be looking for a steady stream of revenue year after year as sort of a base set of revenue that they could rely upon, as opposed to a huge expenditure of money in the first or second year of a bond. Le Moine: Yeah, absolutely. I know we've been discussing this for a couple of years. So first of all, perhaps I should mention that it's an extremely worthy cause, and one that should generate interest from ESG investors. I think the problem is trying to find a structure that works and fits within the criteria of investments of fixed income investors, if large sums of monies need to be raised, or other types of investors depending on how much is needed. The idea of an endowment social bond is certainly an option. But I would raise a couple of points that I think are important to understand. In order to attract fixed income investors, and I say fixed income investors because they are the largest pool of investors out there in terms of ESG investors at the moment, the fund itself would need to have a certain rating if the fund is to issue a bond in the market and generate interest. And that's unlikely to be a high rating without the backing of certain sovereigns and a structure that, David, we have discussed over the years. If the structure were to work, the fund would need to have, ideally, at least an AA rating in order for the money to be raised in the market at a certain economic term, which would then be able to be invested in the market to generate enough returns to generate a steady stream of revenue. And so a high rating is really the key to making the structure work in order to have affordable terms in the market and be able to invest it and generate the needed returns. Scheffer: Thank you so much. Maud. Maya, you touched on this in your remarks and I want to try to emphasize it to our audience. You used a couple of examples of a gap between the need and the actual resources available to deal with reparations. Could you expand on that just a little bit and sort of emphasize how large is this gap of funding for these humanitarian purposes for victims, particularly when they involve issues of reparations? Shah: Thank you, David. I mean I certainly can't put a monetary figure on it today. But what we know is that the needs of victims are huge, because it goes from life-saving care, long-term psychosocial support, to compensation, restitution, and rehabilitation. And if you look at that, that can be from livelihood programs; reinsertion because often they're completely stigmatized out of the communities, lost all their jobs; education for children, children born out of rape particularly that also are ostracized from society; and if reparations programs are being put in place, it's also compensation on a monthly basis for the survivors. So there is a range of needs that are there, and each with varying amounts, but we can see that the numbers of survivors are enormous. And so yeah, I can't give you a monetary figure, but just the needs are huge. Scheffer: And let me jump back to Maud. We've talked, you and I, about the whole phenomenon of pre-qualified investors. I get this question quite often from organizations. They don't want any and all investors stepping up to help them. For example, if they're a humanitarian organization, they may not want gun manufacturers to be in their investor pool. Can you just expand on that a little bit? When you put a social bond together, how do you structure the pre-qualified investors so that the organization is confident in that investor pool? Or do you do it at all for some of the bonds? Le Moine: That's a good question. When we issue social bonds in the market, it's a fairly quick process. And so there's a lot of preparation ahead of the issuance itself, setting up the framework in place, perhaps marketing for a number of weeks ahead of a potential bond issue, but the issuance itself is fairly quick. The issue will rely truly on the banks and the lead managers of the bond to have KYC. So know your customer. KYC to all of the investors that are in the transaction, and they will have access to the list of investors. And they can choose to exclude some of them if there were any concerns with the background of the issuer. They will mostly rely on the bank’s proposal of allocations and things like that, but they have the ability to exclude any investors if they wanted to. I must say we've never come across an issue, given the types of investors that are generally interested in these bonds. We're talking about central banks and large asset managers that are very well known, pension funds that are also large pension funds, European pension funds, Canadian pension funds, or U.S. pension funds that are very well known. So these are large institutional investors that are very well known by the market. Scheffer: Thanks so much. You know, I think I'll be following strict rules here. We're at the thirty-minute mark, and I want to open up the floor to our participants in this roundtable. I'd like to first just see, I see on my list of participants that Naomi Kikoler is actually with us. Naomi, I wanted to give you a chance to say just a few words, if you wish to. But now would be the opportunity, if you'd like to come on board. Kikoler: Thank you so much, David. Appreciate that. And just want to congratulate also Maud and Maya just for the phenomenal presentations. On behalf of the U.S. Holocaust Memorial Museum, we're incredibly honored to be able to help advance the work that you're doing, David. Along with CFR, I did want to thank our colleague, Erin Rosenberg, and your colleague, Madeline Babin, for their work. I think from our perspective, as Maya especially highlighted, this is one of the most challenging, vexing, and urgent issues that many of the communities that we work with are seeking to find a way to address and are seeking innovative solutions too, so I really commend the effort that all of you are doing to try to find innovative sources of funding. I think we all know, as we look at the experience of the Holocaust, the importance that reparations has played for many communities, while recognizing that you can never truly restore or return a person to the life that they had prior. But the importance of finding creative solutions, as you're doing, is really I think something that needs to be commended. I think the big challenge, and the challenge that I've raised with you, David, at times, and I'd be curious for Maya and Maud to build a little bit on your comments is around the political will, especially of governments and large multilateral organizations, to step up and increasingly support these types of initiatives. I'd be curious where you see there being potential openings. Are there specific governments that you think are particularly promising, or other multilateral institutions that have shown an interest in using things like social bonds? But again, just a profuse, on our behalf, honor to be involved in this particular project, and we very much hope that for the various communities we work with today, the Yazidi, the Rohingya, the Uighurs, and others, that your innovative approach to this will help to ameliorate the very big challenges that they face for the future. So thank you so much. Scheffer: Thank you, Naomi. Maud, would you like to just take on Naomi's question about the willingness of the multilateral banks and of governments and I might also add of large foundations to step into this breach? Le Moine: Absolutely. And I mean, generally speaking, multilateral development banks are incredibly willing to step up to the plate when they can. If you think of all the ones that are currently existing and active in the market, they have responded incredibly quickly last year to the needs of their member states following the pandemic; have mobilized incredible amounts of resources; issued very quickly what was needed to disperse funds very quickly to the most needed places. So I think the multilateral development organization family as a whole has been incredibly quick to respond. And that has shown the willingness of the institutions to help when they can. At the political level, it differs from time to time, I think. We've also seen with the pandemic that there's also a great political willingness to step up. If you think about the European member states incredibly quickly getting together and forming a budget that was on multi-year to support the European recovery fund, but also their SURE program and other initiatives that were done in Europe. And over the years, capital increases of these multilateral development institutions, new ones have been put in place over the last few years in Asia, most notably with the Asian Infrastructure Investment Bank and the New Development Bank, to try and support the needs of specific regions. So I think there's an incredible political willingness as well. Generally speaking, what we're seeing, however, is that the structures also need to be quite clear. And accountability of these institutions is very high. So they have very high standards to uphold in terms of the types of project that they lend to and the result, as they have the impact in the local community. It's very important to guarantee their political willingness to participate. Scheffer: Thanks a lot. And I want to get to our other questioners. But Maya did you have anything you wanted to add to that because you do have government contributors to GSF? Shah: Yes, thanks, David. I mean, we do, but I think there are two things. I think governments sometimes will react when the political will is strongly there, when it affects them. So we saw that, for example, previously in the Ebola crisis, governments reacted when it started happening to them. And now in the pandemic, when it's happening to governments, they will have the political will to react quickly. We do have governments on our board, but I don't think there is enough being done. And the governments where these crimes are committed are perhaps not the ones reacting as quickly or as much as they should be. And while we believe that they do need to be taking their responsibility, I don't think we can always wait for political will to be there because the needs are so urgent, and we need to address them, but it's definitely a joint responsibility. Scheffer: Thanks, Maya, shall we now go to Jonathan Berman. Jonathan, are you there? Berman: Thank you. Sorry about that. I'm in a remote area. So if I phase out again, please go on to the next questioner. But while I'm in touch, David, thank you for hosting this meeting. And thanks also for asking Naomi to say a word. As a Holocaust descendant, it's uniquely gratifying to see the Holocaust Museum active on this topic. Maud, my question actually was for you. I just wanted to go back to what you said about the distinctions between social bonds and social impact bonds. Could you just confirm that social bonds, the terms of the bonds are uncorrelated to the outcomes that are received, and if that's correct, and then on social impact bonds, if you could say a little more about how that correlation is achieved? Thanks. Le Moine: Thank you, Jonathan, for the question. And yes, I can confirm that the terms of a social bond are uncorrelated to the outcome. And that reason is, if you think about the World Bank as a whole, they will have an issuance program per year of somewhere in the context of €60 to €70 billion. And part of this, they issue now all of their bonds under their sustainability debt framework. But if you think about perhaps the African Development Bank, they have a social bond framework, and that is only a portion of their debt issuance, but when they access the market to raise this portion of their program in social bond format, they access the market at the terms that are available to them at the time of accessing the market. What the investor is really buying at the time of the investment is the African Development Bank credit within the context of their social bond issue. So they know where their investment is going, they know the eligible project that will be financed with their funds, but the actual outcome is de-correlated to the terms. The market moves all the time, and at the time of issuance, the African Development Bank will be able to access the market at specific terms, and other times at other terms. However, the investor will have access to the impact of their investment, because all of the issuers of social bonds have the obligation to report on the use of proceeds and what they were used for and what the impact was. So the investor will have access to that. And I guess in theory, they can choose later on in the process to reinvest or not, if they are not satisfied with the impact that they are seeing. On the social impact bond, it's a slightly different construct where usually you have an outcome that is decided between a public institution in an area, if we take early childhood education, for example, where a municipality doesn't have upfront money to invest in early childhood education, but there's a strong correlation between making sure early childhood education is taken care of to influence the greater social benefits later on. And there's a study to make sure that the correlation is important. Then, effectively, it's calculated as whatever the municipality is saving in early investment by the private investor is returned to the investor if the social outcome is met. Scheffer: Thanks, Maud. Le Moine: I hope that's clear. Scheffer: Yes, I hope so, Jonathan. Sarah Whitson, I think you're next on our list. Whitson: Hi. Thanks to both of you. Maya, I'm particularly grateful for your characterization of the funds that you're raising and distributing as reparations and not charity. And two questions is why the focus exclusively on survivors of sexual violence, which is, of course, a much smaller pool, and much more idiosyncratic, frankly, than the larger population of victims of violence. And I wonder whether you are looking or considering assisting victims in places like Yemen or Gaza, which are much harder to get to, and yet where the needs are overwhelming, with thousands of people disabled by sniper fire or bomb attacks. And Maud for you, in terms of the social bonds, which, as you describe are effectively loans to governments, what are the criteria? Particularly given the fact that the reason that many of these countries are in such catastrophic economic situations is because they have tyrannical, abusive, corrupt governments, like Egypt, for example, where the World Bank and the IMF continue to provide loans to a government that is wholly corrupt, wholly controlled by the military, which enriches itself at the expense of its own people. So how do you ensure that you're not a part of the problem when you make loans to corrupt, abusive governments, where the World Bank and IMF fail actually to do meaningful due diligence? Scheffer: Maya, why don't you go first on this one? Shah: Okay, thank you. Thank you for that question. Yes, why are we focusing on conflict relating to the sexual violence victims? Because we feel that they are one of the most vulnerable populations. They are often very much overlooked due to stigma and shame and hardly ever recognized as war victims. And they really do merit the focus. And through this focus, we can break the silence because of the stigma. There's so much stigma attached, particularly to conflict-related sexual violence. And to your to your second question, yes, we are looking at, as I mentioned previously, in the country study, one of the countries where we're trying to look and work is Yemen, and Syria both, but particularly looking into Yemen and seeing how we can support survivors, whether they are outside of the country, and then to look to support through, but in very difficult circumstances. So indeed, we're looking into it. Le Moine: Yeah, perhaps I can try to address your question to me as well. I think, first of all, I really cannot comment on behalf of any of these multilateral development institutions on what their due diligence procedures are. However, I would mention that they lend to individual projects, rather than at the sovereign level. The projects themselves are subject to scrutiny and due diligence, and they have the sovereign backing, so that in case the project becomes insolvent and is unable to pay back the loan, there is a sovereign guarantee, which is part of the reason the construct works. So that's a key part of the understanding of how the whole lending works. One thing I would say, though, is that if you think about the number of projects that are financed, it's really absolutely key infrastructure, or education, or healthcare projects on the ground. There might be issues at the broader level in the country where you also have to think about the number of people that these projects help on the ground. And I think that's the real key to these organizations and their purpose. Scheffer: I see that Erin Rosenberg is on our list. Erin, did you want to perhaps ask any questions, since you've been so deeply involved in this project? Rosenberg: Thank you so much, David. Um, yeah, actually, this is perhaps speculative, but I am quite curious of maybe digging into the question of political will matched with the issue of victims of atrocity crimes. I’m wondering whether both of our panelists, just in terms of bringing this concept, and recognizing as Maud you have identified, the types of projects that are typically funded. How would you view in terms of political will or just more generally the viability of projects that are aimed specifically at the reparative aspects addressed by Maya for victims of atrocity crimes? Le Moine: Thank you, Erin, for the question. And I think that this is a topic that David and I have discussed in the past. And I think in the case of victims of atrocity crimes, there's a real strong case for frontloading support. And I think when we think about garnering political support, what is important to try and highlight is that the need to tackle mental health issues, quick economic recovery, integration, and early education upfront have long-term strong benefits. And I agree with Maya when she said earlier that countries step up when it's in their interest, and I think that's part of the answer. In trying to garner political will for this specific topic, it's very important to frame it in the context of the long-term benefits globally but also to specific countries. It has benefits that can transcend the actual quick reparation; it has long-term benefits in the economic development of the country, and therefore, its security, international relations, etc. And I think that's the framework in which to try and garner political support for this specific issue. Scheffer: Thank you, Maud. I see we have Whitney Debevoise, who would like to interject. Debevoise: Thank you very much. This is Whitney Debevoise of Arnold and Porter. I’m former U.S. executive director of the World Bank. This question is for Maud, could you talk about the various initiatives to start to regulate this ESG bond world in terms of standards and the like? And what impact, if any, you think that may have on the growth of this market? Le Moine: Absolutely. Thank you, Whitney. The main development has been the development of the Social Bond Principles by ICMA, the International Capital Markets Association, which followed the Green Bond Principles. And now we also have another set of principles for sustainability bonds and sustainability-linked bonds. Generally speaking, the issuance of the first bonds have always preceded the existence of the principles, and the ICMA body has gathered private market participants, banks, investors, and regulatory bodies to try and understand how to frame the discussion, making sure that there's a common set of standards that are upheld by issuers, and that the word social bonds was not going to be used for just any types of issuance. And the green bonds have been accused of doing a little bit of greenwashing at some point when there wasn't enough of a standard. So I think that's the main development of the social bond market. And it has, I think, helped the social bond market, because it has provided issuers with very detailed guidelines and made the market a lot more transparent and also accountable. So I think it has greatly helped the issuers know how to frame their social bond issuance and how to focus their eligible projects, and it’s also given some confidence to the investor base as well that they are investing in a project that has a certain standard. Scheffer: Thank you, Maud. Can I just ask a question? Oh, I see we have Patricia Rosenfield. Rosenfield: Thank you so much for that question. And the earlier one about the role of philanthropies, private philanthropies investing in social impact bonds, particularly social impact bonds not just social bonds, prompts this question. I'm Patricia Rosenfield. I'm president of the Herbert and Audrey Rosenfield Fund, but I also work at the Rockefeller Archive Center where we look back at things like program-related investments and mission-related investing, and that's what I'm wondering if you're seeing. If foundations or some foundations are increasingly looking at mission-related investing, and divesting themselves of oil and gas and perhaps negative impact investments, if you're seeing an increase in philanthropic assets being invested in social impact bonds, and if not just in the United States, but in other private grant-making activities around the world? Scheffer: Maud, I think that's for you. Le Moine: Okay, and perhaps Maya will have a view as well on what she's seeing on the ground in terms of types of philanthropic investments, but on my side, absolutely. It's a general development that investors are incredibly focused on re-centering their strategies and making the sustainable, or ESG, or philanthropic part a greater part of their investment strategy. Foundations have been, in fact, the very early investors in social impact bonds. So I'm not sure if that has necessarily increased so much, but they were at the very beginning of the product when it first was coined and evolved. So I think that's still the case. In social bonds, specifically, we're seeing also foundations being active. But I would say that it's not the dominating investor base because of the sheer amount of volume that is issued in the market. So they don't represent the largest investor base. We're still talking about larger institutional money being the driver of social bonds. Scheffer: Maya, did you want to add something to that? Shah: Well, I think Maud covered it very well on who is investing. I don't have much authority on that. Scheffer: Okay. Let's go to Jennifer Warner. Warner: Hi, thank you both for your time. This is Jennifer Warner from the Elton John AIDS Foundation. As we're talking about social bonds and how they might relate or be different from social impact bonds, as well, it would be interesting to hear, Maud, your perspective on what problems are best suited for a social impact bond or social bond? So the distinction between why you might pursue one or the other? Le Moine: I think there's one element that's absolutely key to a social impact bond, which is the correlation that we were talking about earlier. So, for example, I have looked in the past at doing impact bonds in developing countries. And very often the problem is that we lack data. So the problem in structuring the social impact bond is that you need a very strong historic correlation between a certain a certain problem and a certain outcome in order to build the case for a social impact bond. And that's really, I think, the key difference between the two. The other thing that is important to differentiate the two is that the social impact bond will generally be a much smaller scale and very targeted. Therefore, it will be municipal level, a small issue that can be tackled with specific investment and has a great social benefit. Social bonds, generally speaking, are much larger, because we're talking about a much larger scale of projects that are being financed. I’m looking at the clock, which is why I stopped here. Scheffer: No difficulty at all. I just want to cover one last issue if I might, and I'm afraid it's a question for Maud. When governments guarantee the social bonds, particularly if it's a reparations issue in the future, it's one way for the government to, and particularly if it's the subject government of the reparations, to actually weigh in with its own responsibility towards the victims. Rather than making a cash payout under reparations to the victims, they can step forward and guarantee a social bond, which, of course, the social investors, particularly if it's AA or AAA, will want to respond to. Can you just briefly tell us how concerned governments are about the contingent liability of providing a guarantee? Why would that worry them? Le Moine: Fair enough. I think the general worry about contingent liability, and that's obviously a very generic statement. It does differ from country to country. But when we look at sovereign or state budgets, if the liability of the guarantee goes beyond the term of the governing body at the time, then it's very difficult sometimes for governments to be sure that the next government will uphold the similar guarantee. So it's difficult for governments to justify sometimes having guarantees or contingent liabilities over a period of time that goes beyond their term. That's generally the issue. But there are systems in place, and the shareholding of a multilateral organization is without limit in time. So, there are plenty of situations where governments have pledged over a period of time that goes beyond their term. But in the discussions that we have sometimes this is the problem that's being raised. Scheffer: Thank you very much Maud. I think this brings us to the conclusion of our hour. I just want to say how pleased I am with our speakers. Maud, I know it was years ago, but you made the London School of Economics proud today. And Maya, for our friends at Médecins Sans Frontières, they're probably asking why in the heck are you at GSF still, so you made both of them proud. Thank you so much to our audience. And we will continue to forge ahead.

The World Economic Update highlights the quarter’s most important and emerging trends. Discussions cover changes in the global marketplace with special emphasis on current economic events and their implications for U.S. policy. This series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies and is dedicated to the life and work of the distinguished economist Martin Feldstein.