Those three questions you are being asked today are far more ambitious than those asked ten years ago by students. And they are more difficult to answer. How do you answer these questions?
Those questions go deeper to the very essence of what education is about. What you are providing people is the context for reflection. We always tell them, ‘Look, I may not have the answer. I’ll share with you my experiences and my reflections but each of you has to find the answer for yourself.’
The third change I see in this world and one of the reasons why the notion of the corporation has to be reinvented is when you go to the new world in India, China, Brazil or Peru, they tell you, ‘Why should I go to a western business school to learn? You have miserably failed in terms of your economic system.’ This is their view. You may say we are just getting beyond the recession and are recovering. But their perception is that you actually messed it up and you haven’t found a new solution. The second thing they tell you in China, India and Singapore is that ‘You come here, you western multi-national companies and you tell us we need to speed up our Democratic reforms. In India, they will tell you, ‘It’s a shame you have your government officials coming here and telling us we need to get rid of corruption. But you in Europe and the United States have corruption everywhere. Have you seen the FT the day before with a story on another interest-rate rigging scandal? You should first apply those lessons yourself.’
For the first time in 200 years, the notion that capitalism as it has developed in the west has some type of moral dominance is no longer true. If we believe that capitalism with some ethical rules is still necessary for the progress of human society, we really need to reinvent it for ourselves and to offer a better world for those billions of people in different parts of the world. If we want to engage them in a peaceful conversation that is the only way to do it.
About a year ago, we had an event in Shanghai that was attended by the minister for public works and infrastructure for the Chinese government. He did a Ph.D. at UCLA in economics. He was at UCLA for ten or 15 years. And we had a very nice dinner with him. He spoke perfect English. He told us the same thing. He said, ‘Every time we have an official from the U.S. government or from Europe, we always get the same message. We should speed up our reforms and get rid of corruption. We keep telling them you’re right. We need to do those things, but tell us what you are doing in your own countries because we have been looking at you for many years. We were expecting to find a source of inspiration and this is no longer true.’ This is the type of dialogue you have all over the world.
So what’s your theory on why capitalism has become detached from society?
This is a world where there are many good professionals and companies. Companies on the one hand have an impact on society. But on the other hand, companies are a reflection of society. It’s like politicians. We may complain about politicians, but those officials are a reflection of who we are and what type of society we want to live in.
I have a great interest in the American Revolution and the first three Presidents: Washington, Adams and Jefferson. Among brilliant political figures, you have people who made mistakes and you had corruption. It is a part of human nature. The point is how can we design a system that is strong enough to inspire others and to be for the common good of society. I am not naive. I understand we will always have greed. The point is how we can make the good aspirations dominating and controlling behavior that is not good.
In the 1980s, after the gloomy years of the energy crisis in the ‘70s, this new spirit of capitalism with Ronald Reagan in the U.S. and Margaret Thatcher in Britain was good. But thinking that deregulation of the economy would make capitalism more efficient was a mistake. We have had 20 to 25 years where the dominance of deregulation and private initiative has been taken too far. Private initiative is good but we also need to take care of the common good of society. It’s like the breathing air we need to live. The financial system imploded because of the lack of regulation.
Isn’t Spain over regulated right now which is why so many multi-nationals don’t want to locate plants and offices in the country?
No. From a corporate governance viewpoint, it’s not.
Doesn’t the government in Spain effectively legislate what you could call compassionate capitalism in the country? After all, it’s much harder to layoff employees in Spain and that has slowed foreign investment.
In Europe, the crisis has had a different shape. In Spain, it was essentially a combination of two problems. The first was the real estate bubble because everybody thought Spain was going to be the Florida of Europe. So you had rich Brits, Germans and Scandinavians would have a nice life in Spain. Banks were not wise enough to keep the boom under control. So we had two bubbles bursting. And the main problem in Spain is that local governments got additional public revenue by taxing new real estate projects. So the boom led to huge revenue and people got corrupted. The collapse of those revenues have caused a lot of bankruptcies.
Spain is not the example. What is the example is what is happening in Germany. On the one hand, you have a high level of protection for poor people but you push them to learn more capabilities. They get unemployment subsidies but they have to go to vocational school to train and develop new skills. In Spain, we don’t do that.