An interview with John Curtis

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September 8, 2011

Do governments have reason to be losing confidence in corporations, given the fact that U.S. public corporations are estimated to be sitting on over US$1 trillion?

My instinct is to say no, that governments can express disappointment in the private sector, and can say, “We’ve done our share, now you belly up to the bar.” That’s the general line that is taken publicly, and that is fair enough, because governments in the western world have, on the whole, been extraordinarily generous to the corporate sector in recent years – arguably too generous. But the world doesn’t work that way. Corporations are not investing, because there’s no demand out there. Governments are not providing the kind of public support that is necessary – in terms of public spending and job creation – and so businesses are quite logically saying, “We can’t see how we’re going to sell our goods [or services, depending on their sector], so we’re not going to invest.”

From the end of the Second World War to the 1970s, governments spent wildly, and that led to all the growth in roads and hospitals and schools/universities. But by the early ’70s we had both inflation and unemployment, so government shifted to supply-driven economics, and that’s what we’ve been seeing for 30 years now – a focus on productivity, competitiveness, tax cuts, and anti-regulation. My argument is that that’s now played out fully. Interest rates are close to zero, but if no one is willing to spend, it doesn’t matter how cheap money is – they’re not going to use it. It’s called a liquidity trap. We have to go back to more fiscal policy and less monetary policy. Governments have to start spending again and run up deficits for the short term. They can then pay them off as tax revenues go up – as more people are able to pay taxes. It’s a dead issue at the moment, because the high end of our society is not being taxed enough, and not enough of the broad middle class is working, so we’re seeing a revenue shortfall rather than overspending.

This is similar to what happened in 1937, when the U.S. went into a second recession because it was cutting back debt when, in fact, it should have continued the New Deal spending. Now, there are too many people not working – that’s the real problem. And Warren Buffet’s quite right – the rich aren’t paying enough in taxes.

Have we become too dependent on private companies to solve public problems?

I’m not that ideological. The best public policy should involve all stakeholders – corporations, unions, and governments. At the moment, we’re still playing to the corporate interest. We’ve not yet seen the decline of corporatism, though we might if things get bad enough. We’re still in the situation of the ’20s or the ’50s, not the crisis of the ’30s or ’70s.

How do you think international governance structures can be changed to address a crisis of confidence?

One can try to improve regulations – not necessarily heavy-handed regulations, but ones that can work around the most egregious practices – in the financial sector, and even in terms of trade and environment. At the moment, there’s a real lack of leadership in international governance; there’s a lack of consensus. We need a sense of what the problems are before seeking solutions.

The trade system arguably kept the economic crisis from spiraling out of control in recent years, but its governance is not that good. We can’t sort out the Doha round. We can’t improve the institutional capacity of the World Trade Organization. Regional trade agreements are good partial solutions, but they’re not comprehensive. So, basically, we’ve done nothing in the past 15 years to improve things. There’s a crisis of governance virtually everywhere.

This is partially due to shifting power – the U.S. and Western Europe have lost traction, and the Chinese and Indians have gained strength (though they’re not taking leadership roles yet). Things are changing rapidly: Goods are made all around the world, many services are performed offshore, and exchange rates are bouncing all over the place. The governance system, generally, is deteriorating. It’s amazing that, collectively, we’re doing as well as we are.

You mentioned that the solution is to include all stakeholders in regulatory mechanisms. How can international governance be changed so that private corporations are integrated into those structures?

There will be growth in the economy over time, so corporations will take more interest, rather than continuing to avoid risk at all cost. There should be much more collaborative public-policy making involving social, environmental, and human-rights groups, among others. There will be serious social problems as time goes on if there remains only an implicit coalition between government and business.