Nobel Perspectives: on a post COVID-19 world

In this webinar with Professor Jean Tirole, we discuss the implications of COVID-19 on topics including technology, globalization and sustainability

02 out 2020

As part of the UBS Nobel Perspectives program, our webinar series allows you to ask your questions directly to Nobel Laureates in Economic Sciences.

UBS Nobel Perspectives addresses the questions shaping our world, cutting through the noise, and holding the largest content library of Nobel Laureate interviews.

Jean Tirole won the Nobel prize in 2014 for his analysis of market common good and regulation. Jean Tirole’s research and regulation theories have changed how market regulation is applied to industries far and wide and broadened the scope of what competition can look like. The Nobel Laureate is also a best-selling author and distinguished professor. He joined Massimiliano Castelli, Global Head of Strategy, Global Sovereign Markets at UBS Asset Management, in a webinar on 30th September to discuss the implications of the COVID-19 pandemic on topics including technology, globalization and sustainability.

In a time where everything is still uncertain, it's hard to know what's real and what's fake. UBS Nobel Perspectives addresses the questions shaping our world, cutting through the noise and nonsense, and holds the largest content library of Nobel Laureate interviews. Learn more and join the community to stay up to date on all the latest news and events.

Key webinar takeaways

  • Health crises will occur more and more often and we need to be more prepared for them
  • To improve the sustainability of our world, we must invest long term and the finance sector can play an important role in facilitating this process
  • To monitor global monopolistic industries, competition authorities need to coordinate globally and independently of political parties
  • A trend towards delgobalization has developed during the pandemic
  • There are several benefits to globalization: consumers are not captive to domestic monopolies, have greater choice and lower prices

The world in the grasp of COVID-19

To begin with, the lack of preparation was striking as there was no plan in place. On a domestic level, we saw a lack of supplies as well as a delay in implementing contact tracing. Similarly, on an international level there was limited planning with the lack of sharing information between countries, as countries rush to get masks and a vaccine.

This health crisis is not a rare event, we will also be faced with a growing resistance to antibiotics, biological warfare and the permafrost melting, which will release unknown bacteria and viruses. We will undoubtedly see more health crises in the future, and we need to prepare for them much better next time.

From a macro perspective, the fiscal response was adequate but huge debt is now piling up which must be repaid eventually. A few other areas we will need to address are lost education and inequality in society.

Among the big tech firms, economists are particularly concerned about issues like pushing prices high for consumers, lack of innovation as well as dirty tricks to prevent new market entrants. Over the course of the pandemic, these companies dominate in terms of market capitalization and are growing. They interact with the consumer online with no physical presence, which provides a competitive advantage in this environment to the detriment of bricks and mortar shops.

A solution to a monopolistic industry is the breaking up of these companies into smaller operations and the identification of competitive bottlenecks – the segments which facilitate competition. This is not easy as technology changes all the time. I am in favor of competition policy but it is slow to implement when it can take 5-7 years to settle a case. Competition authorities must try to preserve the ability of new entrants to enter the market and prevent exclusivity rights for sellers on a platform. The Ideal scenario would be a combination of competition policy with regulation.

If we look at startups, two exit mechanisms exist for a startup and they are an IPO or an acquisition by a bigger company. It is very difficult for competition authorities to prove a reduction in competition has occurred with a merger or takeover particularly in newer companies such as tech startups where there is little data available on the company and very few consumers exist or before any sales have even taken place. Larger corporations can actually have a strategy to acquire early startup companies for that reason. It is a challenge for competition authorities to prove that the merger is anti-competitive. The current legal framework doesn’t allow for this type of investigation.

Basically, for it to work, global cooperation rather than local regulation is required because it is very difficult for companies to tailor their technology to different markets. Regulators should be independent to political parties for it to work and allow for an even playing field. Moreover, competition authorities need to work together to exchange best practices and share industry knowledge to have optimal coordination between countries.

The key themes of the century

Looking at supply chains, in my view the governments should manage essential goods and services and the private sector can manage the rest. In relation to COVID-19, we need masks and a vaccine, so a good level of inventory and diversified supply chains come from globalization.

There are several benefits to globalization: consumers are not captive to domestic monopolies, have greater choice and lower prices.

Jean Tirole

Nevertheless, a trend towards more protectionism and therefore deglobalization has developed during the COVID-19 crisis. If we travel less and work remotely then physical global trade will decrease but we do not have to forego globalization at the same time. There are several advantages to globalization: consumers are not captive to domestic monopolies, have greater choice and lower prices. Whereas in the technology sector, artificial intelligence (AI) is coming and will be a huge shock to the labor market, causing rebellion, and is a real threat to democracies. We need to support the losers of globalization.

Society is built on two pillars. The first is striving for long-term profits and the second is taxation of companies and consumers to internalize socially irresponsible behavior. There are many market failures to correct; market power, pollution, we don’t save enough money and so on.

There are also government failures as well as market failures, resulting in little to no action on climate change, inequality, raising public debt and we all must react to their failures to address the challenges in society and the environment.

Corporations can act in three ways; they can take a long-term perspective on profits; act on behalf of stakeholders and enable philanthropy (and therefore sacrifice profits).

We need to improve the transparency and the availability of green information around different consumer choices. For instance, buying an electric car: the impact on society depends on the origination of the electricity as some power is sourced from coal and some from nuclear stations.

Investing is fundamentally based on two parameters; risk and return to generate risk-adjusted return options. In the future however, many now believe a third parameter of ‘impact’ will need integrating so investors can consider the impact of assets or economic activity on the world.

Massimiliano Castelli

First, financial institutions can help to put a large amount of pressure on governments to take more action for a greener world. Second, is educating investors in decision making to know how green their investment is. Third, with impact at the forefront, they could help to develop good criteria for green investment. Financial institutions as well as corporations and individuals all need to correct the market and government failures of the past.

Audience Q&A

After the GFC inflation was surprisingly low despite the massive liquidity injection from central banks.

The high level of uncertainty that prevails in the economy now is causing cautious behavior, consumers and banks are saving rather than spending and companies are not investing.

There is however still liquidity in the markets, and this will be spent eventually so there will be inflation, especially in the scenario of the end of globalization in which prices will rise. Inflation expectations are currently mixed.

I am concerned about central bank independence, despite the success of the European Central Bank’s (ECB’s) independence which led to money supply, less politics and improvement in regulation of banks. Central banks have taken a fiscal role by buying bonds to help distressed countries and banks during the crises. In doing so, they have become a fiscal power to some extent, which can be a dangerous situation.

My view is governments are responsible for correcting market failures, market power, and inequality but should not be a producer. They can use targeted policies to select companies or industries and encourage investing such as green innovation. Bad examples of industrial policy do not follow guidelines and funds are simply wasted.

Some guidelines from my point of view are:

  • Independent, talented experts select the projects 
  • Ensure local labor availability 
  • Encourage competition
  • Terminate projects when they fail
  • Involve the private sector to avoid ‘white elephants’ (projects difficult to maintain or dispose of)

After international war there is always more empathy. We might now be more willing to invest in the longer term, because previously we have always been too focused on the short term. The population is fragile: we simply need to consume less and invest more. It would be naive to believe we will solve climate change at no cost, fighting climate change is costly.

In my view economics is more important than ever to help correct market failure and work for the common good. Nowadays, there is a lot of fake news which prevents the truth on issues that matter. The media industry has a responsible role to play.

Economists need to work together with experts across all specialist areas including historians, psychologists and social scientists. We must provide education in schools on economic theories and science. Lastly, we must educate the world on how economics can help but we need people to listen.

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