On June 25, DIKTIO organised a working breakfast with Mr. Kemal Dervis. The second working breakfast with famous world leaders, focused on the global economy and on the political situation in Turkey.
Kemal Dervis is a Turkish economist and politician, and former head of the United Nations Development Programme. He was honored by the government of Japan for having “contributed to mainstreaming Japan’s development assistance policy through the United Nations.” In 2005, he was ranked 67th in the Top 100 Public Intellectuals Poll conducted by Prospect and Foreign Policy magazines. He is currently Vice President and Director of the Global Economy and Development program at the Brookings Institution.
Mr. Kemal Dervis stressed out that in terms of the world economy we are in a strange period. It’s an extraordinary period because we have never seen such a period previously; today, we can see that the world economy has recovered however, this recovery is far from strong. The economy is going well only because of the monetary policy. The central banks are keeping the world economy going by offering close to zero nominal rates and by making statements in order to keep the interest rates low for the next two-three years. We have never seen such a period before. Asset prices are going up in many parts of the world; particularly in the UK for example some people think there is another housing bubble. All these look so much artificial.
Part of the reason why we are in this situation is that the whole project over the last 30 years, in particularly in the US over the last decades, has seen an incredible concentration of income to the top. In a nutshell, the crisis was linked to the income distribution.
On the one hand, this constitutes an ethical problem and on the other hand, it constitutes a macro economical problem; because of the concentration of income there is no strong demand. People are not investing, they are sitting on the profits. The question for the investors is; if we invest now, will there be enough demand for our products?
Another reason is that new technologies are increasingly replacing middle skilled labour. There is going to be a major employment problem and that is also linked to the income distribution problem. Income distribution favors high skilled people. The middle class is going to be under heavy pressure and this is a major political problem and explains some of the things that are happening in Europe. When technology replaces labour it creates major distribution imbalances and there is an overall demand problem because someone has to buy the products.
Finally, Mr Kemal Dervis referred to the social model of Europe. Europe has to change its working model which until now was really successful. Some Anglo-Saxons say that this model can no longer work. The Northern European model remains extremely successful, Sweden, Denmark and Germany are well performing societies right now which have reformed to some degree but are still compared to the US and the UK extremely generous to their social models and yet they are performing very well. So for Mr. Kemal Dervis the European model can work but still it needs reforms.
It is very important to have a social model and social approach where the main actors of the society, workers, politicians, etc. can find some ground to compromise. If Greece had found this ground earlier the crisis would still be there, but there wouldn’t be as terrible as it is. It is important to think that for the future.