Richard Cooper, Professor of International Economics at Harvard University, attended as an expert the Gaidar Forum in Moscow, housed by the Russian Presidential Academy of National Economy and Public Administration.
“The sessions I’ve been to I found very useful and I am astonished with the number of people at this Forum,” he told Invest Foresight, the event’s strategic media partner, in an interview over some major challenges of the foreseeable future.
“Climate change is a big issue, we see it coming and we have decades to respond to it and to medicate it. We need to get started but that’s not an immediate issue for the next one or two years,” Professor Cooper noted. “There is a big problem with Iran – and that needs to be resolved within the next six months. It will not be resolved forever but it needs to be managed. We have a big problem between the US and China on trade issues. Phase one has been resolved, but that does not solve the issues and I am assuming that Trump wants to take it to after the election assuming he is reelected, and if he’s not reelected, the problem will not go away but the tone will change quite a bit, so that’s an immediate issue.”
As far as economies are concerned, “The US economy is performing very well at the present time, but other economies around the world have been slowing down, so that’s a problem not so much for the US but for the rest of the world. Of course, that affects US exports.”
But is it possible for an economy, whether national or global, to keep growing forever? Besides, is it feasible and necessary? According to Professor Cooper, “It is not necessary, but people have to adapt their expectations to low growth and in the end to zero growth. The world is much richer today than it was 50 or 100 years ago, so the issue of poverty has not gone away but was narrowed greatly, mainly to parts of Asia and Africa, so people are much better off. One can imagine a society functioning without any growth but expectations today are for continued growth. People are not happy if they do not see their wages – in real terms – growing from year to year. It means a no-growth world economy would mean major changes in expectations.”
“As for the growth forever, it is possible, but the matter is controversial. People talk about running out of minerals, etc. I don’t believe it. I think ingenuity will substitute anything we may begin to run out of. Brainpower is the most important resource in the world, and if we begin to run out of something, we will find substitutes for it – and I have several examples.”
“We used to use candles for illumination through the 18th century – and still today, in some parts of the world. Then we discovered whale oil, and in Europe and the US we whaled out the North Atlantic, and whale oil began to get more expensive since South Atlantic and South Pacific missions to get whale oil were three years long rather than one year. But that was the beginning of the petroleum industry. A professor of Chemistry at Yale University began to mess around with the Pennsylvanian “rock oil”. It was not gasoline or petrol yet, but kerosene, so kerosene became a substitute for whale oil until we discovered how to use electricity. We then and up until recently generated electricity mainly with coal.
“Another example is copper. The best copper ores a hundred years ago contained 5% of copper. Now, we are down to 0.3% copper ores, and copper is cheaper in terms of other goods and services today than it was 100 years ago. In the US we are mining tailings of the tailings of non-ferrous metals mines. This is a waste product. Thus a waste of one generation becomes a resource for another generation. I am confident that will continue and in that respect I’m an extreme optimist,” Mr Cooper noted.
When asked if the new digital revolution is the remedy for all current problems, Mr Cooper said that “Different people mean different things about the Fourth Industrial Revolution. Big, dramatic breakthroughs within the next 20 years will be in medicine and agriculture, in manipulating materials at the molecular level and developing genetically modified products. Yields will go up despite the climate change. We do not experience a sudden change, we see it coming and have time to prepare for it. As the Eastern Mediterranean becomes dryer we will still be able to grow food there, as long as we have time to prepare for it.”
“I do not expect fusion to succeed in my lifetime. By succeeding, I do not mean from a scientific, experimental point of view, but to produce useful energy for ordinary people,” he said. “I do not expect quantum computing to be a breakthrough in my lifetime. There will be advances, but not really huge advances, making it practical to use. A lot of things are being hyped now, for some the hype is vastly overdone, but basically they are on the right track, yet we will not succeed from practical point of view in the next two decades. In science, you never know exactly what’s going to come out at the end. If we look back from some point in 2040, some of the things we, the world, are doing now, will be a mistake, but we don’t know that now. Some of the things will be intellectually interesting, for example, the origins of the universe, – but of no practical value. And some things will revolutionize the lives of our grandchildren. But that’s in the nature of research that you can’t tell now which category the research will fall into.”
Climate change, in view of Professor Cooper, is a problem requiring major attention. “I am not much in favor of metaphors, but from the climate change point of view, the enemy is coal and we should not produce any new coal-fired power plants but substitute coal with natural gas which is still a fossil fuel. About half of greenhouse warming effect is due to coal and pollution, so it is good from the ambient air point of view and from a climate change point of view. I see natural gas as a bridging fuel between now and two or three decades from now when we will depend largely – but not entirely – on solar and wind power.”
“The urgent thing to do now is stop building coal-fired power plants,” he stressed, “because they will last for 40 to 50 years, once they are built, and we should be backing out coal as rapidly as we can and which the US has been doing not by policy but by emergence of cheap natural gas. Chinese are doing by policy a vigorous nuclear program, vigorous wind and solar programs, energy importing, and importing gas from Russia to back out coal. But China is still building coal-fired power plants, and not only in China but in Belt and Road countries. That should stop. They do it to provide employment for Chinese, but there are better ways to provide employment than constructing coal-fired power plants.”
Some countries say they want – for various but mainly political reasons – to abandon US dollars in their mutual settlements. “If you want to do it, stop talking about it and just do it. There is no technical obstacle to doing that,” Richard Cooper believes. “But they will find it very difficult to make it widespread. It’s like language. Nobody decided to use the English language as the second language around the world. It’s a historical path, based on the importance of Great Britain and the British colonies including America, Canada and Australia. English is a terrible language to learn for a non-native speaker and if we had a conference to choose a language, it would probably be Spanish which is spoken by many people, has a much simpler spelling and pronunciation.”
“The same is true of the dollar. Nobody decided to use the dollar. It started after WWI, but it came into its own mainly after WWII in which many countries, including the USSR, were damaged badly – and pound sterling which had been the world currency was in trouble.”
“I have advocated for many years the use of the SDR. 10 years ago the governor of the Central Bank of China said the same thing in a speech – and the surprise was the source of the speech, not the content of it. But replacing the dollar would be very difficult. It’s like deciding to change the second language from English to Spanish or whatever. There is a huge amount of inertia in the system, and many people, having learnt English, do not want to learn another language. So you have to start out systematically and wait for two generations to do it. I am not saying that the dollar will be the leading currency indefinitely, but certainly for the next two or three decades it will be still the dominant currency. That does not keep individual countries including Russia or China from trying to replace it. China has a program to internationalize B&R. I do not know how Russia would feel about that, but Chinese would be delighted in principle. This is doable but it would take a long period of time.”
“The US itself could create trouble for the dollar,” Professor Cooper believes, “but it would be difficult. Trump in some sense is trying. He is not aware of it, but he’s trying. Yet it would be very difficult to replace the dollar.”
Is there a chance a new financial crisis erupts soon? How can it be prevented? “I do not think a financial crisis was due to the use of the dollar, even though it started in the US,” he said. “The financial crisis itself was confined to the US and Western Europe, but then a recession spread to the whole world. Russia had its own financial crisis in 1998, before 2008, and then later – and many other countries did too, like Argentina does now, but they were not due to the use of the dollar as a currency for transactions between third countries.”
“How to avoid another financial crisis is a topic discussed at this conference. The answer is, we do not know. We are prepared to deal with the last crisis and we’ve built many supports to improve the structure of the international banking system – addressed to the last crisis. The next crisis will probably not be like the last crisis – and we will not be prepared for it,” Professor Cooper concluded.