On Wednesday, December 1, 2021, Bocconi University, along with UBS group, hosted an inspiring event that talked about the role of technology in economics and how it can fight climate change. In this ninth edition of the Nobel Perspective Live! initiative, Nobel Laureates Michael Kremer, Michael Spence, and Jean Tirole share their insightful ideas on the pressing questions that will shape the future: where is technology taking us (and our society)? How can economics fight climate change?
The event was kicked off by an introduction by Riccardo Mulone, Country Head of UBS Italy. He shared with the audience how UBS had been wanting to do this event in Milan but had to postpone it for two years due to the pandemic. The focus on Italy had to do with the moment of vitality, energy and creativity that Italian culture and people bring to the table. There is an innate entrepreneurial DNA present in Italians, and they have the skills to perform and act well during complex moments. Italy is attracting not only financial capital, but human talent as well. It is not only important to trigger a new moment of vitality from a business and financial perspective, but from a cultural one as well.
Mulone’s introduction was followed by Marsha Askins, Chief of Staff for UBS Global Wealth Management and UBS Americas. Askins was also nominated by Worth Magazine as one of 50 women changing the world in 2020. She was the moderator throughout the event and introduced the three Nobel Laureates present in the discussion. She emphasized that this initiative, born in 2015, has the goal of raising awareness of the role and impact of economics in our daily lives. These three Nobel Laureates that shared their knowledge with Bocconi students all have diverse backgrounds and skills, which led to an inspiring session with objective and evidence-based answers.
The first Nobel Laureate was Michael Kremer, who was awarded the Nobel Prize in Economic Sciences in 2019 thanks to his work on an experimental approach to alleviating poverty. Kremer was born in New York but traveled frequently and even spent some time living in Kenya. The second Nobel Laureate was the Canadian born professor, Michael Spence. He was awarded the Nobel Prize in 2001 for his work in the field of microeconomics, where he demonstrated that markets don’t always have perfect information. He was even the professor of Steve Jobs at one point. And finally, the third Nobel Laureate who joined the discussion was Jean Tirole, who was born and raised in France, and changed how the markets are regulated, while also writing about the role of economics and economists in today’s world. The French professor and economist was awarded the prize in 2014 in recognition of his contributions to the study of monopolistic industries and oligopolies.
The first topic that the discussion touched upon regarded the following question: ‘where is technology taking our society?’ But before giving the space for the Nobel Laureates to answer, the audience was asked “Are you worried about future-proofing your skillset against automation?”, to which 64% answered “No, change is constant and I’m ready to embrace it.” Tirole then began the discussion by stating that there is concern about what will happen with jobs, and if you have a job that requires less qualified skills, you are more at risk of losing it. In fact, he pointed out that there was a bias in the room, because Bocconi students will most likely become highly skilled workers. Spence continued by shifting the conversation from jobs -which is what people tend to focus on – to many things that have been labor intensive over the years, which will cease to exist in 15 years. He pointed out that global supply chains will get re-configured, and he is enthusiastic about the potential to deliver valuable services, especially in the area of healthcare. Kremer added about how technology can deliver services to places that have little access and used India as an example with the increased access to smartphones, which has been linked to immediate benefits. He also talked about Mexico’s “Telesecundaria”, a solution for online classes in remote areas.
Tirole then discussed the implications of the US and China being the leaders in technological innovation and talked about the fact that Europe has almost no start-ups. There is so much talent in Europe, yet we are not creating the value for it, therefore the money and the jobs go elsewhere. He encourages the idea of creating a system where entrepreneurs are incentivized and rewarded and talked about encouraging high-level research with the right governance of schools and universities. He emphasized the fact that it all starts with schools and universities, and that Europe should be thought of as a place where there can be free-flowing firms, ideas and knowledge. Spence, however, was less pessimistic. He agreed with the fact that Europe is missing action in the digital area but stated that the defining characteristic of these technologies is that they are scalable because of little marginal cost. In order to make this possible, he said Europe needed to remove the balkanization of service markets.
The topic then shifted to China, with Spence talking about how they let technology innovation run unregulated, and now there is a very aggressive regulatory set of activities regarding monopoly power, privacy, data security and financial services. This is crushing the market value, and money that was once pouring into China from the outside is now going to other countries. He also discussed about how the evolution of these tech innovations started with imitation in other countries as well, and he gave as an example Mercado Libre, the ‘E-Bay’ of Latin America. Kremer deepened the conversation by reminding the audience that developing countries that start with low-wage manufacturing and begin growing have it harder when things are automated. Many could lose their jobs, but he said that technology offers economic opportunities as well. These opportunities are, for example, a greater capacity for global integration. Overall, the three Nobel Laureates where very optimistic with this topic; as Spencer said, “globalization is overall good, and speaking in economic terms, the benefits exceed the costs”.
The second topic discussed regarded climate change. The audience was asked ‘Who do you think should primarily be held responsible when it comes to tackling sustainability?’, and 57% responded that it should be the government. To answer this question, Kremer explained that traditional economics has the theory of externalities, which states that something creating harm to people should be taxed. He thinks the government is responsible as well, but for creating an environment which will then give companies and individuals incentives to act environmentally responsible. He talked about how carbon taxes will make firms find ways to reduce the use of carbon and develop new approaches. However, he did state that he is quite pessimistic on this issue because it is a global problem regarding a global public good, and individual countries have limited incentives to try to address it. He stated that we needed a dramatic technological change in order to solve the issue.
Tirole on the other hand stated that carbon pricing is good economics, and that it included 26 economies from all around the world. He said a stable enough carbon price is needed all over the world, along with compensation for the losers. He expressed that we must stop all kind of exemptions with countries such as the US, China and Russia. Otherwise, industries will move elsewhere where carbon is not taxed. He also said we need border tax adjustment to avoid the same issue, and address R&D reluctance on universal carbon prices. Research and development is an instrument that gives IP rights to poor countries as well. Spence pointed out that the most significant problems are distributional ones. He said that the global economy is at around 40 billion tons of carbon emission gas, and there is growth of emissions coming from developing countries, who are estimated to grow about 3%. If you want to get the carbon emissions to around 14 billion tons (which would be considered the safezone), the global economy would have to decline by 7% in the upcoming 30 years. Agreeing on a global carbon budget is the first step, but then we must decide who will do what. It’s very complex because developing countries like India would get their growth disrupted. Directionally, we are doing it correctly. But lying behind it is reaching global agreements, and innovation is crucial.
Talking about the same issue, Kremer said that developing countries experience the worst consequences of climate change. The total amount of carbon emitted is overwhelmingly driven by high-income countries. From a point of view of developing countries, it doesn’t make sense for higher income countries to have a higher percentage of carbon emissions under the global budget. Unfortunately, high income countries don’t make the commitment to abandon coal. Kremer said that we are not seeing the international system operate in a fair way for lower-income countries. The solution would be to have the same allocation for every individual in the world in the future. Tirole demonstrated that the past 30 years have been a huge failure because we have done nothing. And he stated that even if the government doesn’t act, we can do little things as individuals and firms to help solve the problem. We need to be informed on the supply chain and understand economics in order to learn where to invest. One of our main tasks is to define good criteria of what is an impact, not what looks green, and from there we can pressure governments. A better framework is needed in order to solve climate change.
The discussion ended with a note on how a high level of inflation is expected for quite a while. Some inflation is not bad, and energy prices will go up due to scarcity. In the long term, however, it is more complex. It will lead to much more debt in many countries, and the rate of interest might be higher than the rate of growth, which raises the issue of what to do. The solution to this would be to either default/re-structure or inflate things away, which is more complex. This inflation will affect the poor more than the rich because the rich have assets in housing and stocks, not nominal cash. The price of bonds will go down, and many banks will be undercapitalized and will have to be re-capitalized. This will be difficult for governments, and inflation tax will be shared among all countries. Countries will need to accept solidarity.