paul krugman is a great economist he has offered a fundamental contribution to economic research he has opened a new disciplines in economic theory but paul in addition to all this he's also one of the most influential people in the world well why because with his columns published twice a week in the new york times he can actually reach out to a very influential and important audience of readers and so in a certain way able to uh condition the debate or to raise issues which are going to be discussed on economic policies not just for united states policies but also for the whole world and paul is influential because he is very good at communicating communicating on very complex issues in particular in one of his books classified the various typologies of economic textbooks you can find in the bookshop another to say normally you'll find the greek letter economics these are normally scientific treatises uh containing those formulas and so they use green alphabet and they are inaccessible to the broader audience then there are these so-called up and down books that say texts which simply comment on data with graphs charts some indicators going up others going down and they tend to be extremely boring well they might give us some information for some time but then they become entirely useless because when we are no longer up and we are down that story is no longer interesting for us and then there are the airport economics textbooks which are normally bought and normally they contain very strong thesis in economics either they're extremely optimistic or they're extremely pessimistic there's no middle-of-the-road solution and they try to attract the attention of the public in general but they're not really interesting their predictions tend to uh prove wrong very soon and so they don't really enrich us from a cultural viewpoint so this uh analysis of the categories of uh economic books has led paul krugman to develop a new type of economic books that you say books which discuss the pros and cons of different economic theories books which illustrate the trade-offs on related to various approaches and he does it in a form which is extremely readable and enjoyable for the broad audience so i don't think that we could have chosen a better economist to inaugurate this festival because you know that the issue this year and the theme market and democracy and indeed paul has been working on these issues for years on the market because his contribution to economic theory is related to the development of the market and of the markets paul has been working on the theory of exchange in international trade and paul has shown the major role played in this respect by economies of scale as well as by product differentiation so he has been able to explain um aspects uh which other economists who had not taken into account economies of scale were unable to explain for instance exchange or trade uh between developed countries uh who had the same level of development of productive factors and these can be explained by economies of scale in addition to this he uh has further expanded the paradigm of economists who had been traditionally studying international economics by adding an important issue which had not been researched so far that you say the aggregation in space of economic activity why is there concentration in specific spaces of productive activities and this has brought about the development of a new of a new discipline let is say the new economic geography based on paul's original contribution but paul is also extremely relevant for the debate on democracy because paul is a democrat he is a convinced democrat and indeed in all his books we find reference to democratic participation as a value per se for instance we often find reference to the importance of allowing immigrants to vote as is the case in the united states the trade unions which are defined as agents which are useful to the extent to which they promote participation in the democratic voting process and then paul is also democrat when he deals with the practical issues because he stresses the need to develop policies to support competition to prevent any excessive concentration of economic power in the markets and this allows the markets therefore to work as a true form of bottom-up democracy where consumers are kings and uh paul therefore loves democracy but he's also intellectually very honest in his latest book the conscience of a liberal which has just been translated into italian is based on the acknowledgement of a fact which is very hard to acknowledge for an economist paul actually a vows well you know i had always thought that economy that the economy conditioned politics so i believe that a number of factors which have characterized the global scene versus an increase in inequality have conditioned politics have brought about the emergence of certain parties which supported certain social groups have brought about a polarization uh also in the united states and uh and yet paul writes very bravely for an economist uh eventually um i convinced myself that it was quite the opposite it was a politics which conditioned the redistribution of income in the united states with tax policies which eliminated the goal of redistribution of wealth which is typical of the welfare state from the tax system in the united states and indeed the political coalition which had governed the united states during the political experience of the new deal broke up and this brought about this explosion of inequality of inequalities in the united states which is also today accompanied by political polar polarization so we see that there are even more extreme positions today in the political world in the united states than in the past so this is an analysis carried out by an economist who's also critical of his own paradigms and his own analytical approach and so it's all the more convincing and indeed this analysis contains interesting lessons uh also for our country we have not so far experienced uh the social polarization the explosion of inequalities which characterize the united states today and yet today we have a situation in which we experience a loss of social cohesion centrifugal movements we see many calls for redistribution of income which or wealth which are actually based on a single specific vested interests rather than generally interested there is a loss of a common shared reference there is an increase in social tension there is widespread fear so the experience of the united states as described by paul krugman does tell us or could tell us that if we let our social fabric decompose if we allow it to decompose and to be torn apart then we are paving the way for policies which will increase inequalities in a country and which will therefore reduce the middle class ultimately this has not happened yet in italy but it could happen but before we get to this and paul has also promised that he will deal with this at the end of his lecture today but before dealing with this we should deal with the middle classes of the world let us take qualified workers in western countries and so paul is going to discuss the new protagonists the new players in the wilton area emerging countries china in particular and this is very important for this festival because it is by analyzing and studying china that we have had to uh well to recant our traditional theories um you know we had always thought that there could never be a market without democracy while the chinese market allowed allows us to admit that we were wrong in china there are markets markets which have allowed china to grow exponentially over the past few years and yet in a context in which there was no democracy but how solid is the growth of chinese economy is the coexistence of the market with non-democratic conditions sustainable in the long run what we had always believed that is to say there can be no market without democracy uh will we have to reconsider this ultimately in the light of the chinese experience how long can china go on growing and now give the floor to paul krugman for an answer to this question thank you um thank you professor boieri i think i will begin by striking a blow for freedom by taking off my jacket in this very hot room all right so um when i was approached to uh to speak on the subject of markets and democracy um i thought to myself that i would like to speak a little more broadly than the things i've been writing about as clearly i have a new book which is certainly about markets and about democracy in the united states and i'll come back to that towards the end of this talk but i also there is a wider world and there have been some interesting perhaps not entirely encouraging developments in in that wider world and so i want to talk about uh what do we know now about the prospects for democracy in a world that is certainly given over to the market now my starting point would be to turn back the clock think about where we were in the late years of the 1980s and the early years of the 1990s so 1989 was the the year of political miracles it was the year of the abrupt collapse of communism in eastern europe it was also the year of the tiananmen uprising in china which even though it was crushed seemed to be a portent of a rising movement for democracy uh in in china in the world's largest nation uh so there seemed to be great change and within a couple of more years we had the fall of the soviet union we had the full shift to democratic institutions in eastern europe um it really did seem that democracy was on the march and and could not be stopped uh there was a famous essay and their later book written at the time by francis fukuyama who of course despite the name was an american intellectual on the end of history which by which he meant that essentially market democracy is the only thing that works and we will all become democratic market societies perhaps with some variant on how much the market would be allowed to flourish there would be social democracy and perhaps less social democratic systems like that of the united states but we would all converge upon market democracy that doesn't look as certain now as it did in 1992 when fukuyama published his book in 1992 you could look at what was left of the world of the communist world of the the non-market non-democratic nations and they seem to be vestiges that would soon be gone they're still there it is in fact remarkably cuba north korea are still as they were uh now that's arguably the least important part of the story uh they are they're they are very small and of of no economic importance in the world but we have at the same time the continuing rise of economies that are certainly market economies but not democratic we have the uh as some people say the authoritarian capitalism and this comes in many different brands but the two countries everyone speaks of are of course china and russia russia having seemed to be on the road to democracy for a little while but then having turned away from it not in not of course in in on paper uh the uh i i am rereading um edward gibbons the decline and full of the roman empire and there's a marvelous passage that about augustus that fits putin very well about how the world that he understood that people are ruled by names and as long as you are assured that you are free and the dignity of the senate was respected you could do whatever you liked and so that is that is what has happened there um and china which remains authoritarian as ever and there are smaller nations vietnam would be a smaller version of china authoritarian market economy now communist and name capitalist in practice but extremely non-democratic there has been some continuing progress towards democracy parts of the world have become more democratic being an american i think first of latin america which has been encouraging more democracy appears more solid than uh in that region of the world than it has for a long time but still our certainty that the world wasn't a permanent shift to democracy seems much reduced um so why should we still believe that democracy is the future of the world there is one commonly cited piece of evidence and it looks like this if uh well i would hope that that would appear eventually yes thank you so this is this is showing the world as classified by by freedom house which is an independent organization um you can quarrel a little bit with their numbers but in the broad sense there's no question so green here is uh free um uh yellow is uh somewhere in between partially free and the uh the purple is not free um and what you see of course and this is a familiar common observation is that all rich countries are democracies some poor countries are democracies but many are not so we can certainly if we look at the low-income countries we can say that well we have a free country in india uh but not in not in china but there is at this point no wealthy country no oecd country that is not a full functioning democracy that's encouraging that leads us to believe that it will be a world as we all get richer that it will be a world of uh uh of uh of of increased democracy just to reinforce that point slightly this is the world as uh classified by income levels and you can see the the black here are the very rich countries western europe scandinavia north america australia new zealand uh all of them now japan all of them now full free democracies wealth seems to bring democracy so no problem right the world will become richer as technology progresses it will become a demand a democratic world well i will raise five doubts about this happy story and so i will go through many of them are doubts that have been raised more formally by both economists and political scientists some i think not so let me start with something i have not seen pointed out which i think is arguably quite important as a mechanical reason not to necessarily believe in the progress of democracy in the world it is it relates to what tito boheri was just saying which is that we're now in a world in which some previously poor countries are developing very rapidly this is above all china but it's a more widespread phenomenon which is by the way a very good thing on the whole we very much want a world in which uh prosperity becomes more broadly based but the thing about this for the topic of today's talk is that some of these rapidly growing countries and above all china are not democratic and are very poor still and even if they grow a great deal uh will become powerful economies in the case of china it has already become a powerful economy but it will be even more so uh but we'll do so at levels of income that will still leave them far below the levels of today's wealthy democratic countries so this is not to be taken too seriously but simply taking the actual growth of china and the united states over the past 10 years these are for the economist types in the room this is gdp at uh purchasing power parity so these are designed to be equivalent um and if we simply project straight trends uh then somewhere in the 2020 2021 2022 china will become the world's largest economy now this is not uh to be taken too seriously we can think of all kinds of reasons why china might slow the united states hard to think of reasons why the united states might accelerate but we don't know that this is what happened but it seems very likely that some time hopefully in my lifetime depending on upon how well i take care of myself i guess uh china will overtake the united states as the world's largest economy now it doesn't really matter already china is a very powerful economy and will become much more so um china is you know this is a country that is doesn't have to be as productive as the united states to become a dominant world power because it has four times america's population and so it becomes just one quarter as productive then it becomes the larger economy but that implies that china will become a very powerful economy at levels of income which even if you believed that previous graph the the charts uh does not by any means guarantee uh democratic system so this is again now this is per capita gdp uh as we said china will become the world's largest economy on this projection 2020 or so at that point if we believe the straight line china will be essentially the same level of income that russia has today and russia as we all know although it seemed to be on a democratic track 15 years ago uh did not follow that track and remains an authoritarian system today what this all means is that the we are headed for a world in which some of the largest powers some of the greatest uh economies may well not be democratic even on the sheer logic of uh even on the sheer numerical logic of this sort of comparison now let me without charts just leaving this one here raise a couple raise some further doubts one important question is to what extent does this picture the rich countries are free represent in effect a coincidence rather than than something that is inherent does becoming richer make you in any systematic way more democratic is it possible to predict from an economy's success that the political unit of which that economy uh consists will become more democratic and the answer appears to be at least on the face of it no that if you look at whether countries that have had rapid economic growth have tended to become democratic at a greater pace than those of that have had slow growth the answer is uh not so uh consider the comparison between india and china for until very recently india was a laggard uh economically had a slow rate of growth now much faster that's a very gratifying thing but for an extended period i mean indian economists i know used to joke about the hindu rate of growth which was one percent a year uh now much faster but the india was a slow progress uh economically and yet it remained democratic it showed no trend towards becoming less democratic certainly china on the other hand extremely rapid economic growth which you know as we much of the economic growth that made china what it is today has occurred since tiananmen so these past 20 years uh spectacular success and yet no democratization and you can look at this much more broadly if there have been statistical efforts i guess i would cite professor asamoglu at mit to sort out to what extent our country's democratic through extended periods of history to what extent do they become more democratic as they become richer and the answer is it seems to be all history it seems to be the countries that are democratic have tended to stay democratic growth doesn't seem to contribute anything you might ask how did we end up with this map how did we end up with all of the rich countries being being democratic that raises me to my doubt number three which is well historically it's very much a matter of contingency if i had showed you this same map in 1943 it wouldn't exactly have told the same story uh this map is the way it is because we had a great war in that great war the democratic powers won and it was of necessity a war among the wealthy countries because only the wealthy countries had the resources to be participants that mattered the fact that the democratic powers won meant that they brought democracy to the rest of the of the of the advanced countries uh it's not a story of uh of something that had to happen bismarck is supposed to have said when asked what he thought was the most important factor for the the world's future he said it is the fact that north america speaks english uh that was certainly the most important factor for the military history of the 20th century and that led us to a situation in which all advanced countries are in fact democratic but it first of all that was not deep logic that was more or less just the accidents of history and it was very very far uh from being a foregone conclusion so we are a world in which rich countries are democratic but uh had a few uh a few battles gone the other way in 1942 this could be a very different story um a fourth doubt and this is now a i'll raise you a different argument it has been argued that it's not that wealth breeds democracy but rather the other way around the democratic regimes are more successful economically and while this doesn't give you the kind of automatic progress towards democracy it does suggest that the example of successful democratic regimes would tend to um tend to by force of example lead to a growth of democracy in the world has this is this true is it true that democracies are more successful at economic growth well we can't tell by looking at the advanced countries we can't tell by looking at the wealthy countries because they're all democratic so we have no basis for comparison um we can however look at less developed countries uh we can look at whether those that were more democratic have been more successful economically or whether those that have been have gone from democracy to authoritarian regimes or vice versa have seen a change in their economic performance um sadly for those of us who believe very much in democracy the evidence really is not there again india versus china but perhaps even more so if we were to look at some other developing countries brazil's best periods of economic performance came when it was under a military dictatorship latin america as a whole has become much more democratic since the 1980s it has not seen the kind of acceleration and economic growth one might have hoped for now the evidence does not point clearly the other way either dictatorships military regimes have a very mixed track record it's by no means clear that that dictators are are good for economic growth and arguably the worst the most extreme economic disasters tend to come from non-democratic regimes there's because there's no restraint there's no one who can say hey wait this is a really bad idea um but it's certainly not the kind of thing that would lead you to believe that democracy is a necessary condition for economic success so they're again not so so helpful for democracy uh an interlude then question um how is it that we've seen as much democratization as we have why um have the former satellite countries of the soviet union become democratic why did southern europe become democratic why in latin america have we had significant progress towards democracy i think the answer there fairly clearly is that this represents the benign influence of the established wealthy democratic countries it's not the only source of course but very important so two european examples the if we think about the changes that took place during the two enlargements of the european community in the 1970s and more recently i was very clear that the association between uh being a democratic nation having freedom being a respectable country in the eyes of the core of the european union was very important for being considered eligible the i don't think for example now um there there are multiple reasons why russia in its current state could not become a member of the eu uh but certainly the authoritarian regime is an uh an insuperable barrier we and i think we can say the concrete benefits of eu membership uh and perhaps more broadly the the general aura that you want to be part of europe meant that to be part of europe you had to be democratic uh the um it was clear uh that for spain portugal greece in the aftermath of uh of their regimes that the the attraction of the countries to their north uh was was a very important factor um the united states it is in latin america there is something of the same force operating not perhaps as clear-cut but if we look so now i can be something i'm a little more comfortable with talking to europeans because i think i know it better than you do the case of mexico now mexico has had on paper a full democracy for generations in practice not in practice only since 2000 now what caused that change in part a very good man became president so ernesto zadio was was the first mexican president to be serious about wanting to give the opposition a chance to win the election but underlying all of that was the magnetism of the united states both in crude commercial terms and in psychological terms nafta the north american free trade agreement would not have been possible had mexico not given clear signs that it was on a path to democratization it was quite explicit in the u.s discussions that the reason why nafta had to be approved was as a way of encouraging reformers in mexico and not just economic reformers but political reformers and the objections now the reason why despite what candidates may say on the campaign trail there is no chance that the united states will significantly abridge the agreement with mexico is that everyone understands what a blow that would be to democracy in our southern neighbor um just uh and perhaps and then there's the broader diffuse the effect of education uh the reformers in mexico very much tend to be men and women who were educated in the united states and picked up those democratic ideals uh so i think that this is contingency again the fact that we by luck ended up with a highly democratic advanced world also meant that there was substantial export of the democratic idea to the developing world which brings me to my fifth doubt and the final stage um as long as the world's wealthiest countries remain firmly democratic uh things the prospects for democracy remain pretty good it even china although as we see there's no strong there's no no sign so far that economic growth is making it more democratic nonetheless the example of the united states the example of the eu will probably be positive for its uh its its future political prospects uh the question we have to ask and it's the question we we never want to think about too hard is how secure is the democratic nature of the advanced countries this brings me a little bit to the subject of the book i've written which was written obviously in response to the bush years written in the hope of something better and i can make some arguments about why the united states i'm sorry i'm going to continue this process of disrobing if this if this goes on much longer i may be down to uh only my socks the um um that the uh clearly it's been a very disturbing period in the united states my view on how it relates to the topic of of this this conference this this festival um is a remark that a uh a prominent lawyer once made to me i think he would prefer not to be identified but he said uh if bush had not been if bush hadn't turned out to be such a screw-up the republic would be over um that um there were at this point uh certainly the you know bush will be gone in in january and uh the the political tides are running against the current government but it was really striking at the worst in 2002 and 2003 how quickly democratic norms were abandoned there was a broad sense of intimidation particularly in the news media that you dare not be critical uh there was we now know extensive politicization of the justice system many uh many u.s attorneys this is a special category but very important uh were replaced with uh with essentially apparatchiks i think would be the correct description there were a few prominent instances of what certainly looked like judicial harassment of opposition politicians in one case the uh the democratic governor of of a state ended up in prison on extremely questionable charges so there was a wholesale politicization and there are other things one of the something you probably have not heard about here but it's a very striking thing there's intense lobbying by the telecommunication companies in the united states to receive from congress legal amnesty for any things they may have done at the request of the white house now they don't actually admit having done anything but the ferocity with which this legal uh this this lobbying is being pursued suggests very strongly that there was extensive abuse that there was extensive uh illegal monitoring of u.s citizens perhaps of political opponents uh i'm uh i'll be disappointed if i don't find that i was being bugged but it will uh how did that happen well that's a long story but what we see uh in the united states was that it wasn't just you know a couple of men it wasn't just bush and cheney uh what we see in the united states clearly was that the uh a political movement very organized political movement again i don't mean to be constantly talking about my book but it's it's described there at some length um a consciously organized political movement um with a great deal of certainty in its goals and very little uh commitment to the broader uh issues of democracy uh fair play was in power and it was in a position to to move in ways that were serious compromising of the the democratic ideal now it failed this is the good news we have in fact seen uh um visible loss of power even before the change in in the white house uh next year um but it was a serious reminder that democracy is not so secure as we like to think i would go a little bit further and suggest that economics may have played an important role in uh in in this crisis of democracy in the united states if we ask what the political movement was about uh in the united states it was about uh ultimately about lower taxes for the wealthy and and lower benefits for the poor in the middle class it was if you like it was about increasing inequality and and the determination to do that was the even though that sounds like a fairly prosaic goal uh apparently gave license to all kinds of violation of democratic procedure so the uh the the united states has uh i think has has experienced a near miss at a crisis of democracy and it's not so hard to see how that could happen in other countries um bottom line fundamental conclusion um we have seen an advance of democracy in the world the events of 1989 through 1991 did make the world a much more democratic place and a safer place for democracy this is not to deny that there has been significant democratic progress in some other places again i would i would cite brazil as a striking example of a country with a very poor political history that now appears to have a quite solidly democratic government um but it's not guaranteed it's not something that is given to us by the working of some immutable historical law there's nothing that says that market economies are necessarily democratic there's nothing that says that the progress of market economies necessarily makes them more democratic uh the the the progress we've made in democracy is the result of men and women who were really committed to achieving it and the future of democracy rests not in what will happen to world gdp per capita but in the kinds of leaders that we have thank you so there's nothing unavoidable behind the progress and democratization democracy does not simply come from economic growth we touched upon a number of topics and this opening lecture will pave the way to a number of other sessions where we're going to discuss these issues i would ask you now to ask a few questions please remember to be rather brief and to speak inside the microphone uh we are also connected with other two rooms uh the room of the regional government and the press room uh next on our left so please remember to use the microphone we're very happy to see that there is such a large attendance to this festival so the floor is open to questions my name is francesco and i'm a ph.d candidate i would like to thank professor kukman for this extremely didactical inaugural discussion and i would like to to make two specific questions the first question relates to uh two men and and the second question would relate to to theories i mean the the first question i mean the first man is keynes who you are picking up several points on cain's intellectual legacy and i wonder if king could could say something about democracy and market one one can argue if i'm not wrong you wrote an introduction to the general theory of keynes but one can think of the consequences of peace as the intellectual manifesto of keynes on the theme of democracy and market and the second man will be ricardo faini who will be remembered during the festival if i'm not wrong and you had been one of the um you have been studying together with ricardo faini and if you could say something on him the very last question would be on on well still market and and democracy i mean uh in in the opening discussion um the the theme of fear against globalization clearly came out um interestingly one of the speakers of the second edition was tremonti who wrote a book on explicitly on globalization fears and hopes and the specific question would be can we take your theories new geography as as to a certain extent a specific case for protectionism was or is tremendous completely wrong i mean in his intellectual assumptions thanks a lot why don't i answer as we go so okay um so um and just to say an appreciation of ricardo faini uh was my classmate in in graduate school we shared some of the same deep concerns about uh economics about regions i just you know it was a shock and a tragedy that he died so young and uh i i attended uh spoke at a uh in torino uh an event to commemorate him um not much more you know just uh this is a very sad story on cain's i i view keynes as someone who among other things sought to save democracy partly what he was doing was saying you do not have to become stalin to to solve this depression i can offer you a technical solution uh and it was clear that he viewed danis as the and as the answer and of course the economic consequences of the peace was very much a a uh a reaction to the uh folly of the policies after world war one and you can say that in a indirect way keynes's writing in 1919 helped to shape the the policies of the victorious allies in 1946 47 and 48 that the uh the determination not to repeat the errors that keynes laid out so much in his in the economic consequences of the peace uh played an important role in the success at establishing democracy uh throughout western europe and in japan so this is a this is a happy story i will say that keynes is long-run view he had a a famous essay on economic prospects for our grandchildren which would have been about the world as it should be around now and he projected that we would all be sufficiently rich that essentially greed would have vanished from the world and it turns out that doesn't matter how rich you are greed remains um globalization um i didn't talk about that i think the i actually believe that uh that we should try to reduce our fear of fear of globalization the uh that that there has been i've noticed that quite a lot in europe that there is a a belief that the uh concerns that some political groups are expressing about globalization portend some catastrophic change in economic policy i don't think that's right i think there is a there are some genuine reasons for workers to be concerned about the impact of competition from abroad politicians are responding to some degree to that concern but it's not i don't see any sign that we're about to have a dramatic uh return to protectionism i think that would be among other things the consequences for foreign relations would be so severe that the united states certainly won't do that um and what we can say is that the the best antidote to protectionism to fears of globalization does not seem to be uh having economists tell you what an what a good thing free trade is and what a bad thing protectionism is people have heard that uh thousands of times uh the best thing seems to be creating effective social democracies that provide a fair amount of protection against the consequences so we find the most the countries that are most agreeable in dealing with globalization are denmark sweden countries with very extensive social safety nets and that in the united states if we have workers complaining bitterly about uh about globalization uh that's in large part because in the united states if you lose your job the fall is so far i mean the united states uniquely among wealthy countries is a country where losing your job when your factory closes also means losing health care it means a level of misery that that no other advanced country permits so um i think that's the answer i think i think the world has had enough of economists preaching free trade i i i'm prepared to make that case uh but this is not the answer afraid of fear as it were and to protect ourselves from the negative effects of globalization we need social networks and social security networks in italy actually we do have health services even if you lose your job but we don't really have social support networks social security networks questions may also be asking italian if you wish please yes at the bottom i'd like to remind you all that tomorrow evening we are going to commemorate ricardo farini here in trent good evening my name is francisco in your speech you also mentioned uh the weakening of democracy in the united states because of the bush administration and because of the contribution of certain economic forces inside the united states so my question is very simple have you identified the causes which have induced this attempt to derail to fail in particular has the bush administration failed in its attempt to weaken democracy in the united states because the bush administration was incompetent simply or perhaps because there were antibodies in the democracies as there should be in any democracy okay um yes um there were some antibodies but there was there were certainly people who spoke out against the administration their the american public proved more uh proved harder to uh to bully um than uh than than we had feared um one of the surprising features of recent u.s history is that the public um in effect turned on bush uh long before major institutions did that the uh the public became very negative um and it was only a couple of years later that for example the news media began to be uh more more critical so it was a very that the american population turns out to have more democratic instincts than uh than than than we than we feared but the american institutional structure did not do very well um and i think you can argue pretty strongly that if uh the bush administration had been more competent if they had not uh failed so dismally uh in uh um in in the war in the management of the economy uh that we would have been at serious risk uh that it really was uh let's put it this way in in the before the incompetence was fully revealed in let us say the summer of 2003 it was a very frightening time to be a critic it did not feel as if the institutions were holding it uh it it was an extraordinarily um uh stressful time so i think that this is not um this did not have to happen the we came out of it i believe all right but it did not have to happen it was a very very uh very very frightening period well this induced me induces me to ask you a question myself if in the usa it takes so long before the incompetence of the leadership emerges well i wonder what about more imperfect democracies how long do we need to realize how incompetent is our government no specific reference made okay any questions any more questions roberto tamborini department of economics i have two questions the first concerns the relationship between democracy and economic performance and i'd like to ask you to tell something about another indicator which is the distribution of income so whether there is a some people think that there is a visual circle between democracy and better income distribution and vice versa the second question concern the recent experience of the u.s that you have reminded us which by the way in some extent has been common to other western countries after 201 et cetera and let me play as the advocate devil a sorry the devil's advocate and say we know that democracy is a weak regime and must be protected so there is in a sense a legitimacy to retreat in some way to some democratic freedom to protect democracy especially so if this request of protection of something which is considered important comes from citizens from the electorate so the problem is to what accent is it legitimate to abide for them from democracy to protect democracy and where would you draw the line right whether you say this is no longer legitimate okay um so um distribution of income um more broadly social social policies social indicators there is no clear evidence that democratic regimes are more successful at gdp growth there is however substantial evidence that they do a better job of taking care of the poor that they do a better job of assuring nutrition that they do a better job of assuring essential health care so in that sense it is not that democracy brings you nothing except freedom itself democracy is also better for human beings so if you were to ask do uh democratic regimes achieve better gdp growth the answer is no do they perform better on measures of human development yes they do so that there is there is that uh no this is this is entirely correct um and uh um in some ways uh the united states may be to some extent of the exception and that we have had very high inequality without much of a political backlash but that may be changing too so uh so uh but looking at the developing world is quite clear it's quite clear uh for example in latin american countries that the democratization of the region has also been accompanied by a move to take better care of the the less fortunate in society so this this is uh freedom is enough but this is another good thing about democracy yes uh democracy must be protected um certainly and we have in the in u.s history we have uh presidents very honorable presidents abraham lincoln suspended many of the rules of law for several months at the beginning of the us civil war and he did so to preserve the union and in the end to abolish slavery so this was a case of violating democratic rules to defend democracy and it was obviously one of history's great uh great great events um and there have been certainly uh you know there there have been uh episodes uh in which uh in which politicians who are firmly democratic in their beliefs have have tampered with the rules and moments of crisis uh the story of the united states however in recent years was one of uh huge overreaction uh we had a situation in which and there were there were certainly many books many articles making the the point uh that you were raising as devil's advocate well don't we need to give up some of our liberties in order to defend ourselves um but the the reaction was out of all proportion to the threat uh you know in the end 19 men uh uh armed with box cutters pulled off a uh pulled off a a terrorist attack which was extremely damaging but the reaction in terms of domestic politics was as if we were fighting world war ii again as opposed to a handful of lightly armed terrorists it was there was clearly a determination on the part of our leadership to use the attack as an excuse to uh to seize power and at the same time sorry i'm getting more and i'm getting into my american uh outrage but i think this is very real at the same time the basic security measures were neglected even as rule of law was being suspended in some important ways the bush administration was fighting efforts to tighten basic security at the airports it was attempting to keep airport security in the hands of private corporations even as it was demanding essentially unlimited ability to to collect information on domestic residents it was fighting basic measures to protect the ports against possible attacks so this was a power grab it was not it was not an honest response to a real threat there is also another dimension in which democracy shows support for the poor that you say it reduces cyclic fluctuations so there are fewer recessions and they last less so this protects the poorest because they are those who suffer most from recessions there's another question at the bottom and then one here the first ranks first at the bottom there was someone who had asked for the floor if you're not mistaken no i was mistaken okay so here the first ranks and on american economic history am i right if i understand that american economy declined in the last american decline in the last few years according to bad politics of a republican government for instance there was this immigration immigration of a manufacturing industry outside which was really negative and also this decline cutting of funds of state universities is not not not but not very good in this phrase the research was concerned and also do you think that just to finish that the roosevelt year was so much better and what do you think about robert reich thinking about this okay um on the last point robert reich's book is sitting in a large stack and i have not opened it yet so the um i i i actually would say that some but not all of america's economic woes are the result of bad policy um if there there are certainly manufacturing we could go on at some length i think that the it's not clear that too much could have been done to prevent the decline of manufacturing in the united states education is one of our great failings i would say less the universities although there has been a problem of funding for the state universities but much more the basic education uh the united states with a large uh large number of students not graduating high school not getting basic education is this is a big problem and it is ultimately political we don't make the same efforts that other advanced countries do to achieve universal basic education um the we make up for it to some extent by uh um actually the excellence of some of the universities and by importing talent so we we the united states remains a country where where uh uh we have you know we have we have vast technological progress even though too many of our citizens end up barely able to read and write so it's a um i would say that there is a little bit of a what one associates with latin america in the united states um excellent education at the top uh but quite a lot of lack of basic education at the bottom again that's the sort of thing that democracies are supposed to be good at not have at avoiding that democracies are supposed to take care of the less fortunate but uh that why the united states does not that is a long story uh just say that as as with so many things in america um uh race and the history of slavery ends up playing an important role uh but that takes i think quite far afield from this conference yes actually the pisa data regarding the states are not encouraging at all and we have been discussing this also during the previous edition of this festival so there's another question here another at the bottom and then we'll close uh canada um you keep bringing up the i've noticed that you've always turned back to china in all of your examples it's really the only reason we're taught it seems like we're talking about this you know all the other small countries that happen to not be democratic and but they happen to be you know still surviving they're not as big a deal and i'm just wondering we didn't or i didn't hear what your actual opinion is is china doing the right thing by not becoming democratic right now and the reason why i bring that up is i was at another conference a little while ago and one of the professors brought up the idea that under weak rules of law authoritarian regimes perform better nurturing efficient institutions than do democracies and he brought up the id the examples of singapore north and south korea and so i was just wondering what your thought is on that are they doing the right thing by opening up to market slowly and keeping the authoritarian regime because large quick changes such as like the post-washington consensus might not be beneficial so okay there are two separable questions there it's a very good they're both good questions one is is about the opening up of markets and you know and one is about the opening up of politics the opening up of markets i think experience so far suggests that the chinese gradualism has probably been a good idea that they uh the shock therapy applied to other uh former communist regimes china is a former communist regime even though it says it's still communist um the has not worked very well and that the chinese have done extremely well at uh um at taking it in stages um i don't believe um that the economic success of china is a case against democracy for one thing we now see india doing uh uh having its own takeoff that's that's a relief we're now seeing that a poor democratic nation can also achieve rapid economic growth uh which is is is encouraging um and there are offsets um yes sometimes an authoritarian regime can act more effectively to to you know it can it can bypass some of the things that might slow change in a democratic government um but it's it's not true if what you have the idea sometimes people have the idea that an authoritarian regime will be efficient because it won't be influenced by special interest groups but that's not how it works authoritarian regimes are very much influenced by interest groups sometimes more so and they tend to get away with sometimes highly inefficient or destructive policies that would be subject to at least some correction in a democratic regime so uh just to think about much of course there there's the uh um we've had the terrible tragedy of the earthquake in china much of which turns out to be due to failure to enforce construction standards now if china were a uh were democratic government would it have enforced those standards maybe maybe not but there would have been more accountability more likelihood that in the future the standards will be obeyed there are there are inefficiencies and and catastrophes that happen in authoritarian regimes that do not happen in in democratic regimes so no i think if the china you know if i could wave a magic wand and make china a democracy you know tomorrow morning i would do it uh there's no no evidence to suggest it would hurt their growth and a lot of evidence to suggest it would make it a better country at last point the idea that we have an authoritarian regime as a transitional stage because it becomes it will eventually become democratic you know the whole point is that actually that doesn't look like it's at all guaranteed uh and we you know we just want to uh we don't they if you have the opportunity to to to get liberty um you want to seize it because there's not it's not written in in the books of history that necessarily it will come eventually anyway last question at the back yes my name is adriano and i'd like you to clarify one point if i have understood your conclusions correctly you are optimistic uh insofar as you believe that economic development can lead to the development of democracy and yet and that i have the impression that there is quite clearly a gap between the rich and the poor which is much wider in countries which have been growing economically very quickly now i don't think that democracy is just a social safety net democracy is also participation and my impression is that participation in some fast-growing countries as well as in our countries perhaps has become a luxury do you agree so um first no i do not believe that economic growth brings democracy that's uh the essential argument is that it does not have to happen there's no no guarantee whatsoever uh if if history had played out a little differently even now we could have some wealthy countries that were not democratic uh i see no sign that china is becoming more democratic i see no sign that russia which has achieved very has achieved a doubling of gdp in the past 10 years is becoming any more democratic as a result so that this is not guaranteed um about uh democracy um participation this is how democracy fails it it doesn't fail or at least it's one way sometimes democracy fails because the tanks come rolling down the street and put an end to it but that's not what has happened in russia uh what has happened is there was some intimidation and people dropped out and uh their you know life is is getting better uh the there's money private lives are left mostly alone it's a market economy you can uh you you can get by and this is um it's not of course if you don't to make a democracy requires that a substantial number of citizens really care about it really um vote of course but also really uh actively defend it and it just comes back now my central point is exactly that that there is nothing mechanical there's nothing that's that says that that the march of technological progress and economic growth makes you by by necessity a a democratic country it's it's an achievement and it can be lost okay very last question good evening just one quick remark as regards the relationship between market and democracy i'd like to move to the next room and discuss financial markets and democracy i know that well you're an expert also on this you know financial markets very well and i believe that today democracy also uh is also transparency and we know that we have been suffering from systemic crises which are closely correlated so what is the degree of democracy within financial markets today because well transparency today in financial markets doesn't seem to be a strong point actually the key point seems to be privatizing profits and socializing losses in financial markets yeah quite um the uh it's er first first of all i mean you can have a variety of of kinds of financial markets uh with a democracy or without it and there doesn't have to be all controlled um there is however pretty strong sense that um let me put it this way we had um in the united states and to a large extent in other countries we had a what you might have called a social democratic financial system 30 years ago we had a system of regulated banks it certainly was not socially uh controlled it was certainly not not government run but there were extensive oversight and it it was a system that that was designed to avoid crises and designed to be transparent as well it was easy to see who was doing what um we developed what is now called uh by many people the the uh parallel banking system or the shadow banking system uh all of these non-transparent complex deals that bypassed all of the regulations um and while i guess that's not inherently undemocratic it turned out that it created a situation in which exactly as you said uh profits were private and losses were socialized and nobody there there was no accountability so we now have a situation in which the central banks the federal reserve uh russia's to rescue businesses in crisis none of this was the result of a democratic decision there was never someone saying to the essentially saying to the public do you want these freewheeling uh financial markets do you want this this system or do you want something that's more controlled and more limited it was never advanced that way it was simply done it was largely done through administrative decisions out of the public eye that it was allowed to happen and i can't resist one last thing the failings the limitations of democracy we have a situation right now in the united states where hedge fund managers um the some of whom have incomes of more than a billion dollars a year have paid much lower taxes than for example i do and this was not a democratic decision it happened through some obscure interpretation of the law and attempts to change the law to eliminate that disparity have failed because the public doesn't understand the issue and the hedge funds contribute a lot of money to politicians and uh it's been shocking to see how something so gross so dramatically unfair can remain uncorrected uh and i'm sorry to say that both parties are colluding in this so the limits of democracy and the power of markets to subvert democracy i guess are visible in this case thank you thank you very much thank you very much for raising all these issues on which will return very soon we will discuss uh china in the seminars with the person and then the discussion with federico ambini and then we'll discuss the relationship between growth and democracy again tomorrow uh there is a debate with ronald reagan and bearglove also will discuss the transition to market economies in the former soviet bloc we'll also discuss the extent to which wealth can bring democracy and tomorrow benjamin finderman will discuss this in a historical light and then we need pandemic levy tomorrow but uh this evening we are going to resume one point which has already been discussed by krugman to say the role of economic and political integration in europe and its impact on the countries which are outside europe's european integration economic power and political power will be discussed with professor mario monti former eu commissioner in the theater social at nine thank you very much paul for bearing with us and for replying to all the questions