As prepared for delivery
CEO Vikram Pandit: St. Petersburg International Economic Forum
Mr. President, distinguished guests.
First let me say, it is an honor and pleasure to be back in St. Petersburg—not only one of the world's great cities … not only the living symbol of a Russia resurgent in the world economy … but also an important hub of activity for my bank, which serves some 1,600 corporate clients and about a million individuals in Russia.
And thank you to Robert Thomson for your question. The beauty of it is that no one really knows the answer. There has been no shortage of conventional wisdom and a lot of it has been proven wrong – and it's not even over yet. So instead of trying to predict the future, let me tell you what I think we need.
We need strong financial reform. None of us ever wants to see what happened in 2008 happen again. I have publicly and often advocated for reform that will protect consumer interests and strengthen confidence in our financial markets and institutions.
The fundamental principles I believe are needed are:
I have no doubt that we can create a stronger financial system and bring Wall Street and Main Street closer together.
But, in this era of globalization, as everyone in this room knows, reform isn't just about Main Street and Wall Street – it's about making sure financial institutions can serve consumers and investors and serve them well all over the world.
So to answer your second question about how Wall Street will look in ten years, we need to discuss the proposals coming out of Basel. They could have a very significant impact on how global financial institutions do business and haven't gotten anywhere near the attention that the United States' regulatory reform legislation has received.
First, let's keep in mind, the goal of our financial system is to support long-term and sustainable economic growth. Every time there is a crisis—and this time is no different—we face an understandable impulse to tighten the system. However, there is a risk that we may inadvertently lay the foundation for underachievement, causing low growth and high unemployment despite a false sense of economic security.
And having looked at what is coming out of Basel, I must say that I am concerned. As a banker, I know full well the risks of overly loose credit—I've spent the last two-and-a-quarter years cleaning up an institution that had to cope with excessive leverage and credit risk.
But as a citizen, I also see the danger of low or no growth. Political leaders, especially, understand that a country can end up with a banking system which results in the most unpromising economic outlook.
That being said, I don't subscribe to the premise that we need to choose between a safe banking system and economic growth. That is a false choice. I know that, working together, we can find the right balance. I urge everyone to work toward it.
And even when we get it right, huge challenges remain.
But through all the challenges facing the economies of the world today, there are opportunities to create a new growth model, one that combines the models of the developed and developing worlds. The two cannot grow as much without each other and the benefits of working together are significant. This new model will require not only collaboration between the developed and developing worlds but also close partnerships between the public and private sectors on issues such as trade and energy, and, most crucially, a robust financial system that balances the need for stability with the need for growth.
Focusing on the world of 2010 and beyond requires a bit of history.
For many decades, the growth model of the developed world has been to take capital and invest it in good ideas to create the "new"—new products, new business models, new markets, and new consumer needs. The story is familiar: the PC replacing the typewriter, the iPod the CD player, and so on. Let's call this the entrepreneurial model. Its hallmarks are innovation and productivity gains.
The prior decade proved a partial exception. Cheap and easy credit encouraged unsustainable consumption, drove unproductive investment, and created false growth—financed largely by the housing sector. In the United States alone, housing has lost 40 percent of its value from the peak. That's $5 trillion gone. Or it would be more accurate to say, spent—consumed.
The result? We have a developed world that has taken on, by my calculation, one-third too much debt. That's at the heart of the crisis.
The developing world, thankfully, avoided a second crisis. Because its growth model for so long depended on Western consumption, there was reason to fear significant long-term slowing in those economies. It hasn't happened because developing economies have been partially able to shift their focus to their own domestic markets. There are at least a billion more people in the world who aspire to a middle-class standard of living—and who see a realistic prospect of achieving it in the near future. The growth model of the developing world is increasingly fueled by more domestic consumer demand.
There is an outline of a growth solution by melding together the two models of growth. Both sides can benefit from each other. The developed world has always relied on resources—and talent—from the developing world. Interestingly, today it also needs some of the developing world's capital, in order to invest in innovation and reap productivity gains. It also would like access to the emerging middle class consumers. The developing world in turn can benefit from the developed world's expertise and institutional depth in order to build out its consumer markets and meet its people's aspirations. It also needs innovation in the developed world to help fuel its own growth and fulfill the aspirations of its increasingly sophisticated consumers.
Specifically, this points to a number of imperatives for each group. The developed world needs to come up with credible plans to reduce its debt over time. One never sees growth without confidence and a credible plan to address the debt is necessary to restore confidence, which in turn will inspire real investment. In addition, the West needs to unleash and revitalize its entrepreneurial model. That means, above all, creating the conditions for growth and innovation with supportive tax and regulatory regimes.
On the other side, those holding large pools of capital in the developing world—for instance, sovereign wealth funds—need to take advantage of the global investment opportunities. No country and no company—from the biggest, to the smallest, is going to prosper without embracing the realities of our linked and dynamic planet.
We all need to keep our markets open—for goods, services, and above all talent. Resources—including people—are most efficiently and productively employed when they are free to go where they are most valued. Walter Wriston, legendary former head of Citi, once said that "capital goes where it is welcome and stays where it is well treated." That's true of people as well.
So, to sum up, we have a developed world with one-third too much debt. We also have, operating in the world today, two distinct—but complementary—models of growth. Sustaining growth in both going forward requires collaboration—mutual investment and globalized rules that allow resources to go where they are welcome and stay where they are well treated.
I believe that the public and private sectors, in their collective wisdom, can arrive at and implement these solutions—and we should all do what we can to encourage that.
Quoted in "America's New Jingoes," Wall Street Journal op-ed by George Gilder, October 8, 2004. Accessed here: http://www.discovery.org/scripts/viewDB/index.php?command=view&program=George%20Gilder%20Archives&id=2234