Between Markets and the State

Stavros A. Zenios President of UNICA University of Cyprus

The State of the World Markets –and the seeds of their destruction

States –and the seeds of their destruction The value of COOPetition COOP –and the seeds of their destruction

Outline

“Anyone can count the seeds in an apple,

but only God can count

the apples in a seed”

Robert H. Schuller, 1926.

Conclusion

Constructed uncertainty Technological innovation Complex interconnectedness

Social reflexivity Post-traditional societies

(Anthony Giddens, Beyond Right and Left)

State of the World: social

Global ecological footprint: 1.5 planets earth

“At the current pace of population growth and consumption, by the year 2030 we will need 2 planets earth to sustain us. And of course we have only one.”

Ecological footprint of regions: Mediterranean nations need 3 Mediterranean seas Cyprus ???

(Global Footprint Network)

State of the World: environment

Το Χρυσοπράσινο Φύλλο

World Bank Adjusted Net Savings

State of the World: environmental

8

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

2008

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

POLAND Adjusted Net Savings

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

CYPRUS Adjusted Net Savings

Axis Title

Club of Rome--MIT Limits to Growth, 1970’s

State of the World: sustainability

10

Corrections = increasingly more costly

No correction = Collapse

Since 1980’s

Hysteresis

Societal attention deficit

Social choices

Lack of know-how

Collapse Trap

11

“World economy is undergoing seismic shifts. This is partly because of the success in increasing productivity in manufacturing, so that a small fraction of the population can produce all the toys, cars and TVs that even the most materialistic and profligate society might buy” (Joseph Stiglitz, Freefall, 2009)

Huge trade imbalance EAST-WEST. Manufactured goods automated-no job creation. Manufacturing related SERVICES exacerbate the

problem.

State of the World: economy

Markets: the seeds of their destruction

1. Ignore negative externalities

2. Inequalities in distribution of wealth

3. Can not offer public goods

1. Externalities do not remain external

Environmental problems

Banks care about shareholders not about depositors

Management bonuses erode shareholder value

1. Externalities do not remain external

Total Income of Manager (1000 $) Shareholder Value (million $)

Base salary 125 40 35 20 125 40 35 20

Participation 1 % 8 % 10 % 20% 1 % 8 % 10 % 20%

Rating

AAA 817.1 605.4 661.3 986.4 103.7 103.9 103.8 103.5

AA 821.7 631.7 690.6 1,007.6 104.0 104.1 104.2 103.7

A 825.6 648.0 705.3 964.2 104.1 104.2 103.9 103.3

BBB 804.8 682.7 722.4 799.0 104.0 104.0 103.9 103.3

BB 892.7 794.1 796.6 636.5 103.3 102.9 102.7 101.6

B 979.9 994.4 977.0 719.0 102.3 101.3 100.9 98.9

2. Inequalities in distribution of wealth

“All animals are created equal.

But some animals are more equal than others.”

Animal Farm

Increased inequalities:

Household debtReduce savings Destabilize

Social problems

3. Can not offer public goods

FIRST GENERATION: Healthcare, education, security, transport

SECOND GENERATION: Healthcare standardsQuality assessmentsFood quality Waste management Policing

States: the seeds of their destruction

1. Non-innovative bureaucracy

2. Dependencies

3. Complacency

4. Inefficiency

5. Fiscal irresponsibility

6. Corruption

The State of Cyprus

300% GDP private debt

+70% GDP public debt

Competitiveness on a ride 34….40….50….

Oversized banking sector

The value of COOPetition

Love economy:

16 trillion USD vis-à-vis 24 tr. global GDP

Shadow economies:

34.5% of GDP = 8 trillion USD

Genuine Progress Indicator

Human Sustainable

Development Index

Social Capital

TRUST

HonestyKeeping promisesReliability in performing dutiesProfessionalismReciprocity

Values have economic value added

COOPs: the seeds of their destruction

1. Markets destroy social capital

2. Government interventions destroy social capital

3. Can COOPs destroy social capital?

Diamond’s Collapse Trap?

COOPs: the seeds of their destruction

Causal link behind evidence that banks’ lending to owners and directors can result in “looting”.

Looting occurs when controlling parties are at risk of losing control.

Related lending is used to transfer profits only in localities where the incumbent politicians face significant competition for reelection.

Where the incumbent party has a high probability of reelection there is no such evidence.

Halling, Pichler, Stomper

The Politics of Related Lending

Institute of Advanced Studies, Vienna

“Anyone can count the seeds in an apple, but only God can count the apples in a seed”

Karl Marx “Society poses itself only such problems

as it can solve”

John F. Kennedy“Our problems are man-made, therefore they can be solved by men”

Stavros A. Zenios amendment “Our problems are man-made, therefore they can be solved by women”