On January 14th, 2020, Fulbright University Vietnam was honored to host a public lecture from Dr. Elmendorf, Dean of the prestigious Harvard Kennedy School (HKS) on the occasion of the 25th anniversary of the historic Fulbright Economics Teaching Program (FETP) at HKS. FETP was a bridge in the US – Vietnam relationship: initiated before the release of the American embargo and the normalization of diplomatic relations between both countries, the program provided public policy research and training for generations of Vietnamese students and policy makers aspiring to renovate their country. It is also the distinguished precursor of our Fulbright School of Public Policy and Management (FSPPM), the foundational academic unit of our University.
Dr. Elmendorf was joined by FETP alumni as well as FSPPM graduates and faculty to commemorate the decades-long efforts in shaping leaders and thinkers dedicated to public service. This was also the chance to celebrate the considerable progress achieved in the last quarter of a century, as future policy makers can now pursue their education here at Fulbright. In his informed lecture, Dr. Elmendorf discussed the 5 key forces currently shaping global events and public policy in the world: demographics and productivity gains, low interest rates, income inequality and stagnant living standards, populism, and nationalism.
In terms of demographics, a major issue for Dr. Elmendorf will be how to care for an aging population. Many countries are experiencing lower birth rates and increased longevity. This is a marker of success, denoting better access to nutrition, education, healthcare, and family planning. But this poses significant challenges of its own for sustainable economic growth, with concerns over caring for an older population that is relatively larger in proportion to the workforce. In the case of Vietnam, the elderly population will be doubling over the next few decades, at a faster rate than some neighboring countries. Those people will need healthcare, personal care, different living conditions, different solutions for transportation. Challenges as a society will be profound.
Productivity gains, as it is often understood as directly related to improving living standards, are also a measure of successful economies. Unfortunately, those gains have not been very impressive in many countries in recent years, despite the revolutionary nature of information technology and the use of big data. Dr. Elmendorf identifies a few factors hampering its growth. In some countries at the technological frontier, scientific and technological progress becomes incrementally harder with each advance. For other countries, allocating capital and resources efficiently is a challenge, with investments not providing consistent returns. Insecure property rights can also be factor, as well as poor systems for resolving disputes, further hampering investments. It can also be due to a shortage of public investment in infrastructure, education, and healthcare. Therefore, productivity growth is more moderate than can be hoped, and an important challenge for policy makers around the world is to find ways to identify these obstacles to boost productivity.
Dr. Elmendorf also observes the record lows for interest rates, for the US and other countries with large capital markets, with causes not entirely clear. Leading possibilities include declining demand for dollars and other currencies used for investments, shifts in saving patters related to income inequality, or an increasing focus on safety and liquidity in capital markets. He explained that the best research indicates the trend will persist. The benefit is that governments can leverage this to finance more public investments. But the challenge, for our lecturer, is the reduced flexibility for central banks to stimulate slowing economies through monetary policies, i.e. further lowering interest rates. To fight future recessions, it is crucial researchers work to provide more options for economic stimulus beyond monetary policies.
Regarding income inequality, the main takeaway is how income is distributed less widely today than it used to be. This is related with much slower growth, as well as stagnant or declining living standards. By most measures, inequality has worsened in the US and many other countries, as has the ability to do better over time. The causes seem to fall in different categories, some more global than others. One is technological change. Expanding use of digital tools and artificial intelligence is mostly benefitting better educated people. Another cause is globalization. As the world becomes more connected, opportunities are created, but not everyone can seize them. Talented, educated, mobile individuals can compete in a larger world, while those with less distinct competencies or resources can be left behind.
Globalization might benefit society as a whole, but not everyone in that society, especially without deliberate policy to that effect. The evolution of social norms and the role of public institutions is also at cause. Top salaries were allowed to surge in the US, while the minimum wage lags behind. In many European countries on the contrary, inequality has risen much less due to different social norms regarding the role of public goods, financed in turn by higher tax rates. It has better protected a larger population from the adverse effects of those forces.
For Dr. Elmendorf, populism is on the rise in part due to growing inequality and stagnation of living standards. Many people around the world feel their established political leaders are making decisions too much in favor of an elite rather than society as a whole. Not only do material circumstances diverge, but also broader aspects of their lives. People more financially capable are finding ways to separate themselves out from the rest of society. In the US, a larger range of the population has finally a fuller role in society, such as people of color, women and LGBTQI+, but there are others whose status in society has relatively declined. Immigration as well, at a historical high, has provided tremendous benefits for society broadly. Yet some Americans feel disoriented and concerned over the lack of control over those societal changes that do not necessarily benefit them directly.
Although rolling back some aspects of globalization can be beneficial to certain groups, there is a risk of also unwinding the gains achieved over the last several decades. There is going to be more attention to tax and regulatory policies involving people beyond the elites. There will also potentially be stricter migration policies, with less movement of people around the world. On the other hand, an encouraging sign of progress in policy making is greater attention to distributional effects of policies. Instead of focusing on the rise of overall income or GDP in the country, there is more interest in how to raise income for people who are not immediate beneficiaries of societal changes or segments who have not been doing well.
Finally, Dr. Elmendorf broached the subject of nationalism, which is related, yet distinct from populism. As mentioned above, many see economic globalization as a source of trouble rather than gain. Meanwhile, a majority of elites support global trade and increased migrations. In that sense, elites are perceived as having more connections and commonalities with the establishment of other countries rather than with the people they are supposed to serve. This reinforces populist concerns that elites take care of each other rather than their own populations. Therefore, populists gain credibility by depicting the interests of their country as opposed to the interests of other countries. This line of reasoning carries increasing weight in public debate, with renewed stridency. For Dr. Elmendorf, we can expect higher levels of national tensions over the next few years.
Dr. Douglas Elmendorf emphasized, in conclusion to his lecture, that although there are major forces shaping global events, each country will be uniquely affected depending on its context. He then reiterated the importance of public service, whether in governments, civil society, or private businesses focused on public needs. By attending not only to our individual needs, but to the interests of our fellow citizens, good and sound policy making has the power to create safer, freer, healthier and more prosperous societies. As a student in the audience asked how she and other young Vietnamese people can best serve their society in the face of those global forces, Dr. Elmendorf advised:
“Harness the passion you and many of your peers share and combine it with research and education. This is how will have the tools to best tackle the challenges that come your way. This is how you will have a more discernible impact on the world around you. Stand for principles but keep an open mind. It is important to hold on to your values to change the world, but remember you might not be entirely right at a given point in time. To listen and hold on to other perspectives is an opportunity to learn. To be a more effective leader that serves the needs, and the voice, of the broader public.