GZ: What would help to unleash a wave of investment?
AK: Tax cuts are a popular prescription, and they might be the right thing to do if there were no other constraints. The problem is that we’re not in a world where everything else is equal because we already have enormous deficits. So, sure, if it weren’t for the deficits, this would be a great time for tax cuts, but given the size of the deficits not just in America, but in most countries, I don’t think large-scale tax cuts are really feasible. However, I would do all I could to avoid raising taxes. I also think public spending would help if it was directed towards actions that generate immediate economic activity, like physical investment in energy, roads, and so on and in things like unemployment benefits which go to people who immediately would spend the money because they’re living from government check to government check. Again, the constraint is that you already have these enormous deficits, and you can see them growing rather than shrinking in the future, and we’ve already spent so much, and government revenues have fallen so far as a result of the recession.
GZ: Despite the problems, if you were a businessman, would you be holding back or looking for opportunities?
AK: I would be very much looking for opportunities, but specifically, I would be looking for the kind of opportunities that are ripe for exploitation despite the generalized excess capacity and unemployment in the world economy. So let me give some specific examples. For instance, it’s clear that one way or another, the US is not going to have the same kind of trade deficit over the next ten years as it’s had over the last ten years, because it’s unaffordable, it’s not financeable, and the country won’t stand for it. It is also clear that the world will be shifting away from fossil fuels—not only because of environmental pressures, but because oil will eventually run out. Therefore, the incremental opportunity for American business over the next ten years is going to be in exports rather than in serving the domestic market, and in developing new energy technologies, even if they seem uneconomic relative to today’s prices for coal and oil.
GZ: What about consumption?
AK: House building in America is going to be much weaker in the next ten years than it has been in the last ten, but the other side of that coin is that the opportunities to supply overseas markets from an American production base employing American workers are going to be larger. Now, it may be that will occur because the dollar will be much cheaper. It’s already cheaper to employ workers in America than in almost any other really advanced developed country, much cheaper than Germany, cheaper than France, significantly cheaper than Japan. But so far, many American businesses have not really tried to exploit this very large cost advantage. So I’d be looking at opportunities involving how American companies can exploit the growth of overseas markets.
GZ: Is this easier said than done?
AK: Yes. There are a lot of adjustments that have to take place, but I would look at which of the sectors have grown too fast over the last ten years and are going to decline. I would take capital out of these, and then I would try to determine which sectors are likely to develop over the next ten years, and that’s where I’d be putting capital.
GZ: Once Capitalism 4 has run its course, what’s Capitalism 5.0 going to look like?
AK: Sooner or later, there will be a crisis that actually can’t be dealt with by national decisions. There will have to be some kind of global governance. So, I think Capitalism 5.0 will be about evolving a global system for running the world. I can’t imagine if or how that’s going to happen, but one way or another it will have to happen—and therefore I believe that it will.