On November 3, 2021, CFA Society Chicago held their 34th Annual Dinner at the Hyatt Regency Chicago. The Keynote Speaker was The Right Honourable Gordon Brown, who served as Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 to 2010. As Prime Minister, Brown’s tenure coincided with the start of the global financial crisis. He was one of the first to initiate calls for global action while introducing a range of rescue measures in the UK. In April 2009, Brown hosted the G20 Summit in London, where world leaders committed to making $1.1 trillion available to help the world economy through the crisis and restore credit, growth, and jobs.
Previously, Brown, a Member of Parliament from 1983 to 2015, served as Chancellor of the Exchequer from 1997 to 2007, making him the longest-serving Chancellor in modern history. His tenure was marked by major reform of Britain’s monetary and fiscal policy and sustained investment in health, education, and overseas aid. Brown’s experiences during the global financial crisis convinced him of the urgent need for greater international cooperation to prevent future shocks to the global economy and led him to write Beyond the Crash: Overcoming the First Crisis of Globalisation (2010).
Brown began with giving his thanks to CFA Society Chicago and congratulated the group on celebrating its 96th anniversary. Brown has been recently on a speaking tour and recounted a story of another speaking tour where Albert Einstein was speaking routinely in the United Kingdom. Einstein had been giving the same speech over and over again, and without modern photographs and media like we have today, his assigned chauffeur knew the speech so well that Einstein asked near the end of the tour for the chauffeur to switch places with him in order to give the presentation knowing that the audience may not know it wasn’t Einstein speaking. After a brilliant presentation, the audience was asked if there were any questions… and an audience member stepped up to ask a complex scientific question. The chauffeur thought for a moment and then reacted at the lectern, saying “Your question has such a simple answer, that I’m going to ask my chauffeur to respond to it.”
Brown noted that there were some parallels to what the US economy and place in the world might be facing today compared to the 1950s. The world in both the past and current eras is contemplating how to face climate issues, looking to implement more technology, trying to stay out of low growth scenarios, and determining how to contend with other world powers. World powers in the current era that the US is contending with is the growing economies of places like China, Saudi Arabia and Turkey.
Brown gave an overview of one of the most turbulent times during his tenure as Prime Minister, the 2008 financial crises. He noted that being a financial minister such as the Chancellor of the Exchequer is a challenging job and that there are two types of finance ministers… those that fail, and those that get out just in time. He recounted many discussions that occurred during G20 discussions in fall 2008 through spring 2009. During the initial discussions Lehman Brothers was failing, 18 of the top 20 banks in the world were in trouble and ultimately the UK took steps to recapitalize banks but with few immediate conclusions. He quipped that the biggest complaint came from some of the heads of state noting that the meeting coordinators had forgotten to bring the make-up needed for the press conferences.
Brown noted that one of the biggest problems facing the world in recent years is the return of nationalism. Sixty-six walls still remain erected between countries around the world, creating the concept of keeping countries separate. The US has had an America first mentality at times and other countries like China and Turkey also focus on their own national interest. He noted that even in Brazil that this has emerged with the story of labor leader Luiz Inácio Lula da Silva. Lula da Silva moved from being a union leader and rallying his union on national problems by blaming the government. Then after becoming the government and the problems persisted, he turned the motto into “Blame America!”
Brown noted that he really sees 3 ways where we have the opportunity to do something in today’s complex political and financial environment. First, we need to get the world vaccinated against COVID-19. The world has already seen over 240 million cases and over 5 million deaths, and some are predicting we may see another 200 million more cases in the next year. Under that type of scenario, Brown noted that in reality we will only be halfway through the entire pandemic. Most of the current cases are concentrated where individuals are unvaccinated and in some of the poorest countries in the world. New variants may occur as well, so Brown encouraged the world to cooperate to get vaccinations further developed and distributed. Brown notes we may get to over 2 billion vaccinations by the end of 2021, yet approximately 70% of those vaccines will be administered in larger western economies, with only 2% administered in poor countries and only 6% on the African continent. China may be to blame for the lack of initial information on the disease. The key now is to get supplies moved and to work through the World Health Organization and for all countries to leave behind their own national self-interest.
Second, the world needs to focus more on contending with climate change. Brown would look for more announcements and focus on the reduction in the use of coal, and more into renewable energies and a commitment to reforestation. Brown noted that the audience should get behind the work of his friend and former Governor of the Bank of Canada and Bank of England Mark Carney to have the financial sector play a lead role in how we can be a part of more financial disclosures and incentives for green investments. Brown noted that the potential to get to a net-zero carbon emissions world by 2050 but we can’t get there without starting those types of actions today. Developed countries need to consider funding to less developed economies in order to make this happen. Unfortunately, Brown noted that China has historically had a hard time accepting any climate proposals, and recounted heated discussions during his time in the G20 on these topics.
Finally, Brown noted that there will need to be more coordination across countries to help maintain the world economy. Supply chain issues are currently restricting the economy hitting on all cylinders and financial minsters need to come together around the world to make this happen. Brown noted that unfortunately new finance ministers that come aboard have very short honeymoons. He recounted a story about what financial ministers are instructed to do when they encounter issues, with financial ministers always having three envelopes to open when they encounter problems. The first envelope has an answer that says, “Blame your predecessor!”; the second envelope has a message that says, “Blame the statistics!”; and the third envelope has a final message that says “Get ready to write 3 messages in envelopes to your successor…”
Brown noted that international coordination is needed on many topics, including on building up arms and defense, with China increasing its capacity to defend its borders. Brown commented that Putin in Russia is breaking all the rules, so it increases the growing nuclear proliferation. There are no longer the hotlines we are accustomed to between the US and Russia and the US and China, so it creates a situation where there is no guarantee that we won’t slip into another version of the Cuban Missile Crisis.
Brown noted that he does have hope, with some examples of past dialogue between Ronald Reagan and Mikhail Gorbachev being an example. During his description of the Star Wars defense system, Reagan asked Gorbachev if a devastating large asteroid was hurtling towards the US, would the USSR help to destroy it before it landed? Gorbachev said he would, and Reagan responded that the US would do the same to help the Soviet Union as well, and this led to more and growing conversations between the two nations. Brown noted he is not pessimistic and has hope. We’ve done a lot internationally to collaborate on ozone issues.
Brown commented that the world today needs to model itself after the promise and the words of Nelson Mandela. Mandela was a true champion of change with a desire to turn South Africa into a multi-racial society that could flourish. Brown recounted a story where Mandela was looking to raise money for children’s causes and was looking to get famous celebrities and pop artists to participate in the fundraiser. A call went out to the famous British pop star Amy Winehouse, who after researching Mandela’s background gladly stepped forward to participate, notably because both Mandela and her husband had one thing in common – they had both spent a long time in prison. During the Mandela fundraiser, many international celebrities such as Will Smith, Oprah Winfrey and Elton John began bidding on the original of Mandela’s famous “Letter to a Child”. Elton John and Oprah Winfrey bid up to a £1 million – and then Oprah went above it. Only then was she told she was paying not in dollars but pounds. Brown noted Mandela’s example can help the world be better, and that Mandela’s first mountain was to fight against apartheid in his country and his next mountain was to fight for a fairer world.
Brown closed his presentation noting the audience can make real change in the world. Brown finished with references to poems by Alfred Lord Tennyson, with one example being the poem Locksley Hall where the protagonist considers what the world can be like 40 years in the future. Brown finished with a final reference to Tennyson’s Ulysses encouraging the world “to strive, to seek, to find, and not to yield.” Brown encouraged this type of mentality to the audience and to use the optimism and initiative shown by front-line workers in the pandemic to make a better world ahead.
Brown participated in some discussion time with Garrett Glawe, CFA, managing director, head of U.S. equity indices at S&P Dow Jones Indices.
Brown noted that financial services companies have an opportunity to be part of the forward climate change initiatives of the world with the investment community by being part of the disclosures of carbon footprint. Mark Carney is moving to get financial services companies to incent a net-zero carbon world and to also have companies disclosing what their carbon impact-weighted accounting might be. In this sense, companies would be asked to identify the net plusses and minuses of their carbon-related activity to identify the overall weight of their impact. Many current fossil fuel companies would have a negative impact-weighted accounting. Unfortunately, at COP 26 China, Russia and India were not in attendance. Brown noted this may lead to a situation where we have one world but two different systems, especially with China’s influence over the Asian monetary funds and investment banks and the US having influence of the IMF and World Bank. Brown noted China plays a big future role, but it also may be unclear what China’s worldwide goals may be. China may be content on being a regional power, but not look to have international influence. Brown commented that the world has to be strong on human rights and be hard on countries that infringe on civil liberties, to focus on climate change, to encourage vaccination to combat the pandemic and to be cooperative. Brown noted that the US and UK have huge opportunities to further their cooperation and build on their great history of cooperation. There’s no military cemetery in Europe that doesn’t have many US and UK forces buried side by side that helped overcome the rise of fascism and Nazi rule. The US and UK can work together to be solvers of many of the world’s problems. Places like Africa and developing markets in Asia are looking for the western countries to lead because they know places like the US are the places that solve problems.
Overall, this was a very informative presentation and interview which helped give an insight into how the investment community and the world can tackle many emerging challenges.