Mission: Possible

Nicolas Berggruen on the Berggruen Institute and the 21st Century Council.

B Beyond met with Nicolas Berggruen at Le Bristol Hotel, Paris to hear about the work of the Berggruen Institute and its governance think tank, the 21st Century Council.

If you are superficially familiar with his name, you’d be forgiven for shrugging him off as a mildly eccentric man with inherited wealth. Mainstream media loves bold, easy handles and ‘homeless billionaire’ just happens to be entirely irresistible.

Berggruen isn’t of course homeless – rather, he has chosen to dispense with keeping a permanent establishment and lives instead in a succession of hotel rooms as he circumnavigates the globe several times a year.

Self-contained and of almost ascetic bearing, Berggruen has the unmistakable hallmark of a man with a mission. In fact, commitment to his chosen cause appears to define him now, whatever he may have been before he was a philanthropist.

It’s impossible to dismiss him as yet another do-gooder, funding yet another charitable organisation, because he is a political and economic realist who acknowledges that changing the structure by which society functions is neither straightforward nor readily measurable.

The Berggruen Institute was founded to lobby for incremental changes in governance, pushed as reforms (or referendums) through real time influencers: leaders, economists, former politicians, global thinkers…

The mission itself is both noble and possible – one might even say urgent at the time of writing – but he is nothing if not aware of the inherent difficulties of the task. What struck me throughout the conversation is that he neither looks for praise nor for a clear-cut goal post. He just gets on with it.

I mention his name to a man whose opinion counts and the endorsement comes back unequivocal: ‘I know Nicolas as someone who is very resourceful and interesting. I don’t read too much into the media gossip.’

Here is what Berggruen has to say, in his own words.

BB: You are a strong advocate for improving democracy and governance in the western developing economies. in your view, what is lacking in the current system? And where do you see room for most improvement?

NB: All Western democracies are suffering right now. There are a number of reasons for this, such as increasing globalisation on one hand and the rising economic power of the East on the other, with the inherent competition from that part of the world, in particular China.

The Western systems and democracies should be rightly credited for having been hugely progressive, not least in terms of the social contract they established with their respective populations, which has resulted in a very high standard of living. This contract, however, can no longer be sustained in the face of growing competition from the East.

Making an adjustment is clearly a very painful process all round. Political leaders are in a difficult position because implementing unpopular changes would cost them an election – or a re-election.

Matters are made even more complicated by the fact that changes need to be agreed upon by both sides of the electorate and as ever, the right is opposed to higher taxation, while the left is neither prepared to give up what it perceives as its entitlements, nor does it want to pay more tax.

Politicians seldom have the courage to address the above or if they have, their political parties wouldn’t allow them to.

This means the entire system needs to be restructured beyond the partisan – beyond the political agenda.

BB: How would you do that?

NB: A change has to happen in any event and will, no matter what. It is already happening – Europe is on the verge of falling apart because it hasn’t established a way of dealing with a fiscal crisis and other Europe-wide policies for the common good.

If the European Union is to stay together, it will have to force certain countries – Italy, Spain, probably France too – to implement the reforms that Germany implemented ten years ago. These reforms will be painful and politicians simply cannot introduce them without engaging the public.

Our European group within the 21st Century Council consists of former European leaders and many innovative thinkers. It has made certain recommendations that involve precisely that: engaging the public.

It was Schroeder who introduced all the big reforms in Germany which made the country very competitive – and not only because they have great engineers and good quality production capabilities, but also because they have much lower labour costs than the rest of Europe. These reforms cost him his job, however, because they were deeply unpopular at the time. It’s a difficult position to take in a democratic environment.

BB: I understand what you’re saying about politicians. They have to get elected so they have to work to an agenda, and they’re backed by big financial interests.

NB: Less so in Europe, but in America, yes.

BB: So what is your solution? The 21st Century Council is not elected, it doesn’t have executive powers. What can it do?

NB: Well, I will give you the California example. California has the same characteristics and same issues as, say, other Western democracies. It’s a highly successful state, maybe the most highly successful state in America, but it’s now suffering: it has poor infrastructure, its educational system, from being the best public educational system in America, is now quite weak and getting weaker. Even though it has Silicon Valley and Hollywood, which are probably the two most influential industries in the world, it has 13% unemployment. Both Democrat and Republican Governors tried to make reforms but all the good intentions couldn’t achieve much. Jerry Brown, the current Governor, is a highly experienced man, but can’t make a difference because the problems are deeply structural.

In California you can make reforms through referendums, so what we’ve created is a bi-partisan committee consisting of both Republicans and Democrats. Both parties sat down for the last year, had about a meeting a month and worked on proposals to reform California. The conclusion is that very deep reforms are necessary: constitutional reforms, tax reforms, referendum reforms… We’ll propose them in about a month, and the advantage in California is that we can actually get things done. *(see update at the end of article)

BB: Are you going to use this as a test case for Europe, or not at all?

NB: Not for Europe. California is really a bellwether state for the US, so if it works in California I think it will have a degree of influence in the US, and beyond the US for sure as some of the issues are global. It will be an exercise in reform of democracy, in trying to get two sides together to come up with long term solutions as opposed to short-term political gain.

BB: Do governments work with the Berggruen Institute?

NB: Absolutely. In California everyone, including the Governor, wants changes. The government actually welcomes bodies such as ours to propose ideas and work on them. The government is not averse to having help. They may not be able to develop the proposals themselves but to be involved in some of them – not all – is very useful for both sides.

BB: Are a lot of people aware of the 21st Century Council’s work in California?

NB: They’re aware of the issues – that’s more important. If you propose deep tax reforms, something that will affect peoples’ pockets, they’re going to be immediately aware. The Institute is not important, what’s important are the reforms. The proposed package is going to be far-reaching in terms of changes and the public will definitely respond.


BB: So the Institute has the executive power to force a referendum?

NB: Well, it depends where. In California, yes. But that’s not executive power – anyone in California can propose a referendum.

BB: Do you subscribe to the view that Western economy is finished and that Asia will be the dominant economy for the foreseeable future?

NB: Asia is on the rise, there’s no question about that, but the West is not finished – the West just needs to reform.

BB: So it can provide a balance to Asia? A viable balance economically?

NB: Absolutely. The West is a very vibrant, very creative, very productive environment. It just needs to restart itself, get its act together.

BB: How would you deal with the problems in Europe?

NB: At this point we can just recommend things through the European group of the Council. The group consists of former political leaders from different countries and of different political persuasions. If they all speak in a united voice, we feel that voice will be powerful enough to make a difference.

BB: So it follows that the members of the group are pro-European?

NB: Yes. In terms of the EEC, going back at this point would be incredibly painful and costly, in addition to which, geopolitically and long-term we feel that a strong Europe will be helpful to the balance of the world.

BB: What are your views on the current UK government? You said that politicians do things to get elected. What do you think of the way they are tackling the economic crisis? What are your views on the austerity measures in the UK in particular?

NB: The Institute is non-partisan so we won’t comment on the specifics of what a government is doing one way or another. The UK government is trying to deal with big social reforms which are very painful and they’re trying to make reforms at a moment when world economies in general, including the UK, are not doing very well. So it’s very painful for the public, very difficult. Are the reforms necessary? Yes. Is it difficult? It would be difficult for any side, Labour or Conservatives.

BB: If we look back far enough in history, we know that relative poverty (not absolute poverty) has always contributed or led to massive upheaval in societies. Nouriel Roubini was recently quoted as saying there may even be World War 3? Do you share this opinion?

NB: No, I don’t. But I think that people in the West are rightly concerned that the present generation of young people don’t have the opportunities that their parents had. I think that’s true, I think the opportunities are no longer there.

BB: And will not be there for the foreseeable future?

NB: They will be, but we have to implement reforms if we want to keep the same standard of living (the alternative is to lower the standard of living). We are in a much different world, much more competitive, and some difficult choices have to be made. Clearly, protesters everywhere are sending a message to politicians, which is ‘we are not happy with your leadership, address these problems’.

Politicians have to come out and say, ‘these are the issues, we inherited them’, which is true – from Mrs Merkel to Obama to David Cameron, they all inherited these issues and they have to deal with them. And dealing with them is painful – you’re hurting vested interests everywhere in the process. I don’t envy them but it has to be done.

BB: Are members of the 21st Century Council elected or invited and if the latter, who decides whom to invite? Is your vision to put together an elite group to, in fact, run Europe?

NB: The 21st Century Council is a think tank and an advocacy group which can be pro-active in places like California. We are not running for political office, that’s the whole point. We believe we can help the political process – or at least put the issues on the table, which is our only function.

Members of the 21st Century Council are opinion leaders, because they have knowledge, not because they have executive power. They give their opinion and hopefully their opinion is learned. We grow the council organically.

BB: If God himself suddenly gave the 21st Century council the executive power to change things, let’s say in Europe- let’s say we had a referendum and you could run a referendum – what would you do?

NB: We would give people a choice. Do they want something that will function more as a federation or less? Are they going to federate certain things, or not? They should have the choice to decide, but on a fully informed basis. Most people in European countries today are not that concerned about Europe – they don’t know that ultimately they will have to make the decision of being in or out of Europe, of centralising or not.

BB: What are the 21st Century Council’s recommendations for Europe?

NB: We would recommend that you first have a different system – direct parliamentary elections for individuals that the voter would recognise and feel some affinity with, as opposed to the existing system which is fairly anonymous.

BB: Would people vote for individuals rather than parties?

NB: In my mind they would – this of course is subject to discussion – but in any event I think they should vote for parties that will support people all across Europe, so that you have much more dynamic and vibrant elections.

BB: So European parties rather than national parties?

NB: Correct.

BB: But they would still be traditionally centred i.e. left of the centre – right of the centre.

NB: Most likely. Then you have Europe-wide elections and the central power would have jurisdiction over a number of different things, which need to be decided, such as fiscal, defence, foreign policy, probably energy policy, transportation… key things. Local power would still exist for everything else – education, language, religion – everything that is country or culture-specific would remain so, but the rest would be federated.

BB: So there would be a government of Europe, essentially?

NB: There already is today, but it doesn’t have any power.

BB: If such a government had executive power, do you think the recession could have been avoided in Europe at least?

NB: Well, for sure, because central power can issue money. If you can issue money you’ve got a lot of power, including the power to tax and therefore the ability to push for reforms. Is it easy? No. Will it happen in a day? No. But what I’m saying is that if you have that kind of power you can run a currency. Today the currency is being run without the normal kinds of power that come with it. If you can’t
issue currency, you can’t regulate money. If you can’t regulate money you can’t run an economy.

BB: Following you reasoning, could the financial crisis have been avoided in America?

NB: No, but at least America was able to act pretty forcefully and pretty quickly.

America is not in a recession right now. It could go into recession, but at least America has the power to overhaul its system. If America hadn’t acted when it did, the world would have gone into depression; so what America did was incredibly helpful – to America itself but also to the world. If Europe cannot get its act together now and goes into a very bad recession, that could have a global effect, put America into a recession again, and the rest of the world too. So the problem is serious and it is a structural one. That is exactly the kind of thing that we, at the Institute, are interested in – structural issues, such as those happening in Europe and in California.

America has a lot of issues. But the one thing that it can do, and did, is react fairly quickly; it should have done so earlier, but the main thing is that it did. When you have a crisis, you have to come up with a plan and act on it. Europe is not able to come up with a plan and not able to act. That’s the crisis here.

BB: Please, define Europe in the above context.

NB: All the constituent countries of the EEC today.

BB: If they were all to rubber-stamp a plan of action and get on with it, you reckon things would get better very quickly?

NB: Yes, for sure. This would create cohesion, political leadership… If everyone works together, this would immediately stabilise the financial markets. Financial markets are forcing the hands of the leadership in Europe – because the markets are bigger today than any government, that’s the reality. If they see political will to deal with the issue, markets would calm down very quickly. That’s what happened in America: the government took some measures and everything stabilised. There are, of course, still a lot of unresolved issues but the crisis we have today is directly related to the fact that the government didn’t go far enough at the time of the previous economic crisis.

BB: What could they have done better?

NB: Firstly, the global financial system wasn’t properly addressed at the time. Secondly, Europe didn’t address its structural problem, something that is evident today. These are the two key things that weren’t addressed at the time and are now surfacing. The financial system worldwide today is still fairly dysfunctional, the banks are probably undercapitalised and Europe is structurally not complete. Europe being structurally deficient today has created this crisis.

Individual debt was shifted to governments. Governments suddenly, in the eyes of the market, are no longer able to sustain themselves – they’re being attacked and they can’t respond to it. These are now symptoms of not having dealt with everything two years ago, and also not having dealt with the structural deficiency of Europe.

BB: If we follow your argument logically shouldn’t we just have one global government, rather than just European?

NB: Yes, definitely. But that’s some way off.

BB: We’ve read about what you want to do in Africa and it sounds fantastic, but how do you address the endemic corruption that exists in Africa?

NB: We can’t fix it. We’re not going to pretend that we can fix it. I think corruption is a cultural issue that exists everywhere – there are different kinds of corruption in the West, for example. It’s systematised. The system allows in the US, for example, for campaigns to be highly financed by special interests – that’s a form of legalised corruption. In Africa it’s quite different because it’s not officially sanctioned.

Addressing the structural issues of Africa is very difficult because on paper the structures are pretty good – I mean, most countries in Africa have fantastic constitutions. The problem is that nobody applies them. So it’s not that the structure in theory that is bad (even though I’m sure it can be re-addressed in many countries), it’s more that it’s not being implemented. At the same time, you cannot come from the outside and say ‘Please, implement your constitution’. It doesn’t work that way.

One has to remember that these countries have been independent for about fifty years. For a long time before that they didn’t have a proper independent government so it’s going to take a couple of generations perhaps before it actually functions.

So our feeling in Africa is, don’t try to address the government capabilities and structure, but do almost the opposite and invest in the real economy. If you invest in the real economy and help with that, you would help the whole. We looked at what we could do in Africa, and we felt ‘well, the best thing we can do is institutional but non-political building that can survive any political environment in theory, and can help the basic economy’.

The most important part of the economy now in most countries in Africa is agriculture, because many countries there have fertile land. The continent used to be very productive agriculturally and can be again – and agriculture has the advantage of taking care of people’s basic needs, providing employment, generating exports and also keeping people in rural areas as opposed to feeding in the big cities. So we came up with the idea of creating commodity exchanges that will allow for transparency, financing and for agricultural markets to develop. This is not a political instrument – it’s institutional and can survive any kind of environment.

It produces transparency because you have prices; so if you are a farmer in Kenya, you would know the price of coffee and this helps you in terms of evaluating your options. And because exchanges are also a financing mechanism, it will bring financing to the markets.


BB: Have you established any commodity markets?

NB: No, this is just the beginning.

BB: Where are you going to do it first?

NB: Well, one country at a time, you can’t do it magically.

BB: In general, do you think that today’s philanthropists are trying to plug a gap where governments are failing to address an ill?

NB: I think they’re additive, that’s all. Governments have two disadvantages. One is that in these days of austerity they’re cutting budgets and secondly, government agencies, just because of their nature, are fairly bureaucratic. Private philanthropy is very useful because it provides money where there isn’t, and maybe faster and more effectively (although not always).

The kind of work the Institute does, for example (governance reform), no government is going to finance that. In some areas, it’s very hard for governments to get involved – or it’s politically difficult to do so. So there, I think, private philanthropy can be very helpful. But I also think it’s very good for private philanthropists and governments to work together. I think you get a lot of results that way.

BB: Do you consider yourself American, French or any other national?

NB: I’m a human being, that’s enough!

BB: If there was a war between several countries, and you had to take a side, whose side would you take?

NB: Whoever I think is right.

BB: So it would be based on conscience more than anything?

NB: For sure. That’s the only thing that counts.

BB: You are, and think of yourself as a philanthropist. Is there an individual that is actually 100% purely altruistic? Why are people philanthropists? Why are you, for example, doing what you are doing – for immortality?

NB: No, because I really believe in it, I’m passionate about it. In a way it’s a selfish thing, but I’m thinking of what challenges I can grasp, ones that I hope I can have an effect on, and that also from a personal standpoint I want to help deal with. These are challenges that I think are real, that I’m interested in, so in that sense it’s quite personal but at the end of the day I hope to be helpful overall.

BB: So you want to help the world that you live in?

NB: Yes, but things that are altruistic are still personal, you can never disassociate them from personal wants and needs. I think to say that people do something without any personal interest is not true – everybody has a personal interest. But the personal interest may not be immortality, the interest may be just doing it.

Some people just feel compelled to do something or enjoy doing something, or do it because they really want to. I’m not doing it because I feel that I should do it – it’s really a great challenge and I believe in it, I’m interested in it. This is not feel-good stuff, it is serious work.

BB: And is it achievable, what you want to do?

NB: You try your best, that’s all you can do. And by definition, whatever you do, you can only go so far. The issues evolve and they’re bigger than you. And maybe it’s a failure but, you know, if you don’t try, you don’t have a chance, so you have to try.

BB: How do you define it as a failure or success, surely it is an incremental thing?

NB: It’s very hard to measure – this is why few foundations, very few philanthropists do what we do. It’s easier to do something very specific, to cure something, because there you have an A and a B. Here you have an A and a B and a C and a D…

But it’s the greatest challenge, it’s the challenge that interests me.

BB: Would the ultimate aim be to have a Global Council?

NB: If it could be done, for what I would call the Global Common Good, I think it would be great.

We are one world, we can see more and more inter-dependence. If we like our planet, we should like our brothers and sisters, and we should try to make an effort.

*After this interview was taken, the Berggruen Institute called for across the board tax cuts in California and the creation of a new services tax, with the aim of stabilising the volatile finances of the state.

The Think Long Committee recommendations can circumvent the California legislature, provided there is sufficient public support to get the measures on the state’s ballot in November 2012.

The Think Long committee’s recommendations do not address the state’s short term fiscal issues and will not close the budget gap. Instead, it wants to stabilise the long-term governance of the state by broadening its tax base with a new 5 per cent tax on services, to reflect the evolution of California as a service-based economy.

“The plan proposes to rebalance and update California’s tax code,” said Nathan Gardels, a senior adviser to the Think Long committee. “It doesn’t fit into any ideological box.”