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Harvard Business School Academic Lectures http://www.youtube.com/user/HarvardBSchool?feature=watch

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Globalisation - Niall Ferguson

11/05/12

From your notes try to answer some of these questions

1) 'Globalisation can be seen in many different ways' - what does this mean? 2) What was significant about the British empire in 1908? 3) Has trade been globalised in the past? 4) Financial globalisation had improved in the past from 1819 1913 - give examples. 5) What were the comparisons of globalisation now and then (100yrs ago)? What are the differences? 6) What is the key question? 7) Have we had recessions before? And what was the outcome? 8) What is significant about the study of the S & P 500? 9) What is the point in Taleb's 'the black swan'? 10) In the black swan summary - what are the main ideas? 11) What's wrong with mathematical models and CEOs in Wall Street? 12) Why did he provide the quote by Alan Greenspan, chairman of the American Bankers, 'Financial systems have become more resilient' (2004)? 13) Are we on the brink of a great dying? 14) What is the connection to evolution? 15) What were the points on evolutionary analogy (genes, mutation, competition etc..)? 16) What are the 3 main differences between evolution and financial markets? 17) What does he mean by 'we are in the great repression' now ? 18) Should we bail out companies? 19) He finishes with a quote, who is it and what is it about? 20) Critical thinking- did you agree with this lecture? Which parts did you find interesting? If we
dont bail out banks then the public would lose their money? How can we prepare for financial crises in the future if there is always a black swan? Will there need to be a new type of economics that incorporates biology? Anything else??

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Globalisation - Niall Ferguson ANSWERS

1) 'Globalisation can be seen in many different ways' - what does this mean? Depends how you see the world and what map you use (MacDonalds Map, Shares of GDP map, Demographics shares of global population, sea and road networks, US pentagon military commands) 2) What was significant about the British Empire in 1908? 25% of all world land and population were owned by the British Empire. 3) Has trade been globalised in the past? Yes, trade share GDP (exports more important than imports), labour markets (immigration was higher before), capital markets. 4) Financial globalisation had improved in the past from 1819 - 1913- give examples. Speed of information, telegraphic info, cost 0.5%, London stock exchange 48% foreign, UK gross foreign asserts 150% of GDP, annual current surplus rose 9%. 5) What were the comparisons of globalisation now and then (100yrs ago)? What are the differences? Now: free trade & services, mass migration, free capital movement, based on paper money, floating exchange rate, deflation- manufactures. Then: a system dominated by English speaking power, enriched Asia, held together by International centres. Differences: no WTO, free trade is commodities, migration went from Europe now goes to Europe, before based on portfolios- now foreign investments, money was gold, English speaker power has changed from saver to capital exporter, world organisations WTO, World bank. 6) What is the key question? Is Globalisation crisis prone? Does using only one system periodically blow up (collapse)? 7) Have we had recessions before? And what was the outcome? Yes, 1907 the Great Depression. Based on copper selling (Otter Heizer not sure if this correct spelling ed.). The outcome was that it recovered quickly and the Harvard Business school was created 1908. 8) What is significant about the study of the S & P 500? since 1908 capital appreciation is 131x, add inflation is 5x. In gold terms there have been 3 globalisation crisis - 1907/1970/2008. Also, financial returns: 6 year's financial returns - 20% worse (1917,1930, 1931,1937,1974,02,...08??) 9) What is the point in Taleb's 'the black swan'? People used to think there was such thing as a black swan - The things we do not think exist - may exist. Our global markets are fragile, over-optimised to maximum venerability. The Achilles heel of globalisation. Internet map slide emphasises the network is venerable. Bell curve slide shows that not everything is so straightforward.

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 10) In the black swan summary - what are the main ideas? Financial crisis are much more frequent (every 10-20 years), no predictable periodical, no cycle, magnitude is possible, these crises are similar to earthquakes. 11) What's wrong with mathematical models and CEOs in Wall Street? Many mathematical models have a 5-year cycle and many CEOs in Wall Street have only experience of 25 years. Therefore not ready for the black swan. 12) Why did he provide the quote by Alan Greenspan, chairman of the American Bankers, 'Financial systems have become more resilient' (2004)? To emphasis how the top business people got it badly wrong. 13) Are we on the brink of a great dying? Yes, it's a scenario we should be thinking about. Who would have predicted that the investment bank would go extinct? 14) What is the connection to evolution? We need to incorporate biology study into financial systems. Many people see financial evolution from going from a magnitude of little things to one big thing (Citygroup slide). However, financial markets grow like a plant from a root. 15) What were the points on evolutionary analogy (genes, mutation, competition etc..)? Genes - business process, mutation - innovation, competition - customers/clients, natural selection - under performance, speciation - biodiversity( hedge funds etc..), species extinction. 16) What are the main differences between evolution and financial markets? 1) mergers & acquisitions are conscious, 2) we cause disasters ourselves 3) intelligent design and regulators in charge 17) What does he mean by 'we are in the great repression' ? We cause these disasters ourselves and we are in denial about this. Therefore, we need to accept that recessions are normal and deal with it by looking at financial markets as evolutionary. 18) Should we bail out companies? No, this is a big risk. It is interfering with natural selection. It prevents innovation. Many companies fail and this is normal. 1:10 US businesses failed last year. 19) He finishes with a quote, who is it and what is it about? Josepth Schmpeter from the book 'Capitalism, socialism and democracy'. it discusses that we shouldn't interfer with failing businesses and this is called 'creative destruction' where old way of doing things are endogenously destroyed and replaced by new ways. 20) Critical thinking- your ideas!!

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