Thought Leader: Tomas Sedlacek

February 6, 2013

Tomas Sedlacek

As part of the Carnegie Council Centennial Thought Leaders Forum, Carnegie Council's Devin Stewart spoke with Tomas Sedlacek, chief macroeconomic strategist at CSOB, one of the largest Czech banks, and former economic advisor to President Vaclev Havel.

DEVIN STEWART: So you've done a lot of work on the influence of values and morality on society; tell me about how you see the world today. When you look at the world how would you describe it? Is it unique in any way?

TOMAS SEDLACEK: Well, what's unique about our time and age is that we have sort of minimized values very often into prices and we forget that this is not the same thing. There are many values in our lives that simply do not have a price and they are important to us: friendship, ethics, love, aesthetics, clean air, being able to talk with people around you, proximity, feeling attached to the processes that are going around you, all the way to a nice-looking garden.

And these are values that do not easily lend themselves to having a price tag on them. And as good as your mathematics can beand now I'm talking to the economic approachif you're trying to find a solution with an equation of which only a certain part has numbers, then your answer will always be leaping on one leg and it always needs to be corrected in a way to get an answer that is an answer that we are happy with. To take an extreme example, if you only look at the world economically, you will readily sell your mother or friends for other things; but obviously this is not what we are doing.

So this program of economics needs to be augmented by other values that we respect, feel, treasure, and want to keep. And that's unique. Always in times before there were, of course, values and there were different amounts and some of them were better. Many of them were worse, but this idea of calculating value is something that I think is quite typical of our ethical discourse these days.

DEVIN STEWART: So the difference is that now the attempt to calculate value is more ubiquitous?

TOMAS SEDLACEK: There are many types of logic in the world but very often we tend to respect only the economic logic. You have certain logic in a family and that logic works very well or these rules work very well but they're never codified. Nor do you work with numbers or efficiencies when you talk of family or friendship or love. So that's something that I think is quite unique.

There are, of course, other things that are unique to our time and age and feeling; for example, the number of people that we would call neighbors. To use the New Testament sort of logic, who is my neighbor? Today that extends not only to your family or your literal neighbors. On the contrary, we often know much more about the  situations of poor people in China or India or Africa, and so the scope of ethical responsibility today has grown to some global measures.

I think this is also the first time, anyway in the history of Western civilization, that we uniquely feel even with our enemies. It has never been in the past that a country should feel pity or remorse for casualties on the opposite side while waging war and now we do feel those casualties and we feel sorry for them, especially when they're civilian casualties. The fact that we really don't know what to do about it is a second issue. But at least the burning concern is already with us. So in one way we are also becoming, or trying to be, more empathetic than we were.

So talking from the European experience, the near bankruptcy of Greece, if that situation would have happened 50 years ago or further back in history, the only thing that the rest of the European countries would be contemplating is how to attack Greece in the most efficient way. Nobody thinks of this today; we're trying to help them and thus also help ourselves. But this is still better than trying to destroy them and thus help ourselves, which was always the logic of the past.

DEVIN STEWART: So what is the implication of the dominance of economics over understanding how values play a role in society?

TOMAS SEDLACEK: Well, the implication or the danger of that is that we will only heed values that have numbers. Now this is, for example, a big topic of the ecological debate. Clearly the price of oil and the price of timber or clean air aren't all the values or all the through prices that are included. So that's sort of the modus vivendi [way of living]. That's the danger of only looking at values that have prices.

On the other hand, it's the hope that the tendency is there, the desire is there, we just don't know how to do it. This is what we call looking for the new paradigm, or looking for the lost paradigm that is trying to incorporate other values as well.

Now having said that, a lot of people try to look for ethics and say there's no ethics in economics. I disagree. There's often many ethics in economics. There's also a huge number of values in the body of economics and the belief of economics. Economics is a belief. The way of thinking as an economist is more appropriately described as the way of believing as an economist.

So the desire is there and we simply don't know how to do it. Let's say the spirit is willing, but the body is weak.

DEVIN STEWART: Interesting. Looking at these two trends that you have, on one hand, the problem of values that you described, and, then on the other hand, you have this increased empathy in the world. Do you see things getting better or worse today?

TOMAS SEDLACEK: I tend to be an optimist so I tend to believe that many thingsof course there's this sort of fantasy or the kitsch of the tradition of the family that lived in harmony with nature and lived with harmony with themselves and that's something that we do have in our heads. On the other hand, from a European perspective, this is the first 50, 60 years that we haven't fought any major wars and that we're trying to really relate with each other.

And we have done a lot of work through an economic relationship. So countries now understand that it's much better to trade with each other than to fight wars with each other. So this is the nice thing about economics. Of course, I'm often very critical with the economic sort of modus vivendi, but, on the one hand, one beautiful thing about economics is that it seeks the differences.

Adam Smith came up with a key idea when establishing the field of economics that the true wealth of nations is in specialization. This is true, but I think he forgot that specialization is only possible when people are different. If we two were exactly the same, if we had the same preferences and we had the same talents or gifts or even the same opinions, there would really be nothing that we two could trade. We couldn't trade goods, we couldn't trade services, we couldn't trade ideas, and very often we would really have nothing much to say except to nod to each other.

And the bigger the differences between the two of us, one being Chinese or Indian or European or American, the more value we can actually gain from trading either emotions or thoughts or goods or services. And in this way, economics tends to be very much a field that unites or has a tendency to unite very often more than, I would argue, culture or politics. And this is something that we should harvest.

And we are trying to harvest that now with our project of the European Union. Very many critics say that Europe is too diversified for a European or monetary union. I say, no, exactly to the contrary. Diversification of differences are our very riches. That's how we should look at the world. It's not a world of strangers, but it's a world of neighbors.

DEVIN STEWART: Very interesting. Now part of what we're doing as I noted earlier is we're looking at this idea of a global ethic and whether it has any resonance. Have you thought about a global ethic and if so what does it mean to you?

TOMAS SEDLACEK: A global ethic is emerging and I think the financial crisis, as we see it, has actually contributed to this. We realized that there are things that we simply must do together. In other words, we must agree on values, ecology being another one. Very simply, this sort of demon or this foe is beyond the powers of any one of us. We can only fight him or deal with him together. This financial crisis has often been called the credit crunch and "credit" in Latin means "safe" or "trust," but more appropriately "safe." So it's easy to translate this into a "safe crunch."

So in other words, something is crunching, something crunched, and that is this belief in, I would say even, divine infallibility of the markets, that markets are perfect, and markets can do everything spontaneously themselves, and there is really no need for regulation, and that the markets are the cleverest and the most efficient allocators of resources. Nobody, or very few, believe this. We now understand, to quote Nietzsche: "Human, all too  human." We have discovered that there are governmental regulation failures, there are market failures, and, of course, there are also failures in the productions that we do.

So maybe it's because markets are full of people and governments are full of people and production is full of people. And this is something that we've realized and we are unhappy. This is the meaning of the Occupy movement, which became a very vocal spokesperson for something that has been under the current in economics for many decades. Now it has become popular.

Even if you look at the best-seller list in economics, most of these books would be critical towards the economy. And being critical doesn't mean that one hates it. On the contrary, you can have a literary critic or cultural critic. That doesn't mean that that person hates literature or hates culture. On the contrary, he or she loves it and that's why we need to assess it from a different standpoint than just the sort of sales-referring standpoint of the very actors.

And returning back to your question, yes these things evolve. You have the idea of human rights, which is something that we didn't have for thousands of years. The "others" were simply nonhumans. We are now thinking about the ecology of the planet and we all understand that we must do this together. In other words, we all must have common values in this respect.

So it's actually quite an interesting question, because in a society that is often described as an individualistic society, you see that, on the one hand, certain values tend to be extremely individualistic. Those are mostly values concerning personal lives and that's okay in my view. But it needs to be compensated exactly by global values, which is something that we've never had in the history of mankind.

So you see that this individualization of values in a modern or post-modern, or whatever you want to call it, society is, on the other hand, compensated by the quest in which we're trying to see or find or agree on values that are absolute, so to speak, or mutual for all people and nations of this earth.

DEVIN STEWART: And what type of values would be universal in your opinion?

TOMAS SEDLACEK: Well those would be, as I said, ecological values. I'm not now ordering them in the order of importance but in the order of appearance as it pops in my head. We understand that we need some common financial regulations, some safety net that we should all be able to contribute to and also rely on. Human rights was the third example that I talked about.

We also have a huge respect for cultures. Tthis is something that is very important to us. There is value in the history and art of the past. All previous wars, with no tears, destroyed the cultural heritage from the past without really giving it any thought. This would happen in many wars. Very rarely did it happen that a culture absolutely preserved the local culture. Now today this would be absolutely unthinkable.

Now when it comes to religion, which is another area that talks a lot about values, there, of course, the debate must go on. But also the debate has moved a lot. Today nobody in the West really believes that our religion is the only religion that is eligible to exist. At least we respect other people and we try to argue or debate with them or sit at the same table. We don't hate as much as we used to just because people believe in different things.

And now, of course, the fifth one is science. Science is yet another area that is very much laden with values, although science tries to appear or be value-free or value-neutral. But there are huge scientific values that are respected within the scientific community, such as honesty, such as hard work, such as paying attention to the details, such as trying to be original, trying to connect the fields of inquiry.

So these are values that I think are emerging globally or are existing or are respected around the world. And the Internet, surprisingly, helps a lot in this. The Internet, from this perspective, has been an extremely interesting communicator because it can connect me much closer with a rural Chinese person. I can be connected with that person, understanding that he or she has more similar values and levels of understanding with me than my true neighbor who lives next door but that I have never really talked with. So the choice of these sort of social groups is no longer limited by time and space and by origin of birth.

The last comment I want to make regarding this question is about the very values of one zone in our globe that is very global and is absolutely unregulated and spontaneous and people can do in this space whatever they wish to do. That space is called the Internet. And it's actually quite interesting that the Internet did not turn into a dangerous place. It did not turn into a malicious or evil place but there is a huge percentage, maybe even the majority, of people on the Internet who are actually trying to help each other in posting videos on YouTube, for example.

Just yesterday, I tried frying french fries and I was looking for a new way of how to do it. There are maybe tens or even hundreds of videos that are actually people taking the time and trying to show others the best way how to fry fries, with one leading motive. That motive is for people to enjoy the fries the way they enjoy them and try to learn from others and try to show to others the values that you have learned in frying fries. I know this is a very primitive example but it also holds true for Wikipedia and it holds true for all these other things that you can find for free on the Internet.

To me, the Internet is a case study where we can compare whether human beings truly are altruistic, that means trying to help others although there is no personal gain from it or no direct personal gain from it, versus whether the Internet is showing us that people are egoistic. I would be more in this time inclined to state that the Internet is actually showing that we are globally altruistic.

DEVIN STEWART: Very interesting. And looking at challenges that we face as a planet, what would you say is the biggest moral dilemma or challenge facing the world?

TOMAS SEDLACEK:  Well this is, of course, the ultimate question. If we look at it scientifically we'll probably come up with an answer very close to what Douglas Adams in The Hitchhiker's Guide to the Galaxy is sort of making fun of. When people ask this machine to give them the answer to the meaning of life, the universe, and everything, this machine does it in a very scientific and rigorous and non-opinionated and value-free way. But the cost of that was that the answer was 42 and this answer does not make any sense.

And why doesn’t it make any sense? Because the context is missing, simply. The answer doesn't make any sense because our values are not involved in it. Our assumptions, our beliefs, our sort of starting grounds have been ignored. So the advantage was that we get a very exact mathematical answer, which is what we expect these days but the cost was that this answer was meaningless because the answer was 42.

So now all jokes aside, the biggest task today, I think, is global poverty. Raw capitalism in its abridged form really tends to lead to a concentration of capital. Capital is a magnet to other capital and those who have will have even more and those who do not, even that little of what they have, will be taken away from them. This is one of the parables that Jesus uses in the New Testament. It is quite hard to understand for theologians but for me as an economist, this simply means that this is a very fine description of the way capitalism behaves if it is absolutely uncorrected by other values or other forces.

So our responsibility is not only for our immediate neighbors, but also for other neighbors that live on the opposite side of the globe. And I think our time and age feels a lot of guilt from that and that is something that we need to address. And again we don't really know how to do it or how to produce it democratically or politically or even economically.

The other problem I feel is a long-term problem of this system that we have today as a dominant system, which is democratic capitalism: Where will that system end? In other words, what will be the steady state? This is something that was a prime concern to classical economists starting with Adam Smith, but very famously John Stuart Mill and others, and not last would be John Maynard Keynes or Schumpeter. They ask themselves the question not of how the system will grow in this year or next year and what sort of GDP and inflation will we encounter. Those were the questions that these gentlemen considered to be of minor importance. But what was important for them was where will this system converge after 30 years, 40 years, 100 years.

And John Maynard Keynes talks about this very nicely in the economic possibilities of our grandchildren. And he then simply hopes that in 100 yearsand he wrote this some 80 years agoour society will be so affluent that the economic way of thinking and economic priorities will not be the priorities of our common lives, but that this religion of economics will cease to be a religion and that will really be just sort of a maintenance service. In other words, the house is already built, there is no longer a need for architects who tell us what to do so that it works. We will only need maintenance people.

And this is something that to me is the global problem, as well. If we extrapolate the current development, where will it end? Everything that I've seen and everything from my other colleagues that is globally produced, it is not sustainable. So the system, as it is, is unsustainable from many vantage points; one of them is the very economy itself. The way the economy is built today is not sustainable and I'm now here disregarding all the ecological criticisms that are valid, but the system is unsustainable in its own very self.

And it could quite easily be that one of the ways the West will go down is not by being attacked by a foreign power or molested by external influences of nature, but we will indebt ourselves. This is something we got very close to in the last years, understanding that simply our way of over-consuming our surrounding is unsustainable.

This unsustainability needs to be addressed, but unfortunately the only thing that I hear from the mainstream media, economists, politicians, journalists, and even the public regarding the crisis can pretty much be summed up by saying, "Give us back our unsustainability because we really enjoyed it. We had low unemployment, we had growth and that and that."

Everybody forgets that it wasn't really our growth. It was a growth that we stole from the future, which is today called debt or the deficit problem. It is growth that we have stolen from the past. Now the easy way to imagine this would be the fossil and mineral fuels. Just imagine what the growth of the West would look like if we couldn't use petrol oil, if we didn't know how to use petrol. The growth would not be this dramatic at all.

Then we took it globally. A lot of European and American cities are built on the blood and riches of peoples and countries that weren't ours and without that our societies would never be so affluent. So that's sort of stealing from the horizontal.

And the vertical, we had huge blessings, so to speak, drop on our heads, extremely big advances in technology. I don’t think mankind has seen in one generation such a leap in technology and you can easily see this in the way in which children play. Our parents played with pretty much the same toys as children in Babylonia or during the Old Testament times played with, basically cloth or wooden representations of the things, animals, and people around them. But our children and me are now playing with toys I myself would not have been able to understand or operate 10 years ago.

So this immense elevation in this sort of vertical blessing is something that has helped our growth tremendously.

Now what we've done in the last generation is that we have sort of vacuum-cleaned the energy from the future, from the past, from the horizontal, from the vertical, creating a sort of wave of growth. The way waves do it is they take a little bit of the water from their surrounding and they've put that water or energy into the very wave.

This is the way I would describe how we have grown in the past years. We've been on this wave that wasn't really ours. And what's important is that we know that three of these four dimensions, so to speak, are running out. The debt is running out. This is clear. We maybe have a couple of more years to run deficits but even America or Germany, we know that debt is not a limitless source.

We also know that the past is running out, that petrol and fossil fuels still exist and they will exist for a little time longer but they are also running out. Globalization, I think, will continue, but the power of the thrust that we have seen in the last generation will hardly be repeated. And the inspiration that comes from the vertical, the technological advance is an area where we don't know. That is not necessarily running out but all the three other areas are running out and the global challenge is how to de-grow or slow down to more believable, more realistic tempos of growth.

And whether this can be done democratically is the challenge, because as we know consumption is sticky downwards. In other words, it's very easy to get used to higher levels of consumption of anything and it's very difficult or it's much more painful or it's asymmetrically more painful when we have to go down on the levels of consumption. So this is another global challenge that we need to face and of course the ecological one I think everybody mentions, so that's why I leave it with that only.

DEVIN STEWART: Now thinking about addressing this problem, we'd like to think about it in the next century since we're celebrating our Centennial. But what would you see it looking like if we were able to address these problems?

TOMAS SEDLACEK: Well I'm an economist so I will start with sort of the economic angle. I think our consumption and production will continue, becoming more and more abstract. It will be absolutely unimaginable to anybody from the past that most of our GDP is now created in the zone that weighs nothing. The entertainment industry, the whole phrase to me is an oxymoron. We now need an industry to be entertained and it's not a minor industry. It's quite a major industry with of course values of their own again.

And I think we will move more and more into sort of being global nomads, not really being firmly attached to a place, a little bit like the change between the snail mail address and an e-mail address. That also of course makes you pick your post from wherever and send it from wherever. This is trivial today to understand but of course I think other areas will follow suit in that respect as well.

It will be more abstract, less material-oriented. Our civilizations have always created a class of people that were their leaders. Today I would argue those are economists. Economists are the ones who are sort of directing the world. Our gods are efficiency, profit, computability, numbers, growth, wealth.

But I think this time of economists as priests is coming to an end. In the past, we had religious priests or cultural priests or philosophical priests. Those were the people that were shifting the envelope forward and I have this sort of a vague feeling that it might be artists in the next couple of generations that will take over the lead. Art has its beliefs and its values like everybody else but the time I think is coming to that.

And you can see that development if we compare the three titans of our age. The first one was IBM, then it was Microsoft, and then Google. And IBM produced things that you can knock on. They were heavy and they made a lot of money servicing and enriching the world by their products.

But then came Microsoft and Microsoft produces "thinks"not a "thing" with a "G" but it's a "think" with a "K." They produce thinks. Their programs they don't weigh anything. They are simply thoughts translated into a language that a computer can understand and how that's how we made money. You already see the difference in the abstractness between these two.

And then third one is Google and Google doesn't even sell anything. It's not about thinks or things, but it's really about non-thinks. It is the value of the image, the sexiness. Being there is important and it's even more and more abstract. And the nice thing about Google is that Google cannot move or leave the United States. I mean, IBM can, so can Microsoft, but Skype or Wikipedia or Google, there is really no use of thinking of it geographically. Google's offices can move to China, but that's not important at all.

If you extend this line, then I think that will give us a nice sure image or nice imagination of how our society and the way of relating to each other is changing and will change in the coming 100 years.

I really believe actually, to be quite honestlet me rely here on Keynes. When he was asked the same question, he said, well maybe in 100 years we'll be so affluent that, as I already said, economics will not be an important part of our lives. We will devote our times and energies to things that are really important and that's people, art, whatever we feel is important, and these values exist as well. And I think we have put too much stress in the past on one value only and that one value is economic prudence or the economic way of thinking.

And of course I'm not trying to put down the economic way of thinking, but it's not the only way or the only value on which to focus. And I think we have pretty much already exhausted that well of happiness. There are other wells of happiness and we should leave this one be. It's very difficult to increase the happiness of a rich person by giving him or her more riches. It is impossible to feel the effect.

DEVIN STEWART: That makes sense. One of the things that Andrew Carnegie tried to promote was a sense of that world peace could be possible. What do you think about world peace?

TOMAS SEDLACEK: I think world peace is possible. I think we're seeing a little bit of it. It is a curious thing. This is, I think, the first major financial crisis that we have or are surviving without a war. This is something for which I think we can be quite proud of ourselves. That's also one reason or excuse why I think the Nobel Prize for the European Union made sense. We have managed to helped each other in this. We did not go into a war. We did not go into nationalistic frenzies like we have always in the past.

On the contrary, as I said, you can see countries running to each other's help. And the problem with Greece, if I may again give an example of this global peace, is a question that we Europeans do not know how to answer. That's why we have such big problems, unlike America, trying to help troubled countries. You also have some states that are troubled and there is no debate whether you help them or not. You simply do because you have the following question answered. The question is: Is Greece or any other state a market or is it a family?

If a friend or somebody from your family breaks a leg, you will go and try and help him or her. If your baker breaks a leg you would simply go to another one because you're not interested in the baker, you are interested in the bakeries. And that's how the market functions. I mean, simply nothing personal, "just business," to quote a famous line from a movie.

But now, more and more, we are understanding that Greece is family. That's why we can't let it go. That's why we are not ready to let it go bankrupt even though it deserves it from sort of a naturalistic or cruel capitalist sort of a way.

So this wave of nationalism that everybody was expecting isn't materializing; definitely not on the parliamentary level and by no chance on a governmental level. You do not see any leaders produced by this crisis that will talk of war or talk of hatred towards other countries. This is such a vast difference from how the last financial crisis happened in the world.

So here I agree with Jeremy Rifkin that we are moving towards a empathetic civilization and that global peace truly is possible.

DEVIN STEWART: The last question: When you think about trying to inspire people who are listening to this recording or reading our transcript; how does the average person get involved? Who is accountable for the problems you've talked about today?

TOMAS SEDLACEK: This question is very difficult to answer because we live in a world where the system carries more responsibilities than the individual. Let me explain. We are brought up in individualistic ethics, but this is an argument of the Austrian philosopher Ivan Illich. He said that in today's world, we have sort of vomited, without the negative connotation, we've vomited ethics from the inside into the institution. So I no longer have to take care of the poor because we have our Social Security. I no longer have to personally take care of the old because have our pension system. I don't have to take care of the sick because we have health insurance.

This means that the system also carries some ethical responsibility and some ethical blame, which you can't really trace down to an individual. So in a specialized society, the division of labor is somewhat doable and in a way also easy, but the division of guilt is made more complicated. If I murder a person I get 40 years in prison. If we murder that person together, our guilt does not split 20/20 or if 20 people murder one person it doesn't mean that everyone gets two years and then that's done. No, in a specialized society, in a case like this, guilt multiplies. It doesn't divide by specialization, but it multiplies.

There's a wonderful horror movie called Cube and the message of it is that certain seemingly innocent people get jailed or they found themselves in a very Kafkaesque way in this sort of big Rubik's Cube box. They try to get out of it, but that box kills them and tortures them in all sorts of ways. So at the end of the movie they discover that they have all been cooperating in building it. One did the architecture, the other did the screws here and the colors there, without knowing what they were actually doing.

This is also a huge danger of our society today that the right hand does not know what the left hand is doing. Many people find themselves working on jobs with a purpose they don't understand and quite frequently that purpose can be somewhat in disagreement in what they really believe.

I think the responsibility of a person is to devote all his energies to a systemic change. As much as I do it personally and as much as I respect people who live ecologically on a personal level, this is not going to save the planet. The system needs to be changed.

Let me give you another example. This is an example that David Graeber uses in his book Debt: The First 5,000 Years. There's this very nice lady living in Washington, D.C. She only eats organically, sends half of her money to charity and is very pious person. Yet, she makes a decision, which isn't even hers. By increasing some interest rate numbers on a table somewhere, effectively, she or the system through her causes extreme poverty to people somewhere in sub-Saharan Africa. They need to move out of their houses because the interest rates have become unbearably high.

And that's the problem with the system. The system produces sins. The system has also characteristics of a sinful system, which means in that system everybody is very nice and pious and good internally but the system dwarfs that into a negative. I would call this the opposite of the invisible hand of the market. The philosophical mythology of the invisible hand of the market is that everybody is trying to be egoistic and do their own little vices and the invisible hand of the market turns it into a public good.

Now what I'm describing, this sinful structure, is something that's also at work in our systems and our society and that's the complete opposite. Everybody's trying to do good, but the system ends up with evil. So I think a lot of intellectual, but also a lot of political pressure and public pressure should really be devoted to a systemic change. This then will accommodate our personal lives so that we can live, for example, ecologically. We will know that it makes sense if this is done on a systemic level and this is not a drop in the ocean.

DEVIN STEWART: Thank you so much Professor that was fantastic. I really appreciate it.

TOMAS SEDLACEK: Thank you also.