Jacob Frenkel

Biz@India

May 2018

JACOB FRENKEL, Chairman, J P Morgan Chase International

Jacob Frenkel, chairman, J P Morgan Chase International, spoke to Biz@India about the fair trade policies, the world economy in 2018 and the importance of social security.

What do you make of the world in 2018?

Well, the world in 2018 was analysed very well by International Monetary Fund (IMF). They just issued a revision of world economy. The world economy as perceived by IMF is doing very well; in fact most countries of the world have seen their growth rate improve. In fact, for the first time after quite a few years, all the revisions are upwards rather than downwards and the growth now is forecasted to be about 3.9 pc.

It’s all in the past already. Imagine markets are going to grow faster, jobs will be created, unemployment declined, so the picture is reasonably well; so much so that many people are saying, “I am worried, that I don’t have what to worry about.” There is always something to worry about. It’s very important to make sure financial stability is maintained because records show that rapid growth, if it’s not sustainable, the damages can come, especially in places that the financial sectors are weak.

It’s very important therefore that growth is not anchored on low interest rates because at some stage interest rates will need to rise.

America recently imposed tariffs on solar panels among other things, what is the effect of that?

I believe that if you ask the American negotiators, they will tell you that it is part of their negotiations to achieve fair and reciprocal deal.

Do you think it is fair to ask developing economies with low per capita income like India and Pakistan to indulge in such fair trade, to give away as much of their market as a developed country like America will. Where is the fairness in this?

The reality is that we are starting a status quo in which countries are not equal. They are not equal because of their destiny, different histories or whatever, but at each point in time, there are richer countries, weaker countries, stronger countries and you cannot expect to solve everything in one go.

So, I think that’s why it is so important first to draw the principles and the principles are not necessarily equal outcomes but equal opportunities. This is true not only about trade but a wide range of social objectives. You want to make sure that a weaker part of society will have the same opportunity as the stronger part of society. In many countries, in their own domestic fiscal policy they have a progressive tax rate.

For example, they have transfer payments that are trying to change the distribution of wealth and income through these mechanisms. The challenge, always is first of all you cannot correct all the inks of history in one go and secondly, you must also make sure that if you are designing a system that is addressing these legacy circumstances that you do not destroy the incentives to invest and save, so that the benefits for the individual savers and investors are also captured by him or her rather than all taken away by the state.

Is inequality a threat that can destabilise the entire process?

Social cohesiveness is an important ingredient of social security. There is domestic security, there is standard security but for these you will have to have a strong society and strong society will have solidarity. Solidarity means everyone understands that everyone has a stake in outcome to the extent that the large rifts within the society creates the have and have not, the insiders and outsiders and this brings distinction between we versus them, rather than ‘us’. I believe that societies that have the ‘us’ as their principle guide, will be stronger in the long run.