Two key sessions included Chile’s Secretary General of the Presidency taking a look at the “Chilean Miracle” and the ministers of finance of Chile and Turkey talking about managing their respective national economies during the recent international turbulence. Other sessions were packed full of analysis on urban policy issues in Chile, India, Brazil, Turkey and beyond, with a focus on increasing energy supply needs.

The Chilean Economy

Chistián Larroulet Vignau, Chile's Secretary General of the Presidency, second from left, with (from left to right) DIC co-chair James Harpel, Chicago Harris Dean Colm O'Muircheartaigh, and DIC member King Harris

Since the 1989 end to the Pinochet military regime, Chile has made big strides in development but has in recent years become too complacent, Cristián Larroulet Vignau, AM’80, Secretary General of the Presidency, told the DIC.

“In the first decade, they made a lot of changes but in the second decade, they permitted this “Chilean nap,” he said during his morning presentation to the group.

Chile’s current president, Miguel Juan Sebastián Piñera Echenique, who took office in March 2010, is working to jumpstart Chile through seven priorities, according to Larroulet: growth, employment, crime, health, democracy, education, and poverty. In particular, Secretary General Larroulet referred to education as “the mother of every battled,” citing President Piñera.

Energy Issues

Balancing increasing energy demands with environmental concerns and development needs in poorer countries are in constant tension, according to a series of energy-focused speakers in the afternoon sessions.

Rodrigo Álvarez Zenteno, Chilean Minister of Energy

According to Rodrigo Álvarez Zenteno, the Chilean Minister of Energy, Chile needs to increase its energy supply to meet increasing economic demand.

“We have to double our energy sources in the next decade,” he said.

Not only does the large majority of Chile’s energy resources come from abroad, the country also faces major transmission challenges unique to Chile’s geography and strong opposition by environmental groups to homegrown energy such as hydroelectric power.

Beyond Chile, as the entire world searches for the best replacement for fossil fuels, it is being found that all the alternatives have major disadvantages, said Robert Rosner, professor in the Departments of Astronomy & Astrophysics and Physics at the University of Chicago, and Director of the Energy Policy Institute at UChicago. Coal, hydro, ethanol, hydrogen, fission, and fusion all have drawbacks—fusion’s problem, of course, is that is doesn’t yet exist.

Robert Rosner, professor in the Departments of Astronomy & Astrophysics and Physics at the University of Chicago, and Director of the Energy Policy Institute at UChicago

There is no energy source that is cheap, “clean,” sustainable, reliable, and not too scary, contrary to popular hope. “The only way forward is to change the conversation,” said Rosner.

Check out Rosner’s slideshow here.

Marina Silva, Former Brazilian Senator later added, “We must learn other languages beyond coal, gas, and oil.”

A glimpse at the finances of Chile and Turkey

The economies of Chile and Turkey were the topics of discussion at the evening reception and dinner, delivered by both countries’ ministers of finance.

Dean Colm O'Muircheartaigh and Chilean Minister of Finance Felipe Larrain Bascuñán

Chile’s current growth rate is 5.7%, according to Chile’s Minister of Finance, Felipe Larrain Bascuñán. Given the difficult international economic situation and the immediate GDP effect, a 15% drop, from the devastating 2010 Chile earthquake—one of the six worst ever recorded in the world—he considers Chile’s growth to be at a good, solid pace.

Larrain, who was in the middle of state budget negotiations during the DIC meetings, said a major sticking point in the budget, is education. The country has been embroiled in ongoing student protests over the past few months demanding free education for all university students.

“It is not fair to give free education to everyone,” said Larrain, who had met with student leaders earlier in the day. “Those who can pay, should.”

(The following day, Manuel Agosin, Dean and Professor at the School of Economics and Business at the University of Chile gave DIC members a primer on the Chilean student protests. His Powerpoint can be viewed here.)

Dean O'Muircheartaigh, Turkish Minister of Finance Mehmet Simsek, and DIC member Mehmet Celebi

Minister Larrain’s remarks were followed with a speech by Mehmet Simsek, Minister of Finance in Turkey, who said that Turkey rebounded quickly to pre-crisis growth levels after the 2008 worldwide economic crash, with a growth rate of over 10% in 2011.

Turkey is not without its difficulties, though. Minister Simsek pointed to low savings rates among the population, an average retirement age of 44 years old, and the crises occurring in neighboring countries.

The Arab 1989

The following day, Mehmet Celebi, Partner at Baykam-RBM and DIC member, touched on those neighborhood crises.

The Arab Spring has been a “mixed blessing” for Turkey, according to Celebi.

The constant changing environment has been difficult for the country although it  has been happy about the changes. And now that “the Arab 1989,” as he likes to call it, has happened, Turkey is ready to be a role model in its region and to help it move forward.

“The challenge is to create ideas that are regional and authentic,” said Celebi, who argued that Turkey has had to find a better balance to its formerly too pro-American focus.

Clement explains the reasons behind AON's deal with Manchester United

Buying the rights to the Manchester United jersey sponsorship “was a big bet in a dark period,” said Philip Clement, Global Chief Marketing and Communications Officer at AON.

Clement, MPP/MBA’93, was in Santiago, Chile on Nov. 9 to speak at the opening dinner of the Dean’s International Council’s annual international meeting, a three-day series of lectures from leading scholars, practitioners, and political figures. He walked attendees through the reasons behind AON’s decision to spend a reported $150 million on the four-year deal.

Manchester United’s jersey is Nike’s number one selling product, beating the combined sales of all 32 National Football League teams and the News York Yankees. According to Clement, AON, which was dealing with the effects of a contracting economy, hoped the unprecedented exposure offered by the deal would help their business in three very strategic ways:

1. “Aon United.” As a company made up of 59,000 employees in 120 countries acquired through 435 acquisitions, Aon was looking for a way to make their widespread people feel more connected to each other.
2. Branding. AON identified two possible branding strategies: either to build a global marketing company or to find one program to run out of the Chicago AON headquarters that would have global impact. By pursuing the latter through the Manchester United deal, it assured the AON logo is seen at each weekend game by roughly two Superbowl-sized crowd.
3. New business. the Manchester United connection has helped some potential customers decide in AON’s favor.

Clement showed a few of AON’s marketing videos to showcase how they are leveraging their Manchester United connection. Here is a sampling:

• Taking the Pitch
• AON United
• Pass It On

DIC members and Chicago Harris staff visit Viña Concha y Toro

Clement spoke to the DIC after an informal kick-off event at the second largest vineyard in the world, Concha Y Toro. The DIC acts as an advisory group to the University of Chicago Harris School of Public Policy Studies in issues of international importance. It is also a source for new policy initiatives and resource development.

Economic forces and trends are moving forward in a Levant politically in crises. Turkey, Syria, Lebanon, and Jordan have signed bilateral agreements to promote open markets, free trade, and mobility area between them. Responding to this challenge the private sector of these four countries of Eastern Mediterranean decided in December 3, 2010, when they met in Istanbul, to create the Levant Business Forum. The founding members are the Turkish-Jordanian Business Council, the Turkish-Lebanese Business Council, and the Turkish-Syrian Business Council.

The statute of the LBF has been agreed upon and adopted in Damascus on the 15th of March 2011. The objectives set in the founding document tend to support and promote regional economic integration by encouraging, networking within business sectors, harmonize trade and customs legislation.

By promoting trading and increasing investments, new jobs will be created, solving somehow the endemic unemployment of the young generations. The private sector is thus establishing a permanent dialogue mechanism between the business communities which transcend the political divide. The new Middle East, an area of prosperity, peace and stability will be a zone of growth “oriented through regional cooperation”. The economic interdependence between the countries of the region around the Mediterranean, the Red Sea, the Gulf of Basra, and the Dead Sea will be only achieved through political dialogue, mutual economic dependence, cultural interaction and public support. A road map was agreed, fourteen chapters of cooperation were identified, among them food and energy security.

The Levant Business Forum is a challenging task aiming at bringing the people of the region together regardless of their color, sect or religion by sustaining a high level of business dialogue, and by “supporting coordinating and implementing economic projects which are the basic requirements for free trade and mobility area”.

Economy and creation of wealth will replace conflict and social frustration in addition of fostering growth and prosperity.

The international community has a unique opportunity to help the members states creating a new area of welfare and stability through economic interdependence. By conducting activities aiming at generating new investments and creating jobs we can eliminate a great factor of hostility between the people of the region.

This initiative should be supported. It might be a solution to a greater cooperation between Turkey and the members state with the European Union. Exchange and trade agreement could be signed between the two groups to increase the level of trade, contribute eventually to solve the problem of emigration, and ease the sectarian rift between North and South of the Mediterranean Sea.
In this time of profound political crisis in the Arab World, the LBF is a window of opportunity to bring a solution to the problems of the people of the region through the economy. Welfare, jobs, creation of wealth, freedom of enterprise are the main reasons of the Arab spring.

Are we up to manage the expectations of the young generations of educated Arabs?

As part of the decree appointing 30 Cabinet members, Mikati named another DIC member, Nicholas Nahas, as the Minister of Economy. Nahas is the founder and managing partner of a Lebanese private equity firm which manages buyouts and venture capital funds across industries. Nahas was a founding and managing partner of Ciment de Sibline, one of the largest Lebanese corporations. Nahas also was a founding member of the Rassemblement des Chefs d’Entreprises Libanaises (RDCL) a leading econimic think tank and is the current Vice Chairman of the Association of Lebanese Industrialists.

Mikati was appointed Prime Minister-designate by Lebanon’s President Michel Suleiman on January 25th after winning the support of a majority of members in parliament. He immediately called on all Lebanese factions to end the country’s divisions and form a unity government.

Mikati and Nahas are both members of the Dean’s International Council, an advisory group to the University of Chicago Harris School of Public Policy on issues of international importance. The group is a source for new policy initiatives and resource development. It is made up of prestigious men and women from the United States and around the world—many with substantive experience in government and the private sector.

By Anthony Ghorayeb
Co-Chair, Dean’s International Council

Islam was always considered as a threat by the West. In medieval terms it was the conqueror of Spain, Constantinople and the Balkans. This feeling was reciprocated by the trail of cruelty and plunder left by the Roman Catholic Crusades.

Today, the threat has taken a new shape; it is no longer the military prowess of Islam that concerns the West but the school of thought that has emerged from the Madrassas, which preaches intolerance, extremism and hatred towards liberal thinking. The expression of these teachings is the horrendous terrorist activities that primarily target civilians. There may be numerous causes that contributed to the emergence of such resentment vis-à-vis the West. However the defeat of the Ottoman Empire by European armed forces at the end of the First World War stands out as a landmark among many.

As the days of conquest are over the relationship between Islam and the West has remained uneasy; it is marked by mutual hostility. In addition to the resentment felt by the Islamic World, its failure to play a significant role in international politics has bred a feeling of despair within its masses.

Turning towards the Islamic faith has provided the Muslim world with the answers that their national governments proved incapable of producing. Thus extremism began to grow (or took birth, or put its claws in the people), emerging as a response to perceived threat. Western values, such as materialism, mass culture and all aspects of a liberal way of life, which were exported to the whole world as the means to reach democracy, free speech, human rights and tolerance was considered offensive for many Muslims.

Western culture is thus presented as subversive and godless, meaning that the difference between the “West” and Islam entails an obvious political rift. The above-mentioned antagonism has led Islam to be considered as the enemy of the West and its great contribution to the history of humanity and our present civilization is sadly being ignored.

For it is the wisdom of learned Islamic scholars that allowed for the preservation of Ancient Greek and Roman civilizations thought the Dark Ages. The expansion achieved in many fields greatly contributed to the evolution science, philosophy and literature, which served to the benefit of Europe for centuries afterwards. Islam preserved and transmitted the quest of learning.

We are now witnessing the revival of the territorial and political confrontations of the past, regardless of the positive influence of Arab and Islamic civilizations on Western culture. History flows in cycles; this is the very nature of our society and our system of life. Each cycle is dominated by a typical and unique interaction between culture and civilizations. When the West was dormant in the Dark Ages, the Arab civilization made a great contribution to the human society.

It is becoming imperative to act now and to do so quickly. We have to promote a better understanding of Islam by the West and vice-versa. The aim is to bridge the gap dividing both civilizations.

Experience is telling us that the only way forward to modernize Islam is to investigate ways to develop platforms to renew the political framework of Islamic behavior and attitude within our global world. Failing to act decisively on this issue will have dire consequences in the future and will lead to regular confrontations between the Islamic and non- Islamic world.

The Islamic World is a geopolitical reality. It stretches from North Africa to Indonesia, from the heights of Central Asia to the pacific. This is a fact, which should not be ignored. Therefore the Islamic political movement is not monolithic. It is the reflection of different ideologies and schools of thought that can either refuse, explain or justify extremism, tolerance and moderation. It would be unreasonable for the West to ignore the very existence of extremism in the Arabo-Islamic society, which is equally the result of distorted teaching of Islamic doctrine and political realities stemming from the policy of the West towards Islamic nations.

As mentioned earlier in this article, history flows in cycles, each cycle is dominated by a typical and unique interaction between culture and civilization. The great contribution to society made by Islam during their long history of nationhood and civilization. This should be taken into consideration when attempting to apply solution to the current issues.

The West and the US mainly should adopt a fairer attitude towards Islam in order to help that society to integrate with the outside world without the blunt edge of radicalism

Speaking at a breakfast event on May 27, LaHood delivered a brief speech about a number of new federal initiatives, such as raising gasoline standards for vehicles. By 2016, he said all new models will have a 30-miles-per-gallon requirement. “We’re moving in a completely different direction, and I think the car manufacturers get it,” he said, pointing to new hybrid and compact models.

One of only four Republican’s in President Obama’s cabinet, Lahood also talked about the administration’s new high-speed rail initiative, arguing that the U.S. needs to start integrating all forms of transportation. “The idea that everything is separate, these days, is gone,” he said. “People in America are way ahead of politicians on this.”

Proposed Talking Points

Thank you, Dr. Torshen. A pleasure to be with you today and provide some perspective on critical issues in global financials markets today. Given the background of my fellow panelists–Dr Torshen, with you a leading investment advisor, and our distinguished central bankers from the Federal Reserve Bank of Chicago and the Bank of Lebanon–as well as those of you in the Dean’s Council, I look forward to an engaging discussion.

I would like to first provide some observations and perspective on the financial framework through the prism of looking back at the financial meltdown and forward to the future of the financial architecture.

I was also asked to share some insights on HSBC’s priorities, particularly here in North America, and how we are focused on global connectivity to drive sustainable success.

Observations

It is clear that the acute phase of the financial crisis is over, but the debates continue–as they should–on what we have learned in hindsight and through our experiences. These learnings and insights should inform policies, practices and frameworks for the financial architecture globally and here in the United States.

We can never guarantee a stop to future financial meltdowns, but actions we take can diminish them and make the process–and the result–less destructive.

Thoughts on Central Banks

I think these recent years have seen a testing of the world’s central banks like never before–which our experts here can personally speak to!

I believe it is helpful for the debate on future frameworks to understand the different roles central banks can play, and those of us in the financial industry who play in multiple geographies must navigate.

Central banks all manage monetary policy, and will engage in acts like cutting rates to manage downturns in the economy.

The independence of central banks is vitally important.

Some central banks, such as the Federal Reserve, are also regulators. European central banks have monetary power, but not fiscal power and no regulatory power.

Most central banks don’t engage in fiscal activity–which has pros and cons. When it comes to fiscal policy, most of these powers in most countries generally remain in the political domain.

What are the impacts on practitioners? Be careful what you wish for. Monetary actions in a meltdown generally create a one way street for fixed income. Profits in Treasury books helped offset losses in the baking book–with capital regenerated, allowing lending to continue. Without this the banking model is simply pro-cyclical. An independent central bank can perhaps use its influence to bring down the fiscal deficit; as in regulatory functions it needs to be independent as possible from the political process. Regulation will remain a challenge for all parties. Clearly in 2004 – 2007 banks made some bad loans they should not have made and regulators, among others, failed to see what was happening.

That has all changed as we come out of the financial crisis and try to set ourselves on the right course. The Economist recently noted that “the world’s banking industry faces massive upheaval as post-crisis reforms start to bite.” New institutions such as Dodd Frank in the US and other new institutions in the UK and Europe will require significant new alignment of operating and compliance priorities, which in turn impact structures and day-to-day operating activities.

Going forward, regulators and the banks need to recognize that there has also been a fundamental change in public sentiment and work together to build a more sustainable financial architecture. There is no magic elixir, but I propose some principles on which regulation and the regulatory environment should be based.

Thoughts on proposed regulatory principles

1.    Requirements for more capital, but not so much more that banks can’t create credit.

2.    Less leverage, but again not so tight that you can’t get or create credit.

3.    An architecture for failed financial institutions which: protects depositors; treats others’ debts as it would be treated in other company, i.e., a debt-holder can lose money; protects the institution’s role in the payments system; pushes as much off-balance sheet actions through exchanges when exchanges absorbs settlement losses, etc.; provides for an orderly wind-down process

4.    Ensure products are socially useful and sold to the right people as transparent and easy to understand and fairly priced.

5.    Ensure a functioning mortgage model with sound underwriting standards, a simple but fair foreclosure process and ideally skin in the game for securitized products

6.    Real time monitoring of risk positions

7.    Risk-based pricing for effective guarantees on deposits

8.    Risk and reward are balanced in terms of remuneration and the right people are running the firm

9.    Boards are proactively overseeing the management of financial institutions

10.  The process of regulation as is immune from the political process as possible

What do I think the result of these changes might be?

●     Lower ROE for financial institutions

●     Decreased profitability that will lead to debates of how best to allocate profit appropriately between the company, employees and shareholders

●     A risk that the push for profit will lead some banks into what The Economist recently called “the darker corners of financial markets” where higher risks and returns may lie.

The key to success in building and executing a new framework lies in all parties working together to address and resolve the regulatory and policy changes we face now and going forward. While we can’t necessarily fix the cumulative damage of the most recent financial crisis, we can learn from it and be wiser and better positioned going forward to prevent more damaging change–indeed, build a more sound and resilient framework.

It is in this environment of challenge that I look ahead with optimism and commitment to HSBC’s global strategy and priorities in the US market. Some of you may be HSBC customers, perhaps even shareholders and today in London at HSBC’s Annual General Meeting, our leadership echoed the strategic priorities we present at an Investor Strategy Day just two weeks ago. HSBC views the most significant global economic trend today as the seismic shift of the center of the world’s economy from West to East and South.

Turner discussed areas of the universe that are beyond man’s reach of instruments and understanding–millions of galaxies and the 96 percent of “dark” forms of matter and energy that we can’t measure, he said. Arguing for the importance of cosmic studies, Turner said this research is crucial for societies because they foster curiosity of young future scientists and engineers. He also warned DIC members not to judge what innovative sciences and technologies will and will not be useful in generations to come, adding that no one would have guessed 50 years ago that quantum mechanics would make computer chips possible. “This [type of science] produces the game changers,” he said.

Many thanks to Ghassan Abboud and Mehmet Celebi for sponsoring the evening.

UChicago cosmologist Michael Turner (left) and Chicago Harris Dean Colm O'Muircheartaigh.

DIC members and their guests mingle during a reception at the Adler Planetarium in downtown Chicago.

“This is the most dangerous technology in the world,” she warned.

Benedict has worked at the Bulletin since 2005. From 1999-2005, she directed the international peace and security program at the John D. and Catherine T. MacArthur Foundation, where she also established and directed the foundation’s initiative in the former Soviet Union.

Read her response to the recent Japanese nuclear crisis here.