9:59:59.000,9:59:59.000
Value creation.

9:59:59.000,9:59:59.000
Wealth creation.

9:59:59.000,9:59:59.000
These are really powerful words.

9:59:59.000,9:59:59.000
Maybe you think of finance,[br]you think of innovation,

9:59:59.000,9:59:59.000
you think of creativity.

9:59:59.000,9:59:59.000
But who are the value creators?

9:59:59.000,9:59:59.000
If we use that word, we must be implying[br]that some people aren't creating value.

9:59:59.000,9:59:59.000
Who are they?

9:59:59.000,9:59:59.000
The couch potatoes?

9:59:59.000,9:59:59.000
The value extractors?

9:59:59.000,9:59:59.000
The value destroyers?

9:59:59.000,9:59:59.000
To answer this question, we actually[br]have to have a proper theory of value,

9:59:59.000,9:59:59.000
and I'm here as an economist[br]to break it to you

9:59:59.000,9:59:59.000
that we've kind of lost our way[br]on this question.

9:59:59.000,9:59:59.000
Now, don't look so surprised.

9:59:59.000,9:59:59.000
Now, what I mean by that is[br]we've stopped contesting it.

9:59:59.000,9:59:59.000
We've stopped actually asking[br]really tough questions

9:59:59.000,9:59:59.000
about what is the difference between[br]value creation and value extraction,

9:59:59.000,9:59:59.000
productive and unproductive activities?

9:59:59.000,9:59:59.000
Now, let me just give you[br]some context here.

9:59:59.000,9:59:59.000
2009 was just about a year and a half

9:59:59.000,9:59:59.000
after one of the biggest[br]financial crises of our time,

9:59:59.000,9:59:59.000
second only to the 1929 Great Depression,

9:59:59.000,9:59:59.000
and the CEO of Goldman Sachs said

9:59:59.000,9:59:59.000
Goldman Sachs workers are the most[br]productive in the world.

9:59:59.000,9:59:59.000
Now, productivity and productiveness

9:59:59.000,9:59:59.000
for an economist actually has[br]a lot to do with value.

9:59:59.000,9:59:59.000
You're producing stuff,

9:59:59.000,9:59:59.000
you're producing it[br]dynamically and efficiently.

9:59:59.000,9:59:59.000
You're also producing things[br]that the world needs, wants, and buys.

9:59:59.000,9:59:59.000
Now, how this could have been said[br]just one year after the crisis

9:59:59.000,9:59:59.000
which actually had this bank[br]as well as many other banks,

9:59:59.000,9:59:59.000
and just kind of picking[br]on Goldman Sachs here,

9:59:59.000,9:59:59.000
at the center of the crisis because[br]they had actually produced

9:59:59.000,9:59:59.000
some pretty problematic financial products[br]mainly but not only related to mortgages

9:59:59.000,9:59:59.000
which saw many thousands of people[br]actually lose their homes.

9:59:59.000,9:59:59.000
In 2010 in just one month, September,

9:59:59.000,9:59:59.000
120,000 people lost their homes[br]through the foreclosures of that crisis.

9:59:59.000,9:59:59.000
Between 2007 and 2010,

9:59:59.000,9:59:59.000
8.8 million people lost their jobs.

9:59:59.000,9:59:59.000
Now, the bank also had to then[br]be bailed out by the US taxpayer

9:59:59.000,9:59:59.000
for the sum of 10 billion dollars.

9:59:59.000,9:59:59.000
We didn't hear the taxpayers bragging[br]that they were value creators,

9:59:59.000,9:59:59.000
but obviously having bailed out

9:59:59.000,9:59:59.000
one of the biggest value-creating[br]productive companies,

9:59:59.000,9:59:59.000
perhaps they should have.

9:59:59.000,9:59:59.000
Now, what I want to do next

9:59:59.000,9:59:59.000
is kind of ask ourselves[br]how we lost our way,

9:59:59.000,9:59:59.000
how it could be, actually,

9:59:59.000,9:59:59.000
that a statement like that[br]could almost go unnoticed,

9:59:59.000,9:59:59.000
because it wasn't an after dinner joke,[br]it was said very seriously.

9:59:59.000,9:59:59.000
So what I want do is bring you back[br]300 years in economic thinking

9:59:59.000,9:59:59.000
when actually the term was contested.

9:59:59.000,9:59:59.000
It doesn't mean that[br]they were right or wrong,

9:59:59.000,9:59:59.000
but you couldn't just call yourself[br]a value creator, a wealth creator.

9:59:59.000,9:59:59.000
There was a lot of debate[br]within the economics profession,

9:59:59.000,9:59:59.000
and what I want to argue is[br]we've kind of lost our way,

9:59:59.000,9:59:59.000
and that has actually allowed this term

9:59:59.000,9:59:59.000
"wealth creation" and "value"

9:59:59.000,9:59:59.000
to become quite weak and lazy

9:59:59.000,9:59:59.000
and also easily captured.

9:59:59.000,9:59:59.000
OK? So let's start,[br]I hate to break it to you,

9:59:59.000,9:59:59.000
300 years ago.

9:59:59.000,9:59:59.000
Now, what was interesting 300 years ago

9:59:59.000,9:59:59.000
was the society was still[br]an agricultural type of society,

9:59:59.000,9:59:59.000
so it's not surprising[br]that the economists of the time,

9:59:59.000,9:59:59.000
who were called the Physiocrats,

9:59:59.000,9:59:59.000
actually put the center[br]of their attention to farm labor.

9:59:59.000,9:59:59.000
When they said, "Where[br]does value come from?"

9:59:59.000,9:59:59.000
they looked at farming,

9:59:59.000,9:59:59.000
and they produced what I think[br]was probably the world's first spreadsheet

9:59:59.000,9:59:59.000
called the "Tableau Economique,"

9:59:59.000,9:59:59.000
and this was done by François Quesnay,[br]one of the leaders of this movement.

9:59:59.000,9:59:59.000
And it was very interesting,

9:59:59.000,9:59:59.000
because they didn't just say[br]"farming is the source of value."

9:59:59.000,9:59:59.000
They then really worried about[br]what was happening to that value

9:59:59.000,9:59:59.000
when it was produced.

9:59:59.000,9:59:59.000
So what the Tableau Economique does,

9:59:59.000,9:59:59.000
and I've tried to make it[br]a bit simpler here for you,

9:59:59.000,9:59:59.000
is it broke down the classes[br]in society into three.

9:59:59.000,9:59:59.000
The farmers, creating value,[br]were called the "productive class,"

9:59:59.000,9:59:59.000
and then others who were just[br]moving some of this value around

9:59:59.000,9:59:59.000
but it was useful, it was necessary,[br]these were the merchants,

9:59:59.000,9:59:59.000
they were called "the proprietors."

9:59:59.000,9:59:59.000
And then there was another class[br]that was simply charging the farmers a fee

9:59:59.000,9:59:59.000
for an existing asset, the land,

9:59:59.000,9:59:59.000
and they called them "the sterile class."

9:59:59.000,9:59:59.000
Now, this is a really heavy-hitting word

9:59:59.000,9:59:59.000
if you think what it means,

9:59:59.000,9:59:59.000
that if too much of the resources[br]are going to the landlords,

9:59:59.000,9:59:59.000
you're actually putting the reproduction[br]potential of the system at risk.

9:59:59.000,9:59:59.000
And so all these little arrows there[br]were their way of simulating --

9:59:59.000,9:59:59.000
again, spreadsheets and simulators,[br]these guys were really using big data --

9:59:59.000,9:59:59.000
they were simulating what would[br]actually happen under different scenarios

9:59:59.000,9:59:59.000
if the wealth actually wasn't[br]reinvested back into production

9:59:59.000,9:59:59.000
to make that land more productive

9:59:59.000,9:59:59.000
and actually being[br]siphoned out in different ways,

9:59:59.000,9:59:59.000
or even if the proprietors[br]were getting too much.

9:59:59.000,9:59:59.000
And what later happened in the 1800s,

9:59:59.000,9:59:59.000
and this was no longer[br]the Agricultural Revolution

9:59:59.000,9:59:59.000
but the Industrial Revolution

9:59:59.000,9:59:59.000
is that the classical economists,

9:59:59.000,9:59:59.000
and these were Adam Smith, David Ricardo,[br]Karl Marx the revolutionary,

9:59:59.000,9:59:59.000
also asked the question "what is value"

9:59:59.000,9:59:59.000
but it's not surprising that[br]because they were actually living

9:59:59.000,9:59:59.000
through an industrial era[br]with the rise of machines and factories,

9:59:59.000,9:59:59.000
they said it was industrial labor.

9:59:59.000,9:59:59.000
So they had a labor theory of value.

9:59:59.000,9:59:59.000
But again, their focus was reproduction,

9:59:59.000,9:59:59.000
this real worry of what was happening[br]to the value that was created

9:59:59.000,9:59:59.000
if it was getting siphoned out.

9:59:59.000,9:59:59.000
And in "The Wealth of Nations,"

9:59:59.000,9:59:59.000
Adam Smith had this really great example[br]of the pin factory where, he said,

9:59:59.000,9:59:59.000
if you only have one person[br]making every bit of the pin,

9:59:59.000,9:59:59.000
at most you can make one pin a day,

9:59:59.000,9:59:59.000
but if you actually invest in factory[br]production and the division of labor,

9:59:59.000,9:59:59.000
new thinking,

9:59:59.000,9:59:59.000
think of it today we would use the word[br]"organizational innovation,"

9:59:59.000,9:59:59.000
then you could increase the productivity

9:59:59.000,9:59:59.000
and the growth and the wealth of nations.

9:59:59.000,9:59:59.000
So he showed that 10 specialized workers

9:59:59.000,9:59:59.000
who had been invested in[br]in their human capital

9:59:59.000,9:59:59.000
could produce 4,800 pins a day,

9:59:59.000,9:59:59.000
as opposed to just one[br]by an unspecialized worker.

9:59:59.000,9:59:59.000
And he and his fellow classical economists

9:59:59.000,9:59:59.000
also broke down activities[br]into productive and unproductive ones,

9:59:59.000,9:59:59.000
(Laughter),

9:59:59.000,9:59:59.000
and the unproductive ones weren't --

9:59:59.000,9:59:59.000
I think you're laughing because

9:59:59.000,9:59:59.000
most of you are up[br]on that list, aren't you.

9:59:59.000,9:59:59.000
(Laughter)

9:59:59.000,9:59:59.000
(Applause)

9:59:59.000,9:59:59.000
Lawyers!

9:59:59.000,9:59:59.000
I think he was right about the lawyers.

9:59:59.000,9:59:59.000
Definitely not the professors,[br]the letters of all kind people.

9:59:59.000,9:59:59.000
So lawyers, professors,[br]shopkeepers, musicians.

9:59:59.000,9:59:59.000
He obviously hated the opera.

9:59:59.000,9:59:59.000
He must have seen[br]the worst performance of his life

9:59:59.000,9:59:59.000
the night before writing this book,

9:59:59.000,9:59:59.000
because there's at least[br]three professions up there

9:59:59.000,9:59:59.000
that have to do with the opera.

9:59:59.000,9:59:59.000
But this wasn't an exercise[br]of saying, "Don't do these things."

9:59:59.000,9:59:59.000
It was just, "What's going to happen

9:59:59.000,9:59:59.000
if we actually end up allowing[br]some parts of the economy to get too large

9:59:59.000,9:59:59.000
without really thinking about[br]how to increase the productivity

9:59:59.000,9:59:59.000
of the source of the value[br]that they thought was key,

9:59:59.000,9:59:59.000
which was industrial labor.

9:59:59.000,9:59:59.000
And again, don't ask yourself[br]is this right or is this wrong,

9:59:59.000,9:59:59.000
it was just very contested.

9:59:59.000,9:59:59.000
By making these lists,

9:59:59.000,9:59:59.000
it actually forced them also[br]to ask interesting questions.