Reporter, why he would become a killer, a criminal. Why things happen that way. I would think that it needs to be the way al jazeera would do issueld go deep into the and look into all the possibilities and the reasons and bring experts to talk about it. That is the way we do it. Host director general of the al jazeera network. Thank you for talking about the network. That will do it for our show today. We will see you right back here tomorrow morning at 7 00 a. M. Eastern. The carnegie to endowment for International Peace for a discussion of the Economic Impact of lifting the sanctions on iran. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] good morning to all of you. I will give you a few seconds to take your seats and we will get started. Lets get started. I want to welcome all of you to the carnegie endowment. Im a senior associate here. I wanted to welcome our guest speakers today. He is the chief economist for north africa at the world bank and the author of the report will be discussing today. Very insightful report on economic applications of lifting sanctions on iran. To my right, to my left is my friend and colleague from carnegie endowment, also a former senior official at the world bank. We only have about 60 minutes today is what wanted to jump right into it and it will have a discussion amongst ourselves and then handed over to all of you. Thank you very much and thanks to carnegie for inviting us. I should say im one of the authors of the report. I happen to be the boss. That is why i think i need comes out there. One of the other offices here as well authors is here as well. We did this because we thought the Nuclear Agreement of july 15 was one of the most important events of this time. It is going to have important economic applications for the world as a whole but also for iran in particular. I have to confess we also thought that this was the dog days of summer that our report would be the most important event to come out but i think we were wrong. [laughter] the summer has been quite chaotic with greece in china. Nevertheless, we think it is important to try to understand the economic applications of the lifting of sanctions on iran. This is a very difficult and competition problem. There is no crystal ball. We have to use a variety of different techniques and we were trying to triangulate the implications using different methods. Sometimes methods that are not exactly consistent with each other. To organize it, we said we look at the applications at the global level. What is going to happen on the Global Economy, the effect is going to have on irans trading partners, and what its going to do to the iranian economy itself. First, lets start with a global level. The most important implication that the global level is the increase in oil exports by iran as a result of lifting sanctions. As you can see there, when sanctions were tightened, particularly the European Union sanctions of 2012, there was a significant drop in irans oil exports by roughly one Million Barrels a day. You would also notice for later reference that the composition of trading partners also shifted. Europeanrop within the the trade with western europe. Whereas trade with the eastern oil expertsartners, to eastern partners actually increased in some cases and certainly the proportion was much larger. What we did was we said as a first approximation say that irans exports were going to grow by one Million Barrels a monthsabout a six to 12 after the accord is ratified. That is what people expect and the time needed to bring production backup to this level. We took that assumption of one Million Barrels a day and simulated it in a multicountry model. This is a model of multiple countries that are trading with each other and then we insert an additional one Million Barrels a day of iranian exports. We also simulated the effect of lifting some of the other restrictions and that sections had on insurance and services trade. Those turned out to be less significance. The big effect is that these additional one Million Barrels a loweringn effect on a World Oil Crisis by 14 . Some people, and i myself was surprised because one Million Barrels a day does not sound like a lot. 14 . O you get a drop of its really the other side of the coin of the fact that oil demand is quite inelastic. We normally talk about inelastic oil demand in terms of when the price of oil goes up, demand is not fall very much. It only falls a little bit. The other side of the coin is when you have an increase of supply of a small amount the price will fall by quite a large amount. As you can see from this graph that if you have a shifting in the supply curve of one Million Barrels a day given how steep the demand curve is the get a pretty big drop in the price of oil. Purehe here affect effect of the one Million Barrels a day. It is not a prediction about where oil is going to be six months or now or a year from now because lots of other things determine the price of oil including growth in china or europe or everywhere else. Simulationhis is a that assumes no strategic behavior by other Oil Exporters. Followinglar we are what seems to be the case with other Oil Producers, particularly the ones with swing capacity like saudi arabia. Which when the white price of oil fell in 2014 they did not adjust their production. They continued keeping this production their production as it was. The effect of the additional one Million Barrels a day in the drop in the price of oil on Different Countries because that is what we are trying to get at. We express this in terms of welfare but you can think of it as a measure of income. Its just a little bit more precise and expression of income. Increaset is about 3 in welfare for iran itself. Iran is the one country because it has an additional quantity exported and there is the price of oil falling is going to be a net gain or even though it is an oil exporter. If you look at other countries, the Oil Exporters, they typically lose because for them the price of oil has fallen as a ult of the additional increase in iranian oil exports. And Oil Importers gain. Term tradeclassic shock weve experienced in different ways with the price of oil in different times in history. Secondurn to the question we were asking which is what is the effect on trading partners . This is the global model but doesnt actually look closely at irans bilateral trading relationships. Techniqueifferent which was to try to simulate, or try to track irans bilateral trading relationships using what is called a gravity model. Its basically looking at the growth rate of the trading partners and irans own growth rate and seeing what that trade would of been in the absence of sanctions. We looked at what the effective 2012 and 2013 were, by how much that trajectory of trade changed as a result of the events of 2012 and 2000 1320 eu sanctions 2013 when the eu sanctions became binding. And you can see that on this last column here there was a loss of exports over those two years of various trading partners, including some of the western european ones which you would predict. 17ling to Something Like billion, or about 3. 5 of gdp over a twoyear period. This could be thought of as the net effect of sanctions on exports. And conversely this is the amount by which we might expect exports to go back up once sanctions are lifted. The other thing is that the composition of trading partners. Because what happened both before sections became tightened as well as during the sanction era, there was a shift towards eastern partners. Irans president had been looking east for policy. They were trading more with russia, korea, china, india, and so on. That process accelerated during the sections era. I think what we will see with the lifting of sanctions is just an increase in trade with the west. Simply because that was what was cut during the sections era. But also because the composition of goods they trade with the west are very different. Iran basically buys consumer goods from the eastern partners but it actually buys hightech machinery and equipment from the western partners. It is in dire need of those having neglected technology upgrading during the sanctions period. Let me turn to the third part which is the effect on the iranian macroeconomy, or the iranian economy. I think that many of you know is that during the period of sanctions being tightened iran went into a recession. Quite a deep recession in fact. Growth has now become positive just this last year to about 3 . We expect that to be somewhat higher with the stimulation stimulus offered by the increase in oil exports. The spending of Oil Export Revenues are going to revive the economy and we expect growth to 2017. Ut 5 6 by that is one side. The other big issue in a run as unemployment, particularly youth unemployment. Here there is an interesting twist to the usual story. If you look at Unemployment Rates and Labor Force Participation rates, particularly if you split it up between women and men, we found a very interesting pattern before during sanctions and that pattern was one where the Unemployment Rate for young women actually went up. And the Labor Force Participation rate went down. Women were dropping out of the labor force as well as where increasing employment. The Unemployment Rate for young men actually went down. This is a bit of a surprise. If you think about it, it is one of those cases where economic whatlly is useful because was going on there was during thesanctions period currency depreciated. It depreciated rapidly. When the currency depreciate second evaluation, the trade sector is relatively more profitable relative to the nontradable sector. Women were mostly in the nontradable sector in services, whereas the men were in the tradable sector like manufacturing. You had the shift of the pattern of employment where the Services Sector was the one suffering from the depreciation. Women were having trouble finding jobs and many of them dropped out of the labor force at that time. Whole buy the story, the pattern would reverse with the end of sanctions. The lifting of sanctions. What do we get from an exchange coming into the country and the Services Sector would start growing and you would be able to absorb women back into the labor force in into employment. And the tradable sector, that is my last point, the tradable sector might suffer. This is the nonoil tradable sector might suffer. This is important because this event, the lifting of sanctions, can be thought of as a windfall to iran. But it really matters how you manage this windfall if it is going to generate any kind of sustainable growth. There is some concerns. Thehe report we track experience of previous windfalls. There have been windfalls before with the price of oil rippled doubled and tripled. The windfall was not very impressive. In 1973 when the price of oil shaw decidedhe to sideline the National Planning office and decided by himself on a Public Investment projects to be spent on that and they were not very well designed or managed. It was really a wasted opportunity. When Commodity Prices rose in the early 2000s, another windfall because iran was exporting oil there because the sections and not started becoming binding yet, there was a big windfall. When there was this windfall to get a Real Exchange rate appreciation. The price of nontradables are going up. Traditionally you expect the nonoil tradable sector to suffer. Perioddid during that except for two sectors, pharmaceuticals and petrochemicals. Those continue to grow exports. It turns out those of the to that perception dies the most subsidized the most. The president at the time when to promote these two sectors as exporting sectors, particularly to the eastern partners. Not only do they receive direct subsidies, but these are the sectors that received and benefited the most from the Energy Supplement subsidies. The reason they kept the nonoil tradable sector going in these two areas with huge subsidies, which is a very inefficient way. My final point is that at this time lets try to make good use of this windfall and ways to do thinkould be i dont the Real Exchange and appreciation can be avoided. That is just a phenomenon of market forces. But we can do something in iran about lowering the cost of production of these nonoil tradable sectors. By removing some of the manmade constraints to doing business. There are lots of constraints that are really policy and bureaucratic restraints and the lack of competition in many of the sectors, that if we can intimate some of these policies and reforms you can bring down the costs even when the real change rate is appreciating. Secondly, infrastructure. In particular, iran has a good infrastructure in some ways. But Telecommunications Infrastructure has been neglected. For theseitical nonoil exporter will sectors because they need telecom. Particularly the hightech ones. This is what is going to be key for the postoil era. Iran actually has to start preparing for what its going to do in the oil runs out. There is tremendous potential in this country. It has a highly educated population and he want them to move to the nonoil era, you have got to the knowledge economy. Those of the things that require hightech communication equipment and good infrastructure excellency Company Policy for business environment. On wall street they say never confused genius with the bull market. Is never confuse wisdom of the high prices of oil. [laughter] to you areover not using slides, are you . No, im just point to speak. Lowtech. I would like to congratulate my team foranta and his the conference of analysis of the lifting of irans sanctions. Let me say a bit on the study and a bit on policy applications. The study brings home a couple of things. How devastating the intensification of sanctions since 2012 has been on the iranian economy and how important the boost of lifting them will be. It makes you understand better why iranians came to the table, and also why the negotiators are confident that they are unlikely , the western negotiators so to speak, they are unlikely to flout the agreement in the future. The report shows the lifting of sanctions will be beneficial for the World Economy overall, even though Oil Producers will lose. It is a striking fact that the economies of developing countries on average are about 25 30 bigger than they were prefinancial crisis. At the iranian economy is not much different than it was then. Highlights in a simple way, were talking real money in these numbers. The report discusses the lifting of sanctions as a windfall which suggests a onetime big game gain. The lifting of sanctions should not be called a windfall in my view. It is much more of a fundamental shift in the iranian economy. An economic regime change, not a political regime change. An economic regime change. It should be looked at as the potential for a new start, a start were iranian iran integrates into the world market and an integral way. We are confident with the lifting of sections. Could run upains significant larger than the 2 a year or so estimated in the report. Because in addition to the onetime boost to all exports, and the efficiency effects of trade opening, you have to factor in a sustained increase in total productivity growth and in private investment. Not only Foreign Investment, but also domestic private investment. Chanta is absolutely right to stress that these beneficial will depend dominantly on how iran deals with the new economic regime. As an opportunity to enact Structural Reforms and clean up its governance or alternatively an opportunity to capture by the state and its associated special interests. And possibly get up to no good abroad. Iran is a large and sophisticated economy. About the same size in terms of population and income as turkey. Larger andabout 40 40 richer perperson roughly than egypt. It is much more than an oil economy or an oil state. Cars. Uced 1. 6 million that is almost three times as many as italy produces today. Admittedly, italy is not a good example of efficiency. [laughter] i was working in italy when they were producing 2 million cars. 1975. Iran has an effect on world trade and investment oneworld treatise stuttering. The report says iran could the number could be much higher than that. Inkey attracted 13 billion 2013 and turkey does not have huge oil reserves in need of technology and money to restart and expand. As for the effect on oil markets, the report stresses the biggest gain for the World Economy. I have to say i have my doubts as to whether this is good for the world today. I understand the point that it improves the incomes of Oil Importers, including the United States. The incomes of Oil Exporters. But the point is we live now in a lowinflation, low price world. We live in a low price world. Low oil price world. I believe you can have too much of a good thing. The oil prices already fallen so fast and so low that the wellknown destabilizing effects on the budgets of Oil Exporters and on the income statements and Balance Sheets of companies and the oil sectors are already very significant. They could outweigh the positive effects of consumer demand. Looked at another way, oil is today a much more a part of the Family Budget but it is absolutely critical at the margin for Oil Producers. Even though oil prices from carbon and the increased Oil Consumption that it implies. As i mentioned in a report last month in this room, it is amazing to me how the ifi, International Financial institutions, can submit analysis to put climate on the top of the list and then to ignore the next. Finally, a word about business and about economic policies. Businesses have already assumed that the deal is going to go ahead and have been flocking there for months. The opportunity sign investment in the Energy Sector and in providing all manner of goods and especially services. How big the opportunities turn out to be depends on the Energy Investment regime iran put in place on the evolution of the Real Exchange rate on the International Investment regime and on the growth of the iranian economy. Obviously the numbers on these policies are in the hands of iranian politicians. But the International Community is not without tools to help influence this process. Perio hasughout this continued to received from the imf and cooperate with them. And apparently to listen to them. The message we have is that in all respects they are moving in the right direction on Macro Economic policies. Businesses will be looking for sound fiscal monetary policy. A sense that inflation under control. That the Exchange Rate is simple. The Exchange Rate regime is simple and nondiscriminatory. The Exchange Rate must be realistic. Imf can help on all of these. As important is the effect it ironic renewed its did ended artie has several times to join the world trade organization. Its a multiyear process. Its a very frustrating process. But it is also one that provides a unique opportunity to reshape irans economy for modern times. A tough wto negotiation will economyn an iranian with more uniform tariffs, more liberal investment regime, affecting particularly trade service, a reduction in the role of state run enterprises, respect for International Standards and norms, including intellectual property. Crucially, if it is done well, the wto negotiation will greatly strengthen the hands of reformers in a run. Iran. For the World Bank Iran would represent the single most important active program in the middle east region. There will be large lending arertunities, and these obviously important for the banks efforts. In the end the money will be secondary in iran. The bank will bring in normas experience enormous extremes and analytical resources on irans most pressing challenges. Regime,g the trade improving competitiveness, upgrading infrastructure, modernizing the education system, established a more transparent governance mechanism, reforming the labor market and the list goes on. I want to say the developing economies learned the hard way that the Economic Analysis is not the most important. It is the politics, stupid. I may be naive but i like to believe that if iran can make substantial progress in terms of growth and economic integration and that the benefits are felt by families and the young, that the politics will gradually change. Chanta report helps clarify everyones thinkings. Let me start with a simple question which probably doesnt have a simple answer. Production and exports are projected to double at a time when the price of oil has recovered more than half, could we look back a few years from now and see this opening up with a negative. That the gdp was higher when they were sections . Iran. Ifn the case of you think about it , iran is still currently in oildependent economy. Their comparative advantage was oil in a was the one thing they cannot produce. Or they were not able to export much. Even if the price of oil falls, it will not fall so far that iran will suddenly discover its comparative advantage with something else. There will be a game. The magnitude of the benefits will be lowern. There is no question about that. I think there is still a net gain. Those figures are debated about the price of oil for the iranians to be able to balance its budget. Do you have an assessment of that at the bank . Let me ask my colleague. I dont think we have an for iran. 100 . Assessment an let me move the subject slightly. Both of you have been working in the field of developing economics for a long time. There was an interesting piece in theyanmar, burma wall street journal about how the countrys economic opening has enriched government cronies and military cronies and it has not trickle down to the population of myanmar. Ityou can kind of project two or three years forward based on a comparative perspective that you have, how do you see this potential removal of economic sanctions playing out within a run . Iran . What other kind of countries which often times people who do Political Science like to invoke 1970s china or the soviet union, is there another country or region in which you find most applicable to irans potential . Guy can answer a little bit on the first part of the question which is we have done some analysis on several other countries in the region, europelarly tunisia and egypt. We find the unappointed problem is directly related to crony capitalism. Ben alithat if the regime in tunisia had control family connections that on the banking sector, the telecom sector, and the transport sector. As a result those sectors stood in the way of export. There is some work by kevin harris at princeton that is trying to do a similar kind of analysis of iran. It is preliminary work. He is finding various connections in the private sector with the regime. That could lead to similar consequences. Itk there is a concern is really transferable competition so that elite capture does not get in the way of promoting. I agree completely with what he said. What i would add is that on principles, not having means to iran now or ever, im just looking at the data. And comparing it with other countries. That hasa country that been closed for a while there has been a big shift in. Esources you cannot import. This is somewhat artificial. Positionshat a lot of have been developed and is highly distorted and relatively isolated economy. In the course of the last three or four years. Why i havese this is put so much stress on the wto negotiations. Which the iranians are really very keen on and they keep coming back to it. That is precisely what the deputy of negotiations can help offset to a degree. By putting forward the interest of exporters and creating a Binding Mechanism for the reformers in the country to change things. That is what is happened in china, vietnam, a number of other countries. Serious wtont negotiations. The other point i would make is is drawing a little bit from the recent experience in egypt. If the regime is confident and well entrenched, a can take on its special interests more easily. If the regime is feeling secure, andand youre the best judge of that, not me, then its capacity to confront cronies and special interests is more compensated. Is been anthere evolution in the thinking in washington about the wisdom of irans acceptance of the wto. Because in the past, during the bush administration, that was received as a carrot and we should not offer that to them. Sense there is an economic mafia joining uw geo and is not necessarily injured his wrist. In your interest. A couple more questions were handed over to all of you simply set your questions ready. Werelk a little bit there the potential winners and losers as a result of the removal of sanctions. The winners are major Oil Importers, china, europe. Additional users are the major the potential losers are the Oil Producers. Maybe other countries that are not necessarily in the obvious categories that this economic category might have. Devarajan just to be clear, we were talking about winners and losers as a result of the effect of increasing oil exports on the world oil price. That was simply that one particular thread that we were tracing through. There are lots of other implications as a result of the nuclear deal, including the lifting of sanctions that will change the pattern of winners and losers. There are people who are saying that this could actually lead to Greater Peace in the middle east region. There are some huge winners there like all of us. But couldnalyze definitely be part of the story. I want to stress with a set at the beginning. We have already had this big boon from oil prices. Actually the result of been quite disappointing in terms of Economic Growth. In part because, im talking about the decline in oil prices that is already occurred, in part because the effects on investment and many Oil Exporters has been more important than many had anticipated. They cut back quite a bit in instancesse in many the benefits of Lower Oil Prices had not filtered down to consumers. Sometimes for good reason because they would use subsidies. In the case of iran as well they have a very Serious Energy subsidy reform program. Because some governments just needed more taxes. They have increased taxes. The effects of been quite disappointing. What worries me most now is that there are a lot of precarious situations among the Oil Producers. I dont assume i understand the of the transfer of resources being from low spenders to high spenders. Being positive for world demand in the short term. I question that is the case now. Concerned that further Oil Price Declines will mean no effect on the world aggregate demand and perhaps a decline in world aggregate demand because of the effect it has on all producers at this oil low level of oil prices. I meant to respond to one of your comments earlier. I think it is important to separate two things which is the effect of an increase in oil supply in the market and its effect on oil prices. From the secular decline in those prices we saw towards the end of 2014 and we are seeing again now, which is more on the demand side. One of the reasons we are not seeing this growth has a result of the Lower Oil Prices is because its a lack of growth that is putting oil prices down. We have to separate those two. They are two different phenomena. Inflation is also as a result of the lack of growth. We are seeing a slowdown in china, lower growth in china, lower growth in europe. And they sent recovery in the United States. Sadjadpour i remember when the major financial crisis happened, the Global Crisis happened in 2008. It did not really affect the Economic Situation in tehran. Iran bragged about having was basically immune to Global Economic trends. Putting aside the price of oil, some of these major collapses were having happening in emerging markets. How do you see that impacting the Economic Situation in iran moving forward . Devarajan it is still the case that iran is not all the intricate it integrated into the Global Financial system. I think the effect of the , iran in theil near future will be through the oil prices. That is the main channel were going to see until iran becomes more integrated in the Global Financial system. Sadjadpour handed over to all of you. If you just introduce yourself and be as brief as possible. Michael gordon. Under this following up on the notion of winners and losers, la, a ratherp l. A collocated document, there is a long list of banks, companies, individuals, enterprises of various sorts on whom sanctions are removed. And it is a phased process. Some are removed right away on implementation day when the nuclear conditions are met. Some are removed on transition day eighrt years down the line. And in some cases they are to be removed by the European Union but not necessarily by the United States, depending on the entity involved. Many, if not most of these enterprises are linked to the irt and the people that event involved in nuclear programc. Did yoution i have is examined within the framework of the iranian economy what the effect is on removing these sanctions in terms of strengthening or weakening areas players . Does the agreement strengthen linked companies and if the string been a week of these companies encourages economic reform in iraq . Discourages it, or has no effect . Devarajan it is a big question and a very important one. We did not look at that. Reasons that you alluded to. It is very collocated and there is a lot of uncertainty even over how much money there is that is being blocked. I read an article in the New York Times about the range of estimates. We really did not we ducked that issue. Its potentially very important. We also dont want to mix of stocks. We are talking about the effect of the lifting of sanctions on the productive capacity of the economy. These are assets that are sitting there, the money is sitting there in the question is will they be able to use it rather than have it frozen . Its a question of how much money there is and also its a political judgment for how they will use it. We dont have any prior of howdent assessment those resources will be used. Because of the fact that economicbenefited from isolation, they fell behind by the International Oil companies. Somehow this economic opening will be integral to the juice of the revolutionary guard. And a rising tide all boats rise, and the guard will stand to benefit from this as well. The question is if they stand to benefit from opening up more than the population. That remains to be seen. Thats why i asked about burma. These things happen and often times we look back if it is russia or burma in retrospect and we say to cronies got very wealthy but it did not necessarily trickle down to the people the way they anticipated. I will come back to the back. My question is a bit more with regards to domestic politics and its effect with regards to Economic Reforms. Iran has talked about Economic Reforms for years. Part of what there is not been a lot of success has been there is not been this sort of consensus is among the different political actors. And basically the lack of political will. Has quite an extensive economic reform plan in my is what are some areas where iran will have an easier time politically instigating , basicallyse reforms developing the productive factor as well . What are some areas where they might have to wait a bit longer to do later on . Sadjadpour great question. Hello, my question is for you mentioned the economic regime change. You honestly it knowledge that relies on choices. I want to take it one set backwards. How can we say that the postdeal economic environment constitutes economic regime change when a run will be facing stronger sanctions in place for the next several years than it thebefore the 2001 when 2010 with the two sections regime with put in power was put in power . Aen if they managed to insert clause in case of sanctions. And when the u. S. Implementation sanctions on other issues have become much stronger and much more effective over the years . Economic regime change or other going back to something similar to what it was before 2010 one there were still a lot of restrictions in place . Sadjadpour lets take one more. We did a study on iran and i think one of the implications of lifting the sanctions, it respected the position of the romney government. That brings me to the issue raised that lifting the sanctions is good for the moderate government. They will proceed further with reform. With the sanctions, the hardliners benefit more. That speaks to the issue of Exchange Rate. Windfall. Tioned the i think it will not allow significant depreciation of the official rate. What happened is that the black market rate will appreciate and you will eliminate the spread between the two rates. Any appreciation of the Exchange Rate which we very small, only 10 , the black market could be offset with further structural reform. The rouhani government will go ahead with the reforms in an environment where the sections are lifted. Questions. Some good that arethe sectors less sensitive than to try to reform economically . Devarajan i was hoping you would answer. [laughter] it is really a areination of which sectors where there is a economically compelling case for reform. And there is a political window. Butnt know about sectors certainly the whole area of subsidies seems to be a high priority on both sides. There was a political imperative to do something about subsidies because it is draining the fiscal balance in honestly. Obviously there is an economic benefit. Be more so than others, did an amazing reform of subsidies seven years ago. A replaced fuel subsidies with cash transfers, with a particular twist which was keeping in mind. I keep telling other countries to do it. They provided the cash transfers ahead of the reform and a waiver people can see the money in the bank account but they could not spend it until the reform was done. This shifted the political balance because all of a sudden people are sweet said they were supporting the subsidy reform because now they could use the cash transfers with incredible opportunity. For various other reasons it did not work out so well now the subsidies are back. I think having done it once there is a chance they might able to do it again. On the point of if it will be politically easier, it will be politically easier where the economic case is compelling. The compelling case in my view is especially compelling. But it isn subsidies, especially compelling and the whole Energy Sector where there will be they will be desperate to attract Foreign Investment. Regime that they have and they are moving in the direction desired by International Oil companies. They will be looking for Foreign Investment because there are many good reasons to get Foreign Investment. Particularly Foreign Investment which is a generation of employment and a transfer of and funding, access to funds. This should be a relatively easy play in many sectors except in are mostre the cronies prominent and most sensitive. I would expect trade ineralization by definition the manufacturing and trade will sectors to be a particularly tough not to crack because tough nut to crack because of you have when you have an industry that from a protected and staterun Enterprises Play a big role, that is very tough to open up quickly. I go back to the wto into the negotiations. Im not sure fully i know enough to answer your question. I started from the assumption that sections are lifted. I am sure im not even familiar with all the details but im sure this will take time. There are a number of hoops to go through including in the next month. Lifted, sanctions are which is the intention of the deal, and this may take a year or two or three for to come to arguetion, then i would that you are dealing with a different iranian economy. An iranian economy that can be part of the world system. Honestly, i was very surprised and look at the numbers. How devastating the effect of sanctions has been. It is really enormous. Stress that i remained of the opinion that this is an economic regime change potentially for iran. Isjadpour one point which the ayatollah maney says economics is for donkeys. His successor has not said that but he has never but the countrys economic interests as a first or second tier priority. Some of the things that economy economists talk about witches nobrainers from a purely Economic Perspective are not obvious from the perspective of an authoritarian ideological regime. You mentioned telecom. If youre an authoritarian ideological regime, you do know what to cede control of the Telecom Industry to know kia or nok forokie or not an outside companyia. , the difference between iran and some of the other countries in the region is that i would argue this regime is actually has actually fear the growth of the private sector in the country. They will not see political control to their adversaries. That is why trying to open iran up economically is helpful to those forces that would to see changed. But i think we are navy naive if it think the hardliners will of was if we open up the doors and potentially we can holden. Ld weak their there was a woman in the front. Shanta, on the gravity model results china was not in their. There. [indiscernible] iran [indiscernible] thats exactly right. Thank you. There was a lady here in the center. This will be a final question. Thank you. Judith barnett from a commercial perspective, once the implementation date passes there will be a whole lot of trade with a companies versus american companies. In the next three to five years, assuming this works out as well as can be expected, how do you see the agreement affecting u. S. Companies overall . I know it is a pretty good big question but just wondered if you could comment on that. Very good. Thank you. Yes. This is one of my worries. , to putof the animosity it bluntly. Because of the animosity towards the United States that we have discussed. On the other hand, the united has a lot of stuff in its corporate sector. That is what is the richest country in the world. , ahas a lot of Technology Lot of stuff that iran needs. It has companies with enormous financial clout in a number of other sectors. And so i think the United States is that a disadvantage is at an advantage. It is not a disadvantage right now it is at a disadvantage right now and a lot of other countries are. But again, the United States has in norma, and if we can get them on the move to normalization than the United States can be a significant winner. I just think that as long as irans permission to israel and it supporte for hezbollah and other groups remains the same, congress is not likely to lift the u. S. Sanctions against iran, and the situation will simply go back to what it was in 2005, in which your European Countries were importing oil but the united es was still likely largely shut. If you want to talk about it like that, the u. S. Still does have some things that i exploit because there are some high tech equipment and technology that only the u. S. Produces. And it is needed in iran. It may not be in the big oil aspanies, it may not be far as i know it seems like the french and germans are already ,n tehran beginning their deals so the u. S. Might be too late to the party on that. But there are still plenty of things that the u. S. Produces that nobody else produces and at this very high tech level, which is still needed in iran. There was i like this question because i do agree, my fellow chief economist over here, read every want to call it, that is exactly the point. You can make the real appreciation, however it transmits itself, work for you. That is how successful countries have done it. That is what i was saying about that you usee sure it in a way that the nonoil tradable sector can continued to grow. Thank you all for coming. We hope to have you guys back. Thank you ray much. Thank you very much. [applause] [captions Copyright National cable satellite corp. 2015] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] you can see this discussion about removing the sanctions against iran, if you missed any of it, on our website. As you cspan. Org. Going live down to the Heritage Foundation to hear from the former undersecretary for International Trade, grant aldonas. He is expected to speak about the Global Economy. This is just getting started. We had lost in particular the ability to lead the world out of recessions and economic troubles, which i ensure all about it immense, particularly grant, will be talking about. To get us started, grant will deliver some remarks. Many hats and has a wide range of experience in trade and Economic Policy and law. To 2005, roughly the same time i was at the state department, and with undersecretary of commerce for International Trade. Dealser of historic trade were enacted while he was in office including the normalization of trade deals with china and the Training Development act of 2000. Before his tenure at commerce, he was chief International Trade councils of the Senate Finance committee, which is the top trade position in congress. Today he is the principal managing director at a traded Investment Consultant firm. , ors an adjunct professor director of the International Technology and innovation foundation, and also a Senior Advisor to the center for strategic and international studies. After grant makes his remarks we will be joined by commentary from bill olson. Bill lived for a number of years and also spent some time in moscow, so he has a unique perspective on the economies of these two countries which im sure he will share with you. Roberts, Research Fellow for Economic Freedom and growth of the center for trade and economics here at the Heritage Foundation. I will ask grant to come up and deliver his remarks and then after that we can hear from the other two. Thank you ray much. Very much. Grant thank you for that kind introduction. I am at the age where when somebody goes back through your bio you start aging all over again, so im not sure how much i actually really appreciate introduction. [laughter] my job here is first of all to applaud the release of the global agenda. I look forward every year to the index coming out because it is a benchmark against which we can measure the extent to which societies personal, recognize the importance of Economic Freedom and then second of all the extent to which institutions promote it or underlined undermine its. I will come back to this at the end, but the problem that you see reflected in the global agenda report that is coming out is where the United States is. It has been mired for sometimes for some time. America has to be a beacon in terms of Economic Freedom. We cannot depend on hong kongs Media Advocate we cannot depend on hong kong to be the advocate. There is no alternative. We have to be the defenders of not only our own freedom but understand that our freedom depends on embracing and defending an elsewhere. Im going to come back to that. But really where i want to start, and why i welcome the opportunity the foundation has given me is an opportunity to reflect on my own experience but the road toad serfdom. Ive going to start with a personal reflection and that i am going to spend a little time justghest highest as a reminder. And that i will come back why i think Economic Freedom ought to be central to the president ial campaign and why think the problem we are facing in the End International markets reflect why this freedom ought to be central to the debate. First to the personal side, i am what i would like to say the fortunate son of my father. He was a refugee from lithuania. Like many immigration immigrants immigrants before him he received a new name courtesy of ellis island. Consciousraordinarily because of his Life Experience of the freedom he enjoyed in his adopted country because he could measure it against the freedom he had lost a lithuania. 1922my father was born in the first year lithuania had gained its independence of the in roughly five centuries. He witnessed the gradual erosion of that independence forces from within Lithuanian Society and without. He saw was destabilization and then occupation by the soviet union. Destruction following the nazi invasion and soviet occupation, at which point many of his friends, many of them jewish, were murdered, and following the return of soviet forces following the 90 day siege at leningrad. My father, who had gone underground to resist the hisets, tried to persuade father and their family to leave. His father refused, arguing that they would things would return to normal after the wall war. I grandfather in a letter to his father expressed his sorrow for not having followed my fathers advice, but in fairness to him he had grown up in czarist russia and had succeeded by becoming a widely respected hospital administrator. He could not conceive of how different life might be an issue italians totalitarian society. In the end of my father did escape with only his sister. We made their way they made their way across europe and eventually to about that took them to sweden. German control stop them about a mile offshore and my father had to shore. Mile it was qualified freedom. They were a group of refugees that the other way to sweden at the end of the war. As is often seen both in my fathers life and my own, his his luck held. As he was in stockholm and applying for refugee status, essentially political asylum, even my mother who was serving as a Foreign Service officer in the hotel diplomat, which was at that point the American Embassy in stockholm, and my mother used to tell a story that she walked down the hallway and saw this man who is about 63 with dark hair,i eyes and dark and says she fell in love immediately. Of course my father tells the story from the opposite perspective, and he came down and saw this beautiful women, early 60 tall, blonde hair, blue eyes, and fell in love immediately. [laughter] in those days the Foreign Service was a lot less enlightened than it is today. As a woman you were fired if youre married, even to a u. S. Citizen. So when they finally did mary in 1949 my mother left the Foreign Service and returns to minneapolis for i was born. I am the fortunate son of all those events. Roughly 70 years has passed since my father met my mother at the hotel diplomat, and it was ironically at that time in london, another expatriate, haye k, wrote that book we now know as the road to serfdom. We would normally walk together and enjoy the beauty of the mississippi river. Which kind of, frightens you as the young boy, my father returned to me, really and is very solemn way, to try to explain what his experiences had taught him. The single statement that bus summarizes his lesson is one that returned to me when i was rereading hayek. Me and simply said, grants, someday someone will offer you security in exchange for your freedom. You should never take it because he lined up without either one of them. And in broad outlines, that was hayeks view. At theend of his day end of the day, what hayek warned about is just as relevant today as it was in minneapolis. Freedom is individual. It cannot be dissected neatly between the individual and economic realms, and for that warned that the lack of Economic Freedom was a death sentence for a free society. Hayek underscored, quoting the words of hilaire ballack belloc, that the erosion of Economic Freedom with the erosion of freedom itself. Freedom put it, the to own a private property is the most essential freedom. Only the means of production divided among people acting independently that no one has power over us. We as individuals can decide what to do for ourselves. Hayek understood, moreover, that the freedom of individuals to shape their own lives is closely associated with the growth of commerce. You, offers a stronger explanation of the rationale for free trade in adam smiths famous discussion of the division of labor in a pin factory, or david ricardos discourse on comparative management using portuguese wine. It is about the free part, not about the trade part. At the end of the day it is about the right of the individual to choose, free of caution by the government or by another person in our society, that indicates the idea behind freetrade. Hayek recognize that that erosion of freedom what friend not just the injured interests of the individual farmer or worker, but the basic individual that we had inherited from russo, pericles, the supreme tragedy as hayek thought was that it was largely people of goodwill, then you were admired and held up as models in democratic countries, who they didthe way if not actually create the forces that ultimately destroyed that inheritance. Indeed, the subtitle an apt subtitle for hayeks work would be that the road to hell is paid paved with good intentions. Those who advocate for a limited Economic Freedoms do so as an appeal for the common good. This includes those who advocate for raising them in a wage despite the fact that it acts as a tax unemployment itself. The result of raising the federal minimum wage is a pretty good obvious example of that, but the most obvious example of that is the affordable which compels every american to buy Health Insurance regardless of their need for it, that acts as it beulsion to justify desired to make Health Insurance affordable for every american. For the the way reduction of other freedoms. It is willingness symptomatically the broader justification by which the ends justify the means, regardless of what that means in terms of respect to the law and the constitutional limits on executive power for the erosion of individual freedom. The affordablet care act was originally supported by researchers here at the Heritage Foundation simply underscores the problem. It is confronting the political exigency at any moment. It is easy to forget that liberty is the ultimate and we seek, not merely an instrumentality that can be casually sacrificed on a series of an coercion that is incursion that is outweighed by the common good. Hayek understood this because he knew that the principal that the end justifies the need it means is that considered either amoral or amoral. Whichis literally nothing consisted collectivists but must not be permitted to do is observe the good of the whole. Socialism,e liberal hayek put that they are guided in their endeavors by the power they possess and by transferring that power to society or to government they are therefore extinguishing power and the exercise of power which at times disenfranchises people. But what that implies is that the tyranny of the collective good is defined by individuals who claim to record represents the interests of the politically disenfranchised. It is essential to understand hayeks time. As a young man in austria he witnessed hagel productively hagel rejecting the interests of an individual in favor of the interests of the state. We tend to see german history through the lens of world war ii. What hayek sought to remind us of was that the evolution of german thought we dated and prefigured both the embrace of socialism in germany in the late 19th century and the later emergence of nottingham. As hayek emergence of nazi is him nazism. The theory of the collective good could not be realized without compulsion. The key to the practical input a limitation of that example was the promise of security. German society required from recoiled from chaos in the aftermath of the armistice that ended world war i. The promise of security became powerfully seductive. Freedom from choice rather than freedom of choice. As hayek pointed out, far from increasing the chances of freedom and promise of security became the greatest threat to it, which explained why again, words continued to echo in my mind. In turning to this years report anynt intend to discuss insights there, was i of the panelists will do, but i want to focus on one right up front. In 2010 theays that United States fell from the highest category of economically and has beens stuck in the ranks of the mostly free, second tier Economic Freedom category ever since. That, to my mind, record represents the key issue of the 2016 president ial campaign. At the end of the day we have to determine to ourselves if we are willing to vindicate the idea of Economic Freedom because it is indivisible of the idea of freedom as a whole, and whether well pursue that not only for keyelves and make it eight principle of our foreign policy, and organizing policy of what we do. Frankly, even in the reagan years, it was not fully integrated as a part of the agenda that we need to pursue. The reason we need to do this is very much not only in our own interest spent in the broader idea and acceptance of what it needs means to be an individual and to be free. Thank you very much. [applause] thank you grant, thank you tim. As noted, our index of Economic Freedom over the last 21 years has shown that we lead the world in Economic Freedom and growth. Greater Economic Freedom correlates with more freedom per capita in more countries around the world. Worldwide increases in Economic Freedom this year have been driven by improvements in trade freedom, monitoring freedom, and freedom from corruption. Regrettably in the past year average scores for most other Economic Freedoms including business freedom, copyright, they were freedom, and financial fallen. Have more troubling in 2015 where the losses of Economic Freedoms due to increases in the size of government, higher Government Spending caused this deterioration. Our global agenda that is based on these index of Economic Freedom scores and they are calculated using for killer every as bank for killer four pillar areas. For example, well International Trade plays a significant link increasingly significant role in the economies of the United States and other countries, unfortunately tradeations for further have grounded to a halt. The global agenda notes some potential bright spot for global trade, the ongoing effort to negotiate a transpacific partnership, or a 21st century trade agreement that could be benefit beneficial to each country willing to make policy changes that would include reducing tariff and nontariff terriers, improving protection of intellectual property, improving International Investment rights, dismantling agriculture are many other government subsidies, and limiting the support of state owned enterprises. As documented in the 2015 index, protectionist measures, industry specific subsidies, are essentially protectionist enforcement actions, such as antidumping regulatory measures reduce efficiency and competitiveness and diminish the prosperity of all nations. All countries should resist these policies and the United States should lead this resistance. Labor freedom and is this freedom scores are higher in countries with laws, regulations, and policies that give employers looks ability and opportunity flexibility and opportunity. For example the biggest problem in the Indian Economy is uncertainty about Land Ownership that affect hundreds of millions of people. American leadership can be decisive at promoting Property Rights and anticorruption. Easures in other countries the global agenda covers seven world regions, plus a Second Special section on the arctic. I will look at the first four in some detail and then my colleague will cover the rest. And south america and the caribbean, economics Economic Freedom scores range from excellent in chile to abysmal in venezuela, with major players, such as brazil, the worlds sixth largest economy registering comparatively low scores because of taxes and a heavyhanded regulatory regime. There are some positive regional trends. Most of the worlds ftas are either based in the region or have regional participation. Membership members of the Pacific Alliance nations, in other countries Economic Freedom scores have plummeted. While numbers in the Pacific Alliance have full access to andomic a line markets a positive inflation outlook, the other countries have limited access to international markets. A tenuous fiscal position, and negative inflation outlook. The global agenda praises the Unprecedented Energy reforms undertaken in mexico that could create numerous mutually beneficial opportunities for the othernd all that Multinational Energy corporations, but urges mexico to continue to liberalize is a common its economy. Of thele the benefits trade organization are already essential substantial and should be expanded to remove remaining barriers to International Trade and investment. Turning to the rest of the world, in europe we see that the former ussr countries are still struggling to achieve more Economic Freedom. , despiteharan africa some setbacks caused by political turmoil and ebola in the last year, Subsaharan Africa is one of the most improved region in the 2015 index. Countries of the 10 graded in the index were registered in Subsaharan Africa. The region as a whole continues to underperform when it comes to following through on reforms that will help the emergence of a more dynamic private sector and result in more broad growth. Critically, the continued existence in some countries of weak rule of law means residents who lack connections are still being left out and have limited prospect for a brighter future. Calls for agenda prioritizing the fight against ,ndemic corruption in africa weak production of Property Rights, and insufficient entrepreneurial environment. Is in the process of devolving its highly centralized governance and empowering local governments with direct control. This devolution process could result in desirable gains in limited government, but the devolution effort requires not only enhancing local legislative capacity, but more critically improving budget and oversight capacity. The agenda encourages African Economic integration, formal interest after get train interafrican trade. In a serious and bold land for a greater continent wide Industry Needs to be of limited. Those steps are being taken however haltingly. Unions,complex customs administrative procedures, and burdensome regulations continue to hinder these efforts. Our global agenda also encourages more robust industry, and south Saharan Africa has been hindered by instability. Countries such as china play by different roles in africa. There are ok investments in it in Extraction Industries may help build a port or a highway but they carry with them a potentially that are legacy of corruption and nepotism. Emerginghe same themes in the global agendas findings that we have already talked about are present in the middle east and north africa, where countries have undergone political and economic upheavals during the arab spring. Nevertheless, long overdue Economic Reforms continue to be neglected or postponed in that region due to political instability. As a result the gradual rise in Economic Freedom that had been recorded in recent years has come to a halt. And institutional problems abound, and the regions Unemployment Rate is among the highest in the world. These problems are complex and rooted in decades of authoritarian rule in the middle east which has kept power and resources in the hands of a few. Economies national are dominated by the state sector, political leaders will be reluctant to reduce power is that diminishes their axis two control. Difficult reforms are required. So now i would like to turn the floor over to my colleague to cover the rest of the world. Thank you. [applause] good morning. Nice to be here. My presentation will be a bit different. I recently lived in beijing for over three years and returned last year to the United States after living in pigeons thanks moscow for about three years. Cover what is going on on the ground in these countries. Have about 10 minutes to talk about china, india, and russia. If my remarks are quick, i apologize. We need to leave time for questions and answers. First, the big picture about asia. The view from 60,000 feet. Feeling is very strongly that after being in the Global Economic engine for a long time, especially east asia, Economic Growth has clearly peaks bigtime peaked bigtime in asia for a number of reasons. Three quick reasons. One, demography. You have fertility rates well 1low to 2, approaching compared to 2. 1 in the United States. Much of asia, especially east asia, has this phenomenal dividend. It is now entering, very rapidly, a demographic deficit. Two, which i will go into detail and about 60 seconds, the china story. China now accounts for about 45 growth isgdp, and its growing slowing much more than you think it is. Three, something no one is talking about, since 2008 much of asia, especially used asia, has sailed through this economic crisis. Why . Credit growth. Debt. There is an enormous even outside of china an enormous increase in credit growth which no one has really talked about. In fact if you look at total debt, household, corporate, government that is a share of nows gdp, it is higher than it was before the financial crisis in 1997. Much of asia, especially east asia, has manufactured growth built on a 7 years, surge in liquidity and death. It is a huge story. China for a few minutes. Given the recent slowdown in china the question is should the Global Economy be concerned . Absolutely. Swer is here is why. China, as you know, is the worlds secondlargest economy. About 12 trillion compared to the u. S. At 18 trillion. There is no close third. It surpassed japan in 2010 and is already twice as high as the japanese economy. It is the largest trading nation for 75 countries, and is by far the largest importer of commodities in the world, which is of course a vital exporter for many emerging markets. This is why Commodity Prices are at a 14 year low, and over the past seven years china has accounted for an incredible one third of Global Economic growth. Naturally it is a concern for the Global Economy is china enters this socalled hard landing, which i think, that will go into detail later, is a mathematical certainty. On intuition, it is a mathematical certainty. China has to enter a financial crisis. The question is whether it occurs sooner rather than later. We have seen is talked about in the chinese stock market. It lost 50 over the past month or so. That is not a factor of concern. Only the chinese experienced loss. And about 60 of chick Chinese Market capitalists. Ihough i dont think think it will probably fall further. It is not very a but it is moving there. Im an economic fundamentalists that is currently dramatically ship slowing chinas economy. It is an economic model for the past three decades. Of course exports, investment, and of course dont overlook the property market. I believe all three of those pillars are well past their expiration date. If you look at chinas current account surplus, a broad measure of the circuit trade surplus, as recently as 2009 it was 10 of the gdp. Guess what. Last year, 2014, it shrank to 2. 1 of gdp surplus. ,ontrary to conventional wisdom exports to china and not been a significant source of Economic Growth since 2008. That engine is gone. China is not going to export its way out of recession this time given the state of the Global Economy and the fact that china already has a 13 share of 2. 5 l exports compared to as recently as 2000. I have talked to a lot of Property Developers in asia on the ground, the Housing Market of course is much more important than the stock market. In asia. Of householdipient savings at it is supported by Many Developers in china. There is a housing glut of unsold units of 70 million unsold homes. 70 million. To give you some scale at the height of the u. S. Financial housing crisis, the backlog of unsold homes was 1. 5 million. Now is that figure is correct, 70 million, then you should see housing prices fall, they have to fall. Falling. Hey had been housing prices in all the major , 21, tier two, and evend some of the tier three cities, housing prices have been falling for two years. The housing sector is a major source of savings for the chinese household and now the prices are falling. That of course we have to mastic investment, which until the last domestic investment which have been running to a mindboggling 7 of gdp. Theyre operating at a 70 capacity. From what i hear ground growth has slowed to 5 . If you think about it, you are talking about 50 of your economy. And that 50 is generating 5 . Rowth 5 gdp growth. What we are seeing is a precipitous decline on return of investment. Of the stock market capitalization. That is a major benchmark. 80 . Enterprises. I have got to keep moving here. The anticorruption campaign, the scope and intensity is far greater than anyone expected. I believe this is the strongest leader china has had since mao. A quarter of a million officials detention ord in formally charged with corruption. A million. F this is much bigger than that. , well over 100 have committed suicide. See if theet us picture is any brighter there. The first year there was a lot of doubt of the intention of the administration. Evaluating them if i had to, i would give them a gentlemans c. To be fair, in india right now, most Economic Indicators over beforet 18 months, even he took office, had been improving. The fiscal deficit is shrinking, a lot of it is he scrapped the Planning Commission which was a relic of socialism and central planning. That was good. He get some credit there. There have been no really what we call Big Bank Reforms which india so sorely needs. India has to create 12 million jobs a year and other Current Conditions they are not going to do it. So far the only Economic Policy got gutsrequired to undertake with the world of the law that makes it very hard to acquire land. This is critical. As is his need to acquire land and the government needs to require land to build infrastructure. That law has been held up in parliament. The goods and service tax which was meant to really simple by it, it it was a nobrainer. It should easily pass. It did not. That tells you a lot. The bottom line, i think america he was looking at motive. There was this perception that he would be an ever faster or reagan. They wanted Smaller Government. That is what they work for their entire lives. Smaller governments. I dont think Smaller Government was ever his intention. He did not want Smaller Government. He wants more efficient government. That is very big different. Very big difference. I will finish with a very quick comment on mother russia. I dont know if you have been there since the 1990s. I lived in moscow for about 24 months but it has changed radically since the 1990s. Go back if you have a chance, just dont tell them you are american. You are canadian, or english. They cant tell. Most cats. Cant. T even during the chaotic 90s the Russian Parliament had power. They almost in heat impeached yeltsin in the late 1990s. They are rubberstamping for Vladimir Putin. They have no power. If they challenged. And he would simply dissolve challenged they putin he would simply dissolve them and put them in prison. The media in the 1990s is relatively free. I tell you this. Radio, tv, it is completely controlled by the kremlin. All important decisions in the country go through the kremlin. The state is essentially run by the internal security apparatus, make no doubt about it. You cannot exaggerate the economic problems in russia. You have seen recently some good news on population. The population has actually stabilized over the past three or four years. Why . One reason why is of course per rose because of High Oil Prices over the past decade. Another reason is birthrates in russia or at that time the soviet union were high in the 1980s. That generation is having babies. What happened to the birth rate in the 1990s . It crashed and burned. So a decade from now what you are going to see is the resumption of a very rapid decline in russias birthrate and population. I have to be honest with you, the russian economy, which i studied intimately for two years, is not very cultivated. Confiscated. Complicated. It is a petrostate. Ballots 110 a barrel to balance the budget. Unfortunately for the kremlin, we have oil now hovering around 40 a barrel. We are not even close. The difference is that they have massivehey did have exchangerate reserves, but you can burn through those really quickly. Russia is in recession. The economy has been contracting for at least three quarters. Floating on an blissful sea of hydrocarbons for over a decade, and enacting those of reforms when they had time. Im going to finish here. I know my presentation is bleak. Theres a reason they call it the dismal science. Y boss, hes not here today hes on vacation. When i present with him he always wants to present with me late in the afternoon so he can go out and get a drink. [laughter] finish with a quote from one of my favorite movies, most of you have seen in 1987 movie wall street. Rememberthe scene the scene when he gets arrested by the feds for Insider Trading . He gets arrested is for inside the office in front of everybody. And his boss is played by al holbrook. This quote. Tells in man looks into the abyss and sees nothing looking back at him. Only then does he find his own character, which prevents him from falling into the abyss. I am an economist. I happen to like crises. I will tell you why i like crises. You dont get Structural Reforms unless there is a deep economic crisis. Think of china late 1970s, india 1991. Think of asia 1997, and after that those countries and regions and active large Structural Reforms which led to much stronger growth. As for russia, the man looking into the abyss is Vladimir Putin and russia is not going to change until he is gone. Thank you. [applause] ok. The bar will be open after the session is over. Either that or copy will be up coffee will be offered. We have a few questions here for the panel. We have a gentleman here for with a microphone. It would be best if you could wait for the microphone. If you could just raise your hand, identify yourself briefly, and in the interest of time if you could please ask a question and if possible keep it short and to the point. Would anyone like to start . Dr. Wilson said we should not worry too much about chinas dock market crash. Im just wondering do the other experts hold similar views on that . I think you do have to worry about it. It is probably for something that my colleague would agree, the truth is it represents a discontinuity based on a lack of information and transparency in the way the Chinese Government operates. Because there is not enough information on the marketplace expectations are never in line with reality. And then you get this sort of sharp contraction. Not unlike what underpins the financial crisis in the United States. Or rather,ngness the willingness to concentrate on consolidating power makes sense in a chinese political context. What he does is forestall the Economic Reforms that are needed an economyna from based on confucian principles to one that is based on the rule of law. Deferring those Economic Reforms is setting the stage for this Current Crisis. It is the reforms that are essential to try to tackle the therlining issues in chinese economy. I can understand why politically he is doing what he is doing, and i agree that this is about settling old scores and clearing out the old guard, at the reality is that by deferring the Economic Reforms and setting the stage he is setting the state for a real economic failing. Even though i have lived there i have never owned a chinese stock, and there is a good reason why, there is simply no transparency. What i did once was i did a very simple graph. Country at u. S. Listed companies on the s p 500 and i listed two variables on the grass. I listed reported tax flow and reported net profits for u. S. Companies, and the correlation was 90 percent, as you would expect. A very high correlation between tax flow and their profits. Its not 100 because you have extraordinary writeoffs, things like that. For chineseme thing listed companies to see if there is any correlation, and what i got was a cloud. There is no correlation between cash flow and their profits. How can that be . What happens is when Chinese Companies have high cash flow they dont want to pay high taxes, they want to avoid taxes. So they report lower neck profits net rockets profits. If they have a loss or lower earnings, a lot of Chinese Companies will list higher profits or fewer losses. Why is that . The worst fear of any Chinese Company is to be audited. Until there are some changes in transparency, accounting standards, if the Chinese Company is rated aaa in shanghai there are listed in new york as close to junk. There are a lot of companies a lot has to change first. Next . Thank you. Terry miller from the Heritage Foundation. Dr. Wilson said that he likes crisis because that was how you can get structural reform. I would like to link that back to the point about freedom and we have seen crisis used with germany before world war ii and as recently as 2008 here in the United States or governments to enact Structural Reforms that do not promote freedom and in fact do not contribute to stronger Economic Growth in the future. I question would be, how can we help ensure that when we have a crisis like we had in 2008 or the Current Crisis that is in fact one, how can we ensure or help promote the idea that governments will promote positive reforms that actually increase Economic Freedom and guard against reforms that would have just the opposite in fact . I think this is why we have to make this a central issue in the 2016 campaign. If you look at donald trump, it it is paid to play. Economics. View of and it is fundamentally undemocratic. It requires someone to stand up against donald trump and point that out. Not that he has something just to point out what the underlying philosophy is. I think it really is time for candidates to stand up and not simply decry the impact of trump on conservatism, or on politics, but to point out what is wrong with his underlying philosophy, as in the process, what you are articulating is why freedom matters. Nativism, isolationism, all sorts of isolate there are all sorts of isms you can attach to donald trump. We need a candidate with the courage to lead. When we had with reagan and thatcher, when you think about the degree to which we had evolved in the direction of social democracy in both the u. K. And the United States, their willingness to lead was all the more remarkable. It was a crisis in the 1970s in the nine saves and it really did require that. Internationally it is the same thing. We have this tendency to think that america has declined. I made a bet when we entered the financial crisis with myself, thinking 10 years on the road we will be a larger share of the Global Economy for all the wrong reasons. Well Everything Else is declining. What happens when you have a crisis good for economists, but from the point of view of the rest of us, the human reaction is fight or flight. Is aeality is it protective crouch. That is what the politician seizes. In the face of that, all the more reason you need the courage of a reagan to stand up and fight for freedom. That is what i think we are waiting for. That is why i think it is central to the campaign. You can see where hillary is going. She is deferring to folks that are interested in that greater good, that collective enterprise. You kind of have to come out of the republican side. This is always a great report. It isre is one problem that it is easy to miss the trees for the forest. There are a few trees that really should be looked at carefully because they sort of stakeout and they are not the. Ame sort of stick out freedom is good, but there are limits to freedom. I think the myth of free trade is one of those, because if we look at the american economy, agriculture not much value added. We have got from one of the nations largest debtor nations our latest topoftheline fighter, 70 of the electronics are made in southeast asia. Do you see any problems with that tree . Is a hunkydory . A basice start with tale that will explain the economic side as well as the free trade side. Today we are negotiating the transpacific partnership. One of the leading proponents of that is ford motor company. They are doing that because there is a 25 harris on pickup trucks. If you look at entrepreneurs in this country we have a sort of lazy noted notion that that takes place in silicon valley, texas, maybe minneapolis. You tend to forget that most time entrepreneurism is starting a business that is Something Like landscaping. The first and largest capital purchase is a pickup truck. Think about what this means in the term in terms of trying to develop new jobs. A 25 tax before anyone has even made a dollar. Why is that hispanic worker trying to go to work eight East Los Angeles paying a tech 25 tax . Why is that Choice Limited for that individual . You have to bee conscious of what is really going on in the world. A freemple, even as trader when i see a Chinese Company, state owned, interstate in micron, i am very concerned about that. It is not the conventional concern that it is somehow eroding our defense. So little of the Defense Industrial i worry about the baseline technology, whether we can still participate in that market, but more powerfully i went about whether the state of the Chinese Company becomes part of our political process. Reflects why we should be concerned about that, so when you say there is limits on free trade, i say we should pursue the idea of freedom choice for the benefit of eliminating those sorts of taxes that actually injure our ability to grow the economy. Should be very conscious of the areas where you are inviting in forces which will limit freedom down the road. My response to be, really bullish on free trade, bullish on trying to vindicate our rules and ideas of