July 7, 2016
Security Beyond Defense: The Prosperity Pillar
The Prosperity Pillar: How the Economy and Private Enterprise Underpin Security
Security through Economic Transformation: The Case of Poland
President and CEO, Polish-American Freedom Foundation
and former Polish Ambassador to the United States
The Digital Economy and Security
Provence Capital, LLC
Remembering the Schuman Declaration: Infrastructure Investment and Security
Corporate Development Director,
President and CEO, Polish-American Freedom Foundation
and former Polish Ambassador to the United States
Provence Capital, LLC
Corporate Development Director,
Location: Notovel Warszawa Centrum, Warsaw, Poland
Time: 2:40 p.m. LOCAL
Date: Thursday, July 7, 2016
Superior Transcriptions LLC
WILLIAM SCHMIEDER: Dzień dobry.
AUDIENCE MEMBERS: Dzień dobry.
MR. SCHMIEDER: All right, so good afternoon, and thanks to Fred and the Atlantic Council for organizing this panel.
As head of Raytheon, when I hear the words “economic stability” and “public-private partnerships,” I immediately think of access to new markets, open competition, profit and loss and market shares. But there is another side to this coin. Today the linkage between economic stability and security is very different than what we saw four years ago in Chicago and even two years ago.
MR. : I did. I swear. You even smelled them. (Laughter.) For me?
MR. SCHMIEDER: So let me begin that sentence again. (Laughter.)
Today’s environment is different than what we saw four years ago in Chicago and even two years ago in Wales. Security and stability today depends much more on economic growth and opportunity than pure military strength. So how do we in the private sector contribute to the security and the stability we all seek? Let me give you four examples.
My role in business goes well beyond profit and loss. Indeed, the U.S. government approves or disapproves the sale of anything that Raytheon or those people in my business can do based on national security interests and foreign policy objectives. One can make the case that business is, in fact, a major part of foreign policy, and we in the business are, in fact, surrogate ambassadors for each of our own countries.
Secondly, the free movement of people, goods and services across borders raises the financial stakes of any conflict. The health of the world’s economy is, in fact, linked to foreign markets. Just take a look at what’s happened with Brexit. The fall of the British pound, the reaction of the market around the world is linked directly to what’s happened in terms of their access to markets and trade.
Point number three: We in private industry invest great deal of money into systems that lower the threshold of conflict. Take, for example, NATO’s decision to preposition troops and equipment in Eastern Europe. That decision places in turn a premium on protecting these assets or risk that they be overwhelmed in a Crimea or Georgia land grab.
NATO’s ability to provide situational awareness of an adversary’s intentions and the deployment of defense systems that diminish or neutralize the initial aggression can well determine the political and military outcome at the beginnings of any conflict.
The technology represented by AWACS, Patriot, Striker, Aegis Ashore – all of those systems were developed by private-sector money with the intention of lowering the chance of an all-out conflict.
And finally, big emerging markets represent the most upside potential for what I do. But they also represent the highest political and commercial risk. When business helps promote procurement transparency and rule of law, we, in turn, encourage the host governments to promote economic security, stability and opportunities for their populations.
So in closing, let me say this: Government and business need each other. Trade agreements, export licensing, protection of intellectual property and technology transfer are all government functions that go hand in hand with our success. Private enterprise is a tool for achieving foreign policy objectives and supporting the national security.
The delegates in this room represent 35 countries and are some of the best and brightest in our global enterprise. My challenge to you is this: Do not accept the status quo. Build on the success of those that came before you, and seize the moment. And the moment is today. Some have called this Europe’s zero hour. Make it your finest hour.
I would like to now introduce Samantha, who’ll chair the panel.
SAMANTHA VINOGRAD: Good afternoon, everyone. Just a few housekeeping notes before we get started. A reminder that this session is on the record. Please turn your phones off. And we would really love it if you would tweet, Instagram, Snapchat this session so we get more voices involved in this discussion.
The topic of this panel is something that’s very close to me personally. I always knew I wanted to get into national security. But frankly, I envisaged doing something sexy like being a spy or joining the military. I really didn’t think that I’d end up as an economist at the Treasury Department. Doesn’t quite measure up. I really had no idea that economics was even part of national security and that bankers and regulators were equally as important to any conversation of global stability as a military and boots on the ground.
And during the last session, somebody asked a question about Afghanistan. And it was really appropriate because I wanted to read to you a quote that President Obama made at West Point in 2009 when he was actually announcing a surge in U.S. troops in Afghanistan. He said: Our prosperity provides a foundation for our power. It pays for its military. It underwrites our diplomacy. It taps the potential of our people, and it allows investment in new industry. And it allows us to compete in this century as successfully as we did the last.
And so I’ll ask you all to do a thought experiment. Think about whether there has been a country that over the long term has successfully projected power amidst a weak economic foundation. We could argue that Russia is doing that today, but let’s see how long that lasts.
There are many reasons for this. One is quite simple. A country needs money to invest in its military – for example, to buy advanced weaponry, to invest in infrastructure, to move goods, and education to make its workforce competitive.
It also needs to be able to play with the big guys. When we were in Bosnia just a few days ago, we spoke about a $1 billion IMF loan. The United States is the largest shareholder in the IMF. And whether it be the IMF or other multilateral development banks, being able to play a role because of your economic footing in these institutions is quite critical. The G-7 discussions and the G-20 discussions today and in the future are a linchpin of global stability. And I don’t have to state the obvious, but we have all seen the turmoil that Brexit has taken on global markets and the disruption that it could physically cause in a major world financial center.
Economics and prosperity is also a way to build alliances. We’re here today talking about NATO, which is a military alliance, but TPP and TTIP are two cornerstones of the Obama administration, which I was lucky enough to serve, that are also alliances onto themselves. There are ways to form strong relationships with partners in the public sector and in the private sector through these international agreements.
Slow economic growth, by the same token, can also be a country’s Achilles’ heel. It can make a country more vulnerable to sanctions. I’m from the Treasury Department originally, and when analyzing a country’s economy, if it’s weak, sanctions are obviously more useful. And it can also foster domestic discontent and feelings that a political system is not delivering. So if your population isn’t behind you, frankly, it’s harder to project power abroad.
I don’t have to state the obvious, but economies are not just run by governments. Sometimes the Treasury Department likes to think so, but private enterprise is critical. There are a myriad players involved: large companies, investors, entrepreneurs, regulators, and then of course international fora like the G-7 and G-20. There are many opportunities for cooperation on national security issues like Iran sanctions. I think the administration’s Iran sanctions effort is a shining example of cooperation between the public and private sector.
There are also many challenges ahead that we can tackle together, like the cyber frontier and the evolution of the labor force, which we’ll speak about with one of our panelists, in light of technology.
So I’ll just leave you with that final thought and would like to turn things over to our esteemed panelist, Ambassador Kozminski. Ambassador.
JERZY KOZMINSKI: Good afternoon. It’s my great pleasure to share with you during 10 minutes only some notes from the history regarding the two processes that I was privileged to be involved in: the profound economic transformation of Poland launched in 1989 as well as the Polish efforts aimed at providing our country strong security guarantees throughout achieving membership in NATO.
Poland seems to be an interesting case in those two regards, not only because of currently hosting the NATO summit but also because it was a pioneer, a pioneer in two senses. Poland triggered the chain reaction in all of Central Eastern Europe, a chain reaction of freedom; and soon afterwards paved the way towards a free-market economy, a way which was unprecedented at that time. And the second dimension of that pioneering role, the transition to a market economy, was clearly compounded by the huge economic challenge that was inherited by the first noncommunist government in Poland in September of ’89. And in addition to that, Poland was the first among post-Communist states to come up with a comprehensive strategy aimed at completing its internal reforms with external security arrangements to begin through enlarging the Atlantic alliance to the east.
Coming back to our economic transition, let me point out that in the fall of ’89, the first Solidarity-led Polish government had to deal with an economy that was suffering from two serious disorders. The first was structural, evidenced by the low and decreasing effectiveness of the economy, which led, in turn, to lower standards of living. The defective economic system was typical of all other socialist countries. The economies were centrally planned. They were dominated by state-owned enterprises, were closed to the outside world, deprived of real prices and internal competition. They didn’t have independent central banks. And their currencies were not convertible. And the second disorder that we inherited was a macroeconomic disaster, manifested by hyperinflation, massive shortages of goods, a huge foreign debt, a large budgetary deficit, as well as a flight from the Polish currency to the dollar in order to escape the galloping inflation.
Compared with the dramatic situation in Poland, the national economies of, say, Czechoslovakia or Hungary were at that time far more stable. Poland was then in an extremely rare category of hyperinflation within the socialist economy of shortage, a category which three years later had broadened to include almost all countries of the former Soviet Union.
So the inherited dramatic situation called for radical steps, which were also to be combined with measures to deeply transform the defective economic system. The response was the Balcerowicz Plan, named after its author and chief implementer, Leszek Balcerowicz, then deputy prime minister and minister of finance.
The plan had to be developed quickly because of the disruptive forces within the economy. After two months of hectic preparations, the plan was ready. And at the end of ’89, it was approved by the parliament. The plan, a response to the double challenge, had two corresponding tracks. The first, stabilization, that entailed the curbing of the wage indexing, a tough monetary policy, as well as large reduction in budgetary subsidies. The key objective was to stifle hyperinflation.
The second track was about systemic changes. And that involved two categories of measures – swift liberalization of the economy, including foreign trade, as well as institutional changes. And here the agenda was truly vast that included the following: Privatization, demonopolization, the reform of public services, the introduction of social safety net, the introduction of a new tax system, transformation of the banking system, creation of new institutions necessary to a market economy, like the stock exchange.
And the systemic part of the plan had another important arrangement to introduce internal convertibility of the Polish currency. That was done overnight. Whereas earlier in the West it had usually taken a few years, in the Polish case, however, the convertibility with the fixed price of the dollar was also an important step to stabilize the economy.
The general guidepost for the Polish program was clear from the very outset. The outcome of the entire transformation was to be a stable, competitive, outward-looking economy with private property prevailing. And the longer-term goal was to catch up with the West.
The first stage of the program was critical. Over several months it reached its basic stabilization and liberalization goals. However, institutional changes were to take several years, especially privatization of state-owned enterprises.
In addition to the extremely difficult circumstances under which the Polish transformation started, the surrounding environment during its first critical stage was becoming more and more unfavorable. On the domestic front, public support for the demanding economic reforms was evaporating, and the period of extraordinary politics during which major political parties were guided by a broad consensus was ending soon.
At the same time, international conditions became much more complicated. The Polish economy was painfully affected by two external shocks. The first was the doubling of oil and gas prices as a result of the Gulf war in ’91, and the second shock was the rapid loss of markets of Polish exports in other countries of the region, especially in the Soviet Union and the GDR.
It is remarkable, however, that over the course of only two years, Poland was able to largely shift its exports from the East to the West. A few years later, in the middle of the ’90s, it was clear that the radical program had produced even more positive outcomes, including 7 percent of GDP growth per annum.
And that brings me to the issue of security. In our approach, during the initial years of transformation, the issue involved two major dimensions. The first was our strong conviction that in order to complete and consolidate the transition to a robust free-market economy and a mature democracy, Poland needed to integrate fully with Europe as well as to be included in NATO.
We saw security as a crucial matter, because after the collapse of the bilateral global order, Central Europe became a security vacuum or a security gray zone, with serious uncertainties that pose risks to stability as well as to further transformation and development.
We saw the benefits of NATO enlargement broadly. We believed enlargement would expand and strengthen the area’s security, stability and prosperity. It would help consolidate reforms in the post-communist countries and build good relations among themselves. It would also create conditions conducive to trade and foreign investments there; and conversely, the more, for example, American investments are stronger, U.S. interest in security of our region.
And the second major dimension of the security issue was of paramount practical importance, and it was twofold. One, the successful economic program prevented the collapse of the Polish economy and established a solid foundation for building national security, including defense capabilities.
And two, as a result, Poland was also able to meet one of the crucial criteria for NATO membership. Countries aspiring to join NATO had five requirements formulated by William Perry, U.S. secretary of defense in 1995. One, advance economic reforms; two, democracy and respect for human rights; three, civilian control over military; four, good relations with neighbors; and five, a sufficient level of interoperability and compatibility of the armed forces with those of NATO.
The success story of our economic reforms was an essential factor in our efforts to gain support for Poland’s security aspirations. It was particularly important the U.S., because of its leadership in the alliance. And the U.S. is also special due to the power of the Senate, where the ratification hurdle was the highest of all the parliaments of NATO member countries. The decision of NATO enlargement required the approval of two-thirds of all the 100 senators.
Besides the obvious homework that included the economic reforms, Poland’s strategy to achieve NATO membership involved four main tasks: One, to persuade those on whom the cause of NATO enlargement depended; two, to have developed the strategic concept or NATO enlargement and the related operational solutions; three, to participate in the American debate about international security, U.S.-Russia relations and the future of NATO; and four, to build a positive image of Poland as a country that would be an asset to NATO and a good ally of the U.S.
Each of those points involves, of course, a whole set of actions that were undertaken by Polish diplomats and politicians in the U.S. between 1993 and 1998, in April, when the Senate made the long-awaited ratification decision to include Poland, the Czech Republic and Hungary into the alliance. But obviously this is quite a story and would stretch well beyond the time frame kindly offered for this presentation.
Thank you. (Applause.)
MR. NAYERI: Hi, everyone. My name is Amir Nayeri and I’m a, I guess, last year’s Millennium Fellow. And I’m really excited to be here today with you to talk to you a little bit about a topic that we’ve touched on throughout the conversations, and that is, what does the big-data revolution really mean?
Six hundred thousand years – that’s how long it took for global population to get to 1.5 billion. And yet that’s how much the global population is going to grow in the next 25 years, by 1.5 billion people. That means 1.5 billion more mouths to feed, 1.5 billion more people to house, and 1.5 billion more people to create jobs for. And the majority of that growth is going to come in emerging markets and in cities in emerging markets, which means there’s going to be an enormous pressure on the demands that governments and countries are able to supply.
What we know from basic macroeconomic theory is that when demand shifts without an associated shift in supply, price equilibriums start to get distorted. And when price equilibriums start to get distorted, you can have financial crises. Financial crises lead to joblessness. Joblessness leads to idleness. And idleness leads to potential radicalization of people.
And so, without being able to shift that curve over, we’re in a lot of trouble. Luckily, the technology and the big-data revolution that we’re exposed to and that we’re living every day is really not only a convenient way of getting past this hurdle. It’s the only way of getting past this hurdle.
And let me tell you – let me give you a quick sort of example on how much data has grown over the last few years. Three years ago, if you were to take all of the digital data that exists in the world and put it on a tablet computer and stack all these tablet computers up, we would get two thirds of the way to the moon. Three years from now, if we were to do the exact same exercise on the exact same tablets, we would not only reach the moon. We would come back down, and then we’d go back up to the moon and we’d come back down. And we’d go back to the moon and come back down, and then we would stop halfway to the moon.
We went from two thirds of the way to the moon to 3 ½ times, three years ago and three years from now. And that’s the power of an asset that we have that we can tap into. And when we empower individuals and entrepreneurs all over the world, in emerging markets and in developed markets, the power of what they can build is unbelievable.
Now, how did we get there? How did we end up sourcing all this data? There’s three key technology trends that have happened that have allowed us to capture this information, process it and access it.
Number one is sourcing it. We have an incredible decrease in the cost of sensors all over the world. Sensor technologies, RFID chips, UAVs, mini-satellites, even the e-commerce that we do online when we’re buying different things, those are all sensors that are capturing this data.
Number two is on the processing side. We’re able to access this data fairly quickly, but we’re also able to process it at the edge of networks, which allows us to take this data and to turn it into actionable intelligence. We’re able to not only do deductive reasoning, so is “x” before “y” in a data set, but we’re also able to do inductive reasoning. Is “zed” before “x” in a data set, given that “x” is before “y” in that same data set? And the power of that is turning data into actionable intelligence.
And the third piece is the ubiquity of personal computing. We’re able to access this information from just about anywhere in the world. Today half of the world is connected to the Internet. And 10 years from now we’re basically going to have 100 percent penetration. And it’s our jobs and our responsibility to ensure that that turns into economic development.
If you think about the things that our community can do moving forward, and how can we do that, how can we empower people to access this information, there’s three key things that I urge all of us to think about and that I urge NATO member states to make priorities.
One is on policy. The technology revolution has happened, is happening, will continue to happen. It doesn’t make sense to have laws and regulations after the fact. We have to be proactive. We have to ensure that it’s part of the conversation that laws are changed in a manner that allow for the disruption and the exponential impact that technology can have.
Number two is around creating capacity and building social infrastructure in developing markets. That means ensuring that infrastructure 2.0, ICT, the digital revolution, hits these parts of the world. It’s also ensuring that we empower, through programs, entrepreneurs in these countries to be able to have the bottom-up effect and the bottom-up revolution that we all hope to see.
And the third piece, which is very close to my heart, is around funding. For a long time we viewed technology and innovation as Silicon Valley’s problem. They’ll figure it out. They’re really smart. And once they do, they’ll come to us and they’ll say here’s the product that we’ve created. Please go and deploy it.
But the truth is, the folks in Silicon Valley and the folks in the innovation world don’t have the same context that you have. They don’t have the same context of what’s really going on around the world. And so to build technologies and innovation in a silo is just not going to cut it anymore. And so that means multilateral organizations, aid agencies and national governments have to stop thinking that technology is this thing that they can’t figure out. We have to demystify the concept of investing in technology.
If you think about international security, we have for too long thought of it in three lenses: Military, diplomacy – I forgot the third one. What was it? Not development. Military, diplomacy. No, hold on. Anyway – (laughs) – the most important one, which we haven’t thought about enough and that we really have to make as part of the global agenda, is economics.
And if you think about all of the strife that exists in the world, if you think about radicalization in the Middle East and you think about, you know, all of the slums that exist in Africa and in India, and if you think about the drug trade in Latin America, all of this is stemmed from a lack of economic opportunity.
In the last seven or eight minutes that you’ve afforded me the chance to speak to you, there’s been 2,000 new children born in emerging markets. That’s not going to stop. And unless if we as a community decide to make economic development as part of the global security agenda, those children will not have food, they will not have the right housing, and they will not have the right opportunities to allow us to get proactively in front of the problems before they really turn into global issues. Thank you. (Applause.)
JULIEN TOUATI: I would say “wow” first. Sorry, so you have a(n) old Europe – you can see that with my accent; I’m French – old industry, infrastructure. So we have slides. I’m going to be slightly more boring. But the thing is, actually, I work in a very boring industry, infrastructure investment.
Why is it boring? Because when we do investment in infrastructure as a commercial investor, in fact, we look for stable and predictable cash flows. We want this investment to be resilient, resilient to economic crisis in particular. We know that this investment will generate returns but only over the long term. And finally, we know that this investment, because it is illiquid, will generate a significant exposure to political risk. And political risk can exist everywhere.
It brings me to the first conclusion on how my industry can contribute to prosperity. It’s – there is the obvious answer. We are doing useful things, the road, the motorway – OK. But in fact, that’s slightly more than that. If you go to market, in the emerging markets that Amir just described, where you don’t have any functioning financial markets, you don't have a financial rating of the country, they don’t issue long-term bonds, if we are there as investors, in a way, projecting ourselves as a long term, in a way, we demonstrate that there is some kind of stability if we do our job properly, and we try to. So that’s one contribution because when we are there, all the investors can come. They know that the conditions are met potentially for investment.
That being said, international flows in infrastructure can also backfire. So if you look at this complex map – and I don’t know – I’m not sure it’s easy to read it from the back the room – but there is one lesson that you can learn: Infrastructure investment, including private investment, which is only a tiny share of the total investment in infrastructure, is often local. In most of the regions of the world, including in the U.S., in Europe, in Asia, that’s local investors that are funding local infrastructure projects. However, in some regions, such a case of Africa in particular, you need foreign investment. But even in Europe – I mean, everyone has in mind an investment from Gazprom in a national gas company in Hungary. I mean, you can also remember some investment from the Middle East to be made potentially in strategic ports in the U.S. or Chinese investor; it happened in my country, purchasing a strategic airport where Airbus is in fact landing.
These kind of investments, if they are not well-managed, if they are not made properly, they can backfire in the sense that they can generate a lot of reaction from the public. And I believe this kind of reaction can also be the source of fantasies that can – I mean, you mentioned, I think, Samantha, typically, when you think of arbitration issues, for instance, in Europe, people think, oh yeah, if there is investment in a strategic project in my country, what will be the weapons that they will be able to use if something bad happens? So the big question now is, how can we make sure that an investment can be well-managed?
So I will take one concrete – that’s not the slide, in fact, I mean – there are too many words, so – anyway, but it’s – so this is my text, not the thing – the one that you’re about to read.
But anyway, so one concrete example in Senegal – Senegal, a strategic country for Europe, for the U.S. I mean, you may not be able to see that here, but you have Mauritania here, Mali here, so the Sahel region. We made as a company, and I’m very proud of this investment, an investment in the largest solar power plant in the country, 30 megawatt. I mean, if you know this industry, that’s actually rather small by international standards, but that’s the first in Senegal.
Three dimensions that make this investment to me a great contributor to security: First, it’s climate change. We have proven here that it’s possible to invest from the North in a climate friendly – I mean, asset. If you remember the COP 21 conclusions, it was one of the big issues, the South asking the North to invest. We’ve been able to do that. Why? Because we have the support from, in fact, OPIC from the U.S.; political risk insurance was, in fact, provided by the U.S. Second, at the national level, if you can have a photovoltaic project in Senegal, you can avoid importing oil, basically. And Senegal today is generating its electricity from diesel, primarily.
And the second – which, to me, is by far not the least, and that’s how you make this investment successful, and it took us 18 months before closing this project, actually, to make sure that we have these conditions met – is how you can have shared benefits. Here we are in a village located 150 kilometers away from Dakar, very poor farmers. We are taking lands to make this plant happen. So how do we make sure that the people that live here, they believe that this project is going to help them, not only the global issue of climate change? So you create jobs locally. For instance, what we did is that we rebuilt the school – very simple, but at the end, it makes a big difference. It offers perspective to the local population. And in my view, and it’s very (consistent ?) with what Amir just said, when they have perspectives, they will not go to al-Qaida in Islamic Maghreb, even if Senegal is a rather peaceful country compared to its neighbors.
The second project we started with the bright solar energy is slightly can we say less enthusiastic, in a way. That’s a project that we’ve closed approximately at the same time as one that I’m –just described in Senegal. It’s a port located in Calais. For those who know, Calais was the latest – was the last city to be owned by Britain, in fact, in France during the big war between the two countries a long, long time ago.
This project is interesting for many reasons. One is obvious. Brexit, OK. But that’s not the only one. This project, to me, that’s Europe at its best. Why? Basically, to make this project happen, we had the support just before the launch of the Investment Plan for Europe, the Juncker plan that some of you may have heard of, of the European Investment Bank – something that we have in Europe that doesn’t exist in the U.S., and it’s rather helpful – and from the European Commission that’s providing significant subsidies to this project. So that’s the concrete Europe, and I will come back to that.
Second, it’s a project that is impacted by Brexit directly, not – we don’t know what are the consequences because in fact, duty-free can help the traffic, so it may be back. But more – if I’m more serious, it’s going to create a lot of uncertainties, and this product may be affected by that.
And the last point, which is going to be discussed in the next panel, is the migrant crisis. This project is impacted directly by the crisis because if you’re a migrant from Eritrea, for instance, or Sudan, you want to go to the U.K., there is a high likelihood if you can make this terrible journey that you stop in Calais. There are today 6,000 migrants located in our port. It fuels – it has concrete consequences – it’s not the most important thing, but, I mean, on the way we can operate the port. And it also fuels some local discontent. I mean, for those who know France, this region was almost won by Front National.
So it shows how infrastructure projects, even in very – in a very stable economy, potentially, can be impacted by the global security issues, much broader than our small – I would say 1 billion euro investment, which is small compared to what is at stake, but, I mean, that’s an interesting example to me.
And it brings me to my conclusion: When things go wrong, it’s good to go back to the founders. If you go back to the Schuman Declaration, what does it say? Europe is not something abstract. Europe will be made of concrete achievements. By concrete, I think – I feel concrete in steel. That’s because I’m engineer. But basically, the idea is to build de facto solidarities. What is it, de facto solidarities? It’s more Calais project, in spite of the difficulties. It’s arranging your local savings, in France, in Germany, to fund these projects, to make them happen. So basically, here on the port of Calais example, we have German money, Allianz; a French investor, even if we are not only French; European funding – for the benefit of Europe. It’s not I would say a sufficient condition to have a political cohesion across Europe; I’m not – I’m not naïve here. But in my conviction, that’s a very, very necessary one. Thank you very much. (Applause.)
MS. VINOGRAD: Being mindful of the time, I’m going to ask each of our panelists a question then open it up to you.
Ambassador, I’d like to start with you. Thank you for your historical perspective on Poland. I’d like to ask you something that’s at the forefront of all of our minds. How do see Brexit impacting Poland and Central and Eastern Europe? And is there anything that Poland and Central and Eastern Europe can do to mitigate any unintended consequences?
MR. KOZMINSKI: Well, to start with, certainly the Brexit is a huge thing that happened with huge potential serious consequences to be watched, to be followed, to be monitored.
Talking about Poland, I can say in general there will be two dimensions or two channels affecting Poland. One, everything what will happen to EU, potentially, will also have its implications for Poland, no doubt about it, both in geostrategic terms as well as in pure economic terms, even though currently, as you mentioned during your presentations, the boundaries between pure economic and geostrategic are blurred, especially in the contemporary world. So this is one.
And second, thinking about specific links or channels, I would mention maybe three economic and one noneconomic. The three economic is: exports, Polish exports. Now, Britain is number two on the list of our exporting – I mean, importing Polish goods countries. The first is Germany, 35 percent; Britain is less than 10 percent, but it’s still a lot, and it can be curbed.
Secondly, this is the EU funds. It may – it remains to be seen what would be the mode of divorce procedure between the U.K. and EU, but it can happen that of course, a contribution of EU will be diminished to EU funds, and then of course, Poland can be affected as well as other Central European countries – not much, but it can be a few billion Polish zloty per year. This is a second. But again, it will have to be decided between the EU and U.K., and we can imagine that U.K. will emerge in the same role as Norway, for example, currently, which is not a EU country but it’s also a contributing to EU funds.
And the third, well, it’s about remittances. We’ve got now almost 1 million of Poles, and about 800,000 of them are sending remittances, which is, as I remember, about maybe 5 billion in Polish zloty, which is roughly more than 1 billion euros. And then if the – those emigrants of ours are affected by the Brexit – again, it remains to be seen – than also that flow of remittances can be diminished. So those three specific things, what I see ad hoc without having thought about it deeper.
And fourth, which is of more political dimension, geostrategic dimension, no doubt that Great Britain was taking the same position on the threats stemming from the east as Poland did, in terms of sanctions against Russia, for example. So the security threats that were caused by the policies of Russia, which should have belonged to a bygone era only, were seen in the same way as U.K. and by Poland. So once the U.K. is out of EU, we can think – we can think about to what extent that kind of position would be debilitated.
MS. VINOGRAD: Thank you. And perhaps London’s financial center will move to Warsaw. (Laughter.)
Amir, I’ll turn to you next. We were having a discussion yesterday about technology and employment. And with increases in productivity, many people are asking if technology is a labor force disruptor and if new technology in emerging markets or developed countries is going to displace workers. We have certain presidential candidates in my country that seem to thrive on that message. Do you agree? And if not, why not?
MR. NAYERI: I fundamentally disagree with this concept of warmongering technology and of fearing, you know, what it – what it’s going to do to employment. I think it’s – you know, and just looking at history – you know, Carl Bildt told us this morning about how history repeats itself – this is an age-old conversation that we’ve – that society continues to have every time we turn the corner on innovative new technology. You think of the Luddites, you know, at the turn of the century during the Industrial Revolution who were looting machineries because they were concerned about automation and what it would do to their jobs. You think of President Kennedy in the – in the ’60s who said that one of the single biggest domestic issues that he’ll have during this presidency is to – is to maintain full employment, despite the emergence of technology that can automate jobs. And now we’re having the same conversation, and it keeps coming up.
And I think part of it stems from the fact that we can see the jobs that are going to get automated. We can identify them, right? They’re taxi drivers because Uber’s come on. And the next thing we know, there’s going to be self-driving cars, and so we’re not going to really need cab drivers anymore. Or accountants, right? With all of our phones and computers and the Internet of Things speaking to each other, we’re really not going to need an accountant 10 years from now because our phone is going to track all of our activities and it’s going to automatically file our tax returns, and we’re not really going to need to go over to the accountant.
So the fear comes from the fact that we can identify the jobs that are going to be disrupted, but we can’t identify the jobs that are going to be created. And yet, history tells us time and time again that new jobs get created, right? Fifty years ago, we couldn’t have dreamt of, you know, growing up to become a video-game maker, right, or a graphic designer. Those jobs didn’t exist because the technology hadn’t yet been created. And so, you know, I think about that’s kind of the tension that exists, is that we look at jobs and we go, that’s probably going to get disrupted. And what’s important for us as a society and as a community is to stay ahead of that, and to put in place the policies that are going to ensure – not going to limit technology’s capacity, but that are going to enable it. And that maybe means having programs in place for, you know, disrupted people to get retrained on something.
You know, and to your question on emerging markets, I think the power of this data that’s sitting in the cloud and that anybody in the world can access is going to create a ton of opportunities. Think about de-localizing manufacturing, right? Right now – up to now, it’s made a lot of sense to have centralized manufacturing warehouses because it’s a lot cheaper to buy these enormous gadgets at these enormous capital expenditures that we need to build things. But, by storing all that information in the cloud, you don’t need these big things anymore; 3D printing is going to allow you to not just print widgets in your garage, but it’s going to allow you to print a home. You know, you talk about concrete. Once we figure out how to get concrete through an extruder, we’re going to be able to build a 3D home. And that’s going to empower local people and local entrepreneurs in these emerging markets, and by the way is going to decrease a lot of transportation costs, which is also going to help on climate change.
So this whole idea of being scared of jobs going away I just –
MS. VINOGRAD: It’s a rebalancing, in many ways, yes.
MR. NAYERI: That’s right, yeah.
MS. VINOGRAD: And also speaks to, I think, the need for investment in education, in making sure that our workforces are competitive in a global market.
Julien, because of my background in national security, I look at threats as much as opportunities. Your company works in a lot of permissive environments and a lot of non-permissive environments. How do you think about physical risks to infrastructure, as well as cybersecurity?
MR. TOUATI: No, it’s an essential question. I mean, we are now one of the largest investors in the new terminal to be built in LaGuardia. So even if I stay –
MS. VINOGRAD: Thank goodness. (Laughter.)
MR. TOUATI: Even if not economy, even from an infrastructure perspective, there is a lot to be done. But anyway – in Poland as well, sorry. (Chuckles.) I’m not politically correct here.
But anyway, so that’s typically a question, I mean, if you think of we also allowed investors in Turkey in hospitals, I mean, think of what happened in Istanbul recently. I mean, making sure that you can design, for instance your ports so that you can integrate certain security threats.
I mean, in Istanbul what saved the people basically was the security at the entry. If you’ve been to Atatürk, you have pass through the security check a first time and you do that a second time. And most at the first say, oh, why do we do that, it’s too long and so on.
I mean, I was in Istanbul at Atatürk two weeks ago, like, at five in the morning, so I was complaining about that. It’s what saved hundreds of people and, something I have to say, my feel was during the attack.
So that’s a kind of – the good thing when the investors go long term, when you are there from the very beginning, so we are developers and we invest a very long time, is that we can include aspects, we can engage with the authorities.
What is often difficult is that these projects are undertaken by some specific administration, the transportation administration or the health administration, and the big difficulty is for also them on the public sector side to gather all the various departments that are involved without there being the fear of losing control.
And it brings us back to the complexity of infrastructure projects. Even when you have private investments and people like us acting as developers of infrastructure, you need to have on the public sector side people ready to engage.
So the last thing on cybersecurity, for us, I mean, I said all Europe, all technology, I mean, I’m not very good at all new technologies, I mean, but the point is that it’s something that we have absolutely to integrate.
The way you can do that is it can take various dimensions. I mean, I think now you are specialized in drones, and we discussed that yesterday. We are, after this first project in Senegal, we are looking at a project in Guinea where we will equip, by using solar technologies, some towers for basically 4G in Guinea. I mean, 3G first.
The thing is that using drones potentially could be a very good way for us to monitor – it’s not cybersecurity, but I mean, it’s using new technologies – to monitor what is happening on the ground. Today’s solution is to have one guard per tower, so job creation. Tomorrow it may be the same guy, plus some support from the drones. So that’s the way we have to think now of infrastructure, so it’s long term. And again, I don’t know what is going to be the technology in the next 20 years. And I invest over 50 years in some occasions.
But I mean, being as flexible as possible, including when you design the infrastructure at the very beginning.
MS. VINOGRAD: Thank you.
MR. NAYERI: And sorry to –
MR. KOZMINSKI: Yes.
MR. NAYERI: Also think about when you’re inspecting those towers today, what are you doing? You’re getting somebody to go up a ladder, right, and he’s having to hang off of a rope while he’s up there inspecting it, taking pictures on it, you know, either taking pictures or at times with the clipboard looking at it.
You fly a drone over there, you’re saving that person from serious work hazard risks. Right? And so it’s not just a matter of creating jobs, it’s also a matter of making people’s jobs a lot safer.
MR. KOZMINSKI: Jobs safer, absolutely.
MR. NAYERI: So instead of going up a ladder, that guy is able to sit in an office and is able to see visually what the drone is telling him. And then if you’ve got the right processing capacity on the drone, you’re able to analyze the data right away and tell the person what to do.
MR. KOZMINSKI: It’s, no, it’s a very valid point.
MS. VINOGRAD: Yes.
MR. KOZMINSKI: Typically, investors when they look at what we do, they are very afraid of the safety or the casualties potentially on the work. So if you have a strategy to mitigate that, it’s one of the shared benefits that I was discussing. So great, no thank you.
MR. NAYERI: That’s right.
MS. VINOGRAD: That’s very true. And I’d like to open it up to questions. And I’m just going to pose one to three of you while we go out to the audience. And that is, if you could put one issue on the NATO summit agenda, what would it be?
Let’s go to the audience. Let’s start over there. Let’s take these two questions together.
Q: Thank you. My name is Tina Rohner, I work for the Asian Development Bank. I’m based in the Philippines, and I’m a Millennium Fellow with the Atlantic Council.
I very much like that you talked about job creation as well as education. A lot of the countries that I work on and where I make investments, you have a middle class where people are educated and where the kind of jobs that are being created for the new economy are very much helping them. But you also have countries with large populations where a big percentage of population has very basic or even no education. And these people also need to find jobs, and that’s often what we try to invest in.
And it is very difficult for someone who may have maybe minimal literacy or even no literacy to find a job. And of course, the long-term solution to that is education, but that is very long term. And some of those countries are, in a sense, running out of time and there is a large number of people that need to find jobs and for them being idle is a risk to these countries from a securities perspective as well because you have a large percentage of very poor people, very desperate people with very little education and very little access to improving their own situation that also have nothing to do.
And so my question to the panel is, how would you propose that this kind of issue of having large, uneducated populations that will not be working in any kind of sexy, startup jobs at any time in their lives, how can we also cater to them and make sure that they also get a step on the economic ladder?
MS. VINOGRAD: Thank you. And I believe there’s a question behind you as well.
Q: Yes, hi. Santiago de la Presilla with Visegrad Insight.
I have a question for the ambassador. I wanted to know his outlook on Poland today. I feel like it’s a little bit of an elephant in the room. How can Poland attract further foreign investment if their main political parties are still fighting over the control of the judicial and the S&P downgraded their credit rating and it’s maintaining its negative outlook of the country?
MS. VINOGRAD: OK. Ambassador, maybe I’ll rephrase that a little bit and just combine the two questions and pose to you, going back historically, how did Poland transition its young people and its workforce that perhaps didn’t have the education commensurate with the jobs that were available at the time to become more competitive?
And then we’ll turn to you two to answer in the current context.
MR. KOZMINSKI: OK. Understand also in the context of the private sector, right?
MS. VINOGRAD: Yes.
MR. KOZMINSKI: OK. Well, in general, one could say that what transformation did at the very beginning, number one, we had quite well-educated young generation, but it was a general level of education. We didn’t have specific specializations, like accountants, managers, I mean, those professions which had to be developed later. But the general level of education was not bad.
Number two, there was a huge enthusiasm that was certainly unleashed and that enthusiasm helped us a lot.
Number three, we had a lot of, of course, external elements that helped us as well as the technical expertise and so on and so forth.
Now, talking about the private sector and coming for investments, there were a few tracks in which the private sector developed by that time.
Number one, the mere stabilization and mobilization plan of ’89 helped trigger many new businesses. In 1990 and ’91 during only those two years, 600,000 new businesses were created – 600,000 new businesses.
Number two, it was a so-called small privatization. That small privatization, it was about communal property, shops, local transportation, small enterprises.
Number three, it was regular privatization of state-owned enterprises, which took some years, but it also (stuck ?).
Number four, it was the acquisition of assets of state-owned enterprises by private businessmen.
And number five, last but not least, slowly, slowly foreign investment started to come. And they came more and more often when they saw the fruits that were being born, which were generated by the economic program.
And now to look how the private sector grew, I could give maybe three figures. In 1990 after the first year, the role of the private sector increased up to 30 percent of GDP. Then two years on in ’93 it was almost 40 percent, and in ’95 it was 50 percent, so it was fantastic.
And summing up, the links were two sides. On the one hand, the program triggered the new businesses as well as helped privatization as well as attracting foreign investments. On the other hand, the growing private sector had transformation further and development.
MS. VINOGRAD: Thank you.
Amir, any thoughts on equipping?
MR. NAYERI: Yeah. You know, I think when you work in emerging markets you have to work under the fundamental belief that there’s nothing particularly special about you as a Western-educated person other than the opportunities that you were afforded.
Talent is uniformly distributed around the world. We don’t have, you know, in the West a monopoly on talent. We have an incredible advantage over opportunity.
And so when you talk about how do we get to those people, it’s you have to operate under the belief that with very basic investment in education you can actually get these folks trained up and you can unleash their creativity in ways that are unimaginable to us.
And with the onset of MOOCS, right, massive online courses, it doesn’t take that long to educate someone, you can do it pretty quickly, right? You can educate people on an app, on how to create an app, within a couple of months and they don’t need that much basic education to be able to learn how to do that.
There’s folks that are working on MOOCS turning them into games, right? So if you can play a game, which anybody can do, you can learn pretty quickly very basic skills that allow you to unleash that creativity.
I’ll give you an example. I met a Kenyan entrepreneur who grew up very poor and, you know, had his little cell phone, sort of the Nokia, I always call them the Nokia emerging market cell phones, the one with the flashlight on the top, and it kept running out of batteries. And because he didn’t have access to power 24/7, he was getting really frustrated that his phone would die every couple of days.
And he figured out a way, without an education, but by using MOOCS online, to capture the kinetic energy from his shoes, from walking, and then stuck a USB key inside the back of his shoe where he built a port and was able to charge his cell phone while he was walking. And that’s because his creativity was unleashed by virtue of having access to this data that’s sitting somewhere up there.
And so I think the ABD does a great job of this and there’s a lot of the development banks out there that are doing this sort of work, but it’s facilitating the ICT infrastructure on which a lot of this creativity can sort of flourish, which is, I’d say, the most important sort of first stage.
So, you know, infrastructure investing, both hard infrastructure and digital sort of infrastructure 2.0 is critically important to getting people access to this information.
MS. VINOGRAD: Thank you.
I think we’ll take one more question and then we’re out of time.
All the way in the back, please.
Q: My name is Kamila Lepkowska, and I’m one of the Millennium Fellows.
My question is inspired by the – by the little banner that you can see across the street.
MS. VINOGRAD: “Ghostbusters?”
Q: No. (Laughter.) The one with the moving numbers. And what the moving numbers are is the growing public debt of Poland.
And my question is probably to Ambassador Koźmiński, but I would also love to hear your view, Samantha. Do you believe that the growing public debt is also a growing security issue? So does the growing public debt make countries vulnerable to risks in terms of security?
And if yes, then what is the context in which it happens? I mean, what other factors make countries vulnerable to these risks? Because we know that some countries can manage public debt pretty well, in other countries growing public debt causes a lot of troubles. So if you could explain on that.
And then if yes, could you imagine some global solutions to this issue? And if I mean global, then I mean beyond the EU and I also mean in preventive terms. We have solutions which are corrective solutions at the IMF, but would you see a possibility of addressing the growing public debt and related security risks in a global manner, in a preventive way?
MR. KOZMINSKI: Well, it’s such a vast lot –
MS. VINOGRAD: Yes.
MR. KOZMINSKI: – but let me think of maybe a few aspects. Number one, no doubt there is a direct relationship between the public debt and generally macroeconomic health and security and stability, no doubt about it.
Talking about the resilience of an economy, which has a direct impact on security, resilience is based on, number one, fiscal and budgetary policies, number two, on the quality of institutions; number three, perspectives for growth; number four, of course, defense capabilities. But defense capabilities are a function of the first, second and the third.
So from that point of view, the healthier the macroeconomic situation the better. And again, it’s based on those two things, on fiscal policies, where we talk about the budgetary deficit, and about money policy which is being run by the central bank.
Now, if the budgetary deficit is under control, then certainly the public debt is not growing and it’s not hampering the category of resilience which, again, has its impact on security, so it’s in general.
Secondly, in terms of specific solutions, I’m not sure whether we can talk about a global overall solution. It’s an issue for each country individually as well as groups of the countries.
In terms of Poland, I can tell you Poland was hugely burdened by foreign debt in 1989. It was one of the three or four huge maladies or sicknesses that we inherited, which was the hyperinflation, which was massive shortages of goods, huge budgetary deficit and huge foreign debt which by that time stood at a level of about 50 percent, I believe, of Polish GDP.
Now, it was impossible for Poland, or it would have been impossible, to go ahead with that debt. So what we did, we started negotiations with our creditors, both private lenders and the states, in the Paris Club there was the states, in the London Clubs there were the private creditors.
And because of the successful economic program containing both segments, stabilization measures as well as transformation part which had two segments, liberalization of the economy as well as institutional changes, both the private creditors and state creditors were ready to forgive part of the Polish debt.
So as a result, 50 percent of Polish debt was forgiven in two tranches. The first was announced in 1991, and then it was ’93, ’95. So by ’95, Poland did away with the debt, but it was the Polish case.
And here some in GABA can say because of our homework internally it was possible to gain support of those who had given us money before.
MS. VINOGRAD: Thank you, Ambassador.
And the final point I’ll make before we break for 15 minutes and then begin our next panel promptly at 4 p.m. is I think the answer to your question is the private sector plays a really big role, right? I mean, if a country has a high debt-to-GDP ratio, I would imagine that private enterprise is less likely to invest. So that’s where we’ll close.
And I’d like to thank all of our panelists.
MR. NAYERI: Thank you. (Applause.)