Debating the Future of Europe: An HBR Event

SARAH GREEN: Welcome to this special edition of the HBR IdeaCast. I’m Sarah green. Late last month, Harvard Business Review opened a new office in London. To celebrate, our editor-in-chief, Adi Ignatius, hosted a conversation with Alastair Campbell, Tony Blair’s head of Strategy and Communications, and Sir Michael Rake, the chairman of British telecom. They had a wide ranging debate talking about the state of the economy, the future of the eurozone, and what we all need to be doing to meet these challenges. We had about 250 people on hand. But if you weren’t able to be there, we’re sharing this recording of the event, so you can join the conversation. Enjoy.

[APPLAUSE]

ADI IGNATIUS: So I want to quickly introduce the people who are up on stage with me, and then we’ll plunge right in. I’ll carry on a conversation with the two of them for a while, and then we’ll open to questions. So please think of some. So to my far left is Sir Michael Rake, prominent British businessman, chairman of the BT Group and of easyJet, was formerly chairman of KPMG International. He’s a non-executive director of Barclays, McGraw Hill, and the Financial Reporting Council. He also oversees Britain’s private equity oversight group. And he formally chaired the commission for employment and skills.

To my immediate left is Alastair Campbell, a Labour Party activist. He was director of Communications and Strategy for prime minister Tony Blair. Long ago, he was a journalist working for the Daily Mirror and Today, probably among others. And he’s the author of three books, The Blair Years, based on his diaries at 10 Downing Street, and two novels, All in the Mind and Maya. When I told a journalist in London today that I would be sharing the stage with Sir Michael Rake and Alastair Campbell, her response was huh. The only thing they’re going to agree on is probably Gordon Brown.

[LAUGHTER]

ALASTAIR CAMPBELL: But you like him as well, yeah?

[LAUGHTER]

ALASTAIR CAMPBELL: His amendment?

ADI IGNATIUS: Right. Moving right along. OK, we’re going to talk broadly about a number of topics but really about how to fix this crazy broken system of ours, whether it’s the eurozone, whether it’s the education system, whether it’s the media, whether it’s problems of leadership. So please welcome us to do a very broad discussion. Harvard Business Review had just completed a survey of 1,400 business leaders, CEOs and senior managers who make decisions on important things like investment, and hiring, and the like. And the survey really asked them for their forecast about the economy. And I wish I had better news.

Maybe not surprisingly, but some of the numbers were surprisingly grim. 71% of the people who we surveyed– and again, these are people who will be making decisions about hiring and about investment– 71% think it is likely that we will enter another global recession in the coming months, not a downturn, not flat, but a recession. 68%, almost as much, say that their firms– there’s often a bias. People say, yeah, the economy is terrible, but my firm is great. Well, in this case, maybe not. 68% said they will not be hiring in the next year. And many of those said they’ll actually be reducing their labor forces.

So a couple of grim findings. So Michael, if I may start with you, from your perch atop BT, what are you seeing? What are the numbers you’re paying attention to? And what do you expect to see more broadly across the globe?

SIR MICHAEL RAKE: Well, I mean I think what we all see right now is a very high level of volatility, a very high level of uncertainty, and a lack of confidence by, I think, business of the consumer of what to generalize a little bit. That’s where it is. I think, actually, many, many companies are in much better shape from a balance sheet liquidity point of view. They degeared, as had the banks on the whole. But I think the uncertainty of the economy means you’re seeing people not investing in real assets the way they might.

We’re seeing many American companies taking advantage of low share prices and excess liquidity to buy their own shares. They’re not going to invest because they see that as a better deal right now in terms of what they can do. And I think we got a real paucity, a complete lack of political leadership in the eurozone and the United States. And until we can sort of unlock the eurozone, the immediate issue, I think it’s very clearly unlocking the Eurozone crisis and finding a solution to that or a political solution that can be implemented that creates some degree of certainty.

That’s the short term biggest issue in my view. And I think to where your earlier point, what’s really disturbing, and I think really does disturb business because I think business is concerned around the environment we’re in is the very high level of youth unemployment. It was running at 50% of the Middle East before this crisis, 40% in Spain, 20% here in the United States. That’s a real cancer to our society.

So I think there’s some really important issues that we’re going to have to grip, because at best in the west we’re going to see, because we peaked our debt at the height of the boom, we’re going to see very low growth in my view. Maybe the American economy has the ability to print more money because of the reserve currency. So I think we’re going to see very slow growth at best. And if we don’t get political leadership soon around the eurozone to give some degree of confidence, I think there’s a combination of factors that can be very negative, politically, as well as economically.

ADI IGNATIUS: Let me just follow up quickly. Because in the US, one can imagine a solution if the parties were acting more rationally. The eurozone sort of defies, in my mind, an easy and actually attainable solution. I mean the Economist cover on the eurozone crisis didn’t even suggest a plan as sort of, well, you can do this or that. I mean it’s incredibly complex. I mean do you feel that, well, if they only did this, we get through this?

SIR MICHAEL RAKE: Well no. I’m not privy to all the inner workings of it, but it’s very clear that– and Germany and France are key to this together– Germany itself got to work out what it wants to do. I think the coalition hasn’t agreed. It has to. Of course, the biggest loser if the Euro were to break up or be damaged is Germany. And there are countries who should never gone into the Euro such as Greece. And we have to deal with this problem and work through how we work it. When you’re getting 70% interest on Greek bonds, you got to realize there’s something wrong with that. So I think there’s some really hard issues to be dealt with is to practical solutions.

I think, generally, people talking around either a combination of some degree of fiscal unity or the issues of Euro bonds. But I mean to some extent, we’ve been playing for time. It just feels like a little bit too little, too late every single step of the way. And I think the markets are not going to be forgiving until we’re going to see this unsettled position which is on, certainly not just businesses, but consumers until we resolve this issue. And I think there’s some really big questions.

And clarity around the future of Greece. Is it to be rescued or not? Is it to be an orderly departure? Is it to be in bankruptcy? Is there to be a rescheduling of their debt? Is there to be a renegotiation? I think these are all issues that got to be resolved in the next few weeks and months.

ADI IGNATIUS: Alastair, you’re a political person and a politics watcher. Michael talked about the lack of adequate political leadership. From your vantage point, what’s happening? In terms of the economic management, is anyone getting it right?

ALASTAIR CAMPBELL: I think we’re in a situation where we’re in a crisis without a sense of crisis management. And I think if I could just defend the political leaders a bit, and let’s just go around the block. Take Britain for start. The public delivered a coalition government. And the fact of a coalition as we’re seeing from the Liberal Democrat Congress this week, a coalition is a very difficult thing to manage because the politics are real.

If you go to America, you get a situation where Barack Obama gets elected. And the moment that he’s elected, a very large part of the political and economic establishment basically say he’s not legitimate. And that has driven this sort of, I think, rabid politics that have been fairly apparent in America ever since and made his job even more difficult.

Germany, because of their history, their constitution, and so forth, a system that is designed to deliver up coalitions. Some might say weak government. Angela Merkel has just had another electoral setback. These are real factors that she has to bear in mind. Michael talked about Eurobonds, for example. The idea of trying to throw that on to the German public at the moment, I think, forget it.

You look at France where Sarko comes along, he gets elected on the ticket for reform. The minute he starts to try to do the reforms, the same people who elected it actually form the groups that push back on him and stop him from doing the reforms in the first place. So I think the business community, the media, all of us, have actually got to recognize, where Michael is absolutely right, it requires political leadership. And we can all complain about the lack of political leadership that may be forthcoming. But they’re all in a sense trapped by their own individual systems.

And the other thing that has weakened political leadership around the world– I mean globalization has had it’s great benefits in its upsides. But actually, all politicians have had to accept a diminution of their own power, because so many of the problems they’re wrestling with now are actually not going to be fixed, even by the Americans, even by the Chinese. They’re going to be fixed by, you talk about a fix in the system, by actually governments and leaders coming together and agreeing where currently they don’t agree.

SIR MICHAEL RAKE: Yeah. I understand the difficulties that politicians have in the short term nature of their electoral process and what they’re trying to do. But the end of the day, we are where we are. And the crisis is very severe and very big. And it is going to affect youth unemployment hugely. I completely agree with you in terms of solution. We need to see a number of things happening. Business, I think, is willing and ready to work and needs to work with politicians, with trade unions, to come up with the things that are going to fix the problems we got. Because we cannot buy our way out of this problem at the governmental level because we kind of run out of money to do that. And that includes the UK, the eurozone, possibly not the United States, although that day will come.

So I think that’s an important coalition. I think the other area I happen to be in Davos at the world economic forum when the Chinese premiere there. And he was really interesting and clear that the Chinese are ready and willing to stand by the global system, which is something to connect so that everyone loses if this goes down in the Eurozone, which is biggest focus. But he basically said very clearly that the biggest single thing we could do requires the Americans to work with us, the Chinese, in order to come up with some of openness. And they want the American markets opened that clearly he was saying that he’s then willing to work together at a global level to find solutions. So it’s kind of clearly–

ALASTAIR CAMPBELL: The minute you say that–

[INTERPOSING VOICES]

ALASTAIR CAMPBELL: –in the room now, their political antenna legitimately be going twitch, twitch, twitch, can’t do that. So I think what you need in terms of the point about political leadership– let’s remember as well, I can remember fairly early on after we won the ’97 election, there was a Russian economic crisis. There was an Asian economic crisis. You can get through them. But what I feel with the eurozone crisis is that people are just kind of– they are knowingly lurching from one many crisis to another. And eventually, there’s going to be one that’s going to be all consuming and engulfing. I think we’re not far away from it.

SIR MICHAEL RAKE: No, I think that’s right. I think one of the lessons that I think that Germany and Merkel has learned is putting out this story, which about to be politically attractive that the poor hardworking Germans or the rich hardworking Germans trying to pay for these wretched, underworking non-taxpaying Greeks–

ALASTAIR CAMPBELL: Who they got into the Euro.

SIR MICHAEL RAKE: Who they got into the Euro. And all the solutions are going to end up with the [INAUDIBLE], which is not technically true if you could find a solution that gets Greece through it. And now you hear very clearly that it now becomes difficult to do the right thing because of previous political statements which went down for reasons of populism. And when we got so many people unemployed and so many people potentially unemployed, there comes a point where politicians really got to tell the truth, even if it’s politically difficult to stomach.

ALASTAIR CAMPBELL: And they got to stake out very, very difficult positions, which made– the thing is I think the public are far more ready for that kind of leadership–

SIR MICHAEL RAKE: Yeah, I completely agree.

[INTERPOSING VOICES]

ALASTAIR CAMPBELL: –things they are. I thought at the last election that one of the reasons why Cameron here didn’t get the majority of the– frankly, everybody thought he would have got was actually because he wasn’t being sit level about the scale of the problems he was likely to face and what he might do about it. And that’s why he hasn’t got as much goodwill, I think, in the moment.

But Obama is already probably too locked into an electoral cycle, which he doesn’t in my view need to be. I think he can win the next election actually by doing exactly what you’re saying, and being straight and saying, it’s going to be tough. And I’m going to take all the S-H-I-T I’m going to take to get it done.

ADI IGNATIUS: Luckily, no one here can spell. That was a good call.

ALASTAIR CAMPBELL: Thank you.

ADI IGNATIUS: Now you two are agreeing with each other far too much, so it’s making everyone a little uncomfortable. But let me ask you–

ALASTAIR CAMPBELL: He was agreeing with me. I wasn’t agreeing with him at all.

[LAUGHTER]

ADI IGNATIUS: We have not seen that. You were talking about this sort of lack leadership. You were talking about more effective leadership during some of these earlier economic crisis, the ruble, et cetera. But can you talk a little more about that? I mean were the previous generation of European leaders larger in stature or more effective? Or is it that the eurozone has sort of blown everything up?

ALASTAIR CAMPBELL: No, I think actually you could point to the previous generation of leaders in the sense have helped to deliver what we’re now dealing with. It’s fair to say, I was always a bit on the Euro skeptic side. I was certainly with Gordon when he was trying kind of keep us out of the Euro. I don’t think it was the right thing to do. And I’ll tell you when I became, as a pro-European, very much a Europhile, but it was actually spending so much time at European summits where I could see– I used to sit at these things, and I would just think this can’t work because you felt there were these leaders from countries who are constantly agreeing when actually they weren’t.

And I felt with the Euro, look, I think it’s a great political vision. I think the idea post-war of France and Germany never going to war again, the whole European Union become this vast trading block, it’s fantastic. But I think the idea that you could have this monetary union without a political union that none of these countries, even France and Germany, ever going to live with, I think it was a political fix. And I think that these countries, the ones that are now really struggling, they would leave it into the Euro by the previous generation of political leaders.

SIR MICHAEL RAKE: First of all, I absolutely declare I’m a kind of eyes wide open pro-European. In fact, I’m a Europhile. And in fact, I’m probably one of the few people left standing, and don’t hold this against me, who still believes in the Euro, in this country. And I do believe actually in this country regardless of the electioneering period by both sides were not telling the truth, really. And I think that’s why the public got completely disillusioned. I think we’ve seen very strong leadership–

ALASTAIR CAMPBELL: He told the truth in the book, didn’t he?

SIR MICHAEL RAKE: He did in the book. You heard me.

ALASTAIR CAMPBELL: Ask [? Dotty ?] when he came out,

[INTERPOSING VOICES]

SIR MICHAEL RAKE: You’re absolutely right. He did tell the truth. But we have seen leadership since that brave leadership which we absolutely need in this country and other things. But my point being that if we look at the Euro, one of the things we say, oh my God, thank God, we’re not in it. Well, we are in the Euro. We are in the Euro. If the Euro collapses, we’re in big trouble. 50% of our trade is with Euro, firstly.

Secondly, I strongly believe that one of the reasons the Euro is in such difficulty is again a failure of leadership. These countries where you’re right, I think, brought in for political reasons because and then there were some really important rules. Remember that no bigger than a 3% deficit? Who are the countries who first broke the rules? The biggest countries in Europe, so Greece, Portugal, Ireland. My God, this is a really big free lunch. This is a real free lunch.

We’re not only getting these low interest rates is if we were the Deutsche mark, but we can have as much as we want as much deficit. No one cares because they think we’re a Deutsche mark. And like all free lunches, it’s blown up. So I think, again, I personally think that if the British with their very pragmatic sense have been much more involved within the discussions and much less of the Euro skepticism that we saw in the press and elsewhere, I think we could have a much more positive influence in the direction of the Euro–

ALASTAIR CAMPBELL: I can remember, we were the president of the European Union at the time of the birth of the ECB. And this is a book plug, but it’s more than a book plug, it’s a genuine point. Read the account of Tony’s chairmanship of the discussions that led to Wim Duisenberg being made the first chairman of the ECB. It was a classic. France, Germany, Vimcox being absolutely packed off by the whole thing because he thought his Dutchman was being pushed around by the Frenchman. And it was classic old, European national politics where eventually, sure, I said, well, OK, we’ll give this guy the job, but he’s only allowed to stay for a bit. And I demand

[INTERPOSING VOICES]

ALASTAIR CAMPBELL: And that’s what happened.

SIR MICHAEL RAKE: He’s under investigation.

ALASTAIR CAMPBELL: And that’s what happened. And it was, what, Chirac or Trichet or both–

SIR MICHAEL RAKE: Trichet.

ALASTAIR CAMPBELL: But Chirac’s forgotten it all, so it’s fine. My point is in the end, that is the politics that drove, I think, what we’re now having to pick up the pieces of. And you’re absolutely right. The Irish, the Portuguese, the Spanish, the Greeks, they thought, well, bloody hell, if the Germans were meant to be the real straight tacklers–

SIR MICHAEL RAKE: And the Italians and the French.

ALASTAIR CAMPBELL: — And they’re doing. Well, why can’t we?

ADI IGNATIUS: All right, so let me put you both in the spot. Let’s say seven years from now, does the Euro not exist? Same membership, fewer members. Is the UK a member? Is Greece a member?

SIR MICHAEL RAKE: You said seven years.

ADI IGNATIUS: Five.

SIR MICHAEL RAKE: Five. I think, for me, absolutely for sure, the Euro will exist and the minimal would be to call Eurozone areas of all the major countries. We might see one or two of the peripheral countries. I personally think Ireland will come through this. I think they’re ready to take the medicine. They have a manufacturing base. They have a favorable tax system, et cetera. They’re much more sort of tolerant of these things. Portugal is more questionable. I think the core Euro will exist. No, the UK won’t be in it.

ALASTAIR CAMPBELL: I certainly agree with the last part. The only thing I would say is a year ago, or certainly two years ago, I couldn’t have envisaged that we would be having this discussion now, and yet we are. And that sort of puts me in the mindset that says, well, actually–

SIR MICHAEL RAKE: You never know

ALASTAIR CAMPBELL: –anything could happen. And I also think the political deficit, or that sense of the political deficit, I think that is growing. And it’s fascinating you say– even Nick Clegg today said that he thinks the Euro is a terrible idea. Nick Clegg was waving the flag more prouder than anybody. So I think it’s entirely possible that you could end up with a fairly major unraveling. And I think the only way it’s going to be stopped is with a sort of genuine, really tough political leadership that Michael is talking about.

ADI IGNATIUS: Let’s bring this down now to the level of an enterprise and a manager. What are the keys to good leadership during a period as difficult as this, where people are losing jobs, are worried about that, worried about the economy?

SIR MICHAEL RAKE: I mean I think what you’ve got to do to go through a bit of is a clear vision, very clear communication of what you’re doing to ensure you put yourself through some degree of a strong financial position to withstand it, to be very clear about the need to take opportunities, not to lose your edge in technology, or people, or resources. It’s not a time to lose your nerve. And I don’t think most businesses are. I think most of us have strengthened our balance sheets very substantially in the last two or three years from a number of different factions. I mean, the Lehmans,

When all the bank lines closed down, that was a big lesson. I mean the whole system nearly collapsed. We forget that three years ago, more or less exactly as we can. And I think that led to a massive degearing and a massive attention to financial disciplines that actually has put companies at a fairly strong overall financial position.

So I think the issues to use that in a sense when I think people are looking to investment, they feel confident about it. I think, certainly in BT, we are recruiting. I mean we got, I think, average length of service is about 30 years. So we got a lot of people who are even recruiting a lot of apprentices. We are trying to take advantage of that. We are creating graduates. We are investing in the rollout of fiber throughout the country because we think it’s critical and important. And we are even investing in our global services business around the world to expand, particularly in the Southern Hemisphere in the Far East.

So I think a lot of companies are looking at these different opportunities. Whereas as I said earlier, I think there’s a lot of pressure too from shareholders to say, well, actually, with your share prices, don’t invest in real things. Buy back your shares. So you’re getting these kind of different pressures.

ALASTAIR CAMPBELL: I think this thing about leadership, when Bill Clinton was having his difficulties…

SIR MICHAEL RAKE: Come back Bill.

ALASTAIR CAMPBELL: No. I’m not saying come back Bill. But when Clinton was really having his problems, and I think we all know I’m talking about, on the day the Starr Report came out, I’ll never forget this because he had a conversation with Tony on the telephone about, the G8 was coming up. And they were talking about the decommissioning of Soviet nuclear weapons. And at the end of the phone call, Jonathan Powell and I are both listening and said to Tony, that was pretty impressive when this whole thing is about to engulf him, whole world waiting to gorge on his sex life, which ultimately what the thing was about.

ADI IGNATIUS: Oh, I thought you were talking about NAFTA before.

[LAUGHTER]

ADI IGNATIUS: Sorry. Yeah, I got it.

ALASTAIR CAMPBELL: It’s six letters ending in A. Anyway, a few years later, I interviewed Clinton for television when his book came out. And I didn’t tell him I was going to do it, but I asked him if he remembered this conversation he had with Tony on the day the Starr Report came out. And Clinton’s got, as you probably know, kind of mildly photographic memory for anything to do with politics. And he said, yeah, we talked about Russia and Ireland. I said yeah. I said how the hell did you do that? And he said this thing. He said, listen, I had a really simple objective, survival. He said, my strategy was to get up every day, focus on the things that only I could make a difference. And my tactics was to make sure the American people knew that’s what I was doing. And that got me through.

And I think what every crisis needs is an absolutely brutal adherence to a set of objectives delivered by a strategy which is constantly being communicated to the public. And at the moment, it’s that bit that I think is just not there. So for example, in Britain at the moment, Cameron and Osborne, they got this sort of fixation upon the reduction of the deficit, which is a kind of overhang from how they think they won, brackets, almost, the election. And in fact, they need to be changing. I’m not saying they changed that part of the strategy.

[INTERPOSING VOICES]

ALASTAIR CAMPBELL: But they got to have a much, much bigger argument for the changes that they’re going to have to make. And it’s the same for Obama. It’s the same for Merkel. And instead, they’re all being sort of pushed around from this little bit of a crisis to the next bit. And it just needs somebody to come and say, look, let’s just understand, we’re in the shit. Here’s the objective. We’re going to get out of it. Here’s the strategy. Bang, bang, bang, bang. And you then never stop talking about it, and you never stop doing it. And eventually, you may still be blown away, but–

SIR MICHAEL RAKE: And there’s succumbing to the temptation too in this country, the fighting yesterday’s battles. Instead of talking about the growth in general, what in Earth we do to business together, we continue to get paid. Banks beating up business. And whilst there are lots of issues there. These discussions are not going to get us out of this problem. Trying to score political points on regulation on banks, liquidity and capital that are out of kilter with the rest of the world do not work.

ALASTAIR CAMPBELL: The politicians are also in this situation work because they are all in democracies, apart one or two. But the politicians are having to live with public sentiment, which is real, which is powerful. But I still think, for example, in relation to the fallout from the banking crisis, and the role the public feel the bank has played and rewards that they got, and the fact that nothing much has changed since then for all Vickers’ report and all the rest of it, that is still cutting a []. And politicians get that in the ear the whole time.

SIR MICHAEL RAKE: Yeah, I understand they do. I really understand that. I mean I attended a Barclays board meeting. it was quite– AGM rather– and for three hours, it was nothing but abuse about pay. A couple of the directors saying to each other, well, you have to understand where the politicians are on this, because this is all they get 24/7. Put that aside, they’re supposed to be leaders. The answer to this is we’re going to have to have a level playing field on regulation, on liquidity and capital requirements for banks. And if we don’t, we will be destroying jobs. That’s a simple matter of that.

If we’d actually paid those seven billion of bonuses, you objectively got three and a half billion except being absorbed in loss carryforwards. And it doesn’t exactly help anyone. So I think people have got the message about remuneration, and huge mistakes were made. The biggest mistakes were made, in fact, by the regulators out front, and the politicians, the financial policy, followed by a false regulatory system, following by people failing to get the big picture which translated into banks taking advantage of that admittedly, et cetera, et cetera. So everyone was at fault except those who suffered the most. But we haven’t seen much accountability in the regulators to the country. I mean I think we got to have a balance around this if we want to engage–

[INTERPOSING VOICES]

ALASTAIR CAMPBELL: I certainly agree that we’re sort of slightly– you can see this already. There were the arguments with the Lib-Dems. We are continuing to have arguments from the last election as opposed to arguments about what’s actually happening and how you start for the future.

ADI IGNATIUS: Michael, I know you need to leave for the airport soon.

SIR MICHAEL RAKE: No airport. I got to meet somebody. Five to ten minutes is all right.

ADI IGNATIUS: Oh, OK. I was trying to give you an excuse.

SIR MICHAEL RAKE: I got to tell the truth, haven’t I? I just said that politicians–

[LAUGHTER]

SIR MICHAEL RAKE: I’m not trying to leave the airport, but I do have to meet somebody.

ADI IGNATIUS: But I know that one of your sort of most passionate causes is education and that you’ve been appalled by the state of education. And you’ve raised it, and people are probably aware of that. But I’m curious, since you raised it, what has been the response? Has anything changed? And what are the key problems?

SIR MICHAEL RAKE: I think when you’re involved in any organization, when you’re recruiting people, education is key. And certainly, KPMG were recruiting 15,000 graduates a year globally. It’s key. And you begin to see some of the issues. They’re not going to the commission for employment and skills. These are not new facts. But it’s shocking when you look at a country like this as wealthy as it is that we still have 7 or 8 million illiterate adults in the workforce, 6 million European people who can’t add up and count. And I think that is totally depressing. If we’re getting ICT, and we’re still putting children into secondary school who don’t have those skills, and we continue having made a lot of investment and tried very hard, we continue to fall down the OECD competitiveness trail. And this is still a big issue for SMEs and others around having the right skills, the basic skills, that people need and looking for that they can’t get.

And hence, people resent the tax on, in particularly, European immigration. Well, where would we be in London without these people? So I think standing back from that, we also got a situation. We got carried away with the university system. We do this research in the commission before the downturn were 37% of graduates and non-graduate employment. So you also see at the top, we got too many graduates in the wrong subjects, not enough apprentices doing practical things. Completely different to Germany, which feeds the difference between high level manufacturing and service industries. That bothers me.

And the thing that bothers me, I really do think that in this country, particularly, and I educated most of my children in continental Europe in state schools. In this country, we got some of the best schools in the world and some of the worst. And part of the reason I believe is the politicization of education. Ever since the Second World War, we politicized it– grammar schools, no grammar schools, this, that curriculums, interference, local authority, no local authority. And I just think that this is a case where it’s so important, education. And it cannot be fixed however much money you throw at it in two or three years. It’s 10, 15 years.

I think America has some of the similar problems in this area. But we really need some things to be, A, political, where political-wise get together and agree– because what you need is some degree of continuity. We’re going to do away, stop doing A levels, no A level, GCSE, which are awful compared with O-levels, compare with something we’re going to have diplomas that don’t work that business doesn’t accept. So what are we going to do? Do you want to have the European Baccalaureate? Let’s decide. Let’s work together on it. And let’s consistently implement it.

ALASTAIR CAMPBELL: That’s so easy to say. But the reality is–

SIR MICHAEL RAKE: Others have done it.

ALASTAIR CAMPBELL: You cannot divorce politics and political decisions from something as you rightly said as important as the education system. And you see, I come with this from a completely different perspective. I think there’s some very, very good state schools. And there are some poor state schools. I think the problem we have is actually, and this is a historic problem, if there’s one thing I could do that would genuinely, in my view, make Britain a genuine meritocracy and make the most of all our talents, it would be to stop a system where 7% of our kids are privately educated by an elite, for an elite. Because the truth is 5,000 pounds a year we spent on state– so yes, we put a lot more money in. It’s still only 5,000 pounds per kid. Private schools are up to 12, 20, and I think too–

SIR MICHAEL RAKE: 30.

ALASTAIR CAMPBELL: 30 in some of them. But the average on a private school kid is 12%. So we got 7% of kids privately educated. And so much of the focus goes on that. And I don’t like it when I hear people saying we have too many people going to universities. I think–

SIR MICHAEL RAKE: In the wrong subjects.

ALASTAIR CAMPBELL: Well, I agree that they should be, in a sense, led by the demands and needs of the economy. But I don’t like this idea because I think it’s where we’re heading back to, where actually, we’re going to keep on educating an elite very, very well in private schools. And the rest of it, well, they’ll do the menial jobs at the moment the European and Central Europeans are doing. That’s what ghost vision is in my view, not this preschool nonsense that he’s on about, honestly.

SIR MICHAEL RAKE: I completely don’t agree. First of all, where I do agree with you is we’ve got an increasing social division for educational care. Because either you have to pay 30,000 a year in school fees up to, or you have to buy much more for a house to live in an area where there’s a good state school. Because grammar schools, in many areas, were done away with. It’s one of the biggest single mistake that was made where people could really move away.

And I think that you need to also understand that for the people who choose out of their highly taxed incomes to send their children to private schools to do the best they can for them, they’re saving the state three billion a year because they’re not getting the 5,000 contribution. So the answer, I think, is to do something that we discussed.

Actually, the other day, there was a meeting held around more could be done by the private schools in adopting and working with academies, particularly in areas where education has failed. And some schools are doing this. They can make a massive difference by direct input because I absolutely don’t subscribe to the view because there’s no point to be the only well-educated people in a failed country. So unless we do something about education in total– politicians businessmen, the private system– we’re never going to get it right.

ALASTAIR CAMPBELL: But you talked about educating your children in European schools.

SIR MICHAEL RAKE: Since I was living there.

ALASTAIR CAMPBELL: But in France, for example, I think there is including amongst what you might call the elite, there is a commitment to the understanding that actually building good schools that all kids can go to, that’s what we should do. But whereas here, I actually think that what’s politicized the debate on education is the sense that the private schools used by the few whose charitable status is protected and make sure a lot of the top jobs that are taken by the kids who go there, the best links to universities and so forth. And actually , we’ve never really delivered, in my view, on the principles of what is a very good principle, the principle of comprehensive education for all.

SIR MICHAEL RAKE: But don’t do what we did before, destroy the good like grammar schools. Don’t destroy these schools. Use them to up the quality. Get them to adopt academies. One of the schools I’m involved in had talked to the academy which is the worst performing schools in Wilshire. Introduce things that seem old fashioned like a house system, like accountability, like changing the headmaster. Like working and bringing them to the facilities of this particular school. It’s the most improved school in the country in one year. So I think there’s enormous amount that can be done. Don’t destroy things. Use what they do that is good and emulate it.

ALASTAIR CAMPBELL: But I think we run down our school system way too much. I think there are lots of good state schools. And the other thing I think that our discussion has shown, you start from the point of let’s take the politics out of education. Honestly, that is totally impossible because education goes–

SIR MICHAEL RAKE: So how do you get continuity of policy then?

ALASTAIR CAMPBELL: Well, you build a consensus of the sort of system that you want. And the truth is there is massive division.

[INTERPOSING VOICES]

ALASTAIR CAMPBELL: But how can you take that out when the guys– some of them like Gove, I’ve disagreed with a lot what he’s doing. But he’s been elected on a vision for education which he’s now trying to–

SIR MICHAEL RAKE: Which needs reform.

ALASTAIR CAMPBELL: Which needs reform?

SIR MICHAEL RAKE: Education system. We’re not delivering–

ALASTAIR CAMPBELL: But that’s politics.

SIR MICHAEL RAKE: I mean regardless, the totality of the system, we’ve got some really bad private schools, by the way, and we’ve got some very good states, not what I’m saying. But we have some of the best and some of the worst in the world. And some of those are very important to supporting what we are trying to do and attract human investment. And school system is part of that as used to be the tax environment and other things. But what I’m saying is that the reality of all of this is every single survey you do shows that the school system here is not producing the people that business as a whole needs in order to help grow the economy. That’s the bottom line.

ALASTAIR CAMPBELL: I agree that’s a problem.

SIR MICHAEL RAKE: That’s the bottom line.

ADI IGNATIUS: I’m going to call the final word on that because I know you need to leave. And I do want to open this up to questions. If you want slip away, this is a great time. If you want to stick around, even better.

SIR MICHAEL RAKE: He’s got me going now.

[INTERPOSING VOICES]

ADI IGNATIUS: But we’ll get a microphone around. I do want to quickly ask, I know, Alastair, that you suspected your phone was tapped and hacked in the News of the World. Right?

ALASTAIR CAMPBELL: So was yours.

ADI IGNATIUS: Well, it may well, although I didn’t go.

ALASTAIR CAMPBELL: With a name like yours, they’re not going to leave you alone.

ADI IGNATIUS: Thank you. But what was the basis of that suspicion? But going little farther, and I want to be intentionally provocative for a second, the media do a lot of prying. That is what we do. We get our hands on documents that we’re not meant to have. Now I think we’re all offended by the kind of extra level that was involved in the News of the World hacking. But to a certain extent, that is what we do. That’s my provocative comment. I mean do you think the reaction has been overblown to this scandal because it’s Murdoch, because he has aspirations for bigger things in the UK and elsewhere?

ALASTAIR CAMPBELL: No, I don’t actually. And the reason for that is not just upon what we now know to have happened. But it’s actually because I think people who’ve been around that culture for long enough suspect that actually you’re talking about a tip of an iceberg. Why there’s so many of the other newspapers not really pursue this with the relentlessness say the Guardian have done? I think we know the answers to that. Why when Andy Coulson resigned from Downing Street the Daily Mail next day is saying, well, he’s done the decent thing, and now let’s move on. I think we have a fair idea.

And I think the other thing, it’s going to be interesting through the Leviston inquiry is this business of the use of private detectives. Because Glenn Mulcaire, the News of the World guy, there’s been a lot of focus on him. I’ve been showing stuff in relation to me about this guy Jonathan Rees and actually wasn’t the News of the World, or even the Mail, it was my old paper, The Mirror apparently that was paying him shedloads to dig up I don’t know what. So I think it’s this thing about newspapers under incredible competitive pressure which we all understand– internet, 24/7 news, and so forth– cutting corners, and cutting costs, and deciding actually, it was cheaper to get really good stories by employing private detectives to do things you didn’t need to know about rather going through the expense of laborious job training journalists to do short hand and learn about the law.

So this thing about did the editors know, didn’t they know, blah, blah, blah, they certainly knew that they were employing far more private detectives that they used to. And I think they knew the reasons. So I think it’s not overblown. And I hope that it does lead to a cultural shift. But again, I go back to the point I made about the politics. In the end, this is driven by the public. The big success stories in the media the last few years have been reality TV shows and celebrity magazines. We can talk about whether current affairs, and panorama and all that stuff which is where journalism should be, good journalism. But actually, the growth in journalism has been right at the other end of the market. And that’s been driven by the public.

ADI IGNATIUS: Well, I know there’s isn’t a thank you all for being here tonight.

[LAUGHTER]

ADI IGNATIUS: Let’s do questions. We have two microphones. We have one microphone. Well, this is the nearest hand and maybe work your way here. But yeah, right here. And please quickly introduce yourself.

AUDIENCE: Thanks. Colin Buckley from Children’s Investment Fund Foundation. You struck a lot of comments, a lot of topics about unemployment about the troubles with the governments. And it’s almost a standard economic truth that you can’t save your way out of a recession. And yet, suddenly, we got this wave of austerity with desire to save everywhere, the United States, the UK, the IMF, Greece, I mean, God help us, even in Italy. I’m kind of curious why the sudden political desire to go to austerity where economic history is filled with the more politically palatable approach which is monetarism, and growth, and spending, and borrowing.

ALASTAIR CAMPBELL: Well, I think in relation to here, it was a political strategy. I think their current economic focus on deficit reduction and austerity was the centerpiece of what an opposition, because in opposition, your objective is to get into government was a political strategy. I think there is politics. I mean I think there is kind of a bit of a left-right thing. I mean Obama would much rather be doing the kind of things that you’re talking about. But the minute he tries to– like this week, he talks about a tax rise that Warren Buffett is talking about. And he’s suddenly accused left, right and center of class warfare, including by people in his own side.

So even as something as simple as that, we’re talking about the need to get big political leadership. And so I think you’re talking about an age old argument about going down the road that the right’s going, going down the sort of more Keynesian route. And in the end, it’s a political choice.

SIR MICHAEL RAKE: I think it’s incredibly difficult. And I mean if you take this country, to give you an example, I think it’s absolutely no doubt with the debt levels we had tactically and really strategically, unless the government have really moved to do this, we wouldn’t be paying the low interest rates that we’re paying. And others are getting more attention than we are. So personally, I absolutely fully subscribe to that. And I think it was the right, brave thing to do.

In parallel with this, however, have you seen an enormous degearing. I mean we get a lot of attacking the banks from the politicians are at looming The truth is that at the same time as doing that, the regulators are requiring have more capital, more liquidity, and not to lend to risky enterprises. The really good SMEs who we keep talking about don’t want to borrow because they’re degearing, generally. Huge amounts of excess cash is to being deposited by SMEs at zero interest rate.

Meanwhile, the ones who do need to borrow want to borrow don’t meet the security requirements. We’ve seen exactly the same on credit cards, on mortgages. Everyone is degearing because I think in a post-Lehman phase has really made people nervous, fueled by press, political, et cetera. Now all of that is all well and good, but how the hell do we get out of this? And I think then the problem is certainly for Europe as a whole, we’ve run out of the ability to borrow money to spend our way out of it. The Americans probably haven’t because the reserve currency. And everyone wants to be in T-bonds again right now.

I mean I’m not actually sure the Chinese will stay there to be honest with you. But for the moment, they are, therefore, the Americans could spend. Let’s hope they do a bit because maybe they’ll help us. Whereas, I think we’re running out of options. Our political leaders, and the business people working with them, and trade unions have to try to bring confidence back, that we are going to move out of this, that we are going to grow. Growth is going to be much smaller than what we had in the last 10 years. But we can do that.

And it has to be however naive and idealistic. Because the situation, I think, is potentially so serious as some kind of alliance around these issues. And because I think we’re frightening, I think business in sometimes one hand and politicians the other kind of frightening the consumer. And where we’re we’re not careful, you get into a downward spiral.

ADI IGNATIUS: OK. Question? Yes.

AUDIENCE: Yeah, James Morrison from the London Press Club. I’m interested, Mike, in your comments about corporates who are actually in quite a good position with cash on the balance sheets. And so the two-part question I’m interested in is will we see corporates in effect invest in more in some of the SMEs that you’ve described, actually maybe needs some of the capital that banks can’t lend to them? And the second part from that is you mentioned that your investor base of public shareholders aren’t so supportive in long term investment. What three things would you change or like to see change that will maybe encourage longer term thinking by their shareholders?

SIR MICHAEL RAKE: I mean that’s a whole subject on its own, because in a public company, as political leaders, you find yourself looking at quarterly, annual– you do find yourself dealing with short term priorities, and survival, and the need to address long term issues. And the pressures are very great sometimes. And I’m not talking about any in particular that I’m involved in. But in general terms, you’re going to have different people on your share register for different reasons, long, short, this, that, hedge funds. So this is a real conundrum. And again, I think it requires strong leadership by companies to have a clearer long term view.

I personally think that a lot of companies go into real trouble, including some I have known who borrow money who got debt, and then still buy back shares, and don’t investing real assets. And they pay the price later. It’s horses for courses. So I think that it comes back to this essential thing which you starting with is leadership is critically honest, leadership that’s clear, that’s longer term. But political and business wise is what we need. Having said that, it’s sometimes very difficult to do.

Now I honestly believe that the very vast majority of large businesses understand there are responsibilities to their communities. And I think it goes back to the Brixton Riots. We started here around healthy back streets, healthy high streets. So I think people really do understand this. I think that when we saw the downturn, businesses were much better in this downturn than the previous one. There weren’t the massive layoffs. There was much more flexibility, much more part-time working, much more desire to realize that those companies, particularly small ones, who shed too many people, the ones who had the greatest difficulty coming back. So I think there has been.

But we’ve reached a kind of watershed now where everyone is going “ughhh” but we should be growing. I mean we should be over this. We’ve had enough of this Lehman stuff. The liquidity in the market about five weeks ago was back– we were heading towards Lehman moments in the marketplace. And it could come again. So it comes back to my point about confidence in the system, which is going to require political leadership, which is going to need to be supported by business leadership that’s quite farsighted. Because if we continue with these very high youth unemployment rates, who knows exactly the reason what happened in London? But I think everyone agrees on what happened in Belize. A lot of it started with unemployment, poverty, food prices, lack of future corruption, lack of political leadership, et cetera, et cetera.

ADI IGNATIUS: OK, question right here?

AUDIENCE: One of the words that I didn’t hear in this conversation at all, entrepreneurship. And if we’re going to talk about education without supporting social and serial entrepreneurs, I don’t think that we can put people into jobs or have them tell them which courses to take because it’s all changing. Its changing so fast. And so I’d love to hear your comments about kind of what the education system can do in this country to support that spark, and energy, and creativity.

ALASTAIR CAMPBELL: Well, it’s interesting. In your survey, which I read just before I came in, when these business leaders were asked about which was the most creative, entrepreneurial countries in the world, America was still way, way, way, way, out top. And we were depressingly low down, I thought. I mean almost to the bottom. So I think– I go back to the point I made earlier– we’re sort of trapped in talking through an already outmoded prism. Even watching this Lib Dem conference this week, there’s still a sense that you get up there, you make a big political point, and then you announce something that you’re going to spend.

So Nick Clegg’s big thing yesterday, I can’t remember, he pulled out 550 million quid for something. And the public at the moment were just thinking, well, wow, where do they get that from? Because we’ve been getting this message that actually everything is very tight. Everything’s very tough. So I think giving this sense that the government has a different job to do than the one that you’re talking about. And I think what the generation of politicians has done is almost give the sense that they can, because this is what they think the public kind of wants to hear, is that they can solve all problems. And in fact, they can’t, and they should be honest about that as well.

What they ought to try to do is to create the best possible conditions for the social and financial entrepreneurs to thrive and flourish, and to be honest about the fact that that is what is going to lead a strategy for growth. And you see I think where the Labour Party, you’re absolutely right to bang on Cameron at the moment is you don’t hear or see that sense of a strategy for growth. Now when you don’t hear or see it from the government, you’re not going to hear it from the opposition. And then you go around the rest of Europe, and you see the kind of problems which government by government they’re wrestling with. And we haven’t mentioned, bloody Berlusconi and his problems. But you’re dealing country by country for different reasons and different sets of circumstances people who are not actually letting thrive the people that they should be admitting are going to have to lead this out of this.

So Maya’s gone now, so I can be even nicer about him. But when he says, for example– and it is true. It’s the easiest thing in the world now to sort of kick a banker. And it’s fine. I can go to any Labour Party fundraiser, I can have a go at the bankers, and you get guaranteed nice round of applause. You then do have to kind of think, well, that’s fine. But that was kind of then. What are we doing now is actually saying there’s a lot of good that comes out of financial services. How are we going to get the good in them, then to develop, and grow, and help our economy and other economies out in the mire?

ADI IGNATIUS: All right. I think We got time for maybe two more quick questions.

AUDIENCE: Yes. Julia Hobsbaum. I run editorial intelligence, and networking, and thought leadership business. It’s really a question as much for Adi as anybody else which is it not the case that there is a bit of a thought leadership deficit as well as a leadership deficit? By which I mean we’re noticing that it’s not just graduates can’t get jobs. They’re not hugely equipped to do the jobs there are and that managers and senior managers are becoming pretty unprepared for the information over old age.

And I’m wondering really what steps are being taken other than the thought leadership coming out of people like, dare I say ourselves, and of course, yourselves to address this deficit. We talk endlessly about leadership and political leadership. But there’s to our mind, as sort of ozone hole-type gap opening up in the skills of the professional classes have got in which they’re going to be productive and grow economies.

ADI IGNATIUS: Well, at Harvard Business School, you certainly see an attempt to respond to the criticism that a lot of people who are engaged in a lot of the wrongdoing that led to the Great Recession were prominent graduates of business school. And were they learning the right thing? And were they sort of pursuing the ideals that the school would mean to impart?

A huge number of top business school graduates were just going straight off to investment banks. And people made the argument there’s too much intelligence in the investment banks which how they dreamed up these sort of financial models that has brought down the system once and maybe a second time. I mean the curriculum is changing at school certainly, whether it’s ethics teaching, whether it’s practical teaching. I mean Harvard Business School is relying less on case teaching as this current begins and more on sort of field study, actually sending people out to do actual business, actually in teams together to really have an understanding of what kind of business is about, what teams are about, what the kinds of gray areas and dilemmas that you experience are about. Do you want to add to that?

ALASTAIR CAMPBELL: Can I just put a little point on this? Because I don’t want to rant and rave about the media. But I think they do have a huge influence in this because I think we have a kind of head above the parapet deficit. I think too many people who are actually very, very bright have really good ideas and also a sense of thinking about the future. I think they’re just a little bit scared to get ahead above the parapet. Because the minute you get a profile, particularly in Britain, but this culture and this trend is spreading right around the world, this kind of culture of negativity, that the minute anybody is out there with an original, interesting thought or insight, they’re immediately kind of ripped to bits. Very, very different.

France still has a kind of respect for the sort of intellectual thought and leadership. I think the Germans still have a respect for people who are prepared to kind of think different thoughts. I think here, we’re very, very quick to kind of knock down people who we assume, because they’re out there doing and saying interesting things actually are just doing all for the wrong reasons. They want to be kind of on the telly. And they want to be famous and all the rest of it. Well, actually, I think you’re totally right. The pool of political leadership is getting narrower and narrower partly because of the negativity. I know loads of people who thought about going into politics? And they say, oh no, I’ve seen what happens to guys who do it. I’m not going to do that.

So they go to other worlds where actually you can just make just as much influence of just as much interesting ideas and get them out there. But the minute you’ve got your head above the parapet, you know you’re going to get your legs brought down. And I think that’s a real problem. And until we start encouraging– and this again, I go back to the point about the public. We’ve actually caught encourage each other a lot more to be out there and doing things. And instead of thinking the worst of people, which I’m afraid, particularly in bad times, people do, start to think the best. And then you may be see more people coming out with things worth hearing.

ADI IGNATIUS: All right, we got time for one more. I don’t know if someone’s got the microphone. Yes?

AUDIENCE: Hello. Mariano Dufras from General Electric. I find interesting that we have 18,000 people in the UK of which 16,000 are in manufacturing. But when you look at the rest of the British companies and how much I’m investing in manufacturing, I mean I’m surprised not to see that. What do we need to do in the UK to get the focus back on manufacturing? Because I personally think it’s one of the ways out of this.

ALASTAIR CAMPBELL: Well, I mean Michael over here would be far better qualified to answer this because he’s got his fingers in so many different bits of the British economy. When I said earlier about setting out a set of objectives and the core strategy to meet them, I think we just kind of lost the will on manufacturing. And if you believe in something– and what you’re saying, people will say it all the time, we should be making things that other people want to buy. And that’s what manufacturing is all about. And we should be bringing on the entrepreneurs who can do that. Well, we may have talked the talk on that, but we didn’t do it.

Again, I’ll go back to the bigger picture on the financial crisis, I think all of us became slightly mesmerized by the whole financial services thing, that that somehow was going to continue to deliver prosperity that we all taking for granted. So back to the point, you need a strategy for growth. A part of the strategy growth, there’s going to be a strategy for manufacturing. But there’s also got to be an acceptance that in the globalized economy as members of the European and the rest of it, there is a limit to what country by country one country can do.

But governments in the end have to set clear sign posts. And one of them should be very firmly have the manufacturing flag on it. At the moment, if you go and ask a member of the public what they know about government’s economic strategy, they’re going to say deficit reduction. That’s all they know about.

ADI IGNATIUS: OK. With that, this comes to a close. I’m sorry that Sir Michael had to leave early. But I want to thank everyone for being here, for asking questions, for taking part in this. I want to thank everybody who was involved in putting this together, but especially Elizabeth Baldwin, our international sales and marketing director who really did an awful lot of work to make this a great event. And it continues. So please everyone is invited for a champagne reception in the room we’re just in before, the Carlisle room. And thank you everybody for coming tonight.

[APPLAUSE]

SARAH GREEN: This is Sarah Green from Harvard Business Review. We hope you enjoyed participating in this HBR event. And to add your voice to the conversation, visit hbr.org/multimedia.