The Global Economy in 2010

Ladies and Gentlemen,

It is always a pleasure to be back in Korea, and a great honour today to speak at this prestigious university. The philosophy of the university is that ‘’ the truth shall set you free” and I will aim to do justice to this today. I have just had the pleasure of meeting with the University President Dr Kim Han Joong, and I am especially indebted to Dr Lee Chung Min for setting up this event today. I have heard so many good things about the Graduate School of International Studies, and about the MBA programme at Yonsei.

I have been asked to speak about the global economy in 2010, with a particular focus on the City of London and Korea’s Presidency of the G20.

But before I do that, I would like to give you a brief introduction to my work as Chairman of Lloyd’s. My business is not banking. I represent the world’s oldest and largest insurance market, which is based in London. Around eighty different insurance companies – ranging from large multinationals to smaller businesses – trade at Lloyd’s, often they share the risk of insuring large, complex projects, such as satellites, oil rigs and shipyards.

I am pleased to say that the insurance industry has come through the recession largely unscathed. In 2009, Lloyd’s recorded profits of just over $2 billion for the first half of 2009, and our capital assets grew to $3.3 billion. We have not been subject to the devastation inflicted on other sections of the financial services industry and the wider economy.

Although Lloyd’s is often referred to as “Lloyd’s of London” , we are a genuinely global operation with clients and offices across the world. In the past, this primarily meant the English speaking world – the United States and Canada. But today we are in many new markets. We became the first overseas reinsurer to be admitted to the Brazilian market in 2008 and we’ve been operating as a reinsurer in China since the middle of 2007. We currently do business with over two hundred countries and have direct licences in 80 countries. In Asia , we have offices in Singapore, Australia, Hong Kong, China and Japan.

In essence, Lloyd’s insurance market is the place where the world manages some of their most difficult and complicated risks. If a plane is brought down in a terrorist attack, or a hurricane hits a US city, often we will pick up the cost because the risk has been insured at Lloyd’s.

As a result, we follow global trends, and particularly emerging risks, very closely. And, at present, the biggest risk that most of our clients are facing is still the economy.

Asia’s experience of the financial collapse has been different from, and less severe than that of the US or Europe. But it is still the case that for many people across the world, the financial crisis has exposed the dark underside of globalisation. Here in Korea, you have been hit by a decrease in exports, caused by falling demand in many of your larger markets. For many people, it is bewildering and frightening that failures in the management of the US mortgage industry could have affected you here, across an ocean and a continent.

This is the first financial crisis of the global age and it has brought home that interdependence brings new risks, which until now have perhaps been improperly understood and inadequately managed.

But it is crucial to remember the many benefits which globalisation has brought. Particularly here in Korea, where the past 40 years have been a textbook case of economic development, with millions of people lifted out of poverty. Korea’s recent history is explained in superlatives: the home of the world’s largest shipbuilder and the world’s biggest electronics company. One of the most innovative countries in the world, the 8^th largest exporter and the 12^th biggest economy. And you have become a democracy as well. Huge changes for the better since my colleague Warwick Morris, Ambassador to Korea until 2 years ago, studied Korean here on this campus in the mid 1970s.

This period of profound transformation is called by some the Miracle on the River Han, although I know, that like most miracles, it was the result of hard work and determined leadership. Today Korea, with its Presidency of the G20 has an opportunity to be a bridge. A bridge between East and West. A bridge between the developed and the developing worlds, and, I hope, a bridge between the demands of governments and the needs of the business community.

Globalisation has connected people who have historically been separated, by distance, by language or by ideology. Due to revolutions in transport, the Eastern and the Western hemispheres of the globe are now able to trade on an unprecedented level. We are far more familiar with other people’s ideas and beliefs, through the internet and travel. This is particularly true in Korea which has been called the world’s most wired country. These things all represent the opportunities of the global era. And they will continue to benefit millions of people across the globe. But new threats – whether avian flu, or climate change, or the collapse of a mortgage market in the US, have emerged.

And the question which many people are asking is: have the world’s political structures kept pace with the changes in the global economy?

Korea’s G20 Presidency will need to answer this question. Is it possible to have an integrated set of rules, or will national divides get in the way? Are the International Financial Institutions able to spot the next crisis before it emerges and take decisive action, or will they end up immersed in national vetos and special pleading from powerful member states?

These are difficult issues to resolve, but I believe that the G20 is a step in the right direction. Although it includes only the largest economies, these crucially represent two-thirds of the world’s population. And it is the first major initiative which moves away from the post World War II international architecture and reflects the realities of a resurgent east. Korea still retains a memory of what it feels like to be a developing economy, so you have credibility with the countries who are not at the negotiating table, and this is seen in your determination to kick start the World Trade organisation’s Doha round.

Above all, the G20 must continue to champion cross border trade and resist the impulse to retreat into protectionism, something which your own government are championing.

I believe that if we are to make the best use of this crisis we need to do more than simply widen the circle of the negotiating table to more national governments.

First, we need to look at the links between economics and other issues, for example, sustainability and innovation.

Korea has shown leadership in looking for the opportunity in this crisis. Your government have launched a $40bn “Green New Deal” which aims to solve the twin dilemmas of economic growth and climate change.

Traditionally, economic growth was seen as a contributor to pollution and waste, but it is time to challenge that idea. Many countries are spending on infrastructure to inject money into their economies and create jobs. But Korea has carried this out, with a focus on establishing almost a million new jobs in green technologies, using their recent experience of establishing electronic and other industries.

I hope that this is an idea which you can export during your Presidency of the G20. My industry, insurance sits in the front line of climate change. As hurricanes, cyclones and typhoons become more dangerous, and more frequent, we are called upon, with more regularity to pay our claims to businesses and householders whose properties have been damaged.

At the moment, the financial crisis has overshadowed the negotiations on a climate deal. This is shortsighted. Markets recover faster than the environment. And many of the world’s richest states are increasingly dependent on scarce fossil fuels. Korea at the moment sources 75% of its energy from the Middle East. So investing in job creation in solar energy and tidal energy may indeed turn this crisis into an opportunity. We are not hearing enough about “greening the recovery” and I hope that Korea’s G20 Presidency will put this back on the agenda.

The second positive change which could come out of the crisis is to develop close and productive co-operation between government on one side and business and wider civil society on the other.

I am conscious that this idea seems counter intuitive in the present atmosphere, when the actions of certain businesses caused such enormous problems to ripple through the global economy. In Europe, at least, there is a sense that this economy was created by the private sector and, in particular, the financial services sector.

To an extent this is true. The risk management in many banking firms was unacceptably flawed. But in today’s complex globalised societies, it is rare that one sector ever acts independently of another.

So I would like to see a concerted attempt by governments and the international community to include the private sector in their discussions about the new economic environment. The issue where this is most important is, of course, one of the most controversial, the issue of financial regulation.

This debate risks being polarised. This year’s World Economic Forum, in Davos, which I attended took place immediately after President Obama announced his proposals for the regulation of the financial services industry. During the first few days, regulation was the hot topic. I was repeatedly asked in television interviews whether I supported more or less regulation?

My answer was that I didn’t support either more or less regulation. I supported better regulation. The point of regulation is to make people’s lives better. And in terms of business regulation, if we get it wrong, we can make people’s lives much worse.

The current debate on regulation strikes me as too backward looking. Law makers are looking at what was happening in 2007 or 2008 and trying to make sure it doesn’t happen again. They might succeed in that. But something else will happen and the laws won’t be fit for purpose, or inadvertently they will create a new problem, as the well meaning architects of the Sarbanes Oxley Act did. They solved the problem of the Enron excesses, but in the process drove lots of business from New York to London.

Just as on the green agenda, I would like to see the G20 be visionary. To look to the future. We need to have a clear idea of what we are trying to achieve. A sustainable economy, yes, and how do we achieve this, if our largest companies, instead of raising productivity and growing their firms, are spending money and resources on interpreting and implementing large new swathes of regulation. Will this serve the 13 million people who, in OECD countries alone, have lost their jobs?

I am, however, allowing myself to be optimistic about Korea’s G20 presidency. You have put a premium on innovation as a driver for job creation.

This is an area where Asia has a great deal to teach Europe. We have heard much this year about the shift in power from the West to the East. I believe that it is a great credit to our generation that we seem able to achieve this shift without bloodshed or acrimony. The West is learning to share global wealth and prosperity and the East is learning that economic power brings political responsibility. I was struck that in a recent initiative to raise Korea’s profile as a country, there was a strong focus on providing increased development aid and support to countries which are less well off. Korea recently sent a warship to patrol the troubled seas of Somalia and is becoming an increasingly important participant in peace-keeping operations around the globe.

As a British businessman, I see the re-emergence of the Asian economies as an opportunity, certainly not a threat. I foresee the Lloyd’s insurance market working ever more closely and in partnership with more Asian companies in helping them manage their risks.

I believe in competition. It causes individual businesses to be more efficient and to offer better services. And healthy competition between states, and also between continents, has the same effect. Europe dominated the global economy for several centuries and perhaps we have grown a little complacent, we need to be challenged by the innovation and creativity which we see in Asia. I am confident that we are meeting this challenge, particularly in places like the City of London, which for centuries has been an international trading centre, used to responding to new challenges.

This viewpoint is shared by many of my peers in London. We know that we will have to work hard to stay competitive, to stay relevant as a global financial centre. But we have experience, skill and, perhaps a little luck in being geographically placed between the United States and Asian time zones.

It makes no sense for the Eastern and the Western sides of the globe to see each other as threats. Today’s threats – whether they are the precarious economic recovery, climate change, the need for more and better sources of energy, or pandemics affect us all. Whether we live in Seoul or Seville. Whether we are in government or in business. We often hear John Kennedy’s quote “ a rising tide floats all boats” and it is true. But perhaps the lesson of this crisis is that an ebbing tide can ground all boats. – so we need to look at how we can control the tides.

This year, the world will be looking even harder than usual at Korea to help us all to manage our common risks and to share a common prosperity. We in London are keen and ready to contribute to that endeavour and to work closely with Korea to achieve an equitable and successful outcome.

In closing I wish Korea well, as I wish all of you here today, on whatever programme, every success in your future activities. I do hope some of you at least will venture into the financial sector, and maybe even into the insurance world. Good brains, new ideas and imaginative approaches are always badly needed.