« Exchanges at Goldman Sachs

A Conversation with Lloyd Blankfein

2015-05-20

Lloyd Blankfein, chairman and CEO of Goldman Sachs, discusses a range of global economic issues -- including the United States' evolving policies on trade, energy and infrastructure, opportunities and challenges facing China's economy, and the impact of technology on the financial services industry -- along with lessons from his own career.

This episode was recorded on May 12, 2015.

This podcast should not be copied, distributed, published or reproduced, in whole or in part. The information contained in this podcast is not financial research nor a product of Goldman Sachs Global Investment Research. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. The views expressed in this podcast are not necessarily those of Goldman Sachs, and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs to that listener, nor to constitute such person a client of any Goldman Sachs entity.

Copyright 2015 Goldman Sachs. All rights reserved.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is strange. The Goldman Sachs were people from our firm share their incites on developments currently shaping markets. Industries in the global economy objects your global had of corporate kitchen shared the firm. Today we are joined by our chairman and c o god. Blank fine who'll share his thoughts on a variety of topics, including the state of the firm growth markets, disruptive technology in the global economy. Lloyd, thank you for being here. You can't you Jake. Last week he traveled the California to attend a tech conference. Hosted by our investment banking division. This month, you're also bring in the board of directors to San Francisco as part of the fur annual meeting. Why you spending so much time out their wide is California matter. So much to Goldman Sachs well,
help finance growth and resource it, and we like to think we contribute to it and one of the places that are growing the most new businesses are in the area, now Jane. That's no. The maid are not the only one by major locus about technology and innovation is enough, Khan vowing its environs. So if we want to be we influential on part. You want to make a contribution. You better spent a lot of time there and we do, and so we have thence there, we try to convene groups and draw in our clients who very often, the old man, the creators and innovators behind these new technologies, and I think it helps if we bring other part of governments, acts to it, including our own board of directors, so they can see what's up and they can get a good assessment of what we're trying to accomplish. Not the first time you ve taken the board out there. Oh it's not, and I doubt it will be the last time. It is very important that they see this first hand and by the way, this Redundancy in this, you can go, get a full treatment mark to market
all these new initiatives come back six months later and you feel like it. I'm sure you ve changed some case. You feel like you're, starting over, so at the conference you're out last week. What kind of themes we hearing from the ceos in the end, the innovators there, where, where does it feel like it is in the cycle of this particular technology, well I'll tell you. I think this cycle has been going on for a while, but I can't it's near the end of it there is there not a new companies that are growing. is nervousness. Of course there were the end of the cycle. Don't forget. It relates to the macro environment. To or interest rates are so low. There's a lot of quantity, there's a lot of money, so there's Funding rounds that are happening at hi, valuations, and so there's nervousness about that. But whether evaluations are too high. You'd, really no, that in retrospect I'm not sure that they are because when you look what's being accomplished in the and evaluates being created and the disruptions that are occurring, it's quite since
national. So our original later, looking back as to whether as to whether this is really gone about whether it's gone too far. In retrospect, some of the ideas in ninety nine look actually attractively price today. Well, you know you can go out, you could be kind of. You can become a smug on a look back basis of what you recall used, fought or didn't think about something, but I'll. Try, it's a curse, but I dont have amnesia. I remember in the run up to the what we now refer back to as the Tec bubble. We we thought, that my goodness shouldn't an online bookseller, isn't a spectacular shouldn't the high evaluation. You get a disruption of the Tec Office, interruption. You get a piercing of this call bubble and a lot of people stand or say my goodness. What was I Barnes and Nobles has stores stores and history and a franchise in addition
the capacity to go online if they need to? Why shouldn't that being much more valuable? What was I thinking and here turn the clock forward another dozen years and look at the success and this and the reach and the importance of and the influence and Amazon so real, closer to home? How do you see technology? Changing Goldman Sachs in and services industry we recently announced for bringing in a business person from one of the major card companies to look at an online lending platform here Goldman. How might we see technology continue to reshape are an arms Erica when you ask about technology, and our own industry would like to point out that we are obviously he playing within our industry and we have something like thirty, five thousand people in the phone.
Something over nine thousand of them, are in technology. So when you asked me, how is technology does what might this technology doing to disrupt the industry or a company needs it's a little bit of funny sentence because We are a technology company, so disrupt our self acknowledging well, not so much disrupting it, which, of course everybody does to some extent. But technology is a core competence of ours. Eminent rework, your question and say: how is technology during the way we do our business all the time and other entrance to the business and so see, there's a lot of new companies forming around payments forming algorithms to create price and new modes and platforms distributing the product which very often includes pricing information. Very often, pricing is the product that your distributing things get done faster things are done with more leverage and then your thing,
that are being done. So, for example, things are structured that couldn't done anyway, but through technology, in other words, a speed doesn't just make things faster and the efficiency doesn't make things just cheaper. It actually lousy the things that you otherwise wouldn't be able to do, and by the way happening now, but by the way it's been, happening all along now. Take something interesting else about our industry that all industries are being disrupted to some extent by new entrants. Coming in from tat, Ology, we again being technology oriented ourselves. Try to do wrapped ourselves and try to figure out what the new thing and come up with new platforms. New forms of distribution, new products, but
in some ways? And there are some parts of our business where it's very hard for outside entrance to come to disrupt our business simply because we are so regulated. You hear people and our industry talk about the regulation and they talk about it. You know with a sigh look at the birds of regulation and in some cases the burdensome regulation acts as a bit of a mode around our business. I'm not saying that that's intended, I'm not saying it's good for the industry and nothing that something that we'd, like I'm just reporting to you, that there are parts of our business that, in order to be in it, you have to be regulated entity and be a bank holding company and take on certain birds that go with that, and a lot of people are not for everyone. A lot of people are unwilling to do that, Another area where Goma has traditionally sought growth has been an emerging market some of them not or merging any more some them well established. You you're. Just in South Africa met with leaders of the country, leaders of industry,
how'd, you characterize progress in South Africa. years after they had their own revolution more than twenty or twenty five years ago, you try to suggest band of reasonable expectations of where South Africa would be twenty five years forward, in other words, to where we are today and we well through the high side of that band now have said that we ve lived these last twenty five years. Our expectations have been allowed to grow, and I'd say they are asked. South Africa that are disappointing to some people. So, for example, in my visit there a few weeks ago, you have rolling scheduled time when the when the lights go out, when electricity get shut off Mean South Africa I understand has many the character. A highly developed countries, one of the biggest equity markets in the world capital markets, real global companies that succeed on an inch national basis that have no quite developed
relatively high gdp, certainly for the african continent. At the same time, it's an emerging market and so the problems that South Africa has ah pro that we all have in the world? So, for example, as you know, one its rise in the? U s. What do they do to save accessibility to attract capital, because once you s rate start to go up, U S, attract capital attends to choke off emerging markets and issues like that I'm into other more emerging markets, but then there's also special aspects of the south african context that are specific to South Africa and their history for example the need of the government to create a political environment where the people who historically have create an owned, a lobby and owned and controlled the great wealth of the country. Nobody wanted to spook that segment population into leaving the country. At the same time, it wouldn't be true to the principles the great changes that took place in South Africa if we
achieve a certain amount of redistribution, though so Fergus an interesting place now. The great advantages Africa is that it's on the african continent from a low base. The rest of the continent is enjoying a lot of growth, and so you think, a more developed country within the african continent. South Africa should be a portal to that extra growth, shifting our continent you're heading to China next month, go there regularly and have often said that this be China Century, think about the immediate challenges facing the leadership of that country and the business community there well this has certainly has the potential to be China's century because China, is very much on trend soon being the largest economy in the world that doesn't make,
necessary the wealthiest country in the world, because it has so many more people. So again, you have something like three or four times the population in the United States. It should have a bigger economy. Shortly will but still a lot of challenges and a lot of problems owing to the population in the Thirdly, low state of the development of their markets and the immaturity of a lot of their industries and a lot of work to do and still a lot about the population is and is in poverty. China has accomplished a great things in the last couple of generations and even though great things have been accomplished, they ve created even higher expectations I'd say that over the last few decades, China has stressed growth they needed to have growth. They needed to be able to provide jobs for people coming in from the countryside from the villages into the city. You need that migration to take place because that's how per capita wealth gets generated.
By having people come to the cities and generate revenue for industry, to give people a higher of living in the cities. Then it would otherwise have in the countryside, and by the way, in a country that doesn't have a lot of accumulated wealth in order to ray that industry you create things for export, which is what they that business model can only last so far, so what they ve done is I ve created an economy heavily dependent on exports, an economy in which growth was exalted over other considerations. In order to achieve growth, they were perhaps a little bit reckless with the environment. In other words, if you are pursuing headlong growth, maybe a little bit reckless about where you locate your power facilities, where you take care of environmental issues, whales events,
sources of energy, how you get rid of in a waste because its growth growth, growth, growth growth. You have to curb growth if you want to take into account other things, like God, you're the quality of the air in the quality of the environment, other kinds of health issues, so they have to deal with that corruption of the environment. The other thing that they have to deal with quite a front about this is that the deal with another kind of corruption, the corruption of certain officials within the political system- and I think this is known when you're spending money very quickly and you and stimulate growth at any cost and, in some cases, you're being careless about the nature of the growth and what you're, stimulating and not necessarily auditing things as low as meticulously You would because, after all, you really Their number one priority is to grow quickly. There has been some corruption
within China there trying to staunch that, and so in order to fix these things, create more consumer demand, protect the environment to deal with the corruption you you're gonna, have to slow down growth from a headlong search for growth into that's more sustainable. In the long run, said the lower growth. It that's a very tough maneuvers to accomplish, and they are involved in those maneuvers right now, there's very capable leadership in China. I am confident that they'll compress that, but it won't be unless there also changing the way their financing growth in that place. Will Goldman we'd like to play a bigger? there has been some liberalization, the equity markets, the establishment of the Shanghai Hong Kong Stock Enact sure. Are they at the point where they that's essential too?
forward path and growth that they liberalize the capital markets in China? I think there has to be economic liberalization in marketplace liberalization for a number of reasons. First, the markets allocate capital and so You can make centralized decisions, but how do you know the decisions? Will you know the best decision maker in some ways is the market and so on. Don't have ways of allocating capital. How do you do There's a lot of state owned enterprises statement. Enterprises compete for capital with some This is the more innovative private sector, but again this eight owned. Enterprises have an access to state financing and, in some cases, decision makers, deciding as opposed to letting the mark in who'd, been more for the capital, will be more successful, who learned more money off that capital, whose products of beings but after all wanted? And so you getting Miss allocations of capital without
a market system allocated another thing that the capital markets do quite well is they ensure that you have to write off your mistakes quickly, because a fine, the mechanism being able to get financing. Something is poor the decision making process of whether that would be capital with people think that's capital well spent. But let's say you bill: look around. You build an airport to build up a warehouse. You build a stadium and of a tree. is out to be in the wrong place? I want someone. Does it beheld? Don't show up show up. They don't pay fees if they don't pay fees entity that built that that job pay its debt service and what happens then in a commercial economy the bank's come in. They take possession they try to run it differently. They give it to someone else. They sell to someone else who can run it and ultimately we can't be accomplished.
They ploughed over start up again and to build something else there and its wiped off the balance sheet. Next, its recent gold and put to another use and that's what the others. Happily system is also very good at makes. You reckon eyes and write off their mistakes more quickly than you otherwise would work that happen. If The parties are dictating to some extent where capital is spent Banks cannot necessarily foreclose on assets that are owned by, but by the gun went on. There exists a set of issues at all and so you need those another thing that you need. have is you need to be able to move assets? No business is around that not just not just cash capital and money capital, but people are a form of capital. How do you address the issues with businesses that may be were or making the wrong thing or making products of people stop warning. How do you make those businesses taper themselves,
we reduce the amount of investment in those businesses and the amount of people working. Businesses, if you can't lay off those people and make them temporarily on it, Lloyd Likud, find jobs and more productive places. Well, in developed economies, you can do that because their safety nets as a unique companies to provide those benefits in order to help companies to provide those benefits need to capitalize insurance companies. If you capitalizing insurance company, they have to have assets to invest in which means ethic, securities and capital markets without the proper functioning capital markets. You get unfortunate apples and economy. The only thing you can buy in China you only they can invest in, is savings, accounts or real estate, guess watching and get bubbles in the real estate market. There is nothing else to invest it, so you have to have you have to let China one of the irony is that very often it's easier for foreigners to invest in the equity of chinese companies than it is for
many citizens to invest in their own growth, that has to change the fur righty reasons. Reform is in the in the capital market and the economy as a predicate to other kinds of reforms, the United States as become really critical. partner and its become more to where the United States exports worth trying to rapidly and in some industries, really taken advantage. That we're still having a big debate in this country around trade and the president has been pushing for enhanced trade promotion authority has been pushing a trade agreement that would tie together the sum our Pacific trading partners. Why is that so critical for us now to move forward on trade? Look I think there are a lot of issues. Certainly is a national debate on trade because in this we're term it could lead to a kind of leads to disruption, but in the long term, if you don't have free trade uniquely the wealth that you have an economic
creating the wealth. There's no point arguing about how you distribute the wealth U S is a great beneficiary of trade. It's a big, great beneficiary of open markets and I'll tell you one thing: we happen to have the reserve currency in the world and we're great beneficiary that everybody stores their wealth. A great deal of our nations store their wealth in the form of dollar assets. It not only makes it easier for us. to operate. The fact that a lot of commerce gets conducted, an English is very easy. If you speak English, the fact that trade is coming I was very easy if your dollar based, but it also serves to help find Hence our activity Watson people around the world, are lending money to United States very very low interest rates that could be deployed in our own economy and is deployed in our own economy, and that's because of the reserve comment, because we are a very open economy. We stand for openness. We stand for for free trade, free flowing
investments, and if we start to be on the other side, we do that at our peril. We would imperil allotted values we now have by being. Guard is one of the most open economies. Now, with trade comes the ability of countries to pursue their relative advantage, and if everybody pursues their relative advantage, everybody involving that system is enriched. We still have to make sure that the benefits are distributed, but we have to separate that out. Can you imagine making a neighborhood if, instead, we would just trying to protect the interests of the United States, one route, protect your neighborhood, and you couldn't trade or transact with other neighborhoods there's some skills in your neighbor some products that people want many more products and services that will regenerated you'd have inferior products or no products
forego services that would otherwise be available. Trade has really benefited the economy by, for example, keeping inflation in the United States lower than it otherwise would be, because we are able to buy cheaper goods, services from the side that are simple services, whereas more complex goods higher up on the technology curve that we make in this country are bought by people outside the country. the benefits of a bit diffuse always and in the the disruption that trade brings voice quite tangible and anyone who has been the chow anytime reselling politically any time is any change whatsoever. The short term consequences of disruption are more palpable them long term benefits and you have to sell them, and you know to some extent. You know the slogan if you're explaining you're losing it's a tough, it's a tough thing and it kind of one hundred and forty car kind of world or your thirty second news. Clip kind of world
but I'll give you an analogy. People Decide whether trade is good or bad people, and decide whether lower cost of energy is good or bad, you think to yourself or how could a lower cost of energy be bad? It's an extension, paying more for your gasolene out of a fixed. combat you have it must leave less money for other things. How could that be a good thing? Well, a higher costs, energy leads to investment in trying to source more? energy and that in. some and creates demand for capital goods. Using the exploration for energy which create some job in the near term. So in the near term, you take that away. By having energy more plentiful at a lower cost, and you say well in the short term, this less investment would lose jobs in the short term. True but in the long term it makes nobody wealthier and able to spend those money on things that are much more productive and go further to improving people's lives. The police
our debate is starting in the United States seems to be starting very early earlier, nor earlier without getting the candidates and in whose running you ve talked a lot about the underlying strength, the United States economy. You ve talked about them here what should the candidates be focused on a lot of political? the bay, but what the substantive issues around the economy that should be the focus of the debate going forward and United States I think we are focusing on a lot of issues. My complaint is that there are things that are being focused on deficiencies in the way were operating to that it should be embraced by both sides and might be embrace, both sides of one side or another wasn't trying to get advantage if the others expense so If somebody is in power, if you allow them to make sort of progress. He may be conceding some advantage, the party in power, so sometimes people can become more obstinate,
and not go along with something that would be an attractive thing to do, simply because you don't want to give somebody a victory. That's the kind of politics that I think is not useful. But the issues themselves you know are out in front give you some things that I think that are there, issues around them, but on the whole nation, sorting out and we should move ahead of them. We should have an energy policy in this country who could say we should have an energy policy. We are in a situation where a blessed with resources that half a generation ago thought would never be the case. Energy energy efficiency in North Amerika, probably maybe even energy sufficiency within the United States. Do we have the right policies in place to take advance give it you know, given the reality that situation do we have the right policies that flow from that decision of being able to export oil that we can do now, which would help investment in this country more oil? If you can, if U S, oil could leave, we could leave,
It states investment in infrastructure is it really a debate about whether we should in in our infrastructure. Other is, but They should every other day. How do you want to do it? And if somebody wants to invest in people different priorities? Isn't there some overlap in those priorities such that we can get going on some things that are significant, fixed or bridges fix our roadways fix our airports and if you did that wouldn't be, the economic stimulus that other people would want to see. One of the top four things it devil lot of policymakers and economists wells inequality. You ve talked a lot about the need to address this republican Cannas talking about the right to rise, the opportunity society you hear farms have democratic candidates, obviously talking on the need to better distributed income. what are some of the things that we could be doing as a country to address that issue more seriously
is always an issue- everybody wants everybody the equivalent opportunity is always debate where you want to, every body the same opportunity, the starting line and let people run race at their own pace and come out wherever they come out. Or do you want- or you want to the outcomes you know where people are relative to the finish line, and so not have people have such divergent fortunes regardless of where they started and so That's it. That's kind of debate that comes out, I would say, you certainly want to give people equivalence of opportunity. But how do you do that when people have come from different families, different economic backgrounds, different sociologists and so You'Ll- never quite achieve that, and so you have to kind of way you know, and you can afford to have. widely despair at opportunities, because you have, some. You know you want to have the most stable world. That's why you have to have safety nets. Can you can have a winner take all outcome say after
raise the level of the other safety net, and so you have to society has to accomplished both these things and this attention and people will be in an opposite sides of this, but it's a band. I don't think anybody should be on any in any part of that extreme. Reflecting on your career, you by the firm but more than Thirty years now operate alive environments, the firms grow on enormously in that period. What What are the biggest management lessons you ve learned here now that you are in the firm every day? Well, I think of anything is that dumb I've learned the ability to navigate this unfair the world is hard to predict. World is less a function of being good at predicting outcomes and where things are going and more a function of being a great contingency planning and think
of all the things and looking around corners and preparing for things that might happen without too much confidence in the course that you think will happen, because we surprised all the time- and I think, if you, very good continuously planner. When the contingency does occur, you respond, so quickly that maybe he will think you did anticipated and you did foresee it, but in fact you're just getting off the mark quickly when you, because you are thinking of a low probability, allows you worried about and planning for what you think are low low probability, events that are highly consequential. I'm telling you please is one lesson that I think of the just worrying about scenarios and I will tell you given enough time: it's not that anything can happen. Is that everything will happen. Summers approaching we want exactly shut down this summer, Goldman Sachs, but you might have a little bit more time to read
What are you reading now and what are you hoping to read the summer gosh? I have a long list that in no- and the thing I have to confess is that some of my summer reading list on my list for more than one summer, because I might ambitions and my inner my aspirations are always bigger than my capacity so, you know. I read a lot of a history. I'm looking forward to reading the new book on the Wright Brothers. I've just read a book on larceny this on the sinking of the Lusitania, which I thought I knew everything about, but he's a writer who makes these Narrow events very gives a lot of texture to them and make them feel very vivid, and so in I enjoyed that book. I've been reading a book by Daniel Borst in the discovery we're about eighteen years now and I carried around, and I read about a hundred pages on top of it, but it's very thick broken. I learn a lot from it. our primary reading it for another eighteen. Eighty nurse, I met all move onto his next time. Call the creators which will take me
thirty years to read. Thank you very much Lloyd. It real pleasure to heavy on the problem. Thank you. That concludes this episode of Exchange, the Goldman Sachs. I'm Jake Seaward. Thank you very much for this. This podcast was real it on May twelfth two thousand fifteen. This podcast should not be copied distributed, published or reproduced in whole or in part The information contained in this podcast is not financial research, nor a product of Goldman Sachs, global investment research. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any, and
nation contained in this podcast and any liability, therefore, including in respect of direct indirect or consequential loss or damage, is expressly disclaimed. The views expressed in this pot cast are not necessary, with those of Goldman Sachs and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs too. That listener, nor to constitute such person a client of any Goldman Sachs Entity.
Transcript generated on 2021-10-15.