Executive Interviews: Interview with Alan R Beckenstein on Government and Business
December 2009 - By Dr. Nagendra V Chowdary

Alan R Beckenstein
Prof. of Business Administration Darden Graduate Business School, University of Virginia

• What can be the lessons learnt from this crisis – for governments and businesses – especially from the point of view of public policy, globalization, financial coordination and information sharing? And also from the viewpoint of developing countries – especially for the emerging and BRIC economies – and developed countries?
  I don’t have great insight on this question. I do believe that the coordination and information sharing seemed to be outstanding. I am not informed enough about the emerging market responses to know how well they were coordinated with the developed nations. Certainly the IMF, World Bank and BIS were all plugged in to the global situation.

• Do you think the crisis is behind us or are we to witness even worse?
  There are certainly risks of a double dip recession as expansionary monetary policies are eased and huge deficits are worked down by either tax increases or spending decreases or both. The full effect of asset repricing and deleveraging of economies have a ways to go as well. I don’t believe we can predict if the deleveraging will be smooth or bumpy, but I suspect it will be the latter.

• How has Wall Street changed during the past year, and what will these changes mean for the stock markets and the investors?
  I don’t have great insight into this question. I also don’t believe that equity markets in the US and other developed countries have much collective wisdom on whether recovery in earnings of corporations are the result of conservative moves to cut expenses, but in doing so sacrifice the ability of such earnings to be capable of continued growth. I suspect that recent increases in the market indexes are overly optimistic.

• It’s hard to talk about reform without talking about the reformers. Could you help us evaluate the policies of Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke? Is there anything that the regulators could have done differently?
  One could easily find fault with each and every policy undertaken. Given the huge amount of ignorance about what was happening, the speed with which action was taken, first under President Bush’s administration and then under President Obama’s, was impressive. Time will tell if these were wise policies.

• A year after the global economic system collapsed, many companies are finally finding ways to increase profits under the new conditions. However, a recent McKinsey survey (September 2009) and many expected profits to continue falling and executives also indicate that their broader financial hopes remain fragile. Many expect government involvement in economies and industries over the log term. Should that be the only way out?
  Government involvement cannot be the foundation of any lasting recovery and rebirth of the economy. It is at best an emergency player. Prudent risk taking and non-speculative investment in rising industries are essential. Government’s proper role is to provide – a stable platform for the private sector, which should be the agent of change and innovation.

• Government and Business: The New and Defining Moments
  ? Governments have responded vigorously with their bailout packages and that meant in one sense private losses being funded by public money. Henrique Abreu cited a lesson of the late Milton Friedman that “it is a different thing spending your money on someone else (Warren Buffet) or spending someone else’s money on someone else (government intervention). What is the efficacy of government bailouts, especially for the scale of bailouts doled out?
  I have a pessimistic view of government bailouts. There are very few success stories over the past 40 years of bailed out firms becoming highly successful. Government is rarely a great owner and rarely good at creating incentives for outstanding management. Hong Kong’s late 1990s example of bailing out the currency by buying a large stake in the HK companies was a good example of a positive intervention. They held the ownership stakes separate from their Finance Ministry and divested the holdings in an orderly manner in a reasonable period of time.