Navigating Progress and Backlash with Fareed Zakaria

They get into why political movements live or die by their narratives, why private companies are increasingly stepping in to fill gaps left by governments, and the growing backlash against managerial elites. 

And they wrap things up by getting a little philosophical: if intelligence itself becomes a commodity, what’s actually left for us humans?

There’s so much packed into a short conversation, so let’s dive in.

Frédéric Michel: Hi, Fareed. Thanks for joining us.

Fareed Zakaria: It’s a pleasure.

Frédéric: It’s great to have you on this S2G podcast. I’m really happy we can do this, and I always enjoy having these conversations with you, either in or out of government. It’s always great to meet and have these moments.

Fareed: Last time, Frédéric, it was at a lovely café in Paris. I think it was very close to Place Vendôme. So this is not quite as glamorous a setting, but let’s try to have as interesting a conversation.

Frédéric: That, that’s the aim.

Sanjeev Krishnan: Fareed, I’m a big fan. I’ve read many books, and it’s the only show I watch, I’m not pandering, but on cable news.

Fareed: Thank you so much. We need every viewer we can get.

Frédéric: So I was gonna start with a bit of an icebreaker, because you mentioned Paris. I was gonna mention something that was dear to my heart, given my last experience as chief advisor to the French president. I couldn’t not mention your chapter on the failed French Revolution because you draw some interesting learnings in that chapter, and you have a quote which I quite like, which is, ​“Change in society must take place organically. When forced too fast, the ensuing disruption, chaos, and backlash can often break civilization itself.” 

And so I was wondering, as a starter, given the very sort of cynical context we’re in vis-à-vis politics and policy-making process, and given you’ve met so many leaders, do you think it’s still possible for leaders to do big reforms in their country?

Do you think they can still give confidence that they’re able to accompany those major societal shifts we’re going to talk about, like climate, AI, health, and education? Or are you skeptical about their ability to do that?

Fareed: In some ways, it’s the fundamental question. So just to give people a very quick snapshot, the basic point I was making about the French Revolution, which in many ways is incredibly important politically and ideologically, but in transforming society, it failed. It ended up with an emperor in Napoleon, and the reason was that France was actually not a very modernized society.

It was an old, agricultural, feudal society, and the revolutionaries were trying to push for this new form of government. Whereas Britain and the Netherlands had much more of a middle-class urban society, and it was easier for those same ideas to find a way into the political system. So if you put that test to today, look at how the massive expansion of globalization over the last 30 years, 3 billion people joining the global free market system from India, China, Eastern Europe, East Asia, has rattled the whole system, right?

And so there was a huge backlash. It was too much change too fast. Today, the interesting thing to answer your question, Frédéric, is that it is certainly possible to make big changes. Look at Donald Trump. Look at Brexit, right? These are huge seismic changes. Trump has taken the United States from being the most free trade-oriented country in the developed world, the US had the lowest tariffs on average of any major economy in the world, to having the highest tariffs of any major industrialized economy in the world.

So that’s a major change, and the reason is he was able to tell a narrative. He was able to tell a story that resonated with people. There’s all this change that was foisted on you; the elites benefited, you did not. As a result, we’re gonna make these changes. And what the center and the center left lack is a story like that.

Macron was brilliant in recognizing, I should say Macron and you, because you were part of the revolution, that the outsider had the energy in today’s world because the insiders, the elites, are seen as culpable for all these mistakes. The outsider has enormous value, and so that’s what gets him elected.

But then the program remains unpopular because it’s not wedded to a story, and the story is complicated. The complexity of France is that it was having a backlash to neoliberalism without actually having ever had neoliberalism. It was having a backlash to Reagan and Thatcher, even though there was no Reagan and Thatcher in France.

There was Mitterrand, a socialist. And so I appreciate the challenge. It wasn’t easy. But what you need is a story. A great Wall Street investor once told me, ​“People think I look at numbers. I actually look at narratives.”

She said, ​“Look at Amazon. Amazon made no money for 20 years, and yet Wall Street financed it year after year. Why? Because Bezos told them a story, and told them a story they could believe in.

Sanjeev: This notion of collective magical thinking, where you can effectively invent the future or invent a narrative, how do you think about that? ​‘Cause in Age of Revolution, you talk a lot about lasting change being bottom up, and how do we think about bottom-up change to either mitigate the backlash or embrace the backlash in an era of sort of algorithmic media and culture?

Fareed: Yeah, and accelerating technological change, right? Like, if change is gonna happen at light speed because of technology, what do you do? Look, I think that one lesson may be that economic change and technological change, particularly technological change, are going to go at the pace of the technology.

You really can’t stop it. You can’t uninvent these forces. So that’s the change you can do, in my opinion, very little about. Economic change you can mitigate. One of the things I think, and I say this as somebody learning from the last 30 years, is that there was a real genius to the people in the ​’40s, John Maynard Keynes, Franklin Roosevelt, and Harry Truman, who globalized the world economy.

They created an open world economy after World War II, but they kept a lot of social protections within countries. So in a sense, what they were doing was saying, you’re gonna have to compete in the open world economy, but we will arm you with a lot of protections, old age insurance, healthcare, and unemployment insurance.

So totally novel for most countries at the time. There had been small experiments before it. And I think we didn’t do that in this era of globalization. We just let the technology and globalization fly, and we didn’t say to ourselves, how do we arm our people so that, yes, they have to compete in an open market, but they’re not left feeling, ​‘Oh my God, we’re just at the whim of these forces.’ And the final point I’d make is be very careful about cultural change, because that is the one that people are most rattled by, I think, because it’s the one they can personalize.

So I think that, in retrospect, I did say this at the time, there was too much immigration too fast in all Western societies. Of course, we need immigration. I’m an immigrant myself. But the scale and speed were too much, and in particular, the last 10 years, the lack of attention paid to the issue of asylum seeking, which is basically, let’s be honest, a way of gaming the immigration system.

It was a way for people who were really economic migrants to claim political asylum and take numbers that used to be in the thousands to the millions. You know, the US used to take in a few thousand people in political asylum. I think last year or two, before Trump came in, there were 2 million people asking for political asylum a year.

So, I think that is probably the beginning of recognizing it.

Sanjeev: I just want to pick up on this because I think it’s really important, and it’s a consistent theme both on the show and I think in some of the books, is this notion of culture is upstream from politics. I think just one sort of question I have is, I think there’s a backlash to managerial elites versus how do we navigate this, and how do you think about this question with more of an economic history lens?

As a systems investor, we’re trying to look at second and third order dynamics, so very much what your Wall Street friend looks at, we try to look at for our investing. But how should we think about the notion of managerial elites and the backlash against them as we try to navigate what is a very complex world today?

Fareed: It’s a real challenge. You point to a kind of central dynamic in the world. So when you look at countries around the world, this is the one area that actually unites even the West and the East, and the rich and the poor. What is Modi’s appeal in India? Modi says, and correctly, ​“I am the first man of the people to be the Prime Minister of India.” Every previous Indian prime minister was an upper-caste, upper-class person, either by birth, like the Nehru family, or by education, like Manmohan Singh, right? Who maybe was born in dirt poverty, but ends up with a Cambridge PhD, becomes Central Bank governor, all that.

You think about Erdogan. What is his argument in Turkey? You’ve been run by the Istanbul elites for the last 40 or 50 years. I come from the other part of the country, right? So it’s a very powerful appeal right now because what we forgot, I think in a strange way, even in Europe, which is more educated than the US, half the country, more than half the country, doesn’t go to college.

It’s about 60% in Europe, it’s about 70% in the US, rough figures. And even if you are generous about what you mean by college, at least 50% don’t go, right? And those people feel like not just that the world is passing them by economically, and it’s true because in a knowledge economy they make less, but that we look down on them, that their work is not valued.

If you think about the American culture, the movies that came out of the ​’50s, ​’60s, ​’70s were movies about cowboys, right? They were working-class families. Now you look at a movie, and it’s all young yuppies in SoHo drinking coffee, doing consulting and tech.

It tells you what the culture looks up to and what the culture venerates. And so I don’t have a good answer for you because the truth is the forces of technology, which are the key drivers, are actually moving us further in this direction. You would be foolish in your funds if you were to say we’re not gonna take education into account.

You are gonna find brilliant Ivy League-educated people who understand AI, understand biology, and understand quantum. Those are the areas you’re looking to invest in. I think that maybe some part of it is recognizing that imbalance and trying to do something about it, particularly politically.

If you look at Meta’s announcement about trying to put real money into retraining people, I think that is a really important beginning.

Frederic: That’s the shifter. Yeah.

Fareed: The government should do more. There should be tax incentives to do it. But private companies should be thinking a lot about this. How do we create a world in which these two Americas or these two Frances have some connectivity between them?

Frederic: It’s actually a theme, Fareed, that I was thinking about before we came on air, which was more and more private actors, tech companies, corporations have to take steps in order to fill the gaps that policymaking hasn’t been able to do, either because the speed of change has been too fast, or they haven’t been aware enough of the type of reforms, as you mentioned before, they should have put in place.

Do you think it’s a trend that will continue? And in a way, their presence in the ecosystems now is so prominent that they are becoming the leaders, the makers, more than what we used to look up to, which are the policymakers.

Fareed: I hope so, because I think you don’t want everything to be legislated. For example, there is this whole issue of the wage gap between CEOs and average employees. And, roughly speaking, it’s gone from 50 to 1 in 1980 to 500 to 1 in the United States. I don’t want a wage board for CEOs that the government imposes.

I think that’s a terrible idea. I don’t want some kind of formula that is legislated by law. But I would like some companies to start saying to themselves, ​“Look, there should be some ratio we should look at.” And if you bought stock in the company whenever you founded the company, and you have a lot of stock, that’s a separate issue.

But if you are essentially a CEO, a manager of a company, maybe there should be some, again, voluntary, almost ethical limit to what your pay is. I also think there’s something slightly corrupt about these large, publicly owned companies where manager-CEOs end up billionaires.

They didn’t risk any of their capital. They didn’t take any risk. They managed a well-branded company for 15 years, and they end up billionaires. It strikes me as, I think you could’ve gotten the guy to do the job for half the price. And I think that there’s a certain self-dealing that boards do, which again, by the way, feeds this issue of the perception of elites doing a lot of self-dealing.

So one of the challenges I’ve tried to understand myself is why does Trump’s base not care about the blatant corruption in his circle? I think their feeling is that the old guys were corrupt, too. It was just a different way. It’s these kinds of ways, and management consulting contracts, and revolving doors.

But both systems are corrupt. At least Trump is just honest about it. So I think that there’s a real challenge about, first of all, voluntary self-regulation. And the second, Frédéric, I would say, is that businesses need to take a broader role, like Meta is doing. I think that just being interested in your own bottom line, I’ve seen this a lot when I talk to businessmen.

When they go into the White House, when they go into the Élysée Palace, before, when they’re outside, they’re telling you all the big things they would change to make business better for society and all. When they go in, they say, ​“Mr. President, you’re doing an amazing job. You’re the only one who’s changing the country. I have this one thing for my company we need.” 

They make their very specific ask, and Frédéric, you tell me if I’m wrong, and they never make that broader issue because I understand their feeling. ​“I’ve got one hour with this guy. I’m not gonna try and change the world. I need this one regulation changed.” But it’s the wrong way to view it, because if everyone does that, you’re collectively gonna have a situation where nobody is speaking for the public good. And as you say, Frédéric, these are the most powerful actors outside of government, and they are not saying anything.

Sanjeev: And we hide behind shareholder versus stakeholder type things. One sort of question I have is, if you look at the operating history of how capital gets allocated to your friend on Wall Street, again, nothing to do with some of the core business issues. It’s all these second and third-order things.

And one of my favorite guests you have repeatedly is Ruchir Sharma, who has a very strong sense of capital markets. But if you look at systems and where we are today, what are the metrics that you’re watching that have nothing to do with capital markets but will impact investors’ capital, how capital flows?

What are the second- and third-order things when you look at the lens of 300 or 400 years of operating history of societies of liberal democracies and illiberal democracies? What are you watching for? What should investors watch for, in your view?

Fareed: I think there are two narratives I think about. One is the narrative of America. Right now, the United States is 4% of the world’s population. It’s 25% of the global economy and 70% of global capital markets. This has never happened before in history. This is just crazy. NVIDIA has a market cap that is close to twice the market cap of Germany, the entire country.

If you take the Big Seven, they have a market cap larger than all of Europe and Japan put together. It just makes no sense. And so one thing I wonder about is whether that narrative is going to change? The reality on the ground has begun to change. As for the last year, ex-America has outperformed America.

And if you take the 20 top technology stocks out of the American market, ex-America has massively outperformed America. The American stock market is basically one big bet on AI right now. And that gets me to my second story. The second story I think people are looking at, or should be looking at, is what is the nature of this technological revolution?

Is it like the one we had before, a winner-take-all one with the internet and social media, or is it really more like electricity, a commodity? Yeah, Edison invented it, and he built a pretty good company, General Electric, on the basis of it, but everybody used it. And the real benefit came for everybody.

The Soviet Union electrified using Edison’s invention. I don’t think they paid him royalties, right? So is this whole world of AI going to be a case of massive diffusion of knowledge? In which case, the whole economics of it is totally different. Who comes first doesn’t matter, you know, the moats don’t matter.

I was in India a few months ago, and they’re all using open-source Chinese models to build their tech stack. And the sense I get is that’s pretty much what the entire Global South is doing, and maybe not even the Global South. I think a lot of European companies that are doing the same thing

Frédéric: To pick up on AI, your commencement speech at Bard College has gone viral, and it’s really interesting. The sort of human intelligence angle. Could you just tell us what you wanted to leave the students with when you made that speech at Bard College? There were so many things in that speech that resonated with everyone, and were very original vis-à-vis the normal discussion that we’re having or the conversations in public on AI.

Fareed: Look, partly I thought, a lot of people are telling the students how to use AI, what to do about AI, what jobs will be empowered by AI. And I thought, let me just step back and give them a sense, like we are not going to disappear as human beings. People are forgetting that we’re still gonna be around, and if I can be honest, we’re the ones with the switches; we can turn the machine off. And I don’t believe the dystopian world where, you know, somehow Hal is able to stop you from turning the switch. So in the real world, what are human beings going to do? And of course, intelligence is being commoditized.

I think the effect of AI is going to be very profound, but I think we forgot that the human being is more than intelligence. That human intelligence is a very complicated thing. It’s emotional intelligence, it’s social intelligence, it’s relational intelligence, it’s creative intelligence, and all those things are very hard for AI to do.

I’ll give you a simple example. I work with AI all the time, and I try to get it to write my column, for example. I’ve done that from the start. Initially, it was very bad at it. It was terrible. It’s gotten pretty good. I would say it still doesn’t have the same punch, and it doesn’t have the same way of being able to find the perfect fact that will illustrate my point.

It tends to be a little more generic. It has a kind of feel of a cookie-cutter factory-made product, whereas I think of myself as doing something more bespoke.

Sanjeev: You’re more next word unpredictable as opposed to next word predictable.

Fareed: Exactly. But it’s probably a matter of time. This is probably a case where it is getting better and better.

Like what it can write today compared to what it could write a year ago, it’s a big improvement. So I say to myself, what is it that I ultimately am left with? Every week, I have to look at the world and say, of all the things that are going on, what’s the important thing for me to weigh in on?

And what am I willing to stake my name, my reputation, my credibility, and have the courage to do that? And this, by the way, is a live issue in the world I’m operating in now, because I get calls from my legal counsel at CNN saying, ​‘You should be aware the President of the United States might sue you for what you’ve written.

He may sue you personally, he may sue CNN, he may sue the larger company.’ This is not an abstract issue. So what are you left with? You’re left with issues of judgment, taste, courage, responsibility, and trust. Those are things the AI can’t do. So I think to myself, how do you lean in to those kinds of things?

Sanjeev: Fareed, as someone who is trying to do systems investing, we look at you a lot as a guide to history, as a guide to the moment. And so we wanna thank you for joining, and we’d love to have you back for a longer session. But really delighted that you could join us with Fred.

Fareed: It’s a huge pleasure.

Frédéric: Thanks so much.

Fareed: Pleasure. This was so fun

Tonya: Thank you for tuning into the S2G podcast. If you enjoyed this episode, please subscribe, leave us a review, or share it with a friend. For more information or to connect with us, check out s2gin​vest​ments​.com.