Influencers Transcript: Lagarde, Erdoes, Doughtie, Will.i.am, January 24, 2019

ANDY SERWER: Every January, the world's top powerbrokers gather to rub shoulders in Davos. This faraway skiing village in the Swiss Alps hosts more than 3,000 leaders in business, politics, academia, and culture.

German chancellor Angela Merkel, IMF managing director Christine Lagarde, Jamie Dimon, and even Prince William will be there. Turn a corner and you'll bump into German economists Klaus Schwab, who founded the World Economic Forum, which puts on the annual conference.

The meeting this year tackles how to build a better world as technology relentlessly transforms it. We'll discuss that and much more in this special edition of Influencers.

Welcome to a special edition of the Influencers in Davos, Switzerland-- home of the World Economic Forum's annual meeting. Today, we will feature three influential women from the world of finance. First, Christine Lagarde-- managing director of the International Monetary Fund-- joins me now.

I'm here with Christine Lagarde-- managing director of the International Monetary Fund. Christine, welcome.

CHRISTINE LAGARDE: Thank you.

ANDY SERWER: So I wanted to ask you about a new report you've just put out, about sustainable development goals. What does that entail exactly?

CHRISTINE LAGARDE: We just put it up this morning. The sustainable development goals are the 17 key objectives that are set for all of us to help the low income countries and emerging markets to actually reach a decent level in terms of health education, access to water, sanitation-- lots of other things. But we have focused on those key elements.

And what we measured is, what is the distance between where those countries are today and where they hope to be in 2030 if they reach those goals? And how much it will cost them. And we find a staggering number for both low income countries and emerging market. They would have to spend annually, the like of 15% of GDP for the low income countries, about 4% of GDP for emerging market economies. No way they can do it by themselves.

So the point we are trying to make is measure how much it will cost and figure out who else is going to spend on those countries to help them reach the sustainable development goals. And it calls for public support, which is the ODA. It calls for private sector involvement. And the business community has to really look at those countries, look at those business opportunities to help them reach the sustainable development goals.

And to also get a good return. Maybe not in as short a term as they used to, but a little bit more medium term. But certainly with a great prospect.

ANDY SERWER: So you have identified these goals. You see a shortfall. Is it the responsibility of the IMF to try to reduce that shortfall and identify and then seek those funds?

CHRISTINE LAGARDE: It's our duty to help countries. Each of them with its specificities raise revenues-- so we call it domestic revenue mobilization and we provide technical assistance for that-- it's our duty to help them figure out, what is their fiscal plan for the medium term? How much do they want to raise over the course of the next few years? It's our duty to help them spend efficiently.

The difference between an inefficient white elephant project and an efficient properly focused project is monumental-- that's our duty to also help them. And it's also our duty to identify for them, what are the juncture points, the hot spot points where clearly governance is going to become an issue? And we'll prevent the private sector from actually directing the investment to those countries-- that's what we do.

ANDY SERWER: You also put out a report this week-- the IMF did-- in talking about the forecast and revising the forecasts for 2019. The initial response was, wow, this is a pretty negative report. I'm already hearing revisionist takes on it that, well, it's not that bad. So I'm asking you, what is your take on the report?

CHRISTINE LAGARDE: We look at the half full and the half empty and we try to be completely cold and honest about it. We revised down by 0.2%. So in October, we said global growth will be 3.7%, now we say 3.5%. It's not a major, major revision. It's a rather modest one. And we still have quite decent growth. 3.5% is nothing to be shy about or ashamed of-- it's pretty good.

Where I look at the half empty glass is that we see risks on the horizon. And the horizon is getting closer to us. And those risks start with the like of here in Europe, Brexit. How will it pan out? When? What will be the transition period? What will be the divorce and future collaboration terms? Big question mark.

Second one, trade, friction, tension, war-- whatever you call it-- how will it be resolved? What tariff will be reduced or increased? Which sectors will be affected? Again, there is negotiations going on. There is WTO efforts for reform. But it's also a big question mark.

And then you look at the financing costs that will apply as economies actually come out of this big financial crisis. That will apply to countries, to corporate, then to households that have considerably increased their debt level relative to their activity.

So those are the three critical factors that we see. There are many others. One-- which is, in a way, a subset of the trade issue that I just mentioned-- would be an acceleration of the slowdown in China, which is a major economic power. And of which, the slowdown would really impact countries in the vicinity, but the global economy at large.

ANDY SERWER: I want to ask a little bit more about China-- two points there. Of course, the US-China trade war-- if you can call it that, which I think you can buy now-- number one. And number two, the questions about China's maybe expansionistic tendencies-- the Belt and Road Initiative they have. And their stories about how they're creating economic dependence by some countries in the vicinity. So what is your take on both of those, Madam Lagarde?

CHRISTINE LAGARDE: Well, first of all, I would observe that relative to October-- there are-- although the risks are coming closer to us-- I think there is a little bit of hope. Back in October, there was not that step-by-step dialogue that we are seeing in place gradually between the US and China.

We don't know exactly who is coming to visit whom at the moment, but it seems pretty clear that there is a real dialogue. And that a dialogue actually bears on both the bilateral relationship, but also the more fundamental issues that will apply on a global basis-- such as IP protection, such as subsidies, such as state-owned enterprise activities, and compulsory transfer of technologies, if those topics are exhaustive of what is being discussed.

So on that front, there is something happening-- which is, in and of itself, a pretty good development, but we still have the big question mark. On the other one, it's fairly natural that an economy actually wants to grow.

What I think is the big issue at the moment is, under what terms and conditions? And on an international basis, how even-handed, how respectful is this attempt to grow and to expand? And I think in that particular respect, there are two areas where we-- three areas, I would say, were more work needs to be done on a collaborative basis.

The first one, we just discussed is trade. The second one is the whole area of standard setting when it comes to the digital developments that we are seeing. Because I don't think that anybody is keen to have a global economy that would be split into three different zones or two different zones. If that was the case, where data rules are different, where technological standards are going to take us apart rather than more together.

And the third one is on the issue of debt. We are clearly-- all of us-- need transparency. Need good understanding of who owes what to whom. And what are the terms and conditions. Because if the circumstances were hardening and if we had to look into the financial situation of many more countries than we do at the moment, then we clearly need clarity of data transparency of terms. And that's a project that we are working on actively altogether.

ANDY SERWER: Interesting. Shifting gears to the United States-- if you were President Trump's economic advisor, what would you tell him?

CHRISTINE LAGARDE: I don't think he would pick me, but--

ANDY SERWER: If he did and if you were in that position, what would you tell him?

CHRISTINE LAGARDE: I would try to identify how a well-governed multilateral trade can be efficient and can be beneficial for each and every participant. I think that would be my mission number one. Because I think there is, generally, too much of a focus on the bilateral relationship, the bilateral surplus or deficit.

And you talk to all the business community-- they work on a global basis. They've organized their supply chain on a global basis. They operate in multiple countries. Not just the big corporates, but the SMEs and some of the startups.

The fact that we can communicate and that the backbone of technology empowers small businesses.

But they need to have access. They need to be able to trade on the basis of multilaterally accepted rules. So I think I would try to make that point.

ANDY SERWER: I think back in October, you said it was appropriate for the Federal Reserve to be raising rates. Do you still feel that way? And what do you think about what Jay Powell is doing?

CHRISTINE LAGARDE: We've tried to avoid comments on what central banks do because we are very respectful of their independence. So all we are saying about central banks and the Fed is please, stay as data dependent as you have been and continue to be so. And please communicate as judiciously and as appropriately, your gradual phasing out as you have done. And please continue doing that.

ANDY SERWER: So a normalization of rates makes sense to you?

CHRISTINE LAGARDE: If it is data dependent and if it is well-communicated-- yes, absolutely.

ANDY SERWER: And maybe a common denominator when we're talking about Brexit and the United States, other issues in Europe, and maybe even in China is a rise in populism, nationalism. Do you think that's brought on by wealth and income inequality? What does it come from? And how can we address that?

CHRISTINE LAGARDE: Many more competent people would have to address that question because I think that it's multifaceted. It has as much to do with the reality of growing inequalities in many countries of the world-- particularly in terms of wealth inequality, where the numbers are more staggering than in terms of income inequality.

As it has to do with the sense of being disenfranchised, not being rooted in your own cultural system of references, being taken over by technologies and you're not just the way in which you watch entertainment, but the way in which you do your work is actually being totally transformed and disrupted. So I think it's the compounding of all those things that bring people to falling prey to populism and nationalism.

And there's nothing wrong with being a patriot, but I think that being a nationalist is not conducive to that good open system where trade of products and services can actually prosper and bring well-being for people. If it is trade for all, not trade for some.

ANDY SERWER: I want to ask you about women empowerment. You were at a Goldman Sachs event last evening, with the CEO David Solomon-- Goldman Sachs 10,000 Women. What was your takeaway from that event? And how do you think the role of women has been enhanced in the private sector and the public sector?

CHRISTINE LAGARDE: We just recently published a study-- which I mentioned yesterday at the event-- which shows that there is a lot of progress to be made in that particular sector of activity-- the financial sector. If you look at the composition of boards in that sector, only 20% of them are women. And if you look at the CEOs of the financial sector, only 2% are women.

There's something wrong because our societies don't look like that. And if you look at graduates from universities and business schools, it doesn't look like 20% or 2%. It's a lot more than that.

So my encouragement to all banks, to all financial sector representatives is be careful what you look like. You have to mirror your client base. You have to include all talents. And you have an unbelievable source of untapped talents-- the woman. And then you have to be more granular in terms of diversity and look at lots of other considerations, such as race, such as educational background. And you have to do that in a very segmented way-- look at throughout the organization.

ANDY SERWER: And you mentioned progress in Japan. You also had a new name for Goldman Sachs, which I liked.

CHRISTINE LAGARDE: Goldman Woman Sachs.

ANDY SERWER: Right, which was funny. Christine Lagarde-- managing director of the International Monetary Fund. Thanks very much for your time.

CHRISTINE LAGARDE: Thank you.

ANDY SERWER: Up next is JP Morgan's wealth and asset management CEO, Mary Erdoes.

So we were just talking about the markets-- wild and crazy, really since December. Never a dull moment, but especially since December and we had the bounce back. What is your outlook for 2019? And how are you managing that?

MARY ERDOES: The outlook is difficult, given all the moving pieces. And here in Davos, we talk a lot about the laundry list of what they are, from the government shutdown in the US, to the chances of Brexit or a hard Brexit, to many of the issues in the Middle East, and of course, the China trade between the two largest economies.

And if that gets any worse than that it already has or doesn't have a resolution, that could weigh very heavily on the markets. And so everyone's trying to juggle all of those things. And of course, we have the economy that's still relatively strong everywhere in the world-- mostly in the developed markets, but also in the emerging economies.

And then the markets that price in what's happened in the past and where it's going in the future. And you can see the volatility that you mention-- especially as we had the fourth quarter of last year-- which is trying to figure out what that future price is. And to bring forward what they think is going to happen.

And so days like December 24 are difficult. Days like December 26 are great days for people who are brave enough to go into the markets. We saw a lot of clients do that-- by the way.

And my hope is that people will see through this. Not because it is a perfectly rosy picture out there, but because the most important thing for us, at JPMorgan Chase, is really helping people to invest for the long-term. And so there's going to be ups and downs. If you take a little money off the table, put a little bit more money overweight, but to come in and out of the markets and think you're going to time that-- it's a really, very challenging thing to do. Very few people succeed.

ANDY SERWER: One of the benefits of being here in Davos, Mary, is that you get an international perspective and the flavor. Is there a difference in the way international investors are looking at the markets versus American investors?

MARY ERDOES: That's a great question. I wouldn't say it's international versus-- I would say, it's always home country bias. You're always most comfortable or more comfortable investing in the things you know, the things you can see, and have some familiarity with it. If I told you that I think the greatest investment that you could make in 2019 is in the emerging markets, you could believe me, but you might not have the same feel for it if you didn't live in those countries.

And I do think that emerging markets equity and emerging markets debt are some of the greatest opportunities we have. Particularly if the Fed doesn't raise rates quite as aggressively as it had planned, it makes for a great backdrop. And emerging markets economies, they used to only make up 10% of the market cap of the world's investable markets. Now they're 30%-- that's going to continue to grow. And the more people can get invested in that early, the better off they're going to be.

ANDY SERWER: When you talk about emerging markets, Mary, it sounds like a risk on way of thinking about 2019. Is that the case?

MARY ERDOES: Emerging markets-- it sounds like it's a risk on. There are very, very manageable ways to get access to that. And it doesn't mean your whole portfolio goes there, doesn't mean all of your equities are there. It means that you should have a portion of your risk assets to asset classes like that. And to do it in a way that's there for the long-term. That you don't have to think, I need that money in two years-- that's not a place you would put that money. But really thinking about, how do I set up a portfolio for the long-term?

The statistic that's always on the forefront of my mind is people who try to time the markets. If you put money in the markets 20 years ago and you just closed your eyes, you would have tripled your money. If you missed just the top 10 days over 20 years, you would have only grown at 50%. Now that's not a bad outcome, but here's the bad outcome.

If you miss the top 20 days, you're flat. If you miss the top 30 days, now you're just a little bit more than half of the money you put in. And it just gets consecutively worse from there. And of course, you also know that the best days are within a two week proximity of the worst days, in most cases.

So it's very hard to time the markets. Getting a long-term plan in place, really thinking about what do I need for liquidity purposes, for short-term issues? And then what can I put away for my retirement, for my family? How do I think about it? That's the most important focus.

ANDY SERWER: Day traders, Mary's calling you out so listen up. Let me ask you about the government a little bit-- the dysfunction, the government shutdown. Is it impacting your business? How are we ever going to get out of this mess?

MARY ERDOES: So the government shutdown is, obviously, impacting the whole country, but it's not the first time. So we've had many government shutdowns in history. The kind that shut the government down and stopped payments have happened 15 times since 1982. Almost every president has had one. This president has had three. President Clinton had one that was the longest, until this one-- 21 days over a Medicare issue.

This will solve itself. And we will get back to normal. The problem is the longevity of this one.

You can think about short-term government delays as short-term problems that then get rectified quite quickly. The longer it goes, you're not going to make that up in the economy. You're not going to go to dinner twice next week because you missed going out to dinner this week because you didn't have the money to go out and afford that or to buy you an extra tank of gas, et cetera.

So a lot of those things are expenditures that are not going to happen. That's going to have a weight on the GDP of the US. That's then going to weigh on the minds of CEOs who think about, should I put money into my next plant, property, or equipment that I'm going to invest in for the future? Should I wait?

So I think the longer it goes, you're going to get a wait and see both from CEOs of corporations that are trying to operate, as well as individuals. And then, of course, the most important thing for us as, a bank-- JP Morgan Chase-- we want to make sure that the people who are suffering from not getting paychecks, that we're going to do whatever we can to try and help them. And the earlier we can see those problems, the earlier we can work with them to try and help them through their hard times.

ANDY SERWER: You're interested in some philanthropic work. I know you're interested in women's empowerment and other issues like that. There's a lot at the fore here.

I understand you went to Georgetown, were one of the few women who majored in math back at that time. So what stands out to you here, at Davos? And what are you most interested in?

MARY ERDOES: The nice thing about Davos is you take a minute to think about all of the things from around the world. So nearly every country is represented, nearly every movement is represented. And you start to think about what you can do, both as an individual, but as well as a company.

And so when I think about what JP Morgan Chase does-- whether it's our women on the move work. Whether it's our vets work. We had 100,000 vets mission, it's now up to a million vets that we want to retrain and put to work in concert with other financial companies. Whether it's the work that we do in cities-- we have $500 million that we're putting to work in cities that we think we can help get the retraining, get the financial wherewithal-- Detroit is one of our most important ones. We recently announced the outskirts of Paris, Chicago, Washington DC.

So there's a lot that we want to do. And not just the money, but the employees of JP Morgan Chase-- they take a lot of time out of their free weekends and other extra time to give back to those communities. And for us, that's the most important thing. And that's what makes us so proud of being part of JP Morgan Chase.

ANDY SERWER: All right, Mary. Thank you so much for joining us today.

MARY ERDOES: Thank you.

ANDY SERWER: Finally, I welcome KPMGs CEO, Lynne Doughtie.

I'm here with Lynne Doughtie-- the CEO of KPMG. Lynne, welcome. Great to see you.

LYNNE DOUGHTIE: Thank you. Thanks for having me.

ANDY SERWER: So we're here in Davos.

LYNNE DOUGHTIE: We are.

ANDY SERWER: What are you hearing? What's on the minds of people that you've been talking to?

LYNNE DOUGHTIE: We're hearing, really, three main topics. I think it's emerging technologies and the impact that that has on the workforce and society. What comes along with that is cyber. I think the cyber risk, which is increasing as a big topic here. And then, of course, geopolitical-- everything geopolitical. The impacts on the economy and territorialism is a big topic, as well.

ANDY SERWER: Let me ask you a little bit about what's going on globally, especially with regard to China. Obviously, we have huge issues in terms of the United States, and China, and the trade war. What are you hearing from your customers and maybe, your employees in terms of that picture?

LYNNE DOUGHTIE: So I think-- and we saw it with the IMF results yesterday, as well-- that it's slowing. It's definitely slowing in China. We're seeing that. And I think that it's not just about China, but the impact that that has particularly in Europe and other places. And so the knock on effect of the slowing growth in China is very concerning.

But I think that you hit it with the trade wars and how that will be resolved. That's creating the biggest uncertainty that I hear CEOs talk about, particularly in the US. And how we can move on from that to have more certainty about the impact of the policy and how businesses are impacted.

ANDY SERWER: We're potentially looking at slower growth back in the United States, as well, Lynne. Is that something you're concerned about? Do you see that happening? And what's your take?

LYNNE DOUGHTIE: Well, we see it, but I think the US is the bright spot around the globe. And although growth is appearing to slow a little bit, I think that most CEOs are pretty optimistic in the US around the growth prospects. And so I think when you look at emerging technologies-- the opportunities that that creates, the impact that that has on the value that they can bring to customers and the services that they provide-- I think it's a pretty good picture in the US right now.

We've had this long growth cycle and although it's slowing and it's hard to predict, I think the next 12 months-- I think CEOs are feeling pretty optimistic.

ANDY SERWER: All right, Lynne Doughtie-- CEO KPMG. We're going to leave it at that. Thanks so much for joining us, Lynne.

LYNNE DOUGHTIE: Thank you, Andy.

We have a special bonus interview. He's a world famous musician, philanthropist, and entrepreneur-- Will.i.am.

I'm here with Will.i.am, the musician and founder of i.am+, and his partner, Alain Bejjani-- who is the CEO of Majid Al Futtaim. Welcome, gentlemen. Great to see you both.

WILL.I.AM: Good to see you, too.

ALAIN BEJJANI: Thank you.

ANDY SERWER: All right, so let me start with you, Will, and ask you about i.am+ and you're AI voice agent-- not assistant.

WILL.I.AM: Well, yeah, so we've created a platform-- artificial intelligence voice operating system-- that's contextual, conversational, and cross domainable. And the tool that made our system, we wanted to productize that. So other companies and retail accommodations can make their agents or assistants.

And in the efforts of doing that, we met MAF-- Majid Al Futtaim-- and they've partnered with us, invested in our company and helping us on our efforts to complete what we call the ARC-- which is Accommodation Retail Coalition.

ANDY SERWER: Will, how did you get into AI? There's so many different parts and facets of technology. This is one-- an important one-- but why AI?

WILL.I.AM: So two steps-- one, I was blessed to have attended Professor Patrick at MIT's AI class back in 2003- and 2004. And I was intrigued by it.

ANDY SERWER: Way back.

WILL.I.AM: So every time I would go to Boston, I would sit in his class. And he's writing a book and I have a forward on the book. So back in 2003, I was interested and intrigued by that.

In 2009, I sat in the futurist department at Intel. And they had a hurdle that no one was making marine operating systems on their mobile chipsets. And so I had the notion of creating an operating system because operating systems don't come around every day. And I told myself-- as soon as I have some disposable income, I'm going to put a team together to create a voice operating system.

So the Mac OS, you need your trackpad and a keyboard. iOS, you just need your finger. There is no-- still to this day-- there isn't a true voice operating system outside of the system that we built. It's an operating system in every sense of the word. So it can work across different devices. So it's iOS, Android. Work on Linux. It's able to work on simple computation systems like Raspberry Pi. And even simpler than that, just calling on a dial up. Just making a phone call, talking to our system on a phone call.

ANDY SERWER: Now you recently did a piece in "The Economist," where you talked about data, identity, and privacy issues. What do you have to say to Facebook and Google, in terms of what they're doing with our data? The monarchs-- I think you call them.

WILL.I.AM: Yeah, data monarchies. So I'm in no place to say anything to these companies, especially when I still use their systems. The problem that we have in society is not the Facebooks of the world and the Googles of the world. It's that there is no alternative.

There is no other system for me to use where I could retain my data in a way that's simple for me to understand what's going on. And for me to enrich my lives with the data that I make. There is no operating system for people. You have access to an operating system, but it's not yours. You have access to Alexa, but it's not yours.

So we aim, in our company, to create an AI and OS for people. And to fill that void that's there. So if there's value in data, how do we bring that down to the person?

ANDY SERWER: Isn't there concerns about AI and privacy with artificial intelligence, though, as well?

WILL.I.AM: So the concerns are from the snapshot of today. The business models of these companies today are what bring up the concerns. The privacy-- if it was my AI and it was my operating system or yours, at home watching-- if it was your AI and your operating system, you're going to want your AI to be smart for you. So you will open it up, if you knew the terms and conditions and can understand them in a simple way.

So I believe the privacy issues are just the business model is what's scary. The business model is what's funky. So the company that's going to rise tomorrow is a company that's going to have a new business model thinking about the person and the community they live in first, before business. And business will be there.

ANDY SERWER: That's Will.i.am and Alain Bejjani-- both joining us here today. Thank you both, gentlemen.

WILL.I.AM: Thank you.

ANDY SERWER: Thank you to Christine Lagarde, Mary Erdoes, Lynne Doughtie, and Will.i.am for joining me. And thank you for watching this special edition of Influencers, from the World Economic Forum in Davos, Switzerland.