Chapter 7: The Geneva Association (1973 – 2001)

13. Social Democracy has Triumphed
At the time of the Industrial Revolution, which we still widely experience at the eco­nomic, psychological level and also because of cultural laziness, one of the key politico-social questions was that of the division of business between the public and the private sectors. Today it can be said that last century saw the triumph of social democracy. Whether in the United States or in Sweden, the State represents, takes, manages from over a third to more than half of all economic activity. In any event it is the largest entrepreneur even in those countries that, more than others, favours the market economy. The only, sometimes fairly important, differences lie in the intensity of the phenomenon, not in its quality.
When I taught courses in economics at the University, about 50 years ago, they told me for example that there were economic activities that could not be assimilated into the public services (the production of electricity, transport, post and telecommunications etc.) that fell naturally into the remit of the State. These were referred to as “public utilities”. Today a large number of these services are open to private enterprise and the debate revolves around the determination of new lines of division in every sector. Whatever the case, it is enough to look at the tax percentage of every State and its evolution over a century and after the end of the Second World War to confirm that social democracy has really triumphed, even if it is often defined as “liberal”.
In a service economy such as the one we have described, the criteria for division between public and private are subject to changes that prove important. First of all, in a complex society, the need to regulate business is often the consequence of practical obligations rather than of an ideological choice: if there are no cars there is no need for traffic lights at crossroads. When there is no pharmaceutical industry, as was the case some centuries ago, institutions for regulating the production and use of pharmaceuticals serve no purpose. Trains should have timetables and aeroplanes must take pre-established routes and be monitored in flight.
Given that in a service economy and society it is always necessary to know how to face risks, manage uncertainties and guarantee results, there is another criterion that plays, and will play, an increasingly greater role in the division between public and private affairs. It is that of insurability.

14. The Insurability Criterion
That the risk management and private insurance sector can offer to cover every risk at every level is out of the question. They can only cover some risks, of various types, for which they are able to collect premiums and to carry out their role of organisers of insurance schemes among like-minded groups and institutions around the same class of risk. When an event occurs that is too serious (a nuclear explosion, the sudden spread of a deadly pandemic among millions of people) it would never be possible to collect sufficient premiums. At that point it is the State, at its various levels, which, by necessity is solidarity’s last resort. The State does not collect premiums, but taxes that must also fulfil the function of redistribution and social justice.
On the other hand, the State would become totally ineffectual if it had to cover every risk. In this case it would practically have to confiscate close to 100% of earnings through taxa­tion. And we would then fall back into the experiences of the so called centralised economies, with free enterprise extremely reduced.
The more developed States (and the others even more) struggle to find a satisfactory balance between income and expenditure. It is certainly in their interests (and in those of society as a whole) to limit their obligations to the indispensable, i.e. to non-insurable risks. There are always plenty of these. And it is necessary to make use of a risk management industry and of effective insurance so that, within the limits of insurable risks this can carry out a role that places it at a strategic point in the modern economy. Risks to persons, life risks, business risks, environmental risks, risk of accidents and many others. Acts of God remain unforeseen and as such are insurable unless they are really catastrophic – and we can always face them better by managing our lives, aiming at an increasingly better accomplishment as individuals and as a society. The separation of tasks between the private and State sectors in this field is a key aspect of the economic future.
Insurability therefore is a criterion that has an important place in the division between the public and private sectors, one that underlines the complementarity of these two sectors. Everything insurable can be private, everything that is not can only be dealt with by the State, or should it be found lacking, by society as a whole.
The reader might think that when I began to work for the Geneva Association, I had a certain number of ideas and that I wanted to realise them. It is not exactly the case. I had some hypotheses to test. It is necessary to have some in every undertaking be it cultural or industrial. Ideas put forward as hypotheses only have a value because they are compared to reality and put to test. If they come back improved, on the one hand we will have established our deficiencies, but on the other we will have won. This is why real fundamental research must be free. Every idea or knowledge hidden in a drawer decays and deteriorates. It must be let out into the open air. It is a little different for licenses or patents in applied research: there has to be a good balance between spreading the outcomes and the need to pay for, often expensive, programmes. Even researchers need a salary or remuneration.
From the start of the Geneva Association’s activities*, I didn’t begin to express my ideas as explicitly as in this book. I used those ideas as reference points to suggest to researchers and experts that they should discuss their experiences.
Ever since 1977 the Geneva Association has organised an annual conference for the great economists, many of them Nobel Prize recipients, so that they could offer their opinions on risks, social welfare, insurance: from Kenneth Arrow to Joseph Stiglitz, from Edmond Malinvaud to Robert Merton. A special series of Geneva Papers (The Geneva Papers on Risk and Insurance Theory) is being published for almost ten years and run by a group of highly qualified economists that examines risk and uncertainty from the point of view of the most advanced economic theory. Study grants to students preparing their theses, specialised seminars (one or two a year), investigations into the teaching of risk and insurance in Universities completed this programme. I am convinced that it will actually be the analysis of the contemporary economy as service economy that will supply a decisive stimulus. I could be wrong. We will see. In any case it is wise to explore all possible paths.

15. Performance Over Time
Another very important aspect of the modern world is found in the link between law and economics. There are associations of professors in the United States and Europe which have specialised in this border zone and with whom the Geneva Association has often collab­orated. The explosion of questions concerning liability over recent years appears to me to confirm the rightness of the point of view that underlines the nature of the service economy. In fact, if economic value is increasingly linked to the result over time, then civil, and even penal, responsibility, product responsibility (sanctioned by Brussels directives) and all the precautionary directions and expiry dates on all the products we buy, are effectively an indication of the fact that the key to the economic value of the outcome really is linked to the “performance” or result.
Finally I will mention, among others, the initiatives on the theme of analysis of risks on the part of engineers (the MORE programme – Management of Risk in Engineering), the studies on the cost of fires in the world (which on average represents 1% of national revenue) and finally the support programme at the Product Life Institute. In the Service Economy field this institute has for years been carrying out studies to optimise the life span of products and systems, taking account of utilisation costs and the costs of waste treatment or recycling. This question is linked to the definition of responsibility for product performance.
In twenty eight years of activity (from 1973 till 2001), the Geneva Association organised 180 seminars or conferences for a total of almost 6,500 participants. More than a thousand experts from industry, financial services, research centres and public institutions collaborated with detailed interviews and articles. Permanent contact has been maintained with about a hundred Universities, while several hundreds more have been in less regular contact.
As to publications, a hundred issues of the “Geneva Papers” have come out as have twenty four of the theoretical version. There have also been 240 “Studies and dossiers” and about 520 Information Letters in various research sectors. The Association’s staff and president have given around 330 lectures. Account should be taken of the fact that at the beginning the structure was based on a single full time person (three after a few years, including a secretary), and on a widespread appeal to external collaborators on a case by case basis, though some of these offered their contribution over several years. This was the case with Tom Wilmore for the estimations and statistics on the costs of fires (with the cooperation of the United Nations) and with Julian Arkell, a great specialist in services and negotiations at GATT and later at the WTO – World Trade Organisation.
When the Geneva Association was founded it had a little over a dozen members. Over two decades the number had grown to around 80. They are all CEOs of the most impor­tant insurance companies in the world. After confining itself to Europe for 5 or 6 years, the Association was opened up to the United States and the rest of the planet. There are now members in every continent, Asia included (Japan and China).
It should be noted that members are such in a private capacity, something that underlines the nature of the Geneva Association as a research tool for long term strategy and without any “political” mandate.
The members meet once a year and form the most prestigious Assembly, in terms of numbers and quality, of world insurance. Of course there is an Administration Council which oversees and checks the activities of the Secretary General. Raymond Barre added lustre to this Council as President during the first three years. Fabio Padoa, who was Managing Director of the Generali Group succeeded him for seven years. As has already been men­tioned he was the principal inspiration behind the Association, convinced that it should play an increasingly important role in society. Without him the Association would probably never have seen the light of day. I would be lying if I didn’t say that I know I gave him grounds for satisfaction – he wrote of it to me – which rewarded him for his wise insights.
After him came Julius Neave, then CEO of the largest English reinsurance company, Mercantile and General (today part of the Swiss RE group). I owe him a great deal for his practical support and his style, in the best English tradition. Julius Neave, like the president who succeeded him, was one of the group of founding fathers of the Association who felt personally committed to this adventure. The fourth president, Reiner Schmidt was the CEO of the Aachener & Münchener group (which is now part of the Generali group). It is of great satisfaction to me that we became best of friends based on deep mutual respect and on his human qualities. He was precise and scrupulous, very seriously committed to his post, as can often be expected of a German. He also had the human side of someone who made an enormous effort to survive, to go to University (twice becoming professor, once with an honorary degree), find work and finally find success in his career, after having been at the forefront during the Second World War and having come back from it in very difficult conditions. He had an enormous passion for books and was active in writing texts on insurance till the age of 80.
Brian Corby of the English “Prudential”, Jan Holsboer of ING in the Netherlands and Walter Kielholz, CEO of the Swiss Regroup in Zurich, the second reinsurer in the world, all subsequently brought their contribution, their experience and their vision to the Association until 2000.
It is not possible here to remember all my friends from various parts of the world who gave me their support with their advice, suggestions, the availability of their collaborators in organ­ising the general assemblies and the many seminars. I would like to mention a few of them however for their tokens of friendship and concrete help, offered at critical moments. Among these was Georges Martin, CEO of Royale Belge (now part of the AXA group), a man of exceptional wisdom and rectitude, John Roberts, President of AIG (of the American Insurance Underwriters group whose life would make a good novel, and who combined a strong person­ality with a very American attitude of instinctive support for new adventures. Then there is Bjorn Wolrath, CEO of the Skandia group of Stockholm, who always ensured that I had the permanent cooperation of the four Nordic countries. I have already mentioned Claude Bèbèar and I will again mention Joao Talone who brought together the most impor­tant resources of the Portuguese financial services before taking the plunge at the European level, with a notable strategic vision. Lastly I apologise to all the others: thanking everyone would require a whole book.
Whatever one does in life one must have good luck to bring things to a good conclusion. Luck was with me at the Geneva Association until, and above all at the end of my work as Secretary General as I prepared for my “retirement” (partial, as it should be).
Thanks to Ricardo Diez Hochleitner, former President of the Club of Rome, to whom I had suggested that I write a report on “employment in the service economy”**, I had obtained a little financing from a Bilbao bank that wanted to celebrate the anniversary of its founding. I needed that financial help to find a collaborator capable of pulling my notes together, completing them and adding the results of his research. It was 1996.
I found him in the person of Patrick Liedtke, who also edited the Spanish and German versions. The latter was named in the German bestsellers in economics list in Germany.
Someone once wrote that there is no success without a successor. Well it happened in the best possible way. Liedtke has shown that he could improve on all that I had undertaken and accomplished. He has done that and more. It was a real stroke of luck for me, for the Geneva Association and, I hope, for him too. As Peccei used to say, “In life what counts is the human quality”.

** In Italian: “Come lavoreremo”, Franco Angeli, Milan, 2000.

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