The future of capitalism: Q&A with Ed Smith of Rathbones
Edward is Head of Asset Allocation Research at Rathbones and supports its investment process with proprietary macro-based, multi-asset research. He is a member of the Strategic Asset Allocation Committee, Sector Selection Committee, and a founding member of the Responsible Investment Committee. Edward presents frequently to clients on the economic and financial market outlook, and comments on economic developments in the press.
It could be argued that early ‘true’ capitalism was once intended as a diverse ecosystem of businesses working together for the maximum long-term benefit of all. Can capitalism today take lessons from the past to help solve some of the pressing issues that threaten not only our short-term economic prosperity, but our species’ continued survival?
I have undergraduate and post-graduate degrees in economic history – so I would say, yes! There are too many lessons to list here, but here a couple of examples. The widespread prosperity that characterised the Golden Age of Capitalism from 1948-72 was delivered by governments, international bodies, corporations and labour unions working together to ensure that productivity-enhancing long-term investment was prioritised – we need that cooperation again today. Early 20th-century American industry operated with a sort of “noblesse oblige” which recognised it was important to look after your workers because they are your customers of tomorrow – as such, some of the giants of industry acted more like a welfare state than the state itself. Again, thinking more broadly about the interaction of stakeholder and shareholder prosperity would be welcomed today.
The problem is that capitalism is not Marxism, it isn’t a creed and doesn’t have eponymous architects whose texts we can consult. But that’s also its strength. We can treat capitalism like a social science: an accretive body of evidence that can be studied and learned from and built on. Unfortunately, there are too many people who are as fervently ideological about a certain ultra-free market interpretation of capitalism as any communist, and that makes for bad science. While I think the market is usually the best way to allocate capital for the benefit of society, it is abundantly obvious that markets regularly fail and require intervention – the inability to price the negative consequences of carbon emissions being among the most egregious examples. People who believe in the power of capitalism must also acknowledge its failings, learn from them, and correct its methods, otherwise, like the Amazon basin, it may not survive.
What do you think future historians will say about the aftermath of the pandemic? That is was a ‘great reset’ toward a more responsible capitalism? Or a missed opportunity where the new normal wasn’t so new?
I’m sceptical of the ‘great reset’ idea. For policy to shift paradigmatically, the previous policy paradigm must be widely accepted to have failed grossly (especially at a time of crisis), even if there is divergent opinion on what the next paradigm should look like. A good example is the abandonment of Keynesianism in the 1970s as it failed to tackle the great stagflationary crisis. But we have just had an enormous crisis and surveys tell us that it is far from unanimous opinion that policy failed – a strikingly large number of people kept their jobs or at least had their incomes replaced, strikingly few people lost the roof over their heads, we didn’t go without electricity and apart from a middle-class run on sourdough starters, food was easy to come by. There will be lower magnitudes of change for sure: a little more interventionism than before, but I suspect that where future historians will judge there to have been the political opportunity for ‘great reset’ levels of change – that opportunity came and went with the financial crisis and its aftermath.
NOTES TO SELF
If you knew at 25 what you know now with regard to financial planning and investment opportunities, what would you do differently – personally speaking, in terms of a long-term approach to financial security and ethical investment?
I wish I had spent more time learning about the relationship between corporate social responsibility and financial performance. And I wish I had started a sustainability-focused wealth management firm!