Governments don’t have control. Political leaders have limited impact on the economy, investors need a broader view.
The illusion of control
We put central bankers on pedestals, but they have no right to be there. We blame governments when the economy goes bad, but they have little impact. Even leaders who are remembered for their strong leadership, like Margaret Thatcher, are like flotsam and jetsam. As for Brexit, we are told we need to take back control; I have news for you, control is not something our government will ever have, the most it can do is tweak.
“We used to believe you can spend, spend your way out of recession,” once said a political leader who summed up the concept of Thatcherism to a tee. Who was this arch Thatcherite, who was this advocate of Reaganomics, who was this preacher of the idealism that dominated the shift towards the right in the 1980s? Why, it was non other than James Callaghan, Labour Prime Minister before Thatcher, speaking in 1977.
Why is this relevant? Thatcherism was the mood among politicians and economists before it was called Thatcherism. Sure, she wrapped a bit of charisma around the political dialogue, but the mood in both the UK and US was one that was ripe for change.
And why? Because things had been going wrong; the UK economy limped from one crisis to the next, in 1976, Britain even had to appeal to the IMF for a bailout.
Look deeper still. The second industrial revolution, the one that brought electricity power stations, the motor car and flight, ended in 1914. The seven decades or so that followed was like a graveyard for innovation. That is why the 1970s was an awful decade; there was a lack of innovation.
And why was that? Because there was none to be had. We had picked the low hanging fruits of innovation, we had to wait for computers before the true engine of growth got moving again; and for that we just had to wait for the unwinding of Moore’s Law (computers doubling in power every 18 months). The so called third industrial revolution occurred in the mid 1980s/1990s with the realisation of Bill Gates’ dream of a PC on every desk.
Now we are at the beginning of the fourth industrial revolution, created in part because computers have reached a level of power that new technologies suddenly become possible. So, as the cloud, AI, Internet of Things, big data, genetics and stem cell research converge we see another revolution.
It is these forces that shape history, not political leaders.
Thatcher helped extenuate a mood that wanted change, but she did not create it.
Her policies arguably led to financial greed that may have underpinned the 2008 crash — but I suspect the real forces that shaped the world creating the 2008 crash, or indeed the 1929 crash, had little to do with politicians.
We blame politicians for populism, but they merely surf a wave that was created by technology, creating social and economic changes and polarising opinion.
Today we leave the EU, determined to take back control, but there is no scope for this. The world is becoming more interconnected than ever before. The war against climate change, plastic pollution, declining fish stock, oil in the oceans, the extinction of insects, the threat to our privacy created by technology, the way technology is changing us, these are problems that need global solutions. We have to apply global solutions, or we get anarchy and then war.
The EU, the UN, the IMF, World Bank, NATO, the institutions that led to the WTO, the list goes on, were not formed because of the whims of politicians, they were formed because they were the only possible answer to the anarchy of the first half of the last century.
The UK will leave the EU, I accept this now. The EU probably wouldn’t want us to stay, and if we did, our influence would be reduced to that of near irrelevance. The UK, and US under Trump are fighting the tide of history, screaming to resist change, but they can’t, or if they manage it, they will be reduced to the status enjoyed by Argentina, a former rich country left on the periphery of the global order.
What can investors do? Look towards good companies, with strong brands or killer technology.
And understand the broad sweep of history and make sure you move with it, not against it.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees