INSUBCONTINENT EXCLUSIVE:
Howard Marks, founder of Oaktree Capital Management, is a worried man
His worries mostly stem from the tone and tenor the current political discourse is fast acquiring, especially in the US.
His January memo
to his clients, titled 'Political reality meets economic reality', which deals with the rise of populism and the resultant anti-capitalist
sentiment, is a reflection of that.
"Clearly, companies and wealthy individuals are being viewed by some as attractive political targets and
good sources of incremental revenue," Marks wrote in his latest memo Growing the Pie, one that reaffirmed his earlier thinking.
Making his
case, the ace fund manager points to the narrative that dominates the political landscape -- They have too much, we have been shortchanged,
the system is rigged, they got where they are by cheating, the rich don't pay their fair share and so on and so forth.
What has fuelled this
wave of discontent
"In my January memo, I said in the last 10-20 years, the rising economic tide had stopped lifting all boats
In addition, major social and economic trends contributed to increases in economic inequality," he writes.
It becomes a deadly cocktail when
disparity in wealth teams up with disparity in values, which creates more trouble and manifests itself in the form of populism of the left
and the right.
"As a rule, populists of the right (who are usually capitalists) don't know how to divide the pie well while populists of the
left (who are usually socialists) don't know how to grow the pie," the money manager wrote
Pressing further, he sought to make a clear distinction between populism of the right as espoused by President Donald Trump and the left as
outlined by Bernie Sanders.
Marks borrowed from Winston Churchill's speech of 1945 in the House of Commons, saying the inherent vice of
causes resentment, he said.
Illustrating his point, Marks talks about two sets of countries -- one that puts a premium on equal sharing of
the pie and the other that is more keen on expanding the pie.
The equal sharers, according to the memo, are Cuba, North Korea, Venezuela and
Russia whereas the expanders list includes the US, South Korea, Hong Kong and Singapore.
As the debate rages as to which group lives better,
Marks makes a pointed reference to the contradiction in China where increased production brought with it "greater inequality and lesser
government services".
Of late, the taxation controversy relating to tax credit and subsidies surrounding Amazon has stirred the pot
But Marks knows the answer lies somewhere else
"The business should do all it can to arrest the trend towards stagnant and unequal incomes The solution can't lie in turning away the
Amazons of the world, imposing extra taxes on Cadillacs or otherwise shrinking the pie," he concluded.
