September 2020
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AAM Magazine
September 2020
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The capital swamp

  • Asia
  • Global

To offer a perspective on a clutch of perspectives on the post-coronavirus world, I’d like to skip over the crisis entirely and revert to a 2017 Harvard Business Review paper titled “Strategy in the Age of Superabundant Capital”. This held that, yes, capital was superabundant and therefore businesses and investors were going to have to think differently about deploying it.

Three years on, after a massive stock surge and with investors still diving into stocks like lemmings in the middle of the pandemic, does anyone seriously believe that capital has gotten less superabundant in the interim?

Yet we’re surrounded by talk of a depression. No one expects a fast or buoyant recovery. And interest rates? If you went through the post-global financial crisis period hoping rates would return to 1980s highs, you’d better stop holding your breath. Even in 2017, the Harvard Business Review paper was predicting long-term secular lows in interest rates. With the coronavirus crisis boosting the case for cheap money even higher, they look likely to stay low for a long time.

All that capital could be put to work to rebuild the global economy. Instead, it seems to be pouring straight into stocks and missing the real economy entirely.

Government intervention on a massive scale is now the norm, even in nations like the US that are supposedly wedded to market discipline. Concurrently, populism threatens rational policymaking, fuelled by unemployment from the crisis and technological changes in its wake. Populism, remember, is what’s helping fuel higher coronavirus death rates in the US, UK and Brazil, all with populist governments, so it’s hardly benign.

Talk of inequality, redistribution and a universal basic income was already rife prior to the pandemic. That capital glut owes a lot to fiscal policy in the US and elsewhere that favours corporates and the rich at the expense of the working population. If anyone seriously wants a robust recovery and sustainable consumer spending, they should give it back to the people.