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Welcome to in the city.
Stand clear of the doors. Today's day. It's election day, a moment to really reminisce in the past six weeks. I like it that there are short cycles election cycles in the UK. It's it feels like it's over and done with pretty quickly.
Yeah.
I've just got back from the US, where that is not the case, and they've just had theirs the earliest ever presidential debate. I know everyone's seen it through clenched fists or fingers whatever, because it was almost un watching. I did feel the contrast coming back to Britain this week.
You see the choice that Britain has, and yes, you can like or loathe both Rischie Sunac and Kirstarma, but when you see when you saw the options on stage in America, you know, the convicted felon and the guy who can string a sentence together, I mean, you know, it doesn't it makes you feel a little bit better about the options that Britain and.
Nobody says says that our TV debates were quite good. But I thought they were quite good. I know, I'm sad.
I mean was the bid in the in the in the US one where they started slanging off about the golf, golf, golf and your child, your child.
I mean, it was just they couldn't remember their handicap. So I just got back from CenTra and it was interesting. Everyone wanted to know about the French elections because there's so much drama there that it does make you know, the UK safe and stable?
Isn't that?
Am I supposed to be safe and stable? Find it or a little bit boring.
A little bit boring, but but we're still expected to find money to pay for some of the policies that laborer will have to put in place if they come to barrel.
Friday morning is going to be a big moment of change if the polls are correct for Britain, and huge, huge intro problems to fix.
Yeah, people are fixated on the potential likely departure of the Conservative Party and they're in fighting. But I think that for all that, there will be you know, lots of excitement and sense of new brooms and all of that I think you can already see and we've already talked about them in this election campaign and before you
can already see the fault lines of proper division. And as you say, guys, there's been pieces on Bloomberg about the UK's becoming a safe haven and that is surely welcome after lots of the events of the last what is it seven eight years in the UK. But equally it's not an easy easy wicket for Starman Co.
Welcome to in the City podcast from Bloomberg about the story is important to the city of London.
I'm Francin Laqua, I'm Melegu Stratton, and I'm David Merritt.
Phil Aldrich yesterday wrote a story saying that the Labor government, of course, is also facing the worst economic and fiscal inheritance for any government since the war. So we have to talk about where they'll find the money and how they spend it. But what's the strategy. Our next guest, Breakout Capital chief investment officer and best selling author Rusher Sharma, thinks the government is just doing too much. He basically goes back and says, look, we think that government intervention
has been shrinking. He says not so. Rachier, thank you so much for joining us here in the studio for the podcast.
Sure.
So this is a very interesting book. First of all, congratulations, what went wrong with capitalism? There's a belief, I guess out there that the government has done less in previous years than they have in the past, and actually we don't have that much government intervention, and you argue, in what three hundred and twenty five pages, you argue that that's not the case, and actually the government is ever more present with regulation and also giving money.
Yes, as you know that one of the most pejorative terms these days is neoliberal that people speak about neoliberal to believe that these are people who have let market forces run amok and that the role of the government has been downsized and the government now needs to come in and fix the problems rather than allow markets to function so independently. What I show in the book is
that how much of a myths there is. What the Newliberal agenda really did was that, yes, it did promote globalization, and also the fact that it promoted financialization, which is that the markets became much bigger than the size of the underlying economy. So globalization and financialization were very much
two tenets of the neoliberal era. But one of the biggest myths is the fact that the government has been in retreat, as I show conclusively in the book I Think, which is if you look at the last few decades, the role of government in every sphere of economic activity has expanded. The basic data is government spending is a shit GDP. If you look at US, you look at Europe, you look at UK. In all these places, governments spending
as a share of GDP has increased. In fact, in Europe it's and UK it's increased much more than it has in the US.
Because of crises. Right, this is partly because of COVID. So it's not only interventionism for the sake of it, I mean after problem.
Right, No, it's one hundred year line, so it's not a line which is sort of you know, goes up in just the pandemic and staff They take. The US government spending as a share of GDP used to be three percent back in the nineteen twenties. Now it is close to forty percent. Similar trajectory in Europe and UK. In fact, government spending as a share of GDP used to be lower than America right up until the nineteen eighties, and from the nineteen eighties it's gone up a lot.
So you know, this whole talk, this Reagan Thatcher revolution of the retreat and government that they changed the way in which the deficits were financed, but not in sort of pairing back on spending. They sort of then cut taxes without sort of matching it with any spending cuts of any consequence. So therefore we have this situation where most Western governments, including the UK today are running record
budget deficits and the debt levels are very high. And this is not how it used to be in America or Britain. In fact, for hundreds of years they ran budget surpluses consistently. But from nineteen seventies onwards, these countries have rarely run a budget surplus.
What chance of it going down very little?
As I argue in the book at the end, that the only way out is through that the only time exactly, which is that the only time where governments sort of pay back is when they have a crisis. Now, this is what happened in some of the Nordic countries is that those countries are often held as these models of democratic socialism and how the government plays an enabling role.
But even in those countries, when governments spending the shire GDP got too high, the budget deficits got too high in the early nineteen nineties, they had a crisis, and only when you had a crisis they began to pare back. So in fact those countries have done better in terms of productivity and economic growth then a lot of Europe has done because they have been sort of of course,
from a very high base. They've been downsizing the government and most of those countries have been running budget surpluses or at least budget balances, unlike core Europe or UK, which are running these big budget deficits.
Can we just talk about the role of the elector in all of this, because I mean we look here with sitting here in the UK on a polling day with a big election. Part of the narrative has been that neither party is really setting out huge reductions in the numbers you're talking about in terms of state intervention, and you can see you can say it in France, you can say it in Italy, you can say it in America, that more and more electorates want more from
their governments. So how do you talked about the Nordic countries. How did they do it? How did they kind of pair back while also giving the electra what they wanted.
Well, they paid by because they had no choice. I think that this is one of the things which exists a lot of people, including here, some of the elite economists sort of say we unnecessarily did austerity and in like Greece and other places. But these countries did it because they had no choice. When you run out of other people's money, you have no choice but then to pay back in terms of you know what you do. So that's what I say that unless you pay back
that you have a crisis. It's very hard to pay back. Now. The issue is that governments are doing this to keep the citizens happy. Well, if it was working, then they'd be getting re elected instead. Trust in governments across Western societies is at record lows, and also the fact that you have such poor economic growth as a result of all this. At the end of the day, people want the pie to grow bigger, so there's more for them
to share off. If you have stagnant per capita incomes, then you're obviously going to get a lot of anti establishment feeling, regardless of what your political leanings are.
Sure, what's the problem with the government actually being a bigger regulator about spending more and borrowing more? Fundamentally, what does that do?
I think that's a great question, because that's the productivity paradox, which is that you are damaging the creative, destructive fiber of an economy with such intervention. That is not what capitalism is supposed to be. Capitalism is supposed to be pro competition, pro churn. Instead, with all these interventions make capitalism feel like it's pro big business and pro the entrenched.
But it's saving jobs. It's saving business, isn't it.
If it's doing that, it's also undermining the dynamicism of the economy. So yes, you're keeping alive a lot of dead wood companies. Remember this term zombie companies was popularized in Japan in the nineteen nineties when a lot of companies which couldn't earn enough to even cover their interest payments kept going right. So that's how zombie companies were there. These companies are not supposed to exist in a capitalist society.
Back in the US or UK, the number of zombie companies that they share of the total listed companies was as low as two or three percent back in the nineteen eighties, when the UK US press would mock Japan for running these zombie companies. Today, guess what UK has about the highest number of zombie companies in the world. Twenty two percent of the total number of listed company needs in UK can be classified as zombie companies.
If the government hadn't stepped in, would we now be in a recession? And would you argue that that's a good thing, because actually it gets rid of you know, zombie companies.
Nobody wants a recession, nobody wills a recession, but if you end up at times having a recession, there is a cleansing effect to it. So I think we have to make this trade off. Do we want higher long term growth and higher productivity or as I argue in the book, that this culture of pain management that has become so sort of popular, which is like in the US as well, which is that the slightest hint of
any trouble, we administer drugs to the patient. And that's how the US has sort of become hooked to this opiate crisis. The same sort of approach now has come to economic management slightest hint of trouble. We're going to administer stimulus in the name that we are doing this to smoothen out the cycles and to alleviate any pain, But in doing so, we are completely destroying the creative, destructive fiber of the economies.
I mean, let's just take COVID and the pandemic. Do you think they had an option not to spend the many, many hundreds of billions that they spent.
Yeah, So, like I'll make two points here. One, the fact is that the governments felt emboldened to spend so much and do the lockdowns like to start with, because they thought they could just paper it over by spending. So maybe the approach to lockdowns should have been smarter in terms of rather than just saying, Okay, everybody just you know, like we have to stay in and we're going to just paper this over by giving you massive
amounts of stimulus. There was something wrong with that too, that, yes, if you're going to tell businesses to shut down, then you have to give them relief. The issue is that the indiscriminate kind of relief that was given. It was unprecedented where a lot of very well off, rich businesses got enormous amounts of relief because of this, and then
to expect no consequences from that is foolhardy. So we had a burst in inflation, and more than inflation, I think what also irritates many people, especially the average person, is the burst you had in acid price inflation. Prices or properties jump up so much due to so much easy money. Remember, a lot of people in places like UK are feeling that it is so difficult to buy a new home now because these home prices have surged so much and it's happened, happened like in the US
even more so, that creates a lot of disenchantment. So I think if you think through what the consequences of these actions are, is it really.
A fair comparison to see what's happening now with, for example, some of the banks that the US bailed out, or some of the things that happened in the UK compared to one hundred years ago.
So where are we going to draw a line on this, which is that every time there is a small crisis, because we're going to feel that that small business or medium sized bank is going to go out of business, that we have to bail it out. Is that the culture that we have come to and in terms of how long are we going to afford to be able to do this, which is that how long are we going to keep running these deficits that we have and keep piling on debt? So where do we draw the line?
Like even when it came to like in the US, the mid sized bank of rich depositors you know, goes belly up, which is Silicon Valley Bank, and the impulse is to go out and intervene and to save it from happening with the same question, if you don't do that, we'll have an entire system collapse.
I can see the headlines here in the UK price. I mean, if you know some of the previous governments did not intervene or put money out it.
Would they or they would have worried it would have been electoral They still had electrial death.
So in terms of that, like what if they gained by doing it, we have still had multiple governments, we have still had electrial death. So if these policies were succeeding, then these government should be getting reelected, not getting thrown out of office. So if these policies of saving jobs ostensibly or of you know, doing these bailouts. If all of this was working, then surely the government should be
getting reelected. But as I argue in the book that the number of governments getting re elected in the Western world has declined in an appreciable way over the last ten or twenty years. Even the US says, you know, the approval ratings of leaders across the Western world is at a record low. So if these were working, and we and they say like they're justified, then surely these governments should get re elected instead of this huge amount
of anti establishment feeling. The fact that in most countries now including here, the average voter feels that they will not be better offen their parents. That's a you know that that's a huge sort of declineate cont They.
Just just just to test the point one more time. If you look at the polling, people want more spending
on the public services and elsewhere. So it is you are right that that something is not working, if we all agree, But equally, the stimulus that an elected politician is getting is is how do you have that conversation with the voters where you say, you may want more spending and you may want your public services to be better, but actually economically for the reasons you've set out reash it, it's not worked.
And they're say in the book the first step to a curist to diagnose what the problem is. If you're going to say that the problem is small government, then that's the wrong sort of you know, thing to see. Secondly, I think that you're right that every voter feels that they're entitled to more in terms of from the government, that's a fair thing. When the voter also sees that who is the government bailing out? Right, that the governments
like are bailing out these big banks ostensible to save jobs. That, as I argue, is a modern form of trickle down economics, which is this argument that you've got to save these big businesses because if you don't do it, there'll be job losses down the line. When the voter sees that, they are even more livid that if the government's doing that for big businesses, and the government's doing that for
big banks, then like I deserve even more so. I think that that sort of is what corrodes capitalism, and that is what makes people lose faith in capitalism. The average person is thinking, if those guys are getting bailed out, why am I not getting much more out of this?
Not so just did I mean they had you know, with furlough, they had the salaries always just paid for quite a long time in the Yeah. And then with you know, in the UK we've had energy bills paid for considerable area it as well. Yeah, parts of them paid. The kind of equality of help was a bit more there. But in the book you do have like best practice, don't you, because you talk positively about East Asian economies and that they're allowing capitalism to be more unfettered.
I mean I co three examples. There's a whole chapter in the book for you know, which says where capitalism still works. Now, this is to show examples of countries that have given their people more economic freedom over time. So for me, capitalism it's back to basics. What is capitalism. For me, capitalism is about giving people as much economic freedom as possible, for the government to have a role as a facilitator, but not for the government to micromanage
affairs of people and to be like overly involved. So in the book, as I show there are three different countries I show there in terms of Switzerland, Taiwan, and Vietnam. I picked these three countries. It seems like an odd lot, but three countries which are across the income curve. Once the richest country in the world, Switzerland, how it has the maximum amount of economic freedom of any country in
the world. It's people amongst the happiest if you look at the happiness in disease, and yet it is the richest and it's been able to do so with much lower government spending as a share of the GDP than any other country in Europe. Light touch regulation, right, So that's how it does it. I quote Taiwan as an East Asian example that people talk about East Asia, you know, in terms of as this sort of countries with very
good governments and how they're facilitated growth. But in places like Taiwan, as I show Taiwan, even Korea, that government spending the share of the economy is half that of countries here in the West. And yet they were praised a lot in the pandemic of being able to manage that pandemic very well shows you that when you have a very tech savvy state, you can get a lot out of the state without having to throw so much money at it. And then I show like Vietnam which
is still a relatively poor country. That how it's been giving its people more economic freedom, the state has been withdrawing, and how Vietnam is emerging now as such a big manufacturing powerhouse in the re So these are three examples where the common thread is you give people more economic freedom and you end up getting much better economic results. The Western countries are moving in the opposite direction after being these beacons of economic freedom for decades, if not centuries.
I mean Switzerland a you wealth per capita is one of the largest in the world. And they also government engineered the big takeover of Curtiswee. So I don't know how less affair they are.
No in terms of there's no country today which is a perfect nation. So there's no country which is Lassi fair right. And as say in the book, there's no going back to nineteenth century Lassi fair capitalism. That model is dated. What you need now is the balance to be correct, which is the fact that you have countries where the government's going to play a role. The days of the nineteen twenties where the government spending the share of GDP was three percent and the government just spent
all its time delivering mail or doing some defense. Those days are gone. You need a welfare state now. But I think that you need to get the balance correct. So all I'm saying in the book is is that let's at least recognize that we are so out of balance just now, and how do we get the balance correct so that we get back to capitalism, or at least let's stop calling this capitalism. Most young people in these countries today say they would prefer socialism over capitalism.
But this is not capitalism. What we have today. We have socialism for the rich in a way, we have socialized risk along the curve. So let's not call this capitalism anymore. And let's say that, Okay, if this is the system we want, this is a form of democratic socialism,
and this is what we're going to get. But the result also we have to live with, which is lower productivity growth, lower economic growth, and possibly hire inequality and a feeling of the average person that there is not an equality of opportunity for them.
Do you think if that bounce is redressed that the outcomes of elections would differ, including here in the UK.
It's possible. I'm saying that they couldn't be anything worse right, which is the fact that this idea that you keep and even the UK government coming in, if you look at it, it seems to be a lot more pragmatic, right. I mean, that's supposed to be labor, but I think even they have sort of recalibraated in terms of what they are they're not talking about, you know, they're also talking that we want to be both pro labor and
pro wealth creation. It's not a sort of you know thing like France or other places where it's like, you know, very antithetical to the concept of wealth creation. And yet look at the example of France that the number of billionaires in France today as a share of the economy is among the largest in the world, higher than uso UK. And you have government spending there as a share of
GDP at fifty eight percent. Can you imagine the irony of that such an active state for governments spending the share of GDP is second to possibly only North Korea, and yet you have a culture there with a number of billionaires you have in France today is among the largest in the world. So, like, how is that achieving any better result?
We're sure?
Thank you enjoyed that.
Thank you great, perfect, amazing. Thanks for listening to this week's In the City from Bloomberg. This episode was hosted by me Francine Laqua, David Merritt, and Alegra Stratton. It was produced by Summersaudi Production support and sound designed by Moses and m Brendan. Francis Newman is our executive producer. Sage Bauman is Head of Podcasts Special thanks to Rashier Sharma. Please subscribe, rate, and review wherever you listen to podcasts.