James Anderson graduated with a BA in modern history from Oxford University and, after postgraduate study in Italy and Canada, he gained an MA in international affairs in 1982. He joined the independent Edinburgh-based fund management firm Baillie Gifford & Co in 1983, becoming a partner in 1987. He headed Baillie Gifford’s European investment team until 2003 when he became deputy chief investment officer and head of the global equities investment team. Anderson is a member of the investment policy committee and became chief investment officer in 2006. He has been the manager of Scottish Mortgage Investment Trust plc since 2000. Baillie Gifford manages a total of $94 billion in active equity and bond portfolios for investment clients around the world.
Professor Joseph Stiglitz has said that after the bank collapses of 2008, market fundamentalism should have become as discredited as Communism was after the fall of the Berlin Wall.
I have some sympathy with that view, as I do with Joseph Stiglitz’s current pronouncements on whether we are talking ourselves into undue austerity. It puzzles me that, even after what happened, we have not been able to get away from market fundamentalism, the notion that “the market always knows best.” Perhaps it’s only a matter of time. After all, after the crash of 1929 it took until the mid-1930s before the Glass–Steagall Act was enacted.
Perhaps it’s more difficult to come up with an alternative ideology than it was in the 1930s, because of the globalized nature of the world? Don’t individual countries prefer to await a globally agreed solution rather than risk going out on a limb with regulatory or structural change?
That is no longer a valid excuse. It is based on prevailing trends and assumptions—the globalization of the financial sector—that are now redundant. US-style capitalism is not going to be the dominant orthodoxy over the next 100 years.
US-style capitalism did become rather detached from the real world, especially were executive pay was concerned.
If executive pay, or the share of GDP, of one particular sector diverges from the fundamentals, as happened to the financial sector in the United Kingdom and the United States prior to 2008, that’s a sure sign it is entering dangerous bubble territory. However, it’s worth noting there are two sorts of US capitalism at the moment.
The bad part combines financial services, big East Coast industry, Jack Welch-style management and Milton Friedman-ite ideology. It has the imprimatur of Harvard Business School and the endorsement of Goldman Sachs.
People like Simon Johnson, professor at Massachusetts Institute of Technology, are right in saying that it is the capture of Washington, DC by that part that is so dangerous. How can you change an economy when many of its policymakers have such close links to Goldman Sachs?
Goldman is both the symbol and the essence of what went wrong with Western capitalism. Look at who has gone into government from Goldman Sachs. Look at how Goldman now has such a trading-led culture. Until Goldman is broken up, or its share price falls more sharply, we may continue to be in a state of crisis. That sort of US capitalism has taken us precisely nowhere in the last 15 years!
By contrast, West Coast capitalism remains profoundly innovative. In West Coast capitalism, the founders are still running the show—so you have Steve Jobs at Apple, Jeff Bezos at Amazon, Larry Page and Sergey Brin at Google, Mark Zuckerberg at Facebook. Those are their companies; most of their reward comes through the capital they have invested in those companies, so there is no management/agency problem. That generation of West Coast business leaders have an idealistic ethos of how to run a business, how to globalize, how to use technology. It’s hugely encouraging.
For me, the real divide is between West Coast values and East Coast values. It is hard to understand why the latter ideology still occupies the commanding heights in Washington, DC.