This episode explores the economic implications of Trump’s re-election, France’s political deadlock under Macron, and the future of global capitalism. Jean-Baptiste Wautier, a private equity investor and World Economic Forum speaker, shares insights on trade wars and deficits. He argues that short-term profit motives undermine the global capitalist system. Jean-Baptiste also discusses AI’s transformative potential. Please note this episode was recorded on 11 December 2024, before French President Macron appointed François Bayrou as the new PM.
If you have any questions, comments, or suggestions for Gene, please email him at contact@economicsexplored.com.
You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.
Timestamps for EP266
- Introduction (0:00)
- Economic Implications of Trump’s Re-Election (2:55)
- Potential Global Trade War (5:50)
- Global Trade and Economic Interdependence (8:29)
- Challenges Facing France and the Fifth Republic (13:55)
- Risks to the Eurozone (20:07)
- Flaws in Global Capitalism and Potential Solutions (27:34)
- Examples of Enlightened Capitalism (33:01)
- The Impact of Artificial Intelligence on Jobs (39:59)
- Final Thoughts and Future Directions (44:50)
Takeaways
- Trump’s Second Term Risks: His proposed tax cuts and tariffs could reignite inflation and exacerbate the US federal deficit, leading to global economic consequences.
- France’s Political Instability: Macron’s government faces gridlock, which could potentially destabilize the Eurozone due to France’s growing budget deficit and political deadlock.
- Global Trade War Unlikely: Despite harsh rhetoric, economic interdependence makes a full-scale global trade war improbable, in Jean-Baptiste’s view.
- Capitalism’s Short-Term Focus: Jean-Baptiste argues the current capitalist model prioritizes short-term profits over long-term sustainability, causing inefficiencies and negative externalities like mental health crises and economic inequality.
The Role of AI: AI is transforming industries at an unprecedented speed, raising concerns about job displacement and the need for economic adjustments, possibly extending to UBI (Universal Basic Income), depending on the scale of the displacement.
Links relevant to the conversation
Jean-Baptiste Wautier’s website:
EXPLAINER: Why is natural gas still flowing from Russia to Europe across Ukraine?
https://apnews.com/article/russia-ukraine-war-natural-gas-f9f00df7195d01404f8cb2a43152a8b1
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Transcript: Is DeFi the Future of Finance? Exploring VirtuSwap’s Vision w/ Prof. Evgeny Lyandres – EP262
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Jean-Baptiste Wautier 00:03
You look at all the negative externalities that our current system produced, they just gigantic. Think in terms of health, mental health, in particular, the younger generation. If you look at inequalities, not inequalities in the sense of, you know, morally, but inefficiency, the concentration of 10s of billions or hundreds of billions in the hands of a few individual means that they’re not going to be able to spend in a productive way this this amount of money. It’s yet another inefficiency when it comes to the economy. So there’s a lot of negative externalities that our system is producing and which is not making neither the best use of the resources we have, nor having the best impact on people’s well being.
Gene Tunny 00:56
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. Today, I’m joined by Jean Baptiste wartier, private equity investor, visiting lecturer and speaker at the World Economic Forum. We cover the economic implications of Trump’s re election, the potential for a global trade war, the challenges facing France and the state of Global Capitalism. Finally, we touch on the rapid advancements and the risks of job displacement associated with AI. Special. Thanks to Lumo coffee for sponsoring this episode. This top quality organic coffee from the highlands of Peru is packed with healthy antioxidants. Economics explored. Listeners can enjoy a 10% discount. Details are in the show notes. Now let’s jump into the episode. I hope you enjoy it. John Baptiste, welcome to the program. Thank you. Thanks for having me. Gene Of course, it’s great to chat. It’s such a interesting or what’s the word, suppose it’s challenging, and I mean, maybe vexing time for the global economy. There are, there are really some big things that are that are happening that it’s unclear what, what the ultimate impacts will be. So I want to chat about some of those with you today. And I mean, in brief, the election of Donald Trump to the second term, which I think has has surprised many, and that’s going to have implications. Of course, what’s happening in France is at the end of the Fifth Republic. What does that mean? And then also your thoughts on global capitalism? Because I know that’s something you’ve commented on. So to begin with, can I ask about the election of Trump to a second term. What are your thoughts on what that means for the global economy? Well,
Jean-Baptiste Wautier 03:06
thanks, Gene. I think it’s, as you said, it’s incredibly the objective I would use is consequential, because there’s going to be it’s not only a surprise, as you said, not not so much a surprise to some, because you could tell that the way the polls were measuring the real intention of votes for Trump was sort of not completely capturing what was going on and, and I think people were surprised by the popular vote in particular, but, but in terms of its consequences, first, you’re going to have major consequences on the US economy. And I think the first one that comes to mind is inflation, because all of the planned tax cuts and tariffs all have inflationary impacts. And as you know, and as probably most know, inflation is not completely tamed, and central banks are right now hesitating as to what they should do next. And there’s been a sort of a very surprising pose by the Fed and by other central banks, because, again, they observing underlying inflationary trends, and that’s before the Trump measures. So I think the first thing to watch is going to be certainly high. Inflation can be reignited, or will be reignited by those measures. And I would say the immediate second red flag in terms of the US economy is how they’re going to manage the deficit, the federal deficit. These numbers are now staggering. If you look not only at the debt service, but also at the total debt to GDP of the US and how it’s it completely skyrocketed over the last 20 years, we now at levels that we last time so right after World War Two, and we now have. A debt service, and we say that service, but it’s actually interest. So just the interest charge on the public debt, that’s already 20% of receipts, and could go up to 30% so we’re talking about roughly a trillion of interest that need to be paid every year, which even for the US, is a huge number. It’s bigger than the total spend on the US Army and total defense budget. So I think these are incredibly powerful forces that could be unleashed. And I don’t see an easy exit. Whether there’s, you know, some some new inflation trends in the next six to eight months, whether, suddenly, you know, you have all sorts of issues with the how deficits are being tamed. These are going to be major issues that US economy will face very soon. Yeah.
Gene Tunny 05:53
Yeah, absolutely. And what do you think about the potential for a global trade war? Is that a is that a real risk. I mean, we’ve had Trump threaten tariffs on Well, I mean, you know, tariffs against China, a big tariff against China, 60% or wherever, or 100% even 20% across the board, tariffs on Mexico and Canada, unless they control immigration. What do you see as the as the potential, all the risks there of a global trade war and consequently, global slump.
Jean-Baptiste Wautier 06:28
Yeah, I think this one worries me less, despite all the rhetoric that we’ve heard. And it’s not only Trump, it’s you hear that from China. You hear that from also the European Union, who’s talking about, you know, we need to protect our internal market more. We need to tax Chinese cars and all sorts of things. I mean, there’s, there’s, there’s a lot of rhetoric out there. Certainly, the reason why I’m less concerned is even though, you know, we should acknowledge that the world have a lecture at at transport Paris, which is called Global and multipolar world. And it’s indeed a multipolar world. So we have, for sure, exited this sort of Pax Americana and an economy that’s really dominated by the US economy, and where it’s all about globalization and free trade. I think now we have more regional powers. Now we still have a very global and interdependent economy. And despite all of the the efforts from the US, from Europe to try and relocate some of the supply chain, there’s still a lot of dependency. You know, if you look at the production of semiconductors, if you look at commodities, if you look at energy, there’s a dependency on very few places in the world. And I think it’s going to be very hard to really go aggressively with tariffs, even for the US and despite still the dominance that the US has. So I think it’s being used as a tool, as a threat, as a way of negotiating hard. And probably there will be, you know, a few things here and there which are going to be more symbolic than real, real tariffs that shut down the economy. I think it’s just not attainable these days for any economy, even the US,
Gene Tunny 08:21
yeah, yeah. Well, let’s hope sanity prevails. I like that point you made about just the connectedness of the global economy and the the importance of keeping trade open for critical, you know, for those crucial materials that are sourced from, you know, various particular parts of the world. And there’s a good book by Ed Conway recently on the material world, which I loved, which I think really illustrated that quite, quite well. Can I ask you mentioned a was it a lecture or a seminar in Paris, global and multi polar world? What was that? Again? What are the specifics, please?
Jean-Baptiste Wautier 08:58
Yeah, it’s, it’s, it’s a lecture I give to first year master students in Paris. And it’s really about trying to understand the new global economy, which, again, is a combination of exactly as you summarized. It’s global. Supply chains are global. This trade is at its peak compared to global trade at its peak compared to any time in history. But at the same time, there’s dependency on certain, certain parts of the world, on, you know, think of, I don’t know, batteries for electric cars, where all of those, those rare minerals, are only produced in one or two parts in the world, right? You know, in China, in Russia, like two or three countries, think, of course, oil, oil and gas. But also think manufacturing in general. You know, if you look at things like compounds that they use for many for drugs, those. Compounds. Half of the production is in India today, sort of the primary compounds that are being so this is what this seminar is about. It’s really about understanding how this interconnectedness, as you call it, is has become incredibly prevalent, and it’s very hard to revert, at least in short order. And that’s where sovereignty has become an issue for, you know, sort of regional economies like like the ones in Europe, but even for the US, again, you see this constant debate about the importance of Taiwan and the supply of semiconductors coming from, and how strategic this is, because there aren’t that many places that provide semiconductors, and at a time where it’s all about your ability to build data centers build artificial intelligence capabilities, you know, these are incredibly critical, not only to those to those industries, but also to your sovereignty. So it’s all about understanding this level of interdependency, and how, despite all the rhetoric in the world, there’s a limit to what you can do. I love that. There’s one. It’s a tiny example, but it’s so to me, it’s so telling. Which is the supply of natural gas from Russia that goes through Ukraine and then serves Europe is still functioning. So you have sanctions on Russia. You have a war between Russia and Ukraine. Ukraine has been invaded by Russia. And despite all of that, there’s still some gas produced in Russia going through Ukraine and, and, and, and being, being, being delivered to some European countries and, and it’s just because there’s no other way, you know, there’s this so that that tells you how this sometimes is a disconnect between the rhetoric and the actual dependency of the various economies.
Gene Tunny 12:00
Rod, hang on. So there’s a there’s a pipeline that goes through Ukraine, and so the Why don’t the Ukrainians sabotage it? Because the Germans are telling them, oh, you can’t sabotage that, because we need
Jean-Baptiste Wautier 12:16
so good question. It’s even worse than you think, because, because Russia is paying Ukraine for the pipeline, right? And, and they all interdependent. Russia needs to sell its gas. Ukraine needs the royalties from having the gas going through its pipeline and its country. And then the countries in Europe need, need, need the natural gas, and, and, and it’s, it’s a bit like, I don’t know it’s, it’s like Russian oil, you know, Russian oil, and ends up being recycled through a fleet, a ghost fleet, of tankers and ghost insurance companies, and that it gets acquired by in India or China, which To refine it and then sell it back to the European countries. It’s the same. It’s the same irony. There’s the sanctions, but then there’s reality of, we need, we need gas, yeah, and Europe doesn’t produce any, yeah,
Gene Tunny 13:14
it’s extraordinary. I mean, there are, there’s a story like that, I think, from the First World War, which is similar. And Ed Conway tells that in his book, I think there’s a story about how the British had to do a deal with Germany during the First World War, that it was in a bit of conflict with, you know, millions of men dead. And it did. It was, I think it was a range through Switzerland. It was a deal for for optical glass, but that they needed for binoculars. Because, yeah, the Germans were the leaders, you know, Zeiss and all of that in in optical glass. And I forget what the British maybe they provided them rubber, because the British had the plantations in Burma or so, yeah, just extraordinary. I have to look into that. That’s it is, yeah, incredible. So you’re, you’re teaching, you do some teaching in Paris. What’s happening with France? I mean, like I remember going to the the Bastille Day celebrations here in Brisbane, at the so Patel in 2017 which is a couple of months after Macron was elected. And there was so much enthusiasm about Macron and and so much excitement about what he could do for France, and it just all seems to have disintegrated, and now there’s a risk of talking about, is this the end of the Fifth Republic? Could you tell us a bit about what’s going on there? Please? Jean Baptiste,
Jean-Baptiste Wautier 14:36
of course, yeah. And it’s, you know, the French like to make it incredibly complex as always, but it’s, it’s, it’s, indeed, an incredible turn of event, because, you enthusiasm was shared by many people when Macron was elected as someone who was, you know, very modern, pro business, balanced and could really take, take the country further. Um. He did a few things, but not that many during his first mandate, then got re elected, and unfortunately, there’s two issues at play right now. The first one is Macron got elected, but it you know, we could say the same about the UK, probably, and other other countries in Europe. Macron got elected, not as a positive vote from the majority of the French voters, but it was elected against Marine Le Pen. Who’s this? You know, very extreme right, a very nationalist Populist Party, but which has, effectively, over the years, become the leading party in France. They today, they represent anywhere between a third and 40% of the total votes you take all of the last three elections. And she, she was always around around that mark. So that’s pretty high. And the second, the second party was probably elect Marcos party back back back in 22 during the presidential election, but it was far behind, like it was 10 to 15 points behind, and the only reason why he got reelected is because all of the other parties voted against my Le Pen and therefore said I don’t like Macron. I don’t like his policy, I don’t like what he stands for. I don’t like his personality, but it’s better than Le Pen. And so it’s, it’s, you know, you start off of wrong premise here, which is, it’s not, it’s not that people think is the right guy with the right ideas and the right program. It’s like, No, we just want to avoid the populist and the extremists. And then there was a European election in 24 earlier this year that Macron again lost, but it was just a reflection of if you if you looked at the first round of the presidential election, it was already pretty much the same numbers the one I just gave you. So Le Pen came in France with a third of the votes, and then it was not even Second. Second was a coalition of the left parties, and then Macron was third. So it was really a proper defeat. And and he had a very emotional reaction, you know, couldn’t believe that he was he was such a negative vote against him, and they decided to dissolve the assembly, which the President can do once a year, according to the Fifth Republic constitution. And so when you do that, you have parliamentary election. So even though there had been parliamentary election in 22 where already he had no majority. So keep that in mind, even though he’d won the presidential election, and that’s again, because of what I explained, that he didn’t really command a majority. Anyway, he lost again this parliamentary election, but by an even bigger margin, and now no party is commanding any majority in parliament. You have may Le Pen is still the biggest, but thanks to the way the voting system works in France, they don’t have 40% of the seats. Even though they had 40% of the votes. They have like more, like 2025 then the sort of Macron coalition of, you know, center right and center left have roughly another 30% and then there’s, there’s a large coalition of the left, but from extreme left to center left, which has another third. And so you have, you have a deadlock parliament. Is that nobody commands a majority, and everybody’s taking a very extreme position, like no one wants to work with one another. And this is the other very typical French thing at play here, which is France is a lot is long on the ideology, short on pragmatism, the opposite of the Anglo Saxon world. And so all of those three, those three thirds, if you wish, are really sticking to their guns in terms of ideas and programs and what they think should be done. So Macron thought, again, he could have the upper hand because he’s so smart and he’s going to manipulate all of these people, and he’s going to get them into a rhythm. But he actually failed, because again, the Prime Minister he appointed three months ago was was voted out by the parliament. Because again, there’s no majority, and there’s still no emergence of majority. Now is it the end of the Fifth Republic? I think not yet, because it’s a very high bar to change the constitution, and if you you can’t even pass a budget, which is right now, the dynamic at play in France, it’s going to be even harder to have a new constitution unless you put it to to a referendum. So I think you’re going to end up it’s going to be a bit like, like Belgium. Him as seeing for, you know, for two years, you’re going to go from one government to the next. Macro is never going to leave. I think it’s just too that’s his personality. I think he will never want to leave, and he doesn’t have to to be fair. And I think you’re just going to see trials and errors. Trials and errors probably budget never, really, never read, adopted, and they’re going to continue to function in that sort of very transitional mode until the next presidential election, which is in 27 so it’s not going to be it’s not going to be good for the country, because nothing’s going to happen. People are going to be very unhappy. Budgets are not going to be balanced, which is also bad because France is now running the largest deficit in the eurozone and needs to get its acts together, but without any majority in parliament, it’s going to be very hard to balance. So I think it’s, you know, it’s also a real threat for the European Union and the eurozone, because dysfunctional France for another two and a half years, it’s going to be a real issue for the for the entire region. Yeah,
Gene Tunny 21:05
yeah, that’s what I was wondering about. Just what does it mean for for the stability of of the euro, and whether there are any risks of of a Eurozone breakup at some stage? Is that actually a realistic prospect, or is that just something that you don’t think will ever happen.
Jean-Baptiste Wautier 21:23
So I don’t think it’s a zero probability, because again, France right now is running a deficit which is around 6% of GDP as a total debt to GDP of 120% and given the current political dynamic that we just talked about. It’s not going to balance its books anytime soon, and so far, because France is such a foundational country for the European Union and the Euro zone, together with Germany, the commission has been incredibly lenient, and as given France three years, and then five and now seven years, not not even to balance its books, to get back to 3% of GDP for its public deficit, which is the benchmark that you’re supposed to observe. But even if it does that in seven years, the debt is still, you know, it’s still spiraling. And so I see the risk of a Greek episode or a trust episode on France like a real possibility. So not necessarily the fact that the Eurozone is going to completely implode, that I think is a low risk, but I think there’s a real risk of sovereign crisis and the cost of the French debt suddenly spiking. It has already gone up significantly when you look at the spreads with Germany, but I think it could go much, much higher. When it starts to go much higher, you’re going to have to have like, like, in the case of Greece, back in the days, an intervention of ECB or IMF or both, which are going to force reforms on France in terms of balancing its budget, reducing its spending, so that, I think as a real probability. I wouldn’t say it’s, it’s, it’s certain, because there’s been a good amount of leniency so far, but I see that as a real probability of occurring. That would save the euro, but that would be a disaster for France.
Gene Tunny 23:28
And just briefly, what is the cause of the budget deficit? I mean, obviously too much spending relative to taxation and other revenue. But is it entitlement programs? Is it a an excess a blighted public service. Do you have any thoughts on that? So,
Jean-Baptiste Wautier 23:43
yeah, yeah, absolutely. I mean, first of all, if you to put things in perspective, Mark quandry during his seven years when he took over the French, total debt, total public debt, was 2000 billion euros. He added 1000 billion euros during his seven years, which is mind boggling. So when, when you try and disaggregate where this, this came from and and also to answer to your question on, on public deficits, of course, COVID is part of this, but COVID is only a third of this 1000 billions that were added. So a lot of money has been has been spent on two fronts. One Macron tried to make companies more profitable, more competitive, make France more attractive when it comes to investment. So a lot of money has been spent on reducing tax, both for companies and for wealthy individuals. So is introduced a flat tax wait when it comes to capital gains and on the corporate side, he’s reduced the overall tax rate, and he’s introduced a lot of exemptions, and that that is 10s of 10s of billions of euros. Yes, in terms of the spending, and then on the other side, the other source of deficit, and that was a lot of very, I was going to say generous, but crazy, excuse my term, but crazy spend on, you know, helping people with inflation, helping people with energy, helping people with all sorts of subsidies and public spending on things that would never have any structural impact. So you were just helping people for the next six months. But then, you know, and then what? And so they’ve been throwing, again, 10s of billions like this over the last two years, probably also help, you know, hoping that it would appease the country and it would help with people purchasing power and all the rest, but the budget was already in deficit, so you never had that money in the first place. And then the last thing that happened over the last 12 months, which frankly, is is farcical, is they made. They made mistakes in budgeting 2425 because they were hoping that their revenues, which follow the trend of the 2122 fiscal years, whereas these years were rebound from the COVID years. So they were not sort of a normative level. So again, then they didn’t size properly the spends, because they completely overestimated their revenues, and so that’s what created that huge deficit that that we’re seeing now, that’s been widening in less than a year, right?
Gene Tunny 26:31
Okay, yeah. I mean, we’ve had the energy subsidies here in in Australia, and yeah, I guess we’ve made forecast errors in the past, but not, not quite that sounds extraordinary, if they’ve ended up with a Yeah, it is seven, 6% deficit, extraordinary. Okay, well, that’s it is. I’ll keep an eye on what’s happening in France for sure. Yeah. Okay. We’ll take a short break here for a word from our sponsor.
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Gene Tunny 27:29
now. Back to the show. Last thing I want to cover Jean Baptiste is this question of capitalism. So you’ve you’ve been involved in World Economic Forum, and you’ve so you’ve been a in financial markets for decades, and so you’ve been a long term observer of what we you know, our capitalist system. And you’ve got some thoughts on like, what you see is the flaws in it and how it can be improved. Could you tell us what do you see as the flaws or the problems with our current system of Global Capitalism,
Jean-Baptiste Wautier 28:05
of course. I mean, the to me, the if you start at the very macro level, and you look at all the negative externalities that our current system produced, they’re just gigantic. Whether you look, I mean, the first one that, of course, comes to mind is, is global warming and environment and all the rest. But to me, it’s, it’s far it’s far bigger than this. Because I also think in terms of health, if you look at statistics, in terms of in terms of obesity, for example, whether it’s in the US or in Europe, if you look at mental health and how social media function, and how they impacted mental health, in particular the younger generation, if you look at inequalities, not inequalities in the sense of, you know, morally, but inefficiency, the concentration of 10s of billions or hundreds of billions in the hands of a few individual means that they’re not going to be able to spend in a productive way this this amount of money. So I’m not, I’m really not approaching this, you know, with a moral aspect and just it’s, it’s yet another inefficiency when it comes to the economy. So there’s a lot of negative externalities that our system is producing and which is not making neither the best use of the resources we have, nor having the best impact on people’s well being, simple as that, and and the planet well being so so that that is, to me, the issue right now. And when I try and look at the root cause, the root cause is, over the last, I would say, 3040, 50 years, capitalism has really shifted to becoming incredibly short term and becoming solely focused on profit maximizing, short term profit. And it’s not always been like that. If you if you go back in history, and you look. At the the great industrialist in the US, you know, the great billion of the Rockefellers of this world, the carnegies, the perspective was much more medium to long term. And we’re going to build companies to solve a problem. And if we solve that problem efficiently, profit will be the consequence of solving a problem, problem efficiently for the further society, as opposed to, is going to be the objective. And if you go even further back in history, and you look, you go back to Adam Smith, that’s exactly what Smith, you know, sort of theorized. So even if you go back to the father of liberalism and capitalism, that was already the way it was, it was conceived. So I think this is, this is the issue we facing right now. We’re trying to lay a regulation, you know, in the hope that, oh, we’re going to reduce carbon emissions, we’re going to reduce the use of plastic, we’re going to reduce energy consumption at its and it’s just not working. It’s not working. Because if you look at the global energy consumption in the world, it’s going up. If you look at where it’s coming from, it’s still coming 80% from, you know, fossil fuel. If you look at all the innovations, look at the energy consumption of a Google and Microsoft, it’s the size of a country consumption. You look at, again, you look at the impact on people of all the social media, you know, it’s not, you can’t argue that there’s a lot of negative there. And you look at obesity prevalence in the US or in most developed countries in Europe, it’s going up, up, up. And, you know, it’s, it’s, it’s neither good for the people, not for the society. So all of these things are not going in the right direction and and it’s, it’s not by regulation, by regulating, because we already over regulated, especially in Europe. It’s already impossible to know all of the regulation, and you can never capture it’s too complex. You know, the these, these are too complex to monetize, to measure, to regulate. It’s just impossible. So I think the only way is two things. One, to try and be longer term in terms of how company and investors make decisions, because again, time horizon does matter here. And the second thing is in terms of, again, investors, governance, the way we incentive boards and management, and it’s all about what is the problem which you’re trying to solve, as opposed to maximizing exported profit. And as long as we don’t turn this onto its head and and sort of make profit as a consequence rather than as an objective. I think we’ll continue to, you know, go in circles and observe negative externalities more and more and never come up with a solution. It’s still, you know, it’s a very, it’s a very fundamental issue. It’s not, it’s not one that can be sold easily, but it’s, it’s, I think it’s one we should be concerned with.
Gene Tunny 33:04
Okay, so just to understand, are you arguing that? Well, there are a couple of ways you could look at this. Should, should people have this in concept of enlightened self interest, where they they see beyond the immediate, and they see, well, we’d actually be better off if we thought longer term. So that’s one thing that so there’s that possibility, or are you arguing that they should take into account these wider social or environmental impacts, even if it isn’t of benefit to them directly, because they should have a wider concept of well being than just their company could. I’m just trying to understand what your position is precisely, please. Sean Baptiste,
Jean-Baptiste Wautier 33:49
yeah, no, of course. And it’s no absolutely, and it’s actually both. It’s both changing the time horizon and focusing on on a higher purpose, as opposed to just the bottom line and the profit that you’re going to generate for the fiscal year. So time horizon? Why? And this is something I’ve observed, you know, I’ve spent more than two decades in private equity, and private equity, despite what people may think is actually quite long term, because you invest in companies for 456, years, and then you need to sell this company to someone who’s going to hold it for yet another at least five years, if not more. So when you invest in a business, you need to think the next 10 years. And when you do that, I’ll give you a stupid example. You not going to buy a an incredibly profitable company that makes disposable plastic bags, because you know that the trend is not your friend. So you might look at amazing financials, amazing cash flow generation, amazing management team, blah, blah, blah. You know, great market position, but you know that in five years time, nobody would want to buy this of you. So. So that’s what having a long time horizon brings you, is you will automatically factor in those negative externalities that instantly may not necessarily impact your everyday profit, but in the long run, will, will will no longer be able to be monetized. And the second thing I’m advocating, because I’m trying to, I’m trying to, quote, unquote, see how we can save capitalism and liberalism, because I’m still a great believer in those two capitalism, because that’s the best way we found to create wealth for all you know, collectively, by rewarding risk taking and hard work. So I think we should preserve that, because that works, that engine works and liberalism, because that’s the world I want to live in where I have agency and freedom of starting my own company and freedom of speech. So I’m trying to see, okay, how do I save that? But by getting rid of all those negative things that you know, impacting our societies, and that’s where I’m thinking. Instead of layering regulation which is already impossible to navigate, let’s do this bottom up and have companies which now not only elongate the time horizon, but also focus on what problem are we solving and what is, what is our net benefit to society, not only how good is our product, but also, you know, the well being of my employees, of my suppliers, of my and the society around me, the community. So it’s, it’s what people call stakeholder capitalism. So you really factor in all of the the impacts that you have, direct or indirect, and that’s how you you manage your business, as opposed to what’s going to be my net income, net income for next year? Yeah.
Gene Tunny 36:51
Do you have any examples of companies that you think are doing this well, or could be examples to others?
Jean-Baptiste Wautier 36:57
So there are. There are fascinating examples of companies which are owned by foundations and which have been, you know, one that makes the headlines is Novo Nordisk, which, you know, has made this ozempic product that that is concurring the world. But you have, you have more and more companies, especially in Scandinavia and in the north of Europe, that are being owned by foundations, and those foundations are the shareholders and the way they look again at their businesses. I’m not obsessed with how much dividend can be paid up next year. I’m looking at my purpose, my competencies, my 1015, 20 years horizon, and profit will come if I if I’m doing things right, and if I’m doing things that really bring value to society, I’m going to be a profitable business. And again, that’s what Adam Smith theorized, and he was right. And so you’re seeing more and more examples of this, of, you know, this small, more inclusive capitalism, or companies which are so there are examples, it’s, it’s, it’s nowhere near the majority of companies today. But you know, if you combine those owned by foundations, those owned by families, or founders, very successful founders. I don’t want to it’s a bit of a funny example I’m going to use but, but if you look at musk, there’s a lot of negative things in terms of how much wealth is now being concentrated into his hands, granted. But on the other side, the way he’s built this business. Was never obsessing over next quarter profit. You know, he’s been people were saying, Tesla is going to go bankrupt because they’d been burning cash for so many years. And then when he launched SpaceX, people were like, what i How can you make a profit? You know, sending satellites and going to Mars, there’s no business for that. And Mesa is doing it better than you. And look at where we are today. So he’s an example of an incredible entrepreneur, whether you like him or not, you know you have to look at what he’s achieved. It was never thinking, I want to, I want to be worth 300 billion in 2024, which he, incidentally, he is now. So there’s more and more example that that, that one can can find of, you know, if, if we manage to really turn this onto its head, I think, I think there’s a there’s a path. It’s not an easy one, but I think there’s a path.
Gene Tunny 39:38
Yeah, absolutely, I think, yeah, certainly worth, worth considering, I think Musk is a, he’s a good example of that Bucha nearing capitalist. I mean, is the closest thing we’ve got say to someone, you know, I guess Howard Hughes many years ago, or, yeah, you know, I guess some of the great industrialists you mentioned in Carnegie and all of that. Yeah, absolutely, yeah, absolutely, right. Oh, this has been fascinating conversation. John Baptist, anything else before we we should go anything else that’s that you’ve been thinking about and things worth, worth covering before we wrap up,
Jean-Baptiste Wautier 40:13
right? Thank you, Gene. I enjoyed it. I mean, there’s so much, as you said in your introduction. You know, it’s not just these, these tectonic shift on the geopolitical front, and we only we talked about some of the hot topics, but talk about the Middle East. We haven’t talked about Russia, we haven’t talked about China, and there’s so many things happening there. So it feels like all of these tectonic plaques are moving right now at the same time, and just as if it wasn’t enough, I think artificial intelligence is the most, is the quickest, most far reaching industrial revolution of our times. So you’re overlaying on a world that’s sort of rearranging a massive industrial revolution, which is going to change so many things in our lives. I think we live really fascinating times, and I really enjoy talking about this, because I think we should all have eyes wide open and watch and learn. Yeah, absolutely.
Gene Tunny 41:17
I think just on AI, what are you most excited about? What are there some, are there some develop? I mean, we’ve seen chat, GPT and all of the large language models, but are there certain things that are that are exciting you at the moment? So
Jean-Baptiste Wautier 41:33
I think, well, what’s exciting me is, apart from things that really needs very human emotional intelligence or human presence. There’s so many and some element of judgment, but there’s so many jobs, so many things we do in our daily lives that are a few years away of being replaced by artificial intelligence is just mind boggling. And the only thing that was, you know, sort of delaying it is progress in terms of quantum computing. And you would have seen Microsoft announcement, I mean, the So, so we’re just a few years away of doing so many things with it in everything we do, I think humans will all will be social animals. So we’ll always need, you know, we’ll always need to meet in person. We’ll always need to share motions, to share ties together. When you try and think of care, and there’s certain industries or art investment where you need a lot of judgment at times they will, they will still be pockets where you need human input. But I don’t know, more than half of the things we do can be more or less replaced by by a computer tomorrow. And so that’s that fascinates me. And you know, medicine could be so much better. There’s so many things that could be so much better, but at the same time, it’s a revolution that has very little content when it comes to jobs, employment. All the previous industrial revolution, it was the creative destruction of Schumpeter, right? So they were sort of destroying some industries, but some others were being created. And the level of wealth and productivity was was going up this one not only is going faster than the previous ones, because it’s more like 20 or 30 years as opposed to 50 or 80, but on top of that, it’s not creating jobs. You look at the ratio of market cap of the largest tech companies to the number of jobs they have. I mean, it’s ridiculous. Yeah, we’ve never seen such a bad ratio and and that’s, that’s what worries me, on the flip flip side is, what are we going to do when we can replace, you know, so many things, and it’s not only that, it’s going to be efficient, it’s going to be very low on cost, so it’s going to be a no brainer to replace man by machine in minutes. What are we going to do with all of these job that we’ve destroyed and with all these people that become an employee? That’s that’s the one that worries me. Hopefully excited.
Gene Tunny 44:12
This is why some of my guests argue in favor of UBI So, yes, I mean, I’m not necessarily advocating that, but I think you know that if that scenario, if that’s what happens, and then UBI becomes, becomes more compelling, I’d say, so, yeah, absolutely okay. Thanks so much for the conversation. I really enjoyed it. You’re right. There are so many other issues we could have, we could have covered, but then I’d probably be talking to you for two or three hours, and we might have to have another schedule, another chat, subtitles. I found this very, very enlightening. And, yeah, I think, like the idea of that, course you’re teaching the global and multi polar world. I think that’s so important. This, this whole idea that, since certainly things are. Different from what we expected after the end of the Cold War. We saw the US dominant, but now we see Yeah, just yeah, the multi polar world, as you say, or even a G zero world as Ian Bremmer, yeah, says, Absolutely. I enjoyed it. All right. Thank you. Gene Thanks. John Burt, right. Oh, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explored.com, or a voicemail via speak pipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
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Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
