Roland van den Brink: Are we on our way to a different era?
Roland van den Brink: Are we on our way to a different era?
This column was originally written in Dutch. This is an English translation.
By Roland van den Brink, Founder of TrigNum
Developments such as the covid-19 pandemic, recent armed conflicts, climate stress and rising populism make many insecure. However, history has a tendency to repeat itself and patterns can be recognized that provide guidance. The question for me is whether a social change is coming. And if so, what the possible impact is on returns.
Some developments keep recurring. Despite efforts to prevent financial (stock market) crises, we see them occur again and again. The prevailing view is that this decade saw the start of the Fourth Industrial Revolution, with the application of artificial intelligence as an accelerating factor. However, history shows that although technical developments can happen quickly, it often takes 15 to 20 years before society is prepared for it. Think of the internet and the mobile phone, which were a hype in the early 1990s and only became globally common since 2010, with the breakthrough of cloud computing and smartphones.
In Figure 1 I have listed a number of trend developments and often observed developments:
Figure 1
What does this 'information' bring us? My conclusion is that many of current events are in step with history. War and peace alternate. There is no reason why that should suddenly be different. Also, rising national debts are not a new phenomenon and pandemics are timeless. Sometimes a recurrence is delayed, such as recent inflation, making it seem as if the situation is different.
Each of these types of movements has its own rhythm. This means that there are sometimes periods when things are good or bad. The realization is beginning to take hold that the quarter century 1995-2020 is more of a positive exception in economic and political terms and that in this decade we are back to the 'usual' uncertainties and setbacks.
Is there more to it?
In particular, movements that occur after a century, such as social change, often have a major impact on personal safety, housing, property and work during the transition. The Austrian theologian Paul Zulehner has written books about it. There will be different norms and values, a reassessment of what is important, new dogmas and often a different lifestyle. Words such as 'holiday' and 'puberty' were hardly known concepts before 1880. The period that followed saw the rise of thinking in economic terms and individualism. Capitalism became the dogma. This transition led, for example, to the nobility receiving a different status. The turnaround brought more prosperity for almost everyone (1920s), but it was only after two horrific world wars that the idea of power and peace changed. In such an unsafe transition situation, concepts such as 'return' and 'investment' are secondary.
For me the question is whether, and if so, when such a development will take place again and how can it be recognized.
The difficulty is distinguishing such a trend from other, more short-lived movements. Technology is advancing ever faster, changing jobs and making us increasingly older worldwide. People are moving to cities and there is an emerging middle class (in Asia). Although prosperity is increasing for many, (the feeling of) financial inequality is increasing. We also saw the aforementioned trends in the United Kingdom during 1860-1910. Some point to political trends such as increasing populism, which would change society. But I think there is more of a wave movement, just like in England, where sometimes the Conservative Party and sometimes the Labor Party are gaining influence.
Social change?
It seems to me as if we are experiencing the beginnings of a social change this decade. I am referring to three increasingly strong developments:
1) Globally an increase in groups of people with an absolute (religious) view.
2) Governments (and very large companies) that increasingly resemble what is described in George Orwell's bestseller '1984'.
3) In the more prosperous countries, a changing view of priorities, well-being and satisfaction.
The first point leads to deliberate conflicts and attacks. This means that governments impose even more control, which is reinforced by the climate urgency that concerns young people in particular. Due to prosperity and a long period of peace, the majority is more silent than willing to defend norms and values.
If a change manifests itself, what will it lead to? In 2014, Christine Lagarde began her speech by recalling the year 1914. Much of the world had enjoyed long years of peace, with groundbreaking advances in living standards and communications. There were few barriers to trade, travel or capital movement. The future was full of potential. Yet 1914 was the gateway to thirty years of disaster, marked by two world wars and the Great Depression. L'Histoire se répète?
I don't have a crystal ball. With history in hand, it seems likely to me that the number of conflicts will increase in the coming years. Not only between countries, but because of the social change also between groups within countries. The hallmark of this is the emergence of organized groups that - based on their dogmas - do not shy away from violence and civil disobedience. By learning from the past and being alert to social changes, you as an investor can deal with the increasing feeling of uncertainty in a more controlled manner.
With regard to long-term return expectations, the question is which social system we are moving towards. A few of the possibilities are:
- Who has relationships? ('political society', as in the Middle East)
- Who works? ('work society', as in large parts of Asia)
- Who buys? ('consumer society', as in the US)
- Who is polite and adjusted? ('experience society', as in Japan)
- Who knows? ('knowledge society', such as in Germany with low minimum wages)
- Who has 'good' genes? ('life science society', as is possible in Denmark)
- Who is computer literate? ('virtual society', such as young people)
- Who fits the system? ('AI controlled society', such as China and large internet companies)
For me, the 'virtual society' is a given. The focus on climate means that the 'work society' and the 'consumer society' have reached their peak. I therefore have the feeling that a combination of 'AI controlled society', 'life science society' and 'experience society' is a possible direction. George Orwell's book 1984 already indicates this. If such a scenario unfolds, the efficiency gain for investors is basically positive. Many citizens will have difficulty with this, which will lead to unrest. Don't be afraid or surprised, but flexible, because technical innovations offer lasting opportunities.