In this interview with TIP, Jeremy Grantham discussed the changing face of American capitalism, and its impact on investors. Here’s an excerpt from the interview:
Grantham: And what we have today, increasingly now for 20 years, is a style of capitalism where the stockholders are leaning on the corporations to take it easy on capex.
I mean basically it generates an economy of mild shortage all the time. You want to make money that is the world to live in. So mild shortage all the time. Pressure on the workers.
In the good old days they always built an extra plant.
It was the bane of stock analysts like me in the 60s and 70s. Whenever things started to improve eight paper companies would all start to build a giant plant at the same time.
And they would crash the prices. Was great for jobs, great for GDP growth, pretty good for productivity, terrible for stockholders.
And now we don’t. The capex has dropped as a fraction of the total pretty steadily for 20 years.
The degree of concentration, or monopoly if you prefer, has risen pretty steadily for 20 years, and it’s all legal because it’s the stockholders breathing down your neck saying, dudes buy your stock back, don’t build a risky new plant.
It might work well, it might be mistimed, in any case it’s risky, better to wait and see which of the hundreds of VC firms work out well and then grab one or two of the best ones.
It’s a capital transaction, doesn’t go into the income statement.
You can listen to the entire discussion here:
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