A capital critique – a short interview with Daniel Pinto

Daniel Pinto

A capital critique – a short interview with Daniel Pinto

HENRY HOPWOOD-PHILLIPS interviews the wealth manager and economic thinker DANIEL PINTO

Your advocacy of family business is unfashionable; as you say in Capital Wars, it’s conventionally perceived as merely a stage of a business’s development. Why do you think this isn’t the case in Germany, with its Mittelstand tradition of small to medium-sized family firms?

Mittelstanden are just the best known case in Germany. Even if you look at the very largest companies, Volkswagen or BMW for instance, the families may not have a controlling stake, but they have a large stake and everybody knows that they are behind the company.

The pendulum has swung too far in the West, from family firms dominating the FTSE 100 in the 1960s to a place in 2014 where less than 10 per cent of the UK’s big firms are family-owned. The best format must sit somewhere in between. Fourth or fifth generations of families can sometimes lack oomph and motivation but the reverse where people keep your stocks for five months is not right either.

There seems to be a trend developing on the proletarianisation of what were white collar jobs. Do you care to comment?

White collar jobs are being eradicated by new developments in technology. The conundrum for the West is that the foundation of our democratic society is the middle class. If that class is financially disenfranchised, this threatens the basis of our society. I don’t think the political class has taken this into account.

Once absolute poverty has been eradicated, there seems to be little correlation between a society’s happiness and its economic growth. Should we therefore see ‘degrowth′ as positive?

If you are looking at it from a philosophical viewpoint it is probably right, but more practically I think people are in denial about what is happening. I suspect many Italians are happy with their country becoming a museum but this ‘sunshine, espresso and 35 hour week’ happiness is ultimately selfish. Generational inequality sits at its heart. It is about somebody sitting somewhere comfortably and failing to build a future.

Your medicine in the book seems quite modest when compared with the diagnosis – was it the short end of the wedge?

I think people always have this tendency to think of very dramatic, draconian, solutions to fix things. I prefer a far more surgical approach.

One of our biggest problems is short-termism, as it prevents investment in research & development and capital expenditure i.e. preparation for the future. It must be tackled at its source: shareholders and CEOs.

First, a two tier tax system should be established. Short term investment should be taxed at a higher rate than long term equivalents. Secondly, rewarding senior executives on a one to three year basis is outrageous; the term does not cover a cycle in any business. This should be increased to a minimum of five years. Thirdly, stock prices have lost their relationship with the real performance of a business. Look at the US over the last three years – the value of the stock market in the US has increased by around 60% yet the earnings of businesses in the US have stayed flat. The instruments and measures of a shopkeeper should be brought back: we need to go back to basics.

Your reference to the handelsbanken in the book is intriguing. Do you think something along this Swedish model involving the decentralisation of banks is possible in the UK?

Absolutely, but unfortunately the management at the big banks have not yet realised why they fail. They have forgotten that you need to trust your employees. Currently there is a pyramid system. All decisions have to go up, they are centralised. But centralising risk compounds it at every level. Risk could be lowered by decentralising. Credit should be personal; agents of a bank should be made responsible for failing or succeeding in managing risk.

The New York Times recently ran a column referring to Britain’s bright young things now becoming consultants, art dealers and hedge-funders, or put another way, oligarchs’ valets. Is there much of a future for a nation that acts in such a myopic and mercenary manner?

I have noticed that over last 10-15 years educated young people increasingly dream about instant recognition. It is all about being the next Mark Zuckerberg. The captains of industry who led their companies through thick and thin, the business creators who took 20-30 years to build up something in a very painful way, have gone. We’re seeing short-termism even in ambition. This is dangerous because if it doesn’t happen or something fails then the first headwind will blow potential entrepreneurs over. It is unsound and unhealthy.

You mention in your book that a football star ethos has entered banking attitudes. In your experience, is this talent real? If so, why don’t emerging nations seem to be trying to poach it?

The reality is that no value was created in their actions. Emerging powers have their own problems but their perception of both the role of finance and time is spot on. Finance is there to serve, to enable, to pass the plates; it’s useful as long as it doesn’t become the tail that wags the dog. In the West the banks are advisors, principals and underwriters; they are everywhere in the chain.

Scratch a grand British facade and you will find a Qatari fund. Is this a standard feature of late capitalism or a peculiarly British foible?

It is particularly pronounced in the UK. The absence of a nationalistic approach to the economy has always intrigued me as a continental. Excessive naivety in this area carries certain risks. When the going gets tough, the first thing that foreign companies do is retreat from foreign markets. Americans do this a lot. And so I think the UK’s approach has increased the scope for booms and busts. It is making the economy more cyclical. Having said that, unemployment is quite low at approximately seven per cent – the EU’s sits nearer eleven per cent – so it can cushion busts too.

DANIEL PINTO is chief executive and founding partner of Stanhope Capital, one of Europe’s largest independent investment firms. Named by Spear’s as one of the top five wealth managers in the UK, he founded the New City Initiative, a think tank whose members (with combined assets under management in excess of $350bn) implement many of the values talked about in his new book, Capital Wars (Bloomsbury, £ 25). HENRY HOPWOOD-PHILLIPS works in publishing

 

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