That's the message today from legendary investor Jeremy Grantham, who's GMO Capital manages $97Bn and, like Buffett, writes an annual letter to his investors. Part one of the letter has some great general investing advice but part two gets very interesting as Grantham titles it "Your Grandchildren Have No Value (And Other Deficiencies of Capitalism)" exposing what he considers the "two or three main flaws" of Capitalism that are "potentially fatal and have gone largely unaddressed."
A sustainable economic system, for instance, can’t be based on ever-increasing debt, corporations can’t be allowed to run governments and loot treasuries, and “growth at any cost” is a recipe for planetary suicide.
Grantham points out that a company is now free to spend money to influence political outcomes and need tell no one, least of all its own shareholders, the technical owners. So, rich industries can exert so much political influence that they now have a dangerous degree of influence over Congress. And the issues they most influence are precisely the ones that matter most, the ones that are most important to society’s long-term wellbeing, indeed its very existence.
Thus, taking huge benefits from Nature and damaging it in return is completely free and all attempts at government control are fought with costly lobbying and advertising. And one of the first victims in this campaign has been the truth. If scientific evidence suggests costs and limits be imposed on industry to protect the long-term environment, then science will be opposed by clever disinformation. It’s now getting to be an old and obvious story, but because their propaganda is good and despite the solidness of the data, half of the people believe the problem is a government run wild, mad to control everything.
- Capitalism too heavily discounts the future value of cash flows as it seeks to raise debts: “Your grandchildren have no value.”
- "For example, let us say that a firm’s current actions are going to cost society at large a billion dollars’ worth of harm in 50 years. Further, let us agree that all of the costs will definitely be imposed on the company. The company would feel that pain today as equivalent to only a mere $1 million hit to earnings. Why should they care?"
- Companies foolishly reward executives for taking on debt: “Total remuneration …
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