Live From Fringe: What Adam Smith Can Teach Us About Debt and Power

0:01This is the Bloomberg Tech Minute brought to you by ChachiPT. I'm Carol Masser. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence.

0:39A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, must be willing to work extended hours and weekends as needed. One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time.

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2:26Bloomberg Audio Studios. Podcasts, radio, news.

2:42You're listening to the third and final panel conversation I had at this year's Edinburgh Fringe Festival. I spoke with Nick Hopton, British diplomat and former ambassador to Yemen, Qatar, Libya and Iran, Alec Cutler, director of Orbis Investment Management, and Adrian Wilderidge, Bloomberg opinion columnist and author. As well as their favourite Adam Smith quotes, we talk about the rise and influence of megacorporations on democracy. We talk about how governments just can't curb public spending. We talk about how to invest in North Sea oil and about how prepared the UK is or is not for war. Hope you enjoy.

3:17wrote that, isn't it good? Yeah, excellent. This is the year when we're beginning to see the effects of AI enter not just our economy, but also our communities. We're at the point where we are beginning to say, well, what is humanity? How does this work? How do we, what happens when we have an AI that can imitate us, but hasn't been through the pain and the joy that makes us? And that brings us right back to a lot of things in moral sentiments. And of course, this development leads us to think great length about wealth of nations, about the division of labor, about the division of wealth, about taxation, about the role of government.

3:56All these things are much more at the fore this year than perhaps they've been for the last decade. So it's a very important time. Luckily, I have incredibly impressive, important and intelligent guests to discuss with me. And by the end of today, we will all know exactly what's going to happen over the next few years and your worries will be assuaged. Right. So on my left, I have my colleague Adrian Wildridge from Bloomberg. He's an opinion columnist and an author. Most recent book, Centrists of the World Unite, which if you don't have, you should get because it really is excellent. I've actually read it, Adrian.

4:30Thank you. Thank you. Next to him, I have Nick Hopton, who is a former ambassador and Middle East expert. He's been an ambassador to Yemen, Qatar, Iran and Libya. So that's something we might want to talk about a bit. And then we have Alec Cutler, who if you listen to the podcast, you will know who's heard my podcast with Alec. Oh, come on. They're absolutely brilliant. They are some of the best ones that we have done. And Alec has flown all the way from Bermuda to humor you today. He is the chairman of Orbis Investment Management. And I suspect that if you were here last year, you will already be holding his fund.

5:07But if not, listen closely to what he says. You're the stock tip guy, aren't you? Oh, yeah. Oh, yeah. Definitely stock tips. You came for stock tips, right? At least one person. They'll be stock tips. Right. Alec, as you've been in before, let's have your quote first. Sure. The debasement of coinage is always favorable to the debtor and ruinous to the creditor. And Adam Smith lived in a time of coinage. So that's why you have debasement. the modern day equivalent would be devaluation. Sorry, I was just helping Adrian struggle with his phone here. Explain about debasement and devaluation again.

5:42I don't think everyone immediately understood that. Money printing. The difference between them. Money printing is bad. It's bad for the creditor. It's great for the debtor. So someone like Donald Trump who made a living running up huge debt, it's great. Maybe that tells you something about today. I think from a current event standpoint, why I think it's noteworthy is that the US government has figured out that the creditors of the world don't want to give them credit anymore. So it's become part of all these trade negotiations or military negotiations. We're going to take our troops if you stop buying our bonds.

6:19In fact, we're going to take our troops away from your country, Japan, South Korea, Europe, if you don't buy more US bonds. So yeah, holding our debt is going to be ruinous to you as a creditor, but we need you to do it. Okay, and that's going to work? I don't know. It may work for a little while, but it's not sustainable. No, and right now the bond market is kind of hinting that they don't think any of these things are going to work. Yields go up and up and up, and we all get a little nervous, but we try not to think about it too much. There comes a point, maybe 6%, 7%, 8%, where this level of debt is not sustainable, even for the US.

7:01Yeah, so you need to pull out all the stops to keep that level of debt down, or the level of interest payments down. Interest payments are now more than the defense spending, which has historically been a really, really bad sign for any nation. and the debasement or the, you know, it'll go from forcing Japan and Korea to buy U.S. bonds to U.S. banks and then the citizenry somehow. So we move to a point of financial repression, what we call it, when we effectively force a population to buy their local government bonds in order to keep yields down. Whether you want them or not, you have to have them.

7:39And we talk about that a lot in the U.K. at the moment. Are we going to get to a point where D.C. pension funds, Who has a DB pension fund? One of those defined benefit ones where the money comes in every single month, inflation linked. And I come on you. I can see you're of an age audience. I know you have them. You're definitely a DB. So a lot of you have them. OK, so one of the one of the problems in the UK at the moment has been and this is not a problem in the US because it hasn't been quite the same. That over the last many, many decades, a lot of our bonds have been bought by defined benefit pension managers.

8:11and now that defined benefit pensions are not really a thing, who has a DC pension? Miseries, right? Miseries. We don't buy bonds in the same way, not obliged to buy bonds in the same way. So the demand falls even as the supply rises in the UK. Yeah. And in the US? The US will force that eventually. They need creditors. If you're going to keep having to issue$3 trillion in new debt every year, somebody's got to buy the$3 trillion in debt. And there is an excellent Smith quote on this, on public debt, a personal favorite. Public debt has gradually enfeebled every state that has adopted it. When national debts once accumulated, to a certain degree there is scarce, I believe, a single instance of them having been fairly and completely paid.

9:01And one of the things he talks about, and I think is exactly what you're saying here, is that the higher your public debt goes, the more fragile your sovereignty becomes. because you have this obligation and you have to keep doing things you wouldn't necessarily want to do. And financial repression is the sign of that fragility. Fifteen years ago you would have said you would have been able to claim that American debt is the most popular debt in the world. Now it's not so popular. Norway's debt is more popular than the U.S., maybe even Brazil's, but the U.S. can force you to buy it. From a financial point of view, an investing point of view, if you suspect that intense financial repression is on the way, does that make U.S.

9:43Treasuries a buy? That's a really tricky one. Are you a trader or are you an investor? As a trader, you can try that one on. As an investor, where you have to look clients in the eye and you have a foodie-sharing duty, I can't do it. Yeah. Traders? I don't want to admit to being a trader in this room but you can hold gold instead you can hold gold or you can hold Norwegian bonds that yield the same a country that has a surplus every year and two trillion dollars in net cash on the balance sheet hopefully everyone runs out and tries to buy Norwegian bonds so that my bonds increase in value I don't know if this room is going to move the market I mean give it a go but I'm not sure Iceland Iceland Iceland runs a very appropriate financial system, and the governance is quite high.

10:38Those bonds yield quite nicely, and they have unlimited electricity, and all of it's green. We love green things. Let me ask you about gold, because I know that at some point when we get to Q &A, we will try and do 20 minutes of Q &A. When we get to that bit, the first question is going to be, how much gold should I have in my portfolio? I know this. I know you. First question. What's the answer? We're not going to wait until then? No. I think it depends. I'm front-running our own questions. Right now for my clients, it's around 8.5%. It's been as high as 13 and as low as 6 over the last 10 years, and before that it was zero.

11:17So before that, we weren't worried about prolific government spending and zero interest in fiscal discipline. And then we have been increasingly since then. Okay, but what brings it from 13 down to 8? Just feel. It's an art form, really. And other things. I mean, tips are somewhat interesting. So Treasury Inflation Protective Securities, Brazilian bonds are interesting. So if I think about where the money went, if you took it from 13 % or 14 % down to 6%, it went into energy stocks in January. It was pretty good timing. um brazilian bonds australian bonds uh and icelantic bonds you know i wrote a column a few weeks ago about how the best fund managers describe what they do as a feel yeah a feel um and i didn't even read that i know thank you very much same for the best fishermen same for the best sailors it's all about that little extra feel yeah we have to get something for getting old adrian i have this feeling that you had something you wanted to say about this subject.

12:27No, no, it's above my level, a long way above my level. Really? Yes. Disappointing, to be honest. Do you want to move on to your quote? Because I think it's a bit connected, isn't it? Sure. My quote is that the government, an exclusive company of merchants, is perhaps the worst of all governments for any country, whatever. And the question is, why is a man who is associated with the free markets, with capitalism and all of these sorts of things. Why is he so hostile to companies? And if you look at the wealth of nations, one of the great targets of the wealth of nations is the East India Company.

13:03He's furious about the East India Company. He doesn't really like companies. He likes small groups of traders. Companies are big, bad, awful things. Why does he think that? And it's because up until during Smith's lifetime, before Smith's lifetime, in order to become a company, a limited liability company, you had to get an exclusive license from the government. It wasn't something that was formed by the market. It was something that was given to you, a right that was given to you by the government in return for limited liability. And that is the case right up until the middle of the 19th century.

13:40And what happens in the middle of the 19th century is that you're allowed to form a company for whatever reason. you can get limited liability on a wholesale basis, not because you get a particular contract with the government. And this is one of the great revolutions in history because it means that companies don't have to do something for the government. They can do something for themselves. They don't have to swear that they will do a specific thing like running a university or building a bridge or running a jail or anything like that. they can just operate according to the laws of business.

14:21And so the market and companies begin to move in sync. And one of my great worries about the contemporary situation is that we're going back to the world of Adam Smith. We're going back to the world in which companies are getting licenses to do a particular thing, a world in which companies are no longer the agents of the market, in which they've been since the middle of the 19th century. And if Adam Swift were to be reborn today, he'd be looking at companies and seeing that many, many of them are a bit too much like the East India Company. We have an enormous number of companies that are state-owned, state-run companies.

15:03I would say it's a big chunk of the global companies, not just in China, not just in the emerging world, but also increasingly even in the rich world. So this is something that, well, the Norwegians are big on state companies, but something even that Trump is going in for, taking shares in companies, allowing companies to operate if they're pursuing Trumpian or public purposes. And we're getting something even more strange than that at the moment in terms of the collapse of the limited liability company, the sort of the ideal sort of notion of a company, according to Adam Smith's principles. If you look at the tech companies, a lot of these companies operate because they have very, very good relations with governments.

15:45And they have single owners who leverage 10%, 13 % of share ownership to total control of companies. So the investor is completely excluded from the process of decision making. And a lot of these companies are doing things both in the world of military exploration, but also more importantly in the world of space exploration that begin to look a bit more like the East India Company than anything else. So I predict a future in which we will have things, the equivalent of the East India Company, owning, controlling and trading in outer space, Musk style companies, because they have particular licenses and particular relationships with governments.

16:31So the golden age of the free market company, which starts in the 1850s and goes through, you know, perhaps to the early 20th century, 21st century, is beginning to fade. And the great problem, the monster company that Smith is talking about is coming back. OK. And I think we all intuitively understand why that is a problem. But let's look at it a bit more. Is that a problem because reduced competition is bad for innovation? Is that a problem because it leads us further down the path of wealth inequality? Is it a problem because it compromises democracy? What's the main problem here? All of those above.

17:08The mid-19th century company is an exercise in liberal constitutional restraint. It puts a restraint on the power of the state. And Robert Lowe, one of the great chancellors of the Chequer under Gladstone in the mid-19th century, says a company is a little republic. It controls the power of the state, but it also controls power internally within companies that means that the CEO is not a dictator. He is constrained by the board. He is constrained by the shareholders and constrained by a constitution, essentially. And what we're doing now is destroying that constitutional balance. There is no control constitutionally on the power of Zuckerberg in Meta.

17:49He is a dictator of that company. So if you get a world in which a company, you basically have a tight relationship between a president or Xi Jinping or whoever, and a company that is run as a dictatorship by a single controller, all the problems that you mentioned, problems of inequality, problems of constitutional restraint, problems of power distribution, are magnified. And it's been coming a long time, though, this sort of growing relationship between government and big business. And I know we're not allowed to talk about this, but if we look back to the Brexit referendum, One of the conversations that came up over and over and over again was the way that the EU regulatory environment encouraged oligopoly, or still encourages oligopoly, by wrapping a huge wave of regulation around companies that effectively protects them from smaller company competition because it's too hard to get going if you're a smaller company.

18:46And that's been a problem in the UK. It's been a growing problem in the US. The government effectively, by introducing raft after raft of regulation, guarantees oligopoly across pretty much every sector. Well, that's an unintentional product of the EU. But now you're getting an intentional product. If you look at the Draghi report, the Draghi report explicitly says that we need to encourage economies of scale. and in certain big sort of areas of technology, such as IT and such as military suppliers, we in Europe should be creating conditions in which we have an oligopoly, a small group of companies that achieve scale in order to compete with the United States.

19:27Who we can work with and control. Yeah. Nick, isn't this just a consequence of our changing environment, a consequence of a more dangerous world, a consequence of building layers of wars globally, that big economic grouping such as the EU and the US will say to themselves, well, we need to control the companies that we will require over the next couple of decades to protect us. We need this. It has to be done like this. There is another way. I'm not sure it's a direct consequence. I think it's a consequence of the speeding up of history and the impending end of the post-Second World War settlement between international organizations through the Bretton Woods organizations, which are unraveling before our eyes.

20:08It's a consequence of all of that and the weakening of central right-thinking leadership, which I'm afraid has also diminished in recent decades. And the reasons for that are manifold. But I think the growth of these East India-type companies, and I totally agree with Adrian on this point, that that's the direction of travel, is to be something we should be worried about. because it comes at the expense of, for want of a better term, democratic government. It comes at the expense of the prosperity of the majority, of hardworking citizens, and obviously it also leads to an erosion of individual rights.

21:00This is the Bloomberg Tech Minute brought to you by Chachi PT. I'm Carol Masser. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence.

21:38A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices. But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, must be willing to work extended hours and weekends as needed. One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time.

22:16That's the Bloomberg Tech Minute brought to you by ChachiPT. Get started at ChachiPT.com.

22:31yeah i mean you've written adrian about quite a lot before about time and i've written as well relentlessly about shareholder democracy and the way in which the the development of the listed corporation over time has become slightly anti-democratic because of the way the fund management industry interacts with stock markets etc etc so we've had for quite a long time a problem of the distancing of the corporation from the man in the street. And one of the things I've written about, and I think you've written about as well, is that wouldn't it be wonderful if we could recreate the connection between the corporation and the individual shareholder, which the technology now exists to make possible, we don't need the middleman anymore.

23:08But this seems to just what you're talking about suggests that we're moving further and further away from the end goal of a positive type of shareholder democracy. Well, the latest wave of corporate creation since about 2000 with the IT companies is precisely designed to reduce the say of shareholders over the way the companies operate. So you have two classes of shares, voting classes, one man, one vote, and one man, ten votes, which is the case with Meta and Google. Or you have three classes of shares. In quite a lot of companies now, you have no voting shares. and so you are reducing the role of investors and you're reducing the independence of boards.

23:52So if you look at Meta, Zuckerberg has 13 % of shares, 52 % of voting shares, complete control over the board, just appoints the sort of people he wants. So democratic control or citizen control or investor control is zero in that company. and so what companies are they used to be sort of publicly funded uh i mean publicly in the sense of the general public buying shares now now they are basically bets on you're buying a bet on Zuckerberg you're buying a bet on Musk you've got no right to control them they will say that the reason for that is that without this constant pressure from shareholders they can shape the future they can make long-term investments there's some truth in that but if it goes wrong you've got very little recourse, very little exit from the process.

24:44And, you know, NVIDIA is widely held, widely dispersed, making a good bet on the future. So there's no absolute necessity to have that sort of shareholder structure. But if they make bad bets, they go out of business and new companies pop up. Well, I would say one problem with that, again, think of historical analogies. I think what's happening with AI now is very similar to what happened with the railroad boom in the 19th century. When companies are saying, well, you're betting on us, you're making a bet on the future, if we go out of business, that's terrible. But in fact, because they're building infrastructure and because they are so intertwined with, because they're costing so much money and there's so much bank money going into them, that if they go out of business, the whole community suffers.

25:30And you get a series, 1873, 1893, you get a series of bank runs which almost bring the economy down. I think we're going to get the same thing with AI. But the decisions, the bets will be made by unaccountable individuals. But the infrastructure will still remain. I mean, that was the upside of the railway bubble, not the railways. This time, of course, the concern is, and Alec, I'd be interested in your opinion on this, this time the concern is that all the money is going into building vast data centers, which we may or may not need. and that that's the difference we the railways that was great we needed the railways do we need these data centers well i mean fiber optics was the same as the real rails right all those companies went out of business remember global crossing and mci yeah yeah they um but those were used and useful over the original the original fiber optic cable is still being used it's incredible what that that infrastructure has done the difference i would say this time is the infrastructure that's being created is all consumable these chipsets these nvidia chipsets only last five years again a rail line has lasted 200 years i think we're still using the same one from metamore to london aren't we the original fiber optic line is probably 70 years old and still in use these chipsets are going to be in the dustbin in five years which is wonderful if you own semiconductors but it's it is not great if you try to call it infrastructure the only thing that's infrastructure are the electric generation, the pipelines that go into it, the electric lines that go into it, the skin and the shell.

27:07The warehouse itself, the shell of the warehouse. The lines, the roads into it, that's all permanent. But 85 % of all AI spending are chipsets that are consumable. Yeah. So when this all collapses, what we're going to have is a network of giant trampoline centers around the country. Pickleball. Yeah, pickleball. Pickleball. Pickleball. No, there's been an overbuild of pickleball courts. Oh, no. Yeah, there is. This has been a bubble. Across Europe, there are now far too many pickleball courts, and pickleball investors are going, Pastor, keep me in to write a column about it, the great pickleball bubble.

27:43I haven't got around to it yet. Not in Clapham Junction. I mean, those queues are long, but still. Well, Clapham Junction is its own little economy. We can do a special column on that. Does this all make investing easier or harder? The existence of these giant companies that are government-sponsored, you can look at those and go, well, actually, there's much less risk in that. I'll buy that, particularly the defense ones, for example. I mean, as a contrarian, we don't do that because they tend to be expensive. But we have 4 ,790 other companies that we can look at. So it makes it interesting from a relative performance standpoint.

28:18They will get super cheap one day. I think we'll be buying these companies at some point as contrarians when they fall off the bridge. and we as trolls can run around and scoop them up. And we have in the past, after the fall of the internet, the internet bubble, we were buying these names. It's no different. It's always been the same. There's always some vogue, something that's exciting, and the market is fascinated by it. If we were here five years ago, we would have been talking about ESG and the war on carbon. We weren't. Who was here five years ago? So, were we talking about ESG? Were we?

28:58In disparaging terms, maybe. In disparaging terms. Maybe disparaging, yeah, I don't know. But in passing, perhaps. But there's always something. There's always something. Listen, let's go with our third quote. Yes. So the quote I chose was, great nations are never impoverished by private, but sometimes by public prodigality and misconduct. and the reason I chose that apart from the wonderful word prodigality which I hadn't come across before and I don't actually know what it means but I think I've got a sense I've got a sense as I'm sure we all have and the reason I chose that quote was because it just seemed to me very pertinent to be thinking in those terms given the geopolitics of today which also very much reads across to what we've been talking about the growth of these half a dozen or so mega modern East India type companies who risk taking over from government governments around the world as being the key decision makers.

30:02And where you place them as private or public, I think is a gray area. Leave that to one side, and we can come back to it. But the other obvious reason that I like this quote was because it made me think about the role of the second Trump presidency, which is essentially, of course, a public administrative government leadership, global leadership, the last superpower. But also, it is very much driven by the private interests of one particular man. And just to tie that round, in government, in my experience, there is always a tension between the national interest and the self-interest of the politicians in power.

30:51And what I think we are seeing at the moment, which comes back to your question to me about the reason for this growth of these half a dozen powerful companies, is that we are seeing a shift so that the most important politicians in the world are no longer prioritizing at the end of the day, the national interest over their personal interest, self-interest. And as Adam Smith describes many occasions about actually at the end of the day, people do tasks and do work for self-interest, but you've got to harness that for the public good. Now, what we're seeing is the disregard of national interest by the most powerful political leader in the Western democratic world.

31:35And that is to the detriment of us all. So that's what this quote got me thinking about. Yeah, it's interesting. We've been talking this week quite a lot about politicians, and about the extent to which the modern politician seems incapable of seeing the second order effect of their actions. So they tend to, and I don't know when and how this changed, they tend to act entirely for immediate electoral gain, with no thought of what will happen next. And we were talking the other day about rent controls, for example. Rent controls being one of the few policies, actually, there are quite a lot of policies like this, but this is the one that there is so much evidence.

32:12It's been tried so many times in so many places in so many different ways. There's no way you can say we've never tried real rent control because someone has tried it in every possible way. It doesn't work. It never works. The second order effects are always a reduction in housing supply and a rise in the price of housing. It just is. But they do it anyway. They do it anyway. Even though they know this, they cannot possibly be a politician so stupid that they don't know that this is the case. I mean, am I wrong? Could there be a politician so stupid they don't know this is the case? Maybe there is one.

32:45But they do it anyway. And they do it for immediate self-interest to stay in office. And it becomes increasingly bemusing. so for rent control i mean a part of the world i look at quite a lot given my experience is the middle east um so swap rent control for um policies of uh persecution of minority in your country for the sake of staying in power and i'm talking obviously about what's been going on in israel and gaza for the last couple of years where for one man's self-interest in staying out other courts and in remaining in power, millions of civilians have paid the price for a group of terrorists who acted in their name and committed terrible atrocities.

33:33So I think Prime Minister Netanyahu is as guilty of what you're describing, Merrin, as the local councillor or housing minister, perhaps Angela Rayna or whoever, introducing policies of rent control, but obviously with much more dramatic consequences. Was politics better in the past? And we tend to think, don't we, this is a new and uniquely unpleasant thing, that politicians are incapable of moving to second order or third order or fourth order thinking ever. I think politics at the moment are particularly nakedly brutal. The prodigality, if you like, is extreme. You do know what it means. You do know what it means.

34:14I'll look it up in a dictionary later. But the misconduct, in simple terms, is evident and nobody's trying to hide it. And that, for me, signals flashing lights because on the global scale, when it's been conducted in that way, misconducted in that way, by the country which should be a beacon of good conduct for the rest of the world, This undermines the whole system upon which the world has stood for the last 80 years. And losing that, which I think is at high risk, we're at high risk of losing that system for a much worse impoverished system will be to all our loss. Well, that brings us back slightly to our first conversation about public debt and not being able to reduce spending.

35:06a politicians in situ at any particularly given time given in the u.s they're four years and another four years and here five years here five years they don't really have any long-term incentive to reduce government debt if all they're looking for is the next election cycle and at the same time given this new very erratic volatile environment globally everyone really does have to push up defense spending has to happen right i think you're talking about john healy's apparent new turn this morning.

35:38I'm not surprised to read that the new Chancellor of the Exchequer has realized that what he resigned over as Defence Secretary is a big challenge for him as Chancellor, and therefore he'd like to postpone the decision. And he has actually postponed it. I think my understanding is he's postponed it till the Public Spending Review, which will be next year as opposed to dealing with this and committing to the defence spending we do need urgently. We needed it five years ago but the defence spending we need now was going to be in the budget and I assume that was the basis for him taking the job as Chancellor because he'd made a point of principle and everyone applauded it by resigning over when Keir Starmer's defence secretary.

36:24So I I think the world is extremely dangerous at the moment. Countries like Britain in particular, we are vulnerable. I'm not saying anything that others who are much more expert and read in on this have not already said, but it's real. I, like many of you, will be conscious, we are under daily cyber attack as the UK. That's been going on for quite a long time, but it's now very evident. And we can't even control the English Channel. We've got Russian frigates and submarines apparently acting as they wish in the English Channel and certainly around the north coast of Scotland. We are struggling to control our airspace.

37:06Now, this isn't something we can't deal with, but we do need the investment and we need it urgently. And it's a great pity, therefore, that this decision has been postponed. And it falls into exactly this, this absolute failure of politicians to consider the second order effect of not spending enough money to protect our borders. Exactly. The global leaders, of which we're talking about a handful, have the power to really disrupt the whole global system and economy. And we've seen the consequence of those two decisions in Ukraine, which hasn't disrupted the global economy. There was blips at the beginning of supplies and grain and so forth.

37:45dealt with that. But the consequences, the unintended consequences of the 28th of February attack on Iran by another powerful, big powerful leader who was doing something out of self-interest rather than national interest ultimately, we're going to be living with that for a few years to come. This is all symptomatic of a new order emerging. I've talked about the erosion of the Bretton Woods order, the post-Second World War settlement. But the new order is going to be something much more similar, probably, to not just the East India Company on the commercial side, but on the nation side, it will look much more like 19th century great power politics.

38:30And there'll be different great powers from the previous ones, some overlap, some different. But I think that's where we're heading. And that's the reason for what Alex just said. Okay, I will tell you, and Adrian, this will please you, that I do have in my house food for three days, water purification tablets, cash in case of a major cyber attack, all that kind of thing to keep me and my family going for a few days. I'm not going to tell any of you my address, but I do recommend that you do the same. Because if they're, you know, as Nick says, we are under cyber attack every single day. Why do you think that some of them aren't going to work?

39:08Why do you think it is impossible that your banking network won't go down, that the St. Debris supply network won't go down for a couple of weeks, that all these things might or might not happen, might not be ready? And whenever I tell people that I have these grab bags at home, even my husband, sorry, darling, I know you're here and I shouldn't tell people what you think, but he doesn't approve of my grab bags. It's ridiculous. But why would you not just have that little bit of insurance against the things that we know are quite likely to happen? Anyway, I was going to move on to the miseries.

39:36That didn't work. First question, please make it a jolly one. My question is, I'd like to imagine how Adam Smith would view today. And if he were being recruited by Mr Burnham as to what to do next with the UK economy, what policies would he suggest? And given his observations of human nature, how would he sell them to the UK government? That's the most interesting bit. We all know, I think, what he should do. How would you sell it, Adrian? You've given us a good start on the defence bit, by the way. Too difficult to question. But I do think that Burnham has a sort of quality, which Starmer clearly didn't have, as a sort of storyteller, as a narrative person, as somebody who is capable of persuasive speech.

40:29And I think he really ought to start off by talking about the number of people in this country, particularly young people who are just dependent on the state, who are not creating any wealth, and say that this is bad for the country, bad for these people, and that we ought to be talking a little bit more about Labour, everybody contributing to the economy and getting rid of this dependency culture. And he should be using his... How are you going to sell that to the young people? I think that it's a bit like Nixon and China, that as a Labour Party leader, leader. He has the capacity to, I mean, as a reasonably articulate person, he has the capacity to say that and is in a position to say, and unless we do that, I don't see any other policy working.

41:15We're just wasting a huge amount of money and a huge amount of human potential. And the Labour Party is sitting there thinking only in terms of, you know, what the NGOs are saying and you know as the last chance as Tahili actually said nobody comes up to him without asking for some money to be taken from one group of people to be given to another group of people. At some point it has to end. Any other good policies for Burnham? As you say Maren I think I'm not an economist I should say straight away some do a better pretense than others and I would say that the key thing we as you said we all know what needs to happen I think the fundamental thing lacking at the moment from my layman's point of view is growth if we had economic growth then so many other things become possible the kind of Christmas present giving that Andy Burnham's done since he became prime minister that then wouldn't matter at the moment it seems quite significant that he's going around giving a lot away without explaining where the money's coming from.

42:22But I think growth is the key. I would suggest that there are ideas out there. Some of them may be worth exploring. I'm intrigued. I don't know whether it's a good idea or not. I mean, the real economists in the room will be able to tell me. But I'm intrigued by this idea that actually, if one were to ask a bit more in taxation from the billionaires, one, they wouldn't notice it. And I think Adam Smith maybe says something to this effect that you ask the people who have the most to give more, not the people, so it should be proportionate, I think he says. So you ask the billionaires to give a much greater sum, which in proportion is the same as those under.

43:03We haven't got very many billionaires, you know. Fewer by the day. Fewer by the day because they're mostly leaving. But some of them are volunteering to do this, of course. You've seen Gary Lineker. And they are more than welcome to just do it any day. You know, there's a special website for that. You can log on to it and give as much money as you like to the UK government without any fuss at all. It's a low-admin thing. Do you get a Trump gold card? Anyone in the audience like to pay more tax? Well, I don't know how many billionaires we've got in the room, but... Well, do you know what the thing is?

43:30What a lot of people don't know is that their DB pensions capitalised probably make them near to billionaires. I mean, yours probably does. A wonderful DB pension from the foreigners. I haven't noticed.

43:44Actually, on that, I don't know if there are any civil servants in the room, former civil servants. Those of you who are, only one hand I saw. But two of you is expensive enough for us. I know where you're going with this, Merrin. The civil service pension scheme is in meltdown at the moment, and you should all be worried about that, because ultimately, yes, you do bankroll civil service pensions and the civil service as private sector taxpayers, but if the civil service pension scheme goes into even greater meltdown and chaos than it has been in the last year. Something should be written about this, Maren.

44:18Maybe that's a column for you there. Oh, Adrian can do that. So I have two things. Yeah. One is if we keep going the way we're going, we'll all be billionaires. I know. Great. And we'll all fall into that billionaire tax bracket. It would be fantastic. But my suggestion would be, and this isn't going to surprise Maren, to re-embrace the North Sea energy. Yeah, certainly. Why this is the – and I am speaking from my book, but why the UK has taken the policies it is to try and put that out of business when the neighbors to the north have created the most bulletproof government balance sheet on the planet in the same oil field.

44:56Insanity. This notion that the UK oil has run out, oil and gas has run out, and there's nothing there. The Norwegians are just laughing at the Brits. And it is, talk about bringing money in and security. What should we invest in, in the expectation that that will happen? Because it will happen. This idiocy can't go on much longer. When the North Sea is opened again to exploration and production, where will the money be made? Which listed equity should we be holding? The pure plays are Ithaca, Serica, and then less of a pure play is Harbor Energy. But there's also hunting. Hunting does a lot of the couplings and deep sea bits and bobs.

45:40the Scottish economy I don't know how you can bet on the Scottish economy Buy houses in Aberdeen Good idea Not for immigrants We better take another question Yes How much of the current problems relate to the inability of the West to understand different nations Putin was actually very good for Russia given the history for the 15 years up until about 2014 they grew and they were getting better. We now have a major problem in the Middle East where I don't think people understand this sumi-sia issue but how much is it that our understanding of what we think is right fails because we don't understand the interactions.

46:31That's one for you Nick I think. Yes I think that's a very acute observation. You could answer that in an hour but let's try and get it. No, I'll keep it very short. I think you're spot on. We know a lot about other nations, and we have a lot of expertise in our countries. There are thousands of Iran experts in the US administration. But the key thing is whether the decision makers listen to them. And nobody should be surprised that Putin invaded Ukraine when he did. He'd shown all the signs over a period, going back to the invasion of Georgia and before that, 2008. And so nobody should be surprised about that.

47:10Nobody should be surprised that Russia exploited the vacuum created when Obama and the UK, Cameron Sarkozy, left a vacuum after the use of chemical weapons in Syria and showed that we weren't prepared to reinforce our red lines. Putin said, thank you, bring it on. And nobody should be surprised at the complete disaster of the US-Israeli unwarranted attack in Iran on the 28th of February, not because anyone wants to defend an appalling regime in Tehran, but because the consequences of it were very clear to read from day one. And lots of people within the US administration knew this. All the US's close allies in the Gulf and in Europe were trying to advise the White House what would happen.

47:59many journalists were saying the right things if the decision maker ultimately comes back to national interest self-interest chooses for self-interest to do something over the national interest doesn't listen to the advice then you end up in the kind of mess we are in now thank you okay another i've got one here at the front please thank you what would adam smith make of climate change and what would be his approach to the problem? Anyone want to say that? Thank you for that. A very, very difficult question, but it's a classic example of the way in which people's preoccupation with the short term overrides everything else and they don't do things for the long term.

48:43And what he would have done is utilised the price mechanism, essentially, that the only way that you can adjust people's behaviour to the problem of climate change in the long term is to make them pay for pollution. I can't think of anything else that he would have done. It's the right way forward. I wonder if he would also, that man of system quote we've had a few times about the man of system being the man in government, et cetera, who thinks that you can control a system, you can say something and it is done. And I wonder if he might have looked at a lot of our climate change policies and gone, well, that's pretty man of system stuff.

49:24Maybe we're better off working on mitigation. Or adaptation. Or adaptation. The trouble with the adaptation policy is if climate change really is spiringly out of control because of the amount of pollution going in, you can't adapt fast enough. Well, man of system, and that bit isn't working, is it? He didn't actually write very much about existential threats. You know? Well, we can ask the people who've most recently read both of them. Adam, is there anything in Wealth of Nations about existential threats and how you might bring a world together to deal with one? Well, I think, is it Adam Smith or David Hume who says that what should I care about more, my own hand being a little bit singed and burnt or a million people being killed in China by the eruption of a volcano?

50:18And he says, well, I'm obviously going to care more about my hand being burnt. Yes, and Smith did write something very similar about how it is the nature of being human to care more about your neighbor than a distant civilizational group. So possibly he might have done nothing. But it would have been interesting, what would he say about the UK and a couple of other countries really going for it? And nobody else following. And nobody else following. He'd say that was absurd. Yeah. which brings us back to North Sea Oil. But we'll... Right. Thank you to my wonderful guest and thank you for being really the best audience of the week.

50:56Thank you.

51:18I'm at Merrin SW and John is John underscore Steffek. This episode was hosted by me, Merrin Somerset Webb. It was produced by Samasadi and Moses Ander. Special thanks to Nick Hopton, Alec Cutler, Adrian Wildridge, Blair Barrows and Alan Lloyds and everyone at Pamia House.

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