The current model of capitalism is unsustainable therefore investors need to choose their economic philosophy before making portfolio allocations, Dr Pippa Malmgren founder of DPRM and former White House financial markets adviser has told investors in Sydney.
The social and economic inequalities the present version of capitalism creates is so vast it could be undermining the ability of the system to perform thereby significantly impacting on investments, Malmgren said at the Portfolio Consortiums Forum’s market summit.
“Wages as a percentage of GDP is at an all-time record low and profits as a percentage of a GDP are at all-time record high. There’s no question this is not a sustainable picture. The question is what will happen to prices and social stability along the way? Who can engage in that adjustment process and who won’t be able to?” Malmgren said.
She proposed the way forward was less regulation and less tax to allow “entrepreneurs to build tomorrows’ economies today” and as calculated risk takers engaged in the economy, the need for redistribution would decrease as more GDP will have been generated.
Another approach she highlighted, but did not condone, was to tax harder, make the state larger and redistribute wealth.
“Everyone will have to decide, before they can choose a portfolio allocation that makes sense, which side of this divide they stand on. And societys’ are going to decide because the facts are clear, today we do have inequality generated by our current version of capitalist economies because of the duress they’re under.”
But she warned not to be linear or binary in the thought process and choice, rather flexibility and granularity were key.
“Predication is not possible, but preparedness is possible. The key thing is to build in flexibility to adjust if things don’t go the way you were expecting. To build in flexibility in case the decision turns out to be wrong.”