Ghosts of the past

Julian Chillingworth, Chief Investment Officer, Rathbone Investment Management

18 March 2021

Are we due a re-run of the Roaring Twenties? And if so, what does that mean? Julian Chillingworth, Chief Investment Officer, Rathbone Investment Management, looks back at the world’s last post-pandemic recovery and a bit more besides.

As vaccine programmes ramp up around the world, some people are gearing up for a re-run of the Roaring Twenties.

Following the Great War and the Swine flu pandemic that brought up its train, economies bounced back hard in the 1920s. After years of death, scarcity, conscription and hardship, the world embraced life and all it had to offer. It was a dazzling time, best encapsulated by America’s Jazz Age and headstrong men and women unafraid to live how they wished. Of course, our sense of history is warped. It wasn’t all champagne, new cars and glittering young people. There was still a lot of poverty. Europe in particular was in a bad way, encumbered with massive war debts, its lands and people scarred by war.

Not only that, but it’s rare for every part of an economy to do well at the same time. In the 1920s, businesses that catered to people’s wants did very well, and the middle classes were buoyed by new technologies that gave them back more of their time – more of their lives. After years of heightened economic demand, driven by the war efforts, suddenly the amount of raw materials society needed slumped faster than production. That sent costs tumbling, giving people more money to enjoy themselves. Of course, lower prices and lower output hit farmers, the coal and steel industries, factories churning out uniforms, guns, boots and ships, and many other sectors besides.

Put simply, the slump in prices for the basic building blocks of modern society – food, clothing and steel – made one set of people better able to live it up; but that same phenomenon had the opposite effect on whole swathes of others. You can see similarities between then and now; you can always spot historical rhymes if you’re looking for them. And the fact that it is exactly a century on appeals to our very human sense of rhythm.

The strange death of a liberal century

Yet wind the clock back a bit further, to the dying years of the 1800s and the dawn of the 1900s, and you find perhaps more similarities. The new technologies of the industrial age had solidly bedded in. Within a few short decades, the world had changed almost beyond recognition. From a society of horse-power and the supremacy of landownership to one of capital and factories and the combustion engine. Women were starting to agitate for the vote; workers were sick of being treated like dispensable cogs and struck for better conditions. Wages for most people had gone down in real terms for years, even as the possibilities for investment had increased. And those at the pinnacle of this society had changed in character with it. Rather than a land-owning class tied to estates, with a feeling of responsibility for their holdings and the people living on them, the upper classes were being replaced with a more footloose crowd. The modern capitalist who could send his wealth anywhere in the world where the risk-return trade off was more to his liking. The Citizen of Nowhere, you might say. And people were angry back then.

This is not a paean to the good old days of the 1700s, far from it! Life was hard and there were plenty of cruel and villainous people knocking around too. I’m only pointing out how societal changes have real behavioural and economic effects that flow inextricably back to more societal changes as some people do better and others worse. Today, we are standing in a completely new world with our own unique set of challenges. There is no time that maps perfectly on ours. Yet we can and should cast our minds back to spot lessons that we can learn from our history.

Today, workers’ rights have been eroded substantially by the explosive rise of digitisation and the gig economy that new business models gave rise to. This has even crept into the middle classes, with ever more workers reporting that the ability to operate remotely has simply increased their working hours and eroded the division between work and life. Meanwhile, wages have been on ice for years while corporate profits as a share of GDP have forged ever higher. Competition has lessened as many industries steadily consolidate into three or four dominant firms. Many people are angry today.

The defining issue of the next decade or two will be how businesses and governments handle that anger and what they do to address it. Whether they can listen to people’s concerns and improve how the world operates while avoiding any more dangerous swings toward populism. There are a lot of sticky problems to sort out and a huge amount of change happening in the meantime. Governments especially have an unenviable task. Trying to address wealth inequality, developing clean infrastructure, helping people with stranded livelihoods in carbon-intensive jobs, and reforming tax for the intellectual property-driven age of business. All of these are spiky tasks. And they must be balanced against the need to encourage businesses, not drive them away. Otherwise it will do more damage than society seeks to fix.

Now is not the time for businesses and governments to be aloof or unresponsive. That’s why the rise of responsible capitalism – of companies taking wider account of how their actions affect people and the environment – is welcome. We hope it’s here to stay.

Over the past few decades, it has been a fantastic time to be an investor, still is. But we believe it’s important to ensure all parts of society are enjoying the fruits of what we produce. And not just because it’s equitable, but because otherwise it could lead to turmoil that upends a world that investors have the greatest stock in.

By Julian Chillingworth, Chief Investment Officer, Rathbone Investment Management