As economic imbalances and income inequality have accelerated in recent decades, Northern Trust Asset Management (NTAM) chief investment officer Robert Browne believes social discord and disruption are likely to spur the U.S. economy to drift in the direction of European socialist economies in the next five years. That’s one reason why NTAM expects to see subdued returns from financial assets between now and 2025.

These imbalances have existed for more than a decade, but the pandemic has only served to exacerbate them, Browne observes. In an interview in early September, he outlined how the public health crisis has influenced changes in the asset management giant’s five-year outlook.

Is The Capitalist System Broke?
The pandemic “has highlighted flaws in the capitalist economic system itself,” according to NTAM’s five-year capital market outlook. “Specifically, it has called into question capitalism’s once sacred maxim (first promoted by economist Milton Friedman) that a company’s sole focus should be profit maximization. If companies focus on maximizing profits, other societal aims will take care of themselves.”

That outcome clearly has failed to materialize, NTAM maintains. The “winner-take-all’ business environment that has emerged has left less competition and fewer consumer choices, as oligopolies dominate industries ranging from beer to online advertising to cable television.

The profit maximization model formerly worked in an era when large amounts of investment capital were required to launch heavy-asset businesses. But today’s light asset companies create a different dynamic. Intel and Netflix have roughly the same market capitalization. However, Intel employs 110,000 people while Netflix has 8,600 workers.

Browne thinks that shareholders, driven partly by the ESG, or environmental, social and governance investing movement, will push companies to refocus on stakeholders, not just shareholders. This will translate into a world that “may mean less profit but also a more sustainable economic system,” the NTAM report says.

These shifts are unlikely to be favorable for economic growth, which has already been slowing for two decades. One of the points “we are trying to make is that we had pretty low growth trends going into Covid-19,” Browne says.

Going forward, consumers are likely to remain cautious when it comes to spending. Corporations, meanwhile, may be motivated to alter their supply chains—and their motivations may not be enhancing their bottom lines.

“If you went into this [the pandemic] in a strong position, you’re doing great,” Browne says. If your business was experiencing weakness and, secular disruption, “you’re in trouble. Macy’s and Nordstrom’s position did not improve. Apple’s and Amazon’s did.”

In the short term, NTAM does expect the U.S. economy’s strong growth trajectory in the third quarter to continue into the fourth quarter. That expectation factors a continuation of massive fiscal and monetary stimulus in 2020.

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