Larry Fink, founder of Blackrock
The ringing of Larry Fink’s phone is the squawking of a duck. It’s a way for the man who founded and leads Blackrock, the world’s largest investor with $ 8.5 trillion under management, not to take himself all the way seriously. At least to try. But the panorama he sees in front of him today does not help him in this.
How do you assess the state of the global economy?
“These are very uncertain times and probably more in Europe than in the United States – replies Fink, 69, who met a small group of major European newspapers this week in Milan -. Economically, China appears to be in the worst situation in twenty years. And such geopolitical risks have not been seen for thirty years. Russia’s invasion of Ukraine shows that we probably underestimated the peace dividend after the fall of the Berlin Wall. The global economy could experience a rough landing. But I don’t think the recession will be a five-year problem. ”
In Europe, where do you see the biggest problems?
«The Russian invasion of Ukraine exposed Europe’s dependence on a single source of energy, especially in Germany and Italy. The German economy faces strong headwinds. They tell me that if this winter is normal, there is enough energy. But if the winter is much colder, then there will be supply problems ».
How worried are you about debt levels in the euro area, starting with Italy and Spain?
“I am very worried about the relationship between debt and gross product (GDP, ed) in all countries. Including mine, the United States. Let’s be honest: deficits will one day matter. Today they are not counting as much as they should. But let’s forget budget problems for a moment: ultimately, we need to create growth, only then can we get rid of the deficits. The debt in relation to GDP in Italy, Spain or even the United States and Japan will fall on our children and our grandchildren. The problem is that politicians do not focus on the long run, but on how to solve today. We need leaders who start focusing on building tomorrow, instead there is an increase in populism and extremism. Looking at the Italian elections, I saw all the candidates go to the center and a kind of mixed bag was created. In the United States, unfortunately, the voices heard are increasingly from the far right and far left. The center is being lost ».
What do you think of the electoral result in Italy, with the prospect of a government led by the radical right?
“I have spoken to several CEOs in Italy and have noticed a cautious optimism. It surprised me quite a bit, but I felt more optimism than worries from business leaders. Then, of course, the composition of the government will be very important. Much will depend on the choice of the Minister of Finance. Today the Italian economy is growing more than the German one. The banking system is in really good shape, after years of restructuring ».
What is your impression of the country’s prospects?
“I have spoken to many prime ministers in recent years and I do not understand why Italy does not become the engine of solar energy. BlackRock would have huge pools of capital of our long-term investor clients to co-invest with Italy to build photovoltaic fields. Then you need to have the electricity grid, which still doesn’t exist in Europe. But if Europe is to be self-sufficient in energy, Italy and Spain must play a bigger role. Spain is far ahead on solar and wind energy, Italy has gas from Algeria. In the next few years both Spain and Italy could be Europe’s strengths ».
In the meantime, however, the pressure of inflation on the European Union is strong.
“For the poor, high inflation hurts less than a recession. I often ask central bankers what is so magical about 2% inflation. Why not 3%? I don’t think 2% is a natural rate. I think it will take some time to get to 3%. And what will central banks do if inflation goes to 3% and the economy is weak? Will they keep trying to drop to 2%, risking a more severe recession, or will they stop? I would prefer that they stop ».
Inflation is the fault of the war and the energy crisis
“The big question is: is inflation transient or more structural? I tend to believe it is more structural. This situation reminds me of the late 1970s and early 1980s when major central banks were aggressively tightening monetary policy. But governments give incredible fiscal stimulus. These two factors work against each other, we have a disconnect between monetary policy and fiscal policy that could even create higher interest rates for a while. The policies of populism and nationalism may be good for employment and job creation, but at what price for inflation?
That is, populism and nationalism fuel inflation due to the costs of reshoring, demanding more national products and labor shortages?
“Effectively. Look at the immigration rates, the job offer … I would say that in the next two or three years we will see more inflationary pressures. The transformation towards a decarbonised economy also means that we must expect high inflation because to create most of these green products, the costs will sometimes be double or triple ”.
How quickly we will be able to become really “green”“It seems to me that many governments have spent time mitigating supply without mitigating demand. So we had this imbalance. But now a more common sense approach is spreading in Europe, according to which we may need to use more coal and gas in the transition period. In taxonomy, gas is now green. A year ago, the gas was brown (ie polluting and to be avoided as much as possible, ed) ».
Is he backtracking on his stance that we should divest from fossil energy?
“I’ve never talked about divesting, I’ve always thought we need to create a fair and just transition. Quickly divesting oil or gas does not result in a fair and just transition, which requires long-term planning and, at the same time, rapid investment in decarbonisation technology. I believe that gas will accompany us for the next hundred years ».
What do you think about taxing the rich and the unexpected extra profits of energy companies more?
“I am convinced that reducing taxes can create more viable economies. At the same time, we need to find ways to create a fairer and more just society. It’s about finding a balance. Wealthy people have to pay their share, but it is wrong to denigrate success. And I disagree with the capital gains tax of energy companies. Two years ago, some of these energy companies nearly went bankrupt and no one then said, ‘Oh, let’s save them.’ I would prefer that the money be used by companies and their shareholders to invest more in decarbonisation technologies. I believe that in this case the private sector is more efficient than the public one. Why does the US continue to innovate much more than Europe? Largely because there are more opportunities to create wealth in the United States ”.
Are high taxes holding back Europe?
“Some of the smartest people we have in the United States are Europeans. Europe has great schools. But why is Europe losing these fantastic graduates to other places in the world? Because they can choose! I would like Europe to think about how to create instead of how to tax. How to allow startups to have more capital for longer. In Europe, startups often sell themselves to American companies ».
You are very critical of smartworking. Can you explain why?
Remote working worked great when COVID was a dangerous disease. Now COVID is very similar to the flu, especially if you are protected by a vaccination. Smartworking was not meant to be permanent. If it were so, it would be a disaster.
What you are saying is quite rare to hear today
“I think all CEOs would say that, but not in public. Let me be clear: is it necessary to go home five days a week? No, in most jobs, no. Perhaps in some, yes. Do we need to give our workers more flexibility? Of course. One of the good things about vacationing is that you may want to take an extra week off and work remotely during that week. And then, in the following weeks, you work in the office five days a week. We can offer this new flexibility that we have never dreamed of. But to become the leader of a company, you have to move to different locations and different businesses. It is not possible to do this remotely. My best ideas don’t come to me in meetings, but when I walk into an office and talk to someone. ‘
What effect are Western sanctions having on Russia?
“Perhaps more than 1,400 companies have left Russia not because of the sanctions, but because their employees and other stakeholders said it was right to do so. So I think it wasn’t just sanctions but also the power of capitalism, which involves all stakeholders. This combination of sanctions and the behavior of public and private companies has led to a rapid and serious deterioration of the Russian economy ”.
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