Pippa Malmgren: ‘Investors will experience a steep learning curve’

Pippa Malmgren: ‘Investors will experience a steep learning curve’

19-01-2017 | Insight

Robeco interviewed Pippa Malmgren, former advisor of US presidents Ronald Reagan and George W. Bush. In Part II she discusses the return of inflation, the wave of technological innovation, and the catalysts for economic growth.

  • Peter van Kleef
    van Kleef
    Chief Editor

Speed read

  • This is just the beginning of technological innovation
  • Many investors will experience significant inflation for the first time
  • Real growth comes, by definition, from small companies


Technology is revolutionizing our lives and the speed at which change occurs does not appear to be slowing. The challenge will be for us to ensure our society adapts accordingly and that we all reap the benefits of innovation.

“Innovation is just beginning. The empowerment of the individual is so incredible. The amount of computing power we all carry around in our mobile phones is actually the same as we needed to go to the moon. But there is so much more we can do with it. There are young people building huge global businesses based on this technology. We have people revolutionizing the production of food, we can now grow plants in a container with no sunlight, no soil, almost no water and we can do it faster than in their natural environment and boost nutrition levels and improve the flavor.”

“Look at how we are able to 3D-print human organs, joints, repair the human body, this is an incredible change. I would disagree with everybody who says we have seen the most of innovation. You can’t even begin to imagine how dramatic the changes are that are coming. And it’s the young that know how to make use of this technology. You need a 14-year-old to tell you how to use your iPhone these days. Every single sector is being revolutionized. Look at the president of the US who doesn’t need to hold a press conference because he can directly talk to the world through YouTube and Twitter. That’s a purely technological phenomenon.”

“To use a religious analogy: the Catholic church said ‘only we get to communicate with God so you have to come to us’ and the Protestants said ‘no, you can talk to God by yourself’. Technology is saying the president can talk to you and does not need CNN or the New York Times to explain what he said. And all the polls say the public trusts social media more than the traditional forms.”

“Human beings don’t like change. They like to be comfortable and technology is making all of us uncomfortable. In many ways. And people are afraid they are going to lose their job, their career, their livelihood. The honest answer is: yes, they are going to. But we’re going to lose this anyway. The world economy is constantly demanding that you change the way you do things. Technology just makes this happen faster. People who do routine work of any kind, or manual labor, are going to be replaced by robots or artificial intelligence. But that does not mean that there are no jobs to do. Even they will find new jobs.”

“So we need to train people in a different way. We live in an era of lifetime education. This is no longer a world where only college graduates can get a job, in fact, they can’t get a job. We need people with practical skills and luckily it’s easier than it has ever been to learn and to change. People won’t have one career. They’ll have three, or four careers. And that’s maybe a better situation than one career in the same industry for your entire life.”

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Central banks have been running the show for some time now, but their influence is dwindling as we see a shift away from monetary intervention back to fiscal policy. Inflation is waiting in the wings and it’s a controversial subject.

“Central banks overstepped their role in the financial crisis, because they were the part of government that could act. They did what they had to do, but they have set the stage for inflation to return – which it is – and for an increasing lack of confidence in money. And people now don’t have much confidence because of the record-low interest rates, because of the record amount of capital in the system. I think central banks need to revert to their traditional role, a neutral role in the economy.”

“Fiscal authorities, i.e. politicians, need to make decisions about the debt problem. Some of them think it is so big that we need to stop spending. Others firmly believe you can fix the debt problem by adding more debt. So, what is the role of central banks in society? The main problem I see in Europe is that Germany and the Netherlands think that inflation must not be used as a means of dealing with the debt problem, because based on historical experience, we know that things can end very badly – with hyperinflation. The rest of the Eurozone believes we must have inflation in order to fix the debt problem. And that division of opinion is the heart of the whole problem in Europe.”

“Many people in the investment industry are young and so have never seen inflation. They’re going to have a steep learning curve. This is something they may have read about at business school, but that’s it. They have no experience of it. For them, a rise in inflation from 1% to 3% is no big deal, they just shrug their shoulders. They don’t understand that that is a massive change in any society. If you have inflation, the stock market may hit new all-time highs, but your rent is also going to be a lot higher.”

“We need to think what the consequences are for different parts of the society. We won’t have hyperinflation in the industrialized world, technological innovation will prevent that from happening. But even a small change can have a radical impact on society and we should be aware of that. The inflation rate is not a universal or aggregate number. It’s just a convenient figure for governments.”

“The reality is that your personal cost of living is very different from mine. It depends what age you are. Millennials in the UK and US pay three times as much in terms of cost of living than pensioners do. If inflation comes back, who will it hit hardest and first? Who will it affect more gently and later? Inflation hurts the poorest first, both in a specific country and in the world as a whole. The weak and the poor will feel the pain of inflation. In every community, in every country, everywhere.”


Perhaps we should focus less on growth itself and more on the quality of that growth. Statistics show us the ‘what’ but not the ‘how’; there are still too few sharing in the wealth that is being created.

“Is GDP the right measurement, the right metric? I’m more interested in wealth creation. GDP can go up just because of government spending, it doesn’t mean anybody is better off. GDP is not the holy grail; I would say wealth creation is a better measure. And according to that measure, we have created wealth for a few people, but not for the majority. There’s lots of ways to fix that. We need to stop assuming that the only path to success is a college graduation, followed by a white-collar career. The European approach is a lot better than the American one. Practical skills in the real economy pay. Welders – people welding precious metals, which is a skilled craft, get paid USD 140,000 a year because there’s a global shortage of welders. We should treat these types of career with respect.”


Our future lies in creating a sufficiently flexible business environment to nurture enterprise and ensure that investment reaches those companies that need it. Big is not necessarily beautiful.

“You can’t hold cash, it’s the last place you want to be when you have inflation. That’s why I am optimistic, because the only place money can go to is into the real economy. It can enter through equities; it can enter through private equity or through people starting businesses. All of these are good for the economy. Some people say ‘equities are so expensive, they can’t go any higher’. Given the amount of money that has been pumped into the economy over the last few years, they can go a lot higher.”

“What companies have to do is use technology to create new lines of business, new ways of carrying out their existing business and I think that is exactly what is happening. That’s their whole job and if they can’t, they’ll go out of business. And the going-out-of-business rate is also pretty high as firms can’t keep up. Companies disappear and new entities come to life. The financial crisis began in 2007, the year the iPhone was introduced. I think it comes down to a race between these two things. We’ve had poor economic policies, bad economic results for many, but at the same time we’ve created this incredible technological innovation environment and these two elements race against each other.”

“Populism is about the public asking the government to get out of the way, to stop restricting the ability of the individual to innovate. Two thirds of net new jobs in industrialized economies are generated by firms that employ less than 50 people. The Netherlands (and Germany) have been particularly strong in terms of small and medium sized businesses. This is where the action is, not the big companies. Big companies usually reduce their number of employees over time.”

“So we need to do everything we can to ensure small and medium-sized companies can thrive. But in general governments come up with tax policies that enable bigger companies to figure out how to pay zero, while the little companies get crushed trying to pay the lawyers and accountants they need just to ensure they comply. This requires some rethinking. Do you want to apply the same set of regulations to a global international player as a small local business? The big guys will survive, but you’ll kill the little guy. And that’s the only place growth will come from.”

“In the Netherlands you have one of the biggest pools of pension savings in the world. When I look at pension money globally, what is the one area they don’t invest in? Small businesses. Because they are too small to absorb the huge amount of capital, it takes too much time and energy given the amount of return. Secondly, it is perceived to be too risky. But if most of your jobs and innovation comes from these little companies, but the biggest pool of savings can’t go there, don’t we have a structural problem? This is a fascinating question. How can we create structures that allow a little bit of pension money to go the one part of the economy that creates the most performance?”

Read also Part I of this interview: ‘Geopolitical tensions are here to stay’

This article is part of our Outlook 2017 event
This article is part of our Outlook 2017 event
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