Rise of Captial

Capital will grow much faster than GDP, based on prediction from Book: Capital in the 21st Century as well as HBR article: Strategy in the Age of Superabundant Capital.

However, the conclusions are quite different. The former takes a macro perspective to talk about inequality and the latter takes a micro approach to focus on business development. The former raises concerns and the latter sees opportunities. 

From Capital in the 21st Century, increase of Capital/income ratio is due to much lower growth forecast for population as well as income per capital growth.

Rise in capital

From Strategy in the Age of Superabundant Capital, increase of Capital/income ratio is coming from financial markets growth in emerging economies and an expanding number of “peak saver”.

R1702C_MANKINS_GLOBALBALANCESHEET-1200x766

From Capital in the 21st Century, high capital/income ratio causes concerns. Compared to income distribution, capital distribution is much more concentrated in the top. Especially, when return of capital is higher than output growth, richest get richer and poorest get poorer. Rise of capital will raise inequality level, back to the level before World War I (top 10% owns almost everything and bottom 50% own nearly nothing). The author proposes progressive capital tax on global level to balance the trend, to create mobility for society and avoid over-concentration of wealth.

From HBR: Strategy in the Age of Superabundant Capital, higher capital/income ratio leads to opportunities. When capital becomes abundant, it comes cheaper. If cost to borrow money becomes as low as the rate of inflation, it will make better sense to reduce hurdle rate (minimal projected rate of return that a planned investment must yield), because too many investment opportunities are being rejected. The authors recommend that companies should focus on growth: make numerous small investments in growth opportunities and pay more attention to managing their human capital.

It seems like both makes sense. My question would be: in the long turn, if growth is slow, then the return of capital will be reduced to a basic level; if size of the pie does not change much, what we can expect from investment?


You may wonder why the capital/GDP ratio is not the same. It may come from different data source or different definition of capital. Global GDP = Global Income. From Capital in the 21st Century, capital is defined as the sum total of nonhuman assets that can be owned and exchanged; capital includes all forms of real property as well as financial and professional capital (plants, infrastructure, machinery, patents, and so on). From Strategy in Superabundant, capital = financial assets = supply of capital invested or available for investment tin the real economy. I take the difference and assume the trend of rising in capital is similar for both.

Reference

Capital in the 21st centuries (book and data)

Strategy in the Age of Superabundant Capital

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close