Jake's View

Losers' Clubs spend good money on bad ideas

PUBLISHED : Thursday, 10 July, 2014, 4:55am
UPDATED : Thursday, 10 July, 2014, 6:50am

The world's five key emerging nations of Brazil, Russia, India, China and South Africa have proposed the launch of the BRICS Development Bank.

SCMP Business, July 9


Translation: the Losers' Club wishes to squander even more of the scant capital resources of its member governments by funding vanity investment projects that constitute little more than economic colonisation.

Let us deal first with a misunderstanding that afflicts Losers' Club politicians. It is that they have many good investment ideas but investment capital for them is in short supply. It is hogged by big multinationals who only work for rich people. That is why we must have a BRICS bank.

Things are actually the other way round. I have never seen such a thing as a shortage of investment capital. The only shortage is of good ideas for investment in things the public wants so much that it is willing to pay enough for them to reward the investors.

Now I grant you that this is not the Losers' Club concept of a good investment idea and I have to confess that I don't quite know what that concept is except that it requires ever more use of the word "social" when floundering about for a satisfactory definition.

It involves the notion that some things are very good for the public even if the public chooses not to buy them at their full cost and must be made to pay out of taxes instead of by choice.

Who decides what is so very good? How do they know? What gives them the right to force their choices on others? It is an arrogant concept for which I have no sympathy but it does explain why there are losers in the Losers' Club.

As to the notion that the money is all hogged by big multinationals who serve the rich, will someone please provide me the average annual income of a McDonald's customer or a Nissan driver.

The biggest multinationals all serve mass markets, not premium ones, and their beneficiaries include you. Odds are that you are a small indirect shareholder of McDonald's and Nissan through funds held in your pension and other savings accounts.

There is always plenty of money available for good investment ideas. The fact that the Losers Club can find money only by taking it under duress from citizens tells you that they have few good ideas and the rest are losers that have more to do with political vanity than with real need.

The Asian Development Bank, to which I paid occasional visits in my previous career as an investment analyst, is a good example. It was notable for having the fanciest building in all Manila and the highest pay packages. Its motto - "I'm all right, Jack".

In every third rabbit-warren office sat another pampered academic who spent his time being cautiously optimistic about Cambodia's balance of payments prospects or writing at length about why he had trimmed his forecast of Vietnam's third quarter economic growth from 4.15 to 4.08 per cent.

The ADB's big trick back then was funding Indonesian irrigation projects with debt in yen on the argument that yen interest rates were low.

And when Indonesian farmers then discovered that the yen had gone up, the rupiah down and they had twice as much to repay as they had borrowed, well, how sad.

But, of course, the irrigation pumps were Japanese made - score another point for Japanese exports - while the guarantor of the loan was the Indonesian government. That's why they loved the ADB in Tokyo.

This new BRICS Development Bank will be no better. The only difference is that China, not Japan, will be top dog and get the export edge. They didn't actually like that in New Delhi. India wanted to be equal with China. Tough luck. Funding will be in strong yuan, not weak rupee; shades of the ADB.

Development banks are a dated idea, a concoction of the international financial settlements made in the aftermath of the second world war. They no longer have purpose, if they ever did.

In other words, perfectly suited to the Losers' Club.