Bipartisan leadership and a focus on the common good will be the keys to a new world order according to Bridgewater Associates co-CIO and co-chair Ray Dalio, who said he believed divisiveness and conflict are taking the world down a dangerous path.

“The biggest issue that we face is being at each other’s throats,” said Dalio, who founded Bridgewater in 1975 and has seen it grow into the largest hedge fund manager in the world with about $USD160 billion under management. In 2020 Forbes magazine listed the investor as the 69th wealthiest person in the world with USD$18.6 billion.

While the twin forces of globalisation and capitalism have been beneficial, they’ve also exacerbated the difference between the haves and the have-nots, Dalio explained during an hour long interview broadcast on Tuesday evening as part of the Top1000funds.com 2020 Global Sustainability Conference. You can watch the full interview here.

“Capitalists know how to increase the pie, but they don’t know how to divide the pie very well,” he lamented.

“Capitalism is generally an efficient system of allocating resources. It creates incentive and if the value of what you produce is greater than the cost of that production you prosper,” he said. “But when it grows it creates the wealth gap and the opportunity gap.”

The spread of globalisation, too, has played its part in widening the wealth gap.

“Globalisation is good for the world because you produce in the most effective place. But you have to also realise that as it raises living standards in places that benefit from it –  let’s say China – it takes a job and moves it from somebody else,” Dalio said.

This wealth disparity has led to populism’s resurgence and a rise in conflict at all levels. “It’s been shown over and over again; when you have a large wealth gap it becomes increasingly unfair and it becomes a problem about sustainability,” he said. “It’s just mechanistic.”

Populism is flourishing, Dalio warned, because people are suffering and view the world as unfair. In this atmosphere of discontent, animosity spirals and people splinter into their own groups. This is evident in the tone of the US election campaigns, he believes, which pit “one extreme against the other”. It can also be seen in the degradation of the US education system, racial disharmony and societal unrest.

 

To get past this, he believes, we need to put aside the allegiances and do what is right for the common good.

“The thing that is most important is to design a system that is bipartisan,” Dalio said. “What we need is more so asking what the goal is, and how do we get that in a bipartisan, reasonable way so that we can engineer prosperity and do the things that are right?”

‘Fear and revulsion’

Dalio’s belief is that fairness and the notion of equal opportunity should be the goal when searching for a new world order. This desire isn’t a moralistic one, he explains, but more of a pragmatic vision aimed at a better society.

“I’m saying it mechanistically,” he says. “Not idealogically.”

Dalio is clearly no ideologue. Referring to himself as a “mechanic” on a several occasions, the CIO would hardly be considered as an optimist, either, preferring to disseminate the world’s problems into realistic scenarios that are more or less likely to play out.

Bipartisan leadership won’t find a way to flourish in the near future, he says, unless people start to fear the alternative so much that it warrants action.

“It’s unlikely that we will find [bipartisan leadership], other than… places realising that this is our worst fear so that we will lose it all if we will keep fighting each other, and that we have to empathise and work together to find something,” he said. “Maybe the fear and revulsion of that type of conflict can lead us to that.”

Even then, the capacity of people “to go above one’s disagreements” and try to produce “win-win outcomes” is questionable. “It will be difficult for people to be brought together,” he added. “There’ll probably be more conflict.”

The most important word

Amidst the gloom, the investor did see some positivity for the US and the world.

In the US, a cultural decline has been offset by low corruption rates and a healthy atmosphere for setting up a business – the pandemic notwithstanding. In emerging nations, a trend towards micro investing is helping millions lift themselves out of poverty.

 

Dalio also pointed out another “good trend”; the rise of ESG investing and, in particular, a burgeoning interest in sustainability.

“I think sustainability is the most important word of the 21st century, it’s the most important force,” he said. “So, there are things that are happening that are good at the same time.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at [email protected]
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