Opus 23: Introducing Imperium
Imperium is a new kind of investment firm writing a new chapter for the emerging economies.
Imperium
Today, I am introducing Imperium, a new kind of investment firm exploring the world of the State Economy.
Introduction
In 1979, Margaret Thatcher launched one of the largest wealth transfers in history. In response to decades of post-war stagnation, the “Iron Lady” started her ten-year campaign to privatize large swaths of the British government and its state-owned companies. Thatcher transferred dozens of state assets to the British populace, amounting to $150B in modern-day value. Before the privatization wave, only 7% of British households owned shares in companies through pensions; by the end, over 25% of households had a direct stake in the success of the country's most valuable businesses. Consumer prices across competitive industries such as telecommunications, industrials, banking, and electricity fell 25-50% in the following decade. Initially, employment fell, but rising labor productivity and market growth led to rapid hiring as firms prioritized shareholder value creation.
What followed was 25 years of mass privatization across the world. In Latin America, Mexico and Chile led the way with the financial, telecommunication, industrial, and even social security assets transitioning into the hands of the people. Western Europe, North America, and Australia followed suit and sold some of their largest companies to increase efficiency and growth. As the USSR dissolved, Eastern Europe quickly transitioned its central command economies to free-flowing marketplaces, resulting in two decades of record growth. All told, over 100 countries transferred $3.3 trillion of assets from the government to the open market.
While many expected this privatization trend to continue, it halted in the early 2000s. Today, history has reversed its course and rewound much of its progress. In many developing economies, the State is working its way back into the economy and state-owned enterprises (SOEs) now account for 1/5th of global revenues, which is comparable to 1980s levels.
Economic and political forces are starting to expose the fragility of this trend. As global borrowing continues to rise, governments are staring at their fiscal balance sheets with little to no idea how they will afford their debt. Many developing economies now spend 20% of their tax revenues just on paying their public debt interest costs. This will only increase as sovereign debt reaches maturity and rolls into a new rate environment. A record amount of public debt is being raised for state-owned enterprises. On top of the current fiscal challenges, political pressure is increasing from large development finance institutions. Groups such as the International Monetary Fund seek to diminish the State’s involvement in the global economy specifically within competitive markets where 70% of all state companies operate. It is clear that transparency and better governance are needed to crack down on political corruption, which in turn, hinders growth, innovation, and better outcomes for the general population.
The world finds itself at an important crossroads as the State continues to tighten its grip on the global economy with every opportunity. Government officials entrench themselves after emergencies such as COVID-19 to justify further State intervention. At every turn, we have looked to the State as the solution. As Peter Drucker wrote in 1969, we have again become “hypnotized by the government” and see “no limits to its abilities.”
But, the hypnosis is beginning to wear off. The changing tides have led us to create The Imperium Project. Imperium is exploring the world of the “State Economy” in an effort to assist all stakeholders by introducing private capital, more transparency, stronger governance, and fairer markets. We look to history as evidence of the effectiveness of private enterprise and equity-based incentives. The future of developing markets is unlikely to be driven by governments but rather by private enterprise through entrepreneurship, open and fair markets, and engaged capital.
The History and Use of the State Economy
Many believe the State’s role in economic activity has been diminishing over time. Just like Fukuyama’s “End of History,” which argued that the natural political end state had been found in liberal democracy, many economists believe the natural economic end state had been found in the free and open market. This is not the case. Rather, the State’s economic sphere has ebbed and flowed…
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