Reply #112: Michael Moore must leave US to find new elite By Gillian Tett

[Demeter]

http://www.ft.com/cms/s/0/fe92f40e-ba67-11de-9dd7-00144...


Global equity strategists do not often star in Hollywood films. Right now, however, that fate has befallen Ajay Kapur, an analyst who formerly worked for Citi.

Five long years ago, Mr Kapur and some of his Citi colleagues penned a dense research note on the issue of “plutonomy” – a word they invented to describe economies powered (and controlled) by a rich elite, such as the US and UK.

At the time – in 2004 and 2005 – Mr Kapur’s group had a challenge getting their ideas accepted by their bosses. “The thesis was considered too out of the box,” he recalls. But last month he discovered that Michael Moore, the US film-maker, had somehow read his note – and depicted him as one of the “bad guys” in his latest film, Capitalism: A Love Story.

For while Mr Kapur had analysed “plutonomies” in order to help investors select stocks (investors should invest in companies selling luxury goods to rich people, such as Louis Vuitton), Mr Moore took a moralistic view.

Unsurprisingly, Mr Kapur is furious. “There was no nefarious or subversive intent behind our research on plutonomy and it was not in the least bit ‘secret’ or ‘confidential’,” he says. “We were clinical about our subject and made no moral judgments about whether {plutonomy} was a good or bad thing,” he adds.

But Mr Moore is sticking to his guns. “Someone from Citigroup discussing getting things right and wrong is like Bernie Madoff discussing ethics – their credibility ranges between zip and zero,” he says. “This is a bank that played a major role in the economic meltdown that has hurt so many people, paid their executives enormous bonuses and taken billions in taxpayers’ dollars – nothing squeals as much as a banking pig caught in the poke.”

Either way, as the tussle rumbles on, it is having one unexpected benefit: namely reviving interest in plutonomy. For though Mr Kapur has now moved to Mirae Asset group in Hong Kong, he recently issued a new plutonomy report. And this makes fascinating reading.

The essential thesis is that plutonomies arise when there are factors such as “disruptive productivity gains, financial innovation, capitalist-friendly governments, overseas conquests and dopamine-heavy immigrants, the rule of law, patent protection and great complexity exploited by the wealthy of the time”.

This description has applied to countries such as the US, UK, Canada and Australia recently: in the US, for example, the top 1 per cent control almost a quarter of the wealth. And that has big implications for consumer spending or global financial flows.

For while economists tend to watch factors such as unemployment to predict consumption, Mr Kapur thinks this can be misleading because it is the elite rich – not the middle class – who tend to drive consumption.

Last year, for example, this elite cut spending and raised saving because their assets plunged in value. However, in the next year, Mr Kapur is expecting plutonomists to make a comeback. As a result, he expects spending to reappear.

But there is a crucial twist. In the medium term, Mr Kapur thinks the Anglo-Saxon plutonomists are set to lose power because he expects more regulation, protectionism and a political backlash, pace Mr Moore’s own film.

But that does not mean the plutonomy will vanish. Even if the west becomes less market friendly and unequal, Mr Kapur thinks new plutonomies will occur in emerging markets such as China, Brazil, Russia and India. Thus, Mr Kapur’s recommendation to investors is to keep buying shares of companies selling luxury goods or services – but only if they sell in places such as Shanghai.

No doubt Mr Moore would consider that to be venal too. But the crucial point – which Mr Moore and Mr Kapur might agree on – is that investors, politicians, economists and voters need to focus more on how wealth is distributed across the world.

For only by looking at the details can anyone understand how power is shifting. Perhaps it is time for Mr Moore to take his camera beyond Detroit and make his next film in Delhi or some of the other regions that could soon turn into “plutonomies” if the thesis turns out to be true.