Lord Jim O’Neill, the former Goldman Sachs chief economist and the man who coined the term Brics in 2001, joined me for breakfast at the AIM Summit in Downtown Dubai.
Despite his long-term optimism about the technology’s potential, Mr O’Neill distances himself from the market’s current obsession. “I'm more cautious. Despite everything I've just said. Too much of a value person”
“I've struggled just to see how it could have done what it's done the past couple of years. And I have to say what what really bothers me in the past couple of months is now that we have various parts of the market, even seem to be basically investing in each other... That brings back memories of 1998-99 and the build-up to that, the Nasdaq bubble. So no – I’d stay away.”
He still sees promise where artificial intelligence can deliver real-world productivity. “I’m quite heavily involved in early-stage venture work – applications of AI in health or education where we can get transformational outcomes. I look at that as profit with a purpose.
“Central bank monetary policy is perhaps still contrary to the current general view” How could every asset class be doing well at the same time? how could every asset class be doing well at the same time? Doesn't really make a lot of sense other than a consequence of very accommodative, provision of money.”
Markets, he adds, are often far ahead in figuring things out. O’Neill warns that investors risk repeating history. He said he had just checked the University of Michigan five-year inflation expectations – 3.7 per cent – above the range of the past 30 years,” he says. “That doesn’t suggest inflation is beaten. The longer it stays at those levels, the more ingrained it gets into the psychology of life… we’re going to end up going back to the 1960s and 1970s, inflation becoming a real issue.”
Brics and the dollar challenge
Two decades after coining the term, O’Neill sees a new dynamic between China and India that could reshape global power. “It’s more symbolism, but it’s powerful symbolism and it’s getting bigger,” he says of meetings involving China's President Xi Jinping, Indian Prime Minister Narendra Modi and Russian President Vladimir Putin.
“If India and China started to really treat each other seriously, then you’re talking a whole different ball game.
”He argues that the post-Second World War institutions – the UN, World Bank, International Monetary Fund and even the G20 – no longer reflect the balance of power today.
“All these guys are underrepresented in them,” he says. “But you’re not going to change any of it unless you start to treat each other more seriously on trade “if the Indians and the Chinese, instead of sort of taking lumps out of each other on the border every other year, actually started to seriously pursue free trade with each other... then you could start to believe all these things about the use of their currencies more, a lot more seriously than all the talk I often hear.
O’Neill, who has watched past attempts by the yen and euro to challenge the greenback, cautions that change comes only when the US pushes others to seek alternatives. he says. If the US keeps doing things to provoke, other governments, policymakers as well as private investors to look for something else, that process in itself might force these alternatives to become more realistic than otherwise would be the case.
He recalls how the world’s mood shifted after 9/11. “ I thought the underlying symbolism of the brutal attack on 9/11 .. is the world had basically had enough of Americanisation,” O’Neill says.
“We then had a decade of many equity markets outperforming the US and many years of the dollar being weak … but that stopped in 2011..
“I can't see anything specific provoking at all, unless Trump or a follow on to Trump gets in… making fundamentally wrong decisions for the sustainable credibility of the United States.”
