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Speaker 1: This is Wall Street Week. I'm David Western bringing you

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Speaker 1: stories of capitalism from the Himalayas, where inequality amplified by

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Speaker 1: social media led to the fall of a government. To

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Speaker 1: the story not just of capitalism, but about capitalism looking

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Speaker 1: for a new way forward in the wake of the

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Speaker 1: Great Financial Crisis, with no new model in sight after

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Speaker 1: seven years of looking for it, and small businesses, many

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Speaker 1: of them family owned, helped drive the American economy. As

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Speaker 1: boomers retire, their children may not want to pick up

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Speaker 1: where their parents left off. But we start with China

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Speaker 1: and the United States, with President g and President Trump

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Speaker 1: trying to find ways to work together despite some important

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Speaker 1: strategic differences. Stephen Rattner of Willed Advisors manages the personal

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Speaker 1: and philanthropic assets of our founder and majority shareholder, Michael Bloomberg.

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Speaker 1: Steve recently returned from the Middle Kingdom, where he surveyed

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Speaker 1: the state of the economy and investment opportunities.

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Speaker 2: It was interesting, David, because I saw more than I've

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Speaker 2: seen it before, a kind of two speed or two

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Speaker 2: factor economy. On the one hand, everything you read about

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Speaker 2: the domestic economy is largely true. Consumption is weak, consumers

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Speaker 2: are dispirited. They're still trying to sort out the property bubble.

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Speaker 2: G does not seem to have any real appetite to

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Speaker 2: do stimulus or any of the things we would probably

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Speaker 2: do here under the same circumstances. It's not a disaster,

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Speaker 2: it's growing, and so let's just put that in perspective.

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Speaker 2: But on the other hand, their cutting edge industries, their

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Speaker 2: export industries are really extraordinary. I toured car factories, I

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Speaker 2: saw robots, I drove in autonomous evs, talked to a

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Speaker 2: lot of people, obviously, and we should not be under

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Speaker 2: any illusion about their competitiveness, even in things like that,

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Speaker 2: which we can talk more about, relative to where we

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Speaker 2: are at the moment.

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Speaker 1: Is that sustainable? Do you think? Because there was a

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Speaker 1: time there was a dual circulation theory from President G

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Speaker 1: that you had the domestic in supporting the international and

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Speaker 1: vice versa. If they don't really get the domestic consumption

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Speaker 1: going and the domestic economy going, and they have, as

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Speaker 1: you say, the property challenges has run with investment there,

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Speaker 1: can they continue to support that level of innovation.

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Speaker 2: Well, that's why I want to put this in perspective.

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Speaker 2: Because domest economy is slow, prices are not rising. They're

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Speaker 2: not really much falling anymore, but it's still growing by

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Speaker 2: some amount. And they of course have far more fiscal

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Speaker 2: space than we have because and a lot of different

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Speaker 2: numbers around. But my conclusion, my view is that they

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Speaker 2: are not nearly as leveraged from a governmental point of

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Speaker 2: view as we are, and so they have fiscal space.

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Speaker 2: She is just reluctant to use it. But if you

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Speaker 2: read his latest five year plan, for example, which came

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Speaker 2: out a couple months ago, he is very focused on

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Speaker 2: these cutting edge technology industries and of having Kina have

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Speaker 2: a premier place in the world, and they are on

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Speaker 2: their way to doing that, if not already there. In

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Speaker 2: a lot of cases, what.

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Speaker 1: Did you find in those cutting edge technologies? I mean,

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Speaker 1: we hear about biotech, we hear about evs certainly, and

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Speaker 1: AI as you.

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Speaker 2: Mentioned, so we can take them in whatever order you want.

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Speaker 2: On biotech, they have gone from importing our drugs to

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Speaker 2: their country to exporting their drugs to our country, not

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Speaker 2: the actual drugs, but the drug development. And if you

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Speaker 2: talk to any biotech investor, and we have a number

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Speaker 2: of them, they will tell you that they're now spending

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Speaker 2: time in China. What has become a thing is licensing

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Speaker 2: Chinese drugs into the US. You have to do the

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Speaker 2: trials again and so forth to comply with US regulations.

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Speaker 2: But they can develop drugs faster, better, cheaper than we

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Speaker 2: can for all the reasons. You can imagine that China

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Speaker 2: does things well when they put their mind to it,

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Speaker 2: and so that's become a big thing. AI. We were

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Speaker 2: obviously ahead, and we're still probably ahead, certainly in terms

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Speaker 2: of adoption and the value the companies and things like that.

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Speaker 2: But they have a number of very good models and

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Speaker 2: building more. I think the question about AI for them

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Speaker 2: is whether the world will use Chinese models. I think

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Speaker 2: it'll be tough here. I'm not so sure it'll be

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Speaker 2: that tough in the rest of the world because they

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Speaker 2: will be so much cheaper. For example, Huawei, as you

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Speaker 2: may remember, was deep into the telecoms infrastructure in many

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Speaker 2: parts of the world until we effectively shut it down,

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Speaker 2: and so people were willing to use Chinese technology, and

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Speaker 2: they may well in this case as well. And in

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Speaker 2: the case of evs and cars, they have something like

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Speaker 2: fifty car companies too many, and there's consolidation going on

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Speaker 2: and so on. But the quality of the cars is

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Speaker 2: unbelievable and the price is unbelievable.

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Speaker 1: It seems like Washington is fixated on China. Is China

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Speaker 1: as fixated on Washington? Do they pay as much attention

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Speaker 1: to us as we do to them?

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Speaker 2: It may well be on geopolitical and strategic things, which

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Speaker 2: are not my area of expertise, as you well know,

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Speaker 2: But on the economy, no, I don't. I think they

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Speaker 2: feel like they know how to do this us on

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Speaker 2: They're just they're they're on their own. For example, the

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Speaker 2: last trade spat that Trump Benji settled, we lost. Basically

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Speaker 2: we need you know, they can buy soybeans from Brazil,

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Speaker 2: they can get soybeans in other places. We can't get

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Speaker 2: these rare earth minerals. So, by the way, aren't that rare?

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Speaker 2: As you know, what's rare is the processing ability that

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Speaker 2: China has development, which we essentially keep limited here because

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Speaker 2: of environmental concerns, which I certainly subscribe to. But but

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Speaker 2: the result was Trump essentially had to back down. I mean,

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Speaker 2: there's too much stuff that they make that we need

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Speaker 2: at this point to survive. And so I think they're

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Speaker 2: in a pretty strong position visas vs.

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Speaker 1: As China looks externally what do they see as their

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Speaker 1: opportunity markets. I mean you mentioned Brazil, the soybeans, buying,

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Speaker 1: soybean buying selvings, but what about for export? Who do

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Speaker 1: they think are their their opportunities out there?

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Speaker 2: Well, I think mostly the developed world. Obviously their evs

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Speaker 2: are huge in Europe. The Europeans are trying to clamp

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Speaker 2: down on it. But if you look at new car

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Speaker 2: registrations in Europe id is I think probably, I would

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Speaker 2: guess registering as many cars there as everybody else all

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Speaker 2: put together because of the price. And it raises an

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Speaker 2: interesting question for us, which is that you know, I

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Speaker 2: believe in the auto industry here, as you know, but

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Speaker 2: we're effectively denying our consumers the chance to buy a cheaper,

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Speaker 2: better car because we effectively have banned Chinese cars by

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Speaker 2: using one hundred percent tariffs, and so we sell sixteen

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Speaker 2: million cars a year here, average price fifty thousand dollars

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Speaker 2: a car. If you cut ten thousand dollars off the

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Speaker 2: price of that car, that's one hundred and sixty billion

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Speaker 2: dollars a year of benefits to consumers here if we

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Speaker 2: let them in at the cost of our automobile industry.

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Speaker 2: So these are really tough issues for US and for

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Speaker 2: other developed countries.

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Speaker 1: What have you seen in the nature of the strategy

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Speaker 1: for the US as against China, Because right now it

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Speaker 1: appears that what President Trump and the administration are saying

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Speaker 1: is let's slow China down through trade actions, through export controls,

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Speaker 1: things like that. Is that a viable strategy to slow

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Speaker 1: China down?

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Speaker 2: My view is the only way we're going to be

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Speaker 2: China is by doing a better job ourselves. We're not

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Speaker 2: going to out negotiate them, We're not going to out

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Speaker 2: war them, if you will, we have to just do

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Speaker 2: better ourselves. There's no other solution to this, in my opinion.

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Speaker 1: Your day job is investing in picking investors, and that's

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Speaker 1: why you went to China. After all, What did you

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Speaker 1: learn for investors who are looking at China? What opportunities

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Speaker 1: do you think there are there, if any?

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Speaker 2: Well, first of all, for the average investor, I would

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Speaker 2: say you shouldn't be messing around with these These are

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Speaker 2: sharp objects, and China is a sharp object, there's no

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Speaker 2: question about that. But investing, as you all know, is

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Speaker 2: a mix of valuation and upside and China valuations even

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Speaker 2: though the stock market has had a heck of a

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Speaker 2: run this year, are still relatively cheap, certainly compared to

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Speaker 2: the S and P. The multiple is probably half of

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Speaker 2: the S and PS or something like that. And companies

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Speaker 2: there are some doing well, some doing less well, depending

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Speaker 2: upon what part of the economy they're levered to and

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Speaker 2: things like that. But the companies are still doing reasonably well.

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Speaker 2: For example, in AI in terms of the valuation point

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Speaker 2: the Chinese, the Chinese LM is comparable to Open AI.

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Speaker 2: They're valued at four or five ten billion dollars, not

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Speaker 2: five hundred billion dollars, and so you know, it's a

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Speaker 2: lot harder to get hurt jumping out of a basement window.

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Speaker 1: Can you see a path whether we're on it now

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Speaker 1: or not forward to a reasonable economic relationship between China

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Speaker 1: and United States. When we went through a long period

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Speaker 1: of time we had no relations with them, then we

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Speaker 1: sort of really became enamored, particularly with dunks shopping and

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Speaker 1: coming to the wto you'll get more like us. Now

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Speaker 1: there's a growing disenchantment with it. We have to get

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Speaker 1: along with the second largest economy in the world.

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Speaker 2: Presumably, well, they never got more like us. I'm very

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Speaker 2: admiring of the Chinese. I'm very respectful of them, but

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Speaker 2: the idea that they play fair in trade was always

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Speaker 2: an illusion. And the people who thought putting them in

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Speaker 2: the wto would bring them into the community of nations

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Speaker 2: and then they'd start to play fair. We're obviously mistaken

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Speaker 2: because they have never had done it. And you can

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Speaker 2: go back to the Pirate of video cassettes and all

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Speaker 2: the other examples there are of Chinese trade practices. So

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Speaker 2: we can do our best to nudge them, pull them,

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Speaker 2: cajole them whatever, and if all else fails, then we

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Speaker 2: do have to have trade restrictions if they're really truly

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Speaker 2: not going to play fair. But as I said, I

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Speaker 2: think the only way we're going to quote win against

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Speaker 2: China is by doing a better job at home.

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Speaker 1: Coming up Nessel in the Himalayas. Nepal may seem far

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Speaker 1: removed from the rest of the world, but it turns

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Speaker 1: out that it shares problems of wealth, inequality and of

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Speaker 1: vigorous social media to show its citizens just what's wrong.

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Speaker 1: This is a story about turmoil at the top of

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Speaker 1: the world. In September, Nepalese demonstrators took to the streets,

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Speaker 1: burning buildings and forcing a change in the government. Our

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Speaker 1: colleague Michael McKee traveled to Katmandu to see firsthand what

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Speaker 1: led to the violence and found a story of inequality

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Speaker 1: and social media not all that different from the rest

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Speaker 1: of the world.

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Speaker 3: I was tired of living in a country where not

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Speaker 3: my capabilities or my competence, but the connection that people

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Speaker 3: have takes them forward.

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Speaker 4: We plan to have a very small, peaceful protest.

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Speaker 5: Did you stay off of social media or did you

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Speaker 5: go back to posting?

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Speaker 3: No, I went back to posting. I will never stop posting.

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Speaker 3: It's fine even if I die, but I will be

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Speaker 3: dying picking up for my countries. There is a huge

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Speaker 3: class difference and all these people they get these opportunities

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Speaker 3: not because they are capable of it, just because they know.

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Speaker 6: Somebody Madagascar, Sri Lanka, Philippines, Maldives, East Team or Nepal.

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Speaker 7: Dublin property is being demolished, burned out. Did we have

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Speaker 7: a think that we will be talking next?

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Speaker 8: Note?

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Speaker 6: The big question is how many other similar countries does

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Speaker 6: the spread to?

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Speaker 5: Now more than ever before, people have a window into

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Speaker 5: the lives of others. Social media connects youth across countries

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Speaker 5: and continents, but it also shows them riches beyond their reach,

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Speaker 5: and as inequality and unfairness become more conspicuous, some gen

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Speaker 5: zers have taken to the streets. But nowhere was the

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Speaker 5: movement more visible and more violent than in Nepal, a

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Speaker 5: small democratic country wedged between Tibet and India.

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Speaker 3: We were marching towards the parlament gate. And I was

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Speaker 3: always very opinionated. I used to have opinions in everything.

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Speaker 3: I was a rebel kid. This video is about me, or.

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Speaker 5: Asked Prashamsa Subeti is a twenty two year old law

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Speaker 5: student who lives with her parents in the outskirts of

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Speaker 5: Nepal's capital, Katmandu. Not long ago, her life took a

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Speaker 5: surprising turn.

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Speaker 3: It was twenty twenty four when I started uploading the

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Speaker 3: videos about my political opinion, what I felt the government

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Speaker 3: was doing raw and that's when it took off.

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Speaker 5: In late June, after anpolypolitician downplayed the country's poverty, so

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Speaker 5: Baby posted an angry response on TikTok. A day later,

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Speaker 5: her clip had over a million views.

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Speaker 3: How can on leader monthly monthly see that gait before?

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Speaker 3: When we think of it, these politicians would not have

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Speaker 3: their life public, so we would not know what their

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Speaker 3: lifestyle was, how everything was going. But then there is

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Speaker 3: a very famous politician. One of his family members was

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Speaker 3: a vlogger and she used to document their lives and

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Speaker 3: every clips used to go viral and people used to

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Speaker 3: see what lavish lifestyle they were having, which we could

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Speaker 3: not even imagine. So that is how it all sparked.

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Speaker 3: That is how it all triggered so many people, and

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Speaker 3: to mouth situation and then you show off your luxury,

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Speaker 3: this and that everybody would get any.

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Speaker 8: So a I.

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Speaker 5: Although inequality in Nepal may be more visible, its existence

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Speaker 5: is hardly new. It's thirty one million inhabitants make an

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Speaker 5: average annual income of less than two thousand dollars, and

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Speaker 5: at around forty billion dollars per year, Nepal's GDP is

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Speaker 5: lower than that of any US state, but GDP has

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Speaker 5: been on the rise, climbing at an average annual rate

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Speaker 5: of over four percent in the last ten years. It's

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Speaker 5: also got a GINI coefficient that's fallen over the past

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Speaker 5: two decades, showing that with the limited data we have,

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Speaker 5: the gap between rich and poor in Nepal seems to

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Speaker 5: be shrinking. Ghansham Upadyai is Nepal's finance secretary.

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Speaker 9: Experienced the four point two percent economic growth in the

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Speaker 9: last decade. One year we pissed the negative growth that

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Speaker 9: is off the COVID nineteen year. The economy of Nepal

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Speaker 9: is resilient. Inequality is reducing.

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Speaker 5: Small steps towards stability, but seemingly not enough. Anger and

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Speaker 5: resentment over perceived economic injustice built up over the years,

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Speaker 5: and seeing stark inequality on social media pushed people over

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Speaker 5: the edge.

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Speaker 6: There's sudden visibility to how much richer the rich are

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Speaker 6: than the poor, right that ability to kind of see

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Speaker 6: over the palace walls.

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Speaker 5: Clay Shirky studies the effect of social media on politics

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Speaker 5: at New York University.

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Speaker 6: In Revolution after revolution, there has been some sudden change

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Speaker 6: in perception of how the wealthier living in Nepal. It

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Speaker 6: was around this idea of Nepo babies, right. It was

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Speaker 6: the idea that the children of the rich were not

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Speaker 6: suffering the way the rest of gen Z was. There's

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Speaker 6: a case one of the famous Nepalese influencers. She was

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Speaker 6: a former Miss Nepal. She was a Harvard graduate and

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Speaker 6: she was widely followed on Instagram and once the idea

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Speaker 6: of the Nepo Baby arrives, many of her followers turned.

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Speaker 1: Against her as a kumone.

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Speaker 6: She suddenly became a target for outrage for exactly the

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Speaker 6: same thing she'd been posting all the way along.

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Speaker 5: Something had changed about the way Nepal's youth saw their

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Speaker 5: country and the lives of its wealthiest citizens. It was

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Speaker 5: not just the inequality that felt wrong, but the inequality

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Speaker 5: of opportunity, the idea that those at the bottom would

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Speaker 5: never have the chance to rise up and those at

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Speaker 5: the top might not deserve to be there at all.

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Speaker 5: And although generational wealth, corruption and nepotism had always existed

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Speaker 5: in Nepal, today they were in your face, on your phone,

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Speaker 5: seemingly flaunted. As the online feury grew, the government made

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Speaker 5: a dramatic decision.

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Speaker 2: And Nepala is tragged down on a number of social

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Speaker 2: media platforms, including Facebook, YouTube, Instagram.

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Speaker 6: X I was.

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Speaker 4: Foster called utterly hopeless and helpless.

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Speaker 5: Eighteen year old Schaswat Lamichan was one of the many

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Speaker 5: gen Zers who was angry about the social media ban.

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Speaker 4: Talked with us some activist friends figured out like what

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Speaker 4: we could do, and we concluded that the doing a

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Speaker 4: protest will be the best way to do it.

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Speaker 5: Lamichan says he expected two hundred protesters to show up,

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Speaker 5: but across the country, others like him were putting out

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Speaker 5: the same call to friends and influencers.

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Speaker 7: Today we are He had to say.

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Speaker 2: Enough fus never ending corruption.

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Speaker 6: The collective action problem is if one person goes to

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Speaker 6: the government and is protesting out front, they are completely helpless.

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Speaker 6: But if a thousand people do, they have to pay attention,

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Speaker 6: and if ten thousand people do, they're overwhelmed.

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Speaker 5: Everyone we spoke with said the plan was for a small,

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Speaker 5: peaceful protest, but in the three short days between the

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Speaker 5: social media ban and the protest on September eighth, the

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Speaker 5: call to action spread like wildfire.

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Speaker 4: By that point, the evening of the UNI Verse seven,

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Speaker 4: we figured out that this would be huge because everyone

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Speaker 4: was talking about it. It ended up becoming a national thing.

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Speaker 5: But it's also what happened on September eighth, when you

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Speaker 5: woke up in the morning.

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Speaker 4: I didn't sleep that day.

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Speaker 3: We all planned to wear school dresses so that police

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Speaker 3: could not even beat us because it's illegal to beat

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Speaker 3: school children. We started marching and we were chanting slogans

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Speaker 3: and we were having fun. We were singing songs. Some

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Speaker 3: people were playing oh no there, and we were one

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Speaker 3: hundred meters a week from Parliament where we were sitting,

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Speaker 3: and we got the sense of tear gas.

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Speaker 5: In an instant, everything changed.

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Speaker 3: That is when I got the news of a person

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Speaker 3: being killed. We didn't think it would go that far,

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Speaker 3: but there was a news of a person being targeted.

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Speaker 3: I was just scrolling through the new I could not work,

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Speaker 3: I could not do anything. I was just scrolling through

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Speaker 3: the one scroll one, that one scroll one. That's after

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Speaker 3: the news that one person is shot and he is dead.

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Speaker 3: I felt so guilty because he might have watching my videos,

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Speaker 3: so maybe I am responsible for his death.

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Speaker 4: Police firing eco sauce at children, children dying.

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Speaker 5: News of the violence traveled quickly and then escalation.

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Speaker 3: The very clip that I would say that ignited the

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Speaker 3: fire in the people was a seventeen year old getting

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Speaker 3: shot on his head.

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Speaker 7: It outreached the whole population.

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Speaker 1: The next day, it was not gen Z anymore.

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Speaker 7: It was the nation versus the government.

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Speaker 9: Then Hilton got burned.

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Speaker 4: They started burning all the government buildings and everything. Our

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Speaker 4: palaces were burnt, our banks were looted.

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Speaker 5: This factory belonged to the family of Nirvana Chodori, whose

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Speaker 5: home was also set ablaze. His family owns one of

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Speaker 5: Nepal's largest businesses, So they went after your parents' house

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Speaker 5: and then one of your factories.

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Speaker 7: Our showrooms got burned down, and motorcycles looted, vehicles looted.

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Speaker 7: People are prostrated, people are jobless. Do they want to

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Speaker 7: see big hooms over there? Frustration was what was targeted

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Speaker 7: towards individuals and families like ours.

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Speaker 5: By the end of the violence, over seventy people had died,

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Speaker 5: two thousand injured. All the gen Zers who spoke to

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Speaker 5: us on camera made clear they never advocated violence and

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Speaker 5: were far away when the situation escalated to the highest

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Speaker 5: levels of government. On September ninth, one day after the

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Speaker 5: protests began, many of Nepal's top leaders resigned, including the

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Speaker 5: Prime Minister himself.

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Speaker 3: We never imagine this situation. It was like nobody told

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Speaker 3: us we would be a country without a government.

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Speaker 5: The gen Zers worried that in to improve their democracy

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Speaker 5: they might have inadvertently ended it. The army was taking control,

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Speaker 5: stepping into the vacuum left by Nepal's leadership, but then

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Speaker 5: an unexpected phone call in the middle of the night.

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Speaker 4: The Imy invited us to sit down with them at

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Speaker 4: the Army headquarters to talk on what to do next,

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Speaker 4: what the future of the country should look like.

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Speaker 5: Subeti also got the Army's call, along with a handful

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Speaker 5: of others. They ask, you helped start this, now come

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Speaker 5: fix it. Lamichan, who had started a chat room to

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Speaker 5: organize the protests, helped create another, this time to pick

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Speaker 5: a new leader. Over one hundred thousand people joined and

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Speaker 5: for hours they debated and voted. The name they chose

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Speaker 5: Sushila Kak, a retired Supreme Court justice known for fighting

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Speaker 5: corruption and supporting women's rights. Subeti, the law student, got

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Speaker 5: her phone number.

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Speaker 3: She was asking if we were okay in everything, and

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Speaker 3: we asked to step up, and then she said, if

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Speaker 3: you guys are trusting on me, then I will have

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Speaker 3: to step up because it's not about me anymore. It's

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Speaker 3: about the country.

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Speaker 5: Do you look at this and think how amazing I

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Speaker 5: spoke into this camera and look what's happened.

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Speaker 3: Actually no, because I still have that guilt of posting

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Speaker 3: the video, and I still think some people might have

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Speaker 3: come watching my videos and they had to lose their life.

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Speaker 3: But if something great happens in the days coming forward,

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Speaker 3: then that day I might be able to grasp that

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Speaker 3: I was one of the major people who was responsible

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Speaker 3: for this change to happen.

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Speaker 5: In the week since Nepal's government was brought down, so

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Speaker 5: called gen Z protests have erupted in other countries, including Morocco, Madagascar,

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Speaker 5: and Peru. The outcome of these movements is uncertain and

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Speaker 5: their motivations are varied, but they are each ground in

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Speaker 5: the economics of inequality and a belief among younger generations

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Speaker 5: that the system has in some way failed them. Has

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Speaker 5: something changed in society that makes people angrier about their condition.

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Speaker 5: We've had the peasants and the royalty right forever.

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Speaker 6: So there is a general anti royalist and anti elite

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Speaker 6: sentiment that is spreading from country to country, a sense

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Speaker 6: that the leaders of the country are not natural rulers.

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Speaker 6: And there's also a sense that the economy should work

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Speaker 6: for young people. And some of this is really just comparative, right.

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Speaker 6: If you live in a place and you have a

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Speaker 6: certain kind of life and you have no idea what

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Speaker 6: anybody else's life is like, it's easy to just say

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Speaker 6: this is how the world is but if you can

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Speaker 6: see a cross right, if you can see to other countries,

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Speaker 6: if you can see to other cities, is that comparative

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Speaker 6: sensibility makes it harder for our royal family or a

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Speaker 6: set of hereditary elites to maintain legitimacy. And just the

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Speaker 6: idea that the children of rich people should not have

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Speaker 6: disproportionate opportunity, that is a surprising new idea.

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Speaker 5: For subedian others. It's an idea whose time has come.

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Speaker 5: A look over the palace wall made them angry, but

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Speaker 5: then also hopeful for a better future, hopefully enough to

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Speaker 5: take action, and now hopeful that their action will be

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Speaker 5: worth the sacrifice.

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Speaker 1: Up next to capitalism at a crossroads, That's what several

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Speaker 1: experts have addressed in various ways as we seek a

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Speaker 1: new model to replace the one that got us into

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Speaker 1: the Great financial Crisis. Here at Wall Street Week, we

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Speaker 1: bring you stories of capitalism every week. But this story

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Speaker 1: is not just of capitalism, but about capitalism, where it

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Speaker 1: came from, where it's headed, and why so many people

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Speaker 1: are questioning its future and its foundations. One of them

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Speaker 1: is about to take over as mayor of Wall Street's

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Speaker 1: home city at the end of the year.

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Speaker 5: I am a democratic socialist.

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Speaker 1: And if you listen to President Trump, it's not enough

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Speaker 1: that mister Mumdannie embraces democratic socialism. He insists on calling

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Speaker 1: him an outright communist.

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Speaker 5: And now let's see how it communist does in New York.

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Speaker 3: We're going to see how that works out.

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Speaker 1: Our Bloomberg colleague, John Authors has taken a look through

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Speaker 1: several recent books about capitalism's challenges, written not by its

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Speaker 1: opponents but by its supporters, and he has some thoughts

440
00:24:52,800 --> 00:24:56,399
Speaker 1: about why there's so much capitalist soul searching these days.

441
00:24:56,720 --> 00:24:59,800
Speaker 1: Thoughts that he shared with us. What is capitalism? How

442
00:24:59,840 --> 00:25:00,600
Speaker 1: do you define it?

443
00:25:00,800 --> 00:25:01,000
Speaker 5: Well?

444
00:25:01,160 --> 00:25:04,359
Speaker 10: Part of its strength is something that grew up naturally

445
00:25:04,520 --> 00:25:07,919
Speaker 10: and has had the ability to morph and adapt in

446
00:25:07,960 --> 00:25:13,440
Speaker 10: a way that none of its alternatives socialism, communism, et

447
00:25:13,520 --> 00:25:16,199
Speaker 10: cetera have been able to do. I've been churning my

448
00:25:16,280 --> 00:25:21,000
Speaker 10: way through this selection of enormous tomes, all of which

449
00:25:21,080 --> 00:25:23,879
Speaker 10: have in common this belief that capitalism is in crisis.

450
00:25:24,520 --> 00:25:28,040
Speaker 10: The point is that it adapts each time it has

451
00:25:28,080 --> 00:25:32,760
Speaker 10: a crisis. There are more truly non capitalist alternatives being

452
00:25:33,000 --> 00:25:38,440
Speaker 10: considered at present than they have been. Arguably, the latest

453
00:25:38,480 --> 00:25:41,960
Speaker 10: model of capitalism really fell in two thousand and eight.

454
00:25:42,160 --> 00:25:45,960
Speaker 10: We work for Bloomberg. We're part of the citadels of capitalism. Everybody,

455
00:25:45,960 --> 00:25:49,000
Speaker 10: I think, has to agree that the model that was

456
00:25:49,000 --> 00:25:52,800
Speaker 10: in force until eight really perished with the crisis. You

457
00:25:52,840 --> 00:25:55,840
Speaker 10: would normally expect them to be more clarity about what

458
00:25:55,960 --> 00:25:59,679
Speaker 10: was coming next this long after the crisis, And I

459
00:25:59,680 --> 00:26:03,080
Speaker 10: think the reason people are writing so much about capitalism

460
00:26:03,160 --> 00:26:07,120
Speaker 10: now getting so worried is that we're not seeing that

461
00:26:07,160 --> 00:26:10,680
Speaker 10: new model, that new narrative taking shape with any clarity.

462
00:26:11,080 --> 00:26:12,720
Speaker 1: Before we look at the new model, let's go about

463
00:26:12,720 --> 00:26:15,520
Speaker 1: the old models. What are the models that capitalism has

464
00:26:15,840 --> 00:26:16,760
Speaker 1: evolved through.

465
00:26:17,520 --> 00:26:21,680
Speaker 10: I'll give you the schema that Anatol Koletski, who's sort

466
00:26:21,680 --> 00:26:24,080
Speaker 10: of known these days for having set up the Gavkal.

467
00:26:24,520 --> 00:26:28,240
Speaker 10: His book Capitalism four point zero is about what is

468
00:26:28,320 --> 00:26:32,200
Speaker 10: capitalism four point zero going to be? One point oh?

469
00:26:32,320 --> 00:26:35,800
Speaker 10: Was laisse a fair? It gave us the growth of

470
00:26:35,840 --> 00:26:39,520
Speaker 10: the British Empire, the Industrial Revolution, the Gilded Age here

471
00:26:39,560 --> 00:26:43,760
Speaker 10: in the States, and it finally perishes after the Great

472
00:26:43,760 --> 00:26:48,280
Speaker 10: Crash and the Great Depression. Capitalism two point zero is

473
00:26:49,320 --> 00:26:53,440
Speaker 10: basically Keynesianism, the New Deal, the Marshall Plan, the gi Bill,

474
00:26:54,160 --> 00:26:57,360
Speaker 10: it gives you the great successes of the post war

475
00:26:57,440 --> 00:27:02,840
Speaker 10: economic miracles in Germany and pan and founders obviously in

476
00:27:03,000 --> 00:27:07,040
Speaker 10: stagflation in the nineteen seventies. Capitalism three point zero you

477
00:27:07,080 --> 00:27:10,240
Speaker 10: would we generally think of, with regard to Ronald Reagan

478
00:27:10,240 --> 00:27:13,159
Speaker 10: and Margaret Thatcher, the great pioneers of it, Paul Volker

479
00:27:13,800 --> 00:27:15,720
Speaker 10: with the way he took over the Fed and changed

480
00:27:15,920 --> 00:27:19,160
Speaker 10: monetary policy, the role of the dollar. Nobody thinks that

481
00:27:19,400 --> 00:27:22,720
Speaker 10: capitalism of the Thatcher rega kind is going to come

482
00:27:22,760 --> 00:27:27,200
Speaker 10: back anytime soon. We are going to have some transition

483
00:27:27,480 --> 00:27:29,480
Speaker 10: on the scale of those ones I've just mentioned, the

484
00:27:29,520 --> 00:27:32,840
Speaker 10: ones that came after twenty nine and after the seventies.

485
00:27:33,480 --> 00:27:36,960
Speaker 10: The question is exactly what the capitalism four point zero

486
00:27:37,000 --> 00:27:37,359
Speaker 10: will be.

487
00:27:38,720 --> 00:27:42,600
Speaker 1: Although capitalism in markets and democracy in politics tend to

488
00:27:42,640 --> 00:27:45,320
Speaker 1: occur together and have some things in common, they are

489
00:27:45,359 --> 00:27:46,119
Speaker 1: not the same.

490
00:27:46,359 --> 00:27:49,960
Speaker 10: In each case. It was the markets that signaled to

491
00:27:50,359 --> 00:27:53,960
Speaker 10: the politicians that this model had ceased to work with

492
00:27:54,040 --> 00:27:57,560
Speaker 10: the Great Crash, with the Great inflation of the seventies,

493
00:27:57,760 --> 00:28:02,679
Speaker 10: and with the crisis of a democracy and capitalism have

494
00:28:02,760 --> 00:28:06,639
Speaker 10: a symbiotic relationship. There's a wonderful line from Winston Churchill

495
00:28:06,640 --> 00:28:09,720
Speaker 10: that democracy is the worst way of running society that

496
00:28:09,800 --> 00:28:12,359
Speaker 10: anybody has come up with, apart from all the others

497
00:28:12,400 --> 00:28:14,560
Speaker 10: that have ever been tried. Both have it in common

498
00:28:14,560 --> 00:28:17,920
Speaker 10: that they're not perfect, but that they are more or

499
00:28:18,000 --> 00:28:22,840
Speaker 10: less impossible to improve upon. They have internal checks. You

500
00:28:22,840 --> 00:28:24,880
Speaker 10: don't want to get thrown out by the voters if

501
00:28:24,880 --> 00:28:29,160
Speaker 10: you're a politician, you don't. Greed and fear count each other,

502
00:28:29,359 --> 00:28:33,840
Speaker 10: and the two systems check each other. It's largely now

503
00:28:34,160 --> 00:28:37,800
Speaker 10: up to governments to work out what to do next.

504
00:28:38,440 --> 00:28:40,560
Speaker 1: Does capitalism work without growth?

505
00:28:40,640 --> 00:28:44,520
Speaker 10: Yes, that is a critical problem. This is a Sven

506
00:28:44,520 --> 00:28:49,080
Speaker 10: Beckett's book, professor of history at Harvard. He spent ten

507
00:28:49,440 --> 00:28:53,080
Speaker 10: years writing this magnum opus on the history of capitalism,

508
00:28:53,120 --> 00:28:55,239
Speaker 10: and one of the points he makes it's like a

509
00:28:55,280 --> 00:28:58,720
Speaker 10: shark has to keep moving. You could argue that it's

510
00:28:58,760 --> 00:29:02,440
Speaker 10: capitalism one point zero Gilded Age. Donald Trump is terribly

511
00:29:02,480 --> 00:29:06,360
Speaker 10: excited by President McKinley, who went for very high tariffs

512
00:29:06,720 --> 00:29:09,400
Speaker 10: in the late nineteenth century in America was expanding the

513
00:29:09,440 --> 00:29:12,280
Speaker 10: way it was by building railroads connecting up the west

514
00:29:12,320 --> 00:29:14,000
Speaker 10: and East coast and all the rest of it. Was

515
00:29:14,040 --> 00:29:17,520
Speaker 10: a way of protecting this infant economy as it's got

516
00:29:17,560 --> 00:29:20,920
Speaker 10: ready to take over its hegemonic position in the world. However,

517
00:29:21,520 --> 00:29:23,680
Speaker 10: most of the people have been talking to would suggest

518
00:29:23,720 --> 00:29:26,880
Speaker 10: that there's something a little more alarming going on, which

519
00:29:26,880 --> 00:29:30,640
Speaker 10: you might call capitalism zero point zero or pre capitalism,

520
00:29:30,680 --> 00:29:36,160
Speaker 10: which is mechantilism. The idea that came before capitalism grows

521
00:29:36,240 --> 00:29:40,400
Speaker 10: out of Britain's victory in the Napoleonic was the growth

522
00:29:40,440 --> 00:29:45,080
Speaker 10: of the British Empire and the Industrial Revolution. Different countries

523
00:29:45,120 --> 00:29:48,360
Speaker 10: had their own spheres of influence and then try to

524
00:29:48,400 --> 00:29:51,440
Speaker 10: build empires to give them a place to sell their

525
00:29:51,440 --> 00:29:51,880
Speaker 10: stuff to.

526
00:29:53,960 --> 00:29:57,040
Speaker 1: One of the problems facing capitalism is the growing role

527
00:29:57,120 --> 00:30:01,400
Speaker 1: of governments in intervening to minimize pain from markets and investors.

528
00:30:02,280 --> 00:30:04,400
Speaker 8: Well, my point, David in the book is not that

529
00:30:04,480 --> 00:30:07,600
Speaker 8: capitalism has failed, but that it's been ruined, and it's

530
00:30:07,640 --> 00:30:09,560
Speaker 8: been ruined by government over time.

531
00:30:10,360 --> 00:30:14,719
Speaker 1: Author Rasher Sharma is head of Rockefeller Capital Management's international business.

532
00:30:14,960 --> 00:30:18,840
Speaker 1: His book is What went Wrong with Capitalism?

533
00:30:18,920 --> 00:30:22,120
Speaker 8: So then you began to expand the role of the state.

534
00:30:22,200 --> 00:30:25,000
Speaker 8: The problem is that it has now expanded to such

535
00:30:25,040 --> 00:30:27,800
Speaker 8: an extent, and it's not just about government spending, as

536
00:30:27,800 --> 00:30:30,640
Speaker 8: I said, it's the culture of the bailouts, who does

537
00:30:30,680 --> 00:30:35,680
Speaker 8: it help. It's the regulations. Who does regulation really help?

538
00:30:36,040 --> 00:30:37,680
Speaker 8: And what I say in the book is that all

539
00:30:37,720 --> 00:30:42,120
Speaker 8: these things have systematically increased to undermine what capitalism is

540
00:30:42,120 --> 00:30:45,360
Speaker 8: supposed to be, and the outcomes we're getting today is

541
00:30:45,400 --> 00:30:47,000
Speaker 8: not what the founders had in mind.

542
00:30:47,360 --> 00:30:48,560
Speaker 6: When the Founders spoke.

543
00:30:48,320 --> 00:30:53,200
Speaker 8: About the architects of capitalism, they wanted more competition churned

544
00:30:53,240 --> 00:30:56,480
Speaker 8: to happen, that the incumbents are never entrenched, that they're

545
00:30:56,480 --> 00:31:00,000
Speaker 8: always challenged by insurgents. Capitalism was supposed to create that freedom,

546
00:31:00,360 --> 00:31:03,600
Speaker 8: let the insurgents come and challenge the incumbents. Instead, what

547
00:31:03,640 --> 00:31:06,240
Speaker 8: we are seeing today is that the incumbents are getting

548
00:31:06,240 --> 00:31:10,040
Speaker 8: more and more entrenched. The concentration of power, as you

549
00:31:10,080 --> 00:31:12,600
Speaker 8: can see at the number of companies that dominate THESN p.

550
00:31:12,720 --> 00:31:17,040
Speaker 8: Five hundred, how concentrated that is. And also the fact

551
00:31:17,040 --> 00:31:20,000
Speaker 8: that you get this mismatch in risk, which is that

552
00:31:20,400 --> 00:31:23,320
Speaker 8: you can capitalize the gains, but we are here to

553
00:31:23,360 --> 00:31:24,600
Speaker 8: socialize the losses.

554
00:31:25,040 --> 00:31:27,160
Speaker 5: I think it's this perversion.

555
00:31:26,640 --> 00:31:29,600
Speaker 8: Of capitalism that we have seen today, and this is

556
00:31:29,640 --> 00:31:30,880
Speaker 8: having real consequences.

557
00:31:31,680 --> 00:31:35,560
Speaker 1: That concentration has only increased in recent years. Much of

558
00:31:35,600 --> 00:31:38,800
Speaker 1: the growth in America's equity markets today is driven by

559
00:31:38,840 --> 00:31:40,200
Speaker 1: the Magnificent seven.

560
00:31:41,120 --> 00:31:44,600
Speaker 8: Productivity growth around the world, and particularly like in America,

561
00:31:44,800 --> 00:31:47,200
Speaker 8: has been falling off. Right at the end of the day,

562
00:31:47,480 --> 00:31:51,040
Speaker 8: the key to long term economic growth is productivity growth.

563
00:31:51,120 --> 00:31:54,120
Speaker 8: So productivity growth is falling off. Why is it falling off?

564
00:31:54,400 --> 00:32:00,160
Speaker 8: I argue it's because that dynamism that capitalism brought about

565
00:32:00,280 --> 00:32:03,640
Speaker 8: new people to come about taking out the dead world.

566
00:32:03,800 --> 00:32:08,240
Speaker 8: That dynamism is getting lost in this constant state support

567
00:32:08,640 --> 00:32:11,960
Speaker 8: that we have for capitalism. And the other negative consequence

568
00:32:12,360 --> 00:32:15,080
Speaker 8: is this concentration of power. And you know, when you

569
00:32:15,120 --> 00:32:19,000
Speaker 8: have so much regulation out there, that helps the incumbents.

570
00:32:19,040 --> 00:32:23,160
Speaker 8: They are big, they can afford to deal with those regulations,

571
00:32:23,200 --> 00:32:25,920
Speaker 8: and they can even lobby in Washington to get the

572
00:32:26,040 --> 00:32:28,640
Speaker 8: kind of regulations that they want. But small to mid

573
00:32:28,720 --> 00:32:33,080
Speaker 8: size businesses they find it increasingly difficult to survive, forget

574
00:32:33,120 --> 00:32:37,440
Speaker 8: even thrive in this kind of environment. There's a deep

575
00:32:37,520 --> 00:32:41,360
Speaker 8: unhappiness with the establishment as most people are very unhappy

576
00:32:41,720 --> 00:32:45,800
Speaker 8: with their own fortunes right, which is that in America today,

577
00:32:45,840 --> 00:32:49,440
Speaker 8: for example, I think about seventy percent of Americans today

578
00:32:49,480 --> 00:32:52,080
Speaker 8: say that they are unlikely to be better off in

579
00:32:52,120 --> 00:32:55,840
Speaker 8: their parents. This is a violation of the American capitalist dream.

580
00:32:56,160 --> 00:32:59,680
Speaker 8: The American capitalist dream from forty to fifty years ago

581
00:33:00,160 --> 00:33:02,320
Speaker 8: was that most Americans thought they're going to be better

582
00:33:02,360 --> 00:33:04,800
Speaker 8: off than their parents. You're supposed to be better off over time.

583
00:33:05,320 --> 00:33:07,920
Speaker 8: Young people in America today, when you pull them, they

584
00:33:07,920 --> 00:33:11,160
Speaker 8: tell you that they'd rather have socialism than they would

585
00:33:11,160 --> 00:33:14,680
Speaker 8: have capitalism. You know, for me, that is suppossibly the

586
00:33:14,680 --> 00:33:18,640
Speaker 8: one most important statistic that inspired me to write this book,

587
00:33:18,880 --> 00:33:21,320
Speaker 8: that why are so many young people in this country

588
00:33:21,680 --> 00:33:25,000
Speaker 8: disillusioned with capitalism? And the answer for me is the

589
00:33:25,000 --> 00:33:28,080
Speaker 8: fact that their disillusion with the current form of system,

590
00:33:28,440 --> 00:33:30,640
Speaker 8: which they think is capitalism.

591
00:33:30,960 --> 00:33:34,440
Speaker 1: With all the challenges that capitalism faces today, perhaps the

592
00:33:34,480 --> 00:33:38,920
Speaker 1: most ironic is that its biggest advantage, deep capital markets,

593
00:33:39,040 --> 00:33:42,840
Speaker 1: may in the end itself turn out to be anti capitalist.

594
00:33:43,560 --> 00:33:46,960
Speaker 10: One of the things that surprised me. I've spent the

595
00:33:47,040 --> 00:33:53,480
Speaker 10: last twenty years of my life covering miss It's fascinating

596
00:33:53,680 --> 00:33:58,800
Speaker 10: how many actual capitalists, people involved in finance now regard

597
00:33:58,920 --> 00:34:02,760
Speaker 10: the degree of liquidity in the markets, the degree of financialization,

598
00:34:02,840 --> 00:34:06,320
Speaker 10: as having been a problem. One way to express this

599
00:34:06,360 --> 00:34:10,640
Speaker 10: is called MRBDA, who's currently at Columbia. Very interesting thinker

600
00:34:12,360 --> 00:34:16,000
Speaker 10: argues that to make a market as deep as they

601
00:34:16,200 --> 00:34:19,840
Speaker 10: currently are, to be able to trade things, you actually

602
00:34:20,120 --> 00:34:23,719
Speaker 10: need to homogenize them. You need to plan them. You

603
00:34:23,880 --> 00:34:26,759
Speaker 10: rely on MSCI and S and P to create indexes,

604
00:34:26,960 --> 00:34:29,960
Speaker 10: and then you trade indexes. You get the rating agencies

605
00:34:30,000 --> 00:34:32,000
Speaker 10: to tell you, yes, this is triple AA. You can

606
00:34:32,280 --> 00:34:35,399
Speaker 10: split it around however you like that you end up.

607
00:34:35,600 --> 00:34:38,799
Speaker 10: In order to make market that liquid so that you

608
00:34:38,840 --> 00:34:41,240
Speaker 10: can trade them, they can become as big and liquid

609
00:34:41,239 --> 00:34:44,560
Speaker 10: as they are. You have to make such sweeping decisions

610
00:34:44,800 --> 00:34:47,719
Speaker 10: about how you define companies, how you allocate them, that

611
00:34:47,760 --> 00:34:52,000
Speaker 10: you're basically taking the role of a communist planner. So

612
00:34:52,800 --> 00:34:57,200
Speaker 10: there is an argument which the liquefication, the financialization of

613
00:34:57,239 --> 00:35:00,640
Speaker 10: the economy basically did away with judgment, with the notion

614
00:35:00,719 --> 00:35:04,880
Speaker 10: of trust in people's dealings with each other, and therefore

615
00:35:05,120 --> 00:35:08,200
Speaker 10: led to a version of capitalism that frankly, isn't any

616
00:35:08,239 --> 00:35:11,720
Speaker 10: better than socialism or communism.

617
00:35:12,080 --> 00:35:15,120
Speaker 1: Coming up, what happens when the next generation isn't all

618
00:35:15,160 --> 00:35:18,680
Speaker 1: that interested in inheriting that family owned business. We've spent

619
00:35:18,719 --> 00:35:22,400
Speaker 1: our lives building up the story of small business succession

620
00:35:22,760 --> 00:35:37,919
Speaker 1: in the United States. This is a story about hand

621
00:35:37,920 --> 00:35:40,880
Speaker 1: me downs. Not that sweater your cousin has grown out of,

622
00:35:41,239 --> 00:35:44,279
Speaker 1: but a treasured local business that your parents spent a

623
00:35:44,320 --> 00:35:47,000
Speaker 1: lifetime building up so you can take it over. A

624
00:35:47,040 --> 00:35:50,120
Speaker 1: business like the family Dry Cleaners Gary Bakner has run

625
00:35:50,280 --> 00:36:04,399
Speaker 1: six days a week for thirty five years. It all

626
00:36:04,440 --> 00:36:08,840
Speaker 1: began in nineteen sixty one, when Gary's father, Seymour, opened

627
00:36:08,880 --> 00:36:11,760
Speaker 1: the family's first dry cleaning shop on New York City's

628
00:36:11,800 --> 00:36:13,759
Speaker 1: Upper east Side.

629
00:36:14,320 --> 00:36:17,759
Speaker 11: My father bought Joseph cleaner Is nineteen sixty one on

630
00:36:17,840 --> 00:36:21,600
Speaker 11: York Avenue and eightieth Street. He was obsessed with two things,

631
00:36:22,160 --> 00:36:24,600
Speaker 11: Joseph Cleaners and the dry cleaning business and the New

632
00:36:24,680 --> 00:36:28,080
Speaker 11: York Football Giants. He lived the business, but as one

633
00:36:28,080 --> 00:36:29,840
Speaker 11: of my friends said, it wasn't worked for him. He

634
00:36:30,640 --> 00:36:32,800
Speaker 11: loved the people, he loved the action, he loved trying

635
00:36:32,840 --> 00:36:35,359
Speaker 11: to get the product to the people in a quality way.

636
00:36:35,400 --> 00:36:37,680
Speaker 11: And he just had a great work ethic, never missed

637
00:36:37,680 --> 00:36:39,960
Speaker 11: a day of work. From sixty one to ninety six.

638
00:36:40,640 --> 00:36:43,920
Speaker 1: Side by side, the father and son duo opened East

639
00:36:44,000 --> 00:36:48,560
Speaker 1: Hills Cleaners in two thousand and three, expanding the family's legacy.

640
00:36:49,080 --> 00:36:51,560
Speaker 11: We had to sign a new lease in two thousand

641
00:36:51,600 --> 00:36:55,080
Speaker 11: and one and rent was going up. Of course, the

642
00:36:55,200 --> 00:36:58,520
Speaker 11: doing business was going up. Business was still good, and

643
00:36:58,600 --> 00:37:02,160
Speaker 11: we decided to okay, well sell and then we decided

644
00:37:02,200 --> 00:37:04,399
Speaker 11: to look for Starlong Island and we worked really hard

645
00:37:04,400 --> 00:37:05,000
Speaker 11: to build this up.

646
00:37:05,160 --> 00:37:06,239
Speaker 6: Okay, thank you name.

647
00:37:06,680 --> 00:37:09,399
Speaker 1: After decades in the business, Gary is starting to look

648
00:37:09,400 --> 00:37:12,800
Speaker 1: at what comes next, which for many mom and pops

649
00:37:12,800 --> 00:37:16,800
Speaker 1: often means continuing the family business without the family.

650
00:37:17,080 --> 00:37:20,880
Speaker 11: Succession plan is something that I'm concerned with. I can't

651
00:37:21,000 --> 00:37:23,160
Speaker 11: keep working, you know, these hours. I try to take

652
00:37:23,200 --> 00:37:25,800
Speaker 11: some weekends off, in some time off. It's a small business.

653
00:37:25,800 --> 00:37:28,800
Speaker 11: As the boss being here, my family says, the brand

654
00:37:28,920 --> 00:37:31,000
Speaker 11: in a small business is you.

655
00:37:32,120 --> 00:37:36,040
Speaker 1: Gary Buckner is far from an outlier. According to the

656
00:37:36,160 --> 00:37:39,799
Speaker 1: US Census Bureau, just over half of US businesses are

657
00:37:39,840 --> 00:37:43,640
Speaker 1: owned by people fifty five and older. That's millions of

658
00:37:43,640 --> 00:37:47,280
Speaker 1: small businesses nationwide that will soon be looking for someone

659
00:37:47,360 --> 00:37:48,760
Speaker 1: new to take the reins.

660
00:37:49,280 --> 00:37:52,560
Speaker 12: The small, family owned businesses are huge part of our economy.

661
00:37:52,560 --> 00:37:55,400
Speaker 12: They're actually the backbone of our economy. There are about

662
00:37:55,440 --> 00:37:59,640
Speaker 12: five and a half million of them, and they employ

663
00:37:59,800 --> 00:38:02,000
Speaker 12: from tremendous amount of the workforce in the US.

664
00:38:02,640 --> 00:38:06,560
Speaker 1: Christina Wing is founder of Wingspan Legacy and senior lecture

665
00:38:06,640 --> 00:38:10,120
Speaker 1: at the Harvard Business School, specializing in what comes Next

666
00:38:10,160 --> 00:38:14,280
Speaker 1: for America's family businesses is the nature of small family

667
00:38:14,280 --> 00:38:16,480
Speaker 1: owned business is changing in the United States.

668
00:38:16,920 --> 00:38:20,600
Speaker 12: In years past, it was left to the children, and

669
00:38:20,640 --> 00:38:23,520
Speaker 12: the children wanted to run it. Now the rising gen

670
00:38:23,680 --> 00:38:28,080
Speaker 12: would rather the family business owners sell their business, and

671
00:38:28,239 --> 00:38:31,480
Speaker 12: they'd rather inherit the cash. And that's going to cause

672
00:38:31,480 --> 00:38:34,120
Speaker 12: a real issue in the economy because it's going to

673
00:38:34,200 --> 00:38:37,719
Speaker 12: lead to jobs going away, and it's going to lead

674
00:38:37,760 --> 00:38:42,520
Speaker 12: to people in communities owning the business that aren't part

675
00:38:42,560 --> 00:38:43,360
Speaker 12: of the community.

676
00:38:44,000 --> 00:38:47,600
Speaker 1: Despite the importance of family owned businesses to the US economy,

677
00:38:47,960 --> 00:38:50,920
Speaker 1: and despite the imminent retirement of many who built and

678
00:38:51,000 --> 00:38:54,520
Speaker 1: run them, there's still a striking lack of planning for

679
00:38:54,560 --> 00:38:58,279
Speaker 1: what comes next. A recent US Bank survey shows that

680
00:38:58,400 --> 00:39:02,359
Speaker 1: only half of the one thing small businesses interviewed has

681
00:39:02,480 --> 00:39:06,200
Speaker 1: a succession plan in place. We talk a lot about

682
00:39:06,239 --> 00:39:10,640
Speaker 1: succession when it's a big public trader company. Do small

683
00:39:10,800 --> 00:39:14,239
Speaker 1: family owned businesses think and talk about succession as well?

684
00:39:14,960 --> 00:39:18,640
Speaker 12: So the funny thing is we actually talk about succession

685
00:39:19,160 --> 00:39:22,319
Speaker 12: about other people, but inside the families, they don't talk

686
00:39:22,320 --> 00:39:25,920
Speaker 12: about succession. We really need to start talking about succession

687
00:39:26,320 --> 00:39:29,319
Speaker 12: a lot earlier, and it has nothing to do with

688
00:39:29,360 --> 00:39:30,040
Speaker 12: the size.

689
00:39:29,800 --> 00:39:30,560
Speaker 6: Of the business.

690
00:39:30,920 --> 00:39:34,840
Speaker 1: If I am an owner of a small business and

691
00:39:34,840 --> 00:39:36,880
Speaker 1: I'm getting on in years and I want to figure

692
00:39:36,880 --> 00:39:39,000
Speaker 1: out a way out, where do I turn? Who do

693
00:39:39,040 --> 00:39:40,000
Speaker 1: I ask for advice?

694
00:39:40,400 --> 00:39:44,560
Speaker 12: There are advisors, unfortunately, who most owners of a small

695
00:39:44,560 --> 00:39:48,319
Speaker 12: business ask. They ask a friend, and most friend has

696
00:39:48,360 --> 00:39:52,239
Speaker 12: done it poorly. We have this problem everywhere in the

697
00:39:52,280 --> 00:39:57,239
Speaker 12: world where succession and age get mingled, and so you

698
00:39:57,360 --> 00:40:00,640
Speaker 12: start to feel I'm old, I need a success and plan.

699
00:40:00,760 --> 00:40:03,480
Speaker 12: Oh I better sell. But if they would talk to

700
00:40:03,600 --> 00:40:06,560
Speaker 12: more professionals in this space, I think that they would

701
00:40:06,560 --> 00:40:09,480
Speaker 12: see they have other options, and that's that spectrum of

702
00:40:09,600 --> 00:40:13,000
Speaker 12: owner operator to owner investor. I think there's a lot

703
00:40:13,040 --> 00:40:15,239
Speaker 12: of people that would love to hold the business because

704
00:40:15,320 --> 00:40:18,279
Speaker 12: sometimes their children might not want to work in it,

705
00:40:18,560 --> 00:40:21,400
Speaker 12: but their grandchildren might want to. And so if you

706
00:40:21,480 --> 00:40:24,080
Speaker 12: can kind of play it out for a while, it

707
00:40:24,120 --> 00:40:25,440
Speaker 12: gives you more flexibility.

708
00:40:26,120 --> 00:40:29,120
Speaker 1: Over the next twenty five years, baby boomer and older

709
00:40:29,160 --> 00:40:32,840
Speaker 1: households are expected to pass down about one hundred trillion

710
00:40:32,960 --> 00:40:36,239
Speaker 1: dollars in wealth, and though we don't know exactly how

711
00:40:36,320 --> 00:40:39,799
Speaker 1: much will come from family owned businesses, those holdings make

712
00:40:39,880 --> 00:40:43,640
Speaker 1: up roughly eighteen percent of their net worth, pointing to

713
00:40:43,680 --> 00:40:47,879
Speaker 1: an estimated eighteen trillion dollars in business value that could

714
00:40:47,960 --> 00:40:51,840
Speaker 1: change hands by twenty forty eight. But unlike other assets,

715
00:40:52,040 --> 00:40:55,360
Speaker 1: family businesses can be messy, which makes the next generation

716
00:40:55,560 --> 00:40:58,680
Speaker 1: less interested in receiving what's being passed down.

717
00:40:59,280 --> 00:41:01,960
Speaker 13: The era of sort of twenty fifteen to twenty eighteen,

718
00:41:02,239 --> 00:41:05,080
Speaker 13: I felt a little more pressure from founders wanting to

719
00:41:05,080 --> 00:41:07,759
Speaker 13: work with their children, seeing less and less, i should say,

720
00:41:08,000 --> 00:41:11,120
Speaker 13: challenges from the next generation wanting to remain with the

721
00:41:11,160 --> 00:41:15,959
Speaker 13: business and really the business owner the founder looking for

722
00:41:16,040 --> 00:41:17,280
Speaker 13: a solution provider.

723
00:41:18,080 --> 00:41:21,600
Speaker 1: Jarrett Turner comes from a family business, a roofing company

724
00:41:21,640 --> 00:41:24,920
Speaker 1: founded and still operated by his seventy three year old father.

725
00:41:25,600 --> 00:41:28,680
Speaker 1: Like others, Turner didn't want to go into the business himself,

726
00:41:29,120 --> 00:41:32,720
Speaker 1: but instead started a middle market private equity firm eleven

727
00:41:32,800 --> 00:41:35,799
Speaker 1: years ago to help people like his dad when the

728
00:41:35,840 --> 00:41:38,520
Speaker 1: time came for them to step down. A lot of

729
00:41:38,520 --> 00:41:40,759
Speaker 1: these businesses, the value in part is the connection to

730
00:41:40,800 --> 00:41:43,400
Speaker 1: the community. They know the owner, they've been going to

731
00:41:43,400 --> 00:41:46,680
Speaker 1: the same shop for a long time. Does the value

732
00:41:46,680 --> 00:41:49,359
Speaker 1: of the business go down when it does come time

733
00:41:49,400 --> 00:41:50,200
Speaker 1: for the founder to leave.

734
00:41:51,320 --> 00:41:54,000
Speaker 13: If the founder were to leave and control a lot

735
00:41:54,000 --> 00:41:57,279
Speaker 13: of local relationships, I think inherently the business value would

736
00:41:57,320 --> 00:41:57,640
Speaker 13: go down.

737
00:41:58,239 --> 00:42:01,760
Speaker 1: Turner's Soundcore gives owners the option to sell while staying

738
00:42:01,840 --> 00:42:05,640
Speaker 1: involved in running their business for an extended period, preserving,

739
00:42:05,920 --> 00:42:08,920
Speaker 1: at least for a time, the best of a local enterprise.

740
00:42:09,560 --> 00:42:12,440
Speaker 1: It provides capital to those who build the businesses and

741
00:42:12,520 --> 00:42:14,680
Speaker 1: continuity for the communities they serve.

742
00:42:15,320 --> 00:42:19,279
Speaker 13: We're focus on developing theses in sectors which we deem

743
00:42:19,320 --> 00:42:22,400
Speaker 13: to be highly fragmented. At big market tams, where we

744
00:42:22,480 --> 00:42:25,920
Speaker 13: can aggregate and buy a number of family founder owner

745
00:42:25,920 --> 00:42:30,640
Speaker 13: operated businesses in the same sector, we can professionalize. We

746
00:42:30,640 --> 00:42:36,600
Speaker 13: can implement technology, best practices, procurement programs and take them

747
00:42:36,640 --> 00:42:39,920
Speaker 13: to sort of the next level of professionalization, take market share,

748
00:42:40,120 --> 00:42:43,919
Speaker 13: grow revenue, improve margins, and then typically sell within four

749
00:42:43,960 --> 00:42:45,840
Speaker 13: to five years to a larger scale buyer.

750
00:42:46,080 --> 00:42:48,360
Speaker 1: Typically, when you buy a business, is it one hundred

751
00:42:48,360 --> 00:42:49,400
Speaker 1: percent of the business.

752
00:42:49,880 --> 00:42:53,520
Speaker 13: So I think when you're a private equity firm, or

753
00:42:53,560 --> 00:42:56,040
Speaker 13: maybe you're a family buying someone else's business, one of

754
00:42:56,040 --> 00:43:01,680
Speaker 13: the challenges is customer relationships with the business owner and

755
00:43:01,719 --> 00:43:05,080
Speaker 13: also the DNA of that business. The culture is often

756
00:43:05,160 --> 00:43:08,000
Speaker 13: driven by one or two people. So for us as

757
00:43:08,000 --> 00:43:11,960
Speaker 13: a philosophy, we look at sellers and we put together

758
00:43:12,000 --> 00:43:15,879
Speaker 13: a seller retention matrix where we look at a lot

759
00:43:15,920 --> 00:43:19,320
Speaker 13: of qualitative aspects of their personality and how long have

760
00:43:19,360 --> 00:43:21,680
Speaker 13: they been with the business, the number of customers that

761
00:43:21,719 --> 00:43:24,279
Speaker 13: they have, the number of suppliers that they have. But

762
00:43:24,360 --> 00:43:27,240
Speaker 13: one of the best ways is a buyer to assure

763
00:43:27,280 --> 00:43:29,920
Speaker 13: that you're going to have interest in that business owner

764
00:43:29,920 --> 00:43:32,920
Speaker 13: to continue to sort of drive the business forward and

765
00:43:32,920 --> 00:43:35,200
Speaker 13: not improve their golf score the next day, is to

766
00:43:35,239 --> 00:43:36,080
Speaker 13: have skin in the game.

767
00:43:36,200 --> 00:43:38,720
Speaker 1: Do you have much competition in private equity for small

768
00:43:38,719 --> 00:43:39,719
Speaker 1: family owned businesses?

769
00:43:40,080 --> 00:43:41,680
Speaker 13: I would say you would have to look at our

770
00:43:41,800 --> 00:43:45,320
Speaker 13: average multiple that we pay. If you type in private

771
00:43:45,320 --> 00:43:49,760
Speaker 13: equity and average purchase price multiple into Google another search engine,

772
00:43:50,080 --> 00:43:54,440
Speaker 13: you will typically see twelve to twenty plus times epit DA.

773
00:43:54,719 --> 00:43:58,320
Speaker 13: We've averaged in context at a five point nine times multiple,

774
00:43:58,800 --> 00:44:01,360
Speaker 13: and that's across one hundred and nine acquisitions. So in

775
00:44:01,440 --> 00:44:03,960
Speaker 13: terms of our volume and the number of acquisitions that

776
00:44:03,960 --> 00:44:06,520
Speaker 13: we've done and apply that to the multiple, we're probably

777
00:44:06,520 --> 00:44:08,360
Speaker 13: one of the lowest of any private equity firm in

778
00:44:08,360 --> 00:44:11,200
Speaker 13: the United States. I would use that as evidence that

779
00:44:11,360 --> 00:44:14,080
Speaker 13: we don't have a lot of competition. The way that

780
00:44:14,120 --> 00:44:17,440
Speaker 13: we're able to do that is we're buying very small businesses.

781
00:44:17,280 --> 00:44:22,000
Speaker 1: In a changing economy. Dependable cash generating businesses are gold mines,

782
00:44:22,320 --> 00:44:25,560
Speaker 1: especially for private equity firms able to buy small and

783
00:44:25,680 --> 00:44:26,600
Speaker 1: scale fast.

784
00:44:27,320 --> 00:44:31,160
Speaker 13: We at Soundcore we focus on recession resistant businesses.

785
00:44:31,480 --> 00:44:34,200
Speaker 1: What's your average length of time you hold them?

786
00:44:34,719 --> 00:44:38,680
Speaker 13: So we've owned businesses for a spread of three to

787
00:44:38,760 --> 00:44:41,200
Speaker 13: seven years. Our average is five years.

788
00:44:41,360 --> 00:44:45,080
Speaker 1: So that strikes me as remarkably short in private equity generally.

789
00:44:45,200 --> 00:44:47,640
Speaker 1: Right now, we hear a lot, read a lot about

790
00:44:47,680 --> 00:44:51,000
Speaker 1: private equity generally the big private equity having trouble getting

791
00:44:51,040 --> 00:44:55,000
Speaker 1: out of investments. Is yours a different approach to private equity?

792
00:44:55,880 --> 00:44:57,759
Speaker 13: I think it is. I mean, I think there are

793
00:44:57,760 --> 00:44:59,960
Speaker 13: a few things that you can do wrong in private equity.

794
00:45:00,040 --> 00:45:02,680
Speaker 13: You can overpay for businesses. You can over leverage them

795
00:45:02,719 --> 00:45:05,040
Speaker 13: and put them into a bad capital structure. Or you

796
00:45:05,040 --> 00:45:07,359
Speaker 13: can pick your favorite child and put too much of

797
00:45:07,400 --> 00:45:10,360
Speaker 13: your fund and a commingled fund into one deal that

798
00:45:10,400 --> 00:45:12,520
Speaker 13: doesn't go right. It drags down the rest of the fund.

799
00:45:13,920 --> 00:45:17,800
Speaker 13: I think by our strategy of not overpaying for businesses

800
00:45:17,800 --> 00:45:20,880
Speaker 13: but giving business owners a fair price, not chasing to

801
00:45:20,920 --> 00:45:25,000
Speaker 13: win auction processes. There's a lot more opportunity even in

802
00:45:25,000 --> 00:45:26,719
Speaker 13: this market to exit our businesses.

803
00:45:27,280 --> 00:45:30,439
Speaker 1: For many owners, firms like Turners present a way out,

804
00:45:30,880 --> 00:45:34,279
Speaker 1: even if taken in stages. But Wing warns that the

805
00:45:34,400 --> 00:45:38,200
Speaker 1: rise of large consolidators brings its own consequences.

806
00:45:38,560 --> 00:45:41,920
Speaker 12: We're seeing immense consolidation in the space, which means a

807
00:45:41,920 --> 00:45:44,600
Speaker 12: private equity firm might have a mandate to go buy

808
00:45:44,680 --> 00:45:48,480
Speaker 12: one hundred dry cleaners within the Southwest or the southeast

809
00:45:48,560 --> 00:45:52,640
Speaker 12: or wherever, and then the brand in the experience becomes

810
00:45:52,719 --> 00:45:56,440
Speaker 12: that of the hundred, not of the local and so

811
00:45:56,560 --> 00:45:58,120
Speaker 12: it's a change in the community.

812
00:45:58,239 --> 00:46:01,200
Speaker 1: Well that may not be the local community likes as much,

813
00:46:01,520 --> 00:46:03,719
Speaker 1: but it may be a more efficient business, may it not.

814
00:46:05,040 --> 00:46:08,719
Speaker 12: I think that the role up of a lot of

815
00:46:08,840 --> 00:46:15,040
Speaker 12: different personality based businesses. There are great reasons to do

816
00:46:15,080 --> 00:46:19,719
Speaker 12: that in certain places, but I don't think overall that

817
00:46:19,760 --> 00:46:22,200
Speaker 12: I would make a statement that a financial buyer is

818
00:46:22,239 --> 00:46:28,200
Speaker 12: a better owner than others unequivocally. But there are cases where.

819
00:46:28,040 --> 00:46:30,960
Speaker 1: They are, and that brings Wing to a challenge. She

820
00:46:31,200 --> 00:46:35,600
Speaker 1: ses again and again. Many longtime owners assume selling is

821
00:46:35,640 --> 00:46:37,960
Speaker 1: their only way to retire.

822
00:46:37,840 --> 00:46:41,400
Speaker 12: Because they've been owner operators. If we can get some

823
00:46:41,520 --> 00:46:45,799
Speaker 12: of them to understand, they could become owner investors themselves,

824
00:46:45,920 --> 00:46:49,320
Speaker 12: meaning they could keep the bone the business, have somebody

825
00:46:49,320 --> 00:46:53,120
Speaker 12: else run it, pay that person, but still own it.

826
00:46:54,560 --> 00:46:55,839
Speaker 11: Legacy is everything, you know.

827
00:46:56,680 --> 00:46:57,600
Speaker 6: This is how I grew up.

828
00:46:57,960 --> 00:47:02,920
Speaker 11: Quality, responsibility, of personality. We have great relationships with our customers.

829
00:47:02,960 --> 00:47:07,800
Speaker 11: We've known them now generations. We give them a good product,

830
00:47:08,280 --> 00:47:13,360
Speaker 11: and uh we like serving the serving the community for backner.

831
00:47:13,880 --> 00:47:17,440
Speaker 1: Like so many others, it's never just a business. It's

832
00:47:17,480 --> 00:47:21,760
Speaker 1: the early mornings, the familiar faces, the generations of trust

833
00:47:21,840 --> 00:47:25,560
Speaker 1: that turn a storefront into a cornerstone of a community.

834
00:47:26,160 --> 00:47:29,400
Speaker 1: And as the next generation steps in or steps away,

835
00:47:30,080 --> 00:47:32,920
Speaker 1: the values at the core of these small businesses remain

836
00:47:33,040 --> 00:47:40,520
Speaker 1: the foundation for whatever comes next. That does it for us.

837
00:47:40,520 --> 00:47:42,759
Speaker 1: Here at Wall Street Week, I'm David Weston. See you

838
00:47:42,880 --> 00:47:59,960
Speaker 1: next week for more stories of capitalism.