Ray Dalio, the billionaire investor, has
just released his first children’s book. It’s a bedtime story he
hopes will inspire a new generation of entrepreneurs and
leaders. There are other stories that keep Dalio awake at night.
Stock markets have soared in recent years, employers are
struggling to find workers, inflation is under control. And yet:
“This period is very similar to that of the 1930s,” he says.
“We’re at each other’s throats when these are the best of times.
I worry about the bad times.”
Dalio, the founder of investment firm Bridgewater Associates,
one of the world’s largest hedge funds, and a man with a
personal fortune that tops $18.7bn, is one of a handful of the
0.01% who have gone public with their worries about the system
that created that wealth.
“The world has gone mad, and the system is broken,” he wrote in
a series of viral posts on the issues he sees in the modern
economy last year.
The gap between rich and poor has grown too wide, and most
people have not seen real income growth in decades, he wrote.
The economy is stacked against those at the bottom. Education,
healthcare, the tax system, the prison system and political
deadlock have created a situation that presents an “existential
risk” to the US and the rest of the world. It was a searing
indictment of the status quo, not least because it came from
someone who had benefited from it the most.
While on the surface the financial numbers of the world economy
look good, it is clear that the Great Recession has left a pool
of seething resentment in its wake. Nationalism is sweeping the
world and the political order is being overturned. As Eric
Hoffer pointed out in The True Believer, his book on mass
movements, the French and Russian revolutions came not at
economic and social nadirs, but as living conditions were
improving.
Dalio hopes, in part, that his latest book can help people at an
individual level to address the dilemmas they now face and will
always face – no matter what the political or economic
headwinds. An illustrated distillation of his bestselling book
Principles for Success, the book offers the life lessons Dalio
says helped him not only amass one of the world’s largest
fortunes but live a successful life.
In the book, an unnamed hero in a backpack and Pharrell Williams
hat negotiates a series of problems, a dark wood, a mountaintop
and the loss of said hat, as he chases a blue diamond. While
it’s not really clear what the diamond represents (maybe
$18.7bn?), it’s really about the journey. Over 157 pages, Dalio
shares his insights, a five-point system for assessing our
weaknesses and overcoming problems, and somewhat hokey
aphoristic formulae like Dreams + Reality + Determination = A
Successful Life and Pain + Reflection = Progress.
The Hungry Caterpillar it ain’t.
He says he wrote the book because friends said they wanted it
for their kids. It’s hard to see pajama-clad children clamoring
for Principles (“Daddy, is there a follow-up on compound
interest?”) but the original Principles has sold over a million
copies and been downloaded 3 million times, so who knows? Kids
these days!
“I think everybody would benefit from writing down their
principles, not in an abstract way,” says Dalio. “It serves a
purpose of bringing clarity to your thinking. It’s a joy. I
think these principles apply to anybody, whatever their
circumstances are.” He is hoping some of his peers will follow
suit.
But while he is hopeful that his principles can be a practical
benefit at the individual level, Dalio is worried about the
future of society those individuals live in. “I think the
capitalism system needs to be reformed, because first of all
it’s not fair. And secondly, it’s not optimally productive.”
The system that Dalio grew up in, he says, is very different to
the one we have today. Born in 1949 the son of a jazz musician,
Dalio grew up in the Jackson Heights neighborhood of New York
City’s Queens. He had loving parents, attended a good public
school and entered “a job market that offered me equal
opportunity”.
He began trading at the age of 12 and opened Bridgewater in
1981. By 2005, it had become the largest hedge fund in the
world, betting on “macro” world-shaping economic events. He made
investors a fortune correctly predicting the last recession when
others bet it would be business as usual.
“To have these things and use them to build a great life is what
was meant by living the American Dream,” he wrote last year.
Now, Dalio argues, capitalism has broken that promise. The
relentless pursuit of profit over people has created a
structural flaw that threatens to bring the whole system down.
“All systems should evolve. We all need to evolve. We need to be
reformed constantly,” says Dalio.
He is, of course, not alone in thinking this. Democratic
presidential candidates including Bernie Sanders and Elizabeth
Warren would be entirely in agreement if they weren’t so against
him. The problem for Dalio is whether anyone can hear this
message from the mouth of a billionaire. Sanders has said
billionaires should not exist. Warren is selling mugs stamped
“Billionaire Tears” as she pushes plans for a huge hike in taxes
on the super wealthy.
Dalio won’t talk politics in the specifics, but he says he has a
strong aversion to any kind of prejudice, and worries about the
vitriol being leveled at him and his Croeseus-like cohorts.
“When we get into an environment of demonizing people or
stereotyping people. It’s like if you call a leader, a
billionaire, evil … it’s almost like saying you’re a poor
person, then that’s evil or you’re a Jew or a black person, and
that’s evil. I think demonizing a category of people is a very
bad thing,” he says.
If we are to find a way out of this mess, he says, it’ll be
“with the collective involvement of people who bring not only
different perspectives, but different skills to bear” on the
problems.
“This engineering exercise has got to be done with skill so that
there’s a redistribution of opportunity and a redistribution so
that productivity is increased,” he says. “Generally speaking,
the capitalists focus on increasing the size of the pie, but not
on dividing it well. Socialists focus more on dividing it well,
not on how to increase its size.
“I think that we have to work together and this all has to be
done in a bipartisan or not partisan way, because I think that
right now you’re producing such anger and division and that is
our greatest risk,” he says.
It’s a belief that many of his plutocratic peers share, says
Dalio. The reaction to his capitalist critique from fellow
billionaires has been “overwhelmingly agreement, although not
open agreement,” he says.
“I’ll tell you what the fear is. It’s not that they will be
taxed more. That’s interesting, because I think most people
think that that’s their main fear. The main fear is that the
system of making productivity work will be hurt,” he says.
Just like corporations, billionaires are people too. Dalio is
not alone in believing he has an answer to the problem that
created him. Donald Trump rode into office on a wave of populist
economics. Mike Bloomberg (net worth $60bn) and Tom Steyer
($1.6bn) want to replace him.
Theirs is that old, radically conservative, message: everything
must change so that everything can stay the same. The question
now is whether the system that produced Dalio, his principles
and peers can survive the world they created. And if not, what
comes after? |
