You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life — Steve Jobs
Balance eludes us all. That’s because balance arises from the tension between opposing forces. We have to experience the extremes to crave balance just like we crave for sunlight after a dark night. We cannot understand and appreciate balance without undergoing a mental tug of war between two opposing ideas. The classic struggles between conservatism and liberalism, socialism and capitalism, excess freedom and restrictions on freedom are all needed to truly understand and achieve balance. This story outlines the learnings from my own personal struggles to achieve balance. Suffice it to say, I have come to believe balance lies in tension.
I have often been asked: Is India capitalist or socialist? The reality is that it is a mixed economy. It was predominantly socialist but it changed its course mid-way after independence. As soon as the country received its’ independence from British rule, it declared its’ politics to be ‘non-aligned’ with the cold war superpowers i.e. to either the erstwhile USSR or to the US. However, its policies were markedly socialist with a heavy influence of government on all sectors of the economy. India began its experimentation with liberalizing (privatizing) parts of its economy in 1991. It realized the waning influence of the former USSR and changed course to being more of a capitalist economy. Privatization gained steam betweeen 1997–2011. Today, the large banks are still state owned but private banks have scaled up to match the public sector.
The main takeaway is that there will always be opposite ways of doing things. However, somewhere down the road, the tension between two opposing forces results in one force overpowering the other for a period of time. Once again, when the dominant idea of a period is faced with opposing forces, it either dies gradually and gives way to the new way of doing things or it continues its onward march. In short, there is no such thing as a balance. Balance arises out of tension between opposing forces which force the pendulum to swing from one philosophy to the other. It also swings in the middle for some time.
Many call the reducing influence of globalization across the world and the rise of nationalists as an opposition to the inequality caused by liberalization. This present day scenario is the classic example of tension between two opposing philosophies.
The Evolution Of Indian Cinema
As a child, it was extremely rare to watch a movie that would be difficult to watch with your parents. Most of Indian cinema had a familiar story line i.e. a 2.5–3 hour movie which would typically be a love story, a sequence of 8–10 songs and sometimes included the familiar theme of the triumphant underdog. After independence in 1947, many movies inspired a nationalist sentiment. However, most of the movies were devoid of overt displays of affection. A French kiss on screen was considered taboo and not mainstream. However, Indian cinema has evolved to encompass hundreds of different themes and sexuality is no longer taboo on the screen.
If a family comprising two generations is watching a movie today, it is not very surprising to observe the old generation cringe at overt displays of affection or depictions of sexuality on screen. The newer generation is quite at ease with the change in Indian cinema. Once again, this observation is personal and is not a judgment. It is the result of a liberalized way of thinking overpowering traditional thought. The cycle could turn back but doesn’t appear to do so in a hurry.
Also, Indian cinema is not an isolated trend. All across the world, the tension between traditional and modern way of thinking is very common. That tension results in different scenarios being played out in different countries. Some countries become more liberal while others are less so. The inevitable tension between opposing ideologies is like the wind beating down on mountains. The mountains are not likely to shrink in a day. It may take decades or centuries for the mountains to be cut down by the wind but the process is constantly under way.
The takeaway for us is to figure out which way the wind is blowing and which mountain is it cutting down to size. Recognizing these trends will make us more adaptable in a world where change is the only constant.
The Inevitability Of The Next Financial Crisis
One of the most influential books on cyclicality of human behavior and as result that of the markets is Edwin Lefèvres’ book ‘Reminisces of a Stock Operator’ . It is a story about a stock operator winning it all and losing it all to win everything back again.
Continuing that line of thought, Georg Wilhelm Friedrich Hegel famously said “We learn from history that we do not learn from history”. This aphorism applies well to the history of financial crises. If we look at the past, it is very easy to understand that the next financial crisis could be in the making. There are many reasons such as debt overhang (excessive debt taken by government as well as individuals), the threat of technology, the widening gap between the rich and the poor that can trigger a financial crisis. That’s because something has got to give.
Let us take an example. The US government had to bail out financial institutions by buying their stock or debt which resulted in a much needed infusion of funds into systemically important financial institutions. Further, to stimulate the economy and preventing it from going into a recession, it kept interest rates low so that corporations and individuals would borrow more to spend more. This consumption would stimulate production and keep the economic cycles turning.
China used debt and invested it in creating real estate and infrastructure to support its phenomenal growth. Now, as it pivots to more of a domestic consumption story spurred by internal demand rather than external exports, repaying the debt taken becomes a challenge. The result could be more debt and more money spent servicing that debt. The question then becomes: how much debt is excess debt? The rise of tariffs and a slow down in globalization has acted as an opposing force to its export story. That tension prompts it to shift to more of a domestic consumption rather than an export story.
For Every Season, Turn, Turn, Turn…
In the US, the west coast has a very different take on the future than the east coast. The traditional financial services sector is under attack by disruptive technologies. In fact, many believe that Blockchains and smart contracts will completely automate the jobs of underwriters and investment banking professionals in the future. This would mean the demise of a lot of jobs in investment banking. There are numerous examples of tension between economic forces e.g. the old guard (which tends to be more traditional) vs. the next generation in Japan, the difference between the oriental and occidental way of life, the rise of China prompting discussions around the Thucydides trap etc. which are all examples of opposing forces. The key takeaways by observing the cyclical world we live in are these:
The world moves in cycles. Empires of the orient died to give way to the empires in the west. The tide will turn again. Keep an eye out for macro trends which guide your thinking. As I mentioned in my example on Indian cinema, if an open discussion of sexuality is making its way on the celluloid screen, its because the new generation is becoming more liberal. The new generation will face tremendous backlash from the traditional way of thinking. However, if this trend of liberal thought continues its onward march, westernization and consumerism is an inevitable outcome. I am not saying its good or bad. Cycles are the way the world operates. Businesses have positioned their models to ride this trend. As in many countries, western brands such as Apple, Nike, Under Armour etc. are considered aspirational in India. Luxury brands such as Hermes remain out of reach of the majority. Once again, if the pendulum swings to extremely liberal thinking, there could be a revolution and it could swing back to the middle.
In all aspects of life i.e. economics, politics, society etc, there will be two opposing forces. The most important conflict today is the rise of disruptive technologies such as Blockchain, Artificial Intelligence (AI) etc. which will disrupt traditional businesses and the job market. As Ajay Banga, CEO of Mastercard says ‘we can see these technologies coming’. We need to accept that technologies will overwhelm the old ways of doing things. We need to become lifelong learners and adapt to the new way of doing things or risk obsolescence.
It is common sense that too much of anything is bad including too much of good things. If you go to the gym daily without changing your routine, you will likely be bored and will want to try something new such as a jog in the park. However, as humans, many of us achieve balance only when we swing to the extreme. We realize that our lives are imbalanced and we swing back to something more normal. Some of us don’t swing back at all. In short, if you want to search for balance, you must face tension.
Steve Jobs famously remarked that we can only join the dots in our live in hindsight. We have to trust and thrive on tension hoping that it will lead us to a balance in the future.