Larry Fink is what he calls “a voice of optimism.” BlackRock, the investment fund he founded in New York in 1988 and which he leads, has the reasons: since 2022 it has seen assets under management grow by two thousand billion dollars and today, at almost ten thousand billion, it is the leading investor in the world.
Is there a divorce between a dramatic geopolitical framework and placid and robust financial markets?
«With new stock market highs», notes Fink.
Are markets not interested in wars?
«I don’t think it’s indifference. Despite the geopolitical instability, overall economies are doing quite well and companies are holding up. The biggest problem is our mood. And populism. There aren’t enough leaders talking about optimism. Of course, the geopolitical issues are serious. They are tragedies, they are scary. But they are isolated in the world economy. We saw the energy implications early on in the Russian invasion of Ukraine.”
Yet oil prices are falling.
«Europe has looked for different sources of energy and that is positive. I think we’re seeing the same thing with China. The world has been very dependent on China as a source of production, but now many understand that we need to diversify. It could prove inflationary in the short term. But in the long run the risk is reduced.”
Aren’t you worried about the two wars that are raging?
“They’re not shaping the world right now. Of course, if Russia’s invasion ends badly for Ukraine, it will have an impact on Europe. We will all have to adapt, but does this mean that everyone’s life has to end?”
As the population ages, the difficulty of governments in Europe in supporting welfare increases. How do you get out of it?
«It is important to adopt public-private partnerships. Public deficits like the one here in Italy or in the United States are becoming very difficult, they worry me. But the only way we can solve them is through growth, not budgetary squeezes. A squeeze only contracts the economy, in turn worsening deficits. Instead we must ask ourselves how to accelerate growth. I am convinced that every government must make the permit bureaucracy more efficient. Why does it take seven years for a permit to install infrastructure, green technologies or a civil nuclear power plant? China and Abu Dhabi develop nuclear energy every day. Are they wrong or are we wrong?”.
In Italy, the regions do not collaborate in identifying areas for photovoltaic and wind power.
«What happens in the United States should serve as a model for Italy. The United States created the Inflation Reduction Act (IRA), and it works. The vast majority of projects go to states where permitting is fastest. If we want to create growth, we need to rethink how we move forward and be very aggressive in finding channels for growth. If Italy managed to grow at 2% instead of 1%, the deficits would become much smaller in relation to GDP.”
Could polarization in elections in Europe and the United States become a problem for markets?
«I can’t worry about which party is in power, our job is to work with everyone. But there is no doubt that populism is inflationary. Populism is about today, not tomorrow. Instead, at BlackRock we care about the future and long-term growth. I was in Milan for the first time in 1971. It was a dark city, blackened by the war. I remember the pollution from the factories. And look at Milan today. This is the long-term growth I care about.”
Protectionism increases: United States, Europe and India want tariffs on Chinese electric cars; Beijing is considering retaliation. Worrying?
«Every country is focusing more on protectionism, and protectionism is inflationary. It’s one of the reasons why inflation will stay higher for longer. When I talk to politicians, they tell me we need more protectionism. That a national priority must be imposed on food, chips or energy. I ask them what the costs are. Because economies know how to adapt. Will there be protectionism against China? Supply chains move to Mexico or Vietnam.”
Does this mean that globalization cannot be suppressed?
«But the whole process keeps inflation alive. And the most negative factor for the poorest 25% of the population is inflation: it doesn’t harm the richest 25%, but the poorest.”
And will it push central banks to keep rates higher?
«We will have rising service inflation. It will remain high. Today you can buy a pair of tennis shoes for the price you did 30 years ago. But if you want to see a Taylor Swift concert or an AC Milan match, you pay a lot more. Home insurance increases 12% to 18% per year.”
Why does inflation enrich those who have more and impoverish those who have less?
«It applies to the United States and probably also to Italy. Society is ageing. The top 25% of the economy has been saving and now has a surplus of funds. These are mainly the people who go to Taylor Swift concerts and spend on services. But for years now in Europe and Italy people have not earned much with their savings: investment returns have not always been high. But now the richest 25% are making a lot of money with their money. Instead, the bottom 25% face higher interest rates on mortgages or consumer credit, because these are the people who get into debt. And now they are paying very high interest rates. So higher interest rates stimulate the economy for people who have savings invested. We are in a situation that rewards the upper quadrant of society and harms the lower.”
Thus fragmentation creates polarization and populism…
“We need more leaders seeking common ground. And we had some.”
You have strongly supported the principles of social, environmental and governance responsibility in investments. Do you continue doing it?
«I continue to do it above all for the environment, but in a pragmatic way. We must move towards decarbonisation, but it can only happen if the transition is fair and correct. This is why BlackRock has never disinvested from energy companies, because they will be part of the solution.”
What does it mean that the energy transition must be fair and correct?
«We will never make it if we don’t find new technologies that reduce the “green premium”, the extra energy costs of the transition. Otherwise the bottom 25% of society will be hit hard. We saw this in Europe with the energy shock after the invasion of Ukraine. We cannot talk about the environment without talking about how to reduce the costs of the transition and how to involve the South of the world. Nobody has the answer. We can decarbonize Norway or Sweden, but how will we decarbonize Vietnam or India? India is one of the largest and fastest builders of wind and solar technology in the world. But the economy is growing at 6% with 1.4 billion people. They will use coal. They don’t want to spend all their reserves to buy oil from OPEC and that’s understandable. So, pragmatism is needed. This is why the IRA in the United States is so important. Europe still doesn’t have an answer on this.”
The president of the Bundesbank, Joachim Nagel, says that the impact of American anger is concretely felt on the ground, while that of the European Recovery Fund is not. Is he right?
“Yes. And the gaps can accelerate.”
In terms of productivity, investment, technology and income per capita, Europe and the United States diverge strongly. We Europeans perceive ourselves as advanced countries, but are we still advanced compared to the United States?
«Europe has not yet welcomed and adopted a growth agenda. The United States has a culture of innovation, while Europe has lagged behind. If you look at the United States, South Korea, China or Israel, they have a culture of growth and innovation. Europe is the best place in the world for middle class life. Is fantastic. But how can we make life as good for our children and grandchildren? It’s less clear to me. And here lies the problem.”
Italy is not among the top 15 countries in the world for investments in artificial intelligence. Few European countries are on that list, and they aren’t very high. Is there a fear that it will burn jobs?
«Artificial intelligence will create jobs. Think about building data centers and all the power needed for artificial intelligence. It will change many service sector jobs, but it won’t eliminate them: it will create different types. We should all embrace AI, but it requires education and hundreds of billions, if not trillions, of dollars in public-private funding. New AI data centers will require one Gigawatt of power. It’s unheard of. It’s the energy absorbed by a small city, just for one data center. We are talking about an investment of 30 billion dollars.”
