Janwillem Acket is “the longest serving guy in the Zürich banking place” in his role as chief economist of Julius Bär, a Swiss private bank that has expanded its profile in emerging markets, including Lebanon, with the acquisition of Merrill Lynch’s international wealth management operations in 2012. He sat with Executive for a wide ranging interview from the perspective of a longtime banking insider.
For more on Julius Bär and Janwillem Acket, read this.
In your assessment, what measures will help the Eurozone?
What we actually need in the Eurozone is more sensible fiscal spending, and in many places [this means to] cut public spending. This public spending should be somehow replaced with private spending but the problem is when will private spending step in? This is a question because you have to go on a second front, on taxation. You have to incentivize, through taxation, economic agents, in particular the entrepreneurs.
Why entrepreneurs specifically?
Entrepreneurs are the ones that are providing the growth in this world and are moving things to the positive, to the benefit of not only themselves and their own portfolios but also for a large majority of societies. That is why I believe in entrepreneurs. It is also an important point in our philosophy of investment [at Julius Bär] that at the moment we rather have a latent distrust in public entities because of the moral hazard issue.
Are you in favor of taxing cash?
No. The taxation of cash will happen when interest rates go up and that is not happening yet. Taxing cash thus would be an artificial or non-conventional measure.
The argument appears to be that banks and even corporations are holding too much cash today and need to be forced to push that into the economy.
TLTROs [the ECB’s targeted longer term refinancing operations] will be one such tool. But what is being decided now in the Eurozone has a lag of nine months [according to our research], and the problem is that when this starts to work out, the other big competitor, the central bank of the US, will start to change policies. In that period when the Eurozone will be better off and the Fed is considering interest rate hikes, we might have a very uneasy situation in the market and this could be a very volatile phase of transition. Nevertheless, we firmly believe that the recovery will be on.
Seeing how responses to economic challenges in the Eurozone are made more difficult by politicians’ vying for votes and the preservation of their own jobs, would you rather get rid of all politicians?
That would be nice but someone has to run the show. We need politicians and there are certain elements in the economy which you can’t privatize. As an economist, I just want to say that the political front has to do its homework and they are reluctant to do that as long as you have central banks which can alleviate stress with very cheap money.
But might a Chinese solution work to fix this issue of politics? Could you give all the power to someone who then empowers a positively capitalist class which doesn’t have to worry about intrusions in economic development by democratic elections?
You have indeed touched [on] a subject which is very peculiar. China is a dictatorship and if there is a slippage in the economy, something that deviates from the five year plan, very harsh action is taken and they don’t care if someone feels hurt. They don’t care if there is some opposition, they just do it. You can say that this is a sort of advantage in a crisis situation because you don’t have to ask too many people. [But although] China, because of its dictatorial structure, is at a relative advantage when things slip, it is not a role model that I would see. They may have less of the disadvantage felt by democracies but I’d rather be in a democracy with a disadvantage than in China as a citizen.
What do you think of the prospects for authoritarian governments as facilitators of national wealth?
I believe in democracy and there is a tight positive correlation between democracy and wealth. I think it is very clear that you need long term democratic structures if you want to increase wealth in this world. The big exception is Singapore, which is an authoritarian government that allows a lot of economic freedom. China will be studying the Singapore model but Singapore is tiny and China is so huge. People say that the Chinese are so anarchistic that democracy will fail. I think the Hong Kong model shows that democracies can be a success model in China, but you have to have a really very strict legal structure and property rights, which Hong Kong has. Democratic structures are an essential component if you want to develop a market driven economy to bring wealth into a country and I think Lebanon is a very good example. It is one of the few democracies in [the Middle East] and has created for itself a good legal system and democratic setup. That is an advantage which Lebanon has for example over Egypt, which somehow has always been a dictatorship.
From the group’s perspective, are you targeting the Middle East as an investible target market or more as a market for sourcing new money?
To be honest with you, I would think just the sheer limitation of investible vehicles at the moment in the Middle East will have as a consequence that the larger part of funds that are placed with us are just invested not in the Middle East but elsewhere. But we are global operators [and] we are not just focused on one thing. When we have a client who says, “I am Lebanese and I [would] like to place a part of my investment portfolio in this country,” do you think we would say, “No, go away with your money; we don’t want to see you?” I can’t give you a general answer on this but we are by no means dogmatic.
How about if you look at growth, prospect wise?
We will go where the growth is.
Taking the case of the largest Arab economy, Saudi Arabia, Julius Bär would easily be able to qualify as direct participants in the Saudi stock market as of sometime next year, according to the rules and draft regulations that the Saudi Capital Market Authority has published recently. Would a move into this market for investments be interesting?
That is something you must ask our board of directors. It is not up to me.
How about from a macroeconomic perspective?
From an economic perspective, our board has its philosophy and it sticks at the moment to what it is doing and it is up to them to decide what they want to do. To get back to my point, if we have a client base in a market somewhere and the client base has a stake in the local market, we are not the guys to say no. The problem is the research. We would have to invest money in that but we can’t if the sheer size of the venture is not satisfying our requirements for investing [our own] research into it. What we then do is go to the best local partners and obtain their research.
What can all your insights on the dynamics of policymaking and factors that help economies grow tell us in Lebanon?
I can talk as a Swiss now. Switzerland has four different languages and many cultural minorities and they are all integrated in Swiss society. For me this model has one amazing foundation: it is the capability to compromise out of mutual respect for the differences [among] the different communities. That is an important aspect of the success of Switzerland, which is a prosperous nation with an overvalued currency in the middle of a Eurozone that is in economic trouble. Decisionmaking takes a long time in Switzerland but the people all have the patience to go through the process and in the end a compromise is reached. There is always a minority that is not happy with the compromise but here comes the behavioral aspect: the [members of the minority] are capable [of accepting] the verdict of the majority and the minority that did not want to agree to the compromise nevertheless respects it. Everyone can have her or his culture, format, difference in religion and convictions but nevertheless, all share a joint aspect and the aspect is, we are Swiss. Switzerland has this really fantastic capability for compromise.
Do you think Lebanon has the same potential?
This has to develop. What you can do is start providing measures of confidence, such as setting up rules together and focusing on the common denominator which is living together here in Lebanon. The diversity that Lebanon has is its cultural richness. Let’s use this richness to synergize capabilities and talents and together create something called a new Lebanon. You have to positively infect the population through influential leaders. The fish stinks from the head and the head must not only stop stinking, but do more. The head has to show the world how to solve the issues that have to be solved. Put up an example, a positive one and infect everybody with a positive example. Lebanon has exercised democracy for a long time and so I think you have better chances than many nations in the Arab world. Go back to making Lebanon the Switzerland of the Middle East.