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The five biggest economic moments in our history

Date: 09 August 2021

The five pivotal moments across our first 250 years

After a year in which the word ‘unprecedented’ was well and truly worn out, for some context we look back over 250 years at the biggest moments in economic history.

As life seems to be starting to return to something resembling normality, many of us will be eager to celebrate this occasion. At Quilter Cheviot, we already have cause to celebrate, as our company hits its momentous 250th birthday.

Short of trying to fit 250 candles onto a cake, we wanted to mark the occasion by looking back at the history our company has been fortunate to grow through. There have been world wars, depressions and pandemics and much more, but there are five key economic events that really stand out for us.

These events are pertinent as many experts argue we are in the midst of such an event right now, the so called ‘fourth industrial revolution’ where the digitisation of our economy is in full flow.

Looking back, what five economic events changed our thinking and our economy?

Remarkable beginnings

The first seminal moment in the global economy’s development is the Industrial Revolution, essentially an ancestor of our modern economy.

Mechanisation and the development of factories led to an exponential rise in economic growth and incomes. In fact, this era produced the so-called ‘Father of Economics’, Adam Smith, whose Wealth of Nations text of 1776 laid the foundations of classical free market economic theory.

Furthermore, in 1773, the earliest manifestation of a formalised – albeit unregulated – stock exchange emerged in London’s Sweeting’s Alley, a move that would lead to investment in developing companies.

Prior to this, investors and business owners nearly always knew one another and everything was very informal. However, as companies boomed in size, fueled by the economic developments of the First and Second Industrial Revolutions (the latter characterised by electricity and assembly lines), everything began to scale up which led to the ‘democratisation of investment’.

Big changes were seen then. Unfortunately, this would lead to some challenges along the way.

Unprecedented challenges

Financial crises are certainly not a modern phenomenon. Economic panics have existed since the eighteen-hundreds – take the appropriately named ‘Panic of 1873’ for example.

In 1873, when stock markets in Europe crashed, investors began heavily selling investments, notably US railroad bonds that had been financing the growth of new technology.

This fire sale bankrupted many railroad companies, and subsequently led to the failure of at least 100 US banks, and two decades of stagnation in the UK, known as the Long Depression.

This led to a second key moment in the past 250 years: the creation of the welfare state.

In the tussle between capitalist views and socialist views (some things never change), the notion of welfare state capitalism emerged. This encouraged private commerce and endeavour, but offered a safety net, usually funded by taxes.

Interestingly, the development of the welfare state, which began to evolve in the early 1900s in the UK, prefaced the golden age of economic growth in the 1950s and 1960s. This was an important era that ushered in another major milestone in economic advancement.

No one knows what the next 250 years will hold for the economy. What is clear though, is right now our economy is going through another groundbreaking event.

Computing change

As we all know, computers have huge impacts on every aspect of our day to day lives. What many of us don’t realise is that this essentially began in the mid-20th century, with the third important economic event on our list.

After WWII, there were several leaps in innovation and the first real forms of the modern computer were born when MIT and Radio Corporation of America developed a computer that could store memory on magnetic cores. This doesn’t sound like much, but it allowed a computer to respond almost instantaneously to basic instructions.

Despite these ground-breaking innovations, economist Robert Solow famously observed a worrying paradox: that the computer age was everywhere except for the productivity statistics.

After the growth surge of the 1950s and 1960s, a series of crises – oil in the 1970s, Latin American currency crisis in the 1980s, the Asian financial crisis in the 1990s – hampered economic growth.

What these crises did demonstrate, however, was the connectivity of the global economy.

The next normal

A few changes from around the world led to our fourth important economic marker; hyper-globalisation.

With China’s ‘open door’ policy in the 1980s, the economic liberalisation of India in the 1990s, and the reintegration of Eastern Europe with the world, following the fall of the Berlin Wall in 1989, the number of workers doubled from 1.5 billion to 3 billion in a few short years.

Getting technical for a moment, this halved the global capital to labour ratio, spurring foreign direct investment, global supply chains and international stock markets. Essentially, this reset the status quo at the time and literally opened up a world of opportunities to investors.

Once again, there were backlashes which, along with the Global Financial Crisis, show that globalisation hasn’t been problem-free.

And that brings us to the fifth most important time in the past 250 years of economic history.

The past 18 months have shown that technology can allow economies (though taking some hefty knocks) to withstand a global pandemic. We have been able to live remotely, showing technology can take over the basics while allowing us to innovate and excel in new directions. To show how important digitisation has become, several years ago the UN classified internet access as a human  right!

No one knows what the next 250 years will hold for the economy. What is clear though, is right now our economy is going through another groundbreaking event.

This means investors have an amazing opportunity to play an important role in this change – to overcome structural changes, tackle climate change and embrace the ‘build back better’ mantra.

We look forward to looking back on this progress when we come to celebrate our 500th birthday.

David Henry

Investment Manager

The value of your investments and the income from them can fall and you may not recover what you invested.