I believe the West did
not simply make a series of poor corporate decisions over the past five
decades. I believe it built an entire
economic operating system around a category error, mistaking the financial
scoreboard for the actual game, and that error has now compounded into a
structural dead end mathematically incapable of surviving a high-interest-rate
environment or competing against state-directed industrial powers.
This essay traces that
error from its theoretical origin to its current consequences. Part I establishes how Milton Friedman’s 1970
doctrine redefined the corporation, and contrasts it against an East Asian
model that never made the same redefinition.
Part II details the mechanics of the hollowing this produced, in capital
allocation and in the generational transmission of industrial skill. Part III shows the reckoning now arriving,
using Paramount Skydance’s live debt-financed gamble on Warner Bros. Discovery
as the cautionary case, against Berkshire Hathaway’s discipline as the counterexample,
a discipline even Berkshire is now under pressure to abandon. Part IV extends the argument to the
geopolitical consequence: the asymmetrical dependency this financialised model
has created against a China that spent the same five decades building physical
capacity instead of paper wealth.
Part V brings the
argument home. I contend that Singapore’s
own sovereign funds, GIC and Temasek Holdings, are increasing their exposure to
the scoreboard I argue is structurally unsound; now, their leadership has
publicly acknowledged the risk. I do not
write this as an outside critic of Western capitalism. I write it as a warning against Singapore
importing the same category error into institutions built, over six decades, on
the opposite discipline.
I. The Theoretical
Foundation and the Core Tension
In September 1970, Milton
Friedman wrote in the New York Times that a corporation has one social
responsibility: to increase its profits.
That sentence rewired the Western firm.
A corporation stopped being an institution balancing workers, customers,
and shareholders, and became a machine with a single output variable. Every other stakeholder became a cost to
optimise against that one number.
East Asian corporations
never adopted this model. A Japanese keiretsu,
a Korean chaebol, a Chinese state-linked enterprise, each operates as an
instrument of national resilience first, and a profit centre second. The distinction is not sentimental; it is
structural. A firm built to serve
national industrial capacity builds factories, trains engineers, and stockpiles
raw materials even when the quarterly return on that spending looks poor. A firm built to serve shareholder return does
the opposite the moment spending compresses the number investors are watching.
This produced what I
would call the scoreboard fallacy.
Western capitalism mistook the stock market index for the actual
game. The index measures sentiment about
future cash flow. It does not measure
physical production capacity, tacit engineering knowledge, or
infrastructure. A country can watch its
index climb for a decade while the factory floor underneath it empties, and
nothing on the scoreboard will tell anyone this is happening until the factory
is needed and no longer exists.
II. The Structural
Mechanics of Self-Hollowing
S&P 500 companies
routinely return over 90 per cent of net income to shareholders through
buybacks and dividends, rather than capital expenditure or worker
compensation. This is not occasional
excess. It is the default operating
posture of the American public company, driven by two forces working
together. Institutional asset managers
demand steady returns on a quarterly cycle, and executive compensation is tied
directly to the share price those buybacks mechanically inflate by shrinking
the share count. An executive paid in
stock options has a personal financial incentive to spend the company’s cash
buying back its own shares, rather than building a factory whose payoff arrives
in a decade, long after his own options have vested and been exercised.
Workers absorbed the
other half of this mechanism. A
line-item variable cost, cut whenever margin optimisation demands it, was never
merely an employee. He was the literal
custodian of tacit industrial knowledge, the kind of expertise that does not
exist in a manual and cannot be rehired from a job posting. Outsourcing manufacturing to East Asia did
not simply move jobs abroad. It severed
the generational transmission of midstream chemical refining, precision
tooling, and heavy metallurgy, skills a father once taught a son on a factory
floor over years, not in a training course over weeks. The West did not lose factories. It lost the people who knew how to run them,
and that knowledge does not come back the moment a tariff makes reshoring look
attractive on paper.
III. The Looming
Macroeconomic Reckoning, 2027 to 2029
Trillions of dollars in
pandemic-era corporate debt, issued when rates were near zero, come due between
2027 and 2029. Junk-rated tranches
already command yields up to 9 per cent in the current market. Companies that financed a decade of buybacks
on cheap debt now face refinancing that same debt in a market charging triple
the price.
The domino effect runs in
a predictable sequence. Higher interest
expense compresses free cash flow immediately.
Companies halt the buybacks that had been propping up their own share
price artificially, and cut dividends next.
Quantitative funds and institutional algorithms, which had been
rewarding the buyback behaviour, reverse and dump the equity the moment that
behaviour stops. Credit rating agencies
downgrade in response to the resulting cash flow deterioration, and a downgrade
below investment grade forces forced selling by funds mandated to hold only
investment-grade paper, freezing liquidity across the entire sector at once.
Paramount Skydance is
living this sequence in real time. The
company’s US$110.9 billion acquisition of Warner Bros. Discovery, set to close
on 6th October 2026, saddles the combined entity with approximately US$80
billion in net debt, against a Paramount market capitalisation of just US$15.3
billion before the deal. The debt
issuance alone runs three times the size of the company’s entire equity
value. Some tranches of that debt carry
yields between 8 and 9 per cent, the junk-rated cost of capital. David Ferris Ellison, Chairman and Chief
Executive Officer of Paramount Skydance, built this structure believing
technological and content-library optimisation would justify the leverage. His own father, Oracle founder Lawrence
Joseph Ellison, personally guaranteed US$46.7 billion in equity financing to
make the arithmetic work at all. This is
not a hypothetical cliff. The company is
betting its entire balance sheet that synergies will materialise fast enough to
service junk-rated debt before the next refinancing window arrives, with one of
the wealthiest men in the world standing behind it as personal guarantor.
The Berkshire Hathaway
Counterexample
Contrast this against
Berkshire Hathaway, the one major American company built on the opposite
discipline. Under Warren Edward Buffett,
and now under his successor, Chief Executive Officer Gregory Edward Abe,
Berkshire Hathaway built a cash position that reached a record US$397.4 billion
in the first quarter of 2026, larger than the combined cash holdings of Apple,
Amazon, Alphabet, and Microsoft put together.
Berkshire Hathaway pays no dividend, on Buffett’s own long-stated
principle that retained capital, compounded, creates more value than a one-time
payout. Its own buyback policy refuses
to repurchase a single share if doing so would push cash and Treasury bill holdings
below US$30 billion, a floor of less than a tenth of its current reserve.
Even Berkshire Hathaway faces
the gravitational pull of shareholder-primacy culture. Income-focused shareholders have spent 2026
clamouring for Abel to deploy that cash more aggressively, and Abel has begun
doing so, US$4.5 billion in buybacks in the second quarter alone, alongside US$20
billion in net equity purchases, ending a fourteen-quarter streak of net
selling. The pressure to behave like
Paramount, to stop hoarding and start returning capital, exists even inside the
one company that spent six decades proving patience compounds better than
leverage. Berkshire Hathaway has not yet
surrendered to that pressure. Whether it
continues resisting, under a chief executive who is not Warren Buffett and does
not carry his sixty-year credibility with shareholders demanding otherwise, is
the open question Berkshire Hathaway’s own board will spend the refinancing
wall years answering.
IV. The
Geopolitical and Competitive Imbalance
The shareholder model
penalised long-term, low-margin industrial scaling that builds supply chain
security. China did not make this
mistake. It built a virtual monopoly
over midstream refining and intermediate goods, processing 90 per cent of the
world’s rare earths and a dominant share of global lithium, by funding
loss-leading physical infrastructure for decades, accepting thin or negative
returns in the years Western shareholders would never have tolerated from a
public company’s quarterly report.
This is not an abstract
strategic concern. The United States
imports 92 per cent of the potash it consumes, 60 per cent of its aluminium,
and 57 per cent of its copper, each concentrated in one or two foreign suppliers. Western assembly lines, however much capital
they represent on a balance sheet, cannot physically operate without the
processed intermediate goods China’s own loss-leading industrial strategy
secured a generation ago. A tariff does
not create a refining facility. It
merely raises the price of the input the facility was never built to replace.
Europe is caught in the
worst version of this trap. It is
strategically dependent on an American ally whose trade policy reverses within
a single presidential term, and it competes directly against a Chinese
industrial machine built for multi-decade dominance. Europe has not merely lost the manufacturing
contest. It has lost the middle-ground
distribution and intermediate processing layer between raw material and
finished good, the layer China spent decades building. This means America and Europe remain
vulnerable to supply chain shocks even when they hold the raw materials
themselves, because holding bauxite is not the same as operating the aluminium
smelting capacity to turn it into anything usable.
The Cost of
Financial Engineering
Western capital,
meanwhile, remains tied up in leveraged buyouts, corporate restructuring, and
litigation, activities generating immense paper wealth for private equity
sponsors while creating zero new physical capacity and zero new resource
security. Paramount’s US$80 billion debt
pile buys a media and streaming library.
China’s refining capacity buys the ability to process the metal every
electric vehicle, wind turbine, and missile guidance system on Earth requires. One of these is paper wealth. The other is a monopoly measured in
decades. A system that consistently
chooses the former, quarter after quarter, because the quarterly scoreboard
rewards it, has not made a series of bad individual decisions. It has built an economy mathematically
incapable of competing against one that chose the latter, and the refinancing
wall arriving in 2027 is simply the first bill for three decades of preferring
the scoreboard to the game.
V. Singapore’s Sovereign
Funds Risk Falling into the Same Trap
Everything above
describes a Western economy built to reward the scoreboard over the game. Singapore’s sovereign capital holds a
meaningful stake in that same scoreboard, and I believe the exposure has grown
faster than the underlying caution demands.
Temasek Holdings’ net
portfolio reached S$518 billion as of 31st March 2026. The United States accounts for 26 per cent of
it, the second-largest regional allocation after Singapore itself. Temasek Holdings holds direct stakes in both
OpenAI and Anthropic, and has committed to raising AI-related exposure from 6
per cent to between 10 and 15 per cent of the total portfolio by 2031. Chia Song Hwee, Chief Executive of Temasek
Global Investments, has told reporters AI overvaluation is “unavoidable,” and
that nobody, Temasek Holdings included, can predict when a correction
arrives. A fund increasing exposure to a
position its own leadership has already called overvalued is not hedging
against the shareholder-primacy dead end.
It is buying further into the scoreboard, when the companies most
exposed to that scoreboard demonstrate what happens when valuation detaches
from productive capacity.
GIC raised its own
equities allocation to 51 per cent in the year to March 2025, up from 46 per
cent the year before, even as its own annual report acknowledged that high
valuations “provide a challenging backdrop for forward returns.” GIC led Anthropic’s US$30 billion Series G
funding round, valuing the company at US$380 billion, a valuation built on
projected revenue rather than demonstrated cash flow, financed through the same
circular capital loop linking Nvidia, cloud providers, and AI laboratories. GIC’s stated reasoning for overhauling its
investment framework this year is that “a changing world order, rising fiscal
risks, and advances in artificial intelligence” are the three forces driving
the change. The fund identified the risk
correctly. It then increased exposure to
the asset class carrying that risk regardless.
Greg Abel deployed
capital cautiously even under shareholder pressure, holding a floor well above
what any reasonable liquidity need required, because Berkshire Hathaway’s own
discipline treats patience as a strategic asset. Singapore’s funds face the identical pressure
Berkshire Hathaway faces: the expectation of competitive returns in a market
rewarding leveraged, financialised behaviour. GIC and Temasek Holdings have responded by
increasing exposure rather than holding the line Berkshire Hathaway has, so
far, maintained.
I do not believe this
calls for abandoning US equity exposure entirely. I believe it calls for drawing the distinction
between China’s loss-leading industrial capacity and America’s leveraged buyout
culture, applied to portfolio construction.
A Singapore sovereign fund holding a stake in a company building processing
capacity, semiconductor fabrication, critical minerals refining, physical
infrastructure, is holding exposure to the game. A fund holding a stake in a company whose
valuation rests on a circular compute-financing loop, or a media conglomerate
carrying debt three times its own market capitalisation to fund a content
acquisition, is holding exposure to the scoreboard. Singapore’s own institutional continuity, the
six-decade track record EDB, HDB, and GIC have each built, is the asset that
should let our funds wait out a financialised cycle the way Berkshire Hathaway
has waited out every cycle before it, rather than chasing a return the
scoreboard is currently offering at exactly the moment its own underlying game
looks structurally unsound.
Terence
Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The
Billionaire Cheat Code
