When power stops playing by the rules

Imagine a world in which powerful leaders treat public office as a private business opportunity, independent institutions as an inconvenience, and anyone asking awkward questions as the problem.

It is reasonable to worry about where this leads. Surely you cannot keep undermining trust, rewarding loyalty over competence and bending the rules without consequences.

Eventually, something must give.

But how long is “eventually”? And what should you do with your money while waiting?

The damage does not wait for a market crash

Corruption can cause problems from the outset. Public money is wasted. Contracts go to the best-connected firm. Businesses spend time cultivating political relationships rather than improving what they sell.

The economic cost can accumulate through weaker investment, poorer services and opportunities that never materialise. The IMF identifies corruption as a threat to business activity and a country’s economic potential. 

None of this comes with a reliable countdown to a stock-market collapse.

There is no universal timetable. Damage can build for years. Strong institutions may contain it; weaker ones may allow it to become entrenched. A scandal, policy decision or funding problem can bring a sudden reassessment. Sometimes the result is prolonged underperformance rather than a spectacular crash.

The absence of a crisis does not prove that everything is fine. Nor does identifying a serious problem tell you when markets will react, or how much they have already allowed for it.

“Eventually” is an awkward date to put into a retirement plan.

Why markets can carry on regardless

We rather like the idea that bad behaviour should be followed promptly by an appropriate punishment.

Financial markets have made no such commitment.

Share prices reflect expectations about profits, interest rates and risk. Investors may worry about institutional damage while also expecting lower taxes, stronger demand or a technological breakthrough to increase company earnings.

Both things can be true. A leader can weaken the rules while some businesses become more profitable. And a rising index can conceal difficulties elsewhere in the economy.

This can be morally unsatisfying. It does not necessarily make it financially mysterious.

Selling everything because you are appalled therefore requires another judgment: that the damage will be worse, or arrive sooner, than markets expect. You then need to decide when to reinvest.

Your political analysis may be excellent. Your timing can still be dreadful.

The world is bigger than the person on television

Powerful leaders can do enormous harm. They can also give the impression that civilisation is their personal project and will cease to function if they stop attending meetings.

Fortunately, a great deal happens without them.

Businesses adapt. People invent things, solve problems, raise families and make plans. Courts can uphold contracts, regulators can enforce rules and public officials can keep essential systems functioning. Where those institutions remain independent and effective, they can constrain the damage.

There is evidence for taking them seriously: an IMF working paper on emerging economies found that stronger institutions helped cushion the effects of political uncertainty on capital flows. 

That gives us reasons for confidence in the world’s capacity to adapt beyond any one leader.

It does not mean every country, institution or investment survives intact. Companies fail, institutions can be captured, and investors can suffer permanent losses. “It always comes back” is far too casual an answer to a serious concern.

Humanity’s capacity to carry on is encouraging. Your retirement, however, has a more specific timetable.

A plan for living through “eventually”

You do not need a date for “eventually” to plan sensibly. Spread your investments, keep cash for foreseeable spending and make sure the risks fit the life your money needs to support. Diversification cannot prevent losses, but it can reduce dependence on one outcome. 

Read more: FCA guidance on diversification

Then review the plan as circumstances change. “Eventually” is uncertain; your financial commitments are rather less so.

Just don’t turn the garage into a bunker yet. “Eventually” could be a very long time to spend eating baked beans.