Simon English: Activists may find Sir Martin Sorrell rather a bitter pill to swallow

Is capitalism going to eat itself? Listening to Sir Martin Sorrell talk earlier, the answer sounded a lot like yes. Or at least, perhaps.

The ad man’s sales have been hit by various factors, most interestingly by the actions of those other Mad Men — activist investors.

Under pressure from the likes of Nelson Peltz, Dan Loeb and Carl Icahn, the world’s giant advertisers have taken fright. Procter & Gamble, Nestlé, Unilever and Reckitt Benckiser have slashed marketing spend and embraced other demons such as zero-based budgeting while they pursue costs cuts at the expense of growth.

These large companies are facing such demands for short-term share price performance that they daren’t take a longer view.

All these spending cuts, aside from biffing WPP, have “resulted or will result in a further reduction in numbers of consumers or users, a serious warning sign”.

So the only growth for these big firms is artificial, it’s from cost cuts.

Sir Martin thinks big firms won’t have a choice but to up marketing spending at some point, but he plainly isn’t sure when that might happen. In the meantime, Peltz, Loeb and the rest are damaging the entire global economy in their own search for a larger slice of the pie (they surely have enough).

To them, long-term planning is what to have for lunch. Much beyond that, they don’t care.

They just trust that, in the end, the economy will improve and that their own philanthropic work — funded with money they’ve squeezed from the system — will be enough to save their reputations as great men.

It would be interesting to see how Sorrell would cope if the activists targeted his shares. Since they are down 11% today, some might sense an opportunity to start being difficult.

A Sorrell v Peltz punch up would be a sight to see. I’d buy tickets.

Don’t panic!

Sorrell’s comments are interesting for other reasons; they indicate a turn in the thinking of opinion formers almost everywhere.

In the wake of the financial crash, the accepted wisdom was that you can’t borrow your way out of debt. This point seems straightforwardly obvious, though it assumes government borrowing is the same as a family credit card (it isn’t).

Now Sir Martin is arguing that you can’t cut your way to growth, which seems unarguably true.

If President Trump does succeed in ramping up infrastructure spending, and central banks keep on quantitatively easing, you can ditch talk of debt reduction for another decade.

This will probably work out okay, as long as no one panics. No one ever panics.