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    Unless we make capitalism more inclusive, history will judge us poorly.

    This article appeared in the Sunday Telegraph website on 20 August 2017

    It’s time for business to articulate and back inclusive capitalism. Investment-led growth drives productivity and increases real wages. It can also make necessities, particularly housing, affordable. Everyone, in particular the young, should secure a stake in the nation’s wealth.

    In western economies, real wages have failed to rise anywhere whilst profits have been rising everywhere. Efficient application of technology has made manufactured imported luxuries such as consumer electronics and cars, cheap. However, public policy has made necessities like housing, energy, education and healthcare expensive. This wasn’t supposed to happen. Capitalism should be inclusive, raising everyone’s standard of living. The solution is not to try to tax wealth creation, but to encourage investment through positive, constructive collaboration between government, business, finance and regulators.

    Many of the UK’s current market failures are unintended consequences of the 1980 Housing Act and 1986’s Big Bang. The goal of creating a house-owning democracy through ‘right to buy’ should be applauded, but it wasn’t complemented with a ‘need to build’ policy. While 100,000 council houses a year were sold, house building declined 50% alongside excessive house price inflation. The Big Bang made London a modern global city, the heart of the global financial system, but there was minimal trickle-down to other cities. 

    We know urbanisation and innovation delivers economic growth. London is our best example. However, its wages, investments and opportunities accelerated away from our other great cities. Unlike many other investors who don’t yet see Manchester or Birmingham as equivalent to San Francisco or Boston, L&G does. Enlightened local political leaders faced with the downside risk of Brexit need our support as they seek investment. Devolution should lead to inclusive capitalism. The world is awash with ‘liquid capital’. The UK is and will remain a great place to invest. £15bn a year of additional investment is a reasonable collective goal for devolution. 

    Investing to solve the housing crisis is not about importing cheap foreign labour. It is up-skilling through investing in high-tech UK-based manufacturing alongside ‘attitudinal’ changes in planning and a decrease in my generation’s selfish NIMBYism. The outcome: 100,000 high-quality affordable houses that councils and occupants need.

    Possibly the biggest market failure is later-life living, where only 2% of all new homes are built for over 55’s. They have £1.5 trillion of housing equity, some of which is “under-employed capital” being used neither to invest in new purpose-built housing nor to provide an income in later-life. The urgency of our care home crisis may encourage planners and politicians to raise their game. Only 7,000 dwellings with care facilities are being built annually.

    Lifetime mortgages are an important solution. The industry is in its infancy. Only £25bn of the £1.5 trillion has been converted into income. With enabling regulators, political support and enlightened institutions last year’s £2bn could become £20bn by 2022. This additional £18bn would provide a 1% economic boost during the period of maximum Brexit uncertainty. The UK is finally developing an institutional market for build-to-rent housing: potentially investing £10bn a year. Planners and local politicians are supportive, recognising ‘generation rent’ exists and rental inflation is too high. 

    Too many companies excessively focus on cost-cutting and underinvest for long-term growth. This is encouraged by short-term investors and short-term incentives. The UK is a world leader at creating start-up businesses, however we are laggards in scale-ups. We have seven of the top thirty universities in the world, but none have the commercial focus or financial backing of Harvard, Stanford or MIT. Therefore Britain hasn’t created an Apple, Amazon, Google, Facebook or Microsoft, delivering exciting opportunities for all. Never has technology been so exciting nor capital so widely available, yet so poorly used. History will judge us badly if we can’t step up. Long term investors like Woodford, Invesco, Threadneedle and others want and indeed support our successful firms and our best universities, encouraging them to invest for the future. We need more.

    For inclusive capitalism to work, all stakeholders must have an emotional, physical and financial stake in its success.


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