21 Mar 2019
Ten guidelines for inclusive capitalism
This article is based upon the latest of a series of blogs written by Nigel Wilson, Legal & General's CEO, which have appeared in forbes.com. Nigel writes passionately about inclusive capitalism, "a form of capitalism that creatively puts in place ways to make more people beneficiaries of economic growth.”
Nigel believes that: “thirty years of unbridled free-market capitalism have caused many to question the fairness of a system that can produce such extraordinary prosperity and yet leave so many people behind.”
This has led to a growing distrust of capitalism, especially from groups of people suffering from intergenerational unfairness. One glaring example of this is that now only 33% of UK millennials enjoy the benefits of home ownership. However, 60% of UK baby boomers were home owners at the same age.
Nigel goes on to quote Churchill’s thoughts on capitalism. “Capitalism is perceived, as Winston Churchill famously said, as "the unequal sharing of blessings. How can ‘the worst economic system, except for all the others, be improved for the tangible benefit of more people?"
There are ten fundamental principles to make capitalism more inclusive, and more ethical, capable of spreading its success further out to the largest number of people:
- Inclusive capitalism is patient. Sometimes capitalism is short-term and transactional. But businesses must also proactively fund large-scale, long-term projects, which are both economically productive and socially useful. Instead of the short-term focus on quarterly earnings announcements and giving share buybacks, companies should instead invest in R&D or make patient capital investments.
- Inclusive capitalism benefits a broad range of people. While delivering a financial return for the investor, investments and initiatives must also carry a broader social benefit. Inclusive capitalism is neither about philanthropy (a giveaway) nor about making a killing. A company practicing inclusive capitalism might make a goal of creating affordable housing, thereby helping younger generations get a foot onto the economic ladder.
- Inclusive capitalism creates new initiatives. Abandoning the cycle of exchanging existing assets at ever-rising prices, companies must undertake initiatives and projects that lead to new assets and new jobs. A company practicing inclusive capitalism would invest heavily and tangibly in making a 'second-tier' city a better and more technologically appealing place to live.
- Inclusive capitalism helps to solve market or policy failures. For example, an exemplary company might not only invest in making the healthcare system at large more efficient and effective, it might also take steps to tackle, say, obesity by partnering with organisations and individuals that can help make this happen on a local or regional level.
- Inclusive capitalism should be politically agnostic, the opposite of divisive or 'populist.' Companies might finance local or regional growth by partnering with leaders of all political shades, even those sceptical of capitalism. Local or regional prosperity is an amazing socio-political unifier, especially in areas that have long been economically downtrodden.
- Inclusive capitalism supports environmental, social and governance (ESG) measures. Investing in urban regeneration, affordable housing, clean energy and small business finance is the mark of a socially and environmentally conscious business. Investment managers must first keep track of their own behaviours in the marketplace, as well as those of their investee companies. Are they making concerted steps to have diversity on their own boards, and are they leading by example on issues like governance and remuneration?
- Inclusive capitalism strives to use technology for broader benefits. Taking financial inclusion as one example, companies practicing inclusive capitalism might employ technology to expand the use of auto-enrolment to get employees to save for a rainy day. And they know that mobile phones are already boosting financial inclusion, especially in areas of the globe that have never seen a bank building. A quarter of the world doesn’t have a bank account, meaning financial exclusion is a very real problem. So far, technology seems to offer one of the best solutions.
- Inclusive capitalism requires that we break the cycle of combined educational, financial and digital exclusion. Lacking access to decent education at all levels, but especially higher education, creates social exclusion and isolation. The same is true of being unbanked or not being able to afford basic technology for digital access. These are economic as well as social problems and businesses should invest in ways that address these issues.
- Inclusive capitalism strives to break the cycle of intergenerational inequality. Studies have shown that younger generations lack sufficient assets and access to capital to get a start in life. Inclusive capital invests in the innovative ideas of younger generations and start-ups. It creates paths for older and wealthier generations to connect, mentor, and pass it on while they’re still alive.
- Inclusive Capital need not involve making hair-shirted sacrifices. There’s no reason why a business has to be less commercially skilled or less profitable because it’s also socially useful. Over time, inclusivity makes a business more sustainable, more relevant to its customers. In the phrase 'Inclusive Capitalism,' Capitalism is just as important as Inclusive.