Unless we make capitalism more inclusive, history will judge us poorly
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, especially housing, affordable. Everyone, in particular the young, should secure a stake in UK 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 50pc alongside excessive price inflation. The Big Bang made London the heart of the global financial system, but there was minimal trickle-down to other cities.
We know urbanisation and innovation deliver 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. Investing to solve the housing crisis is not about importing cheap foreign labour. It is about up-skilling through investing in hi-tech Uk-based manufacturing alongside “attitudinal” changes in planning and a decrease in “Nimbyism”. The outcome: 100,000 high-quality affordable houses that councils and occupants need.
Possibly the biggest market failure is later-life living, with only 2pc of all new homes built for over-55s. 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. With enabling regulators, political support and enlightened institutions, last year’s £2bn could become £20bn by 2022. This additional £18bn would provide a 1pc economic boost during the period of maximum Brexit uncertainty. Elsewhere, the UK is developing an institutional market for build-to-rent housing. Planners are supportive, recognising “generation rent” exists and rent inflation is too high.
Too many companies excessively focus on cost-cutting and under-invest for long-term growth. The UK is a world leader at creating start-up businesses, but a laggard in scale-ups. We have seven of the top 30 world universities, but none have the commercial focus of Harvard. Britain hasn’t created an Apple, Amazon or Facebook. 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 and Invesco support our successful firms and best universities. We need more. For inclusive capitalism to work, all stakeholders need an emotional, physical and financial stake in its success.
Nigel Wilson is chief executive of Legal & General