The an­swer to this cri­sis of Bri­tish cap­i­tal­ism is more, not less, cap­i­tal

The Sunday Telegraph - Money & Business - - Business - NIGEL WILSON

When China en­tered the World Trade Or­gan­i­sa­tion and the Ber­lin Wall fell, a cosy con­sen­sus emerged around free mar­kets, free trade, light reg­u­la­tion and glob­al­i­sa­tion. The West had won.

But cel­e­bra­tions were pre­ma­ture and to­day young and old, rich and poor are ask­ing whether cap­i­tal­ism works. Par­tic­u­larly, those with a min­i­mal cap­i­tal stake in the sys­tem know it is not work­ing for them. Global data tell us that cap­i­tal­ism is work­ing well for three out of four groups of peo­ple. In poor coun­tries, it has de­liv­ered for the com­par­a­tively wealthy, cre­at­ing a ris­ing mid­dle class. More im­por­tantly it has lifted bil­lions of the world’s poor­est peo­ple out of ab­so­lute, life-threat­en­ing poverty. And aided by low in­ter­est rates, quan­ti­ta­tive eas­ing and as­set price in­fla­tion, it has worked well for the rich, liv­ing and work­ing in rich de­vel­oped coun­tries.

How­ever, it has been fail­ing a fourth group: poorer and mid­dle-class peo­ple in richer coun­tries. Me­dian real wages have barely risen for 20 years in the US or the UK. In­equal­ity has widened. The life ex­pectancy of the rich is di­verg­ing from that of the poor, and poorer peo­ple with chronic ill­nesses in old age are trapped be­tween the strug­gle to af­ford ex­pen­sive care or mak­ing do with ba­sic stan­dards.

In the last 20 years busi­nesses large and small, along­side gov­ern­ment, have un­der in­vested in in­fra­struc­ture and hous­ing, as well as in tech­nol­ogy and skills. Our great uni­ver­si­ties lead the world in re­search, but we un­der in­vest and sell out too early. Our en­thu­si­as­tic en­trepreneurs are cre­at­ing com­pa­nies at an un­prece­dented rate, but we rarely scale them up. This is over­laid by in­ter­gen­er­a­tional un­fair­ness. Lower real wages for those in their twen­ties and thir­ties, stu­dent debt, lower house­hold sav­ings rates and later first-time buy­ing of homes means fewer peo­ple ac­tu­ally have cap­i­tal or a real stake in the cap­i­tal­ist sys­tem. This is a puz­zle for gov­ern­ment, busi­ness and so­ci­ety that we need to solve.

The an­swer to this cri­sis of UK cap­i­tal­ism is more, not less, cap­i­tal.

The global econ­omy is un­der­go­ing its best ever growth phase with fewer coun­tries cur­rently in re­ces­sion than ever be­fore. And af­ter a decade of his­tor­i­cally low in­ter­est rates, the world is awash with money, $8 tril­lion of which, em­bar­rass­ingly, is earn­ing less than zero. The money is still flow­ing dis­pro­por­tion­ately into fi­nan­cial in­stru­ments – global stock and bond mar­kets have added over $20 tril­lion in mar­ket cap­i­tal­i­sa­tion in the last year – equiv­a­lent to 10 times the UK’S eco­nomic out­put. This is cold com­fort for the low-earner, grad­u­ate or start-up. More money needs to flow from fi­nan­cial in­stru­ments to real as­sets. Bet­ter cap­i­tal­ism – more re­spon­si­ble and in­clu­sive, with bet­ter share­holder stew­ard­ship and a more long-term fo­cus – goes hand-in-hand with us­ing more, not less, cap­i­tal.

At Le­gal & Gen­eral, we be­lieve that the UK re­mains a great place to in­vest. Our once great cities are step­ping up, not just the ob­vi­ous sci­ence and tech­nol­ogy pow­er­houses like Ox­ford and Cam­bridge but other re­searchrich cities like Manch­ester, Leeds and New­cas­tle, which now has a growth rate of over 4pc and an un­em­ploy­ment rate lower than Lon­don. We can in­vest in af­ford­able hous­ing for young and old. We can in­vest pa­tient cap­i­tal in start-ups and scale-ups. And we can sup­port mea­sures like Lord Sains­bury’s “T-lev­els” and Baroness Wolf ’s maths acad­e­mies to pro­vide the skilled, pro­duc­tive workforce our SMES need.

De­fend­ing cap­i­tal­ism re­quires mov­ing on from the arid de­bate about mar­kets ver­sus state, and in­stead work­ing in con­struc­tive col­lab­o­ra­tion be­tween busi­nesses that are pre­pared to in­vest, a sup­port­ive gov­ern­ment and en­abling reg­u­la­tors. Above all, we must make cap­i­tal­ism more in­clu­sive and de­ploy to­day’s cap­i­tal ef­fec­tively to give ev­ery­one a stake in its suc­cess. Nigel Wilson is chief ex­ec­u­tive of Le­gal & Gen­eral

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