Inclusive Capitalism: making profit without pain?

19 Sep 2018

Contrary to popular belief, capitalism can improve everyone's life. It's possible for businesses to create profits today, and still build a more sustainable economy for tomorrow: that's inclusive capitalism.

The Walney Extension, a clean energy investment

The best part about inclusive capitalism is that everyone benefits from it - from people saving £100 a month, to small local businesses, to huge multi-national companies. But what actually is inclusive capitalism, how does it work, and how can it affect your day-to-day life?

Inclusive capitalism is about investments that have a positive ripple effect in society. It's about investing in things that benefit everyone - like roads, railways, bridges, digital infrastructure, education, or financing start-ups. It's a way of creating new assets and new jobs, rather than just pushing money back and forth within a small section of the economy.

Ultimately, it's a way of boosting the economy from the ground up, while winning back the confidence of people who've lost faith in capitalism.

The words 'inclusive' and 'capitalism' have equal weight here. It's not about pure selflessness and non-profit work - to count as inclusive capitalism, it has to benefit investors. But it also has to benefit society as a whole, in ways that boost the economy at large. If our pension funds earn returns by investing in new infrastructure, then that makes our children and grandchildren's cities and towns better places to live in. Everyone wins.

It's time for an end to short-termism

Over the last decade, investing has mostly been about short-term thinking. Things like companies buying back their own shares to make them go up in value, or investing in complicated financial products. It's created extraordinary, but exclusive, wealth.

Since the financial crisis began, it's normal to see a huge split between the mind-set of big business in the City and the everyday reality of the nation's economy. Until we can fix that divide, our economic system will be prone to crashing, and less likely to deliver reliable, long-term return on investment.

Never before has there been so much global capital. Money has never been so cheap and yet so poorly used. Around $8 trillion is earning 0% or less, with little spend on infrastructure and no growth in real wages.

Even if it's benefiting the upper tiers of capitalism in the short-term, it's hurting us all in the long-term. And this attitude of short-termism becomes an excuse for poor management decisions by businesses and governments alike, with each blaming the other.

From renewable energy, to investing in cities, inclusive capitalism is already at work

Urban regeneration, affordable housing, clean energy and small business finance are all great examples of where inclusive capitalism is working right now.

Solar and wind power farms are popping up all over the UK. They're not only sustainable businesses delivering returns for investors, but they can reduce energy costs, create high-value jobs and help cut environmental damage.

MediaCityUK in Manchester is another great example. It used to be the run-down banks of the Manchester Ship Canal in Salford. Now, following a joint £1 billion investment between Legal & General and Peel Group, it's a 200-acre development that's home to 200 businesses, including the BBC and ITV. And the surrounding area will see a big boost in its economy for decades to come.

We can see how urban investment like this is paying off in other towns and cities across the UK, too - like in Leeds, Newcastle, Birmingham, or in Bracknell, with the development of the Lexicon centre, a new retail and leisure centre transformation project following a £240 million investment by Legal & General in 2017.

The Lexicon Centre in Bracknell

It's about to take off on an even bigger scale

All the ingredients are already in place.

Universities are brimming with millennials with commercial ideas. AI and data-driven businesses are starting up in record numbers - since 2013, the UK has been steadily producing over 500,000 new start-ups a year. And alongside them, start-up hubs and accelerators are springing up to help power those businesses to success - like Eagle Lab in Cardiff that Legal & General launched with Barclays last year.

This new crop of entrepreneurs is shaping what the future of business looks like. And in many ways, inclusive capitalism is the perfect economic system for the millennial generation. It creates fertile ground for technology, entrepreneurialism and ambition, while also driving positive social change, environmental progress and long-term economic stability.

In one recent study, 61% of millennials said they'd sacrifice profit to stay true to their values. Evidence that the ethics of our economy will be especially important to the fledgling investors of this generation.

But for a major shift to happen, we'll need to see more leadership from the top. We need pioneering politics from people who embrace capitalism, but who also want to smooth its rough edges. Teddy Roosevelt in the US and Nye Bevan in the UK are sparkling historical examples.

Everyone can get involved - even first-time investors

Global and local businesses, investors, big and small - everyone stands to gain from inclusive capitalism.

It can all start with responsible investing. When you're looking for a promising place to invest your money, think about what wider good each venture can do. Will it boost infrastructure, jobs, education or the environment? Will it work towards a stronger economy in the future?

Legal & General have constantly been looking for ways to make this kind of ethical investing easier. Our Own Your World campaign is helping individual investors put their money to work in ways they can feel good about. We can help you find the investments that give you a stake in the things that matter to you - all while promoting inclusivity and progress on climate change.

It's time to look beyond political and economic divides. Capitalism and social progress aren't opposing forces. Quite the opposite. All it takes is a longer-term view, a more inclusive attitude and for everyone to take that first step.