At last week’s annual investor conference of the Social Stock Exchange I heard one of the most powerful speeches I can remember for many years. It wasn’t a flamboyant tirade; no fireworks. Its power lay in the forthright honesty of the message.
Nigel Wilson, group CEO of the insurer Legal & General, had some good news and some bad. On the one hand we’re not a poor nation. On the other hand we’re pretty useless at mobilising private capital and supporting small and medium enterprises (SMEs), the true growth engines of the future and, indeed, at any time. One of his slides was this:
For those who don’t remember the original Beveridge Report, it was – remarkably – published in 1942, when the UK faced rather more serious enemies than those picked out by William Beveridge, the Liberal economist genius who delivered the report. It was Beveridge who identified what he called the five ‘Giant Evils’ in society: squalor, ignorance, want, idleness, and disease. His report formed the basis for the post-war Welfare State, the expansion of National Insurance and the creation of the National Health Service. Those evils were tackled by his suggested reforms; but the State today can’t repeat the past. It faces too many demands, and its pockets are not deep enough – of course we are all wealthier than in the dark days of 1945, but our nation is much bigger, we are all living longer, medical technology can keep us alive for much longer, and so on. The demographics, and other socio-economic changes that are just around the corner, gobble everything the State can provide and, like Oliver Twist, ‘more please’ will be disappointed.
I don’t remember the last time a CEO spoke so frankly and devastatingly about the potentially alarming future we all face – leaving aside our exit from the EU and the uncertainties that inevitably causes.
Equally I don’t recall the last time a CEO set out a practical strategy for tackling the problem of providing capital for socially and economically beneficial growth in the overall economy, in order that the State might have a chance of gathering sufficient tax revenues to maintain Beveridge 1.0.
Wilson called for a “transparent, positive, constructive collaboration between all interested parties – ‘holistic’ not ‘political’ solutions.” He also wants to see (don’t we all?): “increased consumer, generational and investor awareness of ‘social investment’ solutions as collaborative problem solvers with impact”. According to Wilson: “We have many great universities sat within potentially vibrant innovative local economies. Local innovation and investment can easily happen, it simply requires people to step up and be accountable.”
Here’s another of his slides that pinpoints how the UK has fallen behind other big markets, this one on SMEs, and courtesy of the OECD:
We just don’t manage to transform successfully the fledglings into swooping birds, and part of the reason for that – perhaps the main reason – is that we collectively have a rotten record at allocating and mobilising capital. One of the staggering figures Wilson cast across the packed audience was that SMEs in the UK mostly use credit cards to finance their growth – 55% of them do so, with just 3% using equity finance. Credit cards!
A quick glance at my own very un-fancy credit card tells me that I will pay 21.44% on anything I am ever foolish or unlucky enough not pay off in each month. Stuffing debt onto a credit card is no way to grow a business – but as Wilson pointed out, small businesses right now don’t have much of a choice. Many of them, as he put it, go round cap in hand to friends and family to help raise money to invest in the business. This is a truly bizarre situation when we are constantly being told that London is a world capital for finance. Perhaps even more astonishing was that, when he revealed this fact, there were no gasps of horror from the audience.
Our financial culture is burdened with a philosophy of quick returns, measured over very short time frames. Neither the government – broke and stretched – nor the banks – demoralised, distrusted and equally short-termist – will step into the financing gap. Who might? Who can? Who ought? Pension funds and large insurers (such as L&G), if freed from regulatory obstacles, and given the opportunity to invest with a much greater degree of risk than currently permitted. For Wilson, in what he called on one of his slides “power stations to plugs”, correctly identified that pension funds and insurers “can connect savers with investment opportunities with new ‘sub stations’ i.e. Social Pension Funds and SSX.” Wilson told me later that “we have to create successful regional cities. The UK is a great place to invest. We have to stop talking about being leavers or stayers, continuing to support NIMBY behaviour. We have to be a nation of successful doers like Beveridge, Bevan, Atlee and, indeed, Thatcher.”
Not that the rest of that day’s speakers were anything other than persuasively intelligent, but it was Wilson’s speech that counted rather more, if only because it’s an indicator of a sea-change in the attitude of some leaders of really big business. They used to be called ‘captains of industry’, a silly expression, one that has justifiably fallen into disuse given that the sins of omission (and commission) of many of those ‘captains’ have partly contributed to the mess in which we find our economy.
If a true giant of the financial world such as L&G finally ‘gets’ what impact investing should mean – growth and social benefits – then there’s hope.
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