The COVID Pause And Inclusive Capitalism

This is the first piece in a 5-article series based on a speech I gave at a BritishAmerican Business hosted virtual conference in September 2020. In it, I talked about the concept of Inclusive Capitalism and how, put into action, it can penetrate all areas of society, raising standards and creating jobs in education and through technology development, building affordable housing and reinvigorating cities. Other areas of discussion included the importance of collaboration and research, a proposed rethink of GDP metrics, and a call to use the pandemic shutdown as a chance for reflection and wise, sustainable investment.

It’s not out of place to say that amid the suspended animation that COVID-19 has brought about, the pandemic has caused us all to pause, think, and rethink about our societies. While in a matter of months, we’ve seen an acceleration of business trends that would otherwise have taken years to evolve, in this series of articles, I’d like to address the bigger picture of society as a whole.

During this time, Apple deservedly hit a $2 trillion market valuation. Yet amid this, the oldest people in society have been dying at a rate of tens of thousands at a time. That’s quite a striking contrast. We can and should use COVID-19 as a catalyst for reinventing not only the way we work, but more broadly, the way we think about society, harnessing our capital to bring about the widest possible benefits.

As I’ve noted previously in these pages, at a macro level, capitalism has helped billions of people in poor countries rise out of poverty. In poor countries as well as rich ones, capitalism has also made the rich become richer. But the poor and middle classes in richer countries continue to feel excluded from the benefits a capitalist system offers. This is where inclusive capitalism has a unique role to play.    

The message of inclusive capitalism has been resonating remarkably well in the U.K. A while back, I gave a talk to 300 or 400 people near Gatwick Airport. As I left the podium, members of the conservative party came up to me and said, “Great presentation—I really believe it’s all about inclusive capitalism.” The Labour party was also present, and their representative came up and said, “Great presentation, Nigel, I really believe in all that.” The Communist party was also there, and their representative was similarly enthused.

I have also given presentations at business schools in China, and they absolutely get inclusive capitalism. That’s what they believe they have there, in fact. If you visit Shenzhen, they think they’re very much taking an inclusive capitalist approach. It seems to be a much broader Church than I had originally thought. Why? I like to think it’s because it’s about doing the right things for the right reasons and delivering the right outcomes.

Taking a momentary pandemic pause, I am proud of my ten-thousand-strong Legal & General team; our front-line staff have continued to provide certainty for ten million-plus insurance and pension customers who, we recognize, are often under life-and -death pressure as a result of COVID-19. However, our business remains robust and is performing broadly in line with the prior year despite tremendous volatility and technology increasing—technology and competitive disruption that’s going on not just in our market, but in many others. Over the last 10 years, without interruption, we’ve grown earnings per share at 10 percent per annum, dividends about the same, and we clocked in a 20 percent return on equity.

I only mention that in these pages because there’s a bigger point to be made. That alongside these financial gains, our approach to capitalism has generated tangible returns for society as a whole, whether in developing affordable housing or rebuilding our cities. If these two outcomes, doing good and doing well, seem to be mutually exclusive, I hope to convince you otherwise.  And I think it all boils down to whether the investments we’re making are a cost center or a profit center and revenue generator.  

We remain determined to use Inclusive Capitalism to help address economic dislocation as well as to drive sustainable growth. Our U.K. domestic Inclusive Capitalism direct investment program has so far invested £28 billion on this journey; that’s about 1 and a half percent of the U.K.’s GDP. We are also ambitious to invest another £28 billion.

If four or five other U.K. corporations were to follow our lead, the investment program would be worth £170 billion —that’s 2 percent per annum additional growth for the next 5 years, before the local multiplier effect. Focusing on the right economically useful and socially beneficial growth means there is always an additional social and economic multiplier. We estimate this conservatively to be about two and a half times—as well as tangible social benefits, be they physical health or mental health.

A recent example is the thousands of jobs that we have helped create in Borehamwood, just outside London,  around the investment we’re making around Sky, NBC and Universal and in rebuilding Elstree’s legendary film studios. But the evidence across the entire U.K. tells us that our investment approach to inclusive capitalism investments has resulted in the generation thousands of well-paying jobs wherever we’ve touched down. Which brings me back to the point of how the middle class might be able to leave behind the sense of being left behind. In places where middle class jobs fell into the abyss, either because of outsourcing or the forward march of technology, investments such as the one in Borehamwood creates new employment opportunities. 

And it’s not only jobs. While improving digital and physical infrastructures, investments in left-behind cities have created affordable housing in socially improved neighborhoods.  Investing in and repurposing industrial and retail buildings, enhancing educational facilities—including several of our world-beating universities here in the U.K.—is resulting in reversing decades of chronic underinvestment and environmental damage that has been allowed to go unchecked. Some may think of this as a cost center. But considering the long-term revenue generating potential of all of these investments, they are very much a profit center, and a more positive form of economic growth, in contrast to the measure we traditionally use, based on consumption. 

This is how the inclusive capitalism approach changes the narrative from, ‘This is going to cost you money’ to ‘This is going to lead to a better life, and generate revenue.’ I’m not suggesting it’s an easy thing to do, or it’s been a linear and easy process for us at Legal & General. Companies like ours have had to learn a whole set of new skills, and our initiatives and everybody’s initiatives will need to be informed by the understanding of very big macro, technological, and demographic trends.

Particularly during these times, there’s a natural tendency to be pessimistic about outcomes. That can lead to simply not trying. During lockdown, against some odds, but believing in the future, we were able to get permission to build new housing through a virtual planning process. On the face of it, this particular project at this particular time wasn’t considered achievable. But extraordinary times call for us to do extraordinary things, and we want to keep economic activity going to the best of our ability.

While everyone is looking at their budgets right now to figure out how they can slash their investments and cut the workforce, it’s all the more important to lean the other way and figure out how to make a difference by investing in the new— to help create new industries, new jobs and new investment opportunities.

We now have some ten years of data now on the number of jobs created, the quality of those jobs, what’s happening to the schools in the area and the quality of the outcome from those schools, and near the universities what’s happened to house prices, how many more houses. And one pocket of economic growth causes another, tangential one to happen—the way we see it, doors lead to doors. By these measures, the approach seems to be doing well. There are other areas where there’s a clear need to rethink and reup our investment – for example in the care of the elderly, and I’ll cover that in an article to follow.  

But if imitation is the sincerest form of flattery, other companies seem to see the value in what we’re doing and are following in our path—which is also a metric of the approach’s success. For example, when we’re outbid on a development opportunity, and someone on our team says, “We didn’t win that, can’t you give X or Y a call?,” I say “No, because that actually is the capitalist system.” If it’s a competition and you don’t win it, you’ve got to move on. And that’s a signal of success, not failure.

The next article will look at inclusive capital investment in housing, commercial developments and entire cities.