Investing in a New Life

Three centuries ago, Thomas Paine wrote: “The constitution of England is so exceedingly complex, that the nation may suffer for years together without being able to discover in which part the fault lies, some will say in one and some in another, and every political physician will advise a different medicine.”

Nigel Kershaw, Chair of The Big Issue Group, introduced me to Tom Paine, when Sarah and I worked together at Big Issue Invest. Last Friday, we spent 24 hours in Lewes, East Sussex and visited Bull House, where Tom lived before heading off to America with his pamphlet ‘Common Sense’, which advocated independence from Great Britain to people in the Thirteen Colonies. A new and better life requires true democracy – the same holds for a Good Economy (J.K. Galbraith).

A week earlier, we spent a day in Dartmouth, South Devon, where the Mayflower docked before carrying the Pilgrim Fathers across the Atlantic to start a new life in America. The Pilgrims were refugees fleeing religious persecution, taking their chances on ‘small boats’ (the Mayflower’s sister ship Speedwell didn’t make it) – all for the sake of a new life. For the Native Indians, a new life meant a new death – from the alien diseases European traders brought with them. This was the ‘Great Dying’. We lingered outside Humphrey Gilbert’s house – the gentleman explorer with Eton-Oxford credentials (sound familiar?) who pioneered the English colonial empire in North America.

As living standards fall like never before and the North-South Divide deepens, most British people urgently need a new life. Fairness Foundation polls find that 66% of us want to live in a fairer society. Inequality threatens to be the new normal, say our leading human geographers. Manchester’s Philip McCann: ‘Half the UK population live in areas no better than the poorer parts of the former East Germany, poorer than parts of central and eastern Europe, and poorer than the US states of Mississippi and West Virginia’; Oxford’s Danny Dorling: ‘Fifty years ago, the UK was one of the most equitable of OECD states. After the cold war had ended, it was not just a few Eastern European countries that became much more unequal. It was also Britain.’

Pervasive and entrenched inequality will kill us all in the long run. Social risk and financial risk could equate in a low-level equilibrium trap of economic stagnation. Are we already a “Stagnation Nation” (Resolution Foundation/Centre for Economic Performance)? If so, then our own ‘Great Dying’ is self-inflicted. After all, the UK is the 6th richest country on the planet and home to the world’s leading financial centre. Why not use this financial power to free Britain of the tyranny of inequality? Why have we not done so already? What have successive governments been thinking about, post-Big Bang? Let us create a humane agenda for impact investing as part of a new and exciting social contract for the future.

OECD Inequality
Inequality is a stain on the nation

I believe that Place-Based Impact Investing (PBII) is the investment road to a new and better life. However, there is a lot of ‘road building’ to do, not only in mobilising financial capital but also social capital – getting global investors and local stakeholders to work together as teams in real places, rather than in a social vacuum. Team spirit is what matters if PBII is to move from being a popular idea in the investment community to a practical means of building sustainable places and resilient economies. Here are my thoughts on a humane agenda for impact investing.

Firstly, can we please discard the mantra “People and Planet”? I find it vacuous. If we insert Places in the middle of the mantra, it works better from my perspective, because investors are then more grounded, more visible and therefore more accountable. Surely that’s the essence of impact investing. Let’s run with “Creating a New and Better Life for Everyone, Everywhere”.

Secondly, we must allocate more impact capital to private markets and improve the performance of Britain’s real economy. Financial regulation should be judged as “working well from the perspective of the people and firms in the real economy and the Financial Conduct Authority should focus on making financial markets ‘effective’ from that perspective”. (Kevin James, LSE Centre for Systemic Change)

Thirdly, in doing this, we should aim to keep a significant share of institutional capital for productive use within the UK – our own backyard. The great bulk of our pension savings is being invested overseas. Is the UK investment opportunity landscape that barren? Do investment managers look under every stone? How good is their local knowledge of council priorities and investment readiness. Trust and quality information can reduce transaction costs and make projects more investible. Places have unique risk profiles. History tells us that turning over every stone is worthwhile. Had we invested more of the surplus capital (accumulated when Britain was the workshop of the world) in ‘our own backyard’, rather than exporting the bulk of it straight to our competitors at the turn of the 19th century, the UK economy would have been 25% more competitive at a time when its global industrial leadership was being challenged by the US and Germany. (Sidney Pollard, Economic History Review, 1985). Counterfactual evidence I know, but the lesson stands: don’t leave stones unturned when you know the long-run social risks can be high.

Fourthly, impact investing in the real economy – the seven pillars of the Good Economy’s PBII model – should be in line with place-based approaches to tackling seemingly intractable social, economic and environmental problems. My view is that every place should have its own PBII Investment Strategy and Partnership, with institutional investors around the table from project conception to execution. We should purpose impact investment towards building dynamic and resilient local economies across the length and breadth of Britain. Prioritise the Foundational Economy – Health, Housing, Education and Infrastructure – and the Future Growth SME Sector – and all branches of the Green/Blue Economy.

Finance is one factor in a bigger economic development equation, and investors are only as good as their investees. They depend on others to be ‘impactful’. Hence PBII needs to have its own stakeholder ecosystem. To build a new and better home, you don’t start with the roof (top down), you start with the foundations (bottom up). Mass flourishing – not perishing in a Stagnation Nation – will happen if we invest ‘bottom up’ and decentralise decision making across the entire investment and business community, as well as across public services and political institutions. Political devolution can’t work on its own.

Thus, making a humane agenda out of impact investing calls for revolutionary thinking and team spirit. We need a powerful and compelling vision of a new and better life. Abandon the status quo. I think that’s how Tom Paine would see it: “A long habit of not thinking a thing wrong gives it a superficial appearance of being right. We have it in our power to begin the world over again”.

Happy to talk and welcome any examples of investment projects that fit the bill! Researchers out there, please get in touch.