HAMISH MCRAE: Ethical investment should not be a box-ticking exercise

Capitalism is in trouble. Jeremy Corbyn’s plans to renationalise the National Grid at less than the market value may be incoherent and punitive, but the idea that the public sector could do better than the private sector has legs.

After all, the announcement came on the same day that the Government admitted that the part-privatisation of the probation service had been a disaster, and it was taking it back into public ownership.

And not just in Britain. In the US, the new Democrat star Alexandria Ocasio-Cortez has joined with Presidential candidate Senator Elizabeth Warren to call for the tech giants, including Facebook, to be broken up. In Germany, a young leader of the Social Democrats, Kevin Kühnert, says BMW and Siemens should be ‘democratically controlled’.

National disaster?: Labour leader Jeremy Corbyn believes renationalisation is the way forward

National disaster?: Labour leader Jeremy Corbyn believes renationalisation is the way forward 

The sense that our system is not delivering its benefits fairly is the driving force behind the IFS study on inequality chaired by Nobel laureate Sir Angus Deaton, launched last week. These concerns are not going to go away. They can’t in a world where the average pay of a FTSE 100 chief executive is 145 times that of an average worker, when the gap 20 years ago was ‘only’ 47 times. If this is just performance-related pay, as many firms claim, why do bosses get huge payoffs when they are sacked? There is an inevitable sense that the system has one set of rules (and rewards) for the capitalist insiders and another for the rest.

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Inevitable but not entirely fair. After all, it has been the American capitalist system that has given us Apple, Google and Facebook. We make our mobile calls on the network of Vodafone and its competitors. We benefit hugely from all this. Because online services are so cheap – or even free – they don’t count much in the standard measure of living standards, GDP per head. But I certainly feel better off when Waze, my favourite traffic app, saves me from getting caught in a three-hour jam on the M6.

Let’s not forget, too, that while there are serious concerns about inequality in much of the developed world, if you look globally, the past 40 years have seen inequality plunging. The gap between developed countries and the emerging ones, led by China, is its narrowest since the Industrial Revolution. According to a study last September by the Brookings Institution in Washington, half the world’s population is now middle-class or richer.

But that cannot disguise real problems that still need fixing. What’s to be done? Nationalisation was the 1940s solution and it didn’t work. Remember how you had to wait months for a phone line? Or how rail usage plunged under British Rail and has soared since it was privatised? There are cases where state intervention is necessary, and public ownership may be part of that. The market economy needs to be regulated. We know that. But outcomes are what matters, so let’s look at detailed ways to improve things.

For example, when governments outsource services they should look at quality of service, rather than going for the lowest price tender. When companies hire chief executives they should look at candidates’ human qualities: decency and consistency, rather than aggression or greed. When companies falsify their earnings, or cheat in other ways, then that is when the law must step in.

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But perhaps the greatest responsibility lies with the investment community. Ethical investment should not be a box-ticking exercise, it should be an active attitude. You put money into decent companies, not ones run by greedy sharks. It might save investors from some big mistakes.


A footnote on the present sense of unrest in the country. There is one element of society that is more harmonious than at any stage for more than a century: the labour market.

Last year saw the sixth lowest loss of working days since records began in 1891. The Office for National Statistics reported that 273,000 working days were lost, bettered only in 1997, 1999, 2005, 2012 and 2015. I find this profoundly comforting. 

For anyone who remembers the awful 1970s when rubbish piled in the streets, it is a relief that on this particular measure we are getting along with each other better than ever before. Let’s try and keep it so. 


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