Post-Covid world will demand ‘new more humane’ capitalism
While most financiers are focused on dealing with the immediate impact of the pandemic, critics of capitalism are focused on the world after Covid and are determined that wealthy tackle inequality, financial support for the poor, and Earth’s worsening climate.
The coronavirus pandemic is emboldening those who call for capitalism to be reformed to make it more responsive to society’s needs, and less destructive of the planet. But for that to be more than fine words, investors will have to make difficult choices.
“Covid is bringing everything forward,” said Larry Fink, CEO of BlackRock, at the World Bank/IMF annual meetings this week. “Very large macro trends that might have taken 10 years have been truncated into seven to nine months.”
The private sector is eager to show it is behind this movement. Deutsche Bank found US companies mentioned inequality 80% more in public communications in the third quarter of 2020 than a year ago.
But words alone do not constitute change. Leonardo Martinez-Diaz, global director of the sustainable finance centre at the World Resources Institute, said the coronavirus had exacerbated “the very clear distinction between those who had assets and could invest and take advantage of lower asset prices and the tech boom, and those left out of it entirely.”
He added: “If we’re going to have a new, more humane capitalism, we have to figure out how to insulate those who have least ability to cope with shocks. We can’t just return to the old safety nets of the 20th century — unemployment insurance, health insurance, pensions.”
He pointed to a scheme in Kenya in which people were issued with biometric cards they could use to buy food in times of famine. The government can claim on an insurance policy to provide a surge of money. Schemes like this could build resilience into the system to help people endure shocks without having to wait for politicians to pass support packages.
Strong economy, strong society
Meanwhile, the mainstream of the economy will continue to be owned, and therefore governed, by investors. “Can capitalism be retooled? Of course it can,” said Wolfgang Kuhn, director of financial sector strategies at ShareAction, an NGO. “Society just needs to be more careful when giving out licences to operate to business. It is all about economic players taking responsibility for their adverse impacts on people and planet.”
Bruce Davis, co-founder of Abundance, a UK ethical crowdfunding platform, said finance should not just mean extracting wealth, but creating value, “which needs to be economic and social, because our resilience is a function of the two and they are co-dependent. A strong society needs a strong economy, but vice versa too.”
Institutional investors “will have to move money into new places and look at assets and instruments that are not part of” liquid markets.