Capitalism needs you!

We need to ensure the managers of our investments behave in all of our interests, says Merryn Somerset Webb. So get out your red pens.

Has capitalism failed? Is modern economics broken? Do we need a new system? This topic has been debated over and over again on radio, TV, and in my neighbours' kitchens. It's been kicked off by the film The Big Short. It's been given momentum by the hypocrisy of the annual schmooze fest in Davos. And in the UK it's been turbo-charged by Google's sweet tax deal (which may or may not have them paying tax at an equivalent rate of 3%) and Tesco's general nastiness towards suppliers. So is capitalism really broken? Of course not.

Capitalism is not just the best system we have found so far it is our default system. But while it isn't broken, it's more corrupted than usual by the huge concentrations of power within very large firms companies that can exploit globalisation to cut tax bills, welfare systems to pay super-low wages, and supine shareholders to extract millions of unearned pounds for managers every year. This is wrong in itself. But it also erodes long-term trust in a system that has long served us all well.

We've written before about what might help fix this. We need lower barriers to entry and more competition in businesses dominated by the few (banks and supermarkets, for example). We need more transparency on lobbying who gets access to our politicians and why? We need a system that relies less on debt.

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And long-term shareholders must ensure that global companies behave: I bet everyone with big stakes in Tesco wishes they'd paid more attention in the high-profit days. If they had realised the money was being made on the back of poor treatment of small suppliers, then priced in the business cost of that bad PR, would they have allowed it to happen?

The same for Google. Its shares have soared over the last decade, but it isn't easy to value its cash pile: does it belong to shareholders, or to the world's increasingly nasty tax collectors? If I was a shareholder, I'd be wishing the firm had skipped the endless legal(-ish) tax avoidance and just paid a normal amount to HMRC in the first place.

This is where MoneyWeek readers come in. The shareholder capitalism we rely on is getting a bad rap. We can help it and ourselves by being good shareholders and by making our fund managers be really good shareholders on our behalf. So get your red pens out and write to whoever has your money. Write to Fidelity, Aberdeen, Jupiter, Vanguard, Capital, State Street, Goldman, Legal & General, Pimco and Legg Mason, to UBS and to JP Morgan.

Tell them that as the stewards of our savings and the effective owners of the world's great companies, they need to step up. We need to ensure the managers of our investments behave in all of our interests. We need to push governments to change and simplify rules to make that happen. And we haven't got that long left to do it. Not if the tone of this week's debate is anything to go by.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.