Seventy years ago, the New York Stock Exchange (NYSE) embarked on a public relations campaign that revolutionised its fortunes and those of many small investors and companies.
The world was in the grip of the Cold War and the taint of the great crash of 1929 still hung over Wall Street.
Some clever spin doctor came up with the slogan: ‘Own your share of American business,’ which ran for 14 years.
The programme depicted investing in shares as a patriotic act, blending self-interest in the form of personal gains with the wider national interest of backing
US firms, creating jobs and boosting prosperity. Being a small investor was to do your bit to advance the American dream and safeguard the free world against the Communist threat.
Boosting Britain: We need a cultural change so people buy into the concept of using their pensions and savings to support the UK economy
Even to this day, the effects of that campaign are visible in the thriving culture of individual share ownership in the US. Despite the privatisations of the Thatcher era, no such culture exists here.
The trend is in the opposite direction and alarmingly so.
The past few years have been brutal for firms listed on UK stock markets and particularly for smaller companies, as a report by research group New Financial spells out.
The number of small companies – those with a market value of less than £1billion – has dropped by nearly a third, equivalent to the loss of 600 quoted businesses. This might not matter so much if there were a healthy flow of new listings, but the markets are not being replenished. Prior to the financial crisis, around 300 smaller companies a year were pouring on to the stock market. That has now dried up to a trickle.
By contrast, private equity is an increasingly significant source of capital: the value of takeovers of smaller companies has almost doubled in recent years. The problem with this is private equity barons are short-termists, with a three to five-year horizon.
If small companies are to become big ones they need long-term capital. Why does it matter? Small listed companies are very important to the economy.
They have combined revenues of £170billion, employ more than a million people, they are present in all the regions and nations – and they need long-term capital.
What can be done? One idea is to push, or even compel, pension funds to invest more in UK shares in general and smaller companies in particular. Refraining from an attack on the tax concessions for investors in the junior AIM market is another. Changing incentives so that some of the nearly £300billion in tax-free cash ISAs is switched into shares ISAs might also help.
What we really need, though, is cultural change so people buy into the concept of using their pensions and savings to support the UK economy.
This is what has happened in the US since the 1970s when savers were forced to look after funding their own retirement, rather than rely on employers to be their pensions provider. We are probably 20 to 30 years behind.
The Cold War has faded into the annals of memory but with Putin at large and the Middle East in turmoil, the world is a perilous place and our prosperity is not assured.
Time to take a leaf out of the NYSE’s book and bang the drum for owning a share of British business. We can’t have capitalism without healthy capital markets.
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