It always takes a crisis to change the world. Until our backs are up against the wall, the path of least resistance is naturally to do nothing.
For many, this was the great disappointment of the financial crisis. The world seemingly went back to business as usual after 2008. We didn’t really seem to learn anything.
The Corona-crisis looks like it might be different. Or maybe it is just the conclusion of the crisis of capitalism that began 12 years ago, and which has worked its way through financial meltdown, the rise of populism, climate emergency and finally global pandemic.
Today’s GDP figures are a symbol of the changing face of how we view our economic lives. They are, at the same time, shocking and irrelevant.
They are shocking because they show the scale of what happened in the first quarter of 2020 and the much, much worse economic shock that the second quarter will bring.
In the first three months of the year, economic activity in the UK fell by 2% compared with the previous quarter. In March, the drop was nearly 6%. Services and construction saw record declines and car sales and the restaurant sector saw big falls in activity.
The pandemic brought to an end four years of uninterrupted growth in household spending. Trade was also markedly lower, with exports down 12% and imports 5% lower.
It’s worth noting that these dreadful figures were achieved in a quarter which contained only one week of lockdown. Almost certainly, the collapse in growth in the second quarter from April to June will be of an order we have never seen in this country. The Bank of England has forecast a drop of 25% but no-one really knows.
So, the numbers are clearly shocking. The reason they may be irrelevant is that they tell us nothing about what really matters going forward - the health and resilience of the economy and the well-being of the people that live and work within it. Growth, by itself, is meaningless if it is achieved at the expense of the economy that enables it and of people’s mental and physical health.
A study last week in the Guardian newspaper flagged up a sea-change in the way that people in Britain view economic growth. Eight out of ten people said they would prefer the Government to prioritise well-being and health over economic growth during the pandemic, and six out of ten said they would want this to continue after the health scare has subsided.
The problem with a blunt measure like GDP is it ignores the real costs of creating growth, in terms of people’s or the planet’s health. And that in turn ensures that policy is directed at encouraging growth regardless of the well-being or environmental consequences. It is the opposite of sustainability.
And that matters to everyone, investors included. Because the true worth of an equity investment is the present-day value of a company’s cashflows in all future years. A business that has no long-term future is by definition worth less than one that will be around for decades to come. Sustainability is not a nice to have but at the heart of what investors should be measuring.
It is no coincidence that the share price performance of companies perceived to be most sustainable was noticeably stronger in the first few weeks of the market plunge in February and March than that of less sustainable businesses, according to research carried out by Fidelity’s investment teams.
This week, Anne Richards, Fidelity’s chief executive, said: ‘Companies are clearly looking much more closely, not just about how they manage their businesses for efficiency, they're also thinking about how they manage their businesses for resiliency. So, it could be the longer-term impact of climate change at one extreme, but in a much narrower and much shorter timeframe, it could be how you make sure you have resilience in your supply chain, because any supply chain is only as robust as its weakest link.’
Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.