Wales needs a capital cauldron

Calvin Jones makes the case for a Welsh stock-market as a furnace to promote co-cooperatives and mutuals

The transformation we need in Welsh life is not happening quickly enough. The economy stagnates. Businesses and households continue to be vulnerable to environmental change. Government wavers over what conversations can be had with voters about tough choices. We carry on riding the handcart.

Frustratingly, we know the solutions – or some of them at least:

  • Decarbonising electricity, the economy and transport.
  • Making poor communities more resilient and engaged, and rich ones less damaging.
  • Re-localising production and consumption.

We also have some inkling of the interventions, approaches and vehicles that can make a real difference. But nothing happens, or if it does, with agonising slowness. Part of that is down to the complexity of our interlinked problems. But part is also down, more simply, to money. Or Kapital as us economists would have it. And specifically, a lack of it.

It is this uneven access to money that has seen government-sponsored regeneration and development programmes spend hundreds of millions to arguably limited effect. It has seen multinational energy companies almost completely monopolise renewable installation in the UK, at the same time as communities have done very little to increase their own energy resilience.

Talk to anyone from either community enterprise or the financial sector and it becomes clear that this lack of money arises yes, in part from a lack of coherence or interest from community, but also from a lack of engagement from finance. Banks are unwilling to lend to established ‘for profit’ businesses let alone in tiny tranches to unproven hicks from the back of beyond with novel legal structures, little collateral and, um, interesting, ideas on the notions of wealth, returns and development. It is perfectly rational on the part of the bank, and a perfect example of an enduring market failure that does society a disservice.

So how can we solve this problem? The banks, as Project Merlin and Funding for Lending have shown, are un-persuadable, even on ‘core’ lending. The government is strapped. What money is available, the surpluses of nice, middle class people, is invested either directly in low return savings and assets or indirectly, via pensions and other funds, in Tesco and BP. Neither does Wales much good.

Squaring the circle between what money there is, and the communities and people that need money for worthwhile purposes, is key. And here, a Welsh stock market can only help. The idea has been raised before, but never gained purchase due to a perceived lack of demand, or overlap with existing structures such as the AIM market in London or Finance Wales. But these earlier suggestions never included the key element: the exclusion of companies that are owned for shareholder profit.

By excluding organisations solely purposed at enriching shareholders, a Welsh stockmarket could be specifically aimed at linking quality projects with a social return with interested potential investors. The opportunity is significant:

  • Community share offers in energy projects.
  • New classes of municipal, social impact and housing bonds.
  • Finance capital for entrepreneurs with socially relevant bright ideas.

The list goes on. There is also the potential for developing new ways of investing, new vehicles for spreading risk, and new business models and investor-relationships. It is an area where Wales could steal a real march on the rest of the world.

Of course, this would be complicated. It wouldn’t be just a scaled down London Stock Exchange. We would need the best brains in our own finance, academic, public and third sectors, plus help from interested global partners. We would need to work out how to fashion an exchange to generate capital driven by social and ecological return rather than privatised profit.

And whilst the actual trading could no doubt be virtual, this market would benefit from a home in an actual, iconic place. Perhaps it could be the Coal Exchange, where the first ever £1m cheque was written, or at the heart of a truly distinct financial district in Cardiff’s city centre. It would be a place where investors, individual and organisational, could meet with the best creative and enterprising brains in Wales under the benign, enabling care of a truly locally embedded group of engaged exchange facilitators. This place could quickly become a bubbling stew of money, ideas and new high value relationships.

It could be a cauldron of social and economic rebirth for Wales – Y Pair.

Calvin Jones is Professor of Economics at Cardiff Business School.

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