Memo to Chancellor Scholz: “Sustainable investment, not real estate”


A timely warning to the new German government on promoting productive rather than speculative investment was issued by a major report from the McKinsey Global Institute, launched with OMFIF in Frankfurt on November 24.

The report, highlighting the imbalances caused by the huge global liquidity flows in real estate, highlights the urgent need for global political action to influence market mechanisms and direct global savings towards investments supporting sustainable economies. .

The study stops before suggesting any firm conclusions. But it supports the thesis that massive central bank purchases of government bonds through quantitative easing have allowed flows to real estate – which account for around two-thirds of global assets – to practically perpetuate. . This greatly contributes to widening the global wealth gap.

The report coincides with the announcement of the main policy proposals of the future Berlin government under Chancellor-elect Olaf Scholz. The 52,000-word coalition treaty agreed by the partners of the future Scholz tripartite government is full of ambitious plans for digitization, sustainability, climate change mitigation and social housing. These are all key questions highlighted by MGI in the presentation from OMFIF in Frankfurt.

In succeeding Angela Merkel as German Chancellor, Scholz pledged on November 24 to “Germany’s greatest industrial modernization in over 100 years”, coupled with a pioneering commitment to climate change mitigation.

The aspirational coalition treaty mentions digitization 227 times, climate 198 times and sustainability 100 times. There are 72 references to “modernization” and the “future”, 118 to “social” and 61 to “housing”. Showing the strong ideological leanings of the so-called traffic light coalition towards European Union integration, “Europe” comes up 259 times.

Scholz’s Social Democratic Party (SPD) will get six ministries in the new formation due to take office next month, in addition to the chancellery. Following complex but ultimately successful negotiations following the inconclusive elections on September 26, the Greens will have won five ministries and the Liberal Free Democratic Party four. The two leaders of the Greens, Annalena Baerbock and Robert Habeck, will obtain the Ministry of Foreign Affairs and a new Ministry of Economy and Climate Protection. As expected, FDP leader Christian Lindner will become finance minister. The ministries of interior, defense, construction, health and labor will go to the SPD.

Aware of the imperatives of healing social divides, the new government is committed to reducing the imbalances that have grown in Germany and Europe. The MGI report highlights the disparities in wealth after a tripling of the global toll in the first two decades of this century. The value of assets is now almost 50% above the long-term average relative to income, while financial assets and liabilities have grown faster than gross domestic product, far exceeding net investment.

The study analyzes 10 countries representing around 60% of global GDP – Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, United Kingdom and United States. He recalls that the historic link between growth in net worth and growth in GDP is now broken. “While economic growth has been lukewarm over the past two decades in advanced economies, balance sheets and net worth have tripled. This divergence arose as asset prices rose, but not as a result of 21st century trends such as the increasing digitalization of the economy. ‘

Among the main findings, the study shows that, reflecting the surge in real estate valuations, China now tops the global list of net wealth as a multiple of GDP, with a score of 8.2, followed by France with 7.7, Japan with 7.2 and Australia with 6.8. . Germany is relatively weak in the list at number six with 6, while the UK and US are ranked low in the 10 with 4.8 and 4.3

MGI says, “In an economy increasingly driven by intangible assets such as software and other intellectual property, a savings glut has struggled to find investments that provide sufficient economic returns and lasting value to investors. Instead, those savings found their way into real estate, which in 2020 accounted for two-thirds of net worth. Other fixed assets capable of stimulating economic growth accounted for only about 20% of the total. ‘ The study indicates that this is a major failure in the allocation of resources that will require government action to correct in light of the growing needs to tackle social issues and climate change.

David Marsh is President of OMFIF.


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