“Devotees of capitalism are often unduly conservative, and reject reforms in its technique, which might really strengthen and preserve it, for fear that they may prove to be first steps away from capitalism itself.” Those pertinent words could have been written today but were actually written almost a century ago by John Maynard Keynes in an essay entitled “The End of Laissez Faire”.
They are pertinent because opinion polling to be published next week by the Legatum Institute finds capitalism and business lacking popular support throughout the world – particularly in Britain, America and Germany. Unfortunately, the rejectionists Keynes identified are never off today’s airwaves: those trigger-happy libertarians ready to defend almost anything done in the name of economic freedom.
That includes huge corporate and individual donations to political parties, boardroom pay that bears little relationship to underlying performance, the idea that business has no responsibilities to a domestic country’s unemployed workers, a self-interested interest in the continuation of large-scale economic immigration and, for instance, a belief that sky-high interest-rate charges by a pay-day loan company are defensible if the terms are buried amid legalistic small print.
In defending almost any technically legal business activity, the laissez-faire fundamentalists are the unwitting allies of left-wing critics of capitalism. While left-wing parties did not prosper in the immediate aftermath of the 2008 crash, there is some evidence they are on the march again. Justin Trudeau’s victory in Canada is a notable example.
Trudeau campaigned to raise taxes on the wealthy and increase borrowing. He is hesitant about extending free trade, and supports both trade union rights and tougher regulation – especially in the name of the environment. This son and political heir of the former prime minister Pierre Trudeau is an Ed Miliband with better hair. The handsome ex-teacher’s election suggests that the recipe rejected by Britain in May can win power if it finds the right salesperson.
While there may be plenty of apologists for economic libertarianism within British think tanks, we have a deeply pragmatic Conservative government. Although the tax credits fiasco has provided ammunition for its opponents, I would cite the pragmatic choice to eliminate the budget deficit over two parliaments rather than one, to cut the armed forces and police to fund higher aid and health spending, the embrace of a much higher national minimum wage – even if it’s not quite a “living wage” – and, in another sign that business isn’t trusted by George Osborne or the Thatcherite Sajid Javid always to do the right thing, the introduction of an apprenticeship levy to compensate for British business’s failure to invest in vocational education.
I hope the government will recognise that the crisis of capitalism is far from over. To use one of David Cameron’s favourite expressions, the warning lights on the economic dashboard are flashing red again with the return of dangerously high banker bonuses, zero-deposit mortgages and, most of all, a monetary policy that accommodates asset-price inflation, notably in housing. The interest-rate policies that prevented the recession of 2008 becoming a depression may be sowing the seeds for a new crop of problems.
Our government has done a reasonable job of steadying the Good Ship Great Britain after the global crash. With modest austerity compared to many European states and welfare policies that have facilitated spectacular rates of job creation, this government has avoided the toxic reputation acquired by Margaret Thatcher. Now, however, the focus must shift from stabilising the economy to reforming it.
The government’s promise to spend more on infrastructure and less on welfare should be a flagship of its reform agenda. So, too, should be the focus on rebalancing the UK economy away from an over-reliance on the City. But more needs to be done to force business to end its focus on short-term profit maximisation. That means governance reforms to end chief executive pay packages that encourage excessive risk-taking, new economic measures that tell us who is benefiting from GDP growth data and who is being harmed, as well as voting reforms that reduce the ability of corporate lobbyists to hinder the cleansing power of competition. There should be financial-sector reforms that hit oversized banks with progressively higher capital adequacy requirements. “Too-big-to-fail” hasn’t gone away.
Free enterprise is worth defending. If properly regulated by the courts and voters, it has a better record of lifting people out of poverty than government action. As Bono of U2 has readily conceded, “entrepreneurial capitalism takes more people out of poverty than aid”. World Bank data suggests more than 100,000 people have been lifted out of absolute poverty each day over the past two decades. The collapse of absolute poverty is probably the most important fact in the world today, yet most people in advanced countries think that hunger and poverty are getting worse.
They think this because too much of their daily experience of big business is negative. If capitalism’s excesses can be tackled, a clearer picture of its successes might be established in the public mind.
The Legatum Institute’s prosperity-for-all.com website launches on 29 October
This article appears in the 28 Oct 2015 issue of the New Statesman, Israel: the Third Intifada?