More than two centuries after his death, Adam Smith is inescapable. His face adorns the £20 note; his ideas adorn politicians’ speeches. A think tank – the Adam Smith Institute – bears his name.
But fame has bred imprecision. The Scottish economist is typically hailed – or reviled – as the intellectual godfather of neoliberalism: unrestrained free markets and self-interested individualism. Yet as the Conservative MP and transport minister Jesse Norman writes in his new book Adam Smith: What He Thought, and Why it Matters, this is mere caricature. Smith, one of the pillars of the 18th century Scottish Enlightenment, was a profoundly nuanced thinker.
I meet Norman, 56, for lunch at the Spring Restaurant in London’s Somerset House. After warning me in advance that he will be “eight minutes late”, Norman arrives – his 6ft 5in frame immediately recognisable – and apologises profusely. Having cycled over from Westminster, he removes his jacket and exclaims with satisfaction of the menu: “This looks delicious!”
Over grilled lobster and spice-rubbed lamb, we discuss Smith’s ideas and the future of capitalism. “Smith became a figure of reverence for libertarians and a figure of hatred for the left – both of which are completely absurd,” says Norman, his plummy baritone reverberating through the restaurant.
Far from being a dogmatic opponent of state intervention, Smith supported measures such as a cap on interest rates and public works. Nor did he regard markets as invariably self-correcting (the phrase “invisible hand” appears just once in The Wealth of Nations (1776) and once in The Theory of Moral Sentiments (1759)). He was alive, says Norman, to defects such as “asymmetries of information and power and rent extraction” – when capitalists merely appropriate value, rather than create it. Smith believed that low profits and high wages were indicators of a healthy market and he was critical of large inheritances that concentrated wealth across generations. Though Smith’s libertarian acolytes favour flat taxes, the economist supported progressive taxation in some circumstances (“A tax upon house-rents… would in general fall heaviest upon the rich”).
Norman’s book, like his previous study of Edmund Burke, is accomplished and eloquent – far superior to the popular history that is churned out by his fellow Old Etonian Boris Johnson.
Before entering parliament in 2010 as the MP for Hereford and South Herefordshire, Norman completed a Master’s and PhD in philosophy from University College London (having read classics at Oxford) and later became a director at Barclays.
Norman’s book also critiques what he calls “crony capitalism” – a system he believes Adam Smith would have detested. This model, he says, is characterised by the neglect of “the public interest” and “a disconnect between business merit and reward”.
What is his response to socialists who argue that capitalism is inherently cronyist? “Capitalism, when it’s working badly, is a pathology, it’s not how the system is intended to work.”
Is this not the same logic deployed by Marxist critics of Stalinism? No, Norman says, because “communism’s core theory of economic and political incentives actually stops it from working”. But he adds: “This is what gives the left its kick-off point: in some markets, there are always some mugs. There are always people being ripped off by others. That is an inevitable feature of how markets function.”
Where, I ask, does he believe capitalism is working well? “What an interesting question! Many countries in Africa, and other parts of the world, have been lifted out of dollar-a-day poverty by more or less pure market activity. The mobile phone has done more to reduce poverty than any aid ever could or ever has.”
Norman’s belief in and account of human progress resembles that of the Harvard psychologist Steven Pinker (whom I interviewed earlier this year). But as a Smithian free trader, is Norman not troubled by the resurgence of US protectionism, the rise of authoritarian capitalism in Russia and China, and the UK’s planned withdrawal from the EU’s single market?
Norman suggests that mutual economic interest should ensure an adequate Brexit deal. He cautions against overstating Trump’s protectionism (“it’s not a new phenomenon in America”) and dismisses Russia: “it doesn’t pose an ideological threat”.
By contrast, Xi Jinping’s China, he says, “is actually offering a genuine ideological alternative to Western democratic capitalism… The argument is that capitalism, as practised in democracies, is intrinsically short-term and chaotic, it is incapable of taking the long-term decisions that are required.”
The UK, he adds, is seeking to remedy this problem through technocratic institutions such as the National Infrastructure Commission (and, I add, the Bank of England, with its £435bn quantitative easing programme and ultra-low interest rates).
At the close of our two-hour conversation, Norman, once tipped by columnist Bruce Anderson to be a future Conservative leader, says that what he fears most is the decline of the “sympathetic exchanges” that Adam Smith regarded as essential. “Asocialising factors – the gated community, the walled garden, the increasing capacity of people to erect their own barriers – that worries me, that could lead to tremendous mutual misunderstanding”.
This article appears in the 04 Jul 2018 issue of the New Statesman, England in the age of Brexit