In 1947 in the Swiss spa resort of Mont Pèlerin a group of economists, historians, philosophers and other public intellectuals under the leadership of Friedrich Hayek, author of the influential The Road to Serfdom, met to form a society with the objective of reversing the postwar trend towards economic planning co-operation between labour and capital. The group included Milton Friedman, Ludwig von Mises and Karl Popper. They argued against not only Marxist economic planning but also any hint of Keynesianism; their objective was maximum economic freedom and minimum state intervention. They aimed to free humanity from what they regarded as the slavery of the state, arguing for minimal taxes, dismantling of public services and the curbing of trades unions. They gained the support of prominent business families who funded right-wing think tanks, university departments, academic journals and leading media groups, to publicise their ideas. They cleverly framed their arguments in innocuous phrases to devastating effect: nanny state, welfare cheats, red tape.
But the political atmosphere in the postwar world, which favoured social solidarity and co-operation was not conducive to the acceptance of their message. This was the beginning of what was called in France the Trente Glorieuses, three decades of steady economic growth and increasing equality. But, the Mont Pèlerin society bided their time and when in the mid-1970s trades union belligerence was threatening the economic consensus and the oil crisis threw Western economies into a tailspin they were on hand to provide the intellectual heft for the Thatcher and Reagan revolutions. So began the Trente Inglorieuses as a libertarian bandwagon sought to ride roughshod over the progressive reforms of the postwar world. The bandwagon had a good run but finally went off the rails in the Great Recession of 2008 as the internal contradictions of light-touch regulation and an out-of-control financial system resulted in the most serious economic recession since 1929. But in the absence of a left-wing intellectual alternative the libertarian ethos still reigned and austerity was prescribed as the solution.
This has resulted in a growing mood of sullen resentment, exacerbated by a feeling that while the majority were being penalised for something they hadn’t done, the metropolitan financial elite who had caused the problem in the first place were feeling little pain. The recent avalanche of books attempting to explain the causes of these phenomena and recommend solutions to the underlying problems in both countries succeed admirably in the former objective but struggle with the latter. Here I will consider two books that analyse the causes of our present discontent and then move on to two more recent books that are offer more radical solutions.
Joseph Stiglitz’s aptly titled People, Power and Profit: Progressive Capitalism for an Age of Discontent makes it clear from the beginning that widening inequality in the US is evolving into an economy “of the 1%, for the 1%, by the 1%”. He traces the problem back to the late 1970s when the newly prevailing economic orthodoxy championed by Mont Pèlerin alumnus Milton Friedman argued that tax cuts, deregulation and minimal state intervention would grow the economy, resulting in wealth trickling down to all. As we now know this was a bum deal. Wealth became further concentrated in the hands of the elite and only austerity trickled down following the ignominious collapse of the neo-liberal experiment in the 2008.
At the heart of Stiglitz’s analysis is an intriguing paradox: free markets cannot operate efficiently without government guidance and at times, direct intervention to ensure competition is working fairly, but ardent free-marketers don’t believe in government and try to limit and hamper it at every turn ergo; capitalism is in crisis. The proof of the pudding is clearly visible in the most successful capitalist enclave in America; Silicon Valley. The tech giants make it their business to nobble the capitalist system through predatory pricing and pre-emptive mergers. A classic example is Facebook’s purchase of Instagram for $1b when it only had thirteen employees; it later paid $19b for the fledging WhatsApp. And of course, Google owns YouTube. As Peter Teill, one of the high priests of the Valley remarked, “competition is for losers”.
The obvious remedy is for government to take back control ‑ if you’ll excuse the expression. After all this has happened before in another gilded capitalist age in the late nineteenth century when the railways and the steel industry were the equivalent of the tech sector today. Then, courageous and wily politicians managed to enact anti-trust legislation to break up the monopolies, but today’s US politicians are unlikely to show the same spirit and Stiglitz’s account of the paralysis of US politics is the most depressing part of his book. No matter how much antipathy there is between the main political parties in any country some level of co-operation is required for the system to function, but in America even minimum levels of civility appear to have broken down, making it impossible for government to correct the imbalances in the system which have been allowed to develop.
These imbalances didn’t happen of their own accord and Stiglitz makes clear that they were engineered by the lobbying power of corporate America. He quotes the example of how the banks succeeded in stymieing the Dodd-Frank Bill designed to rectify some of the problems that led to the 2008 recession using an army of lobbyists: “with five lobbyists for every congressman the ten largest banks had more power than 250m Americans”. The tech companies are also active in defence of their monopolistic practices, with Facebook alone spending $11.5 billion on lobbyists in Washington last year. Just to be sure to be sure, corporate donations, which disproportionately benefit Republicans, guarantee the large-scale gerrymandering of electoral areas which takes place in America. Democrats are regularly underrepresented in the Senate and the House in relation to their vote and Republicans also try to disenfranchise those who might not vote for them, even to the extent of fixing voting hours to discourage people on certain types of shift work. They are also packing the Supreme Court to guarantee there will be little chance of legal redress on these matters in the near future.
The author’s proposed remedies are the obvious ones of more equitable distribution of income, greater curbs on the financial and tech sectors, political reform, but above all greater recognition that the market is only a means to an end not an end in itself. He points out that “markets on their own produce too much pollution, inequality and unemployment and do too little research” and that the failure of exclusive reliance on markets is all too evident in the US, where spending a higher per capita proportion of wealth on healthcare than most other countries still results in a poor service for many citizens and a decline in life expectancy ‑ for the first time in decades. But there is little in these proposed remedies to set the heart racing: they have been on the table for a long time but the US political system is too gridlocked to take any action.
Paul Collier’s The Future of Capitalism represents a more urgent response to the problem and presents more detailed proposals for possible solutions. Speaking from a centre-left position, he calls for a re-set of social democracy, taking a cue from Tony Crosland’s ground-breaking The Future of Socialism, published back in 1956. He makes the point bluntly: modern capitalism has the potential to lift us all to unprecedented prosperity but it is morally bankrupt and on track for tragedy. In order to repair the damage caused by thirty years of neo-liberalism he wants to restore a greater sense of morality in all areas of society: state, family, business and the world as a whole. In relation to the state he believes that since the birth of neo-liberalism in the late 1970s there has been a decline in mutual reciprocity and a sense of shared identity across society which has in turn weakened the obligation felt by the fortunate to the less fortunate. Collier wants to rebuild a “shared sense of belonging and identity”, but presents few concrete proposals for achieving this worthy objective. He is on firmer ground in tackling the question of ethics in business partly because businesses themselves, or at least the more enlightened ones, are beginning to take this issue more seriously. He makes the valid point that the boards of large companies are taking decisions which have a huge effect on society, which their current structure doesn’t reflect. He favours more stringent regulation but doesn’t hold out much hope: “every regulation can be subverted by clever box-ticking and every tax can be reduced by clever accounting”. A more ethical world might ensure that regulation would not as easily be avoided but Collier notes that the institutions that might achieve this, the UN, WTO, IMF, EU, were all weakened by the neo-liberal ideology and are now facing even more trouble from ultra-nationalist strongman leaders.
Surprisingly, his most radical proposals involve strengthening the “ethical” family. Collier believes that the family is under threat from within, obligations to family being superseded by obligations to self; and from without, through the weakening of the welfare state, starved of funds and operated by a sclerotic bureaucracy. Here he proposes a radical solution, arguing that social paternalism is dead because the state cannot be a substitute for the family but that we should substitute social maternalism ‑ public policies designed to intervene early in the lives of socially deprived children and practical assistance and mentoring for families at risk of breaking up. Collier’s argument is that the current problems are “not intrinsic to capitalism; but a damaging malfunction that must be put right”. Apart from a call for more ethical firms and fewer vampire squids (as Matt Taibbi referred to Goldman Sachs in Rolling Stone) he doesn’t really pursue this argument any further. But two recent books do just that.
The first, Prosperity: Better Business Makes the Greater Good, by Colin Mayer, a professor at the Oxford University Saïd Business School, places the onus firmly on the business community to create a more progressive and equitable world, arguing that businesses are the main creator of our wealth and employment and new technologies “the satisfier of our desires and the means to our ends”, but that they are also the source of “inequality, deprivation and environmental degradation and the problems are getting worse”. Mayer is in no doubt about who is to blame: Milton Friedman, who famously stated in a 1970 New York Times article that the sole aim of a business corporation was to maximise shareholder revenue and that any deviation from that goal was tantamount to socialism. As the Trente Inglorieuses bandwagon gathered pace in the late 1970s and ’80s Friedman’s doctrine rapidly became business dogma and by the free-wheeling ’90s it was widely accepted as perfectly normal practice. But Mayer points out that it was accompanied by the emergence of financial markets, take-over markets and hedge-fund activists who insisted on squeezing the last drop of profit out of a business to the detriment of society and of the well-being of people working in that business.
More importantly, he claims that had not previously been normal practice: the business corporation has been in existence for centuries, but it was only in the last fifty years that the primacy of maximising shareholder revenue was established. Mayer traces the centuries-long history of the corporation, which was created originally to undertake voyages of discovery and promote commerce around the world. This was followed by public enterprises set up to engage in major public works and the building of canals and railways. The nineteenth century saw the establishment of the private corporation and joint stock company. In the twentieth century the transnational corporation became a dominant force and now we have the platform companies of the digital age whose intangible assets ‑ brains and brands ‑ account for over 85 per cent of their market value. During these different stages the purpose of the corporations was much more likely to be stated in societal terms and Mayer is particularly taken with the great Quaker enterprises of the nineteenth century; Cadbury, Rowntree, Barclays and Clarks, who provided housing and other social amenities as well as employment for their workers and communities. The primacy of shareholder value has destroyed these enterprises and today, according to Mayer, “the corporation is inhumane; it is inhumane because we have taken humans and humanity out of it and replaced them with anonymous markets and shareholders over whom we have no control”.
Mayer wants to change all this and what is more he has a plan. He outlines the different components of capital that comprise most businesses; human, intellectual, natural, materials, social and financial. At present only one, financial, is audited and he suggests that they all should be, particularly natural, which comprises the environment, land and nature, and social capital. Therefore, companies should record their investments in human, natural and social capital in the same way as they do with material capital: “the costs of maintaining human, natural and social capital should be subtracted from corporate profits as a maintenance charge equivalent to that on material capital … in sum there should be recognition of human, natural and social capital exactly in conformity with existing accounting standards”. If companies were required to do this they would be forced to pay the same care, attention and respect to their employees, the communities in which they operate and the environment as they do to profits. In preparation for these changes Mayer recommends that companies should articulate their purpose, incorporate them in their articles of association and demonstrate how their corporate structures and conduct promote this purpose. If this book had appeared a decade ago, I would have been sympathetic but would have said “good luck with that, Professor!” However, recent events indicate that the business world may be coming around to aspects of Mayer’s thesis in a way that would have been unimaginable just a few years ago. In fact, 2019 could go down as the year when capitalism was confronted with its biggest threat since the publication of Das Kapital.
In late 2018, Larry Fink, the CEO of Blackrock, an asset management company handling $1.7 trillion worth of funds, startled the business world in a letter to shareholders: “The time has come for a new model of shareholder engagement ‑ companies must ask themselves what role do they play in the community, how are we managing our impact on the environment, are we working to create a diverse workforce, are we providing the re-training and opportunities that our employees and our business will need to adjust to an increasingly automated world?” Then, in August 2019, the Business Roundtable, the most influential group of corporate leaders in the US, explicitly rejected the doctrine of maximising shareholder value and called for “conscious capitalism”, proposing that businesses needed to broaden their responsibilities to society and should consider the interests of their employees, customers and communities as well as shareholders. In the same month The Economist ran a cover story, “What are Companies For?” The four-page feature accepted that lower growth, inequality and environmental crisis were causing questions to be asked about the fundamental nature of capitalism. For The Economist to question the “fundamental nature of capitalism” was the equivalent of the pope querying his own infallibility. On September 18th the Financial Times weighed in with an even more dramatic intervention. The front page consisted of one line, “Capitalism: Time for a Reset”. The rest of a four-page wrap-around stated that although businesses must be profitable they should also serve a wider purpose and that the paper intended to start a debate on the nature and implications of that purpose under the general heading “The New Agenda”. Inside the paper the chief economics editor, Martin Wolf, summed up the problems facing capitalism as slowing growth and soaring inequality caused by a small elite being able to extract disproportionate wealth from everyone else. He concluded that “something has gone very wrong”.
The second book that deserved more attention than it received when it came out eighteen months ago is Radical Help by Hilary Cottam which argues that the welfare state is not fit for purpose. Tracing the history of the modern welfare system back to the Beveridge Report in the early 1940s, whose proposals were seen to be modern and visionary, she sees a steady bureaucratisation of the institutions involved, rendering them unable to cope with the twenty-first challenges of people living much longer in retirement and the resulting problems, ranging from loneliness to entrenched poverty, from obesity to diabetes. There is also the problem of widening inequality and an education system unable to offset the effects of structural transfers of wealth between generations. Apart from the fact that the welfare institutions are having to cope with problems that have only emerged in recent times Cottam points out that in the 1980s, heavily influenced by Mont Pèlerin thinking, which was in the ascendancy at that time, it was assumed that state bureaucracies could be brought under control by the introduction of commercial management practices ‑ competition, audits, continuous innovation, the setting of numerical targets and stringent cost control. Cottam is a community activist who has set up a number of initiatives in different parts of the UK to tackle social problems and in particular to provide an alternative to what she believes are the deficiencies in the current working of the welfare state. She works with a small group of colleagues in the heart of deprived communities organising residents into solving specific social issues. Five are outlined in the book: Family Life ‑ improving the lot of dysfunctional families; Growing Up ‑ transforming the lives of sixteen- to twenty-two-year-olds; Good Work ‑ organising work for the long-term unemployed; Good Health ‑ combating depression, obesity and diabetes; and Aging Well ‑ improving the quality of life for older people. Each initiative involves intense listening to respondents followed by practical solutions, usually based on enhancing skills, developing relationships and providing people with a more optimistic vision of the future.
Cottam’s work is heavily influenced by the Capability Approach developed by Amartya Sen and Martha Nussbaum, based on what individuals are able to do themselves. She contrasts the current welfare state approach ‑ assess me, refer me, manage me ‑ to a more active development of capabilities based on people’s age cohort and their barriers to living a more fulfilled life. For example, in the Aging Well group she set up an initiative called The Circle, which she describes as part social club, part concierge service (facilitating basic domestic repairs), part self-help group. There’s an echo of Paul Collier’s notion of “social maternalism” about her approach which may indicate that the idea of more active intervention in this area is beginning to attract support.
Stiglitz’s and Collier’s books provide excellent analysis of the state we’re in and although they are mainly concerned with the US and the UK, they also explain why electorates across the world are behaving in such unpredictable ways, electing dangerous mavericks out of frustration rather than conviction. Stiglitz’s is the most pessimistic, because his account of the virtual breakdown in the US political system offers little hope for any immediate change. Collier offers more ideas for change but they are rooted in nostalgia for a nineteenth century north of England socialist co-operative movement centred on mass trades union membership. But them days are over and will not return. That’s why Mayer and Cottam’s offerings are so bracing. The fact that the former’s futuristic vision of a more enlightened business world is simultaneously being examined by progressive businesses and leading business publications suggests that conditions for a revolution are already in place. Cottam’s ambitious re-imagining of the welfare state will be even more difficult to achieve but even in this area green shoots of alternative thinking are visible.
Cottam and Mayer’s books represent a starting point to more radical thinking about how to achieve a more equal and civilised society. But in a world turning inward by the day, where beggar-my-neighbour is becoming the dominant political philosophy, to achieve this vision we need a new progressive version of Mont Pèlerin; a new grouping of economists, historians, philosophers and other public intellectuals with the same level of determination, patience and persistence as their libertarian predecessors over seventy years ago.
The main books referred to in this essay are:
People, Power, Profit: Progressive Capitalism for an Age of Discontent, Joseph Stiglitz, Penguin 2018
The Future of Capitalism, Paul Collier, Allen Lane 2018
Prosperity: Better Business Makes the Greater Good, Colin Mayer, Oxford University Press 2019
Radical Help, Hilary Cottam, Virago 2018
John Fanning lectures on branding and marketing communications at the Smurfit Business School in Dublin.