A New Capitalism – can it ever work?

You might have noticed we’ve made a right mess of our economy of late. It seems to be a general fit of collective madness, though I should acknowledge I’m looking at this from Western eyes, and from 1950 to 2000 we’ve been king of the hill, particularly if we lived in the US.

I’m not so sure that readers from Asia would feel the same – I can’t say from personal knowledge but I would imagine Chinese and Indian folk could say they have had a pretty good financial crisis, thanks very much. As Oswald Spengler said, civilisations rise and fall, sic transit gloria mundi… In his seminal work The Decline of the West (Der Untergang des Abendlandes) Spengler opined in the 1920s that we were living in the winter time of the Faustian civilisation, where the populace constantly strives for the unattainable. It’s not a bad definition of the rat-race.

Not all the ills of the current time can be placed at the door of capitalism – population growth and environmental degradation are as much to do with our life choices as they have to do with capitalism. However, it’s probably fair to say that in the West the current gut feeling is that capitalism has gone wrong somewhere.

Enter the New Capitalism

If ‘new’ is good enough to promote soap powder, maybe it’s good enough to fix some of the things that are wrong with capitalism. A couple of respected commentators have postulated the idea of a ‘new capitalism’ which is presumably less rapacious than the old form. Less of the robber barons, more of the kindly face of philanthropic Bill Gates, fixing the world after he spent three decades making such a mess inside your computers, trashing you work with the blue screen of death  and disclaiming all responsibility with his impertinent ‘nothing to do with me’ EULAs.

In the dark days of 2008, when it seemed that in the turning gyre the falcon could hear the falconer no more, it seemed that if we could hold our heads and recall the wayward bird of prey then everything could be different. No less a sage that Robert Peston, he of the BBC and ex FT, with his somewhat nerdish manner but excellent sense of timing and pace, delivered himself of this statement

A New Capitalism is likely to emerge from the rubble. And although it’s impossible to be precise about how the reconstructed economy will operate, parts of its outline are taking shape. What lies ahead can be determined from an understanding of what’s gone wrong with the existing model.

This, in itself, is no reason for gloom or despair. For many, the New Capitalism may well seem fairer and less alienating than the model of the past 30 years, in that the system’s salvation may require it to be kinder, gentler, less divisive, less of a casino in which the winner takes all.

It is easy to be caught in the crossfire of history, and lose perspective. Yet Peston is backed up more recently by Harvard’s Prof Michael Porter, who breezily acknowledges that Harvard Business School pumped up all those MBAs to charge around Western companies beating the outsource, downsize, reduce drum but he’s changed his mind now and perhaps business should be less rapacious and look to some of the externalities it imposes on society.

Porter elucidates on Peter Day’s World of Business, available from this mp3 from the BBC. He talks a good talk, even offers a mea culpa for some of the outsourcing excesses of globalisation that has degraded the world of work for many in the West.

The solutions he proposes were to skew capital gains tax to favour holdings of more than three years, hmm, we used to call that taper relief and we’ve just got rid of that. He was also advocating social enterprises, which sounds all well and good until we remember that the skills to run a successful business are not that widely spread in the community. You need a certain degree of self-interest and low cunning to do well in business…

What do we want of the New Capitalism

Perhaps we should ask ourselves first, what does capitalism do for us? In the Adam Smith version, capitalism allocates effort in the most optimal fashion, and indeed when Adam Smith wrote that, he was talking about businesses that were largely SMEs. He may not have approved of multinational corporations, judging by what he had to say about the East India Company, probably the first MNC.

in 1698 a proposal was made to Parliament, of advancing two million pounds to government at eight percent, provided the subscribers were erected into a new East India Company, with exclusive privileges.

It quite warms the cockles of your heart, just how open a company could be about what we would call bribery and corruption. “Here’s two million quid, mate, so we can stitch this market up like a kipper”. Oh, all right then…

The modern Adam Smith Institute is, of course, a bunch of right-wingnuts but we shouldn’t visit the sins of the children on the fathers…

Let’s be a bit simpler about it. What is it that a capitalist enterprise does for society?

  • It provides goods at the cheapest price
  • it generally tries to not pay for any external costs imposed on society by its activities (pollution, noise, mine tailings etc)
  • in conjunction with other capitalist enterprise and according to the principles laid down by Smith, it allocates stored resources (capital) in an empirically determined optimal way.
  • it develops new technologies and ways of doing things

That’s what most people think a company does for us. We miss something very important out here, however.

  • it provides jobs, and pay for people to buy the products of the company or those of others

That is the bit we’ve lost sight of . Another thing we have an issue with is that there is a wide range of human abilities, so it would be good if in aggregate our companies were to provide a range of jobs that matched the bell curve of human intellectual and other abilities.

Some of the other things we might like our companies to do work-wise are asking the impossible. We humans and frail, egotistical and greedy types. Just as the head of a sweet shop will never want for sweets, is it really so surprising that the the chiefs of a money shop, a.k.a. banks, decide they are so special that they need lots of…money?

Indeed since money is desirable, is it such a surprise that the heads of bigger companies decide they are particularly special, so they need lots of money? Especially when you put a bunch of these guys together to slap each other’s backs and set each other’s pay as part of a remuneration committee? I mean, heck, I would, wouldn’t you 😉  I don’t know what we can do about the ratcheting up of executive pay, but I do know that we used to have long lasting successful companies before this all started to happen 20 years ago, after Bill Clinton forced companies to set performance related goals for their executives in 1991.

So that’s an awful lot more that we want the New Capitalism to do for us than the Old Capitalism. Where Peston and Porter are a bit on the hazy side is how we get from where we are to where we would like to be. It’s all very well having goals, but you also want to have a roadmap for how you’re going to get there.

Without that roadmap, and the will to follow it, and a big enough stick to bash the vested interests arrayed against the New Capitalsim (CEOs of the world’s multinationals, we’re looking at you, kid) I just don’t see how this ones going to fly. There may be other forces that may roll back the forces of globalisation enough to improve the world of work, but these forces will come from without.

With a hard layer of embedded vested interest scum at the top of capitalism, it ain’t going to want to change of its own accord. It held the line in 2008, ably abetted by the taxpayers of the then rich world. It’s basically ‘so long, taxpayers, and thanks for all the fish‘, now let’s get back to business as usual.

Maybe I’m wrong. I’d like to think so, but my money is on the slow thighs of the rough Beast slouching towards Bethlehem…