Moral capitalism also needs to be practical capitalism

February 17, 2012 11:02 am

A hunger for a more moral, ethical capitalism is not exclusively the political preserve of the left. To lay claim to this increasingly contested territory, the left needs to focus less on rhetoric and more on delivery. 

Ethical capitalism may have returned to British political debate, but the demand for it is neither new nor, historically, a uniquely left-of-centre concern. More than a hundred years ago, Teddy Roosevelt was denouncing “malefactors of great wealth”, and in his 1902 State of the Union speech he told Congress that:

“Great corporations exist only because they are created and safeguarded by our institutions; and it is therefore our right and our duty to see that they work in harmony with these institutions.” 

Forty years ago, Ted Health was denouncing Tiny Rowland’s company Lonrho and its attempts to minimise its tax liabilities as “the unpleasant and unacceptable face of capitalism”. You can draw a direct line from this moral rhetoric to the debates Ed Miliband feels he has led on the regulation of banks, the need to secure taxes, and the importance of tying rootless corporations to the societies they prosper in.

Moral capitalism has appealed to Ted’s and Ed’s through the ages, but doesn’t lead to the conclusion it is the preserve of the left alone. It is equally plausible that the right or centre’s belief in the power of the invisible hand does not blind them to the possibility that those participating in the market need to be watched over. Even the most hardened monetarist will agree with Adam Smith that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.

If I am right that the urge for a more moral capitalism is more ‘pan-political’ than partisan, what does this mean for our current situation?

First, realise that while David Cameron may not be serious about delivering a more moral capitalism, he will certainly be able to sound serious about it. He will have a political and cultural heritage to draw on, even as he struggles to overcome his own career history, ideology and policy commitments.

Equally, if the Tories’ perpetual challenge is convincing people they mean what they say, the left must convince people that we can deliver what we wish for.

If the Tories have a tendency to sound like they won’t reform the abuses of the markets, then we sometimes sound like we’d like to do more, but don’t really know how. So we want to reform banking, but essentially we endorse the Vickers Report, and just want it implemented more quickly. We want a fairer market, but say we’ll deliver it by some a minor change to shareholder rights.

This implies we should mind the gap between rhetoric and effect. We sometimes talk about ending the neo-liberal consensus, but propose tighter regulation of train fares and putting a union rep on pay committees. These are worthy suggestions, but we should not bring them to market under grandiose language. They will not end neo-liberalism (whatever that is). As a former Procter and Gamble adman, I can tell you a washing powder that promises to remove ground in stains but only removes fresh gravy splashes is in big trouble.

We should also grasp that many people have good reasons to be sceptical about progressive schemes to reform capitalism. After all, a lot of apparently brilliant ideas don’t work that well in practice, or turn out to have unintended consequences; for every Glass-Steagall, there is a Smoot-Hawley, for every minimum wage, a selective employment tax.

This mixed record of reform places a big emphasis on proving that you know what you’re talking about. It puts a premium on thudding practicality (and perhaps putting businesswomen from the midlands above tweed-jacketed principals of Oxfordcolleges).

Second, we should think carefully about our choice to use the language of morality over, or entwined with, the plainer language of structural reform. There is a slight tendency to conflate a more ethical capitalism with a more even balance between different segments of the economy.

There is nothing more fundamentally moral about a manufacturer than a financier; regulation should be sector blind. There are moral steel manufacturers and immoral ones, moral accountants and immoral ones. Now, there are real, solid reasons to want a differently structuredUKeconomy. There’s a wider tax base, stronger regional development, the need to secure a better trade in goods, a desire to find long term competitive edges through innovation, and of course employment (though this latter can be exaggerated). All of these really matter, but they are not simply moral issues.

Thirdly, we should always remember what the purpose of a more moral economy is.

On the left, we seek an economy where the rewards for business success are shared broadly between shareholder, manager and worker, in the form of share-price, salary, wages and employment, and where this success is also used to fund social goods essential to the success of both individual companies (infrastructure, research, skills, and so on) and a society that supports such companies (health services, education, safety nets, police forces).

All of this is reliant, not on the immorality of capitalism, but on its morality:  while we should carefully regulate potential malefactors of great (and little) wealth, and while we should certainly not be subservient to them, we should also recognise that they are essential to us, and we need them, and we want them to succeed. It’s a lot easier to be ethical when you’re profitable.

None of this is to say that reforming capitalism is a pointless endeavour, or that the state should not play a major role in doing it. Rather, it is a central part of the mission of the left. I’d just suggest that to make it work, the left should approach the challenge somewhat differently.

The left should speak less of morality and more of practicality. Focus on the specifics, the credible, the nuts and bolts, rather than the grand sweep. The strongest charge against us is that we don’t know what we’re doing and are simply fiddling with a machine we barely comprehend. Win over business leaders, and engineers, and innovators who know whereof they speak before attempting to win over the public.

We should also remember why we seek to reform capitalism. Not because we want nicer capitalists, but because we want more jobs, higher wages, and less exposure to complete collapse. Everything we do should revolve around that mission. Every policy, every reform should be measured against those aims.

Finally, remember that a successfully reformed capitalism requires a successful capitalism. We know this, of course, but sometimes allow ourselves to sound as if we take it for granted, or that we’d rather not dirty ourselves with the business of success and profit.

Just occasionally, we might sound like we really believe that capitalism, watched over by the public interest, is a wonderful, successful thing.

We just know that it can be better yet.

This is an essay from the latest Fabian Society pamphlet “The Economic Alternative”, posted here as part of our “Economic Alternative Day”. You can download the pamphlet in full here.

  • Daniel Speight

    This implies we should mind the gap between rhetoric and effect. We
    sometimes talk about ending the neo-liberal consensus, but propose
    tighter regulation of train fares and putting a union rep on pay
    committees. These are worthy suggestions, but we should not bring them
    to market under grandiose language. They will not end neo-liberalism (whatever that is).

    Well Hopi as someone who often talks about the ‘neo-liberal consensus’ maybe I can help with your education. We can see the change in economic policies, both in Britain and the US roughly coinciding with the Thatcher and Regan governments in these countries, although some do suggest that Jim Callaghan had already started along this path. We know both Thatcher and Regan were believers in the economist Milton Friedman who himself was a follower of the Hayekian school of economics. We can also see with New Labour there was no turning back to the more Keynesian economic policies of the post war years up until the early seventies. That’s why I refer to it as a ‘neo-liberal consensus’ because the Blair governments made no attempt to turn back the neo-liberal reforms that Thatcher and the Tories made.

    What were these neo-liberal reforms. Well the easy ones to see are the privatization of state sector companies, allowing British industry to die from lack of government support, reduced regulation of the markets and anti-union laws, none of which New Labour changed. But the most important neo-liberal reforms were of the tax system. No longer was tax to be used for social engineering and again New Labour made no attempt to change this. This made a big difference to income equality. During the post war years we had seen a gradual improvement in this equality of incomes. It was measured by something called the GINI Coeffficient of Income Equality. We can say it was moving in a more Swedish direction. Once Thatcher and Regan lowered taxes on higher income earners and corporations the direction of the GINI Coefficient changes. From then on we begin see more inequality in the direction of the coefficient.

    Just to round this educational essay off it’s worth remembering what that  leader of ‘Reassurance Labour’ Roy Hattersley had to say about the early days of New Labour. One of Blair’s bag carriers took him to one side and told him that equality was not a word they liked him to use anymore. Looking back it’s easy to see why. Thirteen years of New Labour made us a less equal nation. So that’s the ‘neo-liberal consensus’ Hopi.

    And now that the public are looking at the over-payment of City executives and senior civil servants, those that served New Labour can only hang their heads in shame. I suspect that includes many Fabians, Hopi. Does it include you too?

    • Hopi Sen

      No. I’m proud of the achievements of the last Labour government, even if it was imperfect. I’m saddened the electorate lost faith in our ability to run the economy well, because if they hadn’t life for hundreds of thousands of people in Britain would be significantly better than it is today.  These things matter to me.

      Thanks for the educational essay. Your use “Neo-Liberal” to mean “all the things I don’t like that happened in the last forty years” is exactly what I suspect it usually means.

      The idea that the Labour party in office was non-interventionist in the economy, tax, and public spheres is laughable. What do you think tax credits were, if not “using the tax system for social engineering?”. Did the massive expansion of state spending just not happen?  Or is non-Neo-Liberalism defined, as you appear to suggest by upper rates of income tax well below the level of the seventies? Because if it is, you’ll find that every major party in British politics is still “neo-liberal”.

      Further, the idea that Ed Balls and Gordon Brown were intellectual inheritors of Hayek is equally silly.  They were just “Perma-Keynesians”, who believed that you had to run surpluses when times were good to prepare you to act when times were bad.

      Still, if you choose to pitch your tent on a mountain-top, I suppose everyone in the valley appears to be the same.

      • Daniel Speight

         Your use “Neo-Liberal” to mean “all the things I don’t like that
        happened in the last forty years” is exactly what I suspect it usually

        No I used it exactly how I explained I used it. I timed it to the Thatcher/Regan governments and I showed where New Labour decided not to change course. I even showed that there was a measurement of the effects of this consensus using the GINI Coefficient of Income Equality.

        You come back with nothing to show where the Thatcher reforms were rolled back or where social engineering through taxation produced a reversal in the direction of the curve of the GINI Coefficient. As for find the Keynesian in Brown and Balls it didn’t show up until after the financial crisis at which point there was no choice.

        Your pride in New Labour achievements fails to mention the love affair with the City and its under-regulation helped produce the worse financial crisis since the thirties.

        Or is non-Neo-Liberalism defined, as you appear to suggest by upper
        rates of income tax well below the level of the seventies? Because if it
        is, you’ll find that every major party in British politics is still

        I have defined neo-liberalism by far than that which you could have read in my comment if you wished, but if you want to boast how New Labour, the Liberals and the Tories all agree that taxing the rich is not the done thing, then I suspect you have found the consensus which is finding itself out-of-step with public attitudes today.

        Hopi if what you write above is what passes as the intellectual output of New Labour and the Fabians the party is in a poor state indeed. I guess I would rather be on the mountain top than in the gutter with the smell of sleaze that Blair and New Labour have bequeathed the Labour Party.

  • Quiet_Sceptic

    “On the left, we seek an economy where the rewards for business success
    are shared broadly between shareholder, manager and worker, in the form
    of share-price, salary, wages and employment”

    No – ‘share-price’ is not quite right, the reward from business success is profit and shareholders receive that, in some proportion, as dividends.

    Granted, some of that profit may be retained and invested back into the business, to allow it to grow but there’s no guarantee that will be reflected in the share price, at least in the short term.

    It’s not purely an academic issue either, in championing a moral capitalism there’s a question of corporate leadership and how shareholders can influence this. In focusing on the share price and short-term financial results, does it cause management to neglect the longer term direction of the business?

    • Hopi Sen

      fair point. By focussing on share price, rather than dividend, I was trying to increase the long term investment nature of a shareholders decision to buy or sell, rather than the immediate income benefit of a dividend but you’re right to point out the dividend is actually the correct longer term way of looking at the value.

  • JJames

    More jobs, yes, higher wages, that too, but we also need less corruption and cronyism. We need a system that puts people and the environment first, not finance and shareholders. We need to be practical, but this is a moral issue. 

  • Diarmid Weir

     ’Finally, remember that a successfully reformed capitalism requires a successful capitalism.’

    It would hardly go with a failing capitalism…

    Which hopefully makes the point that the difficulty is in identifying what should count as success for market activity. To identify the success of capitalism simply with the success of individual capitalists (as you seem to do here) is a form of ‘fallacy of composition’. Financial profit at the expense of people, society and the environment is not a success to celebrate.

    • Hopi Sen

       i don’t think I identify the success of capitalism (in left terms) as “simply the success of individual capitalists”. I merely argue that successful individual capitalists are are a necessary but not sufficient condition for a successful social capitalism.

      • Diarmid Weir

        It’s a question of emphasis. You extoll ‘ businesswomen from the midlands’ and ‘business leaders, and engineers, and innovators’ above the straw men or women represented by ‘tweed-jacketed principals of Oxfordcolleges’.

        By which it seems that you expect that a particular sub-set of participants in the economy have the best understanding of what its overall purpose and direction should be. This is a little like suggesting that if you want to know how to treat pneumonia you should ask the streptococci!

        Practical reform of capitalism demands systematic analysis that takes the motivation and incentives of capitalists as data, rather than allowing them to drive the agenda.

  • Millsy

    Yes: under-promise and over-deliver.

    Focus on a few big things that the party could definitely do.

  • Hopi Sen

     It is both a practical and moral issue. Politically, our challenge lies more on the practical side. I doubt we need to convince to many that we would _like_ a more moral capitalism. 

    • Diarmid Weir

       I’m not sure about that. I think there may well be some cynicism, paticularly if purely soft reform is mooted. There’s perhaps a case to be made for more radical reform being more credible. If now isn’t the time to brave the frothing of the Tory press, when is?!

      In any case we have to be quite clear what we think a ‘more moral capitalism’ is in practice. Is it about changing the behaviour of capitalists (are they going to tell us how they would like to change…?) or changing the personnel?


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