Labour’s creed is to transform capitalism towards a commonwealth

Discussing 1920s capitalism John Maynard Keynes wrote: “Modern capitalism is absolutely irreligious, without internal union, without much public spirit, often, though not always, a mere congeries of possessors and pursuers”. Such an assertion makes one wonder when capitalism has actually ever been moral let alone responsible.

It was announced today that not only did the economy contract in the fourth quarter of last year, but also that the economy grew by only 0.8% in 2011. In addition, manufacturing declined by 0.9%, showing the ‘March of the Makers’ has come to a halt. To put this in perspective, the OBR originally predicted growth in 2011 would be 2.3% and then 2.1% in the CSR; and even in Osborne’s budget last March he revised that down to 1.7% for 2011. It is widely believed our economy needs to grow by around 2% a year to create jobs in the private sector.

The circumstances are bleak for our economy with a global slowdown looming. Inflation may have fallen, but there is limited capacity and limited investment and ultimately a shortage of aggregate demand. Unemployment is over 2.6 million (and expected to grow), household debt is rising, and household incomes are falling; not great for a consumption led economy. In turn, government debt is spiralling and their own deficit reductions targets are way off target.

Plus, with population growth bigger than economic growth and the share of the wealth getting smaller, Monday’s Resolution Foundation report shows the standard of living is declining and this decade looks lost.  The question now is not just how do we grow our economy, but in what way do we do it and for what purpose? Should there be such a large slice of the cake going to so few?

There is currently no legitimate alternative to capitalism; by which we mean the operation of a market economy system. Even Nye Bevan accepted this premise in the guise of the mixed economy. However, just like there are many different forms of cola, there are also many different forms of capitalism (likewise, there are also many different forms of socialism too).

Sadly, there is always a very simplistic form of debate when we talk in pejorative terms of anti-capitalism/socialism (so forgive me now). To ignore the existence of markets is like ignoring the existence of the oceans of the world. But acknowledging the existence of something does not mean accepting the way in which we find it; hence why we have sea defences on our coastlines, and travel over oceans rather than allow them to chain us to the land.

The history of capitalism is one in which it has evolved into many differing forms. The capitalism of the 1850s that Marx and Engels witnessed was different in many ways to that which Tony Crosland described in the 1950s; and the nature of capitalism in the 1980s and 1990s differs from back then; and in turn capitalism to a degree has changed in structure to all those eras that have gone before us today.

The main aim of capitalism in all its forms is wealth creation, the market mechanism is the chief tool by which it allocates resources and bases prices for the value of goods based on supply and demand. Therefore, the most efficient producer will reap the highest rewards. Nevertheless, the social cost is not factored in. Over the last thirty years it was simple, what’s good for the most profitable big public limited companies was good for UK Plc (leading us to swapping factories for finance). But what happens when there is a clash between the interests of the former and the latter.

In contrast, socialism at its core is about a more equitable distribution of wealth. And as Tristram Hunt highlighted in the Guardian, socialism has always been a moral response to the unequal outcomes thrown up by market capitalism. And British history has a rich seam of that tradition. Hence, why in an age of market failure, and a lack of a return to equilibrium in many different markets; we on the left who advocate wealth distribution, are best equipped to win the argument through supporting an active state.

Market capitalism creates wealth from scarcity. The reason that those of us on the left who accept capitalism and the paradoxical politics such a position creates for us, is on the basis of raising living standards and distributing the proceeds of capitalism more fairly. It was the same settlement under which Labour eventually acquiesced to the neo-liberal consensus of a more laissez-faire capitalism after 1979. Yet, we now find that not only is this form of capitalism not creating adequate levels of wealth, but it is also creating gross disparities in wealth (and income), due to the unlimited accumulation it espouses.

Therefore, when Labour discusses the future of capitalism it must also discuss the future of the state and wealth distribution. Although, we live in a welfare state, we should move to a more asset based welfare state (and a proper progressive tax on wealth), in order to move towards a new commonwealth. The plusses of this are that asset holding has many benefits such as increasing long term planning on an individual basis. Something that is critical not just in government policy, but also in wider society. It is no surprise to find that the poorest in society have a more fatalistic approach than the richest.

Capitalism maybe aimed at wealth creation, but when Labour is committed to wealth distribution, the transformation of modern capitalism into a true commonwealth is possible; the morals of wealth distribution are age old and spiked to the left. However, in wealth in the twenty-first century has changed in ways to that of the past.

“Circumstance…” wrote R.H Tawney, “alter from age to age, and the practical interpretation of moral principles must alter with them”. If Labour can update our practical interpretations of wealth distribution, we will have truly moved towards creating a more responsible capitalism – and the road map to a new commonwealth.