The case for responsible capitalism

This article is from Our Labour, Our Communities – a pamphlet of 10 essays by Labour PPCs, published by LabourList in partnership with Lisa Nandy MP.

To win elections, political parties must undeniably demonstrate that they can handle the economy.

Labour did this in 1997 on a ticket that protected the well-off, that reassured we would not return to the tax-and-spend of the 1970s; we were the new Party of Business and we would get out of the way so that they could create wealth.

In 2010, we attempted to do the same by promising fiscal restraint: to cut public spending but not quite as viciously as the Tories would.  This is almost certainly one of the factors that allowed the Tories to win – they presented a more compelling version of the same economic narrative.

And since the election, the labour movement has grappled over the question ‘how can we be progressive with less money?’.

Yet, talking about the cost of living and about spending cuts sees us simply examine the consequences of an unfair economic system – rather than outline the type of economy we want to see.

So why aren’t we talking about changing it?

In his 2011 conference speech Ed Miliband kicked off the debate with the term ‘responsible capitalism’ – a phrase which was then quickly adopted by the Lib Dems and the Tories. Who, they asked, would advocate irresponsible capitalism?  The answer of course is the political establishment. for over four decades.

The concept of ‘responsible capitalism’ is an interesting one that should be examined and pushed to its limits.  Can capitalism be responsible?  Is there any morality in markets?  What policies would be necessary to create an ethical capitalism – for workers, businesses and customers?

Disappointingly few voices on the Left have engaged in the debate.

In order to win elections and, more importantly, change society for the better, we must develop a distinct, alternative narrative to the Tories and the Lib Dems.  Time and time again I hear on the doorstep ‘but where is the money coming from?’  I retort wearily that it’s a matter of political choices where money is spent; we have the money to bailout the banks, why aren’t we bailing out the hundreds of small businesses that have gone bankrupt in Sheffield?  Why are we spending money replacing Trident and not on creating jobs and helping the long-term unemployed into work?

Imagine if the question wasn’t ‘where will the money come from?’ but ‘how can we distribute the money that’s there?’

Let’s change the system.

People cannot understand, nor should they have to, why the bankers have been left untouched whilst nurses and teachers suffer.  But we need to look beyond the banks towards the entire financial system.

Firstly, we, as taxpayers, are major investors both through government bonds but also through, for example, public sector pension funds and have enormous leverage as procurers.  So let’s start by investing that money for the long-term, demonstrating that long-termist investment decisions represent a better return on investment whilst supporting a more productive and sustainable economy.  That means diverting capital away from the oil, gas, energy and mining companies, all of which sit permanently on passive indices because they provide stable, short-term returns and towards manufacturing, construction and the emerging green sector, which will create jobs right here in the UK.

Secondly, lets shake up the way we do business. Most of the problems described above derive from the fact that the shareholder is king. This hasn’t always been the case and is not the way it has to remain.  Government should explicitly require companies to consider their employees, their customers and the communities they operate in alongside shareholders when making business decisions.  This wouldn’t be a burden, far from it, it would free directors to make decisions that benefit the company in the long-term and therefore the shareholders that are in it for the long haul as well.

And finally, let’s take a serious look at industrial relations.  When Tony Blair boasted that we had the most restrictive trade union laws in the Western World, the reality was this situation didn’t benefit anyone.  Our current system has led to a situation where workers don’t have a stake in their companies, union relations with business are fractious and we have one of the lowest levels of collective bargaining in the world.  Compare the UK with Germany, where unions work hand in hand with business, in the interest of jobs, productivity and better living standards for all.  We need to improve collective bargaining rights and put workers at the heart of our economy by putting them on boards and promoting different business models such as cooperatives.

Ultimately we must reflect on whether and how we can become responsible capitalists, how we can alter the landscape of the economy towards supporting all in society, creating long-term jobs, rebalancing the economy towards long-term, productive uses.  It is only then that we will reduce the benefit bill and increase our tax revenue, allowing us to fund our NHS and our world-class schools.

Without getting the economic policy right, all other discussion is practically moot.

Louise Haigh is the PPC