1. CRASH! BANG! FIZZLE. THE ANTI-CAPITALISTS FAILED TO OVERTHROW FREE ENTERPRISE AFTER THE CRASH BUT CAPITALISM REMAINS IN NEED OF REFORM
THE $1,000,000,000,000 CHALLENGE
Let's begin by going back to the dramatic events of September 2008 and to some equally dramatic commentary from that time:
"The US government has decided it could find $1,000,000,000,000 to bail out rich lenders that had made bad decisions (shareholders have been wiped out, but those that lent too much - one of the errors at the core of the problem - have been saved!). In the future, US taxes will need to service this debt. What argument is anyone going to be able to offer as to why these taxes should be paid by the poor? Higher tax rates for the wealthy in America will represent social justice - otherwise we will be taxing the poor to fund subsidies paid to the rich! Again, who is going to be interested in the future when some fancy Wall Street type sits in a TV studio and criticises subsidies paid out to farmers or car workers? You got paid $1,000,000,000,000 to bail you out! Who are you to complain about a measly few billions to help out someone else? Similarly, wealthy Americans in the future had better pause a moment before complaining about a few paltry dollars given to single mothers or young unemployed boys on benefits. You got paid $1,000,000,000,000 to bail you out! Who are you to complain about money that people use to buy food?
Politics will be profoundly affected by this. It must. More than that. It should.
Another interesting point is how close to the Chinese model the US model has become. State capitalism (i.e. the state providing the capital to fund businesses), as opposed to private capitalism (involving private capitalists), appears to be all the rage."
Those words weren’t written by an anti-capitalist revolutionary for a far left newspaper. They were written by a free market economist, Andrew Lilico, for the centre right website, ConservativeHome.com.
We should go back to 2008 because we should recover some of the anger that many of us felt then and also, more importantly, the resolve we felt to ensure things changed. We are all still living with the costs of the bailouts today. Hundreds of millions of people have lost benefits or educational opportunities. Many people have been thrown out of work. Many people who grew rich from reckless financial investments have never been held to account. Some are even prospering again – doing more or less the same thing. While many have-nots suffered many at the top still have-yachts.
For a good period of time class warriors and fiscal hawks were united in their anger. The Tea Party movement gathered around Fox News while the Occupy Wall Street crowd camped in Zucotti Park in Lower Manhattan and by St Paul’s Cathedral in London. The two movements may have originated from different corners of the ideological spectrum but both resented the way that big business, and big banks in particular, had been bailed out during the greatest economic shock since the Great Depression of the 1930s. While the Occupy crowd tended to put all of the blame on “rich bankers”, and Tea Partiers were readier to blame government for loose monetary policy and incestuous relationships with “big money”, there was a wide sense across very different social groups and nations that the existing system of capitalism – or crony capitalism to give it an accurate description - wasn’t functioning as it should.
Advanced western societies haven’t been engulfed by revolutionary fervour. Electorate after electorate has voted for a steadying of the ship rather than in favour of sailing in a very different direction. It wasn’t what friends of capitalism were expecting and they have been breathing a very long sigh of relief since it became obvious that the bark of the anti-capitalist was bigger than their bite.
With the exception of Greece, where Syriza grabbed power in January 2015 the Occupy Wall Street protests did not lead to the election of anti-capitalist governments. There have been an explosion of fringe protest movements, of course – including the United Kingdom Independence Party, the French National Front of Marine Le Pen, Spain’s Podemos party and the Donald Trump phenomenon in the United States – but none of these movements has broken through. Not at the time of writing, anyhow.
In reacting to the biggest crisis to engulf the free enterprise system for decades we’ve learnt that the spirit of the anti-capitalists is willing but their flesh is weak — and also that there simply aren’t enough of them. They can’t even read the books that they buy. Stephen Hawking’s “A Brief History of Time” did have the dubious honour of being the most unread book of recent times but then came Thomas Piketty; the French economist and unlikely rock-star thinker of the global equality movement. The Occupy Wall Street crowd bought his book, Capital in the 21st Century, in large numbers but guesstimates derived from Amazon suggest that the average reader may not have got much past page 26 of the 685-page tome. It became a global bestseller but only 3.8 per cent of the pristine-looking book that sits ostentatiously on the coffee table, next to the latest works of Naomi Klein and Paul Mason, may have actually been read. Premiership football, the new Game of Thrones boxset, the X-factor TV franchise or other inventions of free enterprise are too much of a distraction for today’s wannabe revolutionaries.
It has never been particularly clear what the anti-capitalists want, of course. Capitalism’s critics like to talk about its contradictions but what about their own? Ever since Karl Marx many of capitalism’s critics have wanted opposite things. This was understood by Ludvig von Mises in his essential 1972 book, The Anti-Capitalistic Mentality. “Critics level two charges against capitalism,” he wrote: “First, they say, that the possession of a motor car, a television set and a refrigerator does not make a man happy. Secondly, they add, that there are still people who own none of these gadgets.” Donald Sassoon, Emeritus Professor of European history at Queen Mary, University of London, identified many more contradictions in an amusing article for The Times Literary Supplement in 2002. Sassoon set out the impossibility of the Left’s wish list:
“Socialism’s appeal, when it had one, was to say, at one and the same time, that its mission was to transcend capitalism while improving it; that everyone was equal but that the proletariat was the leading class; that money was the root of all evil but that the workers needed more of it; that capitalism was doomed but that capitalists’ profits were as high as ever; that religion was the opium of the people but that Jesus was the first socialist; that the family was a bourgeois conspiracy but that it needed defending from untrammelled industrialisation; that individualism was to be deplored but that capitalist alienation reduced people to undifferentiated atoms; that there was more to politics than voting every few years while demanding universal suffrage; that consumerism beguiles the workers but they should all have a colour television, a car and go on holidays abroad.”
Compared to the decade that went before when left-wing governments dominated the developed world the last few years have seen centre right parties in the ascendancy. Even in America where Barack Obama has twice won the White House, the Republicans have a tighter grip on legislative office – combining the House of Representatives, the Senate, Governors’ mansions and state legislatures - than at any time for a century.
But will the reckoning still come?
The series of short articles in this ten part Prosperity for All agenda argue that friends of capitalists shouldn’t be complacent. They shouldn’t be complacent because capitalism remains unpopular in the global court of public opinion. The YouGov findings at the beginning of this report make that clear. But the second, more substantial reason why they shouldn’t be complacent is that free market democracies as currently configured have substantial weaknesses. If we don’t act we will end up in the position anticipated by James Brenton in his December 2014 contribution to the Legatum Institute’s Charles Street Symposium. Where capitalists don’t ensure prosperity is shared and seen to be shared the public will turn against wealth creation. “We risk destroying prosperity,” he wrote, “simply because it cannot be satisfactorily shared.”
THE UNPOPULARITY OF THE CURRENT ECONOMIC SETTLEMENT
A Pew opinion poll of nearly 50,000 people in 44 countries – conducted in the spring of 2014; a full six years after the global crash struck - found a lot of gloom in developed nations about their economic futures. 50% of Greeks and 51% of Spaniards did not agree that most people are better off under free markets. This might be understandable given those two countries suffered particularly badly within the eurozone’s straightjacket – but an average 65% of respondents in ten leading advanced countries (including Britain, Germany, Japan, South Korea and the United States) expected children to be worse off than their patents – only 28% thought they’d be better off. Those findings are echoed in the YouGov polling conducted for this manifesto and conducted even more recently. Pew found that gloom was particularly pronounced in France where the percentage of pessimists hit 86% but even in America, supposedly the home of free enterprise, 65% expect their children to be worse off and only 30% think they’ll be richer. In developing countries, in contrast, 51% expected the next generation to be richer than the last although a sizeable 39% disagreed. You have to go to the “Socialist Republic of Vietnam” to find the country that is most in love with capitalism. 95% of the Vietnamese believe that “most people are better off in a free market economy, even though some people are rich and some are poor”. Bangladesh, then China, then Ghana and Nigeria are next most positive. Sclerotic Europe, according to the Pew research, is the home of pessimism but Japan and the USA aren’t so far behind.
CAPITALISM’S SUBSTANTIAL WEAKNESSES
Some of the reasons for capitalism’s unpopularity are unfair. Ignorance of its real achievements is often at staggering levels – a subject that is the focus of the next chapter. There is also a lot of ignorance about the role of central banks and poor regulatory policies in producing the events of 2007 and 2008. Reviews of the last few years often miss the contribution that political projects have played in worsening the crisis. The Eurozone, for example, has meant terrible unemployment across much of southern Europe and unnecessarily deep austerity. Outside of the Eurozone Britain and America have enjoyed much faster recoveries. But let’s not pretend everything is healthy. This manifesto is a call to action from friends of the free enterprise system – a warning against complacency. More needs to be done to rebut the myths about capitalism but more also needs to be done to correct the real problems in how capitalism is currently practised in the west:
· There is too much insulation of the rich and powerful. If the ladders are in reasonable repair there aren’t enough snakes. The poor can get richer but not enough of rich get poorer when their economic schemes fail. This most manifests itself in the ways in which taxpayers underwrite many large too-big-to-fail banks and other industries deemed to be strategically important.
· There is too little corporate responsibility from businesses infected with Milton Friedman’s teachings. There is a focus on short-term profitability rather than the long-term success of the communities in which businesses are located and upon which they ultimately depend.
· There is too little long-term investment – particularly in infrastructure.
· Free trade agreements are being designed by politicians who have the interests of big business rather than of smaller, job creating businesses and the whole of society uppermost in their minds.
· There is too little protection of the social institutions upon free market economies depend, notably the family.
· And fundamentally there is too much belief amongst free marketeers in the idea that self-interest and the invisible hand are sufficient for the creation of a good society – a belief that Adam Smith would be horrified by.
THE REAL ENEMIES OF THE FREE MARKET ARE ITS UNCRITICAL DEFENDERS
Four years ago David Cameron promised to confront what he described as the “enemies of enterprise”:
"The bureaucrats in government departments who concoct those ridiculous rules and regulations that make life impossible for small firms. The town hall officials who take forever to make those planning decisions that can be make or break for a business… The public sector procurement managers who think that the answer to everything is a big contract with a big business and who shut out millions of Britain's small and medium sized companies from a massive potential market."
A good trio of opponents of the kind that you would expect a free market politician to identify.
In a recent article for The Sunday Times the successful businessman and founder of the Centre for Entrepreneurs, Luke Johnson, was able to identify many more “enemies of enterprise” – listing eight in total. “Socialist politicians” who endlessly intervene in markets were top of Mr Johnson’s little list. Then came “unprincipled lawyers” who impose an impossible burden of litigation on businesses. Luddite “union bosses” who use their power to oppose all kinds of technological and workplace modernisations. “Crony capitalists” who succeed in business – not through innovation - but by cosying up to politicians. “Nimby disciples” who would like the property and planning system frozen in time. And “pessimist academics” who ignore all of capitalism’s great achievements in favour of doomsday predictions about the environment, austerity and equality.
Luke Johnson’s list is a good one because capitalism’s conventional enemies may lose battles but they never give up the war. I want to identify one more kind of enemy. They are the apologists within capitalism and within capitalist-friendly parties who will defend anything and everything that is done in the name of economic freedom. That includes massive corporate donations to political parties. Boardroom pay that bears little relationship to underlying performance or international yardsticks. The idea that firms have no responsibilities beyond short-term profit maximisation. That firms have no responsibilities to a domestic country’s workforce – only a self-interested interest in large-scale economic immigration. That any kind of sky high interest rate charged by a pay day loan company is ok.
Nearly a century ago John Maynard Keynes recognised this problem. “Devotees of capitalism,” he wrote in The End of Laissez Faire (1926), “are often unduly conservative, and reject reforms in its technique, which might really strengthen and preserve it, for fear that they may prove to be first steps away from capitalism itself.” What we might call a conservative libertarianism is particularly powerful in what we might call the “donor class”. This class – that is notable for channelling money to the Republican Party in the USA and to a range of influential global free market organisations – is reflexively anti-government. It benefits disproportionately from low taxes on wealth, high levels of immigration and weak competition policies. It can be as disdainful of the “middle class values” of advanced electorates as anyone on the progressive Left. Ross Douthat, a Catholic writer at the New York Times, has repeatedly noted the influence of this class. The challenge for friends of the free market is to work harder to recognise the difference between what free markets do that is in the interests of the largest possible number and what free markets do that narrowly serve the donor class. The interests of the donor class and great mass often overlap but they are not entirely the same. The search to identify the difference is one of the key themes running through this report – not least in a series of new statistical measures that I propose in section four.
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