Why the reforming capitalism debate matters
At the moment there seem to be two major debates on economic policy happening at the same time. The first one revolves around deficit reduction and fiscal policy and the second one is focussed on reforming British capitalism.
Without a rebalanced economy we will never have truly sustainable public finances, a point that cannot be made forcibly enough especially as the Coalition continues to put its faith in lacklustre ‘growth strategies’ based on the old Thatcherite recipe of corporate tax cuts and deregulation.
And to me, ‘rebalancing the economy’ is part of the reforming capitalism debate.
In the past week David Cameron, Ed Miliband and Nick Clegg have spoken variously of ‘popular capitalism’, ‘responsible capitalism’ and the ‘John Lewis Economy’. This has prompted Channel 4 to ask if any of this talk will have any impact at all. A point recently made, in a typically witty manner, by Hopi Sen:
When it comes to changing capitalism, Politics has a self perception problem too.
Does Capitalism need reform? Why certainly. I think Joanna Voter would agree, too. “It’s a bloody mess. All the wrong people benefit, and bad people sit upon mounds of Gold, while I scape together a living making Craft cards” quoth my fictional everywoman.
A disgrace, we all agree. Now, Joanna, here’s who we’ve got lined up for you in the British All Comers Reform Capitalism sweepstakes: A Former special adviser and PR for a TV company that went bust, a former special adviser and Banker who made his money doing something he never quite explains involving Europe, and a former special adviser and cabinet minister. Place your bets.
What? Not satisfied with their credentials for making your life better? Well, cop a load of this. They don’t come alone. They’ve got friends to help them make your dreams of a better world come true. These intellectual advisers include a chap who doesn’t wear shoes and socks, a university lecturer who says reciprocity a lot, that woman from the telly who shouts at hopkeepers and Kirsty Allsop. Oh, and a enormo-headed fellow in crumpled tweed who talks about the importance of the Medival Tawney, or something. Also, a leader writer for the Times/Guardian/Independent (delete according to Party)
And what do they want to do, these people? Well, It is exceedingly visionary, and incredibly ambitious. So it can only be discussed in the vaguest and most general terms.
I can see where Hopi is coming from on this – talk of ‘reforming capitalism’ does sometimes sound like its best left to think tank roundtables and academic seminars, not something that cuts through in the real world. And I’m also happy to agree that the language isn’t right at the moment, that to many people this seems like an arcane debate with little impact on their lives.
But I also think that this is a mistake.
Faisal Islam is onto something when he writes:
The speeches on moral and responsible capitalism are a smokescreen for a much bigger political problem for both main parties. The model of British laisser-faire capitalism that has, on the whole, delivered for the bulk of the nation for decades, may no longer be up to the job. That is not to say that British capitalism is broken, more that its place in the world has fundamentally changed, meaning that it can’t, right now, deliver for large swathes of Britain’s population. And neither political leader recognised that today.
The current cost-of-living crisis, the seeming inability of the British economy to grow at a decent clip, the still-broken state of the banks, the huge challenge of generating enough jobs – these are all things that matter to people and these are all aspects of the ‘reforming capitalism’ debate.
The problem of a declining wage share and a skewed income distribution (extensively documented by the TUC and Resolution Foundation over the past few years) and the turn by households to borrowing to make ends meet and the subsequent financial crisis (see this excellent IMF analysis) are both linked to the nature of our capitalism and probably mean more to most people than questions about the size of the government deficit.
This is all occurring against a changing international economic backdrop. The Economist today devotes a special section to the rise of state capitalism in the emerging economic powers – whatever its pros and cons, it will radically reshape how the world economy operates, possibly to the detriment of Britain.
For Britain to compete and prosper major reforms are needed – a point well made last summer by the IPPR’s ‘Surviving the Asian Century’.
To get some sense of how the changing international environment might affect the UK, it’s worth reading a very interesting speech made by the bank of England’s Adam Posen this week, entitled ‘What the return of 19th century economics means for 21st century geopolitics’.
Given the problems of the British economy, the need for a rebalancing to fix the public finances and the changing nature of the global system I don’t regard talk of ‘reforming capitalism’ as a distraction, I regard it as crucial.
What is needed now are concrete policy suggestions and a good place to start is by looking at Germany.
Now of course we can’t simply import German institutions, policies and ideas wholesale and then hope for German outcomes. Things are never that simple, but there are things we can learn – about banking, about industry, about institutions and practices.
In that spirit, I’d highly recommend the following three recent reports and articles:
- A major new on lessons from Germany from the TUC (here, with a (shorter!) blog post by my colleague Tim Page here)
- Gregg McClymont & Andrew Tarrant on the German banking system here.
- Andrew Tarrant’s fascinating interview with Matthias Machnig here.
I hope that those who take the time to read these reports and articles will be reassured that there’s more to talk of ‘reforming capitalism’ than academic and moral language. The challenge now is for policy makers to turn of sentiments and handwringing to talk of practical actions.