The future of capitalism?

The Future of Capitalism, Paul Collier’s new book, is not a small subject. In fact, the first half of the book is largely retrospective, looking at how capitalism got into today’s mess. There is a particular focus on the loss of moral compass in the organising structures of collective life – the family, the firm, the state. This echoes a number of authors identifying growing individualism, fed by the ideology of ‘the market’, as a corrosive force progressively undermining the conditions that enable it – Bell’s phrase ‘the cultural contradictions of capitalism‘ encapsulates it neatly.

Collier – a distinguished economist whose career has centred on developing economies –  expresses this critique with eloquence and conviction. He has a particular focus on the role of economic theory in validating self-serving behaviours such as bosses paying themselves hundreds of times more than their workers, and sketches an alternative approach to economics which embeds social norms and social influences on preferences. He blames the utilitarian and Rawlsian approaches to ethics, and advocates the communitarian alternative. I’m not persuaded by communitarianism, but surely you have to be pretty obtuse – a banker, maybe – to disagree with the diagnosis. Nobody thinks capitalism is doing just great at the moment.

It is of course harder to address the challenges than to diagnose them, and in a short book like this you can’t expect a detailed policy agenda. The book identifies three divides to be tackled: between successful global cities and ‘left behind’ places (although he deoesn’t use this term); between the skilled, well-paid, globe-trotting elite and the rest; between the rich and poor countries. It ends with the observation that capitalism is the only economic order capable of creating mass prosperity, but that it has not worked to do so since the 1945-70 period. This skates over the evident failings of postwar capitalism, which created the conditions for the ideological turn of the 1970s: inflation, shoddy nationalised industries, insider-outside labour markets and so on. Still, the suggestion here is that what’s needed is a combination of a rediscovery of ethics by political leaders (I’m not holding my breath on this front) and the shaping of identity around a shared sense of belonging to a place (rather than the more abstract ‘nation’ or identity-politics groupings).

This left me feeling a bit depressed. I can’t shake the feeling, despite only listening to the news while hiding behind the sofa these days, that it will take some cataclysmic event to reset current political dynamics. Another aspect of the turn to individualism in the 1970s was the existence of an intellectual framework on which to hang the political transformation, and I don’t see as yet a sufficiently broad and consistent alternative to the isolated individual, self-interested, rational choice model. Something for us economists to work on – as indeed Collier and others have started to do.

Share

Morals and economics

Every time I read something about Karl Polanyi’s The Great Transformation – and it’s in vogue now – I go back to my copy and confirm how much it annoys me. It’s the over-statement or pomposity that does it, rather than the broad outlines: markets mean inevitable cataclysm. “Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness.” He goes on to argue that the social crises and conflicts of the early 20th century were caused by the disruption to the market and economy caused by the reactions to the market forces leading to social annihilation.

Similar arguments have been made by many others, from Daniel Bell (The Cultural Contradictions of Capitalism) to any number of left-leaning authors. The Moral Economists by Tim Rogan puts Polanyi in the context of a succession of critics of capitalism, preceded by R.H.Tawney and succeeded by E.P.Thompson, whose common territory was a rejection of utilitarianism: “The moral economists argued that the solidarities they found in Lancashire, Red Vienna and Yorkshire harbored unique promise: here social interaction was more meaningful than utilitarian analyses allowed, without becoming regimented in the way of so many contemporary social experiments.” They shared a more rounded sense of human personality than homo economicus in the utilitarian analyses, as well as a conviction about the role of social interaction and solidarity in economic outcomes. Tawney, for instance, opposed Fabian socialism because of its dry utilitarianism.

Rogan gives Polanyi a sympathetic reading, noting that he regarded Adam Smith as a moral economist, with the decline into ‘economism’ coming later – this is a reading of Smith, and emphasis on The Moral Sentiments, that has become more prominent in the past decade or so. The Moral Economists argues that the Tawney/Polanyi intellectual agenda was stymied, however, by the postwar turn away from religion in particular and traditional moralism in general. For this reason, it argues, E.P.Thompson was unable to reinvigorate the moral critique of capitalism. However, Rogan asks, surely the critics of contemporary capitalism need to restore a role for morality or virtue in a secular world?

The book ends with a section on the inadequacy of modern welfare economics based on the Pareto optimality idea, and is sympathetic to Sen’s approach. I agree about this. Rogan ends: “Politics pervades commercial societies, frustrating technocratic visionaries of the 21st century [Bell would agree about this too] just as it confounded the goat-and-greyhound utilitarians of the 19th century. … In an age of extremes, the moral economists discovered in their midst the elements of humane, solidaristic, low-key and non-authoritarian politics of reform.” Can we do the same in today’s context of extremes and the all-too-apparent flaws of the current version of capitalism?

It’s an interesting book, and I agreed with much of the argument about putting virtue back into economics, although I find ‘capitalism’ (without further explanation) an unhelpful abstraction looking across such a long and eventful timespan.

(But I’m still not going to change my mind about Polanyi.)

Share

There is no alternative?

Is Capitalism Obsolete by Giacomo Corneo is framed as an exploration of alternatives to capitalism by an economics professor father to his idealistic daughter. The Prologue is an email exchange between them, in which she writes: “Your economic system is wasteful, unjust and alienating. And wastefulness, injustive and alienation are not the result of some natural law. They are the result of particular social rules, the rules of capitalism. And keep in mind that the capitalist economic system is the product of a relatively short period in history. Just as it once emerged, it will one day decline and be replaced with a better set of rules.”

Set up in this way, the book explores some of the alternative models posited at various times, from Plato’s Republic and Thomas More’s Utopia through anarchism and socialist planning to modern variants including ‘shareholder socialism’ (state ownership of key industries) and the currently fashionable cure-all, Universal Basic Income. At the end of this journey, the economist concludes: “There is, at present, not really much else on offer.” However unfair, wasteful etc capitalism is, there is no convincingly superior alternative. Instead, the author proposes a range of reforms – cracking down on cross-border tax avoidance/evasion, investing in infrastructure & public services etc – concluding, “A pluralist market economy with an effective and generous welfare state represents the best economic system that is currently available to us.” An appendix contains a more detailed specific reform proposal, the idea that the state should invest in quoted companies to build up a socially responsible sovereign wealth fund paying a social dividend to citizens.

I have never found the abstraction ‘capitalism’ a helpful term when it encompasses societies as contrasting as Norway and the United States, and have always quite liked the slightly out-of-fashion ‘varieties of capitalism‘ approach. Even if you think the term useful, though, looking at the news this past week, Corneo is surely rather optimistic here in seeing any possibility for reform. Capitalism might be declining, as the daughter asserts, but it looks more likely to be replaced by something worse, call it plutocracy, than by something better.

This is a slighly odd book. I guess it’s meant to be pedagogical, taking students on a tour of historical thinking about economic systems, but this makes the framing material about the current day rather perfunctory, and then the actual reform proposal is stuck in an appendix. Although a mildly diverting read, I’m not sure it works well either as a history of thought book or as a current affairs one.

Share

Things and Beyond

I’ve been reading Frank Trentmann’s Empire of Things: How We Became a World of Consumers, from the 15th century to the 21st, which has taken a while as it’s 600+ pages. It has been an enjoyable read but with two flaws – more on these later.

The book does what it says in the subtitle, drawing on a major research programme, and is truly impressive in its scope and detail. It traces global (and genuinely so although with a strong tilt to the West) trends in consumption through the long sweep of history. It links these trends in behaviour to trends in thought about personal and social ethics, and the individual in the family and in society. It addresses the entire chain of production and consumption from resources to waste. It draws on a wide array of disciplinary knowledge, including philosophy, history, sociology and even some economics.

The book sets up a tension through all of this material: “The view that being and having are opposites … has a very long history. But so has an alternative trajectory that sees people as only becoming human through the use of things.” Among other forces, technology keeps this tension alive over time, as new things keep on appearing. And it’s interesting to see that certain things are particularly compelling – stockings for one. The 17th century knitting framemade better, cheaper stockings possible, and the early national accountant Gregory King estimated in 1688 that 10 million pairs a year were purchased. This reminded me of the tidal wave of nylon stockings sold by Dupont – 800,000 pairs on 15 May 1940, the first day of sale, alone.

Consumption clearly depended on rising incomes, and the book traces a switch to “the creation of value through consumption, not just production” from the 19th century – it argues that consumer society has its roots in the Industrial Revolution rather than as is often argued the post-war boom. There’s an interesting couple of sections – in the light of the way technology is currently blurring the previously sharp consumption/production divide – on the role of consumer durables. I disagree with Trentmann’s suggestion that, “The appeal of goods such as the automatic washing machine was far from self-evident.” He notes that the aggregate time spent on household work was not reduced significantly by such consumer durables – and then observes in passing and ignores the class distinctions. Middle class women were decreasingly likely to have servants and did more of their own housework. Working class women – like my mother and Hans Rosling’s – were truly given hours of time by automatic washing machines. John Kenneth Galbraith (I’m sure he never did an iota of laundry in his life) said consumer durables enslaved women; but even if – as he argued – easier washing meant more washing to have cleaner clothes, why is this not a better outcome?

Turning back to that original tension – does our relationship with things dehumanize us or the opposite? Is consumerism basically bad or good? – I’m with Hume. As Trentmann describes the Humean view: “An encounter with a new object was one way in which intelligence and feeling were inspired and strengthened.” (And isn’t this one of the big questions about AI and consciousness – can intelligences without sense perceptions become conscious?)

The modern no-growther’s disdain for consumption seems to me to be of a piece with the instinct in the past that gave us sumptuary laws. Rich folk thought poor folk should stay in their place, dressing up the restrictions on the purchases the masses were allowed to make in moralising garb. But as Adam Smith put it, it was, “[T]he highest impertinence and presumption for kings and ministers to watch over the economy of private people, and to restrain their expense, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without any exceptions, the greatest spendthrifts in society.” Of course we need to pay far greater attention to resource use and to waste, but it is the affluent who are cavalier about the importance of growing real incomes and consumption – Janan Ganesh in his column today describes them as ‘too-rich-to-care bohemians’.

There is lots to enjoy in Empire of Things, therefore; I’m exactly the kind of reader who likes detail of the sort its pages are packed with.

I would have liked more economics, and more figures. There is a nice section on the mutual interaction of prices and tastes, as with the switch in British taste from coffee to tea in the later 1700s: a chart of tea and coffee prices would have been nice. But I have two bigger criticisms. One is that the book seriously needed an edit. The argument gets swamped in detail and it should have been 25% shorter. Some sections, especially those on non-western trends, fall between two stools – insufficiently detailed in themselves but enough to distract from the flow.

The biggest issue I have, however, is that the book never addresses the distinction between material and non-material consumption. It puts really a great deal of emphasis on the physical nature of consumer goods – and then skips to a discussion of some non-material aspect of consumption such as public health measures or public education, or leisure activities like the cinema. The issue of increased expenditure on services and intangibles is dismissed in just over two separate pages (out of 690), by saying that spending on housing, transport and food combined accounts for the same proportion of the household budget in 2007 as in 1958; and that in the OECD as a whole material consumption rhas continued to rise. Yet people are spending a growing proportion of their incomes on warmth, space, travel, variety, quality, entertainment as they grow richer. The immaterial is embedded in the material, and there is absolutely no reason to be complacent about the environmental footpring of the global economy; but (even knowing I may be biased about this) it is surely a significant development in the history of consumption (albeit a transition of affluence) that value is being created largely by the non-material now? (The forthcoming Capitalism without Capital by Jonathan Haskel and Stian Westlake addresses this.)

Still, it’s probably a good sign when a huge book leaves you more inclined to ask for more rather than wishing there had been less, and the balance tips that way for me despite it being in need of a blue pencil in parts.

41EibbfMxcL

 

 

 

Share

Corruption with Chinese characteristics

As it happened, I read Minxin Pei’s China’s Crony Capitalism in the couple of days after I’d written this article about the importance of property rights in the Financial Times. In this interesting short book, Pei links the emergence of the rampant corruption in today’s China to “partial and incremental reforms of property rights associated with nominally state owned assets in the post-Tiananmen era.” These changes decentralized control over the assets to regional and local officials, without clarifying the ownership rights. The incentive was there, from the early 1990s, to exploit the lack of clarity. At about the same time, a political decentralization created the opportunity. The appointment system went from one where senior officials appointed people one and two ranks down, to one where each layer appointed the next layer down. A market for patronage emerged, which encouraged corruption because officials needed deals with private business to make the money to pay for their jobs. Finally, a fiscal reform enabled local governments to keep the proceeds from land sales while re-centralizing tax revenues to Beijing.

The book concludes: “It is inconceivable that the CCP can reform the political and economic institutions of crony capitalism because these are the very foundations of the regimes monopoly of power.” Even if the corrupt authoritarian regime were to fall, the book argues, liberal democracy would not be the outcome. Something more like Russia’s kleptocracy would emerge. Or will, rather. “The fragility of the institutions of the party state … raies fears that even modest reform efforts could unleash a revolution. The prospect of genuine market-oriented reform is equally unpromising because such a change would eliminate the rents for the ruling autocratic elites.” Any kind of change seems to spell collapse.

In another coincidence, as I finished this book, the FT’s Jamil Anderlini (author of a brilliant e-book about the rise and fall of Bo Xilai) published a big feature on neo-Maoism in China, which he portrays as am anti-elite, anti-inequality, populist movement in the same spirit as Trumpism, Brexiteering and right-wing and left-wing populism around the continent. Sobering stuff.

5131lkoptl-_sx329_bo1204203200_

Share