Capitalism and Crises: How to Fix Them

"Yes, it’s by Colin Mayer, who is a friend and colleague over a long period (I actually worked with him in business, too). His book is a challenge to that view that Friedman had about corporations. Friedman had lots of ideas: he wanted universal benefits; he wanted negative income taxes. But he wanted the state to do the public goods stuff. He didn’t want us to do what Colin Mayer would like us to do, which is to get the boards of companies to act beyond narrow profit maximisation to choose wider objectives, and to set a purpose for the business that meets social objectives as well as just private greed. I’m paraphrasing Colin badly—but that tension between those two books is very interesting. My take is that, although I would not think of myself as in any way sympathetic with the bulk of monetarism as Friedman advanced it, I would question whether or not I really want to live in a society where people in the C-suite (the top executives—the CEO etc) decide what the public interest is. I’ve done a lot of work in advising businesses and in the private sector, and I’m not a critic of people who are executives of business. They achieve a great deal. But I’m very sceptical about them deciding what’s good for my community. Normally, the sorts of businesses that do this are businesses that have market power. They’ve got money they can extract from their consumers to spend in certain ways. Colin and I have sparred on these issues for a long time, and the book is brilliant. You must read it. “It’s not true that these things are cheap. They’re expensive” The sophisticated argument of Mayer’s book, from my point of view, is that what companies should do is pursue enlightened self-interest. In other words, pursuing a purpose. Rather than saying, ‘How do I make short-term profits?’ it may well be that producing the best vacuum cleaner (for example) is the most profitable route. James Dyson made a lot of money because he was obsessed by making something that was special. Mayer’s book tells you what really serious long-term profit maximisation would look like. If you’re being charitable, that’s also what Friedman said: ‘You’re set in a role; you should pursue profit maximising.’ Reading those two books together, you’ll find that there’s more common ground than many of the more popular writers on this subject would suggest. Colin Mayer’s approach to the purpose of business is very smart, very clever and very well argued. The book’s extremely well written. It’s not the radical manifesto that many of the anti-capitalists would advance. Colin is not arguing is for abolishing capitalism. He’s not an anti-capitalist. He’s writing a book showing how capitalism could be much more sophisticated, and I think that’s right in the context of private equity and the short-termism that’s gone on which, in my view, he doesn’t attack enough. The financial capitalism we’ve had bears much more criticism. I think Friedman would have probably been quite critical, too. It would be nice if the world was run by altruists, if you and I behaved more environmentally responsibly, if all the directors of companies had studied PPE at Oxford and thought more about wider social requirements. That would be a bonus. But I want to design a world for average human beings—people with flaws, people who aren’t always the nicest people on the planet. I want to make sure that the rules under which competition operates—the rules of capitalism—are properly set. For me, it’s about more politics, more democracy, more framing the context of what we can do. Part of that’s saving us from our own personal insatiable desire to consume, part of it is protecting us from behaving in ways that are selfish to the degree that they’re self-destructive. We live in a society. We’re not abstract individuals—in the way that, actually, Friedman thought we were, and Thatcher, too. We’re part of a society. Society sets the rules. Some of them are formal laws, some of them are cultural, some of them are about institutions. That’s where I would like to see more of the effort going. Indeed, that’s where I’d like to see the effort in not just capitalism and social organisation generally, but in respect to the environment specifically. That’s why I like carbon taxes, for example, that make you pay for the pollution you cause. Yes, though for me the Adam Smith issue between The Wealth of Nations and The Theory of Moral Sentiments is more fundamental than either of them probably indicate. Most economists are utilitarians. They believe that we should maximise utility and that all there is to life is utility. In The Theory of Moral Sentiments , that leans in the direction of ‘positive freedom.’ The way I put it in my Legacy book, what we should be doing is empowering future citizens to choose how to live their lives, by making sure that they inherit a set of assets at least as good as we did, including the natural environment. I didn’t try to make my children happy. I’m keen that they are happy, but what I did was try to make sure they had the wherewithal to choose how to live their lives. That’s how we should think about the next generation. It’s crazy to think, ‘Let’s make sure they have lots of utility!’ It’s a bit like Brave New World . What I want to do is make sure they’ve got a decent education, a health system that supports them, a natural environment that is good around them. We want to make sure the rivers are clean, there’s access to broadband, to power, to sewerage and water systems that work. Then, they can choose how to live their lives. That’s positive freedom. That is Amartya Sen , who is not a utilitarian. I betray my origins here: he was my doctoral supervisor. It’s the Sen view of the world—positive freedom—and the notion of the idea of justice within that frame, coined in the context of citizens, not consumers, which drives me to focus on the assets that are required and not the utility. Most of Adam Smith goes in the direction of utilitarianism. He just likes to throw in some moral constraints on utilitarianism . I want to throw utilitarianism out the door and start with citizens and their entitlements. It’s crucial that Legacy isn’t just about GDP, why that’s wrong and how to do the accounts. It starts from, ‘What do we mean by making sure the next generation has good options? What are our duties to the next generation?’ What I do in that frame is say, ‘Let’s treat the next generation as the next set of citizens and look at their access to society, their capacity to perform, the capacity for the economy to function. That’s about these assets, which include the climate and ecosystems, but not just that. It’s about the basic infrastructure. Our duty to them is to ensure we fix the potholes in the road, do the maintenance, fix the school roofs, fix the climate, fix Thames Water and the state of the rivers. Those are capital maintenance requirements. What’s wrong with what’s going on now is all that capital maintenance is treated as an investment. It isn’t. It’s a day-to-day obligation on us, out of our current consumption, to fix those holes. Because when you treat it as an investment, then both political parties say, ‘Oh, you can just borrow to invest.’ What you’re really saying is, ‘Okay, we will fix the potholes eventually, when all other options have been exhausted. We’ll finally get rid of them. But, by the way, you future people can pay for it, because we’ll borrow from you. We’re not actually going to put money aside now to deal with it.’ That’s the difference. Both. Because a citizen having access to things at the most basic level, for quite a lot of people, especially in urban areas, means it has to be possible to cycle without killing yourself. Outside my house, the roads of West Oxfordshire touch on the edge of Gloucestershire (where they do resurface roads). You wouldn’t go on a bicycle round where I am—you’d get killed! You’d come off and have an accident. There are just gaping potholes. It’s a metaphor for the state of the school roofs, the hospitals, the railway lines, the bridges that are failing along the Thames, for the state of the sewers that are putting the rubbish in the rivers. But it’s also literal. You need transport. It’s a basic access right that citizens need. Every generation’s job is to hand those over, as good stewards, to the next generation. That means we have to pay for it. It’s not investment—it’s capital maintenance. That’s what I would engrave on the front page of every manifesto for a political party for the coming election: ‘It’s the capital maintenance, stupid!’ As opposed to: ‘It’s the economy, stupid!’ That would be a good starter."