capitalism as a policy problem

The current British policy and media vogue for debating 'capitalism' may well be unprecedented. There have long been rolling public debates about specific institutions and practices, such as banks, markets, debt, financial markets and trade. But to focus on capitalism implies a more political-economic perspective, which is alert to questions of hierachy, ownership, power and institutional evolution. At least it should do. Historically, the question of 'capitalism' has been more often debated by its critics (from Marx onwards), or else by those such as Milton Friedman who have used it to attack socialism. Even then, neoliberals have preferred to refer to 'markets', 'enterprise' and 'entrepreneurship' when providing the gloss to their economic argument.

The new debate is to be welcomed, but it is inevitably throwing up misunderstandings and strange representations. The Financial Times has been running a sophisticated series of op-eds on the crisis of capitalism, which only really hit the intellectual rocks with a piece published yesterday, entitled 'It's a crisis of confidence, not of capitalism' (the stupidity of the article's headline turned out to be well-matched to the identity of its author, the Chancellor of the Exchequer).

The first thing to note, as if it needed saying, is that of course capitalism is in crisis. The denial of this fact seems to go hand in hand with two intellectual errors. Firstly, it misunderstands the meaning of the word 'crisis', which it hears as equivalent to 'end' or 'death'. Nobody has yet plausibly suggested that capitalism is coming to an end. But quite clearly there is a crisis, in the literal sense of a judgement, turning point or critique. Capitalism is in a critical condition, which will determine what sort of future it has. This is what 'crisis' refers to. For evidence that it is in crisis, one need only point to the fact that policies which once alleviated its shortcomings, now appear only to exacerbate them. To his credit, Gordon Brown appears in this piece to grasp the historic importance of the current period that we're living through, and the vast scale of any potentially adequate political response.

Second, the crisis deniers get lost in is/ought distinctions. They seem to believe that announcing a 'crisis of capitalism' means advocating socialism. They then very swiftly fall into making abstract and irrelevant moral-psychological claims about how competition and self-interest are 'still' the only plausible bases for organising the economy. Take this Newsnight debate from last week for example. The inevitability of capitalism, in roughly its current form, is asserted on the back of a philosophical anthropology, which is derived from... well, the think tanks and ideologues whose job it is to defend the freedom of capital. Typically this freedom is also erroneously dressed up as the freedom of markets, with endless mis-readings (and more likely, non-readings) of Adam Smith to buttress it.

Yet the ideologues are partly responding to the way in which the question of 'capitalism' has been posed by politicians and pundits alike, which is in heavily moralistic terms. Nick Clegg, David Cameron and Ed Miliband are competing to find ways to attack the morally noxious bits of capitalism, and not merely the useless bits, though Miliband's notion of 'predatory capitalism' suggested that the two go hand in hand. I've heard it suggested that politicians' sudden obsession with the 'c' word may be a strategy to avoid talking about immoral 'business', which swiftly invites questions of which businesses in particular, the same questions which floored the entire shadow cabinet after Miliband's conference speech.

It seems that the main reason 'capitalism' has been put on the table as a policy problem is that this distinguishes the problem as a moral one of principles, not a utilitarian one of economics. British politics is suddenly experiencing a classically ordo-liberal moment, in the sense that economic 'right' and 'wrong' no longer map cleanly on to 'efficient' and 'inefficient'. This partly explains why the collapse of economic growth is having so little impact on the Conservative Party's poll-ratings: for the time being, debates have shifted on to liberal questions of form and structure, away from utilitarian questions of output. Other bizarrely non-utilitarian behaviours abound, such as governments and firms seeking to pay off debt at a time of negative real interest rates, producing a 'balance sheet recession'.

To this, some nuance could be added, by recognising that all capitalist crises are also moral crises, but in a very particular sense. From the 18th century onwards, liberalism has functioned on the basis of an illusory split (famously criticised by in Polanyi's Great Transformation) between the amoral realm of the 'economic' and the moral realm of the 'social', also represented as a dichotomy between the sphere of value and the sphere of values. This illusion is propped up by an associated split between economics (the study of rational choice) and sociology (the study of association and rules).

Ultimately this split is a useful fabrication or fantasy that serves policy-making, rather than one emanating from institutions or agents themselves. 'Economic' institutions (such as banks) are awash with moral judgements, rituals and norms; 'social' institutions (such as families) are equally awash with rational and monetary calculation. But the split does some work, in preventing us from subjecting everything to constant moral judgement, which would be hugely time-consuming and inefficient. Neoliberalism has frequently committed the opposite error of seeking to subject everything to rationalist audit, which turns out to be equally time-consuming and inefficient, though when the target is lefty professions and academics, that may be its underlying purpose.

Every stable era of capitalist development rests on its own distinctive way of separating economics from moral judgement (or 'efficiency' from 'equity', as welfare economists like to put it). The critique of capitalism involves challenging this split (for example, through arguing that labour markets are unjust regardless of their efficiency, or that GDP measures bad things) but these critics can typically be rebuffed for decades at a time. However, a crisis of capitalism, like the one we're living through, brings about a collapse in the liberal divide, from both sides at once, as it becomes unclear what is worth measuring and valuing in the first place. Once economics and economic institutions cease to work in a utilitarian sense, their supposed insulation from sociology, moral judgement and political economy fails too.

This is why crises are so exciting and frightening at the same time. They involve a fundamental uncertainty as to what is going on, how long it will take and what types of technologies, institutions and policies will bring it to an end. As I argued in this New Statesman piece, one feature of our current predicament is that we don't yet know what we've come to the end of precisely. A new fluidity opens up, between moral problems of values and economic ones of value, and we confront the strange truth that the entire realm of 'the economy' as a separate thing is really a fiction. This uncomfortable realism only be suppressed again once a new settlement is established, in which a new form of socio-economic division is established, which is both economically effective and morally acceptable.

If current questions of 'responsible' and 'popular' capitalism are to be posed seriously, then we need to be clear about how far moral critique can (and must) currently penetrate. During times of stability, businesses and politicians raise moral questions of values, almost as matters of consumer preference.* This is the function of corporate social responsibility, which is a form of self-regulation at best, and green-washing at worst. During times of crisis, things are far more profound. It is no long a question of what moral values are to be added to utilitarian economic structures, but what moral values are to constitute a future definition of economic value.

This is what I was trying to communicate in my recent paper on employee ownership. In arguing that 'wellbeing' and 'patience' must be central business 'values' of any post-crisis capitalism, I was not intending that these are somehow nice things, which we really ought to think about a bit more. More fundamentally, the fact that the previous model had failed to account adequately for human psychology on the one hand, and for long-term outcomes on the other, was actually at the heart of how and why the crisis occurred. It follows that any resolution of the crisis will necessarily rest on a new notion of economic value, which somehow factors in these moral values.

If the new public debates about capitalism are to be more than rhetorical, they will need to move beyond obviously moral issues, such as inequality and who 'deserves' what. The term 'fairness', like 'equity', keeps morality safely confined to certain classically moral issues, from where it is unlikely to interfere in the distribution of political power (as I argued in this openDemocracy piece. I was delighted to discover amongst The Browser's quotations yesterday Scott Adams' "fairness is a concept so dumb people could participate in arguments"). Instead, it needs to take on economic institutions of ownership, governance, democracy, valuation, audit and performance measurement. There are some encouraging signs that this might be beginning to happen.

 

* I once worked at a research consultancy which was in the process of re-branding itself, and wanted to engage its staff in identifying its core 'values'. This resulted in a hilarious, Python-esque all-staff meeting in which one individual would opine "I think 'trust' should be one of them", which would then be met with a response from elsewhere "'trust' is rubbish! 'Integrity' is far better!", which in turn would be shot down by "nonsense! 'Leadership' is clearly the best". And so on, depressingly confirming Milton Friedman's famous dictum that "over values, men can only fight".

Comments

[IanC]

Excellent analysis and a pleasure to read.

It's striking that what passes for mainstream political and media debate over capitalism is so limited in scope and ambition, given the calamities generated by actually existing neoliberalism. Outrage over the extreme executive pay racket is strictly constrained. We go from one banking scapegoat to the next, but never do anything to deal with the systemic issues at stake. And our politicians, even when presented with mass support for action on top pay and with the chance to exert shareholder power, plead impotence in the face of neoliberal Fate: democracy is over a barrel and power remains with the To Big To Failures. Neoliberal capitalist ideology is in crisis, but still in power; shorn of credibility, but still in power. We're still in the Neoliberal Unsettlement, 1979 - ad nauseam. I'd feel a bit more optimistic if it looked as if Labour and the Democrats and EU Social Democrats had a clue how to take on the institutional issues you describe and the challenge of refounding 'economic value'.

[Dick Pountain]

Great post Will. One reason that the Coalition is not scared to debate the crisis of "capitalism" is that calling the beast by its name reminds everyone that the alternative of socialism/communism didn't work and is discredited, so it's a debate that can be allowed to slowly fizzle out.

The truth is of course that ever since Keynes the future of capitalism in the West has been safe, but only as part of a social-democratic settlement, an armistice in the class war. Social democracy was regulated capitalism, a mixed economy welfare state.

The current crisis stems from neo-liberal capture of politics over the last 30 years undermining that social-democracy, ostensibly in the name of the "free market" but resulting in a tax strike and asset stripping. Neo-libersls probably believed their own bullshit and didn't expect it to destabilise the whole world economy.

The tragedy is that no-one will defend a return to regulation and social-democracy - Labour will not even use the word, whereas it's happy to joust with Osborne about "capitalism".