How many times have I been at academic symposia, street demonstrations or in classrooms and been told that “capitalism is in crisis” or that “capitalism is the devil’s work” or “capitalism is incompatible with equality”?
Obversely, there is often an extreme reaction against this attack on capitalism. Most of the discussions are in reality discussions of political economy and not lambasting the idea of capitalism. Also many of the current discussions in the 21st century about capitalism are discussions about supraterritorial corporations and/or banking.
However, I dispute that capitalism is per se a bad idea, or has a tendency to bad. Capitalism simply means investment of some sort in an idea for a return of some sort with the risk taker being allowed to retain some of the rewards. This is why the ideas behind capitalism, such as risk, investment, returns, property rights, the rule of contract and management, come up for discussion on a regular basis. It is the current model of capitalism that is in need of rapid change and not the idea itself. It is not capitalism that is normally being discussed, but management and governance issues – and often nowadays corporate social responsibility.
The business of capitalism
In the 16th century the English Queen Elizabeth I granted permission for 218 merchants a monopoly of trade east of the Cape of Good Hope. These were effectively state controlled mercantile enterprises with a remit, and the agency, to expand British influence worldwide.
Four hundred years later the role of state owned, or controlled, enterprises is not dissimilar in advancing the influence of nation-states. In 2013 of the largest 100 companies 19 were state owned enterprises – the majority Chinese, Russian or Brazilian. Nation-state expansion has always been initially carried out by traders and business interested in capturing raw materials, cheap labour and markets.
In 2014 the Anglo-Dutch conglomerate Unilever operates in 156 markets worldwide and its direct competitor, the US Proctor and Gamble, has some four billion regular customers worldwide. Just as in earlier centuries, in the 21st century it is corporations that often have the longest arms – including now information, data processing and telecommunications companies. But today the extent of corporate interests is under extensive scrutiny since the public bailout of private companies in 2008/9.
“Most of us do not understand how the system works despite the fact that our lives are inextricably linked to it.”
How do we hold to account, for instance, the world’s largest investment management company Black Rock, who in 2013 controlled 14.1 trillion US dollars in directly traded assets and 11 trillion US dollars in overseas assets? Fifteen trillion US dollars are traded on its Aladdin platform, which is the equivalent of seven per cent of all shares held worldwide, through 17,000 traders. Black Rock controls five per cent of the 20 largest capitalised companies. Its survival strategy has been to spread its risk across multiple companies and markets. The total assets traded worldwide by all investment companies in 2013 were valued at 225 trillion US dollars.
It was not capitalism per se but this particular model of capitalism and the men and women of the corporations that operated it that are to blame for this spectacularly unstable global political economy. As John Lanchester has said in his many books on modern capitalism, most of us do not understand how the system works despite the fact that our lives are inextricably linked to it.
In search of a new rule book
Rules and processes that facilitate competition in all spheres of life, that commoditise and marketise all aspects of society, and that see all decisions as essentially economic and transactional does not necessarily mean small government. This ideology is based on the fundamental and profound misconception that markets are both rational and moral: that they deliver outcomes that benefit all. Rather it is a mixture of markets, trade, cooperation, social cohesion, and collaboration that produce social benefits.
Managing a socially just market economy with requisite freedoms and human rights provisions requires the management of uncertainty and complexity, as well as flexibility, and these features may be beyond the abilities of the average politician, and are certainly beyond the capacities of a politician ideologically glued to a particular creed. It is fine to have a clear vision and set of transparent values but this is not the same as dogmatism.
Capitalism and economics did not fail in the 2008/9 crash because it has no memory, soul or conscience. It is simply an idea given substance by its political context. It was that context that failed then and continues to fail now. The model of economics which is now dominant can never be really known, but the logic of the neoliberalists is that the market is the ultimate information system. It is omnipotent and superior to human intelligence and should be beyond our control because if we dally with it, it will fail us. The model which espouses freedom through liberalisation, marketisation, commodification and objectification has enslaved us all by quantifying all human activity as good if measured in financial terms. It would have us trade every tree, all the Earth’s resources and our love for one another in worship of the market.
“Global surveys of trust show that people trust NGOs most, followed by business next and government last, yet they trust business people least.”
Business and management schools have been factories for the production of the managers of profit maximisation and the growth of the corporate body. And when the private body goes belly up, the public state (which under neoliberalism should wither away) is supposed to bail it out, so enmeshed is the state with the pursuit of private profit. The triumph of capitalism since 1945 is the triumph of freedom, accountability, collective strength, enterprise and innovation, not the triumph of free markets. In the last 40 years the former has been closely allied to the latter, but the evidence is that unless markets, enterprise and freedom are closely allied to accountability, good governance, the rule of law, mutuality, and recognition of the intrinsic value and rights of labour and the Earth, it fails.
Global surveys of trust show that people trust NGOs most, followed by business next and government last, yet they trust business people least. Indeed, paradoxically they blame business people rather than the capitalist system or corporations for the collapse of global finances in 2008/9 and think that government should be doing more to control banking excesses and force business to be more honest, accountable and transparent.
Very few surveys show that people understand the inherent structural imbalances and lunacies of the current model of capitalism. This is probably because they are too complex to be understood by anyone, and too complicated for most people to begin to understand the minutiae in the flow of money, services and goods around the world. If most children in advanced democracies think milk is made in the back of the supermarket how are most people going to understand derivatives, sub primes and collaterals?
Today we give away our thoughts for free and they are commoditised, for this is how many social media companies like Facebook, Twitter and LinkedIn operate, and how modern capitalist corporations like Amazon, Tesco and Google know what, where, how and when you do what you do. They are watching, overtly and covertly. We are all entrapped and distracted, so we don’t complain.
The fundamentals are sound: the rule of law (or contract), reward for hard work and risk, and retaining the gains of our hard work and risk which sometimes means property rights. The problems we have to deal with are correcting markets when they go wrong – because they do, dealing with those people who would seek power and massive wealth over all others through using markets, and the organs of capitalism: government and corporations.
Modern communications technologies combined with the role of finance have made information a key commodity. Economics is now about information flow. If that is thought of as a flowing river the river is now so fast, vast and furious that it cannot be stopped, we can merely build bigger dykes. In 2008/9 the river flooded, threatening to drown us all, but the neoliberal state stepped in and private debt became public debt in apparent seamlessness.
To continue the analogy, 75 per cent of the surface of the planet is covered in water and so now the world is awash with financial capital looking for a return. It’s been called the perfect storm. Population grows; wealth creates exponential resource depletion; and our asocial economic model relies on growth, resource exploitation and money as the root, rather than the servant, of all wealth creation. Banks and our corporate entities are the dominant institutions alongside necessary but outmoded national models. The greatest challenges to change are the current economic system, nationalism, tribalism (in which is included religious fundamentalism) and misogyny. The clash of civilisations is between those who understand that we have one world with finite resources and limited lifespans, and those who believe in the infinite exploitation of people, planet and resources for personal, national or tribal gain.
Much of European expansionism was predicated on trade and trading companies armed with guns and bibles to ‘civilise’ people and markets. In 1776 – some 40 years before the start of the Industrial Revolution – Adam Smith published The Wealth of Nations drawing on both theory and practice around the world. 1820 saw the start of the Industrial Revolution followed rapidly in 1844 by the Joint Stock Companies Act (UK) and the Limited Liability Act (UK) in 1855 (France had been first a few years earlier in this regard). The Companies Act (UK) followed in October 1856 and the modern corporation was born: limited liability, disinterested investment, overseas management, and a management class operating for investors.
Since their creation, the corporation has created more prosperity and misery than could ever be imagined. It has become a law unto itself and threatens to eat us alive. Many global corporations are so large, and so complex, that they are almost beyond reckoning – and certainly out of control. The corporation is a legal fiction – an extraordinary creation which pretends to mimic the individual when of course it does not have body, soul and mind.
Servants and masters
The corporate responsibility industry, of which I have been a part for some 25 years, has attempted to bring the corporation into line by introducing accountability, governance and reporting measures but these are really only playing at the edges. As former UBS director Colin Mayer says in the book Firm Commitment (2013): ”We are trying to control the whale by tickling its tale . . . We have seen serious deficiencies in both the delivery of public goods and services, and the adherence of corporations to responsible conduct.” Charged with investigating large French corporations, Norwegian born French judge Eva Joly said in an interview in 2014 that corporations represented a ”new form of colonialism”. In a book written in 1992 for the then recently formed World Business Council for Sustainable Development (a rival to the emerging UN Global Compact) the founder Stephan Schmidheiney touched on the core problem with the link between markets and corporations: “If markets really do encourage efficient resource use and decreases in pollution, then we must ask ourselves why the past record of industrialisation is largely one of unsustainable resource use and high levels of pollution”.
The main vehicle for the expansion of global markets and the financialisation of all aspects of life has been through the corporation, particularly through banks.
A corporation, albeit a legal person, cannot knowingly do harm – only its officers can know this and they are merely agents for the owners who in most cases are so distanced as to be over the horizon and far away. Unless we change the laws governing incorporation, limited liability and corporate malfeasance corporations, whether they are shareholder or state owned, will continue to rape and pillage in their interests just as marauding Vikings and Mongols did centuries before.
Corporations are our servants and operate by our rules. It is for us to change the rules. Corporations work on market rules that are in urgent need of updating to make transparent the hidden connections between how they make money and their social and environmental impact. This cannot simply be left to laggardly public bodies, weak states and citizen’s movements: we must change the very operating rules on which corporations survive.
• Capitalism is a word unheard of until the publication of Das Kapital by Karl Marx in 1860 and was never used by the man often cited as the modern founder of capitalism, Adam Smith.
• The liberalisations of the 1980s, driven by Margaret Thatcher in the UK and Ronald Reagan in the USA with the intellectual support of the Chicago School of Economics, allowed banks to create money by creating credit. In the creation of credit the banks countered their avowed monetarist public policies which tried to control money supply.
• It is not capitalism that is normally being discussed, but management and governance issues – and often nowadays corporate social responsibility.
• Corporations have been the main vehicle behind the expansion of global markets and the financialisation of all aspects of our lives. As such, corporations’ thirst for growth and profits have been largely left unchecked and exert an undue influence on the everyday lives of people.