More capitalism, not less, will tame the corporate titans
Published in The Independent (February 20th, 2013)
The headlines were dominated yesterday by an alleged murder in South Africa, a huge diamond heist in Belgium and the Prime Minister engaging in a strange spat with a prize-winning author. But look a little closer, and beyond these stories there were concerns with rather wider ramifications – the continued rumblings over the behaviour of corporate behemoths.
A bank was fined for delaying compensation to ripped-off customers. Households were warned that energy bills would continue to soar. The scandal over the sale of horse meat in our supermarkets wasn’t going away. Rail companies were ranked over poor service. MPs blasted tax avoidance from the likes of Starbucks, Amazon and Google that is costing the country £5bn each year.
As the downturn drags on, the cost of living rises, and taxes go up, it is little wonder many people are exasperated. Low and middle-income families are warned that it will take another decade for living standards to return to pre-recession levels, yet wealthy financiers in the City continue to grab vast bonuses despite being responsible for not just the economic shocks that shook the world, but a succession of subsequent scandals.
The Labour leader, Ed Miliband, has captured this frustration with his speeches on the “squeezed middle”, which skilfully snare the current mood of voters. After all, eight out of 10 Britons believe they are in the middle 40 per cent of earners. Last week, Miliband used a slew of statistics to underline how the rich are getting much richer to justify his theft of the mansion tax idea from the Liberal Democrats.
His analysis is right, even if his solutions are wrong. The manner in which a self-serving, globalised elite has siphoned off society’s wealth is indefensible. Just read Plutocrats, a smart analysis on the rise of these titans by former Financial Times deputy editor Chrystia Freeland. In 1980, the average US chief executive made 42 times as much as the average worker; by last year, this ratio had rocketed to 380. We have seen the same phenomenon here, albeit less extreme.
The middle-classes, meanwhile, have been hit hard by immense global, social and technological change. It is the work of clerks and secretaries that is disappearing, while industries such as retailing and media are shaken up and salaries stagnate. New jobs are created, but studies show that a worker laid off in recession still has earnings significantly lower two decades later than a colleague who kept their job. The Resolution Foundation found that it now takes 22 years for a middle-income family to save the average deposit on a first home.
The truth is that the world is getting more prosperous but the Western share of the wealth is declining. We must get used to this new order. It was demonstrated vividly by David Cameron’s trip to India – the former colonial power begging for trade and urging students to study at our universities.
It is remarkable that there is not more anger on our streets. Then again, there are worrying signs that politicians seeking to assuage the bubbling concerns are making the wrong moves. We can see this on issues such as immigration, where a clampdown backfired at the expense of our universities. Above all, we see it with talk – and not just on the left – of capitalism being in crisis and the need for fierce new regulation.
This is wrong. It is capitalism, after all, that is spreading prosperity and well-being around the world – and with such stunning effect across Asia, Latin America and Africa. I am always struck by anti-capitalist rants I see hammered out on the latest tablet. The problem is crony capitalism. It is this form of it – sneered at in developing nations – which has taken a grip in the West as the power of corporate giants has grown. As Freeland says, super-elites are often the product of a strong market economy, but as their influence grows, they can stifle it.
Capitalism remains a uniquely vigorous force. Just look at the pace of change in the unfettered technology industry. But ask why those banks that wrecked the economy – and, in the case of the retail ones, are often loathed by their customers – have not been replaced by more dynamic entrants instead of being salvaged by the state. Or, as the Tory MP Dominic Raab queried this week, ask why the “big six” energy suppliers control 98 per cent of the market and yet none rises above ninth place for customer service?
What we need to do is unleash capitalism in this country rather than restrain it. Politicians should focus not on headline-grabbing stunts like the mansion tax but on ensuring that the big players in complacent industries such as banking, energy, retailing and, yes, outsourcing, are less entrenched, less protected by their friends in Whitehall. Transparency, technology and consumer anger can drive change.
To do this, we do not need more regulation, we need better regulation – a huge challenge, not least given the growing gap in earnings between regulators and the business leaders they police. Above all, we need politicians who have learned the key lesson of recent years: that there is a huge difference between being pro-business and pro-market.