Capitalism is in crisis, or so the enthusiastic chaps of the Occupy movement would have us believe. I find doing so somewhat difficult, as I work in central London, and am positively surrounded by capitalists with flashy cars, sharp suits and a taste for champagne. If this is a crisis, it’s difficult to see how it differs from Capitalism Triumphant.
However, the truth is that the classic right-wing Atlas Shrugged mode of capitalism is in crisis. The Government has cut corporation tax, is cutting back regulation and has just lowered the 50p income tax rate. This is the bit in the libertarian narrative when heroic John Galt-esque entrepreneurs leap forward to save the economic day, generating growth by sheer force of will.
This isn’t happening. Private sector investment is still at post-war lows, and corporations have shifted their money into low-risk low-yield products like Government bonds (whisper it, but this is part of the reason our gilt yields are low, not just market confidence in our austerity measures). Our capitalists are worried about future demand, and are playing it safe.
This point is made forcefully in a new report by the Grantham Research Institute. If everyone is worried about the future, their worries will come to pass, in a classic paradox of thrift. We need some way of generating more demand, but interest rates are already low and the Government has run out of money.
However, the Institute points out that the Government can get round these obstacles by effectively mandating demand for something that the market has confidence will remain a long-term policy objective. The low-carbon sector is the paradigm example of this; tackling climate change will be a constant of at least the next fifty years, and the various means of doing so – for example, low-carbon energy, more efficient appliances and electric cars – will be increasingly required. Bringing demand for these products forward through appropriate policy instruments will help provide our concerned capitalists with the confidence in future demand they require to start investing in other areas of the economy too.
It’s true that low-carbon technologies have cost implications for the rest of the economy, including marginally more expensive energy in the short-term until the cost of renewables comes down. Economics is about trade-offs, after all. But low-carbon investment doesn’t displace other investment, because that other investment isn’t happening – it’s additional spending, not instead of something else. Government-mandated private investment could yet be the key to unlocking the demand we need to avoid a decade of Japan-style stagnation.
Despite this, earlier this week we saw Conservative MPs work to block provisions in the Government’s Green Deal that could have helped unlock additional demand, presumably in the belief that the Government should be as afraid as everyone else of investing in these uncertain times. There is a real risk in handing the Government the authority to mandate that we invest in and buy certain types of product, as this may be a power that’s too tempting to abuse. However, when our capitalists are frit, and their fear of the riskiness of investment is likely to make the rest of us poorer, what else can we do?
* Adam Bell is a member of the Islington local party and works in the wind industry