Observations of an Expat – Capitalism—New Lease of Life?

The resounding defeat of Jeremy Corbyn’s Labour Party has revived the cries for “Responsible Capitalism.”

Corbyn is a not so thinly-disguised old style socialist. He and his supporters believe that the only route to a fair society is through socialism based on public ownership. The problem is that historical experience says otherwise. There have been successful mixed economies, but every attempt at full-blown socialism has ended in political, economic and social disaster.

In every instance they have hit the brick wall of human nature and its hand maiden the survival instinct. Humans are greedy. That greed has dragged us out of damp caves into centrally-heated bungalows. Conversely, the same greed has ignited wars, destroyed the environment and created social inequalities.

The bastion of world capitalism—the United States—is a shining example of these inherent contradictions. Its national entrepreneurial success has created the wealthiest country in the world. But that wealth is not equitably shared. Two-thirds of America’s wealth is owned by five percent of the population. Forty percent of Americans earn less than $15 an hour; five percent earn the minimum wage or less and 28 million Americans do not have medical insurance.

The bulk of America’s wealth is concentrated in the hands of the major corporations. In fact, the 25 richest companies control half of the country’s cash. The directors of these companies may have a moral responsibility towards responsible capitalism, but they have a clear legal responsibility to the shareholders in their companies. Those shareholders include hundreds of millions—if not more—who have invested either directly through the purchase of shares and bonds or indirectly through their pensions. Human nature being what it is, most of them are more likely to be concerned about putting food on the table in their declining years than the threat of climate change. In fact, a recent survey of British investors revealed that 65 percent of British investors felt that environmental and social governance factors should NOT be taken into account when making investments.

The solution is to underscore the mutual benefit that business shares with the wider community. As Adam Smith wrote in 1776: “It is not from the benevolence of the butcher, the brewer and the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.” Smith went on to say that the business community succeeds within the context of the success of the wider community.

President Kennedy had another—more succinct—way of describing this mutually beneficial relationship: “A rising tide floats all ships.” The problem with that axiom is that tides go out as well as in. When it goes out it can leave those unable to secure a safe anchorage floundering on the mud banks as occurred in 2008 and the austerity years that followed; which is why unbridled capitalism fails.

The advocates of responsible capitalism argue that the time has come for businesses to take more responsibility for the social and environmental consequences of their actions. One of those leading the charge is Larry Fink, the billionaire CEO of Black Rock, the world’s largest hedge fund, who is campaigning for investments that have a social purpose as well as delivering financial results. The problem is who decides what is a socially acceptable investment? Mr Fink’s company, for instance, is the largest investor in America’s weapons industry.

Milton Friedman—mentor to Margaret Thatcher and Ronald Reagan—said that “business people are neither elected nor answerable to the public.” In the strictly legal sense that is true, although companies are subject to legal strictures just like everyone else. The public’s interests are represented by their governments which, in most western countries, are directly elected by the people. Businesses, however, control the money that provides the cash that runs these governments. In a capitalist system the two entities are interdependent.

The refusal of many businesses to ignore this interdependence to focus on short-term gains at the expense of the wider community has given capitalism a bad name and created the atmosphere which allowed the far left to gain control of Britain’s Labour Party with claims that capitalism was dead. Corbyn’s failure has revived the religion of market forces, but it can truly survive if business and government work in tandem to devise systems that are more socially responsible.

* Journalist Tom Arms is a member of Wandsworth Liberal Democrats. He is a regular contributor to Lib Dem Voice as well as broadcasting for US radio.

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9 Comments

  • Peter Martin 17th Jan '20 - 11:56am

    “…..the 25 richest companies {of the USA} control half of the country’s cash.”

    In a slightly different sense the US Federal Govt controls ALL of the country’s cash. They’ve created it in the first place. So, even in America, it is obvious to everyone that Govt is a key player in the National economy. The debate shouldn’t therefore be about Govt, or the public sector generally, versus capitalism. The system has to be a mix of the two. Or if you want to call the system ‘capitalism’ you have to accept that capitalism then has to include Govt to make everything work.

    We can argue about just how involved the Govt has to be in the day to day running of the economy. We can say that the roads or railways or the health service should or shouldn’t be under private ownership, but that doesn’t change the fundamentals of the system.

    “There have been successful mixed economies”

    Yes. That’s what the Labour Party, even the left wing, has always argued for. But is there really much of the mixed economy left after all the privatisations? Time to get back to a genuine mixed economy maybe?

  • Richard Easter 17th Jan '20 - 12:09pm

    Any rational person would suggest that some things are best off in the private sector subject to free markets, some things are best off run by the state, and some things are best run outside of either of those two sectors.

    Unfortunately for many years the mantra has been that the private sector is best to run everything, and even those places which are not in it are best off run along corporate lines and in fact governments have increasingly run society so it is best for the biggest multinationals.

    It is not Marxist or Leninist to run your own railways, postal service, water or National Grid in state hands. It is simple common sense.

    Equally it is not neoliberal or corporatist to think that resturaunts, IT firms, solicitors and newsagents run best in the private sector. Not all businesses are evil disaster capitalists. Again simple common sense.

    I’d love it if this party said “The Labour left is right about rail renationalisation and Tories like Robert Halfon are correct about the need to stand up for small business and entrepeurship.” Oh and “we are dropping all this identity politics too”.

  • David Evershed 17th Jan '20 - 1:19pm

    “Neoliberalism” is contemporarily used to refer to market-oriented reform policies such as “eliminating price controls, deregulating capital markets, lowering trade barriers” and reducing state influence in the economy, especially through privatization and austerity.

    The Liberal Democrats should revert to the neoliberalism of Gladstone – discuss.

  • Whilst govn’s are in control of how much money can be printed, that money has to reflect the amount of wealth created by individuals and companies, otherwise you end up with hyperinflation and a ruined currency.

    The major job of the government should be to intervene when capitalism goes into cartel mode, as per our energy companies, and to have a minimum level of support for people (free health and education plus welfare that avoids millions ending up in rags, emaciated from lack of food and sleeping on the streets (as per third world countries but does not inhibit the need to work to have a nice lifestyle).

    A particularly annoying area for me is when a large company takes over a small company and then either stops making its main products or cheapens the ingredients to a point where it ceases to work (and then spends all the money saved on advertising). Not sure where that lays in the scheme of things.

    The need to survive in a post Brexit world should mean less State and less tax, the latter the best way to get a mini boom through any bad times with individuals having more spending money.

  • IMO capitalism vs. Socialism is a false dichotomy. I yearn for the Libdems to fully embrace Georgism. But as long as that’s too radical then employee ownership (the “John lewis model”) should be the LibDems preferred business model for organisations in both public and private sectors.

  • Joseph Bourke 18th Jan '20 - 1:52am

    Capitalism vs. Socialism is a false dichotomy. The late Gertrude Himmelfrab. a historian of Victorian Britain spoke of “paradox of liberalism” – the idea that a preoccupation with individualism undermines the social and social foundations which make that preoccupation possible.
    Free market capitalism relies on a subjective theory of value that holds that the value of anything is solely determined by the price it will fetch in an exchange transaction. Socialism grounded in Marxist theory relies on the Labour theory of value, holding that the value of goods or services are solely determined by the amount of labour required to produce and bring products and services to market.
    Neither of these theories of value can be satisfactory applied to natural resources
    Georgism seeks to resolve the paradox described by Himmelfrab as this article explains http://www.politicaleconomy.org/value.htm. Georgism concerns itself with the distribution of economic rent caused by natural monopolies, pollution and the control of commons, including title of ownership for natural resources and other contrived privileges (e.g. intellectual property). Any natural resource which is inherently limited in supply can generate economic rent, but the classical and most significant example of land monopoly involves the extraction of common ground rent from valuable urban locations. Georgists argue that taxing economic rent is efficient, fair and equitable. The main Georgist policy recommendation is a tax assessed on land value. Georgists argue that revenues from a land value tax (LVT) can be used to reduce existing regressive taxes. Some Georgists also advocate for replacement of personal tax allowances and universal benefits with a non-means tested basic income or citizen’s dividend based on LVT.

  • I do not believe that Karl Marx had strong views on how IT firms should be organised, or what how the internet should be run. It is clear in any case that Marxism – and Communism are simply words to be thrown around in arguments. I suppose it is more productive to say that Venezuela is a Marxist country, rather than than Venezuela is a country experiencing the results of US sanctions. Neither of course is useful if you want to analyse a real situation.
    What happened to Venezuela by the way? Has it closed down?

  • Peter Martin 18th Jan '20 - 3:01pm

    @ Joseph Bourke,

    “Socialism grounded in Marxist theory relies on the Labour theory of value holding that the value of goods or services are solely determined by the amount of labour required to produce and bring products and services to market.”

    No it doesn’t. If fact Marx never used the term “Labour theory of value”. This is a complete misunderstanding of what Marx was saying.

    This is what he actually said:

    “Labour is not the source of all wealth. Nature is just as much a source of use values (and it is surely of such that material wealth consists!) as labor, which is itself only the manifestation of a force of nature, human labor power.”

    Having said that, we can notice that an item which is more difficult and takes longer to manufacture, requiring more labour power, is more likely to be more expensive but there’s a bit more to it than that! We can include the land as a part of nature, so your concerns about its economic importance aren’t implicitly anti Marxist. Nevertheless Marx recognised that the problems of economic inequality couldn’t be resolved by a single Land Value Tax.

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