The Future of Capitalism

by Paul Collier

  Between the British elections of 2010 and 2017, the Labour Party changed its process of selecting a leader. In 2010, its archetypal Utilitarian social-democrat leader, Gordon Brown, had come to the leadership as the unopposed choice of Labour Members of Parliament. By 2017 the party was led by a Marxist populist, Jeremy Corbyn, who had minimal support from Labour MPs but had been elected by passionate young idealists who had been given the right to easy membership of the party.* This measure had almost completely changed the Labour Party’s composition. On the right, David Cameron, the centrist leader in 2010, had been replaced in 2016 by the unknown quantity of Teresa May, a desperate measure by Conservative MPs designed to avoid following the new constitution of the party, which required that the leader be elected by party members. This appeared likely to elect a maverick ideologue, as it had done when first used in 2001. Currently, Britain’s two main political parties have leadership selection systems that, if used, almost guarantee that the menu of political choices will consist of polarizing ideologues – vegan or veal, sir? In the 2017 election, Jeremy Corbyn pitched an ideological populism of the left, whereas Teresa May failed to articulate a coherent strategy, leaving voters bereft of choice and resulting in a hung parliament.

  Even in Germany, Chancellor Merkel’s brief flirtation with a curious blend of Rawlsian legalism and populism that opened Germany’s borders for a few months, was sufficient to drive one-in-eight voters to a new Nativist party in the 2017 election. The vote share of her Christian Democrat party of the centre-right collapsed to its lowest level since its foundation in 1949. Yet the collapse of the centre-right did not help the centre-left. The vote share of the Social Democrats collapsed even more sharply, also to its post-1949 low. The centre is shrinking, leaving the field to populist ideologues.

  RESTORING THE CENTRE: SOME POLITICAL MECHANICS

  We need a process by which the mainstream parties are driven back to the centre. Here are two possible rule changes to leadership selection, both far more democratic that the present systems.

  The most straightforward is to confine the selection of a party leader to the elected representatives of that party. Elected representatives have two features that make them better suited to selecting a leader than leaving it to members of the party. For a start, they have an interest in appealing to a wide group of voters; this pushes them towards centrist candidates. Secondly, as insiders, they are less likely to be deceived by celebrity tricks of the trade: they are informed voters. For example, in Britain, the Conservative leader in 2001 would have been Ken Clarke, a centrist with huge ministerial experience; the Labour leader in 2015 would have been a centrist; and had elected Republicans chosen their party’s presidential candidate, Donald Trump would not be in the White House.

  Elected representatives have more democratic legitimacy than party members; in aggregate, they represent far more supporters of the party than the number on official membership registers. But if the winning criterion continues to be the system that offers the largest number of active selectors then an inferior alternative might be to open the leadership vote, at least for major parties, to all voters, although the record here is unpromising. Since ordinary voters know little of candidates, there is a bias towards charismatic populists.

  Failing the reform of party leader selection, the safest alternative is probably a voting system based on a degree of proportional representation. There are drawbacks, but coalitions constrain parties from implementing their ideologies, and encourage evidence-based pragmatism. Norway, the Netherlands and Switzerland, which have long been governed by coalitions generated by proportional representation, have all avoided the worst excesses of modern capitalism. The period of British coalition government, 2010–15, and the American political gridlock of 2011–17, in retrospect both look somewhat superior to the governments that preceded and followed them.

  RESTORING THE CENTRE: INFORMED SOCIETIES

  Tinkering with our political systems may help to make them more amenable to strategies that are ethically grounded and pragmatically designed. But politics can be no better than the societies it reflects. A politics that is ethical and pragmatic can only be generated once a society has a critical mass of citizens who demand it. That is why this book has been written primarily for citizens, not politicians. A critical mass does not mean everyone; it means enough to give politicians the courage to act. Fortunately, social media can be used to spread good ideas as well as bad ones. As an aide-memoire, I have summarized below the proposed policies that can directly address the new divergences, and the more fundamental strategies for restoring ethics in organizations.

  Pragmatic new policies

  In a short book with a wide remit, new policies cannot be developed in detail. All the proposals in this book are grounded in academic analysis, but require considerable further work before they are ready to be implemented. Nevertheless, the impediments are liable to be political, not technical.

  Reversing the new divergence between the metropolis and broken cities will cost money, which can be raised by taxing the huge increase in the rents of agglomeration generated in the metropolis. Chapter 7 set out why much of the productivity bonanza of the metropolis is a form of rent rather than being genuinely earned by the people who capture it. But it also highlighted the difficulty in taxing the rents: many of them accrue not to landowners, as has been thought to date, but to the high-earning skilled. Precisely the same rationale that justifies taxing land in the metropolis more highly than land elsewhere applies to these skilled workers. I anticipate the impassioned outrage of threatened self-interest: push back. How is this money then best spent in reviving broken cities? The key is a co-ordinated push to attract a rising industry, perhaps one suited to the particular city’s traditions. Co-ordination depends upon relationships: to build common knowledge, firms that might potentially locate in the city need to know what other firms are doing. The city will probably need to court an entire group of interconnected firms. Training is worthless unless it is tied to the specific requirements of such firms and preferably co-managed by them.

  Reversing the new class divergence between the highly skilled educated and the deskilled less educated also requires policies that tackle both sides. Being stuck in a low-productivity job is often the end-point of a lifetime of disadvantage that starts in infancy. I have proposed a strategy of social maternalism: intensive practical assistance and mentoring for young families at risk of breaking up, followed by mentoring for children during their school years. Mentoring is to social maternalism what monitoring is to social paternalism. But reversing the divergence is not only about enabling the less educated to succeed. Some behaviours of the highly skilled need to be curbed because they are predatory: the ability to win a ‘tournament’ can bring huge private gains at the expense of those who lose. Too many of our most talented people devote their abilities to such zero-sum games, while activities such as innovation, with large benefits for the entire society, are drained of talent. The sectors most prone to zero-sum games should be taxed more heavily than those in which little of the benefit accrues to those working in them.

  Narrowing the global divide between the rich societies of the world and those still stuck in poverty demands more than a big heart. The private responses of people living in societies that are poor and stagnant are to get their money out if they are rich, and emigrate if they are educated. These responses are rational, but in aggregate they are often damaging to their own societies. Africa loses $200 billion of capital flight each year; Haiti loses 85 per cent of its young educated workers. Framing these behaviours as a ‘human right’ belittles the obligations that they breach. Most people are not saints: while they recognize their obligations, if they are presented with enticing temptations, they take them. When this happens, the moral responsibility is on those who tempt. For decades, much of the capital flight out of Africa was facilitated by lawyers in London and banks in Switzerland. Similarly, the human capital exodus from Africa is an understandable respons
e to public policies that create opportunities. To illustrate with an extreme example: Norway has accumulated a sovereign wealth fund worth $200,000 per person. If a family of five leaves its poor homeland and settles there, it gains an entitlement to a pro rata share of assets worth $1 million, over and above any income that the family members earn. The government of their homeland lacks any means of countering such an incentive to leave. However, two groups of people have a much better claim to that $1 million: the Norwegians who saved the money, and the thousands of poor people among whom it could be shared. Poor societies need to catch up with rich ones. To do so, they need from our rich societies what we have and they lack: firms that make people productive. We could do far more to encourage our firms to perform this mundane-seeming magic in the poorest countries.

  Ethically renewed organizations

  This book began with ethics and that is where it will end. I have tried to sketch the foundations for a moral politics that can replace the weird and divisive tenets of Utilitarian ethics with one that is both better grounded in human nature and leads to better outcomes.

  In contrast to the Utilitarian vision of autonomous individuals, each generating utility from their own consumption, and counting equally in the great moral arithmetic of total utility, the atoms of a real society are relationships. In contrast to the psychopathic selfishness of economic man restrained by the Platonic guardians of social paternalism, normal people recognize that relationships bring obligations, and that meeting them is central to our sense of purpose in life. The toxic combination of Platonic Guardians and economic man that has dominated public policy has inexorably stripped people of moral responsibility, shifting obligations to the paternalist state. In a bizarre parody of medieval religion, ordinary people are cast as sinners who need to be ruled by exceptional people – the moral meritocracy. With the rise of the Utilitarian vanguard, the saints came marching in. As obligations have floated up to the state, rights and entitlements to consumption have showered down: we are all children now.

  But in the process, the state has acquired responsibilities that exceed its capacities, ones that can only be properly met by firms and families. Parents, whose sense of obligation to their children derives from love, outclass all the substitutes provided by the paternalist state; firms whose sense of obligation to their employees derives from prolonged reciprocity outclass all training provided by the paternalist state. The state has a role, but it is in devising the meta-policies that restore these obligations to where they belong. It was a cultural shift that weakened a sense of obligations within families. The ethical family was supplanted by the entitled individual engaged in the single-minded pursuit of desires. But the state connived at this shift, changing laws, taxes and benefits from privileging families to privileging individuals. The state can change its narratives, laws, taxes and benefits to restore the ethical family. It was a cultural shift that weakened a sense of obligations to employees and society in firms; business schools taught a generation of managers the corporate equivalent of economic man, that the sole purpose of the firm was to make profits for its owners. But again, this cultural shift was compounded by changed material incentives driven by the rise of investment fund managers chasing quarterly profits. The state can use narratives, laws, taxes and subsidies to restore the ethical firm.

  The inherent arrogance of Utilitarian paternalism achieved its apotheosis when applied at the global level. Duties of rescue that should have been met unconditionally became instruments for ethical imperialism. International clubs that had gradually built reciprocal obligations within a specific domain of policy were overexpanded into ‘inclusive’ organizations with vastly enlarged domains, in which reciprocity gradually disintegrated. We have never had an ethical world, but in the period from 1945 to 1970 we made more progress towards this goal than during any other period of history, progress that has been unravelling. In restoring forward momentum we need to return to the realistic approach of prudent pragmatism. Providing effective redress for those in need of rescue is affordable and feasible; the looming global anxieties are best met not by Utilitarian moralizing, but through clubs that build new reciprocal obligations among the affluent societies to meet the duties of rescue.

  The web of reciprocal obligations enabled by shared belonging delivers states that are more trusted, and so more effective. With the myriad tasks of meeting obligations distributed widely across society, not only are they better met, but people are more engaged and fulfilled. In consequence, we end up with happier societies than have been achieved by the Utilitarian paternalists. Even on their own criterion, the paternalists are skewered. The ‘maximization of utilities’ is an example of what John Kay describes as obliquity: you don’t achieve it by aiming directly for it. Willing reciprocity is superior.

  THE POLITICS OF BELONGING

  Politics is predominantly national. For politics to perform its potential for building a dense web of reciprocal obligations, the people of a nation need to accept some sense of shared identity. For identity to bind together, rather than dividing, to be British, or American or German cannot mean belonging to a particular ethnic group. Nor, despite the wishful thinking, can it mean to adhere to some distinctive common values. What common values do Donald Trump and Bernie Sanders share that distinguish them both from Nigel Farage and Jeremy Corbyn? An identity shared by all those who grow up in a culturally diverse country can only be defined on place and purpose. It can tap into the hardwired attachments to home and territory; it can highlight the mutual gains from common, purposive actions. It is the basis for a shared ‘we’. But an ethical politics can reinforce the instinctive drive for common belonging, and the rationality of shared purpose, through other influences.

  It is strengthened by undertaking some collective endeavour towards a common objective, however trivial: even the victory of the national football team has been shown to do this.3 It is strengthened by the interwoven social interactions that naturally happen within the shared space. Groups that are entirely disconnected from each other may not feel much of a shared identity, so a degree of social integration is desirable, setting a limit to cultural separatism, whether resulting from education, ideology or religion. We need to meet each other. But above all it is strengthened by supportive political narratives of belonging. Communicating such narratives is a core role of our political leaders: by forsaking narratives of belonging based on place and purpose, they have created an opening for the divisive narratives of belonging that claim national identity for some to the exclusion of others.

  Leaders can promote new narratives, but the decline of trust in political leaders has inverted authority; people pay more attention to those at the hub of their social networks than to the talking heads on the television. The networks, however, have become self-contained echo-chambers and so we even lack the common space in which to communicate. This is enormously damaging because participation in a common network constitutes the common knowledge that we all hear the same narratives. Without it, even narratives of shared identity struggle to create the conditions for people to be confident that the obligations they accept will be reciprocated by others. Far from circulating narratives of shared belonging to place, echo-chambers more typically vilify ‘the other’. Salman Abedi, who in 2017 mass-murdered children at a Manchester concert, grew up in the city, but was raised within a hermetic network of Islamic hatred of ‘kaffirs’ and so lacked even rudimentary empathy with those around him. Echo-chambers are destructive of the social fabric, but I see no realistic way of restoring a common arena for discourse. In its absence, the newly influential in each of these echo-chambers – the comedians, the actors, the imams, the exhibitionist extroverts – have acquired a responsibility that they must now exercise. They are the decentralized leaders of society, better placed than anyone else to build the shared identity of place across these fragmented networks. The narratives that they spread should become a focus of public attention. They should face pressure to desist from peddling the divisi
ve narratives of ideology that have become their metier.

  Like other shared identities, a shared sense of belonging to place, or of common purposive action, is valuable because of the obligations that it can support. Politics is predominantly national because public policy is predominantly national. Some policies are set at local level, some are set regionally, and a few globally, but in all advanced economies, nations are overwhelmingly important. In the United States, despite the obsession with states’ rights, around 60 per cent of public spending is done through the nation, not the states; in the European Union, despite the obsession with the power of Brussels, 97 per cent is done through the nation, not the Commission. Nations and their citizens are the essential frame for public policy and will remain so for the foreseeable future. The foremost political function of shared identity is to make nations work as vehicles for a growing web of reciprocal obligations. It is the erosion of that web that has permitted the anxieties thrown up by the recent direction of capitalism to fester into deep wounds in our societies.