Capitalism—New Lease of Life?

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

Corbyn is a not so thinly-disguised old stylesocialist. He and his supporters believe that the only route to a fair societyis through socialism based on public ownership. The problem is that historicalexperience says otherwise. There have been successful mixed economies, butevery attempt at full-blown socialism has ended in political, economic andsocial disaster.

In every instance they have hit the brickwall of human nature and its hand maiden the survival instinct. Humans aregreedy. That greed has dragged us out of damp caves into centrally-heatedbungalows. Conversely, the same greed has ignited wars, destroyed theenvironment and created social inequalities.

The bastion of world capitalism—the UnitedStates—is a shining example of these inherent contradictions. Its nationalentrepreneurial success has created the wealthiest country in the world. But thatwealth is not equitably shared. Two-thirds of America’s wealth is owned by fivepercent of the population. Forty percent of Americans earn less than $15 anhour; five percent earn the minimum wage or less and 28 million Americans donot have medical insurance.

The bulk of America’s wealth is concentratedin the hands of the major corporations. In fact, the 25 richest companiescontrol half of the country’s cash. The directors of these companies may have amoral responsibility towards responsible capitalism, but they have a clearlegal responsibility to the shareholders in their companies. Those shareholdersinclude hundreds of millions—if not more—who have invested either directlythrough 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 concernedabout putting food on the table in their declining years than the threat ofclimate change. In fact, a recent survey of British investors revealed that 65percent of British investors felt that environmental and social governancefactors should NOT be taken into account when making investments.

The solution is to underscore the mutualbenefit that business shares with the wider community. As Adam Smith wrote in1776: “It is not from the benevolence of the butcher, the brewer and the bakerthat we expect our dinner, but from their regard to their own interest. Weaddress ourselves, not to their humanity, but to their self-love, and nevertalk to them of our own necessities, but of their advantages.” Smith went on tosay that the business community succeeds within the context of the success ofthe wider community.

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

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

Milton Friedman—mentor to Margaret Thatcherand Ronald Reagan—said that “business people are neither elected nor answerableto the public.” In the strictly legal sense that is true, although companiesare subject to legal strictures just like everyone else. The public’s interestsare represented by their governments which, in most western countries, aredirectly elected by the people. Businesses, however, control the money thatprovides the cash that runs these governments. In a capitalist system the twoentities are interdependent.

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

Political journalist Tom Arms is a regular contributor.