Capitalism has lost its way

by Chris Deerin Britain is seven years on from the […]

Image by © Dreamstime

Image by © Dreamstime

by Chris Deerin

Britain is seven years on from the crash, and in a position where the Chancellor feels able to bum about higher living standards and stronger growth as he smirks his way through the Budget. But the fact is that the contract between capital and society that sustained for the latter part of the 20th century and into the early years of the 21st has been destroyed. The public is denying permission for a return to business as usual and instead watches, sullen, untrusting and angry, as the Establishment attempts to move on.

Capitalism remains a fallen creed. The debate about inequality rages wildly, like a bushfire. Fringe parties with cartoonish beliefs and outlandish promises are on the rise.

But the vast majority of people also know that, in the end, the liberties, innovations and prosperity that come from a liberal capitalist economy are essential, and proven. There is no great national appetite for the interventionist solutions of the left. Indeed, the left’s failure to develop a persuasive alternative over the past decade, despite the febrile political and economic climate, tells us something about just how thoroughly certain arguments have been won by the right.

All of this leaves us with what, to me, seems to be the most important question of our age: how do we refashion the contract between capital and society? How, in doing so, do we make it better, more sustainable, more in tune with a century in which people’s expectations and desires are being transformed?

If you think back to the 1990s and early 2000s, the term ‘corporate social responsibility’ was often uttered with a wry smile and a wink. It was something every company talked about, and some even took seriously. But for most, it was little more than a buzzphrase that acted as a useful piece of compassionate window dressing around the usual practice of making as much money as possible.

In 2015, we are going back to the future. Across the corporate world there is deep thought being given to the function and purpose of a company. The idea of maximising short-term profit for shareholders at any cost, of incentivising your employees to achieve this, of a harsh, arid, devil-take-the-hindmost working environment, suddenly seems a rather silly, outdated and inhumane one.

I’ve talked to a lot of business leaders about this in the past few months, and have been taken aback by the energy and commitment many are devoting to what we might define as the new double bottom line: profit andvirtue. Building public trust, deeply rooting yourself in the community around you, looking after and listening to your staff, being a good corporate citizen not to tick a box but because it is in everyone’s interests that you be one. Companies, in this view, are cultural entities as well as economic ones. The way they behave sets a tone, exposes their priorities and motivations, speaks to the nature of our wider society and the kind of people we are and want to be. And I would argue that the response of CapX readers to this should be a simple one: good.

Here are some examples of thought-leaders in this area:

1) SSE In September 2013, the energy giant was accredited as a Living Wage employer, the largest FTSE 100 company with that status at the time. SSE has also implemented a Living Wage requirement in every service and works contract in its supply chain, which is worth a colossal £2.5 billion. The company has similarly been given a ‘Fair Tax’ mark, again a FTSE first, which is based on significant changes to its reporting and accounting to shareholders, including disclosure of all its tax liabilities and country-by-country reporting of revenue and tax paid. Its energy projects are accompanied by largely strings-free community investment grants, and it encourages employee volunteering in local communities.

2) Standard Life In 2011, with the economic slowdown at its peak, Edinburgh City Council found that more than 500 school leavers – more than 17% of the total – were going straight into unemployment, unable to find a job or secure a college or university place. It came up with an idea, the Edinburgh Guarantee, which brought private and public sector together to tackle this blight.

Standard Life, the savings and investment business, discovering it didn’t employ a single person in the UK under the age of 21, signed up. Since then, it has brought 20 school leavers into the business every six months, and has expanded the programme to include London, Glasgow and Dublin. The newbies are given a six-month internship on the living wage, assigned a mentor and put through development modules. At the end of the process most find themselves kept on in full-time jobs – and of those who have left, 100% have gone into a job elsewhere or further education. There is a focus on finding disadvantaged children with potential, and the exercise has been such a success that different parts of the business have started their own apprenticeship programmes. The company says the injection of youth has transformed its culture for the better.

3) Nationwide Building Society Nearly a quarter of staff take advantage of the Swindon-based mutual’s offer of part-time and reduced hours. Sabbaticals and career breaks are also available. Everyone in the company is eligible for a performance-related bonus, the majority are happy with their pay and benefits and more than a third have been at Nationwide for 10 years or more. 74 per cent of staff say the organisation makes a positive difference to the world, the highest in the Sunday Times’s annual ‘Best Companies to Work For’ survey.

4) American Express Amex is a master at enabling work-life balance through flexi-time, working from home and part-time hours. Parents get 20 weeks’ maternity leave on full pay plus 13 unpaid and a paternity policy allowing up to 26 weeks of unpaid leave after an initial paid fortnight off. There are employees’ groups on personal matters, such as the parents’ and carers’ network which offers resources on pregnancy, early childhood, pre-teens, teenagers, fatherhood, childcare and care for the elderly.

There is a basic human need to believe in what you are doing, that your efforts have a worth beyond the paycheck. It is the difference between Adam Smith’s Wealth of Nations and his Theory of Moral Sentiments, the latter of which begins: ‘How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it. Of this kind is pity or compassion, the emotion we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrows of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous or the humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.’

This beautiful sentiment should form the basis of how we reconstruct our liberal capitalist system, of how we build the good society. Profit and virtue: our double bottom line. And companies and business leaders should do it voluntarily, rather than wait for a left-wing government to attempt to regulate them into decency. In the 21st century the world of work will only become faster and less secure. There are no jobs for life for anyone, anywhere, any more. There are all sorts of terrifying predictions about the impact of technology and robots on the employment market. As Will Hutton says in his latest book How Good We Can Be (I know, sorry, but even a stopped clock etc) ‘we are living through an economic inflection point like no other. What lies ahead will be more transformative than anything humanity has lived through so far… digitisation remakes the compass of our understanding and invents new frontiers of possibility, and in so doing promises to refashion the economics of almost everything.’

In short, we’re going to have to look after each other. So here are my basic rules for good businesses. Pay the taxes that are reasonably due rather than nickel and diming your way to public infamy. Knit yourself into the communities where you’re based – pay for a community centre, sponsor a school, follow the lead of Standard Life and take a chance on poor kids with potential. Be transparent to the maximum degree possible: it is anyway difficult to keep secrets in a highly interconnected world and it looks sinister if you’re seen to try. Do not involve yourself in cartels and monopolies but pursue genuine competition and innovation.

Treat workers fairly; if you can, pay the living wage. Keep an eye on the executive-to-employee pay ratio and ensure the rewards for those at the top are tied to sensible, sustainable incentives and can be justified under critical scrutiny. Put your customer first, whether you’re an energy company or a bank or whatever: don’t leave them with the feeling they’re being conned.

Capitalists can rebuild capitalism, to everyone’s benefit. But first, they have to want to.

Source: CapX


The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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