23 Aug

Making capitalism fit for society

Posted By Politybooks

Colin-Crouch-300x172Very few people, apart from some of the swivel-eyed in right-wing think tanks, really believe in the general superiority of the unimpeded free market as the best way to organize human affairs.

Most, whether experts or persons in the street, would probably agree with the statement that, while the market is a very useful device, it can have negative and damaging consequences, and we need various forms of protection from these.

In practice all democratic governments have to pursue some balance of that kind. Nevertheless, in today’s world it is parties (Conservatives, most Liberals, some Christian Democrats) that take as their standard pushing for ever more market, ever less protection from it, who seem confident that they represent the spirit of the times.

It is those that stand explicitly for pursuing the balance (Labour Parties, Social Democrats, Greens) who are depressed, telling themselves and being told by everyone else that they are out of touch.

They even have notably less energy than the new force in today’s politics, the xenophobic populists, who pretend that the whole problem of fitting markets to society does not exist, and that all woes are caused by foreigners, especially immigrants.

This absurd situation needs to be set right. Admittedly, the problems we nearly all have with unrestrained markets are diverse and not necessarily mutually compatible. Sometimes some of us need protection from the threat that we might lose our jobs for no good reason; or, if job loss is inevitable, we want the security of generous unemployment pay while we (with help) search for another.

At other times others of us will want our local environment protected from damage by a large development project; at all times all of us need our global environment protected from various man-made threats. At other times again some of us want to know that the medical staff, carers, teachers with whom we come into contact are motivated by a professional commitment rather than a need to make as much money out of us as possible.

And we should like to have some reason to believe that something out there is ensuring that the banks we use are not governed by those seeking profits through dishonest practices. Readers can think of their own examples to extend the list. Behind it stands the dominant fact that globalization is extending the scope of markets ever further, without any similar pressures to extend protection from the disruption they cause.

Not only are the concerns we all have with completely free markets not necessarily generally shared; we cannot always expect that our objections to some instance of the market’s disruptive force will be seen as reasonable. The market might be serving larger goals than our own immediate issues.

To take a very odd example, the Conservative–Liberal coalition in the UK is currently repealing a mass of regulations that have enabled local people to object to building developments; at the same time they are moving in exactly the opposite direction, strengthening local objection rights, on one issue alone: the construction of wind farms.

This is a clear example of protecting people from market forces, but it is odd for two reasons. First, it protects some aspects of local environments at the expense of far larger environmental problems caused by conventional energy sources. Second, in limiting competition in the energy market by restricting the growth of wind sources, the main interests it is protecting from the market are the large petroleum and other energy corporations.

The example reveals the complexity of the relations we all have to the market and its consequences. None of us can seriously take up a stance of always favouring it or always opposing it. But there must be a strong prima facie advantage for political movements that place confronting the challenge of finding the balance at the heart of their philosophy and public appeal, rather than those that just talk of the need for more market until forced to make ad hoc compromises – as in the wind farm example.

It could once have been objected that labour movements and social democrats were primarily hostile to the market and therefore no better placed to take up this balanced stance than dogmatic free marketeers. The great achievement of the New Labour, Neue Mitte and similar movements within social democratic parties during the 1990s was to move those parties away from such a stance, into positions of full appreciation of what markets can achieve, provided they were set in the moderating context of the welfare state and various forms of regulation.

Their error was to move so far in that direction that they tended to treat social policy and regulation as respectful nods to the museum pieces of their movement’s histories, rather than as vital and highly relevant sources of new political energy as we face the ever intensifying disruption of globalized capitalism and markets, with their complex mix of gains and threats to daily life.

Disparate though the problems we all have with markets may be, there is a unifying theme in the general proposition: ‘more market, yes please; creative policies to humanize and mediate its effects, yes please also’. This formula provides the base for linking together people worried about employment security, those anxious for the environment, those concerned with the protection of professional standards from various service providers. We might not all share all these concerns, but we can all appreciate that there is an underlying theme to which we are all at times joined.

Negative externalities

The technical economics term that unites these themes is that of negative externalities: those consequences of economic action that harm certain interests, but which do not feature in the cost calculations of the market transactions involved. The most obvious examples come from pollution: a factory’s effluent might pollute a river, but the costs of the pollution do not enter the factory’s operational costs, and in an unregulated market it will therefore ignore them.

The phrase ‘negative externalities’ is hardly the stuff of public political debate, but finding a better group of words is a task for the spin doctors. The idea itself is powerful and unifying, and brings us to a further major need for the political left: rediscovering the potency of the ideas of citizenship and shared needs.

Economic theory is most at ease with the idea of externalities when they affect an identifiable group of individuals who can be asked how much it is worth to them to pay to rid themselves of a specified negative externality. Are they willing to pay enough to make it worth while for the factory not to pollute, or for medical practitioners or teachers not to be concerned with making a profit out of their clients at the expense of their real needs? How much will people pay to ensure themselves against job loss?

If people are not prepared to pay enough, then the externality is not sufficiently damaging for the market activity concerned to be modified.

There are obvious objections to this stance on grounds of the distribution of income and wealth, but there are further issues: what if the externality affects a large, indefinite, not precisely knowable range of persons, and if the risks of damage caused by it are large and very difficult to calculate, such that it is not feasible to estimate how much those negatively affected would have to pay to offset it?

The characteristic externality risks in a globalized economy where resources are wielded on a vast scale typically have this characteristic. It might be feasible to ask if an angling association is willing to pay a factory to stop polluting the river where its members fish; it is not possible to ask the world’s population how much we are willing to pay to prevent economic activity from exacerbating climate change.

On a smaller but still general scale, it is not possible for millions of individuals to know how much they need to pay to protect themselves from labour market uncertainty and to equip themselves for new jobs in an economy, the contours of which are as yet unknown. Only shared action at the level of public policy can help us. Political programmes that place all stress on advancing markets, with only ad hoc adjustments from time to time, are not capable of grasping this kind of challenge.

Individuals and the collective

Seeing matters this way addresses a further problem that is currently agonizing social democrats: they seem stuck with a primary orientation to ‘collective’ things, while people are becoming more ‘individualistic’.

This issue presents itself in particular as one where these individuals are ‘aspirational’ in contrast with a rump of layabouts. The aspirational are the ‘strivers’, rather than the ‘shirkers’ whom collective social policy seems to conspire to help at their expense. Encouraging strivers is therefore what pro-market policies do, says the mantra; protecting skivers is what the welfare state does.

But this entire political stance is nonsense. The last thing any governing elite wants is a fully striving, aspirational population. One of the lessons of the financial crisis, the LIBOR scandal, the payment protection scandal, and other banking scandals, is that the most perfect examples of aspirational striving that our society knows, operators in the financial sector, include criminality and dishonesty as fundamental instruments in the entirely rational pursuit of their goals.

Also, in political rhetoric the aspirational are always seen as nested in families. Why this defection from pure individual striving? Should not the truly aspirational also be seeking to improve on their personal relationships, refusing to be tied down to any particular domestic collectivity?

They are also usually depicted as being patriotically tied to their nation. Why should this be so, when we know that the most successful entrepreneurs don’t even pay tax in their own country, unless it happens to have the lowest tax regime?

A true society of striving individuals would be an ungovernable mess of systematic tax dodgers, inveterate financial criminals and chronic adulterers. Governments do not want us all to be like that, just a few members of an elite.

They need the rest of us to be moderate, restraining our striving by respect for law and various moral codes. They want us to display market behaviour, but with its potential for damage checked and regulated – just as in the general stance towards markets that I am advocating here.

If this is the case, it is hypocritical to address voters as though they needed little more from public life than to be liberated to pursue their personal strivings and choices, as though mass political discourse need address people no differently from the way in which advertisements for products address consumers.

Perhaps political parties have spent so long learning the techniques of commercial advertising that they know no other language. But the collective, and ways of talking about it, are essential, as humans cannot survive outside of collectivities, and it is the job of the political world to work out how we should do this.

Showing how individual needs and circumstances fit into this bigger picture is essential, but it cannot replace the bigger picture itself. To try to do so amounts to a de facto disenfranchisement of the majority of the population, whose attention is turned away from the general issues affecting their society towards their private concerns alone.

Politics has to address people as citizens, not just as consumers, with rights and responsibilities that entitle and require them to think seriously about the things they need that cannot be achieved through the market, or which will actually be damaged if left to the market. Debate over negative externalities has to become central to democratic life within a global economy.

Colin Crouch is an emeritus professor of the University of Warwick, specializing in work on European labour markets and problems of contemporary capitalism. His previous works include Post-democracy (Polity Press, 2004), and The Strange Non-Death of Neoliberalism (Polity Press, 2011). His new book, Making Capitalism Fit for Society, will be published by Polity in early September.