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The Future of Capitalism: Facing the New Anxieties by Paul Collier

The Future of Capitalism: Facing the New Anxieties by Paul Collier

 

 

  

Paul Collier’s new book on ‘The Future of Capitalism’ is a search for the pragmatic middle way between ideology and populism: on the one hand ‘alarmed and indignant Utilitarian and Rawlsian vanguards of the left and right’; on the other, the populists. The challenge is to rescue social democracy. To  repeat a phrasing Collier coined in his refugee book with Alexander Betts, ‘Refuge’, and which he uses again here, there needs to be a balance between the ‘heartless head’ and the ‘headless heart’.

More than one dichotomy features in the above paragraph, but I am sympathetic to the project. I would not dare take on John Rawls with quite Collier’s ferocity and disdain for a rights-based approach to development: are we really ‘sliding into the pit of entitled individualism’?  However, my own writing on Taming Cerberus is equally concerned with finding a middle ground between neo-liberalism and populism, in my case rooted in the history of development studies: ‘breaking the extremes’, as Collier calls it. So, we arrive at the same destination by somewhat different routes.

What is Paul Collier’s route? He begins with a description of the ‘new anxieties’, based on growing divides related to (a) geography (within developed countries), (b) education/skill, and (c) across the boundary between developed and developing countries, especially those in Africa. Better to be a highly skilled individual in a Western metropolis than a worker whose skills are no longer needed in the forgotten or left-behind towns of the industrialised North, or an unskilled labourer in Africa. There is not much in this chapter on spillovers from rich to poor, on the reduction in poverty in China, or on the high growth rates today in many African countries. But Collier and I certainly agree about deindustrialisation and forgotten towns. We both enjoyed Janesville, if enjoyed is the right word, an account of what happens to one town in Wisconsin when a GM plant closes. Collier might also enjoy Poverty Safari or Hired, two recent books which illuminate the problem of ‘précarité’ in the UK.

Having ramped up the anxiety, Collier turns to the task of ‘restoring ethics’, dealing in turn with the state, the firm, the family and the world. Together these chapters take up half the book. This is quite a tour d’horizon: Adam Smith and John Stuart Mill, Hume and Descartes, but also newer names. Jonathan Haidt features prominently, and deservedly, as do Michael Sandel and Robert Puttnam, and recent Nobel laureates in economics like Akerlof, Shiller, Spence and Tirole. Economic man has been replaced by social woman. And narratives of belonging and obligation shape our norms and belief systems. From these ideas, we can build ‘an ethical capitalism that meets standards that are built on our values, honed by practical reasoning, and reproduced by society itself’.

Start with the decline of the Ethical State, taking the post-war period in the UK as an example of benign social democracy. This ‘collapses’ because the skilled pull away from the unskilled and the latter turn to nationalism. Shared identity erodes, and so do shared obligation and reciprocity. Trust declines and cooperation begins to fray. Practical consequences include unwillingness to pay tax, separatism in national politics, and at the extreme, a dangerous nationalism. This is a problem, indeed ‘the’ problem: is it possible to forge bonds that are sufficient for a viable polity yet not dangerous? ‘This is the central question that has to be addressed in social science. On its answer rests the future of our societies’. The answer, Collier argues, is a new sense of place, a ‘narrative of belonging’. No surprise there: he is a proud Yorkshireman.

Up next is the Ethical Firm. Collier laments the loss of social purpose and the focus on profits, allegedly new, which has turned once great firms into ‘vampire squids’.  Mercenary share owners are to blame, obsessed with short term profits and rewarding chief executives, on a lavish scale, only for short-term performance. Collier is not a fan of regulation or public ownership – both are too difficult in complex, modern economies. Instead, the solution is to encourage new forms of ownership, like mutuals (the John Lewis option), put workers on boards, introduce more effective taxation of large companies that gain windfall profits by virtue of network effects, and legislate public interest obligations for company boards. ‘Ethical citizens’ need to hold the feet of private sector companies to the fire.

Now, the Ethical Family. Collier celebrates the traditional two-parent family and its wider connections as a unifying network and belief system. Profound changes since the second world war – contraception, no-blame divorce, higher education – contributed to the erosion of mutual obligation within family networks, but with different consequences for different social groups. At the ‘top’, the new ethic was one of self-fulfilment through personal achievement, with educated parents wanting to pass on their achievements by hot-housing ‘trophy children’. At the ‘bottom’, teenage pregnancies and divorce rates among the uneducated soared, partly facilitated by generous social welfare for single parents, as did domestic violence and the number of children taken into care, in turn partly fuelled by men’s loss of skilled jobs and self-esteem. The experience and life chances of children in rich and poor families have diverged, with long term, multi-generational consequences: the differences in family culture lead to high, rising and persistent social inequality. ‘The replacement of the ethical family by the entitled individual is revealed to be more tragedy than triumph’.

In the Ethical World, the post-war settlement involved building the institutions of reciprocal obligation through purpose-specific clubs reinforced by peer pressure: NATO, GATT, the Security Council, the IMF, the OECD, and the nascent EEC. ‘These purpose-specific clubs, each with its defined and limited membership, reciprocal obligations within the group, and credible enlightened self-interest, gradually transformed the world’. But here is what went wrong: these bodies were pressed by an ideology of inclusion to become more inclusive, and as they did so, as membership expanded, ’the glue that had enforced reciprocal obligations began to weaken’. In some cases, the organisations simply became less effective; in others, they were run by an inner core who imposed rules and penalties on others. The WTOWorld Trade Organization is an example of the first; the EUEuropean Union and the IMFInternational Monetary Fund of the second. The World Bank also: Collier is critical of the World Bank, which first became dominated by an inner core of donor countries that turned duties into power, for example by making support conditional on the adoption of particular economic policies, and then, Oh, No, was hijacked by politically powerful NGOs which imposed overly strict environmental and human rights requirements. We need to turn back, and create new clubs which meet the old criteria – specifically, Collier thinks, a new G6 composed of China, India, the US, the EU, Russia and Japan. And it’s OK, the World Bank and the IMFInternational Monetary Fund ‘still do an immense amount of good’.

So, that is the diagnosis, with just a hint of prescription. Now come Parts three and four, prescription with a dash of further diagnosis: Part three, ‘Restoring the inclusive society’, with chapters on geography, class and the global economy; and Part four, on restoring inclusive politics, with a single chapter called ’Breaking the extremes’.

A better geography involves bridging the divide between the booming metropolis and the broken provincial city. The metropolis booms because it reinforces the deployment of skills in the knowledge economy and benefits from economies of scale. The provincial city is broken because former industrial clusters have been poached by newly industrialised countries. The key to reasserting balance, and building on the ideas of Henry George about a land tax, is to tax the unearned (economic) rents accruing to metropolitan residents by virtue of the gains from agglomeration: a tax on property, yes, but also an additional tax on income, to be available for national regeneration. New York apparently has such a tax, albeit earmarked for local investment. In the provinces, new clusters are needed, and the early stage coordination problems can be solved by using development banks to support pioneers, by creating business zones, by setting up investment promotion agencies, and by using local universities to build knowledge clusters.

Overcoming the class divide means rethinking social policy. Tax support to two-parent families. Practical support to failing parents. Better integration of social services. Longer duration unemployment benefits. More kindergartens. Better integrated and better funded schools. More skills-based technical and vocational training. Penalties for making people redundant. Better pension provision. And, on the other side of the divide: curb house price inflation by building more, restricting immigration to curb household growth, limit buy-to-let mortgages, and give renters the right to buy; and tax lawyers and financiers, and shame them into being more useful.

With regard to the global economy, the focus is on the winners and the left behind. Collier begins by saying that the economics profession has been virtually united on the assessment that ‘globalisation has been a powerful engine for rising living standards’. But, he says, ‘our enthusiasm for globalisation has been insufficiently nuanced, . . . (and we) have been unprofessional . . . (because) little work has been done on the downsides’. There follow three sections headed ‘Mea Culpa’: first on trade, with a focus on the losers from open markets; second on regulation, especially with regard to the tax obligations of multinationals; and, third, on migration, because of the impact on income inequality and social cohesion. ‘Economists such as myself’, Collier concludes, ‘have been too keen to defend globalisation against its critics . . . The task of public policy is to encourage those components that are unambiguously beneficial; to arrange compensation for those that are predominantly beneficial but which inflict significant losses on identifiable groups; and to limit those that cause redistribution that cannot readily be compensated’. It is worth noting that this chapter, uniquely in the book, offers no alternative paradigm.

Finally, ‘Breaking the Extremes’. Social democracy has imploded, leaving the field to ideologues on the one hand (Utilitarian technocrats or Rawlsian lawyers) and populists on the other: a ‘political menu from hell’. Mainstream parties have been captured by the extremes, and need to be driven back to the centre: take the power to elect leaders away from the members and give it back to elected representatives; and/or introduce proportional representation; and improve citizenship education.

                                        *   *   *

The range and readability of this text are admirable. It is tempting, perhaps necessary, to delve more deeply into the thought experiments and verbal models which underlie the conclusions about UK policy, some undoubtedly controversial. However, UK policy is for others. My interest is in mining the recommendations to see what can be borrowed for development policy.

To that end, Collier’s book sits side by side on my shelf, actually side by side on my Kindle, with other books and reports about reforming capitalism: for example, Jacobs and Mazzucato on Rethinking Capitalism; the report of the IPPR Commission on Economic Justice; Will Hutton and Andrew Adonis on Saving Britain; Roger Eatwell and Matthew Goodwin on The Revolt Against Liberal Democracy; and Edward Luce on The Retreat of Western Liberalism. I have even made room for Naomi Klein (This Changes Everything: Capitalism versus the Climate) and Dambisa Moyo (Edge of Chaos). The Green New Deal is another source of good ideas. And of course Kate Raworth on doughnut economics.

From this cornucopia, what is to like in Collier’s book, from a development perspective, and what might be added?

On the positive side, it is really important to have not just recognition of rising inequality, but also a model of why it might occur: not just venality, but a deeply rooted system involving cultural and economic change. I’m not so sure about the bonds of reciprocity that allegedly bound us together in the UK from the 1950’s to the 1970’s, but the gap between the booming metropolis and the broken provincial city is an objective reality today. It is not trivial that Collier returns repeatedly to the benefits of agglomeration and the accrual of rents, by companies as well as places. It would have been interesting to explore more the global dimensions of this trend. Which towns, in the developing world, belong to the global metropolis, and which are left behind? And which companies?

It is also important to note the place Collier gives to a mutually reinforcing combination of active industrial and social policies: both are necessary, neither is sufficient on its own. On the one hand, innovative finance, combined with investment in innovation, designed to rebuild clusters. On the other hand, a combination of education and welfare policies which enable people to access new opportunities. From this perspective, a consumption-oriented safety net is an inadequate instrument. I can strongly recommend Hilary Cottam’s book, Radical Help, on what is wrong with the UK welfare state and how to fix it. Again, there are many lessons for development policy.

On the politics, the travails of social democracy, and the attractions of ideological or populist alternatives, are also evident in developing countries. More weight might have been given, however, to the rival attractions of authoritarian capitalism, China-style. And for both rich and poor countries, the books cited above contain many suggestions on how to revitalise democracy.

Finally, Collier is surely right to bemoan the weakening of multilateralism, though whether this is because the main institutions have been opened to the previously excluded is a matter of debate. The climate change body, UNFCCC, is perhaps an illustration of the benefit of being inclusive. Perhaps the incentives need to be changed and not just the membership: collective action theory provides useful insights.

On what might be added, quite a few things.

First, ‘community’ is missing from the organising framework and is mostly implicit in the text. Collier does talk about rebuilding the ‘bedrock of (a) practical communitarian ethic’, but the idea is not fully developed in the later chapters of the book. There is a proposal for a new kind of voluntary service body, which would engage the rich to help the poor; but there could be many other options, like local empowerment and devolution of budgets. Community development, under various guises, has a long history in development.

Second, social action deserves more attention, including via social movements and via trade unions. In this connection, it is interesting that class is defined in terms of income, and eventually culture, rather than, say in relation to the ownership of wealth or the means of production.

Third, the treatment of innovation is rather superficial. Much could have been learned from Mariana Mazzucato, for example on state-led innovation ‘missions’, and state-led sharing of the benefits of success.

Fourth, and this is where things become quite serious, Paul Collier underestimates the extent of global economic and social disruption associated with three big changes: unequal globalisation; automation; and climate change. New developments in globalisation get short shrift, for example in relation to global value chains and The Great Convergence. Automation is dismissed with one assertion that robotics is unlikely to reduce the need for work. And climate change is barely discussed. Each of these topics on its own has the capacity to create large numbers of winners and losers. Taken together, they require careful management of the content and sequencing of policy, at national level and global scale. This is the theme of my work on Taming Cerberus. For example, climate change is not just about mitigation and adaptation policy within countries, but also about the impact of technical change and market development in other places. See also the (unashamedly heterodox) UNCTAD Trade and Development Report for 2018, which links these various phenomena.

Finally, Chapter 9, on the global economy, seems to me to be disingenuous. Paul Collier is not just an economist, but a development economist. Development economics is a discipline whose main concern is with long-term structural change and its impact on individual as well as aggregate welfare: precisely, to take an example, with issues like the downsides of globalisation as well as the upsides. Don’t take my word for it. Examine Paul Collier’s own opus, including the Bottom Billion and the Plundered Planet: no problem engaging there with market failure, regulatory capture, or the distribution of income and wealth. Of course, Paul Collier is not quite a dissenting or heterodox economist, in the mould of Singer and Streeten, Jolly and Stewart, Stiglitz and Chang. But he is no slouch on development.  Open markets create losers. So? Multinationals have too much power and don’t pay tax? Yes? Migration can cause problems as well as bring benefits? And? Answers are needed. Paul Collier probably has them. Otherwise, development economics has work to do.

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