Capitalism has a history of derailing. In the early 19th Century it derailed into the hell-on-earth of the first industrial cities; in the 1930s it derailed into mass unemployment; and from the 1980s it has derailed into a business culture shorn of ethics, and new mass anxieties.
The lesson is that capitalism cannot be left on autopilot. To work – and it must work, it is the only system that can deliver mass prosperity – it requires active public policy. Public investment organised by local government cracked the first derailment; Keynesian macroeconomics cracked the second; but so far, the current derailment remains unaddressed. I wrote my book, The Future of Capitalism, because we should be facing these new anxieties.
Since the 1980s, Western societies have been riven by two new divisions, a spatial divide between a booming metropolis and broken provincial cities; and a class divide between the college-educated and the less-educated.
For skilled metropolitans, global capitalism has been the gift that keeps on giving: in Harold Macmillan’s famous 1950s phrase, we “have never had it so good”. But his line was aimed at provincial manual workers, the group now facing, to use Theresa May’s phrase, “burning injustices”. This is the group with the new anxieties. Their skills have been devalued, their prestige shredded, their family structures are falling apart. They are the mutineers: Brexit, Trump, Corbyn, Five Star, ADF.
The new populists and the old ideologues have seized their chance because the conventional parties of both Left and Right were lured away from their pragmatic ethical foundations into fashionable cul-de-sacs.
The sound foundations of the Right had been One Nation, epitomised by firms with a sense of social purpose, such as Cadbury and John Lewis. But One Nation was abandoned as the Right was seduced by Friedman’s worship of the market – the travesty of Adam Smith in which ferocious self-interest would drive society upwards.
It was also tempted, especially in America, by Libertarianism: the cult of individual freedom. Translated into policy, ethics became redundant – the sole purpose of the firm was profit, the sole purpose of the individual was fulfilment through achievement. This would be achieved through a combination of deregulation and intensified competition, secured through high-powered incentives linked to tightly monitored targets such as quarterly profits.
The sound foundations of the Left had been the Cooperative Movement – the construction of reciprocal obligations to address the practical concerns of ordinary people, such as housing, shopping and funerals. This was abandoned when the Left was seduced by the Utilitarian paternalists, dominated by economists, and the Rawlsian victim-seekers and Libertarians, dominated by lawyers.
Translated into policy, the economists wanted to empower the state to redistribute consumption through taxation and benefits, with the concepts of dignity and desert absent from their framework. The lawyers wanted to confer new rights, dubbed ‘human’ rights, on favoured groups and individuals, and the public interest of the majority had no place in this new hierarchy. In combination, obligations floated up from firms and families to the state, while rights showered down, selectively.
These agendas were very different, but they had two characteristics in common: they were dominated by highly-educated metropolitans, and neither resonated with the concerns of less-educated provincials. While the new Right and the new Left fussed over implementing their agendas, the new anxieties of spatial and class divides widened, unaddressed.
By chance, my own life has straddled these appalling new divides. I have a foot each side of the new spatial divide, I live in the most desirable district of Oxford, the neighbourhood-of-choice for metropolitan success – my postcode has the highest ratio of house prices to income in the entire country. But I grew up in Sheffield, the emblematic broken provincial city, made famous by the film The Full Monty. Those people were my family and neighbours. Sheffield, a city with a continuous tradition of specialist steel going back to Chaucer, imploded in just five years due to inept public policy.
I also have a foot each side of the education divide. I am sufficiently educated to have been appointed to chairs at Oxford, Harvard and Paris, but both my parents left school aged twelve. They led frustrated lives, their abilities flowers left to bloom unseen.
Most painfully, I have straddled the new divide in life trajectories. My book starts with a photograph of two four-year-olds: myself and my cousin, born on the same day, into the same social class and city, and by fourteen both attending grammar schools. As I progressed upwards, through chairs, and medals, she plunged into the traumas of teenage motherhood. Divergence echoed down the generations, and both her daughters became teenage mothers. In our prosperous world, such divisions are avoidable.
The Future of Capitalism is pragmatic about how to tackle this. The new anxieties may have empowered the old ideologues and the new populists, but neither has the least ability to solve them. We need new ideas to address – carefully crafted ethical and technical public policies, some of which will offend vested interests, and most of which will upset established ideas.
It is vital that ethics is restored to the centre of public narratives. Not the fashionable ethics of victims and outrage, but the foundational ethics of any successful society: a dense web of reciprocal obligations in firms, families and state. Firms and families, the arenas in which we conduct our lives, are not merely vehicles for profit and individual achievement, they are the ethical heart of our society. The genius of reciprocal obligations is that they precisely match new rights to new obligations, and they will only be accepted if they are recognised as meeting legitimate needs.
We can heal the divide in life-chances by enhancing the productivity of less-educated people whose homes are the provincial cities. This means a massive shift of focus from cognitive skills to vocational skills. Switzerland does it right with their four-year training courses, half-financed by firms who make sure people come out employable. And it means restoring provincial cities by establishing new clusters of skill-intensive firms. That will take bold, pro-active public policies; and it will take money. Who will pay? The skilled and landowners in the metropolis. London is Britain’s new oil.
I do not know whether the Right or the Left will rethink first. But by fixing these new anxieties, whichever party does so will govern for the following two decades.
The Future of Capitalism: Facing the New Anxieties by Paul Collier is published by Allen Lane on October 4th