“Without realising it the free-market West, most notably the US and the UK, has sleepwalked into a species of financial crony capitalism that has disguised economic reality, shielded underperformance, cosseted poor management and leached away value.”
In 2011, a junior Conservative MP published a pamphlet, The Case for Real Capitalism, which anatomised the failures that led to the global financial crisis and — by implication — the policy responses that followed. Jesse Norman had been elected for the first time the previous year, and no one took much notice of his work; but looking back, he may well be considered a prophet whose foresight ought to have been perceived by his own party.
If it had been, UK economic policy might have been more sustainable, British business and regulation more sensible, and society happier. Oh, and the Conservatives might not have taken the better part of a decade to wake up to some of the realities of markets, economics and politics that the new Boris Johnson government is starting to recognise.
But back then, the Conservatives didn’t even have a majority — let alone a decisive one. Those were the days of the coalition, which saw regular disagreement between its Conservative and Lib Dem partners, not least about markets and their role. Vince Cable, the Lib Dem business secretary, was a bete noir for many Conservatives, because he articulated a sharp critique of capitalism. In the autumn of 2010, he enraged many “free market” Conservatives when he declared: “Capitalism takes no prisoners and kills competition where it can.”
Facing the coalition across the Commons was Ed Miliband. It’s strange to think now, in these post-Corbyn days, but Miliband was then regarded as a leftist intent on a radical break with economic consensus. Early in his leadership he said businesses could be divided into “predators” and “producers”, an analysis that again drew intense criticism from some Conservatives.
Yet in The Case for Real Capitalism, here was a Conservative author offering an assessment of the UK economic model that shared an awful lot with that of politicians his party scorned.
There were, and are, significant differences, of course. Whereas many on the Left regard an open market economy as inevitably unfair and unbalanced, Norman’s view was that capitalism in its pure form can deliver precisely the same harmony and balance that the Left associates with direct action and provision from the State.
“Capitalism relies on, and so demands, trust. It does not exist to make the rich rich,” Norman wrote, explaining how many Western versions of capitalism had gone badly astray, bereft of moral purpose, short on competition and heavy on rent-seeking incumbents. This, he said, was not real capitalism but “crony capitalism”: “Crony capitalism has two key features: business activity loses any relation to, and often clashes with, the wider public interest; and business merit is separated from business reward..”
To read Norman’s words today, is to be struck by how familiar his criticisms and themes are. Eight years before the US Business Roundtable confirmed that even the almighty American CEO class sees capitalism in its current form as fraying its own “social licence”, Norman was itemising the “crisis of capitalism”.
A former BZW banker who later specialised in corporate governance, Norman wrote about the history of the public limited company.This is one of those subjects that appears arcane — and therefore only of interest to nerds like me — but it really is fundamental to any debate about capitalism, since it goes to the very basic question of what business is for.
As Norman remembered, the right to “incorporate” as a limited company — where the financial liabilities of owners are capped — was originally a privilege granted by Parliament, one which carried responsibilities and obligations: “Incorporation was a privilege that conferred economic benefits, and the purpose of the charter was to ensure that these benefits were in the sovereign’s, and later in the public, interest.”
Today’s companies are struggling to demonstrate “purpose” and explain how they are motivated by something wider and deeper than simply making money for their owners. In 2011, Norman was remembering a history that many are just learning now.
In a similar vein, he locates executive pay in a social context: it’s not just about “what the market will bear” and it’s not a private matter between executives and owners. There is, if you’ll pardon the reference, a social aspect to the market for executives: “Pay is a litmus test of social norms, and excessive pay — the separation of business merit from business reward — is a hallmark of crony capitalism.”
Possibly Norman’s most prescient — and complex — observation was about the interaction between ideas of competition and community. Years before Amazon and Sports Direct stood accused of sucking the life out of provincial towns in order to cut the prices paid by consumers in richer places elsewhere, here was a Tory MP talking about community and culture being more important than aggregate national wealth:
“The official view of competition is a neoliberal one based on price competition and the possibility of market failure, conceived nationally. Among other things, this means that other social goals, and regional or local priorities, tend to be disregarded. Local democracy, and a community’s ability to shape its own culture, are relegated to the sidelines. Local shops are undermined by the big supermarkets, which have low prices at the till but impose significant external costs on the communities around them…. if culture matters, then local shops and services matter.”
Norman was a philosopher before ending up in the City, and his paper also reaches into the intellectual underpinnings of Conservatism. Correctly recalling that Margaret Thatcher was not the narrow neoliberal some now imagine her to have been, he points to a long tradition of Conservatives criticising unbridled markets and corporate excess — from Salisbury and Bonar Law to Macmillan’s The Middle Way.
As the Johnson government explores a new variant of Conservatism that it hopes will retain the support of “new blue” voters — whose recent experience of British capitalism has not always been positive — many Conservatives will find themselves brushing up on, or just reading for the first time, such history.
As a non-partisan centrist and advocate of a rather different approach, I’ve been enjoying the recent spectacle of Tory free-marketeers rapidly trying to re-cast their belief in a small state and non-intervention as an abiding passion for higher public spending and ambitious industrial strategy. Welcome to the social market economy, chaps.
But if those chaps had listened a bit more to one of their own some years ago, they wouldn’t need to be undertaking such rapid political contortions today. The logic of Jesse Norman’s overall analysis of where Britain’s political economy stood at the start of the decade would have allowed the Conservatives to take a much shorter path to understanding the political economy — which many have only managed to do in the last few days.
“We are well into the NASTY decade: Noxious Austerity Stretching Ten Years. It may not prove to be that long. But however long it is, the policy response to the UK’s current economic malaise cannot simply consist of measures to restore growth and battle deflation. Rather, the goal should be to wake up and smell the coffee: to address the economic realities of the 21st century by changing some of the key features of our market economy and, especially, our culture over time. We need, then, to do two things: to make the moral case for real capitalism, and take resolute and sustained action against crony capitalism.”
The need for a moral capitalism. Purpose-led business. Excoriation of “noxious” austerity. A focus on local economies and interests. All of these ideas are commonplace today; they are, if I can presume to say so, among the foundation stones on which UnHerd itself is built. But remember, The Case for Real Capitalism was published in 2011, when Jeremy Corbyn was an eccentric backbencher, place-blind technocrats dominated economic policy, and the word Brexit had not been coined.
Nevertheless, what makes Norman’s pamphlet so interesting and important is not its prescience; he was not, after all, the only person in British politics outlining such a critique of capitalism. What matters is that he was a Conservative making that critique — and more significant, still, is how his party responded to that critique. Norman was not penalised for his thinking, but nor was he properly rewarded with real influence. He eventually became a junior minister, and is now in the Treasury, still outside the Cabinet.
His work from 2011 should be recognised as significant, not because of the influence it had, then, but because of the influence it didn’t have. His party did not learn the lessons he offered, and paid the price in the years that followed. Yes, they’re still in office today and perhaps about to start addressing the questions of Norman asked then. But just imagine what might have been if they’d paid more attention to one of their own back then and got started on that work a lot sooner.