Could Mill’s model mend capitalism?

Mill believed in the power of the market – in the benefits of competition and the individual liberties it helped to uphold – and was skeptical of the state, along with revolutionaries who, in his words, had “serene confidence in their own wisdom on the one hand and a recklessness of other people’s sufferings on the other”. Today’s relevance is clear.

Mill’s agenda for improving capitalism was two-pronged. The first and best known was increasing personal liberty, as set out in his book On Liberty. He believed that social injustice could in part be addressed by making sure that people were freer to take advantage of the opportunities of life. The second (and lesser known) prong was Mill’s theory of the mind: his recognition that we sometimes go along with things without properly thinking about them, but that through education and reason we have the potential to change our mind, and in a way that enables greater individual liberty alongside greater social justice. Central to this was how we could reconcile our own individual self-interest – that desire to be free to do our own thing – with the interests of society.

While many economic and politic thinkers suppose that our own selfish interests are fixed and unchangeable, Mill disagreed. For Mill, reconciling individual and social interests can in part be achieved by getting people to think and question, rather than leaving it to the state to force people to do things for the “good of society” that they feel are against their own interests. This, he believed, resulted in an unnecessary trade-off between individual liberty and society.

Born into and educated in the “utilitarian” tradition – one that sought the greatest utility (or happiness) for the greatest number – Mill had an epiphany moment in his early twenties that triggered a six-month period of depression. Asking himself whether the ultimate achievement of a utilitarian reorganisation of the world could make him personally happy, his answer was ‘no’.

While utilitarians focused on rearranging the outside world, Mill argued that we also need to think about the world inside our minds. Bringing romanticism to bear on utilitarianism, and no fan of Victorian moralism, he adopted the idea that the human mind is embedded in culture and history – that much of what we do, think and value is shaped by something other than reason, and can, as a result, be reshaped by its application, making us happier as individuals and as a society. Perhaps the best example is his argument that women’s subservience was not “natural” but was instead the result of unequal liberties (e.g. unequal voting rights, property rights and education) that were blindly accepted because of societal conditioning. Mill believed that “[t]he despotism of custom is everywhere the standing hindrance to human advancement”.

In The Subjection of Women Mill reasons that fighting the attitudes and laws that render women second class citizens is not only good for women, but is in the best interests of everyone – that men will have more personal fulfilment when they associate with women as educated equals, and that equality in the home conditions us to be democratic rather than autocratic. He also suggested that equal liberties for women would help reduce population growth, thereby increasing wages and helping to achieve greater equality (he was, in fact, arrested as a young man for helping women access birth control).

This is an example of his two-prongs at work: how supporting individual liberty alongside encouraging reasoned argument can help deliver a world in which there is both greater individual freedom and lower levels of inequality. For Mill, the “emancipation of women and cooperative production, are…the two great changes that will regenerate society”. We have made great strides towards the former, but what of the latter?

This brings us to the third part of Mill’s agenda for reforming capitalism, one that receives even less attention than his theory of the mind, yet has particular relevance to today. Mill was a big fan of the competition, experimentation and diversity that free markets supported, and crucially believed this extended to the form of business organisation itself. He did not see the future as being one of capitalists versus workers: firms in which workers receive wages and capitalists the associated profits. Instead, he anticipated a future that involved an “association of labourers with the capitalist”, or an “association of labourers among themselves” in the form of worker cooperatives.

While communist revolutionaries (then and now) suggest that a fairer future hangs on the expropriation of property from private hands – the nationalisation of “the means of production” – Mill offered an alternative. His was a model that avoided expropriation, where new firms would instead develop to challenge older style firms – new firms in which workers were given shares, or firms that were composed entirely of workers working together in the form of cooperatives. For Mill, such firms had the possibility of being even more successful than traditional capitalist firms, as they would motivate workers (who would now receive a share of profits) and would result in better labour relations, avoiding the angst associated with more traditional firms. As a result, the advantages of the market are maintained, but with a more equal distribution of private property: individual liberty with greater social justice.

For Mill, capitalism would naturally evolve in a way that made this new style of firm inevitable: as wages rose, on the back of women’s liberation (which would slow population growth), he believed profits would fall, reducing the prospects for the older style firm and giving workers more savings to invest in new style enterprises. So far, history hasn’t exactly borne this out – despite, at least in the UK, politicians championing cooperative and mutual business models. And yet with the share of income going to capital increasing at the expense of labour, the idea of workers sharing in the profits should be an attractive one to those seeking to rebuild public faith in capitalism.

Why, then, has Mill’s idea not taken off? Was he wrong that share ownership for workers (or full-scale worker cooperatives) results in better companies, ones that outcompete older style ones and so naturally become the future? Or, are there stumbling blocks in the way of alternative models of business, such as the hold of existing business forms, together with inadequate human and physical capital for challengers? Today, if we are serious about maintaining markets, but at the same time having a fairer distribution of private property, these are questions we should be considering.

In the charged, post-crash era we are living through it is easy to blame capitalism for our ills. But abandoning the free-market model means enabling greater state intervention, and history shows us that leads to less individual freedom – to a “recklessness of other people’s sufferings on the other”. Mill understood this, and provided a middle way.

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Dr Victoria Bateman is Fellow in Economics at Gonville and Caius College, Cambridge. She writes regular economic commentary for Bloomberg View and CapX, and is known for her stance on Brexit and for using art to explore perceptions of the female body.

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