In these times of increasingly polarised politics, it’s rare to find an idea that has traction across the ideological spectrum; but there’s widespread agreement that capitalism isn’t working as it should. It’s a view shared by freemarketeers, environmentalists, technocrats and Keynesian social democrats alike, even if there’s little consensus on the causes or the cure.
Advocates for capitalism point to its apparent success in pulling the global population out of poverty. World Bank figures suggest that the number of people living in extreme poverty dropped an average of one percentage point per year between 1990 and 2015, to reach a low of 10%; and analysts believe it is continuing to fall, albeit at a decelerating rate.
Whether this can be claimed as a specific triumph for the decentralised market economy is a matter of continuing debate. But many argue the 21st century has seen the benefits of the capitalist system skewed toward the rich. In a recent speech, Christine Lagarde, chair of the International Monetary Fund (IMF), suggested that since 1980 the top 1% globally has received twice as much benefit from economic growth as the bottom 50%.
What’s more, the Organisation for Economic Co-operation and Development (OECD) has estimated that across its 36 member states, representing advanced and emerging economies, the average income of the richest 10% is now nine times that of the poorest 10% – up from a multiple of seven 25 years ago. Its secretary-general José Angel Gurría said, “We have reached a tipping point. Inequality can no longer be treated as an afterthought. We need to focus the debate on how the benefits of growth are distributed.”
It’s an opinion echoed by Michael Izza, chief executive of ICAEW and chairman of Chartered Accountants Worldwide. He says: “Capitalism is not delivering for the widest number of people in a way that it could or should be, and stagnant wages and poor productivity are illustrations of this. Technology is producing monopolies in which proceeds accrue to an ever- smaller number of people. Society cannot be sustained if inequalities stretch too far.”
So what has happened? Are these problems an aberration, or the consequence of a fatally flawed model? Some cleave to the idea that the market economy remains the only system capable of delivering mass prosperity. In one of the year’s most eagerly awaited economics books, The Future of Capitalism: Facing the New Anxieties, University of Oxford economist Sir Paul Collier characterises the current situation as a “crisis of social democracy”, stressing that “what has happened recently is not intrinsic to capitalism; it is a damaging malfunction that must be put right”.
A prominent critic of the status quo is William Davies, reader in political economy at Goldsmiths University of London, co-director of the Political Economy Research Centre and author of books including Nervous States, The Happiness Industry and The Limits of Neoliberalism. He says: “What most people mean when they say capitalism isn’t working is that they don’t like it. They say it isn’t operating as it ought to, but how ought it to operate? It’s a system that prioritises the capital within the economy and within society, and that means ensuring that it achieves a good rate of return.
“Now, the rates of return on capital are pretty good at the moment: the stock market and asset prices are holding up well. But it doesn’t offer very much to people who don’t own assets. The labour market is no longer a basis on which to achieve security for many people.
“The other thing that a lot of people get confused by is that maybe the free market isn’t working as it ought to. That’s a slightly different issue. Free markets imply that there is some sort of equality of opportunity to participate, which depends on regulators and competition authorities. But these have been pretty meek over the last 30 or 40 years, so the monopolies are no longer being properly challenged.”
Books putting forward blueprints for just that have enjoyed great influence and enviable sales. Five years ago, French economist Thomas Piketty’s Capital in the Twenty-First Century made the case for state intervention and global wealth taxation to prevent social breakdown. But else- where, the opposite remedy has been proposed by radical freemarketeers, who believe that a bonfire of regulations is the only answer. Throughout developed economies, there are those who believe that a thorough (though not quite as profound) remould of the economic system is necessary and overdue.
In France, President Macron has been ramping up efforts to loosen labour regulations, which impose famously strict conditions on employers. Nick Parsons, a reader in French at Cardiff University with research interests in European social policy and industrial relations, points out that it’s a process that has been going on for a long time. “What’s behind this is a near 40-year incapacity to deal with the problem of unemployment in France,” he says. “These efforts began in the early 1980s, under President Mitterrand. It’s not the sudden revolution that people make out it is.”
To outsiders, it can seem like a characteristically French way of resolving a French problem. Parsons says: “It’s true that when you’ve got something that’s perceived as broken, you look to your own country for explanations, rather than the wider world. In the UK, we’ve had a very deregulated form of capitalism that’s now seen as not working, so the explanation for many people is that you need to re-regulate.
In France, governments on both sides decided they needed to come to an accommodation with global capitalist forces rather than fighting them. But there’s still a strong attachment to the old state employment protections and a fairly high degree of scepticism around the benefits of globalisation.”
T here has likewise been an uptick in interest in social corporatism. Most closely associated with the Nordic countries, it’s popularly understood as a variant of capitalism in which collective bargaining is used to reconcile the interests of capital and labour. Jonathan Perraton, a senior lecturer in economics at the University of Sheffield who has studied the Nordic economies in depth, says: “Of course, the countries differ among themselves, but there are common features.
They all have highly organised labour movements: the four main Nordics [Sweden, Denmark, Norway and Finland] are the only countries apart from Belgium where the majority of the workforce is in a union. They have very well developed welfare states, relatively equal income distribution and equal societies.
Without over-romanticising it, there has been a sense that if workers and employers and the government can hang together, they need to develop relationships and systems of trust. Generally, they’ve been very successful.”
Worldwide, there’s little doubt that further disruptors are on the horizon. The robustness of 21st-century capitalism will be further tested by population shifts. The UN projects that the global population will reach 9.7bn by 2050 – a 60% rise since 2000 – though the number of people living in Europe is expected to remain stable. The demography of Western industrialised nations will change radically.
In the UK, people older than the traditional male retirement age of 65 will approach 20% of the population in 2024 (up from 17.6% in 2014); and the median age of the population is set to rise by more than two years over the next two decades.
There’s also the question of whether market economies can ever be compatible with environmental sustainability. But possibly the most contentious topic, when it comes to plotting capitalism’s future trajectory, is the impact of artificial intelligence and robotics. Optimists hold that the so-called Fourth Industrial Revolution, like those before it, will end up creating rather than threatening jobs. This was the message of The Changing Nature of Work, the World Bank’s 2019 World Development Report; though its implied support of laissez-faire economics has been fiercely challenged.
An alternative view is suggested in the title of a recent IMF working paper, Should We Fear the Robot Revolution? (The Correct Answer is Yes). Its central claim is that “automation is good for growth but bad for equality”, concluding that the biggest problem of modern capitalism – the widening gulf between technologically adept “haves” and the unskilled “have-nots” – could be exacerbated.
In 2015, the late Stephen Hawking said: “Everyone can enjoy a life of luxurious leisure if the machine- produced wealth is shared, or most people can end up miserably poor if the machine owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality.”
The emerging business model that Professor Hawking had in mind has become informally known as “platform capitalism”: a situation in which a small number of companies become not only the biggest players of the economy, but the platforms on which business transactions are forced to take place. According to the left-leaning Institute of Public Policy Research (IPPR), it’s a model that’s also characterised by “a voracious appetite for data that can only be sated by disregard for privacy (and often workers’ rights) and constant outward expansion”.
William Davies says: “It’s a new version of capitalism in which lots of people are dependent on extremely large, totally autonomous monopolies, most of which are making very handsome profits – and, if they’re not, they don’t seem to be short of huge equity investments that enable them to carry on growing. So really, what we’re talking about is a moral crisis.”
The greatest risk, he believes, is the ability of these technological titans to usurp the state’s traditional role as rule-maker, regulator and enforcer. “Amazon is giving a glimpse of this kind of thing, where you’ve still got lots of small-time players at large: booksellers, traders and so on,” he says. “But they become increasingly dependent on this platform at the centre of the whole thing to trade. That platform can then set the rules of the rest of the economy.
“So that’s the fear: that effectively what you’d have is a drift towards the privatisation of regulation. There’ll still be a labour market, and still be some kind of market competition, but the prize for the platforms is to become the regulator of the rest of the economy in some sense. You may have Amazon effectively regulating the market for retail, Uber regulating the market for urban transport, and Google regulating the market for digital content. I think there’s a real risk that new technologies will concentrate that power even further.”
It’s easy to see how the idea of privatised regulation, and of private companies becoming official pillars of capitalism, is at odds with the public-service principles of an organisation such as ICAEW. Michael Izza points out that its Royal Charter was granted in 1880 not as a badge of establishment privilege, but as a reminder that members’.
“Amazon may regulate retail, Uber may regulate urban transport. There’s a real risk new technologies will concentrate power” first duty was to the public, and to uphold integrity, transparency and accountability without fear or favour.
“Those founding values equip us for such a time as this,” he says. “Chartered accountants will embrace the Fourth Industrial Revolution, but not at the cost of our ethics. Technology and big data provide us with a new opportunity to do the right thing better, and quicker; and I’m committed to this new age of accountability because it’s the only way we can survive. As examiners of the next generation of professionals, we must demonstrate we can be trusted, and think outside the box. How else will the new industrial barons of tech and big data be held to account?”
Rebalancing capitalism isn’t a task to be left to governments, he adds, but a matter for companies and individuals. “Business should be thinking about how it contributes to the society that it trades with. It should be thinking about its obligations to the society all around it – and we should all be making sure that those who help businesses operate are treated fairly in all the dealings that the business has with them.
“That means the employees of a business being fairly rewarded, and consumers being treated properly and receiving safeguards and protection in return for the purchase price. It means businesses paying the taxes that are due, so that the infrastructure that only a government can provide is properly funded – education to ensure the workforce is effectively job ready, and healthcare to make sure that when employees fall ill, they’re properly treated.”
It chimes with ICAEW’s vision of “a world of strong economies for all” – or in Izza’s words, “a world where the UK economy is strong because it works in the interests of everyone, and where other economies are strong because they do too. Free markets should not be a free for all, but have frame- works, strong rules and a culture that promotes fair decision-making.