Building inclusive capitalism

Banks

The challenge of our age, wrote Chuka Umunna in the June edition of Progress, is to generate growth that is sustainable over the long term, balanced across sectors and regions, and inclusive so that all can benefit. This is not capitalism red in tooth and claw. Indeed, it recalls the definition of socialism offered by Bill Shankly, the legendary Liverpool manager: ‘Everyone working for each other, everyone having a share of the rewards. It’s the way I see football, the way I see life.’

From the giddy reception received by Thomas Piketty’s egalitarian tome to the International Monetary Fund’s uncharacteristic worries about inequality, inclusive capitalism is of the zeitgeist. This might be taken by Labour, like much else since the financial crisis, as evidence that history is moving in our direction. Nonetheless, if Labour wishes to lead the United Kingdom to the inclusive capitalism that we need it should put as much emphasis on the ‘capitalism’ as the ‘inclusion’, particularly before the general election when Tory possession of the bully pulpit of office makes it easier for them to portray Labour as a risk.

Ed Miliband, according to Paul Myners, a former Labour City minister, ‘doesn’t talk a language that business recognises’. The same Financial Times feature that provided this observation also quotes a ‘senior Labour figure’ as saying, ‘they are trying to remodel capitalism without understanding it’. Or even wanting to. ‘People who have been to business events with Miliband,’ claims Myners, ‘say that he doesn’t really give the impression that he’s interested in listening to what they have to say.’

Miliband’s lack of support from business would have been a cause of consternation for both Tony Blair and Gordon Brown. Yet Miliband appears sanguine. Members of his team supposedly encourage him to make a virtue of his lack of FTSE 100 endorsements, casting himself as a David against the corporate Goliaths.

The flaw in this strategy is that it presumes that the Goliaths are incapable of distorting the message that Miliband wishes to project to the country at large and to small business people in particular. Murmurs of discontent from the Goliaths may leave the impression that the Labour leader only understands inclusion, not capitalism. It seems unlikely that small business people, who Miliband wishes to cultivate, will be so different from chief executives, who he puts less emphasis on, and that small business people will be relaxed about any lack of understanding about the importance or means of wealth generation.

The vogue for inclusive capitalism damages Labour if it convinces Miliband that he does not require fluency in wealth generation, that business endorsements are so 1997 and no more important to 2015 than the Spice Girls singles that were then topping the charts. Such backing would bring Miliband closer to Downing Street, where he will be able to implement the long-term plan the UK needs.

As much as Miliband would find it easier to make the weather as prime minister, he should seek to bend capitalism toward progressive ends, rather than work against the grain of capitalism. He should, for example, make more workers into shareholders. That is the real conclusion that we should take from Piketty, as well as The Second Machine Age by Erik Brynjolfsson and Andrew McAfee, the second most sexy economic book of the moment.

It would not matter if the second machine age results in robots replacing all of our jobs, nor would it if the return to capital outpaces that to labour, as Piketty maintains, if we all had equity in the return to robots and the capital deployed to create them. Of course, we should focus too on what skills will best allow workers to prosper. The extent to which our school and skills systems are instilling the creativity, digital literacy and emotional intelligence that are increasingly valued is not as fulsome as it should be. As shadow minister for universities, science and skills Liam Byrne recently noted in his speech on inclusive capitalism, reform of the education and vocational education system is critical to closing the gap between the classroom and the successful career.

Duncan O’Leary, research director at Demos, has published an essay on the idea of ‘skin in the game’, which has been applauded by Jon Cruddas. O’Leary defines this term to mean sharing some of the risks, not just the rewards, when taking decisions with significant implications for others. He has worked from this principle to policy recommendations on mortgage lending, company takeovers, ratings agencies and more besides.

To give workers ‘skin in the game’ of our economic future, Labour should be ambitious for the skills of workers, but ambitious for more than skills, seeking to extend share ownership as far as possible among workers. As per Shankly, this would give all a stake in the rewards. But, consistent with O’Leary, risks must be accepted too. Shares can go down as well as up.

The rise of the United Kingdom Independence party is indicative of a mindset that wants the world to stop turning, to de-risk an inherently unpredictable world. The best response to this reality is not the false consolations of Nigel Farage, it is to trust the instincts and aspirations of workers and give them more of a stake in the economy through skills and equity. So empowered, they are likely to achieve more for themselves than politicians can do for them.

Labour, however, will be more likely to deliver this if we convince over the next year that we wish to extend and strengthen capitalism’s rewards and opportunities, not vengefully wreck it. Unless the party gets the politics of the next year right, inclusive capitalism will remain a slogan, not a reality.

———————————

Jonathan Todd is a contributing editor to Progress and chief economist of Demos

———————————

Photo: dystopos

Print Friendly

, , , , , , , , , , , , , , ,
  • Robin Thorpe

    A very good analysis of where we are and where we need to be. I am instinctively to the left of Jonathan but I can’t fault the logic here. I think that Chuka Umuna was a good choice as BIS shadow, as I think that he comes across very well in this brief. It is important that Ed Milband has good support from the front bench team to complement his areas of weakness (I don’t mean any disrespect in that, I think Ed M has done a good job of leader in that he has maintained unity).

    This paragraph is key for me “The extent to which our school and skills systems are instilling the
    creativity, digital literacy and emotional intelligence that are increasingly valued is not as fulsome as it should be. As shadow minister for universities, science and skills Liam Byrne recently noted
    in his speech on inclusive capitalism, reform of the education and vocational education system is critical to closing the gap between the classroom and the successful career.”

    The current DfE proposals promote knowledge above skills, a bad and retrograde decision.

  • Anthony Sperryn

    I do wish that people would read a piece I wrote, which Compass published on 31 October 2013. The web reference is:-

    http://www.compassonline.org.uk/us-and-them-bringing-consumers-and-energy-companies-together-through-partial-mutualisation/

    People don’t need to be beastly to each other, there is enough to spread around, even if it is done unequally, so everybody has a little pot of capital or a private income. Think of the “trust fund” kids? why should they be privileged? and why can’t we all have a little bit of security (as Tony Blair promised to us in, I think it was, his Labour Party Conference speech of 1995)?

    What we have had instead is endless extension of means-testing, so anybody who puts his head above the parapet gets it shot off. There are zero-hours contracts and hire-and-fire with minimal safety nets and incompetent (I would hestitate to say corrupt) retraining schemes, against a background of a shortage of jobs and low-wage competition from overseas, labour or by way of imports.

    And what those clever economists running the country haven’t yet realised that all that austerity is BAD FOR BUSINESS.

    The deficit doesn’t actually matter if people are in jobs and the balance of payments isn’t as badly out of balance as it currently is. And the way to remedy that is not austerity, but import substitution, plus a bit more export, and not outsourcing overseas (because that ignores the social externalities of doing so and aggravates the deficit).

    Moreover, in most cases, privatisation is a means of leaching out of the public domain tax money which should be spent on the common good, or invested for the common good. When, for example, the public sees ownership (acquired for a song at bogus market values) of assets or shares in utilities by foreign, or offshore, equity funds, it can rightly be dismayed.

    We live in a global world, but it doesn’t have to be winner take all. The piece I wrote for Compass gives us all a chance to have a share of the goodies, or the risks, as the case may be, but enables proper professional management to stay in place, hopefully aware of its social responsibilities and in partnership with its workforce. The world is too dangerous and complex for half-baked workers’ committees, government departments, or even, ministers to be in absolute control of what ought to be commercial businesses run sustainably.

  • Anthony Sperryn

    The web in my previous piece reference ends …uk/us-and-them-bringing-consumers-and-energy-companies-together-through-partial-mutualisation/