Building inclusive capitalism
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
Bill Shankly, business, capitalism, Chuka Umunna, Demos, economy, Ed Miliband, Financial Times, Gordon Brown, inclusive capitalism, Jon Cruddas, Liam Byrne, Nigel Farage, Paul Myners, Thomas Piketty, UKIP