19 Jan 2012

Forget moral capitalism. Try strategic capitalism

The speeches on moral and responsible capitalism are a smokescreen for a much bigger political problem for both main parties. The model of British laisser-faire capitalism that has, on the whole, delivered for the bulk of the nation for decades, may no longer be up to the job. That is not to say that British capitalism is broken, more that its place in the world has fundamentally changed, meaning that it can’t, right now, deliver for large swathes of Britain’s population. And neither political leader recognised that today.

I’d argue that in this year we are seeing a Great Realisation in the West. Britain is beginning to notice that if you work hard and play by the rules, it does not guarantee rising wealth or income, or even that your children will enjoy that. Britain is beginning to realise that the average household has emptier pockets. Britain is beginning to realise that the credit mountain that masked some of this is not returning. (For an indication, have a look at this graph from the Resolution foundation, who will be putting out a new version on Monday. A quarter of a century of relentlessly rising living standards, with median real weekly wages rising from £367 in 1977 (2011 prices) to about £570 in 2002. Then pretty flat with a small peak at the peak of the credit boom. And then an unprecedented fall to £540 last year)

In particular, abundant domestic energy resources (the North Sea) imports of cheap products from the likes of China, and until ‘07 a strong pound, supported the inexorable growth of average real living standards. Cheap domestic energy, and cheap imports. These factors hugely contributed to the broad-based foundations of British capitalism. They are now all gone, and we’ve been saying that (The end of the Nice decade) for about three years.

Take those energy prices. In the 1990s, British-style laisser-faire capitalism did deliver cheap energy prices for all, when the genius of competition was set to work to find the cheapest way to extract North Sea Gas, for example. Everyone was a winner. Britain could sneer at the dirigiste statist Continentals and their expensive energy. How things change. As the North Sea dwindles, Britain’s energy prices are increasingly set internationally. The Big Utilities are “competing” over exactly the same pipes or tankers of international gas. Competition has become a chimera, a sham. The Government blames the people for not switching supplier. The truth is that they all charge the same, because they are selling virtually the same gas, from the same pipes or LNG terminals.

So that’s changed. As has the role of China in the world economy from exporter of deflation, through cheap goods, to an exporter of inflation through demand for commodities as its living standards rise. That interacts with the energy problem, because other nations take more strategic approaches to these issues, using diplomacy, longer term contracts, and state-run providers, to run rings around our free market behemoths.

The net result: that Britain seems to have very little control over the factors raising prices and eroding the living standards across the nation. People feel poorer. Even worse, many now expect their children will have a worse standard of living than them. So the system that might well have delivered broadly (though not for everyone) in the past, but that is no guarantee of future success, in this new world. So forget moral or responsible capitalism. That’s just tinkering at the edges. It’s a more strategic capitalism that’s in order in a new world order. A more strategic capitalism would be planning for dealing with mass low-skilled male joblessness, for example.

This is a profound change. It’s why Boris is falling behind in polls after Ken Livingstone promised to cut transport fares. Today’s political musings are an embryonic recognition of the changing landscape.

Follow Faisal Islam on Twitter: @faisalislam

11 reader comments

  1. Tina C says:

    I am so glad that you have mentioned the whole ‘switch supplier’ as regards energy costs. I get sick to the back teeth everytime some money saving expert is wheeled out on the tv telling us to ‘switch supplier’ when fuel bills rise because the truth is, as you say, they all charge the same.

    Add to the mix the fact that the low wages paid by big business is not enough for people to live on and so people have to be topped up by benefits etc which in reality is nothing more than an under the table subsidy for these global corporates to enable them to maximise profits for the benefit of shareholders. Where is the ‘free market’ in all of that.

  2. Proton says:

    Faisal I think you are right, Both Labour ( Blue Labour) and Conservative are engaged in impossible attempts to formalise morality in to some chimera of ” moral capitalism”.

    Once we start monetising trade we are by default bound in a structural system. Of course this has the inherent vice of ” boom bust cycles” which get vented by infrequent defaults, bailouts and inflationary splurges.

    In our modern society energy security is paramount. But importing finished goods from opposite hemisphere is an indirect way of importint energy too.

    The answers lie surely in a better balanced economy. So ethical capitalism equates to balanced books rather than moral capitalism which is fantasy economics. Tough but true.

  3. Philip Edwards says:


    I’ve read some deluded capitalist garbage in my time…..but this piece takes the biscuit. What a load of utter nonsense, possible only because you are in London and live in a bubble impervious to reason, fairness or even common sense. Even the riots have seemingly had no affect on you.

    We are not seeing “a Great Realisation in the West” at all. Capitalism will make an adjustment and go on its disgusting way as it did after the Great Depression – and for that matter after the South Sea Bubble or any of the other bubbles over the last three hundred years. Capitalism has not “delivered,” it has held back decent human progress and society throughout each of its evolutionary steps. It cannot behave in any other fashion.

    Any social progress made has been because of social democracy and socialism. And in the teeth of murderous and corrupt opposition from capitalism. Over the last generation it has gradually thieved all the gains made by working class citizens since World War 2.

    Which is why the term “moral capitalism” is a tautology. Unless of course you accept millions unemployed, deindustrialisation, destroyed communities and near-bankruptcy as “moral.”

  4. Saltaire Sam says:

    Politicians need to stop talking about concepts like moral capitalism and start to DO something to enforce it.

    Cameron’s prattling about shareholder power and transparency is nonsense. It’s already transparent enough for all of us to know that modern capitilism is corrupt and has lost its way. The fact that we know bankers get obscene bonuses is transparent but it doesn’t stop it.

    We need to enourage basic capitalism – those with capital invest in companies that need cash for a share of the rewards. Get rid of the casino based on share price, the reward should be in dividends not buying and selling stocks.

    And we need to get rid of this law that company directors’ first obligation is to the shareholders. That justifies things like tax avoidance. There has to be a similarly important obligation to the workforce and to society.

    Ever since capitalism started those with the cash have been considered more important than those who produce the profits for them through their work.

    Finally, politicians need to stop apologising about tax. It is the money that provides the services we demand from government.

  5. Saltaire Sam says:

    Today we get a simple example of immoral capitalism.

    Vodafone, who have already escaped about £6bn of tax in Britain, have wormed their way out of several billion more in India.

    OK, so let’s remove them from the advantages enjoyed by tax payers. Their staff should immediately be removed from the NHS. Their staff’s children kicked out of schools. (Harsh but it would only take a few days before staff pressure came on the management to rethink)

    Vodafone suppliers and the company itself should not be allowed to use the roads.

    Stop collecting their rubbish.

    And any other way they can think of to let them know it is unacceptable to enjoy the fruits of the tax system without contributing their fair share.

    And the same could apply to Philip Green and several others who think of themselves as astute business people but are just thieves.

  6. e says:

    Faisal you suggest it’s because of current levels of global competition that the British neo-liberal, laisser-faire approach is no longer up to the job of delivering for the bulk of the population. When was it ever? Along with large swathes of Britain’s population, I’ve long since been acquainted with the consequences of stagnant and falling living standards leaving families less well off than their previous generation – from the 80s onwards @ the demise of the planned mixed economy in fact. But perhaps it’s only because I’m already a chav, or more emotively these days, now one of the lumpenproletariat, that I see things this way. Thirty years of near silence on the whys and wherefores of Britain’s political-economy, the only thing up for discussion being the failings of it citizens, particularly its young, and the irrelevance in a ‘modern world’ of unionisation…..there’s the moral failure.

  7. Y.S. says:

    Perhaps this monetary crises is telling us to make ourselves the stuff we use rather then getting it from abroad. We can’t carry on buying things with borrowed money, even if it is cheaper.

Comments are closed.