“RESPONSIBLE CAPITALISM”, “MORAL MARKETS”, and – Goldman Sachs Bonuses

Something rather curious has been happening recently. Leading politicians, Tory, Lib Dem and Labour, have started talking about capitalism.  It has happened before, but not for some time and then, referring to some particularly egregious example of corporate malfeasance, terms such as the “unacceptable face of capitalism” were used. Tory prime minister Edward Heath coined the phrase in 1973 to describe the activities of Lonrho chief executive Tiny Rowlands who had broken sanctions against the white racist Smith government of Rhodesia. Later, in 2004, Jim O’Donnell, managing director of BMW applied it to five directors of Phoenix Venture Holdings, the parent company of GM Rover, who had pocketed more than £16 million, even though the company had lost £89 million. The chairman and vice chairman were accused by Martin O’Neill, chairman of the Commons Trade and Industry Select Committee, of using “financial sleight of hand” to line their own pockets and of failing to exercise good corporate governance.

LEFT: Tory PM Edward Heath’s “unacceptable face of capitalism” has now become the normal face of capitalism. Maybe there never was any other.

Such cases, when they occurred, were regarded as aberrant, involving corrupt or avaricious individuals. They were the occasional rotten apples in a barrel that was generally good and healthy. For the most part mainstream politicians, like the mainstream media, have hardly mentioned capitalism by name. Their preferred terminology has tended to refer to the “free market”. It is worth noting that terms such as “free market” and “free world” carry a heavy ideological baggage and emotive power. Since 1945 the implication in the use of these terms is that the “western world” is free and that the freedom we enjoy is inextricable from the “free market”. Until the collapse of the communist-ruled states in the Soviet Union and Eastern Europe, the alternative to the “free world/market” was said to be loss of freedom and totalitarian tyranny. This was the constant theme of the mainstream media. It was also the theme of authoritative philosophers and economists such as Isaiah Berlin (“Four Essays on Liberty”) and Milton Friedman (Capitalism and Freedom). So powerful was this ideological contention that its influence is still pervasive today. But things could be changing.

The current talk about capitalism is different. Now the capitalist system in Europe (including Britain) and throughout much of the western world is in the most acute crisis since the 1930s. It is no longer possible for the ruling classes of the countries most severely affected to deny its severity. When the first phase of the present crisis broke in 2007/8, some of the more perceptive Keynesians, such as Will Hutton in Britain, realized that this time it was not just another “manageable” recession like those of the early 80s and 90s, but a crisis of global proportions and potentially catastrophic dimensions which could lead to a systemic crash. Hutton is fully aware of the social implications of the crisis, as is clear from his column in the Observer on December 4. 2011: “Be sure that British civil society will not accept its grim fate as if nothing is happening. There will be organized and angry responses – and rightly.  We are about to experience economic, social and political tectonic plates on the move.” It is worth quoting a little more from this article as in it he expresses a view which has recurred frequently in what he has written since 2008. “This”, he says, “is a crisis of bad capitalism….The only way forward is a good capitalism.”  He concludes that “socialism, certainly as conceived and practiced over the past 100 years, is no plausible answer.” Note the qualification, which is significant -“as conceived and practiced over the past 100 years.” We will return to that later.

What has occasioned this latest discourse about capitalism? Some, like Hutton, Krugman and Stieglitz have offered serious observations about the nature and causes of the crisis and have, since its onset in 2008, argued that there would be no way out of it through imposing severe austerity measures. But others such as prime minister Cameron are simply responding to the growing public anger about the multi-millions in pay and bonuses that the bosses of an already bloated financial sector continue to award themselves as the rest of society is obliged to pay for their profligacy. 

Cameron is also discomfited by Ed Miliband’s claim to the high ground in opposing “predatory” and “irresponsible” capitalism. Actually, both Cameron’s and Miliband’s rhetoric is reactive. It is the global financial crisis, the crisis in the Eurozone, the Occupation movement worldwide and not least the extraordinary upsurge of revolutionary fervour throughout the Arab world that have thrust questions about the nature of capitalism to the forefront of public concern. In particular attention has become focused on the role of finance capitalism. But the growing ranks of its critics who are trying to understand what caused the crisis and searching for ways of overcoming the social depredations following in its wake, will find little to enlighten or reassure them in anything that Miliband and Cameron have to say.

In talking about predatory and irresponsible capitalism, Miliband challenges Cameron to do something about exorbitant rail fares and bank charges; to end the “surcharge culture” and the “rigged energy market.” These are all matters of acute public concern and it is essential to confront and face down the banks, the railway companies and the energy suppliers. But they go nowhere near getting to grips with what even its staunchest defenders are forced to admit is a crisis of capitalism.

Cameron, like Miliband, says he wants a “responsible capitalism”. He talks of a “moral capitalism”, claiming that open markets and free enterprise are “the best imaginable force for improving human wealth and happiness”….”They are an engine for progress, generating enterprise and innovation that lifts people out of poverty and gives people opportunity.” “I would go further”, he says, “Where they work properly, open markets and free enterprise can actually promote morality.”

The point of all the rhetoric about the need for “responsible capitalism” is to counter the growing sense amongst those involved in protests and occupations across Europe, the USA and elsewhere, that (in the words of the banner raised over the London occupation at St. Paul’s), “Capitalism IS Crisis.” The ongoing and deepening sovereign debt crisis in the Eurozone is as far as ever from resolution. As the UK falls into the double dip recession we were confidently assured by the government would not happen, the flimsy veil of credibility covering the “necessary” deep cuts of the austerity measures, is in shreds. A minority – but a growing minority – is beginning to question the nature of a system that is so obviously  dysfunctional. On the same day (January 19.) that the City of London Corporation was given the legal right to evict the Occupy London protesters from St. Paul’s churchyard, Goldman Sachs announced that they had set aside £8bn to pay its staff an average of £238,000 each. Of course, such grotesquerie causes some embarrassment, even among the millionaires of Cameron’s cabinet. This is not, they tell us, the way capitalism should be working. We are left to infer that the ever-expanding gulf between rich and poor – a gulf that is growing greater by the month as the government’s cuts drive thousands more into hopeless poverty – is either not really happening or is something that should not trouble us. When working properly, Cameron assures us, the “free market” will lift people out of poverty. When might that be?  How long should the one million unemployed young people in Britain be prepared to wait?

The protesters of the Occupy movement have got it right. In effect, they – and increasingly the re-energized trade union movement and the plethora of new activists – are saying that they have had enough. They have had enough of waiting for a lugubrious bunch of professional politicians to act on their behalf. The new activism must, and likely will be informed by a far greater awareness of the true nature of capitalism. They will be aware that it is not just a matter of excesses and the behaviour of “irresponsible” capitalists and greedy bankers. There is a growing understanding that the problem with capitalism is systemic. The system as a global socio-economic formation is in crisis. Boom and bust are in the nature of capitalism; they always have been and always will be. In its latest stage – finance monopoly capitalism – the cycles of boom and bust have become ever more frequent and ever more severe. The rise to dominance of finance capital in the western world since the 1970s has been in inverse proportion to the decline of the so-called “real economy”. As the economies based on manufacturing have stagnated, the real incomes of the working populations have declined. The illusion of continued prosperity in countries like Britain and the USA has been sustained by accumulated debt fuelled by unsustainable property bubbles. Now the bubbles are bursting with greater frequency and the European countries that were most heavily dependent on banking and the construction industry, such as Ireland, are hardest hit.

In conclusion it is worth returning to Will Hutton’s claim that the crisis is with “bad capitalism” and that the only way forward is to exchange it for “good capitalism.” He argued that socialism offeres no plausible alternative but added the qualification “certainly as conceived and practiced over the past 100 years.” It is not clear if Hutton intended this to be understood as a rejection of any imaginable form of socialism as an alternative to “bad capitalism”, but it is worth taking up this argument.

It needs to be said unequivocally that Hutton is right when he says that what has been practiced as socialism over the past 100 years does not deserve the name. (There are one or two possible exceptions that space prevents us from dealing with here). The countries of “actually existing socialism” in the Soviet Union and Eastern Europe were, despite state control of their economies, for the most part bureaucratic dictatorships in which the working class and peasantry held no actual power and in which, for the most part, the people were denied the elementary rights of freedom of speech and assembly. However one characterizes such societies, they were not socialist in anything but name.

Britain under the Labour government 0f 1945 -1951 is often described as socialist. It wasn’t. The nationalization of the “commanding heights” of the economy and the establishment of a “mixed economy” was a social democratic experiment which, in the harsh economic circumstances of the time, made considerable concession to a working population determined to redress the gross inequalities of the pre-war depression years. But it didn’t radically change the power structure. It was an example of social-democratic management of a capitalist economy. It wasn’t socialism.

If it is assumed that capitalism is incapable of resolving the contradictions with which it is so obviously riddled, the question of what is to replace it cannot be avoided. Will Hutton is right to reject what has passed for socialism over the past century. But, whatever we call it, there has to be an alternative to the present system. It is no exaggeration to say that the future of human society and the natural environment depends upon it. Consideration of what such a society might look like must be deferred to the next Letter from the UK.

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