Capitalism unreformed is a danger to itself | thearticle

Things can get sticky for political leaders during elections. Jeremy Corbyn’s difficulty in explaining to Andrew Neil how he would fund the £60 billion required to compensate the women born

between 1950 and 1960 who have been negatively affected by changes to the state retirement age, illustrates the point. But the bigger issue that the encounter highlights, is that the

electorate faces its biggest ideological decision since the election of Margaret Thatcher 40 years ago. The economic consensus that she built was founded on free-market capitalism and, under

Tony Blair, Labour embraced this idea by ditching Clause IV of the party’s constitution relating to the nationalisation of key industries. But that consensus is now over. The choice facing

voters is between big state socialism and economic liberalism. Corbyn’s plan to put key sectors into public ownership, including water companies, the national grid, the rail operators and

the Post Office, sends a shiver down the spine of investors. The CBI has calculated that Labour’s plans to nationalise industry would cost £196 billion. It is unclear where that money will

come from. There are only two ways to raise it — through tax increases or government borrowing. Then there is Labour’s call for a ban on billionaires. The Labour MP, Lloyd Russell-Moyle, has

argued for “a system where everyone is able to live well and [be] wealthy,” and the Shadow Chancellor, John McDonnell, concurs. But under a Labour government the state will be the sole

arbiter of what constitutes “well” and “wealthy”. The break from the sentiment expressed by Peter Mandelson in 1998 that he was “intensely relaxed about people getting filthy rich as long as

they pay their taxes,” is stark. The Labour Party now sees billionaires as a failure of government policy. These attacks on wealth generation should be challenged not applauded — but even

so, it would be dangerous for the Tories to ignore the growing unease with the current social and economic order. Labour’s proposals may be extreme, but they reflect a sense among many of a

lack of equity in modern Britain. Equity between those at the top of the wealth pyramid and wider society; between the old and the young; and between the South-East and the rest of the

country. Just as the London-centred liberal elite failed to see the coming Brexit tsunami, so a failure to tackle inequality in Britain will fuel resentment whose consequences could be dire.

Two points require particular attention. First, while pay based on performance is accepted as a principle, it is those rewards for failure that people find irksome. Examples of corporate

and political mismanagement abound, but too often it seems that, so long as you are in the magic circle, there are no consequences for egregious errors of judgement. The second issue is

rent-seeking behaviour, where a small group extracts profit while not contributing to an increase in productivity. This results in wealth accruing to a negligible number of people.

Corporations that use clever accounting techniques, or exploit loopholes to minimise the taxes they pay, are a case in point. The failure to confront these issues has led to the profit

motive being sneered at and ridiculed by many on the left. Yet it is entrepreneurship — the willingness to take risk and if successful, to be rewarded for that effort — that generates jobs

and the wealth that, in turn, finds tax revenues for public services. But today’s wealth generators must pay as much attention to the manner in which they generate profit as to the amount

that they make. Taking into account the interests of a broader group, not just shareholders, but employees, consumers, wider society and the planet, is of great importance. Corbyn has laid

bare his centralising, paternalistic, “state knows best” philosophy. If capitalism needs reform — and it does — reheated socialism is not the answer. But it’s not enough to tell young Labour

voters that the last time a truly left-wing government was in power the dead went unburied and rubbish piled up uncollected in the streets. The Tories need to appreciate that the battle

they won in 1979 is different from the one they face now. Back then, union power was crippling Britain, whereas now, the economy is being changed fundamentally by automation and the

internet. That will throw up opportunities for many, but heighten the level of insecurity for others. This could exacerbate the sense of injustice, disillusionment and discontent. That Boris

Johnson is no ideologue may well be a strength. If he wins, he should put fairness at the heart of his prescription for government. A failure to do so may put at risk the very foundations

of capitalism itself.