The Future of Capitalism

by Paul Collier

  Armed with its Utilitarian calculus, economics rapidly infiltrated public policy. Plato had envisaged his Guardians as philosophers, but in practice they were usually economists. Their presumption that people were psychopaths justified empowering themselves as a morally superior vanguard; and the presumption that the purpose of the state was to maximize utility justified redistributing consumption to whoever had the greatest ‘needs’. Inadvertently, and usually imperceptibly, social-democratic policies changed from being about building the reciprocal obligations of all citizens.

  In combination, the result was toxic. All moral obligations floated up to the state, responsibility being exercised by the morally reliable vanguard. Citizens ceased to be moral actors with responsibilities, and were instead reduced to their role as consumers. The social planner and his Utilitarian vanguard of angels knew best: communitarianism was replaced by social paternalism.

  The emblematic illustration of this confident paternalism was post-war policy for cities. The growing number of cars needed flyovers and the growing number of people needed housing. In response, entire streets and neighbourhoods were bulldozed, to be replaced by modernist flyovers and high-rise towers. Yet to the bewilderment of the Utilitarian vanguard, what followed was a backlash. Bulldozing communities made sense if all that mattered was to raise the material housing standards of poor individuals. But it jeopardized the communities that actually gave meaning to people’s lives.

  Recent research in social psychology has enabled us to understand this backlash better. In a brilliant book, Jonathan Haidt has measured fundamental values around the world. He finds that almost all of us cherish six of them: loyalty, fairness, liberty, hierarchy, care and sanctity.6 The reciprocal obligations built by the co-operative movement had drawn on the values of loyalty and fairness. The paternalism of the Utilitarian vanguard exemplified in bulldozing communities breached both of these values and liberty – while recent research in neuroscience-enhanced social psychology has found that the modernist designs beloved of the planners reduced well-being by breaching common aesthetic values. Why did the vanguard fail to recognize these moral weaknesses in what they were doing? Again, Haidt has the answer: their values were atypical. In place of the six values held by most people, the vanguard had shrivelled its values down to just two: care and equality. Not only were its values atypical, but so were its characteristics: Western, Educated, Industrial, Rich and Developed – or WEIRD, for short. Care and equality are the Utilitarian values: the WEIRD followers of the weird. At its best, education widens our empathy, enabling us to put ourselves in the place of others.* But in practice it often does the opposite, distancing the successful from the anxieties of ordinary communities. Armed with the confidence of meritocratic superiority, the vanguard readily saw themselves as the new Platonic Guardians, entitled to override the values of others. I suspect that had Haidt probed further, he would have found that, while the WEIRD were ostentatiously dismissive of hierarchy, what they meant by it were those hierarchies inherited from the past. They took for granted a new hierarchy: they formed the new meritocracy.

  The backlash against paternalism grew during the 1970s. Potentially, it could have attacked the disdain for loyalty and fairness and restored communitarianism, but instead, the vanguard attacked the disdain for liberty, and demanded that individuals be protected from the infringements of the state by reclaiming their natural rights. Bentham had dismissed the notion of natural rights as ‘nonsense on stilts’, and in this I think he was correct. But politicians struggling to win elections began to find proclamations of new rights convenient. Rights sounded more principled than mere promises of extra spending, and, whereas specific promises could be questioned on the basis of cost and tax, rights kept the obligations needed to meet them discretely offstage. The co-operative movement had linked rights firmly to obligations; the Utilitarians had detached both from individuals, shifting them to the state. Now, the Libertarians restored the rights to individuals, but not the obligations.

  This impetus to rights for individuals allied with a new political movement that also claimed rights: the rights of disadvantaged groups. Pioneered by African Americans, it was emulated by feminists. They too found their philosopher – John Rawls – who countered Bentham’s critique of natural rights with a different overarching principle of reason: a society should be judged moral according to whether its laws were designed for the benefit of the most disadvantaged groups. The essential purpose of these movements was inclusion in society on an equal basis with others, and both African Americans and women had an overwhelming case for profound social change. As we will see, social patterns can be stubbornly persistent, and so equal inclusion was inevitably going to require a transitional phase of struggle against discrimination. Half a century later we are still in that transition, but in the process what began as movements for inclusion have hardened, perhaps inadvertently, into group identities that have become oppositional: struggle is invigorated by envisioning an enemy group.* The language of rights proliferated, encompassing those of the individual against the paternalist state; those of voters periodically sprayed with entitlements by politicians; and those of new victim groups seeking privileged treatment. These three sets of rights had little in common, but each was antipathetic to the inclusive matching of rights to obligations achieved by social democracy while it had adhered to its communitarian roots.

  The Utilitarian cause was promoted by economists; the rights cause was promoted by lawyers. On some issues the two vanguards agreed, making them extremely powerful lobbies. On others, they clashed: Rawls and his followers accepted that some of the rights that would empower small but disadvantaged groups would make everyone else worse off and so fail on the Utilitarian criterion. In the contest between economic technocrats and lawyers, the balance of power initially lay with the economists: the promise of delivering ‘the greatest well-being to the greatest numbers’ appealed to vote-seeking politicians. But gradually the balance of power shifted to the lawyers, wielding the nuclear weapon of the courts.

  While the two ideologies became increasingly divergent, neither had much room for the ideas that had guided the co-operative movement. Utilitarians, Rawlsians and Libertarians all emphasized the individual, not the collective, and Utilitarian economists and Rawlsian lawyers both emphasized differences between groups, the former based on income, the latter on disadvantage. Both influenced social-democratic policies. Utilitarian economists demanded redistribution guided by need; gradually, welfare benefits were redesigned so that entitlement was unlinked from contributions, dismissing the normal human value of fairness. Those who had not contributed were being privileged over those who had. Rawlsian lawyers demanded redress guided by disadvantage. For example, the rights of refugees became the top priority for Germany’s Social Democrats in the 2018 coalition negotiations. Martin Schultz, the party’s leader, insisted that ‘Germany must comply with international law, regardless of the mood in the country’.7 That ‘regardless of the mood in the country’ was a classic expression of the moral vanguard; both Bentham and Rawls would have cheered Schultz on, but within a month he was ousted by a popular mutiny. Both ideologies dismiss the normal moral instincts of reciprocity and desert, elevating a single principle of reason (albeit different ones) to be imposed by a vanguard of the cognoscenti. In contrast, the co-operative movement was grounded in those normal moral instincts: a philosophical tradition going back to David Hume and Adam Smith. Indeed, Jonathan Haidt is explicit about this debt in seeing his own work as ‘a first step in resuming Hume’s project’.

  While the intellectuals of the left were abandoning practical communitarian social democracy in favour of Utilitarian and Rawlsian ideologies, the parties of the centre-right either ossified into an ideas-light zone of nostalgia, or got captured by an equally misguided group of intellectuals. The Christian Democrats of continental Europe, exemplified by Silvio Berlusconi, Jacques Chirac and Angela Merkel, mostly took the path of nostalgia; the Conservative and Re
publican parties of the Anglophone world chose ideology. The philosophy of Rawls was countered by that of Robert Nozick: individuals had rights to freedom which overrode the interests of the collective. This idea allied naturally with new economic analysis led by the Nobel Laureate Milton Friedman, that the freedom to pursue self-interest, constrained only by competition, produced superior results to what could be achieved through public regulation and planning, and formed the intellectual foundations of the policy revolutions of Ronald Reagan and Margaret Thatcher. While the new ideologies of left and right presented themselves as being diametrically opposed to each other, they had in common an emphasis upon the individual, and a fondness for meritocracy: the morally meritocratic elite of the left vied with the productively meritocratic elite of the right. The superstars of the left became the very good; those of the right, became the very rich.*

  So, what had been so wrong with social democracy that both left and right abandoned it? In its heyday of the 1950s and 1960s nothing much was wrong with it. But although social democracy has been the dominant intellectual force in public policy, it was a creature of its time. Far from encapsulating universal truths – the hallmark claim of all ideologies – it was built on distinctive circumstances, and valid only conditional upon those circumstances. As circumstances have changed, its pretensions to universalism have been shattered. By the late 1970s, the time that the USA and Britain were as equal as they have ever been, the conditions for it were already crumbling; the mass revolt that swept Reagan and Thatcher into power was well underway. Social democracy worked from 1945 until the 1970s because it lived off a huge, invisible and unquantifiable asset that had been accumulated during the Second World War: a shared identity forged through a supreme and successful national effort. As that asset eroded, the power wielded by the paternalistic state became increasingly resented.

  Just as its social underpinnings were undermined, so were social democracy’s intellectual underpinnings. The omniscient Platonic Guardian social planner was mocked into oblivion with the rise of the new field of Public Choice Theory. This recognized that decisions on public policies are not usually taken by detached saints, but by balancing pressures from different interest groups, including the bureaucrats themselves. The selflessness of the planner could only be relied upon while the people involved in the decision were imbued with a passion for the national interest, as instilled into the wartime generation. Within philosophy, Utilitarianism still has pockets of adherents, but the withering critiques have accumulated.8 They have been reinforced by the critiques of social psychologists like Haidt, revealing its values to be far from universal truths. The vast majority of mankind are not the selfish oafs depicted in Utilitarian economics, but people who value not only care, but fairness, loyalty, liberty, sanctity and hierarchy. They are not more selfish than the social democratic vanguard; they are more rounded.

  As the new libertarianism of the right proved to be both more destructive and less efficient than expected, the left returned to power, but not to communitarianism. Instead, it was now controlled by the new ideologues. The new vanguard had probably supplanted the communitarians without even noticing that they had done so. But ordinary families noticed, not least because, divorced from communities, some of the policies favoured by the vanguard were damaging and unpopular. They ran the state from the metropolis, which was thriving, and targeted assistance on those groups judged to be most in need: the ‘victims’. The new anxieties were hitting people who often did not tick sufficient of these boxes, despite the fact that their circumstances were deteriorating both absolutely and relative to the more fashionable ‘victim’ groups. A corollary of ‘victim’ status was that those included in it could not be held in any way responsible for their circumstances. Even when the working class ticked some of the victim characteristics, it merely entitled them to some extra consumption: that was the focus of Utilitarian redistribution. Concepts such as belonging, desert, dignity and the respect that comes from meeting obligations are so alien that they have been entirely absent from professional discourse. But, usually, victim status was withheld from the white working class: here is the impeccably WEIRD National Review, commenting on their falling life expectancy: ‘they deserve to die’.9 Evidently, although all victims are equal, some are more equal than others.

  We are living a tragedy. My generation experienced the triumphant achievements of capitalism harnessed to communitarian social democracy. The new vanguard usurped social democracy, bringing their own ethics and their own priorities. As the destructive side effects of new economic forces hit our societies, the inadequacies of these new ethics have been brutally revealed. The current failures of capitalism, as managed by the new ideologies, are as manifest as were the successes of what they replaced. It is time to turn from what has gone wrong, to how it can be put right.

  PUTTING IT RIGHT

  Our politicians, newspapers, magazines and bookshops abound with smart-sounding proposals: we should retrain workers; we should help struggling families; we should raise taxes on the rich. Many of them are right in spirit, but address only one aspect of the new anxieties; they do not provide a coherent response to what has befallen our societies. They are seldom developed into implementable strategies supported by evidence of their efficacy. Nor, other than those of the ideologues, are they explicitly grounded in an ethical framework. I have tried to do better. I have tried to combine a coherent critique of what has gone wrong with practical ways of healing the three divides that have riven our societies.

  Social democracy needs an intellectual reset, bringing it back from existential crisis to something that can again be the philosophy across the centre of the political spectrum, embraced by both the centre-left and the centre-right. My inspiration for such a grandiose-sounding project is that over sixty years ago one hugely influential book did precisely that. The Future of Socialism, by Anthony Crosland, gave intellectual coherence to social democracy in its heyday. It decisively parted company with Marxist ideology by recognizing that, far from being the barrier to mass prosperity, capitalism was essential for it. Capitalism spawns and disciplines firms, organizations that enable people to harness the productivity potential of scale and specialization. Marx thought that this would cause alienation: working for capitalists in large firms would inevitably separate enjoyment from labour, while specialization ‘chained [man] down to a little fragment of the whole’. Ironically, the consequences of alienation were most devastatingly revealed by industrial socialism: the culture summarized as ‘they pretend to pay us, and we pretend to work’. Alienation is not the price society must pay in order to be prosperous; accepting capitalism is not doing a deal with the devil. Many good modern firms give workers a sense of purpose, and sufficient autonomy to take responsibility for fulfilling it. Their workers get satisfaction from what they do, not just from what they earn. Many other firms are not like this, and many people are stuck in unproductive and demotivating jobs. If capitalism is to work for everyone it needs to be managed so as to deliver purpose as well as productivity. But that is the agenda: capitalism needs to be managed, not defeated.

  Crosland was a pragmatist; a policy was to be judged by whether it worked, not by whether it conformed to the tenets of an ideology. A core proposition of pragmatist philosophy is that, because societies change, we should not expect eternal truths. The Future of Socialism is not a bible for the future, it was a strategy fitted for its era. While being healthily suspicious of the arrogant paternalism of the vanguard, its view of well-being was as reductionist – equalized individual consumption. The Future of Capitalism is not a remake of The Future of Socialism. It is an attempt to provide a coherent package of remedies that address our new anxieties.

  Academia has become increasingly compartmentalized into silos of specialism. This yields advantages in depth of knowledge, but the present task spans several of these silos. This book has only been possible because I have learned from collaborations with an exceptionally wide range of specialists of wo
rld-renown. The new social divergence is partly driven by changes in social identities; from George Akerlof, I have learned the new psycho-economics of how people behave in groups. It is partly driven by globalization gone wrong; from Tony Venables, I have learned the new economic dynamics of metropolitan agglomeration and why provincial cities can implode. It is partly driven by the deteriorating behaviour of firms; from Colin Mayer, I have learned what can be done about this loss of purpose. Most fundamentally, it is driven by the Utilitarian takeover of public policy; from Tim Besley, I have learned a new fusion of moral theory and political economy, and from Chris Hookway, I have learned the philosophical origins of pragmatism.

  While I have tried to integrate the insights of these intellectual giants as the basis for practical remedies, none can be held responsible for the result.10 Critics will read the book searching for things to challenge, and will surely find them. But the book is a serious attempt to apply new currents in academic analysis to the new anxieties that have beset our societies. I hope that, as with The Future of Socialism, it can provide a basis on which the beleaguered centre of the political spectrum can rebuild.

  Capitalist societies must be ethical as well as prosperous. In the next chapter I challenge the depiction of humanity as economic man: greedy and selfish. Shamefully, there is now indisputable evidence that students taught economics actually start to conform to this behaviour, but it is aberrant. For most of us, relationships are fundamental to our lives, and these relationships come with obligations. Crucially, people enter into reciprocal commitments, the essence of community. The battle between selfishness and reciprocal obligations – between individualism and community – plays out in three arenas that dominate our lives: states, firms and families. In recent decades, in each, individualism has been rampant and community in retreat. For each, I suggest how the ethics of community could be restored and enhanced by policies that rebalance power.