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Predators and Creators in the Future of Capitalism
The economic crisis was a dramatic reminder that capitalism can both produce and destroy, but the crisis also presents an historic opportunity to choose a radically different future for capitalism.
By Geoff Mulgan
The biggest challenge facing political parties across the world is how to refresh its ideas on economic growth: growth that is sustainable, inclusive and fit for a world of intensifying global competition. The answers need to explain why the crisis happened and what needs to be done to put things right. They need to point to practical policy options for national, regional and city governments, and to address public anxiety that the economy isn’t just failing to generate wealth and jobs but is also failing to make enough sense.
My new book ‘The Locust and the Bee’ attempts some answers that go well beyond the now familiar ones around monetary policy and fiscal stimulus. It starts with some essential theory. Much of 20th century political argument was polarised between the view that markets are inherently virtuous and the view that they are inherently corrosive – Margaret Thatcher on the one hand, Occupy on the other. A remarkably high proportion of current writing repeats these mirrored views. But the best thinkers, including Adam Smith two centuries ago, saw things very differently.
Market economies incentivise both creative and predatory behaviours. It’s possible to make money by selling useful things to willing customers, but it’s also possible to make money by taking advantage of customers who lack knowledge, power or choice. Capitalism at its best rewards the creators and makers who create valuable things for others, like imaginative technologies and good food, cars and drugs: the human equivalents of industrious bees. By harnessing their energy capitalism can make everyone better off, more than any other economic system in human history. But capitalism also rewards takers and predators, the people and firms who extract value from others without contributing much in return. Predation is part of the everyday life of capitalism, in sectors as mainstream as pharmaceuticals, software and oil, where people’s money, their data, their time, and their attention are routinely taken in fundamentally asymmetrical exchanges.
Understanding the dual nature of capitalism matters for three reasons, which go to the heart of contemporary politics. First it’s crucial for understanding the causes of the crisis, which was prompted by a boom of predation, primarily in finance, that extracted value from the rest of the economy on a colossal scale. The returns to predation grew while the returns for innovation shrank – which is why so many firms chose to hoard cash rather than investing it in the 2000s.
Second, a clear understanding of capitalism’s dual nature is crucial for shaping credible prescriptions. These have to combine measures to rein in predation- particularly in finance and the environment – while also amplifying creation, from entrepreneurship through universities. Third, getting this right is crucial to the politics. The public simply won’t believe political parties that can’t distinguish good from bad entrepreneurship, good from bad innovation, good from bad corporate practice. In retrospect, parts of the centre left simply lost the capacity to distinguish, and adopted an unthinking market enthusiasm that sowed the seeds for the problems we’re now dealing with. Jeff Immelt, the chairman and chief executive of General Electric, perhaps the most consistently successful capitalist enterprise of modern times, ascribed the crisis to “the meanness and greed” of business leaders: “the richest people made the most mistakes with the least accountability.” The fact that others went on to pay the price for these mistakes explains much about the politics of our times.
So what is to be done? The answers can’t be found in endless summits trying to wish the pre-2007 economy back into existence, or in yet more doses of stimulus or austerity. Instead we need to map out more of what the future economy will, could and should look like. In the book I set out many of the elements needed to rein in predation and to amplify creativity. The former include new reporting requirements, tax rules and radical options for recasting banking, to turn finance from a master into a servant of the real economy. The latter range from new models of schooling to business accelerators, inducement prizes to next generation universities. They involve both boosting and transforming investment in R&D, and encouraging a culture in which everyone has the potential to create and innovate – the spirit of dynamic fields like the maker movement and social entrepreneurship. I also look at what needs to be happen in welfare and consumption, and radical options for the taxation of wealth that would help to reduce the chronic waste in consumption amongst the top 1%.
Crises can be fertile or barren. The last great financial crisis, in the 1930s, unleashed protectionism and war. But it also led to extraordinary social creativity, that left large parts of the world with welfare states and Keynesian economics, the UN and human rights. Countries as diverse as Sweden and New Zealand responded to the crisis with radical programmes to remake their societies. This was one of the many moments when capitalism was remade, its energies channelled in new ways, whether by the creation of science and public health systems, by laws that banned the sale of everything from drugs to unsafe foods, and by the entrenchment of new rights.
It remains unclear if and when the current crisis will become fertile. For now the policy prescriptions are entirely backward looking. Leaders are simply seeking to restore the status quo. It’s hard to point to a political party anywhere that can offer a credible and inspiring vision for the future economy that can both rein in what’s wrong with capitalism but also make the most of its unique potential to create. One reason is that although the old models are discredited the new alternatives are far too weak to replace them. There’s no shortage of green shoots of an alternative economy – from collaborative consumption platforms and closed loop manufacturing, to peer to peer finance and local food sourcing, complementary currencies to social networks supporting the elderly. Nor is it that hard to see the radically different ways in which 21st century systems – energy to healthcare to finance - could be organised. But for now the crisis has shortened horizons and dampened any sense of radical possibility.
History suggests that won’t be true for long. What people will look for are not just practical answers but also reinvigorated values - because capitalism’s crisis isn’t just a crisis of growth and jobs. It’s also a crisis of morals. Capitalism has run into repeated crises of profitability, but it has also run into periodic crises of meaning. Amidst every capitalist economy there are anti-capitalist movements, activists, and even political parties, in a way that there are no longer anti-democratic movements, activists, and parties. There are hundreds of millions of skeptics and cynics, who look with distaste on the bland reassurances of corporate advertising, dissidents in their heads even if not on the streets. For all its achievements in raising living standards, capitalism has, quite literally, failed to make enough sense, not just for the losers, but often for the winners too. That’s why issues such as tax evasion or bonuses become so toxic.
The implication is that the challenge of economic recovery goes wider than much economic commentary admits. The answers have to address not just how capitalism can be made to work – but also what it’s for.
This article appeared at the Policy Network. Geoff Mulgan is CEO of the National Endowment for Science Technology and the Arts (NESTA). The Locust and the Bee: predators and creators in capitalism’s future is published by Princeton University Press.
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