How do we make capitalism responsible?

Written by: Dan Holden on 20 February, 2013
Filed under Economy

‘Responsible’ and ‘moral’ capitalism are phrases often knocked about by progressives to describe the ideal end point of their beliefs; the centre of a Venn diagram between ideology and pragmatism. It’s a potent and emotive concept, one that few would disagree with, but also one that is currently lacking in substance. How do we legislate for, regulate and foster this?

Responsible capitalism was the buzz word in British politics not so long ago; not just alluded to by Miliband but also by Cameron and Clegg. There are lofty aspirations within the words of party leaders; creating more socially responsible companies and businesses, more accountability and curbing the excesses and devastating troughs of capitalism. Even if the responsible capitalism is not explicitly referred to as often in politics these days, it has lost none of its popularity or pertinence; executive pay and corporate tax avoidance are both issues that keep the concept firmly on  the agenda.

There has recently been slow movement toward what could be meat on the bones of responsible capitalism. Last week the Policy Network held an event to discuss a paper by Steven Hockman QC entitled “Legislating For A Responsible Capitalism”. Although through his own admission he is no financial expert, what Stephen Hockman does do is offer some fascinatingly simple and practical suggestions to evolve capitalism into a more responsible form. These include legal amendments and the introduction of a standing committee encouraging and monitoring responsible capitalism; at the Policy Network event there was even a suggestion of instating an office for responsible capitalism, endowed with the same power and significance as the OBR.

The proposals in this paper are not fashionable or likely to whip up political fervour on the doorstep, but they are not without electoral merit. A weight of serious, sober and concrete policy ideas behind any party’s main ideological thrust is one easy way present them as a serious contender for government. If Labour is to use the One Nation mantra effectively they must be able to not only offer a coherent idea of a One Nation economy but also take a leaf out of Gordon Brown’s book (in spite of his wavering popularity) and work hard to be seen as a party able to handle the economy. The task now is to keep the debate on what responsible capitalism would look like rolling.

In talk about responsible capitalism, the go-to frames of reference are Germany and the Scandinavian countries. It is very easy to make the point that ‘we are not Germany’, perfectly valid considering we have incomparable economies. However, Stewart Wood MP (key member of the Miliband team and present at Ed’s recent ‘Borgen’ trip around Scandinavia) has said that to say this is just not enough. To hold to such a defeatist attitude is damaging.

The German model is so popular for many reasons, their businesses operate on a much longer term basis, unions often have representation on boards and the relationship with the workforce is seen to be good. It would be nigh on impossible to replicate elements of the German economy, such as their comparatively lower executive pay, a result of the tendency to recruit from within in German business. And despite the many benefits of the German model, industrial relations have suffered at the hands of globalisation, as wages have stagnated in order to attract investment.

In spite of problems in economies overseas, that is not to say that we cannot learn from them. We should push for long-term thinking and strategy in business in the vein of the Germans. Short termism is rife in the UK, largely as a result of overseas trader ownership of companies, which we must rectify in order to create a capitalism that is responsible to the community around which it is built. We need a better relationship between business and research; we lag behind in international league tables of research and development expenditure. For a country so proud of its high-end precision engineering industry, this is a fallacy which inhibits us from enhancing our economic stature.

If Labour is to sell this cause to the electorate, as an objective that is coupled with the One Nation project, then they must offer something other than rhetoric and provide a more tangible proposition. A broad consensus within the electorate about responsible capitalism can easily be built, giving Labour a foundation from which to campaign for and enact change. The battle for hearts and minds, in this case, is not the difficult part; rather it is persuading the electorate to trust you, and to believe that you yourself are responsible and moral when it comes to the economy.