“lost its way”
“taken some wrong turnings”
“been hijacked by the management class”
Quotes from a Jeremy Corbyn speech?
Actually, these are comments made by former Marks and Spencer chairman Robert Swannell, Confederation of British Industry director-general Caroline Fairbairn, and British Bankers’ Association chairman Sir Nigel Rudd.
The Financial Times asked UK business leaders about the state of capitalism and they were quite critical.
They named greed, tax evasion and the lack of long-term thinking important reasons why the system needs reform.
Having already lost the support of the general public and politicians, the free market can no longer count on the business community either.
Could it be that the sun is setting on free market capitalism’s heyday?
The invisible hand needs some help
At this year’s Labour Party Conference, opposition leader Jeremy Corbyn attacked Britain’s “failed model of capitalism”.
Corbyn said more government intervention in the markets was needed to create a better economic model.
CBI director Caroline Fairbairn was quick to label the Labour leader’s speech anti-business, but now it appears she doesn’t disagree with him as much as you might think.
Though still an avid defender of the system, Fairbairn acknowledges the financial crash, a fixation on shareholder value and issues like tax and executive pay “stand in the way of redemption”.
Prime Minister Theresa May recently hailed capitalism as “the greatest agent of collective human progress ever created.”
But even the Conservative leader is aware the system isn’t perfect. May knows she needs to address public concern about the system’s perceived unfairness to stay in power.
That’s why the PM has vowed to soften capitalism’s sharp edges. She’s called for a cap on boardroom pay and wants to freeze energy bills.
To get the economy “that works for everyone” she promised, she can’t let capitalism do its thing without restrictions.
“Laissez faire” isn’t an option anymore. Adam Smith’s invisible hand needs a bit of help from a more visible government hand.
Politics logically follows the public mood. People are losing faith in free market capitalism and both Corbyn and May are trying to capitalise on that. It’s what gets them in power.
Business leaders turning on the system is something else.
If the group that’s supposed to benefit most from capitalism is calling for reform, then there really must be something wrong.
Business leaders named greed, investors’ short-termism and tax evasion as things to be fixed about today’s capitalism.
In the long run these ‘traits’ do capitalism more harm than good.
Greed is often focused on the short-term. Managers are put in charge and their pay depends on the share price. It gives them an incentive to take decisions that give the company a quick boost but may not benefit it long term.
“In the last two or more decades it has been possible to become seriously rich without taking any financial risks,” Sir Nigel Rudd told the FT.
“The general public instinctively resents this [and] will take revenge on a system that they see as unfair.”
Short-termism is a fault attributed to investors as well.
Investors own stocks for ever shorter periods. They used to keep stocks for years, but now they only stick around for months or even weeks.
They don’t really care anymore about what happens to the company in the long run, they’re just interested in the next quarterly figures. If they don’t like them, they sell.
This has an impact on the way companies are run. Companies prioritise meeting their short-term targets and largely forget about innovation and other long-term investments.
And then there’s tax evasion.
Companies like Apple and Amazon claim to be unfairly targeted by the authorities over their tax bills.
I’m sure their CEOs Tim Cook and Jeff Bezos will see the European Commission’s sanctions as anti-business but in fact the opposite is true.
When big corporations like Facebook, Apple, Amazon, Netflix, and Google (also known as ‘FAANG’) strike sweetheart tax deals, they gain an unfair advantage over their competition.
That’s why it’s not strange to hear other business leaders speaking out against tax evasion. It harms the business community at large because it prevents a level playing field.
In 2014 Netflix made £200m in the UK but paid no tax while Facebook paid less tax than the average UK worker. Giant companies exploiting loopholes to pay little or no tax lay bare the free market’s injustices.
Things like this have inspired a public revolt against capitalism. Interventionist policies like renationalising the railways, freezing energy bills and curbing executive pay are getting more support.
That’s why Chancellor Philip Hammond’s idea to slash corporation tax further to offset the negative effects of Brexit is risky.
Big business may welcome it, but Hammond could be completely misreading the public mood.