Who will rescue capitalism? As the voices of its critics grow louder, those of us who would defend the moneymakers must not be cowed. But even the most ardent supporters of the profit motive would probably concede that capitalism has been veering in the wrong direction, providing sufficient ammunition for its detractors to raise doubts over the sustainability of the system itself. With public anger over bankers, in particular, and ‘fat cats’ in general, politicians — of all parties — have seen an opportunity to empathise with demonstrators’ banners and the shrieking from the media.
Warm, even occasionally wise, words have flowed, defining how capitalism should be. David Cameron wants it to be ‘fair’; Ed Miliband wants it to be ‘responsible’; and Nick Clegg favours the John Lewis variety. All admirable sentiments, but just try legislating for such ideals — let alone policing them. That is why, after almost every minister and backbencher have had their say, all that is promised is tougher rules on transparency of boardroom pay and yet another look at empowering shareholders.
Even Vince Cable’s much-hyped proposals have been greeted with relative sanguinity by business. Calls for more transparency are themselves easily seen through: enough information is already available for the High Pay Commission to report that, in the past decade, the average remuneration of a FTSE 100 chief executive rose from 69 times that of the average worker to 145 times. The ensuing publicity did nothing to halt a trend which is now set to take the ratio to 214 times over the next ten years. Giving more power to shareholders is unlikely to produce a speedy change. The institutional investors who own most of corporate Britain demonstrate pitifully little enthusiasm for engaging in such issues.
In my time as a City editor, I found that I became far more exercised about what was going on within companies than those who actually owned the companies. If shareholders were unhappy or concerned, they would simply sell the stock. Too often — if they were happy and the stock had risen — they would still sell the stock. Little wonder that the directors who sit on the boards of corporate Britain have limited respect for those whom, in theory, they serve. Those of us keen to save the reputation of capitalism should not invest too much hope in these ‘absentee owners’.
Perhaps more hope lies in those who have been enjoying the rich rewards, and who should realise that their position is looking increasingly precarious. The West may have deemed capitalism the best system in the past, but if it is seen to be failing the majority of the people, they will reach for alternatives. The clamour to rein in free markets will grow until politicians acknowledge that mere words will not be enough to quell it.
If a political backlash is to be avoided, then business must put its own house in order. At the end of last year David Jones, a man dubbed an ‘advertising guru’ and a former adviser to Cameron, published a book entitled Who Cares Wins: Why Good Business is Better Business. It is a treatise in praise of what was once labelled Corporate Social Responsibility, something of which, at its box-ticking worst, I was once roundly scathing. But while I remain suspicious about much of this agenda, with its emphasis on diversity quotients and pious mission statements, I am convinced that business needs to look beyond the bottom line.
Commerce has to be seen as a force for good, not merely a generator of fat salaries for the people at the top. That starts by producing the goods or services that people are willing, and want, to purchase, but it must go further. I became a David Cameron fan in his pre-Big Society days, when he first talked about the need to fix the ‘broken society’. The scale of the task is daunting, and few would question the fact that it is a problem that government alone cannot fix. Business can, and should, play a major role.
Adam Smith, that great respecter of the profit motive, was suspicious about the idea of ethical business: ‘I have never known much good done by those who affected to trade for the public good,’ he wrote. But his invisible hand would align the concerns of business and society. Fixing broken Britain would not reflect any sense of corporate altruism, but an understanding that business can flourish best in a society which is thriving, well-educated and law-abiding.
And this agenda is under way. There are already plenty of examples of companies making a difference, whether it be taking ex-offenders into employment, or providing work experience and mentoring for children who might otherwise be disaffected truants (and graduate into disaffected, unemployed adults). Just as the Victorians gave us the corporate towns, places such as Bournville, Cadbury’s chocolate box suburb, and Port Sunlight, a bricks-and-mortar tribute to Unilever’s washing powder. Without being so proprietorial, modern business could have a big and positive impact on communities. Nike, for instance, decided that its brand was at risk of contamination over allegations that it used child labour. Its response was to donate basketball courts to numerous communities, a move that goes on scoring positively for the brand, keeping youths healthily engaged and, perhaps, buying rather than looting their trainers.
Major companies are currently hoarding large piles of cash, too nervous of what economic shocks lie around the corner to invest in hefty acquisitions or new projects. Putting a small proportion of this saving into an infant business or social enterprise could make a huge difference, where conventional bank funding is failing. Add some management mentoring, and the equation looks even better.
Non-executive directors are not all the patsies they are painted as, although ‘group think’ can and does permeate many a boardroom. Now is the time they could really demonstrate their worth, becoming the crusaders for not merely fair but creative capitalism. Bringing a sense of proportion to remuneration would just be one step on the way.
It is clear, even to hardened free-marketeers like myself, that things have to change. If they don’t, we may all be bemoaning the death of capitalism. And I certainly don’t relish the alternatives.
This article first appeared in the print edition of The Spectator magazine, dated January 28, 2012