The resounding defeat of Jeremy Corbyn’s Labour Party has revived the cries for “Responsible Capitalism.”
Corbyn is a not so thinly-disguised old style socialist. He and his supporters believe that the only route to a fair society is through socialism based on public ownership. The problem is that historical experience says otherwise. There have been successful mixed economies, but every attempt at full-blown socialism has ended in political, economic and social disaster.
In every instance they have hit the brick wall of human nature and its hand maiden the survival instinct. Humans are greedy. That greed has dragged us out of damp caves into centrally-heated bungalows. Conversely, the same greed has ignited wars, destroyed the environment and created social inequalities.
The bastion of world capitalism—the United States—is a shining example of these inherent contradictions. Its national entrepreneurial success has created the wealthiest country in the world. But that wealth is not equitably shared. Two-thirds of America’s wealth is owned by five percent of the population. Forty percent of Americans earn less than $15 an hour; five percent earn the minimum wage or less and 28 million Americans do not have medical insurance.
The bulk of America’s wealth is concentrated in the hands of the major corporations. In fact, the 25 richest companies control half of the country’s cash. The directors of these companies may have a moral responsibility towards responsible capitalism, but they have a clear legal responsibility to the shareholders in their companies. Those shareholders include hundreds of millions—if not more—who have invested either directly through the purchase of shares and bonds or indirectly through their pensions. Human nature being what it is, most of them are more likely to be concerned about putting food on the table in their declining years than the threat of climate change. In fact, a recent survey of British investors revealed that 65 percent of British investors felt that environmental and social governance factors should NOT be taken into account when making investments.
The solution is to underscore the mutual benefit that business shares with the wider community. As Adam Smith wrote in 1776: “It is not from the benevolence of the butcher, the brewer and the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.” Smith went on to say that the business community succeeds within the context of the success of the wider community.
President Kennedy had another—more succinct—way of describing this mutually beneficial relationship: “A rising tide floats all ships.” The problem with that axiom is that tides go out as well as in. When it goes out it can leave those unable to secure a safe anchorage floundering on the mud banks as occurred in 2008 and the austerity years that followed; which is why unbridled capitalism fails.
The advocates of responsible capitalism argue that the time has come for businesses to take more responsibility for the social and environmental consequences of their actions. One of those leading the charge is Larry Fink, the billionaire CEO of Black Rock, the world’s largest hedge fund, who is campaigning for investments that have a social purpose as well as delivering financial results. The problem is who decides what is a socially acceptable investment? Mr Fink’s company, for instance, is the largest investor in America’s weapons industry.
Milton Friedman—mentor to Margaret Thatcher and Ronald Reagan—said that “business people are neither elected nor answerable to the public.” In the strictly legal sense that is true, although companies are subject to legal strictures just like everyone else. The public’s interests are represented by their governments which, in most western countries, are directly elected by the people. Businesses, however, control the money that provides the cash that runs these governments. In a capitalist system the two entities are interdependent.
The refusal of many businesses to ignore this interdependence to focus on short-term gains at the expense of the wider community has given capitalism a bad name and created the atmosphere which allowed the far left to gain control of Britain’s Labour Party with claims that capitalism was dead. Corbyn’s failure has revived the religion of market forces, but it can truly survive if business and government work in tandem to devise systems that are more socially responsible.
Political journalist Tom Arms is a regular contributor.