Can Capitalism Be Fixed?
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Here’s a strange paradox. The U.S. economy is on the verge of its longest expansion ever, and unemployment sits at a half-century low. Yet public discontent remains high. More than 60 percent of Americans think the country is on the wrong track, according to a recent Economist/Yougov poll. Similar disaffection is evident in Europe, which is enjoying a less robust expansion. The United Kingdom is struggling to cut ties with the European Union, and French President Emmanuel Macron is battling the “yellow vests” uprising. A decade after the worst financial crisis since the 1930s, capitalism is under assault from both the progressive left and populist-nationalist right.
It could be because the fruits of these expansions aren’t being widely shared. The typical American household earns little more than it did 20 years ago while the top 1 percent reaps wildly disproportionate gains. And CEOs often seem to prioritize stock buybacks and dividends over investing in employees and their communities. Or, as economist Paul Collier concludes in The Future of Capitalism: Facing the New Anxieties, “Capitalism is not working.”
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But to Collier, the problem is as much an ethical and political one as it is an economic one. A professor of economics and public policy at Oxford University, Collier depicts contemporary Europe and the U.S. as riven with geographic, educational, and moral ruptures that have eroded a sense of common destiny. Economic gains, he argues, are increasingly monopolized Collier diagnoses a disconnect between ethics and economics that he says has left societies torn between “charlatan extremes.” For a quarter century after the end of World War II, a period that coincided with the Cold War, social democracy in Europe and a bipartisan consensus on New Deal social insurance in the U.S. delivered economic gains that were widely shared. During this period, an implicit bargain undergirded Western societies: Citizens were part of “a narrative” of common national identity with shared rights and obligations that bound them in their families and firms.
But gradually, ideologies of the left and right supplanted the pragmatism at the core of postwar success. Cooperative social democracy splintered into competing camps of “middle-class intellectuals” with varying concepts of morality. On one side were what Collier calls “Utilitarian” economists who believed a society moral if it maximized the welfare of individuals motivated The Future of Capitalism is Collier’s attempt to restore the lost ethical foundations of the family, firm, and state. Unlike socialists, Collier sees inequality and political polarization not as inherent capitalist flaws but as evidence of a “damaging malfunction” of policy that can be corrected. To fix these malfunctions, he offers several proposals that he describes as pragmatic, including an ambitious overhaul of tax policy, generous state support for troubled families, and public representation on corporate boards.
Collier sees inequality and political polarization not as inherent capitalist flaws but as evidence of a “damaging malfunction” of policy that can be corrected.
Of course, one person’s pragmatism is another’s ivory tower foolishness. U.S. Representative Alexandria Ocasio-Cortez sees a 70 percent marginal tax rate on incomes above US$10 million as a pragmatic response to growing income inequality. The people whose incomes would tend to be taxed under such a measure, of course, oppose it on the pragmatic grounds that it might cripple American growth.
And some of Collier’s ideas strike me as more pragmatic than others. His calls for greater vocational training and universal kindergarten seem eminently reasonable. His proposal to reduce the gap between rich cities and poorer towns As he seeks to navigate between the poles of overweening government and excessive deference to the market, Collier advocates a sort of “Goldilocks” state — one big enough to repair the damage from several decades of misbegotten economics yet small enough to avoid becoming an administrative Leviathan. “We need an active state, but we need one that accepts a more modest role; we need the market, but harnessed
A native of Sheffield, a steel-making city in the U.K., Collier relies upon his own observations of industrial decline when he concedes that orthodox free-market economists erred in promoting globalization without qualification. The conventional wisdom held that expanded trade would ultimately leave everyone better off, so long as a society’s losers were compensated In this thoughtful book, Collier occasionally veers into unsupported optimism. Without proof, he observes that “social media can be used to spread good ideas as well as bad ones.” But unlike many critics of the contemporary global system, Collier is at least trying to light a candle in addition to cursing the darkness. Collier concludes that “shared belonging and…benign patriotism” can rally disaffected publics behind a restoration of the communitarian vision that prevailed when capitalism last truly worked. “We can do better; we once did so,” Collier writes. “And, we can do it again.” We shall see.