What kind of Capitalism do we want? : An answer for Open Left
This week Demo’s Open Left project is asking 5 big questions and posting up responses by some big thinkers. Graeme Cook gives some more details over at LabourList. One question in particular caught my attention:
Should the Left seek to shape a fundamentally different model of capitalism in the aftermath of the banking crisis and subsequent recession?
Open Left will be publishing papers from Andrew Gamble & Maurice Glasman.
My own thoughts, briefly put, are as follows:
What kind of Capitalism do we want?
In his speech to conference this year Gordon Brown said:
Finance must be the servant of people and industry and not their master.
Perhaps unconsciously, he was echoing a Labour Party paper written in 1944.
Blame for unemployment lies more with finance than with industry. Mass unemployment is never the fault of the worker; often it is not the fault of the employers. All widespread trade depressions in modern times have financial causes; successive inflation and deflation, obstinate adherence to the gold standard, reckless speculation, and over investment in particular industries…
Finance must be the servant, and the intelligent servant, of the community and productive industry; not their stupid master.
It is strange to think that words written sixty five years ago could have hold resonance today. Strange, and if one is honest, a little disappointing. Financial reform was an agenda pushed by the Atlee Government – most noticeably the nationalising of the Bank of England, the 1945-1947 ‘cheap money’ policy and attempted reforms of the investment market. Despite this the trend of the last six decades has been for finance to become ever more powerful and, if anything, even more unstable.
Before asking the question ‘what type of capitalism do we want?’ we need to ask the more pressing ‘what type of capitalism do we have?’
The answer is ‘finance capitalism’, a state of affairs whereby the economic interests of finance hold sway over not only the workers but also industry. The Labour Party statements of both 1944 and now 2009 seem to acknowledge this and to concede that it is a problem. The Party is in good company, as Keynes wrote in the General Theory:
Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital.
The power of finance capital relies on the notion that capital is scare – because of this it can charge a rate of interest. More importantly it can choose where to allocate this capital dependent not on the needs of the wider economy but on the likely return. It is often said that Britain has a ‘comparative advantage’ in terms of financial services. It is less often noted that this implies a ‘comparative disadvantage’ in other sectors. In the new post-credit crunch world any re-balancing of the economy will require large scale investment in other sectors. It is fully possible that finance capital will resist this.
Talk of ‘taking on finance capital’ sounds radical, extreme even – the demented babblings of a ‘hard left’. One can turn again to Keynes, the very embodiment of inter-war Liberalism:
I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. …
Thus we might aim in practice (there being nothing in this which is unattainable) at an increase in the volume of capital until it ceases to be scarce, so that the functionless investor will no longer receive a bonus; and at a scheme of direct taxation which allows the intelligence and determination and executive skill of the financier, the entrepreneur et hoc genus omne (who are certainly so fond of their craft that their labour could be obtained much cheaper than at present), to be harnessed to the service of the community on reasonable terms of reward.
A policy of undermining the scarcity of capital through low interest rates whilst harnessing the power of finance to ‘the service of the community’ would herald the shift from ‘finance capitalism’ to the next stage of development. In many ways it represents the unfinished legacy of the Attlee Government.