Of course Ed Milliband is right: we are living in an era of predatory capitalism. But his diffidence and lack of precision about remedy suggests he doesn’t know how right he is, how scary the situation has become, nor how seismically difficult it will be to change.
Arguments over the ‘leftness’ of his propositions are of stunning irrelevance even by the standards of the British press. While the papers trade angels-on-pinhead pedantics, the biggest question of all remains undiscussed and largely undiscussable: not is change desirable, but is it remotely possible?
The polite term for the underlying issue is vested interests. The unvarnished one is power, which translates even more brutally into money and status.
Consider some items from last week’s news.
Instead of acting as a utility channelling savings into productive investment, LSE’s Paul Woolley told a Today
audience on 1 October, financial services had become a bloated, unstable and short-termist industry that had hijacked the returns for itself, either as profits when there were any or as subsidies when there weren’t. As well as devouring most of the returns, he went on, the financial sector had destabilised the real economy, largely through the derivatives that Europe was now – rightly – trying to regulate.
Yes, said Robert Peston, referring to research showing that economies with overdeveloped financial sectors were much weaker in manufacturing, not least because finance attracted the most ambitious people and maintained a damagingly high exchange rate.
The tough call for the government, he concluded, was whether it could rebuild manufacturing and rebalance the economy, as everyone agrees is desirable, without damaging a finance sector that supplies not just 10 per cent of tax revenues and 3 per cent of GDP – but also, as revealed the same day,
51 per cent of Tory party funds (more than half coming from hedge funds, financiers and private equity).
Will it happen? Even though everyone except bankers believes it should, that depends not just, or mainly, on reason – but on the exercise of power and influence.
The essential point about power, says Stanford’s Professor Jeff Pfeffer
, is that, like many social phenomena, it is self-reinforcing at every level. What that means in practice is that, however apparently strong the logic of change or the force of entreaty, existing trajectories are extremely hard to shift. ‘Given the self-reinforcing properties,’ says Pfeffer, ‘the safest bet is that whatever is happening will go on happening.’
Take soaraway CEO pay and mega-mergers. Neither of these can be objectively justified. There is no correlation between CEO remuneration and company performance, nor between performance and company size. Most mergers fail. Everyone from presidents and prime ministers down deplores mergers that destroy jobs and ‘out-of-control’ CEO pay. So why can’t we stop them?
When viewed through the lens of power, the answer is blindingly clear and the aberrations suddenly scarily comprehensible. The obvious explanation is the right one. Size may not pay off for consumers, employees or shareholders, but it certainly does for CEOs. For CEOs, big is better, and giant is best. As big companies become inexorably bigger, so do CEOs’ salaries and the resources they have at their disposal. Pay and mergers aren’t out of control at all – just the opposite.
Right on cue, ‘Amazon, the company that ate the world
’, ran a headline in Bloomberg Businessweek
last week. Amazon is one of a number of gigantic companies – Apple, Google, Facebook, IBM, Microsoft, Exxon among them – with resources that could easily stretch to buying small or even medium-sized countries. While the BW
headline is hyperbole, as Woolley’s analysis shows the metaphor applies with appalling earnest to finance. Too big to fail in 2008, many financial institutions are even bigger and more powerful now – institutions, to repeat, whose first article of faith is that they bear absolutely no responsibility for the safe functioning and protection of the real world that they exploit to make their all-consuming returns.
It’s not of course just the course of business itself that these colossal concentrations of corporate resource are used to influence. In a recent FT column
, John Kay noted that the reason so many proposals of general benefit (eg on banking reform) get stalled and so many of benefit to vested interests get though (eg patent prolongation) is the power of lobbying. Public opinion has many things to occupy it; citizens are underresourced and have lots of things to do. Lobbyists, on the other hand, ‘are overresourced and have nothing else to do. Wherever the proposal is rejected, its advocates revive it in another forum at another time. Eventually they get their way. The lobbyists never go away’.
Kay fears that UK banking reform, already deferred for eight years, will be so undermined in the meantime that it never takes place. Lobbying and influence likewise ensure the untroubled expansion of the big UK retail groups even though they already control more than 80 per cent of the grocery trade. It’s not a question of whether locals want a Tesco or Sainsbury: the groups’ tentacular power means that every town will get one anyway. Norwich reportedly has 17 Tescos, which to anyone but an economist, banker or CEO is plainly an abuse of both power and common sense.
‘Oh, for sure companies are more powerful than governments,’ says Pfeffer. After the US Supreme Court’s decision in the Citizens United case, which reverses a previous ban on direct corporate financial support for electioneering, that power is not going to dwindle any time soon.
So, yes, Ed. Capitalism is predatory, to the point of devouring us. But the point is surely not to interpret the world but to change it. Here’s what you’re up against, summed up in a final quote from last week’s news. ‘Actually, there’s been class warfare going on for the last 20 years’, Warren Buffett told CNN
. ‘And my class [the rich class] has won.’