It’s mea culpa time. After a grief and denial phase, the growth of populism is producing a rare outbreak of handwringing among the liberal elite, as we now have to call them, as they own up, at least partially, for their part in bringing about the angry, polarised world that we now inhabit. Theresa May was the first to put her hand up with her ‘barely managing’ and ‘capitalism for all’ on the doorstep of No 10 after the botched election of 2017, but all that has long since disappeared into the black hole of Brexit (from which, pace the late Stephen Hawking, nothing ever returns).
More recent owners-up include former Treasury Secretary Larry Summers, who in a bizarre and awkward FT piece recounted his astonished discovery of ‘the way of life’ of ‘the rest of America’ on a two-week transcontinental car trip this summer – a wonderful example of class cluelessness. And The Economist, where editor Zanny Minton Beddoes penned a 10,000-word manifesto for liberalism in which she lamented, rightly, that too many liberals had turned conservative, shunning calls for bold reforms to an economic neoliberalism out of which they had actually done rather well.
Beddoes puts forward a number of proposals to put liberalism on track, ranging from upholding free trade to moderating immigration, enforcing competition policy and dreaming up a new social contract. But although she is right about the need to do something about ‘left behind’ places and people, nowhere, surprisingly, is there an acknowledgement of the extent of the challenge to liberal ‘business as usual’ from the pincer jaws of neoliberal global financialisation on one side and what economic historian Carlota Perez insists is the burgeoning fifth (not fourth) industrial revolution comprising the internet and mobile communications on the other.
What no one has picked up is one of the most obvious things of all. Whether what we are going through is the fourth or fifth revolution, it is different in one crucial sense from all those that have gone before. Right up till this one, economic incentives have largely been aligned with the interests of wider society. Broadly speaking, corporate growth led to prosperity through the creation of well-paid, full-time jobs.
Two important things have happened to change that. First, economic incentives have been yanked round to pull in a different direction, encouraging businesses to treat human employment as just another means to the end of enriching shareholders – another cost to be minimised.
Now, companies are still growing all right; but they only employ people when they have no alternative, and then preferably on minimum pay and zero hours. Look at Uber, the totemic platform enterprise, which is rushing as fast as it can to perfect autonomous vehicles which would dispense it from employing anyone at all, bar a few economists and quants to fine-tune its surge-pricing algorithms. This kind of work is not a reliable route out of poverty, and growth can longer spread wider prosperity when big companies are spending 90 per cent of their earnings on stock buybacks for the benefit of shareholders. The sums are stupendous: over the last decade Apple has spent $102 billion (with another $210 bn to come!); Microsoft $878 bn; Cisco $228 bn; Oracle $67 bn; JPM Chase $63 bn; Wells Fargo, $56 billn; Intel $55 bn; Home Depot $51 bn. Meanwhile real US wage levels have barely budged in getting on for half a century.
The second thing that has changed since the last great growth surge is the power and wealth of the largest corporations, and the monstrous accumulation of vested interest that has resulted, knitting together a formidable fellow-travelling ecology of consultancies, business schools and investing funds, which together have effectively captured the political process. ‘There is no force on earth that can stand up effectively, year after year, against the thousands of individuals and hundreds of millions of dollars in the Washington swamp aimed at influencing the legislative and electoral process,’ former Fed chairman Paul Volcker declared in the New York Times recently.
While economic incentives conflict with society’s interests, prospects of dealing with the immediate Frankensteins of ramping inequality and the desertification of the jobs market, let alone resolving major problems like climate change and shrinking bio-diversity, are grim. Other adjustments, both social and institutional, will be needed too. But there will be no lasting solutions until business and social needs are pulling in the same direction. That means altering the incentives. And given the weight of the aforementioned vested interests and lobbying power, only the most determined effort will prevail.
This is why Elizabeth Warren’s Accountable Capitalism Act, now before the US Senate, is cautiously encouraging. Warren, a hard-nosed Democrat law professor who is mulling a run at the presidency in 2020, knows business, having worked in bankruptcy and consumer protection; she also grasps that the big issue is not identity – it’s the economy, stupid.
Warren’s bill is radical and simple. It would set up an Office of US Corporations which would require the biggest firms to adopt a federal charter mandating them to consider the interests of all stakeholders – workers, customers and communities – and not just shareholders. Workers would elect 40 per cent of the board, and there would be restrictions on the way executive stock options (which have played a huge part in the systematic enrichment of the executive class) are exercised.
Warren’s bill of course has little chance of making it into law any time soon. But it is being taken seriously and draws on a number of strands of public approval, notably worker representation in boardrooms. Not only that: the concept of ‘accountable capitalism’ can be read as a legislative response to the much remarked call of Larry Fink, the head of the world’s largest investor BlackRock, for firms to show they were making a positive as well as financial contribution to society. ‘Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate’, he wrote to CEOs earlier this year.
Warren and Fink are a powerful duo. Their initiatives should give much-needed heart, and sinew, to British progressives, who are now paying the same high price as US Democrats for backtracking from corporate reform before the Crash (yes, Tony Blair, we do mean you). A similar approach by the two major shareholder-dominated economies would give a much better chance of making reforms stick – and is probably the only hope of overcoming the abject funk of Westminster and Whitehall at the possibility of being labeled anti-business. Perhps the UK has more riding on the outcome of the US mid-terms than we thought.