Nick Campsie is Chairman of the Madison Foundation, a charity supporting disadvantaged children and young adults into education, training and employment. He was formerly partner of a global asset management firm.
Jimmy Carr is a wealthy celebrity whose day job consists of performing to crowds of adoring fans. He is not, then, an obvious candidate for sympathy. But I felt for him when his legal (if morally dubious) tax affairs earned him a public rebuke from David Cameron.
I disagreed with what Carr had done, but it seemed to me that a tenet of a well-functioning society should be that if you behave legally you don’t get in too much trouble. It felt wrong that a Prime Minister – who has rather more influence over tax rules than a comedian – would single out and admonish someone who had stuck within the law. The law was and is perverse in that domain. But it was still the law. If politicians don’t like something, then they should change it – but be careful with the finger-wagging until they do.
I have the same qualms about the recent slew of ‘critiques of capitalism’ from think tanks, journalists and politicians. The debate is needed and much of the content is merited, but I can’t escape the sense that capitalism is joining Jimmy Carr on the naughty step.
In one sense, I am relieved that the centre-right is re-finding its voice and volunteering its own theory of the case for why capitalism seems to be ‘failing’. There has been a timidity in the centre-right’s response to the recent swell against free markets which has allowed that theme to gain traction. That timidity has been dangerous and – whether or not these recent interventions are right – they deserve credit for wanting to correct it.
And much of it is right – as a diagnosis of symptoms if not cures, at any rate. Corporate tax avoidance, neglect of pension funds, sharp employment practices and untethered corporate pay: none of this is to be celebrated and I don’t contest the laundry list of ills which recent articles and speeches have documented.
But I do contest where the buck stops – and, therefore, what to do about it. There is a trend towards the crowd-pleasing answer of blaming individual managers, boards and businesses, and the system of capitalism itself. Vince Cable, for example, has called out “bullying bosses…[and] scandalous tricks used by boards to inflate directors’ pay”. Share buybacks, he says, might constitute “legal fraud”.
In the same vein, “crony capitalists” has re-entered the mainstream political lexicon. The emerging thesis appears to be that there’s nothing wrong with the script, but that the actors are fluffing their lines. But this line of thought – this focus on the players not the rules of the game they are playing – makes a flawed assumption: that the players’ behaviour is not ordained; that there is someone listening capable of responding or changing, and that capitalism has some moral compass around which it can be re-oriented.
Unfortunately though, it doesn’t. Capitalism doesn’t think about itself as right or wrong, no matter how much it is shouted at: it is fundamentally agnostic. It is like water. It behaves in predictable ways and responds logically to impediments placed before it, but spends its energy unthinkingly following gravity over, around and through those obstacles, if it can.
And as cold-blooded as this might sound, that is actually what we should respect, not deplore, about capitalism. We want our businesses to be fearless and aggressive, to relentlessly seek out ways to find an edge, to squeeze through a gap, to get something done tomorrow which couldn’t be done yesterday. That is the impulse which has transformed society, built cities, cured diseases and which funds our public services. Of course it would be preferable if capitalism did all that but knew when to stop – if it had moral safety valves which prioritised the greater good over personal profit. I am far from a hunger-games, survival-of-the-fittest proponent, and would welcome a new and improved Capitalism V2.0 which embedded those upgrades. But capitalism is hard-wired to do what it says on the tin: make money first and say sorry later. Which brings me back to Jimmy Carr.
What is wrong with our version of capitalism is not that capitalists are ignoring the rules, it’s that the rules they are following are misspecified. If the Government tells Jimmy Carr that he’s allowed to avoid tax, and he does so, then more fool the Government. If the Government tells capitalists that they can shield corporate tax with inter-company loans and they do so, then likewise.
Like water, capitalism will test every gap for weakness and surge through when it finds one. Imploring capitalism not to do so is asking it to deny its DNA; bemoaning when it does so is moot. Capitalism is an enormous force for prosperity and human achievement, but it is a sharp and self-interested element. It is Government’s vital role to tame, direct and channel its force, and to prepare flood defences for the inevitable instances when capitalism gets carried away. When a dam bursts it is the engineering which failed its task, not the water.
And capitalism doesn’t mind being directed and channelled. It doesn’t mind fines – even massive fines – for non-compliance. Rules and regulations and discipline and punishment are not only consistent with capitalism, but essential for its efficient operation (because of negative externalities). Provided those rules are well-designed, transparent, adeptly monitored and consistently enforced, they pose no constraint to the efficiency with which markets operate. But capitalism cannot be implored to self-regulate – it needs government to set the rules, to referee the game, and to not be scared to issue the occasional early bath.
I don’t like business-bashing, generally. And especially now, when the centre-right’s role is to explain and promote free markets and capitalism, to highlight what they have achieved and will continue to. But more than that I don’t like it because it misses the point, because it takes us away from what we actually need to do. There are real deficiencies in how markets operate and the outcomes they engender. Fixing those deficiencies matters – but if the ailment is misdiagnosed the wrong cure will be prescribed.
I agree with the ambition of these interventions, which is consistent with the Prime Minister’s opening gambit to create an economy that works for everyone. It doesn’t, currently. Those of us on the centre-right can admit that without shame, and can express a desire to fix those ailments with the same passion that opponents of free markets have to dismantle them. But the centre-right has the advantage of understanding the machine, of knowing which lever does what, and should use that advantage to identify effective remedies of market failure, not just popular ones.
It is six years since Cameron censured Jimmy Carr, but the tax schemes he profited from still exist. If in six years we have made progress on the issues Sir Vince and others are highlighting, it is because we have changed and modernised the rules which govern businesses, not because we have chastised them for complying with the wrong ones.