If you chose not to take part in a debate, you can’t complain when it doesn’t go your way. It is the reason why I have long urged those who believe in science, aspiration, markets and modernity to engage in environment debates, otherwise they will be won by default by those who don’t believe in science, don’t want people to better their lives, support socialism and want us all to go back to the past. And if you start off the argument by insisting there is no problem, you are not engaging in debate, but excluding yourself from it.
So it is important that those who support free markets engage with the current debate on the morality of capitalism. We shouldn’t just say there is nothing to talk about, and then leave all the talk to the St Paul’s anti-capitalism protesters, their fellow travellers in the Church, and cheerleaders in media. If we do, we will only have ourselves to blame when we find capitalism and free markets have finally lost the support of the British public. That would be a good day for socialists – and a terrible day for the rest of us.
So I very much welcome David Cameron’s heavily trailed speech tomorrow on moral markets, which is likely to draw upon Matthew Hancock’s and Nadhim Zahawi’s recent book Masters of Nothing: the crash and how it will happen again unless we understand human nature. The phrase moral markets has a catchy ring to it, but is rather awkward – markets are a series of transactions, and so rather amoral in their nature. “Ethical Business” is more appropriate, but less catchy.
The attempts to square the financial imperatives of business with their social consequences are about as old as capitalism itself. The debate about business ethics was central to the abolition of the slave trade two centuries ago, followed not long after by the wave of Victorian health and safety and employment legislation (much of it introduced by Tories, as it happens). More recently, Margaret Thatcher, John Major and Tony Blair all addressed the issues. For Mr Blair, his Third Way was a vision of getting markets to pay for socialism, so you can have both. The Social Market Foundation, the political cross-dresser of the think tank world, was set up to ensure that markets work in society’s interests, and indeed the phrase social markets was much beloved by Peter Mandelson.
But times change, and so do the issues. We no longer suffer from unscrupulous capitalists routintely risking the lives of their workers because of a shortage of health and safety laws (as if!). Unlike the 1970s, we no longer really need to make the wealth-creating, poverty-reducing case for markets – in the last couple of decades the success of India and China and the collapse of the Soviet Union are the best control experiments we could have asked for to prove beyond doubt the benefits of markets. But we do need to ensure that business operates in a way that society views as ethical and fair – not least so that they retain the support of society. And the biggest problem with business at the moment is that there is a mismatch between performance and reward – in particular at the senior management level. This causes continued bursts of outrage, from the pay-off for Fred Godwin after he drove RBS to ruin, to the recent figures showing an increase in directors’ pay of nearly 50% over the last year. Ed Miliband has struck a chord calling it the 'something-for-nothing' culture, borrowing the phrase the right has traditionally used about the excesses of the welfare state. The Daily Mail – the paper probably most in tune with the public mood – hates socialism, broadly supports free markets, but strongly attacks corporate excess.
Rather than more rules and regulations, which always have compliance costs and unintended consequences, Hancock and Zahawi argue that instead we need a change of culture in business, so that business people automatically operate within the same ethical framework as the rest of society. That should be brought about by a change of corporate governance, ensuring the right incentives are in place at the top of companies, and eradicating the perverse incentives. There is clearly a problem with remuneration committees that have a vested financial interest in increasing executive pay rather than controlling it. Our institutional shareholders show virtually no interest in getting involved in the management of the companies they own, including issues such as executive pay, preferring to be passive rather than active investors.
Whatever the solution, at least the right are starting to engage in this debate. The best way to undermine the Occupy London protesters isn’t to concede this territory to them – but to occupy it.