THE CRISIS OF DEMOCRATIC CAPITALISM

Today I want to show some selected extracts from The Crisis of Democratic Capitalism by The Economist’s Martin Wolf puvlished in 2023. First the contents -

PREFACE: WHY I WROTE THIS BOOK

ONE: THE FIRE THIS TIME

Part I ▪ ON CAPITALISM AND DEMOCRACY

Prologue to Part I

TWO: SYMBIOTIC TWINS: POLITICS AND ECONOMICS IN HUMAN HISTORY

THREE: THE EVOLUTION OF DEMOCRATIC CAPITALISM

Part II ▪ WHAT WENT WRONG

Prologue to Part II

FOUR: IT’S THE ECONOMY, STUPID

FIVE: RISE OF RENTIER CAPITALISM

SIX: PERILS OF POPULISM

Part III ▪ RENEWING DEMOCRATIC

CAPITALISM

Prologue to Part III

SEVEN: RENEWING CAPITALISM

EIGHT: TOWARD A “NEW” NEW DEAL

NINE: RENEWING DEMOCRACY

Part IV ▪ A HINGE OF HISTORY

Prologue to Part IV

TEN: DEMOCRATIC CAPITALISM IN THE WORLD

CONCLUSION: RESTORING CITIZENSHIP

Acknowledgments

Notes

Bibliography

Index

This book is a response to this new and troubling era. Its central argument is simple: when we look closely at what is happening in our economies and our polities, we must recognize the need for substantial change if core Western values of freedom, democracy, and the Enlightenment are to survive. But in so doing, we must also remember that reform is not revolution, but its opposite. It is not just impossible, but wrong, to try to re-create a society from scratch, as if its history counted for nothing. The outcome of such attempts has always been destruction and despotism. Only unbridled power can deliver a revolutionary overthrow of the existing order. But unbridled power is by its nature destructive: it shatters the security on which productive human relations can be based and decent lives lived. As Edmund Burke wrote in his response to the French Revolution, society is a “partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.”8 Change is essential, both at home and abroad, but it must build on what is. Indeed, one cannot start anywhere else. The motto of this book is “Never too much,” as the ancient Greeks used to say.9 The health of our societies depends on sustaining a delicate balance between the economic and the political, the individual and the collective, the national and the global. But that balance is broken. Our economy has destabilized our politics and vice versa. We are no longer able to combine the operations of the market economy with stable liberal democracy. A big part of the reason for this is that the economy is not delivering the security and widely shared prosperity expected by large parts of our societies. One symptom of this disappointment is a widespread loss of confidence in elites.

Another is rising populism and authoritarianism. Another is the rise of identity politics of both left and right. Yet another is loss of trust in the notion of truth. Once this last happens, the possibility of informed and rational debate among citizens, the very foundation of democracy, has evaporated. In The Great Transformation, published in 1944, the same year as Friedrich Hayek’s The Road to Serfdom, Karl Polanyi argued that human beings would not long tolerate living under a truly free market system.10 Experience of the past four decades has vindicated this point of view. This need to reform the relationship between democratic politics and the market economy is not driven purely by domestic tensions, important though they are. It is made more urgent by the rise of autocracy worldwide and, above all, by the apparent success of China’s despotic capitalism. Western nations must improve their economic, social, and political performance in response. 

CONCLUSION – to Wolf’s The Crisis of Democratic Capitalism

Democracy and competitive capitalism make a difficult, but precious, marriage of complementary opposites. A market economy that operates under trustworthy rules, rather than the whims of the powerful, underpins prosperity and lowers the stakes of politics. In turn, a competitive democracy induces politicians to offer policies that will improve the performance of the economy and so the welfare of the people. Beyond these practical reasons for the marriage of liberal democracy and market economy, there is also a moral one: both are founded on a belief in the value of human agency—people have a right to do the best they can for themselves; people have a similar right to exercise a voice in public decisions. At bottom, both are complementary aspects of human freedom and dignity.

This is not just an abstract and theoretical notion, let alone a utopian one. The world’s stable liberal democracies have prosperous market economies, while the prosperous market economies are almost all liberal democracies. There are no exceptions to the former rule. Hong Kong and Singapore may be viewed as exceptions to the latter (though the former, alas, not for much longer). Yet both benefited from an exceptional phenomenon—a benevolent pro-capitalist autocracy. The template for Hong Kong was, however, created by colonial outsiders and is now disappearing under Xi’s heavy-handed rule. The rulers of Singapore not only inherited a colonial system, but also must give foreign capitalists, on whose knowledge and connections they rely, the security and openness they need. This is a vital constraint on what they may safely do: if voice is relatively impotent in Singapore, exit is not.

China might ultimately become a far more significant exception to the rule that rich market economies are also liberal democracies. But its gross domestic product per head (at purchasing power parity) was still eightieth in the world in 2019, between Suriname and Turkmenistan.3 For all its progress, it is a very long way from being a high-income country. It is also quite likely to flounder under Xi’s increasingly heavy-handed rule.

Prosperity is far from all that this is about, important though it is. On almost any measure one could imagine—life expectancy, educational standards, and the progressive push for equal rights—the high-income democracies are the most successful societies in human history. The freedom they grant, together with their opposition to ascribed status, opens opportunities for improvement of both individuals and society. And what is the alternative? It is either unaccountable rule by thugs and bureaucrats or the iron cage of custom. Both are recipes for stagnation and oppression. They are death to the human spirit and social progress. For all its faults, democratic capitalism is worth defending. But it is in grave peril. Remember what makes a working democracy: elections must be seen to be free and fair, and victors must be accepted as politically legitimate. For this to happen, the ties that bind participants to one another must be as strong as those that bind people to factions. In chapter 9, I argued that patriotism—a shared attachment to place, history, values, and culture—is the most powerful source of the needed sense of a common identity. Such patriotism may also be called civic nationalism. It may be based in part on myths. But myths are a universal attribute of human communities.

There exist other sources of democratic political legitimacy. An essential one is widely shared prosperity. Another is a shared trust in rules of the game viewed as fair by all. Yet another is confidence that, whoever may (temporarily) be in power, the government will be competent, the law will be impartially applied, and the rights of all people to live their lives freely will be protected. Expressing the foundations of a stable democracy in this way makes clear how fragile it is. Democracy is peaceful civil war. The divisions that emerge in democratic politics may, in the wrong circumstances and with the wrong people, become sources of insurrection, civil war, or creeping authoritarianism in the name of the people. The latter has been happening recently all over the world. It has definitely been happening in the US, the heartland of contemporary democracy, with Donald Trump’s insurrection against the presidential election. Democracy is not yet a lost cause. But it is highly endangered. Elite failures and malfeasance, along with the economic, social, and technological developments discussed earlier in this book, have broken the confidence of many people in the institutions and values of democracy. This has facilitated the rise of the demagogues against whom Plato warned. In the US, above all, the Republican Party has ceased to abide by core democratic norms. It resembles movements in which the Leader’s word defined what was true and right more than it does a normal democratic political party. The most notorious example was the Führerprinzip of the Nazis: if the Leader said jump, the question was just “how high.”4 So, too, it now seems to be with Trump. Yet, amazingly and depressingly, the subservience of Republican elites is the product not so much of fear, as it was for many in the Germany of the 1930s, as of personal ambition and moral collapse.

The danger Donald Trump posed to liberal democracy was clear when he was elected on a platform that was part nationalism, part xenophobia, and part cult of personality. As president, he rejected alliances, multilateralism, international rules, science, truth, and the reality of climate change. Yet in 2020, even after the disastrous experience with the pandemic, he won 46.8 percent of the vote. More important, the majority of Republicans agreed with him that the election had been rigged against him by the Democrats.5

This loyalty continued even after the invasion of the Capitol on January 6, 2021, which he fomented. Indeed, believing in his “big lie” about the stolen election became a litmus test for recognition as a true Republican. The Republicans had moved from being a normal political party in the world’s most influential liberal democracy to embracing the view that not only was losing an election ipso facto illegitimate, but riot and murder were acceptable responses. The implications of this for democracy in the US and, given that country’s historic role in defending democracy, for liberal democracy worldwide are disturbingly clear. How did this happen, particularly after the euphoria of the collapse of Soviet communism? The Trump-led Republican Party, or for that matter the Johnson-led Conservative Party, did not come from nowhere. They came from forty years of elite failure. The fragile marriage of liberal democracy with capitalism requires maintaining difficult balances between individual and community, between private and public, between freedom and responsibility, between economics and politics, between money and ethics, between elites and people, between citizen and noncitizen, and between the national and global. This is why ΜΗΔΕΝ ΑΓΑΝ (Nothing in excess) has been this book’s motto. When these balances work, the marriage of liberal democracy with market capitalism is the most successful system in the history of the world. But liberal democracy is vulnerable to the selfishness of elites and ambitions of would-be despots. Historically, democratic republics have been exceptions. The normal human political patterns have been plutocracy or tyranny. The latter always waits in the wings. In today’s world, tyrannies—demagogic and bureaucratic—are not just in the wings, but on the march. 

Parts III and IV of the book set out an agenda for restoring a balance in both democratic politics and market economics. It takes into account both the internal weaknesses and global responsibilities of liberal democracies. The proposals are pragmatic, but also idealistic. They are based not on revolutionary transformation, but on reform of democratic institutions and economic policies. But we must recognize, too, the scale of the task: the combination of new technology with laissez-faire ideology has accelerated the emergence of a plutocracy dedicated to increasing its wealth and power and of new technologies with extraordinarily destructive potential.

We do indeed need to build on the foundations we have. But we cannot go back to the past. The world of the mid-twentieth century is, for both good and bad, gone forever. We need to “build back better.” The path forward is to adapt the goals of the reformers of the past to the needs of thepresent. The most important reformer of the twentieth century was Franklin Delano Roosevelt. In his speech on January 1941 on the “four freedoms,” he laid out a role for the US in the world, predicated upon a domestic transformation. 

Building on this outline, chapters 7 and 8 set out the following goals for reform of the capitalist economy: 

1. A rising, widely shared, and sustainable standard of living

2. Good jobs for those who can work and are prepared to do so

3. Equality of opportunity

4. Security for those who need it

5. Ending special privileges for the few

Removing harms, not universal happiness, is the objective. The approach to reform is that of “piecemeal social engineering,” as recommended by Karl Popper, not the revolutionary overreach that has so often brought calamity.6

Behind these specific proposals is a wider perspective. A universal suffrage democracy will insist on a citizenship that is both economic and political. This means that business cannot be free to do whatever it wishes.

It means that taxes must be paid, including by the economically powerful. It means that the state must be competent and active, yet also law-governed and accountable. All of this was the clear lesson of the twentieth century.

There are, it is true, alternative ways to seek power under democratic capitalism. All will fail. One extreme is to offer a fully socialized economy. But the economy will founder, and the rulers will be forced out of power or seize it undemocratically, as happened most recently in Venezuela. An opposite extreme is to marry laissez-faire economics to a populism founded on anti-intellectualism, racism, and cultural conservatism. Such plutopopulism is also likely to end in an autocracy in which even plutocrats are insecure. A still faster route to autocracy is via a blending of the two extremes in nationalist socialism (or national socialism). This combines a welfare state with arbitrary rule by demagogues. This, too, will ultimately ruin both the economy and democracy, as the unaccountable gangster in charge rewards cronies and punishes opponents. Interwar Europe, the history of Latin America, and the more recent experience of many emerging and developing economies, including some of the former communist countries of central and eastern Europe, offer copious warnings. The greater the inequality, insecurity, feeling of abandonment, fear of unmanageable change, and sense of injustice, the more vulnerable to collapse the fragile balance that makes democratic capitalism work will become.

If the needed reforms are to happen, elites must play a central role. A complex society without elites is inconceivable. Alas, one dominated by predatory, shortsighted, and amoral elites is all too plausible. If such elites emerge in a democratic republic, it will collapse. That happened to the late Roman Republic. Anne Applebaum has described brilliantly how it has been happening in Hungary, Poland, and even the UK and US.7 Liberal democracy is a complex system of restraints, some of them in law, but many tacit. It depends ultimately on truthfulness and trustworthiness in those in positions of responsibility. The corruption, injustice, and lies of elites are powerful solvents of bonds that tie citizens together, inevitably replacing patriotism with deepening cynicism. As the great journalist Hunter S. Thompson declared, “In a closed society where everybody’s guilty, the only crime is getting caught. In a world of thieves, the only final sin is stupidity.”8 Only a corrupt oligarchy or autocracy is then possible. Democracy will perish.

Adrian Wooldridge of The Economist has rightly argued that members of the elite need to be competent.9 This is one of the reasons why equality of opportunity is a founding value of a liberal democracy. There is no alternative to some form of meritocracy. All societies have mechanisms for training such elites. But it is not enough for members of elites to be clever, well trained, and ambitious if they are also self-satisfied, narrowly educated, and selfish, possibly even amoral. Members of a functioning elite, which includes the business elite, need wisdom as well as knowledge. Above all, they need to feel responsible for the welfare of their republic and its citizens. Indeed, if there are to be citizens at all, members of the elite must be exemplars. It is not hard: instead of lies, honesty; instead of greed, restraint; instead of fear and hatred, appeals to what Abraham Lincoln called “the better angels of our nature.” Elite failings are pervasive in today’s story of the democratic recession in the high-income democracies and elsewhere. This is true on both left and right. It is a failing of the Brahmin elites of the left to downplay the distinction between citizens and noncitizens fundamental to any functioning democracy. It is a failing of that self-same elite to despise the conservative and patriotic values of less-educated fellow citizens. It is a failing, again, to rail against the patriotism on which any liberal democracy must depend.

Yet it is an even greater failing of economically successful elites to push for policies that generate enormous wealth for themselves and insecurity for everybody else. It is a great failing to encourage the emergence of a rigged capitalism, which destroys the legitimacy of the market economy and of the state that protects and promotes it. It is a great failing, above all, to cement power by creating a pluto-populist coalition based on self-seeking at the top and rage at the middle and bottom. It is all too easy to motivate people by hatred and fear and so by a tribalism that divides the world into the “good people” like us, and everybody else. But as society becomes more plutocratic, the sinews that bind citizens together snap. Then comes the false reformer and, worse, the faux populist—the ambitious demagogue who pretends “to drain the swamp” as he makes it wider and deeper. In his Republic, Plato, a fierce critic of democracy, pointed to the likely rise of the sort of demagogue we see all around us today. Instead of democracy, he proposed the selection of “guardians,” or philosopher rulers. These guardians would not only be philosophers. They would also be freed from temptation by being without possessions or family. Their children would be raised together. These guardians then would be not just a meritocracy but a monastic one.

The logic is clear. The danger with any elite is that it will subordinate the fulfillment of its vital social role to its personal interests. It can be almost impossible to avoid this. A long time ago, I was told why corruption was rife in the bureaucracy of a certain large developing country. The mechanism was simple and effective. A young, able, and idealistic recruit would be offered a large bribe early in his career. He would refuse it. This would happen a few times. Then, in a private meeting, he would be told by a superior that if he did not take the bribe, he would never be promoted. He thinks of his wife and hopes for a family. And so, next time, he would accept the bribe. This is blatant. Yet there are so many more subtle ways of corrupting people whose roles in society are those of guardians: lawyers whose only interest is in winning cases; business executives whose only interest is in creating a dynastic fortune; creators whose only interest is in getting the money they need to make their creations a reality; politicians whose only interest is in winning elections; and so forth. As professional standards erode, it becomes ever more difficult to be the exception. Honor and decency come to seem old-fashioned, even ridiculous. And so, when a corrupt thug accuses the elite of being corrupt, not to mention incompetent, it is easy for a great mass of the people to agree, because it is seen to be true. Without decent and competent elites, democracy will perish. Alas, as I write these last paragraphs in the winter of 2022, I find myself doubting whether the US will still be a functioning democracy by the end of the decade. If US democracy collapses, what future can there be for the grand idea of “government of the people, by the people, for the people”?

We must not be complacent about this danger. Democracy is very recent: even a broad male franchise is less than two centuries old anywhere; universal adult suffrage representative democracy is only a little over a century old. For the first time in history, this system recognized the political rights of all adult citizens. It was a great achievement. It has already had to confront powerful enemies in World War II and the Cold War.

Yet the enemy today is not without. Even China is not that potent. The enemy is within. Democracy will survive only if it gives opportunity, security, and dignity to the great majority of its people. As Aristotle told us, it depends on a large, contented, and independent middle class. If, in contrast, the system benefits only the most successful, the most cynical, and the greediest, it will founder. If elites are only in it for themselves, a dark age of autocracy will return.

The renewal of capitalism and democracy must be animated by a simple, but powerful, idea: that of citizenship. We cannot just think as consumers, workers, business owners, savers, or investors. We must think as citizens. This is the tie that binds people together in a free and democratic society.10 It is by thinking and acting as citizens that a democratic political community survives and thrives. If that tie is dissolved, the democratic polity will founder. Its replacement will be some combination of oligarchy, autocracy, or outright dictatorship.

Citizenship must have three aspects: concern for the ability of fellow citizens to have a fulfilled life; the desire to create an economy that allows citizens to flourish in this way; and, above all, loyalty to democratic political and legal institutions and the values of open debate and mutual tolerance that underpin them. So, what might such a revival of the idea of citizenship mean, in today’s challenging global environment? Here are things this does not mean.

• It does not mean that democratic states should have no concern for the

• welfare of noncitizens. Nor does it mean that it sees the success of its own citizens as a mirror image of the failures of others. On the contrary, it must seek mutually beneficial relations with other states.

• It does not mean that states should cut themselves off from free and fruitful exchange with outsiders. Trade, movement of ideas, movement of people, and movement of capital, properly regulated, can be highly beneficial.

• It does not mean that states should avoid cooperating closely with one another to achieve shared goals. This applies above all to actions designed to protect the global environment.

Yet there are things it clearly does mean. It means that the first concern of democratic states is the welfare of their citizens. If this is to be real, certain things must follow.

• Every citizen should have the reasonable possibility of acquiring an education that would allow them to participate as fully as possible in the life of a high-skilled modern economy.

• Every citizen should also have the security needed to thrive, even if burdened by the ill luck of illness, disability, and other misfortunes.

• Every citizen should have the protections needed to be free from abuse, physical and mental.

• Every citizen should be able to cooperate with other workers in order to protect their collective rights.

• Every citizen, and especially successful ones, should expect to pay taxes sufficient to sustain such a society.

Those who manage corporations should understand that they have obligations to the societies that make their existence possible.

• Citizens are entitled to decide who is allowed to come and work in their countries and who is entitled to share the obligations and rights of citizenship with them.

• Politics must be susceptible to the influence of all citizens, not just the wealthiest.

• Policy should seek to create and sustain a vigorous middle class, while ensuring a safety net for everybody.

• All citizens, whatever their race, ethnicity, religion, or gender are entitled to equality of treatment by the state and the law. 

The West cannot go back to the 1960s. It cannot go back to a world of mass industrialization, where most educated women did not work, where there were clear ethnic and racial hierarchies, and where the Western countries still dominated the globe. Moreover, we face today, with climate change, the rise of China and the transformation of work by information technology—very different challenges. The world has changed too profoundly for nostalgia to be a sane response. Yet some things remain the same. Human beings must act collectively as well as individually. Acting together, within a democracy, means acting and thinking as citizens. If we do not do so, democracy will fail, and our freedoms will evaporate. It is our generation’s duty to ensure it does not. It took too long to see the danger. Now it is right there in front of us. This is a moment of great fear and faint hope. We must recognize the danger and fight now if we are to turn the hope into reality. If we fail, the light of political and personal freedom might once again disappear from the world.

The Master Switch

 Back in 2010, I missed Tim Wu's interesting book - The Master Switch – the rise and fall of information empires Tim Wu (2010)

Part I traces the genesis of cultural and communications empires, the first phase of the Cycle, and shows how each of the early twentieth century’s new information industries—telephony, radio broadcast, and film—evolved from a novel invention. By the 1940s, every one of the twentieth century’s new information industries, in the United States and elsewhere, would reach an established, stable, and seemingly permanent form, excluding all potential entrants. Communications by wire became the sole domain of the Bell system. The great networks, NBC and CBS, ruled radio broadcasting, as they prepared, with the help of the Federal Communications Commission, to launch in

their own image a new medium called television. The Hollywood studios, meanwhile, closed a vise grip on every part of the film business, from talent to exhibition. 

And so in Part II, we will focus on the consolidation of information empire, often with state support, and the consequences, particularly for the vitality of free expression and technical innovation. For while we may rightly feel a certain awe for what the information industries manage to accomplish thanks to the colossal centralized structures created through the 1930s, we will also see how the same period was one of the most repressive in American history vis-à-vis new ideas and forms. But as we have said, that which is centralized also eventually becomes a target for assault, triggering the next phase of the Cycle. Sometimes this takes the form of a technological innovation that breaks through the defenses and becomes the basis of an insurgent industry. The advent of personal computing and the Internet revolution it will eventually beget are both instances of such game-changing developments. And though less endowed with the romantic lore of invention, so too is the rise of cable television. But sometimes it is not invention—or invention alone—that drives the Cycle, but rather the federal government suddenly playing the role of giant-slayer of information cartels and monopolies that it had long tolerated. 

In Part III, we explore the ways in which the stranglehold of information monopoly is broken after decades. Through the 1970s each of the great information empires of the twentieth century was fundamentally challenged or broken into pieces, if not blown up altogether, leading to a new period of openness. And a new run of the Cycle. The results were unmistakably invigorating for both commerce and culture. But like the T-1000 killer robot of Terminator 2 the shattered powers would reconstitute themselves, either in uncannily similar form (as with AT&T) or in the guise of a new corporate species called the conglomerate (as with the revenge of the broadcasters and of Hollywood).

In Part IV we will see how the perennial lure of size and scale that led to the original information leviathans in the first half of the century spawned a new generation in the latter part. By the dawn of the twenty-first century, the second great closing will be complete. The one exception to the hegemony of the latter-day information monopolists will be a new network to end all networks. While all else was being consolidated, the 1990s would also see the so-called Internet revolution, though amid its explosive growth no one could see where the wildly open new medium would lead. Would the Internet usher in a reign of industrial openness without end, abolishing the Cycle? Or would it, despite its radically decentralized design, become in time simply the next logical target for the insuperable forces of information empire, the object of the most consequential centralization yet?

Part V will lead us to that ultimate question, the answer to which is as yet a matter of conjecture, for which, I argue, our best basis is history. Reading all this, you may yet be wondering, “Why should I care?” After all, the flow of information is invisible, and its history lacks the emotional immediacy of, say, the Second World War or the civil rights movement. The fortunes of information empires notwithstanding, life goes on. It hardly occurred to anyone as a national problem when, in the 1950s, a special episode of I Love Lucy could attract more than 70 percent of households. And yet, almost like the weather, the flow of information defines the basic tenor of our times, the ambience in which things happen, and, ultimately, the character of a society.

Towards the Abyss - from Maiden to war Volodymir Ishchenko (2024) An interesting 
and useful take

WAYS OF SEEING

An earlier post I did in April 2017 is worth a rerun

In my 30s, as a senior local politician, I felt the pull between loyalties to local constituents; to party colleagues; to official advisers; and to my own conscience – and indeed developed a diagram for students to show the 4 very different pressures (audiences) to which politicians are subjected – 

- local voters (if the electoral system is based on local constituencies);

- the party;

- the officials (and laws) of the particular government agency they had entered;

- their conscience.

Politicians, I argued, differ according to the extent of the notice they took of each of the pressures coming from each of these sources – and the loyalties this tended to generate. And I gave names to the 4 types which could be distinguished – eg populist; ideologue; statesman; maverick.

- The "populist" (or Tribune of the people) simply purports to gives the people what (s)he thinks they want - regardless of logic, coherence or consequences. 

- The "ideologue" (or party spokesman) simply reflects what the party activist (or bosses) say - regardless of logic etc. 

- The "statesman" (or manager) does what the professional experts in the appropriate bit of the bureaucracy tell him/her - regardless of its partiality etc

- the "maverick" (or conviction politician) does what they think right (in the quiet of their conscience or mind - no matter how perverted) 

I tried to suggest that the effective politician was the one who resisted the temptation to be drawn exclusively into any one of these roles. Each has its element of truth - but it is when someone blends the various partialities into a workable and acceptable proposition that we see real leadership, 

Missionaries

A great new post from Richard Hamas about "Missionaries"  

I have spent twenty years watching a certain kind of man arrive in this part of the world, and I have never once managed to like him. Today the mercenary comes with a consultant’s slide deck. He has flown in from Geneva or Washington or, lately, from a regional office in Singapore that lets him claim he is local. He is courteous, often genuinely kind, and he is here to help. He has a framework. The framework has pillars. He will run a workshop, and at the workshop there will be a maturity model — a diagram, usually with five stages, along which your country can be plotted like a patient on a chart. Thailand is at stage two. Vietnam is showing even more promise. The framework doesn’t say where he is standing, because that’s stage five. Stage five is the end of the road. It’s the place from which the diagram is drawn. He doesn’t experience himself as standing anywhere specifically. He experiences himself as describing how the world actually is. I have watched him do this in ministries and in town halls and in the air-conditioned function rooms of hotels that charge more for a night than the people outside earn in a season. I have watched him explain participatory governance to communities that were governing themselves by consensus when his own ancestors were burning each other over the question of transubstantiation. And I have watched the faces of the people receiving the help — polite, attentive, entirely unconvinced — waiting for him to finish so the real conversation can resume after he leaves. They have seen him before. They saw him a hundred years ago. He was wearing something different then. He is not selling nothing. This is what makes him so hard to be rid of. If the consultant were a pure fraud, a snake-oil salesman with an empty bottle, he would have been laughed out of the region decades ago. He is not altogether bad. The commodities in his case are partly real. Independent courts do protect people from arbitrary power. Constitutional constraint does correlate with lower corruption. The dispersal of authority does, on the whole, make ordinary life less frightening, and I wouldn’t raise my children under a government that lacked these protections. I have lived close enough to the alternative to mean that without sentiment. The benefits are not propaganda.

And that’s precisely the problem. A man carrying something worthless is easy to dismiss. A man carrying something valuable, who has mistaken the value of his cargo for a licence to lecture you from a pedestal, is the hardest figure in the world to answer – because the moment you object to his posture, he holds up his cargo and asks whether you are really against good courts and clean government. Of course you’re not. You are against the posture. But the posture has hidden itself behind the cargo. It’s the oldest trick in the West’s book, and they’ve got away with it for so long. Pluck up the courage to pull the mask off the consultant, and you find the missionary. And behind the missionary, paying the fare for them both, is the mercenary who was always there. The resemblance is not a metaphor, nor is it an insult I have thrown in for effect. It’s a structure and a real one. Once you have seen it, you can’t stop seeing it. The missionary who came to this region in 1850 believed, as today’s consultant believes, that he had arrived from a more advanced situation. A place of authority. He read the people in front of him as lacking something – sophistication, perhaps? In his case, they were souls in the dark rather than institutions below benchmark — and he understood that lack as temporary, curable, and on its way to resolution under his guidance. He had a single path in mind. It was the one his own civilisation had walked, and he interpreted his presence as support along the way. The cruelty of what he was doing was folded, always, inside a promise. You are not being conquered. You are being saved. You are being given better knowledge.

Change the vocabulary and the costume and you pretty much have today’s consultant. Souls are institutions. Salvation becomes development. Damnation equates to underdevelopment, then transition, then the long purgatory of the almost-but-not-quite-democratic. And “transition” is not an abstraction. It’s the IMF arriving with a structural-adjustment programme, conditioning a nation’s place in the modern world on a plan it didn’t choose, drafted by economists who would have been wounded to hear the word ‘missionary’ — the cure once again administered from outside, for your own good, on terms you were not invited to set. The missionary’s Gospel becomes the consultant’s methodology. The custodian who once carried scripture now carries an index, and he would be upset — sincerely, deeply wounded — to be told he is doing what the missionary did, with the same zeal, because he has been taught that the missionary is the embarrassing ancestor his entire profession was invented to replace. He can’t see that he has inherited the man’s bones. He believes he has buried him.

Between the missionary and the consultant stands the whole imperial century. The mission civilisatrice — the civilising mission, France’s gift of itself to people it was simultaneously bleeding — kept the structure intact and only swapped the deficit from damnation to barbarism and the cure from the church to the lycée and the colonial administration. The white man’s burden was the same skeleton raised to the pitch of self-pity; the custodian is now so exhausted by his own benevolence that he asks you to feel sorry for him for the weight of all the help he is obliged to give. Heathen, savage, native, underdeveloped, transitional, not-yet-democratic: it’s one word, spoken across five centuries, and the word means ‘behind’. Behind us. Less advanced. On our path but not yet arrived at the place we already occupy and from which we so generously and so tirelessly reach back to pull you forward. There’s a name for what he becomes at that pitch, and it is not his to take. He becomes the martyr. The word belongs by right to the ones who died under him – the resisters, the burnt villages, the actual dead – and he claims it anyway, because he has discovered that suffering is the one currency a refusal cannot argue with. This is the custodian’s second face, and he turns it to you the moment the gift is declined. He does not withdraw from the road. He bleeds for it. He shows you the cost he has borne to bring it – the years in hardship posts, the fevers caught in your service, the comforts surrendered at home so that you might be improved – and the wounds become a charge against you. To say no to the offer was a disagreement. To say no to the martyr is ingratitude, an injury done to a man who gave everything for your sake. The colonised are not even permitted the dignity of refusal, because refusal now spits on a sacrifice. This is the cruellest turn in the whole repertoire: the subjugated is made to feel he has wounded the one who came to subjugate him. The declaration that announced the rights of all mankind was written by societies that held slaves and ran empires, and no contradiction was felt. I want to dwell on that for a moment, because the usual response is to call it hypocrisy and move on. ‘Hypocrisy’ is exactly the wrong word — it lets everyone off the hook too lightly. Hypocrisy is a gap between what you preach and what you do. This was not a gap. The men who wrote the universal declaration of human worth and the men who ran the plantations were frequently the same men, holding both notions in the same mind without tension. The absence of that strain is the whole point. The university was not betrayed by the empire. The universal was announced ‘from’ the empire, at its height, by its beneficiaries, and the colonised were not left out of the grand human family. They were given a place in it. That place was behind everyone else. They were inside the universal human family in the only role the universal had ever written for them: candidates, provisional members, interns who would receive the full dignity being described as soon as they had been developed enough to deserve it, on a timeline their liberators would set.

This is the discovery the postcolonial writers spent fifty years trying to force into the Western view, against a resistance that was itself the proof. Frantz Fanon, writing from inside the experience, described a colonised world in which every native value had been classified as an absence before the native could open his mouth — the deficit assigned in advance, the verdict entered before the trial. Edward Said showed how an entire scholarly apparatus had built the East as the West’s slow, sensual, backward shadow self, a shadow self to be studied precisely so that it could be administered. And the decolonial writers who came after, Walter Mignolo among them, pushed the hardest claim of all: that the West’s inspirational story of progress and its darker story of conquest are not two stories but one. This was the same movement seen from the sunny and the shadow side. The universal itself — the very ambition to speak for all of humanity at once — was not the cure for empire but its symptom. Only the powerful have ever been positioned to claim they speak for all of humanity but from nowhere in particular. They have made that claim every single time from a place as particular as a flag. You can wave the postcolonial writers away as the West’s guilty conscience talking to itself, and many do. So notice that the same suspicion grows in liberalism’s own garden, planted by people who owe Fanon nothing. John Grey, who reached the position from inside liberal philosophy rather than in revolt against it, spent a career arguing that the Enlightenment belief in one universal civilisation toward which all societies are heading is a faith and nothing firmer – the Christian conviction that there is a single truth and a single history leading to it, with the providence stripped out and progress bolted into the vacancy. Same shape. Same single destination. Same suppression of the local by the universal, now riding reason and markets instead of grace and mercy. Alasdair MacIntyre drove at the joint from another angle entirely: liberalism is not the neutral referee among rival ways of life that it claims to be. It’s one way of life among all the others, with its own parish and its own past, that’s pulled off the most audacious move available to any tradition — disguising its own explicit commitments as the absence of commitment, its parish as the whole of reason, so that to disagree with it is not to hold a different view but to be irrational and superstitious and behind. The referee is a player who has talked everyone into letting him keep score.

That is the reflex laid bare, and here is why it can’t be fixed by good intentions. Make the consultant kinder. Make his framework more participatory, his metrics more culturally empathic, and his workshop more humble. You have improved the cargo. You have not touched the posture because the posture was never in the cargo — it was in the standing-apart-from, the path that runs one way, the diagram drawn from a vantage that calls itself stage five and refers to you patronisingly as stage two. A gentler custodian is a custodian still. A more enlightened mission is still a mission. The structure is perfectly capable of absorbing its own critique and emerging unharmed, now with a chapter on listening and a budget line for local voices, still drawing the map from the same spot it always drew it. I have sat through that workshop too. The humility is new. The vantage point exactly where it was before.

I should be careful here not to swing to the lazy verdict waiting on the other side, because it’s just as false and far more popular. The lazy verdict says the cargo is fake too — that the rights and the courts and the constraints are nothing but the empire’s pretty packaging; that the West’s whole moral vocabulary should be binned as the cant of the strong. That is nonsense, and comfortable nonsense, the kind that saves you the work of discerning the real from the rotten. It can’t explain the dissident in the cell who reaches for the language of rights against her torturer and is not fooled into doing so. It can’t explain why the powerless, again and again, in Manila and Seoul and Jakarta, have picked up exactly this vocabulary and turned it on their own rulers — not because they were tricked into it but because it stung, because it worked, because there was something real in it to grip. A creed that was only a weapon of the strong would not fit the hand of the weak so well. Both claims are true at once. You have to hold them as that or you understand nothing: the goods are beneficial, but the manner in which they are carried into the world is imperial. The substance is defensible. The grammar is not. And the substance is the perfect hiding place for the grammar, because a man certain he is offering you something good can almost never see that he is offering it as a superior to an inferior. His sincerity is the disguise. The better his gift, the more total the blindness.

Blindness is the real cost, of course — not to us, the helpers, who can see him perfectly well and always could, but to him. This is the part the consultant would least expect and least believe. A civilisation that takes its own values as universal loses the ability to recognise them as values — as choices made by certain people under particular pressures that cost something and excluded something and might have gone another way. It can no longer find itself on a map that holds other positions, because it has confused its own position with the map. And a power that can’t see itself as one position among many has disabled the most fundamental instrument of statecraft: the ability to imagine how it looks from somewhere else. Somewhere that’s not itself. It reads every refusal as backwardness or bad faith. It can’t conceive that a society which has heard the offer in full and declined it might be neither stupid nor hostile, but simply standing somewhere else, on ground of its own, with good reasons. That man believes he is looking through a window at the world. He is not. He’s looking into a mirror, and the finer his civilisation’s real achievements, the more flattering the reflection and the less reason he has ever to doubt the glass. He cannot see past himself because he doesn’t know that’s all he has been seeing. I have argued elsewhere that the West misreads Xi Jinping’s China as an enemy when it’s better understood as a rival worldview. I will not repeat that case here. I want only to land it where this argument has been heading all along. Because China is where the whole five-hundred-year reflex meets, at last, a society too large and too old and too successful to be plotted at stage two and told to wait. Here is what the West can’t hear Beijing saying. The sharpest charge China levels is not that liberalism is false, or that rights are a fiction, or that democracy is a Western swindle—those are charges the West knows how to answer, and answering them is almost entertaining, because the answers are good and the answering changes nothing. The charge that really lands, and that draws no reply because it can’t even be received, is this: that the West has lost the capacity to tell the difference between ‘we believe this’ and ‘this is universal’. That it can no longer feel its own deepest commitments as commitments — as the hard-won inheritance of a particular people — and so can offer them to the rest of the species only as a standard the species is failing to meet. The accusation is not aimed at the content of the creed. It’s aimed at grammar. It says: your empire didn’t end when the flags came down. It changed clothes. It set down the rifle and the Bible and picked up the benchmark. The path was the same path. It has only ever led to one place – back to itself.

And then the trap snaps shut, and it’s worth watching the mechanism, because the West springs it on itself. When China declines the benchmark — when it refuses to accept that liberal procedure is the measure of its legitimacy and insists that a different history has produced a different and equally mature form of order — the West reads the refusal as ‘the proof’. Only an enemy, the logic runs, would reject what is self-evidently meant for all mankind. But the refusal is not enmity. It’s the wholly predictable act of a civilisation confident enough to look the custodian in the eye and decline his path and his gifts. And by misreading that confident refusal as aggression, the West confirms the precise charge being made against it: that it can’t conceive of a genuine difference, only of a defective sameness, of a student who has not yet been brought far enough along. And beneath the strategic alarm runs something older and more wounded, which the martyr explains and fear alone does not. There is an injured astonishment in the way the West receives China’s refusal — a sense that Beijing has not simply declined a model but failed to be grateful, snubbed a gift the West suffered to extend, and withheld the thanks owed for a century of being shown the path to enlightenment. We did not only offer; we sacrificed, or so we have told ourselves, and a civilisation that will not walk the road we bled to build is guilty of more than rivalry. It is guilty of ingratitude. This is the martyr’s logic arrived at the largest scale history affords, and it blinds at exactly the moment clear sight is most needed because a man waiting to be thanked cannot hear what is actually being said to him. China is not refusing to honour our wounds. China is telling us the path was never universal — that it led, as every path we have ever offered has led, only back to ourselves — and we cannot receive the message, because we are still standing there, holding the gift, nursing the slight, and waiting for a gratitude that is never going to come.

The evidence for the prosecution is placed in our hands, and we seize it gratefully, because seizing it spares us the one recognition the reflex exists to prevent — that we are standing somewhere in particular, that our universal is a local inheritance that once travelled under arms, and that the people who will not treat it as the measure of all the earth are not lagging behind us on our path at all. They are somewhere else. On their own ground. The Chinese see us clearly. We have spent five hundred years making sure we could never see them back. The missionary and the consultant would still despise each other if they met. Each would see in the other everything he had defined himself against. Neither could afford to notice that the heathen and the not-quite-yet-democratic are the same person; that the path to salvation and the path to good governance are the same path; and that in five hundred years of arriving in other people’s countries to bring them forward, we have not once managed to imagine the people we found there as anything other than slower travellers on a path we own. Until we can — until the West can experience even one of its own convictions as a conviction rather than as the structure of reality itself — every difference the world presents will keep reaching us as a threat. And we will keep doing what we are doing now, with the largest civilisation on earth, which is mistaking the edge of our vision for the edge of the world.

AN INTERESTING POLEMIC

How Did Britain Come to This? - a century of systemic failures of governance Gwyn Bevan (2023) The book looks at how systems of governance developed under four different rules of the game in Britain.

• First, the UK’s version of the minimal state in the 1920s and 1930s nurtured the growth of William Beveridge’s five giant evils of Want, Idleness, Squalor, Disease and Ignorance.

• Second came the planned state as developed under Clement Attlee’s Labour government, which tackled Beveridge’s five giant evils but ran into problems in the 1970s, in council housing, running public services, high government borrowing, inflation and unemployment (‘stagflation’).

• The Attlee settlement was largely dismantled by Margaret Thatcher’s Conservative gov­ernments from 1979 to 1991. The Thatcher settlement of neoliberalism began by developing the third institution of the marketised state.

• That still applies to education, has been abandoned for the NHS after three failed attempts, and morphed into the fourth institution, the financialised state, in which ‘only money matters’.

The dysfunctional consequences of this apotheosis of neo­liberalism include: the demise of successful private corporations; the Global Financial Crisis of 2008; unaffordable housing; and failures in government outsourcing and privatisation. Its structured inequalities in opportunities and incomes mean that a small minority live in a plutonomy of luxury watches, super yachts and private jets, and nearly 30 per cent of British children live in poverty, with many of their families having to choose between eating and heating in the winter.

Afterword

10.1 Pathologies of neoliberalism Ronald Reagan began his 1981 presidential address by remarking on how, in the US, The orderly transfer of authority as called for in the Constitution routinely takes place, as it has for almost two centuries, and few of us stop to think how unique we really are. In the eyes of many in the world, this every-four-year ceremony we accept as normal is nothing less than a miracle. That address is remembered, however, for setting out the case for neoliber­alism in one sentence:

‘In our current crisis, government is not the solution to our problems: government is the problem.’

In 1989, towards the end of Reagan’s second term, he drafted an executive order to establish a new gov­ernment agency. It was to act on the findings of the secret Project Socrates, led by Michael Sekora, which had diagnosed the underlying cause of America’s declining competitiveness. That project found that the falling competitiveness of the US was the consequence of its institutions shifting their focus from technological innovation to ‘increasingly sophisticated economic shell games to maximize profits’ (emphasis in original). That was the outcome of taking seriously Friedman’s 1970 doctrine that:

there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception [or] fraud.

Reagan’s term of office ended before his executive order could be signed.5 His successor, President George Bush, abolished Project Socrates. In the 2000s and 2010s, increasingly sophisticated economic shell games continued to be played in the financialisation of the economies of the US and UK, with four pathological consequences. The primary pathology is the corrosive impact of financialisation on what used to be great companies in the real economy (see Chapter 5). The mission of maximising shareholder value overturned almost all other arguments about what was needed to build great corporations – by making money the core mission and sole rationale of the organisation and those who work for it. In the 1990s, Boeing was the world’s most commercially successful air­craft company, thanks to the success of its 747 aircraft, which was designed and developed by people who ‘eat breathe and sleep the world of aeronaut­ics’.6 After its takeover by McDonnell Douglas 20 years ago, Boeing’s core mission became ‘improving the company’s financial profile’. In 1976, Fred Hirsch wrote:

In principle, individual maximisation can be held to its social pur­pose – making the best of opportunities for all – so long as it oper­ates on the basis of properly designed and implemented rules; yet individual maximisation means manipulating these rules too.8

In 2018, in Indonesia, Boeing’s 737 Max 8 airline, ‘which was practically new, crashed minutes after takeoff, killing all 189 people on board’. In 2019, in Ethiopia, another Boeing 737 Max 8 crashed, again killing all 346 people on board. On 22 September 2022, the New York Times reported that:

Boeing reached a $200 million settlement with U.S. securities reg­ulators on Thursday to resolve an investigation into claims that the aircraft manufacturer and a former chief executive had deceived investors about problems with its 737 Max plane … The aircraft manufacturer last year reached a $2.5 billion settlement with federal prosecutors as part of a deferred prosecution agreement … Last year, a group of Boeing directors agreed to a $237.5 million settlement with shareholders who accused them of failing to adequately oversee the company, allowing the lapses that led to the crashes.

The secondary pathology is the consequences of major shocks to the body politic in the US and the UK as a consequence of the 2008 Global Financial Crisis. Everyone could see that the rules of the game in the institutions of financialisation were privatising gains and socialising losses and that under­mined trust in our institutions. Fiona Hill was brought up as the daughter of an unemployed miner and midwife in Bishop Auckland and went ‘From coal house to White House’, becoming an adviser on foreign affairs to US Presi­dents George W. Bush, Barack Obama and Donald Trump. She saw the same pathologies led to those in the deindustrialised areas, which had been left behind, to vote for new political settlements: in 2016, for Brexit in the UK, with its promise to ‘take back control’, and Donald Trump in the US, as the 45th president, with his promise to Make America Great Again (MAGA).12 Brexit now makes the British economy look like a team of athletes who used to struggle to compete in the Olympics and have decided to go on a fast-food diet: they can still run but not compete effectively. Trump’s refusal to accept his defeat in the presidential election of 2020 resulted in that infamous day of 6 January 2021, when five people died in the Capitol in Washington. That ceased to be Reagan’s miracle of ‘orderly transfer of authority’.

The third pathology is a set of direct malign consequences from the growth of the UK financial sector and its lobbying power. John Muellbauer and David Soskice highlight the following:

• lax regulation and generous tax treatment of capital gains and hedge funds;

• a seamy underbelly of the UK financial and property service sector, abetted by the UK’s overseas territories, making international tax eva­sion easier;

• credit-fuelled property booms, and high property prices; and

• diminished productivity growth.

The fourth pathology is, perhaps, the most troubling of all: the low productiv­ity of the UK as compared with other countries in Europe, and the UK’s rate of increase in productivity over the decade to 2018, which was the lowest in the last 250 years. The UK’s stagnating economy is why there have been histor­ically high levels of taxation and failing services (for example, nearly 26,000 waiting more than one year for treatment in the NHS). Those struggling to deliver front-line services are trapped in a vicious circle of being underpaid and overworked, which creates problems of retention and recruitment, and so staff leave. The government’s plans to tackle staff shortages in emergency care were deemed to have been misdirected for ‘a demoralised and burnt-out workforce seeing high rates of people leaving, and a social care system devastated by years of squeezed budgets and bad pay’.

10.2 Second thoughts on markets and quasi-markets

The quintessential neoliberal philosopher Robert Nozick, in 1974, argued that the market ought to be allowed free rein. He carefully chose what then seemed to be an innocuous example: the willingness of baseball fans to pay to watch one of the sport’s greatest players, Wilt Chamberlain. In his book “What Money Can’t Buy: The Moral Limits of Markets”, Michael Sandel offers troubling examples of what the rich can now buy: access to an elite university, shooting endangered black rhinos, and the right to immigrate into the US. He still has the ticket from when he was 12 years old and went, with his father, to watch their baseball team, the Minnesota Twins, play in the World Series. They lost and he was devastated. There was then little difference in the prices of admission for the two types of seats, box seats and stand seats. The market for sport is now financialised. In 2012, a box seat to see the New York Yan­kees costs $260.21 I remember, when I was 18 and at school, paying out of my pocket money to watch George Best play for Manchester United at Old Traf­ford. Those who now pay up to £239 to watch a game at Manchester United are buying not only hospitality but also exclusivity. Sandel’s argument is that these changes have undermined how watching sport used to develop a strong sense of belonging to the same local community.

Timothy Besley responds to Sandel’s book by showing that economists have recognised the problems he illustrates when only money matters. I noted above that Julian Le Grand’s quasi-market theory is that this encourages those who are ‘knights’, who are altruistic, and discourages ‘knaves’, who are driven by self-interest, because the former are rewarded and the latter penal­ised by changes in market shares and funding. Timothy Besley and Maitreesh Ghatak question the efficacy of seeking to generate incentives from financial gains and losses for those who have chosen to work in not-for-profit organ­isations. They argue that high performance of public services follows from matching their missions to the motivation of those who deliver them. For example, teachers who derive intense satisfaction from educating the young are committed to their calling as professionals and do not seek large financial rewards. This approach stands in radical contrast to the mission of maximis­ing shareholder value and financialisation by re-emphasising the core mission of the organisation and those who work for it. Chapter 8 showed that health­care is an exemplar for where markets fail and where effective alternatives have been implemented. We would expect a quasi-market for schools to work best in cities. But it failed in London, which is why the Blair government launched the London Challenge. This combined ‘experimentation on the ground, [and] rapid feed­back and learning by advisers and officials, with strong project management across different strands of the policy’. It ran from 2003 to 2011 and improved the performance of secondary schools in inner London local authorities from being ‘the worst performing to the best performing nationally’. It has had an abiding impact. In 2019, Farquharson, McNally and Tahir showed that more than three-quarters of local authorities where at least 70 per cent of primary school leavers met the expected level in reading, writing and maths were in London. They also found that the impacts of poverty, as indicated by eligi­bility for free school meals (see Chapter 7) on attainment at GCSE in London schools was around half of that in the rest of the country. They emphasise that this was ‘entirely driven by better performance among disadvantaged pupils, meaning that lower educational inequality in the capital is a result of “level­ling up” rather than levelling down’.

Although Julian Le Grand and Samuel Bowles start from David Hume’s maxim, with which this chapter began, they argue for, and against, the use of market mechanisms as a system of governance of public services. Le Grand was aware of the risk that introducing quasi-markets could crowd out altru­ism by turning ‘knights’ into ‘knaves’. Samuel Bowles argues in The Moral Economy that this is what quasi-markets are designed to do, because individu­als are motivated either by altruism or by market mechanisms, but not both. And, as these processes cannot be separated (as is required for quasi-markets to work), market mechanisms undermine, rather than reinforce, ‘knightly’ behaviour. Market mechanisms also typically fail to provide sanctions for ‘knaves’ because it is so problematic for a failing provider (school, university or hospital) to exit the market. What happens instead to failing providers in a quasi-market is that they continue to provide a poor service with inadequate funding. That is what happened to the comprehensive school of Chelmsley Wood council estate, and was found by the Institute for Fiscal Studies for schools in England (see Chapter 4). Hume observes that ‘it appears somewhat strange’ that his political maxim ‘that every man must be supposed a knave … should be true in politics which is false in fact’. Indeed, it is reasonable to assume that most who choose to deliver a public service start out aiming to be ‘knights’. So, we require a more discriminating system of governance than treating all as if they were ‘knaves’. Ian Ayres and John Braithwaite lay out the principles of regulatory discrim­ination of a strategy of tit-for-tat based on the conduct of those providing services: being punitive for ‘knavish’ and persuasive for ‘knightly’ conduct. Adam Oliver proposes a system of governance by reciprocal altruism, which offers an alternative to a market mechanism. Reciprocal altruism has two dif­ferent systems of negative reciprocity, which sanctions unacceptably poor per­formance by ‘knaves’, and positive reciprocity, which encourages excellence from ‘knights’. Diagnoses of, and remedies to, the pathologies of neoliber­alism have been developed by those known as ‘behavioural economists’. That raises an obvious question: isn’t all economics about human behaviour? To which the answer is: not when it is based on mathematical models abstracted from institutions and human behaviour.

David Hume’s close friend Adam Smith has a strong claim to be the first ‘behavioural economist’. His Theory of Moral Sentiments emphasised the importance of sympathy, that we feel loss more acutely than a gain of sim­ilar magnitude, and introduced the concepts of positive and negative reci­procity. Scholars of Smith’s work have sought to reclaim the breadth of his vision of society from its misrepresentation by neoliberal economists (including Ludwig von Mises, Friedrich von Hayek and Milton Friedman).Glory Liu reviews the scholarly literature on what is known as ‘Das Adam Smith Problem’, namely the cognitive dissonance between the Theory of Moral Sentiments and the Chicago School’s version of Smith as ‘an economist who believes in the social productiveness of self-interest alone, and whose meta­phor of “the invisible hand” illustrates how free markets – not government – protect and promote individual freedom’. Jesse Norman’s book on Smith lucidly sets out how ‘In Friedmanite fashion [the discipline of economics] has long been overly preoccupied with its own models rather than the real-world phenomena they are supposed to represent’. In 1976, Milton Friedman won the Nobel Prize in Economics and celebrated the 200th anniversary of the publication of The Wealth of Nations in his paper ‘Adam Smith’s Relevance for today’. Jesse Norman describes that paper as a ‘master class in adjusting the facts to fit one’s own theory’: Friedman was being economical with the truth in his account of Smith’s position on Britain being overgoverned, the efficacy of free markets, and the importance of the ‘invisible hand’. Schol­ars of Smith’s work have sought to reclaim the breadth of his vision of society from its misrepresentation by neoliberal economists (including Ludwig von Mises, Friedrich von Hayek and Milton Friedman). Jacob Soll argues that they failed to understand that Smith’s thought was grounded in Cicero’s economic vision in which ‘good morals … drove a healthy market’. Glory Liu points out that Barack Obama cited Smith:

They who feed, clothe and lodge the whole body of the people should have such a share of the produce of their own labour to be themselves tolerably well fed, clothed and lodged.

Obama translated that to mean ‘if you work hard [you] should make a decent living [and] be able to support a family’. The failings of neoliberalism to deliver a promised land after 40 years of trying can be understood as a conse­quence of a fundamental misreading of Adam Smith. In economic behaviour, what matters is not only, or even primarily, money.

10.3 Governing by reciprocal altruism

In the UK, teachers, doctors and nurses, who provide vital public services, were three of the top four most trusted professions in 2020 (the other was engineers). The reputational damage from ‘naming and shaming’ mem­bers of these professions for unacceptably poor performance brings a loss of esteem that undermines their core identity – like being unfrocked in public. The regime of ‘star ratings’ is an exemplar of how that sanction of negative reciprocity tackled unacceptably poor performance in the English NHS. If ‘naming and shaming’ does not work, then negative reciprocity requires dismissal – as applied in the ‘star rating’ regime (see Chapter 8) Negative reciprocity is, however, limited in scope: it can be effective only when performance is unacceptably poor, for example if waiting time at a hospi­tal for a hip operation were three years (and the target were 18 months) but not if it were 19 weeks (and the target were 18 weeks). Positive reciprocity encour­ages high performance through collegial benchmarking with recognition for high achievement by peers and the public. Timothy Besley and Maitreesh Ghatak describe that kind of competition as sustaining and supporting the mission of excellence to deliver outcomes that benefit citizens. Positive rec­iprocity is encouraged through recognition of excellence by awards in a pro­cess of ‘naming and faming’, for example from winning a Nobel Prize. In the US, the Sammies are annual awards of medals that highlight excellence in the federal workforce. Our honours system does not do the same for our public servants. Positive reciprocity is most effective in concert with negative reciprocity. For example, it would have been futile to try to develop collegial competition for developing care of high quality at Mid Staffordshire hospital between 2006 and 2010 (see Chapter 1).

Oliver argues against trying to use the same system for both positive and negative reciprocity. But that is what we do for public services in England with, for example, NHS star ratings, school league tables, and inspections by the Care Quality Commission and OFSTED. Christopher Hood argues that it is easier to implement punitive policies, such as negative reciprocity, in big countries because of the substantial relational distance between the gov­ernment and those who deliver public services. This may explain why the devolved government in Wales stopped publication of school league tables, and did not follow England in implementing a regime similar to ‘star ratings’ in its NHS, with consequent worse outcomes in Wales than in England. Oli­ver argues that positive reciprocity of learning through collegial competition against benchmarks needs to operate at a regional scale. Regions need to be large enough that there are enough producers of public services to learn from each other but small enough that the key players in each organisation can meet in the same room at the same time to learn from those delivering excep­tional performance, as in the London Challenge. As so often in the case in the UK, that was a localised one-off exercise. We need to institutionalise that capacity to learn as integral to our running of devolved public services, as in the network of the Interregional Performance Evaluation System across and within Italian regions (see Chapter 8). Veneto, which is part of that network, showed more resilience when Covid-19 hit Italy than did Lombardy, which is the only region in Italy that persisted with trying to make hospital competi­tion work. At the end of March 2020, Pisano et al reported that the mortality rates per 100,000 were six in Veneto and 50 in Lombardy.

George Akerlof and Rachel Kranton developed the economics of identity, which explains the power of negative and positive reciprocity for public ser­vices as compared with financial incentives. Negative reciprocity defines what is, and is not, acceptable behaviour. They describe the initial rite of pas­sage for new cadets at the United States Military Academy at West Point (‘R day’). They are stripped to their underwear, have a severe haircut, are put into uniform and required to salute and address an older cadet ‘until they get it exactly right, while being reprimanded for even the smallest mistake’. The mission of West Point is:

to educate, train, and inspire the Corps of Cadets so that each grad­uate is a commissioned leader of character committed to the values of Duty, Honor, Country and prepared for a career of professional excellence and service to the Nation as an officer in the United States Army.

West Point has developed processes to develop a cadre for whom reciproc­ity (not self-interest) is fundamental. Akerlof and Kranton highlight the profound sense of identity imbued within that cadre. For example, a soldier would rather risk his life than let down his peers and, after leaving military service, will experience acute disappointment on being offered jobs by poten­tial future employers who assume that only money matters.

If we look to developing governance based on reciprocal altruism, the UK’s current constitutional arrangements look like one hand clapping. England has the scale for negative reciprocity but lacks a regional organisation for positive reciprocity. The devolved countries are at the scale for positive reciprocity but lack the relational distance for negative reciprocity. Devolution in England remains problematic because, as I found, officials in Whitehall devolve power as willingly as a leech gives up sucking blood (see Chapter 1). A review of devolution in Manchester pointed out that devolution in England has resulted in ‘very little local autonomy, major areas not devolved and hardly any tax raising powers’. But the evidence from more than 20 years of fuller devo­lution to national governments within the UK has shown them to be more vulnerable to producer capture, which is why their schools and hospitals have tended to perform worse than in England. Devolution to Scotland, Wales and Northern Ireland is necessarily asymmetric because the scale of England dwarfs that of the other countries. That means that it makes no sense to have a Parliament for England. That does not, however, justify our two deficiencies compared with proper federal arrangements.

First, our public services are funded by taxes on a UK-wide basis without a constitutional basis for agreeing what should be the UK-wide elements of policy: for example, charging for medicines and other prescriptions (which continues in England only) or not charging tuition fees for undergraduate education (which continues in Scotland only). Second, one promise of federal arrangements is that they offer a laboratory to experiment with different kinds of governance so enable learning about which works. We have experiments across the UK but lack the capability to learn from them, partly because we lack a federal institution to negotiate arrangements for reporting performance across our countries. Over time it has become increasingly difficult to com­pare public services’ performance across the four countries of the UK – a blind spot that reduces the scope for citizens to put pressure on their govern­ments to remedy their shortcomings. Requiring each government to collect basic data, following common definitions, so that performance can be com­pared and lessons learnt, does not constrain the different parts of the UK from having different priorities or pursuing different policies. This was recognised in the Concordat on Statistics of October 2021 in which the UK government and devolved administrations agreed on the objective of producing ‘coher­ent/comparable statistics at the UK and disaggregated levels’. But, in August 2023, it was reported that the UK statistics authority had problems in being supplied with comparable NHS data.

The development of performance monitoring at the national and regional levels in Italy offers a good model for a new constitutional settlement for the UK in which there is full devolution to regions within England combined with effective scrutiny of their use of public money and by the devolved coun­tries of the UK. An example is the performance agreements linked to funding for government departments as implemented by the Treasury under Gordon Brown in the Blair government in the early 2000s. In a new constitutional settlement, the Treasury would report to the public on how effectively their taxes are being used by the devolved countries and English regions. And these bodies would develop their own systems of comparing performance of local providers of public services by developing collegial competition between them. These services would include healthcare, and all education except for an elite set of internationally competitive research-intensive universities. Regions would also look to develop means of better use of our resources for healthcare along the pathways of care and education over a lifetime.

10.4 A new political settlement

In 2022, Peter Hennessy, writing in A Duty of Care, hoped Covid-19 would be followed by a new political settlement, as after the 1942 Beveridge Report (see Chapter 3). William Beveridge set the agenda for the Attlee government with his five giant evils: Want, Idleness, Disease, Ignorance and Squalor (see Chapter 3). This is a game you can play. My take on our current five giant evils is as follows:

• Want (or poverty and lack of means) was caused by the economics of less eligibility for the unemployed. Beveridge showed that the UK could have afforded to abolish it in the 1930, and how that could be done in the 1940s, in a system of social security. In modern Britain, Want has re-emerged as a giant everywhere. The high cost of housing in a financialised market is a primary cause of poverty. And, contrary to Adam Smith’s view of a well-ordered society, all too often having a job offers no escape. In-work poverty means too many have to trade off heating and eating, or childcare versus employment.

• Idleness was a consequence of market failure that sustained armies of unemployed people over a decade. Now regulatory failures of com­plex markets generate Insecurity in our future supplies of privatised water and energy, from toxic social media (the murders of Jo Cox and David Ames give menace to the anonymous death threats our MPs receive every week), in our financial institutions, and from the existential threat of climate change and developments of artificial intelligence (AI).

• Disease was prevalent from lack of access to healthcare. Now we have Ill-health from overall policy systems so designed that many people ‘freely’ choose ways of living that have resulted in ‘epidemics’ of obesity and diabetes.

• Ignorance was caused by lack of access to secondary education. Now we have Miseducation, with degrees awarded by our bloated univer­sity sector, from which only 25 per cent of graduates earn enough to pay back their student loans in full. Uniquely across the OECD, our younger generations of people in the UK are no more numerate or literate than those born four decades earlier.

• Squalor was caused by the mismatch between where people lived and opportunities for employment, leading to very poor living environ­ments. While some problems here have been ameliorated by post-war economic growth, rundown areas remain on almost the same scale, leaving people living in them vulnerable to Despair, where those on benefits or with gloomy jobs see no escape for themselves (or their children) from a life of drudgery, low pay and low status. In the US, despair is a leading cause of deaths from drugs and suicide.

Beveridge’s 400-page report was focused on tackling Want. (His recommen­dation for the governing principles of what became our NHS was because this would tackle Want – and, of course, Disease.) He described the five giant evils in two short paragraphs. It is beyond the scope of this book, and my knowledge, to suggest how we tackle what I have suggested are our five giant evils. Indeed, the purpose of this book is to inform debate over their causes, so others more expert than I can debate how we ought to tackle them. I conclude with the following observations on our systems of governance.

• We are still living in the Thatcher settlement based on neoliberalism as if there were no alternative. Indeed, Colin Crouch, in 2011, described what failed to follow the Global Financial Crisis as “The Strange Non-death of Neo-liberalism”.

• For neoliberalism to die, we need a new political settlement: the ena­bling state, which recognises that now market failures are the problem of government. As Chapter 5 argued, it would be a mistake to go back to the Attlee settlement based on the state ‘rowing’. This new settlement is where the state steers different systems of governance: regulating markets where they can work effectively (not just for shareholders and senior executives) and developing alternatives where they do not.

• Effective devolution is vital to developing an enabling state in the UK, with consequent radical changes in the skills, staffing and attitudes of those working in Whitehall and Westminster.