Capitalism – what is it? Can it change for the better?

If character traits are getting more inward and selfish, what does this mean for our ability to create a better future?

The recent series I did on Paul Collier’s “Future of Capitalism” makes me realise that I have never offered a serious post on “Capitalism – what is it and can it change its spots?”. This is how I had left things -

By the turn of the millennium the message seemed to be that Capitalism takes various forms; is constantly changing; and will always be with us. But increasingly, people were wondering whether it was not out of control.

And a few years back, something changed. It wasn’t the global crisis in itself but rather the combination of two things – first the suggestion that the entire engine of the system (profitability) was reaching vanishing point; and, second, a sudden realisation that robotization was a serious threat to even middle-class jobs. Now the book titles talk of the new phenomenon of “post-capitalism” 

Curious that I omitted global warming the growing appreciation of whose reality makes it a third factor. I have therefore developed a table which identifies what I consider are the most accessible books about the nature of this system “without a proper name”. In my day we knew the system as “the mixed economy” but that phrase fell out of favour in the 1980s in the face of the onslaught of privatisation.

“Neoliberalism” wasn’t a very good substitute since very few people knew what this meant – indeed it clearly registered as a term of abuse…..And any use of the term “capitalism” was banned in all but the most militant circles….. 

You almost felt the sense of relief when the phrase “post-capitalism” came along – a system whose name didn’t embarrass us!!!!

The table looks at almost a dozen very different specialisms (inc journalism, religion and policy analysts/think tankers).

I have to confess that I get very impatient with the incredible specialism in the so-called “social sciences” which has developed these past few decades with the expansion of universities. Two things in particular annoy me - first the lack of communications between these so-called “experts” is nothing short of criminal. Most of them received free education and yet, starved of the slightest contact with those developing similar thoughts in separate fields (let alone with real life), offer us, with few exceptions, boring, barren thoughts

And I get impatient, secondly, with the amnesia of these micro-specialists…their worship of the new…just look at the recommended reading they inflict on their poor students……very little before 2000….And my own lists are the same……And note what the author of one of the clearest books on capitalism said in 2008

“No social scientist over the past half century has added anything that is fundamentally new to our understanding of the capitalist economic system”

Geoff Ingham in “Capitalism” (2008)

I have selected the books which appear in the table according to whether they portray a world of “perfect competition” in which, according to the theory, no one has any power or, at the other extreme, a world of large companies and groups exercising power (legal and illegal).

We are prone these days to use ideological labels too easily – so I want to avoid that by using less obvious labels.

-      “Mixed” therefore covers those who clearly argue for what used to be called “the mixed economy” and are quite clear that they wish a better, more balanced capitalism;

-      The “critical-realist” label covers those who go further in their critical approach, extending their analysis to the role exercised by dubious and illegitimate power players who try to buy democracy and whose activities threaten the planet’s very survival.

    

Needless to say, the allocation to one particular column is arbitrary and could be disputed – as can the choice of illustrative authors and books! I shall try to say something about my choice in a subsequent post...   

Key Texts about the future of capitalism – by academic discipline and “approach”

Academic Discipline	1. Critical-Realist	2. Mixed approach	3. “market” proponents
Economics	Conceptualising Capitalism – institutions, evolution, future; Geoff Hodgson (2015) Debt and Neo-Feudalism; Michael Hudson (2012) Credo – economic beliefs in a world of crisis; Brian Davey (2015). Davey is not a career or conventional economist!	People, Power and Profits – progressive capitalism for an age of discontent; Joseph Stiglitz (2019) The Future of Capitalism – facing new anxieties; Paul Collier (2018) Shifts and Shocks – what we’ve learned, and still have to, from the financial crisis; Martin Wolf (2014) – with accompanying power point presentation	Why Globalisation Works; Martin Wolf (2004) most of the discipline
Economic history	Capitalism and its Economics – a critical History; Douglas Dowd (2000) Never Let a Good Crisis go to waste; Philip Mirowski  (2013)	Crashed – how a decade of financial crises changed the world Adam Tooze (2018)	Economic historians by definition have a strong sense of political and other institutions
Political economy	“The Lugano Report: On Preserving Capitalism in the Twenty-first Century” – Susan George (1999). Susan Strange - The Retreat of the State (1994) - States and Markets (1988) - Casino Capitalism ; (1986)	Austerity – the history of a dangerous idea; Mark Blyth (2013) Yanis Varoufakis - And the Weak Suffer what they must – Europe, austerity and the threat to global stability (2016) - The Global Minotaur (2012)	The discipline still rediscovering itself but, again, by definition, has a strong sense of the importance of institutions
Political Science	Crisis without End - the unravelling of western prosperity: A Gamble (2014) Democracy Incorporated – managed democracy and the spectre of inverted totalitarianism; Sheldon Wolin (2008)	Paul Hirst eg Revisiting Associative Democracy; ed Westall (2011). The Great Disruption – human nature and the reconstitution of social order; Francis Fukuyama (1999) Mammon’s Kingdom – an essay on Britain, Now; David Marquand (2015)	Only a few brave pol scientists trespass into the economic field – although it is becoming more fashionable
Policy analysis/Think Tanks		“The Locust and the Bee – predators and creators in capitalism’s future”; G Mulgan (2015)	An Intro to Capitalism (IEA 2018)
Sociology	Wolfgang Streeck. - How will Capitalism End?; (2016) - Buying Time – the delayed crisis of democratic capitalism (2013) End of capitalism? Michael Mann (2013) Capitalism; Geoff Ingham (2008)	Vampire Capitalism – fractured societies and alternative futures; Paul Kennedy (2017)	The sociological voice is still inspired by C Wright Mills, Veblen, Weber and Durkheim
Geography	David Harvey - Seventeen Contradictions and the End of Capitalism (2014) - The Enigma of Capital (2010) - A Brief History of Neo-Liberalism (2005).	Danny Dorling - A Better Politics – how government can make us happier (2016 - Injustice (2014)	The geographers are a bolshie lot - with a strong sense of geo-politics
Environment	Come On! Capitalism, short-termism, population and the destruction of the planet; (Club of Rome 2018).	Why we can’t agree about Climate Change; Mike Hulme (2009) Natural Capitalism – the next industrial revolution; Paul Hawken (1999)	they pride themselves on their technocracy
Journalism	Post Capitalism – a guide to our Future; Paul Mason (2015) …. The Capitalism Papers – Fatal Flaws of an Obsolete System; Jerry Mander (2012).	How Good Can we be – ending the mercenary society Will Hutton (2015) Capitalism 3.0 Peter Barnes (2006)	They don’t enjoy the tenure of the academics (altho Hutton is a college Director)
Management and man’t studies	“The Dictionary of Alternatives – utopianism and organisation”; M Parker (2007)	Rebalancing Society; Henry Mintzberg (2014) Peter Senge Charles Handy	Most mant writers are apologists – apart from the critical mant theorists
Religious studies	Laudato-Si – Pope Francis’ Encyclical (2015). Accessible in its entirety here	The Crisis of global capitalism – Pope Benedict XVI’s social encyclical and the future of political economy; ed A Pabst (2011) Questions of Business Life; Higginson (2002)	A more ecumenical bunch!

Psychology

What about me – the struggle for identity in a market based society?; Paul Verhaeghe (2014)

Is our social DNA changing?

The book profiling “character” in older generations had me musing these past few days about what, if anything, could be said about trends in contemporary behaviour and social values.

There’s always something we can fault the latest generation with – for example the “attention deficit” which modern IT gadgets seem to develop…and how this might affect future “characters”…

More critically, surveys such as the World Values and Eurobarometer indicate a large and significant trend since the early 1970s toward more individualistic, selfish and less trusting societies….

Daniel Bell had warned us as far back as 1976 in his Cultural Contradictions of Capitalism  that the spirit of 68 was difficult to reconcile with business requirements but could never have anticipated the contempt with which businesses subsequently chose to treat their employees – with wholescale layoffs and casualization of the workforce.

Richard Sennett is a philosophical sociologist who has followed these developments for almost 40 years, starting with his “The Hidden Injuries of Class” (1972), a study of class consciousness among working-class families in Boston; then “The Corrosion of Character” (1998) which explored how new forms of work were changing our communal and personal experience.

 “Respect in a world of inequality” probed the relation of work and reforms of the welfare system; and “The Culture of the New Capitalism” (2006) provides an overview of these changes

Francis Fukuyama is a prolific, elegant and much misunderstood writer whose The Great Disruption – human nature and the reconstitution of social order (1999) is an important bit of evidence of the deep concerns at that time of where we were heading.

All of these, of course, were based more or less exclusively on analyses of the United States of America and it is important to look more widely if we are to understand this important question of how the DNA of the human race might be changing….

Reckless Opportunists – elites at the end of the establishment by Aeron Davis (2018) is a small book which ruthlessly exposes the almost criminal damage which a new breed of elites have inflicted on a once proud nation,

It is the result of twenty years of intense research, over 350 interviews with the heads of corporations, senior civil servants, journalists, politicians and public relations firms. In response to Brexit, Aeron Davis wrote this slim but telling volume in less than three months. It is, in effect, a short anthropology of how the United Kingdom’s elite became clueless at governing.

Davis’s report is thus a frontline account of the way the political, industrial, financial and media elites are disabled by their own culture and methods from acting in the collective interests of the country.

“No one seems to trust anything or anyone else’. Davis observes that

‘self-interest and competition has left politicians willing to destroy their parties, civil servants their departments, chief executives their companies, and journalists their publications’.

He then sets out to explain how the new elites undermine the institutions they head.

The reporting of quarterly returns by fund managers prevents long-term investment.

Within this world, leaders have to sell themselves continuously and rely on specialists in corporate affairs to attract investors. Communications  teams spend 70 per cent of their time ‘keeping stuff out of the papers’. One result is the fading of rooted expertise and the rise of short-term consultants. This shift, echoed in politics and government, is leading to a massive loss of institutional memory essential to self-belief. It is not just bosses that come and go at speed. In 2009, Davis wanted to find out more about weapons of mass destruction decisions in Iraq, only to find there was only one person still in the department with the relevant knowledge. Of twenty-five permanent secretaries at the time, eleven had been in the post less than two years.

The parallel, insecure worlds of government and commerce, are run on ‘selfdeception’, much of it embedded in the selfserving systems of ‘communication’. ‘Greater transparency’, Davis claims, only leads ‘to more mystification’. Finance directors manipulate the rate of return to serve the public listings of the share price, and when successful,move on before the consequences are realised. Many financial journalists are in effect ‘embedded’, writing to other specialists and reinforcing a small world that believes almost religiously in the free market.

How does it maintain itself? It works through numbers. ‘Econocracy’, not democracy is the name of the game, as targets are imposed on those below while being evaded by those at the top, who are anyway hired hands: CEOs with one- or two-year contracts.

Guy Standing developed the theory of the ‘precariat’ to describe the working classes of our time. Davis shows that those at the top, while they may be doing nicely in terms of incomes, face precarious employment.

Embracing economic models that work until they fail, constantly shifting, being fired, replaced or moving on, they live in constant fear of the chop. These assertions sound like a caricature, but are set out with compelling,

Davis’s gripping account reveals a country and an economy led by rootless lemmings taking the wider public with them over the cliff edge. Lemming-like behaviour is reinforced by accountants who provide steady support without taking responsibility. The government spends £800 million on outside consultations, while civil servants retire to circulate through its fee system, as their experience and contacts are hoovered up by the private sector.

Rootlessness is magnified by the sale of so many sectors of the UK economy to overseas investors: 54 per cent of company shares traded in 2014 were foreign owned and 98 per cent of FTSE 100 companies ‘have subsidiaries or joint ventures registered in overseas tax havens’.

After twenty years of interrogating the managers and politicians of the UK, Davis finds their leadership to be ‘solitary, rich, nasty, brutish and short’. Leadership could and should, he feels, be ‘connected, modestly paid, nice, civilised and long’. But it is not. He provides a two-page list of reforms that might help.

Building Character

Nobody seems to want to talk any more about “character” – perhaps it has shades of “self-discipline” and “self-control” when the spirit of the age continues to encourage the self to flourish?
So it took some courage for David Brooks to produce in 2015 a book entitled “The Road to Character” consisting of profiles of 8 people whose life demonstrates “character” including Dwight Eisenhower, Samuel Johnson (!), George Marshall (of Marshall Fund fame), St Augustine (!), the american woman behind Roosevelt’s New Deal (Francis Perkins), the charity worker behind “The Catholic Worker” (Dorothy Day) and George Eliot, the British writer.

It’s an interesting format – there’s something a bit forbidding about the 700 page full Biography, warts and all, which assails us these days…..There is, of course, a danger that you just get the highlights – what they call a “hagiography” – which happened in 2007 when Gordon Brown published his “Courage – eight portraits” profiling Mandela, Bonhoeffer, Luther King, Robert Kennedy, Cicely Saunders, Aung Ky, Edith Cavell and Raoul Wallenburg.

But Brooks’ book manages to give us rounded profiles. It starts by contrasting two sets of values –

-      what it calls “CV values”, the achievements with which we regale potential employers on our CVs

-      the “eulogy values”, the human qualities for which we would like to be remembered at our funeral (Stephen Covey’s “Seven Habits of Really Effective People” makes a powerful start with this point.

Five of the individuals chosen by Brooks are from my parents’ generation to which I paid due tribute many posts ago

My generation, undoubtedly, had it too easy… Recent posts have recognised just how far we have fallen from decent moral standards… I have no real memory of Eisenhower but use these amazingly prescient words of his 1960 farewell Presidential address on the very first page of my Dispatches to the Next Generation

We . . . must avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.

Brooks’ book includes this passage – as well as an important page in the Marshall section about the importance of institutions which took me back to a post of a couple of years ago about the importance of thinking institutionally. And about the wider issue of what I call “stewardship” ie the concept that we have a duty to hand anything, of which we have been asked to take care, back in the same condition as it was when we were entrusted with it…..Now there’s another idea we don’t hear much of these days!! 

All in all, it made me realise that Robert Greene’s otherwise excellent Laws of Human Nature focus exclusively on the negative aspects – and need to be rerun through a more positive lens….Wikipedia, for example, tells me that

“the Character Strengths and Virtues (CSV) handbook of human strengths and virtues by Christopher Peterson and Martin Seligman, represents the first attempt on the part of the psychological research community to identify and classify the positive psychological traits of human beings. The CSV identifies six classes of virtue (i.e., “core virtues”), made up of twenty-four measurable character strengths.” 

The six core virtues are -

Strengths of Wisdom and Knowledge: Cognitive strengths that entail the acquisition and skilful use of knowledge

Strengths of Courage: Emotional strengths that involve the exercise of will to accomplish goals in the face of opposition, external and internal

Strengths of Humanity: interpersonal strengths that involve supporting and befriending others

Strengths of Justice:  that underlie healthy and harmonious community life

Strengths of Temperance: that protect against unhealthy excess and egotism

Strengths of Transcendence: that forge connections to the larger universe and provide meaning in life

https://demosuk.wpengine.com/wp-content/uploads/2015/09/476_1505_characternation_web.pdf

Turning Points

I’m much exercised at the moment by the notion of “turning points” in recent history when “forces” were finely balanced and a decision or accident was enough to push the system on one direction rather than another…..

After 68, a lot of us expected the future to be a cooperative one - but the 1980s turned out to be the Age of Greed.

We all know about Nixon’s decision in 1971 to take the USA off gold – and also of the massive OPEC spike in the price of oil a couple of years later. And some of us remember the UK’s financial “Big Bang” of 1986 which brought London into the eye of the financial system.

But few people remember that there was a time in the 1960s when the question of the purpose of the company was a very live one – with “market share” being considered the most important “number”, certainly not share value. There’s a nice little video here of Charles Handy reminding us that it was Milton Friedman who articulated most clearly in 1970 the view that the purpose was to maximise share value - and his acolytes who introduced the idea in 1976 of senior managers being given “share options” as incentives.

Handy regrets the failure of people then to challenge what has now become the scandal of the gross inequalities which disfigure our societies - which Ferdinand Mount’s “The New Few” quite rightly traces back to that period. Until that point, the ratio of Directors’ salaries to average wages had been 40 to one for quite a few decades – compared to the current obscenities of 1,000 to 1.

And Paul Collier’s “The Future of Capitalism” reminds us that the question of the accountability of the corporation remains a live issue…..

But I simply didn’t understand the significance of the younger Democrat’s disowning in 1975 of the classic American populist tradition – to which the last post drew attention - until reading The Atlantic long article 3 years ago on the subject. 

It was at that point that I made the connection with Robert Greene’s “generational cycles”. Amazing the way the mind works……

The full version of Greene’s “The Laws of Human Nature” can be read here.

Generational Cycles

I was so taken in July by Robert Greene’s “Laws of Human Nature” that I devoted a long post to it – which excluded his commentary on a pattern of generational cycles to which a 15^th century Arab author first drew our attention.

Ibn Khaldun noted that human beings pass through generational patterns – specifically four.

-       The first-generation revolts against the old order, and brings fresh, new ideas.

-       The second generation, having been part of the generation that saw change, wants to establish some form of order.

-       Then the third generation appears, they are more pragmatic and less connected with the past. They are interested less in ideas and more in building things. People become materialistic and individualistic during this phase.

-       The fourth generation comes along and senses that society has lost its vitality – that its values are wrong. People become cynical, and this lays the foundation for the revolutionary generation to disrupt the status quo. And the cycle repeats.

Today I want to tell the story of how my generation basically destroyed the world -

If we apply the generational hypothesis to our own times, by starting with

-       the silent generation that experienced the Great Depression and the World War as children, we notice that they were cautious, embodying a spirit that embraces order and stability.

-       The baby boomers, who grew up in the 60’s saw their parents as being too conservative. They became more open, idealistic, and adventurous.

-       Then came Generation X, they were recovering from the chaos of the 70’s. This generation rebelled against their parent’s idealism and controversy, seeing the holes in their philosophy, they embraced individualistic values and self-reliance (if not downright greed – my comment).

-       Then the Millennials emerged, distrustful of the individualism of the past after witnessing the terrorism that took place in 9/11 and the financial disaster of 2008, and valued security and teamwork more.

Fifty years ago, graduates like me didn’t need inviting to get involved in politics - although 1968 was marked for me not by student protest but by getting elected to a town council. The older generation patently needed replacing, we thought, and we were the ones to do it. This was the period of the Penguin exposes of what was wrong with British society – and of a whole variety of Royal Commissions beavering away at reform of the various systems of trade unions, broadcasting, universities, industry etc

My first taste of real power was 1971 (as a committee chairman) although I was also holding down a position as an academic which gave me the opportunity to absorb the new thinking about political economy and public economics which was then being articulated in the States. Social science was still new then – and economists still few in number. We had, sadly, a certain arrogance about the new tools at our disposal and toward our elders…….Tony Crosland had been my hero – author of "The Future of Socialism" (which followed James Burnham in arguing that management rather than ownership was the issue) had been published in 1956....... 

And in the States, a new generation of politicians arrived in Washington in 1975 – “the Watergate Babes”….who considered those who had borne the Democrat’s flag for the previous decades as “old-fogies” who no longer deserved a place in power…..

An article in the Atlantic magazine recently gave a wonderful sense of the intellectual mood which was around then

In 1974, young liberals did not perceive financial power as a threat, having grown up in a world where banks and big business were largely kept under control. It was the government—through Vietnam, Nixon, and executive power—that organized the political spectrum. …. suspicion of finance as a part of liberalism had vanished.

The story starts with the newly-elected young Democrats targeting in 1975/76 one of the great stalwarts of the Democrat part, Wright Patman, who represented the proud tradition of American populism- 

The story of Patman’s ousting is part of the larger story of how the Democratic Party helped to create today’s shockingly disillusioned and sullen public, a large chunk of whom is now marching for Donald Trump……….
 In 1936, Wright Patman authored the Robinson-Patman Act, a pricing and antitrust law that prohibited price discrimination and manipulation, and that finally constrained the Walmart of its day from gobbling up the retail industry. He would go on to write the Bank Secrecy Act, which stops money-laundering; defend Glass-Steagall, which separates banks from securities dealers; write the Employment Act of 1946, which created the Council of Economic Advisors; and initiate the first investigation into the Nixon administration over Watergate.

Far from being the longwinded octogenarian the Watergate Babies saw, Patman’s career reads as downright passionate, often marked by a vitality you might see today in an Elizabeth Warren—as when, for example, he asked Fed Chairman Arthur Burns, “Can you give me any reason why you should not be in the penitentiary?” 

……..Patman was also the beneficiary of the acumen of one of the most influential American lawyers of the 20th century, Supreme Court Justice Louis Brandeis. In the 1930s, when Patman first arrived in Washington, he and Brandeis became friends. While on the Court, Brandeis even secretly wrote legislation about chain stores for Patman. Chain stores, like most attempts at monopoly, could concentrate wealth and power, block equality of opportunity, destroy smaller cities and towns, and turn “independent tradesmen into clerks.”

In 1933, Brandeis wrote that Americans should use their democracy to keep that power in check. Patman was the workers’ and farmers’ legislative hero; Brandeis, their judicial champion. ….Brandeis did for many New Dealers what he did for Patman, drafting legislation and essentially formalizing the populist social sentiment of the late 19th century into a rigorous set of legally actionable ideas. This philosophy then guided the 20th-century Democratic Party.

Brandeis’s basic contention, built up over a lifetime of lawyering from the Gilded Age onward, was that big business and democracy were rivals. “We may have democracy, or we may have wealth concentrated in the hands of a few,” he said, “but we can’t have both.” Economics, identity, and politics could not be divorced, because financial power—bankers and monopolists—threatened local communities and self-government.

This use of legal tools to constrain big business and protect democracy is known as anti-monopoly or pro-competition policy.…..

J.P. Morgan’s and John D. Rockefeller’s encroaching industrial monopolies were part of the Gilded Age elite that extorted farmers with sky-high interest rates, crushed workers seeking decent working conditions and good pay, and threatened small-business independence—which sparked a populist uprising of farmers, and, in parallel, sparked protest from miners and workers confronting newfound industrial behemoths. 

In the 20th century, Woodrow Wilson authored the Federal Trade Commission Act, the Federal Reserve Act, and the anti-merger Clayton Act, and, just before World War I intervened, he put Brandeis on the Supreme Court. Franklin Delano Roosevelt completed what Wilson could not, restructuring the banking system and launching antitrust investigations into “housing, construction, tire, newsprint, steel, potash, sulphur, retail, fertilizer, tobacco, shoe, and various agricultural industries.”

Modern liberals tend to confuse a broad social-welfare state and redistribution of resources in the form of tax-and-spend policies with the New Deal. In fact, the central tenet of New Deal competition policy was not big or small government; it was distrust of concentrations of power and conflicts of interest in the economy.

For decades, Patman had sought to hold financial power in check, investigating corporate monopolies, high interest rates, the Federal Reserve, and big banks. And the banking allies on the committee had had enough of Patman’s hostility to Wall Street.

Over the years, Patman had upset these members by blocking bank mergers and going after financial power. As famed muckraking columnist Drew Pearson put it: Patman “committed one cardinal sin as chairman. ... He wants to investigate the big bankers.” And so, it was the older bank allies who truly ensured that Patman would go down. In 1975, these bank-friendly Democrats spread the rumor that Patman was an autocratic chairman biased against junior congressmen. To new members eager to participate in policymaking, this was a searing indictment.

Not all on the left were swayed. Barbara Jordan, the renowned representative from Texas, spoke eloquently in Patman’s defense. Ralph Nader raged at the betrayal of a warrior against corporate power. And California’s Henry Waxman, one of the few populist Watergate Babies, broke with his class, puzzled by all the liberals who opposed Patman’s chairmanship. Still, Patman was crushed. Of the three chairmen who fell, Patman lost by the biggest margin. A week later, the bank-friendly members of the committee completed their takeover. Leonor Sullivan—a Missouri populist, the only woman on the Banking Committee, and the author of the Fair Credit Reporting Act—was removed from her position as the subcommittee chair in revenge for her support of Patman.

“A revolution has occurred,” noted The Washington Post.

Over the next 40 years, this Democratic generation fundamentally altered American politics. They restructured “campaign finance, party nominations, government transparency, and congressional organization.” They took on domestic violence, homophobia, discrimination against the disabled, and sexual harassment. They jettisoned many racially and culturally authoritarian traditions. They produced Bill Clinton’s presidency directly, and in many ways, they shaped President Barack Obama’s.                 
The result today is a paradox…… the destruction of the anti-monopoly and anti-bank tradition in the Democratic Party has also cleared the way for the greatest concentration of economic power in a century. 

“A revolution has occurred,” noted The Washington Post. 

Update; Just discovered this highly relevant book The Fourth Turning – an American prophecy – what the cycles of history tell us about america’s next rendezvous with destiny  by W Strauss and N Howe (1997)

How did we allow them to get away with it?

Ferdinand Mount is an eminent member of the English political elite. He wrote the Conservative Party's 1983 election manifesto and led Thatcher’s Policy Unit for a few years. He is not the sort of person you expect to find  penning in 2012 an explosive book called “The New Few – a very British oligarchy” and arguing that the salaries of the Business and financial elite are obscene and totally unacceptable.

I had picked up a remaindered copy of his book last week and soon realised that, when I wrote recently about Burnham’s 1941 “The Managerial Revolution”, I had forgotten that it was based on an earlier book – “The Modern Corporation and Private Property” published in 1932 by Princeton law Professor Adolf  Erle and his Harvard economist friend Gardiner Means – which basically transformed how the world understood corporate power.

Until then, everyone believed that company shareholders were all-powerful. Berle and Means exploded that myth and proved that the managers had gained the upper-hand. I remember the respect in which we held that book in my economics course in the early 1960s…

“The New Few” not only tells that story but goes on to remind us that, in the 1980s, new financial devices such as Investment Trusts and the consolidation of Pension Funds placed immense power in the hands of another set of managers (those in the financial sector) who cosily worked with the Directors of companies to do exactly what they wanted – not least in matters relating to their own remuneration…  

Time was when the maximum ratio between the boss’s pay and that of the average worker was about 30 to one. How many people realise that that ratio is now almost 1,000 to one??? Totally and absolutely indefensible.

Mount then moves the focus to banks and financial institutions with a little chapter suggesting that the system has suffered from “three illusions” –

-       That markets knew best

-       That big was beautiful

-       That greater complexity meant more progress

And goes on to indicate that there have always been four “escape routes” from financial disasters

-       Laws to regulation monopolies and mergers

-       Proper ratios between reserves and loans

-       The level of reserves considered “prudential”

-       Separation  of bank activities between “basic” and “speculative”

The Vickers’ Independent Commission on Banking was set up in 2010 to explore some of these questions and reported a year later. 

There seems to be mixed views about whether they (and subsequent government actions) achieved significant change. 

This academic says no – and Vickers says yes but not quite enough….

I’m not an expert on such questions but my feeling is that inertia won out….