A Rebuttal to Ruth Davidson’s “Capitalism Reboot”
Ruth Davidson has written a piece about “rebooting capitalism”. I’m not sure why the CTRL+ALT+DEL is relevant. That reboots to a system to a previous steady state. We should be looking to address a modern, changing world.
The sense of injustice is fuelled by the uneven demographical and geographical impact.
For much of the 20th century, manual and routine occupations offered progression and pay. For those leaving school to work in a factory, while it might have been hard to later switch career and become a lawyer, there was a clear path to becoming a foreman, supervisor or manager, with relatively high pay and stability of secure employment.
But even back in the mid 80s, most people didn’t work in a factory. The average business size was 10 employees. Many people worked in cafes, hairdressers, shops, worked as decorators. And of course, most people didn’t become the foreman. Someone had to do the work.
Similarly, in towns which sprang up because of a particular trade, industry or employer; while there might have been an insularity of ambition or even nepotism in appointment, there was evidence of available, achievable jobs. From pit villages to textile towns, whole communities profited in worth and self-worth from their industrial identities.
As the dominant occupations of the UK have migrated, such certainties have been lost. Towns have been gutted. Youngsters leaving school at 16 can no longer conceive that by the time their classmates finish sixth form and then a university degree, they’ll already be ahead of them with money in the bank and the first step on the housing ladder.
But this is long past. I started work in the mid-80s in Northampton. Northampton is known for shoe making, and one of my first jobs was working in a shoe factory, but even then, shoe making was in decline and the town was a mix of banking, engineering, cosmetics, distribution, brewing, and numerous other industries. This diversity has only increased over time.
And I’m not sure who Ruth Davidson knew, but few people were on the housing ladder at 21 back then.
How does a teenager living in a pit town with no pit, a steel town with no steel or a factory town where the factory closed its doors a decade ago or more, see capitalism working for them? Is the route for social advancement a degree, student debt, moving to London to spend more than half their take home pay on a room in a shared flat in Zone 6 and half of what’s left commuting to their stagnant-wage job every day; knowing there is precisely zero chance of saving enough to ever own their own front door?
Perhaps not moving to London, but yes, moving out. That’s who worked in the pits and the steel towns. Corby has a large Rangers supporters club because so many of the people working there originally came from Glasgow seeking work. Why should we do differently today?
Or is it staying put in a community that feels like it’s being hollowed out from the inside; schoolfriends moving away for work, library and post office closures and a high street marked by the repetitive studding of charity shop, pub, bookies and empty lot — all the while watching the Rich Kids of Instagram on Channel 4 and footballers being bought and sold for more than the entire economy of a third world nation on Sky Sports News?
Why would we want keep so many libraries and post offices open when demand for them is falling? If we’re trying to work out a future this country, do we want to be spending people’s money on such things? Aren’t most pensions done by direct transfers? Do people more and more prefer getting Kindle books? With regards to high streets, who else is going to take such spots when so much retail trade has moved to the internet? And I’m not sure why someone is so bothered by footballers. If you don’t like what they’re paid, don’t pay to watch.
Not a single person familiar with this impossible choice should be surprised at the rise of the populist right and left, of Donald Trump and Jeremy Corbyn, with their simple, stick-it-to-the-broken-system narrative. This is what market failure piled upon social failure piled upon political failure looks like.
We don’t know the reasons for this. I’d argue that Trump gained power because of Hilary Clinton’s connections to banking and being a bad candidate. I don’t think we have anything like enough data to pin this on market failure. And same with Corbyn. He promised a bribe on student loans, house building and other things. It’s possible to assert this is about one thing or another, but there’s little evidence to support any of them.
Business and commerce have enriched the world. We live longer, stay healthier, consume more and enjoy greater comfort than at any time in history. But corporate behemoths have forgotten about operating with consent. It is not enough simply for an Amazon to bring down the cost for consumers, the public expect it to pay a fair share of taxation and grant workers a decent wage as well.
Amazon pay the tax they are due. That is all they have to pay. If you don’t like what they should pay, lobby for tax law changes. Don’t criticise a company for following the law. Ruth Davidson doesn’t voluntarily pay extra tax, so I don’t see why she expects Amazon to pay more.
It is not inequality that bites deepest, but injustice. People expect that the CEO of a corporation will be the highest paid person on the payroll. What they don’t accept is that FTSE 100 bosses are paid 174 times the average worker’s wage in this decade — compared to 13 to 44 times in 1980.
There’s nothing unjust about this. The board of a company decides it wants to hire people. This is private money. If they think it should be £1m, that’s their choice.
We might ask why it’s now 174 times instead of 44 times. I have no idea. I’ve never been on the board of a company buying talent, and as Ruth Davidson hasn’t either,it seems rather presumptuous of her to think she knows better than the people who have experience and responsibility for deciding which people they need. I doubt she tells her hairdresser what scissors they should buy, or what spanners a mechanic uses when fixing her car. I guess she defers to their expertise and should do the same here.
Adam Smith’s diagnosis “when the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters” while blunt, contains a kernel of truth for the present. If business itself has flunked the opportunity to put its house in order following the 2008 crash, then it is time for governments to take the initiative. Reforms of corporate governance, the break-up of monopolies, restrictions on tax avoidance, lowering barriers of entry to market competitors — each of these actions is required and each needs governments to cooperate in order for them to be effective.
But none of the matters mentioned above concern this. The 2008 crash was about poor regulation of banking by government, in the case of the USA by bad lending through Fannie Mae and Freddie Mac, and in the UK from the disaster of switching financial regulation from the Bank of England to the FSA, and then in both cases, the government underwriting the banks in the event of failure, while failing to regulate properly. It had nothing to do with the salaries of most FTSE 100 or the behaviour of Amazon.
Closing loopholes, increasing enforcement and overhauling regulatory frameworks can go some way to addressing the creeping cronyism that is making free market capitalism an unfree and anti-competitive capitalism, but this stick approach should only be one half of the story. Government also has the ability to set the tone and the direction of travel by using its vast array of levers and resource as a carrot, too. It should do so.
Such action is not about the Treasury picking winners or propping up failed industry, but it is about investing in genuine productive activities. Policy should also be realigned to reward firms that do the right thing — recognising investment in research and development, in workplace training, in productivity gains.
The problem is that that is precisely “picking winners”, by deciding to prioritise businesses that carry out these activities to succeed. 96% of businesses employ less than 10 employees. These do not carry out activities that can be formally labelled as “research and development”. Many do not do formal training. A cafe does not do R&D or training. They improve productivity by things like varying the cakes on offer, hiring better staff or doing marketing better.
Where there is direct public sector investment, it should be to enable, not to replace or push out private sector investment. Its focus on physical and digital infrastructure, education and training; prioritising the public investment in the productivity — and therefore the earning power — of working people.
But this does push out private sector investment. If you take money from taxpayers to say, create a fibre optic network, that’s taxpayers money that can’t be spent on other things. It favours those businesses that benefit from a fibre optic network over those businesses that manage without a fibre optic network.
Education and training are good things, although we have to be careful how that is selected. We should fund the training that individuals require, not have the state providing it. Individuals are far better suited to know which courses are going to further their prospects and to select from a provider in the market than the government creating courses.
Taking the Conservatives’ recent UK manifesto as an example — policies such as a huge investment and expansion of technical education will do much more for long term wage growth than putting workers on boards. That technical education has to be focused on tomorrow’s jobs, however — particularly service jobs — and not positions that are being automated.
But do we know what tomorrow’s jobs are? This is more picking winners, the people from the ministry trying to figure this out, and it’s never gone right.
In short, the multiple instabilities of insecure employment, opaque career progression, wage stagnation, high rental and commuting costs and growing financial barriers to home ownership clearly explain why Britain’s young adults don’t feel they have a personal stake in a system that doesn’t work for them.
The challenges policy makers face as we stand on the cusp of the next industrial revolution include how to equip our workers with the skills for the future, the road map for individual advancement and social mobility, the framework for fair marketplaces, the investment in productive economic activities, empowerment of consumers relative to producers as modelled by Margrethe Vestager within the EU, and a housebuilding programme which democratises home ownership once more.
I think this is where I fundamentally disagree. I think Ruth Davidson sees the future as large or businesses with lots of employees doing lots of big things in a structured fashion with career progression. But this is really trying to bring back a vision of the past that we have dispensed with. The reality is that the world of work today is far more anarchic than this.
As an example of the future, look at Instagram. A modern, technological company. When they were sold for $1bn to Facebook, they had 13 employees. That doesn’t mean only 13 people worked on making Instagram work. They would have paid one of the large hosting companies to do most of the hosting work. They perhaps hired a few freelancers to do some programming and graphic design work. Probably an external company to do some security testing of their site. This is how companies behave now— where you can, you pass off work to specialists. You do one small part of the process and pay for other companies to do another part. And this is all because of the improvements in telecommunications. You don’t need to have your company doing a whole load of things. You can pass off part of your process to others. You outsource things to companies who can do a thing for you, and you focus on your core competency.
Nothing is going to change that back. The future is going to be more of this. It’s going to be more freelancing, more “gig economy”. This may not be the vision of the future some people would like, but this is how it is going to be, like it or not. Individuals will have to be more individually resourceful. They will have to train themselves as their lives go on. Work will be less steady. This doesn’t mean people will be poorer, though.
Government’s role in all of this is to ensure that it adapts many necessary services to this. We may need to consider how employment law should best fit this, or how we have to change the benefit system to allow people to more easily move in and out of work. Beyond that, good education and allowing people to keep as much of the fruits of their labour as possible. Individuals are smarter at selecting what training they need than government does. Perhaps we should allow people to have the same opportunities for student loans for £2000 of training to be an HGV driver or a bricklayer as £27000 of tuition fees for a BA in photography.
With regards to housing, vague promises about building programmes won’t do. We have to remove the disincentives to building for existing homeowners. We can call people NIMBYs, but it is not fair that a minority of people have to suffer a loss in home asset value to provide for the homes for everyone, including the children of people living on the other side of town whose house values have not fallen. If we want more homes, we have to compensate those people through some mechanism (the obvious one is replacing some income taxation with land taxation, but there are others).
