8. The nature of the beast
“Let this party celebrate the wealth creators, the risk takers, the innovators and entrepreneurs — the businesses large and small — who generate jobs and prosperity for our country, and make British business the envy of the world.” So declared Theresa May, speaking as Prime Minster to the Conservative Party conference in 2017.
“You can’t get something for nothing,” she continued. “Prosperity is key”. It is indeed. And she was right. Entrepreneurship is important. Very important, because entrepreneurs are the imaginative ones who see not only how the world currently works but how it could work, who spot opportunities, who drive innovation and make change happen.
Which type of entrepreneur?
But what exactly do entrepreneurs do and what conditions favour entrepreneurship’s development? William J Baumol, an American economic historian specialising in this field, sought answers to these questions via a comparative study of entrepreneurship across the ages: the Roman empire, ancient Chinese civilisation, commerce in Europe in the early and late middle ages, and the industrial revolution.
One finding stood out. We tend to think of entrepreneurs as Theresa May described them: as innovative, dynamic risk-takers who build businesses that generate jobs and prosperity. Baumol found some of that. But he also found a lot more of something else.
Not all entrepreneurship is productive, he realised. Sometimes it is unproductive. Sometimes, the opportunity the entrepreneur seizes is not to make something new and valuable but to take advantage of someone else’s weakness, to profit at their expense. He wrote: “It is often assumed that an economy of private enterprise has an automatic bias towards innovation, but this is not so. It has a bias only towards profit” (what he called in technical economic terms, “seeking economic rent”).
Indeed at times, he noted, “the entrepreneur may even lead a parasitical existence that is actually damaging to the economy” (which is exactly what we have found in the relationship between the money conjurers of Universe Two and the ordinary citizens of Universe One).
Baumol then asked, do people choose these different sorts of entrepreneurship — productive or parasitic — at random? Is it about the nature of the people concerned? Or do some other factors intervene?
This is what he concluded: “How the entrepreneur acts at a given time and place depends heavily on the rules of the game, the reward structure in the economy, that happen to prevail … it is the set of rules and not the supply of entrepreneurs or the nature of their objectives that undergoes significant changes from one period to another.”
Changing the rules of the game and the reward structure in the economy. That, in a nutshell, is what has happened over the last 40 years as Governments of both ‘left’ and ‘right’ worked assiduously, methodically and painstakingly to advance the cause of financial services because they believed, or claimed to believe, that it was an engine of ‘growth’. Yet as we’ve seen, the financial services they promoted were not wealth creating. They are wealth extracting. Parasitic.
The question is, where does this 40 year trajectory leave us?
A different beast
First, we have to realise and accept that this is a different beast to the one most of us thought we were dealing with. This is not the capitalism that Karl Marx and many others railed against. That form of capitalism may have been cruel and exploitative but it was incredibly productive. The new capitalism represented by financial cancer doesn’t actually produce anything. Quite the opposite. Like cancer, it is destroying the economy and society that hosts it.
It is 100% parasitic. All taking. No making.
No going back
Second, there’s no going back to the good old days (if there were any good old days). The industries that once made us prosperous have gone — literally obliterated in many cases with once-vast sites of production dismantled and turfed over. Manicured scorched earth. These industries and jobs are not coming back any time soon. So we have to find new, different sources of prosperity free of the delusion that money-making equals wealth creation. Where will this prosperity come from?
Its worse than we thought
Third, our situation is worse than most of us probably ever thought. The damage is far-reaching, extensive, all pervading. It covers the ways the core institutions of our society work: their purposes, governance, performance. It includes the moral, intellectual and political climate in which these institutions and organisations operate — one where rich elites feel perfectly entitled to their riches and look down upon those who ‘fail’ to achieve similar financial wealth.
It includes ill-concealed contempt for the very idea of democracy (remember, in a ‘property owning democracy’ the rich get all the votes). And it includes the fact that immense damage has already been done to our industrial and economic infrastructure, local communities, public services, and the social, collective trust that enables civilised societies to operate effectively.
Getting out of this hole isn’t about narrow party politics. It doesn’t boil down to some minor tweak in policy, or simply electing a different Government to institute slightly different policies over the next five years. This cancer — this counter-revolution — has had 40 years for its tentacles to reach into every part of our society and economy, affecting how our entire society thinks, feels and works.
It’s about our norms, values and culture — what morality we embrace as a society; about our collective vision of what ‘good’ looks like. It’s about how we achieve this vision, which in turn depends on our intellectual understanding of how the world around us works. (Is it really true that all our economic problems will be solved simply by ‘letting markets free’?) It’s about what the central institutions of our society do, and how. It’s about whether we embrace democracy or discard it.
As Baumol recognised, it’s about the rules of the game, the rewards different people get for doing different thing and who decides these things. In short, it’s about power.
Right now, we live in a society where what gets done depends on who pays for it — where he who controls the purse strings makes the decisions, where the money conjurers of Universe Two have effectively seized power. Is this right? Should it continue without limit? If not, what needs changing? How?
United in denial
These are big, BIG questions. But unfortunately, so far, all the major political parties have been united in not addressing them. Like Tweedledum and Tweedledee who bickered endlessly with each other, not because they were so different but because they were mirror images of each other, both Labour and Conservative, Democrat and Republican have promoted financial cancer — and been united in denial about its real import.
The nadir of this came in the UK in June 2007, just months before the Great Crash. The occasion was a speech by Labour Prime Minister Gordon Brown to the City of London. In it, he claimed that we were witnessing “an era that history will record as the beginning of a golden age for the City of London.”
“Your success is critical to that of Britain overall,” he told the assembled money conjurers. “I believe it will be said of this age, the first decades of the 21st century, that out of the great restructuring of global economy, perhaps even greater than the Industrial Revolution, a new world order was created.”
In his sickening sycophancy Brown had mistaken cancer for ‘growth’. The rest of us would soon be paying the price: just a few months later Brown was forced to bail the banks out to the tune of £1.5 trillion added to the public debt, to be paid for (plus interest) by the taxpayer in the form of austerity, so that we ‘couldn’t afford’ public services any more.
But the problem goes deeper than sycophancy to the money conjurers. It’s about understanding the world we now live in. The Left’s continued focus on the redistribution of wealth assumes that the old style industrial capitalist goose continues to lay its golden eggs. But as we’ve seen, in advanced western industrial nations that particular goose is dying if not dead.
Yes, of course, some redistribution wouldn’t go amiss. But to try to redistribute the monopoly-money conjured up by Universe Two would simply prick their speculative bubble, thereby risking another crash (as they are very quick to point out).
More fundamentally, to focus on redistribution now is to miss the point: for wealth to be redistributed it first of all has to be created. And the more electorates sense this, the less credible the traditional redistributionist programmes of the ‘left’ seem to be. When push comes to shove, focusing on redistributionism right now is an act of denial.
The right, meanwhile, are staring over a precipice. By lumping both financial cancer and good old fashioned productive industrial capitalism under the same banners of ‘entrepreneurship’, ‘risk taking’ and ‘private enterprise’ (as Theresa May did so deftly in her speech) they have done the exact opposite of what they claim.
They promised a property owning democracy where we would all own our own homes. Instead, more and more people are being priced out of the housing market and renting is at its highest levels for decades. If you put all domestic home owners together, they own less than 5% of all the land in Britain.
Through privatisation, they promised that the people would directly own the core industries of the country. Instead, they’ve been sold to the highest bidders, many of them foreign.
They promised economic growth. We’ve got stagnation.
They promised that a rising tide would lift all boats. If the rich got richer, they said, the poor would benefit from a ‘trickle down’ effect. The precise opposite has happened. Wealth is ‘flooding up’ to the holders of financial assets.
In the face of the facts, the right have nothing left to say of substance (which is why, increasingly, they fill their silence with the politics of division and hate). They are morally and intellectually bankrupt.
And split. Deeply split. The money conjurers of Universe Two are either utterly indifferent to, or contemptuous of, traditional conservative values of personal responsibility and probity, hard work, community, church and nation. What have any of these things got to do with conjuring money out of nothing on a global scale? Politically and organisationally, any attempt to distinguish financial cancer from real wealth creation threatens to rip conservative parties’ support base into warring factions.
It’s our fault
Finally (and this is the really tough bit) if there’s anyone really to blame for the Great Corruption and its toxic fall-out it’s us: the citizens of Universe One. We allowed it to happen because we believed it was the right thing to do. We believed that money equals wealth and that money-making equals wealth creation. So we believed the economists and politicians when they said financial cancer was good; that good old fashioned production was passé; that it was OK to replace ‘industry’ with ‘services’ (without actually specifying what these services were); that we had to submit to the ‘disciplines’ of market forces; that we had to accept ‘austerity’ because there wasn’t enough money to go round. Because we believed in the Money Mirage.
The scale of the challenge
The challenge we now face is immense: economic, social, political, moral, intellectual. We need to rewrite the rules of our society and economy; to recast reward structures to transform who gets rewarded for what, so that parasitic entrepreneurs no longer rule the roost. And, given the scorched earth policies that catapulted our society and economy into a ‘post-industrial’ age, we have to move forward and build a different future. Which raises really difficult questions. Go forward to where? Build what, exactly? How?
If the answers to these questions were easy, we would have found them a long time ago. This is especially true as we have to find them in the context of other big changes that continue to unfold inexorably including the rapid industrialisation of the far east, the growing dominance of globe-spanning corporations, the disruptive impact of new information technologies and the challenges of climate change.
Difficult it may be, but search we must. So where to begin?
Next in this series: 9. Economics: a Modern Mystification Machine
Previous: 8. The ’up’ escalator stalls
Books and articles I found particularly useful researching this blog include:
- William J Baumol and Robert J Strom, Useful knowledge of entrepreneurship: some implications of the history, in David S Landes, Joel Mokyr, & William J Baumol (Eds), The invention of enterprise: entrepreneurship from the ancient Mesopotamia to modern times, Princeton University Press, 2010