Forget moral capitalism. Try strategic capitalism
The speeches on moral and responsible capitalism are a smokescreen for a much bigger political problem for both main parties. The model of British laisser-faire capitalism that has, on the whole, delivered for the bulk of the nation for decades, may no longer be up to the job. That is not to say that British capitalism is broken, more that its place in the world has fundamentally changed, meaning that it can’t, right now, deliver for large swathes of Britain’s population. And neither political leader recognised that today.
I’d argue that in this year we are seeing a Great Realisation in the West. Britain is beginning to notice that if you work hard and play by the rules, it does not guarantee rising wealth or income, or even that your children will enjoy that. Britain is beginning to realise that the average household has emptier pockets. Britain is beginning to realise that the credit mountain that masked some of this is not returning. (For an indication, have a look at this graph from the Resolution foundation, who will be putting out a new version on Monday. A quarter of a century of relentlessly rising living standards, with median real weekly wages rising from £367 in 1977 (2011 prices) to about £570 in 2002. Then pretty flat with a small peak at the peak of the credit boom. And then an unprecedented fall to £540 last year)
In particular, abundant domestic energy resources (the North Sea) imports of cheap products from the likes of China, and until ‘07 a strong pound, supported the inexorable growth of average real living standards. Cheap domestic energy, and cheap imports. These factors hugely contributed to the broad-based foundations of British capitalism. They are now all gone, and we’ve been saying that (The end of the Nice decade) for about three years.
Take those energy prices. In the 1990s, British-style laisser-faire capitalism did deliver cheap energy prices for all, when the genius of competition was set to work to find the cheapest way to extract North Sea Gas, for example. Everyone was a winner. Britain could sneer at the dirigiste statist Continentals and their expensive energy. How things change. As the North Sea dwindles, Britain’s energy prices are increasingly set internationally. The Big Utilities are “competing” over exactly the same pipes or tankers of international gas. Competition has become a chimera, a sham. The Government blames the people for not switching supplier. The truth is that they all charge the same, because they are selling virtually the same gas, from the same pipes or LNG terminals.
So that’s changed. As has the role of China in the world economy from exporter of deflation, through cheap goods, to an exporter of inflation through demand for commodities as its living standards rise. That interacts with the energy problem, because other nations take more strategic approaches to these issues, using diplomacy, longer term contracts, and state-run providers, to run rings around our free market behemoths.
The net result: that Britain seems to have very little control over the factors raising prices and eroding the living standards across the nation. People feel poorer. Even worse, many now expect their children will have a worse standard of living than them. So the system that might well have delivered broadly (though not for everyone) in the past, but that is no guarantee of future success, in this new world. So forget moral or responsible capitalism. That’s just tinkering at the edges. It’s a more strategic capitalism that’s in order in a new world order. A more strategic capitalism would be planning for dealing with mass low-skilled male joblessness, for example.
This is a profound change. It’s why Boris is falling behind in polls after Ken Livingstone promised to cut transport fares. Today’s political musings are an embryonic recognition of the changing landscape.
Follow Faisal Islam on Twitter: @faisalislam