Tag Archives: Jesse Norman

Capitalism, crony capitalism and neoliberalism. What’s in a word?

Are the Occupy protesters on to something?  Or is theirs just a hopeless battle against abstract nouns?

I have been rather exercised about some abstract nouns recently.  First was the word “Neoliberalism” selected by Simon Titley of the Liberator as one of three Bad Ideas to have infected British politics over the last 30 years, sweeping along the Liberal Democrat leadership with the rest of the mainstream.  The other ideas were the “Westminster Bubble” (the idea promoted by a lazy media that only ideas that have taken hold in Westminster matter), and that the Westminster elite have a monopoly of political wisdom (expressed by contempt both for grassroots activists).  Neoliberalism had a starring role in the previous month’s Liberator when Mr Titley and David Boyle roped it into their narrative of what went wrong with British politics in their article “Really Facing the Future”.  Mr Titley felt he had written enough already on the subject to explain what he meant by neoliberalism – unfortunately before I have been subscribing to Liberator.

Another tiresome abstract noun has been even more prominent: “Capitalism”.  This has been the main target of Occupy.  It was recently brought into further focus by Tory MP Jesse Norman in an FT article based on his pamphlet “The Case for Real Capitalism“.  This pamphlet is not a particularly coherent or convincing piece of work, though to be fair he does say that a longer, and presumably better argued, version is in preparation.  But by harnessing a couple of qualifiers (“crony” and “good”) he tries to make sense of capitalism, and brings neoliberalism into the picture too.  It’s good place to start a probe into whether these words have any useful purpose.

In Mr Norman’s picture the world has been suffering from “crony capitalism”.  He identifies various strands (e.g. “narco-capitalism”, taking it well beyond what I would call “crony” capitalism, which should really involve cronyism – business leaders being too close to political leaders.  Still he does offer a workable definition of bad capitalism:

Crony capitalism is what happens when the constraints of law and markets and culture cease to be effective.  Entrepreneurship and value creation are replaced by rent-seeking, and certain groups become enormously wealthy without taking risk. These factors in turn lead to long-term economic underperformance, and sometimes to social unrest.

Apart from the use of “crony” and the economics jargon of “economic rent” (which means profits accruing to a business over and above the opportunity costs of inputs) this is quite useful.  Something that is recognisably capitalism – an economy based mainly on private enterprise – can look like this, and when it does, it is bad.  But capitalism doesn’t have to be this way – hence Mr Norman’s employment of “good capitalism”.  This version emphasises the need for free competition and the consistent application of the rule of law.  But that by itself is not enough.

Mr Norman contrasts “good capitalism” with our friend “neoliberalism”, which does not have a moral dimension.  Like Mr Titley, he does not bother to define neoliberalism.  But from context I can identify it with what the FT writer and economist John Kay called “the American Business Model” in his 2002 book The Truth about Markets which was part of my Christmas reading.  This elevates the simplifying assumptions of classical economics (rational behaviour, consistent and stable preferences, perfect competition, and so on) into a moral value system.  In particular it idealises a ruthless focus on maximising personal gain in the framework of impartially enforced rules (property rights in particular).  This way of thinking remains very popular in America, with the Chicago School giving it considerable intellectual heft.  But it has never taken off in Europe, and Britain is very much part of Europe on this issue, as in so much else.  The emphasis on personal gain – greed – and antipathy to social solidarity are too much for all but a lunatic fringe to accept.  And that includes Conservatives like Mr Norman.  Good capitalism has a moral dimension – and one that celebrates the virtues of hard work and social responsibility.

Meanwhile the use of “neoliberalism” on the British left (including Mr Titley) clearly does not conform to the definition that Mr Norman uses.  Within its scope are swept Margaret Thatcher, Tony Blair, Gordon Brown and the “Orange Book” Liberal Democrats such as Nick Clegg.  But none of these are or were Chicago School types.  Apart from Mrs Thatcher, maybe, all see a huge role for government in our society and would expand its remit.  But they have criticised the way producer interests have captured public services, profoundly undermining its quality.

Another issue needs to be mentioned here: and that is financial explosion in the UK and US that occurred in the period 1997-2007, and which ended so badly in the current crisis.  This is closely associated with greed in the public’s minds, of bankers mainly, but also chief executives and (whisper it) all those ordinary members of the public that racked up credit card and mortgage debt.  This is swept into the general idea of “capitalism” and “neoliberalism”.  And indeed neoliberal ideas were used to justify the behaviour of many of the more egregious participants.  But true believers in neoliberalism have little difficulty in shrugging such criticism off.  To them what caused the crisis was excessive government intervention (e.g. by encouraging subprime lending in the US)  and the failure to uphold proper open markets (through the implicit government guarantee of banking activities, for example).

All of which renders the words “capitalism” and “neoliberalism” as useless abstract nouns.  There is little consistency in their use between the different political factions; their use by one faction is misunderstood by the other in an endless cycle of talking at cross purposes.  The Occupy movement seems particularly bad at this.

To make headway in the political debate we need to move on from the abstract to the practical.  What is the best way of providing health and education services?  What should the scope be of social insurance?  How can we get private businesses to invest more in the future and distribute their profits (or economic rents if you prefer) more equitably?

 

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