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| Adam Smith |
Matt Burrows asks how we can build public confidence in the free market.
There has been much talk recently about the reform of capitalism and political economy. There is genuine anger among people about the conduct and the lack of accountability of political and economic elites. This is coming from places I would not expect (i.e. right-of-centre voters) and it is worrying.
I welcome David Cameron's criticism of “crony capitalism”, but I doubt whether the Conservative Party would do all that is necessary to provide change. City financiers fund the Conservatives to 50 per cent of its income (as Nicholas Watt and Jill Treanor showed in the
Guardian last year) and the city bonuses demonstrate a desire to revert to `business as usual'.
The general approach of the Right and its big business allies gives succour to anti-capitalists and the Left and its predilection for over-taxing and overregulating wealth creation at the time the economy needs that the most. Labour has been trying to re-establish its socialist credentials and distancing itself from the Blair years. Indeed, Ed Milliband described himself a Socialist.
Therefore Liberals (Lib Dems or not) are ideally placed to reform capitalism. As late as the mid-1960s, the Liberal Party was the party economic liberalism (see James Parry's chapter in
Prime Minister Portillo and Other Things That Never Happened). Somehow this was sidelined until recently, allowing Thatcherism and then New Labour to claim (parts of) it with considerable popularity. With the Orange Book we started to take back this position.
One sense of Liberalism - the “little man” against the political and economic establishment" (see James Parry again)- has resonated with me. I prefer “individual citizen” in place of “little man”, but the sense is clear and nor more relevant than the present time. The current economic difficulties, the 'phone hacking and MPs expenses scandals have shown poor judgement by both political and economic elites.
The lamentable conduct has done much damage in the past few years. If popular anger is left unchecked it could harm this country's competativeness by undermining the recovery and dampening entrepreneurship. Therefore, public confidence among consumers in the capitalist economy must be restored. In our own lives, we are more likely to buy from a company from which that we had received good product or service before. Why is it that that is not applied more generally?
Being a consumer is what unites us all. There is a need for strong consumer legislation and tough action to prevent (or minimalise) monopolies,
monopsonies and anticompetitive practices. These measures are key to the relationship between provider and consumer, and ought not to be merely a bolt-on or concession. There must be both the political will and resources to implement them. Then consumers would have confidence in the businesses and organisations with which they deal and the law and regulatory system able and willing to back them up.
I seek more a consumerist economy than a capitalist one. Adam Smith favoured free markets and in the Wealth of Nations he set out several preconditions for a free market. Among these is the complete knowledge of products by consumers. I want to see government champion its fulfilment. It is curious that the Thatcherite revolution in the Conservative Party seemed to overlook the qualifying aspects of Adam Smith’s work.
This can be applied in two further ways. The Department for Business Innovation and Skills (BIS) promotes both British business and regulates it. How can it perform both effectively? A Prime Minister can shape Whitehall departments almost at will but a Haldane Review is needed for a reconfiguration of government departments to have some permanence.
Therefore, firstly, I suggest a Department of Consumer and Environmental Protection in Whitehall, taking over some responsibilities from (BIS), such as the acting as sponsor department for the Monopolies and Mergers Commission and Office of Fair Trading (OFT). This department should be headed by a Secretary of State, sit in Cabinet and serve as the consumers' champion at the heart of government. This might also bring in some regulatory responsibilities from Energy and Climate Change. A Department for Commerce would take over the responsibility for promoting British business and entrepreneurship.
Secondly, there must be inclusion of consumer groups, and at last one small business organisation – e.g. Federation of Small Businesses (FSB) - in any economic discussions with Government along side big business representation (CBI, IoD and the trades unions (TUC). The inclusion of small business representation is important. They can suffer as the consumer does at the hands of big companies e.g. late payment of invoices from larger business and public sector customers. I would also like to see included charity representation and the smaller trades unions.
One further tentative idea would be to change the Companies Act so that companies be compelled to balance the investment return of their shareholders with the interests of their customers and employees. They would have to account for their activity in this way as part of their annual report. I appreciate this would be burdensome but It should focus minds to develop ways to further these objectives. There is a precedent for this: charities are required to report on the public benefit of their activity in their Annual Report to the Charity Commission every year.
I have tried to show how the relationship between the individual and the economic and power structure can be improved through a consumer-led approach. It would allow the market to function normally yet providing the accountability in the economic sphere that elections do in the political.
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