The blueprint for a new Inclusive Capitalism
The choice between socialism and capitalism appeared to have been settled years ago, but now it’s back. In a new publication, David Green argues that capitalism had it coming. Casino capitalists and crony capitalists have corrupted the high ideal of economic freedom. But, a morally justified form of capitalism is within our reach, if we are prepared to undertake fundamental reform.
Calling for a new ‘inclusive capitalism’ that delivers prosperity for all, Civitas director David Green says the market economy is being undermined by apologists for capitalism in its current form.
He argues that leaving the European Union, which resists democratic accountability, presents an opportunity for the UK to embrace a new economic model that recognises the role of the nation state in holding power to account.
In Inclusive Capitalism: How we can make independence work for everyone, he questions the assumptions that underpin the system of hyper-globalisation that has held sway, pointing out that markets do not always allocate resources efficiently and that displaced workers are not always made better off in the end. He also shows how world prices are not always market prices, when for example exports are subsidised by an authoritarian dictatorship such as China.
Dr Green argues that the main rival to Western capitalism in the world today is not socialism but the state capitalism of China and Russia, which only permits private initiative that does not threaten the rule of those in power. Western capitalism, as experienced in Britain today, is vastly superior to state capitalism but it also has ‘fundamental flaws that need to be overcome’.
These require a government that is prepared to create conditions for enterprise and personal freedom rather than falling back on a laissez-faire approach to the economy.
‘The main threat to the success of Brexit is that the government will be paralysed by a negative economic ideology that has been called market fundamentalism,’ Dr Green writes. ‘Government is seen as always and everywhere the enemy of freedom, and our economic life is interpreted as a set of axiomatic relationships that can be understood only with the special insight of economists, who therefore think that their opinions should be followed.’
He advocates instead an inclusive capitalism that recognises that a market economy is not a natural outcome found in the absence of intervention by the state – rather, it is an achievement of legislation and public policy that requires continuous refinement through the laws and institutions of business and commerce. He identifies a series of interventions that would be compatible with a market economy and lead to better outcomes. These include:-
– Widening the goals of monetary policy so that it targets not only low inflation but also maximum employment and the price of sterling, with the aim being for the exchange rate to reflect the flow of imports and exports rather than currency speculation.
– Reducing the high cost of energy, which has destroyed manufacturing jobs, by scrapping the carbon price floor, encouraging fracking and developing nuclear power via small modular reactors.
– Cutting corporation tax to encourage capital investment and rebuild productive capacity, aiming to have the lowest rate among developed countries at 10 per cent.
– Aiming to ensure that inward investment adds to productive capacity, rather than enabling a simple takeover of an existing company which adds little or nothing to our economic prospects. The government should scrutinise foreign direct investment to ensure that it is beneficial rather than extractive.
– Using quantitative easing (printing money) not to purchase assets, as has been the case in recent years, but to give households extra cash or to fund public services such as the NHS. The current approach has inflated the wealth of a small number of asset-holders, while the second option would spread the benefit of monetary financing more widely.
– Making full use of WTO powers to safeguard domestic industries from aggressive exporters such as China who use dumping and subsidies to undermine competition.
– Creating a network of regional banks that can only lend locally, in order to restore investment power to local communities and rebuild productive capacity.
– Establishing a British Infrastructure Bank to finance a new wave of investment in road, rail, housing, ports, energy generation, manufacturing capacity and the internet. It should be permitted to invest directly in private enterprise.
– Reforming limited liability status so that it focuses protection on those investing in productive enterprise, rather than those engaged in pure arbitrage, for example betting on share prices.
Dr Green writes:
‘Apologists for capitalism in its current form are undermining what is mutually beneficial about a market economy. If we want to continue adding to our prosperity we must accept that it depends on constant adaptation to fluctuating demand for goods and services through the system of voluntary exchange at freely adjusting prices. We must enjoy the personal freedom to react to incessant alteration of the conditions affecting the occupations available to us and the products we are able to buy. The mistake of free-market fundamentalists is to assume that this freedom to adapt implies minimal government. But freedom does not depend on the absence of government.
‘Creating conditions for enterprise and personal freedom is not the same thing as creating a command-and-control economy. But a government that upholds the interests of all members of society has a responsibility to perform well the tasks that it alone can carry out: ensuring sound money, upholding just laws, applying fair taxation, preventing monopoly, and ensuring responsible government spending and investing.’
Inclusive Capitalism: How we can make independence work for everyone