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May 18, 2012 / politicsbitesize

Inclusive Capitalism and the 99%

From their inception the Occupy! movement have been staunchly anti-capitalist, and who can blame them? We see the rich bankers who caused the financial collapse in 2008 retaining their enormous pay and bonuses. We constantly hear about the biggest profit making companies avoiding their tax bills and being allowed to get away with it. Austerity measures are being implemented across the EU but the only people they are crippling are the ones who have the least. Jobs are being lost by those who really need them, benefits are being capped or removed altogether and essential services are experiencing funding reductions that are causing them to close. This picture of society today is a bleak one, but more than that it is an unfair and unethical one.

To date those involved with Occupy! have managed to identify all that is wrong with capitalist society but have not yet developed a comprehensive strategy to change it. A fierce debate has arisen around the issue of finding a new path and it is one in which Dr Alan Mendoza, President of the Henry Jackson Initiative, decided to get involved. On Monday 14th May, HJI published its first paper encouraging companies and investors to think more long term about the future of capitalist society.

In Towards a More Inclusive Capitalism the authors aim to promote a new path for current capitalism. The group writes: ‘Capitalism is very much under siege [but] it remains the most powerful economic system we have for raising people out of poverty and building cohesive societies’. Even though the group are pro-capitalism, they recognise that, in light of the recent economic crisis, growing numbers of people are becoming disillusioned with the system and would like to see some change.

Over the last 30 years, the group claim, capitalism has become dislocated and self-serving. Many millions of manufacturing jobs have moved overseas to developing countries where companies can find cheaper labour. As a result of this movement in the jobs market many in the developed world have been made redundant and are unable to find alternative jobs due to lack of qualifications and skills. Income inequality has risen so quickly within these 30 years that now 1% of the world’s population own 40% of the world’s wealth. In addition to these developments, the report goes on to suggest that management and investors have focused more readily on short-term profits rather than the long-term needs and requirements of their businesses.

The paper sets out the case for improving these weaknesses in the capitalist system by identifying three main areas in which progress needs to be made. According to the report these three crucial areas, ‘in which companies and institutions can make, and are making, positive progress are (a) education for employment, (b) support for small and medium-sized enterprises (SMEs), and (c) improvements in corporate management and governance for the long term’.

All of the three pathways, the group claim, can start to get the capitalist system back on track. By addressing the education gap though apprenticeships and internships businesses can begin to grow and create more jobs for the unemployed. The report highlights the need for bigger businesses to support the growth of SMEs, which in the long-run means distribution of wealth will become more even and provides room for the economic growth of both the big and the small enterprises. A reformation of the focus of management and shareholders on longer-term investments and performance would mean a shift in the overall culture of business. If a company is more motivated by its long-term prospects rather than short-term gains then it is possible that not only could it make more profit but it could actually behave more ethically.

Towards a More Inclusive Capitalism makes a lot of sense and provides detailed analysis of why capitalism has gone awry and, more importantly, provides pathways to start to put it right. The group, led by Dominic Barton, global managing director of McKinsey & Company, and Lynn Forester de Rothschild, close the paper with a discussion about the need to improve ethical behaviour in business:

Improving the ethics of the business world is fundamental to solving capitalism’s current problems. We believe the recommendations regarding investing for the long term and corporate governance will help. We are encouraged that the market itself is beginning to rectify the situation: some companies and shareholders are taking serious steps against excessive CEO compensation, for instance. But the heart of the remedy must be a near-revolution in personal ethics, for the regrettable behaviour in the recent crisis was mostly unethical rather than illegal. Only if people become more aware of the moral dimension of their personalities, and bring them into their business decisions, will we avoid a repetition of the problems we have suffered.

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4 Comments

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  1. Mark Hill / May 22 2012 7:02 pm

    Although some good points are made here about what needs to happen, it is simply unrealistic to expect corporations enact it themselves. Large companies are always going to act in their own interests; indeed this is enshrined in law. A company’s directors are legally obliged to try to maximise returns for their shareholders. A company’s share price is based on estimates of growth and profit. Directorial bonuses are based on profit and share price. There really is no incentive to look at the long term, when the directors of large companies are probably not going to be around to benefit from it.

    The answer to taming capitalism’s excesses, is greater government intervention. It always has been and always will be. Companies polluted the environment until government stopped them. Companies endangered the health and safety of employees until the government stopped them (well in the UK that is – they are still allowed to overseas). Companies discriminated against employees based on their gender, race and sexual orientation until the government stopped them. They could now regulate, but they won’t.

    The whole system of lobbying and party donations has ensured that any government will look after the interests of business. Their parties depend on the income for their existence and they are constantly hearing the business case as the lobbyists have far more access than public pressure groups due to the huge resources they have. There is also the issue of the revolving door policy – ex-ministers can be almost assured of a decent non-exec role on the board of a company that they have recently been responsible for regulating. It’s hardly an incentive to crack down hard on them.

    To change this, we need to have publicly funded political parties, an end to the whole lobbying process and a moritorium on ministers joining companies until a decent period has elapsed from them being responsible for that department. We also need to pay MPs a sensible salary and stop them from having second, third and fourth jobs whilst in Parliament.

    However, the chances of seeing this all happen is the square root of bugger all, I fear. The Daily Mail, Murdoch press, etc are simply not going to let it happen without a massive fight and I don’t see them losing.

    • politicsbitesize / May 23 2012 8:32 am

      Many thanks for your very insightful comment on this piece. I agree that the corporations, managing directors and anyone making lots money in the short-term are not going to want to (and indeed can’t) change the way business is run. That is why I agree that not only should there be more government intervention but that this needs to be backed up by a cultural shift. Society needs to make it reprehensible to behave in such a way that short-term gain outweighs long-term benefits, but at present that is not looking hopeful. We can all see the motivation behind the contestants who appear on Big Brother and TOWIE etc; they are in it to make as much money and gain as much notoriety as they can but because it is in such a short space of time it can’t possibly last. And it is this principle of short-term reward that has caused much of the financial and social crises we see around us today. The ethics of building things to last, whether that be a company or a life as a minor celebrity, needs to be instilled in society to such an extent that it becomes abohorrent to want to make a quick buck without thinking about the consequences. That kind of behaviour needs to be punished and so far it hasn’t!

      • Mark Hill / May 23 2012 9:02 am

        I’m completely with you on all of that. Society’s moral compass is utterly screwed. We’ve turned on the poorest in our society during this recession. I’ve seen more bile directed at people on benefits than I have the bankers and the politicians and, yes, the incessant media drive towards relaxing the regulations that created this bloody mess. The tax agreement that Vodaphone reached cost the UK government an initial amount that was three times the estimate of the total annual benefit fraud in this country – and the ongoing tax saving they will get from this is reasonably adjacent to the annual fraud. But what do we, as a society, focus on?

        We are starting to move towards social cleansing policies with the new limits on benefits (this will save the government a tiny sum – probably less than it will cost to enact the rules in the first place) which are driving people out of the posher parts of London. This has widespread public support. Fragmenting society is NOT the solution but simply a means of hiding the problem of poverty and unemployment. Hiding it until it REALLY becomes a problem that is – and then, I guess, we can simply put up big fences, so they can only smash up their own estates.

        We are REDUCING taxes for the best off in society, under the auspices that all these people and businesses will move abroad if we don’t. There is precisely no evidence for this but the public swallows it nevertheless (with the odd grumble into their beards). Keep repeating the mantra “The City makes so much money for this country” and people will begin to accept all their demands. No one seems to make the point that, if taxation was such a main reason for the location of a person/business, they’d have left years ago anyway. I don’t recall a massive exodus when the 50p rate was introduced; why should I believe it will happen if they don’t put it back down?

        So where do we turn to, politically? The Conservatives will continue to look after their own, Labour is terrified of the ‘S’ word, the Lib Dems have made themselves unelectable, the Greens will ensure the lights go out in 5 years (which will only make things worse for the poor in society) and UKIP are plainly mad. For the first time in my life, I have no party that I want to vote for.

      • politicsbitesize / May 23 2012 9:15 am

        Absolutely Mark – I couldn’t agree more! I guess the reason I started this blog was to have these kind of discussions and raise awareness that the way we are going just isn’t right, isn’t working and clearly needs changing. I believe the Occupy movement have this kind of change at the heart of their agenda and a world wide reach, which means they could do so much good by further highlighting the unfair and unethical that way we ALL live. Unfortunately we, as a society, seem to be very stuck and unsure of the next step and so that is why I felt this publication by the Henry Jackson Institute was quite inspiring. As you say Labour (and society as a whole) are far to scared to become in anyway associated with socialism and that is a shame, so maybe a reworking of capitalism might be an easier pill to swallow?

        I agree that there are no parties to choose from any more and career politicians are spoiling it for everyone. Someone should set up an independent and publicly funded party for the people and then maybe folks will have something/one to grumble at (and with) rather than simply into their beards!

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