This is the weekly newsletter from Iain Martin, editor of CapX. To receive it by email every Friday, along with a short daily email of our top five stories, please subscribe here.
Paul Mason is not your average journalist. For a start, the economics editor of Channel 4 in the UK, and the author of a must-read book published this summer, is a Marxist. This drives some of his conservative critics to fury, although I must say that you know where you are with a proper Marxist, as opposed to some of those on the soft-left who have biases they think count as neutrality. I have always found Mason thoughtful, interested in reporting and open to ideas outside the standard frame of reference.
Last year, we shared a platform as part of a panel on capitalism at a conference and from opposite positions ended up agreeing on quite a bit when it came to diagnosis. The question was whether capitalism, post-2008, is in crisis and if it is what might be done about it. The practising capitalists on the panel – successful business types – were, as entrepreneurs tend to be, essentially optimistic. Yes, there had been some problems in the financial crisis but we are reforming and moving on. The future is bright.
I agree that the curve is upward, and the spread of open markets and technology has brought many hundreds of millions of the world’s citizens out of poverty. It will do yet more. The possibilities are exciting.
Still, you would have to be panglossian to think there are no downsides to globalisation and recent technological change. In Europe, which faces a migration crisis on its southern shores, there is a tension between the benefits of open markets and borders and the erosion of the modern national state, which is corroding notions of common-feeling, security and community. In Britain, this was always the tension at the heart of Thatcherism. Her two defining tenets – openness to the world for trade, and belief in the integrity of the nation state – were always at odds, although it did not become apparent to her that this was the case until rather late in the day.
It is in this discombobulating context that the financial crisis of 2007-2008 should be seen. In the run up to disaster, excessively large financial institutions – spurred on by government that relished the tax revenues – floated free across international borders as the lauded archetypes of financial globalisation. Yet, when it came crashing down it turned out that the bill for repairs fell on the old-fashioned nation state and taxpayers in individual countries such as Britain.
No wonder taxpayers were – and still are – pretty annoyed post-bailout and sceptical about the claims of those of us who are pro-market. If capitalism either operates as a racket or is perceived by large numbers of Western voters to be a racket in which the capitalists get bailed out, then it – and those of us who want prosperity increased and spread widely – are in trouble.
When we shared a platform at that conference, Mason agreed that the crisis was serious, although he disagreed with the prescription of capitalists like me. I favour more competition, lower and flatter taxation and free trade underpinned by a smaller and more effective state. I’m a capitalist who gets annoyed that quite a lot of what is blamed on capitalism is actually the result of corporatism and excessive closeness between the state and big business. I want capitalism and markets and Mason thinks that capitalism as we know it has had it.
Back then, Mason was already developing his latest theory, which has duly become the subject of his new book. Postcapitalism is published by Allen Lane.
Although his tract has not had as much attention as Thomas Piketty’s fashionable tome of last year, it is surely a much better and more readable book.
Whereas statistics from Kindle last year suggested that most readers did not get beyond page 26 of Piketty’s 685-page questionable take down of capitalism, in contrast Mason’s Postcapitalism fizzes with energy that spurs the reader on. But even so, the central premise of Mason’s argument – that capitalism is being or will be replaced – is inherently faulty.
He rests his argument on three shaky pillars. First, he says that information technology has reduced the need for work and blurred the distinction between free time and work. Secondly, information is supposedly corroding the market’s ability to form prices correctly because it is much more difficult to price, say, the true value of a potentially ephemeral new internet platform than it is to value a ship or a pile of goods. Thirdly, he cites the spontaneous rise of collaborative production in which volunteers bypass the market and produce a valuable service that is then given away free. He cites Wikipedia and food co-operatives in Greece as examples.
There is much of value in Mason’s theory and internet technology is certainly having a disruptive impact. Those Wikipedia volunteers have destroyed the Encyclopaedia business and made it easier for anyone with online access to check anything they want (as long as they remember to cross-check it in a good book or another source in the interests of accuracy.)
But the free work put in by Wikipedia volunteers is underpinned by others who must, when it comes down to it, earn money to pay for stuff that cannot be bartered. They can contribute to a collaborative enterprise in their spare time, or as a hobby all day if they so choose, but something or someone must be paying the bills. That may be a partner, who works for a business that pays him or her in money, or it may be that a windfall or an earned retirement package makes their volunteering possible. Whatever it was, they need money for life’s essentials, and for luxuries if they are so minded.
There is also evidence in Western countries that, contrary to Mason’s claim, the blurring of the distinction between free time and work has increased hours worked among the highly skilled. Indeed anyone who runs their own small business will surely question Mason’s claim that the boom in self-employment in Britain, and the fashion for flexibility, has reduced the need for hard work.
Also, there is little new in the idea of those in the market in a time of turmoil finding it difficult to price correctly because information is evanescent. The price is simply what someone is prepared to pay based on the information available to them, or based on rumour and gut-feeling. When government and company debt started being traded centuries ago, the seller or the buyer could only produce a piece of paper rather than a physical pile of money. The price fluctuated based on what people believed it to be worth at any given moment or might be in the future. It required an intellectual leap of imagination to trade on that basis, and contract and company law grew up to regulate these activities, and, in theory, to protect the vulnerable or the gullible. The process by which capital is raised to fund new technology and modern information businesses is just a new version of an old story that will involve successes and failures, booms and busts, just as was the case in the 18th century, and in the 19th and the 20th centuries, and will be the case in the rest of the 21st century.
The modern capitalist economy is undoubtedly changing and evolving; Paul Mason is right about that and highly perceptive when it comes to the dangers flowing from the excessive concentrations of influence and power enjoyed by the new technology giants. But these economic changes, and the new methods of working entailed for millions of people, do not change the basic reality that wealth needs to be created and allocated.
Although the poor Greeks, treated shamefully by the Eurozone, might find it useful to barter food, the overwhelming majority of us in western societies want the choice of good supermarkets and all manner of other shops or online outlets where we hand over money we or someone else earned. That being the case, I cannot see post-capitalist airlines, or football teams, or holiday resorts, or cars, being a big success. Even the collaborative providers listed on Airbnb, the fashionable hotel website, expect to be paid. If you offer instead to barter them the contents of your suitcase they will look at you suspiciously or call the local police.
Capitalism is not an ideology. It is simply a system – the best discovered, albeit imperfect, as mankind is imperfect – for trading what people want and creating profit which is saved, invested in innovation or consumed in a virtuous cycle. It involves allocating scarce resources much more effectively than the hard left’s Jeremy Corbyn, UK Labour’s likely next leader, could ever manage by controlling the commanding heights of the economy. And there is nothing “post” about capitalism. Done properly it is liberating. Today, it is is needed as much as ever.