OffTheCuff

Responsible Capitalism  

ALL MAINSTREAM POLITICAL PARTIES IN BRITAIN are now in favour of something called “responsible capitalism”. Dismayed by the scale of the present crisis the Tories, the Liberal Democrats, and the Labour Party, are now all true believers. Things have got out of hand. There is too much inequality, and rampant greed is chewing away at the social fabric. Something must be done. Public sector workers must accept a wage freeze and bankers’ bonuses must kept to a minimum - at, say, around a million pounds per annum for each of the big bosses. At the same time single parents must begin to contribute to the cost of tracking down their errant partners’ child maintenance payments. The disabled are going to make much more of an effort, they’re going to stop idling around at home, and commit themselves to pulling up their own socks. Whilst this is happening the sturdy vagabonds, those fit and healthy people living high on the hog off generous welfare benefits, will redouble their efforts to find gainful employment; they’re also going to move to smaller, cheaper, flats and houses, in less desirable neighbourhoods while they’re waiting for their ship to come in. Everybody is going to do something to help. We’re all going to become just that bit more responsible.

    Irresponsible spending, irresponsible lending, and irresponsible borrowing, almost sunk the ship of state. Now, it’s all hands to the pumps as we bail out the banks, the bond markets, and the sovereign wealth funds. We’ve got to pay our debts down. In the meantime we must relearn the old fashioned virtues of living within our means, and the capitalists must become more responsible. This is the solution being sought by Cameron, Clegg, and Miliband, as these responsible chaps all do everything they can to give substance to the finely woven mesh of mythologies, in which they appear to place their trust.

    The truth is, of course, capitalism has never been responsible or irresponsible. Moral and ethical criteria have nothing whatsoever to do with capitalism. If capitalism can be said to be anything at all it is a network of social relations in which commodities are produced in order to realise a profit. The name of the game is the expansion of value. A thousand pounds is invested in order to get eleven hundred pounds back. That’s it. It doesn’t matter what is produced - it might be a pair of shoes, a software program, a chain of bookmakers, or a hundred weight of frozen peas. As long as the value invested expands all is well. If it doesn’t the capital will simply flow into some other business where there is a reasonable expectation that it will expand.

    The means by which capital flows away from unprofitable activities towards profitable ones has the appearance of being a natural process. It is not, of course, it has to be supervised by the capitalist or by the managers appointed by the capitalist to supervise their assets. Now these asset managers, brokers, or company directors, are all entirely responsible men and women. However, they are not responsible in some general moral sense, towards society at large, or their fellow man. They are exclusively responsible to the owners of the capital assets. They are responsible for ensuring that the owners get the best returns possible commensurate with an agreed level of risk, or exposure. This is not some vague ethical commitment it is their legal duty, a duty tightly specified by company laws and financial regulations. The first duty of the asset managers, brokers, and company directors is to the owners of the capital, to the investors, to the particular company’s shareholders.

    It may well be in the interests of the shareholders to dump toxic waste in the local river or simply down a public drain. In which case that is what the managers of capital will do in order to discharge their prior responsibility to maximise the expansion of the value committed by the capitalist to the particular enterprise. This is why we have to have a state which intervenes, a state that will pass laws making it illegal to dump toxic waste on pain of prosecutions and hefty fines. This instantly changes the behaviour of the managers of capital - they can then see that discharging their prior responsibility towards their investors probably does mean avoiding costly prosecutions and the payment of punitive fines. The capitalists change their behaviour when the state or their customers force them to, by threatening to seize some of their assets in the form of fines, or by undermining their profitability in other ways.

    Capitalists, and their agents and managers, can and do break the law. In common with ordinary citizens, capitalists can be liars, cheats, thieves, and scoundrels, but for the most part this has little bearing upon whether or not they are responsible capitalists. On the whole, it’s much better for the investors if the people they put in charge of their cash are properly responsible for making it grow, without risking criminal investigations and penalties. Making the cash grow is their job and so the responsible course of action is always to avoid breaking the law.

    Capital and capitalists are embroiled in the business of value expansion. Increasing the store of value is what capital is for, and making money grow is the raison d’être of the responsible capitalist.

    Some capitalists are great philanthropists. Bill Gates or Warren Buffet might give away billions; others might simply reinvest their squillions, while spending a great deal on yachts, executive jets, jewels, horses, palaces, and partying. However, the choices that capitalists make concerning their personal consumption, has little or no bearing on the operation of the system. Bill and Belinda live in a palace already, and I am sure that they fly around in private jets. Of course their philanthropy helps the people who get the medical treatment which Bill and Belinda pay for, but this does not have any bearing on making capitalism more “responsible” in some general social or ethical sense. The reason Bill and Belinda can give away billions is because their pile of capital grows, and continues to grow, at an exponential rate. If it did not it would flow out of Microsoft into some other firm or some other activity where it could continue to grow. The responsibility and duty, if you will, of Microsoft’s capital is to grow, not to help Aids patients in Africa. If the owners of a substantial slice of Microsoft choose to spend it on Aids patients well and good, but this is a private decision on the part of a couple of big capitalists to spend their own money in this way, and makes no contribution towards ushering in the reign of “responsible capitalism”.

    More importantly, the generosity of philanthropists, does not effect whether indebtedness has become dangerously large, or whether houses, stocks and shares, of office buildings, are grossly overpriced. Interestingly, the present financial and economic crisis was not caused by illegal or criminal conduct on the part of the investing public or their fund managers. The capitalist class and their agents behaved, by and large, in an entirely responsible manner, constantly ensuring that their pile of capital grew larger and larger, which is indeed exactly what capitalists are supposed to do. Just as cats chase birds, and bees store honey, so capitalists grow their pot of gold.

    Left to their own devices the capitalists in the pursuit of value expansion will wreck the markets they depend on by seeking to become monopolies, by price fixing, or offering as collateral on loans, assets which they have no way of determining the value of, because the assets in question have never been exposed to market trades - their price is purely arbitrary, dreamed up by accountants, consequently the value of the collateral is simply unknown. It’s true value, which might actually be next to nothing, will only be known when it has to be sold in order to release much needed cash. This is what happened in 2007-2008 when it was suddenly revealed that collateral against which billions and billions of dollars had been loaned turned out to be more or less worthless. The capitalists responsibly pursuing their own interests in making their money grow brought our entire economy to the edge of ruin.

    So, who exactly was irresponsible? Not the capitalists, you can’t expect them to change their spots. The people responsible for the scale and depth of the crisis are the politicians and state officials who allowed it to happen. Chancellors and Prime Ministers from Margaret Thatcher and Nigel Lawson to David Cameron and George Osborne are the people responsible for allowing the capitalists to make enormous loans secured upon collateral of unknown value. It is the leaders of the political class in Britain and elsewhere who have allowed capital to flow for decades out of manufacturing and research and development into betting on the movements of currencies and other financial products.  It is they, the politicians, the senior civil servants, the elite groups in the leadership of our political parties and business organizations, who have failed to invest sufficiently in education and training, it is they who have failed year after year for over thirty years to regulate the capitalist system in the long term interests of our people.

    Our political class, now trapped in the headlights by the catastrophe they have wrought, are desperately seeking the mythological figure of “responsible capitalism” in the urgent hope that they can, through an elaborate process of self-induced amnesia and sweet talk, free themselves of their long held belief that if they gave bankers, financiers, private equity investors, and asset strippers, a completely free hand, the economy would grow exponentially for ever. This was the dominant idea of our political class from 1980 to 2010.

    Now they have all retreated to the bunker of a “National Government” in which all the parties, Labour, Liberal Democrats, and the Tories, and their leaders, Miliband, Clegg, and Cameron, believe that we must batten down the hatches and save our way out of the crisis with wholesale cuts in living standards, mass unemployment, and widespread poverty. This is why they have all resorted to the language of moral rearmament and personal responsibility. This is why they are stirring up hatred among the low paid for those on benefits, and sowing tensions between indigenous workers and immigrants - anything at all to redirect attention away from their collective responsibility for wrecking the economy, by giving the capitalist class a completely free hand for the last thirty years. 

        © Don Milligan, Off The Cuff, No. 153, January 29, 2012 at Reflections of a Renegade, www.donmilligan.net