Taxing thoughts
The Future of Capitalism By Paul Collier Allen Lane £20
The Future of Capitalism owes its title and many of its ambitions to Anthony Crosland’s 1956 bestseller, The Future of Socialism.
In 1956, social democrats were divided over what kind of socialism, if any, might be both practicable and attractive in an increasingly affluent Britain. Sixty-three years later, it is capitalism that is at a crossroads. Nobody, or nobody much, thinks its ills would be remedied by the Marxist recipe of a command economy; but many people think that something ails capitalist societies such as Britain and the United States.
Paul Collier is one of them. He is one of the world’s most distinguished developmental economists, knighted for his work on African economies. But here he turns his gaze on the highly developed economy of Britain, and dislikes what he sees. His diagnosis is there has been what he thinks of as an ethical collapse; we have lost, or are well on the way to losing, ‘ethical firms’, ‘ethical families’ and ‘ethical politics’. Was there a time when these shortcomings were not to be seen? On Collier’s account of it, the years from 1945 to 1970 stand out as an ethical golden age.
The story is not complicated. The need for everyone to do their bit to help the war effort built an ethos of reciprocity, each person doing their share of what was needed, confident that they would benefit by others doing their share. The experience of the war built up moral capital.
There has, thinks Collier, been a cultural shift which has seen the rise of two sorts of morality, both of them individualistic in the narrowest sense.
On the one hand, utilitarianism begins from the premise that everyone seeks their own self-interest, or ‘utility’. So success for individuals consists in maximising their own utility, and success for a government in maximising the overall utility.
On the other hand, ‘Rawlsian’ political ethics starts from the same view of human nature, but ends by asserting the right of the worst-off member of a society to be as well-off as they can be made.
Most of The Future of Capitalism is grittily economic and sociological, and generally highly persuasive.
The erosion of the traditional family concerns him even more than the ‘get rich quick’ attitude of investment bankers and their kin.
Families divide sharply between the well-resourced and their less fortunate peers. The former devote vast efforts to rearing trophy children. The latter are less likely to be married at all – their children likely to be born out of wedlock, and unlikely to receive the nurturing of the better off. Since the educational and economic futures of children can be predicted as early as six years old, the consequences of a poor start are obvious.
Things have been made worse by the rise of so-called ‘assortative mating’, when people are increasingly likely to marry or cohabit with people like themselves.
Excellent economist that he is, Collier is deft at explaining what has gone wrong with business, and especially with finance. The problem is the rise of the notion that the only duty of a firm is to make profits for its owners; that is, its shareholders. Allied to the modern phenomenon of the short-lived CEO – the average tenure is around four
years – this encourages an obsession with immediate stock market valuations, and a corresponding neglect of the long-run viability of the firm.
One of Collier’s nicer suggestions is that there ought to be a modern offence of ‘bankslaughter’, to handle cases where a CEO recklessly destroys a company, as in the case of the Royal Bank of Scotland.
The Future of Capitalism is crammed full of ideas for getting us out of the current mess. One that Collier’s fellow economists will like is an elaboration of the insights of the American late-19th-century economist and reformer Henry George.
George argued that rent above a fairly low level did not reflect a contribution to production, and might be taxed at almost any level without damaging the real economy. Collier adds that the incomes of many people in the financial sector are, in the appropriate sense, rents and can decently be taxed more highly than more deserving sorts of income.
This would demand different levels of income tax for people working in Rotherham and Canary Wharf. But the United States manages to add city taxes to state and federal taxes – so it’s hardly beyond us to try the experiment.
If Collier’s proposals often seem utopian, so much the worse for our lack of ambition.