Progressive Capitalism: How to Achieve Economic Growth, Liberty and Social Justice, by David Sainsbury, Biteback, RRP£20, 304 pages
Where should the left-of-centre political agenda go in the aftermath of the financial crisis? David Sainsbury, otherwise Lord Sainsbury of Turville and ex-chairman of the supermarket group, argues in Progressive Capitalism for a political economy in which faster growth is fostered by the market-supporting institutions of an enabling state – enabling as distinct from the market-directing institutions of the command-and-control state, or the weak institutions of the minimal state.
For Sainsbury, a minister of science and innovation in the last Labour government, an active and competent state is needed not just to provide secure private property, an unbiased system of law and so forth, but also to build effective national systems of innovation, education and training that operate in a context of social justice.
Among the many criticisms levelled in the book against neo-liberal economists is that they provide an inadequate explanation of relative economic performance. Sainsbury argues, rightly in my view, that growth is not just about how well a nation’s markets allocate capital and labour. Drawing on the work of Peter Hall and David Soskice on models of capitalism, he suggests that where companies in some countries accumulate organisational capabilities faster than in others, part of the reason lies in governance and management. Equally important are technology and education systems.
If Sainsbury has more to say about financial markets and corporate governance than labour markets, it is because these areas are where things are now more seriously flawed. He notes how financial intermediaries cream off disproportionate booty at the expense of savers, attacks the failure of hostile takeovers to perform their disciplinary function on incumbent management and observes the failure of shareholders to prevent the escalation in boardroom pay.
In considering competition from Asia, Sainsbury wants a race to the top, which entails building a knowledge infrastructure and a national approach to innovation. This he worked on with some success while in office, and he praises the present government for promoting the concept of a national innovation ecosystem. That said, he would like to see improvements and suggests embedding in government departments research and development units staffed by scientists and engineers with commercial experience.
Whitehall is another target. Barbs are directed at an amateurish policy making process, poor accountability and ill-conceived outsourcing. Sainsbury, having made substantial political donations himself, worries about government capture by special interests and supports the 2011 proposals of the committee on standards in public life, which include public funding for political parties to supplement capped contributions.
On Sainsbury’s former bailiwick his proposals are well argued, although the usual neo-liberal suspects will no doubt feel that his emphasis on a competent state is oxymoronic. Not uniformly convincing are the proposals on the equity market, including a new shareholders’ advisory board. This would consist of the existing bodies that represent shareholders to promote long-termism and an engagement agenda. The reason current efforts to persuade fund managers to monitor investee companies more effectively have met with poor results is that these same representatives are subject to endemic conflicts of interest. Whether they would perform better in a new body is moot.
Despite its title, the book is thin on liberty and social justice. This is, in essence, a supply-side tract. A problem is that few politicians’ eyes light up at the mention of innovation, training, corporate governance or Whitehall reform. It is, nonetheless, good that a former minister, who unlike so many in government has real world experience and a real sense of the public interest, is prepared to pursue such a worthwhile, though unsexy, agenda.
John Plender is an FT columnist