The Locust and the Bee: Predators and Creators in Capitalism’s Future, by Geoff Mulgan, Princeton, RRP£19.95/$29.95, 344 pages
Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust In It, by Colin Mayer, Oxford University Press, RRP£16.99/$29.99, 320 pages
Politically, the years since the financial crisis have belonged to the centre-right, with even a rare Socialist victory in France quickly followed by a moderation of electoral rhetoric. Yet if grand visions of an alternative have not caught on, useful ideas for reform are multiplying. At the root of such proposals is a recognition that Adam Smith’s hidden hand can put too much in the pockets of shareholders and, particularly, top executives, giving too little to workers, the public and the taxman; and that the greed Smith commended as an engine of social value is often just what it seems.
Geoff Mulgan’s The Locust and the Bee is an important contribution to this field. Even when he was director of policy for Tony Blair, Mulgan would muse that there was no reason why capitalism should be the end of economic history. Now, liberated for some years from the inhibitions of government and presently head of the National Endowment for Science, Technology and the Arts, he has been able to sketch the possibilities, as Marx put it, for “new, higher relations of production”. The goal is not socialism; Mulgan, a youthful Marxist, has sloughed off that skin. His new book argues rather for a version of capitalism in which the power of the market is harnessed to social ends.
The changes he envisages would be radical, the more so because capitalism – “a vast system of pumping and pushing, of things in perpetual motion” – is both outside of and within us, giving its present forms the aura of inevitability. Yet at the summit of the financial corporations, it is increasingly divorced from the real economy. Left alone, he believes, it would have destroyed itself long ago. That it did not is explained by interventions following the crashes and depressions of the 1920s and 1930s, which created welfare states and various accommodations between capital, labour and government.
For Mulgan capitalism must, and can, be civilised. First comes the recognition that monetary value is not an end in itself but a means to a life of co-operation, happiness, friendship and love. He believes that “we are witnessing the emergence of an economy founded more on relationships than on commodities; on doing rather than having; on maintenance rather than production”. In a lengthy penultimate chapter, he sets out how we might “reward these parts of capitalism that reward sociability”, securing through the intervention of state and civil society an equilibrium that the system cannot attain on its own.
He allows himself to be carried away at times. There is an echo here of Labour leader Ed Miliband’s distinction between “predatory” and “productive” capitalism in his 2011 conference speech – a distinction that, in practice, is hard to make. He writes that “there is no objective reason” why a New York house should be worth $10m, which is only thought to be so because “others are willing to believe”. But the value is based on the wide desire to own such a house; were it not allocated by money, it would have to be so by authoritarian fiat, or by the use of private force backed by the threat of violence.
But a little excess doesn’t vitiate this large-hearted book. As social democracy struggles with the decline of its bases – a well-funded social state, powerful and moderate unions and predictably Keynesian economic policies – here is a signpost to how it might mature.
Colin Mayer’s focus in Firm Commitment is narrower – on the corporation, which he sees as a remarkable creation but one that has transformed itself (with the aid of governments) from servant to monster. “It is not an exaggeration to say,” he writes, “that through their negligence, incompetence, greed, or fraud, corporations are a threat to our livelihood and the world we live in.” This from a founder and later dean of Oxford’s Saïd Business School, now professor of management studies there.
The main target of Mayer’s lucid analysis is the short-termism built into, especially, British corporate behaviour by rules that give a shareholder for three days as many rights in that period as the long-term investor. This, for Mayer, “is as if we are conferring voting rights on members of the population who intend to renounce their citizenship tomorrow”. It is also a system in which hostile takeovers can too easily destroy jobs, markets and ethics in long-established companies – as he describes vividly in relation to the takeover of the Quaker-founded Cadbury by the US conglomerate Kraft. Current efforts to amend this don’t work: regulation exists to be circumvented, while corporate social responsibility is a sticking plaster for a festering wound.
His largest antidote is the “trust firm”, which operates according to three principles. First, it must have publicly proclaimed values, shared by employees and customers as well as by shareholders. Second, these are entrusted to a board of trustees who do not run the company, but act on behalf of the designated stakeholders. Third, long-term shareholders must be privileged and in control, through the allocation of voting shares denied to short-term investors interested only in taking a fast profit.
Mayer, too, can be a little starry-eyed: in long-termist Germany, the Krupp corporation mounted several hostile bids, successfully for Hoesch in 1991, failing with Thyssen in 1997 though later merging by agreement. He mentions these; but more recently ThyssenKrupp, part-owned by a foundation with the power to block board decisions, was fined €103m by the German competition authority for being part of a cartel aimed at keeping the price of rail tracks high. Long-term horizons aren’t always unclouded.
For Mayer, however, there is no single way to organise the economy. Part of his explanation for the greater dynamism of the US is its mix of models, and even the diverse shareholding variant is at times seen as working well. But as a universally applied principle and practice, he argues, it is destroying our economy and our business morality. Only through rediscovering Victorian values of thrift and commitment can capitalism’s central institution, the corporation, be saved.
John Lloyd is an FT contributing editor