The state intervention versus free market argument has been raging for a while. It is an old debate about whether a large public sector chokes economic growth or whether there are issues of such importance that they should be decided by government and not left to private businesses. In the UK the three main political parties have adopted a lassie fair free market approach to capitalism but recently they have all been discussing the idea of ‘socially conscious capitalism’.
This is partly in response to the gross excesses of the financial services sector which lead to the several of the world’s largest banks having to be bailed out by their respective governments. Many feel that the banks owe us a debt for this beyond the amount of money spent propping them up. A lot of voters believe that there needs to be a change in corporate culture so that large companies become more aware of their debts to society and to their shareholders. Socially conscious capitalism appears to be the method of achieving this.
Socially conscious capitalism takes many forms but in general it entails giving shareholders more power to set board room pay and bonuses, the curtailing of bonuses for underperforming firms and greater transparency in terms of pay and bonuses for top earners. There are also general murmurs about working conditions and pay for those at the bottom of the pay scale but these are less and frequently ignored. Generally the later issues effects supermarkets more than banks as they have more employees earning minimum wage but a macro level it scales but to rising concern about business practices and noises from politicians that firms should be respectful of their stake in society.
David Cameron and the coalition government maybe in favour of socially conscious capitalism but I feel there is still a case for ‘capital conscious socialism’. This in essence is the case for government intervening in the market to prevent excesses, rather than encouraging companies to voluntarily behave in a socially responsible manner. Whilst the government is doing this it must remember that the private sector employees the majority of the people in the UK and is responsible for the lion’s share of our GDP. Therefore any inventions or legislation must also be in the interest of protecting jobs and growth.
In essence moral standards should be left to the government to enforce (who is accountable to their citizens) and private business should be responsible for providing employment and wealth to the citizens. This is similar to the means by which the government enforces safety standards. Would car companies have voluntarily agreed to seat belts and air bags were these measures not legally binding? The thought of simply encouraging car companies to include safety features or suggesting that the makers of house hold cleaning products put warnings on the packaging seems painfully week. Surely laws are the only way to protect the public and to ensure that we have the necessary information to look after ourselves. Implying that firms should be aware of their social obligations will have little success as firms are not compelled to alter their behaviour and there is no incentive for them to do so.
State invention is a harsh phrase that echoes back to the days of lumbering nationalised industries. I prefer to the use term ‘government planning’ to describe what is needed. The government should use its ability to legislate industry to plan our national finances to prevent economic collapse. This works on a micro scale, business and families plan their finances and set necessary controls to make sure they do not suffer financial ruin. However, the government’s planning of the economy must always be mindful that private business must thrive if we are to achieve a low level of unemployment.
A good example of government planning the economy is the proposed Tobin or Robin Hood tax; a small tax on finical transactions (that firms will not impose on themselves) the proceeds of which can be used to bail out companies that get into trouble and not leaving the bill to the tax player. The tax must be expectedly levied with the consultation of firms so not to cause harm to firms - which would restrict the amount of revenue generated by the tax.
Planning the roles of supermarkets in our economy would also offer a better social outcome. Supermarkets employee many poor and unskilled workers and offer a minimum wages which is far below what is needed to raise a family on. Reminding a supermarket that it has an obligation to consider wider society and the poor will do little or nothing to raise the wages and improve the working conditions of those at the bottom of the social pyramid. Government planning is needed to legislation a living wage that will ensure that families have enough money to afford essential. I do not see any provision or this in the coalition’s plan for socially conscious capitalism.
Placing the maintenance of society in the hands of private companies will not lead to optimisation of social goods. Socially conscious capitalism will not compel firms to be respectful of their stake in society. Capital conscious socialism will give government the mandate to intervene to the benefit of all whilst protecting private enterprise and our jobs.