The rise of populists on both left and right has prompted widespread debate about the failings of our political and economic system and how they can be rectified. In The Future of Capitalism: Facing the New Anxieties, Professor Paul Collier of Oxford University outlines why he believes trust in our public institutions and business has collapsed. He thinks that a combination of individualism, an obsession with perceived rights and a tendency to identify as a "citizen of the world" has detached business leaders and politicians from the rest of their fellow countrymen and women.
More specifically, Collier wants politicians to stop thinking of policies in utilitarian cost-benefit terms and acknowledge the importance of cultivating the lost sense of shared obligation between citizens of the same country. He also thinks taxes should be focused on those who have benefited the most from factors beyond their control, such as the rise in London property prices.
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Perhaps his most radical suggestion is that firms should be run in the interests of workers and customers rather than shareholders, something he thinks will lead to a greater emphasis on long-term growth instead of short-term gains. Collier highlights several examples to support his case for greater worker input. For example, he talks about how the breakdown in trust between workers and management and the lack of a wider purpose beyond making money led to the decline of GM and Bear Stearns.
Nevertheless, while there are certainly flaws in shareholder capitalism in its current form, it has been extremely successful in creating wealth and making the tough decisions needed to speed change along. Indeed, for all Wall Street's mistakes in the run-up to the financial crisis, the German regional state banks were arguably much more reckless in their pursuit of yield and consequent appetite for subprime junk.
Meanwhile, the recent turmoil at John Lewis shows that the model of mutual ownership is no cure-all either. Similarly, Collier's proposal of holding company directors responsible for the social impact' of a company's activities sounds well-meaning, but is so vague it could lead to endless lawsuits, creating vast uncertainty.
Overall, while Collier is right about the problems that he diagnoses, his proposed solutions are too radical as well as overcomplicated. Instead of remaking capitalism, a better solution would be to use existing mechanisms, such as the tax system, public services and the welfare state, to make it work for everyone.
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