Capitalism’s reputational problem

Will the next generation be better off than this one? Given that history shows our world almost always getting rich, safer and healthier, you’d think the answer to that would be a clear yes. After all, in the 27 years since 1990, extreme poverty is down by 75%, child poverty has halved and world hunger is down by 40%. In the UK real incomes are taking a breather, but the average full-time earner is still taking home double what he or she was in 1975. Hourly wage inequality has fallen every year since 1998 – and across the UK income inequality as a whole has been falling for years. That’s all good.

However, ask anyone around you if they think things are getting better and the answer is very likely to be no. Some 71% of Britons think the world is getting worse and a mere 19% think that their children will be richer, healthier and safer than they are. Ask the Germans and the Americans and they will tell you the same (the figures for them are 15% and 14% respectively). It seems that they no longer trust the system that has bought us such riches. Capitalism is developing a serious reputational problem.

What’s to be done? For part of the answer it is worth reading an article by Scottish Conservative leader Ruth Davidson on Unherd.com. Capitalism, she says, needs a “reboot”. She reminds us that Adam Smith was more than the “buccaneering laissez-faire hero” that he is seen as today. He was also a moral philosopher who was deeply concerned about the poverty and inequality than can exist in a market economy  – and who was pro-government intervention to prevent it. He also recognised that a market economy can only work well if it operates with consent.

And here is the problem, says Davidson. The UK population is less concerned with inequality (reasonably, given that it is at its lowest level since 1986) than with obvious injustice. They believe income should be the result of hard work and talent – and that the fruits of success should, to a degree at least, be shared. So they object to the fact that between 1993 and 2014 nearly 40% of the top-paid chief executives in the UK ended up being sacked in the wake of some disaster or another. Rewards for failure don’t look good. And they object to the way in which the likes of Amazon can dominate retail yet pay low wages and little tax. It doesn’t seem fair.

We’ve written about all these things here many times before (and will keep doing so). But Davidson is right. If the state is to intervene to improve matters – and it is inevitable that it will do so – it needs to take the obvious steps of improving technical education and the like. However, it also needs to think about taking visible action in areas where there is clear market failure, with a view to helping capitalism regain its reputation as a force for good.