Steven Pearlstein is a Washington Post business and economics columnist. He is also Robinson Professor of Public Affairs at George Mason University and author of “Can American Capitalism Survive?”
What with Trump and Brexit and the turn toward authoritarianism in Brazil and Eastern Europe, there has recently been a lot of book-length handwringing about the future of democratic capitalism.
Robert Kuttner asks, “Can Democracy Survive Global Capitalism?” Steven Brill sees America in a political and economic “Tailspin.” Anand Giridharadas describes a society in which the “Winners Take All.” William Galston worries about “Anti-Pluralism”; Barry Eichengreen frets over “The Populist Temptation.” Alan Greenspan and Adrian Wooldridge celebrate the history of “Capitalism in America” but fear that our tolerance has worn thin for the creative destruction that made it all possible. In “The Myth of Capitalism,” Jonathan Tepper and Denise Hearn document the decline of competition. This year, I even made my own modest contribution to the genre.
Now comes Paul Collier, a professor at Oxford University, who makes an engaging and well-reasoned argument that deep economic rifts in Britain and the United States are “tearing apart the fabric of our societies.”
“Anxiety, anger and despair have shredded people’s political allegiances, their trust in government, even their trust in each other,” Collier writes in “The Future of Capitalism.” With its ruthless focus on profits and its increasingly unequal distribution of income and opportunity, he argues, Anglo-American capitalism has forfeited much of its economic, political and moral legitimacy.
Collier puts much of the blame on ideologues of the left, with their excessive faith in government, and those of the right, with their excessive faith in unregulated markets. His pitch is for a return to the kind of pragmatic, centrist communitarianism that characterized the years immediately after World War II, when the focus was on shared prosperity and reciprocal obligations that enhanced trust and cooperation.
An economist by training, Collier is best known for his work on why some African countries are poor. He served as a top researcher at the World Bank and is a knight of the British realm.
His latest book, however, is as much about ethics and moral norms as it is economics.
Collier laments the transformation of what was once an “ethical state” into a “paternalistic state” that has eroded our sense of shared identity and personal responsibility, and shifted the obligation for creating a just society from individual citizens to the government.
In a similar vein, he laments the demise of the “ethical firm,” following the embrace of misguided notions such as that greed is good or that the only purpose of business is to maximize profits and share prices.
“Has any worker for any company,” he asks, “ever got up in the morning, thinking ‘today I’m going to maximize shareholder value’?” Collier contrasts the high levels of trust and shared purpose in Japanese firms with the cynicism of workers in American ones — a cynicism reinforced by outlandish compensation lavished on executives to assure that their only loyalty is to shareholders.
Collier also laments the erosion of the “ethical family,” in which parents stay married and involved with their children, and everyone takes some responsibility for aging parents or for siblings, nieces and nephews who are in trouble. The seductive lure of individual fulfillment, he argues, has played out with disastrous results in rural areas and old industrial cities like Sheffield, England, where he grew up, and where the decline of its once-thriving steel industry left his family and friends with hard lives, unsatisfying jobs and lousy prospects. Echoing the work of Charles Murray, Isabel Sawhill and Robert Putnam, Collier sees the deterioration of the family as a key link in a vicious cycle that has resulted in a large and dangerous gap in wealth and economic dynamism between supercities like New York and London and everywhere else.
“The Future of Capitalism” has the discursive charm of a lecture delivered by a well-read and slightly acerbic Oxford don. An American reader might find it a bit academic at times, or Anglo-centric. And readers everywhere will be rightfully skeptical of his proposal to make corporate directors legally liable when they ignore the public interest in their private-sector decision-making.
Much better is his idea to raise taxes on those who benefit undeservedly from modern capitalism. That includes the owners of land whose value rises for reasons that have nothing to do with them, and high-income workers in those thriving metropolitan areas who capture a disproportionate share of the benefits of agglomeration — having lots of smart people and growing companies clustering in the same area. He’d also impose a tax on every financial transaction to capture the excessive profits earned by an oversize financial sector that misallocates scarce capital and talent. All that extra revenue he would recycle to the Youngstowns and Sheffields of the world, not for higher welfare payments but to jump-start the creation of new industrial clusters that could create fulfilling jobs for those being left behind.
There is nothing socialist about Collier’s critique or his prescriptions — like Adam Smith, the oft-misunderstood father of modern economics, he’s about restoring a moral sensibility to a market system that is falling short of its potential. “What has happened recently is not intrinsic to capitalism,” Collier concludes. “It is a damaging malfunction that must be put right.”
By Paul Collier
Harper. 248 pp. $29.99