Transforming capitalism: putting the relationships back into economics
Rachel Reeves MP
Christian Socialist Movement’s Annual Tawney Dialogue
Christ Church and Upton Chapel, Kennington, 10th May 2012
This evening’s topic goes to the heart of the questions raised by the financial crisis and its aftermath: questions about inequality and irresponsibility; about the values that underpin our economic system; about the kind of society we want to live in, and the kind of lives we want to lead.
These questions haven’t gone away since the crisis first hit in 2008. In many ways they’ve become more pressing and pervasive. As the Coalition fails to deliver the change it promised, and the years of unemployment and austerity stretch ever further into the future, people are asking if all that awaits us when the deficit is dealt with is a return to business as usual. They want to know if the causes of the crisis have been reckoned with, and the lessons learned.
These are questions that Ed Miliband has been speaking to with the ideas he has been developing about the flaws with the economic model that Britain has developed over the past thirty years, and the need for a more “responsible capitalism”.
The moral case for a new economy
It’s clear that if we are to avoid repeating the kind of crisis we experienced in 2008 we need to reform and reshape our economy in a number of ways: redesigning regulatory frameworks, so that systemic risk is more effectively monitored and managed; rebalancing our economy so we can create high quality jobs in a wide range of sectors as well as the City and the financial sector; and restoring the relationship between economic growth and the wages of the majority, so we aren’t depending on household debt to sustain living standards and domestic demand.
But the need for a better capitalism goes to something deeper than the technical economic arguments about exports, employment, the public finances and the Gross Domestic Product – important as these are. It’s also a moral argument about the kind of lives we lead, and the kind of society we want to be a part of – as the title for this evening’s discussion suggests, the relationships that are the real fabric of our economy.
Tawney once wrote that
“the revolt of ordinary men against capitalism has had its source [not] in its obvious deficiencies as an economic engine ... but in the straightforward hatred of a system that corrupts human relations, permitting the use of man by man as an instrument of pecuniary gain.”
Today our language might be different but we are similarly concerned with the damage that an unfair and unbalanced economy can do to the quality of our lives and the relationships that should bind us together.
Take the way inequalities have widened since the 1980s. We can be proud of the progress Labour made in bringing down child poverty while in government. But it is still too high. And inequality at the top continued to soar away. The total pay of the average FTSE 100 chief executive was 45 times that of an average employee; by 2011 it was 120 times as high.
We’ve seen that when inequalities grow ever wider, and people’s lives and experiences drift further apart, it becomes much harder to sustain any sense of solidarity and social responsibility. If we don’t feel that our fates our intertwined, the very concept of a common good can feel meaningless. It becomes harder to sustain the legitimacy of the welfare state we need for a decent society when benefit claimants are stigmatised, while the very rich opt out of using public services, and some avoid the taxes we need to pay for them.
And when the single-minded pursuit of short term gain overrides any sense of social responsibility, then it can corrode the context of trust that a well functioning market economy depends on. As Gordon Brown said in his speech in St Paul’s Cathedral on the eve of the 2009 G20 summit:
“markets depend upon what they cannot create. They presuppose a well of values, and work at their best when these values are upheld.”
It was a failure to uphold the values of stewardship, responsibility and reciprocity were ultimately the causes of the crisis. So the deeper lesson, for me, is that markets cannot function to the benefit of society if they become detached from the very values that hold our society and our economy together.
Making the change – a shared responsibility
That’s why Ed Miliband and the Labour Party have begun to develop a new agenda that’s about building an economy that works for working people, and advances a common good we can all recognise.
For example: bringing more competition into the banking sector, so families and small business get a better deal; ensuring that employees are represented on remuneration committees, so excessive pay can be challenged; tightening the regulation of rail fares, so train companies can’t abuse their monopoly power; insisting that energy companies put pensioners over the age of 75 on the cheapest available tariffs; requiring major government contractors to run proper apprenticeship schemes, so that more people can develop the skills they need to get decent, well-paying jobs.
On the basis of ideas like these, and the political philosophy that underpins them, I think that if Labour win the election in 2015 we could be one of the great reforming governments in our history. Just as the last Labour government repaired and renewed our public services, it could be the next Labour government that repairs and renews the British economy.
At the same time, however, we need to recognise that the state can’t do everything. This is partly because there won’t be lots of money to spend, and because there are limits to effective state intervention. But it’s also because, if we reflect on our history and the roots of our movement, Labour at its best has always been more than a Party geared to winning elections and forming governments – it’s been a movement in and of civil society, its history intertwined with that of the trade union and cooperative movements, and, indeed, with churches and faith groups.
The lesson I draw is that while people need a government that is on their side – and that’s why it’s so important for us to win the next election – socialism always had a more fundamental meaning than this: ordinary people coming together to improve their lives and their community.
So transforming our economy, and realising a more responsible capitalism, can’t be achieved by regulation and legislation alone – it has to be a culture change in which we can all participate, a transformation of the way we think about and act our economic relationships, taking seriously our responsibilities for ourselves and to each other.
Take, for example, the living wage campaigns initiated by London Citizens and similar coalitions around the country. A Labour government can, and did, do much for low paid workers with the minimum wage and investments in services and tax credits. But people organising in their own workplaces and communities can deliver change that, because the process is so empowering, can open the door to so much more.
In a similar vein, Labour can play its part in bringing hard-pressed families together to bargain for lower energy bills, or encouraging the drive for greater responsibility and restraint over remuneration at boardrooms and shareholder AGMs which we are already beginning to see.
This is the kind of change the Labour Party can play its part in – at times, a leading role. So acceptiing the limits to what government can do, and recognising the wider responsibilities we all share, doesn’t diminish the Labour Party’s ambition – it enlarges it.
The former Archbishop of Canterbury Rowan Williams observed in his 2011 Christmas sermon that:
“The most pressing question we now face, we might well say, is who and where we are as a society. Bonds have been broken, trust abused and lost. Whether it is an urban rioter mindlessly burning down a small shop that serves his community, or a speculator turning his back on the question of who bears the ultimate cost for his acquisitive adventures in the virtual reality of today’s financial world, the picture is of atoms spinning apart in the dark.”
The idea of a more responsible capitalism is at the heart of Labour’s answer to this question our country now faces. But it’s not just a programme for government. It’s an ideal to animate us as a movement, so we can be part of the change that we want to see in the world: our values as Labour members or Christian Socialists affecting not just the Party we vote for, but the way we live our lives and build relationships with others.
We don’t need to wait for the election to get to work on this. But the more we do while in opposition, the better chance we’ll have of winning that election; and the better government we’ll be when we do.
Rachel Reeves is Labour MP for Leeds West and Shadow Chief Secretary to the Treasury.