Leader: To be acceptable, capitalism does need to change

Published on Friday 20 January 2012 12:28

HARD on the heels of Labour leader Ed Miliband’s call for “responsible capitalism”, Prime Minister David Cameron has set out his vision of “a better, more worthwhile economy” with a “socially responsible and genuinely popular capitalism”.

It is hard to disagree with such loftily undefined aspirations. But then it is also hard to divine what they mean exactly. Their respective audiences might be assured that the calls were not for an irresponsible capitalism or a worse, less worthwhile economy featuring unpopular capitalism.

True leadership is setting out a more credible and inspiring programme which galvanises support round specific and particular policy goals. Mr Cameron’s proposal to simplify legislation surrounding co-operatives is a useful first step. More must follow.

There is huge public dissatisfaction over “the way things are”. Voters have grown weary of examples of runaway bonuses for bankers, rewards for failure and large pay rises for FTSE 100 company directors while share values have fallen. Consumers are incensed over predatory business practices, from aggressive rail fare and energy price rises to hidden extra bank charges for small firms. “Capitalism” to be acceptable does need to change, and if shareholders are too complacent or too powerless to act, “the sanction of the market” must find other expression. The difficulty here is in achieving reform that does not throttle the means by which innovation and adaptation work to deliver new and better products and services to customers and at competitive prices.

Public criticism has focused keenly on the banks after the crash. In the long and painful aftermath of this crisis, the persistence of big bonuses has inflamed opinion and exposed a disconnect between the public expectation of more responsible behaviour and the too little too late correction within boards. Banks have had to be rescued by taxpayer funds, while the replenishing of their balance sheets constrains funds for lending to new business. Here the solution is also the problem. Yesterday, First Minister Alex Salmond voiced “serious concerns” over banks pulling the plug too early on Scottish firms battling for survival as the economy continues to flatline. He won the backing of business leaders who still report “negative experiences” with banks, despite high profile initiatives to support firms.

However, there is another and largely unsung side to this coin. The incidence of business failures is significantly lower so far in this downturn than in the 1991-92 and 1980-81 recessions. Banks have been less prone to “pull the rug” than before – though this restraint is hard to maintain as demand flatlines and the economy continues to stagnate. In the turn of the business cycle, hugely important lessons, forgotten in the boom decade, are now being re-learnt. And it is through this learning and cleansing experience that offers the best prospect for lessons to be learnt and bad behaviour corrected.

Logged in as:

Comment here. Start typing your comment here:

Post comment

Please adhere to our Community guidelines

Your view

Please sign in to be able to comment on this story.