So far as the recent American elections were concerned, Tomasky may have been right that the free market shareholder primacy ideology was the only big coherent picture then on offer; more socially oriented policies lacked coherence. But the next big theme is in sight and may well shift free market shareholder primacy, with its excesses of greed and self-interest, into the long grass of history. The straws in the wind which suggest such a change are many and various: population growth, resource depletion especially water and oil, climate change, pollution, growing inequality between rich and poor, and above all, the ever widening recognition by ordinary people that finite earth and self-interest maximising man are on course for a massive and decidedly unpleasant collision.
The Economist, an increasingly dogmatic apologist for the free market ideology, invited for its current issue, six academic economists to identify how they thought the financial crisis had changed the subject of economics. The answer is not a lot. So far as methods of teaching and research are concerned, nothing has changed, or is likely to change any time soon.
The Hayek / Mises argument that any small step to the left leads inevitably to full on totalitarian socialism, might have had something going for it when the world was beset by Hitler, Stalin, and the fascist governments of Spain, Portugal and Southern America. And later, when national-socialism and fascism had become history, but communism seemed to be prospering under leadership from the Chinese as well as the Soviets, fear of centrally planned totalitarian socialism was not wholly unreasonable. But since the collapse of communism, there seems to be a rather limited rationale for fearing any initiative which might betoken even the slightest move to the left. Centrally planned totalitarian government really is not inevitable, or even feasible.
The problem with economics is that it sometimes gives the impression of being practically useful. As an academic subject its great virtue is in training the mind, a component of what Newman referred to as a liberal education, in the same way as latin used to be. For some time the mind training role of latin appeared to be being taken over by computer programming. That had the same hard, rule-based logic, and for most people who, three decades ago or more, learned Fortran or C and their various derivatives, there was the same lack of practical utility. Now, that role has been usurped by the study of economics.
‘The Rise and Fall of Management’ highlights some issues as of particular importance to the current situation. For instance, the universal adoption of agency theory. Agency is a legal relationship where the agent acts on behalf of the principal who is bound by the agent’s actions, and the agent is bound to act, in his or her professional capacity, in the principal’s best interests. So much is not in doubt. Moreover, early examples of this legal relationship related to the commercial world, as in the old overseas trading companies where the ship’s captain acted as the agent of the ship’s owners. That origin too is not questioned.
A number of issues relevant to postings on these pages have been raised during the campaigning for the UK general election. For example, following Kraft’s acquisition of Cadbury, the Labour government proposes to raise the voting threshold for such deals from a simple majority to two thirds of shareholder votes and to exclude from voting any shares acquired since the bid was announced. This would at least slow down some such deals, but as the Liberal Democrats claim, would go nowhere near re-imposing a ‘public interest’ test which would give ministers the power to intervene in deals deemed to be against the public interest. Such a test was abandoned in 1992 with the support of both main parties. But public interest is a vague and inadequate hurdle for such deals, especially when likely British governments will claim the preservation of free and open markets is the prime public interest. So electrical supply company Chloride, and bus and train operator Arriva, the latest targets of foreign bidders, can expect little protection. Unlike, for example, their German counterparts, whose employee stakeholders have 50% representation on the supervisory board and would be able to provide some protection against bids which were against the long term interests of the company, as opposed to the short term interests of its shareholders. UK law requires directors should take the interests of all stakeholders into consideration, not just what the government of the day regards as the public interest.
Another issue that has caused some debate in the run up to the election is the Liberal Democrats’ proposal to again separate commercial banking from hedging and speculative activities, and to tax and regulate the latter differently from traditional banking. This would have the added benefit of breaking up some firms which are currently ‘too big to fail’. The two main parties are united in their objections to this approach, presumably for fear it would reduce London’s attractions as the world’s largest hedging base, and some might leave. However, hedge funds may find the United States even less comfortable. And most G20 nations are moving in that same direction. The days when ‘socially useless’ hedging enjoys total freedom may be numbered.
George Osborne announced the Conservatives proposal to mutualise and co-op the public sector, describing it as the ‘biggest social revolution since Thatcher sold council houses’. But their proposal just shows how little they understand the essence of those movements. Mutuals and co-ops operate within the for-profit sectors but instead of paying surpluses over to external shareholders they pay some to their members and accumulate the rest within the business. That’s the whole point. That was how the great mutual financial institutions and building societies got to be so big and so successful. The rape and destruction of so many, almost including the Co-op itself, was sanctioned and encouraged by the Thatcher government.
So how would mutuals and co-ops operate in the public sector with no surplus to distribute and accumulate? What would be the point? Well, George Osborne says, they would be able to work without the central controlling bureaucracy. So, was he saying there would be no central regulation or control? Well, not quite that, Osborne admitted, there would still have to be performance standards. So what did this social revolution amount to, other than confusion? Well, it was a reply to Gordon Brown’s earlier announcement that mutualism and co-ops would be at the centre of Labour’s election manifesto. But not a very convincing reply. No more convincing, in fact, than Brown’s own commitment. It would be rather better if politicians thought through their policies before deciding on the accompanying sound-bite.