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by
Paul Collier
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October 1 - October 16, 2019
The reason is because the social democrats of the left and right each drifted away from their origins in the practical reciprocity of communities, and became captured by an entirely different group of people who became disproportionately influential: middle-class intellectuals.
Economic man is utterly selfish and infinitely greedy, caring about nobody but himself.
In essence, social-democratic public policies became increasingly sophisticated ways of using taxation to redistribute consumption while minimizing disincentives to work.
In combination, the result was toxic. All moral obligations floated up to the state, responsibility being exercised by the morally reliable vanguard. Citizens ceased to be moral actors with responsibilities, and were instead reduced to their role as consumers. The social planner and his Utilitarian vanguard of angels knew best: communitarianism was replaced by social paternalism.
In a brilliant book, Jonathan Haidt has measured fundamental values around the world. He finds that almost all of us cherish six of them: loyalty, fairness, liberty, hierarchy, care and sanctity.
The co-operative movement had linked rights firmly to obligations; the Utilitarians had detached both from individuals, shifting them to the state. Now, the Libertarians restored the rights to individuals, but not the obligations.
Utilitarians, Rawlsians and Libertarians all emphasized the individual, not the collective, and Utilitarian economists and Rawlsian lawyers both emphasized differences between groups, the former based on income, the latter on disadvantage. Both influenced social-democratic policies. Utilitarian economists demanded redistribution guided by need; gradually, welfare benefits were redesigned so that entitlement was unlinked from contributions, dismissing the normal human value of fairness.
While the new ideologies of left and right presented themselves as being diametrically opposed to each other, they had in common an emphasis upon the individual, and a fondness for meritocracy: the morally meritocratic elite of the left vied with the productively meritocratic elite of the right. The superstars of the left became the very good; those of the right, became the very rich.*
Social democracy worked from 1945 until the 1970s because it lived off a huge, invisible and unquantifiable asset that had been accumulated during the Second World War: a shared identity forged through a supreme and successful national effort. As that asset eroded, the power wielded by the paternalistic state became increasingly resented.
If capitalism is to work for everyone it needs to be managed so as to deliver purpose as well as productivity. But that is the agenda: capitalism needs to be managed, not defeated.
A core proposition of pragmatist philosophy is that, because societies change, we should not expect eternal truths.
The battle between selfishness and reciprocal obligations – between individualism and community – plays out in three arenas that dominate our lives: states, firms and families.
In The Fix, Jonathan Tepperman studied ten such leaders, searching for the formula by which they each remedied serious problems. He concludes that what they had in common was that they eschewed ideology; instead, they focused on pragmatic solutions to core problems, adjusting to situations as they went along.
allowed to remain in the group; he was banished. Natural selection winnowed out rational economic man in favour of rational social woman: we are hardwired to crave belonging and esteem as well as food.
This book proposes a different path: an ethical capitalism that meets standards that are built on our values, honed by practical reasoning, and reproduced by the society itself.
But behind the toxic word are the networks of markets, rules and firms that delivered both the miracle of 1945–70 and the tragedy of 1929–39. My generation missed the tragedy, lived through the miracle, and complacently imagined that continued miracle was inevitable.
When she interviewed Susan Chira, then foreign editor of the New York Times, Alison Wolf captured a perfect expression of it: Ms Chira told her ‘work is fulfilling, it’s so woven with identity’.3 Meanwhile, the less educated, with less to enthuse about in their work, clung on to their nationality but began to feel marginalized.
If the educated see themselves as different from the less educated, and with diminished responsibility towards them, those others would be foolish to continue to trust them as much as when they knew that everyone had the same salient identity.
To build Europe as a polity depends on building a new large identity, but this is an extremely difficult undertaking.
All these seemingly distinct secessions have one thing in common: they are rich regions trying to exit obligations to the rest of the country.
I suggest that it is likely to be some compromise between the first and the third: somewhat greater generosity towards the global poor will be more than offset by substantially reduced generosity towards the national poor.
We cannot get away from this fact: our polities are spatial. Indeed, they are predominantly national. But our identities, and the social networks that underpin them, are becoming ever less so.
the opt-in, opt-out polity with each individual free to choose regardless of where they happen to be living. Each could have its own currency – to each its own bitcoin. Each could have its own tax rates, welfare benefits, health scheme; there are schemes for floating islands outside any national jurisdiction.
The non-spatial political unit is a fantasy, so the only real option is to revive spatial bonds.
Is it possible to forge bonds that are sufficient for a viable polity yet not dangerous? This is the central question that has to be addressed in social science. On its answer rests the future of our societies.
Rather than lamenting this aspect of our societies, we need to devise a workable strategy for rebuilding shared identity that is compatible with modernity.
People have a fundamental need to belong. The key dimensions of belonging are who? and where? Both of these are set in childhood and usually endure for life. We answer who? by identifying with some group – this is what Identity Economics has focused on to date; we answer where? by identifying with some place as home. Ask yourself what you mean by home. For most people, it means the place where they grew up. The
One reason to be hopeful is that place-based identity is one of the traits that are hardwired deep in our psyche by evolution.
In 2017 President Macron of France broke this pattern of negligence. He has pioneered a vocabulary to distinguish between two forms of nationwide identity: nationalism and patriotism, describing himself as a patriot but not a nationalist.
Patriotism, as exemplified by President Macron, promotes a discourse of co-operation for mutual benefit. He is quite explicitly seeking to build new reciprocal commitments within Europe on economic matters, within NATO on the security of the Sahel, and globally on climate change. Yet Macron is working in the interests of France. When an Italian company tried to buy the nation’s most important shipyard, he intervened to ensure that French interests were protected: he is not a Utilitarian. But crucially, in contrast to nationalism, patriotism is not aggressive.
The share of home ownership among a population is a practical indicator of this inner core of belonging, and restoring home ownership requires intelligent public policy, as we will see later.
Currently, when faced with the choice between ‘The primary purpose of business should be to make profit’ versus ‘Making a profit should be only one consideration among many’, the people who agree with Friedman are outnumbered three-to-one, a difference that is uniform across age groups and opinions about other matters.
the purpose of business is to meet its obligations to its customers and its workforce. Profitability is not the objective; it is a constraint that has to be satisfied in order to achieve these objectives on a sustainable basis. Why has business gone so wrong, and how can public policy put it right?
a company needs a sense of purpose.
In Britain, which has the largest financial sector relative to its economy of any major country, corporate investment in research and development is far below the average for advanced economies.6
Facebook, Google, Amazon, eBay and Uber are all examples of networks that tend towards natural global monopoly in their particular niches. As unregulated, privately owned natural monopolies, they are highly dangerous.
In those industries where to be the biggest has come to imply the most productive, there is a case for differentiating rates of corporate taxation by size.
The same data that academics have used to show that in some sectors big is more profitable could be used to design differential tax rates. The purpose would not be to discourage economies of scale, but to capture some of the gains for society. Ironically, we already differentiate taxation by size, but perversely: the new network monopolies such as Amazon benefit massively from being tax scams, avoiding the taxation of their terrestrial equivalents. Since the effects of taxation cannot be fully known
should more properly be seen as a pilot. By studying the behaviour of these companies, the idea can be refined to the point at which a revised mandate can safely be rolled out across the corporate sector.
We need to build a critical mass of ethical citizens. Ethical citizens are people who understand the purpose of companies and the vital contribution they can make to society; they recognize the norms implied by this purpose; and encourage businesses to meet those obligations through the twin pressures of esteem and disapproval.
Remember: back then CEOs paid themselves only twenty times what they paid their workers. They now pay themselves 231 times what they pay their workers: the ethical firm has given way to the vampire squid. Times have changed; they need to change back again.
We are now paying a price for the resulting weakening of the clubs and contamination of the duties of rescue. But if we return to a pragmatic approach, we can not only restore the ethical world, we can make it better than ever before.
One is between productivity and specialization, and the common phrase for it is ‘learning by doing’.
The explosion in knowledge turbo-charged the old relationship between specialization and urbanization, leading to spectacular growth in the largest cities. Globalization opened up new possibilities for harnessing the gains from scale, but also exposed the established clusters to new competition, sometimes leading to their demise.
The strategy I propose separates naturally into two halves: taxing the metropolis, and restoring the provincial cities. Each half depends upon a distinct analysis.
Capturing these rents requires a tax innovation: tax rates need to be differentiated not just by income, as at present, but by the combination of high income and metropolitan location.
Local universities need to refocus on those departments that have a realistic prospect of forging links with businesses. This is another potential use for public money.
Governments could recognize the huge value added if the two biological parents choose to live together with the child: a tax-credit bonus could reduce the tax burden for those who are taxpayers, and income could be supplemented by an equivalent amount for those who are not. The
One is to build routine expertise: skills developed through practice and honed through feedback. Another is to be able to think for yourself when necessary: the knowledge and confidence to be resourceful. Craftsmanship brings an ethic of excellence, and a sense of pride in a job well done. It is learned through working with someone who becomes a role model. Then come the functional capabilities: numeracy, literacy, communications technology and graphics. Since most jobs are in the private sector, young people need businesslike attitudes, including recognition that jobs depend upon customers
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But workers need job security not just to recover their investments in skill, but because they take on commitments that anticipate their future salary. This ability to take on commitments such as raising children, or buying a home, is beneficial to society, so job security is socially valuable.
