The Future of Capitalism: Facing the New Anxieties

by Paul Collier

An identity of being ‘on the left’ has become a lazy way of feeling morally superior; an identity of being ‘on the right’ has become a lazy way of feeling ‘realistic’.

Populism offers the headless heart; ideology offers the heartless head.

Those political philosophers most sceptical of the capacity for individual practical reasoning favour the accumulated wisdom incorporated in institutions: this is conservatism.* Those least sceptical favour the freedom that it offers: this is liberalism.* Both concerns are well based: the answer is balance.

the hatreds that in earlier centuries pitched polity against polity are now pitching belief system against belief system within each polity. Hatreds between polities turned into mass organized violence. Hatreds within polities will have different consequences, but they could be grim.

Around the world we hold six such values in common, none of which is generated by reason. Care and liberty may be evolutionarily primitive. Loyalty and sanctity may have evolved as norms that supported the group; members would have followed them as norms, and internalized them as values because they were rewarded with belonging. Similarly, norms of fairness and hierarchy may have evolved to keep order in the group, being rewarded with esteem.

Yet for one person to have a right, someone else must have an obligation. A new obligation forces a change in behaviour that enables a new right to be exercised: without some counterpart obligation, a new right is vacuous. Reciprocal obligations ensure this, each new right is married to its new obligation.

up. The skilled switch their salient identity to their work. 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.

Since the smug skilled get more esteem than the marginalized, they are keen to make clear to others that they indeed make their skill their salient identity. We can now use a key insight of Michael Spence’s Theory of Signalling to tell us how they are likely to do it. To show convincingly that I have chosen to drop nation as my salient identity, I need to do something that I would not be prepared to do otherwise. I need to denigrate the nation. This helps to explain why social elites so often actively disparage their own country – they are esteem-seeking. It decisively differentiates them from their social inferiors.

There is not much doubt that our societies have indeed polarized into those earning above average incomes who have jettisoned national identity in favour of their job, and those lower down society who have clung on to it. Nor, after Trump, Brexit and Le Pen, is there much doubt that these two groups are conscious of this polarization.

Instead, it is being used by political populists to build a support base through narratives of hatred of other people who live in the same country. The entire strategy is to build cohesion within one part of society by creating rifts with other parts of society. The resulting oppositional identities are lethal for generosity, trust and co-operation. This is what educated people reject and they are right to do so. But, currently, they are not offering any alternative basis for shared identity. In effect, the educated are saying that they no longer identify with less-educated citizens.

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.

In addressing the new divergence, the populists have the easiest time of it. Since the divergence is new, they propose putting the clock back to before it happened. Their

In a metropolis, most of the gains of agglomeration accrue to those people with high skills and little need for housing. Suddenly, many opportunities for rent-seeking open up. People elbow their way into jobs by lobbying well-connected relatives; they pay tutors for the extra study that gets them more credentials; they go to hundreds of interviews. Or they squeeze their need for housing by delaying marriage, or delaying children. Each of these is a form of rent-seeking. Behaviour gets distorted in the competition to capture the lucrative rents of agglomeration.

If citizens expressed political attitudes reflecting their self-interest, we might expect these two effects to manifest themselves as pro-immigration sentiments among highly skilled metropolitan citizens, and anti-immigration sentiments among citizens in the provinces.

Currently, the political battlefield is seemingly characterized by alarmed and indignant Utilitarian and Rawlsian vanguards under assault from populist ideologues. This is the political menu from hell. In

shared identity becomes the foundation for far-sighted reciprocity