The Future of Capitalism: Facing the New Anxieties

by Paul Collier

But even within the dynamic metropolis, these extraordinary economic gains are heavily skewed. The newly successful are neither capitalists nor ordinary workers: they are the well educated with new skills. They have forged themselves into a new class, meeting at university and developing a new shared identity in which esteem comes from skill. They have even developed a distinctive morality, elevating characteristics such as minority ethnicity and sexual orientation into group identities as victims. On the basis of their distinctive concern for victim groups, they claim moral superiority over the less-well educated. Having forged themselves into a new ruling class, the well educated trust both government and each other more than ever.

fortunes of the educated have

soared, pulling up national averages with them, the less-well educated, both in the metropolis and nationally, are now in crisis, stigmatized as the ‘white working class’. The syndrome of decline began with the loss of meaningful jobs. Globalization has shifted many semi-skilled jobs to Asia, and technological change is eliminating many others. The loss of jobs h...

The resentment of the less educated is tinged with fear. They recognize that the well educated are distancing themselves, socially and culturally. And they conclude that both this distancing and the emergence of more-favoured groups, perceived as creaming off benefits, weaken their own claim to help.

Anxiety, anger and despair have shredded people’s political allegiances, their trust in government and even their trust in each other.

older workers, who had been marginalized as their skills lost value, and young people, entering a bleak job market, turned to the extremes.

In France, youth voted disproportionately for the new-look far right; in Britain and the USA, they voted disproportionately for the new-look far left.

The frustration born of this gulf between what has happened and what is feasible has provided the pulse of energy for two species of politician that were wai...

In essence, social-democratic public policies became increasingly sophisticated ways of using taxation to redistribute consumption while minimizing disincentives to work.

Armed with its Utilitarian calculus, economics rapidly infiltrated public policy. Plato had envisaged his Guardians as philosophers, but in practice they were usually economists. Their presumption that people were psychopaths justified empowering themselves as a morally superior vanguard; and the presumption that the purpose of the state was to maximize utility justified redistributing consumption to whoever had the greatest ‘needs’. Inadvertently, and usually imperceptibly, social-democratic policies changed from being about building the reciprocal obligations of all citizens. 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.

Western, Educated, Industrial, Rich and Developed – or WEIRD,

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.

from George Akerlof, I have learned the new psycho-economics of how people behave in groups. It is partly driven by globalization gone wrong;

from Tony Venables, I have learned the new economic dynamics of metropolitan agglomeration and why provincial cities can implode. It is partly driven by the deteriorating behaviour of firms;

from Colin Mayer, I have learned what can be done about this loss of purpose. Most fundamentally, it is driven by the Uti...

from Tim Besley, I have learned a new fusion of moral theory an...

from Chris Hookway, I have learned the philosophical orig...

Capitalist societies must be ethical as well as prosperous.

The new geographic divide, between booming metropolis and broken provincial cities, can be tamed but it requires radical new thinking. The metropolis generates huge economic rents which should accrue to society, but to do so requires a substantial redesign of taxation.

Restoring broken cities is feasible, but the record is poor. Neither the market nor public interventions have been very effective. Success requires that a range of innovative policies be co-ordinated and sustained.

We need an active state, but we need one that accepts a more modest role; we need the market, but harnessed by a sense of purpose securely grounded in ethics.

social maternalism. The state would be active in both the economic and social spheres, but it would not overtly empower itself. Its tax policies would restrain the powerful from appropriating gains that they do not deserve, but not gleefully strip income from the rich to hand to the poor.

Its regulations would empower those who suffer from the ‘creative destruction’ by which competition drives economic progress to claim compensation, rather than attempting to frustrate the very process that gives capitalism its astonishing dynamic.*

The twentieth century’s catastrophes were wrought by political leaders who either passionately espoused an ideology – the men of principle – or who peddled populism – the men of charisma (and yes, they were usually men).

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’.

Social man cares about what others think of him: he wants esteem. Social man is still rational – he maximizes utility – but he gets utility not just from his own consumption, but from esteem.

the strategy of putting the clock back is doomed to failure.

key reason why is that the Emerging Market economies, like South Korea, that have established the new world-beating clusters, have no interest whatsoever in putting the clock back. Globalization has enabled them to achieve unprecedented reductions in poverty.

Well-being depends upon dignity and purpose, not just on how much you can afford to consume.

Why are there 70,000 children in ‘care’? Because social paternalism intervenes by waiting until a young woman has a child that she is not equipped to look after, and then removes it from her. This happens repeatedly with the same women. For example, a study of child removal in Hackney found that just 49 women accounted for 205 children removed into care.

Social maternalism would not wait and pounce; it would recognize that something was badly wrong with the lives of these women and

Success depends upon raising self-esteem, not bullying people off benefits. That

New research by one of my doctoral students shows convincingly that this increased the neglect of young children.8 The effect was large and it was causal. For each 1 per cent increase in the unemployment rate in a county, the incidence of child neglect rose by 20 per cent, affecting young children the most.

Silicon Valley think that their technology has opened the world of knowledge to the children of the less educated. But the evidence is quite contrary to their hopes: the internet has widened rather than narrowed differences in opportunities.

Everyone now has access, but recent research shows that the children of the educated learn to use the internet for expanding their knowledge, whereas the children of the less educated use it for distraction.9

The children of the educated class read; the children of the less-educated class don’t.

Appetites can be ignited; habits can be changed.

There are many other such actions that can help children outside school. The non-cognitive skills are formed not by study, but by people who become trusted mentors, and by group activities such as sports where children can learn co-operation and leadership.

The professionals know what is needed: high quality technical vocational education and training (TVET) that young people choose to do in preference to plodding on down the familiar track of cognitive-focused training.

In Britain, a third of these students end up in jobs that used to be filled by non-graduates, and whose skill requirements have not changed. Their degrees have not made them more productive.

In the process of this trivial matter, the lawyers on each side ran up costs of £3 million, which became the liability of the losing party. In other words, this trivial legal task ate up the equivalent of the average lifetime earnings of three British households.

taxing such disputes, we can encourage more of them to be settled more simply, and also shift some of the rents from the inflated costs of lawyers to society. Lawyers will explain why such a proposal is an affront to justice.*

In Britain during the past decade, suicide rates among university students have risen 50 per cent.

in 2013 was of a summer intern at an investment bank, so keen to impress that he worked a twenty-hour day before dropping dead.

This is an extreme instance of a race to the bottom that drives groups of people to become workaholics. Everybody would gain from working less, but no individual dares to step out of line: they would lose out in the race for promotion, and by breaching prevailing norms they would lose esteem. This is a classic co-ordination problem and it has a straightforward solution – public policy.

An informed electorate is the ultimate public good, and as with all public goods each individual has little incentive to provide it.

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 contrast to Hillary Clinton, Emmanuel Macron was able to articulate a clear, non-ideological yet sophisticated critique of the current system, aimed not at ‘victim’ groups but at the average French citizen, while exposing the emptiness of the populist remedies. His programme was a prime example of pragmatism, in which good communication skills enabled a complex argument to triumph over the snake oil of populism.