Real capitalism has never been tried. What we are seeing today is not capitalism, in the true sense of the word. My core thesis is that British capitalism is suffering from an illiberal plague. Allow me to divulge.
As coined by the esteemed moral philosopher and economist Adam Smith, a commercial society (or contemporary capitalism) is made up of two key tenets: moral sentiments and competitive markets. Focussing in this piece on the latter of the two maxims, modern-day Britain’s competitive markets, in particular, are far from Smith’s conception of competitive.
Britain’s contemporary system of capitalism is riddled with a cocktail of diseases. Among them lie cronyism, winner-picking, “buy British” protectionism and rent-seeking. All of which contain one mutual factor: that the state facilitates them and their evils. To borrow a phrase – real capitalism has never been tried.
Boris Johnson urges Britons to buy domestically over buying internationally in order to protect floundering industries. Ignoring the lessons of David Ricardo, which stipulate how such protectionism makes all parties to the exchange worse off.
Cabinet minister Robert Jenrick showed his thrifty side recently by helping Richard Desmond avoid a council tax bill of over £30m, overturning a recommendation by a planning inspector. Two weeks later, Desmond personally gave £12,000 to the Conservative party.
Coincidence? Perhaps. But this example nonetheless highlights the existence of a point of exploitation within the British state. One in which those with power and money seek to influence the state to act favourably on their behalf.
This adds credence to the claim that today’s creation of wealth “is not the sole result of a fair market process.” Instead, it relies on rent-seeking, competition-restricting regulation and subsidies. Firms can only play this game when in the audience of receptive legislators.
The Economist’s crony-capitalism index found that “worldwide, the worth of billionaires in crony industries soared by 385 per cent between 2004 and 2014, to $2tn.” It places Britain as the fourteenth most “crony” country.
Would-be rent-seekers gain monetarily not through adding value to the economy, but by pushing for subsidies or protectionist policies to their own advantage and to tighten their grip on top a more dominant economic position, as Gordon Tullock, the great public choice theorist, explained.
Rent-seeking and the crony capitalism it helps manifest are in diametric opposition to the functioning of a free and fair market system and its open competition. It allows for unfair advantages at the expense of others, permitting those not willing to innovate and compete with entrepreneurial spirit to win financially, nonetheless.
Adam Smith was already on to this in 1776. It is the interest of every man to live as much at his ease as he can; and if his emoluments are to be precisely the same, whether he does, or does not perform some very laborious duty, it is certainly his interest…either to neglect it altogether, or…to perform it in [a] careless and slovenly a manner, he said.
Smith is explaining here how some economic actors, given the chance, would rather do the same (or less) for extra financial gain if it is possible to do so. And this most certainly is possible in modern-day Britain, if one is willing to use power, money and influence to rig the economy in their favour and bring about beneficial subsidies and regulation.
Rent-seeking is the most silently destructive of the evils, but there are solutions. They include significantly increasing legislator pay to ensure quasi-bribes are less attractive and ensuring that those firms who can get close to political authority yield less influence. Perhaps by increasing the transparency within government in order to shed light on certain government-firm relationships.
In the last seventy years, capitalism has brought about unprecedented wealth. And of course, our system is one of the freest in the world. Nonetheless, it is far from perfect. If we really do believe in the unrivalled ability of markets as a system of our self-organisation over state-planning, and of the liberty it affords us, we should be constantly looking at ways to rid British capitalism of those evils ensuring its gradual degradation.
Adam Smith’s attacks of British commercialism in 1776 are similar to those issues it faces now. I feel as though the current free-market lobby, myself included, have been too lax at times in our criticism of the British capitalist system, perhaps for fear of conceding ground to our not-free-market inclined adversaries. We extol its virtues without hesitation and without careful analysis of its deep-rooted contemporary issues.
If you believe in liberty, the advantageous nature of Smith’s commercial society and the immorality of rent-seeking, then you must shout from the rooftops that “real capitalism has never been tried!” Followed, of course, by an advocation of policy proposals to remedy its issues.
