Business lobby groups and the right-wing press are angry with Vince Cable for his remarks on capitalism. But Cable is right and vested interests should be scared.
Business lobby groups and the right–wing press have got their teeth into Vince Cable today for his remarks about capitalism. Conservative Home have even dubbed him “Red Vince“. But the Business Secretary is just conveying cutting edge thinking on models of capitalism and vested business interests are right to be worried.
“[capitalism] takes no prisoners and kills competition where it can”
The view is less controversial than the howl of anguish from the CBI would suggest. A series of books in recent years have set out the thesis behind Cable-nomics. None of the authors can remotely be described as “reds”.
In 2007, William Baumol, an economics professor at New York University, co-wrote ‘Good capitalism, bad capitalism, and the economics of growth and prosperity‘. The book examines four different varieties of capitalism: state-guided, oligarchic, big-firm, and entrepreneurial. Their remedy for producing the right mixed form of capitalism is (i) ease of starting and growing a business, (ii) rewards for productive entrepreneurial activity, (ii) disincentives for unproductive activity, and (iv) keeping the winners on their toes including through a greater focus on competition. The economist described the book as “[moving] the debate on from competing national models to the underlying structures that shape the relative effectiveness of different sorts of capitalism.”
Last year, corporate adviser Mike Guillaume wrote ‘The seven deadly sins of capitalism‘ which sets out how capitalism has changed over three decades since the Thatcher / Reagan revolution. He calls for “reinvention policies” including greater regulation of consolidations and mergers; health competition; employee buyouts; economics of scope; innovation; long-term returns; and greater sustainability.
This summer, Anatole Kaletsky published ‘Capitalism 4.0‘ in which he argues that after the collapse of Lehman Brothers, capitalism will reinvent itself and emerge stronger than before. This new form of capitalism will be characterised by a rejection of free market fundamentalism and a greater focus on competition and innovation instead. In a review, Vince Cable himself said, “[This book] has a clear, powerful thesis that capitalism will survive and flourish as it did in the wake of the three previous systemic crises of the last two centuries.” The Financial Times’ John Kay wrote, “His book is a major contribution to the debate on the nature of the market economy that needs to follow the practical failures of market fundamentalism.”
Despite the spate of books, these ideas are hardly novel. Adam Smith – so often misinterpreted – famously said:
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
While the authors above take their cue from Joseph Schumpeter and his 1942 classic, ‘Capitalism, Socialism and Democracy’. The phrase “creative destruction” sends the fear of God into businesses with market power. Perhaps that’s why they’ve been so incandescent.
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