Old socialist + Red Tory = so what?

On Newsnight last night there was a long feature by Paul Mason with comment by Phillip Blond about so-called new forms of capitalism. The piece consisted of Paul Mason going round various businesses in St. Davids in Wales and putting words into the mouths of the business owners about his perception of capitalism. Mason was then heartened by the responses of the business owners who seemed to be promoting a new softer brand of capitalism. Straw man after straw man was put up and knocked down again and again.

The basic idea Mason was trying to get across was that capitalism to date has been about maximising growth and profit and that this new breed of business people had a more balanced outlook on life which was socially more acceptable.

Mason would not recognise a free economy if it stood up and slapped him in the face. From a social perspective, a business is quite simply a community of persons that exists to meet its own ends by serving the ends of others. That fact alone deserves some contemplation and it is a wonderful thing. A free economy naturally leads to variety because seven billion people in the world have different aims and objectives both as consumers and producers. Most businesses are small and the ends of the business owners are naturally diverse. Most people who work for businesses also have quite diverse aims in life. There are relatively few people in society who get up every morning and try to maximise their material output for the day and most businesses best achieve their objectives (even if the main objective is return on capital) by remaining small. One of the people made an apparently profound statement that they “optimise not maximise”. Don’t we all? Haven’t we always?

Different types of business organisations come and go but the cooperative, fair trade, charities, universities (often set up as non-profit-making corporate entities), mutuals, building societies, friendly societies have, at different times, been part and parcel of the rich tapestry of a market economy. Football and cricket is very important to many people but who has ever come across of football club or county cricket club that maximises profit? No, they act purposefully to achieve whatever their objectives are.

Then, along comes Phillip Blond arguing that the re-localisation of finance was necessary to reinvigorate the economy, praising the organisations in Mason’s piece and criticising other forms of business as having created a thirty-year bust (on which we are about to embark). Two things can be said in response. Firstly, we should be careful when criticising those businesses that choose to grow big and produce more “things” more cheaply. It is precisely because of such businesses (for example, Easyjet) that the less well off enjoy the foreign holidays and so on that Paul Mason probably takes for granted. Much lower mortgage margins than my parents enjoyed exist today because of competition in the banking sector. Secondly, Blond wants to design the economy so it takes the shape he would like. He consistently ignores the evidence that the demise of many of the community-based institutions that he admires (especially in finance) was caused by state intervention – especially the welfare state (which to be fair Blond criticises) but also state intervention in the form of financial regulation.

In summary, if we want to have a more diverse free economy then we need to extend the domain of freedom and not constrict it.

“Mason would not recognise a free economy if it stood up and slapped him in the face” – too true.

Dear Philip I can assure you that none of the businesspeople I interviewed in the piece last night were either prompted or misrepresented by me. What I presented was a series of case studies of businesses that have chosen not to go down the profit-maximisation route (in the case of Bridgewater and the Welsh SMEs); or in the case of Zopa one that sees banking as a low-margin business, not a high-margin, high-bonus business. It’s the job of journalists to report reality and I am sure you will agree that the other part of reality – the state-guaranteed, rent-seeking speculative finance industry – gets plenty of coverage. I am not sure Adam Smith would have called it a “free” economy though.

Dear Paul
I did not call the state-guaranteed finance industry part of the free economy – I have criticised that strongly enough on many occasions (see our Verdict on the Crash). I also did not say that you misrepresented people, but I stand by the “prompting” accusation (especially in relation to the issue of profit maximisation). My point is that all the operations that you discussed are part and parcel of a free economy. They are not new and they are not contrary to the purpose of a free deregulated economy as Phillip Blond suggests. As it happens, my understanding of ZOPA is that it IS a profit maximising business – albeit with a different business model from the banks.

Paul…Let’s put it another way. We could have had a feature on Newsnight celebrating the magnificant diversity of a free capitalist economy using exactly the same case studies but it certainly did not come over that way.

Zopa appears to be flavour of the month. So long as the borrowing side gets a look-in, too! As a lending user I can confirm that my intention is to maximise my own profits. I have some money in Zopa because it gives a high interest-rate diversification to my portfolio (to be dull about it). I don’t know what margin the owners of Zopa aim to make, because the business model, as Philip (Booth) says, is different from banking.If you look at it this way, Zopa is to consumer credit what (to use an unfortunate analogy) a casino is to poker. They’re not players themselves, but they provide a place for players, and charge us a fee for the use of the premises.

Oh, and one other thing: you don’t need to prompt or misrepresent to produce a biased piece. Interview enough people and the law of averages dictates that you’ll get some material which props up your thesis.That’s before you take into account the propensity of people to mould their comments to be attractive to the man with the video camera and the national platform. What businessman isn’t going to grab the chance to advertise on Newsnight?

[...] Worstall compares Phillip Blond to Fascism. Whereas the IEA talk about how he wants to ‘construct’ society, like a socialist.  Though according to Redwood we are in a socialist world.  One suspects that he [...]

Booth’s article ignores so many malign features of what he calls “economic freedom” that it’s hard to take him seriously. It was not financial regulation that encouraged the demise of building societies but deregulation; the same deregulation that allowed and continues to allow financial institutions to undermine whole economies, including our own. No matter the havoc wrought by unbridled free-market capitalism, somehow or other neo-liberals persuade themselves and then try to persuade the public that it’s all the fault of bad government. They are right, of course, but not in the way they intend. Governments are at fault for allowing the free-marketers to fleece us.

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