= historical AND contemporary concept
By Colin Hay & Tony Payne:
"What do we mean in this context by a model of capitalism? Nothing more, but also nothing less, than a coherent framework of distinguishing features that combine to suggest a particular way of conducting the daily business of capitalist economies. It should possess a clear sense of the particular vision of the good society to which it aspires. In that sense it will be a model of development as much as a model of growth and it needs to reveal a consistent and defensible conception of social justice. Lastly, such a model should be applicable to a range of advanced post-industrial economies, not just to Britain alone – as well as offering insight into the many problems which capitalist economies face together and for which coordinated collective action is required.
It’s important also to emphasise what a model of capitalism is not – what it does not and cannot do. Specifically, it will not tell you exactly what policies to follow in detail in every situation. For example, it might well insist on the need to embrace the full range of macroeconomic considerations (supply and demand), but it won’t tell you exactly when to raise interest rates or at what level to set taxes. Similarly, it might suggest that you need a workable industrial policy, but it won’t tell you which winners to back or even if backing winners is the best approach.
In other words, the task of setting out a new model of capitalism is more like designing a new car than offering advice to the driver from the passenger seat – and arguably there has been rather a lot of that already. It’s also, critically, about offering a plausible narrative that explains to the people living and working within it what they are part of, how they might fit in, what gives their productive lives some meaning. Capitalism needs to be seen to have a moral purpose, because otherwise it just becomes a rat race.
Where, then, to begin? Political economy as a field has previously engaged extensively in discussion of ‘models of capitalism’ and ‘models of development’. There is a big literature out there. But the truth is that it has rather run out of steam in the last few years and remains limited to the exposition of a small number of quite crude ‘ideal types’ (some of whose exemplars have revealed themselves far from ‘ideal’ when seen in the context of the crisis). The analysis has also tended to be static and hasn’t coped well with the new realities of regional and global economic interdependence.
In our present circumstances the obvious and best starting-point is surely the nature of the old model. It has unquestionably failed us, but there within its modern history lies the wreckage from which we have to re-build.
In a previous SPERI publication one of us (Hay) identified the following as the key features of this Anglo-liberal model:
- the hegemony of an assertive neoliberal ideology;
- an elite policy community increasingly trapped in its thinking within this narrow ideological framework;
- substantial deregulation of markets and privatisation of financial management;
- huge dependence on the supply of cheap hydrocarbons, with seriously damaging environmental consequences;
- the systemic accumulation of debt and the increasingly pathological dependence of consumption (and, in turn, growth) on such debt;
- an accumulation of risk within the economic system, with growth over time increasingly associated with accelerating exposure to that risk;
- the absence of a coherent theory of society, or social well-being, beyond the sum of individual, supposedly rational goal-seeking;
- the consequent embedding of inequalities between and within countries; and
- a limited view of global governance as requiring little more than rules to manage competition between national economies.
A sensible, and realistic, next step in working away from this model might therefore begin by simply adjusting, and of course in some cases redressing completely, each of these nine features. What sort of a model might then emerge?
If we follow through the logic of the thought experiment we have just proposed, we proceed quickly to the broad outline of a new model of capitalism characterised now by these rather different distinguishing features:
- the re-emergence of a broader dominant ideology grounded in social democratic, ‘welfarist’ and social market thinking;
- a policy community open to different, more interventionist, more fluid approaches to economic and social challenges;
- coordinated re-regulation of markets and risk management in the collective public interest;
- serious engagement with sustainable models of energy use and resource conservation;
- economic stimulation built upon investment rather than debt-fuelled consumption;
- the development of alternative standardised measures of national economic performance beyond GDP (and hence economic output);
- the integration into this growth model of the concept of ‘social quality’;
- a shared commitment to reducing prevailing levels of inequality between countries and peoples; and
- the creation of more intensive and sophisticated, flexible and deliberative, mechanisms of global governance capable of serving as (or at least reflecting) the guiding intelligence of the global economy.
In a series of blog posts over the next 3-4 months we shall explore further each of these potential characteristics of a new model of capitalism appropriate to Britain and other advanced post-industrial economies. We shall seek in effect to build this new model piece by piece at approximately fortnightly intervals.
A final question beckons, however, even at this early stage: namely, what to call this new model? After all, labels do matter. A new model has to be popular, broad-based, and work for the vast majority of the people. But it needs to be more than just ‘populist’ in orientation, given that more is at stake here than the provision, merely, of more ‘bread’ and better ‘circuses’. In short, the new model of capitalism we need has to be productive and sustainable, as well as popular.
We think it is best described as a model of ‘civic capitalism’, deploying the word civic in its simplest and most straightforward usage – ‘pertaining to’ and ‘working for’ all of us in society, not just as consumers, or rational egotists, or even voters, but rather as citizens of a democratic polity. In the process of calling for and articulating such an alternative we need to remind ourselves that capitalism can and must be made to work for us. We can no longer be driven by its perceived imperatives and by those who have claimed for far too long – and, as it turns out, falsely – to be able to discern for us what capitalism needs. It is time to ask what capitalism can do for us and not what we can do for capitalism." (http://speri.dept.shef.ac.uk/2013/11/08/civic-capitalism-introducing-model-capitalism/)
From David Green's book,Reinventing Civil Society:
"This seventeenth-century antipathy to over-mighty government developed in two directions, not always clearly distinguished. The first, which I will call civic capitalism in the hope of avoiding confusion with other related ideas, can be understood as an effort to prevent the king from reverting to `lordship', in Oakeshott's language. The civic capitalist ideal was a nation united as civil associates, not as instruments of the king's will. This antipathy to the king was based on a sense, entrenched since at least the thirteenth century, that English subjects were governed by a ruler not by a lord, and that the law was a moral and prudential code for living which no person, and certainly no king, ought to defy. The Stuart kings were seen as usurpers meddling with the centuries-old rights of subjects. Classical liberalism, or civic capitalism, was therefore respectful of history. It saw England's civilisation as worth preserving.
The other leading liberal tradition is commonly called rationalism. It did not see the struggle against the Stuart monarchs as a restoration of historic rights, but rather saw all tradition as suffocating, and barely distinguished between custom and superstition. This tradition originated with Descartes and, in its search for `clear and distinct' truth, over-estimated the capacity of governments to re-arrange human affairs.
How did the civic capitalists see the human condition?
Essentially, they saw it as a struggle against human imperfection. Two particular shortcomings concerned them, sinfulness and ignorance, and consequently the practical task of the civic-capitalist thinker and activist was to develop human civilisation by discovering or improving those institutions which encouraged the opposites of sin and ignorance, namely goodness and learning. The moral ideal underlying civic capitalism is that human relations should, as far as possible, be based on free mutual consent rather than force or command. Classical liberals favoured this ideal because they believed it was more consistent with human nature than rule by the `lord of the manor'. But it was also an ideal in the sense that it challenged human character by setting a standard to be aimed for. It presented people with an ideal way to live. The particular combination of institutions that came to be supported had taken reasonably mature shape by the time that liberals like David Hume, Adam Smith, Josiah Tucker, Edmund Burke and William Paley were writing in the eighteenth century. The character of civic capitalism was elaborated further during the American constitutional debates of the 1780s, not least by the authors of the Federalist Papers, by Immanuel Kant and Wilhelm von Humboldt in Germany, by Montesquieu in France and during the nineteenth century by Tocqueville, J.S. Mill and Acton. During this century the tradition has been developed still further by Friedrich Hayek and Michael Novak. It is important to avoid one major source of modern confusion.
Liberty under law is not a doctrine which sees liberty as the absence of all restraint, or freedom from all obstacles to our desires. The classical liberals did not want `power', they wanted `liberty', that is they did not seek the `power' to achieve their particular ambitions, they sought a social order—a civilisation—which allowed every person the liberty under law to contribute to their own good and the good of others as each believed best. To repeat Acton's words: they treasured the liberties of others as their own.
The ideal was liberty under law, not liberty to do as anyone pleased. It was liberty guided by conscience rather than naked wants. Nor was it relativistic. Liberty was valued, not because civic capitalists thought that any individual's views or values were as good as anyone else's, but because it is not possible for any authority to identify in advance who will turn out to do the most good, or benefit humankind to the greatest extent, or to judge which values, habits or institutions will ultimately prove most conducive to human co-operation. Consequently, they thought that every one should be free to contribute as each thought proper, in the belief that we will recognise real progress when we see it.
The view of thinkers such as Acton and Tocqueville must also be sharply distinguished from another attitude often associated with liberalism. It is the view, which derives from Rousseau, that people are essentially good and that they are made bad by institutions, such as bad laws or bad governments.
The law is intended, not only to punish wrong conduct, but also to smooth the path of voluntary co-operation. Roughly speaking, criminal law punishes moral wrongs, and civil law is the body of rules that makes it easier to work with other people, as buyers or sellers, employers or employees, and consequently to create wealth more readily.
Thus, civic capitalism was a political philosophy based on a belief in the possibility (but not the inevitability) of progress and how it could best be achieved. In essence, civic capitalists have taken the view that progress is the result of trial and error. As the distinguished turn-ofthe- century economist Alfred Marshall argued, collectivism might seem in the short run to deliver benefits, but this was only because it lived off the fruits of earlier private initiative. In Marshall's view, if the springs of progress were not to dry up, there was no substitute for the bearing of risks at one's own expense.
The civic capitalists were first and foremost concerned to discover those common institutions, both private and public, which, on the one hand, encouraged individuals to become better citizens and which, on the other, reduced the harm that would result when human behaviour fell short of the ideal. Individuals are capable of great self sacrifice and many have laid down their own life for the good of others, but they are also capable of great wickedness. The civic capitalists were idealists whose vision was tempered by their awareness of human fallibility. As Professor Alfred Marshall wrote, `progress mainly depends on the extent to which the strongest, and not merely the highest, forces of human nature can be utilised for the increase of social good'.2 Unlike some conservative thinkers who have celebrated established authority per se, civic capitalists did not forget that authority is a means and not an end."
"The founders of civic capitalism saw the state as the protector of the people from crime and oppression as well as the facilitator of human ingenuity. They saw individuals as each struggling to understand the world around them and to make the most of their own lives in mutual concert with others. No less important, they saw people as united, not in pursuit of a uniform goal, since all were free to pursue their own objectives, but by the particular sense of solidarity that results from a shared awareness of belonging to a civilisation that gives everyone their chance. Solidarity is a term generally associated with egalitarianism, or with the creation of cohesion through compulsory transfers of cash—as exemplified by the European Community's `cohesion fund'—but the solidarity associated with liberty is the sense of unity that flows from being part of a culture that respects persons as fully entitled to make the most of the opportunities available to them and which expects each individual to uphold the values on which freedom rests. To feel love for their country has been typical of free citizens, as demonstrated by the high morale of the allied soldiers of World War
Also central to the thinking of civic capitalists has been a commitment to personal responsibility, partly for prudential and partly for moral reasons. They thought it prudent for people to be free to pursue their own lawful ends as their judgement dictated and at their own risk, because better results in the interests of all were more likely. This view was taken partly because, when decision makers spend other people's money, they do not exercise the same care as when they personally bear the cost of failure or reap the reward of success. In addition, classical liberals believed that the personal bearing of risk gave individuals a powerful reason to improve their knowledge, skills and character. Morally, their view was based on the argument that freedom will not work unless we all accept an obligation to treat others with the respect due to fellow moral agents." (http://www.civitas.org.uk/pdf/cw17.pdf)
"there is an older tradition of the social market economy which has much in common with civic capitalism. It is the tradition of the `Ordo' group of liberals who set out to build a genuinely free society on the ruins of Hitler's Germany. The group, named after its journal Ordo: Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, included Walter Eucken, Wilhelm Röpke and Ludwig Erhard, Germany's first post-war economics minister. As Norman Barry has shown, members of the Ordo group belong in the classical-liberal tradition, but did not agree with the view of many economists that the market was self-correcting. In particular, they saw industrial monopoly as a constant danger.16 They were critical of laissez-faire economics and believed that freedom rested, not on markets alone but on a wellconstructed system of law and morals. Eucken, for instance, argued that: `the economic system cannot be left to organise itself. So there is no question of any return to laissez faire'. As the passages quoted earlier showed, both Adam Smith (above p. 16) and Hayek (above p. 19) took a similar line.
However, the Ordo-liberals were as sceptical about the redistributive state as about laissez-faire capitalism. They had no hesitation in expecting the state to assist the casualties of a market economy, but they did not support the welfarism that had been a feature of German life since Bismarck.
Thus, the tradition of the Ordo-liberals shares common ground with civic capitalism, but today the term `social market' does not mean the Ordo-liberalism of Röpke, Eucken and Erhard, rather it means welfare capitalism. And in the 1990s we can now see how the welfare state destroys the fabric and richness of civil society by cramping the space available for personal idealism." (http://www.civitas.org.uk/pdf/cw17.pdf)