Early this week, I had a couple of business meetings on the other side of town, so had occasion to pass through the now infamous ‘tent camp’ sprawled around the side of St. Paul’s Cathedral in London. It was a remarkably civilised affair. Apart from plastering the columns of the nearby rain-cover with a wide range of colourful and interesting posters – ranging from ‘all money is theft’ to ‘save our pensions’, which is an interesting contrast – the camp itself was very well organised, structured and pleasant. Even the new fenced-off fire exit from St Paul’s was being respected.
At the same time, it is really hard to know what on earth the campers actually want. There is, rightfully, still a great deal of anger that a relatively small handful of individuals within financial services managed to plunge the economy into recession, and have yet to really pay the price. Surprisingly, there have been scant calls (or political support) for windfall taxes on the mortgage brokers, investors and traders who earned large bonuses from selling and buying toxic securities in the years before 2007. In part, that may reflect the recognition that, even if we did tax the lot of them, that wouldn’t yield enough money to plug the holes in the public finances or the broader economy.
Instead, there are lots of different people who want lots of different specific things, but share an overall sense that the system ‘is broken’. Protesters have repeatedly stated that capitalism and the market economy is ‘broken’ because it does not reflect the wishes of ordinary people. Capitalism, some say, is immoral.
As an economist, I take a slightly different view. Capitalism is not really immoral – it is not of its nature evil, impure or unprincipled. But it is amoral – it is removed from the normal sphere of moral sense.
What do I mean by this? Fundamentally, the market economy is just a mechanism for responding to and aggregating individuals’ needs and preferences. It has no morals or preferences – but it reflects ours back at us. Starbucks only exists because people like drinking the coffee that it sells (at the prices it sells it at). If we all decided tomorrow that we should boycott Starbucks because we didn’t think their colour was a true representation of green, revenues would collapse and Starbucks would react pretty darn quick. In that sense, the market economy is one of the most powerful tools the protestors have – because by garnering support from others, and acting en masse, they really can change the way companies behave almost overnight. Not happy with how much Boots’ Executive Chairman is paid? Stop shopping there, seize your shares back from your pension fund, and start an online campaign and boycott. If enough people agree with you, things will change swiftly – it would cost Boots too much money otherwise. By the same approach, you could even boost wages on the shop floor (hitting profits and investment returns, but ensuring a steady supply of willing job applicants).
This suggests that the real point, then, is that the protesters are unable to convince enough people that they are right. If we all really agreed with them – and, in particular, agreed enough to change our habits and spending – then change would already be happening. Companies are not completely daft, and have learnt a lot from the growing importance of the environment, social and governance (ESG) agenda over the past thirty years. In particular, they have learnt that they really do need to care about what their customers care about. On the same basis, if we all wrote to our MPs and told them they would lose our votes unless we had a financial transactions tax (and meant it), such a tax would arrive eventually (albeit perhaps once we’d voted the current bunch of MPs out). Unfortunately, however, there just isn’t such a clear degree of consensus within society as a whole. Large numbers of us are relatively unwilling to change our spending or investment choices, because we like things pretty much as they are, thank you very much. Ultimately, most of us worry first and foremost about ourselves.
To be fair, things are a little bit more complicated than this. One issue is the oft-touted ‘principal-agent problem’, where someone assigned to work on other people’s behalf (such as a pension fund investment manager) may not always act in the best interests of those people (the ones in the pension fund). But even here the market could provide a solution. In fact, if anyone out there is interested, I will happily set up a new pension scheme – YourPension.com – where my proposed investments will only happen if a simple majority of investors agree, via a quick online poll. In these days of social media and networking, it would be pretty easy to set up. My fees would be pretty low too, as although I would be identifying potential investments (and divestments!), my investors would have to approve any move. But despite giving power back to the investors, I suspect few of us would engage with such a scheme. We often like having other people to do things for us, partly because we can then blame them if things go wrong. But the flipside is actually that we are absolutely complicit in their decisions on our behalf – we give them the remit to put our money where their mouth is. If we don’t like their decisions, then we are the ones who should be doing something different. And the market would respond.