Up with Capitalism! Up with Regulation of Capitalism!

By Michael Carberry

What you get with unregulated Capitalism

Photo by Antoine Giret on Unsplash

Stoker’s spirited and typically provocative defence of Capitalism in the previous issue of Only Connect -Down with Capitalism! Really? (only-connect.co.uk) - makes colourful reading. But unfortunately, his desire to provoke leads him to some absurd conclusions and outrageous assertions which largely vitiate the force of his arguments.

Firstly, the premise that lots of people believe that “capitalism has failed” must be questioned. Of course, there are people in bars who say such things. But then people in bars - especially after a few drinks - say lots of things which rarely reflect their own true feelings, let alone public opinion generally. And to say that “the government must do something” does not necessarily signify antipathy to capitalism per se. Most Europeans have seen or know enough of the state-controlled economies of the former Soviet Bloc countries to know that the liberal capitalist economies of the West have delivered much better standards of living for their citizens. Moreover, even those nominally communist countries like China and Vietnam, which have abandoned Marxist orthodoxy and embraced state-sponsored capitalism, have achieved exceptionally high rates of growth. There are few countries in Western Europe where a thoroughly statist agenda would attract much support at the polls. One has only to look at the result of the last UK Parliamentary elections where the Corbyn-led Labour Party, with its programme of extending state ownership, went down to a historic defeat.

Clearly, private enterprise, entrepreneurship, and risk-taking have often been at the forefront of innovation and increasing efficiency. These have delivered a vast range of goods and services at affordable prices which have done much to improve the lives of millions of people. But it is a far cry from there to what Stoker is suggesting i.e., that governments should interfere as little as possible and leave things to the private sector which can do things much better. It takes only a little reflection to see how wrong that is. Certainly, the profit motive is a powerful engine for innovation and wealth creation but it can be an equally powerful engine for exploitation of both human and material resources and the destruction of the environment. It goes without saying that lucrative entrepreneurial activities such as drug trafficking, people trafficking or modern-day slavery, however successful the business model, are grossly exploitative, and are rightly criminalised. But many perfectly legal (i.e., not specifically illegal) commercial activities can also have a negative impact on employees, consumers, or the wider society.

What Stoker conveniently forgets is that government intervention is rarely undertaken for doctrinaire reasons but rather is motivated by a wish to deal with specific problems. And that from the beginnings of the industrial revolution these problems have very often been the consequence of unregulated capitalism. From the 19th century UK Factory Acts and the prohibition on women and children working down mines to modern health and safety legislation, governments have repeatedly intervened to regulate the excesses of capitalism in the interests of employees and the public at large. This has often been driven by campaigning social reformers, journalists, and authors such Charles Dickens in Victorian Britain or Upton Sinclair in the United States, whose book “The Jungle” exposed the exploitation of immigrants by the Chicago meat-packing industry in the early 20th Century. What made Sinclair’s book so shocking for many of his comfortable middle-class readers was not so much the exploitation of immigrants but the dangers to public health from the insanitary practices of the Chicago slaughterhouses! Throughout the 20th century we have seen many incidences of tragic accidents, explosions, mass poisonings or large-scale pollution resulting from private companies cutting corners to save costs or failing in their duty of care to their employees.

And it still goes on. In the UK, the Grenfell Tower disaster, where companies knowingly installed highly inflammable cladding on tower blocks resulting in the deaths of 72 people while local regulatory bodies turned a blind eye or simply failed to do their job, is currently the subject of a Commission of Enquiry and a criminal investigation. Even more recently, UK water companies have been found to be pumping vast quantities of untreated sewage into rivers with obvious dangers for public health and the environment. But at least in the UK and other western European countries there are regulations intended to prevent such abuses. In many developing countries such as Bolsonaro’s Brazil or re-emerging capitalist countries such as Putin’s Russia, where there is no long experience of private sector regulation, what we see is the rapid development of crony capitalism of the most exploitative kind where natural resources and public assets have been ripped off by a small elite for their own benefit. The Russian oligarchs of today are not so different from the eighteenth-century English ‘nabobs’, who made vast fortunes by pillaging India, or the US ‘robber barons’ of the early twentieth century.

Capitalism has been around since the days of the ancient Babylonians and, as we have seen, where attempts have been made to abolish it, it has come back with a vengeance. So, Stoker can rest easy. Capitalism is not in danger nor does it need to be defended. But it does need to be closely regulated to encourage its positive aspects, like innovation and competition, and control its excesses. Indeed, I would suggest that sensible government regulation of the private sector is the very hall-mark of a civilized society.

But I would go further. Sometimes the private sector is simply not the right vehicle for delivering what the public needs. Infrastructure is a case in point. In nineteenth century Britain the railway network was developed by private companies. The result was a mess with competing lines between the same two cities so that many British provincial towns still have two or more main stations. Companies even had different gauges and while the great engineer Isambard Kingdom Brunel tried to impose the wide-gauge he had adopted for his Great Western line which would be more stable and permit larger and faster trains, other operators driven by cost and short-term profits opted for a narrower gauge which then became standard and from which British rail travellers have suffered ever since. By contrast European networks, like that in Germany, which developed later and learned from the British mistakes, were from the start planned and developed under central government control. As any economist would confirm, projects such as roads, bridges, railways, mass transit systems or telecommunications networks tend to have much greater economic benefits than the revenues they might or might not generate. Left to the private sector many desirable infrastructure projects would simply never be developed. A Californian friend who enjoys travelling around Europe by high-speed train laments that while the roads of his home state are choked with gas-guzzling, pollution-emitting cars there is not even a high-speed rail link between San Francisco and Los Angeles.

The fact is that there are many public goods such as infrastructure, or public services, (electricity, water, fixed line telephony, transport, health-care, education, defence), which are essential to the whole community and are best organised on a collective basis. This does not mean they need be run by central or local government, but they should be subject to close public scrutiny and oversight. They can, for example, be run by not-for-profit companies subject to clear guidelines regarding service levels and costs, and using the profits which would otherwise go to shareholders to re-invest in the business or cross-subsidize the provision of services in less financially viable sectors. Nor does this mean the total exclusion of the private sector. Infrastructure projects for example are, and should normally be, contracted out to the private sector, taking advantage of competitive tendering. But they must always be subject to strict and transparent public control to avoid the kind of scandals which we saw in the UK with the Grenfell tragedy or the botched procurement of Personal Protective Equipment during the Covid-19 pandemic.

While services too can be franchised to private companies, there is always going to be a conflict between maximising profit and delivering the quality of service required. When I lived in a South-east Asian city where bus services were franchised to private operators, it was commonplace for drivers to divert from their official route to pick up passengers on a competing but more frequented route. They were filling their bus and maximising their profit but providing an erratic and unreliable service to the public with a negative impact on the local economy. And the recent experience of franchised services in transport and utilities in the UK has shown that private companies, whose first responsibility is to their shareholders, are rarely the best vehicles for providing public services.

Stoker’s claims that current high energy prices – a global phenomenon with multiple causes and affecting almost every country in the world - are somehow the result of government intervention in the free market is arrant nonsense. OPEC aside, most of the world’s oil and gas and, increasingly, electrical supply has been in the hands of the private sector. As for coal in the UK, it was the Thatcher government’s decision to put the coal industry back in the private sector, and thus make it compete with cheaper imported coal, which resulted in the closure of every deep-coal mine in the country (there had once been over 1,300). Certainly, in the current international climate, Britain should take measures to free itself in the short term from its very limited dependence on Russian coal. But the idea that investing vast monies in new coal mines or oil exploration, or fracking, none of which would come on stream for many years, at a time when the world is moving away from fossil fuels, is in any way going to help with the current energy crisis is clearly absurd.

Contrary to what Stoker claims, governments in developed countries intervene heavily and continually in the retail sector: preventing fraud by controlling weights, measures and labelling; maintaining food standards by preventing adulteration or harmful additives; requiring proper hygiene in the handling of fresh food; ensuring the fire-safety of electrical products, home furnishings and domestic appliances or the non-toxicity of children’s toys etc. All of which we rightly expect governments to do.

To sum up there is very little in Stoker’s article which merits serious consideration. But, for me, what totally discredits his analysis and blows his argument clean out of the water is his completely unsubstantiated assertions about health care in the UK; specifically, his preposterous claim that private enterprise does the job of provision much better in the USA and in Germany. That is such an outrageous canard that it needs to be debunked in detail, which I look forward to doing in the next issue of Only Connect.