First published in the Financial Times on 9th April 2013.
Articulate and credible defenders of the profit motive are hard to find these days
I love movies, television and novels, but I become depressed at the persistently negative image of business portrayed in so much fictional drama. Writers and film makers, in works ranging from Hard Times to Avatar, always seem to make corporations and their bosses the bad guys. And in the past six years a whole academic genre has sprouted up, churning out books claiming that the current capitalist system is broken – recent British additions being Geoff Mulgan’s The Locust and the Bee and father-and-son team Robert and Edward Skidelsky’s How Much Is Enough?
These narratives reflect the poor job that capitalists do in selling the benefits of the free-market system. From university economics courses to media coverage of the financial crisis, articulate and credible defenders of the profit motive are hard to find – especially in Europe. Yet the relentless rise in living standards since the industrial revolution, and almost all the technology, comforts and advantages of modern life are thanks to laisser faire economic principles.
Opponents of free enterprise offer an incoherent and impractical vision of the possible alternatives. Generally, it involves more state spending, more regulation, higher taxes and greater protections for the public sector. At heart these ideas are reactionary: the left longs to renationalise and revive unions and ignores the emergence of highly competitive Asian countries and the catastrophe of dependency cultures.
Usually, anti-business beliefs are based on the illiterate concept that capitalism functions as a zero-sum activity. All their intervention will not produce the innovations and improvements that bring growth in jobs and higher living standards. Those require more individual entrepreneurs taking financial risks and building new industries, their abilities unleashed thanks to the right incentives – such as smaller government and reward for effort.
One might say the poor coverage that business receives from the entertainment and media worlds does not matter. But sentiment and mood count. Commercial undertakings are at the core of our way of life – undermine them and we will all be losers. If the hearts and minds of the public are against business, they are likely to vote for policies that will inhibit investment, and talent will migrate away from start-ups and business.
Many in the arts, unions, media and higher education have a vested interest in expanding the state. Phrases such as “austerity” and “cuts” are promoted, when “restoring value for taxpayers” and “preventing waste” would be more honest. Anti-capitalists are clever at crafting a narrative that suggests business is about greed and selfishness, while by contrast claiming the public sector is a “higher calling”, to use US President Barack Obama’s phrase – somehow a more moral career.
Meanwhile, a number of celebrities in Hollywood and elsewhere attack business in a politically correct way, while enjoying all the fruits of a capitalist economy.
The usual description of the past five years is that the private sector went wrong, and so wholesale change is needed. But perhaps cyclical downturns are inevitable and healthy, because resources are reallocated into more productive hands. The process is painful, but maybe that is the only way progress can be achieved. The past few years show how much we miss free enterprise when it isn’t functioning perfectly. We should embrace it rather than demonise it. Moreover, errors and mismanagement in the financial sector have been used to blacken all free-market activities. Business is not flawless, but it is the most productive and well-run part of every nation in the west.
Banking and property crashes may have triggered this slump, but I suspect there has been no real recovery in Europe for other reasons. Demographics, unreformed welfare spending, the internet and globalisation are the underlying factors that have affected relative performance in the EU.
We need to communicate the message that free enterprise is not in crisis. The case must be made repeatedly to cheer entrepreneurship and free markets, and stop the state crowding out initiative – otherwise growth will not resume.