If ever an illustration of la différence between Britain and France were needed, tomorrow will provide one. In the Budget, the UK Chancellor, George Osborne, will almost certainly reduce taxation on income above £150,000 from 50 to 45 per cent. In France, by contrast, the leading candidate in the Presidential election, the Socialist Party’s Francois Hollande, will sit quite comfortably with a stated pledge to raise taxation on income above €1 million (£833,000), to 75 per cent. He apparently toyed with raising the rate to 100 per cent – ie creating a maximum income.
Ignore for one moment the spectacle of Osborne’s logic nobly holding firm against actual experience. (We’ve already had a supply-side revolution in the ‘80s and ‘90s, which cut taxes on the rich and corporations, and didn’t succeed in raising economic growth from the rates achieved when taxes were higher. Now that economic growth has vanished, we apparently need another supply-side, trickle down revolution to give money to the “growth-generating rich”. I’m absolutely convinced it will work).
Contrast this to France, where the silence of the masses has not been attained. Hollande’s 75 per cent tax plan is supported by, according to polls, 61 per cent of the electorate. He himself has poll ratings in the mid to high ‘50s. But his tax plan is also backed by the Left Front candidate, Jean-Luc Mélenchon, who has achieved poll ratings as high as 11 per cent.
So in France, there is actually more support for higher taxes on millionaires among political parties than among the population. In Britain, the reverse is true. That is an essential difference.
But I think, at root, the Left in France has a courage and self-belief that attracts people, whereas the Left in Britain is timid and anaemic. Left Front candidate Mélenchon has called for a “civil insurrection” across Europe that would proclaim solidarity with the people of Greece and other victims of austerity. He has dragged Hollande, considered a centrist technocrat, leftwards. “He’s not afraid to say what he thinks and he’s full of energy,” says one (wavering) supporter of Mélenchon quoted in the Financial Times.
No-one is ever going to say that about Ed Miliband.
Two days before he committed suicide at Cannes in 1905 the Russian millionaire industrialist Sawa Morozov gave a large wad of cash to the Russian Social Democratic Party, the party of Vladimir Ilyich Lenin, which was later to morph into the Russian Communist Party. Morozov had been bankrolling the party to the tune of two thousand roubles a month since early in the previous year.
I tell this tale not only because it is a good story but because it illustrates that class treachery, or even a death wish at the summit of society, is not unheard of.
Now, we are witnessing a spate of, if not exactly class treachery as Morozov practiced it, then class misgivings among the people who have orchestrated the financial bacchanalia of the last 20 years.
In August last year the world’s most famous investor, Warren Buffet, said he had been coddled long enough by a billionaire-friendly Congress and called for higher taxes on the rich (or at least higher than for people who were much poorer than him).In January the Hungarian-born speculator George Sorospredicted blood on the streets of American cities, and the coming of an “evil” period of history. In Britain, rather less dramatically, the former chief executive of Greggs the Bakers, excoriated corporate greed and said that if executive pay were halved, senior executives and bankers would still be paid too much.
The latest apostate is fund manager Jeremy Grantham. In a letter to investors, the British-born Grantham, who works in the US for one of the largest investment firms in the world, said that capitalism’s failings may bring it down “and us with it".
Capitalism, he told his readers, “has no sense of ethics or conscience”. Corporations are only interested in the immediate gratification of profit and lack long-term horizons. They cannot account for, let alone deal with, future disasters like climate change or the gradual exhaustion of natural resources. “To leave it to capitalism to get us out of this fix by maximizing short-terms profits is dangerously naïve and misses the point,” he writes “… our grandchildren really do have no value.”
This is Grantham speaking. There is no such thing, he says, as “sustainable growth”. You can either have sustainability or growth. Not both.
In his letter, Grantham gives short shrift to the narcotic of corporate “social responsibility”. “Why would a company give up a penny for the common good,” he asks, “if it is not required to by enforced regulation or unless it looked like that penny might be returned with profit in the future because having a good image might be good for business?”
Grantham says the only hope is a mixture of enlightened regulation and capitalism. “With the stakes so high we have little alternative but to change our ways.”
But, in truth, Grantham is as “dangerously naïve” as the people who believe his grandchildren have nothing to worry about.
He makes four points:
1 Corporations and senior executives have grabbed all the productivity gains of recent years. In the US, he says, the pay of senior corporate executives has risen from 40 times that of the average worker’s in the 1950s, to more than 600 times today. Average pay has stayed “unprecedentedly unchanged” for 40 years.
2 Corporations are only interested in high financial returns in the here and now. Future harm to society or to the natural world is literally not their problem. “The reader can easily see,” he writes, “how a corporation’s outlook on potential future damage might be a painful mismatch with that of ordinary individuals and society at large”.
3 Logically following their own interests, these companies use the resources they have accrued to lobby and advertise in order to prevent government from taking action. They also use this money to sedate public opinion so that there is no demand for radical change on issues, such as global warming, which threaten society’s future existence.
4 In order to “save our bacon” we need a mix of enlightened regulations and capitalism. We need to become more like “a handful of democratic countries in northern Europe” (like Norway and Germany presumably).
But you only have to put 1, 2 and 3 together to see that 4 won’t happen. Government, even in a notional democracy, is not a wise, beneficent being above the turmoil going on beneath. What it does is the product of the interests that impinge on it and those interests are, in terms of scope and wealth, almost universally corporate. Grantham, because he is intelligent and sane, believes that sanity will prevail. But why should it?
The writer Mark Fisher talks about “a refusal to accept the consequences of the sidelining of government in global capitalism – a sign, perhaps, that, at the level of the political unconscious, it is impossible to accept that there are no overall controllers, that the closest thing we have to ruling powers now are nebulous, unaccountable interests exercising corporate irresponsibility”.
The assault on “big money” that Grantham thinks essential just won’t happen from within the existing political system. In the US, both Democrats and Republicans are in hock to Wall Street, and whoever wins elections, the personnel of American administrations are ex-corporate CEOs or former investment bankers. In Britain, the Conservative party literally exists to further corporate interests. The Labour party, which has inched leftwards under Ed Miliband, is now engaged in a “big love bombing of business” (it must be awful to feel unloved) according to one senior party figure quoted in the Financial Times.
Corporations, the selfish institutions which Grantham says are so fixated on short-term profits that they can’t conceive of long-term horizons, have captured the political system.
The wise regulation that Grantham covets can only come about because of political and economic struggle. And organised labour which once waged such a struggle has been forcibly removed from the scene.
But, even if it were possible to attain, why should regulation nullify capitalism’s unconcern with the longer-term horizon? If Goldman Sachs and BP are setting the world on fire, why should regulation douse the flames?
If the basic organ of capitalism – the corporation – is so anti-social and unable to conceive of the future interests of society, then shouldn’t a sane political strategy concentrate on changing the nature of the corporation and economic environment that surrounds it (capitalism)? Rather than expecting government to act as a perpetual and, ultimately ineffectual, fireman.
But a capitalism transformed by such a sane political strategy, wouldn’t be capitalism anymore.
“Capitalism,” says Grantham, “by ignoring the finite nature of resources and by neglecting the long-term well-being of the planet and its potentially crucial biodiversity, threatens our existence.” He is sane enough to clearly see the problem but cannot face the solution.
Ayn Rand’s appeal (see part one) is not merely that she supplies a patina of ideological justification for exploitation (also known as bullshit). That’s not the reason for her mysterious endurance. It is because she satisfies a deep psychological need of successful people who want to think of themselves as misunderstood outsiders. Her great conceit is to link the stubborn individualist nobly struggling against mass timidity and ignorance, with capitalism. But as Marx saw, and is becoming more and more apparent, there is no link. Capitalism is not about individualism. It’s about conformity.
In Capitalism: the Unknown Ideal, Rand writes of “the exceptional men, the innovators, the intellectual giants” “It is members of this exceptional minority,” she claims, “who lift the whole of a free society to the level of their own achievements, while rising further and ever further.”
Randian heroes are geniuses whose creations are at first not understood by the ignorant masses, and who suffer hardship but ultimately emerge victorious and vindicated.
Howard Roark, the architect hero of the novel The Fountainhead, declares: “The great creators – the thinkers, the artists, the scientists, the inventors – stood alone against the men of their time. Every great new thought was opposed. Every great new invention was denounced.”
Roark, thought to be based on the maverick architect Frank Lloyd Wright, believes in pure art and despises convention. He refuses to water down his creative impulses to satisfy approving committees and eventually blows up a building he designed, but that was compromised in its construction by other architects.
This is Gary Cooper as Howard Roark in the 1949 film of The Fountainhead:
At the same time, Rand felt she had discovered a “logical foundation” for capitalism. This foundation was all about individualism and the struggle against what she decried as “the herd instinct”. She penned a Manifesto of Individualism as a refutation of Marxism.
But the “logical foundation” was profoundly illogical and built on fantasy. Great creators ahead of their time will be shunned not only by the general public, but by business as well. Especially by business. Because their denounced inventions cannot be sold. Ayn Rand’s “innovators” make terrible capitalists.
Ugliness
A cursory look round the built environment in modern capitalist countries demonstrates that individual creative visions have not won out. Buildings are ugly and crassly utilitarian, frequently designed by computer. Rand’s Howard Roark would not prosper today, yet capitalism has undeniably triumphed over “collectivism”.
Capitalism, the accumulation of profit, is nothing to do with individualism, and not giving a fig what anyone else thinks does not make you a capitalist. As Marx said in The Communist Manifesto: “In bourgeois society, capital is independent and has individuality, while the living person is dependent and has no individuality.”
Capitalism, as Marx understood, is about perceiving and manipulating the needs and desires of consumers in order to get an immediate financial return, not nobly standing alone against the caprices of public opinion. “The entrepreneur,” says Marx, “accedes to the most depraved fancies of his neighbour, plays the role of pander between him and his needs, awakens unhealthy appetites in him and watches for every weakness in order, later, to claim the remuneration for this labour of love.”
The key word here is “pander”. The herd instinct is alive and well and living in advertising agencies the world over. The contemporary Marxist thinker Mark Fisher says the most powerful desires are precisely cravings for the strange and the unexpected. But these are needs that, whatever Rand’s belief in the lonely outsider, cannot be satisfied by a market economy. “These can only be supplied by artists and media professionals who are prepared give people something different from that which already satisfies them;” says Fisher, “by those, that is to say, prepared to take a certain kind of risk.”
Stagnation
And risk is something that, despite the propaganda, capitalism does not nurture. What Fisher has noticed is that letting capitalism rip, Ayn Rand’s deepest desire, does not lead to innovation, but conservatism and stagnation. We live in a society dominated by fear and cynicism, he argues. “The emotions do not inspire bold thinking or entrepreneurial leaps, they breed conformity and the cult of the minimal variation, the turning out of products which very closely resemble those that are already successful.”
Of course it is not clear exactly what kind of society does enable innovation to happen, to encourage a genuine creativity which may at first baffle or outrage. But it is obvious that capitalism does not do this. “Since it is now clear that a certain amount of stability is necessary for cultural vibrancy,” writes Fisher, “the question to be asked is: how can this stability be provided, and by what agencies?”
In a sense, the Randian titans at the crest of the economy are creative. “Asset-backed” securities that sell shares, not of parts of flesh and blood companies, but of the interest payments people make on debt, are creative. Credit default swaps, traded promises to pay losses in the event of loan defaults that people know now cannot be met, are creative. Private equity “leveraged” buy-outs of companies that load firms with debt and force mass redundancies, are creative. But they are also immensely destructive. Innovations like Alan Turing’s work to create the first computer(done in the public sector, it should be said) have proved useful to billions of people. Financial innovations, the dominant innovations of the last thirty years, have benefited their architects and harvested nightmares for everyone else.
The irony of the renewed popularity of Rand’s magnum opus, Atlas Shrugged, is that what has transpired in the last five years, is the exact opposite of the scenario it sketches.
“The absurdity of this reaction lies in the fact that it totally misreads the situation:” writes the Slovenian Marxist philosopher Slavoj Žižek. “most of the bail-out money to is going to precisely those Randian deregulated ‘titans’ who failed in their ‘creative’ schemes and thereby brought about the downward spiral. It is not the great creative geniuses who are now helping out lazy ordinary people, it is rather the ordinary taxpayers who are helping out the failed ‘creative geniuses.’”
Why?
But what accounts for the absurdity, for Ayn Rand’s baffling appeal in spite of the fact that history has proved her spectacularly wrong about everything? It is, I submit, that the alternative is too painful to face. That if you don’t believe in Ayn Rand’s reassuring illusions, you will have to accept the reality of the world as it is. That you aren’t a genius and you are being continually exploited. And Karl Marx was, for want of a better word, right.
The sane response to the threat of Atlas shrugging, which is presented regularly as corporations or hedge funds threaten to relocate if they are taxed properly, is: “Shrug away, preferably on another planet because this one has had enough of you”.
According to a 1991 Library of Congress survey no book, aside from the Bible, has influenced more American readers than the Ayn Rand novel, Atlas Shrugged.
Atlas Shrugged is a dystopian fantasy, published in 1957, about how businessmen, tired of incessant government meddling and blame for exploitation, resolve to show the world how it would fall apart without them. They go on strike. Under the leadership of a genius inventor, John Galt, they disappear into a mountain hideaway, while outside civilisation disintegrates. Then they issue demands. “If you ever again wish to live in industrial society, it will be on our moral terms.”
Atlas shrugs and millions of “subhuman creatures” realise their hopeless ineptitude.
Needless to say Ayn Rand was a believer in capitalism. She believed in it so much she wrote a book called The Virtue of Selfishness, wore a gold lapel pin in the shape of a dollar signand claimed that “if civilisation is to survive, it is the altruist morality that men have to reject.”
Rand had acolytes, including most notably Alan Greenspan who found in Rand’s objectivist philosophy “a sense that markets are an expression of the deepest truths about human nature”.
Weirdly, although perhaps weird is the new normal, economic collapse has not dented Rand’s popularity. Indeed, according to her biographer, she is a more active presence in American culture than she was during her lifetime. More than 800,000 copies of Rand novels were sold in 2008 alone and sales of Atlas Shrugged spiked after Obama became US President.
But the fans aren’t just conservatives. Rand also has a following among Hollywood humanitarians. According to UN refugee ambassador, Angelina Jolie, Rand “has a very interesting philosophy”. The actress Eva Mendes says that any boyfriend of hers “has to be an Ayn Rand fan”. And Michael Caine is an Ayn Rand fan, though he isn’t, as far as is known, Eva Mendes’ boyfriend.
Rand’s “very interesting philosophy” has been described as “Marxism of the master class” and she quite consciously tried to be a capitalist Karl Marx. She penned a Manifesto of Individualism as an answer to The Communist Manifesto.
So it’s only fair, in this time of economic flux, to do a brief comparison of the philosophies of Rand and Marx. It couldn’t be, could it, that the reason why so many people believe in Rand’s view of the world, is that it blots out the disquieting thought that the alternative, Marxist view of reality, is basically correct? That the bearded one was right all along.
Let’s compare.
Who exploits who?
“We’ve heard it shouted that the industrialist is a parasite,” says John Galt in Atlas Shrugged, “that his workers support him, create his wealth, make his luxury possible – and what would happen if they walked out? Very well, I propose to show to the world who depends on whom, who support whom, who is the source of wealth, who makes whose livelihood possible and what happens to whom when who walks out?”
In Rand’s philosophy, the industrialists, the billionaires are exploited by everyone else. And oppressed by government.
“You have the courage to tell the masses what no politician told them,” said the free market economist Ludwig Von Mises (a contemporary of Karl Polanyi) in a letter to Rand. “You are inferior and all the improvements in your conditions which you simply take for granted you owe to the efforts of men who are better than you.”
But who really does what to who? In Marx’s conception of reality, exploitation occurs when people, seeking the wherewithal to survive, are employed by private sector firms (capitalists in other words). They work and produce more than they are paid. This extra is the surplus which goes straight into the hands of the capitalist.
Exploitation, in this Marxian sense, is not limited to labouring 12 hours a day in a sweatshop. Everyone who is employed is exploited. They have to be, otherwise they wouldn’t be employed. No employer ever “gave” anyone a job. The employee gives the employer something. If that can’t happen, neither will “job creation”.
The employer attitude is expressed by Marxist economist Richard Wolff: “You’ve got to produce more for me than I pay you for coming here to do it – and that difference is the surplus, that all capitalist employees are required to produce. If you don’t produce surplus, you don’t work and if that results in your death, ‘have a nice day’”
Here is a very clear explanation of exploitation from Wolff (from 7.17)
But in Ayn Rand’s view, there is no such thing as the surplus, and exploitation is the other way round. This leads to a feeling of victimhood on the part of “producers” but also a sense of their unappreciated power, that only they have the ability to create wealth and that scarce and much-desired resource, jobs.
Here is the Randian philosophy expressed in all its glory by a Silicon Valley executive (Silicon Valley is honeycombed with Ayn Rand fans): “Money is extracted by Silicon Valley and then wasted by Washington. I want to talk about people who create wealth and jobs. I don’t want to talk about unhealthy and unproductive people.”
In a sense, “we are all Randians now” - at least governments in Britain and the US are. The producer class (employers) have to be coaxed and pandered to. Government and in Rand’s words “the sub-humans” (employees) can only obstruct this magical wealth and job creating alchemy from occurring. So we must de-regulate and cut taxes further even though that formula led to economic collapse just four years ago. If jobs do not appear, we must have offended the demigods in some way with too much red tape. And so onward to hell.
Blame yourself
This philosophy leads inexorably to self-blame. If you can’t blame the economic system for failing to produce the goods, the only place left to look is inwards. Here is someone from North-West England, who has just got a job after nine months on the dole, asked by a Guardian journalist if he thinks being unemployed was his fault : “Yeah,” he says. “I do. I think I should have applied for more [he applied for 25-30 jobs a week]. I should have picked myself up in the morning, got out, come to a place like this – tried more. When you're feeling down you start blaming the world for your mistakes … You feel the world owes you. And it doesn't. You owe the world.”
Who exploits who is rather an important question to answer. And a lot depends on which side you come down on.
One more thing before we leave exploitation. Marx did not just explain how exploitation produces surplus, he went on to say how the surplus is used by employers, how it creates what he called the “superstructure” of culture and controls the world of ideas. In January this year, researchers in US found that political donations from the finance sector have increased by more than 700 per cent in 20 years. The richest of the rich, one per cent of the one per cent, they conclude, act as ideological gatekeepers on the political process. In Britain,over half of Conservative party funding comes from financiers in the City of London.
They certainly know how to use it.
In part two we will examine the myth of the Ayn Rand hero. How the misunderstood creative individualist, makes a terrible capitalist.
As Marx once said: “In bourgeois society, capital is independent and has individuality, while the living person is dependent and has no individuality.”
There are many kinds of capitalism. Free market capitalism, which easily morphs into the dominance of corporations. Or social market capitalism, in which there is a larger role for the state and workers are represented on company boards. There is even state capitalism, in which everybody works for state enterprises, which pass themselves off as socialist, but exploit people just the same.
But now perhaps there are only two kinds of capitalism which count. Successful capitalism and capitalism which is too successful for its own good. The consequences of each are different but equally horrible in their own way.
Back in the roaring nineties successful capitalism was thought to be the only game in town. In Britain, Tony Blair’s New Labour exemplified the social democratic acceptance of capitalism. The “market” would hum along unmolested in the background and the government would skim off the tax revenue. Labour spokespeople waxed lyrical about the wealth-creating genius of the private sector and spent the proceeds on tax credits for the working poor, the National Health Service – health spending went up by 30 per cent – and relieving child poverty. It was, in essence, a deal.
But, said Left and green critics of capitalism, this was a myopic accommodation, trading short-term advantages for long-term disaster. Growth – the social ecologist Murray Bookchin said expecting capitalism not to grow was like expecting a lion to become vegetarian – might support enlarged public spending but would eventually make the planet unliveable.
As the writer Mark Fisher has said, successful capitalism was based on a fantasy: “A presupposition that resources are infinite, that the earth itself is merely a husk which capital can at a certain point slough off like a used skin, and that any problem can be solved by the market”.
To believe in successful capitalism you had to stick your index fingers in your ears and sing “la, la, la” very loudly. But both celebrators and critics agreed that capitalism worked.
Oh shit
But just as capitalism was swaggering around the globe, assured in its invincibility, disaster struck.
The global economic meltdown happened, the worst economic contraction since the Great Depression. $14.5 trillion of value was wiped from global companies.
The former masters of the universe, who meet at Davos, now speak of a “dystopian future”destroying the gains of globalization.“For the first time in generations, many people no longer believe that their children will grow up to enjoy a higher standard of living than theirs,” they warn.
Something had gone badly wrong.
The conventional explanation was that investment banks were too reckless, financial speculation overreached itself and the economy became dangerously skewed. But, in truth, capitalism had become too successful for its own good.
In the US, where the crisis was hatched, wages had stagnated since the mid-70s, while productivity – worker ouput that the employer benefits from – raced ahead. The result was not only spiralling inequality (the US was actually more equal than many western European countries in early ‘70s) and burgeoning corporate profits, but an orgy of personal borrowing so that consumption could be maintained despite the fact that earnings weren’t going up.
A cursory look at recent US economic history shows a series of bubbles. A massive stock market crash struck in 2000. The price of shares is dependent on the expectation of future corporate profits so crashes occur when there is a realisation of total over-optimism about profits. The crash was stopped from turning into a recession by reducing interest rates to below the rate of inflation for three years. Borrowing doubled – the house price and house building bubble ensued – but when that burst so spectacularly in 2007 there were no more bubbles left. Reality – the reality of stagnating earnings – could be evaded no longer.
A dusty old critique of capitalism suddenly became remarkably persuasive. That held that capitalism was inherently self-destructive. Each employer tries to keep wages, which are just another cost, as low as possible. But if they are too successful in that endeavour, the same workers with the low wages won’t be able to play their other vital role in capitalism, that of consumers of goods. Economic health depends upon the employer impulse to keep wages down being frustrated by another countervailing power. Capitalism can be too successful for its own good.
Flatliners
Worryingly for economic health, the US capacity for stagnating earnings has proved a very effective export. In the UK, earnings grew strongly throughout the ’80s and ‘90s but have flat-lined since 2003,four years before the onset of the ‘great recession’. Worker productivity, meanwhile, has kept on steaming ahead.Post-downturn wages rises in Britain are currently half the rate of inflation. Average wages are forecast to be no higher in 2015 than they were in 2001. France and Germany have followed a similar trajectory. Researchers describe an acute “decoupling”of earnings from growth.
The UK Resolution Foundation, which has produced a series of reports on living standards, worries that a return to growth won’t necessarily mean rising wages. Stagnating earnings also ensure burgeoning inequality (yes, it can get worse).
But there is another larger, elephant in the room, problem. The US experience demonstrates that you can’t, to use the economists’ elegant term, “decouple” growth from earnings forever, without eventually destroying growth as well (in industrialised, western countries at least, the experience of developing, exporting countries like India seems to be different). Earnings are purchasing power, in economics-speak ‘demand’, and growth cannot survive indefinitely without purchasing power.
The economic vista in front of us is that of a tsunami of bank debt inexorably making its way to shore. At the same time, earnings power which could lift countries out of recession, is exhausted. The level of personal borrowing is hugeand, as we have seen, earnings stagnated or declined even before the recession.
That last factor cannot be wished away, or undone by governments even if they were inclined to. The reasons for stagnating earnings are analysed by a Resolution Foundation report. Technological change has obviated the need for low-skilled workers, firms have given precedence to share dividends over the pay of ordinary workers, outsourcing has increased, and the bargaining position of workers has been diluted. None of these factors will be reversed given current trends and the balance of power politically and economically.
The globe stops warming
It doesn’t have to be this way, you cry. And you’d be right. The Resolution Foundation report, Painful Separation, finds that in some European countries, namely Finland, Sweden and Denmark, there has been only mild divergence between economic growth and median pay. It is no accident that in Scandinavian countries, they say, “Recession? What recession?”
They haven’t killed the goose that lays the golden egg. They, if it isn’t stretching the metaphor too far, nurture their goose. They have effective countervailing powers like strong trade unions. They haven’t left successful capitalism behind. But there is a catch.
Amid all the deleterious social effects of the great recession – the homelessness, the riots, the suicides, the divorces – there was one undoubtedly progressive, though unintended, result. The sudden drop in economic activity achieved something international protocols and protesters invading airport runways had failed to. The rate of global warming was arrested. For only the fourth time in 50 years, carbon emissions fell.
It is clear that the kind of capitalism that Anglo-Saxon societies have been living through for the past 30 years is an ineffective form of capitalism. Growth rates have been unimpressive, financial crises have become more frequent and earnings have been held down. Too much power has been given to or taken by corporations and the rich. Capitalism has become too successful for its own good.
The South Korean economist,Ha-Joon Chang, in his book 23 Things They Don’t Tell You About Capitalism, argues convincingly that what we call “free market economics” has been shown to fail spectacularly. He puts the case for more assertive government control, different forms of ownership, the outlawing of financial products like derivatives, and the rebalancing of the economy away from finance and into the long-term production of manufactured goods. Capitalism can work if the harnesses are placed back on and it is guided in the public interest.
In other words, a return to successful capitalism, a capitalism that is in rude health. Chang eulogises the “miraculous” performance of South Korea in the ‘80s and ‘90s, which grew at an average of six per cent year. China today, he says, illustrates what can be done if free market prescriptions aren’t followed.
The problem isn’t the economic reasoning. The problem is that the world, ecologically, cannot cope with the replication of the Chinese or South Korean economic success stories. If earnings in the US had continued to track GDP growth, as they had done from 1945 to 1973, the average household would have earned $80,000 a year, not $50,000 as they in fact do. Even accounting for the spike in borrowing, consumption has been suppressed in US as capitalism has become too successful for its own good. It is revealing that Chang mentions the word “environment” just once in his entire book.
Chang, like John Maynard Keynes seventy years ago, wants to save capitalism from itself.
Post-capitalism
But the truth is that neither successful capitalism, nor capitalism that is too successful for its own good, presents a remotely desirable prospect.
The latter leads, in Ann Pettifor’s words, to “dramatically higher levels of unemployment, the loss of savings, home foreclosures, bankruptcies, emigration, suicides, divorce, social unrest and political upheaval – to name but a few of the consequences.” The former provides a swifter route to the dystopian future of global warming.
Awareness of the awful consequences of both alternatives leads to the realisation that the only rational option left is some form of post-capitalism. It doesn’t mean, in the caricature of one British government minister, everyone running around in Maoist boiler suits, but it does entail an end to the growth fetish and ensuring a secure standard of living for everyone. What “post-capitalism” is like in detail is what we should be concentrating on now.
“Know the power of the dark side” says Darth Vader to Luke Skywalker in The Empire Strikes Back. But we haven’t, it seems, taken Darth’s wise, if husky, counsel to heart. According to management researchers we are naively unaware of the dark’s malign and boundless influence. “Dark leadership” they claim, was the force behind the global financial crisis.
Once great companies were brought to their knees by “impostors” acting as their leaders. Dark, dysfunctional leadership has destroyed firms with historic reputations. Employees have lost their livelihoods, shareholders their investments and, perhaps most troubling of all, capitalism has lost some of its credibility.
Corporate psychopaths, says Clive Boddy, a Professor at Nottingham Trent University, are one type of dark manager. In a paper for the Journal of Business Ethics entitled “The Corporate Psychopaths Theory of the Global Financial Crisis” Boddy says corporate psychopaths “probably” or “largely” caused the global financial meltdown.
Commentators, says Boddy, no longer accept that all managers work selflessly for the benefit of the organisations that employ them. Corporate psychopaths are an example of this selfish, destructive manager.
Psychopaths are the one per cent of people who completely lack a conscience. They are charming but ruthless and entirely out for themselves. As a result, they are a menace to the companies they work for and society as a whole.
These psychopaths rose to senior positions within financial corporations where they were able to influence the moral climate of the organisations that employed them, Boddy claims. They “largely caused the crisis” because their “single-minded pursuit of their own self-enrichment and self-aggrandizement to the exclusion of all other considerations has led to an abandonment of the old-fashioned concept of noblesse oblige, equality, fairness, or of any real notion of corporate social responsibility.”
How did these monsters manage to get so powerful? Well, before the 1980s, companies were more stable and slow to change, Boddy writes. Corporate psychopaths were more noticeable as “undesirable managers” and their “selfish, egotistical personalities” didn’t get them very far. But then the corporate environment became more dynamic and chaotic and corporate psychopaths made their way to the top of organisations which they were able to destroy from within.
Bollocks
There’s one slight flaw in this theory. It’s complete bollocks. Far from these “undesirable managers” rising invisibly through the corporate hierarchy until they reached the corner offices of financial behemoths, they were eminently desirable and desired. Brian Basham, “veteran City PR man, entrepreneur and journalist”, writes approvingly of Boddy’s corporate psychopath theory for the UK Independent newspaper. But mid-way through the article Basham relates a conversation he had with a “senior UK investment banker” about the attributes of successful banksters. The senior investment banker makes a confession:
“At one major investment bank for which I worked, we used psychometric testing to recruit social psychopaths because their characteristics exactly suited them to senior corporate finance roles.”
“Here was one of the biggest investment banks in the world seeking psychopaths as recruits,” writes Basham.
This major investment bank, for some mad reason, preferred the characteristics of psychopaths to the “old fashioned concept of noblesse oblige” equality or fairness.
Never-ending growth
But when Basham tries to locate the source of the malaise he, too, drifts swiftly into fairy land. He thinks the financial sector’s search for “never-ending growth” is to blame.
I hate to the interrupt the catharsis of hating heartless bankers but the search for never-ending growth is universal in capitalist societies and not restricted to the intangible, abracadabra money-creating world of finance. Every week newspapers fret over whether economic activity in the services or manufacturing sector is above 50 per cent (that means growth hurray!) or below 50 per cent, which means contraction (we’re all doomed!). Governments manically chase the willow the wisp of growth. Without growth, in this society, we’d live in a permanently depressed economy, with the blights of high unemployment, poverty and homelessness for company. Without growth, in technical terms, you’re screwed.
Growth is, to use a word that is coming back into fashion, systemic and the financial sector, like every other sector of the economy, hasn’t stopped pursuing it, even if it has stopped achieving it.
Greggs the Bakers, to take one example, is not a bank - you can’t get much more tangible than a sausage roll - but it, too, has a never-ending search for growth and has been very successful in achieving it. It now has more high street shops in Britain than McDonalds. The way companies, including but not only banks, operate, is to secure and augment market share, destroy the competition, make as much money as they can and achieve as close to monopoly status as possible. In other words, grow.
Rip out their hearts
Basham has seen Dick Fuld, former CEO of Lehman Brothers on video, snarling that he wanted to rip out his competitors’ hearts and eat them before they died. It’s terrifying, he says. But it’s also not unique. I personally can attest to one manager in a non-financial company who wanted to render a competitor so poor they couldn’t even afford shoes. Some people do take the injunction to destroy the competition rather too literally. But they aren’t all psychopaths. They are all senior managers in capitalist firms, however.
Here is Dick Fuld in action (note the applause after he says he wants to rip his competitors’ hearts out)
Basham’s neat separation of good and bad capitalism, like Ed Miliband’s emphasis on predatory capitalism, ignores the allure of finance in the first place. It wasn’t just the likes of Lehman Brothers, Goldman Sachs and Citigroup that were, to use a technical economic term, “at it”. Manufacturing companies like Ford and General Electric diversified massively into finance for the rather prosaic reason that they could make far more money out of lending to people than through their core business of making cars, light bulbs or fridges. “Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines,”says a New York Times article.
The dominance of finance is not an aberration, but a simple recognition of where the biggest profits can be made.
Basham, in approving of the corporate psychopath theory says that, in unregulated times, the least-principled rise to the top. But how, prey, did the times get so unregulated? Through continuous and expensive lobbying by financial corporations and banks, that’s how. The US Commodity Futures Modernization Act of 2000 which legalized speculation in commodities and derivatives like credit default swaps, didn’t happen all by itself.
Can Basham name a single corporate CEO, psychopathic or non-psychopathic, who lobbies for more regulation? That might as well have been a rhetorical question.
Psychopaths didn’t lobby for financial deregulation anymore than they employed themselves in investment banks.
Functional, all too functional
Deregulation and the ensuing crisis, scandals and bankruptcies did not come about because of bad people or dysfunctional leadership. Leadership was all too functional. In the words of American economist, Richard Wolff: “Capitalism systematically organizes its key institutions of production – the corporations – in such a way that their boards of directors, in properly performing their assigned tasks, produce crises, then undermine anti-crisis reforms, and thereby reproduce those crises.”
It’s all the difference the world. To use an analogy, Manchester United is not a football club because Manchester United Plc employs people who are good at football anymore than Lehman Brothers acted psychopathically because psychopaths wheedled their way into leadership positions at the firm. Manchester United is designed and constituted to be a football club so it seeks to recruit people who can tackle, catch left-wing crosses swinging in the wind, or are lethal from 12 yards. Investment banks seek psychopaths for the same reason that Manchester United seeks young men who can score 30 goals a season.
It isn’t complicated and the fact that intelligent people can’t see it must mean there is a reason for their willful blindness. There is a taboo at work here. As Jack Nicholson once said, “The truth? You can’t handle the truth.”
I don’t want to burst Boddy’s carefully constructed career bubble (actually that’s a lie) but it is quite possible to work selflessly for the benefit of the company that employs you and for that company to behave selfishly, psychopathically even. The aforementioned General Electric has a giant tax department with the sole purpose of avoiding tax. GE actually received a tax benefit in the US of $3.2 billion in 2010. “We have a responsibility to shareholders to legally minimize our costs,”explains a GE spokeswoman (the second, unspoken part of the sentence is “everyone else can get f*****”). That’s an institutional reason for selfishness. No psychopaths needed. Fairness and noblesse oblige are also conspicuous by their absence.
But the expectation that managers should be selfless is, in any case, mystifying. “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest,” said Adam Smith. That sentence has become one of the foundations of market economics. Our own personal selfishness, in other words, leads to an overall benefit to society. Self-aggrandizement and the desire for self-enrichment are expected, desired even, in capitalism. But now, according to Boddy, those same selfish qualities have become the reason for disaster. I must have missed something.
Friedrich Hayek, the free marketeer who had such an influence on Margaret Thatcher, said society would prosper if everyone was motivated by personal gain. Now we are told by capitalist ideologues like Boddy that the problem is too much selfishness. You have to admire the flexibility.
The psychopath theory of the financial crisis needs further development and research, says Boddy. And like investment banks during the boom, there is immense potential for expansion. Why not apply the theory to 9/11 for example? The reason Al-Qaeda flew planes into the World Trade Center was because it was run by psychopaths. What we need is a new Al-Qaeda with leaders committed to fairness and equality. If that sounds ridiculous, that’s because it is.
Surely the role of psychopaths in causing the Second World War has been underplayed? The National Socialist German Workers’ Party must have been honeycombed with psychopaths. Unfortunately for the theory, Reinhard Heydrich, the man who conceived and planned the Final Solution, was partial to the very non-psychopathic activity of playing Beethoven string quartets with friends in his spare time.
The truth is far more disturbing. With all due love and respect to the Occupy Movement, it isn’t the one per cent of psychopaths that you need to worry about, but the other 99 per cent.
The 99 per cent
The Milgram Experiment, which has been examined in this blog, explains why attributing outcomes no-one likes to psychopaths is a monumental cop-out. In the experiment, first conducted 50 years ago, members of the public were instructed to give electric shocks to a “learner” if he got memory testing questions wrong. No real shocks were actually delivered, the “learner” was acting, but the participants thought they were really hurting someone. One or two per cent of people relished giving the shocks – up to 450 volts - and inflicting pain. They were real sadists, maybe psychopaths.
The vast majority – around 70 per cent of participants – didn’t like what they were doing but went on dutifully giving electric shocks on instruction, even passed the point they thought the learner might be dead. They took no pleasure in delivering the shocks - they shook, sweated, they even laughed hysterically at themselves – but they obeyed, and did it anyway.
The motives of the sadists/psychopaths and the ordinary folk were completely different. But their actions were the same.
As the creator of the experiment, Stanley Milgram, said, subjective feelings were irrelevant. When a person merges their unique personality into an organisation, they become a mere vessel, and are no longer an autonomous person. “It is the essence of obedience that the action carried out does not correspond to the motives of the actor,” he concluded, “but is initiated in the motive system of those higher up in the social hierarchy.”
In case of the investment bank that used psychometric testing to find psychopaths because they were so suited to senior finance roles, non-psychopaths would have had to mimic their behaviour or find somewhere else to work. Their own motives and personalities were irrelevant.
In the 18th century, the French philosopher Montesquieu said, “First men make institutions but afterwards institutions make men”. It is a simple piece of wisdom. If we want real change we had better change institutions because changing people is a road to nowhere.
On one point, however, Boddy is correct, if for the wrong reasons. He says that if the corporate psychopaths theory of the financial crisis is accurate, “we are now far from the end of the crisis. Indeed, it is only the end of the beginning.” The second part is true.
Here is a more rational view of the corporate psychopath (it's not about individuals)
