Is capitalism in crisis?

MT sits down with a panel of experts to discuss the return to growth. Improved training, better regulation and a return to industrial policy are some of the topics discussed.

by Elizabeth Anderson
Last Updated: 09 Oct 2013


The full panel included M&S CEO Marc Bolland, Amanda Sourry, the Chairman of Unilever UK & Ireland, Olly Benzecry, MD of Accenture UK & Ireland, the Royal Society of the Arts CEO Matthew Taylor, CBI Director-General John Cridland, Adrian Beecroft, Chairman, Dawn Capital & the founder of Apax Partners, MT Editor Matthew Gwyther and Val Gooding, Chairman, Premier Farnell. 

 

Matthew Gwyther: Many people feel the market has lost its magic. Countries are teetering, there are protests all over Europe and unemployment is rising. Income disparity has become a subject of intense debate. So are competitive markets naturally efficient? Are they rational and are they, most importantly, stable? And can we still rely on capitalism to provide the greatest level of happiness to the largest number?

Marc Bolland: Those are big questions. We should leave the economy doing its work to bring us through things. The more we start intervening, the less chance it has to work itself out. I’ve never liked the word ‘capitalism’, because it has a connotation that’s not always centred on positive ambition. In the early 1990s I lived in the East of Czechoslovakia, a country that was still half under the communist system. I’ve also travelled and worked in different cultures. We need to look at the world in a segmented way. If you’re living in Turkey, life’s never been better. If you’re living in Greece, it’s never been worse.

Matthew Gwyther: Amanda, your company has a long and noble history, being well over a century old. When you look at the events of 2007 and the crisis that we were still working through, do you feel that Unilever has been responsible for that or do you park responsibility somewhere else?

Amanda Sourry: As you say, we’ve got a long and very proud history as a business. But the old business model which we’d all been part of is broken. We have to find a new way of doing business. And that’s why we created the sustainable living plan. Unilever is now committed to increasing our social impact and decreasing our environmental impact. I think we recognise our responsibilities. And as we navigate our way through the various crises (and I do think there will be more), people will need to work together in very different ways. I can’t imagine that even 10 years ago our business would have admitted we didn’t have all the answers.

Matthew Gwyther: That’s an unusual statement for a huge corporation to make, and it was a bold move.

Amanda Sourry: I think it was particularly unusual for us, and our culture. But if businesses don’t say ‘this is the responsible thing to do’, I don’t think you’ll ever get there.  It is hugely energising. Having people of the younger generation asking us why we created these problems is one of the inspirations for us as business leaders to start making a real difference.

Olly Benzecry: As Marc said, the word capitalism is personal. But I’m a very strong believer that business and business development will get us through the current crises. But a fundamental issue is how to better align business and society. Last year Accenture helped 5,000 with skills get jobs in the UK. And I think that’s what needs to happen to start making a difference. There are a lot of enlightened businesses but we need some more. We also need some government intervention.

Matthew Taylor: The RSA’s view is that there is a growing gap between the aspirations between what people in the UK want, and the path on which we’re currently set. In the post-war era, there was a belief that markets would generate enough money and the state would look after our needs. Now we know that isn’t the case, because neither the market nor the state is going to close the gap. It’s going to require all of us to step up to the plate in a variety of ways.

John Cridland: Capitalism started going wrong at the end of the cold war. Until then, people didn’t question capitalism in the same way. We tolerated lots of things –tanks and guns, NATO, capitalism, because we were scared of something else. In 1990, I think capitalism lost its competition. Even in the 1970s capitalism was failing.  There was something rotten in the UK with our industrial relations. We’ve since solved that problem. Research suggests that our workforce colleagues are far more positive about the business they work for than they are about capitalism of business as a whole. We do seem able to help workplaces understand why wealth creation, capitalism, profit motives and competition is good for their businesses. But we haven’t succeeded in doing that in the outreach. One of the consequences of globalisation and the pace of it is that a lot of our corporate brands have lost touch with the rest of society – they’ve become very inanimate. And I think that’s a problem.

Adrian Beecroft: The two problems that we currently have are high unemployment and low growth. And the problems stem from greed: greed of bankers and greed of politicians. Spending far more money than you have is why there is a debt crisis in every country. So one step to reforming capitalism is to have more regulation: regulation of the banks and regulation of politicians. Giving independence to the Bank of England and other central banks around the world is a way of regulating politicians and stopping them from doing them what they like. Governments have also put obstacles in the way of employment and growth. The tax system ignores the fact that the world is more global. People persist in setting domestic tax policies on the basis that people won’t make international changes as a result. And I also think that employment law for 30 years was aimed at making employment more attractive to workers. But it’s overshot to the point where it’s very effective to workers but not to those employing somebody. That clock needs to be turned back and adjusted to get that balance better.

Val Gooding: The problem with generalising about capitalism, and greed and bonuses, is that it sometimes verges on dishonesty. Of course the Greeks lied about their inflation rate, their deficits, budgets, and about their public sector - that was how they got into the Euro. But not every bank and banker created the financial crisis. There were bankers who stuck to their values. It is very seldom mentioned that several of the high profile financial collapses in the UK were ex-mutuals and Building Societies – Northern Rock, Alliance and Lester, Bradford and Bingley. Why did they de-mutualise? It was because the people who had the power to stop them de-mutualising voted to get a couple of thousand pounds in their pockets. And they are as guilty as the people at the top. They thought it was a free ride. But there is a direct link between that and the collapse of those organisations. Everyone’s been greedy. People are greedy in trying to upgrade their homes, or buying a new car. And at end of day that has come home to roost.

Marc Bolland: Where we go wrong is nothing to do with greed. It is simply that the aspirations of success and consumption are fuelled by symbols that were built in our society in the 1960s. The growing Chinese middle classes have an American model of consumption in mind – they want more, better and faster. You can only change the mindset by changing the different role models. M&S’s values are created in a sustainable way. We have to find a world standard in sustainable consumption. It will be different for businesses to adapt, though. I have a big belief in entrepreneurship. And no one’s ever accused an entrepreneur of having too much money. Everybody talks about bankers and our big companies, but if an entrepreneur has a lot of money, it’s often seen as being done in a sustainable way. That is the solution - sustainable entrepreneurship. But you need the energy for it and the passion.

Matthew Taylor: It’s certainly interesting when we talk about those politicians or capitalists who are responsible because, of course, part of the problem of modern politics is that it too has fallen into the assumptions of utilitarian individualism, which is to say in politics the voter is always right. It’s a deeply damaging maxim which is inherited from capitalism and the notion that the consumer is always right. Therefore what politicians have felt they have to give to the voters who wanted it, even though when you look at voters’ opinions they are utterly incoherent. And also voter opinions change enormously if you give the some information. If you ask people questions and then you give them 5 minutes of information, they will change their minds. But yet we are beholden to opinion polls and decisions people make are often in quite a shallow way. In essence, when we talk about values what we need is we need a framework which goes beyond utilitarian individualism. That’s to say we will do this thing even if this thing is not convenient for us now and even if it doesn’t maximise people’s benefits now. And I don’t think we should underestimate how radical that is as an idea. By introducing new values, you are setting an ever higher bar by which your employees and your customers and society will judge you. And that’s why it should be seen as a long and challenging journey. Amanda, Unilever made the decision to not publish quarterly results, is that right?

Amanda Sourry: Yes. Essentially we have to find responsible business models. But business models are for the long haul and therefore we can’t be driven by the short termism of quarterly reporting. We need to identify the entrepreneurial models which will really support responsible consumption going forward.  There is a large amount of wood still being carried. What does it take to be competitive in a world where clearly economic growth is going to come from somewhere outside of this region largely?

Matthew Gwyther: Adrian, you’ve made your life’s work in private equity rather than joint stock ownership. And private equity seems to be going through a hard time at the moment. Are you still confident in the robust and effective nature of what you’ve spent your life doing?

Adrian Beecroft: There are two different issues. There is how governments tax the rewards of private equity, and there is the actual business model. I think the business model is very powerful because the remote shareholder issue is absent in the private equity model. The shareholders that sit on the board, who know far more than your average Joe shareholder about what’s going on, are motivated to take appropriate action. And that works terribly well in the venture capital world. When you get to bigger companies, the greed comes in because they make more of a return if you’re leveraging more. Buyers look for future growth and the way you get the best growth is to show that the business is going to continue growing in the future. Despite any negatives, private equity is a much better model for bringing capitalism and business together in open markets.

John Cridland: I don’t need any persuading that private equity funds are an important part of growth. But we have a real perception problem. Investors taking an interest in business growth and raising the calibre of a leadership isn’t what people focus on – they focus on the bit they perceive as greed. Marc, you set out a really telling proposition for those selling to the middle classes of emerging economies to have a different business model. If we are to rebalance our economic model, we are probably going to end up selling less to the EU and the US and more to the emerging economies. And if we are going to do that, what do those economies want? They are showing signs of loving our branded goods – such as Jaguar and Burberry.  So the future for British business is that we need to re-orientate ourselves and have a decade when we’re selling the best of British to those markets.

Adrian Beecroft: Most of consumers’ unhappiness is mainly directed at the financial services. But the financial services appear to be completely unworried about it.

Val Gooding: I think scale has something to say about that, because the CEO really should know what the products are. I’m afraid this sounds incredibly obvious but quite often they don’t, particularly in the financial services. They don’t know what products are being sold in their branches.

Marc Bolland: I completely disagree that the shareholders should sit closer round the table. If the CEO is not in touch with his consumers then they’ll replace me tomorrow. But I don’t need a shareholder to tell me what to do.

Val Gooding: They might be in touch with their consumers but not necessarily know their products.

Matthew Taylor: What I found interesting in Germany was the relationship between an aspiration to be producing the world’s best products and social solidarity within the firm. People in the firm behaved in a responsible way and that included working hard, it included apprenticeships. I had the conversation again and again with people: ‘When you train an apprentice aren’t you worried they’ll then skip off to another firm?’ They didn’t understand the question. I’ve lost count of the number of British firms who’ve said they can’t train people because the minute they do they’ll be nicked by someone else. What about skills? The skills agenda has been stop-start. People worry about skills and unemployment is high, but when the economy is booming they don’t worry about skills any more.

Olly Benzecry: We need to start with an industrial policy. The UK has relied very heavily on the financial services to create wealth. It didn’t believe in any sort of industrial policy, which meant parts of industry like manufacturing didn’t do as well as they could have done.  I never thought I would be in this place, but actually some industrial policy would be a good idea in a few chosen areas.

Marc Bolland: The difficulty is to make choices, though. The government needs to make a  clear choice. Does education need to improve in certain sectors? Sometimes certain knowledge is imported from outside the UK. Why would we do it on our own when some countries in the world are already very advanced in certain sectors? So in some ways we need to become competitive again.

Matthew Taylor: We need a commitment to a much stronger link between industry and education. In Denmark just about every undergrad is sponsored in a firm as part of their degree.

Val Gooding: I think that’s a great idea. But when I used to chair the training and education committee in the CBI, we would try to get on to the skills agenda but most businesses said they were more concerned about numeracy and literacy at the most basic levels.

Matthew Taylor: Learning works best when subjects like maths are taught in the context of a specific work-related problem. A lot of kids find Maths abstract and pointless, and I don’t blame them. But if you’re at Rolls-Royce or M&S and you understand the importance of numeracy to doing a job, it comes alive. It becomes something useful to learn.

John Cridland: For too long, education and skills policies have been in the abstract, and not focused on skills for a purpose. I see a tremendous disconnect between where public policy is heading and what the economy actually needs. I’m sure the government thought it was doing something really spot on when announcing that vocational qualifications were weighted too high in the educational system. But businesses were never consulted. Something that was probably the right announcement lacked any reference to industrial policy.


Val Gooding: In many other sophisticated economies they don’t do it the practical way and they are a lot more successful – France, for example. Even Spain is better at it than we are in this area. I was in Germany last week with Premier Farnell – the company I chair. Over there I found the workplace more socially cohesive and the work ethic much stronger. People get into the office early in the morning, and these are not high paid people.

Marc Bolland: I must defend the British. The work ethic probably one of the strongest assets of the country. We don’t make many things, true. But we have the best army in the world because we tell them where to go and they will be better than anyone else. We’ve got companies that are run with a clear goal.  If you educate them with the ways of the company, Britain has an extremely good workforce.

Adrian Beecroft: I am very nervous about industrial policy being stolen for the purposes of supporting failing industries, as often happens.

Marc Bolland: Industrial policy, yes. But we are now throwing away the biggest asset which is London’s great financial centre. No other country would be as bad with it than we are.

Matthew Taylor: Margaret Thatcher had an industrial strategy which led to a reliance on the finance sector. But the danger of industrial strategy is it’s obsessed by technology. Technology and science are really important but they may not necessarily be the areas where we are going to be leaders.

Olly Benzecry: We just have to go out and find out where our strengths are. The last thing you want to do is bet on places where you need to do remedial work. Find the strengths and get behind them. They don’t have to be science and technology – creativity is a huge strength of the UK.

Adrian Beecroft: How are you going to work out which are the right ones to back?

Olly Benzecry: We could all benefit from industries where there’s good local demand, the government buy from it, and the products export pretty well. You can come up with a rational view of where industrial policy could be applied just based on numbers.

John Cridland: I remember the chairman of a company once saying to me when we were discussing this: ‘John there’s nothing wrong with picking winners, it’s picking losers where Britain’s gone wrong.’


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