The Future of Capitalism: Facing New Anxieties

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EVENT TRANSCRIPT“The Future of Capitalism: Facing New Anxieties”

DATE: 13:00-14:00 14 January 2019

VENUE: Committee Room 14, House of Commons

SPEAKER: Prof. Sir Paul Collier

EVENT CHAIR: Jesse Norman MP

 

JESSE NORMAN MP: 

Ladies and Gentlemen, thank you much indeed and welcome to the Henry Jackson Society, of which I am not anything other than an enthusiastic admirer. My name is Jesse Norman and it’s my absolute delight to introduce our speaker for today. If members of the audience can turn off their phones, to what will undoubtedly be the sanest and the most interesting event in the House of Commons this week, if possibly this year as has been pointed out by Alan Mendoza, head “guru” at the Henry Jackson Society and I’m sure familiar to any of you on my right.

As Henry Kissinger said, “It’s true that I need no introduction, but no one enjoys an introduction more than me.” So I’m going to indulge the ‘Kissinger-ian’ impulse by giving Paul a bit of a ramp before he says a few words for twenty-five or thirty minutes. Then around half-time we’ll stop and open it up to questions from you. Paul has to go under threat of a seventeen-line whip on the dot at two o’clock, for reasons I will not disclose. But, that is the reason why he will not be dallying at the end. Apologies for that. The good news is the book is available in all good bookshops and online at frightening low cost and astonishing value for money.

Let me just say two words: Paul Collier is, I think as you will know, one of our most distinguished, not only developmental economists – having cut his teeth at the World Bank and thinking about problems of Africa – but as a much wider ranging and thinking political economist, his book The Bottom Billion earned him a world-wide audience. Since then you would have seen that he’s done a lot of work thinking about failed states and forms of exploitation as well. It is a great delight for me to introduce someone with the philosophical and historical and sociological as well as the economic depth to give a House of Commons audience a very rich and interesting ride. Thank you very much indeed, Paul, and thank you for joining us today ladies and gentlemen. Thank you.

PROF. SIR PAUL COLLIER: 

Right, let me get going. Thanks Jesse. So, I’m going to be talking about my new book. It’s called The Future of Capitalism: Facing the New Anxieties. And that’s what it does, it faces the new anxieties, says why they emerge and what can be done about them. So, the future of capitalism. It needs a future, because capitalism broadly conceived as decentralised competition between firms is the only system the world’s generated, ever, really, that has the capacity to drive up mass living standards. But it doesn’t work on autopilot. Periodically, it derails.

Capitalism has been going for a little over two-hundred years and it’s had at least three big derailments. We’re living one at the moment, which I will come to. But, just to get us going, I want to start with the first big derailment, which none of you know much about, probably; and that came to a head in the 1840s.

So, Capitalism got going in the cities of northern England – where I grew up in Sheffield – and the cities, the northern cities, were the first industrial cities on Earth. People came into factories and became much more productive. That was the miracle of productivity at its birth. And then what happened? Why did it derail? Because, when you bring a lot of people together, in a city, and do nothing by way of public policy, these cities become congested killing-fields. Life expectancy of ordinary people in the early nineteenth-century was not very high. For a rural labourer, you lived on average to thirty-three. In the cities, you lived on average, to nineteen. These were killing fields. By the 1840s, the cities of northern England were the nearest approximation to hell-on-earth we’ve ever got. That produced a response; it was a response both on the political right and on the political left, and I want to show that it was the same response, in essence.

So, on the political right the fastest growing city in the whole of Europe was Bradford, and the Mayor of Bradford in 1849 was the biggest industrialist in Bradford; he’d invented a new textile process, he became a billionaire of his time and he was the mayor. What happened in Bradford in 1849? Cholera. Nobody knew what caused Cholera and so there he was mayor and thousands of his citizens were dying and it fundamentally changed his psychology, and he became the biggest philanthropist of the era. He basically invented business philanthropy. He built the first purpose-built industrial town on Earth, called Saltaire – he was tied to Salt, this was called Saltaire – Saltaire is now a World Heritage Centre, for good reason. Then he gave his entire fortune away, not just to Saltaire, but to creating Park and to clean up Bradford. When he died, the whole of Bradford turned out at his funeral, there’s a statue of him, he became a local hero. He was an MP. What did that represent? I’ll come to that in a moment. But let me say, there was a response from the Left.

It was forged at the same time in this crucible of the hell-on-earth of the northern English cities, the deep new anxieties that were being created. That response on the Left, was not far away – it was Rochdale. What happened in Rochdale? The birth of the co-operative movement – which became a global movement, just like corporate philanthropy became a global movement. What had they in common? Both, Titus Salt did and what Rochdale did, was build reciprocal obligations to address, in a practical and pragmatic way, the real anxieties facing ordinary people. So it was pragmatic solutions to real anxieties, and those pragmatic solutions were reciprocal obligations. Titus Salt recognised in God obligations to his workforce and his community – they recognised they’d got obligations to him. They were hugely grateful.

The co-operative movement was entirely reciprocal obligations tied around practical things, if you move to these industrial cities, where will you live? Another northern city, Halifax, produced the Halifax Building Society, which became Britain’s biggest bank. If you were dying at nineteen, one of the things you were worried about – would you have a funeral? The co-operative movement became the biggest funeral director in Britain. These were practical matters of ‘you contribute and as you meet your obligations to contributions, you get rights’; and the genius of reciprocal obligations is that rights you get are precisely met by the obligations you incur. So all the rights can be fulfilled.

That was then. This is now. A different derailment. The solution to the crisis of the 1840s was vast investment in urban public health – sewage, water, that sort of stuff. The crisis that has built now, began around 1980 and wasn’t just in Britain, it began in pretty much all the advanced societies. It was two new divisions that opened up. Two new rifts in society and they were new. One, was spatial; for two-hundred years, until 1980, not just in Britain, but around the advanced economies, regional differences in income had been narrowing – the poor parts of the country had tended to be catching up with the richer parts. Economic convergence between different locations. Since 1980, that process in Britain and around the world, has gone into reverse. But it’s more vicious in Britain than anywhere else on earth. So that’s the spatial divide.

In Britain it’s an extreme form, in which there’s only one really successful region, and that is the south-east. It doesn’t matter where you are in the south-east, you’ve been on an up-escalator. Not everybody in the south-east, but as a location. Outside the south-east, you’ve fallen behind. Even a city we regard as a great success – as a lad from Sheffield I hate to say it, but that’s Manchester – even Manchester has managed to reach the– so the income in Manchester has staggered up to be equal to the average for the UK as a whole. Everywhere else the income is below the average. Who’s above the average? The south-east. Britain is an extreme form, because elsewhere in the world you’ve still got this metropolitan area go ahead, but more often there’s several metropolitan areas. So Britain is the only advanced country where it is absolutely and precisely, is what is called in the literature, a ‘core’ and a ‘periphery’. And the core is the south-east and everywhere else is periphery. Shame in language actually, if you think about it.

Then the other new divide – and remember this only started around 1980 – is in education. Again, for many years the bottom-half of society, the less educated, have been catching up with the upper-half. Then, post 1980, again it started to go into reverse. The skilled were on a rising escalator, the ones with a fancy education, like me, and the ones who’d not had a fancy education but had gone and acquired manual skills. Their manual skills were becoming less valuable – they were on a downwards escalator. It’s worth just a moment saying, why were those things happening? They weren’t just happening in Britain; they were happening around the world. There were two very straightforward economic forces that tend to produce that. One was the emergence of globalisation.

Globalisation meant that more and more goods and services were traded on global markets, rather than national markets, and so because there are scale economics and agglomerations – that’s just a fancy way of saying vigour is more productive – there was room, if there is a global market, there is still only room for one winner. If the market for a particular good is divided into national markets, there’s room for a winner in each nation. So globalisation meant that cities that’d had a national market, suddenly found they’d lost out because somewhere was a global winner. Occasionally, with globalisation, the seat of the ‘global winner’ lost out to some other city, which became the new ‘global winner’. That’s what happened to my city of Sheffield. Sheffield had been the steel industry for seven-hundred years. There’s a line in Chaucer, you know, “The knives came from Sheffield”. It was destroyed in the early 1980s. You all know how it was destroyed, because you’ve all seen the film The Full Monty, you’ve just forgotten that it was Sheffield. It’s my relatives in there. So that was the location stuff.

London booms like crazy, because it becomes the global financial centre, it’s in the perfect time zone, it’s in the middle time zone and it’s a wonderful location for agglomeration of this scale. So you’ve got London going up and Sheffield going down. If we turn to the skill divide, the forces of competition between firms, the very force that makes capitalism such a good thing leads to rising productivity as firms strive to get ahead of other firms, by coming up with new technology that’s more productive. That’s good. But, we’ve been doing that for two-hundred years so the bloody obvious ways of becoming more productive have already been thought of – they were thought of two-hundred years ago. The somewhat less obvious about a hundred years ago and the quite clever about fifty years ago, and now we’re onto the really rather complicated. For the really rather complicated you need people who are really rather educated, because with rising complexity you need more and more differentiated expertise, more and more differentiated skill, and that skill is built upon the bedrock of a lot of fancy education. That same rising productivity, works by killing off the value of the skills that the manual workers had had – their skills become redundant. It gets fancier and fancier both technologically and legally. If you think of the legal profession of 60-50 years ago, and now, there’s many more differentiated specialities – it’s gotten fancier.

So if you’ve got a good degree from a good university – wow, you can get really fancy. I’ve got a nephew in his thirties who’s in London as a lawyer, charging £700 an hour – wow! I’ve got another nephew in Sheffield, who’s on £10 an hour. So, these diverging productivities. Of course, these things come together, so you’ve got the metropolitan skilled and globalisation and complexity have been the forces that just go on giving. If we used the phrase of the former Conservative Prime Minister, Harold MacMillan, “they’d be the ones who’d now, you’d say of them, you’ve never had it so good.” But of course Harold MacMillan used that phrase for provincial manual workers, and nobody would dare to go into provincial England and talk to manual workers now and say “you’ve never had it so good.”

So, those are the forces that capitalism has once again derailed, spacial divergence and educational divergence; we need to do something about it! It’s been happening for 40 years and the peculiarity this time is that, unlike the 1840s, we’ve not done anything about it. Why have we not done anything about it? In essence, because the metropolitan skilled have peeled off from a sense of shared identity with everybody else and so don’t recognize reciprocal obligations to those on the wrong end of these forces.

Why have they peeled off? Well, it’s happened both on the right and on the left. On the right, the metropolitan skilled and people like me who wafted in. My parents both left school when they were 12 so I’m not only ‘Sheffield,’ my background is rather unskilled. But now I live in Oxford which has the highest ratio of house prices to income in the whole of the country. I’m alright, I’m doing fine; but my relatives in Sheffield are not. The Future of Capitalism is a very passionate book because I’ve got a sense of reciprocal obligation because of my family. But my friends and colleagues don’t! They’ve got a sense, on the right, ‘why have I got a lot of income? Because I deserve it! I’m productive.’ That goes back to the adoption of Milton Friedman and the sense that the only obligation of a company is to the shareholders that own it. This is a shaming doctrine, obviously Titus Salt would not surmise that as a description of a company. He recognized that, by virtue of good fortune, he had obligations both to his workforce and to his community. But the new doctrine on the right was ‘No, we deserve it’ and on the left it was similarly a move away from reciprocal obligations, away from ‘we accept obligations in order to generate rights.’ Instead the left embraced this idea of human rights are victim rights. Rights are detached from obligations. And the obligations went up to the state and the state then showered rights down in an act that I call social paternalism.

What’s the result of all that? The walking away from shared identity by the successful and the walking away from a sense of obligation to others. The result is mutinous, and we see it not just in Britain in terms of the Brexit vote, but around the Western world. In America, it was Trump, in France it was (inaudible), in Germany it’s the Alternative for Deutschland. Mutanism around the world because these issues have been left unaddressed.

What can we do about them? Most of the book is not about that, that’s the first third of the book, sort of setting the scene and trying to explain this erosion of ethical purpose that happened over the last 40 years. But most of the book is practical, pragmatic solutions. Facing the new anxieties in the same way as in the 1840s, you build reciprocal obligations that actually address the anxieties. In my last few minutes, let me sketch what those solutions might look like.

Let’s start with the skill gap and then turn to the spacial gap. The skill gap, the essence is that you– at the moment, Britain is for the most cognitively gifted third of the population. We have, relative to our population, the highest ratio of good universities to people in the whole world. We have 3 of the top 10 universities in the world (including my own, which is number one). Sorry about that little add bit! But those universities are completely useless, if anything worse than useless, for the bottom 60% of the population. We shouldn’t even see it as the ‘bottom.’ I mean the ones who are less cognitively gifted. They can be gifted in many other ways and other societies harness those gifts, but in Britain we don’t. We’ve been massively negligent on vocational training for a long time. In fact, the proportion of our population getting vocational training has gone down and down over the last 40 years. It doesn’t have to be like that. The way to money, if you think about it for a moment, the schooling system is basically a training in cognitive skills. If you go on to university, it’s pretty easy; you just carry on being trained in cognitive skills, you sit in a class and you listen and, you know, it gets fancier lecturing, you get me instead of a school teacher but it’s the same process. It’s not very demanding. We put all our resources into that and now think of the 60% of the population that should actually be changing track. We’ve struggled a bit with the cognitive skills, but now they’re going to do the non-cognitive skills. That’s harder, so if you think about it, we should be putting more resources per person in the people who have to change track than the people who just stay on track, but we don’t.

Now we can learn from elsewhere; Germany does a fairly good job at vocational training. I know that, we had a German au pair who got a place in university in Germany and she turned it down to go back to her home town, a little town which had a very good firm locally. She went and got a place, and she was very proud she got a place, it was a combination of half time at a college and have time working at the firm. She was paid, it was 3 years of training and she started week one making valves and she ended with 6 months in Chile learning Spanish. She right from the start, the job she was going for, was in marketing. She knows how to make a valve, she can speak Spanish and English, and she’ll be up in competition with some British valve making firm who’s hired someone who’s got a degree in film studies. We’re going to lose, aren’t we, Global Britain? So that’s Germany.

Switzerland does a better job. They do 4 years and half– they’re paid for four years and they’ve got a high status. A number of the chief executives of the Swiss banks have taken the vocational route, 60% of the population does. They’re paid for 4 years; half the cost is covered by the firms that make damn sure that these people come out employable. So Germany does a good job, Switzerland does a better job, I’ve just learned that the best is actually Finland. So I’ve got one of my former Finnish students who is writing me a paper on how the Fins do vocational training even better than they do education. We know they’re about number one in the world for education, but it turns out that they’re even better at vocational training.

That’s the first step we’ve got to get right for the people in the bottom half of our society. Naturally that is something I call the switch from social paternalism to social maternalism. The left built a system of social paternalism which, in effect, put the less skilled, less employable, northern population of this country on benefit street. Because the utilitarian philosophy within the left was all you need is consumption. Equalize consumption, and you do that by taxes and of course that is an insult to people, because people don’t just live by consumption, dignity means a sense of purpose, a sense of being productive. And that’s where we fail, and that’s why vocational training is. But similarly, social paternalism went mad in respect to bringing up children. There is only one way to bring up children, and it’s called parents. And that became unfashionable thing to say, and so social paternalism became a system designed so the state would take responsibility from children, it would scrutinize parents to make sure they were doing a good job, and if they weren’t judged to be doing a good job by the scrutinizer, the social care, then the social care would remove them or penalize the parents in various ways. The penalty-scrutiny system has been disastrous.

What I advocate is what I call social maternalism. You separate off the scrutiny function from the support function. Unless you have a support function which is completely detached from scrutiny, social workers cannot be trusted by the people who need to use them. We need huge amounts of mentoring support for distressed young families and they’re not getting it. But we can’t begin to do that until we completely detach it from this scrutiny stuff. I did a talk at the start of the week and it got a huge enthusiastic (inaudible) including from a social worker who’d been working in social work for 35 years who said because we built this scrutiny in which legal responsibility for what he laughingly calls ‘safeguarding.’ The social workers are told by the director for social services ‘at all costs, avoid us being sued’ and that then biases the whole decision process towards ‘if in doubt, intervene.’ And that ‘if in doubt, intervene’ causes a lot damage in that about a third of all interventions were totally unnecessary, precautionary things to avoid being sued that actually did damage.

So, vocational training and social maternalism. Now finally, let me turn to the spacial divide. The booming metropolis and the broken cities; not all the provincial cities are broken, Manchester is doing okay. But Sheffield isn’t, unfortunately, doing okay. If you look at a city and its region in cross-section, and you think how productive are the people in that city or region. As you get towards the centre of the city looks productive to- it’s almost a pyramid, with the centre of the city being most productive. That’s true of London, that’s true of Manchester. You look at Sheffield in cross-section, it doesn’t look like that. It’s the inverse- it’s a ‘V’ not a pyramid. If you’d looked at Sheffield 50 years ago, it would’ve looked like that. But when the steel industry collapsed, the core productivity of the city went with it. But you’ve got a lot of people living in Sheffield who continue to live in Sheffield. That’s where their homes and their families and their networks are. But the productivity is actually lower than if you could get outside That’s what a broken city looks like in economic terms. What do you do? You revive it. That doesn’t necessarily mean you revive the steel industry; but it does mean you create a belief among firms that this place is going to prosper. That’s partly the vocational training I talked about, it’s partly irreversible signals like infrastructure that is appropriate. Sometimes it is infrastructure that has, sensibly, nothing to do with productivity. One of the big success stories in Europe over the last 30 years has been the revival of Bilbao on the north coast of Spain. Bilbao, 20 years ago, was a disaster. It was a declining industrial city, it had lost its industry, and there was Basque violence. So you’ve got only two stories: the industry’s gone and it’s violent. Then what happened 20 years ago in Bilbao was the Guggenheim Museum. Seemingly as relevant for productivity as a fairy or something. But it changed the narrative. People said ‘Wow, Bilbao’s exciting’ and so it started to produce a coordinate sense that, actually, Bilbao was a place of the future. And so it has become; it was a self-fulfilling belief.

Now that I’ve sketched out – oh! There’s one final punchline which is a bit they hate; how do you pay for the revival of the northern cities? How do you pay for the vocational training of the bottom half of the population? You do it through tax. Who do you tax? You tax the skilled in the agglomeration. You tax the land on which they work, you’ve done a very poor job of capturing the massive appreciation of land values and property values in London. Very poor job. The most successful society on earth in the last half of the century has been Singapore, where Lee Kuan Yew made damn sure that they captured virtually all the appreciation in Singapore land values for the state. This is not communism; this is common sense. The people who own the land don’t do anything to raise the property value. It’s all the people in the country that produce the rise of productivity in the agglomerations. We, not the land owners, should receive that appreciation value and we don’t in Britain. But, and here’s the fancy economics that I haven’t got time to tell you in any detail, a lot of the gain in productivity in an agglomeration accrues not just to the land owners, but to the highly skilled in the agglomeration. The fancy London lawyer on £700 an hour undoubtedly thinks that he’s just earning that because he’s brilliant. He’s actually earning it because he’s clever and in London. He should pay a higher rate of income tax than if he was working in Sheffield, basically. In New York, the high income earners pay 8% more income tax, 8 percentage points more income tax, than if they worked in Detroit. But we don’t do that here.

So, the London skills and the London land owners and property owners have been getting away much too lightly, and that’s money that we should raise shouldn’t pay for ‘Benefit Street,’ it should pay for the revival of productivity amongst the less skilled and the people living in the rest of the country. Thanks very much.

JESSE NORMAN MP:

 Alright well it’s already clear that in 21 minutes we’re not going to even remotely do justice to the astonishing stuff that Paul’s already given us.  While I allow you to gather your thoughts and give Paul a quick moment to breathe, I’m just going to say one thing and then ask him a question. The thing I’m going to say is that I think almost everyone would come into this room in the first instance and expected you to talk about markets and corporate behaviour and economics. And in fact, what you talked about is culture and norms and history and society, and I personally find that extraordinarily exciting and interesting and I really thank you for that. And now, the question I want to ask you is a question about social norms. You brilliantly described the way in which Western societies, and this country in particular, have become more separated spacially and also educationally, and therefore economically. What I’d love to hear you speak more about is this astonishing thing whereby, and you’ve touched on it, whereby people tell themselves a story about how they were right all along. How it was only a recognition of their astonishing genius that they were able to succeed, and pari passu, if they didn’t succeed, as it were, maligned forces were holding them back. And can you just talk about that, because what’s so striking is that one of the (inaudible) that your book brilliantly treats is not just the feeling that people aren’t progressive in many parts of this country but that they can’t progress, that they have nothing that could allow them to progress. So if you could just touch on that, just by way of another minute of provocation, and then we’ll let it up to a wider question.

PROF. SIR PAUL COLLIER:

Yeah so we have to smash both the notion of ‘I deserve what I get’ and the notion of victimhood. Victimhood is debilitating and the notion that ‘I deserve it’ is distancing the successful from the recognition that they are fortunate. Both of these have to be, I used the word smashed and I mean the word smashed. We have to be tough, the ideology I espoused is called the hard centre. I don’t believe in a soft centre, I believe in a hard centre which hits back at the rubbish of the ideologies of the right and the left. We have to smash this belief that ‘I deserve it’ if you’ve been fortunate and similarly we have to smash the sense of victimhood, that incapacity to do anything about it, on the part of those who have suffered. We are all actors, agents, participators, in productivity. And we all have to be part of that realm, this is the genius of reciprocal obligations. We should be part of the process of contribution as well as the process of receiving. So, that’s the start is the smash these existing beliefs and then to build in their place, and the building is more important, and that is shared belonging. Shared belonging to place and, because we all share the same fate, belonging to the same place, we have to have a common sense of purpose. And as we start meeting that common purpose, that will reinforce our idea of shared identity. That’s the virtuous circle that we get into.

JESSE NORMAN MP:

Brilliant. Alright we’re going to take question in 3 because there’s so many of them. You, sir, in the check, to start give us your question and then I’ll write it down and then we’ll go on to – can we get a name as well?

WILLIAM (INAUDIBLE):

I’ve had the opportunity to read what I think is an outstanding book-

PROF. SIR PAUL COLLIER:

Say that again!

JESSE NORMAN MP:

No, no, no – don’t; sorry Paul.

WILLIAM:

What I just wanted to know, do you think the right or the left are further away from understanding how these problems need to be addressed.

JESSE NORMAN MP:

Okay so I’ve written down here, right or left; which one is closer.

WOMAN:

Hello I’m (inaudible), a researcher in the House of Lords. I’m particularly interested in how your common sense of purpose and sense of id can be bridged as well to the public understanding of what it means to live in a parliamentary democracy because so often this is the place from which people argue publically about their beliefs.

JESSE NORMAN MP:

Ok so fabulous question, now let’s come across here and work back to others.

PETER WILLSMAN:

You said that the UK is one of the most extreme examples of this – I mean, why is that? Is it because the financial district is particularly high value added to London? Or other policy reasons which other countries have handled better.

JESSE NORMAN MP:

Ok thank you. Ok, Paul.

PROF. SIR PAUL COLLIER:

Ok so right or left? I think it actually varies around Europe and America. The book is published in America, it’s being translated into a lot of European languages, and I’m very persona grata with the left in continental Europe, the centre-left in continental Europe, because the centre-left in continental Europe is facing an existential threat. And because it’s facing an existential threat, it’s thinking. Just yesterday I got a very kind letter from Olaf Schultz, who’s the Social Democrat Finance Minister in Germany. I’ve not received one from anybody in the ministry of Britain.

JESSE NORMAN MP:

[Jokingly clears throat].

PROF. SIR PAUL COLLIER:

Sorry, I didn’t mean that. So, in Britain, it tends to be the right. The same part of the right is equal to the same part of the left. And I think that in Britain the left is less anxious, it looks as if it’s on a roll with this awful ideology, whereas the centre-right is existentially worried and so I think the answer is whichever, left or right, gets onto this sense of belonging and reciprocal obligations first, I think will rule for 20 years, but it’ll be different in different places.

If ever we learn the importance of representative democracy, why representative democracy and discussion in representative democracy between representatives is such a good idea, we just look at Britain now. The idea that you can run a country with direct democracy is a folly that we have known ever since Edmund Burke. I mean, direct democracy keeps producing catastrophe and we’ve got fancy theories in social choice theory which show that it’s bound to be a disaster. You’ve got to breech basic properties of (inaudible). So, parliamentary democracy has been fully vindicated by the pain we’ve been through from the experience of these referenda, which have all been follies. If you think back to the very first referendum back in ’72, the referendum on the European Community, Roy Jenkins, at that stage, deputy leader of the Labour party, resigned on the principal that a referendum was an unconstitutional idea; that it breeched the basic unwritten constitution of Britain, And he was right, my goodness he was right.

Why in the UK, the divergence has been more pronounced, partly we’ve got a set of characteristics which have produced a particularly successful spacial agglomeration in London. One thing, English is a world language so that’s a huge advantage, the other is our time zone, which is perfect for financial transactions. There are three big financial centres in the world, the only one that can talk to both the others is London. And so as a financial centre we’ve been fantastically fortunate. And then, London has got massive disproportion of Britain’s public spending on infrastructure for a very long time. You know, it’s got both the airports, it’s the hub of the rail network, it’s the hub of the road network, you name it, the national infrastructure investment has been here. And so it’s reaped the success of that. That has been compounded by the fact that Britain is at absolutely the end of the spectrum in terms of corporate divorce from anything other than shareholder value. Until I started studying this, I used to think America was more extreme than Britain; Britain is much more extreme than America. For example, when Kraft decided it wanted to get into chocolate, there were two big American chocolate companies: Mars and Hershey. It knew it had no chance of getting either of them because of the blocking family’s holdings. So what did they go for? Cadbury. It had been a family business with a very fine ethical tradition. Why was it able to do that? Because there was no blocking family holding. In France and much of continental Europe, it’s done by blocking state holdings and stuff. Here? We’ve got no defences. The dominance of the financial sector has produced this extreme, combined with the Friedman doctrine, the only responsibility is to make – it doesn’t even work! We know that this sort of short term, quarterly profits emphasis, which is what fund managers tend to navigate by because they’re judged by that, actually doesn’t even produce long-term profits.

JESSE NORMAN MP:

Brilliant. Let’s go towards the end of the room if we can, for 3 more questions. Come through to this gentleman there who’s been very persistent with his arm.

MAN:

Thank you very much, (inaudible) from the Institute for Statecraft. My question is about how the metropolitan elites in the UK, and perhaps by extension continental Europe, are reacting to what you are saying and it follows on from David Goodhart’s Road to Somewhere book where he talked to the Henry Jackson and one of the persons he specifically mentioned by name when discussing is of course the former Sheffield MP Nick Clegg. Have you ever discussed your ideas with Nick Clegg or his wife, and what’s their reaction been, particularly what you see in their eyes when you talk about these things.

JESSE NORMAN MP:

Thank you very much, let’s get like a female hand if there are any—yes, in the green in the back. Madam, how kind of you, thank you very much indeed.

WOMAN:

I wanted to ask how Manchester is different.

JESSE NORMAN MP:

Mm! Okay, thank you, next? You, the gentleman there.

MAN:

(Inaudible) I know you mentioned Cadbury and how they (inaudible), and you also mentioned the 19th century. We all know that religion played a very pragmatic role but you didn’t mention that or (inaudible).

PROF. SIR PAUL COLLIER:

Yep, good questions. The reaction of the metropolitan elite – I’ve not talked to Nick Clegg, but I have just come from a meeting with Jo Swinson, who’s now the deputy leader of the Liberal party, and she wanted to meet me because she just loves all this. There’s nothing illiberal about what I am saying, I am very careful to not have a political, a party political identification. The Labour government gave me a CBE; the Conservative government gave me a Knighthood, and I’ve just had a meeting with Jo Swinson—

JESSE NORMAN MP:
You’ll be a Duke by the time the Liberals get to power!

PROF. SIR PAUL COLLIER:

Yes, quite. And what is the reaction of the metropolitan elite? I’ve given lectures on this around the country, I gave one in London School of Economics, which if ever there was a metropolitan elite, there it is. First of all the place was full an hour before I gave the lecture, there was 0 pushback, there was enormous enthusiasm for this. People are naturally ethical. There’s only a tiny minority–my own subject of economics has this grotesque feature of an economic man. As I argue in the book, drawing on a lot of social psychology and anthropology and neuroscience, economic man died out in 400,000 years where we learned the virtues of cooperation because otherwise we wouldn’t survive. The selfish, greedy individual is a rarity. When you start to talk about ethical responsibilities, people respond. Warmly. Even the successful. (inaudible) That is a ridiculous public policy.

Now onto the question of Manchester, why is it different is a very good question, and it’s certainly not because Mancunian people are any better than the people from Sheffield; it’s because there is more devolved power over quite a long period. For example, the Manchester airport has the good fortune to be under the auspices of the British Airport Authority, which is completely London centric. It has its own autonomous power, and so it’s able to get its own route network organized. And, its local political administration worked out quite a while ago that it was vital, if Manchester was to revive, that it work with local business and so you’ve got a centrist politics in which the local politicians worked with the local firms to make sure that this was an attractive environment for business. Local autonomy and a sense of place combined. Unfortunately, in my own city that’s not happened.

Quakers, sir, and you’re quite right. If you read the book, you’ll find that the first five chapters of the book are all about ethics, and so ethical principles including religious principles are fundamental. So I fully agree with you. You don’t have to be religious in order to be ethical. But probably you’re more likely to be ethical if you’re religious. And the Quakers, as you quite correctly say, that was and is a very fine tradition. I use, in the book, a traitorous lawyer who spilled all the beans on why the city lawyers need a roasting, and he is indeed Quaker lawyer, which is quite a rarity. Thank you.

JESSE NORMAN MP:

Alright so we’ve got about 50 seconds left, so I’m afraid we can’t take any more questions. All I can say to you is I thoroughly encourage you to reach out, buy the book, suggest it to your friends and relatives. As a passing grace, though, let me point out that the Quakers brought up in the last question were people who believed, so (inaudible) and in a reciprocal pattern  (inaudible) and therefore exemplified social and cultural norms. I hope you all agree with me that this has been an astonishingly rich, smorgasbord indeed, a feast of delights. We could have 10 sessions like this and still not get to the bottom of the issue Paul has raised and I hope you all join me in giving him a massive parliamentary thanks.

PROF. SIR PAUL COLLIER:

And in the spirit of reciprocal obligations, let me tell you that my book draws heavil on Adam Smith and Jesse’s fine book. I think the three books that fit perfectly together, and one is Jesse’s book on Adam Smith, the second, which has gotten a very good review in today’s Financial Times, is by my colleague Collin Mayer, who’s head of the business school at Oxford. His book is called Prosperity, and it’s about repurposed companies. And of course the last book is my own. Thank you very much.

HJS



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