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Abu Dhabi, UAEFriday 14 December 2018

Capitalism is not working, but can it be fixed? 

Profound inequalities and unfairness are undermining the economic system, writes Gavin Esler

Around the world opinion pollsters and researchers have measured a profound decline in trust in big business. Michael Nagle / Bloomberg News
Around the world opinion pollsters and researchers have measured a profound decline in trust in big business. Michael Nagle / Bloomberg News

In a famous experiment, volunteers are asked to watch a basketball game and count the number of passes made by one of the teams. Given the speed of the basketball, it’s a test of concentration. In the middle of the play, a man dressed as a gorilla walks into the game, beats his chest and then leaves. In the experiment half the group counting the passes were so focused on their task they failed to spot the gorilla. It’s called a “selective attention test,” and you can find a 1999 version on the internet. Failing to spot the gorilla (to see what to others is blatantly obvious) is one of the biggest human failings. Under pressure and focused on a task, we often see only what we think we need to see.

Our enormous 21st-century gorilla is that capitalism is in trouble. Some people see this gorilla. Others, focused on counting encouraging statistics about stock markets and GDP growth, are merely watching the basketball game. After all, capitalism, as the historian Yuval Noah Harari once put it, is the world’s “most successful religion”. He means that the ideas of the “free” market have conquered not just Europe and America but almost the entire world, even supposedly “communist” China. Worldwide, statistics about health and prosperity suggest mostly good news. People have never lived so long, countries have never been so rich. Donald Trump boasts about record stock markets. Unemployment in many countries is low. Prices are relatively stable.

But I have been meeting with gorilla spotters. A self-made millionaire, who described himself as a “red-blooded capitalist”, told me he feared that profound inequalities and unfairness risked undermining the economic system, which he saw as bringing so many benefits. Another, whose family business stretches back centuries, told me this week that he was so alarmed by social inequality he would willingly pay more personal and businesses taxes to bring about a greater degree of fairness.

Around the world opinion pollsters and researchers have measured a profound decline in trust in big business which casts a long shadow on the more positive statistics about stock markets and GDP figures. The OECD and World Economic Forum, not known as a bunch of left-wing agitators, point to a deep sense of unfairness in the way market capitalism works for some people, but not for millions of others. Thinking capitalists, Warren Buffett, Nick Hanauer, Bill Gates and others, have sounded alarm bells.

The founder of the Coalition for Inclusive Capitalism, Lady Lynn Forester de Rothschild, and Christine Lagarde of the IMF also see the gorilla. Lady Lynn spoke to me recently of the need for capitalism to be reinvented to ensure that the benefits are more evenly and more fairly spread. Discontent with globalisation, the ways in which large businesses and hugely wealthy individuals operate sophisticated (legal) tax avoidance schemes, have provoked a serious political backlash.

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Most of us do not have the talent of a Steve Jobs or Bill Gates. But even in a Darwinian capitalist system of survival of the fittest, in 1963 US president John F Kennedy could say that “a rising tide will lift all boats”. Now hundreds of millions of hard-working people do not feel they have a boat in the water. Donald Trump and other right-wing political figures attack globalisation and free trade. On the Left, US senators Bernie Sanders and Elizabeth Warren, British Labour Party leader Jeremy Corbyn and many others use the same word as Mr Trump: that the market is “rigged” against ordinary people. While the Left and Right disagree on the supposed cure, they do agree that something is not working. The question is whether the system can be fixed or, as some want, swept away.

Tax avoidance schemes, exposed by the Panama Papers and the Paradise Papers, have caused a worldwide scandal. This is not because these activities are illegal. It is because they are allowed. Most hard-working people cannot understand why such tax avoidance schemes are permitted as a perk for those who already have plenty of money. We can debate endlessly what fair taxation may look like — but these schemes are most definitely seen as unfair.

There is no simple answer to this discontent, although I am cheered by two Americans called Roosevelt. Theodore was a Republican president from 1901-09 and the driving force behind the Progressive Era. He railed against “malefactors of great wealth” and spoke on behalf of opportunities and fairness (though not necessarily equality) for all. In the 1930s another Roosevelt, Franklin D, a Democrat, reinvented American capitalism through the New Deal. Both men helped save capitalism from itself. Both reformed a failing system to encourage enterprise and reward hard work. Both cracked down on big business abuses including monopolies. We need a new Roosevelt for the 21st century, a new “New Deal” and a new vision to encourage enterprise. The alternative, as FDR understood all too well, is that the gorilla of populism takes over and ruins the game for all the players.

Gavin Esler is a journalist, television presenter and author