Will Hutton’s analysis of modern finance and the need for fairness is one of the year’s most important arguments. Yet he is a flawed visionaryby Anatole Kaletsky / December 15, 2010 / Leave a comment
Published in January 2011 issue of Prospect Magazine
Them and Us by Will Hutton (Little, Brown, £20) Will Hutton, one of the few remaining visionaries on the left in Britain, has produced another powerful polemic that could reshape the country’s political thinking. Them and Us is, in fact, Hutton’s magnum opus: bold and engrossing, but also characteristically flawed. This book is the culmination of all his previous works into an “attempt to develop a more fundamental critique of modern capitalism than any I have offered up to now.” Them and Us is a call to reform our entire political discourse, to respond to the financial crisis by reconsidering core beliefs about our institutions and the interactions between the market and the state. This is a vastly ambitious agenda, but it is vindicated by Hutton’s boldness and erudition. Hutton starts by challenging his loyal readers on the anti-capitalist fringes of the Labour party and the green movement. He insists that, despite the recent crisis, capitalism is the only credible method of organising economic activity, and also the benign driving force responsible for most of the material and social advancement achieved by humanity (nine of the 23 truly transformative “general purpose technologies” since prehistoric times, starting with fire and writing, have been invented in the 125 years since the global triumph of capitalism in the late 19th century). But capitalism must now be reinvented. The key to this reinvention, as it has been after previous crises, is a new relationship between market and state. “The debate,” Hutton argues, “is not between state deniers and state asserters; it is where on the continuum of state involvement we should plant our standard.” I am bound to agree, having written my own book, Capitalism 4.0, on the same theme. But in contrast to my view that the main dysfunctions of modern capitalism revealed by the recent crisis were caused by excessive faith in the economic efficiency of markets, Hutton ascribes the breakdown to a moral flaw: a neglect of “fairness,” which he presents as the “indispensable value” that holds together and motivates all societies. The first half of Hutton’s book is a brilliant crash course on the ethics, history and sociology of his “subtle and complex” concept of fairness, which is by no means identical to traditional egalitarianism. One of Hutton’s talents as a writer is to spice up his abstract analysis with intriguing facts. For example, JP Morgan apparently asserted that his top managers should earn no more than 20 times the wages of the lowliest workers in the businesses they ran. Today’s ratios of executive pay to average earnings are 81 in Britain and 300 in the US. Hutton believes that fairness automatically strengthens capitalism, promoting innovation, accelerating growth and helping avoid future crises. To support these contentions, he marshals eloquent arguments and fascinating statistics—and some striking non sequiturs. In attributing the financial crisis largely to the greed of overpaid bankers, for example, he misses the fact that the institutions investing most aggressively in toxic assets were old-fashioned mortgage banks with relatively flat pay structures such as Northern Rock and the state-owned German landesbanken. In predicting that resentment of bankers’ bonuses will produce a revival of egalitarian ethics, he ignores the swing to the right in global politics and the way that post-crisis populist agitation has mostly been inspired by envy of the rich, not sympathy for the poor. As the second half of the book moves to the main political argument, about the practical consequences of “unfairness” in modern Britain, wider gaps open up between the world as it is and the one described by Hutton. For example, he suggests that “fair” societies will develop technology faster by fully exploiting the talents of all citizens. Unfair societies, by contrast, waste the creativity of underprivileged millions and divert resources into unproductive activities like finance. This may sound intuitively appealing but it does not accord with the facts. The US is, by Hutton’s analysis, the most “unfair” advanced society, but also by far the most innovative. And the main challenge to American technological dominance, according to Hutton, now comes from China, an even more unequal society. Another case of wishful thinking is Hutton’s prediction that widening inequalities will automatically be reversed by a “fairer” voting system, more responsive to public opinion. In reality, US and British politics have become less egalitarian even as these societies have become more unequal. Hutton assumes that the excesses of the rich will unify middle-class and poorer voters in support of redistribution. But voters seem to respond very differently to inequality, depending on whether it widens at the top or bottom of the income scale. When the poor suffer drastic losses, in-equality can threaten social stability and swing politics to the left. But the kind of unfairness created by the super-rich impinges mainly on the middle class, who are priced out of desirable neighbourhoods and deprived of comforts that their parents took for granted. Such top-end in-equality, instead of promoting “fairness,” can turn the middle class against redistributive policies if these favour the poor at the expense of the “squeezed middle.” Even Hutton’s argument that financial services are socially useless in comparison with manufacturing is highly debatable, despite its endorsement by luminaries of the British establishment such as Adair Turner and Mervyn King. The growth of finance is a natural byproduct of the international division of labour and globalisation of commerce and production that Hutton enthusiastically—and courageously—endorses. Far from being inimical to real industry and commerce, finance is their indispensable handmaiden, as became clear after Lehman’s bankruptcy, when the disappearance of trade credit produced a collapse of world trade bigger than the one that occurred in the 1930s. Britain benefits enormously from the fact that this crucial and rapidly-growing industry happens to be based in London. Why should Britain disdain high-powered banking, even if some of its products are dangerous, unnecessary or toxic? After all, the French show no contempt for nuclear energy or viniculture and Germans do not despise fast and polluting cars. In sum, Hutton’s conclusions and predictions are less persuasive than his analysis. But that is an occupational hazard of being a visionary who dares to tackle big subjects with bold, new ideas.