Them And Us

1. Fairness is capitalism's indispensable value for sustainable growth

Fairness, properly conceived, is a subtle and complex concept. It must incorporate personal responsibility for actions and results, but it must also recognise that there are limits for that responsibility – not least because of the impact of brute good and bad luck.

Fairness as a balancing act. Fairness in capitalism involves striking a delicate balance between rewarding individual effort and recognizing the role of circumstance. It's about ensuring that people receive due rewards for their contributions while acknowledging that not all outcomes are solely the result of personal actions.

Components of fairness:

• Proportional rewards for effort and innovation
• Recognition of the impact of luck and circumstance
• Equal opportunities for all members of society
• A system that allows for social mobility

Fairness in capitalism isn't just a moral imperative; it's an economic necessity. When people believe the system is fair, they are more likely to innovate, take risks, and contribute productively to the economy. This creates a virtuous cycle of growth and prosperity that benefits society as a whole.

2. The financial crisis exposed flaws in the current economic system

The crisis was as big a crisis for market fundamentalism and financial capitalism as the collapse of the Soviet Union was for economic planning and communism.

Rethinking economic orthodoxy. The 2008 financial crisis revealed deep-seated problems in the prevailing economic model, challenging long-held beliefs about the efficiency of markets and the role of finance in the economy.

Key issues exposed by the crisis:

• Over-reliance on complex financial instruments
• Inadequate regulation of the financial sector
• Excessive risk-taking by banks and financial institutions
• Growing inequality and the concentration of wealth

The crisis highlighted the need for a more balanced approach to economic policy, one that recognizes the importance of both markets and regulation. It also underscored the necessity of addressing systemic risks and ensuring that the financial sector serves the real economy rather than dominating it.

3. Innovation and productive entrepreneurship are key to economic recovery

Productive entrepreneurs push forward the technological frontier. They exploit their own networks and talent, along with whatever tangible and intangible support they receive from the state (which is often very significant), and tend not to impose costs on others.

Fostering genuine value creation. The path to economic recovery and sustainable growth lies in promoting innovation and productive entrepreneurship. This involves creating an environment that encourages the development of new technologies, products, and services that genuinely add value to society.

Elements of a supportive innovation ecosystem:

• Investment in research and development
• Collaboration between universities and businesses
• Access to capital for startups and small businesses
• A regulatory environment that encourages responsible risk-taking

Productive entrepreneurship is distinguished from rent-seeking behavior, which merely redistributes existing wealth. By focusing on activities that create new value, societies can drive economic growth while also addressing pressing social and environmental challenges.

4. Social mobility and equality of opportunity are crucial for a thriving society

Social mobility has stagnated. The next generation of professional men and women will have been educated in ever-richer families.

Breaking the cycle of privilege. A fair and dynamic society requires genuine opportunities for social mobility. When social status becomes entrenched across generations, it not only perpetuates inequality but also stifles economic growth by preventing talented individuals from reaching their full potential.

Factors influencing social mobility:

• Access to quality education
• Availability of good jobs
• Neighborhood effects and social networks
• Cultural attitudes towards success and failure

Addressing these factors requires a multi-faceted approach, including investments in education, job creation, and community development. It also involves challenging cultural narratives that justify inequality and promoting a more inclusive vision of success.

5. The education system plays a vital role in fostering innovation and social mobility

Education, knowledge and human intelligence now so self-evident. Demand for more sophisticated thinking and reflective skills in areas as disparate as software creation and communications has jumped over the last generation.

Preparing for the knowledge economy. The education system must evolve to meet the demands of a rapidly changing economy. This involves not just imparting knowledge, but developing critical thinking skills, creativity, and adaptability.

Key areas for educational reform:

• Emphasis on problem-solving and creative thinking
• Integration of technology in learning
• Lifelong learning opportunities
• Equal access to high-quality education for all

A well-functioning education system is crucial for both individual success and national economic competitiveness. It should provide pathways for talent to emerge from all segments of society, thereby promoting both innovation and social mobility.

6. Regulation can be a friend of innovation, not an enemy

Regulation creates the market. If financial products had been regulated like drugs – so they were tested before being introduced on the market – banks would have engaged less in a race to the bottom introducing ever more worthless financial instruments.

Smart regulation as a catalyst. Contrary to popular belief, well-designed regulation can actually stimulate innovation and create new markets. By setting clear standards and reducing uncertainty, regulation can provide a stable environment for businesses to innovate and compete.

Benefits of smart regulation:

• Builds consumer trust in new products and services
• Levels the playing field for businesses
• Encourages long-term thinking and sustainable practices
• Can spur innovation to meet regulatory requirements

The key is to design regulations that are flexible enough to accommodate technological change while still providing necessary safeguards. This requires ongoing dialogue between regulators, businesses, and other stakeholders to ensure that regulations remain relevant and effective.

7. A new social contract is needed to manage increasing economic volatility

Workers are confronting ever more volatility, uncertainty and risk, but they have less to gain from this unstable environment than the individual entrepreneur or business more widely.

Balancing flexibility and security. As the economy becomes more dynamic and unpredictable, there's a need for a new social contract that helps individuals navigate this uncertainty while still promoting economic dynamism.

Elements of a new social contract:

• Enhanced unemployment benefits or wage insurance
• Portable benefits that move with workers between jobs
• Continuous education and retraining programs
• A stronger social safety net to encourage risk-taking

This approach, sometimes called "flexicurity," aims to combine labor market flexibility with strong social protections. By reducing the personal cost of economic transitions, it can make people more open to change and innovation, benefiting both individuals and the broader economy.

8. Tax reform and responsible wealth management are essential for fairness

Even allowing for the fact that richer people are more likely to have more expenses, the result is that the tax system has become regressive rather than progressive.

Restoring progressivity and responsibility. A fair economic system requires a tax structure that ensures those who benefit most from society contribute proportionally. This involves addressing loopholes and avoidance schemes that allow the wealthy to pay less than their fair share.

Areas for tax reform:

• Closing tax loopholes and offshore havens
• Ensuring corporations pay their fair share
• Implementing a more progressive tax structure
• Encouraging responsible wealth management and philanthropy

Responsible wealth management isn't just about paying taxes; it's about recognizing the social responsibilities that come with wealth. This includes supporting public goods and investing in ways that benefit society as a whole, not just maximizing personal returns.

9. Media and political reform are necessary to support a fair society

A media that long ago abandoned any attempt at honesty and impartiality, instead conforming to the prejudices of its owners, has come to dominate national life.

Revitalizing democratic discourse. A fair and dynamic society requires an informed citizenry and responsive political institutions. This necessitates reform of both media and political systems to ensure they serve the public interest.

Key areas for reform:

• Promoting media diversity and accountability
• Strengthening campaign finance regulations
• Improving transparency in government decision-making
• Encouraging civic engagement and participation

A healthy democracy depends on citizens having access to accurate information and meaningful opportunities to participate in the political process. By addressing distortions in media and politics, societies can create the conditions for more informed and equitable policy-making.

Last updated: September 20, 2024