‘The unacceptable face of capitalism.” A Conservative prime minister, Edward Heath, produced that mordant soundbite 30 years ago, referring to a business scandal of the day. That phrase had a stunning effect. A Tory leader was not expected to be critical of the enterprise system and certainly not in language that was evocative of Karl Marx.
But why not? When sharp business practices bring the system into disrepute, the Conservative party is damaged because it is so closely associated with advocacy of the free market. If public confidence in the wealth-creating process is weak, that militates against the Tories’ election chances.
It follows that the Tories, more than anyone else in politics, have an interest in cleansing the capitalist stables. It would be good politics to make it clear that the Conservatives more than any other party care about ethical capitalism.
Public esteem for business is alarmingly low. It is striking how much comment in the media is negative. In Britain those who most influence public opinion, the so-called commentariat, are in the main not involved in wealth creation. They are journalists, lobbyists, academics, religious leaders, civil servants and public service employees. They are generally given to scepticism or cynicism.
The worry is that unless capitalism enjoys some understanding and support from opinion formers, the creation of wealth may be held back, or at worst the system may not survive in the long term.
The anti-globalisation campaign offers an example. It is a largely incoherent, Canute-like attempt to resist the inevitable. But the commentariat often reacts to it sympathetically. Many people are ready to believe the worst of business. They seem eager to associate investment in the developing world with exploitation, citing child labour, low wages and despoliation of the environment.
I am a fervent advocate of free enterprise. Humankind has invented no better system for the generalised increase of prosperity. I believe that the creation of wealth is virtuous. People who work in business can and should feel that their efforts have a moral purpose. Without the profit motive we would not generate the resources that make it possible for government to build schools and hospitals and pay benefits to those who are poor or who cannot work.
But these are not easy times for enthusiasts of capitalism. The cynics have received plentiful ammunition. We have witnessed the collapse of Enron, the American energy conglomerate, into a cesspool of deceit and trickery with its shareholders defrauded. Its auditors, Arthur Andersen, had one of the finest names in the business. The firm was associated with the highest ethical standards, a reputation built up over a century. After such rottenness was revealed within a venerated institution, it is difficult to be confident of anything.
“Capitalism is failing us” must be the conclusion of thousands of British people who invested in a pension scheme at Equitable Life. Now they are forced to contemplate their remaining years of retirement on incomes much lower than they had legitimately expected.
Their cynicism will be echoed by those millions of us with endowment policies. Week by week we receive a computer-generated sheet from the insurance company to whom we entrusted our savings informing us that our policy, designed to cover the mortgage and possibly provide a small bonus, is worth thousands of pounds less than we need to pay off the home loan. Many of those affected are about to retire and have no way to make up the difference.
Throughout the 1990s the stock market roared ahead. The news was full of people who became filthy rich on dotcom stocks. Everybody predicted that the market would eventually fall, and it did, but only after it had risen faster and for longer than most thought possible. Speculative investment was only for the minority. Most people remained aloof from such risk- taking, instead entrusting their savings to experienced hands, choosing established pension funds and insurance companies. The names of those ancient financial institutions carry an old-fashioned air of prudence and reliability. Such names mock us now.
After years of unprecedented bull markets, how could the investment managers leave savers so impoverished? Was it incompetence or greed? Are disappointing returns now the best that investors can expect, whether in good times or bad? If so, the institutions may find it a great deal more difficult to attract our money in the future and that could have important consequences for their ability to raise funds. If capitalism does not enjoy public confidence it will pay the price.
Meanwhile, the public has gaped as some company directors who presided over the destruction of shareholder value have been paid handsomely for their failure. I understand that in a competitive global market it is necessary to pay a lot to attract talent and that an executive who boosts value by billions may be worth paying millions. There may even be a case for paying off the failures, but I have yet to hear it put.
The Conservatives have no reason to be stinting in their critique or their demands for higher standards. It is Labour that should be on the defensive. It ruthlessly associated the last Tory government with a culture of corporate greed. You could be forgiven for believing that Labour was going to clean it up. Perhaps many people still link the Conservatives with their “friends in the City”. But today the “fat cats” are as likely to be Tony’s cronies. Labour looks besotted with the rich and famous.
Gordon Brown’s raid on the pension funds (through changes to advanced corporation tax) has diminished savers’ returns. The government uses our money to fund a huge apparatus of financial supervision, but when the watchdogs fail to bark we have no redress.
Equitable Life had been over-promising for many years and it did not need a genius to spot it. But Ruth Kelly, the Treasury minister, tells us that she is not responsible and the principle of “caveat emptor” applies. How is a buyer to beware of a firm with a name hallowed by history such as Equitable Life? Labour has no moral high ground here. The Conservatives could open their own big conversation with business. The aim would be to strengthen the hand of the majority of practitioners who conduct their businesses by high standards and to increase peer pressure on those who do not.
Politicians can help wealth creators to understand that in their own self-interest they must be more transparent. Issues such as how they do business in the developing world need to be debated. For example, how you conduct business in a country where families depend on their young children bringing in a wage is not straightforward. It is a good topic for consultation and one of many areas where business can establish codes of conduct on a voluntary basis. That can help to make the case that without foreign investment and expertise the poorest countries have no chance of making progress.
Public regard for business is at a low ebb. As companies wind up their pension schemes, incomes in retirement will decline and opinion is likely to deteriorate further. People may then prefer to put their savings into property or socks under the bed. Nobody has a greater interest in reversing that trend in sentiment than the Conservatives, and Labour’s record gives the Tories new opportunities to make an issue of ethical capitalism.
Only the reliable anti-communist President Nixon could be trusted to visit the People’s Republic of China. By analogy only the Tories, undoubted supporters of enterprise, can open that agenda.
Such a campaign would take the electorate by surprise and to better effect than Heath did in the 1970s. It would alter perceptions of the party and place it on the side of those virtuous people who have tried to be prudent savers. Who will take up their cause if not the Tories?
