How to Fix Capitalism [PODCAST]

In this episode of the Liberal Europe Podcast, Leszek Jażdżewski (Fundacja Liberté!) welcomes Sir Paul Collier, Professor of Economics and Public Policy at the Blavatnik School of Government and a Professorial Fellow of St Antony’s College. They talk about how to reinvent broken cities and restore citizens’ agency, and why community matters.

Leszek Jażdżewski (LJ): In your book The Future of Capitalism: Facing the New Anxieties, you describe your personal journey and the notion of ‘parallel lives’. Could you briefly explain what is this idea?

Sir Paul Collier

Paul Collier (PC): It is a sad story of an unnecessary and extreme divergence in lives that started so similarly – that of myself and my cousin, Sue. We were both born in Sheffield – which is now the poorest city in England. My cousin’s father was a painter and a decorator, he employed a few people. My dad was a bit lower down on the scale – he was a grocer. He had a couple of part-time assistants, but basically it was he and my mother working. What our parents had in common was that my parents left school when they were 12 years old. In a way, we were born in a difficult city, from parents who had very little education and saw little opportunity.

Then, in the 1960s, when my cousin was fourteen, her rather authoritarian father died, and she went a bit wild. She became a teenage mother, whereas I was not facing the risk of getting pregnant. We both went to state grammar schools. She got married very young and left school, while I just plodded on. I turned out to be good at examination and so, as a fluke, I managed to get to Oxford as a student. At one point, I won the university’s economic prize, and I went on to Nuffield College for graduates. I experienced the most junior way of teaching at Oxford. I gradually rose from that. Eventually, I became a professor at Oxford, Harvard, and Sciences Po in Paris.

I have had an astonishingly successful career, given where I started. There were not many people doing that even when I was a kid, but now there are no chances at all for people born with my characteristics. Meanwhile, my cousin’s two daughters also became teenage mothers – it echoed down the generations. This outstanding divergence, which occurred by chance, was completely unnecessary – there was so much that could have been done to make Sue’s life better throughout different stages, but nothing was done.

LJ: What can be done for cities like Sheffield to reinvent it in the post-industrial age? Is it even possible?

PC: Yes, it is absolutely possible. There are many examples around the world where it has been done. There are not many examples in Britain, though, because we are bad at it – we shot ourselves in the foot there.

I have worked in parallel with the local government in Sheffield and the South Yorkshire region. The British government appointed me to be the advisor to its Department for Levelling Up. I was also working with the regional authority of the poorest part of the country on how to recover. It really is possible to recover because so many places around the world have done it.

For instance, Newcastle in Australia was an industrial city where the industry collapsed (just like in Sheffield), but the city managed to revive itself. It had a good mayor and is located in a region of Australia with a lot of powers. Both the region and the city used their initiatives and resources, and now it is a very fast-growing city. It is said that there are more cranes in Newcastle, Australia, than there are in Sydney – so it is really thriving.

An interesting study was done in Britan, which looked at twenty cities that were hit by the collapse of their core industries in the early 1980s – including Sheffield. Out of those twenty, only one – Corby – has recovered – and it turns out that it was hit the hardest. Corby recovered because it was clearly hit so very badly that the British government broke its usual and ill-advised rule, according to which it was not to intervene to help places that have fallen behind and assumed that the market will do it all itself and shall revive it. Well, markets do not do that, they make things worse.

Imagine that a couple of sailing dinghies is sailing along in a gusty breeze. Then, a puff of wind comes and one of the dinghies capsizes, whereas the other one does not. That is a chance event equivalent to losing your core industries. And so, South Yorkshire and Sheffield capsized. Where does the private investment go? People like Milton Friedman thought that it would flood back into the capsized dinghy, but of course it does not because turning a capsized dinghy the right way up is quite a difficult skill. Nobody in the South Yorkshire had that skill. It would have taken a lot of political action and coordinated fresh investment.

Of course, private investors did not believe Friedman’s doctrine of markets doing it all automatically. They knew that if South Yorkshire is capsized, while London has not, then the smart thing to do was to move their money to invest in London – and that is what they did.

Corby was hit so badly that the British government decided to break the rule of non-intervention. They poured big public money in, and they coordinated with the local government, which shifted the expectations of private investors, who gained certainty that the place is going to be revived and wanted to invest there themselves. That is the trick – you need the government move first (on the national and local level) in order to reset the expectations of private investment, so that the private capital moves in.

LJ: Why all other virtues and moral sentiments seem to be declining while capitalism and the cult of greed remain strong?

PC: What is missing here is a sense of community and people’s individual agency to contribute to the whole within a community. There are two forms of community: communities of place (cities and districts where people come together to work for a common purpose) and communities of work. A good company – whether in the private or non-governmental sector – brings people together in a place where everybody has a degree of agency and they all can work together to contribute to a common purpose, which is larger than just me, now.

That move from me, now to we, in the future constitutes a big psychological leap from individualism. This approach moves away from the zero-sum mentality of the state versus the individual to say that there is a third force – we, in the community.

For example, the Rotary Club is a club of businessmen founded in the United States in 1904 by Paul Harris. Harris was a successful man who came from a small town in Iowa – in the middle of nowhere, but there had been there a strong sense of community. When he moved to Chicago, he felt really lonely, and he wanted to do something about it. So, he booked a meeting room and placed an advert in the local newspaper in Chicago, and invited people to come and join his club. Two hundred people showed up. Then, he thought out the rules for his club of successful people. He proposed not talking about business or doing deals in the club. Instead, he wanted to focus on how the successful people in Chicago can help the people in the city who are less successful.

At the time, Chicago was full of people who had been left behind by success (which is still the case). They were depressed, despondent, despairing. Harris wanted to come together and find little ways of helping them. Of course, he was aware that they were not saints, they did not intend to sacrifice everything, but they did find a way to help the community.

This idea proved so successful that as people were moving to other cities, they were setting up their own versions of the club. Soon enough, it became a national, and then international association. Now, the Rotary Club has over 10 million members and it has done huge amounts of good.

LJ: Is it possible to find ways of creating communities without losing individual agency?

PC: The tide of history is running with us in this respect. Raghuram Rajan, a former Governor of the Reserve Bank of India, wrote the book called The Third Pillar: How Markets and the State Leave the Community Behind (2019), which is all about the power of coming together in a community. Then we have got Rebecca Henderson, a top professor at Harvard Business School, whose book Reinventing Capitalism in a World on Fire is very much a passionate plea for rethinking business.

Over the last forty years, we have had a lousy form of doing business, which was very much influenced by Milton Friedman’s completely wrong idea that the sole responsibility of business is to make a profit. The key critic of this approach are John Key and Mervyn King – the latter being a former governor of the Bank of England. Both of them used to teach this wretched economics, but now they teach the exact opposite. They are both extraordinarily clever people. Once, they were at the top of the old-style economics and they have renounced it and said, ‘you cannot run a business like that’. John Key’s wonderful book Obliquity: Why Our Goals Are Best Achieved Indirectly claims that the only way to run a business is by not trying to achieve profits, but instead trying to achieve a really good purpose in business. And the companies which have done that survive, while those that do not and instead try to make quick profit survive for a while and then they crash.

If we look at the top 100 business in the American index, hardly any that were top businesses years ago still remain at the top. The ones that are, have actually adopted the model following the principle of obliquity, according to which one does not focus on the profits but rather on the purpose of starting a company – make something that everyone can be proud of working for.

LJ: How can we make capitalism work and at the same time make it work for the benefit of the society? How would it work in practice?

PC: Politically, I am completely nonaligned – partly because I want to work with all political parties. I think that all three political parties in Britain have got it, unfortunately, wrong. If we go back to Labor Party and Tony Blair and his speech announcing his agenda, he said that he had three priorities: “Education, education, education”. Now, what did that mean?

What he really meant was that if you are somebody like me, born in Sheffield to parents who did not have education, the thing to do was to get yourself an education and then leave and go where the money is and the jobs are – which is what I did. Well, that is a very dispiriting message. Very few people from my background can do what I did. It is, therefore, pretty much a message of despair – nor is it desirable.

I have spent long hours regretting that I did not go back to Sheffield and contributed. You can contribute much more by being in a given place rather than standing outside trying to help it. The real help is the people who stay and do stuff or those who go away, get skills, and then bring them back. Tony Blair’s slogan meant that what you need to do is to somehow get yourself to university, but half the kids in the country do not and will not go to university. Most of the kids whose parents did not have education and are born in South Yorkshire definitely are not going to go to university.

What is much more important is not “Education, education, education”, but ensuring that a person has opportunities even without a university degree or go to Oxford an become a professor there – instead obtaining top vocational skill and becoming a technician somewhere if they want to do that.

We are not providing these opportunities. Across Britain, only 5% kids get a vocational skill – that is hopeless! Meanwhile, we need half of all kids like that. We should get to the level of 5% of people who do not have a vocational skill, who leave school without many qualifications and without much hope. Therefore, England faces a massive task in this regard.

Other countries are doing much better in getting young people to have vocational skills – Germany, Switzerland, France, and many others. They take pride and have found purpose in providing opportunity to move ahead. We should learn from the countries around us and think, ‘That is the way to go!’. This is what the Blavatnik’s school is for: to prepare very smart kids to go and be useful for others.

Find out more about the guest:

Find out more about Sir Collier’s latest book, co-authored with John Kay: Greed is Dead: Politics After Individualism:…hn/9780141994161

This podcast is produced by the European Liberal Forum in collaboration with Movimento Liberal Social and Fundacja Liberté!, with the financial support of the European Parliament. Neither the European Parliament nor the European Liberal Forum are responsible for the content or for any use that be made of it.

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