Twenty years ago Will Hutton published The State We're In, which topped the nonfiction charts and briefly became fashionable among the New Labour elite. In it he sketched out a vision of what he called stakeholder capitalism, a less greedy and more compassionate version of capitalism that took account of the interests of employees, customers and of society as a whole as well as those of shareholders and senior executives. He also argued that a decent welfare state was not only affordable but also in the general interest. His was essentially an optimistic book, setting out a radical but not impossible programme of economic and social reform that briefly caught the mood of the times. For a while even Tony Blair quoted it.
Alas, little or none of this came to pass. Although the Blair government would eventually invest heavily in health and education, and even redistribute a little wealth, it was by and large content to go along with the nostrums of the Thatcher era – low taxes, light-touch regulation and an almost religious belief in the near infallibility of the market – with results that we all know about.
How Good We Can Be is the sequel. Like its predecessor it is generally optimistic, although leavened by a heavy dose of reality, given that the bills are now coming in for the Thatcher decade. If anything, says Hutton, he underestimated "the catastrophic economic and social impact of Thatcherism". He goes on: "I had not reckoned that the whole system could be driven to the point of collapse, as it was in 2008."
Outdone by reality
Many of Hutton’s earlier warnings have been outdone by reality. “The mis-selling scandals and the excesses of executive pay that I found so shocking seem so small by today’s standards. Then I was worried about the growth of temporary and agency work: I did not dream of zero hours contracts.”
For those untroubled by the burgeoning inequality, Hutton quotes no less a figure than Mark Carney, governor of the Bank of England: “Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself.” To which Hutton adds, “Societies, unlike individuals, do not die. But the cancer of inequality produces results that are equally catastrophic . . . Trust evaporates. There is no sense of common purpose . . . capitalism distorts itself and ceases to innovate. Electorates become vulnerable to extreme populism from the left or right.”
By now we have travelled some distance down that road. We have reached the point where, as Ed Miliband discovered, any politician who challenges the tax avoiders and the FTSE fat cats who are stuffing their bank accounts risks being labelled “anti-business”.
As before, Hutton – once an economic commentator, now the principal of Hertford College, Oxford – documents the rapidly widening wealth gap. The statistics grow more astonishing with every day that passes. In the top 100 companies the salary of the average chief executive is now said to be 180 times that of the average worker (a gap that has tripled in the past 20 years). Housing in much of the UK is now unaffordable for most young people, and more and more of the impoverished are resorting to food banks to feed themselves and their families. Most investment is in speculation rather than productive activity: an astounding 85 per cent of bank lending is for the purchase of property, thereby fuelling the boom that is rendering housing unaffordable for future generations.
Hutton is by no means alone in documenting these ominous trends, but what distinguishes him from other commentators is that he presents a clear and generally credible plan for addressing it. As regards the banks, Hutton argues, as others have done, for the separation of investment and retail banking, and for state-run banks specialising in investing in research and innovation, with a view to the long-term public interest rather than short-term profits.
He proposes rewriting the Companies Act, giving greater weight to a new class of shareholders prepared to invest for the long term. As in Germany, he wants to see trade unionists on company boards, so that account is taken of employee interests. He wants greater investment in the welfare state, funded by increased taxes on property and on luxury goods. And he argues for much greater devolution of power from central government to city regions.
Two obvious questions arise: how much of this is (a) affordable and (b) politically possible, given that the commanding heights of the British economy are in the hands of precisely the people who stand to benefit from the existing arrangements? Some of what he proposes – reducing, for example, pupil-teacher ratios in state schools to the level of schools in the private sector – is clearly unaffordable. Likewise, devolution of power to the regions comes up against the difficulty that, outside London and the southeast, most English regions raise only a fraction of the revenue that they spend on basic services and are, therefore, dependent on central-government subsidy.
Political hysteria
Any politicians proposing greater public spending are liable to find themselves charged with wilfully ignoring the deficit. Intriguingly, Hutton argues that much of the rhetoric surrounding the deficit is hysteria. “The national debt has been proportionately higher for most of the last 300 years,” he says. “The three decades up to the financial crisis were the exception rather than the rule.” Maybe, but it would be a brave political leader who went into an election with that argument.
Much of Hutton’s programme, however, requires not so much increased public spending as political will – which, thus far, has been in even shorter supply than finance. As with his earlier volume, he has provided opposition parties with, for the most part, a credible alternative social and economic policy to the one that has been the dominant narrative for the past 30 years. The question is to what extent, if at all, they will pick up the ball and run with it.
Chris Mullin is a former British Labour Party minister and the author of three bestselling volumes of political diaries
