speri.comment: the political economy blog

‘Civic Capitalism’: restoring democratic economic governance

We need to move on from the ideology that led us astray to a more consciously held, open-ended and dynamic ideology that asks not what we can do for the market but what the market can do for us

Professors Colin Hay & Tony Payne, Directors of SPERI

Colin Hay and Tony Payne

Colin Hay and Tony Payne

Ideology, these days, is a bad word – never a term of self-description and only ever something others have.  Partly as a consequence, many like to think that in the pre-crisis world we were not governed by ideological thinking and that, having spent so long weaning ourselves off it in favour of technically proficient economic competence, the last thing that we need now is to rediscover its merits.  Both claims are wrong.

For the crisis, we argue, is as much a product of an unacknowledged ideology as anything else.  Indeed, it was only in the context of such an ideology that the laissez-faire policies of market liberalisation favoured in the Anglo-liberal world could be seen as the very condition of good economic management.  It is the crisis that reveals this as an illusion; and it is the crisis, and the lessons we draw from it, that requires us never to so mislead ourselves again.

What this entails is not, however, ‘the end of ideology’, but rather the move from an unacknowledged, closed and static ideology to a more consciously held, open-ended and dynamic ideology – and, above all else, one that puts the market in the service of the public, as citizens, rather than the other way round.

So what was the nature of the ideology that led us astray and how might the placing of citizens above the market and civic values above market values start to put things right?  There are many things to say here.  First, the dominant ideology pre-crisis was largely technical in character – whether manifest in the investment algorithms of financial market actors or the benign mood music generated by the credit rating agencies or the light touch regulatory dispositions of the institutions of depoliticised economic governance.  It was this pervasive technicism that made it more difficult to discern, less visible for what it was and the more impregnable to contestation.  Its formalism masked and hid from view its dubious economic premises and the benighted moral and political philosophy on which these rested.

Second, and more obviously, the ideology was profoundly market-conforming in both its moral conviction as to the supremacy of purely market-based systems of allocation and its political timidity as to our capacity to regulate markets and compensate for market failure.  The mainstream convinced itself that the market was synonymous with economic efficiency and was essentially self-regulating.  As a consequence, there was little if anything that the state was capable of providing that was not better delivered through the free play of market mechanisms.

This, of course, had consequences.  Particularly insidious was the conviction (genuinely held, however misguided) that market-based systems of allocation were technically more efficient and that dynamic markets (particularly those characterised by financial innovation) were both so rapidly evolving as to be incapable of effective regulation and, conveniently, self-equilibrating anyway. It was precisely this combination of assumptions that led so many on the centre-left, just as much as more natural enthusiasts on the right, to the view that widening social and economic inequality was a necessary and acceptable price to pay for the growth with which it was (assumed to be) associated.

This led, almost by default, to a form of ‘trickle-down’ economics.  If markets were inherently efficient, then regulation (like any other form of state intervention) would merely suppress the potential for growth.  Consequently, the optimal strategy was to free up the market in order to maximise the possibility of profitable accumulation – and to worry about the distributional consequences later.  Of course, the left worried much more than the right.  Such anxieties took the form, in part, of concerns (and, somewhat less frequently, substantive policy innovations) about the state’s societal obligation to provide more equal access to the market and to redistribute the proceeds of growth.  But the problem was that any such redistribution was itself a form of state interference in the market – and hence, within the terms of the dominant ideology, a source of inefficiency and a drain on growth.

Finally, and perhaps most worryingly (at least with the benefit of hindsight), such genuine anxieties led in an apparently more comforting direction.  Here the familiar refrain was that, even if its proceeds were unfairly distributed, since growth was so much greater than it would otherwise have been, the poor would be still better off – in absolute, if not in relative, terms.  Widening inequality was, in short, the best that could be achieved – a necessary correlate of growth maximisation.

But, as we now know all too well, we had allowed ourselves to be duped.  Many really did think that we had ‘no alternative’; that market-conforming policies were good for us, for all of us; that markets were the best guarantors of the provision of collective public goods; that the algebraic alchemy of mainstream economic theory was all-seeing and could deliver the elixir of growth indefinitely – in sum, that the whole ideological framework of Anglo-liberalism did indeed underpin a stable and sustainable model of both competitiveness and growth (and, what’s more, one that could be exported to the rest of the world).

That was then.  We now know all of this to be wrong – and this revelation has profound consequences for how we think about ideology now.  We highlight three lessons in particular as crucial for the civic capitalist alternative we propose.

The first is that we must be far, far more wary of technocracy, managerialism and expert elitism.  This is not how we have tended to think of our relationship with economic orthodoxy; but it is exactly how we must now understand our political dependence on mainstream economic theory.  Economics, as the crisis reveals, is never a science (at least not in the lay sense of the term) and economic expertise is, as a consequence, a potentially dangerous thing.  It is something that needs to be exercised carefully, held to account democratically and acknowledged for the political intervention that it always represents.

The second lesson follows directly.  For once we acknowledge that markets are neither self-regulating nor self-equilibrating and that, as a consequence, market conformity is not so much the key to growth as the guarantor that any such growth is ultimately unsustainable, then the world looks very different.  The state now emerges as integral to growth and, perhaps more significantly, to the sustainability of such growth.  For it is the only body capable of regulating the market and such regulation is both the only means by which capitalism’s propensity for crisis can be held in check and the only means by which the market can be made to answer to the citizens it ostensibly serves.  The state might not always have a very good record in market regulation and the dangers of state failure should not and cannot be understated or overlooked.  But we simply cannot afford to assume that markets contain the capacity to regulate themselves and, in so doing, allow them in effect to regulate us.

The third lesson is a correlate of the other two.  As soon as we acknowledge that the state is, in effect, the public good provider of last resort, then we start to acknowledge its moral and political responsibility to us – as citizens.  The state, in and through the governments we elect and in and through our capacity to hold them to account democratically, has a responsibility to us all to govern, manage and regulate the market economy and to deliver, in the process, outcomes we consider just and fair.  The market is never and can never be a guarantor of equity or justice.  If we are to have social and economic justice it has to be imposed upon the market by the state in our name.

That is the very nature of civic capitalism – the governance, by the state, in the name of the people, of the market to deliver collective public goods, equity and social justice.  However, we have first to believe widely that this is possible, desirable and indeed necessary.  This, to be clear, does not entail that we adopt a new statist ideology by which we entrust to the state without question all that we previously assumed the market would provide for itself.  But it does mean that we need consciously to espouse a different and a more open-ended set of values and ambitions, a different ideology in effect – one of democratic economic governance.  Together, as citizens of a democratic society, we need to ask not what we can do for the market, but what we wish the market to do for us.  That is what we mean by civic capitalism.

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