IEA Blog

On Newsnight last night there was a long feature by Paul Mason with comment by Phillip Blond about so-called new forms of capitalism. The piece consisted of Paul Mason going round various businesses in St. Davids in Wales and putting words into the mouths of the business owners about his perception of capitalism. Mason was then heartened by the responses of the business owners who seemed to be promoting a new softer brand of capitalism. Straw man after straw man was put up and knocked down again and again.

The basic idea Mason was trying to get across was that capitalism to date has been about maximising growth and profit and that this new breed of business people had a more balanced outlook on life which was socially more acceptable.

Mason would not recognise a free economy if it stood up and slapped him in the face. From a social perspective, a business is quite simply a community of persons that exists to meet its own ends by serving the ends of others. That fact alone deserves some contemplation and it is a wonderful thing. A free economy naturally leads to variety because seven billion people in the world have different aims and objectives both as consumers and producers. Most businesses are small and the ends of the business owners are naturally diverse. Most people who work for businesses also have quite diverse aims in life. There are relatively few people in society who get up every morning and try to maximise their material output for the day and most businesses best achieve their objectives (even if the main objective is return on capital) by remaining small. One of the people made an apparently profound statement that they “optimise not maximise”. Don’t we all? Haven’t we always?

Different types of business organisations come and go but the cooperative, fair trade, charities, universities (often set up as non-profit-making corporate entities), mutuals, building societies, friendly societies have, at different times, been part and parcel of the rich tapestry of a market economy. Football and cricket is very important to many people but who has ever come across of football club or county cricket club that maximises profit? No, they act purposefully to achieve whatever their objectives are.

Then, along comes Phillip Blond arguing that the re-localisation of finance was necessary to reinvigorate the economy, praising the organisations in Mason’s piece and criticising other forms of business as having created a thirty-year bust (on which we are about to embark). Two things can be said in response. Firstly, we should be careful when criticising those businesses that choose to grow big and produce more “things” more cheaply. It is precisely because of such businesses (for example, Easyjet) that the less well off enjoy the foreign holidays and so on that Paul Mason probably takes for granted. Much lower mortgage margins than my parents enjoyed exist today because of competition in the banking sector. Secondly, Blond wants to design the economy so it takes the shape he would like. He consistently ignores the evidence that the demise of many of the community-based institutions that he admires (especially in finance) was caused by state intervention – especially the welfare state (which to be fair Blond criticises) but also state intervention in the form of financial regulation.

In summary, if we want to have a more diverse free economy then we need to extend the domain of freedom and not constrict it.

I have blogged before on Phillip Blond - I am not just jumping on the bandwagon after the launch of ResPublica. But it is interesting that his philosophy seems to have the approval of David Cameron – I hope that DC thinks about it a little more deeply.

Blond’s roots go back to the distributist movement that has some adherents amongst Catholics in the UK. It emphasises widespread ownership, the inevitability of a free market degenerating, the importance of guilds and so on. Indeed, Blond claims the support of Pope Benedict’s encyclical Caritas in veritate for many of his views. I have written about that encyclical in four articles at least, but I am afraid it offers no comfort for Phillip Blond’s overall strategy (though neither could I claim it for the free market case). The pope repeats what has been said many times in the last 40 years in official Catholic Church documents that the Catholic Church has no economic models to offer – only a critique of certain issues in the context of our times and in the context of the theology and morality of the Catholic faith. If Cameron really does embrace Blond then the headline “Cameron embraces Catholic economics that the pope himself rejects” would not be inappropriate.

Blond’s ideas take a lot of unpicking. I only have a few hundred words. As such let me make four points that, I believe, hole “Blondism” beneath the waterline – not necessarily as a political philosophy but as a political philosophy that should be embraced by a broadly free market party…

Read the rest of the article at ConservativeHome.

Understatement is perhaps not Phillip Blond’s forte. The director of the “progressive conservatism” project aims at nothing less than ushering in a new era in British post-war politics. First came “state-sponsored Keynesianism” (1945-1979), then came “neoliberalism” (1979-2008), and now comes “progressive conservatism” (2009 – ?). 

In a nutshell, progressive conservatism is a belief that both the big state and the free market only serve small elites – bureaucrats and oligopolists respectively – and disempower “ordinary people”. The alternative to both consists of two (intertwined) pillars, “a full-blooded new localism” and a reborn civil society.

Surely localism means Swiss-style competitive federalism? Unfortunately not. For Phillip Blond, localism appears to mean that the central government (!) should break up supermarkets and other big players, who are “strangling local commerce” and destroying distinct local identities. 

But if Tesco, for example, rides roughshod over local cultures, then why do so many people buy there? Would you buy in a place that you feel is trampling on your values all the time? The answer must be that people either do not believe that their local identity is defined by where they buy their milk and toothpaste, or that they do have a preference for stores and products with a local character, but not at any price. 

So why not state the case like this: “Most people’s willingness to pay a mark-up at a store with a specific ‘local’ image is not high enough to offset Tesco’s price advantage. Therefore, Tesco’s prices must be artificially raised by depriving the company of economies of scale, to push consumers back on the high street, and bring their buying behaviour in line with Phillip Blond’s personal preferences.”

As far as the “civil society” pillar is concerned, the progressive conservatism project presents a variant of a social democratic fallacy which has been refuted by two IEA authors, namely, that the government can deliberately create “social capital”. While for social democrats “creating social capital” means handing out taxpayers’ money to organisations promoting leftist values, for progressive conservatives it would mean handing out taxpayers’ money to conservative-minded organisations like the “conservative co-operative movement“. 

The writer Gotthold E. Lessing is alleged to have said about a book he reviewed that it “contains many new and good things; but the good things are not new, and the new things are not good.” The same is true of progressive conservatism.

Phillip Blond is director of the Progressive Conservatism project at Demos and it is suggested that his ideas are getting a lot of exposure within the Conservative Party. His thoughts are certainly conservative but they are definitely not progressive, harking back as they do to a long tradition. Blond’s ideas often seem to involve posing straw men founded upon do-it-yourself economics, and then knocking them down. This was very clear in his recent article in the FT on 13th April. 
 
In that article he shows a lack of understanding of the liberal arguments for a market economy. Worryingly, he claims support from George Osborne. Firstly, he argues that neo-liberalism’s foundational premise is the efficient markets hypothesis and then suggests that this is not valid. This hypothesis may be the model taught in some finance faculties of business schools but it does not provide the neo-liberal justification for markets. The neo-liberal justification for markets is underpinned by the recognition of the role of market participants in uncovering information about the best way to use economic resources – a process that is quite consistent with so-called mis-pricing in markets (including financial markets). Indeed, without “mis-pricing” there would be no entrepreneurs and, indeed, no markets. Interestingly, though, what has happened in recent years is that REGULATORS have imposed on financial institutions models of regulation and solvency provisioning that assume that the efficient markets hypothesis is true.
 

Secondly, he argues that “too-big-to-fail” institutions are an inevitable product of the market. This is nonsense. In fact, many market mechanisms that stopped the development of such institutions have been ripped up by the state (for example private stock exchanges that took responsibility both for regulation of trading and of the corporate form of the entities that traded on the exchange). Also, if the government guarantees that big institutions will not fail then their evolution is inevitable – but this is not a consequence of free markets. It is interesting, also, that Blond does not mention the biggest monopolies of all: those in health and education.
 

Blond seems to want local provision to replace multinational monopolies (he cites Wal-Mart frequently). This really is bizarre. Wal-Mart is a product of competition and it would disappear as quickly as it has grown if it started to exploit consumers. In fact, Blond misses an elementary point. Wal-Mart is a multi-national company that does not have a monopoly. If we have local provision we may have millions of firms throughout the world but each could be a local monopoly. Some of us remember going shopping with our parents in the early 1970s, trudging from one over-priced, inefficient, unimaginative local monopoly to another over-priced, inefficient, unimaginative local monopoly. Indeed, before I went to school, I have the impression that this tedious activity took up almost every morning.
 

In general, Blond seems to want markets to pursue moral objectives through state regulation. Gordon Brown may be a “son of the manse” but he is not God. Though it is always desirable for market participants to behave ethically, markets cannot be made moral simply by the action of state regulators as they are themselves neither omniscient nor perfectible.