Social life of the markets


Different societies function in different ways, but Britain is really a “high trust” society. We would do well to recognise this.

Singapore, where Tony Blair launched debate on a shareholder economy, is an extreme instance of a modern paradox. Capitalism is generally equated with individualism. Market forces are said to require well entrenched and well defined rights in private property.

Yet most successful market economies are far from being individualistic societies. No-one would ever apply that epithet to fast growing Singapore, Japan or Korea. Or to Germany, Norway or Switzerland, still the richest nations in the world, even if their recent growth has been lacklustre. In none of these countries would Baroness Thatcher’s observation that “there is no such thing as society” be greeted with anything but bewilderment.

While libertarians have always stressed exclusion – the right of individuals to opt out of society – these countries are characterised more by inclusion – the right, and also the obligation, to be part of society. What all these countries illustrate, in very different ways, is that high degrees of group and social cohesion are not just capable of being reconciled with capitalism. They may actually be important in making markets effective.

Even the United States, certainly the most individualistic of major economies, shows this cohesion in many of its corporations and within communities. The most truly individualistic economy is probably Nigeria, and it does not work.

This is not really very surprising. Inclusion and shared values promote trust, co-operative behaviour, and the ready exchange of information. These things do not just make for a kinder, gentler society, although one should not doubt the importance of that. They also yield hard-nosed commercial advantages. They are the reason why the Japanese have been able to achieve unmatched levels of component reliability, implemented just in time inventory management, and shorten model cycles. They explain why the German and Swiss have secured exceptional standards of production engineering.

Here at home, the contribution of inclusion and shared values to the development of trust, co-operative behaviour, and the exchange of information were the historic basis of the competitive advantage of the City of London. Or of Lloyds. And it was the breakdown of these features – the emergence of increasing distinctions between insiders and outsiders, and a shift of emphasis from an essentially co-operative regime in which syndicates followed lead underwriters onto slips to an essentially adversarial one in which agents each tried to land bad risks on each other, which threatened to bring that institution down.

Complex, and often largely implicit, structures of relationships within and between organisations are essential to modern business. Yet they find no real role in the traditional left-right economic rhetoric, in which all economic power is assumed to rest either with the state or with individuals. Old socialists and the New Right agreed on this dichotomy, and disagreed only, if fundamentally, on how large the role of the state relative to the individual should be.

Yet the obvious fact is that most economic power rests neither with the state nor with individuals, but with groups and associations in between, of which large corporations are most important. Singapore is a difficult example here, since Singapore has undeniably a powerful, if rather unusual, state. Look instead to Switzerland or Japan – very different models, but each with important common elements. In both countries, taxes and public spending are low relative to natural income. Each are strongly inclusive societies. Welfare provision is largely decentralised to corporations and communities. The regulation of economic activity, is based, not on state dictation, but on a strong sense of shared values and common objectives.

Commentators looking at these societies find it difficult to identify quite where economic or political power lies, and this is no accident. It is the complex, tacit and even incoherent structure of Swiss democracy of Japanese corporation that makes it difficult for the economic and political institutions of these countries to be captured by any interest group in particular and so requires them to be run on behalf of the interests of all.

That is the essential concept of stakeholding. Anyone who exercises economic power does so in a context which requires them to manage inclusively – to consider and to balance the range of economic and social interests involved. It is a context which is not set by government determined rules and regulations – the solution favoured both by the New Right, who require us to write contracts for everything, and by the old left, who do it through state direction and control. Nor is it the context set by representative assemblies of interest groups, which are mostly formed of people rendered unrepresentative by their very willingness to take on the job – the corporatist model. The context is primarily the result of commonly held expectations and values, and people respond because that is how they behave rather than because someone tells them what to do.

The term stakeholding originates in discussion of the role of the large corporation, and it is still there that it finds the most important applications. For example companies have responsibilities to develop the skills and capabilities of their employees, and to try to achieve security of employment. These responsibilities are not purely instrumental. They do not exist simply because doing these things might make more money for the shareholders. They might – or then again they might not. Nor is it desirable that such responsibilities should be imposed as obligations by government regulation. Regulation is inflexible and damages weak businesses which cannot afford to do these things, however as much as they would like to. Companies have responsibilities simply because that is how good companies behave in an inclusive society.

Most business people know this, and behave this way. But they do so much less than they did, as a result of the corrosive influence of individualistic rhetoric and take-over fever. The alternative to acknowledging that they are business responsibilities is to say that training and unemployment are the concern only of the state and of the individuals affected. They involve you and me only if such concern is forced upon us or if it is in our own narrow self-interest. The stakeholder perspective expects us to assume that responsibility more fully. Not through the state, but as managers, as shareholders, and as employees who still have jobs.

This does not mean that we should try to emulate Germany, or Japan, or Switzerland, or Singapore. On the contrary: when we realise that markets always operate within a social framework we see also that the framework is the product of each country’s particular culture and history. That is why these countries have as many differences as similarities. But Britain is naturally an inclusive and high trust society, and the aggressive individualism of the last fifteen years is in many ways an alien philosophy. It is that vein which Tony Blair is trying to tap.

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