Stumbling and Mumbling

Free speech after Mill

We need to reconsider the case for free speech, because the classical liberal case for it is questionable.

Robert Sharp recently echoed John Stuart Mill when he said:

Our own opinions, beliefs and values should always be tested, less they become yet another kind of dogma...With each iteration, we refine our arguments and can persuade new people to our point of view.

This is true in many cases: it’s why we should tolerate, and even welcome, Economists for Free Trade. But in the case Robert discusses – Richard Littlejohn’s homophobia – it’s not so clear. The benefits to us from decent people like Robert having a more refined opinion of the errors of homophobia are quite possibly outweighed by the threat that gay people feel from seeing homophobia normalized in the mass media.

There’s something else. Mill thought that free speech would lead to intellectual progress:

[Mankind’s] errors are corrigible. He is capable of rectifying his mistakes by discussion and experience. Not by experience alone. There must be discussion, to show how experience is to be interpreted. Wrong opinions and practices gradually yield to fact and argument: but facts and arguments, to produce any effect on the mind, must be brought before it.

This, though, is deeply doubtful. Facts are dismissed as “fake news” and evidence is interpreted with asymmetric Bayesianism; we are credulous about evidence that supports our prior views but sceptical of that which disconfirms it. Fact and argument lead not to the rectification of error but to stronger polarization. As Lord, Ross and Lepper concluded (pdf) back in 1979:

Social scientists can not expect rationality, enlightenment, and consensus about policy to emerge from their attempts to furnish "objective" data about burning social issues.

Our supposedly impartial media is no help here. It consistently failed to call out lies during the EU referendum, and it continues to give insufficiently critical coverage the peddlers of those falsehoods. The Brexit debate has been top of the news agenda for two years and yet no intelligent person on either side considers it well-informed.  Oliver Norgrove, a Brexiter, surely speaks for many on both sides when he decries “elected officials barely able to understand the basics”, “intellectual vacuums” in both main parties and “ignorant headline-grabbers”.

The “impartial” media does, however does something effectively. Cathy Newman’s now-notorious uncomprehending interview with Jordan Peterson showed that it is incapable of coping with voices that don’t conform to a narrow range of views. As Ryan Bourne says:

Certain viewpoints from certain spokespeople are just not heard on the media.

He’s speaking from a rightist viewpoint, but I suspect his point generalizes. Many valuable perspectives – Oakeshottian conservatives, left libertarians, free market egalitarians and so on – are largely excluded from public discourse. One reason why Corbyn got such bad coverage especially early in his leadership was, I suspect, not so much that the BBC was actively hostile to him, but that it was so in thrall to a narrow Westminster-centric conception of politics that it just could not comprehend something different.

I say this with regret, but I fear Mill is no longer relevant to the debate about free speech. He was writing in an age before the mass media, when discussion was to a large extent among equals – albeit posh white men. He could not have anticipated the truth of Afua Hirsch’s point:

The marketplace of ideas, like many other markets, has monopolies, rackets and biases. Long-established “suppliers” of opinions with entrenched positions in “the sector” enjoy huge advantages. 

“Free speech” has become one more means through which the mega-rich exercise power to, as Simon says, seriously distort democracy.

Now, I’m not sure this is a case for repressing speech: laws will be used against the powerless rather than the powerful. Instead, what I’m saying is that we need to move beyond romantic twaddle about actually-existing free speech being a road to truth. Instead we need to ask: what would a rational, pluralistic inclusive Habermasian political discourse look like?

I agree with Paul that we need

a public sphere in which, as far as possible, all citizens have a right to express, and have heard their views, through formal democratic structures and civil society mechanisms.

This of course requires radical changes. But what sort? To what extent are they compatible with currently-existing capitalism?

Underneath those questions, however, I have a nasty one. What if the many irrationalities that distort debate now are due not just to capitalist ideology and power structures, but to innate flaws in human reasoning? What then?

Labour: the party of business?

Is Labour now the party of business? This is the question posed by the fact that the CBI has endorsed Jeremy Corbyn’s support for the UK to be part of a customs union with the EU.

I know, I know. The question seems absurd given Labour’s calls for nationalization of utilities and higher corporate taxes*. From two other perspectives, however, the question is sensible.

First, let’s assume that businesses’ interest is in having a high profit rate.

This rate, by identity, is equal to the share of profits in output, multiplied by the output-capital ratio.

Many of Labour’s policies might be bad for the share of profits – such as higher minimum wages, greater regulation of exploitative practices and stronger workers’ rights.

But they might well be good for the output-capital ratio. A looser fiscal policy would have this effect, insofar as it is not offset by tighter monetary policy.

And several Labour policies might well expand profit opportunities. Infrastructure investment would have this effect, as would a Mazzucato-style “entrepreneurial state” – one which helps the private sector with research and development. And Labour’s National Investment Bank is (pdf):

a response to the failure of the UK banking sector to provide longer- term loan funding for enterprises, for small and medium-sized enterprises especially, or to support innovation in forms of productive organisations.

It is perhaps insufficiently appreciated that many smaller businessmen (and ex-businessmen!) despise bankers, and would welcome anything that reduces their dependence upon them.

There is, though, a second perspective here. In the long-term, business needs not just profits but also legitimacy. And a system in which real wages for the many stagnate and in which young people have no hope of owning property, whilst a handful of people make millions and dodge taxes is one that lacks legitimacy. In removing egregious injustices, Labour promises to save capitalism from the capitalists, to use Rajan and Zingales’ words (pdf), by shoring up support for a reformed system.

This poses the question: what is business? The grasping (and inefficient) plutocrat is only part of the story. There are 2.8 million businesses in the UK. For every Philip Green or Fred Goodwin there are thousands of decent people struggling to make a payroll in the face of unreliable bankers, road congestion and an idiot Brexit policy. Labour can speak to these. Ed Miliband’s distinction between producers and predators was a good one.

You might think all this is hard to square with claims that Corbyn and McDonnell are Marxists. I’m not so sure they are. They are instead radcial(ish) social democrats whose priority is to improve living conditions for workers. They are Marxists insofar as they perceive – rightly – that capitalism is failing to do this. But they are willing to give a reformed capitalism a chance to deliver the goods again. There are many types of capitalism besides kleptomaniac neoliberalism – even though much of our imbecile press cannot see this.  

You might also question how many votes there are in appealing to business. There are none at all if this means cosying up to elites. But this is the opposite of what Labour is doing. It is, instead, showing an awareness of the real needs of real people. And that is much more than a Brexit-addled Tory party is doing.

* If you believe the incidence of corporate taxes falls upon workers or consumers – in the form if higher prices or lower wages – then they are not anti-business, except insofar as they are bad for the general economy.

Enlightenment & the capitalist crisis

In his latest book, Enlightenment Now, Steven Pinker claims that the Enlightenment has worked, and that “health, prosperity, safety, peace, knowledge, and happiness are on the rise.” I have a problem with this.

I don’t doubt at all that life has become vastly better in the last couple of centuries, perhaps especially for oppressed groups such as workers, women and ethnic minorities. Instead, my question is: what progress has there been in the last ten years?

None at all, by one important measure in the UK. Real wages are now lower than they were ten years ago, and younger people have far less hope of ever owning property.  

Of course, as Mill wrote, a stationary state of incomes need not imply stagnation in other aspects of human flourishing. But what progress have we had here recently? Yes, crime has fallen – albeit less so than in the 90s. But there can be little doubt that our political culture has declined. We’ve seen a rise in fake news (and misplaced allegations thereof), asymmetric Bayesianism, shrillness, intolerance and xenophobia.

Centrist and liberal values are under threat (though as John Gray points out, it would be misleading to call these “Enlightenment values”.)

This, of course, is no coincidence. As Ben Friedman has shown, economic stagnations create intolerance and closed-mindedness. The anti-Enlightenment trends that Pinker identifies – “tribalism, authoritarianism, demonization, magical thinking” – are on the rise not because people have suffered a collective bang on the head, but because centrism is no longer putting money on the table. Brexit is, in large part, the product of stagnation and austerity.

From this perspective, I’m inclined to agree with Gray that celebrating the Enlightenment is an “intellectual anodyne” for centrists. This is because it misses the point.

Which is that the fact that a long history of progress has stalled is consistent with the Marxist narrative.

Marx saw that capitalism was a force for progress. It has, he wrote, “accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals”, “rescued a considerable part of the population from the idiocy of rural life” and “created more massive and more colossal productive forces than have all preceding generations.”*

But, he added, this would eventually cease to be the case. Capitalistic property relations would, he thought, eventually become “fetters” upon material progress. And, pace Friedman, a lack of material progress means moral and intellectual regress.

If this is right, liberal centrists are doing what Tom Paine accused Edmund Burke of: they are pitying the plumage of liberal values but forgetting the dying bird of the prosperity that fostered them.

Rather than simply assert the virtue of Enlightenment values, they must instead recognise that the threats to these are a product of capitalist stagnation. They must give us good reasons to believe this stagnation is temporary or – better still – come up with convincing ideas for rescuing capitalism. The fact that many of them acceded to Tory austerity means they have, so far, been unable to do this.

Unless they engage intelligently with the fact of capitalist failure, centrists will remain irrelevant. In fact, it might be that it is we Marxists rather than they who are the better defenders of values such as liberty and rationality.

* We must remember that capitalism was a force for progress in the 20^th century in large part because it embraced anti-capitalist elements – a welfare state, mixed economy and progressive taxation – and began to stagnate as these elements were whittled away by neoliberalism.

Stable exploitation

Was Kaldor right after all, at least for the UK? This is one question posed by today’s GDP data.

Kaldor proposed as a “stylized fact” that the shares of wages and profits in GDP are roughly stable over time. Today’s figures confirm that this has been the case in the UK, at least in recent years. They show that the share of profits in GDP has been stable at just over 20% since the early 00s. The share of employees’ compensation* has also been quite stable; it fell between 2009 and 2013 which was (arithmetically) the counterpart of higher taxes rather than rising profits.

Yes, we did see a massive shift in incomes from wages to profits between the 70s and mid-90s. But that was partly reversed in the late 90s. Since then, not much has happened to factor shares. This means the wage share is higher now than it was in the 90s and the profit share is lower.

All this is a stark contrast to the US. There, we’ve seen an increased profit share and increased (pdf) mark-ups since the 90s, and a decline in wages relative to productivity, all of which are symptoms of increased monopoly and monopsony (pdf) power.

Stock markets tell us a similar story. Since the mid 00s US shares have significantly out-performed UK ones**. There are several possible reasons for this. One is that investors believe that US companies have more monopoly power than UK ones – what Buffett calls economic moats – which means their profits are more sustainable and this justifies higher valuations.

Quite why this should be is another story. One possibility might be that US firms are more intangibles-intensive and hence benefit more from economies of scale than their UK counterparts. As Jonathan Haskel and Stian Westlake have pointed out, intangibles can increase inequality.

Now, in saying all this I am not denying that the UK has a problem with inequality: a stable share of wages in GDP tells us nothing about the distribution of those wages. Nor of course am I denying that British workers are exploited. They are. But in aggregate they seem to be no more so now than in the 90s.

Instead, my point is that in the UK stagnant wages since the mid-00s has had more to do with flat productivity (until very recently) than with employers grabbing a bigger share of the pie. British capitalism is not like American capitalism. Whether this will remain the case is another matter.

* This includes employers’ pension contributions as well as wages.

** My chart compares the FTSE small cap index to the S&P 500 because small caps are a better measure of domestically-based stocks than the All-share index which is dominated by multinationals. Given that the small cap index has out-performed the FTSE 100 since the mid-00s, the UK’s under-performance would look even worse if we took the All-share index.

Hired: a review

For some time, I’ve asked that journalists leave the Westminster Bubble and look instead at ground truth. I’m delighted, therefore, that James Bloodworth has done just this. His latest book, Hired, describes his experiences of working on low wages – at an Amazon warehouse in Rugeley, a call centre in South Wales, as a care worker in Blackpool and as an Uber driver in London.

Of course, he’s self-aware enough to acknowledge that he’s a tourist. His experience necessarily misses a lot: the sense of despair that comes with knowing that low-wage work is for life; or the difficulties of juggling such work with care responsibilities, for example. However, when so much journalism consists of smears, prejudice and idle gossip whilst the voice of workers goes unheard, James’ story is essential reading.

It raises many issues, which should challenge both left and right. I’ll list just a few.

One, sad to say, is immigration: especially at Amazon, James is surrounded by Romanians. The issue here isn’t just the perception, fuelled by employment agencies wanting to screw down pay and conditions, that there’s a vast reserve army of migrants. It’s also perhaps that migrants contribute to a lack of class cohesion at work.

Secondly, James shows that a big problem for the low-paid is not just the level of wages but the insecurity. You can get by on the money James made, albeit joylessly. But there are many possible disturbances to these: “mistakes” in calculating wages (surprisingly common); changes in hours; unexpected expenses; or trivial misdemeanours at work that get you the sack. Any of these can force you into to the world of loan-sharks or homelessness.

For me, this strengthens the case for a citizens’ income: it provides security against such shocks.

Thirdly, low wages are unhealthy. James says he put on a stone whilst working at Amazon despite walking ten miles a day. The stress of work compels you to want a “momentary morale boost” such as a cigarette, chocolate or junk food. Add in the difficulties of fitting meals around irregular working hours, and the fact that low-wage work steals (pdf) cognitive bandwidth, and we’re left with the fact that demands on the poor to eat well are simply unrealistic.

What’s more, poverty is oppression. James says:

Whether it was the employment agency underpaying you, the job centre messing you about or the rent-to-own store trying to bamboozle you there was often this running battle with the authorities.

This continues in the workplace. James describes how workers face intense distrust and constant surveillance by either technology or “petty fuhrers”.

This oppression, however, doesn’t come (directly) from fat plutocrats in top hats grinding the faces of the poor. Job centre staff who “treat you like scum”, yobs who attack the homeless and the shop-floor tyrants at Amazon probably earn less than average wages. And yet they contribute massively to the misery of the worse-off. Yes, such people are under stress from those above them. But it’s possible that they have, in James’ words, “internalized the objectives of their gaolers.”

And herein lies a depressing theme of Hired – the lack of class cohesion. James says: “Thatcherism’s greatest success was probably in the gradual erosion of class solidarity.” You get no sense in his book that his colleagues are active supporters of Corbyn or (worse still) that they have dense networks of friends or family to help them through the hard times. 

Granted, there’s a danger here of romanticizing the past. The lack of class solidarity was a theme of Robert Tressell’s Ragged Trousered Philanthropists and we must remember that trades union militancy was used to “preserve differentials” and to support Enoch Powell, as well as for more benign ends. Nevertheless, this reminds us of Marx's biggest error - the belief that class consciousness would increase over time.

Rightists like to tell us that there’s more to poverty than a lack of money. They might be right, if not in the way they intend.  

When the impartial spectator is missing

Is good behaviour more fragile than generally supposed? For me, this is the question posed by the unpleasant controversy sparked by Mary Beard’s tweet:

I do wonder how hard it must be to sustain “civilised” values in a disaster zone. 

One interpretation of this seems to me plain wrong – that it is an attempt to justify the wrongdoing at Oxfam.

Another interpretation is that there’s an undertow of racism here. Even in quote marks, that word “civilized” echoes imperialist talk of white men “going native” – of “white aid workers as Mr Kurtz figures caving in the strain of ‘The horror, the horror’” in Priyamvada Gopal’s words.

But I wonder, might there be another reading of that tweet? We could read it as meaning that decent behaviour – civilized behaviour if you must – is not hardwired into us, and that many of us have darker tendencies

One reason for this, as I said recently, lies in a mix of ego-depletion and self-licensing. We cannot maintain full self-control for long under stress: we have to let off steam. And a belief that one is a good person doing good gives one a self-licence to behave badly. If you've just saved a few lives, you can convince yourself that it's OK to see a young prostitute, just as colonialists justified greed and brutality to themselves in the belief they were bringing Christianity to ignorant people, for example. Self-serving biases are powerful things.

But there’s something else.

It lies in Adam Smith’s idea of the impartial spectator. What keeps us behaving well is the suspicion that there is someone watching us. When we play outside as children, we might think we are only with other kids. But often we’re watched by family friends or neighbours, so our parents learn of our misbehaviour. That keeps us honest. As D.D. Raphael writes in his exposition of Smith:

The approval and disapproval of oneself that we call conscience is an effect of judgments made by spectators. Each of us judges others as a spectator. Each of us finds spectators judging him. We then come to judge our own conduct by imagining whether an impartial spectator would approve or disapprove of it (The Impartial Spectator p 34-5)

When this impartial spectator is fully internalized it becomes God or conscience. But it isn’t always so internalized. When it isn’t, it is the fear of actual real spectators that keeps us well-behaved. There’s always the danger that our spouses or bosses will hear of our misdeeds.

When we go overseas, however, we leave the most influential spectators behind, which lessens the constraint upon us. The only observers we have are foreigners who are, at best, less likely to report us to our employers or partners*.

The result of this is that there is a massive tradition of white men behaving badly outside their own countries, from imperialist brutalities to war crimes. We see faint echoes of this today. Men who go on business trips often behave worse than at home; West Brom footballers are more likely to steal cabs in Barcelona than Birmingham; there’s a reason why stag parties go to Amsterdam or Prague rather than the fiancee’s house; and what happens in Vegas stays in Vegas. As Paul says, “rampant power to abuse was part of the ‘expat’ tradition, even folklore, alongside its hard-drinking culture.”** Heart of Darkness and Lord of the Flies both speak to this tradition.

In other words, what we call “civilization” is not some property of individuals. It is, instead, emergent; it arises from social pressures upon us and might evaporate when those pressures are absent, depending upon how much the impartial spectator is internalized.

Which brings me to a paradox. Although Professor Beard’s tweet has been interpreted as having an undertow of racism (perhaps rightly if inadvertently) it might also bear a very different interpretation - that white men are not as “civilized” as they pretend. And there’s a lot of history to support such a view.

* There is, of course, often a baser motive for discounting their opinion, which is that the opinion of people who aren’t like us counts for less – which is one reason why we should be so wary of “othering” other people.

** It shouldn’t need saying, but I fear it does: I’m not claiming any moral equivalence between these examples but merely suggesting that a similar mechanism is at work.

Labour and the Customs Union

Simon says Labour should stop faffing around and declare support for the UK staying in the Customs Union. I’d like to amplify and caveat this.

First the amplification. Labour is missing a trick here. It should be linking its policy on Brexit to its wider critique of British capitalism.

It should be pointing out the raw fact that Germany exports much more to countries outside the EU than the UK: half as much again (per person) to the US; 2.5 times as much to Japan; almost four times as much to China; and so on.

This tells us that it is not membership of the Customs Union that is stopping us from exporting more. Instead, the obstacles lie in the short-comings of British capitalism: poor management; lack of entrepreneurial spirits; insufficiently skilled workers; lack of investment; credit constraints; financialization; a lack of price competitiveness; and so on.

Labour should be highlighting these, and its policy responses to them. It should be saying:

Rather than wasting time on free trade deals, we should stay in the Customs Unions and focus on fixing Britain’s real economic problems, not the imaginary ones that exist in Brexiters’ fantasies. Only by doing so can we make the UK the truly outward-looking global trading nation that Boris Johnson claims to want.

That said, here’s the caveat: Labour’s vagueness on Brexit is much more forgivable than the Tories’.

What I mean is that there some Labour issues and some Tory issues. Tories, for example, have traditionally been more interested than Labour on defence, as there tend to be fewer military minds on the left (which reflects no credit on the left). But Labour has been stronger on health and welfare policy, for example.

Brexit, however, is almost entirely a Tory policy. I don’t just mean that Brexiters tend to be on the right. I mean that it has for years been a much more salient issue for them than it has for the left. For some it has been one of their top priorities for years. Most of the Labour party (with some exceptions!) by contrast made their peace with the EU in the 1980s and didn’t give it much more thought. I, for example, had barely considered the UK’s role in Europe until a few months before the referendum. I suspect that even most Lexiters have regarded Brexit as a bit like many lefties regard republicanism; if the issue arises, they support it, but they have higher priorities. 

Labour’s ambivalence about Brexit is, therefore, understandable. It has pretty much no tradition of even thinking about the subject. For some Tories, however, Brexit has been their desire for 30 years. One would expect them, therefore, to have somewhat more than the vague hint of a slight clue about what it entails.

So yes, by all means criticize Labour’s vagueness. But remember, Brexit is above all a Tory mess. It’s their shit; they should shovel it.

Oxfam, & organizational drift

In the crisis at Oxfam, I fear some general points are being under-appreciated.

One is that motives are sometimes over-rated. It is the case that some of Oxfam’s critics are animated by a hostility to its campaign against inequality and by an antipathy to foreign aid. And it’s also true that, as Simon says, they are more censorious of Oxfam’s failings than of the underfunding of the NHS which is perhaps even more damaging.

But facts are facts, whoever utters them. We cannot avoid nasty truths simply because we don’t like who says them.

Sometimes bad people do good things, such as alert us to the facts.

And of course, the converse is also true. As Oxfam has shown, good people can do bad things. There are at least two mechanisms at work here.

One is ego-depletion. Working in the most Godforsaken parts of the world is hugely stressful and requires great self-control to carry on the job. Self-control, however, is limited: if we use it all up in one place, we lack it elsewhere. “Work hard, play hard” and the need to “let off steam” are clichés because they are true. Some of Oxfam’s workers are extreme manifestations of this.

Another is moral self-licensing. If you can convince yourself you’re a good person – perhaps even by being a good person - you give yourself a licence (pdf) to behave badly.

On top of these, there might be a selection effect. Aid work doesn’t just attract those with a desire to do good, but those who get off on blood, gore and drama.

There’s something else, though. Organizations (or parts thereof) can and do drift away from their original purposes, because the interests or passions of incumbents can over-ride them. This was the gist of Martin Luther’s opposition to the Catholic church. It was expressed in Dostoyevsky’s Brothers Karamazov, where Jesus Christ returns to the world to be greeted by the Grand Inquisitor: “Why shouldst Thou now return, to impede us in our work?” Niskanen’s model of bureaucracy, the iron law of oligarchy and Alex’s description of how Capita was in effect run by its salesforce are all different manifestations of this.

All this has a troubling implication. It suggests there might be nothing unique about Oxfam, but perhaps that there are general mechanisms at work here rather than a few bad eggs. And it suggests that organizations need very strong measures in place to check these mechanisms.

Neoliberalism as lack of self-restraint

Which do people choose – more money or less? If you think the answer’s obvious, you’ve been too influenced by economism and not enough by science. Sigve Tjotta shows that, in a variety of experiments, a significant minority of people choose the smaller sum over the larger.

This would not have surprised the Adam Smith who wrote the Theory of Moral Sentiments. “To restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature” he wrote (TMS I.I.44). Our sense of propriety, or our desire to look good to others, he thought, reined in greed:

Though it may be true…that every individual, in his own breast, naturally prefers himself to all mankind, yet he dares not look mankind in the face, and avow that he acts according to this principle. He feels that in this preference they can never go along with him, and that how natural soever it may be to him, it must always appear excessive and extravagant to them…In the race for wealth, and honours, and preferments, he may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should justle, or throw down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of. (TMS II.II.11)

Which brings me to a theory. One feature of neoliberalism is that restraint in the pursuit of self-interest is now absent. Bosses lack Smith’s “impartial spectator” which tells them to hold back, and instead feel no compunction about jostling others. They are content to plunder customers, pensioners, sub-contractors, workers or future workers.

Among her many claims for expenses, Glynis Breakwell, Vice-Chancellor of Bath University, claimed £2 for biscuits. Many of us would not have done so, thinking it too petty-minded to bother. Neoliberals, however, not only are petty-minded but don’t mind being seen as such by others.

In this context, critics of mainstream economics have a point. Economics’ language of optimization serves to normalize the maximal pursuit of money. What it misses is the potential trade-off which Smith identified, between greed and the good opinion of others. Randian talk of the rich as heroes also plays an important role here, as it functions to counter-act the stigma which greed would otherwise attract.

From this perspective, neoliberal bosses have something in common with child molesters. Both lack restraint in the pursuit of their own self-gratification in situations where they think they can get away with it.

And there’s the rub: where they think they can get away with it. My story here is not just about morality. Perhaps there never was a golden era of benevolent paternalistic bosses. What’s happened since around the 1970s is that the restraints upon bosses – from law, social norms and trades unions – have diminished. The problem isn’t just greed, but power.

Update. On Twitter, I’ve been asked to withdraw that analogy between bosses and CEOs. On reflection, I’ll not do so.

I can see why I should. It is insensitive to survivors of child abuse and would upset them, the more so for being unexpected. I apologise for that.

There are, however, offsetting considerations. One is that I think the analogy holds in the sense I meant it. You can draw an analogy between two things without saying there is moral equivalence. I’m not attributing to bosses the same evil intentions that child abusers have.

That said, bosses’ excessive power does do real harm. It contributed to the financial crisis; had Goodwin had less power, RBS might well not have taken over ABN Amro. It might well be one factor (of many) behind stagnant productivity and hence flat real wages over the last ten years. And oppressive working conditions and exploitative pay impose stress and hardship upon millions. Granted, the pain per person isn’t as great as that caused by child abuse. But pain there is.

I had another reason to draw the analogy. We need stronger social norms against bosses rent-seeking. (This is not a uniquely leftist view: Jesse Norman complains (pdf) about the “legitimating culture” behind crony capitalism). Maybe intemperate language to demonstrate our strength of feeling is one way to build such norms. I was using the Economist’s approach: “simplify then exaggerate.” I’ll concede that it’s an open question whether this approach will work. But we need something – and that something is certainly not silence.

Which raises another point. Calls for me to withdraw that analogy don’t come only from survivors of child abuse, whose voices must be heard. They also come from a Guido-inspired mob whose censoriousness is selective: those who oppose students’ safe spaces suddenly aren’t so keen on free speech when it’s used to attack the rich. I will not kow-tow to rightist hypocrisy.

In defence of short-termism

Rick says that UK companies are too short-termist, and that Carillion – which paid big dividends until soon before collapsing - is a manifestation of this. I’m not so sure.

Of course, some firms, like Carillion, have short-termist bosses and subsequently collapse. But is the collapse because of the short-termism? Or might it be instead that short-termism is a response to the prospect of collapse, and that rational managers, sensing their business is destined to fail, take money out of it?

And very many businesses do fail. The ONS shows that around 10% of firms cease trading each year, and less than half of them survive five years. Granted, failure rates are much smaller for larger or older firms. But in the long-term they are still considerable. For example, only three of the UK’s largest employers in 1907 are independent stock market-listed firms today. And a list (pdf) of the original constituents of the FTSE 100 when it was formed in 1984 contains plenty of firms that subsequently declined. A failure rate of only 3% a year means that firms have a less than 50-50 chance of making it to their 25th birthday. 

If you’re not going to survive into the long-term, why not be short-termist?

And in a healthy dynamic economy, we should see lots of failures as competition and creative destruction eliminate profits. It’s only monopolies or near-monopolies that can fight off competition for many years and afford to be long-termist. Do we really want that?*

What’s more, creative destructive means there’s uncertainty even for firms that do (with hindsight) survive. This uncertainty compounds over time. On a two or three year horizon, most decent firms have a reasonable idea of where the threats from rivals or new technology come from. On a two or three decade view, however, they have no clue. Faced with that uncertainty, why not focus upon managing the company well in the short-run?  

In this context, long-termism isn’t necessarily a virtue. It might instead reflect merely irrational overconfidence. Yes, short-termism might well be one cause of low capital spending. But high investment doesn’t guarantee success. As Charles Lee and Salman Arif show, it often leads instead to lower profits. This is consistent with high investment being a sign not of rational long-termism but of irrational over-optimism.

We have some more empirical evidence here. Let’s say that stock markets were too short-termist. In such a world, we’d expect them to under-price growth stocks and pay too much for stocks that pay high dividends. Generally speaking, though, the opposite has been the case. For most of the last 30 years, high-yielding shares in the FTSE 350 have out-performed lower-yielding ones: the main exception came between 2003 (when tech stocks were under-priced) and 2010**. And the FTSE Aim index – which contains many “growth” stocks” has horribly under-performed the All-share index since its inception in the mid-90s. This tells us that stock markets have generally paid too much for growth and too little for dividends. They have been too long-termist, not too short-termist.

Of course, managers can be as irrational as the rest of us. But it’s possible to be too long-termist as well as too short-termist.

The biggest problem with corporate governance – as highlighted by Carillion - is not that bosses are too short-termist, but that they have too much power to plunder firms for their own private gain.

* There’s a big difference here between the UK and US: the rise of monopoly power is more pronounced in the US than UK.

** In fact, given the big decline in long-term interest rates we should have seen growth stocks boom in the 00s as investors discounted future cashflows less heavily. That this didn’t happen is yet more evidence that growth stocks have been over-priced.