The right's "woke" capitalism problem

Whatever happened to the right's faith in market forces? I ask because of their complaints about "woke capitalism" after Coutts refused Nigel Farage's custom.

Farage says:

I find it extraordinary that in modern corporate Britain, being seen to be politically correct matters more than making profits.

In theory, though, market forces should solve this problem. Imagine a business were to systematically turn away customers whose views it didn't like. Then a rival company that wasn't so fussy could serve them. This rival would expand at the expense of the "woke" one, possibly even driving the latter out of business. In a well-functioning market economy, companies have to care about making profits because if they do not they go bust.

There's an analogy here. Gary Becker claimed that this would be the fate of racist employers. Companies that discriminated against black people - that is, ones that thought that being politically incorrect mattered more than making profits - would, he said, suffer a competitive disadvantage as non-racist rivals hired good black workers or served black customers.

This isn't wholly fanciful. Becker pointed out that young industries with small growing companies were less likely to discriminate than older bigger firms where market forces weren't so powerful; in the 1920s Hollywood and Tin Pan Alley were more hospitable to Jews or blacks than less competitive banks or steel firms.

And in the 1970s black footballers were rare, partly because of racist stereotypes of them being lazy and ill-disciplined. Then West Brom manager Ron Atkinson* signed the "three degrees" and his team, inspired by them, did so well that other teams hired black players. Yes, those stereotypes persist but there are countless more black players in football now than there were when I was a kid.

The analogy is not perfect, however. Whereas racist businesses refused to hire or serve black people, "woke" ones are generally not refusing to employ Remainers or declining their custom: Coutts is closing Farage's account because it will no longer meet the criteria it imposes on all accounts, as Frances Coppola has explained.

But the point holds. If people don't like "woke" companies, there's a market opportunity. Non-"woke" companies can appeal to them and take business from the "wokesters". Competition should select against companies that pursue goals other than maximizing profits. Companies who think that "being seen to be politically correct matters more than making profits" should therefire shrink and go out of business. The market should solve the problem of "woke" capitalism, just as Becker thought it should solve the problem of racist capitalism.

Granted, it does so at a cost. Becker warned that the profit-maximizing solution would lead to racial segregation as black workers flocked to non-racist companies or served black clients rather than racist whites. But I don't see this applying to "woke" and "non-woke" firms. Yes, there are probably more Remainers in Starbucks or Prets than in Wetherspoons, but this probably reflects our big demographic divide than the professed ideology of those businesses. We're a long way from Jim Crow.

Also, it's not clear historically how far Beckerian competition caused racist companies to decline rather than the effects of legislative and cultural change. Which poses the question: could it be that the right whine about "woke capitalism" because it fears it is on the wrong side of cultural change and so cannot hope to reverse the tide of "wokeness"?

But the question remains: why hasn't the market (yet) selected against "woke" businesses?

One thing Farage has said actually sharpens the question: "they're all woke; they're all remainer". But this just means there is a bigger potential market for a non-"woke" company.

There's one answer Becker gave to this question that doesn't seem to apply. Profit-maximising employers, he said, had to consider the tastes of their customers or of other workers. They could lose business if racist customers refused to eat in the same cafes as black people, and lose staff or productivity if racist workers were unhappy to have black colleagues. And so even profit-maximizing firms might discriminate against blacks.

But this doesn't apply to "woke" companies today. Coutts is not closing Farage's account because "woke" customers refuse to bank with a firm that has him as a client. Nor are other "woke" capitalists such as Starbucks or Ben & Jerry's facing an efflux of customers who refuse to buy coffee or ice cream from companies that might occasionally sell to Brexiters.

Instead, I suspect the answer lies in a mundane fact - one that applied also to racist or sexist companies. Quite simply, the wheels of competition do not grind finely. Nick Bloom and John Van Reenen have shown (pdf) that there is "a long tail of extremely badly managed firms." If market forces don't weed out these, why should they weed out "wokesters" - especially as professing (not necessarily sincerely) political correctness might be a handy marketing strategy? There is, as Adam Smith said, a great deal of ruin in a nation.

It's easy to see why. In many industries there are big barriers to entry in the form of high capital requirements (have you tried setting up a bank?), intellectual property protection, the difficult of finding good premises, or simply the hassle to customers of switching.

Of course, lefties have pointed out such frictions for decades: that's why they were sceptical of the more optimistic interpretations of Becker's analysis.

What's odd is that the right has, implicitly, come round to agreeing. Which poses some questions. As Robert Shrimsley has asked, if the right no longer supports free markets what exactly is their mental model of the economy? And were the right ever sincere in the support for free markets, or was this support only strong when those markets were operating to weaken the working class?

* Atkinson, like many men of his time, had racist attitudes. Which shows that you don't need to be a saint to combat racism, but just someone who cares about winning football games and making money.

Comments

[David Brown]

For some bizarre reason I decided to watch GB News for a little while. The adverts were all for "Great British" companies, souvenir coins and the like. They were uniformly shite.

[Gary]

You are aware that Coutts concluded that Farage met the Economic Criteria?

[Gary]

Part of the problem is that - as a nascent market - consumers are more easily duped. Coutts for example are a B Corp. That's a pretty strong political signal, but I'd be surprised if even 1% of the population understood that signal right now, so of course they ignore it (at least for now).

[Gary]

he "met the economic contribution (EC) criteria for commercial retention"

https://news.sky.com/story/key-points-from-coutts-dossier-on-nigel-farage-12924078

https://www.documentcloud.org/documents/23881614-private-redacted

[ltr]

As Robert Shrimsley has asked, if the right no longer supports free markets what exactly is their mental model of the economy? And were the right ever sincere in the support for free markets, or was this support only strong when those markets were operating to weaken the working class?

[ Seriously, socialized markets for the rich and competitive markets for the rest; the right was never sincere and supports markets that limit the opportunities of the working class. ]

[Laban]

"was this support only strong when those markets were operating to weaken the working class?"

With respect that's nonsense. Working class people were relatively much better off in 1950s/60s/70s than today and things were a LOT more conservative, including conservatives being free market fans.

We didn't NEED a minimum wage in the 1960s, when the classic Tory voter moan about council estates was that people living in them could afford Jaguars!

[ltr]

Working class people were relatively much better off in 1950s/60s/70s than today and things were a LOT more conservative, including conservatives being free market fans.

[ Possibly my sense is incorrect, but where would there be an example? ]

[Jak Rent]

In conclusion, the issue of "woke capitalism" has sparked discussions about the Right's faith in market forces. While market mechanisms have historically shown their potential to dismantle racist practices and stereotypes, the case of "woke" capitalism presents a more nuanced scenario. Nonetheless, the core principle of market competition and consumer choice still stands. If companies prioritize political correctness over profit-making, they should face the risk of losing market share to rivals that better align with consumer preferences. The market, in its dynamic nature, should play a role in shaping the future of "woke" capitalism, just as it has impacted other socio-economic phenomena in the past.

[Ben]

I am sorry but what do you mean by woke capilalism?

[Blissex]

Gary Becker's silly argument is based on the hidden assumption that there is such a shortage of labour that the success of businesses depends critically on them being able to get a larger share of the few able workers of whichever minority. A lot of arguments are based on similar assumptions...

[ltr]

Gary Becker's silly argument is based on the hidden assumption that there is such a shortage of labour that the success of businesses depends critically on them being able to get a larger share of the few able workers of whichever minority....

[ This is arguing that discrimination in markets is self-defeating and self-eliminating, but that is not correct. So, markets must be structured to be as non-discriminatory as possible or socially desirable. [

[rsm]

Do markets remain irrational longer than Farage can stay solvent?