True Profits: Capitalism as a Force for Good – by Jonathan Thomas

There was much to agree and engage with in Tommy Sharpe’s recent G+T article condemning the evils of free market capitalism.

In the spirit of debate though, here is a counter-perspective.

I want to argue that capitalism, for all its faults, is not so competitive, exploitative or as ‘free market’ as is commonly caricatured. I think it often serves the interests of ordinary people far better than is acknowledged.

“Capitalism and competition are opposites”

Tommy, inspired by RH Tawney, argued that “capitalism has asserted that the fundamental nature of humanity is competitive”. But Peter Thiel, the modern-day arch capitalist, argues that in fact “capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away.”

I have worked for both for-profit and not-for-profit organisations. My experience was that I found far higher levels of cooperation and collaboration in the for-profit world, both within organisations and between them. Money seems to drive cooperation and collaboration.

In the not-for-profit world, it is status that tends to substitute for money. In my experience, this drives a status-driven competition, with people desperate to personally take credit and ruthlessly build their ‘reputational capital’ with little interest in cooperating. One charity I sat on the board of was ungovernable for this reason, and dissolved in acrimony.

Slowly does it

I once took a job at a for-profit organisation that most people would consider the epitome of evil short-term capitalism. I thought I would hate it, but was interested to see inside it.

It turned out to be the only place I have ever worked which truly had a cooperative outlook. They didn’t care who you were, or where you were from, and had a culture where everyone’s input seemed valued. Its motto was ‘get rich slow’ and I ended up working there for 15 years.

Amazon boss Jeff Bezos’ first letter to his shareholders in 1997 was titled ‘It’s All About the Long Term’ as he explained why the company was not prioritisng short-term profit.

The mechanisms of capitalism allow for-profit organisations to play the long game; to make mistakes, admit them, and learn from them. And they do so. I have rarely witnessed any interest in doing so in other types of organisations.

Servant of the poor (and lonely)

Tommy highlights that “A significant majority of Britons believe big business takes advantage of ordinary people”. But I would highlight that many successful big businesses look like they are being taken advantage of by ‘ordinary people’.

Lots of profits are being competed away. The net profit margins of both Tesco and Wetherspoons, for instance, are less than 3%. To be that benevolent to your customers you must be playing the long game, and content to get rich slow; Tesco is almost 100 years old, Wetherspoons approaching 50.

In the words of one overseas visitor, Wetherspoons’ provides a place where a wide-range of ordinary people benefit from great value food and drinks. But more than this, they provide “hundreds of warm, human and moving scenes of otherwise lonely people not being alone”.

And every single Wetherspoons pub each pays over £1 million in tax annually. Separately, its founder, Tim Martin, currently pays £200 million annually. This makes over £1 billion of tax contributed annually between him and the company he founded.

It is possible that some other system than capitalism could have created this, but unlikely.

The mixed reality

Capitalism versus socialism is a good pub argument, but no self-respecting country any longer believes you have to chose.

Instead, all run a mixed economy, some things provided by the government, others by for-profit enterprises, others by not-for-profit organisations and others by family self-help.

In Tawney’s time viewing free market capitalism as an all-pervasive enemy made more sense. 100 years ago there were virtually no protections for the poor and the best-selling book in America presented the story of Jesus as being “the founder of modern business”.

But since then the US has restricted free market capitalism while bolstering the role of the state in looking out for, and after, people. The UK even more so, with its large public services sector and welfare state. Our National Health Service is the 7^th largest employer in the world and the largest in Europe.

At the same time countries such as China, starting from the other end of the political spectrum, have adopted aspects of capitalism. Their system has mutated into what some call Market Leninism.

For each country the key social and economic questions are who – State, business, charity or family – should provide what, and how this should be funded.

Common sense

We should not whitewash all the incentives, features and outcomes of big business and capitalism. Some are bad, some are getting worse, and future challenges are very real.

But ‘big business’ is not intrinsically bad. Capitalism is not some alien force ‘done’ to people but how people have chosen to organise themselves.

These things can be changed, but to do so for the better requires dealing with the messiness of reality, acknowledging the good as well as the bad. As RH Tawney said: