Will Hutton – Fizzing with ideas for the UK economy, a new social contract and a vision for the UK as a centre for global innovation!

This post was contributed by Tim Lewis, a 2nd year student on Birkbeck’s MSc Corporate Governance and Ethics.

When the organisers of the Birkbeck Business week booked Will Hutton (28th June 2012) to give the week’s final lecture on the title “It was bad capitalism that got us into this crisis – good capitalism that will get us out” they could not have predicted that this event would coincide with the zenith of another major news story. Not Germany’s unexpected exit from the Euro football championship to Italy in that night’s semi-finals, but the results of the FSA Libor interest fixing investigation into Barclays.

News of this scandal, combined with a software glitch at RBS, resulting in a payments backlog, earlier in the same week, were perhaps symptoms of the kind of bank-made, self-interested incompetence and poor service, that represent the bad capitalism that the UK economy currently finds itself in.

Against this backdrop, well ok a Powerpoint with the lecture title, and after a brief introduction from Professor Jonathan Michie, Will Hutton took to the lectern. Right from the start his examples and anecdotes, ideas and concepts, came tumbling forward in an avalanche of electric rhetoric and accompanying slides …

The Bad Capitalism that got us into this Crisis ....

Hutton’s definition of bad capitalism is the one advocated by the US Neo Classicists, with its strong emphasis on free markets, flexible workforces, unfettered by regulation, and prices governed by supply and demand. The dominance of this model, Hutton argues, whilst illustrating a necessary part of the capitalist system, has distorted the social impact of market changes. He sees boom and bust as an inevitable part of the economic cycle, a product of new technologies and innovation. However, Hutton argues, there need to be some interventionist mechanisms and reformed institutions in place to socialise the downside risk.

Hutton is unashamedly a Keynesian economist, by this he means ‘not just the Balfourism’ that lead to the UK welfare state, but the broader view of capitalism, advocated in Keynes ‘General Theory’.

The financial background that got us into this mess?

Hutton showed, through a series of graphs, the rise of UK financial capitalism starting with the relaxation of credit controls in the mid 1970s, which sowed the seeds of an exponential growth in banking, wages and credit. This created an unbalanced and unsustainable economy. He saw the crash that came as inevitable, and it benefited the wealthy disproportionately, bypassed the least advantaged and left a disastrous unbalanced social and economic geography.

More controversially, he argues that had we entered the Euro when Labour came to power in 1997, this may have given the UK a more stable trade credit and balance of payments position from which the industrial and manufacturing sectors could have enjoyed growth rather than further decline.

Hutton spared no punches in criticising both major political parties for getting the UK economy into this shape, but he describes former Chancellor and PM Gordon Brown as ‘the worst steward of the UK economy ever!’

Good Capitalism will get us out …

From this analysis, Hutton begins to define his vision of good over bad capitalism. Features of bad capitalism include, aside from a general lack of transparency and accountability; ‘unproductive entrepreneurship’ – CEOs requiring high remuneration unrelated to rewards or personal liability, and ‘ownership tourism’ – in which UK strategic companies are bought and sold by foreign owners without governments holding golden shares.

Good capitalism consists of the kind of stakeholder capitalism he has outlined in books and newspaper columns since The State we’re in (1996) and his most recent publication Them and Us (2011). Hutton advocates a collaborative approach: transparent, democratic, with committed owners dedicated to productive entrepreneurship, proportionately rewarded and dedicated to business outcomes measured through balanced scorecard, rather than the financial bottom-line.  The core values of this approach are fairness, due desert and proportionality.

Socialising Risk…‘A New Social Contract’

Linked to this economic vision is a more flexible and modern networked vision of intervention after market failure. Hutton proposes new institutions, including trade unions that act as ‘employment shock absorbers and enterprise partners’, rather than conservers of declining industries, the status quo or as advocates of ever-burgeoning pay demands. Hutton outlines a new workplace bargain, called ‘flexi security’, in which workers accept less job security in exchange for training plus lifelong learning and unconditional unemployment benefit. His vision includes provision for New Housing and forms of ownership beyond owner occupancy. In addition he advocates education reforms, including a variant of the German Berufsshule (apprenticeship) system. The current UK apprenticeship programme, while welcome, is inadequate he argues.

Creating An Ecosystem for Innovation and Growth…

By laying the foundations of a good capitalism, backed by the values of fairness and a new social contract, Hutton hopes to create new business ecosystems from which new enterprises, primarily SME-based and new sustainable innovation can flourish! It is this need for innovation that is the driving force behind the Big Innovation Centre, founded by Hutton in November 2011.

Getting us out of the state we’re in?

If this seems like a grand and utopian vision, Hutton is unrepentant, he concedes if we can move some way forward on this path, its far better than the austerity-driven ‘Plan A’ of the current Conservative /Liberal Democrat coalition.

Hutton argues there is no current debt problem. Debt in the 1930s depression was 19% of GDP. Today, the debt is just 3% of GDP and underwritten by 14 year government bonds. He predicts Chancellor George Osborne will in future come to regret Plan A, as Churchill did when tying the UK exchange rates to the gold standard in 1925. He predicts that continuing down the current path will lead the Coalition to fall before the current 2015 expiry date.

Time will tell if his predictions are well-founded, but Will Hutton offered a compelling analysis and challenging vision for the UK’s future prosperity, social equality and innovation that was well worth listening to. He left the lecture audience, fizzing with new ideas and insights. A fitting finale, to end Birkbeck Business week 2012!

Photo by Richard Beard

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