If modern capitalism is flawed, recycling failed old policy won't work
Jonathan Arnott


Editor's note: Jonathan Arnott is a former member of the European Parliament. The article reflects the author's opinions, and not necessarily the views of CGTN.

We're living in a century of unprecedented technological development. Devices which would have been within the realms of science fiction just a few decades ago have become part and parcel of everyday life.

I'm sitting and writing this article on my mobile phone, before it's sent across the world in a blink of an eye. Even that concept, growing up in the 1980s, would have seemed alien to me. With new technology comes new challenges.

That's why I'm skeptical about recent suggestions by French President Emmanuel Macron that "modern capitalism can no longer work", and that more state intervention will prove necessary. Such government intervention is rapidly becoming more difficult to achieve in practice. The growth of cryptocurrencies, for example, defies Western governments' attempts to legislate.

Legislation cannot keep pace with the speed of change in society. On climate change, Macron proposes merely more of the same target-driven approach which is already proving problematic: legislating for targets leads to the targets being met, rather than the ideas behind them.

Companies may comply with the laws by outsourcing pollution, importing less carbon-efficient products rather than making them. The target may be met, but it's questionable to what extent global emissions will be cut.

Macron may be correct to say that profits are not always linked to innovation or work. They are, however, often inextricably linked to risk. Those who risk capital on a new venture are the ones who gain most when it succeeds. Remove that incentive, and innovation itself will be slowed, reducing competitiveness in an interconnected global economy.

Reducing the gap between rich and poor sounds very much like a noble goal, but in my opinion there are better metrics. It is far more important to ensure an improvement in the standard of living of those who are poor.

At first sight, the two might seem like they're the same thing, but they are very much different. Suppose that a policy were to reduce the standard of living of the rich, whilst having zero impact on anyone else in society. Inequality would have been reduced, but it would be of no comfort to the poor.

Screens displaying French President Emmanuel Macron attending the virtual World Economic Forum (WEF) Davos Agenda meeting in Paris, France, January 26, 2021. /Getty

Screens displaying French President Emmanuel Macron attending the virtual World Economic Forum (WEF) Davos Agenda meeting in Paris, France, January 26, 2021. /Getty

On the other hand, a rich person undertaking a new business venture might well increase their own wealth significantly whilst creating employment and consequently reducing poverty. The person who does so needs to pay their fair share of tax, further helping to reduce poverty, but not so much tax as to discourage them from taking the risk in the first place.

In that sense, I am indifferent to the financial situation of those who are rich. I do not particularly care whether the overall income of the rich increases or decreases, provided that the median standard of living improves and that poverty reduces in absolute terms.

If there is a pressing need for a target-driven approach, then it is essential to have the right target. There are relatively few people in society who are very rich: that wealth would not go very far towards helping the millions living in poverty. A focus on the rich-poor gap is also likely to leave the average person being somewhat forgotten. In recent years, we've seen a significant squeeze on middle-income families. 

Workers' rights are also important. Yet, with increasing automation of tasks previously done by humans, there is a bigger issue coming down the tracks: the need to ensure sufficient employment opportunities in the first place.

We should therefore be wary about any fundamental shift in the nature of business if there is any potential for significant job losses as a result. Long-term policy will likely need to focus on job protection, and twenty or thirty years from now I suspect a shorter working week, with greater work-life balance becoming the norm.

Economies respond to incentives and disincentives. If we disincentivize innovation, by stifling and over-regulating business, we will inevitably hamper growth. The solution probably lies with providing positive incentives towards behaviors we wish to encourage from business, reducing the regulatory burden or taxation in those cases.

Otherwise, we run the risk of legislation in a time of massive technological growth becoming obsolete almost as soon as it is on the statute books. Government would forever be chasing its tail, constantly trying and failing to keep pace.

For that reason, if no other, Macron's words illuminate a genuine issue. Does the nature of modern capitalism need to change, or do we need to question the nature of modern government? Are our institutions really fit to respond to modern challenges?

If "modern capitalism" is not the answer, modern state interference in the private sector is not the answer either. Capitalism is an imperfect, flawed system - but the onus is on those who advocate change to spell out an alternative which will not severely stifle growth. It is not enough to oppose a system; they need to offer a 21st-century blueprint for something workable which could reasonably do better by replacing it.

Macron's speech, which seems to do little more than recycle 20th-century center-left political thought, offers nothing new or noteworthy to that conversation.

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