An RSA lecture by Mustafa Suleyman reminds us how comprehensive and how adaptive our reform programme must be.
The core characteristics of modern Western societies are market-based economies, relatively extensive welfare systems and the rule of law presided over by representative democracy. All three of these elements have been subject to sustained critique in recent years.
In the modern era the first to be assailed was the welfare state. The New Right rose to prominence in the seventies and eighties, drove the pioneering policies of Reagan and Thatcher and has continued to be a powerful strand of ideology and public discourse. The New Right were ostensibly champions of the free market but they focussed more of their energies on seeking to demonstrate the structural failings and poor outcomes of welfare systems.
Public choice theorists like Mancur Olsen and James M Buchanan argued that politicians and state bureaucrats were bound to maximise their own interests rather than acting as the impartial seekers of social progress. Economists like Milton Friedman argued that state spending crowded out private investment and enterprise. Other research and commentary argued that welfare was generating malign consequences such as dependency, voluntary unemployment and family breakdown. In Britain today the many profound failings of welfare and public services are more likely to be put down to austerity than the intrinsic weaknesses of state provision, but the foundations of the deeper critique remain firmly lodged in political and public discourse.
The backlash against market economies has been a more recent phenomenon. Critiques of capitalism are as old as capitalism itself and, of course, Marxism provided the ideological basis for twentieth century state socialism. Amongst those who recognised the strengths of capitalism but also its structural frailties, Schumpeter, Veblen and Keynes are leading figures.
But in modern times the 2008 credit crunch and its consequences provide the momentum for public disenchantment with global capitalism. The role of the banks and their champions in creating that crisis, the fact that almost none of those who were responsible were punished, the decade long stagnation of living standards for most people in most developed countries and the steady drip of stories of corporate misbehaviour have all contributed to a situation in which a recent survey shows less than half of people think British business behaves ethically.
Like capitalism, democracy, both in principle and practice, has always had its critics. But, again, a number of current factors have combined to increase the volume. Democratic institutions and the politicians who occupy them have become even less trusted and more unpopular than usual, something reflecting both the failure of leadership and policy and a succession of exposes of misbehaviour. Democracies have also generated outcomes – particularly Trump and Brexit – which seem to go beyond the normal swings of party politics into acts of collective self-harm. Finally, the economic performance and comparative effectiveness of Chinese leadership and the capacity of Putin’s Russia to get away with aggression, dishonesty and sabotage has led more people to question whether representative democracy really is the most resilient basis for either political authority or social progress in the 21st century.
This state of disenchantment could be merely unhappy but it is in reality potentially catastrophic. Because, despite all the negativity we direct at the way things are there is as yet in countries like ours no viable or popular alternative to the persistence of these systems in their current form. To coin a phrase ’democracy, welfare state and financialised capitalism; can’t live with them, can’t live without them’. The question then is how do we radically renew the dominant systems of the Western world before their failures and our disillusionment drives us into making even more profound mistakes than the ones we and our leaders have already committed?
4 ways of coordinating human activity
The starting point is surely to think more deeply about this system as a whole. I have written before about an approach which views societies, and systems within those societies, through the prism of three active, and one more passive, ways of coordinating all human activity. The active forms are the hierarchical, the solidaristic and the individualistic. Each of these forms of coordination is complex and ubiquitous and each is reflected in everything from our day to day choices to political ideologies and organisational forms.
In modern societies the primary hierarchical institution is the state. Individualism – albeit a partial form – is most powerfully expressed in the dynamism of market. While solidarity, which is more internally divergent in form, tends to be gauged by reference to social justice, on the one hand, and a shared sense of identity and belonging on the other. Right now we are experiencing a crisis of confidence and legitimacy in all three domains. One sign of this is that the fourth major way of thinking about social change – fatalism – has become ever stronger.
Before exploring responses to our plight it is important to note two important lessons from history. First, when liberal democracies get all three active forms of coordination working together they can achieve major advances in human welfare. This was, for example, the case during the decades of the post war miracle when economic growth and living standards rose, welfare expanded, inequality fell and the state was more confident and trusted. In general, Scandinavian countries have managed to achieve a better balance which is why they nearly always come out top of surveys on social outcomes and citizen wellbeing.
The second lesson is that these periods of healthy balance between state, market and society are the exception not the rule. Thomas Piketty has provided strong evidence that differential returns to labour and capital drive rising inequality which eventually leads to social conflict. Historian Walter Scheidel goes further, arguing that the trend to rising inequality in all societies has only ever been broken by plague, war or bloody revolution.
Politicians and campaigners tend to focus on just one dimension of the system-wide loss of confidence choosing business as their target or the state or, more abstractly, individualism or liberalism. But it is the social system as a whole that needs renewal.
This argument is illustrated by the hard case of technology, the subject of a fascinating and brave lecture at the RSA by Deep Mind’s Mustafa Suleyman. In addressing the vital and urgent question of aligning technological change with human progress it is clear that traditional hierarchical solutions – principally, regulation – are inadequate. Equally, as Mustafa argued, the unprecedented assets (financial, informational, human) of these firms, their immense scope to do good or harm, and our growing dependence on them means that we surely cannot go on relying on the profit motive as their primary source of motivation. Finally, as citizens we don’t have the knowledge, norms or embedded practice which enables us to know what standards we should expect from the tech sector, let alone how to enforce such standards. In shaping the digital age, hierarchical methods are too weak, individualist drivers wholly inadequate and solidaristic norms as yet inarticulate.
There is a hopeful aspect to this analysis. When social arrangements are unbalanced (when one or two of the modes of action are underpowered) we have a tendency to try to ‘bolt them on’. The dismal story of New Public Management, which was dominant in public service reform debates and strategies for twenty years, is largely the failure to bolt on individualist methods such as markets and financial incentives to welfare systems without recognising the implications this would have for hierarchical authority (control and accountability) or solidaristic values (fairness and ethos). The underwhelming story of corporate social responsibility (witness the number of misbehaving firms who have ethical business awards) can similarly be seen as the futile attempt to bolt on values and belonging to organisations ultimately driven by shareholder value embedded in executive incentives.
Think like a system, act like an entrepreneur
The starting point for a progressive programme has simultaneously to speak to reform in each domain: Hierarchical renewal through new institutions, forms of authority, and methods of accountability; individualistic reform through restraints on monopoly power, new standards of corporate transparency and more diverse, stakeholder-based models of business and finance; and the creation of a new basis for social solidarity, one which addresses social democratic concerns about social justice and, equally, more traditionally conservative anxieties about order, cohesion, identity and belonging.
Crucially a project of renewal needs to appreciate the unpredictability of change. Just as we have all seen in organisations how the attempted imposition of greater control or the ramping up of incentives often has unforeseen and unwelcome consequences, so shifts among the drivers of any of the active three forms of social coordination lead to unpredictable reactions and counter reactions in others. Reform therefore has to be comprehensive in intent but incremental and adaptive in implementation.
In short, it is at the societal level what the RSA means by the injunction to ‘think like system and act like an entrepreneur’.