From socialising capital to socialising capitalism

09 June 2016

Craig Berry - Deputy Director at SPERI

Stewart Lansley’s advocacy of the sharing economy is the right idea at the right time, but social wealth funds would be a problematic instrument

Stewart Lansley’s valuable 2012 book The Cost of Inequality offered one of the few sustained attempts to link inequality to the causes of the 2008 economic crisis, insofar as it was deemed a core characteristic of the pre-crisis model of economic growth. Lansley’s latest book, A Sharing Economy, is an attempt to flesh out an alternative to this flawed model. As such, Lansley has deepened his critique of the British growth model with reference to what is most acutely missing from it: sharing.

Photo by Toa Heftiba on Unsplash

Whilst the ‘sharing’ concept is of great value I doubt the ‘sharing’ moniker will stick, at least among progressive thinkers. It is already being used disingenuously to describe the dubious employment model underpinning new consumer technology platforms such as Uber (the so-called ‘ride-sharing’ firm, which Brigid Delaney argues is more akin to hustling than sharing), as Lansley acknowledges. It has also been attached to peer-to-peer lending initiatives, some of which increasingly look like a mis-selling scandal waiting to happen.

However, none of this means that the principles underpinning the ‘sharing’ concept are not useful for progressives seeking to transform the British growth model. In short, sharing some of the assets through which capitalist accumulation functions will enable us to better share the rewards too.  What is less compelling, however, is Lansley’s view that ‘social wealth funds’ – to which most of the book is devoted – are the principal vehicle through which to bring about a sharing economy.

He defines social wealth funds as collectively owned financial funds which pool and mobilise resources for agreed social and economic goods. There are several reasons for progressive actors to take this idea very seriously.  My criticism is of the view, which Lansley veers towards, that social wealth funds are a near-panacea for the failings of the British growth model, rather than of social wealth funds per se.  By socialising capital, social wealth funds would promote and embody collectivism, and enable long-term social and economic investments that produce benefits beyond the timescale of a standard parliamentary cycle, and even the passage of generations.  Lansley’s idea of using a social wealth fund to pay for a citizen’s income is a very attractive one.

Lansley expands usefully on the various ways that social wealth funds might be funded. The most promising involve levies on unproductive rent-seeking activities, unearned windfalls or taxes that are supposed to be about altering behaviour, rather than raising revenue (the plastic bag tax or the proposed financial transaction tax).  It is not hard to imagine that such levies would be easier to justify if revenues were entering a social wealth fund rather than general government coffers.

Problematically, however, Lansley appears to see in social wealth funds a vehicle for funding quite a lot of things that the state already provides, such as social housing and social care. Although he is right to argue that the state is currently doing a poor job of providing these things, and to caution repeatedly that social wealth funds can only be part of a wider package of economic reforms, what he does not appear to have considered is whether an expansive role for social wealth funds across both social and industrial policy might undermine the state’s role in this regard.  By arguing that the independence of social wealth funds from direct government control would inherently be a good thing, Lansley is in danger of accepting too uncritically the right’s critique of the state, and undermining progressive, democratic politics in the process.

Two alarming examples stand out in A Sharing Economy in this regard.  Firstly, Lansley actually advocates further privatisation of state assets, in order to generate capital for social wealth funds.  Social wealth funds should complement the state, not devour it.  He also argues, secondly, in favour of further hypothecation within fiscal policy (i.e. certain taxes are raised only to pay for specific public goods), and argues that social wealth funds could be a useful mechanism in this regard, in terms of how tax revenues are spent as well as how they are raised.

Yet the UK is currently ruled by a government which chooses to protect (essentially, from itself) some parts of public spending far more than others, and to inform taxpayers what proportion of their money goes on which bits of public spending (a practice that has raised concerns about the politicisation of government spending data). The Resolution Foundation refers to the implications of the former as the ‘shape-shifting’ state; in my view, hypothecation is the next logical step of both initiatives.

The left needs to be making the case for the infinite number of less visible things the state does to support society and the economy, but for which would be difficult to justify raising specific taxes for. Hypothecation may be an achievable way of defending some of the parts of public expenditure that the left cares most about, but austerity is not simply (or even mainly) about cutting particular budgets or benefits, rather undermining the entire eco-system of the public realm.  Cherry-picking the bits of the public sector that ‘the taxpayer’ deems worthwhile is a slippery and regressive slope.

The UK used to have a lot of things that functioned a little like social wealth funds that operated in addition to, rather than in place of, public investment: pension funds. At the zenith of ‘defined benefit’ pension fund membership in the late 1990s, Gordon Clark and others believed we were entering an age of ‘pension fund capitalism’, with pension funds on the whole acting as progressive forces.

It was not to be, and indeed Lansley cites the decline of traditional pension funds as part of the rationale for social wealth funds. Yet this decline is not irreversible.  Rekindling and enhancing collectivism within the UK pensions system, which I discuss here, is no less realisable than the emergence of social wealth funds on any significant scale.

Pension funds are not inherently progressive, but can be managed to deliver public goods. Similarly, the notion that social wealth funds will behave progressively should be subject to scrutiny.  Lansley argues that the UK squandered its North Sea oil wealth in the 1980s by not hypothecating associated tax revenues in a social wealth fund, unlike Norway.

But is there any convincing reason to believe that the UK government of that time would have facilitated a progressively-minded fund had they seen fit to create one? The more recent experience of the arms-length management of the publicly owned banks suggests otherwise (a point which Lansley concedes).  It is just as plausible to argue that lumping North Sea revenues into the general tax pot helped to protect public services from even more severe cuts than they received during this period. This point needs to be made very loudly (something which A Sharing Economy fails to do): direct investment in public services by the state is a long term investment, the value of which dwarfs the speculative numbers that Lansley cites regarding what an oil-funded social wealth fund might be worth today.

A Sharing Economy deserves to be taken very seriously, because in proposing social wealth funds, Lansley offers us a serious idea for seriously troubling times – the left has far too few of these at the moment. But the book should be read with the caveat in mind that socialising capitalism, not only socialising capital, is the ultimate progressive goal.

Related posts

Rethinking Recovery: Labour market exploitation and austerity in the UK

Judy Fudge -  05 July 2016

Stopping labour exploitation requires effective regulation of the labour market, not scapegoating migrant and vulnerable workers

Read more

Austerity has transformed the meaning and morality of work in the UK

Craig Berry -  19 July 2016

Measuring economic success through levels of employment obscures the unsustainable and oppressive nature of the UK’s recovery

Read more