GUEST BLOG 2 : Stewart Fleming

What was Justin Welby, the Archbishop of Canterbury, thinking of when he noted in his BBC radio interview on the Today programme (Tuesday 31 December) that businessmen like Barclays Bank boss Antony Jenkins are “dealing with the impact of 30 years in which there was strong pressure to go in one direction?”

What is it about the past thirty years that marks this era as one whose business culture needs to be reversed, “a massive, massive challenge” according to Archbishop Welby.

One answer to this question is rising inequality in both incomes and social and economic opportunities, especially for poorer members of society.

This is not just a British phenomenon. In the late 1970s in the United States it was becoming clear that the only reason average family incomes were rising was that women were entering the labour force by the millions. Average personal incomes had already begun to stagnate, as they would right across the trans-Atlantic region at some point in the next decade.

This reality was hidden, in part, as Professor Raghuram Rajan has argued, because it became easier and cheaper for people to borrow in order to maintain their standard of living.

But why incomes began to stagnate is still something of a mystery. After all, output per worker was rising. Was it that “globalisation,” the entry of tens of millions of workers in rising economies such as China, India or Brazil was putting downward pressure on wages? Perhaps. But what also happened in this period is that across the Atlantic region the share of company profits in national output rose steadily while workers’ shares declined and workers, especially those in lower skilled jobs, were unable to resist this trend.

And behind this change lay a change in the way politicians, businessmen and economists in particular thought about their roles in society.

John Maynard Keynes, perhaps the most influential and famous British economist of the past century, has described most succinctly, why perception is so important in shaping political and economic reality. “The ideas of economists and political philosophers,” he wrote “both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else.” Keynes’ own economic theories dominated political life in the trans-Atlantic region from the end of World War II until the mid-1970s. They were then, slowly, edged aside as a new set of theories, the “efficient markets” hypothesis espoused by thinkers such as Professor Eugene Fama, and the related “rational expectations” school of economic thinking associated with Professor Robert Lucas, took hold and began, as Keynes would say, to “rule the world.”

In everyday parlance, these ideas translated into political slogans such as Prime Minister Margaret Thatcher’s “you can’t buck the markets” or Hollywood’s “greed is good.” In essence, the idea was that if you let market capitalism free, and reined in the power and range of activity of government, you would get more growth and everyone would be better off.

These theories and ideas exploded in the global financial crisis which hit in August 2007 and whose after effects are still with us, seven lean years later. Now even right wing politicians have no answer to the charge that “markets fail,” and they can fail spectacularly and disastrously.

Tackling identified market failures through impersonal bureaucratic interventions, such as setting “targets” – for hospital waiting lists for example- the naive policy of the Blair-Brown Labour government, provides no solution. People find ways around impersonal targets set by incompetent managers and ignorant politicians.

Today, while the “free markets are best” political philosophy is discredited there is no new ruling political ideology that has replaced them. Meanwhile the centre left and the Labour Party, its credibility eviscerated by its failures in government and its refusal to own up to them since, lives on in a past which no longer exists.

So, the most important contribution which politicians, businessmen, economists, trade unionists, and Archbishops, can make is, in all humility, to recognise that we do not really understand how our world works. We do not know what risks we are running in terms of preserving social peace, for example, by tolerating rising inequality or high levels of, particularly youth, unemployment.

We do not know whether we are reaching a tipping point where not just the poor, but ordinary middle class people, will turn against an increasingly wealthy elite.

How long will they tolerate a “ruling class” which has insulated itself, its children and perhaps its children’s children, from the “poverty and want” they fear may be their lot, the very evils which Sir William Beveridge, the great social reformer, identified sixty years ago as so destructive it was vital they should be abolished.


Stewart FlemmingStewart Fleming is a Research Visitor at the LSE examining the regulatory history leading up to the financial market crisis which began in 2007. He is also a Senior Associate Member of St. Antony’s College, Oxford.

After graduating from Cambridge University in 1966, he started his career as an economist at the Prudential Assurance Company, before becoming a professional journalist. Stewart has followed financial market regulation since the early 1970s, initially with the Guardian and the Financial Times, where he was involved in reporting on the British “secondary banking” crisis. From  1976 he  held a series of positions as a foreign correspondent for the FT, first in New York, then Frankfurt and Washington, where he was US Economics Correspondent and then US Editor between 1983-89.


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