The Future of Capitalism: Facing the New Anxieties by Paul Collier

Economists who study developing countries have particularly interesting insights into how policies can work or not work at alleviating poverty and creating inclusive growth. Paul Collier is a British academic best known for his work The Bottom Billion about poverty in least developed countries. In this book, The Future of Capitalism: Facing the New Anxieties he discusses vagaries of capitalism closer to home.

The financial crisis brought austerity economics to Great Britain swiftly and brutally; and the results of this policy choice continue to roll in. Average wages in the UK have declined by the most of any industrialized country except Greece since 2007. Homelessness doubled in five years.  A million more children in the UK live in poverty since 2010. The UN special rapporteur for extreme poverty and human rights issued a report accusing austerity policies of "entrenching high levels of poverty and inflicting unnecessary misery" on citizens of the UK. In sum: a fifth of the country now lives in poverty.

By a number of accounts, many people unhappy with life under austerity voted for Brexit, some because they believed that if they did so, the money that the UK contributed to the EU as a member state would be used instead to shore up the failing-under-austerity National Health Service.  Large cuts to the National Health Service resulted in some 120,000 extra deaths between 2010-2017; infant mortality rates have risen since 2010. Life expectancy has declined, much like in the United States over the same period.

So yeah. It's hard to be a development economist from a highly industrialized country and not turn to the issues facing your own country when it’s policies are suddenly causing a great deal of strain and poverty for your countrymen. As Collier writes: "appalling cleavages are not just problems that I study: they are the tragedies that have come to define my sense of purpose in life."

There are three "grim rifts" of interest to Collier in this book: the geographic divide between key booming cities and failing provincial areas; the morale and skills divide between successful and struggling families; and the global divide amongst prosperous countries of the North and less prosperous countries of the Global South. Collier's own life has straddled them all as a man from a provincial place and family who went on to earn a PhD from Oxford and work extensively in Africa. He writes of the new pragmatism needed to address these issues, derived "neither from the moral passion of an ideology nor the casual leap of populism" – as he reminds us, ideology and populism perpetuated the most egregious crimes of the twentieth century and look to now be threatening the twenty-first.

The pragmatists of the 20th century were the great leaders, he argues, who found common ground and invigorated people to connect to a common narrative, shared identity, and sense of purpose. He argues that there are three types of narrative that make a country: a narrative of belonging, where we all are part of a larger whole; a shared identity, that comes from belonging to that larger whole; and a sense of purpose that derives, again, from belonging and being part of a larger cause. Together, these three narratives create a "web of reciprocal obligations" where we understand we have a commitment to each other.

40 years ago, however, saw the rise of Economic Man, a belief in human behavior as primarily self-motivated and greedy, without care of other people. In tandem with the rise of Economic Man came a collective obsession with individual rights. Yet rights must be derived from somewhere; rights create obligations that others must recognize and honor, writing, "obligations are to rights what taxation is to public spending." Collier argues that the left's overemphasis on personal identity rights chafes those who feel obligations are being foisted upon them without reciprocal obligation or recognition.

Beyond the "psychopathic selfishness of economic man", he writes, normal people know that the richness of life, and that our very sense of purpose, is tied our relationships and the obligations come with them. The battle of selfish desires versus obligations to our communities is playing out in our governments, companies and families.

As of late, individualism and selfishness has been winning this battle, and the evidence of this triumph is all around.

“Despite the promise of prosperity, what modern capitalism is currently delivering is aggression, humiliation and fear: the Rottweiler society. To achieve the promise, our sense of mutual regard has to be rebuilt."

And mutual regard comes from a sense of shared identity.

However, Collier purports, in western societies the skilled population has, over time, become more enmeshed in their professional identities over their national identity, noting that at its best education widens our worldview and thus also our empathy for those different than us, but in reality generally creates distance between the most successful and more ordinary folks.  The skilled, through the myth of meritocracy, often believe they know better than the less educated and are thus "entitled to override the values of others."

With the skilled identifying primarily with their professions over country, the less skilled and educated are left holding onto nationalism as their identity, and this rift has repercussions; he writes, "as identities polarized into skill versus nationality, trust in the people at the top of society began to collapse."

By skilled and wealthy people eschewing nationalism in favor of a profession-based identity, many have reduced their feelings of obligation their countrymen, as they believe they are vastly different than the less educated. This difference means they may feel less responsibility in general, but specifically less likely to want to pay their taxes, and provide a justification for the skilled's predation on the less skilled in some cases. Collier discusses how emails have revealed that in the run up to the financial crisis financial firms took pride in “fleecing suckers.” This further erodes the trust of the less-skilled in their countries.

As trust erodes so does cooperation, and cooperation is the basis for a functioning economy. Without it, people rely more heavily on the legal system to enforce good behavior, which leads to evermore opportunistic behavior emerging based on bets and access to the legal system. This in turn entrenches inequality even more, and contributes to a less-functioning economy. And as legal compliance erodes, as in the case of lower tax compliance, trust in the government declines further as it becomes less able to meet needs and uphold rights. And the spiral continues.

The disease is the cure, writes Collier, reminding us that policy is spatial, and humans are hard-wired to feel strongly about their territories and defending them. He argues that place-based identity can and should be revived in an inclusive (rather than exclusive) way. As the skilled abandoned the concept of nationalism, however, the term has been hijacked by those seeking to promote a divisive agenda rather than an inclusive one. He proposes instead that an ethical state could promote the concept of patriotism over nationalism, as Emanuel Macron has done in France (although it seems that term too could be co-opted).

In any case the primacy of home and belonging must be addressed. Young people, he writes, have lost a sense of belonging because society has made it so difficult for them to actually have stable housing, suggesting that the rate of homeownership is a powerful indicator of how much belonging a society allows.

The Future of Capitalism is not a typical rehash of how-we-got-heres; this is a deeper meditation on what makes human societies flourish or flounder together, and what a moral sense of belonging to each other, and to our countries, could do to transform the world. This is a book I will read and read again.