Queen’s Speech

Lord Smith of Clifton Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord Smith of Clifton (LD)]

My Lords, I follow the noble Lord, Lord McFall, and my noble friend Lord Oates in concentrating on some developments in contemporary capitalism in the UK. It may be recalled that in 1932 the two eminent American economists, Adolf Berle and Gardiner Means, argued that there had been a paradigm shift in modern capitalism. The emerging separation between ownership and control meant that the profit-maximising greed of the robber barons was disappearing. They were being replaced by a new breed of managers who were inclined to be more profit-optimising and took other, more social, criteria into consideration in running their enterprises.

After some of the disappointments of the nationalisations of the post-war Attlee Government, revisionists, most notably Anthony Crosland, argued—as he did in 1956 in his book The Future of Socialism, along the lines of Berle and Means—that the public was better served by the likes of private sector enterprises such as Marks & Spencer, Boots and Sainsbury’s, thus making the idea of industrial public ownership obsolete. However, while that was being absorbed, a new trend was being exposed in the USA. In his valedictory presidential Address in 1961, General Dwight D Eisenhower warned of the deleterious effects of what he termed the growing military-industrial complex for the future of democracy. It was remarkable, given its source, as well as being a very prescient observation, but he did not anticipate the half of it. Corporate intrusion into public policy-making now extends far beyond defence and dictates much of the public agenda in the USA, the UK and most western countries. The result is that both economy and polity have now morphed into each other.

The wide-scale scheme under the Thatcher and Major Administrations, whereby nationalised undertakings were sold off and so-called privatised, was meant, ostensibly at least, to help rectify some of the problems by restoring the discipline of market forces. It patently did not. Privatisation merely created what Karl Marx called “monopoly capitalism”, and that in turn spawned an industry of regulatory agencies to control these cartels. These are by and large unsatisfactory because they create the revolving-door syndrome whereby the regulators are drawn from the regulated.

A major reason for looking seriously at the nature of capitalism is globalisation. No jurisdiction wants to disadvantage itself by taking steps to introduce laws and other regulations that would discourage conglomerates away from its country. Hence there is no real action against tax havens, international tax avoidance and other such practices. Modern capitalism exists on the myth of shareholder control. In electronic exchange purchases some of these shareholders lose huge amounts of money in nanoseconds. Where there is shareholder control, it is largely by pension funds and insurance companies controlled by executives who have a vested interest in the levels of remuneration, and cost-cutting and short-changing.

I say to the Minister that we are in desperate need of a new and more extensive Berle and Means-type analysis of the shady world of contemporary capitalism. First, I suggest that the ESRC should devote itself to this task with immediate effect. Secondly, the Law Commission should be told to undertake a review of company law so as to make proposals for effective and accountable corporate governance. If that does not happen, we will have the rise in populism that my noble friend Lord Oates warned about. Does the Minister agree? I am not anticipating a reply, but I think that the state of modern capitalism, and its regulation, is a very serious problem.