Our real crisis is government silencing the sound and fury of capitalism

THE STRATEGY is set for the general election on 7 May next year. Expect 12 more months of Labour banging on about the cost of living crisis, and a year of the Conservatives talking up the long-term economic plan. If only they weren’t both wrong.

Yes, the Conservatives can justifiably point out the country’s return to a decent rate of growth and heartening levels of job creation. Labour understandably enough is looking the other way, focusing on how tough it can still feel to live in Britain in the wake of a vicious recession. Statistical grandstanding is better than anecdotal resentment, but as they talk past one another, both sides miss the point: a truly flourishing modern economy will feel exciting wherever you stand. 

That is the big idea behind Mass Flourishing, a book published late last year by the Nobel-winning economist Edmund Phelps. There’s been much talk of Thomas Piketty’s new book in recent weeks. With its appeal to cut the richest down to size with punitive wealth taxes, it’s an ugly thing in clever clothes. Phelps’s book deserves much more attention.

Mass Flourishing marries the lived experience of capitalism to the Tory celebration of the broader benefits implied by a thriving economy. Phelps argues that capitalism provided not just material betterment – real wages nearly doubled in Britain between 1820 and 1850 – but did so by sharing the excitement of creative participation in growth and innovation on a mass scale for the first time in human history. Neglecting that capitalist thrill shortchanges our citizens and risks condemning western economies to stagnation.

Phelps poses the question, what does dynamic capitalism sound like? His answer is Beethoven’s second symphony, which he considers a celebration of the market’s discovery process in musical form, capturing both the beauty and energy of a bustling economy.

Not everything Phelps says is right. Missing the exemplary buzz of places like the City, he offers the usual stale attacks on the financial services industry. But his central point allows us to see through political commonplaces to something original.

From this vantage, our real crisis isn’t about the cost of living but government squelching the vitality that makes modern capitalism rewarding and innovative at every level. Far from the wealthy, the real villain is the deadening influence of the new corporatism, which prefers backroom stitchups to exhilarating economic tumult. It reared its protectionist head in Britain yet again this week, with both main parties vying to judge the merits of Pfizer’s interest in acquiring Astrazeneca.

Phelps makes plain that, whenever politicians on either side interfere in commerce this way, they are making a trade on our behalf. They are exchanging economic dynamism, with all that means for individual satisfaction and broader economic success, in return for short-run populism. That’s a bad bargain. As we brace ourselves for months of politics as usual, we desperately need to lift the conversation from the ruts set by the parties to the fireworks of economic dynamism, and its benefits for all.

First published: City A.M., 8/5/14

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Filed under Economics, Politics

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