By Daniel Margrain

“Inequality and the rise of a super rich elite is undermining the foundations of capitalism. The trappings of capitalism could be swept away by the pitchfork of revolution unless capitalism is fundamentally re-imagined”, so says American venture capitalist Nick Hanauer,

In a BBC interview with journalist Stephen Sakur in front of a live audience as part of the Hard Talk series of programmes (since removed from the BBCs i player service), one of America’s wealthiest individuals argues that capitalism, as currently configured, is not working. The thing that is said to drive Hanauer on is status not money:

“I’m not driven by money but by the need to be king of the hill. If capitalism doesn’t change fundamentally, it will destroy itself. If you allow wealth to concentrate in fewer and fewer hands over time, in the end it cannot be good for anybody, particularly people like me”, he says. “You show me a highly unequal society and I’ll show you a police state or a revolution.”

According to Hanauer, there is truth in the notion that in ‘go get’ societies like the U.S people are able to crawl out of the clutches of poverty. However, there are limits: “Aspiration is a good thing”, he says, “But aspiration in the absence of opportunity creates resentment, anger and violence. The idea that if the disenfranchised are given more incentives, they would magically become software engineers or Wall Street executives isn’t true.”

Fundamental

For Hanauer, the problems are more fundamental: “If we don’t get inequality under control then it’s likely to lead to war – a similar pattern that followed the last period of massive inequality between 1925 and 1940. The most capitalist thing you can do to prevent war is to build up the middle class. From a capitalists perspective, although it may seem a good idea in the short-term to impoverish the typical family, in the long-term it’s a catastrophe.”

Although Hanaeur posits that as an economic system capitalism has been beneficial to millions of people and “is the greatest system ever produced for lifting people out of poverty”, he nevertheless accepts it’s flaws. It fails, for example, to sufficiently “knit together agreements” thereby undermining the potential for a more equitable and sustainable distribution of the wealth that growth brings:

“In my state”, he says, “since 1990, close to 100 per cent of growth has been accrued to just 1 per cent of the top earners. People are beginning to get angry and increasingly less patient with a system that rewards nearly all of the benefits of growth to a tiny minority at the top.”

According to Hanauer, the crisis of capitalism is more acute than ever before and its problems are exacerbated by any lack of purpose which capitalism encourages: “Because we are social creatures, the only thing that gets to define society is our capacity to cooperate. In the absence of a shared purpose, people will not cooperate at which point the society will dissolve”, he says.

Trickle-down

“Trickle down economics – the idea that the money of people who become rich – permeates down to the poor, is nonsense. How can it be anything other than nonsense given the fact that inequality is on the rise and socioeconomic mobility is in reverse? I’m not arguing against capitalism but simply saying that there are ways to optimize it – to make it better for everybody.”

Hanaeur is clear that his argument isn’t intended to be a moral one: “I’m not saying that we capitalists should pay workers more because we feel sorry for them, But the more they get paid, the better it will be for venture capitalists like me. The more money ordinary folks’ make, the greater the opportunity people like me have to innovate, create enterprises and sell them stuff. The better they do, the better I do.”

Hanauer is quick to point out that the converse isn’t true: “A thriving middle class causes growth, not the other way round”, he suggests. “You can’t drive a consumer-based economy – which our economies are based on – with only the extreme wealth of the few. What we need to do is to boost the minimum wage in the U.S to 15 dollars an hour.”

The venture capitalist then goes on to suggest that capitalism needs to be further controlled through a system of planned and coordinated regulation:

“Capitalists have the idea that their things will be bought by everybody else as a result of higher wages paid by other capitalists. But this logic of paying higher wages to staff to help improve business activity more generally, doesn’t seem to apply equally to them since they will insist on paying their own workers next to nothing thereby not absorbing the costs themselves.”

Hanauer continues:

“The simple truth is, if a higher minimum wage was introduced universally, not only would it be affordable, but something like 40 per cent of American’s would be able to buy more products from everybody thus benefiting all capitalists across the board. Business is challenged today because fewer and fewer people are able to buy things.”

In other words, Hanauer is arguing here that the actions of capitalists’ need to be reined-in through a system of planned and coordinated regulation in order that the system be saved from the rapacious actions of competing capitalists who are driven, as Marx put it, by their need to “accumulate for accumulations sake”.

Contradictions

Hanauer’s pragmatic arguments are similar to those being suggested by Labour leader Jeremy Corbyn and shadow chancellor, John McDonnell. What all three understand – but the Tories don’t – is that the ability to accumulate for accumulations sake doesn’t necessarily lead to higher profits. One of the contradictions inherent to capitalism is that the system as a whole needs to spend money to make profits, yet every individual capitalist wants to spend as little as possible. The lengths to which giant companies like Amazon, Google and Starbucks will go in order to avoid paying tax shows how that dilemma is played out.

In theory, insisting employees work 14 or 16 hours a day for peanuts correlates to higher profits for capitalists. But in reality such an approach is very wasteful – like over-exploiting the soil. Accumulating for accumulations sake is concomitant to a deregulated economy in which the absence of relevant legislation means that capitalists will insist their workers are worked to the bone for as little money as possible for fear of the former losing their competitive advantage over their rivals.

What Hanauer and the Labour party under Corbyn are able to grasp is that the introduction of labour and wage regulations that the Tories try their utmost to resist, actually improves productivity, that from the perspective of the capitalist system, is beneficial to everybody.

This brings me back to the wisdom implicit in the Nick Hanauer quote above. Hanaeur’s argument about the necessity of the United States government to substantially increase the legal minimum wage across the board in order to save capitalism from itself, is in principle, no different from the minority of capitalists in 19th century Britain who argued in favour of the introduction of the Factory Acts of the 1830s and 1840s which set down a maximum length for the working day.

Re-think

In reality, an advanced low wage and minimal welfare provision capitalist state like Britain is the modern equivalent of its counterpart during the industrial revolution prior to the introduction of the Factory Acts. What enlightened capitalists like Hanauer, as well as pragmatic socialists like Corbyn and McDonnell grasp, is the necessity to radically re-think the failed neoliberal ‘trickle up’ economic model of austerity – in which, for example, huge subsidies are paid to rich landowners – and instead reconfigure policy towards a Keynesian demand-led strategy which redistributes wealth towards the bottom.

The former is what economist Paul Krugman describes  bluntly as “a con that does nothing but harm the wealth of this nation. It has been discredited everywhere else: only in Britain do we cling to the myth.”

As inequality continues to rise, so does the potential for public disorder. At present, the richest tenth pay 35 per cent of their income in tax, while the poorest tenth pay 43 per cent. Is it too much to ask that those with the deepest pockets pay their way, thus creating the potential for the kind of equitable society in which everybody wins?

This is not pie in the sky stuff but a pragmatic solution to the problems we face. Politicians like Jeremy Corbyn, John McDonnell and Caroline Lucas, as well as economists like Paul Krugman and Joseph Stiglitz – all of whom are ideologically as far apart as its possible to be from venture capitalist Nick Hanauer –  are nevertheless in agreement that the direction of travel the Tories are on is wrong.

As far as the possibility for change in the future is concerned, Hanauer says:

“Most American’s (and by extension, British) have accepted this bankrupt idea of how you create growth in capitalist economies. If you think that wealth trickles down from the top; if you think that the rich are the wealth creators, and if you think that the more rich people you have the more jobs you will create, then the notion that the introduction of a high rate of tax for rich people makes no sense.”

Hanauer adds:

“However, if you reject that false idea of how capitalism works and you accept a more realistic 21st century notion that the more workers earn, the more customers’ businesses have and the greater the level of jobs that will be created, then you will understand that it’s part of a feedback loop in which everybody wins. The battle ahead is to change the parameters of debate around these things. At the moment we are on the wrong track.”

One might reasonably and instinctively assume that the interests of Hanauer, whose wealth runs into hundreds of millions of dollars, would be closely aligned with the right-wing government of Theresa May. But such a notion is counter-intuitive given that politically, he is closer to Labour’s Jeremy Corbyn.

The fact that Hanauer’s political outlook and approach to dealing with the challenges society faces, has more in common with Corbyn than May, completely undermines the arguments of those who smear Corbyn with the communist epithet.

Contrary to popular mythology, Corbynism and capitalism are, in reality, congruous concepts. It’s not only the social aspects like the health service and social care that’s safer in Labour’s hands, but from the perspective of capitalism’s longevity, its the economy too.

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