In this economic crisis 25 million people will be exploited. By the end of 2010 they will have lost their jobs. I cannot see that we can go on acting as if nothing has happened. We cannot just have business as usual.
Those who believe that we should, assert that state intervention in failed private enterprises is a temporary tactic, and that the “strategy”, capitalism, will soon reassert itself. A new code of conduct for non-executive directors; a few new accounting standards to deal with off-balance-sheet items; the Governor of the Bank of England’s eyebrows to be more visible when raised; a little tweaking of the tier one capital ratios; a bit more transparency here, a touch more regulation there and everything would soon return to normal.
To these proponents of the traditional “shareholder value” model, the laws of capitalism are like the laws of gravity. You can object to them, but you can’t change them. For them, the logic of free markets seems unassailable: they are the pinnacle of Western civilisation.
The contrary opinion, the all-powerful State as a force for good, appeared to have been discredited by its most recent incarnation as Soviet communism. According to its critics, such a State would always fail to provide wealth for its people. As a service provider, it would be incompetent in delivering public needs such as health and education. As a manager, it would be bureaucratic — like the Russian station masters who sent out empty trains in the middle of the night to meet their targets. As an investor, it would be amateur in trying to “pick winners”.
This may all be true, but the next generation may expect more. They may have noticed that when the State met the market, the State won. When all else failed, the last man standing was the State.
As President Obama put it: only the State had the resources to rescue the situation. The State saved the banks. The State saved the mortgage companies. The State would safeguard our future by more regulation. In this crisis, the State was a welcome friend in a storm.
The record seems to show that capitalism cannot function without state help, and the State cannot function without private enterprise. So perhaps we can have a satisfying synthesis of the two.
Maybe the state-owned failed enterprises present a wonderful opportunity for a new approach, and a route by which the Conservative Party can play as historic an intellectual role in the 21st century as it did in the 20th.
At present, the conventional wisdom is that we should grab our share certificates in these state-owned companies, and head for the door marked “exit”. This rush for an exit strategy is based on the premise that the State is always incompetent. Instead, in this grown-up 21st-century version we, the people, assume a role we did not seek but which was thrust upon us. If a capitalist model it must be, so be it. Let us act the part. Let us say, we are all capitalists now.
I am told that, via the state holding, I am an investor in certain banks. Apparently I have accidentally stumbled into ownership of one of the great global cartels. So now I say, if capitalism is such a piece of cake, then I will have a slice myself.
I will turn myself into a professional asset manager. The State will be my fund manager. I give it my funds to manage, ie, my taxes. It has no funds apart from mine. It has no clients apart from me. I expect above average performance and above average returns.
We, the people, are the institutional investor, through our fund manager, the Government. We assess the fund manager’s performance every quarter. If he performs well, we give him/her more funds to invest for us. If badly, we seek redemption, ie, the return of our money, and the repayment of our investment. This threat has an excellent affect on the asset manager, who fears that “redemption” will leave him humiliated or ruined.
For example, if my fund manager makes a profit on the sale of my banking portfolio, I expect the profit to be paid to me, in the form of a tax refund. Lord Myners, the City minister, has assured us: “We will sell our shares at a profit ... The total proceeds received from our involvement with the banks will exceed the investments made ... The taxpayer will enjoy the benefits of the actions we took.”
Good. In that case I take as my role model the Qataris, who took a weekend call from Barclays, provided emergency funds of £5 billion, and walked away with a profit of £2 billion six months later. Or Warren Buffett, who gave $5 billion to Morgan Stanley in its hour of need, and now enjoys a $2 billion profit. They call it capitalism, don’t they?
This capitalist discipline will have an excellent effect all round. If Stephen Hester of RBS, gets his £9 million bonus, I get my £9 billion profit, which I take in the form of a tax redemption. In place of mutual suspicion and mistrust, we now have a common bond of interest. Instead of despising his greed, I have much respect for his ability to make me rich. Suddenly I wish him well.
The platitudinous term “empowerment” is revered by all politicians seeking office. Instead of the platitude, let us have the reality — the capitalist version in which money is power.
At his execution, Charles I said: “A subject and a sovereign are clean different things.” The King was right. The difference today is that the subject has all the power because we have all the money. Now all we have to do is use it.
Maurice Saatchi. Lord Saatchi is chairman of the Centre for Policy Studies. This is an extract from a lecture being delivered tonight at the London School of Economics.