In 1832, the British aristocracy saved itself by agreeing to loosen its grip on power. Threatened with the spectre of being flooded by hundreds of instantly created peers, the House of Lords reluctantly voted for the first Reform act on the third time of being asked (by Earl Grey, the liberal prime minister). The bill widened Britain’s electorate and diluted the political stranglehold of its landed elites. This was a key reason why Britain escaped Europe’s wave of 1848 revolutions. Britain’s evolution was already peacefully under way.

Much the same thing happened again in 1911 after Lloyd George, another liberal prime minister, had suffered the heavy defeat of his progressive budget in the aristocratic upper chamber. Once again, the Lords was threatened with a wave of instantly-ennobled radicals. Once again it opted for compromise over the threat of extinction. The Lords voted in favour of the Parliament act, which deprived the aristocracy ever again of the power to block fiscal legislation. This was how British welfare state was born. Meanwhile, the country’s peers continued to enjoy their status at the top of the ladder. It seemed like a reasonable trade-off. The working classes received social insurance; their social betters got to complain ad nauseam about “Le weekend”. 

I was reminded of these key turning points — and indeed of the New Deal from Franklin Delano Roosevelt (pictured above) — a few days ago when Ray Dalio, the hedge fund billionaire, wrote a plea to reform American capitalism. His essay, which warns that US capitalism faces a choice between reform or “extinction”, is not, in itself, particularly original. Many people have been making a similar case for more than a decade. I wrote a book on it in 2012 (Time To Start Thinking: America and the spectre of decline).

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What is striking is the identity of the author. As head of Bridgewater Capital, few people have benefited more from today’s capitalism than Dalio. He is worth $16.9bn according to Forbes. The system will never change unless more people like Dalio come round to his way of thinking. One or two others, including JPMorgan’s Jamie Dimon, are also making similar noises, which is good news. But too many still belong in the camp of Steve Schwarzman, the private equity billionaire, and Howard Schultz, the former Starbucks chief executive, both of whom have likened the idea of a wealth tax to Venezuela. A few years ago, Schwarzman compared the proposed — but still unenacted — closure of the “carried interest” loophole to Hitler’s invasion of Poland. I wish I were making that up. Alas, he really did.

As long as the bulk of America’s super-wealthy continue to equate progressive taxation with fascism, or communism, they will hasten into being what they most fear. History tells us that elites who do not share power are ultimately doomed (see French revolution). Those with the wisdom and foresight to bend find they are far less likely to eventually break. The question America’s financial and tech elites must ask is “what price social peace?” I would say social peace is worth several carried interest loopholes. As. TB Macaulay, the great British historian, remarked: “You must change in order to stay the same”.

Rana, I am pretty sure you’ll agree, so let me ask you a different question: do you enjoy your weekends? I assuredly do, although it is devilishly hard to find reliable help nowadays.

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Recommended reading

  • My column this week looks at how much Trump did to help Bibi’s historic re-election in Israel this week. Those wondering how Trump might run his 2020 campaign — and the consequences of his victory — would do well to study the Israeli election in light of Bibi’s multiplicity of pending indictments. The people have just given him the power to neutralise them. “Democracy does not always die in darkness,” I write. “It can also be deprived of oxygen in well-lit polling booths.”

  • A lot has been written about Trump’s trade war with China — much of it highly impractical. In the real world, it is simply not possible to subject a country of China’s size, clout and talent to our script. As Dani Rodrik argues, a form of pragmatic coexistence between China and the west is a far more intelligent way of ensuring China’s peaceful rise (see above on changing in order to stay the same) while extracting as many concessions from it as we can.

  • Finally, my colleague Sarah O’Connor, has written a great column about the economic plight of Britain’s seaside towns. We have become used in recent years to talking about the “left behinds”, the “periphery”, the fringes and so on. That is the wrong way of looking at it, says Sarah. In Britain, as elsewhere, threadbare seaside towns such as Blackpool have become magnets for the left-behinds from London and elsewhere, because that is where they can afford to live. The same, of course, is true of the US. We should stop thinking of today’s economic losers as marginalia. They are mainstream. 

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Rana Foroohar responds

Ed, the first thing that comes to mind here is one of my favourite lines from Downton Abbey, delivered wonderfully by Maggie Smith. “What is a weekend?” I’m not enjoying mine as much as I’d like, as I’m being crushed by the wheels of industry these days, trying to finish my book draft. But don’t worry, once May 1 comes, I’ll be putting my feet up and rereading How Much Is Enough?

I have to say that although Ray Dalio is a thoughtful person, and makes many good points in his piece, these “how to fix capitalism” tomes by billionaires are kind of tiresome. You can make it all very complicated and technocratic. Or you can just say to big business: stop lobbying for lower taxes that starve the public sector at the same time as you complain that government won’t do anything to fix our stagnant economy. Stop paying yourselves multiple times what normal people make. Raise wages and treat labour well. 

Let’s start with that, and then work out all the specific algorithms later. 

Your feedback

We’d love to hear from you. You can email the team on swampnotes@ft.com, contact Ed on edward.luce@ft.com and Rana on rana.foroohar@ft.com, and follow them on Twitter at @RanaForoohar and @EdwardGLuce



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