Men climbing a notional pile of money in a depiction of capitalism


QUAD talks to Colin Mayer about how to reform capitalism so it stops causing crises

Published: 4 January 2024

Author: Richard Lofthouse


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Book jacket, Capitalism and Crises

Capitalism and Crises: How to Fix Them by Colin Mayer (Oxford University Press: 2024)

Colin tells the most wonderful story early in this book. He was at school working through an important exam. One of the questions required the examinee to explain what a series of commonly used Latin abbreviations meant in English, such as ‘e.g.’ standing for exempli gratia, ‘for example’.

We’re going to guess that Colin generally smashed it, given the number of senior roles he has held at the University of Oxford, but he got to the bottom of what he assumed to be the final page and got stuck on the Latin tag, PTO. Of course, it just meant ‘Please Turn Over’ but he didn’t, and because he didn’t he failed the exam!

Colin’s following point and the reason for the story, is central to his argument and the whole book, indeed the whole trilogy.

In broadly stated terms he argues that we’ve all become complacently familiar with Adam Smith, the Scottish Enlightenment economist. We like the idea that by some miracle of human affairs we can all pursue totally selfish consumption pursuits yet the invisible hand of the market converts them into a higher moral outcome. Self-interest renders a self-levelling market place and great efficiencies. Everyone gets fed at the lowest cost.

But, and it’s a huge caveat, Colin argues that we have all forgotten, badly forgotten, that the system rested on an underlying moral foundation, central to which was a church structure, a social structure, and time honoured customs and traditions. There were, in other words, curbs to certain types of behaviour that were implicit and assumed.

The ‘PTO’ moment here means ‘turning over’ and reading Adam Smith’s Theory of Moral Sentiments and not just his Wealth of Nations, argues Colin. In the less familiar volume Smith considered why man is not totally selfish but finds reason to help his neighbour even if from a narrowly defined perspective it might be onerous or financially imprudent.

Elsewhere in Capitalism and Crises – we’re racing ahead here – Colin takes aim at what he calls ‘Capitalism Creationists’, who in his view have run away with a self-interested, lopsided view of Adam Smith and turned it into a narrow dogma.

Racing right to the end, Colin makes his final plea for reforming capitalism so that it works better, before reciting the famous bit from economist Milton Friedman that the capitalist creationists trot out at every turn, but with a vital tweak:

‘there is one and only one social responsibility of business- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud’

To this Colin adds (our emphasis): ‘must include the words ‘and not profit from producing problems for others.’’

Whether it is egregious asset stripping, laying off half the workforce merely to create a short term profit bump, reaping excessive profits that have not been ‘earned’, or gaming regulatory structures or international borders to avoid taxation, in far too many cases shareholder capitalism has gone too far, and has even become in some instances rotten, argues Colin.

He recognises completely that profits are needed, otherwise capitalism simply wouldn’t work. There would be no means of sustaining an enterprise and investing in its future.

He also condemns the socialist solution of trying to own the ‘means of production.’ What companies should own, he argues, are the problems they are there to solve.

Restating the problem, he asks us all: what is the source of the profit?

‘If it comes from solving problems of others that is all to the good, if it doesn’t then it isn’t.’

What he calls ‘unjust enrichment’ is particularly corrosive because if one company behaves badly it tilts the playing field for the others, in the wrong direction.

There’s a tension in the book between nation states re-asserting themselves and globalisation, but Colin says that globalisation has been both a source of ill and good. He speaks eloquently about how a good global company can connect up that goodness even in jurisdictions where standards of governance or public office are poor; equally a bad global company can spread bad behaviour.

A prominent example of a good company he mentions is Novo Nordisk, whose head Lars Jorgensen was made 2023 Financial Times Person of the Year.

The company has made waves (and vast sales) from anti-obesity drugs, which at first sight looks like profiting from a societal ill. ‘But the company has sought to address the underlying problem of diabetes as well; it has what is termed a ‘Foundation’ ownership structure and it can’t be bought by anyone in the way that companies are too often bought and sold and then often ruined.’

It is no coincidence that Novo Nordisk is Danish, because Colin is a huge admirer of the Danish model and, as the book makes clear, thinks that the UK model of capitalism has been undermined by extensive foreign ownership, poor track records of investment resulting in poor levels of productivity, a neglected and often uncared for workforce, management who pay themselves too much and so on.

The Danish ownership model often involves part-public ownership, while another chunk – ideally a controlling stake - is retained by a Foundation. Examples are prominent in Denmark’s very successful pharmaceutical sector but they extend to shipping (Maersk), brewing (Carlsberg), and industry (Danfoss).

Head of Communication & Public Affairs and SVP at Danfoss, Kasper Elbjorn, who also has a background in Carlsberg Group, says that unlike Carlsberg, Danfoss remains unlisted with the Bitten & Mads Clausen’s Foundation and the founding family holding all issued A-shares and several B-shares corresponding to 99.88% of the votes. He says it’s one of the reasons the company can focus on long-term investment opportunities and value creation, strengthening its competitive position organically as well as inorganically.

He also says that the Foundation status and corporate governing structures benefitted the company when it funded the largest acquisition for a non-listed Danish company in 2021.

‘Historically, foundation-owned firms has arisen in Denmark in connection with generational change in family-owned, large, exporting companies. It means the industry stays in Denmark and so too the jobs and taxes.'

Research shows, says Elbjorn, that the foundation-owned companies account for 8 percent of employment, 14 percent of turnover, 25 percent of exports and 60 percent of research efforts in Denmark.

The high investment figure is often linked to high levels of productivity and organic growth, the elusive quarry of all governments.

Where the ground may be less tractable for Mayer’s argument is where he widens it to what we may refer to broadly as ESG criteria.

He says, ‘We should not accept that current generations profit at the expense of future ones…….’ During our conversation he raises the recent situation where big oil companies have booked almost inconceivably large profits, partly benefitting from the Russian invasion of Ukraine.

That’s problematic to start with, albeit a sort of ‘windfall’ in the traditional sense of the word, and to be balanced with the fact that some oil companies lost significant business interests in Russia.

But Mayer’s central objection is that these companies have then typically blown the money on bumper dividends and share buybacks, instead of investing it in de-carbonisation technologies that would secure the long term prosperity of the company in an electrified world. Colin considers that illegitimate, never mind imprudent. He also argues that if capitalism was reformed, it would make that behaviour less likely by pricing the climate emissions correctly, thereby internalising a costly future bill (climate change) instead of permitting the continuation of an egregious ‘negative externality.’

The author is far from being just an armchair critic, having founded two successful consulting companies in the spheres of energy transition.

His argument throughout the book is that we have to re-introduce morality to capitalism.

His thesis also recasts just how important university-generated IP is. The matter is put very well by Andrew Briggs, Emeritus Professor of Nanomaterials at Oxford, who in commenting on Capitalism and Crises says,

‘The refrain throughout this remarkable book is solving problems for others and not causing problems for others. That is a theme that will resonate with entrepreneurs in early-stage companies who in my observation are passionate about solving problems.’

The book doesn’t address the angry populism that threatens to destroy democracy, but it’s perceptible throughout and sometimes visible directly.

Even Smith’s Wealth of Nations tells us that ‘No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.’

The other half of this is climate change, where again capitalism has driven resource consumption to an extreme.

On the fiscal side he argues that austerity is bad, and reckless fiscal expansion is also bad – and we’ve seen both under the same ruling party in the UK since 2010. What works, going back to the Scandinavian model, is forging a common purpose through a private sector that addresses real problems, backed by ‘a public-sector investment of a duration and scale which the private sector is incapable of achieving alone.’

Without it appearing to be in any way self-serving, the incredible role of the modern university is restated by Colin, because despite its own series of challenges the university can sometimes achieve real knowledge breakthrough while also nurturing successive new generations of entrepreneurs and employees and researchers grounded in moral values about what matters: the inherent purposiveness of solving real problems.

We’ve heard a different version of this recently, when John Gray delivered the 2023 Pharos Lecture and regretted that the reforms of Margaret Thatcher towards deregulation and free markets rather swept away the moral foundations with them, going far towards erasing the orderliness of her own childhood in Grantham, of the honourable and often successful commerce of the shopkeeper, also a ‘pillar of society.’

One also thinks of Fiona Hill’s There’s Nothing for you Here, as a recent insight into the US/UK experience of populism, viewed personally and politically.

This handsome, 300-page volume can be read happily in isolation but it completes a trilogy, the first two volumes Firm Commitment: Why the Corporation is Failing Us (2013) and Prosperity: Better Business Makes the Greater Good (2018).

The books in some part bring to a wider public work developed in the British Academy Future of the Corporation programme that began in 2017, for which Colin is the academic lead.

Colin Mayer CBE, FBA, is Visiting Professor and Emeritus Professor of Management Studies at the Blavatnik School of Government and the Said Business School at the University of Oxford. He was the first Professor and then Dean of Oxford’s Said Business School and founded Aurora Energy Research and Oxera Consulting, and was a member of the UK government Natural Capital Committee.

Lead image: Getty Images