Western capitalism is crumbling – but it can be saved

Whether you are a young person who will never be able to afford a house, an uprooted blue-collar worker, or a parent worried about your children’s future, the credibility of our system of free enterprise is being called into doubt. We face a crisis of political and economic legitimacy. We must find a more serious path forward. 

As senior executives with decades of experience in finance, neither of us is blind to the fact that our industry bears some responsibility. The defining economic moment of this century to date was the financial crisis. While Occupy Wall Street made noise from the streets, the establishment has yet to fully reckon with its consequences. The moment itself epitomised the worst excesses of human greed, but the subsequent fallout led to spiralling asset prices and growing disillusionment with capitalism. 

The policy response sowed the seeds of widespread distrust in our institutions. A decade of quantitative easing caused asset prices to rise without a corresponding rise in wages. In effect, the losses incurred through the crisis were socialised, while the gains in its aftermath were privatised. 

Asset price increases have created a generational wealth divide in every major Western democracy. This has left housing unaffordable across the Western world for young people. The median home price in the US has doubled since the start of 2009, yet median wages increased just 49 per cent during the same period. Since the 1980s, intergenerational income mobility in the US has consistently worsened. In Australia, Gen Z is the first generation to earn less than its parents. The UK’s picture is even worse, with both Gen Z and Millennials worse off than the generations before them.

Meanwhile, corporate soul-searching has inadvertently created a different type of moral hazard. Noble concepts of purpose, values and corporate social responsibility have emerged along with a rise in investing through an environmental, social and governance (ESG) lens. Unfortunately, the fine language often diverges from reality, provoking greater distrust. Millions of dollars of fines have now been paid by several financial institutions for overstating their funds’ ESG credentials. 

At the same time, diversity, equity and inclusion (DEI) efforts have frequently come to mean the exact opposite, where only one “correct” viewpoint is allowed. The aim of creating diversity of thought has given way not to real debate, but rather cancel culture. In short, we have seen little tangible improvement in governance, but far more politicised boardrooms. The “debanking” of both Nigel Farage and a clergyman who questioned trans-orthodoxy are only two examples of a disturbing trend. 

Alas, little effort has been made to tackle the structural weaknesses that engender corruption. Two-thirds of US Congressional delegates receive funding from the pharmaceutical industry. US monopoly law was not designed for this complex era, and the revolving door between Big Government and Big Business spins faster each day. 

Unsurprisingly, all of this creates doubt in the minds of young people and those in left-behind regions about the merits of the economic system that created the modern world. A Fraser Institute report earlier this year found a net preference for socialism in those aged 18 to 34 across the West.

We must recognise two fundamental points. First, we cannot lose sight of the importance of free markets and exchange as the primary driver of prosperity over the past 200 years. Scientific innovation and free markets came together to create the Industrial Revolution. In the past 75 years, extreme poverty across the world has fallen from 90 per cent to 10 per cent. It has halved in the past 20 years alone. Our best hope of finding solutions to today’s challenges still lies in human ingenuity, which can be unleashed through the market economy. 

Second, and just as importantly, we must not deny that free enterprise without good governance leads to corruption and ultimately injustice. The way in which goods and services are exchanged mirrors human nature. For this reason, we need a return to character. Free markets only thrive in societies where there is a widespread acceptance of virtue – where people are respectful of each other and mindful of the common good. 

This week, we are presenting these ideas at the inaugural gathering of the Alliance for Responsible Citizenship in London. We are at a turning point: the economic system that laid the ground for our prosperity is facing an existential crisis of legitimacy. The West needs to show, once again, that our approach is superior precisely because of our values, traditions and freedoms.

Baroness Helena Morrissey and Sir Paul Marshall are advisory board members of the Alliance for Responsible Citizenship. Follow ARC: @arc_forum