Paul Samuelson, among the greatest of modern economists and a staunch Democrat, once said that he preferred good clean money to bad dirty power. It is a vital insight, which ought to be a matter of political consensus across parties of the rational right and moderate left, that the market is more efficient and less prone to corruption than state-directed economies. Yet it is not. Capitalism needs consent if it is to flourish, and the corporate sector needs to work harder to secure it.
Once more, the imbalance of power between companies and consumers is raised by the pricing policies of the energy sector. British Gas announced yesterday that it would raise its electricity prices by 12.5 per cent from next month. Though its gas prices will remain unchanged, its average annual dual-fuel bill will rise by 7.3 per cent, or £76, to £1,120. Centrica, the owner of British Gas, is keen to stress that there are extenuating circumstances. It is the first price rise for four years and more than 200,000 of the company’s customers will be given a £76 credit against the increase.
There are always, apparently, extenuating circumstances; and this increase, far in excess of the rise in consumer prices, takes place against a backdrop of falling wholesale energy prices and squeezed household incomes. It is unsurprising that consumers believe their need for an essential service is being exploited by vested interests.
Popular suspicion of corporate pricing policy lends weight to the idea of price caps. Labour under Ed Miliband proposed freezing energy prices; the Conservatives have lately fallen into line behind this proposal. Yet price controls are the wrong solution. They will reduce the incentive for companies to invest because of lower expected returns on investment and uncertainty over the future regulatory regime.
The same criticism applies to another destructive Labour idea: rent controls. These can be all but guaranteed to create a shortage of private rental accommodation as landlords will have an incentive to withdraw their properties from the market. Yet if the solutions favoured by socialists are destructive, the problems that such measures are intended to address are real. The market economy’s legitimacy is being tarnished by the fact that markets in some sectors are not operating properly.
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Owner-occupation of property has long benefited from tax concessions allied to planning restrictions that prevent an adequate expansion of supply. The result is that the younger generation of workers is largely locked out of the property market. Energy companies place the onus on consumers to shop around for the best deal rather than directly offering competitive deals. The corporate sector in general remains in thrall to a very narrow conception of its responsibilities to shareholders rather than to wider interests.
If the productive gains of capitalism are to be preserved and extended, the message that the market works for all needs to be understood by public opinion. Yet its plausibility is not recognised sufficiently widely. Part of the reason is that the reputations of agents of commerce, the companies that produce goods or provide services, is currently low, and with good reason.
Companies are a vital contributor to public welfare but their interests are not identical to those of the public. The predatory activities of the banking sector, whose gains are private yet whose losses were borne by taxpayers in the financial crisis of 2007-09, stand as a warning of the costs of subordinating the public good to private profit.
The corporate sector needs to clean up its act and be seen to serve consumers rather than gouge them. If it does not, the popular mood could all too easily swing behind political tendencies, such as the Labour Party of Jeremy Corbyn, that are ideologically hostile to enterprise. Everyone would then be the poorer.