Enlightened capitalism is what we need in these dark times

Even Larry Fink, chief executive of BlackRock, the largest asset management firm in the world, has discovered that modern capitalism does not work well for everyone. In his latest letter to investors he warns that it is “fracturing” as AI advances.

Welcome to the club, Mr Fink. Modern capitalism is a system that has retreated shamefully from the decent values that evolved after the US robber barons of the late 19th and early 20th century were taken on by enlightened presidents. Then there were the huge steps made after the second world war to move governments, and international organisations, into a form of enlightened capitalism.

But in recent decades the rot has set in. For instance, back in 2010, the veteran French diplomat and Resistance fighter Stéphane Hessel issued a stirring call in his pamphlet “Indignez-vous!” (Time for Outrage!). He said it was time to reject the “insolent, selfish” power of money and markets and to defend the social “values of modern democracy”.

One of the cooperative institutions that emerged after 1945 is the Paris-based Organisation for Economic Cooperation and Development. The OECD is a forum where different countries’ economic policies can be compared and evaluated. Its latest assessment shows that the UK is almost at the bottom of the G7 league when it comes to growth and control of inflation.

All these countries were affected by Covid, and all now face the blow to inflation expectations exerted by the impact on production and retail costs of the closure of the Strait of Hormuz. So why is the UK such an outlier?

In answering this, the late British economist James Ball’s dictum comes to mind: “Beware of the OBE.” He did not mean the Order of the British Empire, but people who peddle One Big Explanation.

In this case, however, I shall unashamedly resort to Ball’s OBE. Yes, the mounting damage caused by Brexit.

It’s welcome that the government and country at large have woken up to this. When asked on a scale of one to ten how successful Brexit had been, one (formerly) prominent Brexiteer replied: “Minus 70.”

There are even suggestions that Labour should make re-entry in some form to the European Union a major feature of its next general election manifesto. It certainly needs something.

In which context it is to be hoped that Nigel Farage’s cosying-up to the present President of the United States is going to rebound on him. We are indebted to the editorial board of the New York Times for news that “before Mr Trump began this war, he brushed aside warnings from his top military adviser that Iran could close the Strait of Hormuz to traffic it does not approve. The global economy is now dealing with the consequences of his overconfidence.”

As I pointed out in my last column, the current energy crisis evokes memories of the two in the 1970s. But John Llewellyn of Independent Economics, who analysed the impact of those crises when an OECD official in the 1970s, points out that the deleterious impact on global demand may not be so savage this time because the oil-producing countries, which benefit from higher oil prices, are now much bigger spenders than they were in the 1970s. Back then, wages in the oil-importing countries were also linked to increased inflation, in a dangerous spiral.

Nevertheless, the Trump-Netanyahu war has produced a serious economic crisis – the last thing the beleaguered Starmer-Reeves government was prepared for.

Photograph by Anna Moneymaker / Getty Images