Vince Cable speech: responsible capitalism - Marlborough House, London 23 November 2010
Some may feel the term “responsible capitalism” is supposedly something of an oxymoron, like bureaucratic efficiency or indeed liberal conservative…
Some may feel the term “responsible capitalism” is supposedly something of an oxymoron, like bureaucratic efficiency or indeed liberal conservative. Capitalism, after all, is meant to be the remorseless pursuit of higher returns on capital, exerting a continuous pressure on every other part of society. What room is there for something as unprofitable-sounding as responsibility?
But I think this trade off is largely artificial. Yes, there was hugely irresponsible behaviour in parts of the capitalist system - mostly in banking - and this was the main trigger for a global credit crunch that has cost the economy trillions in wealth and lost output. However, in most cases, the interests of profit - and responsibility themes such as sustainability and fair treatment of workers - are in no way opposed. And there are many examples of excellent companies which do behave responsibly and I am pleased to be here tonight to acknowledge their achievements.
I’d like to touch on certain elements of what I believe are the hallmarks of responsible capitalism. These are companies which take a long-term view; businesses which show strong leadership and good management particularly in difficult times; firms which invest in their staff; and businesses which display ethical behaviour.
The perils of short-termism have been all too apparent over the past few years - not only through the pursuits of short-term profits at the expense of companies’ interests - the takeover of Cadbury being a prime example. But throughout the economy, great damage has been done by speculating on a short-term bubble in property values rather than investing in economic production. My own department is currently looking to identify the drivers behind market short-termism, and the Takeover Panel is committed to changing the Takeover Code in some useful ways. This is not a lurch towards protectionism, but an effort to ensure the long term interests of companies and their employees are not forgotten, by some, in a quick rush for short-term gains.
Of course there have been many examples of companies, both British and foreign, which are exemplary in terms of their efforts to align their long-term economic interests with those of their employees. Possibly the best known example is John Lewis - but this mutual form of ownership is not the only way of achieving this. Lloyds Bank under Brian Pitman was a success both for its shareholders and its customers, based on a 10-year assessment of shareholder value. Industries such as biotech and pharmaceutical are, by necessity, operating in the longer term - it is the ability to carry out research and development for products that may only sell in 20 years time that sets the winners aside from the losers.
Manufacturing is another important part of the British economy which has a long-term vision, and there are many examples from which to choose. Japanese car companies have operated on this basis and Britain has benefited to the extent of it developing electric vehicles in Sunderland. Another company with a long-term outlook and of which I have to declare an interest is Shell, where I worked as chief economist and which operated, and continues to operate, a scenario planning department looking many years, decades even, into the future trying to prepare for everything from a stagnant low oil price to the explosive growth of Far Eastern economies.
I grew up in York where the Quaker chocolate companies - Rowntrees and Terry’s - dominated. They pioneered worker share ownership and invested in housing and other facilities for their employees. Looking after staff and treating them with respect, and as partners, is an aspect of good long-term behaviour. Relationships were somewhat paternalistic but nonetheless valued by employees who reciprocated their favourable treatment.
These companies demonstrated good management and this is particularly important in periods of economic crisis. I think everyone would concede - perhaps apart from Lord Young - that the past few years have been especially severe. The banking crisis and recession have led private sector companies across the country to face tough choices, particularly regarding staffing levels. Yet staffing has NOT been cut to the extent some feared - can you remember those predicting three million unemployment by now? The reason it hasn’t happened is that many organisations, and their staff, have reacted sensibly and worked together to weather the storm, by making wage decisions than enable firms to keep their workforces. I notice as well that levels of training have no suffered as much as in previous recessions. Companies have long said that people are their greatest asset - now many are acting like they believe it.
For example, due to a dramatic drop in orders, JCB had to reduce its worldwide headcount between summer 2008 and May 2009. But a GMB-backed working week reduction, to 34 hours a week, ensured no further redundancies. Caterpillar - another company in the construction sector in 2009 took steps working with unions and staff to minimise the numbers of job cuts it had to make. During two shutdown periods at its Leicester plant in early 2009, employees went to work as usual and remained on full pay, but undertook a range of activities like training courses and charitable activities, as well as building machines.
Similar good practise can be found throughout the economy. Toyota, for example, in agreement with its staff, operated a 10% workshare arrangement to handle reduced volumes and offered voluntary redundancy. The aim was to try to maintain their skilled workforce so that they were in a stronger position to take their business forward when economic conditions started to improve. Vauxhall Motors reacted in much the same way.
Responsible behaviour is the responsibility of companies. But we want the government to help. In skills, for example, the Coalition has committed additional resources to fund a further 75,000 adult apprenticeships a year by 2014/15 above the level inherited from the previous administration. In Rolls Royce, one of the great providers of apprenticeships, many of the current managers are graduates of the apprenticeship scheme - a real testimony to its long term value.
My final point, companies which display particularly ethical behaviour, is slightly more opaque, but good examples exist. Barclays, The Guardian and the African Medical and Research Foundation are using their combined expertise to make a difference in terms of health and welfare issues, but also through sustainable microfinance, creating savings and loans associations and developing a portfolio of products and services appropriate for people with low incomes. Tata Consultancy Services, and separately Thomson Reuters, are developing mobile-based advice services aimed at supporting Indian farmers. While Derbyshire-based Pachacuti, which I’m told does a rather fetching line in Panama hats, is the first in the to be certified against the Fair Trade Sustainable Management System, which guarantees living wages to everyone working in the supply chain. Investment funds are increasingly developing ethical products, reflecting a growing demand, and consumers too are becoming more conscious in terms of their buying habits. Coffee company Cafedirect is a good example of a business increasing sales while maintaining Fairtrade values. These activities can be consistent with the pursuit of shareholder value, and are.
So capitalism can be responsible - in fact, it is in its real interest to be responsible. Responsibility is not just some sort of badge that companies can wear to indicate that they care, but should be an intrinsic part of their strategy. Profit matters, but short term profit pursued at the expense of everything else is self-defeating. I hope these awards go some way towards encouraging more businesses to take a longer-term view, to develop better leadership, to invest in their staff and behave in an ethical manner.
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