Even Tories scared of business

This is my Perspective column for this week’s issue of Fund Strategy.

The most interesting aspect of George Osborne’s budget speech, perhaps the only one, was his claim that “it unashamedly backs business”. Given that the Conservative party is the traditional party of British business it might be assumed that this should go without saying. It seems akin to the Pope proclaiming that he believes in God or Alex Ferguson saying he wants Manchester United to win the Premier League.

Osborne’s proclamation followed a similar point made by the prime minister. In a speech to Business in the Community in February he proclaimed himself against the idea “that people in business are somehow out for themselves”. Instead he argued that firms are a powerful force for social progress.

Given the context such defensiveness is perhaps a little less surprising. The Liberal Democrat party, the government’s coalition partner, traditionally see itself as the organisation of the respectable centre: opposed to the excesses of both business and organised labour. Meanwhile, Ed Miliband, the Labour leader, has led calls for a “responsible capitalism”. The clear implication is that the Tories support an irresponsible or predatory capitalism.

Such criticisms seem to have a wide resonance in society at large. Criticisms of “greedy bankers” and “fat cat” executives chime with ordinary people who are suffering from the effects of austerity. Attacks on excess evidently have a broad emotional appeal.

But it would be wrong to see pro-business statements by Conservative leaders as simply a response to contemporary pressures. A profound political shift has taken place that has gone largely unnoticed. Not only have the terms “left” and “right” lost their traditional meaning but a new middle class outlook has come to the fore.

What could be called the perspective of the anxious middle has come to dominate all shades of mainstream debate. Its overriding fear is that society is fragmenting from both top and bottom. It is worried not only about what it sees as a morally suspect “underclass” but also an “overclass” that is prone to excess. Concerns about the errant super-rich shape the contemporary attacks on business. This development has affected the Conservative party as much as other parties. Indeed similar changes can be seen across the western world.

To understand the significance of this shift it is worth stepping back a quarter of a century or so. The end of the Cold War marked the demise of a political cycle that started with the French Revolution of 1789. For two centuries the world was divided into clearly defined right and left camps. In broad terms the left was in favour of social progress and radical change while the right opposed them. As time progressed the left became increasingly identified with socialism and organised labour.

It is clear to most that socialism in a traditional sense is no longer a significant social force. Although trade unions retain their organisational shells their millions of members exist only on paper. The number of those actively involved is minimal. As for the Labour party it distanced itself from its traditional socialist past, such as it was, when it renounced its commitment to wholesale nationalisation in 1995.

But while the demise of organised labour is widely understood, the end of a traditional pro-business outlook is less broadly appreciated. Although the Conservative party still exists, it is far more equivocal about business than in the past. The Conservatives go along with the prevailing consensus that corporate activity needs to be tightly constrained and that economic growth has to be treated with extreme caution.

Anyone who doubts this shift should compare Cameron’s Business in the Community speech with a pro-capitalist classic: Adam Smith’s The Wealth of Nations. The prime minister’s attack on the idea that businesses are only out for themselves goes directly against what used to be the mainstream assumption. Whatever readers think about business being involved in building “bigger and stronger societies” that was not conceived as part of its traditional role.

Compare Cameron’s view with that of Smith as articulated in his 1776 classic: “It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.” In other words, Smith argues that society progresses precisely because firms pursue their own interests rather than because they are willing to go beyond their commercial concerns.

For Smith the benefit of businesses pursuing their own self-interest was that it was the best way of generating greater prosperity. Such affluence would in turn have great social benefits.

Yet the few who argue Smith’s line today are likely to be regarded as heartless extremists. It is widely accepted, including by Conservatives, that companies have a broader social responsibility. In practice that means putting relatively less emphasis on generating wealth while focusing more on activities outside the traditional remit of business.

Although this discussion uses the rhetoric of “responsibility” – implying its critics are irresponsible – the terminology is misleading. A business that is responsible in this sense is one that accepts strict constraints on its operations – indeed it will often impose limits on itself. It means accepting the notion that firms should be extremely cautious in what they do.

The irony of this historical shift is that nowadays business has few unequivocal advocates. Even those who claim to be its ardent supporters typically embrace the notions of restraint and corporate social responsibility. They are as willing as supposedly more radical critics to rail against anything that is perceived as corporate excess.

Given the political climate it is hard to see business finding many close friends in the foreseeable future.