5.1.3 Historical context: revision of Unit 2 historical outline

Back to 5.1.2

Unit 5 Contents

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As in Unit 4, in this unit we are following the ‘pastoral spiral’ (which was introduced in Unit 2 (2.3.2)).  This is why you have been asked to bring to mind your own experience of business activity to begin with.

We need next to place this topic in some historical context (at the second stage of the spiral), as this can help to illuminate the main issues that the topic raises now, in the 2010s.  In fact, you already know a lot about the context of economic debate, given what you have studied especially for units 2 and 4.

The first part of Unit 2 introduced the debate about capitalism and socialism which was at the centre of politics in many countries for a century until about 1990.  That unit outlined the way in which a new mechanistic view of the world became dominant in Western thinking after the seventeenth century.  Screen 2.1.3 explained how this led both to the Industrial Revolution and to a way of seeing human beings basically as pleasure-seeking, pain-avoiding mechanisms – or, as the then new discipline of economics came to put it, as ‘utility maximizers’.  It will be very useful at this point to read through screens 2.1.2 to 2.1.4 again (even though you were asked to skim them in Unit 4 also).

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Re-reading (6pp)

Module A, screens 2.1.2 to 2.1.4

(You are not asked to re-do the Exercise in 2.1.4 about the argument for industrial capitalism.)

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Let us consider what ‘capitalism’ means a bit further – because what CST has to say about capitalism is a pivotal issue for this unit, and addressing it of course depends on what the term means.

Quoting 2.1.3, the economic system that emerged out of the Industrial Revolution, “in which people with capital sought to maximize financial return by use of new mechanized production methods, is called ‘industrial capitalism’.  The word ‘capitalism’ is apt, because the essential aim was to serve capital” (italics added).

Notice that, on this definition, the meaning of ‘capitalism’ is given quite strictly by the meaning of ‘capital’.  As you know, capital refers to financial resources that are invested in a business.  People who invest capital of course want to make a profit on their investment.  In this strict or literal sense, ‘capitalism’ names the system in which this objective overrides others – in which maximizing the return to capital governs everything else that is done. In other words, whether you go for producing broccoli or cigarettes, such issues as what wage rates you pay, where your company is located, and what hours people have to work – indeed all decisions about the business – are determined by what will contribute to generating the highest possible profit.

It is capitalism in this sense which ‘economic liberalism’ or ‘laissez-faire liberalism’ defended, as discussed on screen 2.1.4.  Indeed, many would agree that this is what people generally meant by capitalism during Cold War conflict about economics up to 1989, and what they still mean in the revived debates provoked by the 2008-13 financial and economic crisis.

But it is very important to realize that this strict definition of capitalism, in terms of maximum return to capital, is not the only one.  This is because there can be businesses that are successful in supplying goods or services to markets that are not capitalist in that strict sense.  What I mean is that there can be businesses which don’t regard maximizing return to capital as their overriding objective.  Of course, they need to make enough of a return to stay in business – but they might see this as a necessary means to doing something else, notably supplying inherently worthwhile and high quality products to customers.

To give an example, we can see a skilled craftsman or craftswoman who runs a small business in this way.  Supposing he or she makes high quality furniture using ecologically sustainable raw materials.  The furniture is designed and built to be beautiful and long-lasting, as well as functional.  The business may grow and lead to employment of others and, over time, to quite large-scale production.  In order to make sufficient profit to survive, its prices are relatively high, because labour costs are high.  But its primary aim remains to produce good furniture, not to maximize return to capital.

A company that more or less fits this description is David Colwell Furniture Design, formerly Trannon Furniture.  The following is from the website of the earlier company:

Trannon specialises in batch-producing steam-bent furniture which is visually stimulating, long lasting and utterly practical. Made from fast growing English ash, stronger than mature oak, Trannon’s chairs are renowned for their legendary comfort and healthy support.

When David Colwell founded Trannon in 1978, his vision for business came from a personal passion for design and a world where ecological integrity and respect for the earth’s resources were foundational.

In the years since that vision was first conceived, David and his co-director Roy Tam have… pioneered much of the work in sustainable design, creating furniture that is timeless, visually stunning, supremely useful and produced using non-exploitative methods.1

Now look at the company’s current website.

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Reading (3pp)

David Colwell Furniture Design, ‘Home’ and ‘About’

Note

At this site, you might like to glance at the ‘Commissions’ page, as Colwell has had some high-profile clients.

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There are in practice many companies that are not narrowly capitalist, even if most are.  Another fairly clear example is Yeo Valley, which you might be familiar with as its dairy products are available in most large supermarkets.  Even though it has grown enormously, it remains committed to providing high quality organic dairy food at minimum ecological cost.  (See www.yeovalley.co.uk/yeoganic/organic-and-more, other pages this leads to, and that on ‘Ethical Trade’.)

A much larger example is the John Lewis Partnership. It is owned collectively by all its employees, who are members of the partnership and who all receive a share in its profits each year.  It states that its “ultimate purpose” is “the happiness of all its members, through their worthwhile and satisfying employment in a successful business”.  It aims, not narrowly to maximize profit above all else, but,

to make sufficient profit from its trading operations to sustain its commercial vitality, to finance its continued development and to distribute a share of those profits each year to its members.

These quotations come from the page on its website about its principles.2. Of course, you might be sceptical, even cynical, as some businesses have great mission statements and the like which are just for PR purposes and bear no resemblance to how they actually operate.  In the case of John Lewis, the fact that it is, very unusually, owned by its employees establishes a kind of accountability which means its statements cannot simply be whitewash.  No doubt it is very far from perfect, and it is well known that its structures of accountability mean that it is more bureaucratically cumbersome and slow-moving than some similar businesses.  Yet there is wide recognition that it is significantly different from most capitalist companies, while having been immensely successful over a long period of time.

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Optional reading (c.2pp)

John Lewis Partnership: ‘Our principles’

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In such examples, businesses are driven primarily by a desire to do a good job in itself – to supply good products and services, and to employ people in good working conditions – rather than by the single criterion of what will maximize profit.  Those are just a few of many businesses which explicitly refuse to operate by this criterion alone, and you will have the opportunity to look at some others later in this unit.

But although such businesses are not capitalist in the strict sense, sometimes ‘capitalism’ is used in a broader way according to which all forms of private business are labelled ‘capitalist’, regardless. On this view, any system in which private companies supply goods and services to markets is seen as ‘capitalism’.  In other words, any market economy is, by definition, capitalist, whether or not maximizing return to capital is the overriding objective of most companies in it.

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Reflection

Can you think of companies you have dealt with who very clearly are capitalist, in the narrow sense, and others that clearly are not?

Do you think it’s helpful to use the word ‘capitalism’ for all business activity, i.e., in its broad and imprecise sense?  Or would it be better to confine its use to the more literal sense, for business activity whose overriding goal is to serve capital?

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The reason I have introduced this distinction of two meanings of capitalism here is that it is crucial for understanding the broader debate, especially now in the twenty-first century, and where CST fits into this.  Basically, CST rejects capitalism in the strict sense, as you already know from units 2 and 4.  But, as we shall see, CST strongly affirms private enterprise and the value of companies supplying a wide range of goods and services in markets – it is emphatically pro-business.

Continuing with the second stage in the pastoral spiral, we need to set this discussion of the definition of capitalism in the current historical context.

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End of 5.1.3

Go to 5.1.4 Historical context: from Cold War to 2008 financial crisis

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  1. Source: http://www.trannonfurniture.btinternet.co.uk/background.htm, accessed Aug. 2011, no longer accessible at July 2013 

  2. See http://www.johnlewispartnership.co.uk/about/our-principles.html, accessed 7 Apr. 2014 

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