The ethical rot at the heart of capitalism

The list of crimes of which the pharmaceutical industry is accused is legion. According to a professor at Copenhagen University, prescription drugs are now, behind heart disease and cancer, the third most common cause of death in the West and estimated to be responsible for half a million deaths a year in the over 65s. The editor of the UK’s Lancet magazine, Richard Horton, contends that maybe half of all scientific research is simply untrue, “afflicted by small sample sizes, tiny effects, invalid exploratory analyses and flagrant conflicts of interest”. In 2012, two French researchers claimed that half of all drugs prescribed in that country were either useless or dangerous and responsible for 20,000 deaths annually.

There is an obvious connection between these outcomes and the character of the pharmaceutical industry – capitalist corporations duty bound to maximise short-term profit for their shareholders. Even western governments, in unguarded moments, agree. A 2003 report for the UK’s Treasury (finance department) conceded that the pitfalls of a market in healthcare were overtreatment and the abuse of monopoly power. But then pressed ahead anyway.

But that connection, clear to any reasonably honest person, is not what stands out here. What is most interesting is how this profit maximising model has so thoroughly infected the apparatus of regulation. Horton blames individual scientists who too often “sculpt data to fit their preferred theory of the world”, medical journals aiding and abetting the “worst behaviours” and universities engaged in a “perpetual struggle for money” and “high-impact publication”.

What’s clear is how far these institutions are from providing, in the writer Ben Goldacre’s words, “a competent regime of regulation”. There is a deep ethical rot at work, seeping outwards into society’s foundations. What’s more the ethical rot is essential for capitalism to function effectively.

Financial dis-regulation

Consider finance. Seven years after a monumental financial crash, triggered by ordinary people defaulting on mortgage payments, sub-prime mortgages have made a comeback in the UK, an event unencumbered by government regulation. Regulations drafted after 2012’s Libor rigging scandal have been watered down. The bank levy, intended as recompense for the financial crisis and bail-out, has been reduced (as an incentive, many think, to keep HSBC headquartered in Britain), a ‘penalty’, in any case, more than compensated by the huge 38% drop in corporate income tax, from 28% to 18% since 2010.

The EU, in the TTIP negotiations, is pushing for the US to adopt weaker financial regulations (on derivatives) than it has at present. And as part of the separate ‘Trade in Services Agreement’ between the US, Europe, Japan and Australia, it is proposed to make it mandatory that countries accept “any new financial service”.

Government regulation is giving way on many fronts to voluntary agreements, in the UK and EU, which have been proven to fail.

It is tempting, and probably correct, to blame intense and unrelenting lobbying by corporations for these outcomes. Most politicians are members of the 1% or 0.1% and may have a direct financial interest in the successful expedition of these policies. And they may not even know of the effect of the policies they so adamantly pursue.

But I believe the deliberate feebleness of regulation has a deeper cause than ‘regulatory capture’ or ideological blindness. It stems from a recognition that economic growth now depends on facilitating avowedly anti-social practices. Aside from the pharmaceutical and finance industries, consider the way the food processing industry works. Huge amounts of sugar are routinely and covertly added to a range of products, not just the openly sugary fizzy drinks, and have caused an epidemic of Type 2 Diabetes. The publicly funded NHS is obliged to treat this scourge which consumes a tenth of its budget. Yet, the UK government sets its face against regulation, preferring a toothless ‘responsibility deal’.

The extractive industries, oil, gas and coal, rely on taking fossil fuels out of the ground, in increasingly dangerous places, a practice which will inevitably take the world into the realms of civilisation-devouring global warming.

Mrs state-mop

The role of the state now is merely to mop up, whether in the form of bank bail-outs, NHS spending or flood defences, the detritus caused by these anti-social practices. Because, at root, the economic and political elite cannot imagine another form of economic growth.

The Angry Person’s Guide to Finance, a pamphlet published by the UK’s Red Pepper magazine in 2014, contends that a “serious regime of strict financial regulation” could outlaw securitised debt, derivatives, the shadow banking system and the whole shebang of ‘financial weapons of mass destruction’. But at the cost of plunging the world economy into a deep depression, as companies fold like dominoes. Similarly, stringent regulations for the production and marketing of prescription drugs would proscribe many of the products relied on by pharmaceutical companies for their profit stream. At a time when these companies already provoke grumbling from their shareholders for not being profitable enough investments, this would be absolutely lethal.

The urgent question, therefore, is whether there is another form of growth that can safeguard the public interest and not degenerate into flagrantly anti-social forms of profiteering. An answer is taking shape in the proposed policies of Labour party leader Jeremy Corbyn. A mix of part-nationalisation, regulation, and public investment, can invigorate economic growth and substitute for anti-social private sector growth. Because private investment is so weak, public investment, through the state (or as Corbyn proposes a National Investment Bank) can direct economic growth to more benign ends, such as investing in renewable energy or retro-fitting houses, than the ‘instant gratification’ approach that the corporate sector relies on when left to its own devices.

However, what this policy alternative leaves in doubt is whether it can replace or merely augment socially harmful private sector growth. The economist Harry Shutt says the western world has been afflicted by a ‘glut of capital’ for four decades. With a decline in the demand for fixed, or productive investment, mainly because of technological progress, the economy has to find increasingly speculative or harmful outlets for profitable investment. This ‘wall of money’, added to by the growth of private, stock market invested pension schemes, is inevitably funneled into speculative or useless (copycat prescription drugs) investment, because sufficient productive outlets do not exist.

In 2013 the UK Parliamentary Commission on Banking Standards concluded that institutional shareholders, such as pension funds and hedge funds, were incentivised to encourage the banks they invested in to pursue ‘high risk strategies’ and, in the run-up to the financial crisis, some were actually criticising banks for ‘excessive conservatism’. In other words, the problem of growth harmful to the public interest is systemic and not the handiwork of greedy or reckless bankers.

Liable for your sins

What this means is that any economic strategy based on public investment has to contend with this ‘actual existing capitalism’ and, as I have argued before, probably cannot pull the plug on it without precipitating an economic meltdown. It is also why Harry Shutt and others argue that more drastic action is required to get to the root of a capitalism hostile to the public interest. Shutt proposes restrictions on limited liability; the right, first introduced in Britain in the 1850s, that shareholders in corporations are only legally responsible to the extent of their monetary investment, and that if misdeeds happen, only the company, never its shareholder owners, can be sued. Limited liability should only be granted, in Shutt’s opinion, if a company agrees to a public veto on board decisions concerning major investments, employee pay and pricing.

To return to the Lancet’s Richard Horton. I believe the ethical corrosion he talks about - the scientists sculpting the data to fit the theory, the medical journals giving the green light to dubious drug trials, and the universities engaged in a perpetual struggle for money - has an ultimate cause; the shareholder-based corporate model of capitalism currently ensconced in power and which we regard as untouchable. And any attempt to reverse this moral decay has to contend with the ultimate cause.