Wealth

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Hello and welcome to the Arts and Ideas podcast with me, Anne McAlvoy. It's the economy stupid was the charmless but often accurate prediction of Bill Clinton's campaign in nineteen ninety-two as to what really moves the needle of politics and social change. This week, a pretender to the Labor Crown, Andy Burnham, reportedly started to assemble a team to guide him through all things economic, just in case the road from maker field by election leads him to number ten.

Meanwhile, his rival West Streeting's plan for a wealth tax divided opinion on whether it would raise money or just keep more well heeled folk out of Blighty. And the firebrand economist Thomas Pickerty published a report calling for a different wealth tax to curb climate change, while the government is said to be mulling a tax on high-end properties owned by foreign nationals.

All of this raises a question Adam Smith would have recognised when the Scottish economists penned an inquiry into the nature and causes of the wealth of nations published two hundred and fifty years ago in seventeen seventy six. It starts with Smith telling us where wealth comes from. The annual labour of every nation is the fund which originally supplies it with the necessities and conveniences of life. And we'll be digging into what he meant by that later.

To begin though, I'd like to introduce each of my guests by asking them what image comes to mind if I say the word wealth? I'm going to start with Alistair Heath, who is editor of the Sunday Telegraph. Alistair, you're known to be business friendly. Is wealth a positive word for you? Wealth is a very positive word for me. When I think of wealth I think of prosperity, I think of a uh a wealth owning democracy. I think

of the fact that an Englishman's home is his castle, I think of a society where people have freedom and autonomy. So to me, yes, wealth is entirely positive and I would like as many people as possible to have as much of it as possible. Let's see how you're gonna go about that uh uh across the next part of our conversations around um Adam Smith's legacy. Hetty O'Brien, you're a guardian writer, author of a new book entitled The Asset Class, How Private Equity

turned capitalism against itself. Now, given that you've written about the the super rich in this context, will we catch you on a super yacht? You won't catch me on a super yacht, unfortunately.

But to me, wealth speaks to uh the problem of inequality, the extent to which we are living in one of the most unequal eras imaginable. And when I think of an image that summarises that To me it's probably the private firefighters you can hire in Los Angeles to put out the fires when they start raging during the summer months, because I think it's sort of emblematic of the ability of the super rich a buy-out of society and avoid some of the worst effects of the climate crisis.

Vicki Price, you're an economist and business consultant of many years standing, so what image brings to your mind is wealth about a number on a spreadsheet? Or is it more you're a i economist by training a magic money tree? Or something more you know, concrete, a large mansion for you, maybe, I'm thinking.

Well it's important to have that wealth. Uh the question is what do you do with it and whether you're able to redistribute it in such a way that benefits all. And this is not talking about sort of communism, but it talks about ensuring that There is a fair distribution of it rather than a complete equal distribution of it.

And that the money is used the right way. And what we've seen recently, unfortunately, is that a lot of wealth is concentrated in just a few hands. You see that very visibly in the States, for example. And is it put to good use? And that is the real question.

Maharafi Atal, you are Adam Smith's senior lecturer in political economy at the University of Glasgow. Definitely the right booking for uh a program turning on the legacy uh of the great economist himself. Your forthcoming book is when companies rule corporate power from the East India Company to Silicon Valley and you're on a line from Montreal, what image would you add to a collage of wealth, public or private, so far?

Well, we are talking sort of on the anniversary of the Wealth of Nations and the book is the Wealth of Nations. So I guess for me, wealth is something not at an individual level, but to be thought of at a collective level. The wealth of nations, the wealth of societies, the wealth of communities. Um and clearly um questions of

fair distribution, of inequality, of concentration, um, of the productive or unproductive use of wealth factor into whether a society as a whole is wealthy. Um, and I guess I would say I think it's more constructive to think in those terms. Have you got an image for us? That's an argument.

Do you know, I travel a lot. I'm talking to you from Montreal and for me an image of a society that feels wealthy is I travel to places where there are public transit systems that are used um by the whole society. So all different classes of people in London ride the tube.

to work and I travel to places where the public transit system is sometimes used only by, you know, sort of the working class population. And if you're meeting bureaucrats or government officials or people I might meet in my research. uh they've traveled in a private car or in an Uber to the meeting. Um and a society to me feels collectively wealthy um when you have these public spaces, these civic spaces that are actually used by everybody.

Right, so the the tube is a sign of at least a a degree of of coherence there between the wealthy and the less wealthy in London. Uh on the line also is Daffith Mills Daniel, lecturer in divinity at the University of St. Andrews. Can you complete this picture for us with a encapsulate maybe a little bit of what wealth means to you?

Well when I uh just the word wealth, I mean the image comes to my mind is actually uh the grave. Um but in two senses, I mean lit literally a grave that I that I saw uh in a country church side outside the entrance to a church. And this grave had inscribed on it two lines from Robert Blair's poem The Grave, and that goes The further in the more you pay, but here lie I the same as they.

uh this sort of time where the more money you had you could get paid to be uh to be buried close to the altar. And so something there about the fact you can't take uh wealth with you um but also about the meaning of the word wealth as different from being rich. Yn yw, mae'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw.

Well with those images in mind, let's rewind. Two and a half centuries ago to the publication of The Wealth of Nations, as is more commonly known by Adam Smith. Maha, can you set the scene for us? Who was Adam Smith and what arguments was he responding to at the time? So we talked today about Adam Smith as as an economist, right? We say he's a famous economist, but of course the discipline of economics didn't really exist.

um at the time, right? He's one he has a plausible claim to be uh one of its one of its founders. Um he was uh academic at the University of Glasgow for a long time, um teaching in what would now be the departments of philosophy and law. Um, then he took time off from the university to become a private tutor um to a to a young aristocrat, the Duke of Buclu. He traveled around Europe um while this young man was taking in sort of the grand tour, um acting as his tutor. He didn't find that work.

particularly rewarding, but it gave him an opportunity to travel and meet some of the leading uh philosophers around Europe at the time. And then he goes back uh to the small town of Crocati on the um east coast of Scotland where he grew up. And holed up in his childhood home, uh, he writes this Magnumopus, the wealth of nation.

Um and the the debates that he was responding to, you know, at the time, um, policymakers, um, sort of pamphleteers um believed and argued that the wealth of a nation was wrapped up essentially in how much gold and silver. And so you want it to be as an economy, uh, in the business of selling a lot of goods overseas, bringing in a lot of gold and silver by doing that, and not sending so much of that gold and silver overseas by buying a lot of things.

made overseas, right? So there was an interest in balance of payments, balance of trade, um, and organizing your economic policy in order to keep all that gold and silver uh at home, protecting your markets, having right marcantalist policies, protectionist policies, um, ones that actually um listeners might recognize because they've come back with a vengeance um in our contemporary world.

What is Adam Smith really challenging about that then? saying that's nonsense. Um how much gold and silver you have has got nothing whatsoever to do uh with whether the society is wealthy. That the wealth of a nation actually resides in whether the mass of its ordinary people Right, can have a good quality of life and a quality of life that is improving over time. Um and the argument is that freer trade, um, more open market

Um, less concentrated markets, fewer concentrated monopolies, fewer protections for special interests. This will actually result in forms of economic organization that raise the wealth of ordinary people, the quality of life of ordinary people.

Daffith, uh anything that you would add to what Abd Smith was arguing, or perhaps something that might surprise us in the sense I think probably if people have have heard of Smith they probably have heard of sort of the last part of what Maha was uh talking about there, you know, the the defence of free trade or opening up uh uh the idea that free trade is very fundamental. I is that the way th that you see his legacy?

Well yeah, Smith's a fascinating figure. I mean he only publishes two books in his lifetime, right? So one is The Wealth of Nations, the early one is the Theory of Moral Sentiments in seventeen fifty nine. And in the Theory of Moral Sentiments in particular, he's a philosopher of the imagination and sympathy. That is his focus, the social aspects to our being, how

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I suppose one surprising thing about Adam Smith is not only does he have one book on morality, which is about imagination and sympathy, but this book, The Wealth of Nations, also contains those aspects to it as well. I mean, we couldn't have money if we didn't have imagination. yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r

So that's part of Swiss Degasy. Also I think here we should remember that he's a commercial what I'd call anyway a commercial civic humanist, that his interest in commerce is not just a wealth in in these financial material terms, it's the fact it civilizes society. If if as our society is commercial age, he has a four stage view of human history, we're at the top of it now, the commercial age. Well that's when we be we become polite, we become well mannered.

We have to talk to each other, we have to be kind to each other, we have to be civil with each other at the very least. We have to have good manners to have good trades. So philosoph uh Smith is the philosopher of of sympathy and politeness is something that I think we should always have in mind.

Yeah, that's a that's an intriguing angle, isn't it? He also believes that it's you it's harder to go to war if you're trading with each other, which these days those those tensions between geopolitics and trade. Uh back with a vengeance as it so much about Adam Smith. Uh Maha, some key figures of the Scottish Enlightenment held views about colonialism and slavery that we would class uh as underinformed or even racist uh today. Tell us what what do you make of Smith's position on that score?

Smith is a really interesting figure. As Dauphage says he contains these multitudes and and I think that's why people of so many different political persuasions, you know, have since seen themselves in Smith. So his critique of colonialism and slavery, and maybe people would be surprised to find that he was a really harsh critic of the way the British Empire was being governed.

um at the time. His critique is wrapped up with this idea that the wealth of a country resides in the you know, sort of the wealth and quality of life of its ordinary people. That for Smith Um, in order for that to work, there needs to be something he called the liberal reward of labor that the ordinary worker needs to be able to share in the fruits of what it is that they produce and in the product, right, of the economy.

Um and so definitionally, right, that's what motivates people to work hard and then society gets wealthier and new inventions are developed. And definitionally, enslaved people don't share in the liberal reward of labor. Um and so Smith's critique of slavery and of the slave trade is that it's economically unproductive. Um it's actually not using the wealth of the resources of the planet in a way that is going to actually produce

Broader wealth for society. It produces a lot of wealth for the sort of plantation elite, but it doesn't generate right productive benefits to society. In addition, the slave trade and the British Empire were being run at the time, principally through these large trading corporations like the East India Company, who were given protected monopolies where other companies couldn't spring up.

and compete with them in order for them to kind of govern colonies in the way that they were. And that was just definitionally on free trade. So you have these markets in which the people are unfree, the trade is unfree, and so to Smith the society cannot possibly be free and flourishing when that's the case. And as a result, he was a really harsh critic of

colonial policy, the colonial elite. One of the reasons the book is a commercial best seller is because it's published in March seventeen seventy six and it seems to explain some of the tumult that's taking place with the American Revolution. at that time and he's saying, you know, we've passed all these trade policies and these tax policies. Essentially the British Parliament has been passing T taxes to do a favor to the East India Company and bail it out.

um when it's gotten into trouble because thirty percent of parliament are shareholders in the East India Company. This is corruption, this is corporate capture, um, you know, this is not serving the interests of society. Um and so he's a really harsh critic. Right of empire at at multiple levels, um in ways that separate him from some of his friends in the rest of the Scottish enlightenment.

I w I'm wondering listening to that, but Alastair as a uh as a newsman and then Vicky as an economist, uh d d is that the Adam Smith that you think I can imagine that last story would make a a a great Dop business or even page one story for it for you, uh, Alistair, that sense of that Smith is is attacking entrenched interests.

Do you see him as as sort of if you like as as a challenger to the the interests of his time, as a defender of kind of freedoms, would you see him perhaps more as an interpreter and someone who wants to lay down you know, sense lay down his marker on on the university curriculums now where where you think, Oh yes, that's Adam Smith would think this or that

I mean, I think clearly he was a challenger towards vested interests, and that, I think, is the forgotten point about free markets and capitalism when correctly understood. Free markets are not about entrenching privilege, they're about entrenching property rights, but not privileges.

And competition destroys existing structures. Competition is a process of creative destruction, crucially. So I think Smith was very good when it came to critiquing corporatism and the power of the state to hand out monopolies and rent. Crucially, Smith was against rent seeking, which is basic when people extract

uh resources from society by using the power of the state, in my opinion. Which is also why I think that today when people criticise monopolies, they forget that most monopolies are created by the States and by

by regulations and by barriers to entry which are artificial, not spontaneous. And I think the other very important thing about Smith, obviously, was that he believed in uh the division of labour, that the division of labour was a source of progress. And I think again that's something we've forgotten.

Uh basically ten people are worth a hundred times what one person is when it comes to the economy because they can uh specialise and I think specialisation and trade are the key driver of economic growth. I might get Daffith to uh explain division in labour through the most famous example here the fin pin factory and then just come back perhaps to

to Vicky for her her thoughts about you know w what Smith means to her. But Daffoth uh take it away with the Pin Factory. Your name came out of the hat on w on that one. Right, okay, well that's good. Um

And of course it what it means is that you have to have a global network of trade because a small village can't specialise, whereas a a country, uh a a a town and a global trade can can form these specialisms. So it's a as straightforward as that really. A celebr as Maha was saying, a celebration of Uh the butcher, the baker, the brewer, the pinmaker is part of ordinary life, making them the centre of uh of of economy and wealth.

Does this pin factory thing work in practice, Vicky Price? Well it does applied economist of note. Well in fact the interesting thing is when when I was working for a uh consulting and accounting firm, we had a uh an actual offering to clients, which is called sort of business process redesign. How can you actually get the best bit that you can out of each bit of your production process? Um which was often forgotten. And if you look at it fr from a wider perspective

Th globalisation has achieved that as well. The fact we're going backward is a bit of a problem and and growth has slowed down because trade intensity has gone down. But with globalization, you are more or less doing this division of labour at a grand scale. So you get bits of your supply chain to come from the place which is most productive.

keeps costs down and I think that's that has been a very important reason why loads and loads of countries have uh managed to reduce poverty in their in their own um areas uh why we've actually had bigger choice, why prices generally have been lower than would otherwise have been the case. And the fact that we're now going backwards with tariff.

um does suggest to me that this this ability to enjoy that division of labour that Adam Smith was talking about is is a real issue uh because we are losing it. And also if you look at Brexit I mean after all economies of scale, which is really what again he's talking about, because if you are able to increase your production you use the same factory, say you produce more your units cost

um per output that you produce uh goes down quite significantly and your average cost but your unit cost and your marginal cost gets reduced. And you tend to produce this what the the the economics tell you until you know you've exhausted this in this this sort of marginal cost. benefit that you would have by just continuing to expand your production. So you reach a level where you can't actually reduce that cost any further.

And perhaps you just stop producing more. But to get to that point you need free movement of people, making sure you have access to labour, so th uh and a big market.

Um and that big market makes you compete, makes you want to invest, makes you want to innovate. And that's the sort of thing which if Adam Smith was around today, he would say we've gone backwards on. Would Adam Smith say that, Alastair Heath? I mean, I wouldn't agree with Vicky on that. I think the Smithian lessons do not entail total three millions of people.

Uh I I don't believe that you need to n be part of the European Union or something like that to to enjoy that sort of stuff. I think I think the division of labour is is is a very important principle, but I think for example Taxation taxation domestic taxation is similar to a tariff because it reduces domestic trade. It makes people within a country trade less and invent less and invest less. And so therefore all those sorts of barriers play a role.

So you have to look at the whole thing in the aggregate to understand what the best policy is. And and of course we now live in a in a world that's very divided between rival civilizations and all sorts of problems which reduce trade for other geopolitical reasons.

But I think Smith would have understood this sort of stuff. But I I think the most important point is It's about private endeavour, it's about private enterprise and it's about the alignment of self interest with the overall good as long as you're following the rule of law and strict property rights. Rydyn ni'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd

of it in terms of uh private equity. We might uh turn to that in a bit more detail later. But but with that, you know, where does Adam Smith feature for you as a sort of inspiration or perhaps a figure who also points to the potential limits uh of capitalism and the market. Yeah. Interpreted and well misinterpreted so consistently um currently today, his his ideas get kind of used but mainly abused to defend things that I don't think he would necessarily want anything to do with.

To me, it feels as though Adam Smith's thought actually draws a kind of separation between the free market in its ideal form and capitalism. And he was such a critic of the way in which

businesses and business interests when left to their own devices would end up perverting the free market and it would actually look very unfree. And I think today we're living in a moment when a lot of business interests have been left to their own devices and we've seen regulators and the states sort of exit the picture, particularly with the enforcement of competition law, for example.

And the result is that we're living in a era of really entrenched corporate interests and monopoly power. And it's not just about the public sector having a monopoly, it's actually about the fact that when you look at the food and our supermarket shelves the corporate interests behind the food industry are such that actually we end up paying much higher prices for things and that really has a has an effect on the quality of everyday life.

Uh so uh Maha we might bring you in uh in on this also because you have a book coming uh out about corporate power uh from East India Company to Silicon Valley. That that's quite a lot of corporate history pack packed in in there. So that that point then about I mean we've already heard it around the table, quite quicker, people took a bit of Adam Smith.

That they sort of liked or or didn't think that he could predict here where Adam Smith would stand on Brexit, depending which side of that divide you were on. As we head to the tenth. uh anniversary. What do you think that he does say that is useful to us now about the the power of big corporations that Hetty was just uh directing us uh to think uh about there? You know, are we absolutely sure w Kind of what is the truth and what is the myth and misconception about Adam Smith?

I think Hetty's right that there's been some real misinterpretation of what he's saying. Um and and in particular, I think I want to pick up this point that Alistair made about. um, you know, monopolies arise because of regulation that allows them to arise or as a result of um efforts by special interests, vested interests. Um, you know, sort of the in Smith's time that would have been the East India Company. We could think of other lobby groups.

um today to kind of capture regulation in such a way that they can influence the state to pass regulation that protects them from that creative destruction of the market. Um, you know, Smith says at one point Um, you know, people of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices, which is what I thought of.

when I was hearing Hetty talk about the supermarkets, but that you have these sort of cartilization dynamics in capitalism that lead to sort of powerful companies in an industry collectively lobbying for regulation that protects them um from change. And in particular, I think Smith really would see some of what has happened with the big tech companies.

Um which through um you know sort of pressing regulators to allow them to essentially buy smaller technology companies that were arising as competitors, companies that might have push them off their throne at the top of the industry, they were able over many years to buy those companies out of operation.

Um that's something that regulators in a previous time might have taken a dim view of. In the tech boom they were allowed to go ahead and now these companies, right, can't necessarily be unseated. Smith also makes a distinction between what he calls unproductive and productive uses of capital. That productive capital is you make your money from your business.

um from your private endeavor. He is very favorable to that. And then it's productive for you to take that money and reinvest it in some further business. Right? Employ more people, open a new factory, invent some new exciting products. This is a good use of cash. If you pocket it, you spend it on some nice furnishings for your house, you buy a super yacht, you pay off your shareholders, this is an unproductive waste of capital and of no use to society.

And so the tech companies and some of the big companies we have now that have huge cash holdings, they're doing a lot of share buyback, the founders are enriching themselves, but they don't necessarily reinvest in growing the business or in generating further employment. This is not necessarily the free market at work. It's some other kind of market.

So l let's bring in in Davos to uh and uh return us to a phrase from Adam Smith, which we might have thought might have been able to help with this. has come up against its limitations and it is the invisible hand as probably if you just said to people it gives you know anything about Adam Smith probably the phrase the the invisible hand might be um be the sort of bumper sticker uh answer that they they remember

But uh Daffoth he only uses it once, uh which I didn't realise actually, uh but i he actually does only use the term I think explicitly once. What does he mean by it? Why is it significant? Then we might open up a bit um round table as to what where we think it leaves the kind of challenges that Maha and uh uh Hetty just laid out.

No, you're right. It has become a dominant theme of Smith. Everyone knows himself. He uses it once in the Wealth of Nations. He also uses it once in his other book, Theory of Moral Centre. So actually twice. And then and then a third time, uh which is in an unpublished essay called The History of Astronomy. Well I can't be faulted for not having read that one. No, no, no, no, you can't, no, not at all. You always learn something when you present this programme.

And that's that's quite the the astronomy one is an interesting one to interpret the meaning of the the word because th there it's the invisible hand of zoo. And and what he's talking about then is that in previous societies where where things happened that they couldn't explain, they put it down to some sort of agency, a divine agency, the visible hand of Zoo.

Rydyn ni'n ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r amser.

Felly mae'n ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud It's this optimistic idea that we all have built into us certain affections and sentiments that drive us and an interest in ourselves, but also a commitment to s society, sociability.

And so really Smith's thinking, well, we we have a a God given drive to take care of ourselves and pursue pursue our own wealth, but also to commit ourselves to the commonwealth. So that's the invisible hand working working through us and in the market. Do y are you suggesting the invisible hand is more to do with his religion or as much to do with his religion? He was a sort of moderate Presbyterian, is that be a fair a fair description of Smith than sim uh

simply or not simply a a kind of academic economist, interpreter, philosopher. How m how important is the religion here? Well it has I mean, it has these theological connotations. I mean you you certainly can't say that uh Smith is is writing theology or religion dominates. I mean Smith's religious views are heavily contested and

uh most readers of Smith would uh hate the idea that there's some sort of really deistic Christian stoic influences going on in Smith. But it it is fundamentally important to him, I mean particularly in part of the culture uh of w which he represents, which is really this idea that

human human nature under and through a providential scheme advances and it advances through these four stages, right? Hunter societies, then pastoral societies, then agricultural societies, and finally to commercial societies. ac yn fawr, ac yn fawr. Mae'r hynny'n hyn o'r hyn o'r hyn o'r hyn o'r hyn o'r hyn o'r hyn o'r hyn o'r hyn o'r hyn o'r hyn o'r hyn o'r hyn.

Conscience there is a divine tribunal, a higher tribunal in society, and so what we're meant to be doing, take the classic sort of Protestant Calvinist view here of two kingdoms kind of a spiritual kingdom and an earthy kingdom, a temporal kingdom. Well the spiritual kingdom is meant to inform the temporal kingdom. And Smith certainly believes that, but i there's something that comes out of our morality, out of our theology, out of our religion, that we bring into the the public sphere.

Rydyn ni'n ymwneud yw'n ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud I'm really interested how quickly we've come to a confluence here of of wealth and morality as as where this is going as opposed to yeah here's here's lots of things uh that Adam Smith has stood for which we could just describe as

economic effect and argue whether they work or don't work. Uh uh Alasta, I mean i I I get a bit the impr impression that sometimes when when you put wealth and morality together as as talking points, a lot of people will think, well then it's how do you constrain freedoms or f the economy or direct or regulate or whatever your your instruments may be in order to create a more moral

Society. I mean we heard heard it a lot and I d not being small pea political here, but you hear it a lot in the debate in Labour at the moment about the direction of the government, who should run it, you know, what's the fair amount of uh the uh wealth tax or is i inequality really driving our problems or is it something else? If I say to you wealth and morality, are are you sort of comfortable with that nexus and what does it make you think about? What challenges are there?

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Um I I'm I'm I'm not opposed to inequality per se, but I believe in trying to spread opportunity and spread wealth as much as possible. Generally speaking, I you know, I I love the you know, uh the invisible hand analogy because to me Mae'n ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud â'r ymwneud.

W it's a spontaneous order, as Hayek said. It's not something that's controlled and determined by a central planner. That's why I don't like the term redistributing wealth, because the wealth wasn't distributed in the first place. It arose out of people's actions. And what I believe I believe that

people who are interested in morality and growth and wealth should uh focus on the rules of the game. We need very fair rules of the game. We need a very strong rule of law. We we need no privileges. We need states that don't just give ymwneud â'r cyhoeddus neu'r cyhoeddus neu'r cyhoeddus neu'r cyhoeddus neu'r cyhoeddus neu'r cyhoeddus neu'r cyhoeddus neu'r cyhoeddus neu'r cyhoeddus neu'r cyhoeddus Rydyn ni'n ymwneud ymwneudol. Rydyn ni'n ymwneudol. Rydyn ni'n ymwneudol. Mae'n ymwneudol.

So just to kind of tweet your tail a bit on that, would there be no amount of wealth or wealth inequality which in itself you would see to you know to just break natural ties that well ties that I shouldn't say natural'cause who knows what natural is, but ties that bind or would begin to tear it.

M my my issue is not inequality per se. I don't care if someone's got a trillion dollars in wealth. You know, Elon Musk might end up being a trillionaire at some point. I don't care. What what I don't like is the fact that there's there's a lot of poor people.

Rydyn ni'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i

I don't like the fact that there's no root out of poverty. I don't like traps whereby, you know, whole categories of people can't can't can't improve their lives. So I'm focused on trying to spread opportunity and reduce the barriers to wealth for more people. I'm not interested in in taking wealth away from people who've already got wealth.

Um just bearing Adam Smith in in mind, Vicky, can you can you go along with that? Well I don't disagree with the second part of what uh Alistair was saying, but it's interesting just thinking about uh Adam Smith and where he he came from. And of course we have people on the panel who know an awful lot more than I do. But I mean the interesting thing is that he d he does he was basically sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n sy'n

the wealth of the nation improves in in in the right way. And and the interesting thing about modern thinking about corporate social responsibility is that if you do the right things towards your workers, in the way in which you trade, um then you end up with uh actually a business model which is much more sustainable and happier people around if you pay them right, if you make sure they have their

that there's no discrimination against people and we still see huge discrimination against women uh out there and ethnic minorities and it just goes on. Uh but an an ethical and corporate social dimension um is is almost you know part of what

Adam Smith is is talking about as well. But what he's saying is that it comes from it's much better if it comes from the firm itself or the people who are involved rather than necessarily being imposed on it. But of course they're better The more of that empathy there is and sympathy there is, the better the outcomes.

Uh Maha Smith does believe in a some sort of kind of e determinism light, if you like, where he i as I understand it, and tell tell me what you think about this, that he does believe that even our so called negative sentiments Self love, self interest. Have positive

benefits and that we can sort of overdo it if we try to insert and inject virtue uh into our political systems, our political uh economy. How do you interpret that balance? Well I think you know, this is this goes back I think to what Duffed was saying, but you know, he he does believe that our desire to it's not just about self-love, it's about the desire to be seen as a good person.

both by your peers and by society, but also by, you know, sort of the imagined impartial spectator and whether that is a kind of divine conscience or, you know, sort of how you imagine a man on the street would view you, but you have some idea of what types of conduct will be regarded with sort of social opprobrium and your

desire to be a good person is what makes you do good things. Um, and so it is self interested, but it's self interested in a pro social kind of relational way. And and Daffid was saying, you know, um the it's not that um markets determine our morality, but there is a degree to which Smith is hopeful about how markets will expand the the types of people whose good opinion we care about.

So in moral sentiments he has this famous anecdote about a Scottish person reading in the newspaper about an earthquake in China and m you know, th thousands of people have died, it's a devastating earthquake and he would feel sad about it.

But you know, then he would move on with his breakfast because he doesn't know anybody in China, so his level of caring would be small. Whereas, you know, if he cut his own fingernail, that would be quite minor, uh, as a devastation, but he would care about it more because it's happening to him personally.

But then you put the Smith of Moral Sentiments together with the Smith of Wealth of Nations and you see that what he's talking about is that in a world where we're connected, where markets are relatively free and globally integrated.

uh where you are have connections to people in China, you would read in the newspaper about an earthquake in China and you would care because you know people there or your neighbor has a business that trades in China or you import some Chinese tea and you realize that there's real people somewhere. Who made it. And so he has real hope for the idea that the global free movement of goods, people, and ideas.

And for Smith and for Enlightenment scholars, those things are absolutely connected, that that will actually raise the scope of empathy of the range of people that we would care about. And that's what he's hoping for. Uh Daffoth just briefly d do you know whether he practised what he preached? I'm always fascinated by philosophers or or political thinkers who raise a lot about empathy of the kind that Maha just laid out there and the the expansion uh of that as the

The hope of his thinking. But did did we find out that he was an absolute kermogen at home and was sh sh sh shouted at the maid. No, fortunately not. I mean not much is known about Smith really. I mean in the sense he got he got all of his papers were destroyed at his request uh upon his death.

And so not much is known in that sense. There are just a couple of biographies of him. Very close friends with David Hume, uh the radical, had a r a wide wide circle of friends, so some of his letters lot of his letters survive. Seems like a very jolly, nice chap, mainly lived lived with his mum in Circuddy.

refusing David Hume's dying wish that he published Hume's book called The Dialogues Concerning Natural Religion, uh, because he didn't want to get further embroiled in the controversies of the church. Remember, talking about moderate presbyterianism, the the the Orthodox uh wing of the Scottish Church tried to excommunicate Good to have a lecture of Divinity with us in the clear group for such details.

In the Range Rover Sport, performance is more than a promise. It's something you feel on every drive. With the choice of powerful mild hybrid and plug-in hybrid engines, Range Rover Sport responds instantly, bringing unbridled power and precise handling into perfect balance. Explore more at RangeRover.ca You're listening to Free Thinking with me and Mikhail Boy, my guests, Vicky Price, Alistair Heath, Dafith Daniel, Maha Rafi etar, and Hetty Bryan, and we're discussing wealth.

You can find more money talk on the most recent episode of Radio 4's Start of the Week, where Jeremy Hunt, Mariana Matsucato, and Patrick Fowles were the guests, and all of these are available. A wealth of them indeed on BBC Sands.

Now, Hetty O'Brien, uh your book explores private equity, which for a lot of people just conjures up a lot of dollar pounds, whatever you've got signs. Rwy'r rwy'r rwy'r rwy'r rwy'r rwy'r rwy'r rwy'r rwy'r rwy'r rwy'r rwy'r rwy'r rwy'r

I think that's a very good question. Um, private equity, the clue is partially in the in the in the name private, so unlike public markets, so you're kind of Marks and Spencer's say a private equity owned company is not listed on the stock market, so there is an element of kind of Opacity and a lack of transparency inherent to private equity. Historically, private equity has involved buying companies.

using lots of debt and pushing that debt down onto the companies themselves. So a company effectively goes into debt in order to buy its itself, if that makes sense. Um and the private equity fund managers have done

incredibly well out of this. Um a number of financial academics have referred to this as a billionaire factory um because the number of multi billionaires that have been created um through the industry has increased by I think it's something like over six hundred percent between two thousand and five and twenty twenty.

I mean to me the question of Adam Smith comes back to that point that Maha was raised initially about the idea of the wealth of nations and the extent to which actually there is a a moral dimension to wealth and the idea that actually how many people are benefiting from this. And I think what we can see now when you look at what's happening in the US, the private equity industry has lobbied extremely aggressively to get access to the retirement accounts of

pretty much everybody. And that is arguably a means by which a very wealthy and small group of financial insiders are harvesting an ever greater portion of society's But you've gone very hard in you've gone hard into the critique. I mean we do need to explain

I explain for anybody who doesn't like, you know, deal with private equity on day to day business. I mean th the the whole idea of it really is to sort of put rocket boosters on investment, right? It's a sort of a motor for being able to invest more, to grow your companies more that you are able to access

you can leverage more capital, you can go you describe it as going into debt, but you could just say that's also sort of the price of getting more capital to to grow, to consolidate, to take over, perhaps some competitors. D do you see any benefit in that? Absolutely. I mean I think when you look at the kind of first era of what were known as leverage buyouts, which is the business deal involving this level of debt that we're kind of talking about here, actually a lot of those did

you know, increase the kind of efficiency and productivity of firms that were taken over. The problem is, is that the industry has never really been able to match that record since the kind of nineteen eighties And actually when you look at what's happened since then, from nineteen nineties, two thousands and uh up to the present day,

the academic literature and the hard numbers just don't bear out the idea that actually this is injecting that kind of level of entrepreneurialism and productivity into the economy. And I quote one person who said, one finance academic who put it that

All that this has done is is lead is lead to a sustained increase in leverage. And so whilst the industry might claim that that's the case, when you look at the actual picture of how it's evolved over the last forty years, the the numbers are more mixed.

I mean, Entirely neutral. Um I don't mind uh whether a company is financed by debt or by equity. But what I do mind is if the state creates a buyer. if the state promotes a certain kind of ownership above another. And um I think it has in the case of private equity over the past twenty or twenty five years because

For two reasons. First of all I think debt and dividends debt interest and dividends should be taxed exactly the same. I believe in a flat tax and I believe all forms of income should be taxed in the same way.

And I don't believe in a system that privileges, for example, debt over equity. That's the first point. The second point is we we've lived in a very statist monetary policy system in recent decades where central bankers uh have seen themselves as some sort of economist gods who by constantly pump priming monetary policy and reducing interest rates

Um h they thought they would create per perpetual economic growth and defy the economic cycle. And I think that one side effect of that has been to massively boost the value of certain assets. And make things like private equity much more attractive, artificially attractive. So I'd go back to Smith and the Smithian critique.

of uh you know uh uh of helping certain industries, of creating certain privileges. And I think to a certain degree private equity has benefited from those kinds of privileges. I don't think it's a conspiracy. Um I don't think it's been all bad at all. Rydyn ni'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd i'n mynd.

And and Vicky, one interesting thing about the whole private equity uh argument is uh y it has uh at least as I understand it, has certain advantages in the tax system still in the in the UK which are controversial uh perhaps along the lines that Alice Till was

suggesting but you know when push came to shove and you've been alongside not only economics but political economy in the way that politicians have looked at it for uh at least a couple of decades. And w when it came down to it, governments have always been loath To constrain private equity, including Labour governments. I remember sort of Gordon Brown was always under pressure to sort of do more about it, but he decided not to.

Is that because in the end they s feel that it might have some sort of unfairnesses to it, but it's kinda better to have some of it in the pie in London than to let it all float off to Switzerland or somewhere else? It's probably because they don't quite understand it and how it works. That's another thing. Uh and of course it gives an extra source of funding which perhaps you know wouldn't be coming into industry a little bit like what Hetty was suggesting.

Um and but it does form part of what the Bank of England is now worried about, which is that it's it's part of this new you know, private credit that takes place. That you don't quite know on what basis is done, which uh is perceived perhaps to be done um without the the the actual knowledge of

of the risk that perhaps is involved. So people are worried about a bubble that may b burst as a result. The other thing of course it does is it doesn't give you a lot of information about the firms themselves. A lot of the morality issues that we've just been discussing with about Adam Smith.

you have no knowledge of what goes on unless there is a whistle blower in there. And you've heard quite a a lot about some of those companies or tech firms which are now all going to go public to raise even more funds. Um, in terms of how they perhaps are behaving maybe in a nonethical way, and some are trying to say like anthropic, oh, we are the most ethical of them all and we are really worried about Sorry, just on that, you mean about AI and iterative AI.

It's it's an example of where private money has has gone and where we really don't understand the system and where because there is private money it's entirely possible that's why it's not getting regulated and controlled the way that

It would have happened otherwise if it was really exposed to people sort of, you know, buying the shares and a gwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud. And that's the real problem.

Let me ask Katie then,'cause you you had to look under the the hood of a lot of these companies. You met people which I think a lot of people probably just don't actually get much much insight into the world of uh uh of private equity. What did you think the most challenging aspects of it were?

I really agree with Vicky on the transparency point actually. There's so many people who I spoke to, both within the industry, but also, you know, the kind of critics of the industry and people who might be living in an apartment block that was owned by a private equity firm. had no idea who actually owned it and was actually playing, you know, a very um important role in their lives. Um, I think that coming back to that Smith point.

Markets really do require transparency in order to function effectively and in order to be quote unquote free. And I think that when you have a growing swathe of economic activity effectively operating in the dark, that transparency point feels as though it's really under threat. And I think that's, you know, a very grave situation for our economy. But also, coming back to that Smith point.

I think that one of those things that Smith was really railing against was this kind of protectionism for favoured merchants and the closeness between government and those merchants.

Rydyn ni'n ymwneud yn ymwneudol yn ymwneudol iawn yn ymwneudol iawn yn ymwneudol iawn yn ymwneudol iawn i'r ymwneudol iawn i'r ymwneudol iawn i'r ymwneudol iawn i'r ymwneudol the founders and owners of those businesses in a way that is highly problematic and that has really nothing to do with the kind of Smithian idea of free markets.

Well th that's just the perfect segue actually'cause I wanted to turn to our thoughts, all of you really, on on where we we feel the current debates about wealth. land and the culture of wealth. And I was struck actually you reminded me, Hetty, with your uh your private equity titans about the way that vast and unaccountable

uh w wealth, it just it just turns up in different guises here throughout a lot of history. And I was thinking about the robber barons of the of the nineteenth century and and looking at uh Henry James's late novel The Outcry, which is not, I think

It's not one of those that keeps getting adapted these days for the screen, but they the wonderfully named uh character quasi villain Breckenridge Bender, what a great name. Who's really a kind of JP Morgan sort of character, he masters vast art collections, sort of comes to dominate taste, uh and not just the art market, but what people think is good. And I thought that was a very um very interesting look at at wealth. And this mix of fascination and distaste that we have.

about wealth. So I just wondered if we could uh think a bit about the past and the present. Historical parallels. Am am I right? Who thinks I'm right or not right to think of the tech titans or private equity uh people today as being along the the lines of the robber barons of the nineteenth century? I would disagree. Um I think we are in a world where these tech giants in particular are uh delivering massive, massive progress, um, huge innovation, extreme levels of investment.

um and astonishing uh new products and discoveries. For example, we've got a private space race now, pitting two two billionaires, Elon Musk versus Jeff Bezos. uh who are doing more to explore space than any government ever managed to do and they have saved the US space programme which was basically in complete disarray. That's just one example. You've got um, you know, driverless cars

You've got AI of course. I mean the AI investment boof boom is astonishing, uh and he kind of disproves the idea that um pri the private sector can't invest. So I think what we're seeing here is extreme level of competition between uh individuals and very large companies and I think we see superficial market power that's actually very weak.

So these very large companies like Apple could collapse very quickly if they don't continue to provide the right products for their consumers. They may have a very large market share at any particular moment in time. But the the market's actually much more contestable and they could easily lose that power. So I think we are we're not in a moment of robber barons, we're in a moment of great progress. And I think we need to be very, very careful. Now, by the way

I agree that a lot of these people are too close to the US government. I agree there's far too much corporatism. But at the same time, I don't think we should forget this key development.

My worries that we're seeing a huge concentration uh in in terms of sectors being dominated by just a few players. And it's interesting'cause I used to also work for an oil company. Uh when there was a serious concentration in the oil sector in the US they were all split into seven. We should have done something similar much, much earlier with those tech bosses. Um and and but we we just didn't understand what they were doing. I think that's the that's the most important.

I think that's probably right. That may still be the case actually. Well uh absolutely and and the the the real worries w how we go ahead. And uh again, uh I remember when I'm working for the government we did the first innovation strategy for the UK. And what came out of that was that there is a huge amount of useless and not needed innovation that is encouraged. Do we really need to go to space rather than do something else?

Fine. I was hoping you were gonna trigger Alistair with that one and bang on time. And and that of course can can be extended to all sorts of other things that we're doing, re robo taxes and things like that. But I mean I can leave that open.

I I mean I I don't know'cause I've sat in front of a microphone doing entire programmes about should we go into space, but in a nutshell, why in any sense economically, as opposed to adventure like quest, you know, to boldly go, etcetera, you gonna make a uh a defence of this? Oh yes, I can make a defence of this. I love Robotexas too. I love driverless cars. I think they will lead to an explosion in productivity and really help old people who are stuck at home and totally change the urban.

In space. No no so so I'm just uh what about so space so you know, for example you could extract minerals from space, you could put solar panels in space, you could put, you know, a AI server farms in space. I I think

The possibilities are endless and I think, you know, we saw massive kind of productivity and lots of innovation and products that were used in everyday life and also in mi in the military and so on, from the original space race, and we're gonna see all of that times ten or a hundred this time around. Maha and Daffith we should have you uh you in uh i in on this. Come on uh cultural or historic examples or just things that you're prompted to think about. I'd actually love to come on in this.

trace his corporate power from the East India Company up to the the tech barons. And there are pieces I think that are familiar um of the East India Company kind of capture and lobbying and um of government. And we were talking about the closeness of the tech bros with Right, the US government. But actually I also think the precedent that struck out to me is from the same time as the Robert Barons, but it's not the Robert Barons, it's Cecil Rose.

Mm-hmm. Um and the Cecil Rhodes companies are mining companies that are actually governing East India Company style, right? Whole swaths of South and Central Africa um during this period. Um, they're engaging in all kinds of activities that are officially illegal. Um, his businesses are abusing slave labor half a century after slavery has been outlawed in the British Empire, and the government can't do anything about them. They're sort of cowboy businesses that operate

through these shadowy financial arrangements, normal banks will not lend to them. Um and and the debates around those companies and the degree to which they're not subject to any real market Control investors don't be able to seem to be able to do anything about it. Shareholders don't seem to be able to do anything about it. Um, that is the example that I always come to when I'm hearing.

about these tech companies. But I also think one of the things where regulators have allowed, right, real corporate capture is that they allow these tech companies to become public companies. But with the founders retaining all of their control. And the trade-off is meant to be you list on the market, you can raise all this money from the public, but you have to give away your control. And we allowed the tech companies in an aberration to go public without that constraint.

And now they're they have all this money, but they're not subject to any meaningful regulation.

Daff, as you mentioned wealth as being different from just riches or just like money on a balance sheet or in your bank account. Is there a sort of historical figure in wealth who fascinates or appalls you? Well let me let me give you a historical example which uh uh may slightly change the subject but it's st is relevant I think here to what we're talking about, which is that

I think a a a true concern of someone like Smith uh in today's age of as representing form of Greek republicanism, would be uh not just the private equity that we're talking about and very wealthy companies. What he most feared and disliked was what he called the man of the system, the bureaucrat.

the managerial elite. And he thought that the invisible hand of the market needed visible institutions to come alongside it, schools, hospitals, charities, museums. Now, in today's age, every single head of those things is called a CEO. a sort of a production line. It was monotonous. It took people's thoughts away. It we needed intellectual and cultural prompts to it in the public sphere. But he not for one moment would he ever think you'd have paid MPs.

Nor would he think that you'd have bureaucrats at the top of a public institutions earning a fortune and making themselves very wealthy out of the public purse. Hattie, uh yeah, modern private equity historical or cultural examples I like I like to think you possibly sit around watching a bit of White Lotus saying, Yeah, they're ever they're the people I write about when they go on holiday.

I do love the white lotus. Um but no, I I think it's interesting that we've been talking so much about a space race and yet one of the kind of big problems in terms of wealth, at least in the UK today, is that it is so unequal. We our our healthy life expectancy is actually going backwards and I feel like it's this is risks being forgotten from this conversation as to actually the fact that yes, there are lots of people with a an intense amount of wealth, but there are lots of people who don't

who don't have enough and what we've seen previously when you have an era of intense inequality is something that is not conducive to democracy. And actually that social democratic system that we've kind of taken for granted for the last however many years is really under threat as a result of this.

I I think the biggest threat to democracy is actually the end of economic growth and per capita GDP growth which we've seen in Britain. We're just not getting richer anymore. For the first time since the Industrial Revolution Pe people in Britain are not getting rich anymore. Incomes not going up and and many people's wealth is not going up or falling. And I think that is the great problem.

A wealth of talent around my table. But there we must uh bring it to a close with my guests, Hetty O'Brien, Daffith Daniel, Maha Rafi Atal, Vicky Price. And Alistair Heath, and thanks to our producer Eliane Glazer, next week on Free Thinking, Matthew Sweet and Guests will be taking a trip to Lilliput. Join them on Friday at nine, a small pleasure. Step inside the Range Rover. and experience refinement in every detail. Every drive feels composed and For more at Ranger.ca.