Image manipulation or vanity project?

23/01/21 - Auckland (NZL) 36th America’s Cup presented by Prada PRADA Cup 2021 - Round Robin 3 Ineos Team UK, Jim Ratcliffe
Jim Ratcliffe (centre, without helmet) with Ben Ainsley (front row, third from right) and crew of “Rita” aka Ineos Team UK after winning round robin stage of Prada Cup in Auckland 23 Januaary 2021

Richard Pares, in his account of 18th century British politics, observed “It is a pity that historians should so seldom have recognized the fact that men were in politics not only for party and for profit, but most of all for the due exercise of the talents that God gave them, and for fun.”[1]

This thought came to mind when I read Catherine Bennett’s diatribe in today’s Observer about the £100m donation that Jim Ratcliffe has made to Oxford for the worthy cause of research into antimicrobial resistance.  Particularly when I recalled the sight yesterday of the INEOS boss with the crew of the British entry in the America’s Cup celebrating getting through to the final round to select the challenger for the oldest trophy in international sport.

A sub-editor (or perhaps Bennett herself) has provided the headline “Just what was it exactly that Oxford University saw in the billionaire boss of Ineos?”  What a daft question!  It is clearly his £100m, and what is wrong with that?  This is not a statue to a long dead racist or slave trader

Bennett continues by pointing out that INEOS has challenged union power at its plants, most famously at Grangemouth in 2013 when, having purchased assets that the previous owners had decided did not have long term commercial future, it faced down resistance to the changes required to make the plants profitable and secure local employment and the local economy.  She points to a “lamentable environmental record”, a reasonable criticism of INEOS and proper issue for stakeholders of every sort to address with INEOS (and which if it was not privately owned, two thirds by Ratcliffe himself and one third with his partners, Andy Currie and John Reece, would put it in the cross hairs of ESG conscious institutions).  These are things for governments to address, under pressure from voters and, insofar as we can influence suppliers of the raw materials for the things we ultimately buy, for consumers of goods made by INEOS’s customers.  But does this amount to a  reason for Oxford to turn down its (or rather, Ratcliffe, Currie and Reece’s) money?

Bennett turns her fire on INEOS for its efforts to avoid paying tax.  No-one sets out to pay more tax than they can.  If there is anyone to blame for companies like INEOS, or super-rich individuals, moving assets or their domicile to tax havens, it is the governments for their failure to collaborate in the setting of taxes on those parts of the potential tax base that are amenable to institutions and individuals to shop around in this way.

Looking at the way that INEOS is currently distributing its largesse, it is unlikely that it is motivated by a desire to manipulate the corporate image.  They have very little to do with its corporate purpose but are best understood as vanity projects for the owners.   INEOS may have started selling disinfectant gels during the pandemic, but it is hardly a consumer good company (certainly this is born out by the very industrial style of the branding for the disinfectant gels).  It has also launched a business selling a replacement for the Land Rover Defender, but looks like a sentimental hobbyist’s venture rather than something that will cause any worry to Toyota or the other brands producing rugged off-road vehicles.

INEOS has thrown sums at cycling and sailing that are material in terms of the impact on the sports concerned, but it is hard to believe that these “investments” will earn any greater commercial return for INEOS in terms of shifting the dial on consumer sentiment or invite more sympathetic treatment by government agencies or regulators than the donation to Oxford University.  Rather, Ratcliffe and his two colleagues are throwing a small amount of their very considerable wealth at things that they think either have intrinsic value and do something for the welfare of mankind (antimicrobial resistance), or give them the opportunity to have fun.  If anyone doubts this, they should take a look at the coverage of the Prada Cup (the qualification stage of the America’s Cup currently underway in New Zealand) and see Jim Ratcliffe basking in the company of Ben Ainslie and the INEOS Team UK crew after winning the round robin series races that take them one step closer to challenging for the America’s Cup.

[1] Pares R.,1953, King George III and the Politicians, Oxford, p30

Lockdown reading: Piketty’s Capitalism and Ideology

The Year of Revolution - a clash of ideology Chartists meet on Kennington Common in 1848
Chartists meet on Kennington Common in 1848 – the year of the Communist Manifesto and “All things bright and beautiful”

I went into the first Covid-19 lockdown in March with three doorstep sized volumes to keep me going.

The 912 pages of Hilary Mantel’s Mirror and the Light were riveting, even if I knew from the outset that Thomas Cromwell’s career would come to an abrupt end at Tower Hill in 1540. The 1088 pages of David Abulafia’s magisterial The Boundless Sea kept me entertained as it opened my eyes, chapter by chapter, to the way that different parts of the world became progressively connected by maritime exploration, communication and trade.

I had started turning the 1041 pages of Thomas Piketty’s Capital and Ideology before restrictions started to be lifted in May but, despite finding some stimulating ideas in his opening account of the different sources of power of different parts of premodern society (which he describes as ternary or trifunctional, and have echoes in the Escondido Framework’s account of  the three currencies or sanctions), it was not until the re-imposition of lockdown (the UK government’s Tier 4 restrictions) that I finally completed it.

I admire much of what Piketty has done in Capital and Ideology.  His effort to document the movements in the shares of income and wealth between different groups in different societies throughout human history, and particularly the past century or so, is admirable and revealing.  It is possible to challenge some of his assumptions and definitions, but the picture he paints of the direction of the trends in material inequality are compelling.  I agree with his spin on Rawls’s maximin principle: “To the extent that income and wealth inequalities are the result of different aspirations and distinct life choices or permit improvement in the standards of living and expansion of the opportunities available to the disadvantaged, they may be considered just.”  (p.968).  His chapters on the increasing support of the “Brahmin” classes educated to degree level for parties of the left and the corresponding “Nativist” alignment of parties of the traditional right and “left-behind” communities are persuasive. But the book is far longer than it needs to be, many of its graphs add little, and he strays from the professorial scholarship of the economist/social scientist-turned-historian into an undergraduate level of prescription.

Piketty’s underlying thesis is that “no human society can live without an ideology can live without an ideology to make sense of its inequalities.”  I didn’t need to read 1041 pages to recognise this: growing up in a churchgoing family, I remember singing the third verse of “All Things Bright and Beautiful”

The rich man in his castle,
The poor man at his gate,
God made them, high and lowly,
And ordered their estate.

These days, it is generally omitted!

It may or not be a coincidence that Mrs Cecil F Alexander wrote these words in 1848, the “Year of Revolutions”, in which Marx and Engels also wrote The Communist Manifesto.  Piketty chooses to reformulate the opening words of its first chapter “The history of all hitherto existing society is the history of class struggles” as “The history of all hitherto existing society is the history of the struggle of ideologies and the quest for justice.”

There is something in Piketty’s thesis about the relationship between the ideas that prevail at any point in time and the organisation of society and its impact on the distribution of wealth and income.  It may be that I started out as a historian whereas has come to history by way of economics, but I find that he oversimplifies to sustain his argument.  Ideas ebb and flow and they can influence behaviours, but this is not the same thing as saying that they determine behaviours.  He falls into the trap of assuming that the behaviours that are generally ascribed to “capitalism” are the product of the past few centuries.

He frequently quotes Karl Polanyi with approval, who was even more blinkered in this respect, regarding capitalism as an entirely modern phenomenon.  Peter Acton has undermined Moses Finlay’s thesis that the ancient economy was shaped by considerations of status and civic ideology rather than rational economic considerations, demonstrating in Poiesis: Manufacturing in Classical Athens demonstrates that the commercial decisions of Athenians “were for the most part…consistent with today’s understanding of good (rational, profit-maximising) business practice[1]. It does not require a 21st century reading of the biblical parable of the talents to see that the notion of investing for a return was established by the time the Christian gospels were written.  And Abulafia’s The Boundless Sea, contains plenty of evidence for the commercial underpinning of the development of maritime trade over many centuries.  One of the primary shortcomings in Polanyi’s approach was that set very specific conditions around anything that he would define as a market and, by framing his argument in this way, created a platform for his dismissal of the longstanding heritage of commercial activity.  It is as though Polanyi, and to a lesser extent Piketty, seek to dismiss market mechanisms and their place in human societies on the basis that, prior to Adam Smith and his successor, the conditions assumed in classical economics had neither been articulated nor did they prevail.

Essentially, it is not that Piketty is wrong, but his case is overstated and needs reframing.  It is not that ideology determines the form of economic organisation, but it helps shape relationship between the parties.  In Escondido Framework terms, the prevailing ideological frameworks will influence the attitudes and trade-offs made by parties in their relationships with each other at market interfaces.  For example, a religious ordained prohibition on usury does not undermine the human behavioural drivers for gratification today over gratification tomorrow and discounting for risk (although these can be culturally influenced), but historically has resulted in work-arounds (eg Islamic finance) or lending being undertaken by a community less constrained by the prohibition.  Certain activities, as in caste based societies, may be undertaken by tightly defined social groups, with implications for the commercial terms on which these activities take place.  But this is not the preserve of caste societies: while the boundaries may be less clearly defined and not religiously ordained, even in contemporary society there is an intergenerational stickiness in occupations and values, traditions and attitudes acquired in childhood shape occupational choices and behaviours.

So, two cheers for Picketty for the underlying thesis.  And, in due recognition of his own disclaimer in his concluding chapters, he has set out to provoke further debate and provide the foundation for further scholarship rather than provide the definitive answer

However, where I find Capital and Ideology most flawed in when Piketty moves from diagnosis to prescription.  In particular, his leap from describing to the increasing inequality in economic outcome for the richest few percent compared to the poorer mass of the population to concluding that all would be solved by appointing worker representatives to corporate boards highlights the danger of straying too far from your own area of expertise.

The inequality that Piketty documents arises from the endowments that we start out with in life (geography, genetics, family wealth, upbringing, education) and our life choices and chances (too many possibilities to enumerate).  These will shape whether we end up with investable wealth (the impact of this on equality is thoroughly documented in his earlier work: Capital in the 21st Century) and whether we end up in positions in which we have market power and are able to extract economic rent, which has arisen most egregiously in recent years for executive directors of large companies as a result of shortcomings in corporate governance.  Addressing inequality arising from our endowments needs primarily to be by “levelling up” in terms of investment in education and social support, particularly in early years, and widening opportunities, but in relation to inherited wealth is a proper area for taxation.  Addressing inequality arising from investable wealth is also clearly an issue for taxation and also needs international solutions, but is a complex matter not least because of the risk of creating perverse incentives and unintended outcomes.  Taxation has its place in addressing inequalities in income, but as with addressing issues surrounding taxation of wealth and wealth transfer, is also fraught with difficulty.  Piketty raises these issues quite correctly.

But addressing inequality arising from market power and the ability to extract economic rent is a proper matter for better corporate governance and regulation to address market failure.  Piketty fails to recognise the role of market failure and consequently the need to address this, and also the problem of the increasing ability of corporate management (and some of the services that support them), to extract economic rent (ironically, at least in part, at the expense of the owners of investible wealth), and that this is purpose behind the need for reform of corporate governance.  His own prescription, worker representation on boards, is not the solution for reasons that I have argued elsewhere.  Rather, and this comes back to his underlying thesis around ideology, there is a need to widen the understanding about the proper purpose of the company (the core of the Escondido Framework), and an improved understanding of the role of boards in serving them.

[1] Acton P (2014) Poiesis: Manufacturing in Classical Athens. New York: Oxford University Press