Today, we are very pleased to speak with you. Could you tell our readers about your background and your professional path?
I studied economics as an undergraduate at the University of Edinburgh and then went to Oxford as a graduate student, where I taught for around ten years. After that, I helped set up an organisation called the Institute for Fiscal Studies, which has since become one of Britain’s leading economic think tanks.
Through that work, I discovered that my particular strength lay in taking relatively technical economics and explaining it to a more general audience. This led me to establish a consulting business and to begin writing about economics for a broader readership, including for the Financial Times, which I did for around twenty years.
I later sold that business, which left me with financial freedom and without operational responsibility. This has allowed me to focus largely on the work that interests me most. My current academic role is as Emeritus Research Fellow at St John’s College, Oxford, where I held my first academic post many years ago. I am no longer active in that role, although for around twenty years I was responsible for investment policy at the college. I should add that St John’s is Oxford’s wealthiest college, though that is another story.
Beyond academia, I have also been involved in a range of activities in business and finance, including non-executive directorships and investment management.
What first drew you to pursue a career in economics, and to write about it?
I was good at mathematics at school and initially went to university to study maths. One feature of Scottish universities, both then and now, is that students are required to study subjects outside their main discipline.
In my first year, I took a course in economics and found that I enjoyed it a great deal. As mathematics became increasingly abstract, which happens to everyone eventually, I decided that economics was what I wanted to pursue.
It offered a combination of analytical tools drawn from mathematics, but with a stronger connection to politics and society. That mixture was probably what attracted me most.
Did that also involve a shift towards political thinking?
I studied politics alongside economics. I remember writing an essay during my economics course that had been assigned by a professor on why European politics was so much more ideological than American politics.
Looking back, it is striking that this may have been one of the last moments in history when that question could sensibly be asked. The story of what has changed since then, and why that observation no longer holds in the same way, is a fascinating one. I may write about it one day, assuming I can find the essay, since it dates from the pre-digital era.One of your more recent books, The Corporation in the 21st Century, argues that much of what we assume about business today is mistaken. If you had to identify one commonly misunderstood idea, what would it be?*
It sounds provocative, but much of what we think we know about business is wrong. The subtitle of the book was written by the publisher rather than by me, but a central misunderstanding concerns the role of capital.
If you go back to the period of the industrial revolution, capitalism was – through the work of thinkers such as Marx and Engels – described in a simplified way. Wealthy capitalists provided factories, while workers carried out relatively unskilled labour, later organised along assembly lines structured by management. Even Adam Smith’s The Wealth of Nations begins with a description of a pin factory, which is effectively an early assembly line.
By the 1970s, this model had become dominant. When I speak about this period, I sometimes show footage of a General Motors plant from that era to illustrate how businesses operated. Capitalists provided the plant, and workers worked within it.
Whether in economic models that describe production as a function of capital and labour, or in political debates framed around capital versus labour, this language continues to dominate how we talk about business. In my view, however, it bears little resemblance to the reality of modern and successful firms.
Today’s companies are best understood as collections of capabilities that are brought together by entrepreneurs. There is a well-known but apocryphal story in which George Bush is said to have remarked that the French have no word for entrepreneur. While the story is false, what is interesting is that the French term entrepreneur literally refers to someone who brings things together.
That is precisely what the modern entrepreneur does. This is very different from the image of a lone visionary who sees a future that no one else can imagine. Instead, entrepreneurs assemble capabilities and apply them to new and changing business problems. That is the story of companies such as Apple, Microsoft, or Tesla.
Capitalism is often described as the dominant economic system of recent decades, yet it is increasingly criticised. How do you assess capitalism today, and how might it be structured more fairly?
The first question is what we actually mean by capitalism. If we define it as a system in which production is controlled by the owners of capital, that description is no longer accurate. There are many ways to illustrate this.
One example I often use concerns aviation. When people board an aircraft, they typically assume that the airline whose logo appears on the fuselage owns the plane. In most cases, this is not true. The largest owner of civil aircraft in the world is a company called AerCap, which many people have never heard of. Most commercial aircraft are leased.
The same applies to engines. Airlines usually lease engine services from manufacturers such as Rolls-Royce or Pratt & Whitney, purchasing long-term maintenance and service contracts. The airline itself has little direct involvement in engine ownership. Even Rolls-Royce often do not own the engines, as many are owned by firms such as GATX.
What this illustrates is that the owners of capital play little role in running businesses and are generally not competent to do so. This pattern appears repeatedly.
Consider Amazon warehouses. Seeing the Amazon logo, many assume the company owns the buildings. In most cases, it does not. The primary owner of Amazon warehouses is a real estate firm called Prologis. Similarly, people often assume Amazon owns the goods stored inside. In practice, the goods are typically sold before suppliers are paid, meaning Amazon operates with negative working capital.
Capital is therefore largely irrelevant in the sense of control. I describe capital as a service that businesses purchase, much like electricity or water. The electricity or water provider does not own or control the business, nor could it.
Our understanding of capitalism and ownership has changed fundamentally. As Charles Handy once put it, ownership often gets in the way of understanding the modern corporation.
