Migration and poverty: How Scotland provides remedy for bad capitalism

It’s then that an oil crisis in the Middle East set in train a series of events which would eventually lead to the dire state the world finds itself in today. The crisis would change modern capitalism so profoundly that it became the accelerant for the war, poverty, and division which currently surround us.

The oil crisis explains how we got to where we are today. But there’s also a way out. Capitalism can be reformed – without any need for revolutions or upheavals – so it works for everyone, not just the rich. We can fix it. We can apply the brakes, reverse away from the cliff edge.

And some of the solutions might be found very close to home, here in Scotland.

But if we don’t change the course we are on … well, the chaos we’ve lived through already will be just the beginning, and much worse will lie ahead.

Two of the world’s brightest minds paint this picture. First, there’s Professor Randall Hansen, an Oxford-educated political scientist and one of the world’s leading experts on migration and war.

He holds the chair in Global Migration at the University of Toronto. His book, War, Work and Want: How the Opec Oil Crisis Caused Mass Migration and Revolution, explains the way upset in the Middle East half a century ago unleashed historic tides that today threaten to rip apart Western democracies.

Professor Randall Hansen

Then there’s the economist Professor Colin Mayer from Oxford University. He’s been dean of the Saïd Business School at Oxford, the academic lead on the British Academy Future of the Corporation programme, co-chair of the Scottish Government’s Business Purpose Commission, and a member of the UK Competition Appeal Tribunal, and the International Advisory Committee of the Securities and Exchange Board of India.

Mayer’s book, Capitalism and Crises: How to Fix Them, does exactly what it says on the tin. It provides a roadmap to escape the catastrophes which flowed from those events in the Middle East back in 1973.

Prof Colin Mayer

Hansen and Mayer have written two essential books – indispensable to understanding our present dilemmas and the possible remedies.

The Herald on Sunday met with both of these globally respected academics to find out precisely how we got into this state, and how we get out of it.

Oil

Hansen begins by explaining that the French call the three decades after the Second World War “Les Trente Glorieuses” – The Glorious Thirty. “There was sustained economic growth everywhere of 5-6% per year,” he says. “This supported increased working-class wages, consumerist lifestyles, and expanded living standards. Everyone thought it was going to last forever. But it had an Achilles’ heel – the whole system was highly dependent on cheap energy imports, above all oil.”

That oil came from the Middle East, especially the Persian Gulf states. “They were meant to be our pliant neo-colonial partners.” But that all changed in 1973 when “Opec – the Organisation of Petroleum Exporting Countries – said ‘enough’.”

Why? Tensions had simmered over Western support for Israel since the 1967 Six-Day War which led to the occupation of the Golan Heights, West Bank, Sinai Peninsula and Gaza Strip, along with the displacement of around 300,000 Palestinian civilians. The conflict “enraged Arab opinion”, Hansen explains.

Then on October 6, 1973, the Yom Kippur War broke out between Israel and a coalition of Arab states. On October 16, Opec announced that the price of oil would go up. An oil embargo was placed on countries that had supported Israel including Britain, America, Canada, Japan, and the Netherlands. And that’s when the 1973 oil crisis began.

Hansen says that the “restriction of supply led to a quadrupling of oil prices within one year”, adding: “The oil price surged and destroyed high economic growth in the West – forever. We’ve never recovered. Look at the charts. We went from 5-6% growth to 2.5%. Standards of living and wages had been going up, up, up and then they flatlined. Opec was the cause of all that.”

Although the embargo was short-lived, the surge in oil prices effectively “lasted a decade”. As a result, the West endured 10 years of “structural damage”.

It’s at this stage that the West “enters the era of neoliberalism” – in effect, a highly unregulated, free market free-for-all.

For waiting in the wings, and soon to be elected amid economic panic, was the Conservative Party under Margaret Thatcher, and the Republican Party under Ronald Reagan – both supporters of neoliberal policies. Both leaders “were no longer interested in achieving full employment, but rather tempering inflation”.

Neoliberalism hadn’t gained traction during The Glorious Thirty, but now as the economy reeled, it stepped into the spotlight.

In Britain, as the oil crisis triggered “mass inflation and declining standards of living”, workers “tried to recapture lost wages through mass strikes”, Hansen explains. That was a gift to Thatcher. She could now blame Britain’s economic woes on “greedy unions”. Thatcher smashed the unions, with miners her symbolic enemy. Reagan also symbolically smashed US unions –targeting air traffic controllers.

Britain’s unions must accept some blame for what happened, Hansen says. They were “partly the authors of their own misfortune”. The “adversarial relationship between unions and management made it very difficult to cope with the economic crisis”.

Thatcher

Once Reagan and Thatcher “devastated” union opposition, we began to see “the collapse of working-class wages and spiralling inequality. It occurred everywhere in the West but went much further in America and Britain”.

North Sea oil helped create the illusion of wealth in Britain, says Hansen. In effect, North Sea oil was exploited by Thatcher to prop up her government. A programme of privatisation began, selling off national assets to corporations. In traditional blue-collar industries like construction “wages and working conditions collapsed”.

With unions bust, and wages on the skids, workers voted with their feet and began leaving blue-collar industries. Evidently, some major blue-collar industries just “disappeared”, like shipbuilding. In manufacturing, jobs began to be outsourced overseas. For jobs that couldn’t be outsourced, corporations “brought in cheap, exploitable migrant labour”.

We’re now in the foothills of globalisation. Unions are decimated, wages suppressed, inequality is growing, domestic industries are collapsing, jobs are shifting overseas, and migrant labour is being imported to do the work Brits – and Americans and other Westerners – won’t do.

So it wasn’t mass migration which caused a decline in living standards, it was the economic policies of most Western governments. “Cheap migrant labour was the effect, not the cause of the destruction of working-class jobs,” Hansen adds.

The line between Opec, the economic policies of the 1980s, and the rise of populism now becomes visible. “Neither Brexit nor Trump would have happened had there not been the devastation of the unions and working-class wages.”

Both Brexit and support for Trump were “partly a protest” by the working class. None of this was inevitable, says Hansen. Denmark, for instance, chose to protect workers’ rights.

The effects of the oil crisis would also accelerate terrorism, revolution and war. In Iran, oil money led to the rise of a middle class who wanted more democracy. The Shah eventually fell, but instead of democracy, the Iranian revolution led to an Islamic state.

War

“THAT gave Saddam Hussein his moment to invade Iran.” But his failure to win the Iran-Iraq War led to the 1990 invasion of Kuwait, as Saddam “didn’t have enough oil revenue”.

Hansen adds: “Now connect the dots: the 1973 oil crisis, Iranian revolution, Iran-Iraq War, First Gulf War, then Second Gulf War.” And the result? “Millions of forced migrants.”

US bases in Saudi during the First Gulf War helped fuel Osama bin Laden’s hatred of the West. The huge increases in oil prices also “led the Soviet Union to invade Afghanistan. Why? Petro-mania

– this delusional belief that politics has no limits when all this money is gushing in. It led the politburo to abandon its hesitancy”.

Afghanistan was then under communist rule and Moscow had been effectively “stealing” the country’s “natural gas for decades”. It looked like the Afghan communist puppet regime was about to topple, which would mean the gas tap getting turned off. So “at a time of peak energy prices, the Soviets invaded”.

Bin Laden fought against the Soviets. America armed the Afghan resistance which became the Taliban. “Without the invasion, there’s no Taliban. That’s an indisputable fact.” Events in Afghanistan, in the wake of the 1973 oil crisis, would then eventually lead to the September 11 attacks. Hansen adds: “No Taliban, no al-Qaeda, no Isis.”

You can see why Hansen called his book War, Work and Want: “Want refers to our insatiable desire for ever-cheaper products, which supports a continued decimation of working-class wages and dependence on cheap labour. Migrants come for work. Oil creates wars, wars create refugees, and refugees become workers.”

The West makes policies which see “refugees drown in the Mediterranean, but when they reach our countries, they build our houses and deliver our food. This is the world we’re living in. The Western economy is structurally dependent on cheap migrant labour”.

Refugees

GOVERNMENTS across the West “demonise” refugees, yet maintain economic and foreign policies which create more refugees, and suppress domestic wages. It’s not only illogical, but a recipe for disaster.

There are chilling echoes of the 1973 oil crisis today. Following the invasion of Ukraine – very similar to the Soviet invasion of Afghanistan, Hansen feels –Putin “used oil as a weapon in the same way Gulf States did. He wants to use oil to reorder the political system by establishing energy-based relations with countries like India, Iran and China so he can create a new challenge to the West”.

Another ripple from the 1973 Opec crisis was the fall of communism. No fall of communism, no Putin. The 1973 crisis, as we’ve just seen, played a role in the Soviet invasion of Afghanistan. However, the Soviet defeat in Afghanistan in turn helped bring about the fall of the communist regime.

The oil crisis also fuelled the rise of “political Islam” – another cause of tension and hate in the 21st century. Political Islam was “not inevitable”.

After all, in the early 1970s, America “complained the Arabs were too secular and socialist”.

However, Egypt and Syria “turned to neoliberalism in response to the economic oil crisis”. Inequality grew and in turn so did extremism, which Saudi money helped fund. This all greatly undermined any chance of peace with Israel. “There’s an oil dimension to post-1990s terrorism,” Hansen adds.

A broken working class, poverty and inequality, mass migration, ethnic and religious tensions, terrorism, distrust of centrist politicians, policies which keep rewarding the rich and hurting the poor

– it’s not hard to see why Donald Trump got another shot at power. Yet with Trump in the White House, there’s real fear that Russia will come out on top in the Ukraine war, the far right will dominate Europe, and democracy itself could start to teeter across the West.

Donald Trump

Hansen is aware that matters feel “apocalyptic” – and it all flows from those events in 1973 and the wrong policies enacted by Western governments to counter the shock. The rise of far-right populism has also put the rights of women and some minorities, like trans people, on the line.

We now have a situation where some of the most dangerous characters in public life have been empowered. “We did this in two ways,” Hansen says: by the right destroying the working class, and the left neglecting that destroyed working class. “It allowed appalling figures like Boris Johnson to speak for the ‘left behind’.”

Unless parties of the centre find a way to appeal again to working-class voters, we could see Europe become a place “where I suspect some would not want to live”.

China, Hansen notes, has risen thanks to the 1973 oil crisis, and the outsourcing of jobs and production. Giant corporations like Walmart in America “busted unions and then shifted buying from American companies to China. In response to Walmart’s pursuit of ever-lower prices and its monopoly power, wages were squeezed even further”.

Evidently, the unregulated behaviour of corporations has ramped up the climate crisis. And the climate crisis in turn creates migrants from the Global South. Their arrival in the West feeds populism. You can see how the feedback loop seems intractably difficult to break.

There was a moment, at least for Britain, when this all could have been stopped. “If the Winter of Discontent hadn’t happened, if the unions, frankly, had behaved more responsibly, and not turned on a government that had been fairly friendly to them, and Labour had won, we would be in a different world.

“Some of these changes would have happened – look at France and Germany – but the ideological glee with which the working class was destroyed, the extremism, that wouldn’t have happened.”

Blowback

IT’S a case of the ultimate blowback. “Populism is a blowback, the refugee crisis is a blowback, wars and terrorism were blowbacks.”

So, can we reverse the car before it goes off the cliff, before the blowback gets worse? Economist Colin Mayer, that Oxford University professor who is an expert in corporate finance and governance, believes we can – but only if we completely reimagine capitalism.

Capitalism is, says Mayer, “the most powerful engine we’ve ever invented”. Capitalism, if handled properly, can grow prosperity, lead to innovation, and alleviate poverty, he adds. But in its current form – the model that came into existence after the 1973 oil crisis – it’s causing “inequality, social exclusion, mistrust, and environmental degradation”.

Capitalism is now associated with multiple “crises”, Mayer says.

“We’ve had the dot-com bubble burst, the financial crisis, the energy crisis, the food crisis, and inflation.” The underlying cause is how we’ve come to define “profit”. We’re misconceiving “the notion of profit”, Mayer says.

If you get profit just right, like Goldilocks with her porridge, then society benefits – wages grow, solutions are found to problems by entrepreneurs and innovators, lives improve. But the system we have now – of rapacious pursuit of profit as an end in itself – “is associated with neither advancement or progress”.

“We currently measure profit simply as the difference between the revenue and income that a company earns and its costs in terms of wages, supply costs and capital costs. But that’s not actual profit.

“It doesn’t take account of the costs that a company imposes in terms of paying employees below the living wages, paying suppliers below a fair trade price, polluting the environment, destroying species, or contributing to global warming.

“In particular, companies aren’t incurring the costs of either avoiding imposing those detriments or, if they do cause them, in cleaning up the mess they create. So the costs that companies report aren’t true costs, they aren’t what I term a ‘just profit’. When directors declare financial statements as a true and fair representation of their position, it’s no such thing – it’s neither true or fair.”

To arrest the multiple crises stemming from unfettered capitalism, governments need to “ensure that companies incur the true costs associated with their activities”. In other words, pay people fairly, take responsibility for the community your company operates within, and clean up the messes you make. Act like an adult, not a rampaging child.

Changing capitalism sounds an impossible task, but Mayer believes it’s not that difficult. For instance, take the 2006 Companies Act. It states that “directors should act in a way that they consider most likely to promote the success of the company for the benefits of its members – that’s to say, its shareholders. That notion lies at the heart of company law around the world”.

Profit

IN other words, the role of the company is to maximise financial profit for shareholders. It has no other responsibility, certainly not to “do the right thing”.

Mayer isn’t against profit – it’s needed, otherwise there are no businesses or jobs. “But the law should in turn ensure that there’s a duty of care that directors have to other parties, and in particular to parties that the company impacts on and affects –that includes employees, suppliers, communities, the environment.”

A “duty of care” needs to be forced onto companies. Indeed, we need to reimagine the purpose of the corporation. Profit alone isn’t enough as a raison d’être. Companies “should help to solve the problems we face as individuals, societies and the world, and in the process derive a profit from that. Companies should not profit from producing detriments to others. They should incur the costs of avoiding or cleaning up the mess”.

What he’s advocating is a form of “caring capitalism”. And you can see how it applies to some of the troubles which flowed from the 1973 Opec crisis, such as suppressed wages.

Shareholders have “many privileges”, Mayer says, including “the right to the earnings of their company, but they have obligations and responsibilities as well”.

Anyone who thinks Mayer is anti-capitalist better think again. He’s a champion of the founding father of modern capitalism, Scotland’s Adam Smith. Mayer says that the thoughts contained in Smith’s The Wealth Of Nations are “very well known – the notion that it’s not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard for their own self-interest”.

However, “we tend to ignore or forget” what Smith said in his other great work The Theory Of Moral Sentiments, “in which he provides the conceptual underpinning that’s required to ensure that markets actually deliver the benefits that we’re looking for from the butcher, brewer and baker”.

The underpinning of this “moral law” is that business should “not profit from imposing detriments on others”. It’s effectively “the Golden Rule”. Most world religions have some form of the Golden Rule, which we know best as “do as thy would be done to”. Mayer wants capitalism to find its moral conscience.

If we could re-engineer capitalism around this notion, we’d create an ethical business world which turns a profit by “helping others and solving problems”. Instead, we have a model which earns profit by often “creating problems”.

Shareholders

MAYER dismisses any question of this being “touchy-feely”. A “duty of care” isn’t some soppy concept but an important principle in many of our laws. “I’m suggesting a duty of care be a central component in the fiduciary duties of directors. To date, their dominant consideration has been in relation to the interests of shareholders.”

Nor can it be argued that there’s no precedent, or that capitalism can never be tweaked and reprogrammed. The New Deal in America, and the Welfare State in Britain, were both major changes towards a caring form of capitalism.

We also have, and have had, corporations which operate ethically. Britain’s Wellcome Trust – today one of the largest funders of scientific research

– grew out of the profits of the Wellcome family. “It’s an extremely successful example of a company creating profit and becoming one of the most valuable foundations in the world.”

The “enterprise foundation” model – where highly profitable businesses are owned by foundations like Wellcome – is particularly successful in Denmark, Mayer says. About “50% of the stock-market value of Danish companies is attributable to enterprise foundations”. He adds that Denmark also “happens to be the country with one of the highest incomes per capita, lowest levels of inequality, best employee relations, and one of the happiest countries in the world”.

Novo Nordisk, the Danish pharmaceutical company which produces insulin, is “the most valuable company by stock-market value of any in Europe”.

It is owned by the Novo Nordisk Foundation. In 2023, the company’s market capitalisation exceeded the GDP of Denmark’s domestic economy.

And it’s not like bosses don’t get rich under this more ethical system. In 2024, chief executive Lars Fruergaard Jørgensen pocketed around $10 million. So there’s plenty of profit to go around. Communism it ain’t.

Mayer adds that underpinning the success of such companies “is a corporate law called enterprise foundation law which ensures that foundations don’t exploit the privileges they’ve got, and the companies they own sustain the purpose that the founders had in perpetuity”.

He adds: “It’s created extremely valuable companies that have created an immense amount of social and environmental benefit at the same time as creating a lot of financial benefit.”

This illustrates, he says, that proposals to overhaul capitalism in nations like Britain and America “isn’t just academic dreaming”.

Indeed, Mayer says that he and those like him are creating ready-made solutions for politicians to enact.

“We’re getting exactly what one would predict from having a malfunctioning capitalist system – more and bigger crises around the world. That will go on happening. You can be absolutely sure that the combination of artificial intelligence and genetic engineering will create crises bigger than we can conceive of at the moment.

“We’re also getting the pushback one would expect in terms of people rejecting the political system, the democratic system, and creating polarised societies. This is what you’d expect if you try to solve the problem the wrong way.”

Reform

INSTEAD of reforming the system, many governments have and are pushing for less regulation, which will only exacerbate the failings in capitalism. The problems we see aren’t “external” to capitalism – such as an issue like regulation. “That’s absolutely wrong. It’s internal to this engine of capitalism. Until we recognise that and correct that, we’ll go on creating failed solutions and increasingly polarised societies.”

Mayer believes that voters from both left and right would unite around the idea of preventing corporations profiting at the expense of others. His work, he says, “provides a political agenda for whatever party is willing to pick it up and run with it”, adding: “It’s not a complex solution, it’s very straightforward in terms of company law. There should be a recognition that companies cannot profit at the expense of others.

“That’s not a revolution. That’s not the destruction of capitalism. That’s getting it sorted in a way we can all come together around”.

However, will politicians listen? Will it take some disaster, like the system breaking, before there’s the will to fix it? “That’s an absolutely justifiable fear,” Mayer says, “and it’s precisely what I’m concerned about. How many more crises do we go through before people recognise what needs to be done?”

It is not, he says “too nihilistic” to fear economic collapse or political revolution being required as the catalyst for change. That’s because “the direction of travel that we’ve been going on over the last 60 years has been very much to reinforce the problems – namely, we’ve intensified the focus on profit at the expense of others”.

He notes that in 1962, the American economist Milton Friedman – seen as the ideological guru of neoliberalism

– said that “there is one and only one social purpose of business: to use its resources and engage in activities designed to increase its profits”.

That’s where it all started going “wrong”, he feels. This became the ideology of Thatcher and Reagan. “What preceded this was a very different notion – that business was there to perform a social function.

“That has been increasingly destroyed and it’s created increasing inequality.

“It has come at the expense of left-behind places and left-behind people, and at the expense of nature and the environment. That’s creating the increasing scale and frequency of crises, and that’s why we’re in the position we are today.”

Given this ideological shift to more rapacious capitalism only happened within the span of a lifetime, there’s no reason why we can’t “shift back”, says Mayer, “if people really understand what the underlying problem is”.

Hope

HOWEVER, change through terrible upheaval “may well be the only way, but it doesn’t have to be. The history of the world has seen transitions where there has been smooth movement from depression and crisis to reforms taking place”.

The Renaissance, for instance, ushered in a more civilised era simply through the power of ideas.

That’s why it’s so important, he feels, for ordinary citizens to get a grasp of what’s gone wrong and the possible solutions.

There’s a glimmer of hope in Scotland. Mayer co-chaired the Scottish Business Purpose Commission which looked at how companies can do more when it comes to “climate change, environmental sustainability, inequality and fair work”.

Mayer says he “was impressed by the support for creating shared prosperity around a common purpose of solving problems in a profitable fashion for others”.

He adds: “It’s a good illustration of how Britain as a whole may not be inclined to go in this direction in the immediate future, but there’s absolutely nothing to stop Scotland from advancing this agenda. It won’t be able to reform UK company law, but it can in essence adopt the policies associated with what’s needed within the context of the UK.”

Independence isn’t required, he says. “We need the institutions we design to promote our humanity.

“The direction of travel has been the opposite.

“People who are perfectly good, loving members of their families and communities, when they get put into a company or financial institution, they find themselves in an environment which brings out the most inhumane parts of their behaviour.

“They’re just there to generate money for the business, not to express care and concern for others.

“That’s what I’m driving at – how do we ensure that institutions support our humanity and not undermine it.”

Here’s the kicker. The system we’ve created isn’t even any good for business. It only serves the richest. “Britain is a poorly performing country,” says Mayer, “in terms of its productivity record and its growth.”

There is no trickle down, no cascade of wealth from top to bottom. We’re a deeply unequal society. “We’re not building successful businesses,” Mayer adds.

“We’re lousy at scaling them up and creating real international champions.”

In the past, we were world-beaters in electronics and chemicals. Not any more. “The reason why is this emphasis on the wrong model of business – simply creating the greatest return for the shareholder base, rather than investing in business, and creating businesses that have a long-term stable growth potential.”

In fact, we have the lowest investment rate of any OECD country “by a significant level. We’re simply not investing for the future”.

Says Mayer: “Britain is an illustration of how the traditional capitalist model we’ve promoted is a source not of economic success, but economic failure. Rethinking business isn’t only critical in terms of avoiding armageddon, but also creating successful companies, flourishing economies and prosperity