(Or: Just in case you haven’t voted yet!!)
Jeffrey Cherry, Guest Writer – Originally Posted November 6, 2012 – New York Times economic reporter Eduardo Porter penned an interesting article last week: “At the Polls, Choose Your Capitalism”. He tells of the sense of “economic vulnerability” that has been hanging over the US middle class for more than a decade.
The common wisdom in the country, in many academic circles and in both political parties is that this is something that is beyond our control. The new normal; technological innovation and globalization have descended upon our middle class destroying once well-paying jobs through automation and competition with low-wage Chinese workers. As Porter states “these relentless dynamics have sent unheard-of profits to the prosperous few while threatening the jobs and eroding the wages of the rest”. But is that all there is to the story? As Porter says we mistrust government more than ever (with good reason) and yet it’s pretty apparent we also have little esteem for corporate America right now. Where are we to turn? No matter how we feel about corporations we all still strive to become financially successful in some regard. And clearly there’s a role for government in our lives. If you don’t believe that just take a ride out to Staten Island this week and ask a conservative if he’d like a handout right about now?
Unlike the caricature that the politicians and news media would like to paint, I think I’m a pretty normal American when it comes to the issue of capitalism: Although I’m a committed liberal (or progressive I should say), mostly on social issues, I’m also a dyed-in-the-wool capitalist. No other system of economic organization has provided as much benefit to humanity. Yet, like all complex systems, I believe we must continually improve even that which has benefited us greatly. Like it or not we are experiencing a crisis of confidence in capitalism today. People simply don’t believe that the capitalists in America or elsewhere care about the welfare of the rest of us. There was a time when that was accepted since, hey, its just business. No longer. We are evolving as a society and many of us have decided that the old shareholder-centric model of capitalism doesn’t serve us any longer. We want the companies we work for, buy from, invest in and allow to operate in our communities to take heed of how their actions affect us all and recognize their duty to contribute to our overall well-being; to enhance our lives not only through market innovations but also through societal innovations and economic growth for all of us.
Now some would argue that this isn’t a crisis of confidence in capitalism but a failure of the welfare state to create economic growth. But seriously do you really believe, that Mitt Romney’s economic policies are all that different from President Obama’s? They both tinker at the margins. One leaning towards the rights of corporations and the other leaning towards the rights of individual citizens but on the whole neither has looked at transformative notions of capitalism. Find a libertarian friend and ask them what they think. I might not agree with their hands-off solutions to generating economic growth but I do think they have a sober view of the differences in the two approaches…not much they’ll tell you.
But there is an alternative out there and it’s not necessarily the alternative being pushed by either candidate or the press (mainstream or otherwise). Those of you who follow me (and my partner in crime Mr. Frazier…libertarian as he may be) know we’ve been talking about this for years: We call it conscious capitalism, which is embodied in companies that practice a business model that we call the multi-stakeholder system. Others have given it other names, stakeholder capitalism, good business but the moniker is not important. What is important is that the practitioners of this new form of capitalism understand that what we have wrought cannot stand. Yes we are rightly skeptical of governments ability to provide for equal financial opportunity but at the same time we need to disavow ourselves of this myth that a Darwinian market, winner take all and losers deserve what they get is the only other alternative. Our friend Ed Freeman, Professor of Business Administration at The University of Virginia and Academic Director of the Business Roundtable Institute for Corporate Ethics and the godfather of stakeholder management who began writing on the issue in 1978. He states clearly and precisely that “The alternative to capitalism as we know it is not socialism, but a better form of Capitalism – one that recognizes the existence of the commons and acts to prevent the single minded individualism capable of destroying it.” I think of this as a capitalism that softens the rough edges and takes into account the total complexity of human behavior and human needs in the consideration of markets and value creation.
NYT writer Porter points out that our “cutthroat” form of capitalism has been “ineffective at transforming affluence into broad-based well being.” As if anyone needed that to be pointed out? The problem is that most Americans not only think this is ok but they also remain unaware that capitalism can be practiced in another way. They think any change in capitalism; any evolution is a move towards “socialism” or “income redistribution”. That’s the economic war that the two candidates are currently waging but opposed to the myths on either side of this debate we have the opportunity to create a form of capitalism that, as Rick says, truly lifts all boats and not just the yachts. Not in the trickle down sense. That was and is a preposterous idea that doesn’t work. And not based on a government that taxes and spends in hopes of creating millions of middle class jobs. That approach is less preposterous but only slightly more effective in light of the financial resources we actually have to deploy. Wealth doesn’t trickle down and generally isn’t created in large enough measure by government spending. It’s created by a growing, well-employed and highly compensated middle-class. But there is a movement about to attack cutthroat capitalism with a device of it’s own creation: New, unorthodox and ironic “market based solutions”. The movement started in 2006 with the publication of the book “Firms of Endearment: How World Class Companies Profit from Passion and Purpose” in which the authors (Raj Sisodia, Jag Sheth and the late David Wolfe) offer stark evidence that operating from a multi-stakeholder model produces exponentially superior financial returns while simultaneously responding to the civic and financial needs of all the company’s’ stakeholders. More recently Sir Richard Branson pens “Screw Business as Usual” in which he describes how the “boundaries between work and purpose” are converging, in fact must converge if companies are to continue to satisfy and depend on all the stakeholders they need to be successful. Then you have my friend Dr. Laurie Bassi an economist and the CEO of McBassi & Company, a consulting company that specializes in human capital analytics. Her 2010 book “Good Company” describes the “economic, social and political forces across the globe that are changing the contours of the playing field on which companies must compete”. And on the horizon the coming title “Conscious Capitalism” by Whole Foods CEO John Mackey and Firms of Endearment author Mr. Sisodia. All of these voices point to a need for a more critical discussion about the economic structure that underpins our social democratic system. A need to look at how short-term emphasis on earnings at all costs has impacted our society, and how we might transform our value creation processes into something that does indeed create the greatest opportunity for the largest contingent of our society; a way to stop the consistent bubble and bust cycles that we seem to have generated for at least the last generation. And yet the disconnected talking heads on CNBC prattle on about quarterly earnings and the demise of some company because they “missed earnings by a penny a share!” Not only do such pronouncements highlight their ignorance about what really matters but they are also a corrosive component of the infrastructure and dysfunctional dialogue that props up this system that no longer serves society to the greatest extent.
According to the website of the Conscious Capitalism Institute, Conscious Capitalism “is a philosophy based on the belief that a more complex form of capitalism is emerging that holds the potential for enhancing corporate performance while simultaneously continuing to advance the quality of life for billions of people.” But what does that really look like? Well for our part when we talk about conscious, humane or stakeholder capitalism we’re talking about a type of capitalism that affirmatively provides for the opportunity of mobility for the middle-class. A system where once again what’s good for the company is also good for the employees and for the country as a whole. Shareholder centric companies maintain a single allegiance. Their pursuit of profit un-moored from any larger purpose. So layoffs of the employees who can least afford it, during what everyone realizes is a temporary slow-down, are not only tolerated but also encouraged by Wall Street investors and business school professors alike. The shareholder centric model is the one that leads to the completely discredited notion that tax cuts for “business owners” will lead to job creation! Think of the recent spate of CEOs who, in the midst of record profits, have told their employees that they may face layoffs if President Obama is re-elected and their taxes are raised! If tax cuts were synonymous with job creation you’d also be hearing the other side of that story right? That if their taxes get cut under a President Romney all the employees would be getting raises and the floodgates of hiring would be opened. Of course you don’t hear this because in the shareholder-centric world the only thing that matters is “maximizing shareholder value”. Which has come to mean short-term profit and not long-term organizational health. You also don’t hear this because like all business owners they increase wages and hiring when demand increases…and tax cuts for “business owners” doesn’t raise demand…only tax cuts for consumers can do that. (Look here! http://www.youtube.com/watch?v=3Wc9bWc-WRs)
Stakeholder capitalism also looks to support suppliers. Not as servants but as partners. Actively seeking to help them generate adequate returns on their capital, helping them develop innovations and assuring that all the employees throughout their supply chain (even those that work for others) are treated fairly and humanely. These types of capitalists have an authentic respect for their customers, providing for their emotional as well as their technical needs because they view customers as whole humans not simply as participants in a transaction meant to extract value for shareholders. These types of capitalists recognize and respect the awesome power they have to impact the natural resources they depend upon as raw inputs…and that we all depend upon for life and joy. Thus they become authentic and dedicated stewards of those resources.
Although I do believe we are choosing how close we want to get to this type of capitalism at the polls today, ultimately government isn’t the answer. Mr. Romney will make it much harder to get there and the President will do less to keep us away from this end but ultimately it’s up to us, investors, employees and perhaps most important customers to drive this change.
In the end this is a choice between a point of view: One that places shareholders at the center and one that focuses on stakeholders as a way to create real long-term wealth. Those that chose shareholder centricity will continue to separate profit and purpose and we believe, make it more difficult for those businesses to create and maintain authentic relationships: Employees will become disillusioned and in-effective; suppliers will be uncooperative and unresponsive; communities and regulators will become more aggressive and assertive. All of which adds friction to the business, making it more difficult to engage customers. For our part we’re striving to help create these types of capitalists by bringing investment to them and helping entrepreneurs who want to operate in this manner thrive. I truly believe those who practice this type of capitalism in a democracy will find customers choosing to do business with them, communities welcoming them in and investors lowering their cost of capital…and ironically…creating real value for shareholders and for society.
Originally posted here: http://jlc2688.blogspot.ca/