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What will responsible capitalism look like?

Posted By Felistus Mbole, Tuesday, October 15, 2019

Felistus Mbole a member of our Emerging Fellows program checks the responsibility of capitalism in her tenth blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.

 

Capitalism has been the key driver of global wealth and prosperity. Despite this, it has yielded huge economic inequality and mistrust. This is because the system which is driven by private owners operates to maximise shareholder wealth. The need to generate profits at whatever cost works contrary to the interests of other members of society and the planet. The idea of shareholder supremacy is deeply entrenched within the current corporate culture. Everything else takes secondary priority. The outcome has been huge global inequality and a looming backlash.

 

The cry for responsible capitalism which started after the Second World War is climaxing. The need to conduct business in a manner that is equitable and balances the interests of shareholders, suppliers, employees, customers and the larger society is dire. Despite their benefits, there is a sense of unfairness and being overburdened accompanied by a loathing and mistrust of enterprises. As legal personalities in society, corporates should owe responsibility to others in how they conduct their affairs. Yet this has not been the case. What will save capitalism from itself? What will responsible capitalism look like?

 

Responsible capitalism is not corporate social responsibility. It is not giving a tiny proportion of the wealth generated by enterprises in the form of charity or a gesture of goodwill to society. It is the integration of the needs of the wider society into how business operates, a manner that benefits all stakeholders. Responsible capitalism is an economic system which appreciates the need for harmonious co-existence between enterprises and other members of the community.

 

Left on their own, markets will continue to maximise shareholder wealth at the expense of the rest of society. The 2008 financial crisis is a clear illustration of this. Responsible capitalism will take a greater role by state in regulating the affairs of markets. Governments will need to rise to the challenge by prescribing ways in which corporates should conduct themselves. The UK’s Companies Act 2006 for instance encourages responsible capitalism. These will be in form of policies that ensure fair work terms and conditions and redistribution of the generated wealth through taxation for society’s common good. To whom much has been given, much will be required. Responsible global enterprises will diligently pay rather than seek to avoid taxes to support the communities in which they operate.

 

Responsible capitalism will be enterprises whose strategic purpose is to serve society alongside their investors. This will mean fair compensation to employees and minimising of margins in pricing of goods and services to customers. Responsible corporates will be aware of the planet boundaries and mindful of the impact of their business activities on the environment.

 

In today’s increasingly dynamic and complex world, enterprises will have an opportunity to demonstrate their responsibility by rendering a service to society. They will use their resources to address the wicked problems facing global society for the common good. Their service to society will need to be embodied within their corporate strategies alongside delivery of value to shareholders. Responsible capitalism will take a paradigm shift in corporates’ purpose for existence from maximising shareholders’ wealth to serving society. A realisation that it is in serving society that sustainable value is created for investors. It will comprise enterprises focused on long-term rather than short-term gains.

 

@ Felistus Mbole 2019

Tags:  capitalism  inequality  society 

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Tim Morgan says...
Posted Tuesday, October 15, 2019
Felistus, well done. This is in line with much of what I've been reading lately from others who are exploring need for corporate responsibility beyond profit. For me, your key point is captured in this one sentence: "Responsible capitalism will be enterprises whose strategic purpose is to serve society alongside their investors". Marjorie Kelly framed this as a company's "Living Purpose" in OWNING THE FUTURE. Kelly uses systems thinking to explore several modes of what she calls "generative" ownership, as opposed to the "extractive" ownership of the shareholder profit driven model. I highly recommend reading it if you get the opportunity. Your thinking and hers are aligned, I think. One quibble. I am not sure about dating the call for responsible capitalism to the end of World War II. That is a side topic I would love to explore in a conversation some time.
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Tim Morgan says...
Posted Tuesday, October 15, 2019
Felistus, well done. This is in line with much of what I've been reading lately from others who are exploring need for corporate responsibility beyond profit. For me, your key point is captured in this one sentence: "Responsible capitalism will be enterprises whose strategic purpose is to serve society alongside their investors". Marjorie Kelly framed this as a company's "Living Purpose" in OWNING THE FUTURE. Kelly uses systems thinking to explore several modes of what she calls "generative" ownership, as opposed to the "extractive" ownership of the shareholder profit driven model. I highly recommend reading it if you get the opportunity. Your thinking and hers are aligned, I think. One quibble. I am not sure about dating the call for responsible capitalism to the end of World War II. That is a side topic I would love to explore in a conversation some time.
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Stephen Aguilar-Millan says...
Posted Wednesday, October 16, 2019
Tim, some would see this as the restatement of the purpose of the company. It has a history that traces back to Adam Smith, who wrote about the social purpose of the company. In the Nineteenth Century, the capitalists and entrepreneurs had a grand social vision and the went out to build it. It was only in the Twentieth Century, with the advent of managerial capitalism, did the divorce between ownership and control give rise to an extractive form of capitalism. Alan Greenspan and Adrian Wooldridge wrote an interesting book on this. You can see my notes on it at: https://www.goodreads.com/review/show/2637795240?book_show_action=false&from_review_page=1
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Tim Morgan says...
Posted Thursday, October 17, 2019
Stephen, I was thinking of Smith when I wrote the comment. I was also thinking of the various and frequent attempts to correct Capitalism's drift away from social purpose. Labor movements are the best known, of course. But so were progressive populist movements, like William Jennings Bryan's various efforts in the US in the late 1800s and early 1900s to change monetary policy and strengthen the US federal government to promote the welfare of farmers and small businessmen. About the same time G.K. Chesterton and others were advocating for the economic philosophy of Distributism, which used the Catholic principle of Subsidiarity to push economic activity, capital formation, and social organization to the lowest levels possible. Its successes in the US gave us "bottom-up" institutions like community Credit Unions and local Cooperatives which promoted long-term family prosperity, community-based economic stability, and social cohesiveness. I see many of the same ideas being retooled to deal with Capitalism's current fall from social grace. Ideas like Marjorie Kelly's "Generative Economics" and Kate Raworth's "Donut Economics" seem like 21st century updates to Capitalism's primary mode of failure.
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