It’s a weird paradox. Having triumphed over socialism, capitalism’s worst – perhaps only – enemy is capitalists. Conversely, because capitalists are so hopeless at analysing capitalism, it is always down to those it conceives as its enemies – critics and governments – to rescue it from its own excesses.
The genius of capitalism (if that is what it is) is its Protean capacity for self-renewal. But almost wilfully ignoring this, capitalists of the current dominant tendency have frozen it into a number of unchallengeable assumptions, more akin to religious dogma than the result of empirical investigation, that permit no deviance or evolution.
Consider some of their mainstream articles of faith.
- Companies are independent of the societies in which they are embedded. (This is the ‘business of business is business’ argument, smoothly paraphrased by the CBI’s new president Sir Robert Carr, that I wrote about last week.)
- Markets are the best way of organising resources; companies are a second-best option, and should be made to resemble markets as closely as possible. By the same token, the private sector is inherently better than the public sector.
- Companies are the property of shareholders, and the maximisation of shareholder value is the sole and sufficient purpose of the corporation.
- Individuals are exclusively self-interested, and people need to be motivated by incentives and bonuses to do a proper job (although curiously this appears only to apply to the top corporate echelons), and disciplined by hierarchies.
All these are just wrong.
Companies are unquestionably important to economic advance, but it defies common sense to think they can flourish independently of their context. Companies can only thrive as part of, and not at the expense of, the wider society. As Amory Lovins and Paul Hawken put it, in the final analysis ‘the economy is a wholly-owned subsidiary of the environment’.
Organisations, whether in the public or private sector, are different from markets – that’s why they exist! They obey different logics and do different things. Companies innovate, markets compete to distribute the value created by that innovation through the economy at large.
Companies are legal persons in their own right and are not owned by shareholders (see HBR
), who have done worse during the shareholder-value-maximising era than they did before (see HBR again
). Shareholder value is a by-product, not a prime cause.
To anyone but the hardest-line economist, it is evident that human beings are motivated by a variety of things, including both self-interest and altruism. Many studies show that intrinsic rewards (doing a good job) are far better motivators than extrinsic ones (money), not to mention much cheaper.
If singly these beliefs are nonsense, together they form a toxic system which that is bringing us nearer and nearer to financial and physical meltdown. The increasing incidence and severity of financial crashes, the apparently unstoppable rise of corporate wrongdoing, the unsustainable dislocation between the economy’s winners and losers, the plunging moral authority of business, and the growing urgency of climate change are all well enough documented to need no more elaboration here. ‘American capitalism’, sums up Roger Martin in his recent book Fixing the Game, ‘is in danger’, slowly but surely destroying itself from within.
In the past, critics and practical reformers – anti-slavery campaigners, Quaker industrialists, New Dealers, trade unionists, corporate raiders – have always managed to shake up the fixed assumptions of the existing fundamentalists, changing the balance of forces and generating fresh forms and solutions to the problems of the day. Limited liability, pension funds, business education, tapping into workforce skills and knowledge, shareholder activism, and many others have all inflected the course of capitalist development, adding diversity and fresh thinking from many different sources to the mix.
Technically, the same ought to be true now. There is no shortage of new ideas wanting to be heard. I don’t mean social media and Web 2.0. I mean, taking a leaf from radical capitalist thinkers like Umair Haque, institutional innovation such as thick, thin or shared value, social enterprise and a social enterprise stock exchange, green measures of economic growth, human capital, stewardship... the human brain is as inventive as ever it was.
What may be different this time, though, is that capitalism’s self-correcting feedback loops have stopped working. Why, even after the financial earthquakes of 2008, has nothing changed? Perhaps because the underlying assumptions have become self-reinforcing. In a 2005 Academy of Management Review paper, academics Jeff Pfeffer, Bob Sutton and Fabrizio Ferraro cited research finding that business students were consistently less empathetic, less concerned with others and more prone to cheating and wrongdoing than those of other disciplines. They concluded: ‘A growing body of evidence suggests that self-interested behaviour is learned behaviour, and it is learned by studying economics and business’. In other words, even if (again as common sense dictates) self-interest is neither universal nor inevitable, self-fulfilling prophecy is gradually making it so.
The nightmare, then, is that business in its largest sense has already made itself too big, dominant and centralising to fail. It has eaten the regulators, and now it seems to be consuming the political process itself – witness the extraordinary difficulty of bringing ‘proud finance’ to heel, and the profoundly illiberal, anti-labour legislation being introduced in several states in the US and threatened in the UK. And it is not just about size that escapes control. Increasingly, the accountancy of business, unscientific, fault-ridden and prone to spontaneous self-combustion as it is, is the measuring rod used to validate all other areas of life. Education, health, the arts all have to justify themselves in business terms. Instead of capitalism being made safe for the world, the world is being made safe for shareholder capitalism.
My main point here is not just or even primarily about ‘rightness’ – it is about maintaining sufficient diversity for capitalism to do what capitalists boast it does best: evolve, innovate, self-correct, self-renew. Because of the dominance of one hard-line theoretical view, supported by giant institutions that perceive their self-interest as keeping it so, capitalism is becoming a monoculture that ensures it can no longer evolve in this way. Capitalism is indeed too important to be left to capitalists – but this time round, are there any enemies left to save it from its friends?