Retooling capitalism for the social good


When the financial crisis threatened to topple the global economy, my Russian friends took great delight in calling me from Moscow and sharing the bittersweet response that was making the rounds of a city that always laughs loudest when things go wrong: Everything Marx told us about communism was false, the gag went, but everything he told us about capitalism was true.

In 2008, it was easy to see their point. The lopsided recovery hasn't brought much comfort, either. Across Western Europe and North America, corporate profits and stock prices have rebounded, but the middle class is more squeezed than ever.

Even so, my Muscovite pals were wrong. Marx didn't just get communism wrong - he was also profoundly mistaken about capitalism, which turns out to be the best prosperity-creating system humanity has come up with so far.

But that doesn't mean it doesn't need to evolve. The high-tech, globalized capitalism of the 21st century is very different from the postwar version of capitalism that performed so magnificently for the middle classes of the Western world.

That's why a lot of people, including many hard-driving capitalists, are trying to figure out how to retool the institutions of capitalism for our time.

This week, the state of Delaware, which has made corporate governance its regional cuisine, approved a new form of incorporation, the B-corp, or benefit corporation. These are companies explicitly charged with a dual mission: to earn profits for shareholders, the traditional business goal, and also to pursue the social good in other ways, ranging from protecting employees to safeguarding the environment - even if these goals come at the cost of short-term financial gain.

Jack Markell, Delaware's governor, traveled to a seminar discussion in New York on the sweltering day his state signed B-corp into law. "This is a very significant public policy issue," he said. "There is both a market need and a societal need."

Markell admitted that "there are a lot of skeptics out there," but he said the B-corp status was an important response to a world in which the way we do business has changed.

"When businesses first started up, they operated in the communities where they existed. This was where the executives lived," Markell said. Because they were so deeply rooted in particular communities, they didn't need legal structures that required them to take into account all of their stakeholders - social pressure served that role.

In today's virtual, global economy, those personal constraints are eroding fast. The B-corp structure is a way to recreate them.

Markell believes there is a hunger among investors and entrepreneurs to both do well and do good: "What an unbelievable opportunity this represents to harness the energy of entrepreneurs who are really focused on making money and who want to give back at the same time."

Albert Wenger, a partner at Union Square Ventures, a New York-based investment firm, buys that argument. He was at the seminar with Markell, and in a blog post earlier that day, he laid out what he sees as the critical challenge for capitalism today: "Our problem as society is no longer how to make more stuff. Cars, clothes, computers are all becoming better and cheaper."

Instead, Wenger argued, "Our biggest remaining problems, however, require social innovation: How to distribute the benefits of progress more widely, how to live in better harmony with the environment and how to provide affordable access to education and healthcare for all."

The good news, Wenger believes, is that it is not just Occupy Wall Street that has focused on this dilemma. Business people are worried about it, too. "At Union Square Ventures, we are seeing more and more entrepreneurs and startup employees who are motivated as much by making the world a better place as they are by making money," he said.

The optimists at the B-corp discussion, which was hosted by the World Economic Forum, hoped that doing well and doing good could be seamlessly aligned. They argued that by freeing businesses to be mission-driven and pursue long-term goals rather than short-term profits, and by appealing to a new generation of idealistic consumers, B-corps could be as, if not more, profitable as traditional companies that maximize shareholder value.

That is a comforting thought. Frederick H. Alexander, the former chair of the Delaware Bar Association's Section of Corporation Law, suggested a tougher possibility.

"Part of the struggle is facing up to the hard facts," he said. "The basic thing that underlies a B-corp is that you don't have to maximize shareholder value. You are accepting the possibility of a lower return."

That may have been common sense for the Greatest Generation. But for most of us today, that notion of voluntarily forgoing higher profits for the benefit of the wider community is, as Alexander put it, "counterintuitive."

The B-corp structure is part of a wider movement to make that trade-off more natural. As Alexander said, "the issue is, do you want to conduct your investments in the way you wouldn't conduct your life."

That is a very good question, and one we have gotten out of the habit of asking.

© (c) Copyright Thomson Reuters 2013.

©2022 GPlusMedia Inc.

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So, maybe they were not the 'Greatest Generation' after all.

0 ( +1 / -1 )

People often confuse "capitalism" with "crony capitalism."

TRUE "capitalism" has rarely existed on a large scale, in ANY country, during ANY point in history.

It's almost ALWAYS been some version of crony capitalism.

Not understanding the difference, nor what either of them truly are, makes arguments and articles like this incredibly pointless and misguided.

1 ( +2 / -1 )

"the best prosperity-creating system humanity has come up with so far"

And at what cost? There's absolutely nothing great about a system that leaves behind a dead planet and immeasurable pile of debt for our children.

1 ( +3 / -2 )

The mistake made in understanding capitalism, is to believe it is a political system. It is not. Capitalism is the natural and simplest way for multiple humans to pool together resources to enhance or create more for everyone pooling resources.

The next mistake made by socialists especially is this totally insane belief in some sort of greater good that requires some to sacrifice for the benefit of others. Essentially the flawed and failed message of socialism, being baked into capitalism. Every single person is in fact an individual and has every unalienable right all other humans have. There is no such thing as some humans being able to leech off of others by force.

So this concept of the B corp is flawed. Every person has to participate for the same reasons self preservation. However, you dont need a B corp to achieve the goals desired. Capitalism in its basic form requires each person involved to consider the well being of others or the group as a whole fails. If I dont pay reasonably well I lose employees, my productivity goes down, I lose money, everyone loses. If my products are bad, the people buying them lose as well. If I do well, employees are paid well, products are good, buyers get good products for good prices, which in turn feeds their portion of capitalism. If I and others do exceptionally well, I might choose to help others. No where in any aspect of capitalism can force of any kind exist. Underpay or no pay is slavery, forcing people to BUY a product, amounts to some sort of tyranny done by former colonial rulers, force some to pay for the lives of others, you end up with everyone poor and miserable.

The only problem with capitalism is not capitalism, it is the world wide political class who cant produce anything on their own, so they create wars, problems, pollution, poor, bigotry, fanaticism, religious dogma and use those horrors they create as an excuse to steal, scam and take from those who do produce. Get politicians and bureaucrats, chieftains, imams and every other parasite out of the way and the rest of us would do very well with capitalism, including the poor who would once again be cared for voluntarily and more effectively than the government monopoly on welfare.

Capitalism is not and never was a problem.

1 ( +5 / -4 )

****Political class is not a business class men but some leeching class. Naturally people will have to meet with ravages og some kind og economic disaster, politicians cannot understand what is capitalism and crony capitalism. Similarly cannot understand Marxian theories but so some arbitrary governance. That means they cannot sit with people to get peoples ideas anywhere as peoples in trouble only know where shoe pinches!

0 ( +1 / -1 )

Correct me if I'm wrong, but persuading people to buy and to consume more and more seems to be the only way an organization can survive in capitalism. All for the sake of growth and with finite resources, a growth there means a reduction somewhere else. In an idealistic world where resources never runs out, no stealing, scamming, wars, etc. "true" capitalism may prosper well.

I firmly believe that the recently popularized economy of sharing is probably one of the best solutions we've got to address our dwindling resources. But sadly, as humans tend to love "owning" things even though we know we'll die someday and "owning" things really won't matter much, we live our lives in pursuit to own and to accumulate more things.

0 ( +3 / -3 )

Capitalism, or at least free-market capitalism (which doesn't really exist in any nation) is a natural system. It, like nature itself, rewards the strong, and encourages the weak to try to become strong. Not everyone who is tossed into the market can succeed, but capitalism has generated more good and quality-of-life than any other thing human beings have tried.

A system where everybody is equal will always fail simply because in reality, no one is equal. I cannot play pro sports, as I don't have the physical ability. I can't teach physics because I don't have the necessary education. I can't be a professional musician because I have no talent to play any instrument. Such systems supposedly create equal opportunity for everyone, but in reality, they deny opportunity to all.

4 ( +5 / -1 )

People often confuse "capitalism" with "crony capitalism."

Correct point, but I hate that expression.

There's capitalism and there is cronyism. They cannot coexist, and definitely not symbiotically.

1 ( +1 / -0 )

This week, the state of Delaware, which has made corporate governance its regional cuisine, approved a new form of incorporation, the B-corp, or benefit corporation. These are companies explicitly charged with a dual mission: to earn profits for shareholders, the traditional business goal, and also to pursue the social good in other ways, ranging from protecting employees to safeguarding the environment - even if these goals come at the cost of short-term financial gain.

Incorporating in Delaware is about as lax corporately as one can get with Nevada Corporations coming in at #2. If you see a company incorporated in Delaware (instead of your home state you should question it and put a much lower value on the asset (stock/bond etc). Your rights are severely limited as an individual in compared to the corporation = always expect the Delaware Judge in a case to rule against you in cases of bankruptcy, fraud etc. Many Corporations are incorporated in Delaware however.

-2 ( +0 / -2 )

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