I attended the NYC book launch party for The Road From Ruin last week. And now I see that Arianna has chosen The Road From Ruin as the HuffPost's book of the month.
I am really happy she did, because the authors -- Matthew Bishop and Michael Green -- have done two very important things: They have gone to great lengths to describe what they think needs to be changed about capitalism to make it work. And they've given us a tremendous amount of history, so we can build on the wisdom (and mistakes) of business people who were thinking about a "better" version of capitalism many years ago.
This history is also important because we can use it to fight those who would say "Leave well enough alone. We're okay now. That was just a cyclical thing that we have to learn to tolerate." These history lessons show us that some very significant players in the business world's past knew we should not "leave well enough alone".
Capitalism's Future Is In Its Past
There are many history lessons in The Road From Ruin, but the one I want to focus on has to do with "professionalism". It's the subject taken up in Chapter 8: The Age of Philanthrocapitalism: Capitalism must rediscover its soul.
The authors raise the subject of professionalism in describing why the 2008 crash was not just the result of certain extremely greedy individuals trying to get away with doing some really bad things...
The current crisis of capitalism is in part a morality tale, but it is not a simple one. And it owes at least as much to failures of design, especially too much reliance on short-term measures of success, as it does to ethical lapses.... Increasingly, employees throughout the system were paid to maximize short-term financial returns, such as every-expanding quarterly earnings and rising share prices. There were no rewards for asking tough questions about whether what was good in the short term was also good in the long run. Even regulators kept quiet.
Failures of design indeed! The negative consequences of a culture that promotes short-term thinking is not the product of a few people's actions. It's the product of literally everyone's actions. And those actions are produced by the system of values they all share.
How to change that system of values? That's where professionalism comes in.
Think we have professionals running our businesses now? No, we don't. Having an MBA or even a PhD does not make you a professional. What does is belonging to an external, licensing body that can kick you out of your profession if you violate certain ethical standards of behavior.
Doctors and lawyers are professionals for this reason. If a doctor or lawyer is convicted of malpractice, he or she will be barred for life from functioning in a professional capacity.
While business trade associations exist, no CEO or other business person can be barred from being a business person if caught destroying long-term wealth in the interest of short-term gain (what is currently called IBGYBG - I'll be gone, you'll be gone.)
To show you how long people have thought about this, here's an excerpt from The Road From Ruin:
In 1912, the great American progressive lawyer Louis Brandeis gave a speech on "business as a profession," in which he expressed the hope that an ethical, professional approach would help the term "Big Business" to lose its "sinister meaning." As he concluded, optimistically, "Big business will mean professionalized business, as distinguished from the occupation of petty trafficking or mere moneymaking. And as the profession of business develops, the great industrial and social problems expressed in the present social unrest will one by one find solution."Think one lawyer in 1912 doesn't a historical foundation for this idea make? You'd be right. Here's the rest of the history lesson:
(The) sense of responsibility to a set of values is the defining feature of a profession. The best known example of this is the Hippocratic oath taken by doctors for centuries, normally paraphrased as "First, do no harm."... In 2008, an article in the Harvard Busines Review ... proposed an oath... (which) covers issues including selfishness... and transparency... and an overarching goal of serving "the public's interest by enhancing the value [their] enterprise creates for society."Where's the history lesson? Here:
...in 1908, when (Harvard Business School) was founded, it was inspired by the goal of making management a profession, like law and medicine. This ambition spread beyond Harvard. In 1925, at the newly created Stanford Business School, Wallace Donham, the second dean of HBS, gave a speech, "The Social Significance of Business," in which he declared that the "development, strengthening, and multiplication of socially minded business men is the central problem of business."... or, I might add, be forbidden from practicing the "profession" of business any time in the future if they don't!Donham feared that as scientific, technological, and material progress accelerated, the traditional sources of professional ethical leadership (such as the law and the clergy) would be unable to cope, and that it would fall to the "new profession of business" to save modern industrial civilization from itself."
As he put it, "The socializing of industry from within on a higher ethical plane, not socialism nor communism, not government operation nor the exercise of the police power, but rather the development from within the business group of effective social control of those mechanisms which have been placed in the hands of the race through all the recent extraordinary revolutionizing of material things, is greatly needed. The business group largely controls these mechanisms and is therefore in a strategic position to solve these problems. Our objective, therefore, should be the multiplication of men who will handle their current business problems in socially constructive ways."
I will leave the admittedly difficult question of how to specifically define "professional business person" in a world where Bill Gates never finished college to another time. But I will say for now that there's a huge difference between risking capital to invent something new (as Bill Gates did) where the purpose was to improve society and risking capital on a "financial engineering scheme" (my terminology) to make short-term profits where the positive, larger interests of society are not part of the conversation.
Why did I title this essay "Why We Are In The Driver's Seat"?
We in America's progressive movement are in the driver's seat here for one simple - but not commonly known - reason:
We have a very powerful, potential "friend" that can add tremendous support to any effort we choose to make to professionalize the business world.
Who is this potential "friend"?
That friend is the Corporate Social Responsibility movement, embodied in America by Business for Social Responsibility (BSR) and The USA Network of The UN Global Compact. (There are other, related business networks - such as the American Society for Quality and the Baldrige National Quality Program - but I'm sticking with these two for the moment.)
The corporations participating in BSR and The Global Compact's USA Network include some of the most powerful brands there are. GE, Microsoft, Ford, Starbucks, Chevron, and many, many others.
If you combine the ability these business networks have to help set the CSR movement's agenda with their corporate participants' ability to communicate with the public (including, thanks to The Supreme Court, during elections), you have a potentially very powerful force for professionalizing the business world... for changing its culture from one focused on short-term gain to one that knows we must take the long view.
You and I now know we've let a huge portion of our national economy be run by "non-professionals". We know that many years ago this flaw was recognized and proposals were made for correcting the "design flaw" in the system. And we know the CSR movement exists and can be a catalyst for making that correction now.
The choice is ours to make. That's another reason why I said "We are in the driver's seat."
The progressive community can choose to transform the business world from within, or - as I sometimes hear people suggest - it can try to destroy the corporate sector, out of the belief that corporations are so evil that all they can ever do is harm society. The choice is up to us.
The CSR movement can be a natural ally of America's progressive movement, if the progressive movement can imagine that some corporations want to be part of the solution. I believe the two movements - working cooperatively - can finally achieve what was known in the early years of the 20th century: that the world of business must function so that is "does no harm" to the larger society.
If you feel that working with "Big Business" would be one step away from working with the Devil, I urge you to learn about the CSR movement... it's history and it's potential. And once you have, then blog about it... write letters to the editors of your local papers and television stations about it... demand that it get the visibility it deserves. Every business is not evil. The CSR movement is proof of that.
The UN Global Compact will be celebrating its tenth anniversary this coming June 24-25 here in NYC. Insist that this event receive the coverage it deserves!
Finally, please note that Matthew Bishop isn't just the co-author of The Road From Ruin. He's also The Economist's US Business Editor and is hosting The Economist's Corporate Citizenship 2010 Conference here in NYC starting later today.
I will be participating in this conference and will let you know what happens.
Follow Steven G. Brant on Twitter: www.twitter.com/SteveBrant
Jim Luce: C.E.O. Brooke Partridge Helps Lead Technology Thought in Developing World
Jeff Biggers: My Dream for Tom Friedman: No More Columns on "More Than 100 Percent Clean Coal"
Andrew Shapter: Despite Economy, Not-Only-For-Profit Business Is Thriving
Bhagwan Chowdhry: 'The Road From Ruin': Why Are Vampires Rich?
Pegs Mexican tycoon's fortune at $53.5 billion, ahead of Gates and Buffett
In some years of experience as activists, we find support from CSR advocates to be non-existent. We tend to go where they don't to the heart of the matter, corruption and graft which renders others ito poverty.
Some replicate. Neville Isdell for example. former Coca Cola CEO and now heading IBLF advocates P-CED ideas under the label of Creative Capitalism.
http://www.nysemagazine.com/connectedcapitalism
News today has revealed that Microsoft in working toward similar objectives as us, in the same city.
But will they embrace us?
http://www.ecademy.com/node.php?id=146587
The real issue is what is going to be in charge: will society use the economy as a systemic tool for meeting human needs, and subsume it to social goals; or will the economy be exalted as some sort of god, and its inherent disruptive behavior left unchecked and society subsumed to its needs?
Of course, the latter ideology is largely pushed by those who benefit (over the short term) most from the current organizational model of the economy. Democracy is NOT required for, or a necessary outcome of, capitalism. There are plenty of military dictatorships that have had "successful" capitalist economies -- in fact the more repressive politically the regime is, the more "successful" the capitalist economy will be, because you can suppress labor's ability to organize. The best example of this is mainland China. And capitalism inherently corrupts democracy because wealth inherently confers implicit if not explicit advantages in politics.
Make no mistake: there is, and always has been, a class war, and it was initiated and is being won by the rich. In the U.S., upper income folks are not suffering the unemployment, the foreclosures, etc. that working class folks are. And Goldman Sachs is still giving out its bonuses.
Anyone who understands that the over-arching purpose of the corporation is to make a profit for the shareholders. The directors are held to a standard designed to make profits.
The DNA of corporations is similar to that of viruses. Corporations are often extractive and exploitative by their very nature and mandate. Corporations are immortal yet possess no soul.
The idea that businesses would be enlightened is pure folly. Government regulation and tort liability are the only hope. Otherwise profits are internalized while costs are externalized.
Check out dirty coal, for example. Tobacco, asbestos - these guys are going to be nice? Get real.
"Profit, the bottom line, was master of all else. People and the environment we live in were secondary considerations. The vehicle of Western capitalism was, and is, corporations.
Corporations are legal structures created as legal entities to carry out the business – financial – objectives. Under US law, corporations are a legal person. What sort of person? According the psychological assessment measures in the Diagnostics and Statistical Manual, Fourth Edition (DSM-IV) used for personality assessment, corporations meet the strict clinical definition of a psychopath. “Psychopath” is another word for lunatic, or, someone who is legally, criminally insane."
http://www.p-ced.com/1/projects/ukraine/sumy/
What else can you assume? These structures are created for profit. Period. It's their only actual responsibility.
Ever look at a "social responsibility" mutual fund? There's a reason you see a bunch of info-tech companies and the like: they can afford to not exploit workers, not pollute, etc. It's based on the sector. Of course, quite likely, they benefit in some way from another company that is not socially responsible- essentially externalizing cruelty.
I don't think we should be changing or destroying corporate world. What we should be doing is enforcing the rules of the market in such a way as to protect consumers/employees, ensure competition, and minimize externalities. And we need to discuss what things are for the private sector and what things are for government and non-profits.
Social responsibility is not something profit-making machines can be trusted with. It's not what they are designed for. It's not what they do best.
Corporations wage psych ops on the public every day in advertisements and the corporate media.
These are not nice fellows.
1. Unbridled, unrestrained Capitalism's objective is to maximize profit. All other considerations are subserviant to that objective. Unrestained Capitalism rewards results without reference to how the results are obtained
2. Principled business practices require voluntary principled behavior by the participants.
Two Capitalists who I believe meet this criteria are Bogan and Buffit. But let's be very clear that they are exceptions.
Given my criteria above, I simply don't believe that good wishes, or grand ideas will be sufficient to change the inherently damaging results of unrestrained capitalism. Over the long run, it's been shown over and over again that greed, power, self-interest, and control have most often driven the players, including our political leaders of all persuations.
Perhaps I'm a pessimist, or more reasonably as I like to think, a realist. But I can't imagine any programs outside of strict, competent, and principled regulation that can overcome the inherent vices in unrestricted Capitalism.
One additional comment: there are far too many who believe Capitalism and Democracy are synonomous; two sides of the same coin. They are not. And those who would suggest they are likely doing so for their self-interests.
In David Mclintick's article 'How Harvard Lost Russia' you may read of how this assumption, when US goc tried to introduce capitalism to Yeltsin's Russia led to economic collapse. As Mclintick observes, they failed to take the opportunity to introduce democratic governance.
In the wake of that economic collapse came the new approach for inclusive capitalism I described earlier. It led to a microfinance bank and 10,000 new businesses in the city of Tomsk.
http://www.iccrimea.org/scholarly/economicdev.html
the market punishes neither pornography, nor prostitution. The market didn't punish American slavery. Moral systems, to which democratic process often appeals are separate from markets which are based on information and, as Keynes said, "animal instincts". Great confusion is sewn by ignoring the distinction between capitalism and democracy. Rand was a lousy philosopher.
Can we target a 20 hour week? Jobs for all and truly sufficient incomes require a novel approach.
Define toil as work not freely chosen, no matter how simple. Work we choose, no matter how difficult, can be considered play. Encourage efforts to reduce the time people spend -- at work not chosen -- to twenty hours weekly. Money displaced from the nominal forty hour week needs to be replaced with sound, widely available, investment income not dependent on savings.
Examine the possibility of two ten hour days – with five days each week to employ and enjoy. The positive (and negative) implications are obvious.
Most are trapped by mortgage payments, car payments, etc., in jobs they do not love. There is a simple test: Would they do the same work without pay?
Only a few fortunate individuals have the freedom to learn who they are, and more important, who they might become, not just in a narrow financial sense. See articles at: http://www.aesopinstitute.org “Getting Obama Right & My Comment” and "The Brooklyn Project".
Expanded ownership opportunities, initiated by the late Louis Kelso and the Center for Economic and Social Justice, open doors to substantial second incomes. As a consequence the toil component of the work week can gradually diminish. See http://www.cesj.org/”
Many work to keep medical benefits. Benefits come with full time employment, not part time. Take away the healthcare issue by covering everyone under a Medicare system and many will retire earlier or work less thus reducing unemployment.
Women work outside of the home to earn slightly more than it costs to send their children to daycare and preschool. Provide preschool as part of the tax funded education system and allow women to work less, perhaps leaving work at 2pm instead of 5pm, giving them the benefit of a shorter work week and extending parenting time. Again, more jobs open.
As baby boomers retire, the workforce will be drained and unemployment may become less of an issue in the coming decade. Many boomers will simply find a second career rather than wear out a rocking chair. Many will start a new business or volunteer their skills. This boomer generation will be the first generation to leave the job market in such vast numbers. Many will need to return to work at least part time to supplement social security and savings. Many will try continue working part time once they reach Medicare eligibility. Boomers are heading for a shortened workweek.
Thank you.
Honesty is not fashionable in time when most google hits go to Paris Hilton (or was it Pam Anderson). The issue here is larger culture, not just business culture, and the degree to which its direction can be mapped, if it does not proceed spontaneously in the 'right one'; an adult version of a kid in toy / candy store. The 2008 derailment is a result of a long process. The question is -can it be fixed ?
The primary question being whether people can be considered disposable in the name of profit
As you will see, the concept of ethics and ecomomics has already spread to touch both the UN General Assembly and the Vatican.
http://www.ecademy.com/node.php?id=132188
We meanwhile walk the talk.
At the college I go to, the very first class discusses ethics. Since then, I've noted how said school won't be bothered to follow them if it means kicking out a student (less money coming in)...
Then people ask why laws are made if they aren't enforced.
i know, let's all become "Lord of the Flies". That'll fix everything!
(it won't, but some people actually believe that it would.)
In another respected, however,Obama himself represents the totals dynamic that makes America great. The right sees him as a socialist; the left sees him as a capitalist. On one hand he bails out Wall Street, on the other hand he battles the corporate health care giants by pushing for a comprehensive health care system. In other words, Obama represents both America’s individualist and socialist instincts. Thus it could be said of him that is the most American of presidents ever, and the one most suited to make capitalism work for everyone, not just the super rich.
http://www.p-ced.com/1/about/history/
Quite simply, the case for inclusive capitalism has been made. Crediting this to a more recent advocate, does little to support the cause of social business.
Proof of concept was demonstrated a decade ago, when introduced to Russia in the wake of their 1998 economic collapse and the failiings of the Defense Enterprise Fund
http://en.wikipedia.org/wiki/Inclusive_capitalism#People-Centered_Economic_Development
The core argument for a new social business paradigm is a critique of Western capitalism which was published as a manifesto in its own right in July 2008 as the credit crisis became inevitable.
http://www.p-ced.com/1/about/background/
It concludes:
"Economics, and indeed human civilization, can only be measured and calibrated in terms of human beings. Everything in economics has to be adjusted for people, first, and abandoning the illusory numerical analyses that inevitably put numbers ahead of people, capitalism ahead of democracy, and degradation ahead of compassion. "