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."
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."
... or, I might add, be forbidden from practicing the "profession" of business any time in the future if they don't!
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.