Ethical and green capitalism is a complete con
Don’t you lose your New Age/futurist/liberal street cred for coming out against ethics and ecological sustainability in business? Isn’t that like coming out against puppies, Christmas and grandmothers these days? Also, in the gruesome carnage of the Ponziconomy, wasn’t it the spectacular greed of, well, EVERYBODY that led to this destruction of all that is holy? Shouldn’t we then progress to a land of ethical business and ecological sustainability, one where Wall Street bonuses don’t seem ridiculous, solar panels go up everywhere, and everybody finally sees their way to acting nice?
Sorry – this week’s excitement about business ethics is a PR whitewash, at least as much, or moreso as that other canard, green business. Don’t bet a single dollar on ethics or the New Shiny Green Sustainable Niceness Economy.
But hear me out.
I got fired up about the notion of ethics this morning upon reading Umair Haque’s post entitled “Why Ideals are the New Business Models” in Harvard Business Publishing’s “Edge Economy” blog. In it, Haque extolls the virtue of ideals over business models claiming:
- Business models aren’t today’s fundamental economic challenge.
- Creating something valuable in the first place is.
- “Monetizing” + “business models” = zombieconomy
“Monetizing” toxic junk — from CDOs, to Hummers, to McMansions, to Big Macs – is how we got into this mess.
- Forget business models. Focus on ideals.
Reconceiving value creation depends on new ideals. Ideals shape what we wish to achieve in the first place: freedom, peace, fairness, justice — all are ideals vastly more powerful than mere business models. That’s because they are what ensure the value we are creating is authentic, deep, meaningful value — not just the shabby, threadbare illusion of value.
First, Umair Haque is right as an individual in this philosophy he espouses. This is all really good thinking, good values. I want him to be my neighbor, my business partner, maybe even my Congressman. This is precisely the thinking that lacked from the vast majority of business planning, and what got us into this mess. And he’s right, it’s the kind of thinking that will get us out of this catastrophe toward something ostensibly better.
The second, more important thing is that this idea doesn’t scale up whatsoever. In a practical sense, it is a complete pipedream, if you expect global capitalism to follow along. The concept of idealistically-driven, ethical business is utterly incompatible with the current system of business management and the globalized economy in general, which is why Harvard Business School, oddly hosting this idea, has taught the polar opposite of this thinking for years. People want cash, ROI, and they want it in a certain, reliable timeframe. The capitalist economy has functioned for centuries now on the notion that you put cash in the hands of a productive few, and with very little connection or effort of your own, it turns into profit. You invest in a company from New York with operations in China and Africa and Europe, and your cash turns into 107% of itself – magic! Bonuses are handed out, dividends paid, stock prices go up. Business cases would be created, and Harvard Business School would begin teaching them. (Ahem)
This magic is fundamentally at odds with the very notion of ethics, which requires some form of relationship. Global finance capitalism is about the neutralization of relationships. After all, part of the reason we’ve been ripping jobs up out of the United States and Europe and sending them to India is that we as consumers don’t care about 1,200 poor folks in Ohio or Alsace, and we ALSO don’t care about the wages of the people in India. Problem solved! Prices go down, wages go down, profits go up, stock goes up – magic, plus no messy relationships or ethics to worry about.
Now, if this was done locally, it would be another deal entirely. If you tried this same sort of operation in a small community – Padua, Italy; Eugene, Oregon; Kathmandu – the game would be completely different. There would be relationships at stake, small groups of people dependent on each other for income, possibly members of the same church, liable to run into each other at the grocery store, highly likely to slash each others’ tires at a bar. In a local context, the numbers on the spreadsheet detailing profit and loss would be important, but ethics would come into play – relationships would need to be tended, or there could be a serious downside to the transaction, a measureable downside. In local economies, ethics aren’t just a way to prevent bad public relations and a public harrumphing from Barney Frank, but are a necessary value in order to keep prosperity going.
This is entirely unoriginal thinking on my part. It was first advanced by a guy named Adam Smith, a Scottish philosopher who disliked the abuses of the royal system of mercantilism, underwhich oversized corporations, operating with the king’s good grace, abused suppliers, distributors, and consumers. Smith’s view of capitalism, explored in his book The Wealth of Nations, was one of small, entrepreneurial players, unable to effectively lobby the king, operating within sight of one another. Minimal secrecy would lead to a better understanding of supply and demand, and the general openness would keep members of a community conducting business in an ethical way – for reputations and cash were on the line.
Actually, capitalism at its most fundamental is automatically ethical, because it never would accept five conglomerates per industry operating over and above the authority of nation-states. Actual capitalism, in the Smithian sense, requires smaller players operating above board, improving communities. Yes they make money, but they also improve the community socially, culturally, and even ecologically. There’s no cheating, there’s no getting away with much, because ultimately, the people to whom you relate economically live within walking distance.
This is why monetization, good business models and ethics aren’t at odds. Ethics are great, but you still can’t eat ethics; business models and motility of capital will probably still run things. Planning a business without some form of cashflow-positive business model will be impossible.
UNLESS we are also transitioning to predominantly local economies. Then you get major changes. You won’t need that fake “green” business anymore either – because you won’t be able to steal ecological resources from surrounding communities without putting them back; the debt machine that made that possible will be broken down. And you won’t need ethical business either, since a lack of ethics will require you to repaint your car, which will suffer from keys, cans of coke, and other hazards of bad local PR. But that will be a major change, more significant than any changes in tax structure or regulation we’ve seen recently, because it will reshape global economics from the ground up.
The point is, don’t fall for a change in language to make yourself feel better about the necessary changes – wait until you see the actual change.
The attention model for Web 2.0 is different than the advertising model
Great column from Andrew Keen regarding the different business models represented by Twitter and by the rest of Media 2.0.
He points out, correctly, that Twitter values attention, while advertising only values the likeliness of people to purchase something. You can do whatever you would like with attention: start a political movement, encourage sales, provoke conversation. Advertising is measured solely by the likelihood that the target market will open their wallet.
It will be interesting to see what business model Twitter ultimately chooses. At some point, they will need to ask people for money.
Forget shareholder value – the future is in creating things people value
Right now, numbers mean very little. Sure, sure – if your bank account runs dry, you can’t buy anything. But in the macroeconomic sense, our ability to value economies, value companies, and value individual effort is sincere hobbled because the numbers don’t line up. Perhaps soon they will achieve equilibrium, and stock prices, GDP, and currency exchange rates won’t seem like some fever-dream hallucination of mixed metaphors. But for now, we’re in a fascinating period in which we can ask not just “how to create value” but “what is it we value?”
This runs headlong into questions of culture, sociology, entrepreneurialism, poverty, Native American tribal governments, currency, finance, and more. Sound like too much for one narrative? Then check out today’s edition of the Competitive Futures Podcast.
Forget shareholder value - the future is in creating things people value: Play Now | Play in Popup | DownloadJack Welch declares shareholder value “dumbest idea in the world,” employees number one constituency
This is perhaps the top entry in the Guinness Record Book of Complete Philosophical Reversals.
Jack Welch, “Neutron Jack,” the great father of steroid-pumped management, “Flourish Elsewhere” human resources, cutting the bottom 10%, and evangelist of shareholder value as a singular strategy, has now declared the whole “money for Wall Street” thing is the “dumbest idea in the world.”
For those of you who have heard the term “shareholder value” abused in every possible context, a phrase used as a placeholder for an actual strategic thought, this reversal is akin to hearing the Surgeon General come out and say, “You know Marlboros and tequila get a bad rep – I think they are part of a healthy breakfast.”
This too is an overcorrection. People who bet their money on the performance of a for-profit enterprise will expect a certain level of return compared to stockpiling gold or letting money sit in a savings bank (assuming you can find a solvent bank these days.) Jack is right, shareholder value is a result and not a strategy – but it’s still a fine goal.
The difference in the next economy will be that half the world won’t be investing through Wall Street for the basic societal functions of assuring a dignified retirement for aging citizens. Once the pensions set to grow at 8% fail (coming soon to an economy near you!) people will get even more hesitant to invest in nameless, shapeless glass and steel buildings. Investing in for-profit companies will return to where it ought to – a risk undertaken by the very professional and very observant.
Will corporations really see employees as their number one constituency, as Jack suggests? He obviously saw value in firing over 110,000 employees in his tenure at General Electric – but it sounds like a nice idea.
The future may look like more of a balance between durable human relationships and the need to keep the doors open by making money.
What is the next form of economic growth?
At a luncheon meeting for the International Association of Corporate and Professional Recruiters, we had a stimulating dialogue about future trends and their implications on the next generation of leaders. We discussed the bursting of the current bubble in some depth, leading to one participant asking, “Will we ever see growth again?”
It’s not whether we’ll see growth – it’s whether you’ll recognize it as growth. For more, tune in to today’s episode of the Competitive Futures Podcast:
The barter economy flourishes in the face of chaos
There are a whole lot of talented people in the United States and elsewhere. Perhaps one of the most frustrating things about this current crisis is that most people were getting up every day, designing bridges, learning cardiology, teaching kids, and generally being productive. All of the sudden, we get an email from the banks that everything is completely ruined and there will be no more civilization. It’s time to head back to the hunter-gatherer days. The average lifespan will turn to age 36, most people will die from mammoth stampedes, etc.
In reality, people are pretty resourceful. Just because global finance capitalism is caught in a seizure, doesn’t mean people will stop being resourceful. This is why we’re interested in the establishment of community-based barter networks. That energy and talent has to go somewhere.
Farnoosh Torabi is finding all kinds of examples of barter online, from orthodontists trading braces for server maintenance to laser treatment specialists looking for dog grooming.
If our centralized financial system screws up the concept of money, people will go without it. There will likely be all sorts of grey-market activity as a result.
Making mergers and acquisitions illegal – antitrust on steroids
Longtime reader JM remarks the following:
Think about how much influence this current situation may have on the future definition for anti-trust suits brought on by mergers and acquisitions. What will be the maximum threshold for total market share that will be allowed? We keep hearing how these companies are “too big to fail.”
Will the government put in measures and procedures to keep this growth from occurring? Which industries will be affected? Will this make smaller companies more or less competitive knowing they will not or can not be absorbed by larger players?
Insofar as government will not want to keep pumping trillions into bad business decisions, a likely future is that anti-trust departments will be put on steroids.
Then again, Merck and Schering-Plough think that mergers are the way of the future. Their reasoning? Efficiencies and combined product pipelines.
Hasn’t that always been the rationale behind mergers in pharmaceuticals? And is it working?
Is it working in banks? Healthcare? Automobiles?
For our future – can we allow companies to destabilize economies like this again?
AIG claims that it believes that its business practice could destroy the capitalist system around the world.
If that is so, can any government really stabilize the system?
More importantly – won’t governments go out of their way to change the very nature of private enterprise to assure that this can never happen again?
Below is a recent internal memo from AIG about the risk it thinks it poses the world economy. What do you think?
Barter economy on the rise?
I’m not sure, I just notice that many readers of this blog are linking here because they are interested in the keywords “barter economy” and “future.” That’s not the typical attraction – it’s usually “future trends” and “strategy” and the like.
Does this mean that people are looking for new ways to engage economically with each other? I wouldn’t blame people for not wanting to give up the fruits of peaceful, civil society simply because our financial industry started leveraging their firms 40 to 1.
I’ll trade bass playing for really nice wine, by the way.
A beautiful day in Urban America
This morning I had the pleasure of walking up the west side of Manhattan, skirting the shores of the Hudson where that plane landed not long ago.
New, beautiful shapes are springing up next to the scrap metal dealerships, the hallmarks of a society that continues the project of civilization. I am especially struck by the IAC building, one of the new children of Frank Gehry, the architect of Guggenheim fame.
It makes me think that cities are still the likely driver of economic recovery.
Urbanization is still a megatrend:
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