Monday, November 24, 2014

The Capitalist Threat to Capitalism

LONDON – Winston Churchill famously observed that democracy is the worst form of government – apart from all the others that have been tried. Were he alive today, he might think the same of capitalism as a vehicle for economic and social progress.

Capitalism has guided the world economy to unprecedented prosperity. Yet it has also proved dysfunctional in important ways. It often encourages shortsightedness, contributes to wide disparities between the rich and the poor, and tolerates the reckless treatment of environmental capital.

If these costs cannot be controlled, support for capitalism may disappear – and with it, humanity’s best hope for economic growth and prosperity. It is therefore time to consider new models for capitalism that are emerging around the world – specifically, conscious capitalism, moral capitalism, and inclusive capitalism.

Such efforts at redefining capitalism recognize that business must look beyond profit and loss to maintain public support for a market economy. All of them share the assumption that companies must be mindful of their role in society and work to ensure that the benefits of growth are broadly shared and do not impose unacceptable environmental and social costs.

As it stands, despite recent emerging-market growth, the world economy is a place of staggering extremes. The 1.2 billion poorest people on the planet account for just 1% of global consumption, while the billion richest are responsible for 72%. According to a recent study, the 85 richest people in the world have accumulated the same wealth as the bottom 3.5 billion. One in eight people go to bed hungry every night, while 1.4 billion adults are overweight.

Any system that generates such excesses and excludes so many faces a risk of public rejection. Troublingly, capitalism’s negative side effects are intensifying while confidence in public institutions has fallen to an historic low. According to the latest Edelman Trust Barometer, less than half of the global population trusts government. Business fares better but not much. Scandals – from conspiracies to fix key financial rates to the discovery of horsemeat in the food supply – undermine people’s faith in business as an agent of the greater good.

Disillusioned with both state and market, people increasingly ask whether capitalism, as we practice it, is worth the costs. We see this in movements such as Earth Day and Occupy Wall Street. In many parts of the world – from the Arab Spring countries to Brazil, Turkey, Venezuela, and Ukraine, frustrated publics are taking to the streets.

Addressing the failures of modern capitalism will require strong leadership and extensive cooperation between businesses, governments, and NGOs. To begin creating a path forward, we are convening key global leaders in London on May 27 for a conference on inclusive capitalism. Top executives from institutions representing more than $30 trillion in investable assets – one-third of the world’s total – will be in attendance. Their aim will be to establish tangible steps that firms can take to begin changing the way business is done – and rebuilding public confidence in capitalism.

Such an effort can bear fruit, as Unilever’s own actions demonstrate. Since abandoning guidance and quarterly profit reporting, the company has worked hard to prioritize long-term thinking. It has adopted plans to boost the company’s growth while reducing its environmental footprint and increasing its positive societal impact.

Many of its brands now have social missions – for example, Dove products are marketed with an accompanying women’s self-esteem campaign, and Lifebuoy soap targets communicable diseases through its global hand-washing programs. Not surprisingly perhaps, these are among the company’s fastest-growing brands.

Yet there is a limit to what any one company can achieve. Transformational change will come only from businesses and others acting together. Again, we are hopeful, because momentum is building. Coalitions are being formed to tackle issues ranging from illegal deforestation to food security. Bodies like the World Business Council for Sustainable Development and the global Consumer Goods Forum are uniting key industry players and putting pressure on governments to join forces in the search for sustainable capitalism.

As the cost of inaction rises, governments and businesses must continue to respond. None of us can thrive in a world where one billion people go to bed hungry each night and 2.3 billion lack access to basic sanitation. Nor can business thrive where public optimism about the future and trust in institutions are at historic lows.

We have a long way to go, but we believe the necessary transformation is beginning. A growing body of evidence suggests that new business models can deliver responsible growth. The Conference on Inclusive Capitalism represents another step forward. Though our work has only just started, we are convinced that within a generation we can redefine capitalism and build a sustainable and equitable global economy.

We have no time to lose. As Mahatma Gandhi once put it: “The future depends on what you do today.”

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    1. CommentedPoor Richard

      I have nothing against capitalism (the private ownership of property is the core of capitalism) as long as private ownership is properly regulated in the public interest. But the famous "invisible hand" is not at all adequate to that task.

      Capitalism should stop being evil. It should be green, renewable, sustainable, and just. Capitalism should be a good citizen. It should stop being a bully and a reckless slob. It should pay fair taxes. It should adopt some ethics. It should act in good faith (bona fides). Markets should be fair (level) first, free second. It should be positive sum rather than zero sum. Rich criminals should be punished even more severely than poor criminals.

    2. CommentedPoor Richard

      What should capitalism do?

      I have nothing against the private ownership of property which is the core of capitalism as long as private ownership is properly regulated in the public interest. But the famous "invisible hand" is not at all adequate to that task.

      Capitalism should stop being evil. It should be green, renewable, sustainable, and just. Capitalism should be a good citizen. It should stop being a bully and a reckless slob. It should pay fair taxes. It should adopt some ethics. It should act in good faith (bona fides). Markets should be fair (level) first, free second. It should be positive sum rather than zero sum. Rich criminals should be punished even more severely than poor criminals.

    3. CommentedDouglas Costello

      Why should we be surprised by the point that less than 50% of the people trusts their governments. All seem to have fallen to the sway of trying to retain power at all costs which is usually a significant economic impact to the public, the economy and future economic growth.

      Politicians create more linguistic moves than an aerial skier or ice skating in an Olympic Final.

    4. CommentedRobert REYNOLDS

      The headline “The Capitalist Threat to Capitalism” sounds like a mild reinterpretation of Karl Marx’s warning that “Capitalism contains the seeds of its own destruction”. As a democratic socialist myself, I always find it difficult to understand why the more liberal supporters of the capitalist system wring their hands in despair when their favored system delivers the dysfunctional outcomes and shortsightedness described in this article. Such lamentations are reminiscent of the brothel owner who complains that the staff are having sex with the customers.

      Even the capitalists in their frenzied clamor for profits seem unable to comprehend that they are like the parasite which will eventually kill its host. Anyone who has studied biology will appreciate that in general, the most successful parasites are the ones that exploit the host without killing it. But this is not a new phenomenon. As Marx also indicated, the capitalist who was scheduled to be hung in the morning, would sell the hangman the rope in the evening if there was a profit to be made.

      One of the most disturbing claims made in this article is that, “less than half of the global population trusts government”. For governments not elected by universal adult suffrage this comes as no surprise but when people elect their representatives and then express no trust in them then what does this say about the behavior and rationality of the voters?

      One final observation. I hope that Lynn is successful in her endeavors to create a more “inclusive capitalism” because, if these endeavors, whether they are instigated by her or others, are not successful, then I feel that we are in for some unpleasant times in the future. It seemed to me that we actually did have a comparatively more inclusive form of capitalism in the west, at least for some of the years after World War 2. Margaret Thatcher, Ronald Reagan and the Ayn Rand proponents changed that in the 1980’s and the trend to a more exclusive form of capitalism continues apace, championed by the likes of Rupert Murdoch.

    5. CommentedDavid Beard

      I have not seen if Piketty has lived by his own creed and donated his excess wealth, generated by book sales, to the State coffers...Anyone know or would Mr Piketty care to respond?

    6. CommentedNathan Weatherdon

      Why not have a backstop built into tax policy so that inequality can't get too high.

      For example, a maximum Gini of 0.4. Then, if rich people want to get richer, they have to figure out how to motivate (or otherwise help) poor people to access opportunities which will make them more money.

      Then, there will be a concentrated class interest on the part of the rich to ensure sustained income growth among the poor.

    7. CommentedTom Shillock

      "None of us can thrive in a world where one billion people go to bed hungry each night and 2.3 billion lack access to basic sanitation. Nor can business thrive where public optimism about the future and trust in institutions are at historic lows."

      But that is what has happened and continues to. There is a gap between short term interests of the rich and their politicians trump long term interests. Inequality will grow unless the majority can make it too expensive for the rich and powerful to continue with their policies and institutions, or unless the policies and institutions break down in some manner, say, because of pollution / global warming or the costs of raw materials of various sorts exceed their monetary value.

      As Hume noted, the intellect is at the service of the passions. One can add the banal point that short term passions trump long term passions and rationality.

        CommentedNathan Weatherdon

        I think a "get opportunity knocking in the ghettos" rather than a "bring down the rich man" campaign would be more likely to attract broad appeal, but I feel what you're saying.

    8. Commentedde Lafayette

      I've often thought that it is not capitalism per se that is disappointing, but the manner in which it has been employed. And, given the present controversy stimulated by Thomas Piketty's book, how it has been ill-distributed causing both Income and Wealth Disparity.

      I attribute mankind's mismanagement of capital to a lack of Social Justice in much of the world, with perhaps the EU being the one entity to have wanted to install it into a Social Democracy.

      Income Disparity, let's face a given truth, is due to a lack of progressive taxation. If anyone should doubt this, just look at the history of income obtained by America's top 10Percenters here: .

      Note in 1980 the inflexion upwards of their share of Total Income in the US. Who was elected PotUS that year and proceeded to reduce upper-income tax levels (once around 90% prior to 1960) to the the 30% range of today?

      Our present income disparity in the US is a result of that era in American history. Any economy must reward initiative, risk and entrepreneurship. We know that very well.

      But at what cost is the question we have not yet answered adequately. Glaring Income Disparity is to high a price to pay, since it has a direct impact upon societal well-being.

    9. CommentedNik N

      This sounds a lot like a PR article. I doubt Unilever is much different than most other for-profits in this respect. Some of their activities noted here don't really make me think that they practice inclusive capitalism, especially outside the west:

      Section 8 on environmental pollution is especially worth a read. Is Unilever only for the betterment of the poor in the west ?

    10. CommentedGerry Hofman

      Anybody who believe the solution to the damage caused by capitalism is more and better targeted capitalism, is like someone who believes that communism could have been be saved by better control of the population. Believing that such a close cooperation between companies, corporations and governments will lead to social justice and save the world from environmental destruction, is believing in a fairy tale.
      It is also debatable if capitalism has made our lives so much richer or if it has simply filled them with endless volumes of fashionable junk. The relentless stream of targeted advertising combined with the designed redundancy of goods means that the poorest half of the planet must be compelled to work in near slave-like labor camps to manufacture the endless stream of consumer goods that makes the developed world feel so much richer. But of course corporations will also target the poor since they now have a dollar to spend, getting in early now could manage sending them down the same road of mindless consumerism and thus keep economic growth positive, thereby saving their business.
      In a world reaching nine to ten billion people, where the next wave of automization will destroy work opportunities in east and west, with a wealth versus poverty gap not seen since the renaissance, business as usual is a recipe for total disaster, leading to dramatic social adjustment that will tear western culture apart. The way forward for capitalism is to dismantle itself. There must come a strict regulation of the stock markets and limits on the products they market. There must be a limit to wealth, as there should be a limit to poverty. Products should be designed to achieve the highest level of use and durability. The advertising industry, complete with its teams of psychologists and public relation marketing agents, must be taken to the back of the station and shot dead. There must come a guaranteed basic wage in the west, and developing nations must follow in that path, as a large loss of employment due to technological advances will devastate them. There must come a global conversation on the management of waste and resources. Only along this path or similar can we a way forward to the latter half of the century without the whole framework collapsing upon us.

        CommentedEdward Ponderer

        What Winston Churchill did say was that the vice of Capitalism was the unequal distribution of blessing--the plan being, the rich get richer, and the poor do better. A tiny minority get much richer and the vast majority get poorer is a complete betrayal of the general populous--it means that the best interests of the majority have been substituted for by the best interest of an oligarchy. Simply put, egoism isn't a "good boy" that doesn't realize what it is doing--whether that ego come as the Communist party, or the "free enterprise" elite. It is pure selfishness and greed that requires not only wealth, but the differential in wealth (it needs a lot of poor people) to feel good. It uses media, buys politicians, armies of lawyers, manipulates between automation and false promises not legally backed to direct work to near slave labor, utilizes the cheapest, most unhealthy substitutes to further increase profit margins, etc. The discussion at present is a common-sense self-preservation that seeks to hone in minimizing risk to the system into the total profit-maximizing picture--greed's longevity course-correction.

        Ego is any group that gets into power in any system. The only way to fix this is by a good general education in the significance of global integration -- that we are all ultimately in the same boat -- and a media environment promoting values emphasizing mutual responsibility. we must not make simplistic theories about ego anymore--that a gun will control it, or that the right system will mathematically make it help everyone like some cybernetic Pavlov's dog. There has been enough damage in the 20th and 21st centuries to understand how foolish any approach to the ego will be--say the direct one.

        CommentedGerry Hofman

        It often strikes me how at nearly every turn of events in history, people could have chosen to either do the right thing, or something entirely else. And that 'something else' seems to have been the conclusion time and again. But then it's debatable if we are even at freedom to make such a 'right' choice, as every action is determined by the result of previous actions. If we are able to freely choose 'good' then it doesn't show very often.
        But I agree with you that in the end, change for the positive can only come about by an accumulation of positive decisions of many individuals, and in an age of global awareness many elect to make their decisions for the good of all. We can only hope that the positive will find a way to dominate general thinking, as the numbers seem to suggest that we either evolve into something better or drive ourselves, and everything with it, to destruction.

        CommentedZsolt Hermann

        I tend to agree with most of what you have said.
        I would even say something else.
        If we knew what the root problem is, and we corrected that root problem before, even communism or free market capitalism, or any other structure, governance would have succeeded in giving us a sustainable human society.
        The only problem we have to single out and then adjust/overcome is our own human nature.
        We are born inherently self-serving, egocentric, all seven billion of us.
        Of course all of us a different strength of desire, "heroism" to sacrifice, stubbornness to go towards a self important goal, so according to the strength, rawness of the selfish desire humanity renders alongside a pyramid.
        Thus it does not matter what the starting point is, sooner or later a new pyramid is formed and those at the top would keep distorting even the most democratic, free ideals, laws until they secure their place permanently at the top.
        The whole human history is about running around in circles, building the human civilization anew only to run into a dead end later, when the intolerable state causes an explosion, revolution, war and when the dust settles a new rebuilding starts.
        But we have to be cautious, the last such explosion caused two World Wars, unprecedented suffering, the birth of WMD's, thus if we "sleepwalk" into the next "intolerable state" requiring an explosion to solve it, we might wipe out ourselves completely.
        It is time we behave truly as "humans", rising above our inherent nature, becoming fully aware and conscious instead of simply following our basic instincts and desires.
        This concerns all of us, including 1% or 99%, in a global integral world nobody can escape, succeed alone, pull away, hide, we are all sitting on the same sinking boat.