Young man Utopia – Free market proponent – Its not all well in paradise – Make the pie bigger – The left will cheer for you dear capitalistic venture
Young man Utopia
Capitalism gets a bad rep. As a young man, a student, armed with hope and zeal, and the righteous intention that all humans are equal, it is easy to be swayed by socialism. One does not have the nuance and logical maturity to understand second order consequences. My soil of birth being Kerala reinforces the socialistic ideals, God’s Own Country, the last bastion in India, still fighting for the rights of labourers, nature et al.
Free market proponent
The real-world then comes crashing down on you. The understanding of how the world ticks and the recognition of the concept of fairness, hard work, experience, intellect, drive, timing, desire and luck changes all that.
Do a Master’s in Business from an American University and the free-market theory gets relevance if not reverence. The rebel that I was, it was easy to see why the movie “Fight Club” had such a hold on me. I did a project presentation in marketing that was kicked off by the visuals of Brad Pitt speaking, “Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need”, followed by, “We’re consumers. We’re the by-products of a lifestyle obsession. Murder, crime, poverty, these things don’t concern me. What concerns me are celebrity magazines, television with 500 channels, some guy’s name on my underwear.” As a marketer, as product person, you try to decipher the motivations behind actions, and the reason why there exists as many SKUs as humans if not more, you get it, just.
Its not all well in paradise
One can’t shake off the feeling that there is still something broken, and the solution is not a feeble flavour of socialism (not in the way Americans use it anyways – because any social insurance system is seen as a threat to private property if forced down).
And as a former reader of HBR, when I came upon an article (15 years ago), I knew something fundamentally shifted for me and my view of capitalism. Michael Porter (of Porter’s 5 Laws) and Mark Kramer’s article “Creating Shared Value”, created a seismic shift in how I viewed capitalism. Here was the fix, finally. I bookmarked the article. When one lives in Europe it is very easy to meet many young people that believe all evil comes from capitalism, and this article became my go to attachment for all the emails I send to change these minds. I caught myself repeatedly tell, “You are smart, smarter than me, go build something.”
Make the pie bigger
So what does the Porter and Kramer say in the article? They state that if we were to shift our focus away from just maximizing value for the shareholders to instead focusing on the maximizing value for all stakeholders (these would include – society, Government, people) we would settle on a paradigm shift away from short term thinking, environmental abuse and erosion of trust from society. Governments push back with increased laws, intervention and bureaucracy that then kills the business eco system which in turns harms businesses and society.
There is a fundamental shift that many people don’t grasp at first go. I believe this is also a problem with capitalism. Profit capture in pure monetary or dollar terms is seen as value capture. I understand that at the end of the day value must be measured in some universally accepted monetary language. But let it not just be the Revenue – COGS – Operations Cost. Value when seen as more than that and when taking a long-term view can compound into capitalism that can book actual higher profits while also being a great social and prized enterprise.
They state, “Societal needs, not just conventional economic needs, define markets, and social harms can create internal costs for firms”. CSR is different from CSV (creating shared value) and a paradoxical impact of carbon tax – you can harm the environment as long as you pay for it. My personal view is that if you viewed it from a CSV lens, the onus on plastic companies to find a solution for “what happens to plastic when disposed” will become such an elevated priority that they themselves would fund all the research on some exciting directions that science is taking. Imagine if a researcher did not have to get a fellowship funding but could exponentiate the speed of research and solution finding backed by private enterprises.
Every enterprise then becomes the best vehicle for growth. All economies eventually will gravitate towards it. And the value-capture for all stakeholders would be justifiable for building more enterprises. Investor, human, environmental, intellectual & government capital, will all move in an upward graph. While I do understand that ideas are abstract and that there will always be problems when you get to the heart of it, the article clearly describes a lot of good examples.
While capitalistic principles also state that Governments should have minimum intervention, I do believe that it is indeed crucial. A complete libertarian social set up, if through feedback loops results in duopolies, monopolies would lead to an oligarchy with a huge concentration of power (which we can see as I believe Yanis Varoufakis mentions in techno-feudalism where all powers seem to be resting with Silicon Valley). I see this minimal interventionism though to be of a completely different nature. Isabella Weber, though have caused uproar among economists, her take on seller inflation (inflation created even though there is no increase in demand) is a great policy advice, but we will have to find innovative ways to implement it.
The left will cheer for you dear capitalistic venture
So, if we can bake these principles into pitch decks and business plans and government bills and laws and financial models and board rooms and dashboards and analysis, we will not only have the right cheering for us but also the left. Remember the problem is not multimillion-dollar yachts; the problem is that when a very tiny minority is sucking caviar spread on blinis and a vast majority is standing in queue for deep fried value meal or adulterated rice rations. The rich, the risk takers, the value capturers can have their caviar spread out on the Mediterranean in a jacuzzi if the rest can at least get heat and get some Levantine kebabs on a grill.