Capitalism is broken – and there’s gotta be a better way!

Adam Smith created capitalism to serve society. It did and has done that for around 150 years or so, but it has come into question the past couple of decades. Is capitalism the economic model we should carry forward, 10 years from the global crisis, or is it time for a change?

Capitalism is no longer working for the masses, the distribution of wealth is not attuned with what should be expected in a modern economy – the sharing economy will soon sweep the world, yet we have not even got close to even distribution of wealth. Capitalism has created empty streets of luxury properties in London, because the owners use them a week per year, and yet poverty just down the road. Is this what is right and just?

• Wealth gap is increasing
• The world’s richest own more than their share
• People in the western world are reliant on food banks when working a 37 hr week!
• Businesses pollute the environment daily with little repercussion - with the President of United States stating that global warming isn't real
• More and more waste is going to landfill with the growth of consumerism and the ‘throw away economy’
• The system was supposed to serve society, now the society it was supposed to serve has lost faith in it.
• There is an upsurge in the right-wing (Trump/Brexit/Le Pen)
• Calls for socialism to assist in the division of wealth and funding
• Privatisation has strained organisations, leaving the very people capitalism was supposed to serve without consistent, reliable services
• Southern Rail
• Thames water
• BT
• Is the NHS going to be next???

Regular capitalism worked in the industrial revolution, small companies ran from sheds and houses, most without with few employees. The aim of these was simple: earn profit. These companies were as simple as the American economist Milton Friedman famously said:

“There is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”  - Milton Friedman

Modern companies aren't so simple, companies like VW’s shares tank when a trust issue arises, where the customer has not been getting the best deal, or the deal they thought they were getting. Yes, this may be because of the expected losses due to lawsuits etc., but company bosses are expected to offer much more to their stakeholders in modern times.

The global economic system is very volatile. Due to trade wars, uncertainty and sanctions, think of USA/China, Brexit and Iran/Russia. This is because of import duties, protectionism and long planned treaties being thrown by the wayside.

What Can Be Implemented Instead?

Umair Haque has been looking towards an alternative-capitalism, where the system and society are both pulling in the same direction. In his book, the new capitalist manifesto, he described a new system that creates ‘thick’ value for customers rather than the ‘thin’ value currently being churned out by modern day companies.

But what does this ‘thick’ value mean?

Imagine you go to buy a plastic bottle of fizzy drink. It costs you £1.50 and you get the experience a cool refreshing drink on a hot day – right? No.

The ‘drink’ costs you £1.50; the bottle is thrown in the bin – and that goes to landfill, costing you, or your children, or your children’s children the environment and the bill to clean it up. There’s the pollution from the transportation that needs rectifying, the increased healthcare over the duration of your life – what is the contribution of that bottle of drink on the filling you had last week? Still sound like £1.50 for a drink - more like £15!

Companies are required to offer more to customers, if they are to become successful in the modern world.

The cornerstones that Haque says companies need to achieve to become constructive are:

Six Cornerstones of Constructive Capitalism

1.            from value chains to value cycles

2.            from value propositions to value conversations

3.            from strategy to philosophy

4.            from protecting a marketplace to completing a marketplace

5.            from goods to betters

6.            from dumb growth to smart growth

The companies that he picks out as insurgents (those who are ushering in the new methods) and incumbents (those who are sticking to the current model) are:

Insurgents	Incumbents
Apple	Sony
Google	Yahoo!
Tata	GM
Nintendo	Sega
Threadless	The Gap
Lego	Mattel
Interface	Dixie
Unilever	Kraft
Nike	Adidas
Whole Foods	Safeway
Walmart	Target
Starbuck	Citigroup
Wikimedia	McDonald’s
Grameen	Vodafone, HSBC

Value cycles not value chains

This mainly involves what happens to products when their usable life is up. The story of a value chain is simple. Raw material -> add value -> sold to customer -> useful life -> thrown away. Most companies now are doing a full life cycle analysis on their products, filtering out as much as they can, leaving in what they can’t.

Value cycles on the other hand are a completely different animal. Rolls Royce apply a power per hour method on their aerospace engines. An airline don’t need an engine, they need an aircraft carrying passenger. They don't really care if this is done by an engine or reindeer, actually the reindeer may be more cost effective. RR take the engines once they have seen their usable life and reuse the parts to build reconditioned engines, saving a lot of parts from landfill or being melted down to make an identical part. If you offered an airline a second hand engine, they would more than likely say no; offer them power and they don't care so much where it comes from.

Another great example of this is the Swedish wood market. Some of the best paper and pulp comes from Sweden, where there is a law regarding sustainability. For every tree a company farms in Sweden, they must plant another - common sense right? No. In South America, deforestation is a big deal! So, the Swedes lose out on contracts due to the price of all the new trees they are planting? Wrong again, they do not see it as an issue, the regulation has been there since 1902 and they have always had to work around it. There is also a greater quality and efficiency that comes with need. Just shows what a bit of legislation can do - personally, within reason, more of this is required. 

Value propositions to value conversations

The example that is used in the book is the story of Threadless apparel. I had never heard of Threadless, but they offer people the opportunity to vote on t-shirt designs, those that get voted for are produced. Those that don't, don’t. Simple.

Walkers had a nationwide campaign in the UK. Pick our next flavour of crisp. This is second only to tea in the UK and was a massive success. People in their thousands voted for the next Walker’s success story, with some quite crazy offerings - Cajun squirrel was a finalist. Imagine what was rejected…

This kind of conversation allows the people to choose the products that are produced, not just vote with their feet and money. The Mini factory in Oxford offers a range of choices for various sections of their cars. Different paint, trim, engines etc. The Automotive industry as a whole is getting  a lot better at this, but is still berated and beaten down by modern business works as being old-fashioned.

Smart Growth not dumb growth

This is basically what my rant above what about. Companies grow to crazy sizes, such as amazon and apple (that appear on the insurgents), without the people at that company or within that society getting a similar advantage.

Companies like Starbucks have committed to fair trade coffee. Meaning that all of the coffee growers get a ‘fair’ pay for the work that they do. Other companies also take this approach, sourcing not from the cheapest, but the best places.

This, to me, as you may know, is crazy. The fact that we are pointing out that a company uses ‘fair’ trade as a reason for additional respect proves the state we're in.

Haque does explain that ‘none of the insurgents are perfect by any means,’ but i think it does go a little further than that.

Is any company truly constructive?

Both apple and google pay next to nothing tax when compared to their turnover. Yes, it should be about profit, and companies should invest. Surely common sense should prevail and say that more should be contributed by these *currently* trillion dollar companies.

Nike practises have been in question for a long time, some may say that this is a PR stunt to show that the company is progressing. (This, especially for Americans, depends on which side of the Kaepernick sized fence you sit)

Tata were hailed for their small affordable car that gives transport to the poorest people in the world. This was probably made from the steel that has had its quality certification falsified.

Apple (among others at the Foxxcon Factory) have been accused of bad workplace practises in their Chinese factories, with some describing them as sweatshops. There is also a high rate of suicide at the living quarters of these factories. Apple have said they are looking at this - and Trump’s trade talks may push more to the US, but there is clearly more work to be done.

On the other side of this is Microsoft, they were left in the incumbents because of them trying to push competition out of the office software market. There is another side to MS though:

The Bill and Melinda foundation has given away money that was made from MS. Including a payment of $4.6bn in the form of 64m MS shares - Bill is literally giving away parts of his company for the good of humanity.

MS matches any payment an employee makes to a registered charity. This has generated $156m to charities since its inception.

They have initiatives such as the ‘hack for good’ community. Which has targeted sex traffickers and helped to transform the foster care system.

I am not disagreeing with Umair here, I am saying that we are so so far from a capitalism that works for everybody. The opposing view of this is that at least some companies are pushing in this direction!

Finishing Up

My main point here is this. Umair has come up with a fantastic idea for a modern capitalism - and companies already seem to be using his principles. There needs to be more though. We are a long long away from the ‘Quaker’ model of business around the world. Companies like Cadbury’s and their Bournville village were ahead of their time in my opinion.

Will there be an upsurge to this kind of thinking among modern business. I think there may need to be a change in legislation and regulation to be a catalyst for constructive capitalism. The Swedish government seem to be ahead of its time with their tree replenishment laws. I don’t think we will ever see the day where nations say “right, from today we are now operating constructive capitalism!” I think it will be more organic and natural than that; an evolution from capitalism. If more people can have their heads turned by this new-capitalism, maybe it can be debated on a global level.

You can buy the book from Amazon from this link


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