Nel's New Day

December 14, 2013

Protect Capitalism

The term “unfettered capitalism” has been frequently heard since Pope Francis said this practice is destroying our culture through rapidly increasing income inequality. Yet the practice of uncontrolled capitalism is highly popular with politicians whose campaigns are supported by the wealthiest, the CEOs who make hundreds of times more than their workers, and the wannabe wealthy who have this dream that they become richer because of capitalism. The other 99.9 percent of the population knows that unfettered capitalism is unsustainable.

Currently global capitalism—also called growth capitalism—is based on economic growth into perpetuity, one that consumes all possible resources. The planet on which we live, however, is finite and cannot support infinite growth. This has been obvious for several decades through climate change, increasing inequity with its extreme poverty, resource scarcity with food and water shortages, species extinctions, and the ever frequent financial crises. A high degree of dysfunction comes from the perpetual growth in consumption spurring a corresponding growth in public and private debt to fuel that consumption, roiling financial markets and sovereign finances across the globe.

At the same time, the current economic system fails to distinguish between investments that support the earth and the general welfare and those that increase income inequality, destroy the environment and earth, and damage public health. Unfettered capitalism cares only for the short-term effects and profits with no regard for long-term consequences. The mantra is “more and more stuff.” Even the country’s economic growth is based on people buying more and more things that they cannot afford. Politics is based on wealthy people and corporations buying politicians.

An alternative to unfettered capitalism is sustainable capitalism. Joe Keefe, president and CEO of Pax World Management, writes:

“Sustainable capitalism may be thought of as a market system where the quality of output replaces the quantity of output as the measure of economic well-being. Sustainable Capitalism ‘explicitly integrates environmental, social and governance (ESG) factors into strategy, the measurement of outputs, and the assessment of both risks and opportunities…. encourages us to generate financial returns in a long-term and responsible manner, and calls for internalizing negative externalities through appropriate pricing.’ (“Sustainable Capitalism,” Generation Investment Management LLP, 2012, p. 2).

“Essentially, business corporations and markets alter their focus from maximizing short-term profit to maximizing long-term value, and long-term value expressly includes the societal benefits associated with or derived from economic activity. The connections between economic output and ecological/societal health are no longer obscured but are expressly linked.”

During the 1960s, environmental and social justice movements addressed the problems of unfettered capitalism. Slowly some of the worst pollution was cleaned up, and the civil rights movement began integrating racial minorities into the mainstream. Without regulations, industrial economies would have continued to degrade the earth. The costs in protecting the environment and enfranchising people were rejected in the early 1980s, and the country has been in denial about its reversal for the past three decades. Today’s economic chaos began 30 years ago.

The bursting of the bubble in the late 1900s led to Wall Street’s unethical financial house of cards in the 2000s, when people still ignored reality. Irresponsible borrowing and spending led to the economy’s collapse, and the lack of renewable energy sources development contributed to the global climate change caused by fossil fuel reliance. The income inequality is now the worst in a century. Even former Fed Reserve chair, Alan Greenspan, said that the income gap may  “threaten the stability of democratic capitalism itself.” A democracy based on exploitation is not sustainable.

As John Ikerd wrote:

“Capitalism was conceived during a time when the resources of nature seemed inexhaustible and society seemed invincible. We know now that both are finite and limited in their capacity to generate economic value. A sustainable economy must renew and regenerate as least as much as it extracts and exploits. We ultimately must confront the disquieting reality that an unbridled capitalist economy is not sustainable.”

“Spreading the wealth” is not to punish the wealthy but to keep society productive and stable. The wealthy depend on such a society.

The basis of sustainable capitalism requires a shift in thinking. As Albert Einstein said, “We cannot solve our problems with the same thinking we used when we created them.” Economic development in the last two centuries has depended on a mechanistic view with humans the cogs in a machine. A continuation of our society depends on the concept that humans are interconnected with the world as a natural living ecosystem.

Even the writers of the constitution understood the importance of people working together for the benefit of all when they wrote “promote the general Welfare.” Classical economists understood an economy must function within the social and ethical bounds of an equitable and just society. If people lack sufficient food, housing, health care, education, and a healthy environment, they cannot contribute to a healthy society.

With sustainable capitalism, competitive markets guide the use of natural and human resources in the pursuit of individual self interests without diminishing the well-being of society or humanity. If this is not achieved, a society will lose all capitalism. With no regulations, capitalism lacks ethics and morality, becoming self-destructive.

Instead of the goal of maximum linear growth in GDP, sustainable capitalism considers the maximum wellbeing for minimal planetary input. Businesses are challenged to go beyond efficiency gains and redesign their business models. For example, businesses might move from selling products to leasing them.

Joe Keefe wrote that “that the greatest impediment to sustainable development across the globe is gender inequality. Advancing and empowering women and girls is not only a moral imperative but can unleash enormous potential that is now locked up in our patriarchal global economy.” For that reason, Pax World has developed the Global Women’s Equality Fund that supports the belief that gender equality needs to be a pillar of Sustainable Capitalism.

Another way to support sustainable capitalism is the public funding of federal elections. As long as lawmakers are held prisoners by the interests that they were elected to regulate, they will continue to support the wealthy. Third, asset management firms like Pax World, with $2.5 billion in assets, need to craft persuasive messages, launch new products, form new partnerships, and fashion distribution strategies and alliances to raise the industry.

The problem with a shift to sustainable capitalism is that businesses get caught in the rut of temporary success without thinking about their impacts. New developments are looked upon with suspicion. One company, Kingfisher/B&Q, began considering the sources of wood in its garden furniture during the 1980s and then moved on to peat-free compost, cleaner paint, and helping customers “ecovate” their homes. That led to partnerships with other corporations believing in sustainable capitalism.

In Maryvale, Conscious Venture Lab is searching for companies practicing sustainable—or responsible—capitalism, businesses with aims that include but aren’t limited to profits. Howard County funded the group with $750,000 for two years, one of many efforts to “prod corporations to do good while doing well.”

Unilever CEO Paul Polman, a top sustainable company among the multinationals, said one result of gridlocked governments is that “the need for change increasingly has to come from responsible business.” Companies that stop focusing on short-term profits to the exclusion of all else actually make more money.

A recent study by business professors from Harvard University and the London Business School concluded that “high sustainability” companies “significantly outperform their counterparts over the long-term.” Authors wrote:

“A more engaged workforce, a more secure license to operate, a more loyal and satisfied customer base, better relationships with stakeholders, greater transparency, a more collaborative community, and a better ability to innovate may all be contributing factors to this potentially persistent superior performance.”

In 2010, Maryland became the first state in the country to allow companies to form as “benefit corporations,” protected from lawsuits over decisions that put workers, customers or similar interests before profits. Much of the country has followed Maryland’s suit, either passing or considering such legislation.

It’s a start.


1 Comment »

  1. Sounds like a good shift to make. Unfettered capitalism also requires the rest of us to be in non-stop consumer mode, endlessly trying to consume more and more things we don’t really need. It’s a system based on insanity.


    Comment by eurobrat — December 15, 2013 @ 1:16 PM | Reply

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