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Capitalism for the Long Run

"Human beings are not intrinsically selfish, which isolates us from others. We are essentially social animals who depend on others to meet our needs. We achieve happiness, prosperity and progress through social interaction. Therefore, having a kind and helpful attitude contributes to our own and others' happiness." - Dalai Lama.

Who doesn't want happiness, prosperity and progress?

Dalai Lama says this comes through social interaction. Social interaction in today's terms is described as trade, the economy and capitalism. Capitalism has been the scapegoat in the green movement. In the full food value chain, farmers are disadvantaged; the fashion industry disadvantages the tailors and manufacturing facilities in the poorer countries; many say that globalization has further widened the gap between the poor and the rich. This article is to show that capitalism can be done sustainably. Capitalism is not at fault, the current flow of money within the current capitalistic system can be changed. This is an article of hope - of positive change.

The Vision

Walk with me through following though process (please excuse me for using Martin Luther King's powerful words in following section), but I really have a dream:

I dream of a world where no one sells something that harms anyone.

I dream of a world where industries make money by providing social value.

I dream of a world where there is no such thing as “social businesses”, because all businesses provide social value. Businesses have societal benefits woven into their veins.

I dream of a world where people don’t have to chose between doing good and becoming rich.

I dream of a world where we all live with compassion to one another.

I dream of a world without “climate change, water scarcity, poverty, disease, growing inequality of income and wealth, demographic shifts, trans-border and internal migration, urbanization and a global economy in a state of constant dramatic volatility and flux, to name but a few.” (White paper: sustainable capitalism from the Generation Foundation)

Let's make this dream concrete in one industry that affects everyone - take the healthcare system. I have been working in this industry for several years. Not many are aware, how sales men and women (including me) are happy and incentivized to sell more devices, pharmaceuticals and other products. It's business. We need to be aware, that more sales means, that people are not healthy. Can we imagine a world where the healthcare industry businesses are incentivized to keep people healthy?

What if we could transform this industry? What if we could align the incentives of the industry with those of society? Imagine a world without any disease - with pure health and happiness. The economy would boost, but not the healthcare economy. So, how can we make the healthcare economy win, when people are healthy?

The answer lies in the flow of money. Money drives the economy, align the incentives: instead of paying doctors for treatments, let’s transform the current system to one where businesses / healthcare service providers are paid for keeping patients healthy. In this scenario, if a patient falls ill, a doctor will lose them as income and will be incentivized to take decisions that are sustainably good for their health, not for the short term profit boost.

It is no secret that the number of surgeries have been increasing over the years. Surgeries are a major source of income. There is enough evidence and various studies proving this observation.

Just google “unnecessary surgeries” and you will get 7 mio hits.

Now google “increase unnecessary surgeries” and you will get 55 mio hits.

Why has this happened? Because the system has set the incentives that way, being the main source of income for the healthcare industry.

In the same way we have the power to realign the incentives.

This is only healthcare, for climate change we can look at the same principle in the energy sector.

Let's take a look at the three layers of perspectives.

Sustainable capitalism for you

Have you heard of “Doux commerce” (gentle commerce)? An ideal endorsed by thinkers, including Montesquieu, Kant, Voltaire and others. The book Enlightenment by Steven Pinker explains, “exchange can make an entire society not just richer but nicer, because in an effective market it is cheaper to buy things than to steal them, and other people are more valuable to you alive than dead. As the economist Ludwig von Mises out it centuries later, ‘if the tailor goes to war against the baker, he must henceforth bake his own bread.’”

You are a driver of the economy. Your choices have impact. Your choices decide what kind of world we live in. Your choice has power. As a consumer, your purchases lead to grow businesses you chose. In goodhearted decision-making we look at making conscious choices in our purchases as well. Every shop you enter, every time you swipe your credit card, every click you do online is supporting a business - a mission.

Nobel Peace Prize Laureate, Muhammad Yunus, created a concept called "social business". Social businesses are businesses defined to:

  • Address a social problem

  • Are financially self-sufficient

  • Don't pay dividends to its owners

Muhammad Yunus said, "a charity dollar has only one life, a social business dollar can be invested over and over again."

"In the UK for instance, according to precise estimations, social enterprises employ 5% of the country's workforce (2 Mio People) and represent 3% of GDP (60 bn GBP)." (HEC Paris)

Below image shows the differences between a social business, a for-profit and a not-for-profit organization.

I kindly urge you - think about your next purchase, and what kind of companies you are supporting. Do some desk research in your country and find the social businesses you can support. Read up on their sourcing, their business processes, their mission, their intentions, before any purchase.

Sustainable capitalism for your business

The most common myth on sustainability is that it costs too much. Generation Foundation's paper on sustainable capitalism, debunks this myth proving that "Sustainable Capitalism does not represent a trade-off with profit maximization but instead actually fosters superior long-term value creation." The paper recommends 10 key actions to accelerate Sustainable Capitalism:

  1. Identify and incorporate risks from stranded assets

  2. Mandate integrated reporting

  3. End the default practice of issuing quarterly guidance

  4. Align compensation structures with long-term sustainable performance

  5. Encourage long-term investing with loyalty-driven securities

  6. Reinforce sustainability as a fiduciary issue

  7. Create advisory services for sustainable investment products

  8. Expand the range and depth of sustainable investment products

  9. Reconsider the appropriate definition for growth beyond GDP

  10. Integrate sustainability into business education at all levels

With the implementation of these actions from the paper, it will become evident, that sustainability in fact does not "involve a trade-off between profitability and improving the environment and society. Rather it can in fact improve operations and inspire innovation" (Sustainable Capitalism paper). The paper shares a study by Eccles, Ioannou and Serafeim, which "indicates that sustainable companies outperform a matched group of firms in the long term."

One aspect to emphasize from this paper, is the incentives taken from "short-termism": Point 3 and, 4 and 5 from above list are actions that counter the short-termism disease we see now. Studies have shown that in the past 20 years, the length of CEO tenure has decreased from eight to four years. With short term leadership spans, come short term goals. This is why point 4 is so crucial: aligning compensation structures with long-term sustainable performance.

This same issue lies with any leadership - the leadership of our countries as well:

Sustainable capitalism for your country

"An incentive is a bullet, a key: an often tiny object with astonishing power to change a situation." (Steven Levitt)

Incentives drive our productivity, they drive our economy. The flow of money and incentive structure within the current structure of capitalism is directly related to the problems we are facing, affecting our planet.

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love.”

Adam Smith’s economic theory finds its foundation not in ruthless selfishness, but is viewed as “history’s keenest commentator on human sympathy” (The Enlightenment, by Steven Pinker).

His quote describes human interaction and exchange that benefit both the butcher and the brewer. With the "challenges facing the planet today: climate change, water scarcity, poverty, disease, growing inequality of income and wealth, demographic shifts, trans-border and internal migration, urbanization and a global economy in a state of constant dramatic volatility and flux", governments need to understand "that there are serious and on-going fundamental market failure that threaten not only the future of our companies and investments, but also the sustainability of our planet" (Paper on Sustainable Capitalism by the Generation Foundation).

I will quote an entire section from the Paper on Sustainable Capitalism and the role of the government, as I couldn't have written it better:

"Ultimately, government is often the biggest "business" of all and therefore must lead by example. As noted in the Business Magazine for Sustainable Government: 'A sustainable society needs local and central government to lead the way by consuming differently, and by planning effectively and efficiently in order to integrate sustainable practices in the services it provides to citizens, and throughout its estates and workforce.' Governments must also strive for the same tenets of sustainability - the prudent management of financial and ESG (Environmental, Social and Governance) resources. In doing so they will create a platform on which stable and prosperous societies can grow."

Concluding on The Vision

It might seem odd to some to quote Dalai Lama in an article on capitalism, and still I find it essential:

"Human beings are not intrinsically selfish, which isolates us from others. We are essentially social animals who depend on others to meet our needs. We achieve happiness, prosperity and progress through social interaction. Therefore, having a kind and helpful attitude contributes to our own and others' happiness." - Dalai Lama.

Happiness, prosperity and progress are achieved through social interaction. And capitalism remains the superior model for social interaction. I quote the Generation Foundation's paper on Sustainable Capitalism:

"Capitalism has great strengths and is fundamentally superior to any other system for organizing economic activity. It is more efficient in allocating resources and in matching supply and demand. It is demonstrably effective in wealth creation. It is more congruent with higher levels of freedom and self-governance than any other system. It unlocks a higher fraction of the human potential with ubiquitous, organic incentives that reward hard work, ingenuity and innovation. These strengths are why it is at the foundation of every successful economy.

Yet while the present form of capitalism has proven its superiority, it is nevertheless abundantly clear that some of the ways in which it is now practiced do not incorporate sufficient regard for its impact on people and the planet - and are now posing a number of fundamental challenges that require attention.[…] These include short-termism, over-reliance on GDP growth as a primary metric of prosperity […] These challenges also include rising inequality, increasing volatility in the global financial market and growing contributions to the climate crisis perpetuated by a resistance to internalize externalities." (Generation Foundation's paper on Sustainable Capitalism).

Whether it is you, your business or your country - you have the power to make a change.

Use your power for good!


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