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Wednesday, 08 November, 2017

Capitalism isn't our problem.

Summary : We think we follow a Capitalist ideology and therefore the problems we face today are of Capitalism’s making. That's the fundamental mistake we make - we assume we are Capitalists when we are not. We are something far more sinister. We are no more than Profiteers masquerading as Capitalists.

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When is a ideology like Capitalism no longer relevant?
When it doesn’t serves the needs and aspirations of its constituents, or stakeholders.

Capitalism must be fast approaching that point because we have numerous organisations, movements and thought leaders around the world calling for change. There are even organisations calling to oust it completely. Books are being written on “Post Capitalism.” These voices are becoming louder and more vociferous by the day, and their numbers are swelling rapidly.

Clearly, we have a problem. As the old adage goes, “no smoke without fire.” We don’t have to look too far for simple indicators to see the calls for change are valid, and that our systems are not serving their constituents well. We don’t have to get super analytical either to see this. Two simple indicators tell us all we need to know.

The first indicator is the rich/poor divide which has developed into a chasm and widening faster than ever before. It tells us that our systems are not working for the average person, but rather the rich. It also tells us that our economies are under-performing, as a strong middle class is indicative of a strong economy, not a polarised economy where excessive wealth is held by the rich. As the average person is not benefiting from economic growth and in many instances facing real income decline and with government spending reduced through under performing economic growth, the impact on the less well off becomes more prevalent. This means the well-being of the average person is in retreat. They aren’t being served by our systems. This could lead to social unrest. We have already witnessed the start of it. Further deterioration in the situation will see an increase in unrest, until changes are made, one way or another.

The second indicator is the deteriorating environmental situation, across many fronts, not just global warming. Resources are extracted at any cost to drive an economy which only benefits a few. It’s clear to many, our planet cannot sustain the level of increasing demand placed on it. Change has to be made.

So, these two simple indicators, of which we are all acutely aware, tell us, in no uncertain terms, that our systems aren’t working for us and are, in fact, hurting us socially, environmentally and economically.

TIME FOR CHANGE!
We all agree.
But ,what are we to change?

Capitalism of course! It’s a system we’ve been following for years, so it must be the root cause of our problems. But is this true? Is Capitalism at the heart of our problems, or is there perhaps something we have overlooked?

Capitalism is about free enterprise and the need for business to create a profit. It’s certainly not unreasonable for business to generate a profit, otherwise it won’t survive and grow, and we need businesses to survive and hopefully grow over the long-term as it’s an essential part of a thriving community. Free enterprise also holds merit for the majority of us, so how are these two fundamental principles now so destructive and working against the majority of us?

The simple truth is they aren’t. So, if the principles of Capitalism aren’t to blame for our problems, then clearly we aren’t Capitalists. But, if we aren’t Capitalists, what are we and what’s causing these problems?

The reality is, business is focused on short-term profit creation for the exclusive benefit of shareholders, at the exclusion of all others. This profit obsession, for the benefit of a few, lies at the heart of our problems. It is our inadequate and inappropriate business measures which focus us on, and drives our short-term profit obsession for the benefit of shareholders at the expense of all others. Remember, its measures which have the greatest impact on outcomes, not ideologies, such as Capitalism.

Consider the following reality check, which puts the cause of our problems beyond any doubt.

  • We use financial measures as a business measure, yet financial considerations effect less than 20% of the value creation potential of business. Therefore, it should be obvious to all - financial measures as a business measure are entirely inadequate and inappropriate.
  • However, despite this, we persist in using it as a business measure because, it’s our only comparable measure, and comparison is essential to our economy
  • This leads to the biggest problem of all - it forces businesses into compromising non-financial measures to ensure they achieve strong financials
  • This creates an imbalanced system where global resources are used for the benefit of a few, at the expense of the many. By definition, this makes it a profiteering system, as our measurement standard unfairly favours shareholder interests over all others in the generation of profit. We are not capitalists but profiteers.
  • This profiteering approach of serving only shareholder interests has made it the single biggest root cause of our most serious social, environmental, economic and business problems
  • It’s an approach which serves nobodies long-term interests. This is because an imbalanced system cannot perform effectively or efficiently
  • As measures dictate outcomes, we need a new measurement standard which will ensure a balanced approach in serving the needs of all constituents, thereby placing business on the path of normality. Little or no change comes about through philosophical ideas alone - we need new measures.

Let’s be very clear on how we define a profiteer and why we meet that definition, so that we are in no doubt that our inadequate and inappropriate business measures have turned us into Profiteers. I know many will find the term “profiteering” hard to equate to their business, but the reality is if they use a measurement standard which favours one constituent over all others, for the purpose of maximising profit, that by definition, makes it a profiteering system, whether they like it or not. Normally, we understand profiteering to involve an external event where business profits from external entities (i.e. other businesses, government, etc.) but the profiteering we practice is more insidious as it’s an internal form of profiteering. We profit by excluding stakeholders (our partners in business) from their just reward, and it’s all because of our inadequate and inappropriate business measures.

Unless we introduce a new business measurement standard which serves the needs of all stakeholders, we remain Profiteers. Profiteering may benefit a few over the short-term, but it hurts us all over the long-term.

Adrian Mark Dore

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Posted by Adrian Mark Dore at 2:10 PM
Edited on: Sunday, 19 November, 2017 2:10 PM
Categories: Broader issues affecting the need for change.