There are a lot of anti-capitalist groups around the world - and for good reasons. There are also a few prominent pro-capitalist groups, claiming they want to make capitalism “more inclusive” or “conscious.” But, are they making any progress in reforming capitalism, or are they just part of the plan to mislead us? Are they helping or delaying our progress towards a more equitable economy?
Milton Friedman can arguably be classified as one of capitalist’s supremos. He proposed “Shareholder Theory”, which states the primary purpose of business is to serve shareholder interests. This became a central tenet of “neo-liberalism”, or “free markets”. Both Shareholder Theory and free markets are key contributors to growing economic inequality. Even Friedman - capitalist supremo, acknowledged that economic inequality (before his death in 2006) was becoming a problem. Thirteen years later, the rich/poor divide has widened even further - much further. If he was worried about it then, I’m sure he would be very concerned about it now.
The problems he foresaw were not ones of unfairness or the disregard for our environment by business, but the less money the masses had to spend, thereby weakening the economy, adversely affecting the wealthy one per cent’s profits. There was only so much credit which could be extended to the masses before it became problematic, and that point (2008) was fast approaching.
The wealthy one per cent hold the same beliefs as Friedman. They know they shouldn’t allow economic inequality to grow too big, but they also don’t want significant changes. They don’t want the systems, practices, procedures, laws and regulations they have taken years to put in place removed. So it’s not change they are interested in, but minor “adjustments” on the periphery to perhaps include a few others into their elite group. Maybe invest a little more in SMEs (Small Medium Enterprise) training? Nothing major or important, you understand.
While the narrowly focused philosophy of Friedman, and his “Shareholder Theory” have been discredited by some, none of the underlying fundamentals causing the problems have changed. Even though in 1984, fourteen years after Milton Friedman proposed “Shareholder Theory” Edward Freeman proposed “Stakeholder Theory.” Stakeholder Theory argues that businesses perform better over the long-term when they serve their stakeholder needs - providing a balanced approach to development. We all get this idea, because none of us want to work for a greedy, selfish person only interested in their own benefit. However, thirty-five years later, we are no further forward in adopting a more balanced approach, than the day Freeman announced his beliefs. This shows the abject level of greed and shortsightedness which exists. When somebody holds the purse strings, they are not going to let go of them, despite knowing, in the recess of their brain, somewhere, that a fairer and more balanced approach will be better for everybody in the long run.
Some may argue that I am wrong and that many businesses have adopted a “Stakeholder” approach. This is entirely incorrect. The only businesses which can afford to adopt a stakeholder approach are privately owned and funded businesses. This is because Shareholder Theory is institutionalised into our economy through our measurement standard. Our business measurement standard is based on financial measures which places short-term profit creation for shareholders at the core of everything they do. Stakeholder measures like CSR (Corporate Social Responsibility) reporting are ignored because they are not universally comparable. They are valueless. Nothing more than PR opportunities for corporations to hide unpleasant truths. Volkswagen and their emission scandal is proof enough of the failure of CSR reporting. All listed companies and those seeking external investment and credit, are required to produce strong financial results to attract investment and lending. To ensure they are successful in attracting investors and getting the lowest borrowing rates, businesses take from stakeholders to improve financial results. Therefore, the reality is, only businesses not seeking external financial support, or not already reliant on it, can adopt a stakeholder approach. That means very few businesses.
Therefore, if you are going to make a change from Shareholder to Stakeholder Theory, you are going to have to replace existing measurement standards with a fully inclusive, balanced and comparable measurement standard. This will stop businesses robbing stakeholders to bolster shareholder results, as a complete picture of business performance will be presented and audited. Not a partial and one-sided picture.
Most of the pro-capitalist organisations are founded and funded by the wealthy one per cent. Therefore, they will follow the dictates of their masters. These organisations know Shareholder Theory is institutionalised into our economy through our business measures, and to address the problem requires that we introduce more balanced measures. Measures which look after both stakeholder and shareholder needs, and are universally comparable.
I say they know this with confidence, as I have pointed it out to two of the most prominent pro-capitalist groups - “Inclusive Capitalism” and “Conscious Capitalism.” However, this does not appear on their agendas in a clear and unequivocal way, such as, “We require a complete revamp of our business measurement standard, as the most critical step in ensuring a balanced economy.” You can only make business more “inclusive” or “conscious” of other stakeholder needs when you measure and manage them effectively. However, before they can do that, they need to fully understand how all these interrelated stakeholders “fit together” in creating value so they can come up with a universally applicable value creation framework. If they were serious about addressing the issue, then they would be ploughing all their efforts and resources into looking for an alternative measurement framework such as this. Instead, they talk about value and measurement in vague language. A bold statement of intent, to address the obvious problem (institutionalised Shareholder Theory) is missing. This is because they are not looking for solutions, only making the pretence of doing so.
Their purpose is not to solve the problem but to help keep it covered up. The objective of the wealthy one per cent is to create the misperception that capitalism is our problem. If people, disillusioned with our dysfunctional economy think capitalism is the problem, they have thrown them off the scent of the real cause - an inadequate and inappropriate business measurement standard. This will keep people chasing their tails with no results, because a vague ideology like capitalism, is not the problem. Institutionalised Shareholder Theory - embodied in our inadequate and inappropriate business measurement standard is. It serves the exclusive needs of shareholders at the expense of stakeholders.
These pro-capitalists organisation’s real purpose is to keep the debate around capitalism going, showing capitalist care and are doing something about the problems. In reality, they are only trying to maintain the smokescreen, hiding the truth from you. Consequently, rather than helping the majority, they are trying to hinder and stop change.
Copyright © Adrian Mark Dore 2019.