Most people are keen to blame capitalism for our economic woes. Hence the call to fix it or discard it. This article describes how the wealthy have manipulated our understanding of capitalism to hide the truth and mislead us. How they are happy for capitalism to be blamed so they can hide the real causes of our problems. The big problem being, we aren’t capitalists, but the worst form of profiteers.
To start with, it’s important to establish what capitalism is. Is it an ideology or a system?
The popular perception is that capitalism is a system rather than an ideology. A system implies it operates according to a practical framework for organising and operating the economy. However, I contend it’s only an ideology, providing a framework to understand and interpret economic activity. As an ideology, it can’t be held accountable for problems, as it’s just a set of beliefs, not a practical working system, generating undesirable outcomes.
The wealthy one percent want to promote the idea that capitalism is a system, so the public has something to blame for our problems. It’s used as a smokescreen to hide the real systems, practices and procedures causing the problems. It shifts attention away from these real problems and results in people chasing their tails, blaming a nebulous ideology rather than the real issues.
As capitalism is an ideology, not a system, we have developed systems, practices, and procedures to run and manage businesses and the economy. These systems, practices, and procedures we use daily to run and manage business produce the outcomes that cause our problems, not the ideology. For example, we use the Accounting Model, a financial measurement standard, to run and manage business. This causes problems as it focuses on financial outcomes, ignoring other critical business success factors and stakeholders. Financial measures account for less than twenty percent of the value creation potential of business, yet despite this, it’s used as our business performance measure. Obviously, in this role, it’s entirely inadequate and inappropriate, as it ignores the impact of other stakeholders, who contribute over eighty percent of the value creation potential of business.
As an ideology, I contend its primary objective is not to create profits. I know this runs contrary to popular beliefs but bear with me as I explain why. Profit is the objective of shareholders, who are just one of many participants (or stakeholders) in our economy. However, the real objective of business is its longevity. This depends upon sustained long-term profits, which can only be achieved when the interest of all stakeholders are served. Thus, business must serve all stakeholders (society and the environment) to achieve longevity. Therefore, profit is important, but not its sole objective. This is in stark contrast to our inadequate and inappropriate measurement standard (the Accounting Model), whose sole aim is short-term profit for the benefit of shareholders. This short-term profit obsession is a distortion introduced through the greed of shareholders. The reality is capitalism cannot succeed over the long term if profit is its sole objective.
Therefore, a more realistic interpretation of the objective of capitalism is "to serve the needs of humanity in a sustainable manner through the ingenuity of man, allowed to engage in free enterprise." The operative words are "sustainable manner." This requires a balanced approach to meeting the needs of all business participants (or stakeholders.) An imbalanced system, serving only the needs of one or more participants, cannot survive over the long term and falls short of the fundamental requirement of serving all on a sustained basis. While profit is an essential component of capitalism, it isn't its sole objective. The short-term profit obsession of shareholders (as dictated by the Accounting Model) is the antithesis of capitalism. The standard definition of capitalism is limited in describing the shareholder's role as "capitalism is based on the private ownership of the means of production in the creation of goods and services for profit." Capitalism cannot be seen in this narrow context. It has to be seen in its wider social context, where business longevity depends on serving the wider community.
What's more, the notion that capitalism depends upon perpetual growth is not true. By adopting a long-term perspective, business will be guided by sustainability issues. A new measurement standard measuring and managing the inputs and outputs of all stakeholders is crucial to the transition of capitalism from a short-term profit obsession to a long-term sustainability perspective.
As mentioned earlier, the wealthy promote the idea of capitalism as a system when it's an ideology. This is because if people think it's an ideology, they can't blame it for anything, as it's just a belief and not a system which produces outcomes. They want to draw your attention away from the systems causing the problems. For example, our inadequate and inappropriate business measurement standard (the real cause of our problems.) We can link it directly to our most serious social, environmental, economic, and business problems. So, by blaming capitalism, people cannot come up with specific problems and, therefore, specific solutions. As a result, they go around in circles chasing their tails. This is precisely what vested interests want.
Capitalism is a practical ideology.
Entrepreneurship lies at the heart of capitalism. Due to their efforts, our standard of living keeps on improving. We need to encourage and support their ingenuity and hard work, for which they are justifiably entitled to profit. Profit is to be welcomed and celebrated, provided it does not become our sole objective.
If the definition of capitalism is to "serve the needs of humanity in a sustainable manner through the ingenuity of man, allowed to engage in free enterprise", what's not to like about this ideology? To serve the needs of humanity, business must make a profit to survive over the long term. Profit-making is essential. Unfortunately, the wealthy have corrupted capitalism and made profit our purpose. This is not capitalism - this is the result of the rich corrupting capitalism through their short-term financial measurement standard, dictating business outcomes in their favour.
If we replace our inadequate and inappropriate business measurement standard with a balanced one, looking after all participants' needs, we can uphold the objectives of capitalism. We will then see profit as a means to an end and not an end in itself. Until then, we are definitely not capitalists.
We aren't what we call ourselves.
We call ourselves capitalists, but that's just a ruse. We can call ourselves anything if we want, but that does not make us what we say we are if we don't follow its ideology. Just as we may call ourselves Christian or Jew (or any other faith,) that does not make us what we say we are unless we follow the philosophy of what we claim to be.
What we are is what we do every day in our life. The same applies to business. Because business is at the heart of our economy, what it does every day reflects what our economy actually is.
We call ourselves capitalists because we conform to some of its precepts, but that is not enough to qualify us as capitalists. We don't serve the long-term interests of humanity – we serve the interests of a few. We are not capitalists but something sinister. We are what we do every day in business. What we do every day is dictated by our business measurement standard. It dictates outcomes. These outcomes represent the ideology we follow. They show us who we are by reflecting what we do every day, not what we say we are.
What are we if not Capitalists?
We use a financial measure as our business measurement standard, despite financial considerations accounting for less than twenty percent of the value creation potential of business. Its aim is to optimise short-term profit exclusively for the benefit of shareholders at the expense of other stakeholders (or participants.) It's an adversarial system pitted against stakeholders' interests, only considering shareholder interests.
By definition, this makes it a profiteering system. We define a profiteering system as using an unfair advantage to generate a profit. The "unfair advantage" here is a measurement standard that does not consider other stakeholders' interests. It only gives weight and credence to financial matters without considering other interrelated participant needs.
We usually associate profiteering with an external activity where business profits from an external entity like a customer, competitor, or government, using some unfair advantage. However, in this case, it's the worst form of profiteering as it's "internal profiteering." This is the worst form of profiteering because shareholders profit from those associated with them to make them more prosperous. For example, they suppress wages to enrich themselves.
So, we are not capitalists but profiteers - the worst form of profiteers, those who exploit their own stakeholders for profit. Understandably vested interests want this kept from public knowledge because, armed with this understanding, are you prepared to allow this harmful practice to continue?
Our inadequate and inappropriate business measurement standard is only one of our problems. There are other systems, practices and procedures causing the actual harm, which vested interests want to hide from you behind the capitalism smokescreen.
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