Reimagining Capitalism: How Business Can Save the World

A while back I watched a documentary about climate change. The huge carpet company CEO was interviewed. He said to do well and to do good were completely different thing. Carpet manufacturing process is dirty involving multiple toxic chemicals, creating a lot of pollutants. Where environmental laws are weak, company would externalise this pollutants i.e. release them without proper treatment. The company would do well on the balance sheet, but the environment will suffer and taxpayer will have to foot the bill of cleaning up. CEO is obligated to maximise profit to maximise shareholder value i.e. to externalise when and where he can. If, however, he chooses to do good i.e. do the right thing by the environment and by the people, he might get fired because the company might not be as profitable. The contradiction is just too overwhelming. Something’s not quite right about capitalism and free market as it stands. This book tackled this issue by proposing a way to probably reconcile these contradictions while keeping the current structure and function of capitalism and free market intact.

It would be interesting to compare and contrast this book with “Building Social Business: The New Kind of Capitalism That Serves Humanity's Most Pressing Needs” by Muhammad Yunus. Drs Yunus and Henderson tackled the same problems and the same contradictions of capitalism. Dr Yunus, however, approached it from a different angle. He proposed entirely different corporate structures, which neutralise two competing goals i.e. to do well vs to do good. The new structure aim is to maximise social good, to make profit to sustain the business, but not to maximise profit at all cost.

Pricing externalities

Fossil fuel energy looks cheap—but only because we’re not counting the costs we are imposing on our neighbors and on the future.

Every coal-fired plant on the planet is actively destroying value, in the sense that the costs these plants are imposing on society are greater than their total revenues, let alone their profits. For example, Peabody Energy, the largest coal company in the United States, shipped 186.7 million tons of coal in 2018 for total revenues of $5.6 billion. The combined climate and health costs of burning 186.7 million tons of coal are about $30 billion, so—taking total revenue as a measure of total value creation, which is conservative—Peabody is destroying at least five times the value that it is creating.

We were running our entire economy on the basis of the idea that generating massive amounts of CO2 typically doesn’t cost firms a dime, or that it was equally costless (to the firm) to hollow out a community, pay one’s employees bottom dollar, and push for tax cuts.

Resistance to change is human nature

Firms that are doing well under the current dispensation will claim that there’s no need to change—that if there is a need to change, there is no business case—and that even if there is a business case they’re too busy to work on it right now. This is what change looks like.

This is the point with which Drs Yunus and Henderson may disagree

Those firms that have a clearly defined purpose beyond profit maximization, where it is clearly understood that the purpose of the firm is not to make shareholders rich, but to build great products in the service of the social good—these are the firms that have the courage and the skills to navigate transformation.

This sounds like we pin the hope for change on good conscience of the executives, the boards and the investors, I feel that the hope might be unrealistic.

The author believes that not only is it realistic, but reasons and multiple case examples were laid out 

People will work hard for money, status, and power—“extrinsic” motivators. But for many people, once their core needs are met, the sheer interest and joy of the work itself—“intrinsic” motivation—is much more powerful. Shared purpose creates a sense that one’s work has meaning—one of the core drivers of intrinsic motivation and a driver of higher-quality, more creative work. It also creates a strong sense of identity, another source of intrinsic motivation and a powerful source of trust within the firm. To the degree that purpose supports authenticity—the ability to live a life in accordance with one’s deepest values—it also increases the presence of positive emotions—something that is strongly correlated with the ability to see new connections, to build new skills, to bounce back after difficult times, challenges or threats. The employees of purpose-driven firms are thus likely to be significantly more productive, happier, and more creative than those at more conventional ones. An authentic purpose also turbocharges the ability to work in teams. Employees who are deeply identified with the firm’s purpose share a common set of goals.

Employee-owned company

When employee ownership is linked to the ability to participate in decision making and is accompanied by greater job security, it increases employee loyalty and motivation, lowers turnover, and drives higher levels of innovation and productivity.

On happiness

While per capita GDP is a strong determinant of life satisfaction for poor countries, when GDP is greater than about $15,000/year, individual happiness is correlated not with income but with the presence of inclusive political institutions.

On education

Only about 20 percent of any given student’s success is a function of his or her education, while about 60 percent is attributable to family circumstances—and most particularly, to the family’s income.

Alternative education system

Germany has one of the most sophisticated apprenticeship training schemes in the world. Students can choose from hundreds of trades for an apprenticeship lasting two to four years, during which they split time between classroom instruction and on-the-job training. Trainers are paid for their time—including the time they spend in class. Training at every company is shaped by standardized occupational profiles, or curricula, developed by the federal government in collaboration with employers, educators, and union representatives, giving employees a standardized qualification that allows them to move between firms.