I am trying to get a handle on how capitalism could be redesigned to make it appropriate for tomorrow’s world. I’ve argued in recent blogs that it won’t carry on working without change for much longer. It has developed lots of cracks already:
and I have already considered a few areas I think we can improve on:
So this blog entry is the next chapter in a long series (it will be reassembled, tweaked and published in my next book, so read it here free while you have the chance).
Now I find myself challenging some of the systems that make people wealthy even though I’ve accepted capitalism as perfectly normal and right all my life. With global change accelerating, in this period of global upheaval, the rise of new powers and decline of old ones, we have an opportunity to rethink it and perhaps make it better, or perhaps countries new to capitalism will make their own way and we will follow. If it is failing, it is time to look for ways to fix it or to change direction.
Some say futurists shouldn’t get involved in politics, but competent futurists see things on the road ahead that non-futurists generally don’t. If some of those things challenge ideologies, it’s our role to inform those concerned. It doesn’t mean taking sides, but it should involve pointing out things that are going to be opportunities or problems.
The undeserving rich
Magistrates in Britain once had a duty to distinguish between the deserving poor, who were poor through no fault of their own, and the undeserving poor, who were simply idle. The former would get handouts while they needed them, the idle would get a kick in the pants and told to sort themselves out. This has disappeared from our welfare system, but the idea remains commonly held.
Looking at the other end of the spectrum, there are the deserving and undeserving rich. Some people worked hard to get their cash and deserve every penny, some worked less hard in highly overpaid jobs. Some inherited it from parents or ancestors even further back, and maybe they worked hard for it. Some stole it from others by thievery, trickery, or military conquest. Some got it by marrying someone. Some won it, some were compensated. There are lots of ways of getting rich. Money is worth the same whoever gives it to you, but we have different attitudes to the rich depending on how they got their money. I think that will increase.
I don’t think there is anything wrong with being rich, nor in trying to become so. There are examples of people doing well not just for themselves and their families and friends, but also benefiting their entire host community. Only jealousy could motivate any resentment of their wealth. But the system should be designed in such a way that one person shouldn’t be able to become rich at the cost of other people’s misery. At the moment, in many countries, some people are gaining great wealth effectively by exploiting the poor. Few of us consider that to be desirable. It would be better if they could only become rich by doing well in a system that also protects other people. Let’s look at some of the problems with today’s capitalism.
Corruption has to be one of the biggest problems in the world today. It has many facets, and some are so everyday we don’t even think of them as corruption any more.
As well as the blatant corruption, most of us would also include rule bending and loophole-seeking in the corruption category. Squeezing every last millimetre when bending the law may keep it just about legal, but it doesn’t make a behaviour creditable. When we see politicians bending rules and then using their political persuasiveness to argue that it is somehow OK for them, most of us feel a degree of natural revulsion. The same goes for big companies. It may be legal-ish, with a good enough lawyer arguing on your side, to re-label or to move money via a certain route that reduces the taxes required by law, but it doesn’t make it ethical. I’d put that in the corruption category.
Then of course it is possible to break the law and bribe your way out of trouble, or to bribe lawmakers to include a loophole that you want to exploit, or to make a contribution to party funds in order to increase the likelihood of getting a big contract later.
If you want to be a little less conspicuously corrupt, you might spend a bit to indulge in what is called lobbying. That essentially is paying in cash or in kind, via nice dinners or tickets or promised social favours, or just well-paid clever chitchat, to get an MP to help push the law in the general direction you favour. Maybe it isn’t technically corrupt, but it certainly isn’t true to the basic principles of democracy either, so it corrupts democracy.
So there are degrees of corruption, but they all have one thing in common. Using positions of power or buying influence to tilt the playing field in your favour to gain advantage.
Once someone starts bending the rules, it affects other behaviour. If you are happy exploiting the full flexibility of the letter of the law with little regard for others, you are also likely to be liable to engage exploiting other people, in asset stripping, or debt concealing, or how you negotiate and take advantage, or how you make people redundant because a machine is cheaper.
‘Companies aren’t charities, they exist to make money’, ‘business is business’. There are plenty of expressions that the less noble business people use to excuse bad behaviour and pretend it is somehow OK. There are degrees of badness of course. For some companies, some run by people hailed as business heroes, anything goes as long as it is legal or if the process of law can be diverted long enough to make it worthwhile ignoring it. While ‘legal’ depends on the size and quality of your legal team, there is gain to be made by stretching the law. It can even pay to blatantly disobey the law, if you can stretch the court process out enough so that you can use some of the profits gained to pay the fines, and keep the rest.
So corruption isn’t the only problem. Exploitation is its ugly sister.
The price of bad behaviour and loose values
A common problem here is that we don’t assign financial value to honourable behaviour, community or national well-being, honesty, integrity, fairness or staff morale. So these can safely be ignored in the pursuit of profit. Business is justified in this approach perhaps, because we don’t assign value to them. If a company exists to make profit, measured purely financially, those other factors don’t appear on the bottom line, so there is no reason to behave any better. In fact, they cost money, so a ruthless board can make more money by behaving badly. I think that is one thing that should change. If we as a society want businesses to run more ethically, then we have to make the system in such a way that ethical behaviour is rewarded. If we don’t explicitly recognise particular value sets, then businesses are really under no obligation to behave in any particular way.
As it is, I argue that society has value sets that are on something of a random walk.
There is no fixed reference point, and values can flip completely in just a few decades. That is hardly a stable platform.
You might think that the people at the top would be the smartest, but they usually aren’t. I’ve blogged a few times on this. Briefly, we often pay board members far more than is necessary:
and we often put stupid people in charge:
Not a good combination, and it ultimately undermines the workings of the whole economy.
So with corruption, exploitation, loose values, no real incentives to behave well, and sheer stupidity all fighting against capitalism as we have it today, it is a miracle it works at all. But it does. If we address these existing problems and start to protect against the coming ones, we will be fine. Better than fine. We’d be flying. But there are some new problems coming too.
One really key problem is automation. It is good to automate, it adds the work of machines to that of humans. But if you get to a point where there is no work available for the humans to take, then that doesn’t work so well, overall effectiveness is reduced because you still have to finance the person you replaced somehow. We are reaching that point in some areas and industries now. Here is where I think we ought to look for the solution – re-evaluating ownership.
Ownership is something we really need to look at. I believe it is the key to fair wealth distribution in an age of accelerating machine power. The world economy has changed dramatically over the last two decades, but we still think of ownership in much the same ways. This is where I believe the biggest changes need to be made to make capitalism sustainable. At the moment, of all the things needed to make a business profitable, capital investment is given far too great a share of control and of the output. There are many other hugely important inputs that are not so much hidden as simply ignored. We have become so used to thinking of the financial investors owning the company that we don’t even see the others. So let me remind you of some of the things that the investors currently get given to them for free. I’ll start with the blindingly obvious and go on from there.
The right to do business and to keep the profits.
The law, protecting the company from having all its stuff stolen, its staff murdered, or its buildings burned down.
The full legal framework, all the rules and regulations that allow the business to trade on known terms, and to agree contracts with the full backing of the law.
Ditto the political framework.
Workforce education – having staff that can read and write, and some with far higher level of education
Infrastructure – all the roads, electricity, water, gas and so on. Companies pay for ongoing costs, maintenance and ongoing development, but pay nothing towards the accumulated historical establishment of these.
Accumulated public intellectual property. It isn’t just access to infrastructure they get free, it is the invention of electricity, of plumbing, of water purification and sewage disposal techniques, and so on.
Human knowledge, science, technology knowhow. We all have access to these, but that doesn’t necessarily mean that there should be an automatic right for anyone to use them without due compensation to the rest of the community. We assume that as a right, but it wasn’t really ever explicitly agreed, ever. It has just evolved. If someone invents something and patents it, we assume they have every right to profit from it. If they use an invention in common ownership, such as the wheel, why should they not pay the rest of society for the right to use it for personal commercial gain?
Think of it another way. If a village has a common, everyone has the right to let their animals feed off the grass. That works fine when there are only a few animals, but if everyone has a large herd, it soon breaks down. The common might be absorbed under council control, and rented out, returning due value to the community. So it could be for all other commonly held knowledge. And there is a lot of it. Thousands of years worth.
Culture is also taken for granted, including hand-me-down business culture, all the stuff that makes up an MBA, or even everyday knowledge about how businesses operate or are structured.
And language, and social structure that ensures that all the other supporting roles in society are somehow provided.
so.. should business pay for it, as it pays for capital and labour?
This all adds up to an enormous wealth of investment by thousands of generations of people. It is shared wealth but wealth nonetheless. When a company springs up now, it can access it all, take it all for granted. But that doesn’t mean it is without value. It is immensely valuable. So perhaps it is not unreasonable to equate it in importance to the provision of effort or finance.
Reward is essential, but fair’s fair
A business will not happen unless someone starts it, works hard at setting it up, getting it going, with all the stress and sacrifice that often needs. They need to be assured of a decent reward or they won’t bother. The same goes for capital providers, if they are needed. They also want something to show for the risk they have taken. That should always be retained in our thinking when we redesign. Without incentive, it won’t work. But it is also right to look at the parallel investment by the community in terms of all the things listed above. That should also be rewarded.
This already happens to some degree when companies and shareholders pay their taxes. They contribute to the ongoing functioning of the society and to the development to be handed on to the next generation. just like individuals. But they don’t explicitly pay any purchase price or rent for the social wealth they assumed when they started.
The amount that should be paid is endlessly debatable. But it does offer a way of tweaking capitalism that ensures that businesses develop and use new technology in such a way that it can be sustained. We want progress, but if all jobs were to be replaced by a smart machines, then we may have an amazingly efficient system, but if no-one has a job, and all are on low-level welfare, then they can’t afford to buy any of the products so it would seize up. Conventional taxes might not be enough to sustain it all. On the other hand, linking the level of payments from a company to the social capital they use when they deploy a new machine means that if they make lots of workers redundant by automation, and there are no new jobs for them to go to, then a greater payment would be incurred. While business overall is socially sustainable and ensures reasonably full employment, then the payments can remain zero or very low. But we have the makings of an evolution path that allows for fair balancing of the needs of society and business.
The assignation of due financial value to social wealth and accumulated knowledge ensures that there is a mechanism where money is returned to the society and not just the mill owner. With payment of the ‘social dividend’, government and ultimately people can then buy the goods. The owner should still be able to get wealthy, but the system is still able to work because the money can go around. But it also allows linking the payments from a business to the social sustainability of its employment practices. If a machine exists that can automate a job, it has only done so by the accumulated works of the society, so society should have some say in the use of that machine and a share of the rewards coming from it.
So we need to design the system, the rules and conditions, so that people are aware when they set up a business of the costs they will incur, under what conditions. and that if they change their employment via automation, then the payments for the assumed knowledge in the machines and systems will compensate for the social damage that is done by the redundancy if no replacement job exists. The design will be difficult, but at least there is a potential basis for the rules and equations.While, we’re looking at automation, we can use the same logic to address the other ethical issues surrounding business, such as corruption and exploitation, and factor those into our rules and penalties too.
There remains the question of distribution of the wealth from this social dividend. It could be divided equally of course, but some political parties would have their priority lists. I make no comment on what is right or wrong here.
Summarising, there are many problems holding business and society back today. Addressing them will make us all better off. Some of them can be addressed by a similar mechanism to that which I recommend for balancing automation against social interests. Automation is good, wealth is good, getting rich is good. I am not suggesting for a second that we should replace capitalism. I am just suggesting that it is now in need of a system update, some maintenance work. When we’ve done all that, we will have a capitalist system that rewards effort and wealth provision just as today, but also factors in the wider interests - and investment – of the whole community. We’ll all benefit, and it will be sustainable.