Capitalism 2.0 is a destination, not a roadmap

Is Capitalism 2.0 a Mirage? (Part 2 of 2)

Yesterday, in Part 1 of 2 of this blogpost, I noted that Capitalism 1.X is under attack for its very legitimacy. One approach to fixing the problem is to change the dogma and the ideology—what I called the approach of Capitalism 2.0. An approach like this is taken in two new writings by major strategic thinkers.

I quoted Umair Haque on his approach to Capitalism 2.0:

The outlines of an updated economic paradigm…include two fundamental axioms:

…first…through the act of exchange, an organization cannot, by action or inaction, allow people, communities, society, the natural world, or future generations to come to economic harm. [italics are Haque’s]

And I quoted Porter/Kramer from Shared Value:

The purpose of the corporation must be redefined as creating shared value, not just profit per se.

These are exciting, heady statements. They are directionally right, and very inspiring to most of us. I believe each work makes a very positive contribution to business thinking.

There’s only one problem. The authors are still using the language of ideology.

Beware of Closed Systems

Haque wants an axiom. Unfortunately for Haque, I don’t know of any organization for whom it is axiomatic that they cannot do any of the things he lists. Calling something “axiomatic” simply doesn’t make it so.

Porter and Kramer, in their treatment of Shared Value, use the word ‘must’ in a similar way (“The purpose of the corporation must be redefined as creating shared value, not just profit per se”). But the result is the same. Nobody ‘must’ do anything, as the human race perversely insists on proving time and again.

Karl Marx, in the Communist Manifesto, declared communism inevitable. Capitalism 1.5 had the same flavor. Haque’s ironic use of “Manifesto” and the language of ‘axioms’ suggest the same pull of logical necessity. But axioms are abstract, not empirical–they don’t drive action, unless someone chooses to act on them. And Porter’s ‘must’ has no causal force; it is exhortation dressed up in the words of logical necessity.

There is a beauty in such simple, powerful idea systems, a beauty well-loved by economists, mathematicians, physicists and strategists. The problem is–they are closed systems. That’s OK for math and physics. But for most other fields, once you get outside a closed system, things eventually degrade.

Inevitability Isn’t

Marx was wrong about communism’s inevitability. Greenspan was wrong about large companies’ inclination to self-regulate based on reputation. Friedman was wrong about the gyroscopic capabilities of the Invisible Hand.

If Porter and Haque believe that they have discovered an ideology as attractive, powerful and self-sustaining as those were, then we’re probably just looking at another shiny-object, perpetual-motion, too-good-to-be-true closed system.

In fact, it was our unquestioned belief in the closed-system aspect of Capitalism 1.X that helped cause Capitalism 1.X to fail. It all sounded so good that we wanted to believe it–until long after the writing was on the wall. Not for the first time, the charm of dogma blinded us to facts on the ground until it became not just overwhelming, but undeniable. We’re left thinking, “What were we thinking?” and the answer is, we weren’t. We were just believing.

The search for another compelling but unrealistic logic is likely to be equally misguided.

Both Porter-Kramer and Haque argue that systemic adoption of Capitalism 2.0 will lead to higher systemic profitability. This is certainly true. But the heart of the matter is not a systemic issue—it is whether individual companies will make decisions that are not profitable to themselves in the short term. And this is where ideology gets in the way:

What should, and will, a company do if an initiative is profitable in Capitalism 2.0 terms–but not profitable in Capitalism 1.X terms? Not every business problem is simply a failure of imagination, even if many–even if most–are. The problem of the commons remains unsolved.

I’m not optimistic that Porter can find a profit that is “imbued with a social purpose…that arises…out of a deeper understanding of competition and economic value creation.” I think that’s a circle that can’t be squared.

But it is also not necessary. The answer lies in sober thinking about how social change happens; not in a new Idea System.

Haque is most productive not when he’s offering ringing phrases, but when he’s offering examples of new business opportunities that are not only holistically profitable, but profitable as well in today’s simple quarterly income statement terms–examples like Threadless and Nike’s Considered Design.

Porter is today more famous for his early Five Forces model than for his value chain model, but the latter has probably had more impact. Similarly, his solid thinking today on clusters and the proper role of regulation may end up having more impact than his heroic effort to cognitively re-conceive competition.

There is richness in both works, worthy of a lot of thoughtful reading.

The Other Solution: Dial Back the Dogma

Ironically, it was Marx who said, “The point is not to understand the world, but to transform it.” Ideologues and dogmatists insist on the primacy of theory. Change agents are more pragmatic.

Parts of our society are addicted to dogma and ideology. Business, under Capitalism 1.X, is one; others are politics, academia and particularly economics. But it’s not the norm.

The legal profession isn’t dogmatic, apart from a general belief in advocacy. Education has many sub-currents but not one unifying theory. The practice of medicine, other than the Hippocratic Oath, is more practical than ideological.

If ideology is ultimately empty calories, then what is to be done? How else can we get to the alternate vision of business that both Porter and Haque so clearly, and rightly, envision?

First, we need to give up our addiction to ideology. What’s needed is not another intellectual home run, but a dogged effort to get better at getting along—on all social dimensions, not just those of business.

What can you do? Here are a few examples:

1. People with visible responsibility can start talking about civic and moral virtues, instead of the virtues of an abstract system which magically does the heavy lifting for us.

2. Porter, Kramer and Haque as writers–and all of us as readers–can use the rich and stimulating examples they have uncovered as a challenge to our imaginations, and a spur to creative thinking. The power of what they’ve written lies more in their examples and simple models than in the attempt at a Unifying Theory.

3. Measurements are powerful in business; many managers believe that management requires it. We can all support global attempts at Integrated Reporting accounting, combining traditional financial accounting with other socially-relevant measures. New vocabularies seriously drive new dialogues.

4. Trade associations can shift emphasis from narrow sectarian lobbying to offering education and perspective on increasing the long-term viability of their industries.

5. Business strategists and economists can look to outside functional arenas; negotiation and bargaining experts know how to integrate zero-sum oppositional positions with shared interests;

6. Politicians can rediscover bi-partisanship and compromise, rather than scorched-earth zero-sum competitive games; citizens can hold them accountable by re-discovering the same.

7. Elections and legislation are heavily controlled by corporate interests in the United States today. This is not long-term healthy even for business. Business organizations can collaborate with other groups to pursue campaign finance reform, thus putting stakeholder collaboration into serious practice.

8. Business education, mainly MBAs, can start emphasizing long-term sustainable collaboration, rather than Capitalism 1.X. Ethics courses are no good if they’re contradicted by 1.X courses in competitive strategy down the hall.

9. News media can try to stay sober, serious, thoughtful and responsible, not giving in to pure entertainment; business can play a role along with consumers in helping media resist the pull in that direction.

There is no unifying ideology; if Santa Claus can’t pull it off, why should we expect strategists and economists to do so?

But there are still guidelines.

  • “Be the change you want in the world.”
  • “The best way to make someone trustworthy is to trust them.”
  • “Ask not what your country can do for you, ask what you can do for your country.”
  • “Don’t argue over who gets the slice of the pie, focus on making the pie bigger.”
  • Maybe even, “Do unto others as you’d have them do unto you.”

When Gerstner took over IBM he said, “The last thing IBM needs is a vision.” The last thing capitalism needs right now is a new ideology. Business needs simply to take its seat among other social and political institutions, and to play nicely in the sandbox alongside them.

13 replies
  1. Nils Montan
    Nils Montan says:

    Wow, brilliant couple of posts here with lots to think about.

    I also appreciated the comments yesterday from James Boyd and Peter Vajda.

    I don’t have a background in any of this stuff, but it certainly makes me think.

    Coincidentally, a friend of mine this morning sent me a cartoon which compared the vision of the future of Orwell with that of Huxley. 1984 v. Brave New World.

    Using some quotes from Neil Postman’s book, “Amusing Ourselves to Death,” it was clear that the cartoonist thought that Huxley actually had the clearer vision of what would happen in post-industrial capitalist society (and much clearer than Marx). In other words, control of society would come because we are lulled to a system by the pleasure it gives us, not the pain.

    It reminded me of another author I read way back in the 60’s in college, Herbert Marcuse, who in “One Dimensional Man” noted capitalism’s brilliant organic through what he called “repressive tolerance” to take any critical thought and turn it into a way to uphold the system.

    So, I am not very optimistic about systemic change. It is likely that the authors you site will have their books published and reviewed and that there will be some slight nod to “responsible capitalism” in the B schools, but there will not be any real change. Meanwhile, the bulk of the population will continue to be beguiled by the Kardasians, the Oscars, etc.

    That being said, I would love to amble over to the ramparts with anyone who is up for fighting the good fight!

    Reply
  2. Clare O'Neill
    Clare O'Neill says:

    Brilliant couple of posts – thank you! Porter’s and Haque’s recent work keeps popping up on my radar, making me simultaneously cherish the vision and wonder about whether any of it will actually happen. I really appreciate your to-do list for moving from great vision to real change.

    Reply
  3. Larry Irons
    Larry Irons says:

    You make some very interesting points and use these recent commentators as interesting foils. However, I would only reminder you that Daniel Bell declared the End of Ideology a long, long time ago. We won’t see it in our lifetime. Pragmatism is not just a way of getting along better with one another and the world. It is also an ideology.

    Reply
  4. Charlie (Green)
    Charlie (Green) says:

    Thanks all, I’m glad it’s stimulating. I hope it comes off not as critical of Haque and Porter-Kramer, but as supportive of the heavy lifting they are doing; just re-focusing our attention on where their value mainly sits.

    Larry, maybe we mean different things by the term ‘ideology.’ As far as I’m concerned, the ‘end of ideology’ was one of the very few things Daniel Bell said about which he was egregiously mistaken.

    One has to look no further than the evening news. You get the Tea Party, the Muslim Brotherhood, the various iterations of Al Quaeda, Christian fundamentalism, Ayn Randers, the Pope, and a ton of true-believers on Wall Street who still hold to Capitalism 1.5. I consider all those to be groups who view the world first and foremost through the lenses of dogma.

    I don’t buy the idea that pragmatism is just another ideology; I think of pragmatism as being pretty much the opposite. And to define anti-ideology as an ideology is just messing with words. There has to be some useful way of describing the opposite of approaching reality with pre-formed glasses.

    Reply
  5. Larry Irons
    Larry Irons says:

    Precision in dialogue about something as fundamental to thought as ideology is not “messing around with words.” An ideology such as pragmatism is at the least a worldview, a way of looking at what we presume to “know” about the world. Not that Wikipedia is necessarily an authority on everything but just a review of how its review of ideology shows the limits of your assumptions about the term. By the way, I consider myself a pragmatist but that doesn’t mean it isn’t an ideology.

    Reply
  6. peter vajda
    peter vajda says:

    So, Part 2.

    You write, “…The answer lies in sober thinking about how social change happens; not in a new Idea System….,” and “…What’s needed is not another intellectual home run, but a dogged effort to get better at getting along – on all social dimensions, not just those of business.” And “Parts of our society are addicted to dogma and ideology.” Agree, agree, agree.

    So, for me, these three statements point to the crux of the issue – why change is so darn difficult.

    One reason (the major reason, for me) change is so difficult and brings folks to be resistant is that “sober thinking” is difficult. Interesting use of the words – “sober” and addictions.”

    When we’re addicted, i.e., not sober, we behave in ways that are self-defeating, self-limiting and self-sabotaging – towards ourselves and others. Two reasons for this: (1) our neo-cortex, rational, executive and “thinking” part of our brain is on hiatus, having abdicated its power and force over to our limbic/amygdala (emotional-reactive) brains and when emotions drive, all “logical” bets are off – especially for many who think their resistance is, well, rational and logical (and what we are talking about here is a highly emotionally-charged issue and (2) when our hearts are closed, driven by negative behaviors that reflect the negative emotions concomitant with living a “zero-sum game” life and lifestyle (exhibited by “ideologies” that reinforce, for example, exclusivity, marginalization, resentment, subservience, exploitation and the like – all “me. vs. you” worldview orientations – we live divided from each other, absent any heart-centered consciousness.

    Thus, any (whatever you wish to call it) that suggests we work together for the good of all humanity is, well, just plain rejected – using what pejorative words, terms or phrases one can find to support their defensiveness and resistance.

    To me, the first step in becoming sober and freeing one’s self from one’s addictions is to admit the addiction. Becoming sober brings one to ask questions like, “What’s right about (the self-sabotaging behavior one is engaging in?”) Something has to be or feel right else one wouldn’t engage in it.

    So, Charlie, you suggest nine strategies in which folks might engage to forward the action of sober thinking, to forward the action of getting along better and moving away from their ideological addictions. My take is that those who engage in these nine strategies are few and far between. Why? They feel (mostly unconsciously) that NOT engaging in these strategies is the better path to take.

    So I would ask those who are unable or unwilling to engage in these strategies the following questions (and I’ll use just the first five strategies but the inquiry process pertains to all nine):

    1. What’s right about not talking about civic and moral virtues…?
    2. What’s right about not using Porter, Kramer and Haque’s rich and stimulating examples as a challenge to our imaginations, and a spur to creative thinking?
    3. What’s right about not supporting global attempts at Integrated Reporting accounting, combining traditional financial accounting with other socially-relevant measures?
    4. What’s right about trade associations not shifting emphasis from narrow sectarian lobbying to offering education and perspective on increasing the long-term viability of their industries?
    5. What’s right about business strategists and economists not looking to outside functional arenas; negotiation and bargaining experts to integrate zero-sum oppositional positions with shared interests?

    Etc., etc. for 6-9.

    Remember, something has to be/feel right for so, so many to choose to not to do these things.

    There is a single thread that runs through all 5 (9) questions. If one were to take some quiet time,(and I don’t mean the nano seconds between Tweets), and honestly, sincerely and self-responsibly reflect, one will arrive at the single thread of their defensiveness and resistance – perhaps, just perhaps, seeing themselves as they truly are for the first time. That insight may be a catalyst for change.

    And the same can be done with your guidelines:

    What’s right about not being the change you want in the world?
    What’s right about not trusting others?
    What’s right about not asking what I can do for my country?
    What’s right about not focusing on making the pie bigger?
    What’s right about not doing unto others as you’d have them do unto you?

    Again, something has to be/feel right about living life this way else we’d behave differently.

    The challenge is these are not simply mental, cognitive operations. Serious inquiry into the self requires heart and soul as well and few, very few, are able or willing to go there -one reason why sobriety or releasing from one’s addictions “takes” with some folks and not with others.

    Your graphic is an interesting one. It reminds me of Alfred Korzybski’s phrase “A map is not the territory” meaning that one can describe a territory in some similar structure that allows us to cross the land, a useful tool, but that our perception of the map can never equal our experience of the territory as it is, but only our version of it. And it’s our version of life and living that get in the way of the changes you speak of.

    Many folks who are resistant and defensive about the kinds of changes you, and others, suggest hold on to the maps as a “feel-good binky” but are fearful, even terrified, of opening the door of their life and setting out to experience the terrain.
    Many of these are the folks who cognitively and intellectually like to talk the talk but when it comes to true and real change and transformation – of their own self and then the world – prefer the “devil I know” rather than “the one I don’t.”

    The deeper, revealing question is, “Why?”

    Sober thinking, indeed.

    Thank you for tugging on my sleeve.

    Reply
  7. John Gies
    John Gies says:

    Charlie,

    Thanks for the post. There is a lot to think about and to chew on. What a great starter for a Salon conversation. It articulates the movement I have been sensing for some time; that people, companies and governments are re-examining the road to prosperity. In the interest of space, I will limit my comment to your question, “Is thinking a sufficient condition?” My reply is, that it is where we start…

    Abraham Lincoln began the reunification of the North and South with, “Four score and seven years ago…”

    Martin Luther King Jr. Moved the Civil Rights Movement forward with, “I have a Dream…”

    And Winston Churchill rallied a nation in the face of daily bombings with, “We shall never, never, never give up…”

    It always begins with our thinking. Capitalism 1.x was moved in the direction it has been trending with the Milton Friedman school of thought as well as Ayn Rand, Ronald Reagan and a popular culture reflected by Gordon Gekkos quote, “Greed is Good”. I know, I was fully engaged in Capitalism 1.x. So much so that I bought into the idea that logic was the driver and like Ayn Rand said, rational logical thinking will always lead to the highest good for all. (I paraphrase). I even took extra courses in logic to find the perfect syllogism, (ask me how that worked for me LOL). Our thinking on Capitalism is shifting again, with people thinking about and talking about the alternatives.

    But thinking is not enough. As you captured in part 2, it also requires action on the part of our leaders, our journalists, and on people just like you and me and the rest of your readers to join in the conversation and to engage the question, “Is shareholder value the only way for our society to prosper?” Thinking and action is the harbinger of change.

    Peter asks some very good questions that we can all use in the conversations we engage in. They seem to shock the listener out of their standard sound byte that they have heard response.

    Thanks for fostering the conversation,

    Reply
  8. Charlie (Green)
    Charlie (Green) says:

    Great questions, Peter. Thank you for tugging.

    And John–you took it further. I wish I’d written that originally. I think you’re right to cast the issue as one of the combination of theory and practice, or thought and action, or inspiration and ditch-digging. Very right. Thanks.

    Reply
  9. Nils Montan
    Nils Montan says:

    It’s good to be stimulated ~ but what do you do after that?

    I know nothing about Pragmatism, other than some old slogan I think William James once said about it, “we are more concerned about the fruits than the roots,” or something like that.

    Manifestos are cool, but if people want to move society there needs to be something of a concerted effort (I learned this from the people of Tunisia and Egypt recently).

    Does anyone know of a more real-life think thank, association, mob or other group that one could get behind?

    Reply
  10. Larry Irons
    Larry Irons says:

    Charlie, sorry I couldn’t get back to this quicker. Good comments so far.

    I guess I just look at things as simply as possible given the weighty issue of how to use ideology in a practical way for human purposes. So many people have gone wrong trying I can understand your interest in chucking the whole line of thought.

    I approach these issues in my professional and person life by trying to remain self-reflective, some might say reflexive, about the nuances of ideology in what I presume to know about the world while striving for an empathic style of relating to clients as well as other people.

    Regards,

    Larry

    Reply

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