Saving Free Market Capitalism From Itself

by Tom Bowees

Spring, 2008

Part I – Consumerism or Capitalism?

Some time ago, we moved our office to Main Street here in Georgetown.  Our bank is next door, there are many good restaurants to have a quick bite, and an English Pub is right across the street that offers delightful libations.  However, being on street level with cars coming and going continuously, not a day goes by when we do not hear car alarms going off.  I have occasionally and inadvertently hit the “panic button” a few times myself, sending me into a panic to switch it off.   I have noticed that because these alarms go off with such frequency, nobody seems to care enough to even look.  Doesn’t that defeat the purpose of a car alarm?  Whoever invented car alarms probably had no idea that their very proliferation would render them useless. However compromised their original purpose may be, the car alarms do an awfully good job of disturbing the ambience of Main Street.    

Apart from the alarms, one might think another advantage of being on Main Street in a small community would be the opportunity to take breaks and go for walks in the quiet leafy century home “park district.”  You would instead encounter another prime example of our talent for invention in action.   What could disrupt such a pleasant walk?  Behold the leaf blower.  This ingenious idea not only does little to solve a problem, but actually creates more profound problems with its use.  Whatever happened to getting a bit of exercise by scratching the earth with a rake, pausing for a moment to feel a soft breeze, talking with a neighbour, admiring the colour of the leaves, or listening to a bird sing just for you?  Apparently we prefer to blow organic debris on to each others lawns with a carbon emitting machine so loud you need to outfit yourself with headphones.  Are we tidying our lawns or taxiing jets into our driveway?

The prize goes to a brilliant invention to cut through the hard plastic that much of what we buy comes in.  Unfortunately, this “miracle cutter” comes in its own hard plastic wrap!  We are now confronted with the existential question “How do we get it out if what we need to get out, is inside?”  And secondly, if we manage this arduous task, do we really need the cutter in the first place?  We invent new solutions to problems that we have created ourselves and some of the very solutions we create exasperate the problem.  For example, we condition the air we live and work in to help cool us off, but air conditioners use enormous power that contributes to the heating of our biosphere.  What do we do in response?  Turn it up! 

It’s not all bad though because solving the problems that come from bad design and short-term thinking increase the GDP too and, I am told, this is good for the economy.

Part II – What is “Free” in a Free Market?

Meeting our short-term needs (read wants) that capitalism says must continuously create, too often comes at the long-term expense of social disparity and environmental degradation. 

Robert Reich, labour minister in the Clinton administration in his book SuperCapitalism, suggests the demand of investors for ever-increasing short-term returns on their investment (quarter-by-quarter) and the demand of consumers for more choice, more products, and lower prices, is actually providing a lower quality of life for the average American.  “Super” can mean two things, great or over-the-top.  His theorem is counter intuitive to a free-market capitalist who is measuring “great” with their bank balance, without noticing the social or environmental costs of creating that financial wealth.
Mr. Reich says that SuperCapitalism is happening before our eyes yet the consuming public at large is largely unaware of the connection between its demands and those demands have on customer service (ever phone the phone company?), the quality of the products we buy, the profound negative impact on social issues (employment; growing gap between the rich and poor; health etc...) and the biosphere (dumping garbage in the ground and dumping carbon in the air). 

SuperCapitalism, is when we take natural resources without paying for them, to send “off-shore” on big carbon emitting ships powered by oil from the environmental calamity in Alberta called the tar sands, “outsource” the cheap off-shore labour to make cheap products (that, remember, we often do not need) in off-shore factories powered by dirty coal, then on the same carbon emitting ships send the assembled cheap products back to get trucked on carbon emitting trucks to all the big box stores that we must drive to in our carbon emitting cars, in order to buy what we use - and because it is so cheap, before long it gets sent to the landfill simply because it is cheaper to throw it away than try to repair it.  It seems more like SuperDuperCapitalism to me.     

Has globalization run amok? How on “earth” did we get to this point?  Does a “free-market’ really mean that the earth’s resources are free for us to take, without taking care?  And that we use up these “free” resources to create solutions for problems that do not exist?  Or make problems?  Or create new problems? How did it come to the present mindset that nature in all its abundance is infinite?

Part III – How did it get to be this way?

Our current mindset was born a few hundred years ago when the Industrial Revolution took shape in England.  Adam Smith explored the “Wealth of Nations” and how the division of labour and factory work was reshaping lives and economies.  He created the groundwork for understanding the new economic system of capitalism as we know it today – and we also know he used the insights newly gained from science, particularly Isaac Newton’s “laws of motion”.  As a result, the machine metaphor was born.  

The field of economics was born with the machine metaphor attached to it.  Economics gained credibility by adopting the same scientific approach to describe ambiguous assumptions and complex criteria that made up the “economy”.  The difference is that Newton based his theories on evidence, while economics based its theories on assumptions.  And here is an assumption that the economist had back then:  anything “natural”, that is, created by nature, or used in or disposed of in nature, is assumed to be “externalities” in the cost of production, use or disposal of said product and therefore does not reckon in the financial accounting.   This assumption persists.   Mother Nature comes free to us to do what we want. This interesting view of reality makes one wonder how an economy could exist without air, water, or soil!

Our inherited, out-dated industrial system is based on a twisted view of reality.  One that might have made sense four hundred years ago, but we have evolved since then.  Science has long since moved on from the machine metaphor and Newton’s laws.  Quantum theory and the theory of relativity have expanded the sciences to acknowledge life is just a bit more complicated than the Newtonian pull-a-lever-here, get-a-result-there.  Yet business continues to be mired in this metaphor.  (If you haven’t noticed then perhaps you haven’t been “firing on all cylinders”).  Business needs to move on too and find a new metaphor.  We ought to pay attention to and participate in new forms of capitalism emerging in response to our changing world, such as Natural Capitalism and Social Capitalism.

Part IV – Where do we go from here?

Natural Capitalism is a new paradigm that many hope, is creating the next industrial revolution.  If Adam Smith wrote the book on the existing modus operandi, Paul Hawken’s late 1990’s tomes The Ecology of Commerce and Natural Capitalism are reshaping those long-standing beliefs and assumptions Smith helped imprint.  The fundamental essence of Natural Capitalism is that the increasing natural resources we take freely to create products that ultimately becomes waste, erodes our natural capital.  We tend to separate our economy from our ecology but he makes it clear that our ecology supports the economy, not the other way around.  “The environment is not a minor factor of production but rather is an envelope containing, provisioning, and sustaining the entire economy.” 

The “green movement” has long since been popularized and is creating massive demand.  The adroit business is now adopting sustainability strategies that not only send a message to the public they are operating responsibly (a corporate relations coup that is hard to pass up), they are realizing huge dividends in their financial bottom line by saving energy costs, reducing turnover and creating more loyal relationships with suppliers and customers.  Consumers now care a great deal from whom they are buying.  That makes shareholders breathe a bit easier, and since others share that cleaner air, the relief goes beyond to other stakeholders in the community.

The poster child of the corporate sustainability movement is Ray Anderson, CEO of Interface, a two-billion dollar carpet manufacturer.  This self-declared plunderer has proven that long-term thinking about how his company operates can change for the benefit of the biosphere and his shareholders.  I heard him speak at a conference in Cleveland not long ago:
“Business and industry, the largest, most pervasive, wealthiest, most powerful institution on earth and the one doing the most damage, my institution, must take the lead in directing earth away from man-made collapse.  If business and industry is not aboard, your effort is doomed. Looking for leadership, I felt I had no alternative but to look in the mirror, and then I asked my people to lead, to lead what you might ask. To lead in pioneering the next industrial revolution, how about that? The next industrial revolution, why? My message to you is that the first one is not working. It is unsustainable. It is a mistake. It just happened, there was no plan, and it came out wrong. I’ve benefited as much as anybody from it, but I believe we must have another industrial revolution, and a better one, and we must get it right this time.”

There was nothing easy about the journey he started – at 60 years of age!  That was over a decade ago. Since that time Interface’s business has grown like mad, and within the past four years their stock went from $2 to over $14 today.  In the same period Interface managed to reduce their CO2 emissions by a staggering 60%!   His courageous leadership inspired many others to take notice and Natural Capitalism is starting to take hold. 

Social Capitalism is unfolding out of a rising awareness of the widening gap between the haves and have-nots.  These groups can be represented globally with the affluent Northern Hemisphere and the hungry Southern Hemisphere, or it can be in your very own community.  It is also becoming more apparent that as the gap grows, there is a correlation with violent acts of the desperate.  It is no coincidence the co-winner of the 2007 Nobel Peace Prize was Al Gore (a Natural Capitalist), and before that the 2006 Peace Prize went to a Social Capitalist, Muhammad Yunus, founder of the Grameen Bank, for their efforts to create economic and social development from below by lending money to the poor to start their own businesses.  A rather off-centre approach considering our banking system only lends money if you can prove you don’t need it.  Yunus proved you can help people help themselves, and even profit handsomely from it.  The rate of loans repaid from this type of lending is something our banks can only dream of. 

There is a clear distinction to make between social capitalism and donations, grants and other charitable acts.  Aid is necessary and appropriate in circumstances of crises, but social capitalism is designed to bring a model of prosperity and know-how that did not exist in a place before.  In other simpler words, to help people help themselves.

There are, of course, issues social capitalists need to be mindful of.  To begin with, we need to help them build businesses that honour their values, not emulate the circus of SuperCapitalism.  On the other hand, some might say the free market capitalism that created so much wealth for Bill Gates has been nothing but positive for social capitalism.  His philanthropic endeavors have been epic, but not every wealthy business magnate has a Melinda by their side, encouraging them to go beyond philanthropic gift giving for that impressive tax shelter. 

We might also wonder if it is misplaced hope to rely on business leaders to solve social issues.  I have the idealistic notion that a corporation starts and continues to exist for a purpose, to fill a need that serves a subset of the community in some way.  The corporation’s responsibility is to accomplish this profitably within the law, while minimizing the negative impact on the community (global or local).  If my business is, say, logistics software, is it my role to solve world hunger, AIDS or other issues that are not directly related to my business?  Corporate Social Responsibility is NOT social capitalism.  While the good intentions of Corporate Social Responsibility departments to promote good behaviour of their respective corporations may be noble, when did it become their responsibility?  Corporate contributions to the arts and the United Way are always welcome but surely it is not their responsibility to do the work Governments are supposed to be doing.

The massive growth NGOs (Non Governmental Organizations) has been staggering over the years.  This growth and the increasing role of CSR departments exist because the need to solve these big problems is getting bigger while our governments are taking less responsibility when they need to take more. 

More and more people who are living lives well beyond their primary needs are realizing most of our fellow humans living on our planet do not have enough potable water to drink, nourishing food to eat or access to the most basic health care.  These people are taking sabbaticals, or retiring early, taking breaks from academic pursuits, or taking on more “meaningful” work to offer their heads and hands (not to mention, their hearts) to help solve the genuine problems of the world instead of, say, finding the cure for baldness!

Conclusion – Genuine Free Market Capitalism can be a force for good.
 
Over the last year I had the privilege of traveling to many places I had never been.  Before visiting the “developing” countries of Mexico, Chile, Argentina and Cuba, I went to England for the first time.   My wife’s cousin Bob is a Brit that happens to be a multi-millionaire. He has a tiny ($2 million) flat in London that he offered to us while there.  Capitalism has been good to Bob, and walking about London Town you get the sense with the mix of centuries-old buildings nestled in with affluent modern skyscrapers that capitalism is, and has been, very good to Britain. 

After walking about smaller communities like Oxford, and travelling north among the rolling hills and thick stone fences of the Lake District I felt I was in an Orwell novel and was getting a much better sense of what life could have been like in the dawn of the industrial era.  Strolling around in the quaint villages of Windermere, Ambleside and Grasmere with the many-hundred-year stone houses with slate roofs, it was also easy to imagine, despite the soot belching from the coal chimneys, that life in the industrial revolution that Adam Smith advocated for, was creating prosperity in these old communities.  For a while.  For some. 

I left Britain with little doubt that capitalism creates much wealth.  My other ventures were telling me that it does not distribute it very well.  South America, India and China, and other areas of the Third World are developing at much different paces.    It is not difficult to comprehend why they want some of the wealth the Western world has been gorging on for so long.  It is much harder to imagine that the people I met in the small Mayan village of Ek Balam care much about yoga stretch pants made of seaweed fibre, battery powered razors with six blades or toothbrushes that have had more (apparent) research put in to them than the human genome project!

I am a capitalist advocate, but somewhere, somehow, capitalism morphed into mad consumerism. I wonder if Adam Smith would have even conceived of the mayhem of “Boxing Week” sales or the Black Friday consumer crush every year on the American Thanksgiving weekend.  Contrast that madness to Georgetown on Main Street.  Every Saturday morning from Victoria Day weekend to the Thanksgiving Holiday, Main Street is closed to traffic and local merchants and farmers come to sell their wares at “The Market”.  This novel idea, started just a few short years ago, has become hugely popular.  Families come with their kids and dogs and walk the street, picking up their fresh vegetables and sundries.  People bump in to friends and neighbours and launch in to civic discourse about various pressing issues, like the weather.  It is entirely civilized.  No one seems to be in a rush to get anywhere.   It is a bit closer to a form of capitalism I want to think Adam Smith had in mind where, I might add, not a single merchant is selling leaf blowers.