America and the world are facing a crisis of division. Left vs. right. Have vs. have not. Urban vs. rural. Us vs. them.
Many blame capitalism for these ills. Left and right criticize capitalism for failing to serve their constituencies. More young people approve of socialism and disapprove of capitalism. And the decade-long decline in entrepreneurship reveals the new preferences of Americans.
For them, the dominant paradigm of capitalism is premised on greed and exploitation. For too many, even among capitalists, capitalism means businesses maximizing profit by any means necessary. Under this paradigm, capitalism is a system of production without moral underpinnings or guardrails. Yet this is not the paradigm Adam Smith articulated.
The father of free-market capitalism, Smith was a moral philosopher who argued that humans have a natural inclination to care about and for others. The economic system he later articulated provided a structure for people to work with and support each other in a moral way.
Today, the paradigm is wrong, even though capitalism’s fundamentals remain strong. The way capitalists practice and defend capitalism are misguided.
Gordon Gekko of Wall Street fame remains the archetypal representative of capitalism, in part because capitalists have lauded his language. Earlier defenses of capitalism, such as Milton Friedman’s claim that “the social responsibility of business is to maximize profit,” have damaged capitalism’s brand. They redefine the debate in a way that does not resonate with others.
On the other hand, this is not just a branding problem. It’s a substantive problem.
The way capitalists have been practicing capitalism does not live up to its potential to create real value for everyone. Believing the purpose of business is to maximize profits now leads to rent-seeking and accounting manipulation rather than real value creation.
Employees who work at companies where they feel like cogs in a machine are not fulfilled by their work. Only 34% of U.S. workers were “actively engaged,” according to the 2018 Gallup survey results.
There is a reason that Dilbert resonated with so many. When the most common associations people have with business are Gordon Gekko and Dilbert, it’s no wonder capitalism has declining support.
The solution is a new paradigm that emphasizes the human nature of business, a “conscious capitalism.” Conscious capitalism recognizes the benefits that a system of free exchange has brought humanity over the last 200 years. Since capitalism’s advent, per capita GDP has grown by a factor of 20. We are on the brink of ending extreme poverty in the world, thanks to capitalism.
Yet more remains to be done, beginning with understanding that the purpose of business is to serve a higher purpose, not to maximize profit. Profit is a great thing, but it is the byproduct of serving a higher purpose and creating value.
Today’s dominant paradigm says that shareholders are the only group that matters, and that employees, customers, and others matter to the extent they create value for shareholders. This zero-sum worldview sees the only way to benefit one group is to take from another. This is anathema to capitalism.
A positive-sum worldview is a foundational premise of capitalism, where more value is created for everyone than existed before the exchange. The interests of employees, customers, suppliers, shareholders, and the community can align with each other, and business needs to take the lead in creating that alignment.
Conscious capitalism depends on conscious leadership to bring this about. Business leaders must be more than analytically intelligent. They can and ought to serve as inspirational examples by remaining committed to the organization’s higher purpose and values.
This approach is lived out when businesses have conscious cultures. A business culture creates the environment and expectations of everyone in the business where they can live up to its higher purpose, carry out the company’s stakeholder orientation, and have everyone practice conscious leadership. This creates space for people to bring their full selves to work and be fulfilled by their work.
Companies of all sizes and in all industries provide examples of conscious capitalism in practice. Televerde hires women incarcerated in federal detention centers to train them to re-enter society as well as to provide quality marketing and sales services to clients. Driversselect, now EchoPark, has grown rapidly in the used car industry with a commitment to “infecting the workplace with contagious care.” And, LAZ Parking, one of America’s largest parking companies, puts dignity and respect at the center of its operations.
This shift is not about any single person or business adopting this perspective. The challenge we face is systemic. So the solution must be systemic.
Conscious capitalism provides a path for capitalism to contribute even more to humanity in the next 200 years. Conscious capitalism brings people together from all walks of life, political beliefs, and backgrounds. It is not a nice to have. It is essential to a flourishing and fulfilling future for humanity.