Reforming capitalism for human welfare
Capitalist enterprises are designed to produce profits for their investors by improving efficiency and extracting economic surplus from their operations
Indian industrialists breathed a sigh of relief when Prime Minister Narendra Modi at a conference on skill development last month said that citizens should understand that India’s industrialists were contributing to the country’s progress. In December 2017, he had berated industry leaders at the Federation of Indian Chambers of Commerce and Industry’s annual general meeting (AGM) for putting their own interests above those of the country and the people. Industrialists have interpreted the prime minister’s recent remarks as a restoration of trust between industry and government.
When politicians take up the cause of the people, industrialists complain they are becoming populist. They forget that it is a politician’s duty in a democracy to represent the people. Industrialists would like political leaders to educate the masses and explain why industrialists are good for them. Therefore, there was relief when the prime minister spoke on their behalf at last.
Industrialists do not like the government to regulate their behaviour. It constrains their ease of doing business, they say, dampens their animal spirits, makes them reluctant to invest and take risks. Therefore, the government should get out of the way and leave it to the private sector to regulate itself if the government wants faster economic growth.
Both Modi and, before him Manmohan Singh, in a memorable speech to the Confederation of Indian Industry’s AGM in May 2007, on “Inclusive Growth: Challenges for Corporate India”, have appealed to Indian companies to look towards the needs of the country, and the needs of all Indians, and regulate their own behaviour. If corporations want less interference by government, they should not ask government to be their advocate with the people. They must win the people’s trust on their own.
The Edelman Trust Barometer, a global survey of citizens’ trust in institutions, has reported a continuing decline in citizens’ trust in capitalist corporations and democratic governments. People suspect corporate power is swaying governments too much. For governments to win the trust of people, they must of course respond to the concerns of people. And corporates too must respond to the concerns of people if they want to win the people’s trust and also want less interference by government. The corporate sector must change its strategy to win public trust. The excuse that a few bad apples are causing the stink, coupled with glossy stories of corporate social responsibility projects to show how good to people corporations are, is not enough to win public trust in capitalist institutions. The mistrust goes much deeper, to the principles by which corporations function.
Capitalist enterprises are designed to produce profits for their investors by improving efficiency and extracting economic surpluses from their operations. Their investors are their masters. Efficiency and profits are paramount measures of their performance. The dharma of institutions of democratic governance, on the other hand, is to ensure fairness in society and equity among stakeholders. Indeed, it is the government’s responsibility to ensure that competition among capitalist institutions is fair, and that large companies do not monopolize markets and leave room for small companies to grow.
Nobel laureate economist Milton Friedman’s thoughts influenced Margaret Thatcher and Ronald Reagan’s drives to push back the public sector to make more room for the private sector in society. Government, Reagan said, is not the solution. It is the problem. Therefore, privatization of education, health services, and public utilities, which are often not efficiently managed by governments and require subsidies to operate, was a good idea. However, Friedman also said that the business of business must be only business. So, when privatized, these services must be run on business principles. Efficiency in delivery must be the prime concern. Enterprises must produce profits for their investors and socialist notions of equity must not distort capitalist enterprises.
Economists see society as a market, in which people transact with each other in money. This view strips out other forms of non-monetized transactions in society, such as between family members and neighbours. It cannot count the value of voluntary work. Nor can the value of a forest or a pristine lake be added to the gross domestic product (GDP) until it is commoditized and exploited for some business. Markets are deepened with the conversion of human relations into monetary transactions between people and by the commoditization of nature, when everything can be bought and sold, and measured in monetary terms. The global economic system has gone too far with the financialization of economies. The money made converts into financial wealth, which is increasingly accumulating in the hands of fewer people who use their wealth to influence the rules of the game. Hence, the increasing inequalities of wealth within all societies.
M.K. Gandhi said he had no problem with businessmen’s drive to generate more wealth. They may use natural resources in their business, he pointed out. However, he urged them to behave as trustees of a society’s wealth. That is the way for them to earn the people’s trust. He also said that nature has enough for everyone’s needs, but enough for everyone’s greed.
Concepts of social enterprises and impact investing emerging in the world of capitalism are attempts to create new forms of capitalist enterprises. The purpose of these enterprises is not maximization of investors’ wealth, but improvement of well-being of societies. Such enterprises should produce enough profit to meet investors’ needs, but no more than that for satisfying investors’ greed. The measure of these enterprises’ success cannot be shareholder wealth created, but social wealth produced. Social wealth must include the wealth of nature and the wealth of human relations.
A nation’s wealth cannot be measured by its GDP alone. The quality of society and the environment contribute greatly to citizens’ well-being. Nature and society must not be converted into money markets for the convenience of economists’ measurements, increasing GDP, and creating wealth for capitalists. Governments and business enterprises must work together to contribute to these qualities to win citizens’ trust.