Ancient Wisdom Still True Today

Since the dawn of the industrial age, critics of its reliance on capitalism for continuous innovation and growth have pointed accusing fingers at systemic aspects of private property, free markets and limited government regulation for capitalism’s many unequal outcomes and power imbalances.

But what if the root cause of the shortcomings of capitalism are not in its architecture but in the minds and hearts of those who make use of its structure for their own purposes?

Recently, I read an essay on Thucydides’ History of the Peloponnesian War. Two insights from that first Western historian would incline us not to blame systems but rather look for causes and offsetting remedies elsewhere.

Thucydides thought that “…the usual thing among men is that when they want something, they will, without any reflection, leave that to hope, while they will employ the full force of reason in rejecting what they find unpalatable.”

Markets generate wants, as honey draws flies. Is it any surprise, then, that people in markets cling to hope when they should not and rationalize away what is inconvenient or unsettling in their transactions, especially any personal responsibility for doing good to others?

Thucydides also said: “War is a stern teacher … it brings most peoples’ minds down to the level of their actual circumstances.” War throws “the ordinary conditions of civilized life into confusion; human nature, always ready to offend even where laws exist, show[s] itself proudly as something incapable of controlling true passions, insubordinate to the idea of justice, the enemy of anything superior to itself.”

Many have pointed out the supposed similarities between war and markets: dog eat dog competition; to the victor belong the spoils; survival of the fittest; no empathy for losers. So markets, like war, expose the rawness of human nature, bloody red in tooth and claw.

There is something to the comparison. People do not lose their human natures when they go to market. So when market realities – no free lunch, prices too low or too high – bring them down to actual circumstances and sow confusion in their framing of expectations and aspirations, their passions take over and become insubordinate to justice. They consider their own interests paramount and not subordinate to the concerns of others.

So in a sense, it is a system that creates our disappointments, a natural system, if you will. But the market system of our own devising for production, finance and consumption, at times, brings forward human nature in the raw – untrammeled, unpolished, un-burdened by virtuous sentiments, unadorned by beauty.

The solution: reform the market system or change our natures?

CRT Responds to Australian Royal Commission on Banking

The Interim Australian Royal Commission report on abuse of marketing by financial firms was released last month. The executive summary of the report can be found here.

The techniques for enhancing firm revenues brought under scrutiny do not measure up to standards of moral capitalism. Once again. I s such taking advantages of customers inescapable in capitalism as a function of a human nature which is programmed to deviate towards selfishness or can market incentives be arranged to offset that propensity with more ethical fidelity?

Noel Purcell, Chairman emeritus of the Caux Round Table for Moral Capitalism who worked on CSR for WestPac Bank in Sydney, has submitted a response to the Royal Commission’s interim report, which can be found here.

In Noel’s distinctive and distinguished fashion, his response is short and forceful. I urge you to read it and let me know your thoughts.

The Consequences of World War I

One hundred years ago today, the fighting in World War I ended in an armistice agreement. An old order disappeared and our modern era began. The work of our Caux Round Table for Moral Capitalism (CRT) has evolved to challenge the darker sides of our modern temperament by providing ideals and standards for constructive globalism and just social orders.

Thanks to World War I, an imperial age evaporated. Russian, Ottoman, German and Hapsburg empires collapsed. The British Empire, though triumphant on the battlefields of Europe and the Middle East, was financially wounded and spiritually subverted. The 2,000 year Chinese empire in Beijing, in the process of collapse, would be replaced first by warlordism, then by civil war and then by an ideological, one-party dictatorship. The Japanese attempt to create a new empire in East Asia and the attempt by Hitler to build a similar empire in Europe would both fail. The United States emerged as a first among equals with a determining role to play in building a new international political and economic order.

The new norm for the global community became the self determination of peoples. Each “people” was thereafter entitled to a sovereign nation state, a legal order derived from the 1648 European Westphalian compromise between church and secular powers. To protect nation states, aggressive war was outlawed. This norm was incorporated into the League of Nations and today’s United Nations. To check the powers of such national sovereignties, international law on human rights was created and multilateral organizations were established.

But the definition of who a people entitled to its own state might be was left vague. Today, conflicts among “peoples” are a source of contention and violence. What is the proper status of the Scots, Catalans, Palestinians, North and South Koreans, Uighurs, Tibetans, Kurds and the Ukrainians? What is the proper balance of power between the peoples of the European Union and the Union’s central administration? Does China have sovereign territorial rights over the South China Sea or the Senkaku Islands? Are the Taiwanese a “people?”

The end of World War I ushered in modern culture with its angst and distempers of nihilism and narcissism. In Europe, history was abandoned as having led to failure of systems. Architecture abandoned classicism and turned to modernism with its clean horizontal and vertical lines and its ideal that form should follow function. Philosophy under Dewey and Wittgenstein embraced rational skepticism. Law turned more and more to legal positivism and instrumental response to contemporary values and policy needs. Music replaced symphonies with Jazz and syncopation. In literature, Joyce, Proust, Kafka and Hemingway set forth new modes of writing and chose new subjects for reflection. Innovation, embracing whatever was not old, became the common currency of culture. The marginalization of religion began. The spirit of the age became what Pope Francis calls “anthropocentrism” – humankind taking over from both God and nature.

Modernity was thus unsettling and still is. Reaction set in, perhaps most importantly under Hitler in Nazi Germany.

In economics, after World War I, socialism took on new power to displace capitalists as a ruling elite. Our economic order is still unsettled by the conflicting claims of capital and labor. Governments evolved a welfare state ideology to balance and compromise the respective interests of finance, production, workers and communities. The collapse of the Soviet Union and the shift to “socialism with Chinese characteristics” in China under Deng Xiaoping solidified a modern approach to economic growth and social justice which blends private goods and the common good on terms mediated by the state.

Thus, the CRT’s principles for business, ethical government and ownership of wealth address the central problem of our time.

Our need to move beyond the fears and power imbalances of today can be met by finding common cause in fundamentals so that the “upsettingness” of modernity becomes both constructive and comfortable for all.

Inscribed on his grave is Karl Marx’s Thesis Eleven on the philosopher Feuerbach: “The philosophers have only interpreted the world in various ways; the point, however, is to change it.“ And on David Livingston’s burial market in Westminster Cathedral are his last written words: “All I can add in my solitude, is, may Heaven’s rich blessing come down on everyone, American, English, or Turk, who will help to heal this open sore of the world.”

As I stood on the back of our Capital in Washington, D.C. on Friday, January 20th, 1961, I heard our new President John F. Kennedy urge: “Don’t ask what your country can do for you. Ask rather what you can do for your country.” Today, I would amend that to replace country with “world.”

One hundred years after the Great War – the War to end all wars, the War to make the world safe for democracy – ended, our task remains to act to ensure that modernity reflects the better angels of our nature.

The Fruits of Modern Capitalism

Swiss bank UBS just released its 2018 report on the world’s billionaires. A few factual highlights I thought would be of interest to you:

  • Globally, billionaire wealth increased by USD 1.4 trillion to USD 8.9 trillion in 2017, its greatest absolute growth ever, with China minting 2 billionaires a week.
  • Billionaires have driven almost 80% of the 40 main breakthrough innovations over the last 40 years. Approximately 70% are technology-related and 80% of the companies behind them are based in the Americas.
  • A new cohort of Chinese entrepreneurs is challenging Silicon Valley amid rising tensions over trade and intellectual property. With 50 unicorns produced in China and 62 in the U.S., the Chinese are proving restless innovators and disruptors.

Rent-Seeking Pays

A short comment on rent-seeking:

It may be that the most thoroughgoing distortion of free markets and capitalism is rent-seeking – consolidation of firms to give commodity pricing and market dominance to a few, benefiting from favorable government privileges and regulations (also obtaining market privileges through the prevention of regulation), cronyism of all sorts, agreements in restraint of trade,…

We should not, therefore, blame capitalism or those in finance and enterprise for the sins of rent-seeking, only those who engage in rent extraction.

I noticed recently in The Economist a claim that in the U.S., rent-seeking through special tax benefits is profitable. The money spent on lobbyists who arrange for the special tax advantages to be adopted by the Congress or through administrative interpretation of regulations earns a return for companies of 22,000%. Secondly, American financial firms which spent the most on lobbying benefited disproportionately from bank bailouts after the 2008 financial crisis.

Good Advice

I want to pass on a sound observation by Carlos Ghosn, CEO of Renault and Nissan:

“If you don’t find the solution, it’s because you didn’t see the real problem.”

I like his optimism and his call for intelligent observation and analysis of the “what is” – the Tao of the Chinese and the Dharma of the Buddhists and maybe the natural laws of how the world works of the West.

Private Production of Public Goods?

A very common misperception about the nature of goods and services limits our intellectual horizons on the good that can come from free market capitalism.

I refer to sustainable development and the current global discussion as to how best to implement the 17 U.N. Sustainable Development Goals (SDGs). Most of the goals in their objectives contemplate provision of a public good or service or the reduction of a public “bad,” such as disease, pollution or discrimination.

What is overlooked is how to scale the production of such “public” goods to have a global impact.

When many of us hear the term “public,” we immediately default to a vision of something provided by the government and not by private markets. “Public” goods traditionally have been paid for by taxpayers and delivered by government.

But that does not have to be the case. Many so-called public goods, such as health and education, are also simultaneously private goods. Health is good for individuals, just as is more education.

Where the use and benefit of goods has a private, personal ownership character, why not use markets and business for production and delivery? After all, both health and education have long been provided by doctors and teachers offering services for a fee.

We might also do well to think of the capacity of private transactions to reach huge scale. Consider the internet and the digital economy. Private businesses like Google and Apple have provided more access to more people more quickly and more efficiently than governments could.

I have just read of several sectors where private business could make a dramatic impact on implementing the SDGs. One is the production of air conditioners. One billion air conditioners will be installed in the next 10 years. Heat waves kill people. It also reduces hours at work in many countries. Lack of refrigeration causes loss of food crops to rats and insects in many developing countries. If HFCs were phased out of the air conditioners made by companies and the energy use by all were as low as in the best of today’s models, millions of consumers buying such machines would make the world better. Replacing refrigerant would reduce greenhouse gas emission by 90 billion tons by 2050.

Large cities are complaining about road congestion and point a finger of blame at ride hailing vehicles. But what about road pricing? Using price to drive consumption levels of a private good – transportation?

In the mid-pacific, somewhere between 45,000 and 129,000 tons of plastic debris floats on the surface of an area roughly the size of Alaska. How to remove such non-biodegradable garbage? What about a private enterprise which would sweep the plastic up and sell it to recyclers?

This is being attempted by Boyan Slat. He designed a boom to float on the surface of the ocean and hold a mesh net under it. As the wind and waves sweep the boom over the water, plastic debris is collected by the mesh net. Occasionally, the net is retrieved and its haul of plastic picked up, taken to land and sold. An investment of 5 million Euros is needed to put into the collection business a similar boom of 1 kilometer or more in length.

Thirdly, in The Netherlands, two Dutch firms have created a road bed made from recycled plastic instead of bitumen. Sections of road are prefabricated in a factory and then installed as a road bed. These plastic road beds will last two-to-three times longer than conventional roads and cost less. They would eliminate the need to use bitumen made from hydrocarbons and provide a use for plastic which needs to be recycled.

These examples point us to a best practice: private enterprise generates new technology, works out the problems and deploys the product to whatever scale society wants to pay for.

Moral capitalism, anyone?

The Economist at 175

A few weeks ago returning from Mexico City, I read the “manifesto” of The Economist magazine written on its 175th anniversary – 1843.  It was a defense of “liberalism.”

The Economist called for a revival of “liberalism” which has lost sight, it said, of its own essential values, saying “Liberalism made the modern world but the modern world is turning against it.”  The magazine defines “liberalism” as a “universal commitment to individual dignity, open markets, limited government and a faith in human progress brought about by debate and reform.”

This “liberalism” is positioned between the social Darwinist “neo-liberalism” of micro-economic fundamentalists on the libertarian right and collectivist regimentation on the left for the betterment of the “people.”

The Economist argued that “True Liberals contend that societies can change gradually for the better and from the bottom up. They differ from revolutionaries because they reject the idea that individuals should be coerced into accepting someone else’s beliefs. They differ from conservatives because they assert that aristocracy and hierarchy, indeed all concentrations of power, tend to become sources of oppression.”

It occurred to me that the vision and mission of the Caux Round Table for Moral Capitalism is precisely this “liberalism.”  Our Principles for Business, ethical government as a public trust, responsible debate on the part of civil society and responsible use of wealth to enhance social and human capitals define a working program of “liberal” civilization.

I would add that “liberalism” resumes that individuals have a moral sense, a moral sense that does not need to be imposed by the state or any righteous hierarchy and a moral sense that keeps those with power from abusing it.  “Liberalism” presumes that individuals each have a station in life which carries with it burdens and privileges and a responsibility to serve a higher purpose.

This “liberalism” echoes the balancing between extremes of Aristotle, the Doctrine of the Mean of Confucius, the Mizan of the Qur’an and the middle way of Buddhism.