Author: CRT Admin

Advocates for private firms (capitalism) to produce “public” goods to solve common problems, like global warming, often seek an “incentive” for firms to produce what they can’t sell at a profit to private customers.  One incentive more and more recommended is the reward provided by private investors to private firms which deliver benefits and outcomes valued by those investors.

For example, last November, at the COP26 gathering of leaders, a major announcement was the pledge of the Glasgow Financial Alliance for Net Zero – a global coalition of over 450 finance firms across 45 countries, jointly managing $130 trillion – to align their financing activities to achieve net-zero emissions by 2050.  Those asset managers, in theory, would provide financial capital to firms working to achieve net-zero emissions or deny financial capital to those firms not working to achieve net-zero emissions.

Our colleague in The Netherlands, Herman Mulder, with his colleagues at the Impact Economy Foundation, has long been thinking seriously and successfully about how metrics can shape the business models of private firms.

Recently, he shared with me a short essay of his published by the Bretton Woods Committee on how finance could be a game changer in shifting private sector impacts to net positive.  You can read it here.

So much of the rejection of capitalism for 200 years now has turned on a perception that it is only an oppressive system of rent extraction, whereby labor is exploited; governments are corrupted; wealthy elites marinate in social injustice; greed is promoted over altruism; middle class lifestyles and aspirations are tawdry and self-absorbed; and most people are unhappy with their lot.

While this perception was shared by many, including Charles Dickens and utopian socialists, the font of anti-capitalism was the writings of Karl Marx and Friedrich Engels.  Both, in The Communist Manifesto of 1848 and Marx’s later treatise on the essence of “capital” – Das Kapital, capitalism – was described and analyzed as pretty much a despicable and irredeemable system for humans.

But what if Marx was wrong about capitalism?  What if it was not essentially systemic rent-seeking and rent extraction?

Socialism and communism would then have to be debunked and rejected as not supported by truth.

Capitalism would then have to be seen anew with a view towards keeping its advantages and minimizing its disadvantages.

In this special issue of Pegasus, I take more than a few pages to deconstruct Das Kapital, quoting extensively from the text in order to give Marx his due and then to provide an assessment of capitalism, warts and all, from the perspective of wealth creation and enhancement of individual agency.

This is a long read, but the analysis is new and, I hope, powerful in changing one’s opinion of Marxism.

I recently read a review of a new book on the 19^th century writer Henry James.  The book is The American Scene, written by James on his return to his homeland after twenty-some years in England.  In this travelogue, James writes despairingly of America as a cultural and moral wasteland, due to its hopelessly middle class values and ideals.

I did not know of this book and had learned of Henry James, famous for his novels which turned the eye of a social elitist on his less refined countrymen, as a snobbish Anglophile scorning the “colonials.”

But when the reviewer pointed out that James saw American democracy as dedicated to “eligibility,” which can be made good only through acquired wealth, not “equality,” I associated his dissatisfaction with America with the many critiques of capitalism and the bourgeoise banality and mindless, self-satisfaction which elites had so frequently imposed on those in the middle class.  The derivative disdain of the middle class, which the 19^th century avant-garde inherited from aristocratic antecedents.

I wondered if it is fair to so associate capitalism with the cultural limitations of the middle class.

Is it not more insightful to associate the middle class with opportunity?  Opportunity denied by aristocratic, landlord, rent-extracting societies?  Opportunity afforded by enterprise?  By middle class employment?  By saving accounts, share ownership and buying houses?  By public education, made possible by rising levels of GDP, generating taxes for governments?

My grandmother Morris, middle class by birth, but culturally seeking what James dismissed as merely “eligibility,” once told an English duke that in middle class America, more people went to symphony concerts, used libraries and visited art museums than in many of the old, high culture nations of Europe.

James was writing of an America newly industrialized, newly adorned with a very wealthy commercial and financial elite, the America of the Gilded Age of nouveau riche.  The culture of that era largely followed the sociology and advocacy of Herbert Spencer’s social Darwinism – survival of the fittest – championed by men such as Andrew Carnegie.  That cultural narrative and turn of mind presumed that we homo sapiens do not have much of a moral sense to guide us. Rather, we have mostly the will to power, to prevail, to survive and best those who cross our paths.

Change the presumption and your middle class might display more admirable ambitions and habits of mind and heart than the tawdry seeking wealth to finance “eligibility” for inclusion in proper society.

If Adam Smith and Mencius are correct about our human nature having powerful and elegant moral sentiments, then especially those in the middle class can aspire to moral excellence and cultural elegance.

It is reported that Greta Callahan, head of the teacher’s union in Minneapolis, said of her union’s strike against the Minneapolis public school system was a fight “against patriarchy, against capitalism.”

This, to my mind, brings into focus a vital issue for stakeholders in our republic: what responsibilities do teachers have when working for the public?

Is not their duty to serve, not dictate thought reforms to young minds?

Indoctrination imposes their will on those under their power, a form of oppression, of exploitation of position for personal benefit, no?

Callahan’s commitment to a personal “fight” for her truth brought to mind the standard of justice in Ezekiel 34:

The word of the Lord came to me: “Son of man, prophesy against the shepherds of Israel; prophesy, and say to them, even to the shepherds, Thus says the Lord God: Ah, shepherds of Israel who have been feeding yourselves!  Should not shepherds feed the sheep?  You eat the fat, you clothe yourselves with the wool, you slaughter the fat ones, but you do not feed the sheep.  The weak you have not strengthened, the sick you have not healed, the injured you have not bound up, the strayed you have not brought back, the lost you have not sought, and with force and harshness you have ruled them.

…

Thus says the Lord God, Behold, I am against the shepherds, and I will require my sheep at their hand and put a stop to their feeding the sheep.  No longer shall the shepherds feed themselves.  I will rescue my sheep from their mouths, that they may not be food for them.

Under the Caux Round Table Principles for Government, a public office is a public trust and accordingly, being a public school teacher is a public office.

We’ve proposed an oath of office for teachers to take.

The proposed oath is:

General Principle

Teaching is an office of trust to serve society by improving human capitals and thus, contributing to the enhancement of social capital which sustains the common good of the community.  The office of teacher provides both public goods to society and private goods to individuals.  Faithfull execution of the office of teacher ethically guides the instructor.

The teacher is the overlap of two Venn circles – one is the individual, the student and the other is the community or communities in which the student lives and will live as an adult.  The teacher’s office is to keep a balance between the individual and the community.  Thus, the teacher should accurately identify and articulate the circumstances of the student and also accurately discern the context in which the student is placed.  The teacher participates in the ego-identity formation of the student, the student’s sense of self which serves as the foundation of a life well-lived and which simultaneously engages with the context, values, character and needs of the community.

As William James advised: “The community stagnates without the impulse of the individual; the impulse dies away without the sympathy of the community.”

Principle No. 1: Educate, Not Indoctrinate

As a fiduciary, a teacher places service over self.  A teacher seeks to bring out the best in students and must put their interests in achieving intellectual and moral growth first, without confining their understandings to the teacher’s personal narratives.  The teacher as fiduciary separates role responsibility from personal prerogatives.  The duty of a teacher is, from the Latin educare to “bring up, rise up, train, mold or nourish.”  A cognate Latin word is educatus – to “bring out, lead out.”

Principle No. 2: Citizenship Formation

The office of teacher seeks to form the characters of students that they may become honorable and engaged citizens.  The teacher facilitates student experience of personal agency and acquisition of self-command and self-reliance, not subservience.

Principle No. 3: Searching for Truth

A teacher introduces students to realities – simple and complex, material and cultural, natural and social.  A teacher guides them to apprehend the environments in which they live and to internalize knowledge of those circumstances, their origins and potentials.  Detachment and objectivity are required for success in the search for more certain knowledge of reality.

Principles No. 4: Empowerment 

A teacher empowers students with skills and abilities – intellectual, ethical, athletic and emotional.  The trust responsibilities of a teacher are realized through the student’s accumulation of skill and effectiveness.  Three skills supporting robust personal agency are: awareness of values, ambiguity tolerance and mediation skills consistent with a resilient ego-identity incorporating honesty and honor.

Here in Minnesota, I have been considering, with help from Tom Abeles, launching a book club to meet regularly on Zoom for the benefit of our network.

I have several alternatives in mind and would be grateful for your advice and recommendations.

First, each meeting over Zoom could review and discuss one book or material excerpts from a long one.

Or a meeting could discuss selections from several books for comparison or breadth of coverage.

I believe that there would be value in reviewing classics, in light of current circumstances – Adam Smith on the moral sentiments, for instance.

John Maynard Keynes, Herbert Spencer, Max Weber on the Protestant ethic and the spirit of capitalism, might be others.

Then, there is value in discussing current books, like those of Thomas Piketty, Paul Polman, Klaus Schwab, our own Klaus Leisinger, Mark Carney and Kengo Sakurada.

We could also devise a process for participants to recommend books to present to our network for discussion.

Please let me know what you think of such a program and your advice as to books worthy of discussion.

Years ago, when I was first with the Caux Round Table and learning my way around the field of business ethics or corporate social responsibility, as the talk was then, I asked Joe Selvaggio to meet me for coffee in Minneapolis.  A former Dominican priest, Joe had built out a remarkable program of rental apartments for low-income families – remarkable in that rents were paid on time and units were not trashed by renters.  Now, he was running another remarkable Minnesota program – the 1% club, encouraging wealthy families to give 1% of their assets to charity each year.

I was just starting to tell him about the Caux Round Table’s Principles for Business when he cut me off:

“Steve, you are wasting your time.”

I was startled: Joe Selvaggio not a believer in business ethics?

Joe explained: “Trying to get companies to do the right thing is fine.  But what are you asking of the owners?  They’re the ones who can tell the companies what to do.”

I recognized, in a flash, as they say, that Joe had made a very profound point: business ethics and corporate social responsibility classes, workshops, business school classes, articles in academic journals and books had nothing to say about the duties of being an owner, of being a wealthy person.

Believing that Joe had opened up a new perspective on moral capitalism, we reached out, pulled together some ideas and proposed a set of ethical principles for the owners of wealth.

To this day, I am unaware of any other principles like them.

Our principles for the owners of wealth are:

Preamble

Wealth comes from earning a return on capital – human, financial, physical, reputational and social.  Current wealth generates future wealth.  A necessary use of wealth, therefore, is to ensure the creation of more wealth.

Wealth is a form of capital, constituting, in particular, the flexible ability to use and deploy finance capital.  Both individual initiative and social institutions interact to produce all forms of capital, giving to capital a mixed character, subject to the authorship claims of both individuals and society.  Capital, therefore, arises out of kyosei, a process of living and working together for a common good.  Ownership of shares in companies and corporations is, of course, a primary form of wealth in the global economy.

Further, the highest and best use of any form of capital is to generate additional capital.  Capital should not be used to hinder society’s ability to create more capital for the benefit of others. Consumption is not the most responsible use of capital.

Secondly, proper use of wealth is necessary for the achievement of more gentle and happy social circumstances, for improvement of the human condition.  Possession of wealth generates envy in others, leading to cultural and social tensions.  Unequal distribution of wealth gives rise to resentment, alienation and political conflict.

Thirdly, use of capital to abuse one’s power and position or impose one’s will on others is not compatible with a respect for human dignity.

The following principles are supplemented by more specific implementation standards and guidelines.

Fundamental Principle:

The Ownership of Wealth Entails Stewardship

The ends of holding wealth encompass more than meeting self-centered desires for dominion and indulgence.  There is a fiduciary aspect to the ownership of capital.  Wealth is to be consciously devoted to meeting the needs of society, of others and the challenges of the future.  Wealth should be of benefit to society.

General Principles:

-Wealth should be used to enhance other forms of capital: finance, physical, human, reputational and social.

First, wealth should be used to sustain and improve the institutions that permit the creation of wealth.  Accumulated over time, wealth can influence the future.  Wise use of wealth avoids immediate consumption and invests in the creation of better outcomes for future generations.  When wealth is invested in the creation of additional finance capital, it should invest in those businesses and productive enterprises that adhere to the Caux Round Table Principles for Business.  In particular, the current wealth of advanced industrial countries (some US$79 trillion) should be increasingly directed towards the creation of conditions for sustained economic growth in poor, developing and emerging market nations.  Wealth should be used to enhance all forms of capital formation in nations that adhere to the Caux Round Table Principles for Government.

–The desires of owners for self-satisfaction should be balanced against society’s need for robust accumulation of new capital in all forms.

Philanthropy is incumbent upon those who possess wealth.  The social function of wealth is to finance a greater good.  Those who are to inherit wealth should be expected to assume the fiduciary responsibilities of stewardship that accompany the possession of wealth.

–Wealth must support the creation of social capital.

Social capital – the reality of the social compact incubating successful wealth creation and permitting the actualization of human dignity – is created, over time, by governments and civil society.  From the rule of law to physical infrastructures, from the quality of a society’s moral integrity and transparency of its decision-making to the depth and vitality of its culture, social capital demands investment of time, money, imagination and leadership.  Wealth should pay its fair share in taxes to support public programs enhancing social capital and should invest in the private creation of social capital through philanthropy.

–Wealth should be invested in institutions enhancing human capital.

Education and culture can be funded from public budgets on a consumption basis, but wealth should shoulder the principal responsibility in a society of providing permanent endowments for institutions of education and culture.

-Private wealth should supplement public expenditures for the social safety net.

Private charity and philanthropy should respond to the health and human services needs of the less fortunate.

No one is morally entitled to the use and enjoyment of wealth procured by fraud, corruption, theft or other abuse of power.

Those who control such wealth should make restitution of such wealth to public bodies or civil society.  Use of private property rights to shelter such wealth is ethically suspect.

Just recently, the Sackler family in the U.S. agreed to pay $6 billion to abate opioid addictions because Purdue Pharmacy, a company owned by the family, had contributed to opioid addictions by making and selling OxyContin.  The wealth of the family is estimated to be $11 billion.

The company had declared bankruptcy in order to discharge claims against it, but the proceeding was stalled, as the Attorneys General of many states had brought before the court additional claims for Sacklers as owners of Purdue to fund opioid abatement programs and help combat a national addiction crisis.  The Attorney’s General opposed releasing the ownership equity of the company from all liability until the Sacklers increased their personal contributions to the remediation effort.  By the settlement agreement, no further claims would be made against the family.

The ethics of seeking owners to be responsible for what their company had done follows the “if you break it, you own it” rule.

This is one of the few cases where obligations of corporate social responsibility have been imposed on owners.

I believe that our advocacy of principles for owners seeking to profit from enterprise has been vindicated.

By the way, the Caux Round Table’s Principles for the Ownership of Wealth most likely apply to Russia’s oligarchs, as well.

I have just read Paul Polman’s book, Net Positive: How Courageous Companies Thrive by Giving More Than They Take, written with Andrew Winston.  To be honest, it really was as if I were reading a book about the Caux Round Table’s Principles for Business – a book about how to be a moral capitalist.  Net Positive and the Caux Round Table Principles are two sides of the same coin.

Thus, I can recommend your reading Paul’s book and buying it too.

Paul provides 5 principles which create an effective decision-making mindset.  To use the term “cognitive bias” in a positive way, Paul’s Net Positive Principles create a bias in our thinking which guides analysis and action in certain ways more than others and for the good.  His principles echo and dovetail with the 1994 Caux Round Table Principles for Business.

Paul’s Net Positive Principles are:

1. Take ownership of all impacts and consequences, intended or not.

2. Operate for the long-term benefit of business and society.

3. Create positive returns for all stakeholders (Note: these returns do not have to be only monetary).

4. Drive shareholder value as a result, not a goal.

5. Partner to drive systemic change.

In short, Paul and Andrew have opened a window to the mechanics of planning and executing stakeholder capitalism based not on speculation or wishful thinking, but on Paul’s very practical experience.

The requisite moral and intellectual framework for any work which is net positive is a sense of fiduciary duty, of stewardship, of an inner compass that transforms work into vocation, to use Christian thinking (or to life as a khalifa to use Qur’anic thinking).

In the formation of the Caux Round Table Principles for Business, a call for this special personal commitment to responsibility – the self’s orientation towards virtue – reflected 1) Catholic social teachings on respect for human dignity, 2) the Japanese mindset of kyosei or living symbiotically with one’s ecosystem and 3) Protestant emphasis on ministry in this world.

A second gift that Paul and Andrew give us in their book is a management approach to the complexity of full-service net impact accomplishment.  Achieving the good over a wide range of activities and impacts is not simple or easy.  It takes systems thinking and cross-sector collaboration.

First, consider the problem of what goods and services are to be provided by the firm: public goods or private goods?  Is our measurement of the good to be personal or communal?  What if one good conflicts with another?

Generally, firms are expected to produce private goods and services for customers who buy them and use them personally.  Economists call these private goods “rivalrous,” as they are possessed by an individual and not by many all at once.  My car is my car, not yours.  My haircut is my haircut, not yours.

On the other hand, public goods and services are called non-rivalrous, as they can be shared by many individuals.  An additional consumer does not take away from the enjoyment of previous or future consumers – consider who benefits from clean air and public safety or other benefits of law and order.

Markets work best for private goods, governments for public goods.  We buy our private, rivalrous goods with our own money and we pay taxes to the government for it to provide us with public goods.

(Now, we also pay transaction fees to the government for certain services, as if it were a private business  – highways, admission to national parks, car registrations – use of which are personal to us, so more in the form of a private good.)

Another complexity is the value notion that people are entitled to private goods, even if they can’t afford them – food, housing, a basic education, clean water, etc.  This is a matter, we say, of human rights to enjoyment of social and economic goods and opportunities.  These goods and services are called merit goods – they have merit separate from market pricing and availability.

To make thinking about impacts still more complicated, some goods and services are both private and public.  For example, education and health.  As consumers, we “own” the impacts of and personally benefit from getting educated and having good health.  But at the same time, the public benefits indirectly from our being better educated and more healthy.  In a time of Covid, our being vaccinated lowers risks for us individually and for those around us.  Covid vaccines are a private and a public good.

In addition, there are public and private “bads.”  Drinking, smoking, doing hard drugs and gluttony are ‘bad” for us individually and sometimes for those around us.  Companies which sell tobacco, guns, excessive opioids, etc. are considered public nuisances and we use law to regulate their operation of private businesses.  Pollution and global warming are cases of public “bads” arising from the production and consumption of private goods.

Now, Paul and Andrew argue that private firms should include in their thinking about their net impacts all these different kinds of goods and services.  Providing a wide range of public and private goods and avoiding public and private “bads” should be the aim of an enterprise that thinks holistically.

Now, figuring out how a private enterprise can deliver all these goods and services – for many of which there is no private market – can make your head spin and feel like giving up.  Who will pay or reward your firm for not producing a public “bad” – government, charities, your generous neighbors?

Paul and Andrew have a management approach to address the challenge of complexity in the provision of goods and services that I have not seen proposed elsewhere: collaboration.

From his experience, Paul advises enterprise collaboration with governments and NGOs/nonprofits.  Allocate work according to competence and authority – honor the remit given to each organization, as the Brits say so concisely.  He gives some examples of Unilever doing just this to help itself, its shareholders, other stakeholders, society and the world.

This is cross-sector collaboration and it works.  But it needs coordination, facilitation and forums (round tables maybe?) for the partners and collaborators to put their heads together, assign the work – division of labor, a la Adam Smith – decide on metrics and set goals.  Paul is suggesting that business can take a lead role in bringing partners to the table to each contribute as best they can to providing more “good” public and private goods and services and less “bad” public and private goods and services.

I strongly recommend that you read Paul and Andrew’s book.

Again, you can get it here.