Thursday, May 30, 2013

Do We Really Need an Alternative Form of Capitalism?

alternative-form-capitalismIn my view, entrepreneurship has always been the ultimate embodiment of capitalism, and quite synonymous with free enterprise. Yet I find that more and more young entrepreneurs are uncomfortable with the term “capitalism”, somehow thinking that it prioritizes “making money” above all else. They are looking for a business model that makes the world a better place for humanity.

One step in that direction is the trend to “conscious capitalism,” as exemplified in the recent book by John Mackey and Raj Sisodia, “Conscious Capitalism: Liberating the Heroic Spirit of Business.” These authors argue that capitalism is simply misunderstood, and businesses run by ethical people create value and prosperity based on voluntary exchange, while reducing poverty.

In a recent blog, “Capitalism: Alternative Realities?” Scott McIntosh, an avid Angel investor friend and champion of conscious capitalism, makes the case that that true capitalism is about entrepreneurs driven, in part by profit motive, but more from motivation that stems from a simple desire to make a difference in the world. We shouldn’t let greedy or misguided people derail this.

Here are some of the alternatives outlined to enhance the negative image of “for-profit businesses” in the minds of many entrepreneurs. These also address the negative impacts of some well-publicized business practices on the environment, standard of living requirements, and missed opportunities to do good:

  1. Promote “Conscious CapitalismTM” as capitalism re-branded. Socially conscious capitalism, per Mackey’s book referenced above, adds four requirements to every business enterprise – focus on a higher purpose, stakeholder orientation, conscious leadership, and a conscious culture and management.

    Model business examples today include Whole Foods, Southwest Airlines, Costco, Google, Patagonia, The Container Store, UPS, and dozens of others. These set the model for aspiring entrepreneurs to achieve their dream of a good business that is also good for society as a whole.

  2. Adopt the B-Corp as a new conscious business model. To more strongly support startups who want to give top priority to socially conscious solutions, eleven states, including New York and California, have passed legislation allowing incorporation as a Benefit Corporation (B-Corp). Other states are close behind in this effort.

    A benefit corporation is a new corporate form designed for for-profit entities that want to consider society and the environment in addition to profit in their decision making process. The B-Corp status is meant to reduce investor suits, and gives consumers an easy way to spot genuine social commitment, without assuming it is a non-profit.

  3. Increase government regulation to level the playing field. Some advocate “fixing” capitalism as it is practiced today, by stricter regulations to prevent bad practices, and eliminate the cancer of “crony capitalism.” Crony capitalism, per Wikipedia, describes an economy driven by greed and business requirements from government relationships.

    These relationships result in success based on favoritism in the distribution of legal permits, government grants, and special tax breaks. In this environment true free enterprise entrepreneurs can no longer compete based on innovation, and everyone loses.

  4. Reduce government regulation to level the playing field. Others, including McIntosh in his article referenced above, argue that the answer is to reduce (not eliminate) regulation, limit the power of government, letting private enterprise market forces work their proven magic of the past 200 years in free economies around the world.

    What about the truly greedy business folks? We need to let market forces work and force them out of business. Those who truly abuse the system need to be held accountable rather than allowing a system of cronyism to provide undue protections.

I have to put myself in this last camp, since I’m not a believer that any government can regulate morality, respect for the environment, or concern for the common good. These have to come from the heart, and I’m happy to report that the entrepreneurs I meet are leading the charge. If making money is your primary motivation for starting a business, be prepared for a long and lonely road. Following your passion to change the world is a lot more fun. It’s time to have fun!

Marty Zwilling

*** First published on Young Entrepreneur on 05/23/2013 ***


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1 comment:

  1. Great piece, Marty. It seems a smaller percentage of well-meaning folks these days buy into the lie purported by the mainstream media that "capitalism" is evil or that somehow making a profit is in essence evil. What they fail to realize is that the ill effects which may be created from greed are all but weeded out by free-market competition; that is to say, when prices go down due to capitalism's free-market competition, the greedy are forced to make less money (as you point out, the market bares it out on its own).

    In stark contrast to what the mainstream media and some people think, capitalism has done and is doing a lot of good, as you point out. Capitalism provides jobs and opportunity, as well as fosters meaningful products and services which have vastly changed the world and how we live, and even the length of our lives with free-market medical advances that capitalism has afforded us. Think of this: America has provided more technological advances in the world than any other country, yet we are the most despised and hated it seems for our so-called "greed." I think the word greed is over-used and abused by many in the media and in our culture today. They confuse success with greed. If a business person is successful, he/she must be greedy and have done something wrong to achieve success... when in reality, to obtain a level of sustainable success, you have to treat customers and employees right!

    Capitalism works. There will always be abuses, but those who truly become too greedy will be end up being weeded out when a competing company provides the same product or service better at a better price.

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