If capitalism is broken is social innovation a way to fix it?

Over the past several years I have come to think that capitalism as practised in the western world is fundamentally broken. Even before the global financial crisis (GFC) this feeling was strong. But in the aftermath of the GFC my discomfort with modern capitalism has continued to grow. Nothing I have seen, read or heard has shifted my perception.

I know and understand the world of capitalism. I like capitalism and think that it has been good for us in many ways. I respect profit and the law of compound interest. Most of my work experience since leaving school has been with large corporations (mostly large enterprises, Fortune 500 or S&P/ASX 200) – what I jokingly refer to as ‘the belly of the beast’.

But business models that were effective for organisations in past centuries are no longer relevant to the conditions that face the world today. We must find business models that are sustainable, equitable and fair to replace them.

A few things to consider:

  • Western business has been like a cargo cult for too long and has elevated shareholder return as an idol.
  • What good to shareholders (a.k.a. human beings) if the profit that is returned to them comes at the price of the environment their children and grandchildren must inherit?
  • What good to the shareholders if the people who work in the business to generate those returns are broken by corporate politics and are called upon to undertake immoral or illegal acts (for example #hackergate)?
  • What good if those returns to shareholders are generated at the cost of social bonds and the common good?

For many years I’ve pondered: surely it must be possible to generate profit sustainably and to create social good while generating profit?

Over the years I’ve also noticed a growing number of people thinking along similar lines. These people have talked about, among other things, the idea social innovation.  They have also discussed concepts such as sustainable or resilient communities (checkout the MiiU wiki); and concepts like open source innovation are becoming increasingly important.

Even if the US manages to sort out its internal issues with the debt ceiling, there remain serious economic issues in Europe and North America.

We need to take collective action to create profit and abundance that is sustainable on a social, economic and environmental basis.

For too long we have let run rampant a corporate ideology that exalts profit as a deity and we have allowed worship at the altar of shareholder returns to dominate our thinking and ways of doing in business around the world.

It’s time to create better ways for organisations to be more sustainable, more humane, and more planet friendly.

UPDATE 7 AUG 2011

An interesting article just popped up on The Guardian from the UK: Our financial system has become a madhouse. We need radical change. Here Will Hutton argues that “As a new global crisis looms, and political paralysis worsens, genuinely bold solutions are required to overcome the malaise”. I recommend this article.

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8 comments

  1. Ben says:

    Interesting Kate.

    I wonder if capitalism itself is broken, or merely our current take on it? Fundamentally it is still the only system we know of that puts any sort of power in the hands of the gen pop as individuals. Personally I think corporatism (and the laws than entrench it) are the core issue.

    Not that capitalism doesnt have flaws/problems. I think the biggest example is that as a by-product of its efficient orchestration, after a certain scale it’s very hard for people to include moral judgements in their purchasing decisions. So while solving one informational problem, it produces another.

    Despite that, I think at it’s core capitalism is a good thing. It’s inherent adaptability makes it a good base to build whatever system we need for the future. But I agree that that future will by necessity be quite different to our current corporatism.

    • Hi Ben
      Thanks for your thoughtful comment. I agree that capitalism in itself is not a bad thing. How we do it, and how we have allowed corporations to be is a large part of the problem. I see corporations (and the people in them) acting like soulless automatons that seek only to maximise shareholder value to the exclusion of all else (including moral decency and ethical behaviour in many circumstances). By exalting shareholder value above all else we create inequality for other stakeholders and the common good.

      It’s interesting to think about how we can scale organisations to maintain humane practices.

      cheers
      Kate

      • Ben says:

        There’s two parts to the problem (IMO).

        The first, as you say, is the legal framework that allows/encourages/forces a focus on short term profit. However, that’s only an issue because of #2..

        Capitalism’s natural check on immoral behaviour is consumers taking their business elsewhere. This in a very real way gives companies the incentive to do the ‘right’ thing (where right is defined by their aggregate customer base). This works very well in local/small businesses – eg you might stop change bakeries if you see the staff being treated badly.

        But those incentive are being distored by a couple of things.

        Firstly, as I said before, the scale of some manufacturing makes it nigh on impossible for people to include a moral dimension in their purchasing decisions for products/companies of sufficient complexity. So, for example, it’s hard to know if Apple are ‘evil’ due to the treatment of Foxxcon workers because it’s impossible to understand the local conditions/alternatives facing the workers. IMHO this is going to be ‘solved’ as more of the world becomes middle class and starts caring about this stuff. I wouldn’t be surpriced if Choice-like ‘social ratings agencies’ pop up all over the place soon, doing the research required to add the moral dimension back into purchasing.

        The other distortion is government protecting large corporations from thier customers via (often well intentioned) regulation. It’s hard to bother yourself with how your customers feel when you have a government-annointed pseudo-monoply.

        I’ve been thinking about this stuff for a while – your post helped me clarify some of the noise in my head. Thanks :-)

        Ben

  2. [...] have argued previously that capitalism is broken and that we need to find new approaches that are good for people, animals and the planet.  Further [...]

  3. Patrick Pritchard says:

    Thanks for speaking out. Capitalism is a very efficient but flawed system. We are running into growth limits which highlight the flaws.
    I frame the question as, “How can we retain the efficiency of Capitalism but redirect it’s current absolute focus on profit to include Sustainability and Moral behavior?”

  4. Suzie Graham says:

    This is an awesome post, Kate – thank you.

    The conversation is picking up pace and I think it is only a matter of time before more sustainable, more humane, more planet-friendly organisations taking up the challenge of doing business in new ways.

    Venessa Miemis asked – in commenting on a recent Edward Harran post on Distributive Leadership – how do we “cross-pollinate, create new models, share resources, build infrastructures? how do we accelerate the emergence of the new socio-economic paradigm?”

    I think what you and Michelle Williams are creating at Social Innovation Sydney is playing a role in accelerating the creation of and demand for new organisations. So are the conversations at, and since Australia’s #Gathering11; so are the revolutionary blogs of futurists like Umair Haque, and the network weaving of social innovators like Christine Egger, David Hood and others. The “Big Shift” – as John Hagel has called a growing movement which will bring about profound sicietal change – is slowly and surely gaining momentum.

    As Tony and Jennifer say, in different ways, for many existing shareholder-driven corporates it’s going to be change in small steps. At least, anyway, until we the shareholders and consumers stop buying their products and services and start switching in large numbers to vibrant, new, values-based, ethical organisations – corporate social innovators.

    It’s been a long time coming. Bring it on :)

  5. Kate — good stuff.

    My 2 cents — well maybe 4, as I have two thoughts on this.

    1) Much of ‘sustainability’ discourse is heavily tied to the notion of time-frames. Decisions made in the short term are unsustainable and profit / shareholder driven. The alternatives offered are inevitable longer time-frames. And this is unpalatable to a society who works on instant gratification. Could we operate with a middle option when assessing organizational option. Reward companies who take the middle ground so to speak — and push their time frames a little further out, as a bridging step towards sustainability.

    2) The appeal of social media in social innovation is the rapid transferance of ideas. Again most capitalists could be considered victims of bounded rationality — unable to conceive of an organisation beyond their frame of reference. And social media encourages a more permeable boundary — and “what ifs” become “they did”…

    Indeed, thanks for sharing!

    cheers
    Jen

  6. Kate

    This post is so what I needed to read tonight – I’ve been discussing politics and business with my family today and I’m really struggling to answer these questions you are posing.

    I agree “it’s time to create better ways for organisations to be more sustainable, more humane, and more planet friendly.” I just am not sure how to do that. I hope your readers will discuss how in these comments.

    One thing I am sure about is that the leaders in business need to start making decisions and empower their teams, leading by example where they can, and inspiring others to follow suit. I’d like to see some kind of guidebook or list of examples of “baby steps” for business leaders to take to get started.

    Thanks for sharing these ideas – so timely as always Kate!

    Cheers
    Tony