Rethinking capitalism

The economy. Government. How business operates. Whatever your views, I think we all agree something is broken. I’m going to propose a set of ideas that could at their fundamental level change how we perceive the world. (Warning: it’s going to help you read the linked posts to follow the thinking.)

Let’s start with in 2009, how I picked my beef with capitalism:

Money, you see is just a way to sustain something. It shouldn’t be the end-goal of business, and it’s that point that fundamentally irritates me about capitalism. That being the whole focus on it being about returns on capital – not returns on humanity.

In 2011, I said how we are measuring the wrong thing in society as progress. Why is it always about measuring more consumption (GDP), and not generating more ‘actual’ happiness like better health outcomes? Certainly the guy that invented GDP didn’t think of it how we see it now.

In 2012, a thought I had ended up resonating with a lot of people.

…which I then expanded in a post and several months later I explained as a way to measure success.

Last year in March 2013, I asked a question around why do we need money — which linked it to my recurring theme round time and value. Specifically, “money purchases value, but money doesn’t create value (in the ultimate sense)”. Which furthered my thinking that making more and more money isn’t the goal, a pretty big realisation for me.

The five year test
What do I have to say now — after being an auditor for financial markets, a recognised intrapreneur at a big company, a manager in a startup, an investor at a venture capital firm, a foreign entrepreneur with no safety net in the world’s biggest (and most ruthless) economy that made money with no help  and then lost it requiring help by outside investors to get back to where I started.  Where I’ve run a business not only with traditional employee considerations, but an organisation where 40%+ of the 1000+ customers have come back to work as volunteers and run it, like short-term employees but with more passion. And might I add, has radically transformed my views about what motivates people

In short, I now feel like i’ve seen enough where I can apply business academia to real world experience. And so do I read back on all my posts in the last five years and think differently on the fundamental concepts that underpin our society?

Surprisingly, I seem to agree with my thoughts even more.

Today I met up with an old friend Dr Donnie Maclurcan who mentioned how he recalls my first post (the first link) and around that time had begun his own journey that will lead to a book called living in a Post-growth society released next year, which you can read in summary in this recent Guardian piece. Donnie has a very strong view that we need to rethink corporate structures as being the fundamental thing that needs to be changed and his view being they are non-profit. I challenged his ideas with my actual experiences, such as the incentive of an entrepreneur or needing capital when it’s not available by banks, which brought out two interesting points.

The first is actually linked to my freedom dimension of success, where I say you need to define how much money you want to make in life and draw a line. Otherwise, you sacrifice the other dimensions in life. It’s a personal decision, but let’s say for arguments sake you could make you current annual salary (or double) on a recurring base. If you were to make that every year — you could maintain your current lifestyle. And if you could maintain your current lifestyle, but have more time — you could have a better life, right? Why would you need more money? To buy something shiny and feed your ego?

But the second one that I found intriguing, was how do you motivate private investors to want to ‘invest’ in a non-profit. And his idea was that once the non-profit makes, say $1m a year it needs to pay back the loan with a 300% interest rate. Thinking this through, this is what owning equity does as a best case scenario. I know I think every day about how I pay back my investors with a return on their capital, beyond paper valuations and actual cash dividends (that is, when I’m not worried about meeting payroll and operating expenses).

A vision for the future
Assuming you’ve been able to follow the thoughts above, here I’ll attempt to finally patch them together on a new type of capitalism. A type that keeps the current system but fixes it at the fundamental level with better incentives.

  • Make all companies non-profits with entrepreneurs who create them guaranteed a permanent salary for their work as the reward. (Like owning equity, except it’s not equity.) This fixes the incentive issue for the people who initiate the value creation.
  • Private investment can still occur in enterprises, but instead of owning equity, they are simply considered debt with a high interest rate. This fixes the issue of the incentive issue for capital to fund ventures.
    • It’s no coincidence that in silicon valley, one of the most forward thinking places right now when it comes to the global economy  (meaning, new jobs and new industries are being created more so than anywhere else) that the predominant instrument used in startup financing is called “convertible debt” — which means, it’s debt and if it doesn’t convert, it turns into equity (which in practice, is what happens).

Why this is such a big thought, is because it removes the need of “owning equity” which to Donnie’s point is the fundamental problem in our society. I’m not entirely convinced on this, but consider this:

  • As all companies are non-profits, the destruction of value that can occur in the public markets is no longer and companies can instead focus on re-investing profits into things like R&D, customer value, and employee satisfaction. Like Bosche, one of the word’s biggest “big business” non-profits does.
  • Because there isn’t this focus on the mythical “shareholder value”, we can see companies doing what USAA does (one of the biggest banks in America with the best scores across all companies for customer and employee satisfaction) which is talk about “member value” or their customers.
    • If you think about it, the entire point of a business should be to serve its customers. Not its employees or its shareholders (though they have a duty to them), but the people who purchase the value created by the business. And so by changing this tone from the top, we will see a complete re-think by companies on how they operate. We’ll see better run companies.

Let’s now extend this to government just to complete the circle. Why the hell do we measure our progress in society with how much money we spend each year, and not what our average life expectancy is? Our length of life and our health quality I think is a more important measure for society than how much money we spend, which is why we have this materialistic culture that leads us to be on a treadmill of chasing the wrong things. If we no longer focus on profits, then we also need to match that with no longer focussing on consumpsion.

  • Make life expectancy our number one measure of success. GDP growth, unemployment rate — ok cool, I care about that because money matters. But why don’t we make average life expectancy the number one measure? Can you imagine how this could transform our society if politicians suddenly were accountable for our livelihoods?
  • If I sound like a hippy, let me throw this thought at you: one day, when the population growth stagnates and starts declining we are going to have a crisis in our society because we measure “growth” of the economy which is fundamentally dependent on population growth. What are elections going to be fought about then? Let’s drop population size growth and instead focus on population quality growth.

Go ahead. Tell me the thoughts in this post are crazy. And yes, maybe they are  — but just maybe there is something about this being the future. I love capitalism and like democracy, want to keep those systems — but we all agree they are flawed and we can fix them.

In the case of capitalism this is doing it fundamentally at what makes is so powerful: around incentives. If we can rethink some fundamental definitions of what progress is in life, society, business, and government — we may actually create a better life.

(On a related theme: this 2012 post will get you thinking on how we fix democracy at the fundamental level but that’s for another day.)

1 Response to “Rethinking capitalism”

  • How does GDP get measured? New disruptive businesses that improve the efficiency of markets may reduce revenue whilst increasing profits. What impact does that have on GDP measures?

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