DISCUSSION Can global capitalism have a human face?

by Mark Goyder _______6th March 2017
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Capitalism is a free-market system. It allows entrepreneurs to start and grow businesses by selling products and services at the price they can command. They make profits which they can reinvest in those businesses, or, if they prefer, distribute as dividends to themselves and other investors. Society provides the framework of law and education and culture and co-operation which makes this possible, and society thereby sets the rules within which enterprises can flourish. Capital markets then channel the profits that entrepreneurs and their shareholders make, along with everyone’s savings into new wealth creation possibilities.

This is a proven system. Without it the alternative is the suppression of entrepreneurial flair and imagination and the greyness of the planned economy.

Now put the word global in front of ‘capitalism’.

Can global capitalism have a human face? For the last decade and more I have been one of those who have argued that it can.

Millions of people lifted out of poverty. New technological solutions – the mobile phone, with imaginative applications developed by the likes of M-Pesa, bringing trade and market activity to remote villages; the hydrogen fuel cell or new solar batteries freeing households from the tyranny of natural darkness.

I have taken part in debates with Occupy Wall Street, telling the critics that they were wrong. I have argued with bankers and students and chief investment officers and NGOs and neighbours and family members that relationships lie at the heart of business success and that we need to build up capitalism while humanising investment so that companies are encouraged to have a purpose beyond profit and serve society while they also earn returns for their shareholders. That’s what is meant by the Tomorrow’s Company approach:

Now it is time to learn from those critics. Along with the benefits it has brought, global capitalism is taking a direction that is more often than not inhuman.

The case is well made in a brilliant recent TLS article by Professor Paul Collier. He identifies aspects of global capitalism that harm society, and are not necessary for the continuance of the capitalism that I described at the beginning.

To take one in particular – capital flows.

The free flow of capital has been assumed to be intrinsic to the success of global capitalism. But Collier argues, you can still be a believer in global capitalism while wanting to limit the free flow of capital – or labour for that matter.

I agree. The progressive build up speculative flows of capital; the ability of hedge funds to ambush currencies or companies may sometimes be a benefit but is more often a curse. The financial economy has been given an importance that dwarfs the wealth-creating economy. Consider the recent takeover bid by Kraft Foods for Unilever.

My colleague Tom Levitt, who is writing a new book called The Company Citizen, recently drew my attention to a ranking by the human rights organisation KnowTheChain. It has benchmarked 20 food and beverage companies on their efforts to eradicate forced labour from their global supply chains. Unilever came out best of the twenty. Kraft was ranked 19 out of 20.

If the system of global capitalism were truly aligned with serving human purposes, the events of the last week could not have happened. The asset managers would have looked at the performance record of Kraft and seen a business that creates short-term ‘value’ through cost cutting – what I have called extractive capitalism. They would have looked at Unilever and seen a business that has a strong record over decades of creating value for shareholders, while doing so in the spirit of stewardship, having a high regard for the impact on human rights, climate and other social needs. Acting in the interests of their beneficiaries, they would have concluded that they can secure as good, if not better future returns to their shareholders by supporting the company whose robust values have embedded it so strongly in the communities it serves.

They could have defended this view to critics by citing the abundant research on corporate longevity, and placing the longer term benefits to their clients above the short-term rewards on which their bonuses depend.

Instead, the perverse operation of our capital markets rewards the extractive approach and punishes stewardship. Note that while the Unilever board rejected the bid, they still felt obliged to launch a root-and-branch review of the business, and rejected the bid on the basis of the price offered rather than on the basis of the appropriateness of Kraft as an owner. (NB Together with company lawyer Philip Goldenberg I argued in Wall Street Journal Europe that under UK company law the board is quite entitled to reject a takeover bid without regard to price.)

I am writing this on my way to take part as a panellist at the OECD in Paris, which as part of its Investment week has posed the question: Does globalisation need more responsible business conduct?

The answer is yes, and our own new report Promoting long-term wealth – reshaping corporate governance offers 6 key policy ideas which I will be commending to OECD members.

I want global capitalism to show its human face. Our failure to tackle this issue so far has already proved costly: it has fuelled the rise of intolerance and protectionism and undermined decades of effort to build free trade and international co-operation. It has left ordinary citizens outside of the metropolitan elite feeling disenfranchised and uncared for. It is time to reassert the importance of the principles of stewardship to the benefit citizens, shareholders and future generations.

 

You can follow the conference live at: https://oecdtv.webtv-solution.com/3616/or/global_forum_on_international_investment_gfii_.html

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