Dismantling the Concentration Camps of Capitalism
As Capitalism runs astray, time is providing for a reset: Can we rebalance?
The tumultuous times before us has given us an opportunity to critically assess a long-standing problem- the fact that capitalism has gone astray.
It is important to bring capitalism back to its most purest, conscious and functional form, where it gives solutions to pressing problems, creates robust meritocracies and thriving economic participation, at the same time creating significant entrepreneurial value.
I write for the Economic Times on what it means to infuse purpose into the very structure of a business, to battle financialization and the lagging regulatory framework for spiralling monopolistic digital businesses. The right kind of capitalism is the answer, and here’s why.
FULL ARTICLE BELOW
Tumultuous Times
Tumultuous times could provide the much needed causal platform to act on overdue problems that have simmered for long, but probably haven’t boiled over yet. Such times are over us now, and uniquely so has the complications of these Covid induced times that has encompassed almost every nation and every individual, and isn’t localized in some form — they are over all of mankind. So, does this tumultuous period offer a once in a lifetime opportunity to critically assess one large problem the world has been facing for long and it’s direct consequence — that is what I reflect in this article. The problem is that of capitalism gone astray, and its consequence of dangerous inequality brimming to the surface. Not yet boiling, but approaching state change temperature.
Capitalism Astray
I actually started writing this piece sometime back in early April when the first phase of Covid induced lockdown was upon us here in India, and many parts of the world well into approaching high rates & numbers. But after writing several paras, as I grappled with what a new normal could be, I got pulled into my own work of running an essential food and services company and couldn’t get back to the piece until now in late August. And since then, assimilate this, Apple, Google, Facebook, Microsoft and Amazon have amassed valuations of $7.7 trillion — that’s up by nearly $3 trillion in less than five months. This is awesome, the markets can reward outlier businesses with outlier valuations. Question is what really is the framework of the markets to shower rewards — seems like it is but uni-dimensional, with only a single focus on a single bottomline. No triple considerations, no wider stakeholder, nor wider impact on the world and the human race come into play. Just a single number apparently distilled from the present value of the future. In the meanwhile in the same time period, here in India, with a widely different market structure from that of the US, the wealth of the richest Indian business man, with a widely accepted reputation of managing strong relationships with governments through the decades, went up by 46% to reach $80 billion, propelling Mukesh Ambani to the stellar position of the seventh wealthiest person in the world. Further food for thought is the fact that two of the four bellwether companies in the US, Google and Facebook, with a track record of digital invasion, were the largest investors into Mr.Ambani’s company, the Reliance — Jio Platform, during this time.
The extent to which capitalism has veered away from its embedded principles of meritocratic, problem solving, wealth and ownership creating economic structure, to a highly efficient & regenerative mechanism of severe concentration of wealth and power — lends many to worry that capitalism is astray for long now. This has been studied deeply and written about extensively by several renowned thinkers, economists and policy makers, and several practitioners too i.e. entrepreneurs, who live and breathe capitalism, like myself.
Would a purist form of capitalism have fostered such a monopolistic and manipulative model? Was capitalism designed to be exclusivist in an extreme form? Probably not. It’s a convoluted form of capitalism that has struck roots, aided by a lethal combination of sub-system maximizing entities. This convoluted form, I’ll call it concentration capitalism, is like a concentration camp — it leaves millions and billions of people as prisoners of inequity and inequality whilst the powers become more powerful and more oblivious to the effects of the concentration of their economic power. It isn’t surprising that the current deep dislocation of every ecosystem by Covid has led to a deeper inequality, so much so that the fault lines are an ugly sight that even the concentration capitalism’s generals also wouldn’t want to see. Most well meaning critics of the current form of capitalism like Thomas Piketty, Robert Reich or Raghuram Rajan actually all propound that we need capitalism. These are not people with socialistic mindsets. The opposite of concentration capitalism isn’t socialism, the opposite is in fact what’s supposed to be the right capitalism model.
Runaway Capitalism in the Cloak of Democracy
Every discussion around runaway capitalism leads to deliberations on regulation, and that immediately leads to well sounding and fierce defences of liberty, market forces, cronyism as a outcome of government regulation — ultimately the very tenet of democracy. The market and regulatory bodies’ attempts have thus far been very muted and indirect, resulting in bringing in parameters like ESG — environmental, social, and governance criteria, or CSR — corporate social responsibility. All of which can only at best be described as feeble. All it has led to is more sophisticated forms of impact dressing. Business owners have even come up with convoluted structures of foundations and trusts that become conduits for CSR spends that ultimately just round trip back to the business owners, and tax free at that. Now we have a newer recycled avatar — version 2.0, namely SDGs or Social Development Goals.
I think we need to pause and reflect — the cloak of democracy to shroud unbridled concentration capitalism is not only harming capitalism, but also democracy. We’ve seen nationalist leadership rising to the helm in the last five-ten years precisely because of this as a majority found themselves economically excluded. Robert Kuttner has written deeply on the perils that the new global capitalism (not what capitalism was supposed to be) poses to democracy itself. The decoupling of the democracy argument from capitalism in mainstream narrative is imperative. Capitalism isn’t democracy, and vice versa. And concentration capitalism certainly isn’t.
There are a few inherent business and economic model structural parameters that are fueling this runaway capitalism in the environs of free markets in a liberal democracy. The first one is Financialization. The outsized scale of the financial sector versus the underlying real economy is at the core of runaway capitalism. Some of the figures are staggering, as Rana Foroohar wrote about — only about 15% of all the money in the market system is put to some use in the real economy, 85% stays within the closed loop of finance itself, enriching highly motivated and self-centred individuals and propelling the top 1% upwards whilst holding down the majority of people. Financialization is also responsible for the overwhelming primacy of shareholder capitalism, which is often at odds with responsible big corporate behaviour.
And the second structural parameter which is different compared to business paradigms three decades ago, is digital technology’s inherent spiralling nature — rocket fuelled by large network effects and unfettered distribution reach. And when this structure is left unregulated, it is bound to create very large monopolistic entities that have a stranglehold not only on business models, but also on huge data lakes of digital information that become an unending source of marketable assets. It isn’t surprising in this environment to see behemoths like Google and Facebook spiral out of control and reach ever higher levels of dominance and monopoly. With the advances in artificial intelligence and deep learning, these internet businesses will become more and more invincible — thwarting innovation, entrepreneurial activity, and capitalism itself. The free market argument just doesn’t hold good in this imbalanced economic field and no forces of supply and demand will be able to rebalance the scales. Financialization further finds perfect alignment with such exponentially reinforcing models to further build a winner take all market sectors.
Purpose Driven Businesses
Whilst there is a clear recognition of the problem and with a reasonable diagnosis that is accepted, there is little appetite to administer the vaccine. We are talking about concentration capitalism here, not Covid 19. Rebalancing the playing fields and making real capitalism work will need purposeful action. Purpose driven business and business models are not only an option, I argue that it is the only solution to take on this problem at scale. Such structural imbalances mostly get solved at the intersection of leadership, regulation, and circumstance. The circumstance is clearly upon us, how do we evolve a framework for leadership and regulation to bring purpose to business.
Firstly, evolving a strong understanding and narrative of purpose in business, for there is enough lack of clarity here — purpose driven businesses are not the same as social businesses. Purpose isn’t CSR or ESG too, SDGs can at best be guidelines — those are to be viewed more as compliance metrics. Purpose is a deeper but tangible principle for why a business exists — its reason for being (whether a startup, or a multinational corporation) and how it will have a wide impact on a community or the world in terms of a combination of the economy, the well being and the progress of humanity and the earth, and yet further the pure prowess of humankind.
We are not talking about some one liner smart statement which is supposed to rouse employees into consciousness and action, and not some semantics led distinction between vision, mission and the works. Purpose has to be a deep, yet actionable framework for a business — it’s not about expressing it but about believing and practicing it in the corner office and boardroom. A primary motivation for a purpose driven business would still be to build a high growth, market leading financially superior and disruptive company — but it will not be the only motivation. Unlike social businesses where the social impact is the primary objective and business becomes a means. This distinction is important as otherwise purpose gets bracketed and obfuscates the narrative.
A wider appreciated narrative of purpose, with a good if not strong expression of purpose of a business is a necessary condition. Coupled with this, I think a framework for a purpose driven business could include specific dimensions around few broad structural areas: Enlightened corporate leadership, business strategy & model built around purpose integration, broad based board structure & senior leadership, and an enabling regulatory framework.
Businesses with purpose design their strategy and business model around their purpose, this needs a systems thinking approach. They strive for superior financial returns for their shareholders whilst driving purpose — and there are enough examples now of how markets are beginning to reward such companies. I can think of some companies in several business sectors in global markets, but struggle to find one in big finance or big tech, which is where the problem of spiralling concentration capitalism peaks. Bringing in purpose into business — especially into large complex financial institutions and multinational businesses that already exist and are much larger than many nations’ GDPs too, will be a complex affair. This is where leadership and regulation, both need to tango.
We need to start the regulation framework somewhere — and that somewhere is either by a framework which will make markets reward more a purpose driven company vs, say, an equally financially robust company but with a diluted or no purpose. This could be via a combination of better disclosure norms (like data privacy and usage for big tech, and financial transparency for big finance), coupled with regulatory teeth. Regulation in the financial sector and big tech must go through forced evolution now. Problem is when the regulator itself becomes an ally — which is probably the case in the financial sector. How difficult is it to imagine that a Federal Reserve with an ex Goldman chief at its helm might find weighing objectivity difficult. A graded regulatory framework that starts with disclosure norms and also encompasses strong punitive damages is something that is complex but not impossible to imagine and design — intent is the missing ingredient here.
Regulation to also reform company board structures is an obvious and must one — starting with broad basing representation to go beyond just shareholders and their representatives. And that doesn’t need to be at odds with shareholders — in fact a broader representation brings in wider views and thoughts and will enhance shareholder value, when in conjunction with regulation which could indirectly make markets reward more evolved corporations. In some sense the beginnings of this can be seen. We’ve had gender representation on boards mandated in many countries, and very recently the state of California passed legislation requiring companies to have people of color represented on boards. These could help address the ultimate objective of fostering long term reduction of inequality by bringing a different voice on the table.
Equally, if not more important than regulation, is enlightened leadership. Purpose in business can only be nurtured at scale in an enabling regulatory framework if there are believers. Business leaders have to be evolved with a sense of purpose themselves and that will need extensive deliberation and exposure amongst global corporate executives and entrepreneurial founders. The business round table made the first step in this direction in its declaration last year, which is an extremely positive step. However, it would appear that not much has transpired in terms of actionable initiatives to usher in stakeholder capitalism. When evaluation metrics of CEOs themselves are (voluntarily or mandatorily) structured by boards in a way which reflects purpose clearly, then It would be naive to say that pure shareholder capitalism and wider purpose could never be at odds, there will be times and purpose must trump in these times. But it is not a zero-sum construct at all, and fiduciary responsibility doesn’t have to be at odds with purpose. Fiduciary responsibility in fact is beginning to look like an excuse for perpetuating the status quo of concentration capitalism. The playing rules need to be formulated for this so that CEOs and boards have the bandwidth. Building enlightened leaders is a difficult proposition and might need external stimuli in the short term. Just as external regulation is critical, self-regulation via effective & enlightened business leadership is equally important. We need to reward and recognize founders and CEOs with exceptional purpose — the science that will progress humankind most right now is the science of rebalancing capitalism, and the art that will advance us to a better world is the art of enlightened leadership in business. Maybe it’s time for there to be a Nobel prize for purpose driven business leadership?
In the meanwhile, with capitalism astray, inequality is running astray at a higher rate today, and this is an inevitable consequence when this form of capitalism functions. As I write this closing para, China, whose prime leader had at once lauded Piketty and his extensively researched critique of western capitalism, is now considering banning Piketty’s more recent book which delves into inequality in many economies — including China. Purpose void concentration capitalism threatens equity and equality severely, it is agnostic to any ideological ecosystem. The current times provide the currency for some difficult rebalancing and hard reform of the unintended concentration camps of capitalism.
