Is Capitalism Broken?

And Could the Corporate Social Responsibility Movement Re-Design It?

By Bill Baue of Sea Change Media

Corporate social responsibility (CSR) creates change by re-structuring the corporate system – for example, Wal-Mart’s recent Sustainable Products Index that rates the environmental (and, to a lesser degree, social) impacts of its 100,000 suppliers’ processes and products. In other words, CSR works within the container of corporate capitalism to reform it. In fact, one could argue that CSR has thrived precisely because of the dysfunctions of corporate capitalism, which provide a seemingly endless supply of material for transformation toward sustainability. At what point, however, do reforms hit the ceiling to reveal that the container itself – capitalism as currently practiced – is broken? The intertwining financial and climate crises seem to scream that now is that time. Viewed through this lens, contemporary capitalism systematically impedes sustainability, and thus needs not structural re-tinkering but rather systemic re-design – at the very least. 

Capitalism in Question: The Lifeworth Annual Review of Corporate Responsibility in 2009 poses the provocative possibility that the CSR movement could solve the “problem is the prescription” conundrum through true systems change – namely, changing the capitalist system. LifeworthFounder Jem Bendell and his co-authors Ian Doyle, Jonathan Cohen, Emma Irwin, and Nicky Black identify some of the fatal flaws of current capitalism – for example, the lack of accountability mechanisms to govern speculative markets such as derivatives. To support their analysis of the systemic breakdown of capitalism, they quote the likes of French President Nicholas Sarkozy, who commissioned Joseph Stiglitz to devise a new “Measurement of Economic Performance and Social Progress” as an alternative to GDP. 

“Purely financial capitalism has perverted the logic of capitalism. Financial capitalism is a system of irresponsibility and ... is amoral. It is a system where the logic of the market excuses everything... Either we re-found capitalism or we destroy it,” Sarkozy said. 

Bendell et al. agree that it is “the model of capitalism that currently drives the world economy that is now coming into question. Capitalism will change, there is no doubt, and it must change so that it delivers both private wealth and public good.” In a move that likely relieves more conservative readers and frustrates radicals, the Lifeworth team affirms the core role of capitalism in generating private wealth. However, they dig deeper than more superficial fixes such as Bill Gates’ “Creative Capitalism” and John Mackey’s “Conscious Capitalism,” instead identifying the core problem with economic governance as lack of accountability (citing organization theorist Henry Mintzberg). Bendell proposes “Capital Democracy” as a potential solution that the CSR movement could embrace as consistent with its motivations. 

“I offer the term 'Capital Democracy' to describe an economic system that moves towards the creation, allocation and management of capital according to the interests of everyone directly affected by that process, in order to support the self-actualisation of all,” Bendell states. “This principle would mean not only more effort to hold capital accountable and democratise ownership . . . but also democratising money, democratising trade, democratising employment, and democratising taxation . . .” 

The notion of democratizing capitalism experienced a simultaneous blow and boost with the January US Supreme Court decision in Citizens United v. Federal Election Commission (released after the Lifeworth report was drafted): in validating corporate campaign contributions as free speech, the decision opened the door not only to the corporatization of democracy, but also the democratization of corporations. “[T]he good news is that the Supreme Court of the United States has held that there is such a thing as corporate democracy,” said corporate governance guru Bob Monks. “Now is the time for shareholders to put that democracy to work to protect their own interests against boards that may want to ‘play politics’ and have no clue as to how to do so without devaluing their companies.” 

In other words, corporations have slowly (and somewhat quietly) been usurping political power, so outrage over the Citizens United decision may energize the campaign to enhance corporate accountability. Online tools for empowering shareowners to hold companies more accountable – such as MoxyVote.com, TransparentDemocracy.org, ProxyDemocracy.org, and Shareowners.org – have been burgeoning. These tools stand to play an important role in achieving Capital Democracy, as would government action – for example though shareowner access to nominate directors on the proxy ballot, an initiative that remains undecided in the Obama SEC. 

Indeed, government represents a key leverage point in transforming capitalism to achieve Capital Democracy. The bailouts in the wake of the financial meltdown of 2008 demonstrate “that government can act,” according to the Lifeworth report, which points out that “Asian countries committed $1.153 trillion in stimulus money [and the] U.S. committed $787 billion” – much of it tied to the green economy. But the mechanisms governments choose to implement can solve or exacerbate the capitalism conundrum. 

For example, Bendell critiques cap-and-trade, which Al Gore helped institutionalize in committing the Kyoto Protocol to this market-based solution to climate change. The problem? It essentially creates a sub-prime-like carbon market fueled by speculation and open to corruption and loopholes that undermine actual emissions reductions. The Lifeworth report favors “carbon charges,” or a carbon tax that is open to accountability. 

This distinction points to the key role design plays in creating solutions. The Lifeworth report cites an October 2009 Boston Consulting Group report, The Sustainability of Business, which promotes “design thinking.” While traditional economics scrutinize past data and practices to analyze the success of current initiatives, design thinking looks to the future, which “enables the organization to balance exploration and exploitation, invention of business and administration of business, originality and mastery,” according to The Design of Business author Roger Martin. This future focus mimics the shift from retrospective socially responsible investing (SRI) to prospective sustainable investing, lending credence to the analysis. 

The Lifeworth team acknowledges that design thinking is not a panacea for the capitalism crisis. Bendell et al. end the report using design thinking as a springboard to exhort the CSR movement to counteract the change-resistant tendency of corporate culture and instead unleash creative thinking to design solutions that government policy can support to seed sustainable forms of capitalism.

This commentary first appeared on CSRwire

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