When Theresa May became the UK’s prime minister she put forward a far-reaching agenda for reform of the capitalist system, which one commentator said would have been seen as radical if Labour leader Jeremy Corbyn had articulated it. Worker representatives on the boards of corporations; binding votes of shareholders on executives’ pay; publishing executives’ pay scales; reducing the soaring ratio of executive pay to average wages. Bodies such as the Institute of Directors fought back, suggesting that all this should be recommendations rather than mandatory.
Mrs May pushed forward the legislation needed to make boardrooms criminally responsible for white collar crimes committed by employees. Radical indeed!
Her proposals reflected a general public revolt against the way big business operates—a discontent exacerbated by the 'unacceptable face of capitalism', reflected in Sir Philip Green’s sale of BHS department stores and their subsequent closure, and the depletion of the BHS employees’ pension fund; not to mention other scandals such as VW’s cheating on its diesel emissions measurements.
So is all rotten in Hamlet’s State of Denmark, as it were? Has Capitalism had its day? Peter Heslam of Transforming Business wrote that “many thought-leaders now avoid the term 'capitalism' altogether…. Others have sought to moderate the term by juxtaposing adjectives like 'compassionate', 'conscious', 'responsible', 'enlightened', 'social' or 'sustainable' before the word 'capitalism'.”
Heslam argued that 'While all these composite "isms" have deficiencies, they ought not to be dismissed as self-contradictory. Each of them mirror the fact that exchanges of economic value take place in a relational context and depend on a moral code. That is why, when business leaders enrich themselves at the expense of those who are vital in the creation of that wealth, trust and profits eventually plunge.'
Following the collapse of Soviet communism, capitalism seemed to have won the day. Indeed, the market economy has lifted millions out of poverty. The World Bank reports that the share of the world population living in extreme poverty has fallen to 15 per cent in 2011 from 36 per cent in 1990. This is largely thanks to economic growth in China and India, the world’s largest countries, where grinding poverty also still holds sway. As Professor Douglas Irwin in the Department of Economics at Dartmouth College, USA, writes in The Wall Street Journal: 'The past 25 years have witnessed the greatest reduction in global poverty in the history of the world.'
Capitalism may not be dead. But even George W Bush acknowledged, following the collapse of Enron, that 'In the end, there is no capitalism without conscience, no wealth without character.'
Today’s millennial generation looks to alternative models to the joint stock company that is the hallmark of capitalism: social entrepreneurship; employee ownership; cooperatives; benefit corporations (B Corps) which are legally mandated to meet the concerns of all stakeholders; the green economy which aims to reduce environmental risks; the zero growth movement in order to reduce consumption; 'integral economics' which also advocates green economies; and 'unconditional basic income' which proposes giving a basic grant to everyone in the population, said to be much more cost effective than the welfare system.
Then there are: Gross National Happiness, based on spiritual and economical values as an alternative to GDP in measuring a nation’s wellbeing; Economy for the Common Good; Circular Economy (rethinking the manufacturing and recycling model); Local Currencies; the Gift Economy (bartering); the Sharing Economy (such as Airbnb); and the Transition Towns movement advocating localization rather than globalization.
All of these are valid. But none of them obviate the need for a sense of conscience—social and personal—within each model. It is often human nature, in its worst manifestations of naked greed, which undermines the best economic systems. Those who are solely driven by acquisition become the destroyers, as we saw in the financial crash of 2008, and those who are motived by contribution are the builders for future generations. Generation Y has this strong sense of social engagement. Hedonism is out; social awareness is in.
We need to rediscover Adam Smith’s moral philosophy, which was far greater than 'the invisible hand' of the market. We need to remember and apply his notions, express in his book The Theory of Moral Sentiments, about 'the Impartial Spectator which acts like a demi-god within the breast' and 'the man within' which is 'the vice-regent of the deity'—in other words one’s conscience. And, if in the pursuit of wealth injustice is done, then the Impartial Spectator changes sides, he wrote. In other words it stops approving of what you are doing.
The alternatives to capitalism, it turns out, are not just new economic models but also a finely tuned conscience.
Michael Smith was, at the time of writing, the Head of Business Programmes at Initiatives of Change and author of the book 'Great Company'.
Initiatives of Change advocates conscience-based decision-making, 'intuitive intelligence' and a leadership culture based on moral and ethical values.
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