Reimagining capitalism

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The French nobleman Alexis de Tocqueville’s travels across America in the 1830s coincided with the emergence of socialist theory back in Europe, a movement he presciently and stridently criticized. For Tocqueville, the balanced capitalism he witnessed compared favorably to the options back home, such as ceding power to the government or a more feudal system “managed by a few rich and powerful individuals.
“The inhabitants of the United States almost always manage to combine their own advantage with that of their fellow citizens,” he observed. Tocqueville’s musings inspired Friedrich Hayek’s “Road to Serfdom” and filtered into the very first issue of Forbes, printed during Russia’s Revolution, when the magazine’s founder, B.C. Forbes, famously declared that “business was originated to produce happiness, not to pile up millions.”
Milton Friedman was another 20th-century admirer of Tocqueville, particularly for his focus on political equality as a driver of prosperity. But Milton Friedman famously held that among all the constituents of business – the customer, the employees, the community – just one ultimately mattered, the shareholder. The only social responsibility of business, he declared, was to maximize profits. If shareholders wanted to spend their profits on altruistic projects, great, but that was at their sole discretion, with the assumption they were buying something of value, perhaps social approbation or the assuaging of guilt.
Thomas Piketty, the author of “Capital in the Twenty-First Century” stated that this maxim gave people private equity deals and employee buyouts. And to many of the world’s most successful capitalists, it also created many of the current ills. “How wrong I was about Milton Friedman – most of us were,” says M. Jones, who built a 5 billion dollar fortune exploiting market opportunities, including shorting the 1987 market crash. He further stressed “It came at great cost to other corporate stakeholders and eroded the trust on which companies, and civil society, depends.”
According to Thomas Piketty, in an era when consumers crave authenticity, the Tocque¬ville version, which sees profits as a by-product of business rather than its singular mission, offers a natural strain of capitalism that’s already hugely popular, especially among younger Americans. For Millennials, according to a massive Deloitte survey in 2018, the bottom three priorities for a business should be profits, efficiency and sales. The top three? Generating jobs, improving society and innovation.
Authenticity explains why 87% of Americans as per Gallup survey approve, while disliking Wall Street and big business, continue to love entrepreneurs and 96% of them small business. And why purpose-driven companies like Patagonia and Warby Parker are wreathed in halos, no matter what they’re selling or how rich the founders get. Jeff Bezos reportedly said “When we’re acquiring companies, one of the things I look at very closely is ‘Are the founders of a company missionaries or mercenaries? It’s actually very easy to tell – missionaries make better products and services. They also engender the one authentic trait that’s ultimately the most profitable: trust. According to Jeff Bezos, that word “is what allows you to expand the business.” Of course, trust is a double-edged sword. As Facebook treats user data as a chit rather than a covenant, the company’s reputation, and its founder and CEO Mark Zuckerberg’s, has tanked. It’s also why Wall Street remains about as popular as big tobacco.
But even in finance, roots of authenticity shoot up. Impact investing, long dismissed as a niche for do-gooders, has emerged as a growth area, with some 35 billion dollar committed in 2018 to fund businesses that carry societal benefits without sacrificing returns. “We’re talking about solving problems using innovation and entrepreneurship,” says Nancy Pfund, who founded DBL Partners and has raised 625 million dollar in three venture funds. Her flagship, with investments in Tesla and SolarCity, has ranked in the top performance quartile across this decade. Nancy Pfund further noted “When you just look at the super-short-term shareholder, you’re not taking advantage of innovation – and you’re cheating the future.”
Paul Collier in his book entitled “The Future of Capitalism: Facing the New Anxieties” stated that the numbers are getting larger: Breakthrough Energy Ventures, backed by a consortium of billionaires such as Gates, Bezos, Michael Bloomberg, Richard Branson and Jack Ma, has pledged 1 billion dollar for startups that promise radical solutions to carbon emissions. A similarly platinum-plated tycoon cohort, including Bono, Laurene Powell Jobs and Jeff Skoll, has backed the Rise Fund, an arm of private equity giant TPG that has deployed 1.8 billion dollar in 25 investments they think will have significant impact on society.
Paul Mason who authored “Post- Capitalism: A Guide to Our Future” stated that for those who rightly still believe in America as the land of opportunity, a Fox News survey from just a few weeks ago should offer pause: 42% of Americans do not think “the way capitalism works in the United States these days” gives them “a fair shot.” Even more troubling: In a country that has always held true to the premise that you could make it through hard work – or at least your children could – 18% thought that the American Dream is out of reach for their family.
And there are ample stats to back up the sentiment. In the United States the top 1% of workers, collectively, earn vastly more than the bottom 50%. The legendary investor, Warren Buffett explains that “The market system as it gets more specialized pushes more money to the top. The natural function of a more specialized market economy is to divert more and more of the rewards to the top. That’s something I don’t think we’ve fully addressed in this country.”
But the situation is actually far worse than yawning income disparity. According to Warren Buffett, Americans have historically viewed the superrich as heroes, not villains, for a simple reason: “We all thought we could be like them,” he says. It’s the accelerating lack of upward mobility that’s fueling much of this populist anger. For all the anecdotal success stories, if you’re born in the wrong Zip code, to the wrong parents, the road to The Forbes 400 has never looked longer or narrower.
Take venture capital, the clearest starting point to a billion-dollar fortune over the past 20 years, a door the vast majority of Americans have no way of opening. Paul Mason asserted that just 15% of the money goes to women founders, 1% to black entrepreneurs and less than a quarter to anyone who lives outside California, New York and Massachusetts. Yes, a far more global, diverse pool now has access to those funding meccas, but that’s little comfort to a parent whose kid goes to a so-so public school in a city or region that’s been left behind.
“It needs to be a national priority to level the playing field,” says J. Case, who for the past few years has conducted a Rise of the Rest bus tour, traveling the country and putting millions into more than 100 companies that aren’t in Boston, New York or the San Francisco Bay Area. To J. Case, it’s both civic duty and opportunity, as brilliant minds lie fallow in low-cost areas desperate for high-growth hope. Nancy Pfund actually counts women leaders before investing in a firm, almost two thirds of the companies in her funds have a woman at the CFO level or higher.
All these efforts are on the margin, short of a commitment to create educational opportunities for those with ambition and then a track for them going forward. “We will have the resources,” Warren Buffett says. “The question is, will we in effect pull everybody in who’s able-bodied and willing to work 40 hours a week so they can make a decent living, raise a family?”
To be continued .