Redemptive Capitalism

I have never really been much of a holiday person. Over the last 26 years, however, I have evolved into somewhat of a Scrooge. I intend to change that. This morning I woke up thinking about my birthday party with the kids. I like to take as many of the kids out as I can for dinner and celebrate my birthday. I love my family, but I feel it is a bit fractured. I have one daughter that won’t talk to me, another that has very little to do with me, and the three that were with me yesterday are wonderful, but I constantly worry about them.

As a maturing parent, getting old, I look back at the many mistakes I made as a parent and wonder what could I have done differently? So when I woke up yesterday morning I was thinking about redemption, and how could God redeem the fractured mess I feel I have created. I believe redemption is possible, but it is a redemption that is beyond me. However, I have to ask myself a question, what is my responsibility in this mess? I have come to the conclusion that it is to love and care for those that are a part of my family, no matter what. Now how do I apply this thought process to Redemptive Capitalism?

Obviously the first place to start is with the definition of redemption? I pulled out my Unger’s Bible Dictionary and looked up the word. The dictionary describes how Jehovah instructed the Israelites that they were a people purchased from bondage. Redeemed if you will from Egyptian enslavement, and transferred to the promised land of Canaan. The larger idea, as stated by Unger, is the sacrifice of Jesus Christ on the Cross as a payment of redemption for the sin of mankind, setting us free from sin and transferred into a new life with Him.

How in the world can Capitalism and redemption be used in the same sentence? The two key elements of redemption are intervention and promise. Jeff Swartz, CEO of Timberland, states, “The late Milton Freidman, who won the Nobel Prize says the sole responsibility of business is to earn money for shareholders, but when one child in five goes to bed hungry, I find that intolerable.” An intervention therefore is required. Timberland, like many modern companies, has a motto, “Do Well and Do Good – and they’re not mutually exclusive.” Timberland is not the only company that intervenes in the social concerns of our society.

This leads us to the second element of Redemptive Capitalism, promise. Capitalism entails private ownership of the means of production to create profit. However, there are many examples of exploitation throughout its history. However, many companies are now on a quest for “integrity, transparency, and enlightened governance,” leading to a higher social and environmental standard, while maintaining profit. The triple bottom line of sustainability is widely pursued by large and small companies alike, and is being used to create the promise of a social responsible business that partners with society for improved living conditions.

I am a huge Social Entrepreneurship fan. As a Christian I believe in using business to further the kingdom of God. Strong Harvest is a not-for-profit organization that is using the Maringa Tree to create clean water, nutritious food, and economic opportunity for people in tropical areas that are usually low income areas. Rick and Jeri Kremmer are using the principles of the gospel to make the world a better place.

Although some are calling this Conscious Capitalism, I will not hide the Christ element. To me we are using business to create an intervention, which helps people improve their life. Not just economically, but socially, and environmentally.

Why do I think the principles of Capitalism are better for this endeavor than Socialism? Milton Freidman said it best in his book Capitalism and Freedom, “The great advances of civilization, whether in architecture or painting, in science or literature, in industry or agriculture, have never come from centralized government. Columbus did not set out to seek a new route to China in response to a majority directive of parliament . . . Newton and Leibnitz, Einstein and Bohr; Shakespeare, Milton, and Pasternak; Whitney, McCormick, Edison, and Ford; Jane Adams, Florence Nightengale, and Albert Schweitzer; not one of these opened up new frontiers in human knowledge and understanding, in literature, in technical possibilities, or in the relief of human misery in response to government directives. They were the product of individual genius . . . Government can never duplicate the variety and diversity of individual action.”

Individual innovation, which is encouraged via free market Capitalism, can help us intervene and create new solutions to human misery. I am excited about the possibilities.

And that is my thought for the day!

 

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Thankful For Redemptive (Conscious) Capitalism

I really enjoy Peggy Noonan’s articles in the WSJ. Her articles are balanced, articulate, and usually thoughtful. Today’s offering was no different. She discusses what she is thankful for: Family, Friends, Health and Freedom, all of which I am thankful for too! Is everything perfect in these areas of thankfulness? No, not even close, but none of us is perfect, and thankfully grace is offered to all. My prayer for this holiday season is that more people partake of the grace offered by God through Jesus Christ.

Today though I am, in particular, thankful for a new stream of literature that I have run into. I wrote a little about it yesterday. Years ago I would have ignored something like this, but today I am a little older and wiser and see its value. As a Christian I see the redemptive value of Conscious Capitalism, so much so that I cannot be ignore the idea.

Don’t tell my wife, but I purchased two new books yesterday. I love my iPad. The first, “Be the Solution: How Entrepreneurs and Conscious Capitalism Can Solve All the World’s Problems.” It is a book that was published in 2009, which discusses the role of Social Business in the world today. The Second is “MegaTrends 2010: The Rise of Conscious Capitalism,” published in 2007.  In both cases we see an argument for revolutionizing Capitalism into a more friendly version. It involves recovering free market expression from bureaucratic corporatism, producing an entrepreneurial response to the Adam Smith invisible hand.

For several years I have been thinking about the purpose behind business. I have always thought there is a why behind making money, more so than just making money. I know there are folks that say operating a business without maximizing shareholder value is like drinking a non-alcoholic beer, what’s the point, but the fact is that is the point. Doing business just to make money is empty.

John MacKey, CEO of Whole Foods, wrote the Forward for “Be The Solution.” In the forward he discusses his personal growth from being a hippy to becoming a successful entrepreneur. Although I would reframe his presentation into a more Christian vantage point, I agree with his premise of FLOW. “What is FLOW? To sum it up in one simple phrase: FLOW is about liberating the entrepreneurial spirit for good. Our world faces many tremendous challenges, from AIDS to global warming to large population growth to malaria to war and nuclear proliferation to many, many other challenges. FLOW is dedicated to the proposition that creative entrepreneurs can help solve all of the challenges in the world.”

After writing the previous paragraph my business persona is crying out, what about profit, isn’t that what business is all about? Absolutely, sustainability is still a critical part of a successful business model. However, sustainability has an expanded definition. There are now economic, social, and environmental pillars to the modern business model. This new business model is reflected in most socially responsible companies. Patricia Aburdene, in Magatrends 2010, states “Several studies. . . show us that corporate social responsibility, far from being a drain on profit, is an important marker of success. . .Socially responsible corporations tend to be well managed, and great management is the best way to predict superior financial performance.”

I love research, and I love reading. However, rather than call it Conscious Capitalism, I think I am going to call it Redemptive Capitalism. More to come!

And that is my thought for the day!

Shareholders, Stakeholders, and Conscious Capitalism

One of my favorite editorials each week is Schumpeter in the Economist. The magazine named this regular section after the Economist, Joseph Schumpeter, who famously developed the concept of “Creative Destruction.” Investipedia defines this as “A term coined by Joseph Schumpeter in his work entitled ‘Capitalism, Socialism and Democracy’ (1942) to denote a ‘process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.’ Having read these editorials for a year now, I think the name fits.

In this week’s magazine, Schumpeter titles its editorial as “Taking the Long View: The pursuit of shareholder value is attracting criticism – not all of it foolish.” I tend to agree with the premise of the article.

The article begins by exploring comments made by the CEO of the Unilever Company. “The boss of Unilever (an Anglo-Dutch consumer-goods firm with brands ranging from Timotei shampoo to Ben and Jerry’s ice cream) agonizes about unemployment, global warming and baby boomer greed.” Paul Polman, CEO, “puts some of the blame for these ills on the most influential management theory in the past three decades: the idea that companies should aim above all else to maximize returns to shareholders.”

One of my favorite current management thinkers is Roger Martin. I wish this were me, but it is the other one who is the Dean of the Rotman School of Management at the University of Toronto. He calls maximization of shareholder values as, “a crummy principle that is undermining American Capitalism.” Why is, something that managers are hired to accomplish, looked upon as being so bad? I think it is based in a tension that is looking for a balance; the tension that naturally occurs between the principle and agent of any company.

The principle of the company is the owner, and the agent of the company is the manager, or employee. The principle, represented by the board of directors, attempts to ensure that they get the most for their money. To accomplish this managerial bonus’ are established to ensure this happens. This could include “linking pay with share prices.” Therefore, the manager then attempts to manipulate share prices to ensure the largest bonus possible is earned. This leads to short-termism. “The emphasis on short-term results has tempted some firms to skimp on research ad innovation, robbing the future to flatter this year’s profits.”

The article goes on to explore other facts that establish this short-term mentality, but it also demonstrates that other companies, such as Amazon.com, do take a long-term approach to value management. The article also states, “The stockmarket is not as short-sighted as some people think.” It then lists companies that have been rewarded for taking a long-term approach, Toyota, IBM, and John Deere.

The article ends with a quote from Bill Clinton, “mend it don’t end it.” This quote dealt with affirmative action, but can just as easily be applied to shareholder value. John Katzenbach proposes a balanced approach to this dilemma. In his book “Wisdom of Teams,” he calls this a Balanced Performance Ethic. If you take care of your employees, they will take care of your customers, who in turn take care of shareholders. Shareholders are important within our economic structure, but an overemphasis on their needs over the other stakeholders, in my opinion is problematic.

I have worked with a lot of managers over the years. Those that took a balanced approached to performance, were usually successful. Those that took the divine-right of management approach, shareholder first, were usually popular with upper management, but were not very successful in the overall performance of their department.

Johnson and Johnson has been very successful over the years. They have always taken a long-term balanced approach to the shareholder. Although Katzenbach calls this a balanced performance ethic, R. Edward Freeman calls it Stakeholder Theory. I have read many articles by and about Freeman that I think are excellent. However, Freeman’s thinking has evolved and he  is now proposing that Capitalism has developed into a more complex version, 2.0 if you will. He calls it “Conscious Capitalism.” He proposes that corporations rethink why they are in business, taking a more holistic view. If they run their businesses well, while seeking to enhance the quality of life for people, financial performance will grow.  I believe the facts support this. Zappos, Toms, etc. are examples of the new version of how to do business. I like the idea of Conscious Capitalism. I think I am going to look into this a bit more.

And that is my thought for the day!

 

 

Labor And Management

I love studying Economics. At times I wish I would have found the subject in 1968 when I first started college. But alas, I was not very mature in 1968, decided to quit college, and start my business career. Not too smart! I did go back to school and finish my degrees, and eventually became a manager and now a professor. I am fine with my choices.

During class today we will be discussing the impact of inflation on our economy. As a side note, it will be interesting to see how many students show up due to the four-day weekend. In the past I have given quizzes on this day, but this year I didn’t. But today’s conversation should be very interesting.

The section of the chapter that stood out to me this morning involved the relationship between the velocity of money in our economy and the actions of labor. The example starts by discussing a large union negotiating a new wage package with a corporation. A large union would be the teamsters. “If the union negotiates a large nominal wage increase, other unions will likely follow, negotiating an winning higher wages.” This will not necessarily happen in a down economy, so the assumption is the economy in this example is fairly robust.

If this is an aggregate event, meaning that all companies and employees are impacted by higher wages, then the businesses will pass on the higher labor cost, at least part of it, to the customer. This means higher prices, and a greater demand for money. If the Fed does not provide more money to economy, then demand for money is higher than the supply of money, creating higher prices and less demand, thus pushing the economy into recession.

If the Fed adjusts the money supply by providing more money to the economy, the aggregate supply curve for money shifts to the right, providing more cash to the economy, but maintains the economy at full employment. This will result in higher prices.

Now we apply this to Hostess. The company is described as declaring bankruptcy as a result of the Baker’s union demanding an 8% wage increase. The Baker’s union, a branch of the AFL-CIO, are being presented as the culprits, along with a healthier customer which does not want to eat food with preservatives, responsible for the demise of our beloved cupcakes. The Baker’s union being depicted as the evil empire may not accurate.

The WSJ painted a different story this morning involving the two main unions of Hostess. The Bakers and the Teamsters. “The Teamsters reluctantly agreed to givebacks to finance the company’s latest turnaround attempt. The Bakers went out on strike.” The WSJ then writes that even the liberal media went Tsk, Tsk “assuming that union bloody-mindedness must be at work.”

The truth is there are two union players, one that has become efficient, and the other that has maintained a highly inefficient process costing Hostess millions of dollars. Many of us have assumed that the baking process must be antiquated and riddled with inefficiencies. The fact is that most of the baking operations have been improved and are relatively efficient. However, it is the distribution process that seems to be the issue, which involves the Teamsters.

“Under the latest turnaround plan, the sticking point was Hostess’s distribution operations. Union imposed work rules stopped drivers from helping to load their trucks. A separate worker, arriving at the store in a separate vehicle, had to be employed to shift goods from a storage area to a retailer’s shelf. Wonder Bread and Twinkies could not be delivered in the same truck.” So the Teamsters come off as being the altruistic partner in the fiasco, and the Bakers look bad. The fact is the Teamsters have not allowed efficiencies to occur that could reduce operational costs for Hostess. According to the WSJ, production costs for Hostess “were neither excessive nor out of line with the market, but its distributions costs were – in the tune of $80 million and $130 million annually.” So don’t blame the bakers on this one.

I had the opportunity to work with two unions. One is working without a contract now, and is trying to work with Boeing to save its pension. The other, the International Association of Machinists (IAM), has had issues with the company, but has negotiated a new contract and is now producing many airplanes. So much so the company will increase its dividend by 9.1%.

I will say this about the IAM. I found its leaders to be reasonable and willing to work creative solutions to the tension between labor and management. One of the best agreements involves Joint Programs. Within this program you have labor and management working together to improve the skills of Boeing employees. It is a great strategy, one that is working well.

There are many examples of labor and management working together, I hope there are many more. It is good for the economy.

And that is my thought for the day!

 

Capitalism And Socialism: A Balanced Approach

I am fascinated with the country of Argentina; and I have come to the conclusion that I adore the Latino culture. I really enjoy going to Mexico, Honduras, and hopefully some day Chile or Brazil. However, we in the US of A can learn much from the Argentinians. The country is becoming a hotbed of protest concerning the financial crisis created by its Socialist government. “Eleven years after a debt and currency crisis that brought down the government of President Fernando de la Rua, Argentina is once again threatened to boil over in discontent.”  The current President, Cristina Kirchner who was elected to a second term in October of 2011, is in deep political trouble. The WSJ reports today that the reason for this is what Margret Thatcher identified as the problem of socialism which “always runs out of other people’s money.”

Due to Argentina’s economic model of protectionism, confiscation of private property, capital controls, broken contracts, and high taxes, the economy of Argentina has contacted by 1.4%, while inflation continues to grow at 25% annually. If you add political corruption and rising crime rates to the equation, it is not hard to see why thousands of people in Buenos Aires are protesting Kirchner’s reign. Just eleven years ago the Argentinian peso was equal to the US dollar.  Now $64,000 US is equal to about 405,000 in pesos, due to continued hyperinflation as a result of Kirchner’s Socialist economic policies.

The lessons of protectionism and high taxes continue to demonstrate to me the importance of free enterprise. However, the antithesis is just as true when we review the abuses of Capitalism: exploitation of workers, unfair distribution of wealth, and the oppressors continuing to take advantage of the oppressed. There needs to be a balance. My fear, however, is the move to an imbalanced economic structure.

I believe that to whom much is given much is required. Therefore taking care of the poor is a responsibility that will never go away. However, if my relief efforts do not create opportunity for people to better themselves, then all I am doing, under the heading of taking care of the poor, is to perpetuate a system of oppressed and oppressor. An example of this is the EBT card system that provides groceries for people living in poverty. EBT cards are government issued “debit cards that allow recipients to spend taxpayer money for their own groceries.” However, these cards can be used to buy processed junk food as well as food staples.

The article I read, thanks Debi Jack, assumes that the poor are uneducated and will use this card to buy cheap food. As much as I want to discount this statement I think the truth is that junk food is cheaper and filling. Thus people who are living at the subsistence level will be more inclined to buy junk food, which is allowed when using the EBT card. I noticed last night that the little Corner Market by my house has a huge sign that says we accept EBT cards. I looked at all of their offerings and it was all junk food and very expensive. Looks like exploitation to me.

According to the article I read last night, EBT has more than doubled over the last four years. That seems logical with the increase of people living in poverty. However, all this system does is create relief, which is good, but it does not rehabilitate, nor redevelop. In fact, the EBT system maintains the oppressed mentality. It does not set people free, it perpetuates the problem. Don’t get me wrong, I feel we need to help people, but if my EBT system allows buying junk food, but disallows the purchase of vitamins, then it is perpetuating the stereotype of unhealthy poor people.

A couple of weeks ago I went to a Social Business Conference at the PDX Convention Center. A young lady presented her Social Business endeavor. She recognized the problem with the poor buying junk food, and created an entrepreneurship that provided healthy lunches at a cheaper price than McD’s. It was incredible. Dealing with this problem requires looking at the problem with new eyes, but instead we maintain the status quo of oppression via our entitlements.

One last thought on this. The article calls the entitlement system, as illustrated by the EBT card, as a Ponzi scheme.  A Ponzi scheme is a process of using current investment money to pay previous investors off. Eventually it fails. Bernie Madoff found that out the hard way.  The article states, “The US government is running the largest Ponzi scheme in the history of the world, and just like every Ponzi scheme that has ever existed, it will sooner or later collapse.” Interesting thought!

We continue to try and deal with our problems using the same techniques, while expecting different results. We all know that this is the definition of insanity.

And that is my thought for the day!

Capitalism And Freedom

I want to start today’s blog entry with a quote from Milton Friedman. Although I don’t agree with his definition of Business Ethics, I do agree with him on many of his other points. This is a quote from his 1962 work “Capitalism and Freedom.”

The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather, ‘What can I and my compatriots do through government” to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom. And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect?

Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp.

Being a free marketer does not mean that I don’t believe in government. Being a Libertarian does not mean that I don’t think that government has a role in helping people when they need a leg up. But I am a person who believes in balance and responsibility. Democratic Capitalism is a balanced opportunity for commerce and the people to work together for the good of society. For Democratic Capitalism to work, it takes an aware populace paying attention. After yesterdays interchange between Congress and the President, I believe Democratic Capitalism is working. It appears we may not plug over the fiscal cliff after all.

And that is my thought for the day!

American Revival

I am very excited about the new Lincoln movie. I have read Doris Kearns Goodwin’s book “Team of Rivals,” which explores how Lincoln was able to take a cabinet made up of competitors and antagonists, and turn them into a team able to deal with one of our more difficult events as a country. Maybe Obama and Boehner should read, or reread if they have already read the book, to help develop an innovative strategy for dealing with the upcoming fiscal cliff.

Lloyd Blankfein, in Wednesday’s WSJ, produced some poignant elements required for the revival of America, and presented them as a business plan. To set up the process he described how Lincoln and FDR were able to take antagonists and turn them into productive teams.

FDR was hated by the business community!  This was especially true during the latter part of the Depression and early World War II. His Second Bill of Rights was highly controversial, resulting in extreme bitterness within the business community. Business executives during those years referred to FDR as “that man in the White House.” Two very wealthy families were said to have hired General Butler to overthrow the United States government. However, somewhere along the line, business and FDR united to defeat the Germans and Japanese. FDR was able to get people that did not get along to work together for the good of the country.

I hope Obama and Boehner figure this out before it is too late. Blankfein states, “The challenges the United States faces are not those of World War II. But meeting today’s challenges will demand a similar dedication to cooperation – and not just between political parties. A spirit of compromise and reconciliation would do wonders for the economy if government and business resolve together.” I think this is a true statement.

The fiscal challenges that we face as a country illuminate a substantive character flaw within our culture. We like to live beyond our means; we don’t like anyone telling us what we should do; we think we know it all; and we think it will always be this way.  These are terminal character flaws that will undermine the standard of living within this country. To deal with these flaws will take a systematic revival resulting from metanoia.

This self-correction will need to include flexibility and shared sacrifice that usually occurs during a necessary war, such as World War II. This new bipartisanship will lead to a fiscal plan that will include revenue hikes tied to cuts in spending. No cuts in spending no tax increases. However, the convoluted tax system in this country needs to be revised. Everyone knows the powerful people in this country want a convoluted tax system because it creates the ability of the powerful to hide wealth. With a simplified and clear tax system all will benefit. Last, but probably the most important part of the puzzle, and probably the most difficult, is to revive the will to compete. I know this is a huge generalization, but we have become lazy, expecting things to come to us easily. We have forgotten how to struggle.

Yesterday I and another professor were discussing the current academic environment. We were exploring reasons for the variation within student performance. The other professor made the comment that for some students struggle is a natural part of the learning process. These students struggle and fight to learn, while others expect an A, because that is what they received in high school. This illustrates a systemic problem within our culture, we want in to come easily and we want it now.

So President Obama and John Boehner, the enemy is out there. How are you two going to rally us to work together for the good of this country? How are you going to create the shared vision that a highly divided country can rally behind? How are you going to get people that absolutely do not trust one another, to work together and create the innovative solutions needed to our social and economic problems? I know we are supposed to be the solution, or have ideas ready when we identify problems. The fact is, our country needs leadership during this time of uncertainty. Instead of inflammatory comments made to press, how about you two becoming leaders? How about channeling the spirit of Lincoln and FDR for a change? We need leadership not rhetoric.

And that is my thought (challenge) for the day!