Summing Up
Can "Conscious Capitalism" Become a Viable Antidote to Income Inequality?
Conscious capitalism as an antidote to income inequality apparently is an idea that attracts the attention of a diverse community, judging from respondents to this month's column. It will also require a great deal more thought if responses are an indicator. But as Wallace Earner puts it, "A long, strong struggle with a good question is much better than quick, smart answers."
Many took an "it would be nice if …" stance. Among them, Clifford Brown commented that "The fundamental nature of capitalism will always foster income inequality… That being said, … the collective corporate hierarchy (needs to) make the long needed effort to voluntarily minimize … the gross inequality that now exists." Desiree Halse, after quoting verses memorized as a child from the Bible, said "I … wish all shepherds of capitalism well … never mind narcissism and all the disorders of greed … We can't fix the world with economic systems … too big a job … all we tiny ones have is our love and conscience."
Etienne Douaze maintains that the concept is alive and well in Germany's Mittelstand: "… (an) ethos of social usefulness (job creation, customer satisfaction and product excellence … at least as important as profitability), a collaborative spirit between employers and employees …, a long-term view …, and a close relationship with suppliers."
Several respondents voiced serious doubts. As Darryl D'Sa put it, "I contend that this is old wine with a new name… The ideas are feel good and to be desired but will fail in the market place which gives capital the primary (and therefore only) stake in the outcome of social human enterprise." Jan Fersubg said, "Whole Foods (an example put forth for conscious capitalism) is successful, to be sure, but it is all too easy to fill in the 'facts' after history takes place, and then very difficult to duplicate in another arena." Gerald Nanninga added "…capitalism has a bias for making money… Hence, one needs to make social good more profitable than not, and that is a tricky path full of potholes."
Kapil Kumar Sopory raised a caution: "The idea of developing a conscious culture with shared values that reflect the higher purpose is very laudable, but it needs a lot of close attention to what sort of high values are to be focused on …" Howard Behar's response was similarly nuanced: "Although I am an absolute believer as well as an amateur practitioner of Conscious Capitalism and its sister concept of Servant Leadership, I do not think that either concept solves the problem by itself. What they can do is create the opportunity and environment for the dialogue that can help us deal with the issue."
Just how the idea might be implemented more widely was a concern of several. As Michael Hogan put it, "… absent a revival of the organized labor movement … it is boards who are best positioned to reverse this ultimately fatal trend in compensation." Aaron Barlow brought the discussion closer to home by asking, "As HBS alumni, don't we have an obligation to lead out on this topic and set an example? We must encourage, cajole and inspire each other to make the American dream available to all. But we must also be free to choose."
Can "conscious capitalism" become a viable antidote to income inequality? What do you think?
Original Article
A natural result of capitalism and the free market is income inequality. Advocates of capitalism argue that inequality, to the extent that it recognizes differences in effort and results, is good. But a frequently asked question these days is: Are we exceeding the optimal point of inequality and descending into an era of a vanishing middle class and, with it, the spending power and inclination with which it fuels an economy?
A growing number of observers are saying yes, pointing to the fact that investors and managers have co-opted more than 100 percent of the economic gains of the past 30 years in the United States, other developed economies, and even the BRIC countries.
Assuming for a moment that all of this is correct, what's the answer? First, is executive pay too high, or is the problem, as compensation and governance consultant Donald Delves says, "that most people are paid so little?" How can inequality be reduced to optimal levels? Is this the responsibility of government? Or is it the responsibility of the private sector?
John Mackey, cofounder and co-CEO of Whole Foods Market, is no fan of big government and the "crony capitalism" he believes it fosters. He thinks private sector responsibility is the answer and his prescription is described in a new book, Conscious Capitalism, that he coauthored.
Conscious capitalism is made up of four elements:
- a purpose higher than merely generating profits and shareholder value;
- integration of all stakeholders in that sense of purpose;
- conscious leadership devoted to the higher purpose and stakeholder integration;
- a conscious culture with shared values that reflect the higher purpose.
Organizations that meet Mackey's criteria (in addition to his own) include Starbucks, the Tata Group, Google, REI, and UPS. All of this sounds like an answer to a "trickle down" philosophy of economics fueled by government favoritism for the most affluent.
My introduction to the concept occurred long before I read the book. On a visit to a local Whole Foods Market, I casually remarked to the person checking my groceries that the company appeared to be doing well, noting that it had just reported significantly better earnings than expected. The checker beamed, commenting that the stock price had reached a record high the day before. Then the person bagging my groceries added, "And the stock went up 10 percent in the first hour after the market closed and the earnings were announced."
This is a product of a philosophy that employees are critical, because they basically run the business. Working in teams in the company's stores, they buy some of the produce and merchandise they sell; they hire, train, and fire team members; and they're paid a salary plus a gainsharing-based bonus based on their ability to meet or exceed plan. Everyone is eligible for stock options. Everyone can know what everyone else is earning, and the highest compensated person cannot earn more than 19 times the average for all.
Is this an important answer to the inequality now thought to be burdening economies from the US to India and even China? Or is it an exercise in self-indulgence associated with a retailing strategy that would succeed in any case? If it is so promising, why do so few organizations practice it, as evidenced by macroeconomic trends? Is the basic premise even correct, given evidence from Europe, where less inequality prevails alongside slow growth? What do you think?
To Read More
:Don Delves, The Pay Problem, The Conference Board Review, Winter, 2013.
John Mackey and Raj Sisodia, Conscious Capitalism: Liberating the Heroic Spirit of Business (Boston: Harvard Business Review Press, 2013).
- Anonymous
First, thank you for raising the questions. Two thoughts came to mind when I read your article. First, corporate culture creates a narcissistic culture. This is not done with conscious but rather a byproduct or Colonialism and Capitalism. Once the cultural narcissism is in place Capitalism becomes an incubator for this type of social disorder, i.e. competition, manipulation, hoarding more than is needed, a definition of a superior person, and self entitlement.The second thought, some of Europe functions with equality because of a social conscious and process which gives "the people" more leverage to influence what happens. There are riots and business shuts down when corporate or government policy does not recognize its ethical obligations to the people. Is it a perfect system? Absolutely not! However, it functions much better in important areas of equality than does the United States.
A well known author in the U.S. and Europe wrote the book "The Empathic Civilization;" among other great publications. His message is clear about a conscious society that embraces our togetherness; everyone has a purpose and wants to be connected. Stock sharing and other fair practices should become a requirement of a society with empathy for its people and appreciate its great resources. Everyone is of value and has contribution. Some of our greatest assets lay in marginalized groups who are not able to contribute fully because of unfair, unequal, and unethical practices. Corporations, and those that lead them, need to gain more of a empathic systemic change in order to be truly strong and utilized their resources optimally. They are not maximizing profits otherwise.
Another paradigm shift in what defines higher purpose and values in business process is in order for a changing country.
- Jason Womack
- Author, The Jason Womack Company
James, thank you for this.I especially appreciated you outlining the 4 "factors" of Conscious Capitalism:
a purpose higher than merely generating profits and shareholder value;
integration of all stakeholders in that sense of purpose;
conscious leadership devoted to the higher purpose and stakeholder integration;
a conscious culture with shared values that reflect the higher purpose.
Just last week, in a brainstorming session of 55 Silicon Valley leaders, we danced around the significant aspects that would - over the next 7-10 years - affect the development of technology; not just the bits and bytes, screen size, battery life and memory, but the actual MEANING of technology.
We came up with a few things:
1. a new social contract: What does it "mean" when we're that connected?
2. seeking control: How do we give/get/control the information available to us?
3. smart-connected-everything: Where will we go, first, to get the information we need?
4. ultimate exchange: When do people prefer experience over ownership?
I blogged about the book, Conscious Capitalism last month (I sent this privately to you) and now you've get me interested in going back and reviewing it again...
Thanks to you!
Jason
- Wallace Eamer
- Deacon, Anglican Church
The rising tide is not lifting all or most boats, which Ronald Reagan would find unbelievable. The pressure for less extreme income distribution could be ignored, but that's not in the self interest of the majority. The pressure can managed through the private sector, with a huge range of answers and a few common principles, and/or through government income redistribution. A long, strong struggle with a good question is much better than quick, smart answers. I look forward to the discussion.- Jan Fersubg
- retired small mft
Given Mr. Mackey's well-publicized business history of self-dealing, I view this effort by him as another attempt to restore himself and his reputation.Whole Foods is successful, to be sure, but it is all to easy to fill in the "facts" after history takes place, and then very difficult to duplicate in another arena.
- Anonymous
Any adjective preceding the word "capitalism" has been proven to be a bad idea. Income inequality is good, not bad, because it aligns perfectly to human behavior and our pursuit of excellence at the cost of mediocracy. Btw, fact check: in the last 20 years, globalization and capitalism has lifted .... Billions .... Of humans out of the gutter in India, China, etc. Capitalism succeeded where central government programs failed. Stop messing with what works fine, for everyone.- Michael Hogan
- Senior Advisor, Various energy related firms
Having begun my career at GE in 1980 under Reg Jones and then through the transition to Jack Welch and the changing management culture through the 1980s, I can attest to the shift in expectations that took place within the management ranks of corporate America during that time. At the start of the 1980s a manager could expect to be comfortably paid for good performance and, if one rose through the ranks to senior management, to have a achieve a comfortable upper middle class lifestyle up to and through retirement. One could not, however, have expected to achieve the opulent upper class lifestyles enjoyed today by even the second and third tiers of managers in large corporations. Those kinds of lifestyles were not available to employees - and that is what even the most senior manager is - they were available only to owners who had risked and won, and to those who inherited the wealth generated by such pure entrepreneurial risk-taking. What changed? Did we somehow loosen the bounds of social convention that kept the ratio between the highest paid employees and the lowest paid employees in the range of 30:1? (The typical ratio today is of course ten times that, or more). Are large companies more successful today at delivering value to all stakeholders than they were 30 or 50 years ago? These are all important questions. My own view is that this is a result primarily of two things. First is the dramatic reduction in the cost and time involved in transportation of parts or even finished goods over that period (much of that reduction in cost being the result of direct or indirect subsidies), which has eroded the ability of organized labor to constrain the ability of management to hoard gains for themselves; and the second is the willingness of public boards to cede much of the power over compensation policies to senior management, in effect leading to the situation where management hoards all (or more than
all) of the benefits of improved productivity to themselves simply because they can. Have shareholders benefited? I think not - much of what management doles out in compensation (mostly to itself) rightly belongs to shareholders. The competitive market for management talent is a brutal place and board behavior can easily seek the lowest common denominator, but absent a revival of the organized labor movement (which seems unlikely without government intervention) it is boards who are best positioned to reverse this ultimately fatal trend in compensation. That is where the solution will be found, in the introduction of objective metrics about the efficient and, yes, moral allocation of gross earnings and stakeholder participation in actual and/or effective enterprise ownership.
- Darryl D'Sa
I contend that this is old wine with a new name. The Third Way (Fabian Socialism in the 1930s, African and Asian socialism in 1950s, Tony Bliar in the 1990s) advocated the same ideas politically and teh general consensus is those failed. the ideas are feel good and to be desired but will fail in teh market place which gives capital the primary (and therefore only) stake in the outcome of social human enterprise.@Annonymous - many folks in India would argue that capitalism hasnt lifted anyone out of the gutter. the slums are still there, the number of farmers committing suicide because of debt grows each year. Yes there are many more $$ Billionaires but those folks were rich to begin with.
- Luis Xavier
- Baena Mouro
As usual in this column a great question with no simple answers.The goal of capitalism is the accumulation of capital. This in practice can only be achieved by the exploitation of the labor effort of others and can only only occur by taking income or assets from other people. In fact the primitive accumulation of capital is based on violence, plunder, slavery, robbery, extortion and theft.
Capitalism requires the exploitation of value-adding work by people for someone else and has a vested interest in cutting them off from sources of income other than selling their labor. i.e. sources of income that do not permit the exploitation of labor by capital.
There is no higher purpose. Of course employees are critical. The exploitation of other peoples labor is critical for capitalism. Giving them perks does not change the essence of it.
Maybe it's time that we consider that production and economic activity need to serve the needs of humanity, not self-enrichment and the concentration of capital and power in the hands of a few very privileged individuals. This of course has it's own pitfalls as history has shown.
- Sumit Oza
- Jenkins Group Ltd
A much important question not addressed anywhere is if a research were to be carried out in the low/middle income earning group wherein they were asked the question as to how many of them if given the offer to earn 10-100 times more than what they are earning would take that option? It would be very interesting to study the outcome of that research data and plot this in your scenario.- Anonymous
Response to Darryl D'Sa: "many folks in India would argue that capitalism hasn't lifted anyone out of the gutter..."Seriously? India - and China - are the largest, most successful examples of improvement to the human condition and standard of living in the ...entire... history of mankind. Even the pope recognized this achievement and credited capitalism, not government or social programs.
And it happened in the last few dozen years. Everyone, just pause for a second and smile if you have a sense of our fellow man. Something amazing just happened! A few billion more people woke up today and worried about where their children would go to university instead of where they would find food for the table.
Capitalism.
- Etienne Douaze
- Manager, Education
Good question, James. For some insight on the potential answer to pay inequality, I would suggest a closer look at Germany's successful Mittelstand, as explained by John Studzinski in a recent Guardian article (http://tinyurl.com/ap2qq5d). He points to four key ideas: a Mittelstand ethos of social usefulness (job creation, customer satisfaction and product excellence are at least as important as profitability), a collaborative spirit between employers and employees (flexibility on wages AND job security), a long-term view (keeping core functions in-house, innovation) and a close relationship with suppliers.See below for details.
"Let me highlight some of the features unique to the Mittelstand model that I believe everyone should learn from - and imitate if they can. The first is what we might call the Mittelstand ethos - that business is a constructive enterprise that aims to be socially useful. Making a profit is not an end in itself: job creation, client satisfaction and product excellence are just as fundamental. Taking on debt is treated with suspicion. The objective of every business leader is to earn trust - from employees, customers, suppliers and society as a whole. This ethos chimes with the values of prudence and responsibility with which every schoolteacher hopes to imbue their pupils. About half of all German high-school students move on to train in a trade. Business and education are natural bedfellows.
The second essential feature of the Mittelstand model is the collaborative spirit between employer and employees. A system of works councils ensures that employees' interests are safeguarded. German workers expect their employers to keep training them, enhancing their skills. In the post-reunification recession, it seemed only natural to German workers to offer flexibility on wages and hours in return for greater job security. More recently the government protected jobs by subsidising companies that cut hours rather than staff.
A third feature of the Mittelstand model is the determination of German companies to build for the long term. To this end, they tend to keep core functions such as engineering and project management in-house. Mittelstand companies are overwhelmingly privately owned, and thus free of pressure to provide shareholder returns. This makes them readier to innovate, and invest a larger proportion of their revenues in R&D. There are Mittelstand companies that file more patents in a year than some European countries.
Finally, German companies work closely with their suppliers. This has proved especially valuable in developing Sino-German trade. Unlike most of their international competitors, they are happy to take suppliers' representatives on trade missions. The result is that they can guarantee swift and sure supplies of components and other products.
Of course, there are other factors that lie behind the success of the Mittelstand and of the German economy as a whole. Both the economy and political system are highly decentralised, with the result that local banks, businesses, entrepreneurs and politicians know and understand each other - while, at the national level, Germany's leaders actively promote their country's industry abroad."
- Harlyn Sianturi MM
- Manager Risk & Asset, PT Kaltim Prima Coal
Capitalism seems to be the best in its class. However, the current capital world has been siginificantly ruled and ridiculed by heirs, and their acquintances, who do not earn the wealth as they do not have the wisdom of their father, ancestor, through the painfull hardwork paid for it. They have distance feeling and moral of the money they inherit. Even worse, in doing business they are controlled by institutions they can buy. This is tilting the current market capitalism. What is the antidote? Yes, everyone needs to be concious and act to reduce the tilt as it seems impossible to institutionalise the act, isn't?- Hugh Quick
- home, none
My comment is so banal that I am almost ashamed to make it, but not quite. People are different and there is nothing you can do about it. Incomes will be different whatever 'system' is developed and I don't think income is the most important feature of life anyway (from which you may correctly conclude that I have enough)- Taat Subekti
- Chairman, Dharma Shanti Educational Foundation
With the collapse of communism and socialism, capitalistic economy is currently the dominant stream. Islamic economy is becoming alternative to it.However, no matter what the economic system being held, inequality will always exist. The more important issue is not inequality, but justice is. Every body should get what they can earn based on their respective capability, but must strongly hold the ethics of conduct and always considerate and pay respect to one's obligations before claims her/his rights to earn.
- Anonymous
Capitalism is a process which supports the generation of monopolies and congragations of power. It does not provide a level playing field and promote the best and brightest. It enables those with adequate resources gained from previous market success to manipulate the market for further gains. The neoliberalism promoted by Hayek and Friedman has not served the broader community and has served to widen the economic inequality gap evident in our communities. Supporters of neoliberalism promote the myth that successful companies are worthy of their success as they have the best ideas and offer the best services and products. This not the case as these companies have the resources to best postion themselves within the market.Regulation in itself is not the solution to inequality, however regulation focussed on restricting a monpoly on opportunities may be more appropriate. Conscious capitalism is itself a form of self-regulation to supply broader non-monetary outcomes but it does not address the structurally prescribed inequality provided by market capitalism.
- Anonymous
Can we just have our union movement back please? Such a shame to think of all the lobbying and PR money thrown at fighting unions that could instead be spent on raising the pay floor.- David Physick
- Glowinkowski International
This is an important discussion, one of the most important that Jim has incepted. The current "mode" of capitalism isn't as effective as it could be in "raising all the boats". As Anonymous remarks, many people have been lifted out of poverty but there remain far too many living below the bread line. And this abject poverty is not limited to the "third world". Within a few minutes walk of London's financial district and Washington's Capitol, it is there red in tooth and claw.Perhaps the distinction is not the political or social system that prevails. Under communism as well as capitalism, those in positions of power have abused those positions and this is all to do with human nature. No fair minded or right minded person can surely accept the behaviours of the past few years as being sensible on both supply and demand sides of the economy. Add in the emerging catastrophe to the planet's eco-system and changes have to take place.
In previous remarks made to these discussions, I have reflected on the practices of the indigenous American Indians who made decisions considering their impact seven generations out from today as opposed to the next financial quarter.
The likes of Paul Polman at Unilever is making some very positive moves to the way his business develops and focuses on adding value across the triple bottom line - fiscal, societal, environmental. Others should emulate. The late, great Ray Anderson of Interflor is another prime example of what is possible.
And, finally, I believe at the heart of Jim's seminal work about the service-profit chain, sits a very positive representation of conscious capitalism.
- Doug Elliott
- Founder, D. Elliott & Associates
I like to believe that I am a committed capitalist. In an ideal free market, successful businesses should be autonomous and fully funding enterprises that thrive and sustain themselves purely on their private efforts and private capital. That would include the full funding of the labor base for businesses such that no external subsidy is required to sustain them.I am supposing that most of your audience would regard themselves as 'committed capitalists' as defined above. No doubt there would still be a justifiable income inequality based on a worker's skills, position and performance in any particular business. But everyone would, of necessity, be paid at least a 'living wage' so a business is guaranteed a sustainable supply of labor for all of its labor needs. Sadly, this is not the reality in far too many sectors of the US economy.
As 'committed capitalists', we can perceive the need for some public means to provide the social utilities that private enterprise cannot efficiently provide. This is government and the taxation of our private means is the price to obtain them. They are paid by labor, capitalist and business elements of the marketplace.
Ideally, taxes paid on the capital, profits and dividends of an established business should, at minimum, cover net tax disbursements, if any, to the labor force of that same business. This meets the public duty to cover the social utilities to be provided by the government to the workforce. As a practical matter, we need a net tax surplus paid collectively by employees, owners and businesses to cover the remainder of the 'necessary' government utilities (and hopefully not more than what eludes the efficiency of a free market).
All of the foregoing seems achievable if we buy into the 'committed capitalist' hypothesis. It is both a moral and rational view of economy. If it were true this article would not have been written. But half of American taxpayers run a tax deficit with the American government- they collect more in taxes than they pay in (or paid in). Too many of them are part of the active American workforce because the taxes being paid to them are based in significant part on a living wage deficit not paid by their employers.
As a 'committed capitalist' my question is this- why should this be a government problem? When it happens, as it does in many US retail and service industries, why can't we make a business at least pay the tax difference between what the business pays in taxes and what its workers are paid as tax subsidies to their income? It might a unique instance when a government would actually be acting to advance free enterprise and the principles of market capitalism. And a business that is paying more in wages to its workers to avoid a tax surcharge to its profits will constructively improve workforce relationships. But it will more likely be the force of law - and not moral philosophy- that begins to redress wage inequality.
Doug Elliott
- marco sormani
Would simply recommend that everyone begin by reading Milton Friedman; then have the debate.- Joseph A Baini
- Accountant (Retired)
I think what Professor Heskett is describing is a sophisticated form of employee engagement which seems to have been tweaked to work well for Whole Foods Market. In addition to illustrating the flexibility and adaptability of Capitalism, it highlights the necessity of having innovative leadership and a flat business structure that encourages dynamic exchanges of information within and between business teams throughout the firm. And a welcome by-product of all this: Conscious Capitalism without the Government "red tape". It's a beautiful thing.- Dr. Phil Harris
- Founder and Principal, APG Academy of Entrepreneurship
Monopoly capitalism is not the same as capitalism. Capitalism has its roots in the idea of the "invisible hand" and competition regulating the markets. Monopoly capitalism rests on supply-side economics where the biggest and most powerful companies control the markets for their own self-interest.Adam Smith recognized the need for government to intervene when companies get too big and become inefficient because they no longer compete. What I see is those people who advocate small government really have the hidden motive of an even bigger government. These people advocate large companies controlling global markets and government working in their interest. Is this setting not big government? The question should be framed differently. Who does government work for--the people or big monopolistic and oligopolistic companies?
What happens to smaller companies that contribute the most to economic growth and job creation? Should these companies just disappear or are they not truly the engine of growth? I like the idea of smaller more efficient companies that respond to consumer needs better than fat inefficient companies driving the competition out and eventually falling into the state of "creative destruction."
- Clifford F Baker
- Chair, Neffel Corporation
The fundamental nature of capitalism will always foster income inequality. Looking at the history of all human endeavors, it only makes sense to perceive and consider income inequality as being a derivative of capitalism as an human endeavor.That being said, I believe the problem should not be considered from an egalitarian mind set, but instead from a practical perspective. By minimizing and devaluing the contribution of non-management labor to an enterprises success by means of deliberately not "sharing the wealth", the current corporate practice is unwittingly eliminating the broad masses of people able to purchase and utilize capitalism's goods and services.
If the collective corporate hierarchy within a societal boundary does not make the long needed effort to voluntarily minimize (I emphasize minimize) the gross inequality that now exists, I fear government, in response to social unrest fostered by the existence of such inequality, will, for the sake of relative social stability, seek to enforce equality with less than stellar results; communism being an exemplum primi est.
- Kapil Kumar Sopory
- Company Secretary, SMEC(India) Private Limited
The title seems to say that capitalism is unconscious of the real spirit in which business should be conducted. It should not lead to accumulation of wealth by a few at the cost of the majority. Equitable distribution of the firm's earnings needs to be the acceptable frame work.This would lead to a capitalistic work scenario somewhat tilted towards socialism.
The idea of developing a conscious culture with shared values that reflect the higher purpose is very laudable but it needs lot of close attention to what sort of high values are to be focused on. And, how to go about reaching this goal?
- Desiree Halse
- Perched on the edge of the real world, Retired from business world
Words memorized as a child come to,me as I sense this wonderful caring and searching for a better world...'and there were in the same country shepherds looking after their flocks by night. And behold, an angel of The Lord came upon them, and the glory of The Lord shone round about them, and they were sore afraid. Fear not, for unto you is born this day a savior who is Christ The Lord. You shall find the babe wrapped in swaddling clothes, lying in a manger. And suddenly there appeared with the angel a multitude of the heavenly hosts praising God and saying Glory be to god our savior.....I am not a 'bible puncher', but a retired psychologist...and wish all shepherds of capitalism well....never mind narcissism and all the disorders of greed....just keep. On loving and sharing what you have. We can't fix the world with economic systems...too big a job...all we tiny ones have is our love and conscience.
- Desiree Halse
- Dreamer, Retired
Wouldn't it be luverly? We can dream, can't we? And we should. What about Riane Eisler's The Real Wealth of Nations?- Howard Behar
- Retired President Starbucks International
Although I am an absolute believer as well as a amateur practitioner of Conscious Capitalism and it's sister concept of Servant Leadership I do not think that either concept solves the problem by itself. What they can do is create the opportunity and environment for the dialogue that can help us deal with the issue. If done well, both concepts create the trust, honesty and caring that are necessary to find solutions that work against the specific and focused goals.- Anonymous
I am a manager in the middle in a large corporation (one of those my European friends like to cast as villains). Our yearly salary may get adjusted to inflation at best. Variable compensation (20-30% of your base salary) is linked to performance -- any given year, you may get some of this or not. Base salary "disparity" is not as wide as some in this blog may argue. BTW, I also get to spend half the time away from home, family, and life in general. On the other hand, labor contracts guarantee 4-5% yearly raises (certainly above inflation today) and unions top this up with pre-set bonus amounts not linked directly to their performance. They also get to sleep in their beds every night. Honestly, neither their life-style nor mine would be categorized as hardship.This is the old question of risk vs. reward. Guaranteed comfort has its trade-offs.
"Optimal inequality" is a good thing. Big Government begets excess just as much as poor corporate governance and values do. The question is how are we, the capitalists, going to behave each day. Let's not give the demagogues and free-riders any excuses.
Capitalism is as imperfect as Democracy is, yet no one is advocating moving back towards Dictatorships or Monarchies.
- Tom Dolembo
- Founder, New North Institute
Are those .01%ers who are deriving these gross benefits really part of a capitalist system? Are we shareholders paying them, or have they simply managed a coup d'tat and we have no choice to follow financial banana republics until they become failed corporate states? The ship is unstable with so many on the upper deck, but those of us in steerage have historically chosen radical measures to right the balance, and suffered the consequences.If one believes, as I do, in the eventual establishment of value through markets, we are on the edge of a compensation cliff. Capital is not circulating adequately, poverty is extruding into the middle class, tax policy has extended every possible advantage to those charged with business formation and that has simply gamed imbalance. Markets are cruel forces, in the end, and I think we have passed the tipping point where a touch here and a tuck there will suffice.
We are witnessing a pause in an economic revolutionary cycle, a momentary breather. We should remember that the one dominant economic monster, China, PRC, is not capitalist and that model is kicking our collective capitalist tails. Money chooses its own stewards, through the markets, and we are entering a vortex of revaluation and upheaval that will make discussion irrelevant. Markets are perfectly capable of championing their own tyrants.
- Philippe Gouamba
- Vice President of Human Resources, Skyline Windows, LLC
"A natural result of capitalism and the free market is income inequality. Advocates of capitalism argue that inequality, to the extent that it recognizes differences in effort and results, is good. But..... Are we exceeding the optimal point of inequality and descending into an era of a vanishing middle class and, with it, the spending power and inclination with which it fuels an economy?"The above statement about the nature of capitalism and the troublesome question that follows it bring to light an extremely worrisome aspect of our mature and services based economies. The Capitalist has earned the right to feed himself first as the bounty of his investment is rolled out. He has earned the right to grab the lion's share of the spoils and he will dole out crumbs to those he chooses to give them to. The minions will be grateful for what they get. If capitalism were a boxing event it would be similar to knocking out your opponent and continuing to punch him as he lays on the canvas. It would be similar to one race car driver in the Indianapolis 500 winning by a five mile margin. Can you imagine a basketball game in which the NY Knickerbockers would defeat their opponents by a score of 100 to 0 points? I realize that my examples are a bit exaggerated but I do have a point. This is what capitalism has done to the middle class. The middle class which is the engine
that traditionally drives an economy has been gutted. Now that WE have collectively pulverized the middleclass for the benefit of the Capitalist, who is left to celebrate the Capitalists victory? Oh...now the questions begin?...Is this really how we wanted capitalism to succeed? Where will capitalism go now? What will it do for an encore? Oh..it will grow a conscience. Is it not too late for a moral push now that the middle class is down on its knees, manufacturing is gone and jobs have been outsourced and off-shored?
Mr. Capitalist should have been a bit less greedy and more compassionate from the start - an approach which is more sustainable and more compassionate.
- Gerald Nanninga
- Principal Consultant, Planninga From Nanninga
This is part of a greater trend of people looking to capitalism to solve a greater percent of society's problems, be it income, the environment, or other social issues.The reason the attention has shifted to business is because more people have become disgusted with the attempts of governments to solve problems. They have given up on the governments as saviors of the world. Capitalism is supposed to be the new savior of the world.
Capitalism is more pragmatic and more prone to action. Therefore, society is trying to tap into that to get things done...and it is working (to a limited extent). The problem is that in the end, capitalism has a bias for making money and that will always triumph over their social engineering efforts.
Hence, one needs to make social good more profitable than not, and that is a tricky path full of potholes.
- Aaron Barlow
The only alternative to some form of conscious capitalism (or christian or compassionate capitalism as many call it) is government regulation. The problem with government regulation is that the cure is worse than the disease.Milton Friedman summed it up best: "A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both."
The question we should be asking ourselves is not "Is 'Conscious Capitalism' an Antidote to Income Inequality?" Instead, we should be asking ourselves "What barriers have we unintentionally set up in our society that prevent some from realizing American rags-to-riches dream?" Income inequality can be a good thing if it inspires us to improve our lot in life. It can be a bad thing if we feel the game is rigged and there is no hope of advancement.
Ironically, many of the government regulations that oversee large public companies and small businesses alike are conflicting, confusing and counterproductive to any sort of advancement of the little guy. However, no amount of simpler, smarter regulation will solve any of these problems if we as individuals have no moral center (or are not willing to exercise it). Without some conscious / christian / compassionate capitalism, no amount of govt regulation can compensate.
I often think about how effective the "don't-be-a-litterbug" campaign was when I was a kid. Sure, there were littering fines, but Italy has those too and anyone who has lived there can tell you how effective that has been for them. Something about the peer pressure that was created among kids and adults led to a totally different behavior in the US than in other countries. The same could be said for the green/ recycle movement. This is still a morality-centered country. Why cannot the same social pressure we put on each other to clean up our neighborhoods and nation apply to the workplace? Why cannot we cheer the executive who forgoes his pay in 2008 so he doesn't have to layoff employees? Why cannot we brag to each other at dinner parties about how much money we gave to the local Food Bank instead of driving a new Porsche to the party? Until individuals have a good reason to change their behavior, they won't. As HBS alumni, don't we have an obligation to l
ead-out on this topic and set an example?
(but in case all this debate gives you a great idea about govt-led income redistribution that you are now itching to try out, conjure your inner Friedman again: "You can only aim at [govt enforced] equality by giving some people the right to take things from others. What ultimately happens when you aim for equality is that A and B decide what C shall do for D; except that they take a little bit of a commission off on the way."
We must encourage, cajole and inspire each other to make the American dream available to all. But we must also be free to choose.)
- Anonymous
This article raises some interesting perspectives, and I was happy to click on a link which promised to outline how heroic spirits can be liberalized.However, I cannot imagine that the approach as prescribed is sustainable without a heavy dose of "conscious consumerism" as well.
It seems that no matter how hard an organization labors to "integrate stakeholders" into the sense of purpose, it faces an uphill battle outside of certain market segments (that are more socially aware).
Unfortunately, the critical mass of today's consumers (and other external stakeholders) still prefer to chase style, cost and other factors over "fair trade" and other honorable initiatives.
In closing, I do remain hopeful regarding the possibility for long term change, but I'm not yet convinced that it is possible.
- Anonymous
1. If the world's GDP is growing by say 3% per year on average, then that's all the wealth there is to go around, but every company wants to grow more than that. From a global view, when you want to take more than the available increase in wealth, you can only do it by taking it from others and increasing the inequality.And how are we doing this?
2. We bomb and invade countries for their natural resources and lie to people about why we wage these wars.
3. We bend market rules in our favor (fraud) plus we create leveraged financial instruments that 95% of the people don't understand so we get obscene profits - this is what the top Wall Street firms are alleged to be doing. This lead to gross income inequalities. Capitalism has been hijacked by Wall Street terrorists and corporations focused solely on beating analyst estimates of their EPS.
4. We manipulate the price of commodities and currencies so we can get more. Other get less.
5. Gross inequalities have always existed between the rich and poor countries and people around the world. When it starts happening here we suddenly acknowledge it's the wrong way to be running the world.
6. Of course all companies have a higher purpose. Ask any real entrepreneur that started the company, and he will always have a purpose higher than money which was the objective and the reason to do the business in the first place. Otherwise he is not a true entrepreneur. However, once employees start getting rewarded on how well the purpose is achieved as measured in sales and profits, purpose goes out the window. Sales becomes the new purpose.
There are good solutions, which require deeper changes than the kinds of questions this article or any B school can raise. Sadly I don't think anyone truly cares about solutions.
I suppose #6 above answers the question raised.
- Inigo
Capitalism is based on responsible behavior by business owners and leaders.This is currently not the case with professional managers, who first look out for themselves, and only later for their organizations, ignoring their visibility and responsibility as leaders. Owners are practically nonexisting as they are traders looking for short or medium term profit.
I think this will cause increasing tensions in society and will result in additional pressure to put controls on the free market.
Unless we start showing some restraint and generosity towards other, we are in for a very interesting years ahead.
- Ajay Kumar Gupta
- PhD Scholar, TISS, Erasmus mundus scholar, University of Milan, Italy, T.A.Pai Management Institute
Compensation inequality is one component that encourages conscious capitalism. And both government and private sector are key players affecting compensation inequality. Less compensation by government directly or indirectly encourage its employees to seek for better opportunity. And higher pay is also assumed as better career prospects. And there is a huge gap between executive pay of government sector and private sector. For example in Indian banking industry, private bank's CEOs get at least 20 times more salary than CMDs of public sector banks. This is major motivational factor for executive retention. Compensation differences also influence other employees. This leads to high attrition, low effort, absenteeism, customer dissatisfaction and workplace conflicts etc. There seems two possible solutions to this problem- government should restructure its compensation so as to be competitive and attractive. It could add many non monetary measures as well. Secondly, it should provide environment of trust, cohesion and spirit. Attrition is not always caused by compensation. Similarly retention does not mean better compensation. What decides retention and attrition is management practices that prevail in the system. My research on "Management practices and employees morale" reveals that trust in the management is the key component. Besides, management integrity, biasness in promotion, local rules, blame game, leadership manipulative skills are major factor influencing employees morale and retention. For example Tata is one company where employees love to work, though it is not good pay employer. However, the work culture, business ethics and workplace practices are perhaps exemplary.
I think the reason why some organisations are better employers than others is management leadership intention and accountability. When management intention is to develop organisation than to develop and safeguard its own position, then organisation has to grow. Management need to take decision that is in favour of the organisation along with stakeholders. Its decision should not be based on making everyone happy in the system. Furthermore, management accountability towards organisation and its people is the dominant element that influences workplace culture and working environment. So, top management can play crucial role in reducing conscious capitalism.
I also feel the private sectors have number of weaknesses as well. They are more performance oriented. They believe in outcome not effort. If you want to survive, perform or perish. The long working hours, work stress and unrealistic targets invites hypertensions and early aging diseases. Government organisations generally do not suffer from such symptoms. So they can take advantages of such weaknesses and influence employees to provide strong reason to remain in the system. This will help discouraging conscious capitalism to the great extent.
- Yadeed Lobo
Sounds like a progressive idea.Stocks give ordinary employees a good barometer of performance which is not tainted by non 360 performance reviews .
For every employee to be compensated with options almost gives one a sense of belonging, like you are part of something bigger than yourself. A great way to shape and mould organisational culture.
And yes if everything is turning to custard(like the stock price) then you are willing to change. And therein lies the secret to great thriving companies. The ability to change to reflect the times but keeping your culture intact.
Few organisations practice it as good principled leadership is in short supply. Leaders are a dime a dozen but compassionate ones are like looking for a needle in a haystack.
- jamesearl
- sitting, audit
Please give my appreciation to John Mackey for his effort in finding solutions to that inequality problem. Although, "that is how the system works".Inequality is what moves it.
- Srikumar Misra
- Founder & CEO, Milk Mantra
There's nothing wrong about capitalism, and nothing wrong about being conscious of it. Whats wrong is crony and exploitative capitalism - and that's really what conscious capitalism highlights and seeks to balance.Inclusive business models need creative thinking and and openness to step out of the box. However, any such approach tends to be looked at with apprehensive fervor by uni-dimensional 'capitalists' who use a single metric for value and valuation.
The article reignites and also puts a framework around what conscious capitalism is and can potentially deliver. I sincerely believe that a conscious approach to capitalist ventures and value creation will yield multiple bottom line results - and without compromising any financial numbers substantially. We at Milk Mantra make a conscious effort at it - it's ingrained in our venture in various ways, including the ethical milk sourcing programme which is already impacting tens of thousands of farmers / rural ecosystem. And this whilst our product brand commands a premium in the consumer market. It's about leveraging brand capital for inclusive growth. I think every venture can make a few small changes in theor approach / business model and can hv a big impact on the ecosystem.
- Anonymous
The foundation for the issues presented are more simple than most would like to believe; as we continue to remove faith and belief in God as a center of our civilization the result is a narcissistic society. Regulating pay limits both high and low in addition to supporting wages that are considered "too little" continue to contribute to the downward spiral that is unstoppable. Whatever happened to educating yourself to a better paying job - and not by getting a degree in Women's Studies - or working hard, more hours, and with a better attitude to work your way up? The lack of belief in a higher being and the understanding that life isn't just about making myself happy leads to the entitlement attitude that this regulatory philosophy presents. Morals and ethics can not be legislated; internal accountability accomplishes far more than regulations that must be monitored from an outside source. The recent compounding pharmacy fiasco is a great example.
- James McRitchie
- Publisher, Consultant, Corporate Governance (Corpgov.net)
Yes, the team approach of Whole Foods should be replicated. One reason it is not is that managers at many firms don't want to share power. I've seen lots of experiments in participation dissolve by middle managers who feel threatened by self-directed teams.Mackey is something of an enigma. He readily sees the benefits of the employee input through teams (which also keeps unions at bay) but is blind to the role of shareowners, who can also provide good input.
He once kept a shareowner from presenting their proposal during the business portion of the meeting... allowing it only AFTER the vote on their proposal during Q&A. He said proposals led to a "circus" atmosphere. Shareowners are required by the SEC to present during the meeting or they loose the chance to submit in the next few years. Mackey acknowledged that but said although the rules require the shareowner to present, they don't require the company to allow them to present. Catch 22.
Hopefully, he has grown up in the last few years and now sees a role for shareowners as well.
- Wayne Brewer
It seems the question implies what answer is wanted. Since the truth of a matter is not dependent on our belief in it, what if income inequality is not the problem at all. After all, if everyone had enough income to buy everything they needed and most of what they wanted, would anyone care about how much more you had than I have? Rather than discuss the merits of capitalism as we all think we know it, maybe the problem is that, in fact, true capitalism is not possible to be implemented by people yet. So far, the only way we've found to get to agreement on economic structures, is through political structures, which almost by definition are severely imperfect and could only lead to imperfect economic systems.I recently read a book that delved into why the world works the way it has up to this point. It's key concepts have to do with inclusive vs. extractive economic systems that get set up by inclusive vs. extractive political systems. It seems that the contigent outcomes of the battle between who controls the politics of a territory have greatly impacted the lives of inhabitants of those territories, and the rest of the world, for decades and even hundreds of years.
My opinion is that technology is quickly making geography less and less a factor in both politics and economics. What happens when rather than discussing income inequality, most people just join a different way of producing income for themselves and fix the problem before they even have to consider themselves a victim of something?
Here is the book:
http://www.amazon.com/Why-Nations-Fail-Prosperity-ebook/dp/B0058Z4NR8
- Anonymous
Smile on your brother, everybody get together, try and love oneanother right now! The world will work when we end competition. God GAVE man the earth and all it's resources to multiply. Man has to first care about his brothers, as we are each other's keeper.End wages and begin a totally new system based on needs. Everyone needs food, shelter, education and medical provisions. If everyone is trained in a skill that they want to do (farmer, carpenter, teacher,doctor....) the outcomes will be fruitful. What is produced is GIVEN to individuals not sold, a society based on GIVING is what is needed. All other models fail as they do not prescribe to our purpose, which is to LOVE each other as GOD Loves US.
MALE dominated societies have created this culture that exists throuthout the planet. Evolution requires that we make things better based on past ATROCITIES. The class system, as we know it is egregious, as GOD did not create a greater and lesser being. When we begin to see ALL Life as EQUAL (PERHAPS IN THE YEAR 3,000) man can experience HEAVEN on EARTH.
- Ravindra Edirisooriya
- On UI 02/21/13, Looking for Work Somewhere on Earth
The answer to Professor Heskett's question "Is 'Conscious Capitalism' an Antidote to Income Inequality?" is in human nature. The author, John Mackey hinted that he is on the right track by the use of the word "Conscious." Do we accept the assumption that we are another species on this earth? (I am seeking evidence to disprove it but I have found none so far) If we do accept the assumption that we are another species on this earth, with (animal instincts) the highest IQ among the species, then we could deduce an answer.Conduct a survey to research the following (similar) questions from a valid sample of members of the society: 1) Are you a manager, a worker or neither? 2) If a worker (labor) becomes a manager (of capital), would the person do anything differently to (the system that "causes" the income inequality) what majority of current managers are doing? The answer could be a simple "Yes" or "No". I hypothesize that the inferred answer would be "No" in the population. A follow up question: if a manager (of capital) becomes a worker (labor), would the person expect anything different to (the system that "causes" the income inequality) what majority of current managers are doing? I hypothesize that the inferred answer would be still "No" in the population. Given our propensity for self preservation or animalistic behavior, a trait needed to transmit ones (subculture) genes to the next generation, we humans do what we do: workers
aspire to be mangers and do what managers do. This survey research could yield many interesting outcomes, with a few more relevant questions (come to mind).
Is the assumption of humans' animalistic behavior reasonable? Are we humans as caring of other humans as we like to believe? We do have soup kitchens, random acts of kindness, charity events, free clinics ... free food, free resources and some unemployment benefits but they serve only a tiny fraction of the needs of these humans. (Do some humans feign need when they can help themselves? Yes, they do but it is only a small fraction of the needy population: need research.) Do we do these acts to make us feel good or for some (say, 95 cents of every dollar raised does not get spent on the charitable cause) nonprofit "profit"? Some human activities demonstrate our animal instincts: stampedes (run over humans), subcultures (homogeneity), homes and homesteads (dens and territory), protectionism (discrimination: cast, gender, age, origin, race, religion, region and location), competition for mates, sexual urges and ubiquitous sex, sex slavery (supply and demand), human and
organ trade (supply and demand), scandals in some places of worship, some nursing homes, and some mental institutions (sex, exploitation of trust), plight of homeless (social outcasts), cruelty to physically or mentally disabled humans (exploitation or abuse), cruelty to children (exploitation or abuse), mass starvation (it's you not us), rape (rule of strength not law), blood sports (supply and demand), murder / mass murder (rampages), plunder of livelihoods, means and dwellings by white or blue collar deceit, and etc...
Generally, we humans do not think because it serves our animalistic behavior, not to think. For all humans, the antidote is to grow a super consciousness: to be more than human. Being conscious is a step in the right direction. If one (individual pursuit) would keep refining ones consciousness (and capitalism) then one could become super conscious: it is not reinventing the errors of socialism, which had no conscience.
In phase one, until a critical mass of mangers following conscious capitalism is reached, it will not do much to change the income inequality. In our connected world, who knows, we may achieve the critical mass in a much shorter time than anticipated. In phase two, when managers and workers reach super consciousness (how long? 1K, 2K, 3K, 5K, 10K, 15K, 25K, 50K, 75K or 100K years) and future technological advancements (near zero production costs), heaven could be on earth!
Now, I am hungry and looking for some (whole) food. I could follow or lead passionately. Please check my LinkedIn profile: throw a hand my way!
- Edward Hare
- Retired Director...Strategy and Planning, Fortune 250 Manufacturer
I'm not sure we need a new term, Conscious Capitalism, to refer to what are, simply, values. My hat's off to Mackey for his philosophy about how a business should conduct itself. Of course, a business with much better than average margins and a great niche will find it easier to be generous than one that's barely getting by.Re-visit the Ben and Jerry story, we've seen this movie before. Two hippies who love ice cream but have zero business experience decide to start their own company. And they discard consultants' advice about "prevailing wages" and decide they ought to pay their workers more because it was nearly impossible to live on the prevailing wage in the area. Theirs was a business model built on a premium product with premium margins....and paying workers a living wage was in keeping with both their values and their business model.
I doubt Mackey's personal philosophy will gain widespread adoption....even if it should. Let's face it, ours is a culture built solidly on the purpose of "more"......not "enough". And usually more means for me.....not you. Anybody who thinks they have "leverage" uses it for their benefit without much wondering if what they get is being gotten at someone else's expense. Think CEO and Board compensation.....it's been cited as "out of control" for decades as both take turns throwing other people's money at each other. Their dynamic is the poster child for income inequality.
What we seem to be living under is Bare-Knuckle Capitalism rather than the more sensible kind Mackey espouses. And if you look around you'll see what it produces for our society. It's not a pretty picture.
- Anonymous
I fail to see capitalism as the culprit in income inequity in the United States as much as I see poor education and the associated resulting lower performing individuals. The gap lies in the individual's preparation for employment. When only approximately 25% of your high school graduates are going to college it only makes sense that there would be an increasingly larger income gap.- Robert Vanourek
- President, Vanourek & Partners, LLC
Excellent and important dialogue.Starting with Adam Smith, proponents of capitalism have emphasized a moral foundation to this most powerful economic model. Market-based systems have historically outperformed centrally-planned systems, but market-based systems are subject to unintended consequences such as crony capitalism, managerial greed, short-termism, and more.
One negative effect of these perturbations is excessive income inequality. Other negative effects include unsustainable practices, negative social costs, loss of trust from stakeholders, disengaged workforces, and more. Excessive income inequality is just one negative result.
Some argue nothing can be done. Human nature is what it is, and we must just live with it. In "Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations," we argue that human nature can't be changed but human behavior can be influenced.
Others argue the solution is in more and more regulation. Of course we need regulations to set the boundaries for legal behavior in free markets, but regulations alone will never beat the creativity of those who seek to game the system.
Capitalism must be reformed or it will be fettered by the regulators or undermined by the successors to the Occupy movement, who are fed up with corporate greed and crony capitalism where Devil's bargains are made among influential insiders.
So, capitalism must reform itself from the inside out, and movements like Conscious Capitalism will gain ground in coming decades in our view.
Evidence is building that ethical and sustainable organizations outperform the averages financially, often achieving superior results. Such evidence will grow because ethical, trustworthy organizations better engage all stakeholders.
The rise of states approving "for benefit" corporations is another indicator of the sea change coming to reform capitalism.
The Whole Foods approach may not be perfect, but it is a positive step forward, as are the cases at Amazon, Google, Zappos.com, Infosys, Xerox, and many more. We outline many of these examples in "Triple Crown Leadership," as do authors and other Harvard professors like Bill George and Rosabeth Moss Kanter.
Capitalism is reforming itself from within from the boardroom to the shop floor because to not do so would be suicidal, waiting for the regulators to take super-control, or the stakeholders left in the dust to revolt.
This dialogue is critical and must continue.
We, Bob and Gregg Vanourek, are happy to participate and add our thoughts.
Good work, Professor Heskett.