

How to Fix Capitalism - ryanmickle
http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/1

======
mbyrne
The reason the article is of note is that one of the authors is Michal E.
Porter, author of books on strategy that was seized upon to drive much of the
"Greed is Good" Wall Street culture since the 80s. He is a Harvard Business
School professor who just authored an article that I would characterize as
essentially advocating Socialism.

~~~
tptacek
Having read what I think is the most famous of those books (_Competitive
Strategy_), I'm wondering what aspect of Porter's writing you think catalyzes
"greed is good".

The normal ding on Porter seems to be that he's no longer relevant.

~~~
mbyrne
You make another interesting point about his relevancy, since as I read the
article, it really felt it was more like coattail riding by a consultant,
moving from advocating a CSR framework to a "the new new thing is" CSV
framework, upon which to advise corporate clients and create some kind of
relevancy. The Social Enterprise "thing" is big at Harvard Business School and
Kennedy School and in reading the article, it is sprinkled with more anecdotes
rather than new intellectual models or frameworks on anything new.

------
bcheung
Capitalism does not need to be fixed. We need to ACTUALLY have capitalism.

The above article seems to claim that we can fix capitalism by adding
socialism to capitalism.

socialism != capitalism

They are mutually exclusive for the most part.

First it is important to note that we do not live in a pure capitalist system.
I would estimate it as 25% capitalism, 25% socialism, and 50% kleptocracy
(special interests / corruption).

To blame capitalism for all the problems is akin to taking an Olympic gold
metalist, tying him up in iron chains, throwing him in a pool and then blaming
swimming as the cause of drowning.

Capitalism is by far the most efficient system for increasing the wealth of an
ENTIRE society. History has shown that societies prosper in direct proportion
to how much they embrace capitalism.

We are currently moving from capitalism towards socialism and kleptocracy
(think klepto as in stealing).

The common complaints against capitalism are not actually complaints against
capitalism; they are usually against corporatism (regulation that favors
corporations) or kleptocracy. Why do corporations have tax breaks employees
can't take even though their situations are similar?

Bank bailouts were not a failure of capitalism. Capitalism would say that no
company can get money for free. All money must be traded from other
individuals wishing to purchase from you. The fact that the banks knew they
were most likely to be bailed out created a moral hazard that encouraged them
to take risks. "Privitized gains, socialized losses". Under pure capitalism a
bank would not take such foolish action because they would know they would
have a high probability of going out of business.

Monopolies are often created by government policy, not by free markets. For
instance, why do lots of communities only have 1 ISP even though there are
competitors that would love to do business there? It is because the city
grants a license to that one company for a long period of time. DNS
registration was granted a monopoly by the government. Why can't we have other
DNS authorities? Surely the vast majority of people on here can still make a
profit and charge cheaper for domain names. Why does GoDaddy have to pay a fee
to another company that doesn't actually provide any real value?

In capitalism, if I was able to invest at 30% each year I could open my own
bank and give out 10% in interest to all my depositors. Instead we are stuck
with abusive banks.

The only semi-rational (emphasis on semi) argument that I have heard against
capitalism is that those with capital have a higher chance of getting more
capital and that this would lead to a concentration of power. It may in fact
do this, but the moment the power is abused, others with capital will combine
their resources to take the place of the exploitative company, or there will
be revolts and people will boycott that company.

The system is set up so that businesses are fettered with regulations such as
minimum wage and hiring ethnically diverse people (as opposed to the most
qualified). Under global capitalism, the companies in countries that do not
have those laws will drive the US companies out of business. Businesses that
can will be forced to move to those countries if they wish to survive. It is
no shock to me that unemployment is on the rise.

~~~
relic17
I agree with many of your points. However, note that Professor Porter does not
technically propose socialism. Socialism would imply seizing private property,
such as part of a company's assets, for the alleged purpose of using them to
further the "public good" or satisfy "social needs", something a company would
not do by itself. Note that prof. Porter does not even advocate increasing
government regulation to channel more resources into social purposes.
Actually, he does not even say that companies must of should take losses in
order to help societal needs. His argument is that businessmen should look for
opportunities in markets he chooses to call socially useful. In essence, he
urges managers to make decisions that would make proper business sense
anyways. Therefore, I can only speculate as to why he formulates the empty
concept of "shared value." It is possible that he wants to create another
framework to fill business schools' curricula (they have to teach something
that sounds scientific) or to reassure himself that he is still relevant by
taking a safe undefined middle-ground between "big business" and "society." I
can only guess.

The sad thing, however, is that the major premise of his philosophy will prove
more damaging to capitalism (which he so passionately professes to defend)
than most socialist ideas would. That premise is the notion that capitalism,
or whatever remains from it in the mixed world economy of today, is
fundamentally broken. That even those businessmen who thrive (or survive) by
their own ability and productive effort are fundamentally guilty of looking
after their own interest. They are guilty by popular opinion and have to find
a way to exonerate themselves.

I urge all HN readers who have read the article carefully and understand that
there is something wrong about it, to also read Ayn Rand's "Capitalism: The
Unknown Ideal" ([http://www.amazon.com/Capitalism-Ideal-Ayn-
Rand/dp/045114795...](http://www.amazon.com/Capitalism-Ideal-Ayn-
Rand/dp/0451147952/ref=sr_1_1?ie=UTF8&qid=1294615803&sr=8-1)) and judge for
themselves dispassionately. Just because I happened to be reading the book
today, I quote a couple of paragraphs, with which I agree:

"I [Ayn Rand] want to stress that our [objectivists'] primary interest is not
politics or economics as such, but "man's nature and man's relationship to
existence" - and that we advocate capitalism because it is the only system
geared to the life of a rational being. In this respect, there is fundamental
difference between our approach and that of capitalism's classical defenders
and modern apologists. With very few exceptions, they are responsible - by
default - for capitalism's destruction. The default consisted of their
inability to fight the battle where it had to be fought: on moral-
philosophical grounds."

"There are the businessmen who spend fortunes on ideological ads, allegedly in
defense of capitalism, which assure the public that all but a tiny fraction of
an industry's income goes to labor (wages), to government (taxes), etc., with
these shares represented as big chunks in full-color process, and, lost among
them, an apologetic little sliver is marked "2 1/2 percent" and labelled
"profits."

"There is the display of charts and models, in a hallway of the New York Stock
Exchange, presenting the achievements of free enterprise and captioned: "The
People's Capitalism."

"Since none of these attempts can succeed in disguising the nature of
capitalism nor in degrading it to the level of an altruistic stockyard, their
sole result is to convince the public that capitalism hides some evil secret
which imbues its alleged defenders with such an aura of abject guilt and
hypocrisy. But, in fact, the secret they are struggling to hide is
capitalism's essence and greatest virtue: that it is a system based on the
recognition of individual rights - on man's rights to exist (and to work) for
his own sake - not for the altruistic view of man as a sacrificial animal.
Thus it is capitalism's virtue that the public is urged - by such defenders -
to regard as evil, and it is altruism that all their efforts help to reinforce
and reaffirm as the standard of the good."

------
Mongoose
Single-page view: [http://hbr.org/2011/01/the-big-idea-creating-shared-
value/ar...](http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/pr)

------
zitterbewegung
Since when is capitalism is broken? Seems like during great recessions
everyone wants Keynesian systems and when things are going great we want a
classical economy.

~~~
jbooth
Capitalism's always been the least broken system. Over time, we've added laws
to make it even less broken. Anti-trust, for example, relatively
uncontroversial. As is the FCC's role in regulating frequency allocation, I
think pretty much everyone agrees that a pure-free-market free-for-all with
"biggest transmitter wins" wouldn't make a lot of sense.

Right now, IMO at least, the issue is that every time we have a recession, it
takes longer and longer for "average folks" to be able to get work again. Last
time, it wasn't until right before the bottom fell out again. This time, the
jobs might never come back.

What do those people do now? That's what needs fixing in the current version
of capitalism, IMO.

~~~
protomyth
In a lot of ways, the "fixing" is the problem. Capitalism relies on a
consistent set of rules. All the messing around means that businesses will not
take risks. Check the history on 1929 and now. There are some serious
parallels from recovery to hiring based on actions taken by government.

~~~
blueben
Inadvertently, you are correct. Capitalism thrives on a consistent set of
rules, which can then be analyzed and legally subverted for greater profit.

~~~
protomyth
You know, a huge percentage of the business owners follow the rules. They
probably would follow more if the rules didn't require an expert (account or
lawyer) to get right. Capitalism isn't Wall Street, it is the entire system.
Look up your history and see that "Inadvertently" never enters into it.

------
cletus
This article espouses a topic popular in most business schools today: they
want to quantify (or simply pay lip service to) the idea of social
responsibility. You will see all sorts of attention paid to this in most MBA
programs today.

The idea isn't a new one and can trace its roots back to Marx and probably
beyond. Marx argued that the workers should own the means of production [1].
That's simply a different take on creating "shared value".

But this article, as you'd expect from Harvard, is high on naive ideals. For
example:

 _Not all profit is equal..._

The premise is that corporations have a social responsibility. I view this as
being like the idea of keeping tigers as house pets. You can change the
_purpose_ of a tiger to be a domesticated animal but at some point that tiger
is going to snap your neck because, hey, that's what tigers do.

Of course tigers aren't inherently _bad_. The point is that tigers are really
not suited for the purpose you have in mind.

Trying to colour corporations with morality is I think much the same.
Capitalism works because corporations are amoral entities that simply respond
to their environment. Add warm water to dry yeast and it grows. Add salt and
it dies.

You control the actions of corporations not by making them _feel_ something.
You control them by treating them as yeast and adding warm water, salt or
whatever is required.

To put it another way: you control corporations by controlling their
_environment_.

Unless you're a pure capitalist you will recognize that there is some place
for government intervention and regulation, not only for the good of the
people but for the good of the corporations themselves.

Antitrust for example came about because companies were _too_ successful. You
can get an algae bloom in a river. The algae will eventually die out but only
after killing virtually everything in the river and then starving.

In England the road system was nationalized (many years ago). In the US, the
railroads were.

The difficulty lies in deciding exactly how much intervention is required.

Our current woes I think boil down to one thing: there is a mismatch between
the interests of people and corporations and the interests of the politicians
who decide what the intervention is. Corporations and people have to deal with
consequences for a very long time. Politicians are often only concerned about
what happens between now and the next election.

Of the things broken with the current system at the top would be (IMHO) the
financial system. By this I primarily mean the Federal Reserve, the IMF and
the World Bank.

The IMF and the Federal Reserve now have a role where they are basically
welfare for investment bankers. You have seen crisis after crisis in recent
years that largely stem from financial institutions having almost no aversion
to risk. Why? Because we've trained them that way. If they ever get in any
serious trouble, don't worry, we'll bail you out!

Likewise the IMF/World Bank continue to throw money at developing nations
because, basically, they can never lose that money. A country can't declare
bankruptcy like a person or corporation can.

Initiatives like HIPC [2] are misguided. The country already can't pay. All
you're doing is paying bank the organizations that never should've lent them
money to begin with.

It should also be noted that some of these loans end up funding war,
revolution and even genocide as well as funding the personal fortune of
corrupt dictators.

Back to capitalism: capitalism has been the engine that in less than 200 years
has turned us from a largely agrarian existence to computers and putting man
on the Moon, while increasing the standard of living of _billions_ of people
to levels unprecedented in human history.

So when I read something like this, I think it's just the latest fad from
Ivory Tower MBA academics who seek to justify their existence in a world that
is largely coming to the conclusion that the MBA itself is a destructive fad.

[1]:
[http://en.wikipedia.org/wiki/Means_of_production#Marxist_ana...](http://en.wikipedia.org/wiki/Means_of_production#Marxist_analysis_of_ownership_of_MoP_within_capitalism)

[2]: <http://en.wikipedia.org/wiki/Heavily_Indebted_Poor_Countries>

