Philip Whiteley's Blog

January 23, 2012

Moral capitalism comes from within

Filed under: Uncategorized — felipewh @ 4:16 pm

This is a longer version of an article that appeared in the London Evening Standard on 20 January 2012:

All three party political leaders in the UK are vying with one another to produce the most attractive soundbites and policy initiatives on reforming capitalism. Their actions illustrate the influence but also the limitations of government interventions on business and markets.

The bigger picture is that the politicians and their think-tanks are struggling to acknowledge the enormity of recent events. What we are seeing is the collapse of a belief system that has been fashionable for the past few decades: the idea that exploiting workers and the environment maximises profits and market efficiency. This is the ‘neo-liberal’ belief that has permeated economics and management theory for the past few decades. It was also shared by the left and the trade unions, who concluded as a consequence that regulation and state action were the only ways to protect workers. When Sir Fred Goodwin was dubbed ‘the shred’ it was assumed that being ruthless and being successful were synonymous, but he failed in purely commercial terms: the shareholders were wiped out and the Royal Bank of Scotland suffered the humiliation of forced nationalisation.

The Conservatives, Labour and Liberal Democrats see themselves as being in competition with one another, but I find much to agree with on all their recent initiatives in this area. It should be easier to set up cooperatives (David Cameron), and having a worker on the salary board (Ed Miliband) will help the company, unless the individual is a cynical Trotskyite.

What is lacking is the ideology. The principles of sustainable, successful business leadership have been established, with a strong evidence base, for decades, but have been undermined by cynical economic theories of left and right. This explains why Labour and Conservative party members overlook the significance, while Liberal Democrats talk too little about economic matters. All parties talk too much about the law. For example, employee commitment is as important for companies that are not constituted as cooperatives as for those that are.

The principles of sustainable capitalism are:

  • Commitment to employee engagement as a core discipline: low morale and high staff turnover tend to cost far more than more easily measurable costs.
  • Commitment to integrity – this lowers risk of corruption and fraud, as well as helping customer service.
  • Treating workers and the environment as stakeholders to be nurtured, not resources to be exploited. This is a commercial consideration, not only an ethical one.

The Government has supported the MacLeod Review into employee engagement, but it is disappointingly low profile. Moreover, there is no acknowledgement of how the findings around engagement undermine the unspoken beliefs of many backbench MPs and trade unionists.

The really big change will come about slowly, if ethical capitalism is taught rigorously on MBA courses, just as unethical capitalism was taught on too many campuses since the ‘maximising shareholder value’ cult began in the 1970s with the Chicago economic school.

  • There is more discussion of these ideas on my new blog Radical Shift, co-authored with Neela Bettridge.

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