Colin James for Newsroom 22 February 2019
Do capitalists want to save capitalism? If they do, they will need to change substantially, says Colin Mayer of the Oxford Business School in a recent book.* And the change he wants fits neatly into Grant Robertson’s “wellbeing budget” ambitions.
Mayer is not from the liberal-left, signposting a “post-capitalist” era, as in numerous books. He explicitly rejects socialism. He wants corporations to wake up to the need to repurpose themselves and wants politicians alongside.
His bother: under the ruling doctrine of Milton Friedman, corporations’ articles of association and the law in countries like ours require them to maximise shareholder returns. That has become their dominant purpose.
Some, like Unilever or our state-owned New Zealand Post, both members of the International Integrated Reporting Council, commit to declaring and reporting on additional objectives such as reducing greenhouse emissions and treating employees as valued assets. But even for those companies, such objectives are ultimately subordinated to maximising shareholder return. They amount to doing nice things on the side in pursuit of what some awkwardly call a social licence to operate.
Moreover, Mayer says, the dominant shareholders – “owners” – are now not individuals as in decades long gone, but the likes of hedge funds, investment banks, pension funds and other financial entities.
Mayer argues this “financialisation” has contributed heavily to widening wealth and income disparities and environmental degradation, which has eroded trust in business.
As other analysts have pointed out, erosion of trust is a factor in the rise of populism in various forms across Europe and the United States, including Brexit, France’s gilets jaunes and Donald Trump. Populism spawns erratic policy, which damages profits and can stifle business.
Put another way, capitalists behaving badly or socially irresponsibly pose a serious risk to capitalism in democracies.
And that is at a time when imperial China’s contorted and distorted version of capitalism is posing a challenge to the democracies’ version, which has, in Mayer’s words, “been the source of economic prosperity” through several centuries.
So is this just a matter for distant global corporate CEOs who were handwringing about populist politics at Davos in January?
Winston Peters thinks it applies here, too. Peters is the nearest we have to a populist and is not liberal-left. Announcing his coalition with Labour on October 19 2017, he declared: “Far too many people view capitalism not as their friend but as their foe. And they are not all wrong. Capitalism must regain its responsible, its human, face.”
Mayer says that requires corporations to repurpose. He draws a loose analogy with personal purpose: “Profit is not a purpose any more than the pursuit of happiness is a purpose of mankind. Profit maximisation is as unlikely to create wealth as hedonism is to achieve happiness.”
He goes on: “Profits and happiness are the products of a successful commercial venture and a fulfilling life and the outcome of the attainment of success and fulfilment.” Happiness comes from “some contribution, some project that leaves a legacy, however small”.
If corporations are to regain public trust, their purpose needs to take account of and account for their impact on natural, human and social capital (in addition to financial capital), which are vital for human “wellbeing” — the genuine “prosperity” that is Mayer’s book’s title.
So profits should be net of any costs of degradation of those capitals. Otherwise, Mayer says, they are “fake profits”.
Mayer’s natural, human and social capitals prescription is eerily similar to Grant Robertson’s for the government in his “wellbeing” budget. Jacinda Ardern featured this “wellbeing” aspiration in her speech at Davos.
The issue Mayer raises for Ardern, Robertson and Treasury acolytes is that the government is not the whole “wellbeing” story. To make it really work they will likely need corporations – business – alongside. And the corporate repurposing that requires will need major corporate law and regulatory reform.
That is a big ask for Robertson and Ardern, who are not radicals. But if Mayer’s thesis were to take hold in international democratic thinking as Friedman’s did leading up to Rogernomics in the 1980s, who knows what might emerge a decade or more down the track?
* Colin Mayer, Prosperity. Better business makes the greater good (Oxford University Press, 2018).