Originally published in MISC Magazine, 2018
As the deleterious effects of neoliberal economics continue to pile up (income inequality, environmental degradation, job losses, increasing household debt, a shrinking middle class, a growing underclass, etc.), it’s becoming clear to many that the rules of the game need to change.
The stock market, which was meant to be a source of capital to be used for building businesses, creating jobs, and growing the economy, has instead become the playground of the 1%, who – through the mechanisms of deregulation and financialization – have managed to decouple Wall Street from Main Street almost entirely.
At its most banal, financialization is defined as an increase in the size and importance of a country’s financial sector relative to its overall economy. In the US, for instance, the finance, insurance, and real estate sector in 2017 is responsible for a whopping 20% of GDP, compared to 10% in 1947, according to one article by Christopher Witko for The Washington Post. This much reliance on the financial sector for overall economic growth is believed by some scholars and politicians to be the main cause of our economic problems.
In an increasingly financialized economy, the winners are the money managers and shareholders, whose incomes have grown at a far faster rate than those of most other skilled professionals. The losers are the middle and lower classes, who, as a result of all the negative outcomes mentioned above, are in no position to take advantage of the growth of the financial sector.
With the increase of financialization comes a concomitant increase in political power and influence for the winners. This influence allows them to peel back or block any legislation designed to regulate the market, including taxation, environmental protection, and employee rights. It’s a zero-sum game wherein Main Street gets zero and Wall Street gets massive sums with which to protect and enrich itself.
In response to these conditions, there are emerging economic models that promote the idea that instead of companies serving profit, profit should serve companies – and the communities and environments in which they operate. Purpose capital, impact investing, and benefit corporations are key examples of this.
The Purpose Network is one such model. The Purpose Network helps mission-driven companies uphold a “legally binding commitment to their employees and customers: that the company is not a speculative good or commodity but a group of people working for a purpose.” Their aim is to create, promote, and prove the effectiveness of alternative ownership and financing structures that challenge the growing centralization of capital and help shift our economic paradigm “away from profit maximization towards stewardship and purpose maximization.”
The Purpose Network’s venture capital arm advises companies on how to implement “steward-ownership” and to achieve mission lock and long-term independence. In other words, it helps them stay out of the traditional stock market model and remain focused on the long term. For purpose-driven companies, the mission is the key priority, and profits are necessary in achieving that mission.
This approach echoes the emergence of what is called the benefit corporation (also called a B Corp), which is a for-profit corporation committed to a triple bottom line of people, profit, and planet. Some 35 states in the US have enacted legislation that explicitly permits companies to pursue the triple bottom line. It’s a way of ensuring that a private, for-profit enterprise is also a social enterprise.
As Dennis Tobin – a partner at Blaney McMurty LLP, a corporate practice in Toronto – recently wrote in a piece for The Globe and Mail, a corporation is a person in the eyes of the law. But unlike a flesh-and-blood human, it cannot be physically or spiritually harmed, which has resulted in the perception by many that a corporation “is an amoral actor, free to act without fear of punishment.” Under the aegis of shareholder primacy, publicly traded companies have been able to avoid responsibility and accountability for all kinds of immoral behavior, from tax evasion to environmental degradation.
There are some shining examples to the contrary. Unilever is a leader in recognizing its social and environmental impact. More importantly, it refuses to submit itself to the tyranny of the quarterly report so that it may remain focused on the long game. Patagonia, Kickstarter, and Etsy are other examples of companies that have embraced the B-Corp model.
But there are even older examples. Carl Zeiss AG, the German manufacturer of precision lenses, has been set up in a way that has protected it from becoming a slave to speculation since 1889. In this unique ownership structure, the Carl Zeiss Foundation is the sole shareholder of the for-profit Carl Zeiss AG. The shares are not listed on the stock exchange. The objectives of the foundation are “pursuing specific business activities of the companies, exercising special social responsibility, promoting the general interests of the optical and precision engineering industries, [and] supporting non-profit organizations at the locations of the Foundation companies.”
Zeiss is living, 128-year-old proof that capitalism need not be a predatory, zero-sum game of winner takes all, but can thrive while being accountable to the society and environment in which it operates. Such a model defines ownership as stewardship, implying a commitment that goes beyond just milking the corporate cow for maximum shareholder profit and toward using the proceeds to fund long-term viability, robust employment, and a thriving Main Street economy.
Given the ferocity with which Wall Street protects its own greed, we are not likely to see a sudden surge of interest in the Zeiss model. Until the incentives change, the behavior will only intensify. wn