Business, at its best, transcends capitalism.
Ask the average 25-year-old college student what “capitalism” means and you’re likely to get an earful about European socialist democracies, Marx, and the immorality of capitalism (delivered, no doubt, from behind an Apple Macbook with a Starbucks coffee close by). Ask the average 52-year-old and you’re much more likely to hear about Reagan, trickle-down economics, and so forth (you’re probably equally likely to find a Macbook and a Venti Mochafrothything close at hand).
There’s very little to be gained by engaging in that argument here. Instead I’ll define capitalism as it’s most commonly practiced in the United States today: an economic system loosely based on the principles laid out by Adam Smith in which capital (in the form of cash or hard assets) is used to build a business for the purpose of maximizing profits for the owner or shareholders of that business.
Over time we’ll explore the consequences of capitalism as it’s practiced today. But from the beginning, I want to be clear:
Business, at its best, transcends capitalism.
That transcendence happens when a business turns its focus from maximizing profits to maximizing its positive impact on lives of its employees and the public at large. Many great contemporary thinkers have approached this idea. From the “gift economy” to the current fascination with social entrepreneurship, many more have nibbled a the edges of this principle.
Others have understood it better. Henry Ford apparently recognized it when he created the “Five-Dollar Day” for his employees in 1914. Seth Godin advocates brilliantly for it when he encourages business leaders (and each of us) to develop “linchpins” in their organizations. (Just go read Seth’s Linchpin, it really is brilliant, and this blog won’t get any better while you’re away). Patrick Lencioni’s description of how to improve our organizations in The Three Signs of A Miserable Job is just as inspiring.
Using biblical language from the Book of Matthew, Joseph Smith once described this idea as well. No doubt because I’m a Mormon, I find his description particularly compelling. Joseph explained that business should be organized so that “every man may improve upon his talent, that every man may gain other talents . . . [e]very man seeking the interest of his neighbor, and doing all things with an eye single to the glory of God.”
A brief example illustrates. Basic capitalist thought teaches that an employer should pay his employees the very least he can convince his employees to take. The employer’s profit is thus equal to the difference between the cost of the employee’s time and what the employer can charge for that time. This makes sense; it maximizes the employers profits and it feels very much like the explanation of that basic demand/supply curve our favorite economics teacher told us all about.
The problem is, it’s wrong.
A much better result occurs when the employer instead approaches the question of wages by asking “what is the most I can pay my employees while still earning a reasonable profit.” In the end, the wages she pays may not be any different from those paid by the employer in my last example. But very often they will be. And more importantly than that, when this approach is made explicit, the employer gains the trust and loyalty of an employee.
The effects of this loyalty are far-reaching, but they’re only available to the extent a business is willing to set aside profit as its primary motive. So I say again:
Business, at its best, transcends capitalism.
P.S. Happy Ruckusmaker Day!
