Capitalism 2.0 Part 2

Saving the Boat with a Bucket

Cristian Contreras
Apr 23, 2014 · 2 min read

The second part of Capitalism 2.0 explores the uneconomical implications that come as a result of following the growth imperative and a few of the responses the system has created to deal with its consequences.

The inherent instability that plagues the current economic model is most evident in stock markets. Prices sore one day only to plummet moments later, animal spirits roam wild and gambler’s rationale is masked by convoluted logic. But after the closing bell, wealth is rarely created or destroyed although fortunes change hands. The same is true for corporations insisting on growth within saturated markets. They must either grow their markets, grow at the expense of competitors or grow at the expense of consumers. This is important because it points to the philosophical foundation for the next economic evolution. Rather than measuring prosperity by the absolute value of economic activity, focus will shift towards the pursuit of wealth creation, even distribution of productive-potential and an emphasis on customer experience.

Much is said these days on the subject of executive incentives reform, the hope is that it will help us curb the ‘evil corporation’ problem. However, it isn’t incentive models that need reform but the way we think about performance. The objective of corporations is to facilitate markets and once they have achieved this task their focus ought to shift from growth for the sake of growth to improved customer satisfaction. Unfortunately, our blind obsession with the many virtues of capitalism has led us down a path of dogmatic misapplication, where careless maximization of ROI results in the contemptuous behaviors by executives, simulated quality strategies, and artificial inflation of markets through advertising that characterizes our current economic model. Perpetual growth presumes a dangerous idea, that an economic enterprise exists for the benefit of its shareholders first, and that of society, a very distant second.

Currently governments and the business community seek to reconcile this conflict through regulations, anti-trust enforcement, CSR initiatives, second bottom lines, and lately the notion of creating shared value. But regulating an activity through rules in order to curb its counterproductive by-products is a contingency strategy not a solution. Adding incentives to improve performance without carefully defining such performance, increases the motive for corruption and for gaming the system. CSR programs and cause marketing often amount to little more than veiled capitalism, and the notion implied in ‘creating shared value’ of encouraging businesses to be nicer because it is in their interest to help out, overlooking the fact that corporations as they stand are predatorial by design. In short, the answer is not to seek to modify corporate behavior by using carrots, but instead to remove their incentives to behave against society’s best interests.

    Cristian Contreras

    Written by

    Product Operations @Shopify — ex Head of Growth @HeyOrca