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Completing Capitalism

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Proven, Profitable, and Sustainable

For the past fifty years, leaders in the business world have believed that their sole responsibility is to maximize profit for shareholders. But this obsessive focus was a major cause of the abuses that nearly sunk the global economy in 2008. In this analytically rigorous and eminently practical book, Bruno Roche and Jay Jakub offer a more complete form of capitalism, one that delivers superior financial performance precisely because it mobilizes and generates human, social, and natural capital along with financial capital. They describe how the model has been implemented in live business pilots in Africa, Asia, and elsewhere. Recent high-profile books like Capital in the Twenty-First Century have exposed financial capitalism's shortcomings, but this book goes far beyond by describing a well-developed, field-tested alternative.

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8 Chapters

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Chapter 1: The Expanded Meaning of Capital

ePub

All truth passes through three stages. First it is ridiculed. Second it is violently opposed. Third it is accepted as being self-evident.

—Arthur Schopenhauer, German philosopher

We can’t solve problems by using the same kind of thinking we used when we created them.

—Albert Einstein

When we started our new business model research in 2007, more than a year before the 2008 global economic crisis, our intuition was that the financial capitalism approach of Milton Friedman would soon reach its limits and needed to be reformed and made more complete in order for the economy and business to continue to create value.

In the years since the 2008 crisis, what began as intuition on our part has been dramatically confirmed as fact. The long-accepted (by business) Friedmanic assumption that the sole social responsibility of business is to maximize profit to maximize shareholder value—combined with the pressure of financial capital on business operations and the primacy of short-term financial capital creation over other forms of capital—is viewed by a growing number of stakeholders as being obsolete or no longer fitting for today’s economic, social, and environmental context.

 

Chapter 2: Five Indicators for Measuring Human Capital and Well-Being at Work

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Employees who believe that management is concerned about them as a whole person—not just an employee—are more productive, more satisfied, more fulfilled. Satisfied employees mean satisfied customers, which leads to profitability.

Anne M. Mulcahy, former CEO, Xerox

A good man is one who rejoices in the well-being of others.

Arab proverb

Human capital, as we define it in a business context, involves the many factors that impact individual well-being in the workplace. Simply speaking, greater employee human capital and well-being tends to attract and retain better talent, and happier, more motivated, more talented employees will very likely perform better than those who are unhappy, less motivated, and less talented. It follows, then, that having a sufficiently scientifically robust way of identifying and measuring—in a given corporate culture—the true drivers of employee human capital and well-being can give human resource managers the insights they need to craft interventions aimed at those specific drivers.

 

Chapter 3: Measuring Social Capital— How Communities Affect Growth

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A fundamental law of human beings is interdependence. A person is a person through other persons.

Desmond Tutu

A proper community, we should remember also, is a commonwealth: a place, a resource, an economy. It answers the needs, practical as well as social and spiritual, of its members—among them the need to need one another. The answer to the present alignment of political power with wealth is the restoration of the identity of community and economy.

Wendell Berry, The Art of the Commonplace

Just as we plant crops infertile soil, we want to establish our business in a fertile social environment.

Paul Michaels, former CEO, Mars, Incorporated

Social capital, as we define it in a business context, is expressed at the community level rather than at the individual level, and is the second component, along with human capital, of how we can value people as an asset. Just as human capital provides benefits to business performance when it is at a high enough level, and can drag on performance when it is too low, the “social fertility” of communities—what we call social capital—can also have a positive or negative impact on business performance. As we will explain in this chapter, several business experiments have revealed that social capital is, in fact, a key driver for business and community prosperity and economic performance. Maybe not surprisingly, when there is sufficient trust, social cohesiveness, and capacity to work collectively toward a common end in a given community, such communities have the necessary social fertility to grow and sustain quality of life increases. And greater quality of life of communities, especially in commodity-growing areas that tend to be impoverished, in turn, yields greater economic output, as we will explain.

 

Chapter 4: Measuring Natural Capital— Making More from Less

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Saving our planet, lifting people out of poverty, advancing economic growth . . . these are one and the same fight.

Ban Ki-moon, UN Secretary General

The creation is groaning.

Saul of Tarsus, circa AD 50–63

The earth is what we all have in common.

Wendell Berry

The drive to measure natural capital1 is based upon one simple premise: the earth—despite its capacity for annual renewal—has only limited resources that must be properly valued and managed. In the previous two chapters, we covered how human capital and social capital are related to one another and can be measured in non-monetized ways, bringing value in many different ways, including through their correlation with business performance. Similarly, managing natural capital can also bring business advantages, while also adding to individual and community well-being around the world—a correlation of the capitals that creates a virtuous cycle of measureable benefits.

 

Chapter 5: Recalibrating Financial Capital— How Mutuality Drives Profits

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We ought to do good to others as simply as a horse runs, a bee makes honey, or a vine bears grapes season after season without thinking of the grapes it has borne.

Marcus Aurelius, Roman emperor, 161–180 AD

If your conduct is determined solely by considerations of profit you will arouse great resentment.

Confucius, Chinese philosopher, 551–479 BC

As yet, we have not analyzed in detail the area of capital about which most people are familiar: financial capital. The key point here is that we wanted to take a fresh look at the way in which capital is generated and, most importantly, how it is shared among the various stakeholders—not only the shareholders and investors, but the various participating parties along the value chain. In manufacturing, for example, every stakeholder adds something of value to what is initially a raw material until it is transformed into a finished product that is then sold to a consumer. In nonmanufacturing enterprises, such as in the services industry, the same questions would be just as relevant, but with value creation and value capture of financial capital occurring across different types of stakeholders.

 

Chapter 6: Maua—Social and Human Capital: A Case Study

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Having described the theory, methodology, and some of the drivers specific to our company, the next step is to show how the process actually worked in field trials. Does our new business model program deliver in practice what it promised in theory? Based on our limited but fast-growing experience, the short answer is yes—and beyond our expectations, as we will explain in this chapter.

In 2013, we launched an exploratory micro-entrepreneur-ship, micro-distribution pilot business program among impoverished communities in Kenya called Maua with the purpose to test, in a real and especially tough business environment, the hypothesis of our model. In very practical terms, the business objective for Maua was simply to develop a new, profitable “last mile” route-to-market in select urban slum and rural areas of Kenya where our chewing gum business was unable to reach through its traditional route-to-market: namely Nairobi and the rural Kenyan town of Nyeri.

In research terms, the aim of the program was to validate or invalidate the insights of our preliminary analytical hypothesis, assessing whether it is possible to measure, harness, and grow the nonfinancial resources present in poor communities.1

 

Chapter 7: Coffee—Natural Capital: A Case Study 127

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As discussed in chapter 4, when we employ natural capital—defined as the various natural resources we utilize in the production and distribution process—our focus is on inputs rather than outputs for our new business model experiments. Why? Because we contend that paying attention to the variables that we can directly affect allows us to make measurable improvements quickly by being more resource efficient—which has the dual benefit of making the best use of planetary resources while also delivering bottom line savings. One illustrative example of the way marginal gains can be identified systematically can be found in the pilot study of the inputs required to deliver a single cup of coffee from the farms in Colombia to the consumer in the United Kingdom.

We knew, from prior research carried out by our Wuppertal Institute partners, that differing stages of production and distribution make highly variable demands on the types of resources employed. For example, it was apparent that topsoil erosion and biotic inputs are utilized mainly at the farm level, whereas abiotic, water, and air inputs are utilized across several stages of the life cycle—but weighted toward the point of use. With this broad knowledge, we were then able to refine the research and look in greater detail at four main categories—supply, distribution, manufacturing, and demand—and measure the inputs required at each stage.

 

Chapter 8: Remunerating the New Forms of Capital

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For the love of money is the root of all kinds of evil. Some people, eager for money, have pierced themselves with many griefs.

Saul of Tarsus

In the previous chapters, we have outlined a number of ways in which it is now possible—for the first time—to define and measure “new” types of nonfinancial capital: specifically, human, social, and natural. We have also shown how a holistic approach that embraces all of these forms of capital can be highly profitable, given the link between them. This, in turn, validates the truth of the ancient principle of wise King Solomon quoted at the beginning of this book:

A man may give freely, and still his wealth will be increased.

Nevertheless, a major question remains unanswered: How are the various forms of capital to be remunerated and what impact will this remuneration have on the notion of the right level of profit? This is a crucial issue because the most obvious and straightforward answer would be to try and monetize them—to convert the benefits of, say, natural capital into financial terms, in the misguided belief that money is the only language business can understand. As the late British playwright Oscar Wilde once wrote, “We know the price of everything, but the value of nothing.” How true.

 

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