Community and business can go hand in hand.
Community and business can go hand in hand.
It’s time for capitalism to mutate again. We’re due. Here’s why: Release 1.0—the original model—created not only wealth, but also a blizzard of economic, social, and environmental costs. In succeeding in its mission, it also exploited the world’s resources and peoples as if there were no tomorrow.
Release 2.0—evolving since the late 1960s—has been increasingly regulated and “civilized” as it has attempted to keep pace with increasing awareness of its costly “side effects”. But Release 2.0 has hit a plateau in its efforts to build wealth and at the same time make deposits in the bank of social value. Layering regulations over regulations, and social initiatives over more social initiatives just isn’t going to result in the hoped-for economic, social, and environmental returns.
The problem is that even the most forward-thinking corporations are still driven by a mindset that is obsolete. That mindset is drawn in black and white and says that for-profit entities create economic value and nonprofit organisations create social value. It also says that while it is (of course) a good thing for corporations to engage in social programs, they can and should do so as an ancillary activity, taken on separately from their existing business model, which is centered on the creation of shareholder value.
Reality has long since left that mindset behind. Most people would agree that for-profit entities create a great deal of social value as well as economic value. By creating jobs, paying taxes, and providing products and services to consumers, they are inherently contributing to the “social” stratosphere. And most people would also agree that nonprofits create economic value as well as social value; in the U.S. alone, NGOs represent seven per cent of the national GDP. Yet because we created two legal forms to accommodate these entities “way back when”, we are stuck in an approach that is increasingly skewed.
It seems that the best we can do, within those parameters, is engage in a practice that is commonly called “blurring”, in which nonprofits engage in certain activities that were formerly the province of the for-profit world, and vice versa. Blurring has offered up some positive results on the social front, but ultimately, the concept lives up to the definition of the word itself. A “blur” has the connotation of something having gone astray, or something that has been distorted. It is fundamentally the wrong way to approach what is happening in the world because it encourages people to continue to look through their existing lens rather than rising above the present framework to understand the emerging, deeper shift in the nature of how all organisations need to operate.
What’s needed is the next iteration of capitalism—a new model that stems from an understanding that our common goal should be to maximise our value potential. The model should be based on a common understanding of what value is. And, it should be implemented with the common understanding that maximising value, regardless of whether one is the “customer of” or the “investor in” the entity, requires taking economic, environmental, and social factors into account.
We’ve all been guided by an approach that embraces the notion that you can bifurcate value. We have been operating with the understanding that “how you make your money” can be different from how you—or the organisations of which you are a part—are in the world. Under Capitalism 3.0, the rules will shift. If you want to maximise economic value by generating financial returns for investors, you should no longer be able to do it without taking into account how your execution of a business strategy is effected by social and environmental factors. And if you want to achieve greater social and environmental justice in the world, you shouldn’t be able to unless you understand the economics of modern business. Over coming decades we will have a window of opportunity to significantly decrease poverty—and create more sustainable enterprises and companies driven to maximise their full value potential. To do so, however, we must advance a new understanding of how we invest in value creation.
We do not know exactly what Capitalism 3.0 will look like but we know it represents an opportunity to break existing frameworks and create a model of accountability that addresses the realities of the world we’re living in.
Extract from “Capitalism 3.0: Exploring the Future of Capital Investing and Value Creation” from The Accountable Corporation.
Jed Emerson is a chief impact strategist who runs Blended Value. Sheila Bonini was a senior expert at McKinsey & Co. where she focused on the link between social and environmental impact and financial value creation. Now she leads the private sector engagement team at WWF.