CAPITALISM has taken a knock over the past few years. They might not rail against “white monopoly capital” elsewhere, but the discontent is just as palpable.
At a Tiso Foundation symposium last week, Paul Boateng, the former British high commissioner to SA, reminded us that deficits of trust and confidence are not unique to SA’s political economy.
Of course, there are aspects of capitalism that have always attracted censure. Earlier this year the Economist magazine ran with a cover story on crony capitalism that traced the evils of rent-seeking from the US robber-barons to modern-day oligarchs.
Unbridled capitalism is no longer with us. An article in McKinsey Quarterly, the management consultancy’s publication, argues for the redefinition of capitalism and its institutions.
What’s wrong with capitalism today anyway? If that was an exam question, South Africans would pass with flying colours. SA was once the place to visit if you wanted to see the ugly face of capitalism. The effects of the racist and exploitative version of capitalism that played out here linger.
Globally, the financial crisis has people questioning the architecture of modern capitalism. Eric Beinhocker and Nick Hanauer, the authors of the McKinsey Quarterly article, also refer to the decline of the middle class in advanced economies and rising inequality as forces casting a shadow over conventional views about capitalism.
Capitalism is then properly thought of as a great evolutionary system for finding solutions. This would shift the focus from shareholder value to problem solving. In the authors’ argument, shareholder value is a condition for a successful business, but not its purpose.
This is not the end of capitalism, Mark Shuttleworth wrote in a blog post in late 2008, as he reflected on reactions to the financial crisis. At that time, he came out in favour of “regulated capitalism”. He argues that markets tend to favour those who succeeded in the past over those who might create success in the future. He should know. As an entrepreneur and a player in the open source software ecosystem, he must have had his fair share of run-ins with sclerotic incumbents. Shuttleworth then proposed that societies invest in independent, well-resourced and meritocratic regulatory institutions to provide oversight over capital.
The authors of the McKinsey article rate capitalism as largely successful, but argue that conventional theories are wrong about what makes it deliver prosperity. In their view, capitalism is not fundamentally a system of allocation, but one of creation. It provides incentives for innovative problem solving and provides mechanisms for spreading those solutions. The authors call for redefining prosperity not in monetary terms, but as an accumulation of solutions to human problems.
Capitalism is then properly thought of as a great evolutionary system for finding solutions. This would shift the focus from shareholder value to problem solving. In the authors’ argument, shareholder value is a condition for a successful business, but not its purpose. This would also direct the private sector to the long-term view, away from the quarterly one, as most problems take time to solve.
When I was a management consultant, I saw executives being relegated to dealing with corporate bureaucracy while problem-solving and thinking about the future were outsourced. Putting problem solving at the heart of business empowers employees to focus on meaningful activities. Unscrupulous lenders might say they are solving a cashflow problem. So, this redefinition takes us to regulated capitalism to constrain the bounds of problem solving.
Measurement problems aside, this is a view of capitalism that privileges the productive and the creative and discourages predatory, extractive or unsustainable modes of this system. This can be an inclusive view of wealth creation because it provides a framework for thinking about addressing the needs of those whose problems are not being solved by the market.
But would a redefinition of capitalism along these lines be enough for SA? For those who think capitalism has virtues worth saving, then adapting it to our context will ensure its legitimacy. The global rules are in flux, presenting an opportunity for us to reimagine a capitalism that works for a small, open and highly unequal economy embedded in a society that aspires to inclusivity.