An article in the current issue of Harvard Business Review, by eminent Harvard Business School economist, Michael Porter, and his business partner, consultant Mark Kramer, claims to be showing ‘how to reinvent capitalism – and unleash a wave of innovation and growth’. The secret is “Creating Shared Value”.
It criticises the ‘outdated approach to value creation that has emerged over the past few decades’. That ‘outdated approach’ might be summarised as short term shareholder value maximisation – the target of much criticism in other posts on this site. Porter and Kramer propose a “new conception of capitalism”. But, despite the rather breathless, teenage language, it all boils down to an increased orientation to the usual candidates: concern for the wellbeing of customers, employees, suppliers, local communities, and also for the firm’s role in depletion of key resources, especially water and energy, and its role in polluting the atmosphere and thus, probably, contributing to climate change. So what’s new?
Continue reading Shared Value: another variation on the neo-classical theme
The economic mainstream has flowed on its capital oriented way with relatively little deviation despite its manifest limitations, errors, omissions and downright falsehoods. And despite the occasional disasters to which it gives rise.
In the middle of last century, J M Keynes corrected some of the more apparent errors of the classical model, but his aim was improvement rather than revolution. He did argue powerfully that ‘the madmen in authority’ should accept the maintenance of full employment as their moral responsibility, but renegade he was not.
Continue reading In Praise of Renegades
A retrospective of this year’s postings would highlight some of the flaws in accepted economic theory. Many have been flagged up elsewhere: economic theory is not, and never has been, without its severe and knowledgeable critics. However, there are a couple of errors which are fundamental to the study of economics which are not often mentioned elsewhere.
Continue reading Changing Economics
In a recent article in The New York Review of Books, Michael Tomasky suggested the lack of any alternative big theme gave the free marketeers a head start in shaping and continuing to dominate the United States economy. The free market big theme may have been planted by Adam Smith, but it developed on the open prairies of North America where land was the free resource – confirmed by the Homestead Acts – which drove the early development of the US economy. So the big theme was not just markets freed from government interference and control, but personal freedom to claim a bit of America and the right to defend it with guns to fight off its previous occupants, the native Americans. That tradition gave primacy to ownership. When Friedman declared that corporate officials had no social responsibility other than to make as much money as possible for shareholders, it was hardly a shot out of the blue, but the confirmation of a long tradition.
Continue reading Big Theme or Muddling Through
The takeover of British confectioner Cadbury, with its long and honourable history in British industry, from its Quaker origins to its death throes earlier this year, has been featured as the main topic of two posts on this site, and mentioned in passing on five others. It is a compulsive story which celebrates the satisfaction of greed, the naïve stupidity of ideologically driven government, the destruction of Britain’s real economy and its real jobs, and the fatalistic acceptance of all this by the population at large.
Continue reading A Further Word on Cadbury
A recent article in The Economist pointed out that Britain, the original industrialiser for long in relative economic decline, owned 45% of the world’s foreign direct investment in 1914, but now has substantially less than 10%. The United States’ foreign direct investment peaked at around 50% in 1967 and is now less than half that. Today China (including Hong Kong and Macau) has a share of just 6%, but is growing fast. Britain and the United States might best be described as in the post-mature phase of their economic development. Such characterisation is also confirmed by the Anglo-American emphasis on finance and wealth ownership, rather than technology, customers and wealth creation. Those latter are the concern of more dynamically positioned economies, such as China and India, which are in the early growth stages of their development.
Continue reading Shareholder tyranny in post-mature economies
The desire to return to business as usual isn’t restricted to the obscenity of bankers’ bonuses. That same desire is shared by unemployed potters in Stoke on Trent, car workers in Detroit, and the governing politicians in London and Washington who are presiding over their people’s misery.
However, for the millions in China’s (not to mention India’s and Brazil’s) rural hinterland who have never lived much above the bread-line, some having experienced genuine famine, working on an iPad production line in Shanghai, or the like, may not pay much by Western standards, but it’s a huge improvement on business as usual.
Continue reading Business as Usual and Stuff the Planet