“The future belongs to constructive capitalists. Here’s how to become one.”

Umair Haque – The New Capitalist Manifesto

The twentieth century saw the establishment of industrial era capitalism as a game of cost cutting and rapid growth. Companies achieved competetive advantage by shifting costs and borrowing benefits from society (deep debt). The price of a hamburger is artificially set at $3 because so much of the real cost to society has been hidden. As Ankita points out below, the actual cost of a juicy Big Mac is closer to $30 after counting the harm it will do to society and the environment. “The real debt crisis isn’t what America owes to China, or what Europe owes to Germany. It’s the deep, ever-mounting, unpaid debt of harm that business as usual owes people, communities, society, the natural world, and future generations, whether denominated in oil spills, banking meltdowns, or carbon emissions. Today, countries, companies, and people are struggling to repay the deep debt incurred by yesterday’s harm. The result is the slow, steady diminishment of prosperity.”

The twentieth century industrial model of growth through cost shifting is dead. We can even see it happening in the market via Haque’s list of 200 constuctive capitalist companies. Since the turn of the century those value of those companies has tripled, while the value of the S&P has actually dropped. How could this happen? How could companies that avoid shifting costs onto society compete with others, let alone grow during an economic crisis? Haque argues that the link between constructive capitalism and success are the adoption of 5 new institutional cornerstones. Adopting these new cornerstones produces advantages that stem from the creation of authentic economic value as opposed to thin value based on deep debt. The 5 ways a constructive capitalist gains his advantage is by utilizing Value Cycles instead of Value Chains, Value Conversations instead of Value Propositions, Philosophies instead of Strategies, Market Completion instead of Protection, products that are “betters” instead of “goods”.

By incorporating these 5 cornerstones “insurgents” (Constructive Capitalist Companies) have the power to attain next generation efficiency, productivity, effectiveness and agility, while “incumbents” (Industrial Capitalist Companies) can only drive down costs so much by borrow marginally more benefits. Some examples are Apple’s socio-productivity leaving it miles ahead of Sony, Google’s evolvability letting it create new services so quickly that it left Yahoo! in the dust, Walmart’s socio-efficiency compared to Target, Nike’s socio-effectiveness helping it outcompete Adidas and Puma, Lego to Mattel, Nintendo to Sega, Tata to GM, and Threadless to the Gap, the list goes on.

The moral of the story? There are real advantages to insurgency. “Constructive capitalists are able to turn thin value on its head and create thick value instead—value that matters, value that lasts, and value that multiplies.” Industrial capitalists are relegated to cost cutting and benefit borrowing, and society will come knocking looking to collect on its debts sooner rather than later.

Prosperity on an ark differs from prosperity on a game reserve. During the reign of industrial capitalism the fiercer hunter (the one who shifts more costs onto society) engendered the most prosperity, now that society has realized that the world is something more like a fragile ark the fiercer hunter becomes obsolete, even punished. It is the radical insurgent who will be rewarded for creating authentic value. The example of Walmart highlights this shift.

Once the “Death Star of companies: ultra-lean, ultra-mean, and the size of a planet,” Walmart became the biggest company in the world by exploiting natural resources, squeezing suppliers, and crushing communities. It also became public enemy number one for a generation of activists and reformers. While still not perfect, even “Walmart is learning that, as the world shifts from the economics of a game reserve to those of an ark, competitive advantage is just table stakes. It is constructive advantage that fuels twenty-first-century outperformance.” It has since adopted three constructive capitalist goals, “to use 100 percent renewable energy, to achieve zero waste, and to sell only products that benefit the environment.” Walmart’s goal here isn’t so much altruistic as it is likely still to reduce cost through increased efficiency, but that is exactly the point. The new capitalist world that Haque lays out is one where even the largest company’s have to realize that costs cannot be infinitely shifted in a finite world, and they will be forced to adapt, forced to forget about cost advantage and focus on constructive advantage, forced to think of authentic value creating instead of thin value and deep debt.

Want to become a constructive capitalist? Now is your chance says Haque. Beat the big guys to a constructive advantage, don’t do it out of necessity but rather as a purpose and you will be rewarded in a big way.

Ariel