Reshaping A Rentiers’ Paradise

Inside The Struggle To Reinvent Capitalism

Colin Beulin on

My original intention was for this article to focus on certified B corporations. However, as I started to string together different dots, I realized there is a larger theme at work in the world today. It is a constant struggle to make or remake capitalism to work for the good of the society. For much of the developed world, a capitalist economic system combined with a democratic political system has been the formula for growth and transformation. Economic freedom fosters democratic institutions which in turn foster higher growth. The reality is that the world is divided into various shades along the capitalist communist spectrum. None of these shades are perfect just as the two extremes i.e. laisez-faire capitalism and absolute state control are not viable. Recently, there has been a resurgence to rectify the broken aspects of capitalism. Such attempts encompass a broad spectrum of developments i.e. B corporations, micro-financing, decentralizing trust through the Blockchain and a proposal to create a Long Term Stock Exchange (LTSE). All of these developments are concerted efforts to curb rent seeking and to include the masses into the mainstream financial services world. However, greed still remains dominant and the world has become less certain thereby negating some of the gains that these changes seek to make. This article looks at various efforts to reinvent capitalism and ends with a larger question: is there a viable alternative to capitalism as it stands today?

What is Capitalism?

Capitalism is an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state. As per the Merriam-Webster dictionary, capitalism is an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market. The chart below shows how relative economic freedom by country.

Index of Economic Freedom by the Heritage Foundation

There are varying degrees of capitalism with countries like India having a blend of capitalism and socialism.

The above was a simple definition of capitalism without any bias. Critics of capitalism, however, would define capitalism as a machine spawning inequality, concentration of wealth and exploitation of labor. In fact, Economist Branko Horvat once said that “[I]t is now well known that capitalist development leads to the concentration of capital, employment and power. It is somewhat less known that it leads to the almost complete destruction of economic freedom”. Between the good and ugly side of capitalism lie the efforts of many individuals who seek to remake the economic system to work for the common man. Although those efforts were disparate before, they seem more of a concerted clamor today especially in the aftermath of the 2008 financial crisis.

Lessons From A Music Maestro

A.R. Rahman, the great Indian music maestro, is a global phenomenon. He says that whatever god provides him in the form of blessings, he passes on to the world as music. The world of finance could learn a lot from this profound statement. Wealth, beyond a point, needs to be shared. There is no monetary quantification to what is that “point”. It is subjective but the lesson here is : sharing wealth is good for society especially a capitalistic one. Except Steve Jobs, most billionaires ended up setting up foundations such as the Bill and Melinda Gates foundation or donating significant sums of money to charities such as United Way to give back to society. That’s one way to give back to the world. Again, this is not a fool proof way to spur inclusiveness. It is just one way and a flawed one too. Major charities have major overheads in terms of salaries and other administrative cost which means that a sizable portion of donations go towards paying managers and other fixed costs. Secondly, not all humans are wired to give wealth away. Some of them just want to go on to the next big thing in their lives. In other words, seek higher rents and follow a trail of greed wherever it may lead them to. Thirdly, the many of the same arguments leveled against Universal Basic Income (UBI) apply to charity. Clearly, therefore charity is part of a larger solution. Charity addressed to “teaching people how to fish” rather than plain donations has more impact and is more sustainable.

Money Always Had A Bad Image

A lot of my teenage years were spent listening to Hip-Hop and Rap. One of my favorite lines, which repeats incessantly in my mind, is from the title of a song by the Notorious B.I.G — “mo’ money, mo’ problems” . It seemed to capture the fact that wealth brings its own set of problems. Just like the Roman empire at it’s peak, too many Toga parties can actually render a wealthy man virtually penniless. There is a social movement afoot today which is captured by the acronym “Financially Independent, Retire Early (FIRE)”. The proponents and followers of FIRE save on every expense they can, build a nest egg, invest it and live off their savings after retiring at the peak of their careers. This phenomenon is possible in part because of their common sense and in part because of their financial acumen.

What the FIRE approach tells me is that a large part of our problems with money is that our educational system doesn’t emphasize on financial independence nearly enough. It emphasizes on money as an end and not a means to an end. When people are taught to pursue money for more money’s sake, its like coaching them to be the root cause of the ills of finance today. One of the biggest problems with finance is that money chases higher interest everywhere thereby crowding out projects which are viable in the long term in favor of short term “rent seeking”. On the other hand, money and personal finance are thought of as taboo topics to discuss openly.

A 2014 Standard & Poor’s Ratings Services Global Financial Literacy Survey revealed two of three adults in the world were financially illiterate. Though it is a bit dated, the survey says a lot about our condition.

Certified B Corporations

According to the B Lab website: “A certified B Corporation is a business that meets the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy”

Three Corners Capital

The certification is provided by B Lab , a not-for-profit entity. So far, roughly 2,592 businesses are certified B corporations. A simple and free impact assessment test helps a business assess how far it is on the journey to become B certified. As per the B Lab website, the certification indicates how a company’s operations and business model impacts its workers, community, environment, and customers. A Standards Advisory Council (SAC) is responsible for creating and weighing each component of the standards. There are two teams focused on businesses in developed and emerging markets.

Long Term Stock Exchange

If six monthly reporting is discussed as a panacea to the routine of quarterly results, the Long Term Stock Exchange — an idea proposed by Eric Ries wants to get rid of short termism in corporate strategy. It seeks to align long term investors incentives with those of companies with similar long term goals.

As per its website: By creating a new set of standards (subject to SEC approval) designed to support the methods of experimentation and scaling that modern companies use to find continuous success, the LTSE aims to open the way for innovation and value creation for all companies, far into the future.

The constant pressure to keep performing each quarter encourages companies to invest in investments that yield near instant returns and crowds out value creating long term projects. The Long Term Stock Exchange seeks to change the rules of the game to allow for long term vision to gain traction. NASDAQ also created a Private market for companies to remain private longer until they are ready to face the realities of quarterly P/E ratios.

Micro Financing

When I worked in Mumbai as an auditor for a big four firm, one of my clients was a very successful multinational federation of local credit unions headquartered in Utrecht, Netherlands. It was called Rabobank (Raiffeisen-Bank Boerenleenbank). Friedrich Wilhelm Raiffeisen was a German mayor and one of the first pioneers of micro financing i.e. using funds pooled together by a union to provide small doses of credit to lift people out of poverty. Micro Financing is “the idea of cooperative self-help” i.e. the poor helping their brethren out of poverty.

Subsequently, Muhammad Yunus founded Grameen Bank in Bangladesh in October of 1983. While Grameen Bank achieved astounding success and its model was replicated globally, it is also the subject of a lot of controversies. As per its website : as of December, 2017, it has 8.93 million borrowers, 97 percent of whom are women. With 2,568 branches, GB provides services in 81,400 villages, covering more than 97 percent of the total villages in Bangladesh.

The larger point is the fact that while micro financing has seen success in densely populated areas, it is harder to scale the model in sparsely populated areas because the overheads of a branch cannot be spread over a larger unit base. However, organizations such as Grameen America and Grameen Bank carry on with their agenda.

Capitalism Is Broken But We Don’t Know How To Fix It

Usury is sacrilege and yet it is also common practice.

If you have ever taken a class on negotiation, you will be very familiar with the term BATNA (Best Alternative To A Negotiated Agreement). Think of capitalism as an agreement between the rent seekers and rent payers i.e. the ultra rich and the rest of the world. As you can imagine, it is not a perfect middle ground. In fact, it is hardly a middle ground when wealth is concentrated in the hands of a few. As per the Guardian, the richest 1% are on target to own two thirds of all wealth by 2030. This ignominy has been rubbed in our faces in the guise of various statistics repeatedly over the years.

As I have discussed in this article earlier, there have many great ideas to fix capitalism over the years too. One of the most fundamental problems that any idea faces is how to incent the rich (rentiers in French) to work for the rest of the world (rent payers). Also, the central question of whether an alternative system can replace capitalism remains unanswered. Thus, there is a need to combine the disparate efforts and compare Capitalism 2.0 to the next best alternative. As I said before, the challenge is that the rich have very different incentives than the rest of the world. In my humble opinion, the best solution to either fixing capitalism or creating a new order altogether is an education in applied humanity. If technology is applied science, applied humanity is the technology of putting emotions to work. A way of life dedicated to living for others and teaching others to stand up on their own two feet.

Every individual who has met his or her basic needs can help contribute in his or her own individual capacity. If it sounds too esoteric, it probably is. Sherlock Holmes once said : “when you have eliminated the impossible, whatever remains, however improbable, must be the truth?”. In the same vein, if we have exhausted all conventional solutions, whatever remains, however improbable it may be, must be our best chance. If it means a lifestyle dedicated to living for others, I call it history repeating itself.

Writer @ The Intersection of Finance, Tech & Humanity. Stories of a Global Language: “Money”. Contributor @ Startup Grind, HackerNoon, HBR. Twitter@akothari_mba

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