Stakeholder capitalism.

Can South Africa create a fresh economic approach to growth and inclusivity?

Part of the enthusiasm of a “new dawn” in South Africa is the belief that a closer partnership can be established between labour, capital and state. It has a firm Ramaphosa stamp to it and is key to the President’s desire to galvanise the nation on a different business friendly path of cohesion, inclusivity and growth.

In this he has put renewed emphasis on the CEO initiative and the National Economic Development and Labour Council (NEDLAC) as “unique institutions” in bringing the three economic estates together and that are envied by many other nations. Sceptics could argue that most nations do not need them and have long since evolved beyond 19^th century ideological divisions captured in theories of “capitalism” and “socialism” that still mesmerise many in this country. (See article: An age of economic soul searching here.)

Only a political or organisational theorist could come up with a term such as “stakeholder capitalism”. It’s counter-intuitive to the very definition of capitalism and borders on being an oxymoron. The classic definition of capitalism assumes the supremacy of ownership over “stakeholders”. Perhaps it is time to move beyond the debilitating semantics of capitalism and socialism. There are so many permutations of both in different settings that neither exists in its pure form. Yet the words themselves ignite knee jerk responses based on stubbornly nurtured prejudices.

Associative meaning has a subtle way of creating unshakeable intuitive prejudice – to the extent that many baby names are banned in some countries with some nations even having a pre-approved list. Have the words “capitalism and socialism” not reached that point? And perhaps with them other concoctions such as “communism”, “neo-liberalism”, “social capitalism” and “stakeholder capitalism”. There is, of course, much value in the inclusive stakeholder approach, but to achieve that, one simply has to let go of much of what is conventional capitalism – including the purpose of business and the accounting formats -- in favour of a common purpose; common fate approach.

It will also need a clearer distinction between capitalism and other concepts such as “free enterprise”, “free markets” and even notions such as innovation, entrepreneurship, and prosperity. Without that distinction, those laudable, more palatable and easily defended concepts become tainted with many negative connotations associated with the name of capitalism. It is said to be in a crisis. Its face has been called “unacceptable”. It’s been slandered as “ugly”. It’s even been demeaned as having no face at all. It solicits ill-informed responses from populist leaders that inflame without enlightening: much heat without light. Included in its defence, and entrenched by the word itself, are questionable assumptions about what accounts for its success.

The first is that human beings are singularly driven by their immediate material self-interest and profit. That is a silly generalisation. Human beings are far more complex than that. Free enterprise supports a different understanding, as pronounced by Adam Smith (See here). Without a good measure of benevolent behaviour we attract the very nemesis of free enterprise: more rules, regulations, laws, government controls and even coerced empathy in the form of a system mildly called socialism. Which prompts me to burst another assumption bubble: because homo economicus is a social being rather than simply a functional entity in one or other construct, it does not support the radical socialist argument of ownership by all – or ownership by none.

Interestingly, while capitalism is blindly married to the material self-gain driver, free enterprise does not concern itself with motive: as long as it is led by the fundamental rule that wealth is the result of creating something of tangible value for others or being useful to fellow human beings. In that it has a fundamental benevolent underpinning. Free enterprise is remarkably resilient and accommodating, and does not attract or even need the fanatical posturing that advocates either for or against often adopt in an understandable blind prejudice. Even in its aversion to socialism and the latter’s implication of bigger government at the expense of private initiative, it can accommodate permutations that fly in the teeth of many arguments.

Capitalism vehemently champions my old pet objection: the profit motive and profit maximisation as the ultimate driver of success and prosperity. I do not intend repeating my challenge to this claim as simply being false. What is worth repeating is the outrageous and demeaning assumption it makes about the motives of entrepreneurial giants who have made a marked and lasting impact on humankind. The social miracle of free enterprise is its ability to forge cohesion and a sense of common purpose between stakeholders. That obviously implies not trying to rank one above the other, and certainly not encouraging the exploitation by one of the other.

That is implied in the name “capitalism” itself. It assumes capital supremacy in all things, and the pursuit of its formation and growth is a precursor to all kinds of wonderful stuff. Free enterprise accommodates, indeed proposes, a different view: that enterprise leads and capital follows. Capital is indeed a critical enabler. But so are skills and labour, and government services and infra-structure. But the ultimate enabler is demand.

The results of a narrow and exclusive view on the role of capital formation have been devastating. We have not seen significant capital formation in organic growth through multiples of mom-and- pop ventures, small and medium enterprise growth, and growing middle classes; but in mergers, acquisitions, financial services, and financial or property assets. Control of capital, not necessarily ownership, has increasingly been concentrated in the hands of the few, who in turn, some have argued, have “captured” many free enterprise activities, parts of government, and the most invidious of all: banking and money creation.

The term “monopoly capital” may have no logical basis, but it’s simply a reflection of trying to find, or even create a demon that “will be confronted” by voting for some populist megalomaniac. The concentration of control over the means of production, either by government or a few plutocrats is the antithesis of free enterprise. The term itself is a P.R nightmare. Even in its origins it was demonised by novelist Thackeray to represent an exploitive landlord. It never featured in Adam Smith’s writings, but was repeatedly used by Karl Marx. So it was coined by its enemies.

I have no doubt opened the gates of wrath of many readers. And that is the essence of the problem, emotive responses linked to a name. You will unlikely find these observations in economic textbooks. The reason is simple: for the most part I have been dealing with perceptions, which most textbooks and academics ignore. At the same time they fail to recognise a fundamental truth: that perceptions create reality.

The one thing that globalisation has shown is that there is no one-size-fits all best economic system. All countries have their own uniqueness that often defy ideological prescriptions. Each has to evolve in its own way.

If we want to create something fresh, let’s not muddy it with dogmatic assumptions.