“Capitalism at the Crossroads”/Stuart L. Hart

Foundations of Sustainable Business
Spring Trimester, 2008
Book Review – “Capitalism at the Crossroads1” by Stuart L. Hart
William Robb

I picked up this book as I began to read in preparation for beginning coursework in the Sustainable MBA program. I had just read “The Ecology of Commerce2” and found that book to be a little too anecdotal, a little too broad. The conceptualization made sense, and it was exciting to see a well thought out development of the structural changes necessary to end the false dichotomies that pit business against the environment. His ideas are broad and well thought out, but, compared to Harts book, the application of them seemed little too diffused. “Capitalism at the Crossroads” seemed crisper, more of a nuts-and-bolts book about how, exactly, to go about rewiring capitalism in the interests of supporting sustainability.

Both authors make clear the urgency of the situation. Hart, in the preface, outlines the current state of affairs with respect to environmental degradation, global warming, and social disruption brought about by the “Washington Consensus” that underlies our foreign policy, and therefore the direction that globalism has taken. He makes a clear case to support his central thesis, that “Drastic changes will be required in the coming decade or two to avert catastrophe.” Here, Hart articulates with strength and conviction a connection that is seldom made in this context – and one that I find particularly salient – the link between the current system of global development and terrorism. He states: “Terrorism, in short, is a symptom; the underlying problem is unsustainable development.” The situation is both dire and urgent.

He then places business – specifically global capitalism as embodied in multinational corporations (MNCs) – at the crux of the matter. Business is at the center of the problem, and therefore is also at the center of the solution. As with others in this field, he works on the assumption that what industrial capitalism has held as a central tenet – that social and environmental values must be traded off against economic values – is a myth, a false dichotomy. Thus, not only is business central to the solution, the solution represents an unprecedented business opportunity: “Sustainable global enterprise thus represents the potential for a new private sector-approach to development that creates profitable businesses that simultaneously raise the quality of life for the world’s poor, respect cultural diversity, and conserve the ecological integrity of the planet for future generations.”

Why the focus on business as the sector that will lead us to a sustainable world? Harts argument is a simple one; that MNCs are the organizations that have the resources and technology to do so. Today’s MNC are truly trans-national, and can have enormous capacity to move resources and develop technology. The profit motive, “properly focused” is seen as a mechanism that can accelerate the necessary innovation. This basis is developed in the first chapter, and amply demonstrated throughout the book. But, why not look to government or society – the people themselves? We find the answer put most succinctly in the postscript where Hart again reiterates the urgency of the situation. Here, he states the following “Global governance is in its infancy; nation states are consumed by their own narrow self-interests, religious fundamentalism has become a divisive rather than constructive force, and civil society lacks the resources and technology to make a large enough impact on its own.”

This issue – of the respective roles of business, government and society – is a crucial one, and I wish to return to it. However the point of the book is not to argue Harts position on the role of government, but rather to develop how capitalism, how business can rise to the challenge posed – that of developing a sustainable global economy. Chapters 2 and 3 set the stage, developing the notion of three economies; the money economy, the traditional economy, and the ecological economy. The interrelatedness of these economies is shown, and the fact that they are currently in collision is framed as a set of opportunities. To integrate these economies, we must move “beyond greening.”

Of particular value in chapter 3 was the “buzzword sort”. We spent a great deal of time during the first set of classes exploring the wide range of answers to the question “What is sustainability?” It is a broad topic, with many interrelated aspects to the answer. We ranged from Green to CSR, from the notion of the economy as grounded in the natural world to the fundamental questions of ownership and social justice. In the process we threw out what Hart characterizes as a “mind numbing array of ideas, issues, concepts and practices.” His answer to this is the Buzzword Sort. Here, he models shareholder value along two orthogonal axes; the horizontal ranging from “Nurturing Internal Capabilities” to “Engaging External Constituencies”; the vertical from “Managing Today’s Business” to “Building Tomorrows Opportunity”. A collection of terms – the buzzwords – are then arrayed in the model. This positions each of these terms in the context of a conceptually distinct aspect of sustainability and provides a “distinct connection to shareholder value” for each.

This conceptual framework provides a way to talk about the differences between, say, greening and CSR, or between eco-effectiveness and sustainable development, that highlights the fact that they are addressing different aspects of the situation in terms of an internal-external and today-tomorrow focus. It is all too easy, given the passion with which people come to the sustainable business arena, that the differences between these terms become divisive. At worst, strongly held values are expressed in argumentative discussion about which of these concepts is the more central, the more urgent, or represents the “one true path”. At best, there is confusion that leads to muddled and meandering conversation. The buzzword sort is a great tool for cutting through this, and providing one framework for a more thoughtful discussion.

The balance of the book develops in detail the strategies that can be used to move beyond greening, including the application of systems thinking, the use of disruptive technologies, and the “great leap downward” to the bottom of the population pyramid.

The Bottom of the Pyramid (BoP) is a concept that is central to Harts solution to sustainable global development. Here, the focus is not on the traditional “emerging markets” of the rising middle class in the so-called developing world, but the four billion poor at the very bottom of the socio-economic scale.

How will investing in the BoP work towards the development of a sustainable global economy? There are several aspects to this. First is that by innovating here, we begin to address the problem of social justice. As Hart puts it, this type of investment “means lifting billions of people out of poverty and desperation – averting the social decay, political chaos, terrorism, and environmental meltdown that is certain to result if the gap between the rich and the poor widens.”

A second connection is that of the type of innovation required. Solutions that truly address the needs of at the BoP will be appropriately scaled and dispersed. They will be adapted to the local environments and peoples. These are characteristics that are essential ingredients in any type of sustainable development, and thus, the Bop represents an ideal incubator for the development of sustainable innovations.

There are others, but I want to focus on the connection between investing in the BoP and sustainable global development that I see as the most fundamental. This connection between corporate work among the poorest of the poor and sustainability rests on the nature of the “BoP Protocol” process that Hart describes.

Reaching the four billion at the bottom of the economy requires a completely different conceptual model, and therefore a completely different set of strategies than are currently used. It is quite clear, for example that simply “selling to the poor” is a model that furthers imperialism, advanced in this context by an economic and cultural system, rather than an army. Indeed, there has been criticism along this front, calling the BoP business model a “dangerous delusion.” The point is well taken. We cannot simply focus on the poor as consumers, furthering a business model that creates the situation where “many live in poverty and a few live off poverty.” Hart acknowledges this criticism, citing “Fortune at the Bottom of the Pyramid: a Mirage” as a valid and provocative argument against BoP development as a sustainable strategy.

Therefore it is important to read carefully the chapters detailing the process for working at the BoP. The development model is truly radical – it took me a while to comprehend just how radical it is. This realization came about as I listened to a “webcast”, a live online presentation/interview with Stuart Hart, hosted by the American Management Association on 12 March. Although the material in the web-cast was not new, hearing Hart speak about it gave it a depth and a humanity that I had not picked up from the book. Harts concept of becoming indigenous rests on radical transitiveness and native capability. Radical Transitiveness is a means of extending the boundaries of the MNC to those usually considered on the “fringe”, and seeks to engage in “a two-way dialog so that each influences and is influenced by the other.” This can sound like so much jargon. It was not until I listened to Hart speak, and then looked more carefully at the list of fringe stakeholders: the poor, the weak, the illiterate, the adversarial … that I understood the true nature of what he was envisioning. He is talking about very deep, very inclusive community building among those that profit typically pushes out of the way.

This notion was reinforced as he talked about BoP 2.0 as a process innovation rather than a structural innovation. The process he envisions is built on developing very strong direct relationships with the people and communities as a basis for building the social capital necessary to support an ecosystem of businesses. I started to get a clue as to how deep of a change he envisioned when I saw on as part of the process “putting the last first.” Then, as I looked at the list of values underlying this process; Humility, Respect, Diversity, Complexity, Cooperation … I realized the radical nature if the process he envisions. It is a means process that places human values at the core of the system.

It is a process that gets at the fundamental flaw in capitalism – the lack of any moral compass. If we personify MNC’s –and to do so does not require a stretch of the imagination, for the courts have consistently held this view since the late 1800’s – we that they are these zombie-like creatures, lurching around the economic landscape without feeling, respect or responsibility. For while we have given them the legal fiction of existence, we have given them no morals, no responsibilities, no guiding principles other than “go make money.” This they have done admirably well, and in the process become quite efficient at creating material abundance for our society. But, without a broader sense of values and responsibility – without a moral compass – they leave a wide swath of social and environmental wreckage in their wake. When we look deeply at what Hart is proposing as the process he wishes to instill at the heart of MNC’s we see that he is talking about a process that creates such a moral compass3. Hart is talking about ensouling capitalism!

I wish to return here to the role of government. While Hart may be correct in dismissing global governance as weak and in its infancy, and national governments as too self-absorbed, we do need to acknowledge that the kind of process change Heart envisions is a fundamental shift in the power relationship between the economically disenfranchised and the economically powerful. This can be helped or hurt by the political climate. Issues like tariffs and taxes play a fundamental role in shaping corporate behavior, and cannot be ignored. Nor can the fundamental issue that when we are empowering a community in terms of economic power we are, whether or not we are aware of it, we are empowering that community in terms of political power4. Depending on the current government, this may or may not be welcomed. The international community can play a strong role in shaping how theses developing power struggles are resolved. While perhaps beyond the scope of “Capitalism at the Crossroads,” I think Hart would do well to acknowledge this, and at least sketch out some ties between his vision of changing the business process and the international governance.

And, I was a bit surprised, given the radical changes proposed in working at the Bottom of the Pyramid” to find Hart holding back a little as he answered the question “So how can MNCs possibly unleash the creative power of their people […]?” with “Ownership” – but not outright property ownership, rather ownership of ideas. This falls a bit short. We heard evidence from the field as Paul Millman spoke of his 17 experience at Chroma, a worker owned company, of the essential nature of real ownership in fostering the type of change Heart is proposing. This has been buttressed by our reading on self-managing teams in our Organizational Management class. Why then, I wonder, did Hart stop short with the ownership of ideas, and not go all the way to ownership of the company as a prerequisite to change?

Finally, I want to state that based on “Capitalism at the Crossroads” and other readings, it is my opinion that it might be possible to rewire capitalism, to re-engineer the corporate DNA of corporations, to create an economic system that can support economic development, social justice, and environmental health simultaneously. To do so will require radical changes, and one of the most fundamental will be providing corporations with a moral compass, a soul if you will. Here, Harts vision is strong and compelling – and is congruent with the vision of others. But, I would say, that by the time we get done with the transformation of capitalism, we might not recognize it as capitalism. We might just need a new name for this transformed engine of a sustainable economy.

Notes:
1 “Capitalism at the Crossroads – Aligning Business, Earth, and Humanity”, Stuart L. Hart, Wharton School Publishing (2007)
2 “The Ecology of Commerce: a Declaration of Sustainability”, Paul Hawkins, Harper Collins (1993)
3 For a very articulate and comprehensive discussion see “The Soul of Capitalism: Opening Paths to a Moral Economy”, William Greider, Simon & Schuster (2003)
4 These issues are covered in depth in “Common Wealth: Economics for a Crowded Planet”, Jeffery Sachs, Penguin Press (2008)