Transforming Capitalism?

So our Taoiseach, Enda, says the cause of Ireland’s economic woes was that ‘people went mad borrowing’. While the opposition got all in a lather about his ‘insensitivity’, he does have a point. Unsustainable levels of private debt went through the roof in the ‘boom’ years.

Under pressure, he later rightly nuanced this a bit by talking about incompetent government, unregulated and out of control banking, unrestrained greed of property developers etc. This is why we are one of the worst ‘PIGS’ – not only due to inept government, but a corrupt political class within Fianna Fail and a cosy cartel of bankers and developers that operated in a bubble of arrogant invincibility.

Everywhere in Ireland today there are stories of people struggling – long term unemployment; unpayable mortgages; anxiety over the future; rising rates of suicide; businesses going bust; public services under pressure; huge company restructuring (i.e. redundancies); rising taxes and charges; a wave of emigration  …

And a huge factor in all this was Fianna Fail’s response to the crisis in socialising the debts of those out of control banks – Anglo-Irish above all.

But the global financial crisis is much bigger than Bertie and his cronies and their failure to govern.

It goes to the nature of modern turbo-Capitalism itself.

I’ve ranted about discussed all this from time to time. And while I’m no economist, but it’s worth stating the obvious – that the whole fiasco was preventable and unnecessary. It is a human created problem. It did not have to happen.

Humans sin. Greed is intrinsic to the human condition. Elites will profit from power. Raw capitalism has no inherently ethical basis, it needs boundaries and ethics. Values and morality (or the lack of them) lie at the heart of the Global Financial Crisis.

Christians should know these things. But for a Christian response to the crisis to be credible it needs to be thought out both theologically and practically.

What does an ethical reform of ‘turbo-capitalism’ look like? What needs to happen?

This is the question that Michael Schluter and Jonathan Rushworth have tried to address in TRANSFORMING CAPITALISM FROM WITHIN: A Relational approach to the purpose, performance and assessment of companies.

I’ve had the pleasure of meeting Michael and he’s a great storyteller. But he has been thinking and speaking about reforming Capitalism for years – way before the crash. He has serious street cred on this issue.

His big idea is to reintroduce ‘relationships’ into an impersonal, distant and often inhuman system. It is exactly this distance and feeling of impotence that is the source of outrage and injustice across Europe. No-one seems responsible, just the faceless system.

Schluter is arguing for limits on turbo-capitalism: through accountability by shareholders; by putting people before the system; by limiting pay differentials within a company (how much more is one person worth than another?); of a company having social responsibility to its employees, suppliers and the wider community where it operates.

If implemented this is revolutionary stuff. But if the there is one thing the present crisis is revealing, it is the desperate need of such reform within Capitalism, if the idol of mammon is to be dethroned and replaced by a human face.

So let me recommend downloading and reading the whole report here. And here are 10 bullet point summaries of the main arguments for a Relational Business Charter:

The Ten Points of the Relational Business Charter:

A company will be recognised for the purposes of the Charter as having a relational ethos and operating in a relational manner if it has the following characteristics:

1. Set relational goals. The company includes a Relational business objective in its constitution, and demonstrates commitment to implement it, providing appropriate training to investors, directors and employees.

2. Create stakeholder dialogue. Dialogue is promoted among all significant stakeholder groups, through regular face-to-face meetings and, where that is not possible, through regular on-line communication.

3. Demand shareholder transparency. There is direct and transparent (named) ownership of a significant proportion (perhaps 25%) of the shares by individuals (or family trusts).

4. Encourage long-term ownership. A high proportion of the shares are owned on a long-term basis (which may be incentivised by issuing additional shares to long-term shareholders).

5. Safeguard work-life balance. There is evidence of management having respect for the interests of employees (e.g. with regard to length of working hours, atypical hours, and other employment conditions).

6. Lower pay differentials. The dignity of all employees is respected by minimising remuneration differentials within the business (taking, for example, a 20:1 ratio between top and bottom as a benchmark)

7. Build supplier partnerships. Suppliers are treated fairly and with respect, paid promptly, and given support to develop their businesses.

8. Respect customers & communities. Customers and the local community are treated fairly and their concerns are respected (e.g. with regard to service provided and payment terms).

9. Promote financial stability. The risk of company financial instability is minimised to protect the company and its stakeholders (assessed with reference to debt:equity ratios and/or levels of interest cover).

10. Fulfil social obligations. Obligations to wider society are fulfilled, assessed with reference to the percentage of profits paid in tax in the country where those profits are earned and also the percentage of profits spent on corporate social responsibility.

What do you think?