Constructive Capitalism

Nice post from Umair Haque Worth à Read

"Gas-guzzling S.U.V.'s, cigarette boats, no-income mortgages and private jets should be relegated to the junk heaps of history, or better yet, put in a museum dedicated to never forgetting the greed and avarice that led us so far astray."

Who wrote this incendiary paragraph? Che Guevara's alter ego, perhaps — or maybe the ghost of Karl Marx? Nope — one of the authors was William Cohan, a former MD at JP Morgan and eminent financial observer, in the op-ed page of the NYT. It echoes my recent posts on "unnovation," where I used the Hummer as an example.

So if a snot-nosed kid like me and an eminence grise like Cohan both agree on the need for a better kind of capitalism — why are we making little progress towards building it?

I've thought long and hard for the last three to four years about a better kind of capitalism. Lately, my lab has been holding workshops about Capitalism 2.0 for blue-chip corporates, top-tier investors, radical innovators, and major international organizations alike. Here's what we've been discussing.

We can't build a better tomorrow unless we understand the root causes of today's crisis.
So much for green shoots. The unintended consequence of bailouts by the dozen is that bond markets are beginning to revolt. As yields get pushed up, all the quantitative easing in the world won't be able to put the economy back together again. Growth is — yet again — being thwarted.

Why this failure in solutions? Regulators and bankers seem stuck, endlessly debating the root cause of today's ongoing crisis. Is it a liquidity crisis, a solvency crisis, a crisis of trust? It is all of the above — yet, at root, none of the above. The real crisis is deeper, and more foundational.

Capitalism 1.0 wasn't built to last.
Today's crisis is one of institutions. That's institution not as in "organization," but institution as in rule to follow, or, better yet, ideal to strive for. The institutions, or ideals, at the heart of Capitalism 1.0 — exploitation, tyranny, domination, war, to name a few — are great if the economy's goal is to create the illusion of profit (hi, Wall Street). But they are toxic and self-destructive if its goal is to make people better off. Capitalism 1.0 is best at creating "thin" value — brittle, often illusory, and ultimately unsustainable value.

A new generation of revolutionaries is building a better kind of capitalism from the ground up: Constructive Capitalism.
Constructive capitalism is "better" in a tightly defined economic sense. It redefines the value equation at the heart of capitalism. It is built on a better economics that creates "thicker" value: value that's meaningful to humans — not just value that pumps up spreadsheets, computer models, and bonsues.

Like yesterday's revolutionaries ignited an industrial revolution, so today's revolutionaries are igniting an institutional revolution.
Today's revolutionaries have all discovered that in the 21st Century, innovation itself needs innovation. Today's most radical innovations aren't product, process, or even business model innovations: they are institutional innovations.

The last people to know about a revolution are usually the overthrown.
The institutional happening is hiding in plain sight: its happening right under your nose. Who are these new revolutionaries? Some of these are classic radical innovators: asymmetrical competitors like Threadless, Apple, and Google. But many of them are the unlikeliest of revolutionaries: Wal-Mart, Nike, and Starbucks, to name just a few. Yet, all have one thing in common: they are working away quietly, patiently, yet disruptively: to reconceive a better kind of economics from the ground up.

Strategy 2.0 is about learning to play by the rules of "Constructive Capitalism." Want to master 21st Century economics? Then ask yourself: what good, today, is mere cost advantage, differentiation, or value chain control? For Target, Motorola, and Microsoft, respectively, the answer is: no good at all. In contrast, as today's radical innovators reinvent better economics built on more valuable ideals, they are discovering fresh, new, often explosive sources of advantage — which differ radically from yesterday's tired and tapped-out sources of advantage.

How can you start playing by the rules of a better kind of capitalism? My rules are detailed in two presentations here and here. They're not the only rules, or even the best rules — but they are a starting point for exploring a more authentic kind of value creation.