The Charge to Change Capitalism and Why the Profit Motive Must be Preserved
On September 13, 2020, Imperative 21 launched the RESET Campaign with an aim of resetting our economic system away from a profit-oriented approach to one that focuses on the common good. The launch date was deliberate, given that it was the 50th anniversary of Milton Friedman’s notorious New York Times publication which asserted that the sole responsibility of a business is to increase profits.
In stark contrast to the Friedman Doctrine, Imperative 21 mandates a collective shift from the business community to replace shareholder primacy with the stakeholder mindset developed by the World Economic Forum, as featured in the Davos Manifesto.
According to Imperative 21, “our economic system is broken” when it comes to “shared well-being” and, as such, interdependency needs to be prioritized over individualism, and collective benefits must supersede investor interests.
Imperative 21’s call for action has taken the Business Roundtable’s statement on social responsibility to a whole new level, and members of this concerted coalition span the globe and comprise prominent industry executives, corporate firms, nonprofits, and NGOs. And a noteworthy member worth paying attention to is the B Lab.
The B Lab was founded in Pennsylvania as a nonprofit in 2006, and its popularity over the past several years has surged thanks to support from celebrated industry leaders who endorse the purpose over profit mantra.
John Mackey’s Conscious Capitalism promoted the B Lab, and the likes of Mark Benioff, Richard Branson, Arianna Huffington, and Hamdi Ulukaya have all signed on as a being part of the B Team. Prestigious popular brands like Patagonia flaunt their B Lab affiliation and while Patagonia was the first in California to obtain B Corp status, California has since become home to the most B Corps in the country.
To achieve B Corp status, businesses must abide by certain “social and environmental performance” standards that align with the UN’s Sustainability Goals (SDGs), and the B Lab’s certification stamp (the letter “B” within a circle) can be found on a wide range of products and services.
There are now over 6,000 B Corps with a network of influence present in 80 countries, and the B Lab receives an impressive sum each year thanks to its certification and marketing fees.
Whether you are baking bread, reading the Guardian, or sipping on a cup of tea, the B Lab has inserted itself into your daily life. And the appeal of the B Labs’ certification stamp is not surprising given that, at the World Federation of Advertisers’ annual conference in 2012, it was declared that social responsibility was necessary for building brands and increasing revenue streams.
As such, B Corp status serves both as a marketing mechanism and a means for appeasing conscious consumers, and more recently, B Corp certification has aided firms with improving their ESG ratings.
Overall, the B Lab’s mission is to “change the rules of the game” by creating “standards, policies, tools, and programs that shift the behavior, culture, and structural underpinnings of capitalism.” Therefore, it makes sense that the B Lab is listed as a “network steward” for Imperative 21, alongside Just Capital (which measures of stakeholder performance), Common Future (which focuses on racial and economic equity), and The GIIN (the Global Impact Investing Network which launched its own New Capitalism Project in 2020).
What does not make sense, though, is the growing coalition countering capitalism for the common good. Capitalism is a system based on private ownership and voluntary exchange – because employment, production, and consumption occur based on the values, incentives, and interests of the marketplace. Denouncing this economic system would be counterintuitive, to say the least, if we are concerned with economic growth, liberty, and well-being.
Replacing rather than embracing shareholder primacy is truly a troubling matter given that shareholder primacy is a means for holding business leaders objectively accountable for the management of strategic investments and business operations.
Serving the interests of shareholders essentially forces businesses to conduct themselves responsibly in relation to employees, customers, and society at large given the impact reputation can have on revenue streams. Happy employees are productive employees; happy customers are repeat customers; community engagement creates a positive reputation; and so on and so forth.
Thus, profit-seeking firms are incentivized to be efficient, effective, and ethical via the exchange process, and profit serves a tool for objectively measuring the market’s response to what is being offered.
Firms that are profitable and achieve long-term success (forgoing short-term scams) obtain their status via value creation with a streamlined focus on the bottom-line. A profitable business requires proper management, and proper management leads to good business practices. And such an approach is naturally of great interest to investors eager to ensure a return on their investment.
If businesses continue to be coerced to focus on matters external to the firm, however, (such as cause-related campaigns, effective altruism initiatives, and adherence to third party certifiers), autonomy and authority regarding productive practices related to value creation will be supplanted by metrics and standards dictated from the power players who claim to know what is best for society. And since what is best for the common good is largely a subjective matter, all types of tradeoffs and behaviors can be justified by those who appoint themselves as social agents over business practices.
So, before buying a product due to its ethical label rather than functional attributes, and prior to investing in moral matters rather than sound strategies, remember that economic prosperity and societal advancement have historically been derived from individuals and ingenuity, not from do-gooders and dictators with paternalistic plans.
Kimberlee Josephson
Dr. Kimberlee Josephson is an associate professor of business at Lebanon Valley College and serves as an adjunct research fellow with the Consumer Choice Center. She teaches courses on global sustainability, international marketing, and workplace diversity; and her research and op-eds have appeared in various outlets.
She holds a doctorate in global studies and commerce and a master’s degree in international policy both from La Trobe University, a master’s degree in political science from Temple University, and a bachelor’s degree in business administration with a minor in political science from Bloomsburg University.
Follow her on Twitter @dr_josephson
