Can We Fix Capitalism?

Published on January 28th, 2011 | by

“The more business has begun to embrace corporate responsibility, the more it has been blamed for society’s failure. The legitimacy of business has fallen to levels not seen in recent history. This diminished trust in business leads political leaders to set policies that undermine competitiveness and sap economic growth. Business is caught in a vicious circle.”

That was Michael Porter (and Matt Kramer), Harvard Business School professor and known by MBA student everywhere as the man who gave us Porter’s Five Forces, leading into his article in the January Harvard Business Review concerning “creating shared value”. While that introduction admittedly sounds a bit dour, they go on to say that businesses must be instrumental in bringing business and society back together and that “shared value” is not “social responsibility, philanthropy or even sustainability, but a new way to achieve economic success. It is not on the margins of what companies do but at the center.” I could not agree with that statement more and have addressed it in regards to philanthropy.

The authors assert that the key to shared value is not about sharing economic value that has already been created but creating greater value. The idea of wealth redistribution as opposed to wealth creation comes up constantly in international development circles. In fact, Porter and Kramer use fair trade (something I’m notoriously tough on) as an example.

“Fair trade is mostly about redistribution rather than expanding the overall amount of value created. A shared value perspective instead focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers’ efficiency, yields, product quality, and sustainability. This leads to a bigger pie of revenue and profits that benefits both farmers and the companies that buy from them.”

I had a great Development Economics professor that often stressed this concept. So, how does a firm create “shared value”. Three simple albeit somewhat vague ideas are established
• By reconceiving products and markets
• Redefining productivity in the value chain
• Building supportive industry clusters at the company’s locations

The prevailing belief is that this type of model, where businesses can address societal problems cannot only be effective in developed countries but equally if not more so in developing countries. And is something that can be utilized by business of all sizes. This includes the rise of social entrepreneurship and numerous companies whose business model (or hybrid – making money internally to fund a non-profit) is specific to serving underserved markets. Two excellent examples would be Kickstart and Technoserve working on clean water and agricultural issues in Africa. Same goes for larger companies highlighted such as Coca Cola and Dow Chemicals reducing their fresh water consumption.

There are many interesting points here and I would encourage reading the article in full. But it seems as though the idea that for-profit companies act a bit more like non-profits and perhaps non-profits a bit more like for-profits would be a benefit for us all.

Image Credit by traftery via Flickr under a CC license


About the Author

Jonathan has worked in both journalism and various facets of small business development over the past eight years. Most recently, he graduated from the Monterey Institute of International Studies (graduate school of Middlebury College) in 2010 with an MBA and an MA in International Development Policy. His interests include SME development and its role in economic growth, particularly in Sub-Saharan Africa as well as how CSR/Sustainability measures impact both business operations and the communities in which businesses operate. While at MIIS he worked as a summer fellow involved in small business consulting in Accra, Ghana and was an active member of the MIIS Net Impact chapter. As a life long traveler, Jonathan has been fortunate to have lived in, worked in or visited over 20 countries on 5 continents and he truly hopes that he will be able to continue this trend.