"A Great New Book" —Larry Kudlow, CNBCGet it on AmazonExplore the Book
The motivating force behind the first tea party protests of February 27, 2009, was , in part, crony capitalism.
Across the country and on the steps of the Arch in St. Louis, signs and speakers denounced bailouts for failed businesses.
I think they’re right.
Since then, crony capitalism has only grown. Obamacare and Medicaid Expansion. Quantitative Easing. The government takeover of General Motors and Chrysler. State and local tax subsidies for businesses, like China Hub here in Missouri.
At least part of the reason we’ve failed to separate corporation and state is a conservative economics fallacy first articulated by our favorite economist, Milton Friedman.
Milton Friedman’s Error
In 1970, Friedman wrote a New York Times op-ed titled: The Social Responsibility of Business Is To Increase Its Profits.
Conservatives love the simple brashness of Friedman’s statement:
There is one and only one social responsibility of business— to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.
On the surface, it makes sense, and business academics took it to heart. In 1976, two business professors, Michael Jensen and William Meckling of Simon School of Business, took Friedman’s theory one step further: the sole purpose of a business is to maximize shareholder value.
The Downfall Of Business Ethics
As Steve Denning wrote in Forbes last year, this is “The Dumbest Idea in the World.” The results of maximizing shareholder value have led to a popular mistrust of business. And it’s led leading proponents of so-called agency theory to question the idea that all’s fair in pursuit of profits.
In 2011, I had a chance to sit down to dinner with Harvard Business School legend Paul Lawrence just months before he passed away. Dr. Lawrence spent the last decade of his life undoing a lot of the damage he felt he’d done at Harvard.
After hearing great stories about John Wayne, whose Arizona ranch shared a mile long fence with Lawrence’s brother’s ranch, I asked him why he’s working so hard on advancing Four-Drive leadership when he should be enjoying his retirement.
“I watched a news program about corporate scandals around the time of Enron,” he said. “I realized that most of the men who were on trial for cheating and lying were former students of mine. I had to correct the thinking that led us here. I had been part of the problem.”
The Answer Is Conscious Capitalism
John Mackey’s vision of Conscious Capitalism might surprise his conservative critics. In his new book, Conscious Capitalism: Liberating the Heroic Spirit of Business, Mackey mirrors the idea behind the 5,000 Year Leap:
In the long arc of history, no human creation has had a greater positive impact on more people more rapidly than free-enterprise capitalism. It is unquestionably the greatest system for innovation and social cooperation that has ever existed. This system has afforded billions of us the opportunity to join in the great enterprise of earning our sustenance and finding meaning by creating value for each other. In a mere two hundred years, business and capitalism have transformed the face of the planet and the complexion of daily life for the vast majority of people.
And he gives us a remarkable litany of free-enterprise capitalism’s higher purpose:
This is what we know to be true: business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it can elevate our existence, and it is heroic because it lifts people out of poverty and creates prosperity.
The idea that business is good, ethical, noble, and heroic is breathtaking. I promise you, they don’t teach those ideals in most business schools today. They teach profit maximization and meeting Wall Street analysts quarterly expectations instead.
But people are human, not machine. We all want to serve a higher purpose, save for the five percent who are true psychopaths.
Mackey’s vision of business as good, ethical, noble, and heroic would lead the most idealistic person toward the pursuit, while the idea of maximum profits invites the selfish and the greedy.
The Evil Twins of Crony Capitalism and Regulation
The flip side of Conscious Capitalism is Crony Capitalism and government regulation. On these points, John Mackey sounds like our speakers at the first tea party protests:
Crony capitalists and governments have become locked in an unholy embrace, elevating the narrow, self-serving interests of the few over the well-being of the many. They use the coercive power of government to secure advantages not enjoyed by others: regulations that favor them but hinder competitors, laws that prevent market entry, and government-sanctioned cartels. 16
Since the financial collapse in the 2008, crony capitalists and government have conspired to increase the wealth disparity in America to its highest levels ever. Obama’s rhetoric about level playing fields were hollow. His two most ambitious legislative victories—Obamacare and Dodd-Frank—all but competition and free enterprise from healthcare and banking. Obama didn’t reduce income inequality—he made it worse.
And he did so with a lot of help from big business and big banks. Dodd-Frank, you’ll remember, changed a lot because of testimony and lobbying from the finance and banking worlds. Same for Obamacare and healthcare and insurance corporations.
The corporate lobbyists did not push ideas that would keep you free and prosperous; they added provisions to put taxpayer dollars into their own pockets.
Read Conscious Capitalism
There’s way too much great stuff in Conscious Capitalism for me to cover here. Whether you’re a business leader, entrepreneur, or concerned consumer, you’ll benefit from the ideas Mackey puts forward.
In the end, Mackey shows us two worlds. In the first, corporations use the coercive power of government to extract wealth from customers, employees, vendors, and taxpayers. In the second, businesses exist to create massive value that inspires people to buy from, work for, and trade with companies.
Which one would you trust? Which one won’t embarrass you? Which one would you happily defend?
If you believe in fair, open, and voluntary exchange, you’ll love Mackey’s book. If you don’t believe in those things, you need Mackey’s book.