Freeing Business

We can free our vision of business from the abuses of today's system

One of the articles in Living Business (IC#11)
Originally published in Autumn 1985 on page 4
Copyright (c)1985, 1997 by Context Institute

A LOT OF PEOPLE – especially among those with deep concerns for the planet – are uncomfortable with, mistrustful of "business." While these feelings are understandable, they are also tragic. Business provides one of the best (but largely unused) channels for creating a humane and sustainable culture.

Our workplaces are subcultures that we create. While we are in them, they become our "world." For most of us, our worklife involves relationships as significant in our lives as our "friends and lovers." While we don’t usually think of our workplaces this way, they are our most important intentional communities. They could be laboratories for creating culture and could provide us with valuable experience applicable to the planetary challenges we face. A few businesses are starting to live up to this potential; most aren’t.

The problem is that most people don’t see this potential. Our image of business is so cluttered with the particular style in which it has been done that we have difficulty imagining any other way that it could be.

Most of the rest of the articles in this issue offer help for our imaginations by providing examples of ways that business is changing and can change. But before we get into all this enthusiasm for what business can be, I’d like to begin by separating "business" from some of the undesirable aspects of our present economic system that we usually, often unconsciously, associate with business.

We associate many different ideas, feelings and images with the word "business." Beyond its most direct (almost timeless) meaning of "intentionally producing and exchanging goods and services," we also use it to refer to the "business community" – businesses and their actions; business owners and managers and their interests and values. When we speak politically of a certain piece of legislation being "pro-business," we don’t mean that it favors exchanging goods and services; rather we mean that it favors the interests of those who control businesses and benefit from their profitability. Beyond even this, we use "business" to refer to a complex set of institutions and cultural assumptions that are all part of the way business has been and is being conducted in our society.

It is because of "business as it is and has been" that people have mixed feelings – and for good reasons. Whether it is pollution, arms production, or economic exploitation – wherever you look at the major problems facing the world – you’ll generally find some set of businesses profiting mightily from the current situation and resisting constructive change. It is, of course, all too easy to taint a whole area of human activity because of a few bad actors, but our uneasiness about business goes deeper than that. Our cultural myth is that success in the business world requires a ruthless personal ambition that is very different from the values we associate with a genuine concern for the planet. Whether from a pro business or an anti-business perspective, our culture sees business people as generally politically conservative, assertive, and out for themselves. The idea of the "yuppie" is just the latest version of this deeply rooted myth.

This myth is certainly unfair to a great many people in business who don’t fit its image, but few would deny that this myth exerts a powerful influence in our society. Unfortunately, all too often it works as a self-fulfilling prophecy, encouraging those with these values to push themselves forward in the business world while those with other values turn their attention elsewhere.

Yet the changes that are needed in the business world are not just a matter of style. To expect personal change without institutional change is to ask for hypocrisy. There are deeply rooted values and institutions that support the current style, and until we face these it is unlikely the behavior of business will significantly improve. What I’d like to do in this article is to examine some of these institutions and associations that cling to our image of business. Hopefully, by seeing that these are not essential aspects of business we can free ourselves to create images of business that are better attuned to the needs of the planet.

The Free Market and Its Limitations For most of us in the non-communist world, and increasingly in places like China as well, business exists in the context of the marketplace: there is competition between producer/sellers, buyers can choose from whom they buy (or whether to buy at all), and prices are set by supply and demand. In some ways, this is a wonderfully decentralized and democratically empowering system for deciding how the society should be allocating its resources. As a standard economic procedure it certainly beats central planning.

Yet there are also important limitations and biases built into the market system – flaws that are deeply troubling to those who see and feel their effects. The first is that the market is not truly democratic. It is a "one dollar/one vote" system, not "one person/one vote." This gives more power to those with more dollars, especially since (by the law of diminishing returns), the more money you have to spend, the less precious each dollar is to you. A poor person and a rich person might each be willing to spend 1% of their monthly spending on a loaf of bread – indicating an equal relative desire – but the 1% from the rich will outbid the 1% from the poor every time. (Indeed, it is happening every day in Third World countries where local people go hungry while specialty food is exported to the rich industrialized countries.) Even more disadvantaged in the marketplace than the poor are those without any voice at all – future generations and all non-human life – who are completely left out of the bidding but still must live with the consequences. The market thus directs its production, not to serve needs equitably, but to serve the ability to pay. Over time, the inequalities grow worse since the systems serving the rich become increasingly efficient (delivering more value per dollar) while the systems serving the poor steadily fall behind in relative efficiency, making them even less attractive arenas for business investment.

The second major bias in the market system is that, just as it serves some people much better than others, it supports certain kinds of activities better than others, namely products or services that provide a direct and obvious benefit to the buyer. Any activity whose benefits are diffuse and/or long term – such as child raising, urban planning, and re- forestation – receives little support directly through the marketplace, regardless of how beneficial or essential it might be.

These limitations can be overcome and corrected in various ways, as has been discussed in previous issues of IN CONTEXT (see particularly #2 and #8). Unfortunately the message we have learned from our culture is: To be successful and happy in business, you must be wholeheartedly enthusiastic about the "free" market. Yet clearly this attitude is not an unchangeable "law of nature." It is just an accident of history, a habit, a currently fashionable style. There is no reason why a happily successful business person can not be wholeheartedly enthusiastic about the appropriate use of the market and equally enthusiastic about going beyond the market to accomplish and serve the rest of life.

The Real Meaning Of "Capitalism" Another association that obscures our appreciation for what business is and can become is our cultural myth that in order to be free and private, businesses must be organized on a capitalistic basis, and that the only alternatives to capitalism are communism and socialism. I know that I grew up with a fairly foggy notion about just what "capitalism" meant, and most of what I see in the media re-enforces this haze. It wasn’t until I began studying the Mondragon Cooperatives (see IN CONTEXT, #2) that I started to understand that "capitalism" is a system in which labor is rented while those who have ownership rights to the equipment control the decision-making and take the profits or losses. It is not just private ownership that capitalism encourages, it is absentee ownership. This separation of the control of the business from those who are actually doing the work unbalances decision-making, gets businesses treated purely as money-making machines, and encourages most of the abuses to which business is prone.

Fortunately, this is hardly the only way to organize a private business. In the remarkably successful, free, and private cooperatives of the Mondragon system, labor has (democratic) control and takes the profits or losses, and capital is rented, leading to both higher productivity and more socially responsible decision-making.

My intention here is not to debate the merits of these two approaches. Opening our eyes to their existence is sufficient. We can then see that 1) the real economy around us is not as "purely" capitalistic as we think (for example, small family businesses without other employees are not capitalistic), and 2) it is entirely consistent to be enthusiastic about free, private business and opposed to capitalism.

The Nature Of Profit A third place of difficulty is around the issue of "profit." Is it the wonderful engine that moves our society forward, or is it a dirty word, a synonym for greed and exploitation? In dealing with this, I have come to feel that the root of our confusion is our failure, as a society, to distinguish between two significantly different kinds of profit – what I will call synergy profit and transfer profit.

In economic terms, profits come when a business is able to gain more from sales than it needs to spend for all its expenses. The reason for this profit may be a genuine innovation that allows the business to be more efficient than its competitors. Strictly speaking, there may be no such thing as a "free lunch," but there certainly is a cheaper lunch – a way to get the same or better result for less overall cost. Genuine innovations of this kind are well worth rewarding by the society by allowing the innovators to retain (at least at first) a significant amount of the new value they have created. In time, catch-up by competitors will reduce the profitability for the business while it spreads the new value throughout the society. This kind of profit based on the creation of genuine new value is what I mean by synergy profit.

On the other hand, a business may simply find a way to concentrate gains for itself while distributing the losses to others (transfer profit). Industries that avoid the costs of pollution control and let others suffer the consequences of acid rain, etc., are a familiar example. Their profits are based on a legally permitted form of theft.

One of the reasons that we fail to distinguish between these two kinds of profit is that, within any one business, our accounting systems can’t tell the difference. Only a whole system, planetary accounting system could do that, and it may well be that it will never be possible to fully distinguish between these two on a quantitative basis. Yet that shouldn’t discourage us from making this distinction. Frequently, the difference between the two is gross enough that measurable, numerical distinctions will be possible, but even more importantly, having these two as a moral yardstick will help us to ask the right questions about "profits" wherever we find them.

In addition, it is important to recognize that, not only do profits have different sources, but they can be distributed in significantly different ways. In a capitalist business, the pressure is on to extract the profits from the firm and export them to the stockholders. An employee owned and controlled business, on the other hand, is more likely to use profits in a balanced and more socially useful way, including improving working conditions, investing in long-term business development, etc.. In this sense, then, synergy profits, appropriately distributed, are indeed a wonderful thing.

The Siphons Of Exploitation A final aspect of business’s bad image is that it is often seen as the agent of exploitation, the vehicle through which the rich get richer and the poor poorer. In fact, however, most business activity is genuinely wealth producing, and while the distribution of that wealth might not be all that we might desire, much of what business does is of real benefit to society. Economic exploitation certainly exists in our society, but its most significant channels are appendages, not essential aspects of business.

Great wealth is amassed in our society primarily by manipulating ownership rights, not by employment. It is by buying low and selling high. In particular, our present legal system allows speculative ownership of land and other natural resources, and of corporations and other businesses. Through this ownership, it allows individuals to gain for themselves massive amounts of wealth that they either have had no or very little part in creating.

This process can be seen most easily in land speculation. The value of a piece of land depends on its natural qualities (soil fertility, etc.) and the degree of development around it, neither of which have been created by the "owner." If a land speculator buys a piece of land on the outskirts of a developing urban area, holds on to it for a few years while its value rises, and then sells it for a considerable profit, this profit is totally unearned. It is the surrounding community’s efforts that have increased the land’s value, yet they get nothing. Non-employee stock ownership can function in the same way.

The process used by many entrepreneurs is not quite as simple, but the underlying principle is still the same. The entrepreneur gains ownership of his/her company at its start when its value is very small. In good capitalist fashion, s/he then rents labor and retains (at least part) ownership. If the business succeeds, the value of those ownership rights increases considerably. When the entrepreneur eventually sells the business, the personal profit may be considerably more than the income s/he would have received for the work s/he actually did to create that value. To what extent this might be legitimate synergy profit would depend on the specifics of each situation. The point is simply to illustrate that our present legal and social system allows business owners to use ownership rights as a means of concentrating personal profit.

The other significant source of unearned wealth comes through manipulation of the monetary system, primarily through inflationary increases in the money supply. The government (and its clients) and the banks (in some cases) benefit first in this process. If the new money comes directly through the government, then the government gets the political benefit of spending more than it has to take in through taxes or borrowing. If the new money comes through the banks via credit expansion, then the banks get to charge interest on money they don’t owe to any depositor. Private parties can do quite nicely as well, in both inflationary and deflationary times, by shifting ownership back and forth between cash (liquid assets) and things (tangible assets). The trouble is that it is all transfer profit, it does nothing to increase the real wealth of the society, and is paid for in hundreds of ways by "the rest of us."

Among the losers, on average, in these transfer profit games are legitimate businesses. It is one of the great ironies of our present society that business people tend to view the free market, capitalism, and speculative property rights as inseparable parts of "our system," deserving of their unquestioning support; yet capitalism and speculation make most businesses harder, distract the society from genuine productivity, and siphon off synergy profits from those whose efforts and inspiration has created them.

Re-envisioning Business So what can we do? The first thing is to free ourselves from all these associations and let business – the process of intentionally creating new value through the creation and exchange of goods and services – stand on its own. When we do this, we can see that we are much freer to choose just how we shall do business than we may have imagined. Most of the articles in this issue illustrate how doing business in more humane ways – ways that violate our usual assumptions and associations about business – leads to businesses that are more successful in both economic and human terms.

The old rules are waning. I invite you to discover how our businesses can now become what we have the courage to imagine they can be, and how through new forms of business we can work effectively on building a humane and sustainable culture.

Life Is The Bottom Line

by John Wilcox

WE CAN GET SO CAUGHT UP in the immediate that we miss the deeper meaning of what we are about. When the "bottom line" signifies simply the profit that is made in terms of money it trivializes a marvelous activity. Even concern for the stockholder, the customer, the employee, and the interested investors is not enough. Surely, there is a legitimate responsibility and accountability due to them, but to deal with these human elements as though they are unconnected to the rest of the world is an abstraction and makes the business itself an abstraction. As a result of this kind of abstraction, there are signs of breakdown in the whole corporate structure throughout the world.

There are hints here and there that some people and even some in top management positions within large corporations are beginning to see the root of the problem: If business is to be living then it must live within the same context in which life originated- the dynamics of the earth.

Brian Swimme in The Universe is a Green Dragon (Santa Fe: Bear & Company, 1985) says: "The Earth is a corporation. It is the primary corporation. Any corporation created by humans must fit itself into the larger corporation of the Earth, because if the Earth goes bankrupt everything else falls to ruin."

The task for the business establishment therefore is to know the story of life and to allow the energies of life to be unleashed. The planet that we now have arrives at this point in time and space after a long journey. Learning the whole story teaches us that we, humans, are not something set apart from the rest of reality. The powers that initiated the process in the beginning, the seething tumult that congealed into earth formations, the splendor and beauty of the variety of flowers and trees, the magnificence of the birds and animals, the immensity of the creative powers in the human past, all are focused at this point in time and space. This is where life is now manifest.

For business to be alive, truly alive, it must learn to live integrated into the bioregions of which it is a part. Business in this context is no longer an abstraction – something out there apart from the rest. It is an integrated, living, functioning process in harmony with the whole process of life. Its goal is profit for the whole biological community. Its employees, customers, stock holders, and interested investors profit, as well. They themselves have become the investment for the goal that the universe pursues.

Do NOT follow this link or you will be banned from the site!