>1) Any criticism of "ethic advertising/consumerism/investment" from a
>marxist point of view?
>From LM 93, September 1996:
Introducing the new, improved, fairer, sharing
Caring Capitalism
In the eighties they told us that 'Greed is good'. But in the nineties, World Bank officials, Wall Street consultants and other pillars of the establishment seem to have swallowed an old left-wing phrase book, as they join in criticising inequality and condemning corporate 'fat cats'.
Phil Murphy investigates the rise of the new reasonable, caring capitalism, and asks what's in it for them - and the rest of us
Nowadays everybody, it seems, is attacking greed and espousing the virtues of a more caring, friendlier form of capitalism. Even such bastions of capitalism as the World Bank and the OECD have recently issued reports condemning inequality. A few years ago, in the days of Reagan and Thatcher, they would have talked about the gap between rich and poor in terms of 'incentives' and 'enterprise', and argued that the wealth which those at the top piled up would 'trickle down' to the those at the bottom. Now Michael Bruno, chief economist of the World Bank, argues the opposite: 'Reducing inequality not only benefits the poor immediately, but will benefit all through higher growth.' (Independent on Sunday, 21 July 1996)
Respected publications, previously unknown for their radical leanings, now regularly accuse leading capitalists of avarice and inhumanity. Newsweek magazine has labelled the US heads of AT&T and IBM 'corporate killers'. Business Week has loudly denounced boardroom 'fat cat' greed. And this newly critical attitude to the evils of modern capitalism has quickly crossed the Atlantic to Britain, where shareholders, newspapers and politicians of all parties have joined in criticising the greed of corporate bosses.
Evidence of this new mood abounds at all levels of society. Within academia, Adam Smith, the eighteenth-century founder of modern economics, is being reassessed. In the 1970s and 1980s, Smith, the author of The Wealth of Nations, was hailed as the first and greatest free market guru, the true ancestor of FA von Hayek and Milton Friedman. Right-wing think-tanks were named after him. In the intellectual circles of the nineties, however, Smith has been reborn as a moral philosopher, the author of The Theory of Moral Sentiments, and the guardian angel of responsible, caring capitalism.
In the more practical world of economic policy, 'fairness' seems to have superseded efficiency as the goal to be aimed at. Take the discussion of unemployment at the OECD summit in May. A few years ago, such a debate would have focused on whether it was relatively more important to regulate labour markets in order to protect the weak, or to maximise flexibility in the workforce so as to increase business efficiency. Through the eighties and into the nineties, the right-wing case for flexible labour markets held the upper hand. This time, however, economists advising the OECD summiteers argued for flexibility on very different grounds--as the best means to secure a fair society. Even Angela Knight, economic secretary to the Tory government, talked about the need to tackle the 'social exclusion' of the unemployed--previously a left-wing concept derided by the Tories--through creating jobs in a flexible market. Fairness through flexibility is the 1990s message from hardnosed capitalist economists.
Politicians are singing the same tune. In the lead-up to the American presidential elections later this year, Democratic President Bill Clinton is praising the virtues of the 'responsible corporation'. And, on the other side of the spectrum, right-wing Republican Pat Buchanan made the attack on the evils of fat cat corporate greed, and the need for higher business standards, a central component of his populist campaigning.
Out in the business world everything seems to be changing too. Personifying this new mood is Aaron Feuerstein, owner of a Massachusetts textile company. Dubbed the 'caring tycoon', he has been lauded by President Clinton and his labour secretary, Robert Reich, as the model of modern corporate responsibility.
Feuerstein has always been seen as ecologically sound and community minded, but he really took the title as champion of the stakeholder economy by refusing to lay off his 2500 workers when his factory burned down just before Christmas last year. Instead he called his employees together in the local high school gym and promised to keep paying them at a cost of £1m a week. He even gave them their Christmas bonus. After receiving a standing ovation from his workers, Feuerstein has appeared on all the chat shows and become something of an election mascot for Clinton.
The Feuerstein story is symptomatic of a broader business mood. It is widely argued that the 'slash-and-burn' corporate strategy of the late 1980s and early 1990s--with its emphasis on downsizing, delayering, business process re-engineering, restructuring, and all the other euphemisms for sacking people and cutting costs--is now out of date. Instead we are moving into the age where the successful company will be the caring corporation, whose priority is to develop loyalty and trust among employees, customers, and all the other stakeholders--including, but in no privileged position, the shareholders. Such companies, it is claimed, do much better for everyone in the long run. The motto for success today is that 'being good in business is good for business'. And management is constantly being told to make sure that the pat phrase 'People are our greatest asset' is really put into practice.
These are not the touchy-feely views of a few liberals, or of politicians seeking votes. This is what big business is saying. Nor is it just soft soap from their public relations departments. It is serious mainstream thinking, what the capitalists themselves are saying to themselves. When the two biggest telephone companies on the US east coast, Bell Atlantic and Nynex, announced that they were merging in April, the new chairman was quick to emphasise that, unlike previous mergers, the link-up would not slash jobs: 'We're going to take care of our employees.'
Among top management consultants, some of the most staunch advocates of the old slash-and-burn strategy are now calling for more caring corporate practice. Stephen Roach, influential chief economist at Morgan Stanley, preached the merits of downsizing and cost-cutting for more than a decade. This year, however, he underwent a road to Damascus-type conversion, and now reckons downsizing is bad for the economy. In a memo to his corporate clients, Roach confessed to having second thoughts: 'Tactics of open-ended downsizing and real wage compression are ultimately recipes for industrial extinction....If all you do is cut, then you will eventually be left with nothing, with no market share.'
Or take Fred Reichheld, a director of Bain & Co, a US management consultancy closely linked with the cold blooded cost-cutting culture of corporate America in the 1980s. Now Reichheld has produced a book for the Harvard Business School Press, called The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value. It advises businesses to put loyalty above short-term profit. Under his guidance, Bain & Co have pioneered the management school of Loyalty Practice and have copyrighted the term 'loyalty-based management'.
In Britain the current guidebook for responsible business is Tomorrow's Company: The Role of Business in a Changing World, a report produced by the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA). Published last year, the report is based on an inquiry involving senior representatives from around half of Britain's top 100 companies, chaired by the IBM chairman, Anthony Cleaver. Its message to British capitalism was blunt--adopt the 'inclusive' approach to business, or fail:
'companies which will sustain competitive success in the future are those which focus less exclusively on shareholders and on financial measures of success--and instead include all their stakeholder relationships, and a broader range of measurements, in the way they think and talk about their purpose and performance.' All of this will come as something of a surprise to those who had grown used to criticising capitalists as ruthless beasts scavenging in the jungle of the market. When the World Bank and Wall Street consultants start using the kind of language which would recently have been the preserve of the left, it is time to take another look at how capitalism is operating today. What is this caring, responsible capitalism all about?
Although the language of responsible capitalism has been around for 70 years, the issue of business ethics has become increasingly prominent over the past decade. Since the early 1980s, the proportion of US companies with a formal ethics statement has risen from about one third to 95 per cent. Many also have dedicated ethical officers or ethical boards. In Britain, too, the subject of corporate governance has been moving up the agenda for a decade. There has been a new Insolvency Act, the Cadbury Code on corporate governance, and the Greenbury Code on executive remuneration. The Institute of Business Ethics reports that today almost half of Britain's largest businesses have adopted or are preparing to adopt a code of ethics. This compares to less than a fifth when the institute carried out its first survey in 1987.
The idea of 'responsible capitalism' has gradually gained ground over a decade before really coming to public prominence only in the past couple of years. So why now? There are two main factors at work, each connected to the impact of economic stagnation. First, within the corporate world itself, the new emphasis on responsible behaviour represents a search for a fresh business strategy. Second, within the wider world of capitalist affairs, it corresponds to the desire for a new set of firm moral values to counter the pervasive sense of uncertainty in society today.
Let us take the business world first. The advocates of a more moral type of capitalism have certainly not abandoned the basic drive for competitiveness and profit in the marketplace. In the RSA report noted above, for example, the need to adopt responsible business practice is proposed as the answer to Britain's poor competitive position. The report argues that paying more attention to people and relationships rather than physical assets and financial criteria is the means to succeed, not just to be nice. It suggests a 'strong correlation between issues concerning people, including relationships, and sustainable business success'.
Making profits is as important as ever in the new caring business, even if they do not figure in the first paragraph of the company's high- profile mission statement. Reichheld, for example, emphasises that 'loyalty to practical humanistic principles is not a substitute for profit. On the contrary, it is a vital component of the strategies these firms have used to achieve their extraordinary levels of growth and profitability' (The Loyalty Effect, p29).
So sound profitability remains the end businessmen still seek if they want to be successful, or simply to survive. The difference is, however, that caring capitalism is now considered a more likely profit-making business strategy than the raw free market approach championed in the eighties. As Robert Waterman argues in Frontiers of Excellence, 'companies that set profits as their No1 goal are actually less profitable in the longer run than people-centred ones'. Profits are still of utmost concern. What has changed is the recognition that simply demanding profit is not the same as being profitable.
The ascendancy of the new caring business strategy is partly a straight reaction to the failure of the slash-and-burn approach of the recent past. It is driven by a genuine management concern that the old ways are no longer appropriate or effective.
In his apology for having recommended downsizing over a decade, Stephen Roach admits that the appearance of a productivity-led recovery in the US economy has proved deceptive: 'The miracles of the great productivity revolution of the 1990s are starting to ring hollow.' (Financial Times, 14 May 1996) Roach explains that financial indices might show 'spectacular improvements in business efficiency. But it is increasingly apparent to me that these are the result of plant closures, job cuts, and other forms of downsizing that are not recipes for lasting productivity enhancement'. Over the past 15 years, this kind of 'hollowing-out' has cut costs and boosted bottom-line profits, but it does not mean business is stronger. As Roach warns, 'with the tactics of restructuring having focused more on downsizing than on rebuilding, corporate America may now be too lean'.
A crude cost-cutting drive is not the same as the thorough restructuring of industry required to create the basis for sustained profitable growth into the future. The RSA report expresses a similar frustration, noting that despite British industry securing a 46 per cent growth in productivity during the 1980s it still lags behind in the international competitiveness league. The leading management theorists Gary Hamel and CK Prahalad had already made the distinction between cutting back to save and building up to expand in their 1994 book Competing for the Future. As they noted, 'the United States and Britain have produced an entire generation of denominator managers. They can downsize, declutter, delayer and divest better than any managers in the world'. But this could not guarantee growth for their businesses in the longer term. Making companies thinner does not necessarily make them fitter.
This reaction to the inadequacies of the business survival strategies of the 1980s and early 1990s has prompted the search for a new approach. The easy option is to blame what went before. Downsizing and the use of slash-and-burn strategies are not just regarded as ineffective, but have become the scapegoat for today's problems. The new attempted solution makes a virtue of blaming what went before--speculative excess and a brutal shake-out--and simply argues for the opposite --a moral, considerate, responsible approach. 'Greed-is-good' capitalism is seen to have failed, so flip the record and give a spin to its opposite: caring capitalism.
The highlighting of 'people-centred' business strategies is another reaction to the problems of capitalism today. The slowdown in the pace of economic growth has been rationalised through a lowering of expectations of what is possible. Most importantly, capital investment-- the key to any genuine economic restructuring--is now disparaged. Current growth theories play down the role of technological change and instead emphasise the role of 'investment in human resources' (people) over physical ones (modern, advanced plant and machinery).
The long-term fall in capital investment, highlighted in the Bank of England Quarterly Bulletin earlier this year, is the most significant element in the continuing stagnation of the British and American economies. Yet there has been relatively little fuss made about it because the argument expounded by most apologists for capitalism is that investment does not matter so much any more. Unable or unwilling to sustain the levels of capital investment required to restructure the economy, they have defensively decided that it is not all that important anyway. Hence the fashionable cliché about people rather than capital being 'our greatest asset' and the obsession with education and training as a panacea.
The greater significance attached to issues of trust and loyalty also reflects the extent to which companies are now driven by a defensive survival strategy. Unable to expand much, they become dedicated to holding on to what they have. Hence the preoccupation with not staining your public image and endangering your market share. This motivates the desire to institutionalise customer loyalty. The humiliating announcement by Sainsbury (Britain's once top, but now ailing, supermarket retailer) of the launch of a loyalty card to emulate its competitors Tesco and Safeway is evidence of how seriously customer loyalty is taken these days.
In one sense, then, caring capitalism is a business strategy designed to ride out difficult economic circumstances. But it is more than that. Beyond the marketplace, the ubiquity of the idea of responsible capitalism is part of the wider search for a new morality, a set of values through which the capitalist elite can legitimise its position in wider society today.
The dominant mindset of the capitalist elite these days, especially in Britain and America, is uncertainty. Nothing seems to work as it used to. The exhaustion of past economic and political solutions to its difficulties has fostered a nervous and often exaggerated sense of being out of control. This comes at time when, unlike the last economic slump in the 1930s, nobody is seriously questioning the market principle. Capitalism seems to have seen off all opponents. Both the Soviet model and Western welfare socialism have been discredited, and China is introducing market relations as fast as it can.
The widespread recognition that society is in trouble today goes alongside the general acceptance that 'There is no alternative' to the market. This unprecedented situation has created both the necessity and the possibility for those who run capitalist society to experiment with a different approach.
Despite the lack of focused opposition, the authorities still need to cohere their own forces and legitimise their position in society around a clear set of values. However, in the depressed nineties, a system based upon money-making cannot be justified in the strident style of the eighties. Instead, the capitalists need to indicate that what they are doing is important and worthwhile by linking it to something more than cash. The image of caring capitalism and the inclusive stakeholder society fits the bill.
The absence of any serious questioning of the market today allows the elites themselves the scope to criticise the more extreme consequences of market economics--such as the huge gap between the richest and the poorest--without putting the money-making system at risk. It is not a social criticism of capitalism, but a moral criticism of the wrong type of capitalist. The problems of society are reduced to a question of capitalist culture, and the new brand of responsible capitalism is put forward as the solution.
Out of the uncertainty of the ruling elite, then, comes the demand for a new ethics and the fashionable preoccupation with issues like trust, social capital, loyalty and cultural values. The authorities yearn for a new set of rules or morals to regulate society under their control. The discussion about corporate culture, and the need for a socially responsible capitalism, is part of the attempt to fill the vacuum.
But does responsible capitalism work? What can it really do to improve things for the capitalists--and for the rest of us?
At first glance ethical business can appear good for business. Various companies noted for exhibiting the features of caring capitalism are successful, profitable concerns. For example, a survey conducted by the Shell corporation of the world's longest surviving companies--those in business for over 100 years--shows that they tend to be adaptable and tolerant, to share purpose and values with employees, and exhibit a sense of cohesion--all characteristics of the model caring capitalist.
Or take the role of public image--what the RSA calls the 'license to operate'. There does seem to be a correlation between socially responsible behaviour, a high public standing and the bottom line of making profits. This correlation is most obvious in the negative. If a company makes a big mistake--brings out a faulty product, is responsible for dishonestly sold pension policies, grants huge pay rises to directors, or is blamed for an environmental disaster --it can lose custom. Shell lost sales over the Brent Spar affair, when it was perceived as a polluter.
Not surprisingly given that recent bad corporate experience, a survey carried out this year showed that 70 per cent of Britain's biggest companies attach more importance to environmental issues than they did a year ago. Despite the fact that 52 per cent said that they were unaware of the 'business benefits of environmental investment', some 90 per cent said it was important to be seen as green, reflecting awareness of the customer relations benefits of appearing environmentally sound (Financial Times, 23 May 1996).
It is not simply that supposedly irresponsible, uncaring corporate behaviour can hurt profits. Companies with positive images, which have secured the 'license to operate', can be very profitable. Marks & Spencer, for example, has one of the best corporate reputations among the British public. It also had profits approaching £1 billion last year.
Some companies have built their success largely on their image as ethical outfits. The commercial success of Anita Roddick's Body Shop can be understood as a form of effective niche marketing; where other companies might sell their products by association with sex or sport, Roddick's pitch is as a friend of the Earth and Earth Mother. Richard Branson's Virgin empire has managed to pile up money while promoting itself almost as a non-profit-making community organisation. Branson has even managed to move into the eighties-style territory of selling financial services without tarnishing his reputation. Surveys of ethical unit trust funds also show that they tend to give above average performance--further evidence that green and ethical companies are among the more successful. (However, the green pitch does not work in every case. The National Consumer Council reported recently that many consumers thought environmentally friendly products were a con, more expensive and less effective than standard products.)
Bain & Co's loyalty-based management approach can also appear to work. The main objective is to reduce customer defection rates, otherwise known as churn rates. Reichheld shows that many big companies lose, and have to spend money replacing, up to half their customers every five years. He illustrates how cutting a customer churn rate by only five per cent can double your profits within a few years. Take two companies of the same size, both with a 10 per cent growth in customer base each year. If one company retains 95 per cent of its existing customers, its customer base grows by a net five per cent each year. This doubles the customer base over 14 years. The other company, with a 90 per cent retention rate--only five per cent less--has zero net growth, and struggles to survive.
On top of this, each loyal, longer-lasting customer is more profitable than searching for new customers all the time. Loyal customers do not need special introductory offers. They tend to get richer and spend more as the years pass. And because loyal customers make positive recommendations to their friends and colleagues they operate as a free sales team to win new customers. One successful US computer software company, Intuit, explained how it operated with a sales force of only two: 'Really, we have hundreds of thousands of salespeople. They're our customers.' (The Loyalty Effect, p49)
There is indisputable evidence that many successful companies are examples of caring and responsible capitalism. But it would be wrong to conclude that this ethical image explains their success. Evidence of a correlation does not establish a cause-effect relation. Proponents of responsible capitalism tend to confuse symptoms with causes. An 'inclusive culture' does not itself create a profitable company. However, a company which is profitable will, as a consequence, tend to exhibit certain characteristics which fall into the caring, inclusive, responsible category.
A successful company will tend to hold on to its employees and not need to engage in bouts of redundancies. It will have loyal customers because its products are good quality and competitive. It will hold on to its investors because they can see the benefits of sticking with a strong, profitable company. A profitable company will also be better able to introduce good environmental practice and provide services for the community.
Meanwhile companies in financial difficulty will tend to exhibit many of the features frowned upon today: short-termist, adversarial, conflictual, explicitly profit-centred, telling different things to different stakeholders--workers are regarded as costs to be reduced when addressing investors, and as assets to be nurtured when motivating the workforce to give more effort. All these are symptoms of a company's desperate attempts to keep afloat. But they are not the cause of the firm failing.
All we can conclude is that profitable companies will tend to be responsible, and unprofitable ones will breach many of the criteria of caring business behaviour. Outside a few niche markets, simply declaring yourself 'responsible' cannot ensure business success.
Today's experts might claim that 'relationships are the underlying source of competitiveness'. A more accurate picture is that profitable companies are better able to maintain a range of ongoing relationships. But the profitability tends to be a precondition for the caring image, not a consequence of it. Any idea that the strategy of responsible capitalism is a means to survive the slump is fundamentally flawed. Its popularity is much more to do with the peculiar search for new moral codes than with its practical benefits.
Finally, can the new responsible capitalism do any good for the rest of us? Many of us, for example, fall into at least one of the stakeholder categories--as workers--whose interests business is now supposed to serve. But it would be unwise to hold your breath while waiting to feel the benefits.
No code of ethics or consultative practice can transform capitalism into a system which provides us all with a decent life. The new moral outlook might be held very sincerely by industrialists and politicians, but the essential dynamic of making more money--the lifeblood of capitalism--has not changed. Successful companies succeed because they are effective in exploiting their workforce. Today's doubters about downsizing do not doubt this fact for a moment. They know their wealth comes from their employees' labour; which is why they claim to want to care for them more. Without workers, and without workers who are to some extent motivated, they cannot make profits.
Ultimately profits come from paying workers less than the new value which their labour creates for their employers. This is bog-standard, everyday exploitation. However benevolent--or, for that matter, mean- minded and vicious--an individual employer is, this is where the profits originate. Capitalists do not make their money out of thin air, but by exploiting those of us who have to work for a living. And all the usual underlying problems arising from capitalist exploitation are still around in the caring nineties.
But there are ways in which things are worse for us under 'caring capitalism'. As noted above, the new ethos is a response to the stagnation of the economic system. Capitalism is reaching the limits of the sort of growth where most people can benefit a bit. In America they are probably already there. Since 1973 the real wages of non-supervisory US workers have fallen by around 15 per cent. Only the changes in contribution levels for benefits like pensions and health insurance, and the rise in the number of double-income families, as more women work, has prevented the living standards of most American families from plunging.
As with most transatlantic trends this is now the trajectory in Britain, and in many of the weaker parts of the European economy. In Britain, despite the feelings of a more caring management, making profits relies increasingly on eating into our living standards. Over the nineties, at the same time that responsible capitalism has been gaining adherents, profits have been growing at the direct expense of workers for the first time in decades. Many have experienced a shift towards slower wages growth, longer hours, more temporary or part-time jobs, fewer perks and harsher working conditions. Employers might care more, but that changes nothing about the fundamentals of a market-based society. Over the caring nineties in Britain the profit share of national income has risen from 12 to 15 per cent, while the share going to income from employment has fallen from 67 to 62 per cent.
At the same time, the political climate of which caring capitalism is a part is one where workers are less well equipped to do anything about defending living standards. The ruling elite's loss of faith in its own institutions--which drives its search for a new moral agenda--parallels and interacts with the collapse of the old working class identity and the collective institutions which sustained it. We tend to live these days as isolated, atomised and vulnerable individuals, feeling less in control of our lives than ever. Workers have always lacked real power under capitalism, but in today's conditions our sense of powerlessness is enhanced. We respond as individuals rather than as part of a class.
At a time when we are encouraged not to trust our neighbours or our workmates, the irony is that the ideology of caring capitalism endorses the notion that the boss may be more of a friend than our fellow workers. Through the new emphasis upon issues like harassment and abuse at work, the caring managers with their codes of conduct are increasingly able to take on the role of arbiter and policeman among the warring workforce. Safety at work, for example, is being redefined today, from a problem caused by cost-cutting bosses which employees organised together to challenge, to a problem seen to be caused by other workers who smoke or crack dirty jokes, and against whom individuals ask the enlightened management for protection. The result is that the caring capitalists extend their influence over more areas of our lives inside and outside work, while our autonomy is further undermined, and our freedom restricted.
The process of capitalist exploitation has always tended, of course, to mess up our lives, especially at times of economic crisis. What is new is that, in the age of caring capitalism, we find ourselves less in control than ever in coping with the consequences of exploitation 1990s- style.
-----------------ends
>3) Which UK companies rely most aggressively on ethic advertising? I only
>came up with Body Shop advertisements last term...
Co-op bank
>4) - touchline Q - Any '90's British film on PR and advertising practices?
>Any help is most valuable...
'How to Get Ahead in Advertising' with Richard E Grant -- Jim heartfield