Free-enterprise capitalism is unquestionably a great system for innovation and entrepreneurship. It has harnessed and multiplied human ingenuity from which extraordinary innovations continually spring, to the benefit of billions of people. 200 years ago 85% of the world lived in poverty. Improvements delivered through free-enterprise and economic development means this figure is now significantly reduced. Since 1960 the South Korean economy has grown to be 260 times larger today, transforming it from one of the poorest countries to one of the most advanced. This is in stark contrast to North Korea.
There are elements of free-enterprise capitalism that rightly remain under attack. It is seen by some as a system that exploits workers, manipulates consumers, causes inequality and anxiety, fragments communities and destroys the environment. Good examples are the perception of the pharmaceutical and financial industries – which have fallen from grace in the public mind despite the crucial roles they have played in our evolution. Capitalism is a dividing subject, and as an intermediary between profitable business and conscious investors, Ethical Investment Services confronts this on a daily basis.
Many businesses still operate with a low level of awareness about their impact and role in society. They think in short-term trade-offs by focusing narrowly on profit maximisation. Profit is crucial as it attracts finance, stabilises operations, provides for innovation and creates incentive. Yet when it becomes the sole purpose it robs a business of being able to engage and connect with its deeper place in society, which often leads to material negative externalities. Profit maximisation as a primary purpose of business has done enormous damage to the legitimacy of business and capitalism. It comes from a narrow view of human nature and an inadequate view of the meaning of successful business.
Entrepreneurs are the heroes of free-enterprise capitalism. With few exceptions entrepreneurs who start successful businesses don’t do so to maximise profits. Yes they want to make money, but their motivation comes from deeper personal values and an inspiration to do something they believe needs doing. An evolved, conscious business is one that holds onto a deeper inspiration and views itself as an agent for creating multiple kinds of value for all the stakeholders they touch – the employees, customers, suppliers, investors, the community, their industry, and the environment. Instead of looking for short-term trade-offs, a good business will have the intent to look for synergies amongst these stakeholders.
Business has a much broader positive impact when a higher purpose than profit alone is at the forefront of decision making. An articulated purpose beyond profit maximisation creates an extraordinary deeper level of engagement amongst stakeholders. Many forms of value are created through such an integration of purpose – financial, ecological, social, cultural, emotional and intellectual. A multi pronged win win approach based on deeper purpose energises all stakeholders. Therefore a good business will constantly ask the question – what is our purpose beyond profit – and then continually seek to operate according to that. It is no surprise that not for profit organisations with clear purpose are experiencing huge rises in the number of volunteers. They fill a void left by business on several fronts.
There is much research that shows companies with high levels of engagement in their social, environmental and governance issues generate longer lasting financial performance. The investment filtering process used at EIS identifies these companies and recommends them for your portfolios aiming for a genuine WIN on a range of levels.