Book of the Week: Umair Haque’s New Capitalist Manifesto

“So here’s the twenty-first-century capitalists’ agenda, in a nutshell. To rethink the “capital” — to build organizations that are less machines, and more living networks of the many different kinds of capital, whether natural, human, social, or creative. And second, to rethink the “ism”: how, when, and where the many different kinds of capital can be most productively seeded, nurtured, allocated, utilized — and renewed. Put both together, and the promise is for companies, countries, and economies to climb to a higher level of advantage, to scale a steeper apex of achievement.”

* Book: New Capitalist Manifesto. Building a Disruptively Better Business, Umair Haque. Harvard Business Press, 2011

We’ve covered Umair Haque’s propositions on transforming capitalism before, and while we think that an infinite growth system is in essence incompatible with the survival of the biosphere, we applaud efforts to transform the corporate form and create an economy that is based on mission-orientation, i.e. provisioning, rather than profit-maximisation.

Here below, an excerpt from a review, followed by the author’s preface.

* 1. Excerpted from Sinan Si Ahir:

“Umair Haque approaches the fundamental question: Must profit always require economic harm? By comparing revolutionaries or “insurgents” (who are answering No) to foils or “incumbents” (fierce, historic rivals of revolutionaries) using an exhaustive study (through case studies, financial modeling, and interviews), he synthesizes the data to identify various new institutional cornerstones utilized by the insurgents.

The five cornerstones … invisible fixtures of everyday economic life: value chains as the means of production, value propositions as the means of positioning, strategy as the means of competition, protecting marketplaces as the means of advantage, and inert, fixed goods as the means of consumption.

– Twentieth-century capitalism’s cornerstones shift costs to and borrow benefits from people, communities, society, the natural world, or future generations. Both cost shifting and benefit borrowing are forms of economic harm that are unfair, nonconsensual, and often irreversible. Call it a great imbalance: not a transient event, like the “Great [insert ominous synonym here],” but an ongoing relationship, a titanic glitch in the global economy’s vast scales.

What I call deep debt is the harm institutionalized by the cornerstones of industrial era capitalism. It can be conceived of as debt owed to people, communities, society, the natural world, or future generations. Debt is simply shifted costs and borrowed benefits, from an economic point of view.

Twentieth-century (industrial era) capitalism is founded on competitive advantage, dumb growth, and thin value where the link between cornerstones & performance and institutions & returns is mere advantage.

Twenty-first-century (constructive) capitalism is founded on constructive advantage, smart growth, and thick value, which brings rebalance to the great imbalance. Constructive capitalists don’t just outperform, they redefine the boundaries of disruptive outperformance — they “minimize harm and maximize authentic, sustainable, meaningful value”. –

Cornerstones

Umair Haque explores the cornerstones of industrial era capitalism versus constructive capitalism:

– How production, consumption, and exchange happen — To utilize resources by renewing them instead of by exploiting them

* Industrial era Capitalism: Value chains

* Constructive Capitalism: Value cycles

Which products and services are produced, consumed, and exchanged — To allocate resources democratically and respond better to demand and supply shocks

* Industrial era Capitalism: Value propositions
* Constructive Capitalism: Value conversations

Why production, consumption, and exchange happen — To become more competitive over the long term instead of just blocking competition temporarily

* Industrial era Capitalism: Strategies
* Constructive Capitalism: Philosophies

Where and when production, consumption, and exchange happen — To create new arenas of competition (in their marketplaces), instead of just dominating existing ones

* Industrial era Capitalism: Protection
* Constructive Capitalism: Completion

What is produced, consumed and exchanged — To seek meaningful payoffs that mattered in human terms, not just financial ones

* Industrial era Capitalism: Goods
* Constructive Capitalism: Betters

The cornerstones of capitalism shift from chains, propositions, strategies, protection, and goods to cycles, conversations, philosophies, completion, and betters. -“

* 2. from the Preface by Umair Haque:

“In 1776, one man found himself at the center of a maelstrom. Hurricanes of change lashed the globe: growing markets, expanding international trade, a rising middle class, disruptive technologies, novel commercial entities. Yet, where his contemporaries saw chaos, Adam Smith saw hitherto unimagined possibilities.

In The Wealth of Nations, Smith envisioned with startling prescience a very different prosperity: one in which capitalists, not the mercantilists, aristocrats, and agrarians who had preceded them, held sway. Stop for a moment to consider the keenness of that insight. In 1776, horses provided power for carts and carriages. Steam-powered locomotives would not arrive until the next century. The economy’s central axis was households, not even medium-sized corporations.

Ownership of land, mills, tools, and rights was sharply concentrated in the hands of the nobility, and passed down through the patrician generations. “Joint-stock companies,” still new forms, required government charter or royal decree for incorporation and, until around 1850, had liability unlimited enough to land an unfortunate shareholder in debtors’ prison. The overwhelming balance of organizational power was still held by sprawling, storied guilds, like the City of London’s Worshipful Company of Ironmongers (or carpenters or cooks or mercers, to name just four). And the ruling dogma of protectionism saw laissez-faire thinking as alarmingly, dangerously avant-garde.

It was, in short, not a world in which the capitalist enterprise as we know it today might have been foreseen to flourish. Yet, by seeing through the maelstrom, Smith synthesized, in detail and with ruthless logic, his new vision of prosperity. Though many similar tomes followed, Smith’s masterpiece remains the original capitalist manifesto, the founding document of industrial era prosperity.

I’d like to pose a question: what if the future of capitalism will be as different from its present as Adam Smith’s vision was from its present? What if twenty-first-century prosperity differs from industrial era prosperity as radically as it did from its now seemingly prehistoric predecessor? Consider, for a moment, the striking parallels between Smith’s maelstrom and ours. Globally, the Internet has given rise to hyperconnection.

The nations formerly known as the third world have become a rising, roaring middle. Nascent technologies like cleantech and nanotech hint at hitherto unimagined possibilities. The “corporation” is mitotically dividing into many different kinds of commercial entities, whether social businesses, hedge funds, or “for benefit” corporations. Today, as then, the world is shedding yesterday’s skin.

I’m no Adam Smith, but I’d like to invite you to take a voyage with me. It’s a journey of imagination, where we’ll envisage production, consumption, and exchange through new eyes. It’s an expedition on which we’ll explore the zephyrs and siroccos that are reshaping profitability, performance, and advantage. And it’s a quest for insight into how commerce, finance, and trade might—just might—be transformed, and, more vitally, become transformative. Let’s stride boldly, as Adam Smith did, past the horizon of commerce, finance, and trade as we know them, venture off the map of industrial era capitalism—and explore the uncharted terra nova of tomorrow’s prosperity.

Why should you join me? Consider the following story. In 1494, a Franciscan friar published an unlikely blockbuster. Despite its awkward mouthful of a title, Everything About Arithmetic, Geometry and Proportion flew hot and fast off the Gutenberg presses. Describing the way Venetian merchants kept their books in order, Luca Pacioli formalized what we know today as double-entry bookkeeping—where every transaction is booked simultaneously in two different accounts so that debits match credits. Fast forward: in 1994, sustainability trailblazer John Elkington coined the term “triple bottom line” for an accounting system that booked transactions in financial terms as well as social and environmental ones. Half a millennium, five hundred long years, passed between the birth of accounting—and the first glimmering seeds of its rebirth.

Consider the steady breakthrough after breakthrough in every sphere of life. Jonas Salk’s polio vaccine, the Green Revolution of the 1960s, the transistor, and, of course, the Internet, to name just a few. But most of the cornerstones of capitalism have changed at a snail’s pace, if at all. In fact, they predate Adam Smith, whose genius wasn’t to invent them but, for the first time, to weave together the strands of their bigger story. The assembly line—today, called a value chain—was pioneered by Britain’s first industrialists in the eighteenth century. Shareholder value, sanctified in the 1980s by academics, is a clever spin on the eighteenth century’s rising joint-stock corporations. The corporation itself was born during the seventeenth century’s great age of exploration. Like the five-hundred-year gap between double entries and triple bottom lines, new cornerstones are rarely laid. Is it any wonder then that so many companies (and economies) are struggling to keep pace with the twenty first-century’s challenges?

Just as Giza’s pyramids have crumbled over the centuries, so cornerstones aren’t eternal and everlasting. It’s not too hard to see, for example, why an institution invented in the fifteenth century to keep the books of a handful of silk and spice merchants in order might not be the most accurate way to keep the global economy’s books in the twenty-first.

Vicious volatility, deepening scarcity, activist shareholders, power shifting to the people formerly known as consumers: they’re just a few of the new challenges testing yesterday’s titans—whether companies, countries, or people—and finding them wanting, revealing the drawbacks of cornerstones built in and for very different eras. Today, the tectonic plates are shifting, and yesterday’s weathered, worn cornerstones are beginning to crack.

You wouldn’t run your trading floor on terminals from1980. You wouldn’t ask your distribution fleet to use engines from 1950. And you probably wouldn’t use carrier pigeons to convey vital knowledge to your headquarters. Why then are companies, countries, and the global economy still anchored atop musty, tottering cornerstones? Because building new ones is an art in its infancy. This book isn’t just the chronicle of a new crop of world-builders. More deeply, it’s a guide to crafting the new cornerstones they’re learning to chisel.

My goal is to help you become a bellwether of twentyfirst-century capitalism, a master stonemason of new cornerstones, which, when sunk in today’s economic soil, yield strong, thick, long-lasting foundations. I’ll argue that institutional innovation, the art of carving them, is the key to building a higher level of advantage. I’ll sketch a blueprint you can use to conceive of—and then, if you wish, to construct—structures set on new cornerstones, that can yield not just more, but more powerful value.

That’s what this book is—and here’s what this book isn’t. Michelangelo, when asked his secret, answered: “Every block of stone has a statue inside it, and it is the task of the sculptor to discover it.” I can be a guide, mentor, and counselor, but I can’t discover what’s inside your stone. Though the pages that follow are filled with examples, this isn’t a call to go forth and imitate. I don’t want you to follow an example, but to be the example. My ambition is that you understand why innovators are carving new stones, what they gain from them, how each works—and then find the statue in your stone. My insight matters less than your vision, ambition, and passion. So think of this book not as a laundry list, but a toolkit. I can give you the chisel, hammer, wedge, and brush, but only you can be the sculptor. Here then is the lens through which I’ll ask you to discover the statue inside your stone. A capitalism where companies, countries, and economies reach a higher apex of advantage—one where bigger purpose rouses untapped human potential of every employee, customer, and future customer, instead of deadening it. One where fiercer passion makes innovation as natural as drawing breath, spontaneously combusting the spark of creativity instead of dousing its flame with lowest common denominators. One where deeper meaning replaces the drab grind of repetition with challenging and compelling work that elevates the soul.

Where more authentic power flows from shared principles instead of (yawn) sweeter carrots and heftier sticks. Where greater resourcefulness means being not the natural world’s conqueror, but its champion. Where higher-quality value is created by doing stuff of greater worth. And, ultimately, where companies compete not just to change the rules, but to change the world. These aren’t, of course, the idle dreams of stargazers. They’re the motive power of prosperity—the only resolutions to the relentless, lethal challenges bearing swiftly down on countries, companies, and economies. For that reason, they are the engines of twenty-first-century advantage.

This, then, is a handbook for idealists and pragmatists, for revolutionaries and hard-boiled realists. If you’re happy with the status quo, satisfied with the state of play, delighted by the incremental—put this book back on the shelf. If, on the other hand, you’re dissatisfied with the status quo, if you wonder about the ballgame of business as usual, if you’ve begun to see a gap between what capitalism has been—and what it can and should be—then this book is for you, not just to read, but to use.”

Reprinted by permission of Harvard Business Review Press. Excerpted from The New Capitalist Manifesto by Umair Haque. Copyright 2011; All rights reserved.

2 Comments Book of the Week: Umair Haque’s New Capitalist Manifesto

  1. Pingback: * Week 9 – Social Organisation | Copse272′s Blog

  2. Pingback: Blog 7 Arts3091 « MEDIA MUCH?

Leave A Comment

Your email address will not be published. Required fields are marked *