Opinion

Chrystia Freeland

Are businesses adding to the common good?

By Chrystia Freeland
May 13, 2011

Roger Martin is an unlikely revolutionary: He is the dean of the Rotman School of Management, the business school at the University of Toronto, he sits on blue-chip corporate boards, and he has worked as a consultant for big, traditional companies like Procter & Gamble and General Motors. All in all, very much the résumé of a pillar of the corporate establishment. (Disclosure: I am a member of the Rotman School’s advisory board.)

But this month, Martin has published a book whose gentle tone belies its seditious content. Here’s what is radical about Fixing the Game: Bubbles, Crashes and What Capitalism Can Learn From the N.F.L.: Instead of asking how businesses can organize themselves to be more effective and more profitable for their shareholders, Martin wants to figure out how society should organize business to be more effective for all of us.

The corporate intelligentsia — business school professors, management consultants and many of us scribblers and squawkers of the business press — focus nearly all of their attention on the first question. That is a perfectly worthy subject. Indeed, the huge and continuing improvements in business productivity over the past 200 years have made more of us richer and healthier than human beings of the previous two millennia could have imagined.

That’s why there is such an avid audience for thinking about how to run your business — whether it is a public company, a start-up or your own career — better. And this type of work has the further virtue, for both its practitioners and its users, of not really threatening anyone. It is technocratic, not political, and it often offers the additional feel-good fillip of a practical path toward improvement. It is a universe of engaging stories and ultimately uncontentious outcomes — think of the wildly popular oeuvre of Malcolm Gladwell.

Even the harder edge of the business commentariat — muckraking journalists, for example — operates largely within this paradigm. The questions we usually ask are about whether laws were broken or investors were deceived.

But the business world also presents an entirely different set of issues: how well the existing rules are working for the common good. This is a deeply political question, and it is a central preoccupation of politicians and policy makers.

But inside the business community? Not so much. That is more than a shame. It is dangerous, because surely the lesson of 2008, and maybe even of 2001, is that the U.S. version of capitalism contains some serious systemic flaws.

The power of Martin’s book is that he steps outside of our existing paradigm to ask whether the rules of the game are working for the system as a whole. That’s a departure for Martin, whose previous writing and consulting work was mostly from the more traditional — and safer — perspective of how to make your company work better within the existing order. Venturing onto this more controversial terrain is a risk for Martin, and he knows it.

“This book represents a departure from my previous three books in that they were largely devoid of criticism,” Martin writes. “In this book, I am critical of some institutions (for example, hedge funds). However, I want to be clear that I bear no ill will to the people inside them.”

That final sentence is sure to enrage the guillotine crowd, whose chief complaint about the aftermath of the financial crisis is that not enough of the guilty have been punished. If that is your view, Martin’s discomfort about naming and shaming may seem like a cop-out.

That couldn’t be farther from the truth. While Martin’s approach may be less viscerally satisfying, it is actually more radical. The central insight of his book is that the rules of capitalism aren’t about God-given rights à la Hayek, Ayn Rand or the Tea Party. They are a social construct, and it is the right — indeed the duty — of society to ensure that they are working for the common good.

Martin’s unifying metaphor — and here I do see a reach for the best-seller list — is a comparison with the National Football League. The league’s commissioners, he argues, are constantly tweaking the rules of the game to ensure the right collective outcome. When a brilliant coach or player devises a technique to strengthen defense, for instance, the commissioners alter the rules to offset that advantage. Capitalism’s rule makers, Martin believes, must be likewise perpetually alert to these sorts of business innovations — the kind of thing lionized in the traditional business advice best seller — and change the rules of the game to neutralize their impact.

Martin has stuck to the business book convention in one way — notwithstanding his jabs at a few business titans (notably Jack Welch of General Electric and the hedge-fund giant Stevie Cohen), his is ultimately a sunny, can-do tone. “In doing so, we can restore the core of business and capitalism.  We can fix the game — until the next time we need to tweak it!” he concludes with a jaunty exclamation point.

Those of a more skeptical bent should follow Martin’s book by reading an essay by Tyler Cowen, the prolific and provocative libertarian economist, published earlier this year. His theme is income inequality, and he concludes with the scary thought that the rise of the knowledge economy, and of superstar salaries for its gladiators, may mean that the players will permanently outfox those charged with tweaking the rules to keep them in check.

“It is naïve to think that underpaid, undertrained regulators can keep up with financial traders, especially when the latter stand to earn billions by circumventing the intent of regulations while remaining within the letter of the law,” Mr. Cowen writes. “That’s an underappreciated way to think about our modern, wealthy economy: Smart people have greater reach than ever before, and nothing really can go so wrong for them. As a broad-based portrait of the new world, that sounds pretty good, and usually it is. Just keep in mind that every now and then those smart people will be making — collectively — some pretty big mistakes.”

Good luck mustering the political will to keep them in check.

Comments
15 comments so far | RSS Comments RSS

The American Capitalist system works and is what the United States is all about. We are not a Socialist society and many brave Americans gave life and limb to maintain our Capitalist Society.

The Unites States is not a FAIR country and was never intended to be. Capitalist rewards those who choose successful patterns of life and relegates those who do not choose the hardworking and sacrificial energy needed to succeed, to various levels of servants to the system.

To be successful one must dedicate ones self to education, development of common sense through experience and trial and error risk taking. For one to step up the ladder, one must be willing to put forth the effort to make your company to succeed and make your bosses successful.
Those choosing to just pedal along, will just pedal along at no fault except their own.

Union membership is a great example of pedaling along. Everyone performs the same therefore no one excels for fear of retribution.

Having a company manage their business to best suit society is worthy of political revolt. Socialism, Marxism nor Communism work in a society where a large percentage of people refuse to contribute.
America will always be a country of Have and Have nots. It is our wonderful way of life.

I will go to war to support continuing our Capitalist Society and our way of life. I like working harder and smarter that others and acquiring more as a result. Do not even try to take that away from us.

Posted by randyj | Report as abusive
 

There is a lot wrong with the economies of the western world that does need fixing. Do we really need poverty in the western world in the 21st century? Do young people really need to flip burgers for life experience as Bill gates suggested. It is time to think differently. It is time for companies to adopt policies that are in the public interest and possibly in the global interest. China is already looking to do this although they have a long way to go. The young people of China in the universities have good ideas for change and we will see it in a few years. We could perhaps do even better in western economies, if we had the will to do so.

Posted by Mike10613 | Report as abusive
 

“It is dangerous, because surely the lesson of 2008, and maybe even of 2001, is that the U.S. version of capitalism contains some serious systemic flaws.”

Yes, it does because the “U.S. version of capitalism” is no longer capitalism.

Posted by JTinCO | Report as abusive
 

The dual approach to corporatism may have worked for America in the late 40′s and 50′s, but the nominal focus after the 70′s has been on efficiences that contribute to profits, bigger profits, and more profits. The metastable communal partnership between corporations and the employees has been supplanted by incentivized individualism, and the community has been devolving to a less cohesive state.

Posted by SanPa | Report as abusive
 

As the author suggests in her closing sentence, it is not a matter of whether or not the regulators have the skills or knowledge to keep up with financial traders.

The financial traders have friends in Congress who help them “fix” the game and I’m not referring to the “repair” definition of “fix”.

Posted by breezinthru | Report as abusive
 

You write that business is doing “Not so much” about ensuring that “the existing rules are working for the common good.”

What do you think about initiatives like the Global Reporting Initiative or the UN’s Principles for Responsible Investment, which Thomson Reuters signed last year?

There does seem to be a lot talk and even action about sustainability by investors (approx. 6 trillion EUR AUM in SRI funds), which should hopefully make a difference.

Posted by JeffWild | Report as abusive
 

You write that business is doing “Not so much” about ensuring that “the existing rules are working for the common good.”

What do you think about initiatives like the Global Reporting Initiative or the UN’s Principles for Responsible Investment, which Thomson Reuters signed last year?

There does seem to be a lot talk and even action about sustainability by investors (approx. 6 trillion EUR AUM in SRI funds), which should hopefully make a difference.

Posted by JeffWild | Report as abusive
 

This is another weak attempt to capitalize on the current pop culture outlook on business.
The truth is that the government is as responsible if not more responsible for current recession. To have them more involved in business is ludicrous.

The government created the problems and now they want to run in and blame others and try and correct their own mistakes.

Posted by Andrew150 | Report as abusive
 

Is this a reasonable suggestion considering the turmoil that the NFL and the Player’s Association is dealing with at this time? I think another model might be more in keeping with common sense in this time frame.

Posted by Wassup | Report as abusive
 

I’m a little bothered by some of the insinuations here.

First of all, the position detailed in Martin’s book is neither radical nor political. People have been asking these questions since the industrial revolution, since slavery, since the birth of agriculture. If we centralize our efforts and put the good of all in the hands of a few, how can we maintain the individual rights we all believe in? The answers to that question have come in staggered improvements that we can see in minimum wage laws, unionized labor, and a hundred other regulations created by the government or the people to keep businesses in check.

However, as the article mentions, powerful corporations today are becoming harder to control. But this leads me to my next criticism. Cowen implies (or directly states) that these businesses are getting more powerful because the people who work there are smarter than the people trying to regulate them. This is simply not true. There are smart businessmen and dumb businessmen, just like regulators, politicians, journalists, activists and voters. We all have our passions, our areas of expertise, and our mistakes. Businesses are not getting more powerful because they’ve gained a monopoly on intelligence; they’ve gotten this way through accumulated wealth and growth. They are larger than our government. They have more money that the rest of us combined. The truth is, the one weapon we have left to fight them with is our wits. I suggest we it.

Posted by TrueIronPatriot | Report as abusive
 

We don’t need Roger Martin, nor do we need Chrystia Freeland to babble in todays media for their sake of exploiting the media for riches. Yes, it is as plain as the nose on your face that the sake of business is for businesses sake and not for country, liberty, and the pursuit of happiness. We the people are taking a back seat and that has been going on for a long LONG time. We are so vane america, meaning those who see only self in reality today. There are many who take a back seat and wait to throw those out of the front seat, including those who represent good business for good business sake. We are waiting for the prosecution of the criminal business minded that recently stole america. Lower case “a” because america is not the primary cause any longer or is it?

Posted by Kimano | Report as abusive
 

Bingo. Slowly it dawns on us its madness that by eating the seed corn we can profit. Business has no reason to exist unless it enriches it’s employees, it’s customers and the community as a whole. To enrich but a few at the expense of all is robbery. Like oil and coal companies making billions in profits for shareholders but degrading the atmosphere and the environment of everyone including those same shareholders. Where is the profit?

Posted by arcoknuti | Report as abusive
 

Read Paul Farrell. American Capitalism has destroyed
America.

Posted by Effie | Report as abusive
 

The amount of “good” that corporations will do is dependent upon shareholders and consumers. Boycotts are wonderful tools, far superior to weaponry. By joining endtheoccupation.org and/or supporting the boycotts of terrorist supporting companies, social good could be obtained.

Posted by desonmeloren | Report as abusive
 

The amount of “good” that corporations do? You mean tax write-offs, outsourcing, political buyouts, come-on lets speak of the people and not the corporate wealthy. Baaa Baaa! Capitalism is dependent upon the righteousness of America as opposed to America is dependent upon capitalism. We are a people of faith in its own as a whole not of segmented, fragmented zealous fools who perceive there own selfish fame. Capitalism is not the enemy but creating the empires that hide behind the political savy to promote corporate entities who look down on individual independence. Let’s stop talking for the sake enjoying ourselves. How long must we continue to look the other way. I know it takes more than one. We don’t need global entities we need individuals who can commit to truth.

Posted by Kimano | Report as abusive
 

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