Sunday, October 23, 2016

The Answers on Democracy (Clinton vs Trump) and Capitalism - Adam Smith Capitalism: Capitalism Done Right!

First, Democracy and The 2016 Presidential Election in the United States

Two Harvard professors, John Kotter and James Heskett, ended their 1992 book Corporate Culture and Performance with this strongly worded guidance on leadership: “….if leaders do not have the hearts of servants, there is only the potential for tyranny.” While the context and primary focus in their book was corporate leadership, the guidance applies across all sectors of society.

Donald Trump personifies leadership that does not “have the hearts of servants.” He clearly does not have the heart of a servant. Therefore his potential, as is clear through his own self-descriptions and his behavior, is to be a tyrant. Of course, this tyrannical characteristic fits well with misogyny and narcissism. His essence is made of this stuff. He might be able to “act” presidential for a moment or two, but his essence is tyrannical.

Hillary Clinton has her own flaws. But, she has also demonstrated thoughtful and decisive leadership in her experience as a public servant. This experience will let her be up to the job from the very first day on. She has the mind, soul and heart of a servant. For this reason and so many others on display during this 2016 campaign, the decision makes itself – Hillary Clinton is the only choice.

 She is head and shoulders above Donald Trump as the best person for the job.

Segue - Second, Getting Capitalism Right: Through Adam Smith’s Teaching, Properly Applied

The narrative on this second subject (Capitalism done right – Adam Smith Capitalism) is in clear contrast to the Trump essence. Adam Smith gave us a model for local and global value creation that is other-focused, with self-interest value creation as a dependent function of being truly other-focused. He really described and endorsed the essence of servant leadership before these words were ever used to name it.

So much has been written and discussed about capitalism over the last 35 years that one might think we have come to the place where it has been addressed enough – that there is no more to say. Many ideas for improving it have been offered – some in response to instances of companies that have seriously misused it and some in reaction to the 2007-’08 great recession. Nevertheless there seems to be general agreement that it remains the single best economic system ever created.

The ideas that have been offered for improving it include a. Conscious capitalism, b. Creative capitalism, c. Triple bottom line capitalism, d. Creating shared value capitalism, e. Sustainability capitalism, and more. While there are surely several reasons why improvements have been offered, a theme running through most is that free enterprise capitalism is subject to manipulation, as in the characterization of capitalism in the United States as ‘crony capitalism.’ Milton Friedman said that the purpose of a company is profit, self-interest value maximization – greed.

What did Adam Smith intend (in The Wealth of Nations and The Theory of Moral Sentiments)? What might he think about the ways that his teachings are being variously applied? And, did he have it right? And if he had it right, what if anything does that mean for local and global economic (capitalist) systems of the 21st century? Remember, after all, that Adam Smith is universally recognized as the father of modern economics and of capitalism. Here are four quotes that summarize his teaching for us:

n   “The property which every man has is his own labour; as it is the original foundation of all other property, so it is the most sacred and inviolable…To hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbor is a plain violation of this most sacred property.”

n  “How selfish soever man may be supposed, there are evidently some principles in his nature which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”

n   “Man was made for action, and to promote by the exertion of his faculties such changes in the external circumstances both of himself and others, as may seem most favourable to the happiness of all.”

n   ‘He is certainly not a good citizen who does not wish to promote, by every means of his power, the welfare of the whole society of his fellow citizens.’

It is as clear as can be that he connected focus on others with focus on self. He gave us an axiom that connects self-interest and other-interest.

Our Translation of the Adam Smith Axiom

The Smith axiom connects self-interest and other-interest as a theory of everything for economic and societal behavior. Here it is:

a. Self-interest value maximization is a direct function of optimization of the value provided by an organization (and a person) to each of that organization's (and person’s) primary stakeholder groups – each relative to the others.

b. Here is the same idea expressed as a formula:  IVM= f (S1VO, S2VO, …SNVO). 

c. That is, a business will maximize its own long-term value when it devotes its time, talent and treasure to optimizing the value it provides to each of its primary stakeholder groups, each relative to the others.

d. The primary stakeholder groups for virtually all companies and all persons are: 1. Customers, 2. Employees, 3. Investors, 4. Suppliers, 5. Communities where it has a presence and 6. The general public interest. Sometimes the names are different but these are the primary groups whose lives every company (organization) significantly affects.

 Certain complementary concepts are integrally related to this paradigm. They help get capitalism done right – including income inequity minimization, poverty minimization and solutions to job/employee dislocations locally and globally. The complementary concepts are only listed here. The detailed presentation that explains their essential connection to the paradigm is available but can wait. The key is that the outcome will be commercial and societal long term value maximization – in all local economies and the global economy.

These concepts are: 1. Universally treasured unalienable rights, 2. Ubiquitously held core virtues precious to all peoples, 3. Finite sets of valued things for each primary stakeholder group, 4. Gold standard leadership and cultural characteristics for all organizations, including governments, 5. Robust understanding and action on fiduciary responsibilities and 6. Ethical behavior always.

All of this is of course accompanied by an adaptive and actionable strategic planning process. The SEC quarterly reports by corporations in the United States are primarily focused on the financial condition of a company (the investor primary stakeholder group).The SEC reports and all regular reviews of company financial health must be complemented by quarterly reports on progress toward goals for each of the other primary stakeholder groups as well. That is how optimal value improvement can be obtained for each primary stakeholder group – and long term value maximized for the organization.

There is more. When we enlighten current leaders and students (upcoming leaders) about how to get economies and societal institutions (like governments) right, they will rejoice at the value creation results that will flow from adopting Adam Smith Capitalism. It gets capitalism right.