Why we need a restorative economy

Capitalists are capitalism’s worst enemy’, wrote economist John Kay – ‘and particularly the market fundamentalist tendency which has been in the ascendant for the last 20 years.’ Kay adds: ‘Once we appreciate the historical anomaly of the post-war moment, we might see the capitalism of our own day in a proper light. With its imperious bosses, its overworked employees, and its benediction of uncomplaining servility to the prerogatives of money and power, the ‘new capitalism’ emerges as the same old monster it always was, just larger, faster, and colder at heart than ever’.

A nonlinear world needs new rules

The reason why we need to transform

There is an urgent need to transform: Our institutions, organisations and economies were conceived, designed and built for a simpler more linear world. Overwhelmed by the dynamics of change, institutions, organisations and economies have become disrupted and unsustainable. There is an urgent need to transform our societies, organisations and economies by better design to thrive in what I call a “non-linear world”. A non-linear world has significant implications for leadership, strategy, and innovation – the design of organisations and economic models as a whole. But, Martin Wolf (Chief economics commentator, The Financial Times) argues there is not enough political traction to create the necessary conditions to bring real momentum to this need to transform. I am not entirely convinced about this. Because the middle ground, the middle class – the average person needs to feel that things are moving forward. It is when this fails real social and political unrest unfolds – as it is currently doing.

Writing  in Has Capitalism Reached A Turning Point? Steve Denning writes, This call for a Reformation comes from distinguished pro-business voices in the world—the heavy artillery of capitalism itself. The critiques and the calls for change are many and simultaneous. Big-gun broadsides are coming all at once. Third, these thought leaders are not speaking in euphemisms or hedging their bets. These are flat-out denunciations of, not just one firm, but the whole management culture that prevails in big business. Phrases like “stock price manipulation” (HBR), “corporate cocaine” (The Economist) and “zombie managers in the grip of management ideas that refuse to die” (Financial Times) are typical.

This is in fact requires some major re-engineering of how our economies and societies work. So what might a more restorative economy look like. Is Capitalism in crisis? Well according to the great and the good – but the blame however is placed at the door of governments not corporations – who no matter how badly they fail then look to the tax payers to bail them out from their various moral and technical falls from grace.

Of particular interest is the need for Pension Funds to become part of the solution demanding companies operate in certain ways, plus the need to encourage the creation of a new finance and banking system. My take on this is when institutions fail – people learn to get what they need from each other – maybe we are just at the point here where there is enough failure that we do start to conceive, then build a new financial system?

The systemic failure of metrics that only measure the short term: The next point is the failure of metrics that only look at the short term for innovation a metric dictated by the financial sector. Further short-termism results in business may be characterised both as a tendency to under-investment, whether in physical assets or in intangibles such as product development, employee skills and reputation with customers, and as hyperactive behaviour by executives whose corporate strategy focuses on restructuring, financial re-engineering or mergers and acquisitions at the expense of developing the fundamental operational capabilities of the business. (The short term myopia of equity markets).

Having worked on many large innovation projects I can fully appreciate this observation from first hand experience. The point is we need a metric that looks towards the longer term and not be bound by quarterly  numbers.

From creating net value to trading net value: another market truth was the swing from creating net value to trading net value. In reality a zero sum game. A new product or service is conceived to serve the collective good – it generates revenue and creates employment vs. hedge fund managers trading value in a winner takes all game.

The end of command and control: Vineet Nayar is an Indian business executive, author and philanthropist. He is the former CEO of HCL Technologies, founder of Sampark Foundation and author of a management book “Employees First, Customers Second: Turning Conventional Management Upside Down” (Harvard Business Press, June 2010).

His observations on performance, and therefore business performance by putting employees first before customers are illuminating. Nayar defied the conventional wisdom that companies must put customers first, then turned the hierarchical pyramid upside down by making management accountable to the employees, and not the other way around. By doing so, Nayar inspired and empowered employees and customers and set HCLT on a journey of transformation that has made it one of the fastest-growing and profitable global IT services companies of its time, and, according to BusinessWeek, one of the twenty most influential companies in the world. His key points were,

  • Creating a sense of urgency by enabling the employees to see the truth of the company’s current state as well as feel the “romance” of its possible future state
  • Creating a culture of trust by pushing the envelope of transparency in communication and information sharing
  • Inverting the organizational hierarchy by making the management and the enabling functions accountable to the employee in the value zone
  • Unlocking the potential of the employees by fostering an entrepreneurial mind-set, decentralizing decision making, and transferring the ownership of “change” to the employee in the value zone

Journey further

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Beautiful Business helps people, teams and corporations deliver authentic, profitable restorative businesses through our Beautiful Leaders and Makers programmes, training as inspirational learning, and mentoring. For more information on how we can help contact hello@beautiful.business

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