Rescuing Capitalism from Itself

I’m still recovering from bypass surgery. The third TWOG on managing health care is intended to appear next week. In the meantime, I post here a piece that was originally published on HBR.org last week and is adapted from my book Rebalancing Society…Radical Renewal Beyond Left, Right, and Center (Berret Koehler, 2015). I’ve TWOGed several times on this, but I feel that this version says it best.

In 1989, as the Berlin Wall fell alongside communism in Eastern Europe, pundits in the West proclaimed the triumph of capitalism. The American historian Francis Fukuyama even declared “the end of history,” writing in National Interest‘s summer 1989 issue that he saw “the universalization of Western liberal democracy as the final form of human government.”

It has not worked out that way. Since 1989, the United States has experienced some alarming changes, for example the massive infiltration of corporate money into public elections, disquieting levels of corruption in business, rising income disparities, and the decline, of all things in this country, of social mobility. America is having a tea party all right. It’s for large corporations, under the slogan “No taxation with representation.”

Meanwhile problems across the globe continue to fester, with turmoil in the Middle East and numerous democracies on the wane after years of being on the rise. And then there’s global warming.

Of course, many people recognize these problems. In the United States, the inclination has been to fix capitalism, mainly with proposals for what I call adjectival capitalism: Sustainable Capitalism, Caring Capitalism, Inclusive Capitalism, Conscious Capitalism, and others. The assumption seems to be that if only we get capitalism right, all will be well with the world. Fukuyama’s end of history will finally be realized.

No doubt capitalism needs fixing, and we can certainly do with greater corporate social responsibility. But let me ask this question: how did a word coined to describe the funding of private enterprises become the be-all and end-all of human existence?

The Problem With a Two-Legged Stool

What I believe needs fixing is our perception of society. In a sense, we have been seeing it as sitting on a two-legged stool. One leg represents public sector governments and the services they provide for the common good, such as education, defense, and a transport infrastructure. The other leg represents private sector businesses and the resources they mobilize for the provision of our commercial goods and services.

But no stool can balance itself on two legs, let alone one, whether public or private. Even the democratic countries are experiencing increasing political dysfunction: either pendulum politics, namely the fruitless swinging between left and right, or else paralysis in the political center. Both abet the current imbalance.

Society needs a third leg for balance. I call it the Plural Sector. You may know it as “civil society,” or the third sector, or the home of NGOs and not-for-profit organizations. But if it is to take its place alongside the other two sectors, it requires a label that fits with theirs: public, private, plural.

The plural sector comprises all those associations, many community-based, that are owned neither by private investors nor by the state itself. Some are owned by members, others by no-one.

Consider all the member-owned cooperatives. The U.S. alone, with 320 million people, has 350 million cooperative memberships. As for non-owned, consider the Red Cross, or Greenpeace, or any of America’s most respected hospitals and universities.

Also prominent in this sector are social movements, for example the Salt March that eventually led to Indian independence, and the social initiatives that are driving so many constructive changes these days, from the Grameen Bank for the micro-financing of the poor to the Khan Academy for the extension of free education. It is quite remarkable how inclined people are to organize voluntarily, in order to share their common interests and pursue their common dreams.

The Plural Sector

The concept of the Plural Sector has an interesting pedigree. In the early 19thCentury, Alexis de Tocqueville, the perceptive European observer of the emerging United States, described the propensity of Americans to band together in what he then called associations, both formal and informal. He believed that these associations were a key element in the emerging democratic nation: “if men are to remain civilized or to become so, the art of associating together must improve.”

Has it? It has certainly grown: today the plural sector is huge, and probably prominent in your own life. How many of its associations have you interacted with in the past week alone: shopping at a local co-op, driving the kids to a “private” school, playing on a local sports team or joining a group to bring in a refugee family?

Yet this sector gets lost amidst the great debates over left versus right: private sector markets versus public sector governments. This has to change for the sake of balance in society.

In a healthy society, each of the three sectors cooperates with the other two while helping to keep them in check. When one sector dominates, society suffers. Too much power in the public sector results in state despotism, where public officials constrain private freedoms. Communism tried to sit on this one leg, and collapsed. An unfettered private sector results in the kind of income disparities and corporate social irresponsibilities that we are now seeing in the United States and other countries. And an overly powerful plural sector can create a populist tyranny where one community group overpowers all others.

The United States long balanced itself on all three legs: this has been central to its remarkable success. Indeed, the major progress in the four decades following World War Two — social and political as well as economic — was accompanied by significant welfare programs, high personal taxes, and a rather egalitarian distribution of income.

Then the Berlin Wall fell, and America has been going steadily out of balance ever since. You see, capitalism didn’t triumph in 1989: balance did. The Eastern European countries were utterly out of balance, on the side of their public sectors, while the U.S. was relatively balanced. But a failure to understand this has been throwing the county out of balance ever since, on the side of its private sector. Capitalism may not have triumphed in 1989, but it has been triumphing ever since.

Finding Our Balance

How then to restore balance, in the U.S. and so many other countries that have followed suit? Certainly necessary is restored respect for the role of government in society, not least from its own elected officials, as well as greater corporate social responsibility. But these alone will not do it.

I believe that in a world with private sector forces so influential, especially in the global arena, and with so many governments overwhelmed by this, the plural sector has to play the central role in the restoration of balance. It has to push governments and corporations to act dutifully while waking all of us up to the dangerous realities that we face: the degradation of our environments, the demise of our democracies, and the denigration of ourselves.

We have hardly lost our propensity to associate: consider all the community-based social initiatives that we see around us right now. And then there are all those formal associations that have the autonomy, the energy, and the inclination to drive necessary changes: Greenpeace. Amnesty International, Doctors Without Borders.

Yet Robert Putnam has characterized contemporary American society as tending to “bowl alone.” And that, arguably, includes the associations of the plural sector. Greenpeace concerns itself with the environment, Amnesty International with human rights, and Doctors Without Borders with health care. In this respect, like businesses, they differentiate themselves into many missions.

When it comes to common cause, however, businesses get their collective act together. For example, they use their chambers of commerce to lobby for tax cuts. Associations of the plural sector are less inclined to do so. Compare the influence of the World Economic Forum with that of the World Social Forum. (Have you ever even heard of it?) Or compare the international cooperation in 1987 that generated the Montreal Protocol to address the ozone layer with the lack of progress on global warming in recent years.

And so, despite all the good that some of these associations do, society continues its dangerous march toward imbalance. These plural sector associations do have common cause: to challenge the imbalance that is at the root of many of the problems that they address. What they need now is common organization. But that too will not suffice.

What, then, can we do about this? This is the right question, because the plural sector is not “them.” It is you, and me — each of us and all of us. More to the point, it is we — as engaged actors, not passive subjects. We “human resources” have the capacity to act as resourceful human beings.

We may work in the private sector and vote in the public sector but much of our lives are lived in the communities and associations of the plural sector. Grand global conferences may play a role, but real change will have to begin at home, and from there, thanks to the new social media, spread across the globe, to mobilize our efforts for the sake of our planet and our progeny.

In his 1776 pamphlet “Common Sense,” Thomas Paine declared to the people of the American colonies that “We have it in our power to begin the world over again.” Paine was right then. Can we be right again now? Can we afford not to be?

© 2015 Henry Mintzberg