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Volcanoes are erupting in The Philippines, but on-fire Australia received some welcome rain. The Iran war cries have been called off and The Donald’s military powers are about to be hamstrung by the Senate. Meanwhile, his impeachment trial is starting, and we’re all on Twitter for a front-row seat.


It Doesn’t Have to Be This Way: Rethinking Today’s Capitalism

Just because the capitalism we have now is risky and rapacious doesn't mean that we can't change it for the better—with the help of some lessons from the past.

At its worst, today’s capitalism is risky, reckless, and rapacious, unmindful of its impact on society and addicted to the motto that more is always more. Surrounded by these conditions, we might forget that it doesn’t have to be this way—today’s capitalism is just one of many capitalisms, and we can choose to swim in new waters instead.

Here, The Progress Network (TPN) Founder Zachary Karabell comes together with TPN Member Gillian Tett, editor-at-large for the Financial Times (US), to imagine what a more sustainable and human capitalism might look like, drawing from their new books Inside Money: Brown Brothers Harriman and the American Way of Power and Anthro-Vision: A New Way to See in Business and Life.

They discuss which lenses and structures would better serve the corporate world in order to better serve society, what we can learn from responsible companies, and how to cultivate a more balanced culture so that the capitalism that defines our present isn’t the one that defines our future.

Watch the entire conversation below or read an extract, which has been lightly edited for brevity and clarity. The discussion was filmed on June 10, 2021.

Gillian Tett (GT): One of the things anthropologists are interested in is creation myth. Any society has an elite who will remain elite not just by virtue of controlling the means of production and money, but by shaping how people think. As part of that, some kind of creation story is useful in terms of propping up the elite and reproducing the status quo.  I say “useful” not because this is necessarily done as a plot, but because patterns develop that happen to support the elite, and those patterns get reproduced over time. 

Looking at the bankers in 2008, and originally in 2004—and I tell this story at some length in my book—what struck me was that they were a self-enclosed tribe doing stuff that no one else understood. They were a bit like the priests in the Catholic church in medieval Europe: they spoke financial Latin, and nobody else understood it. They had confidence in what they were doing because, for the most part, the congregation sat there and dumbly accepted the fact that they spoke financial Latin, and they knew that the congregation didn’t understand it. The creation myth was that we’ve had this innovation wave. We’ve created these products for repackaging risk. We’re slicing and dicing everything, and it’s making everything safer. And therefore, it’s going to be fine. It wasn’t a deliberate con in the sense that people were conning others to believe it. They half-believed it themselves. And the most powerful way to control things is to create patterns that people are not completely aware of.

Subsequently, I realized there were some glaring intellectual errors at the heart of this creation myth. For example, the financiers would always say that they had a mark-to-market accounting system, which means that all values are supposedly marked to market prices. In reality, most of the stuff was never traded because it was too complicated. So the accountants would basically rely on model-based prices to value things on their balance sheet, which was a complete contravention of the theory and the creation myth, and yet no one saw that or commented on it. And you might think, “well, that’s kind of weird; why?” The reality is that we all do that every day in our lives. We avert our eyes from inconvenient truths or contradictions. We have tremendous tunnel vision. We focus on a few things around us and ignore other areas where there may be challenges to our creation myths, or things that just don’t fit in well with the stories we like to tell ourselves.

Do you think that there are lessons from your book about how other companies should be conducting themselves today? Do you think, for example, that a partnership structure, having people with skin in the game, is one way to make financial risk-taking more responsible?

Zachary Karabell (ZK): I definitely think there are lessons. But I want to be careful when I say that, because many people will hear the word lessons and think, “if only we could return to some sort of 1950s Halcyon moment,” where we had this elite-driven system that had a sense of public service and responsibility that did actually create a much more equitable social contract. It’s the irony of this elite establishment creating a world where the average income of a worker to a CEO is 20-30 to one, versus now, where we live in a much less elite system that is highly unequal relative to then; now, it’s something like 300 to one.

So, lessons for me don’t mean let’s go back. They mean, what can we tease out of prior human experience and constructively apply to our present, in the hopes that it will create a more meaningful, balanced, egalitarian, inclusive, affluent future? I think there are a lot of lessons there, with the caveat that I try to write about a firm whose value system I ultimately admire, but whose actions over the centuries often left a huge amount to be desired, including total complicity with the slave trade, driving the United States government toward an imperial occupation of Nicaragua solely because the Brown family had loans to the government that were in jeopardy due to political instability, and an intense anti-communism at the end of World War II into the Cold War that flared without enough consideration.

But as a set of values for the present, and with the belief that we’re not going to suddenly go back to partnership capitalism, there’s an emerging mantra of stakeholder capitalism that’s supposed to, in many ways, be what a company like Brown Brothers probably embodied anyway, which is that the good of the firm meant the good of the employees. It meant the good of the surrounding community. It meant that multiple stakeholders benefited. They wouldn’t have used that term, but they would have embodied its reality.

My definition of sustainable capitalism is people self-governing because they recognize the bonds and the connections between their private interest and the public good, or their private interest and their employees or their community. I write in my book about the building of the Baltimore and Ohio Railroad in 1828, which was driven almost entirely by Alexander Brown and his sons. It’s done purely as a public works project because they are legitimately concerned that Baltimore is going to fall behind New York as an economic center—which it does—and that the only way to save that is to have a better transport network from Baltimore over the Appalachians and into the Ohio River Valley. And they do this incredibly innovative, somewhat risky project as a moonshot to pay for a steam-driven locomotive on rails, which no one had done in North America. But they do it not to make money. They do it because they think it’s vital for the community, and that if the community doesn’t thrive, they won’t thrive.

The pushback one could give—and I want to know your thoughts on this as well—are the people who say, legitimately, “Sure, that’s great. We should also have better education. There are a lot of ‘shoulds’ that we should do culturally that we fail to do. What are we going to do now? What’s going to solve it now?” And I do push back and say, “look, a lot of regulations, as good as they may be both in spirit and intent—you can’t regulate people into moral behavior, certainly not immediately. Companies and cultures and families can clearly inculcate behavior that’s more in balance. But it takes a longer time.” I’m sure people will push back on Anthro-Vision and say, “This is all very interesting. But these are descriptive observations. They don’t force change.”

GT: That’s an entirely fair criticism, frankly. And I understand if you say that. You can’t codify or force culture. What you can do is have an awareness of how culture shapes behavior. You can also start to appreciate what works and what doesn’t and see other ways to impart some of those lessons. And I think there’s an interesting question about sustainability and vision, and the difference between private companies and public companies.

First, I think your book suggests that when people have skin in the game, they are usually better incentivized to manage risk than when they don’t. It’s an obvious point. But it was forgotten so much on Wall Street in recent years. And it’s quite telling that Goldman Sachs—which I think has retained a lot of the partnership culture, even though it did go public—has often been better at taking a holistic view of risks than others. Not always, but often.

Second, when you have private financial companies or partnerships, you also often have, at their best, a sense of shared values and a wider sense of community and context; simply because a family is not totally short-term. They know they’re going to be around for a while. They’re often obsessed with legacy and inheritance and actually building ties in their community. The story that you have in your book about building the railway in Baltimore: it’s part of a recognition that a family is rooted in community, and they want to uphold that. So that becomes “stakeholderism” almost by default, or by self-defense. The more interesting question is, when you’ve got public companies with shareholders, how do you get them to be less narrow in their vision and more aware of context? And that’s essentially the issue that the Financial Times (FT) set up Moral Money to cover regularly. This is an ESG [Environmental, social, and corporate governance] platform for the FT. But it’s also a question that people are grappling with all over the place right now. Because it’s very hard to know how to define corporate purpose in a less damaging, broader way. And I suspect you can’t mandate the culture shift where everyone starts to pretend to care about the wider public.

What you can do, though, is enforce a lot more transparency, so that people both inside and outside the company can see what’s happening. And I suspect that transparency rather than overregulation is going to be the most effective way to actually start some kind of cultural shift, simply because when people can see what other people are doing, the people who are doing things that they shouldn’t be doing, or that they don’t feel proud of, often get embarrassed and change almost by default.

ZK: You have sections in your book about some of the debates of the business roundtable embracing more sustainable business practices in a full-throated fashion, partly driven by people like Larry Fink at BlackRock and others. The pushback to that has always been that they’re speaking the patois because it’s appealing and it will get good press. You talked about Walmart as another example of this. 

But what’s interesting about culture is that culture is often, in our world today, reinforced not by ritual but by words, and by conversation, and by the statement of either disclosure of information, or the statement of words. And I’m with you on this. I think that the articulation of a value system, even if it was initially driven by more venal motives, creates a framework that’s very difficult to back out of. Because you’ve said that the purpose of a business is more than just returning maximum value to shareholders, and that it’s actually to have some balance between that and the societal good, and that inequality at a certain level becomes societally untenable—all of which, by the way, in the Brown Brothers world would have been a series of essentially unquestioned homilies. It has never occurred to them to not be that. And they’ve never seen any issue within that framework of making as much money as they can. But making as much money as they can was not making as much money as they could

And that’s a really interesting thing, and it gets bounded, but it probably gets bounded by words, and a value system that gets articulated and then re-articulated, and then articulated in the brochure you hand to new employees. And we can all be cynical about this stuff. But it matters. How you talk about things matters. And how you talk about them internally and externally matters in a way that I think we underplay.

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Zachary Karabell

Zachary Karabell is the founder of the Progress Network. His next book, Inside Money: Brown Brothers Harriman and the American Way of Power, will be published by Penguin Press in May 2021.

Gillian Tett

Gillian Tett is chair of the editorial board and editor-at-large, US of the Financial Times. She writes weekly columns, covering a range of economic, financial, political, and social issues.