Dec 2021

Reforming Capitalism: A Critical Conversation in Europe

Published January 2022

The discourse around shaping a more purpose-led capitalism has been accelerating in France and Europe in recent years. Bruno Roche, a native of France, has offered a prominent voice in this discussion, first as Chief Economist at the multinational Mars, Incorporated and then as Founder and Director of the Economics of Mutuality movement based in Geneva, Switzerland.

He has recently contributed an article to a French magazine produced by the Institut du Capitalisme Responsible, an applied research centre that studies new practices of capitalism. A translation has been included below.

The publication is entitled ‘50 Essential Points of View on the Capitalism We Want Tomorrow’. It includes a thought-provoking interview with Bruno Le Maire, the French Minister of Economy and Finance, in which he emphasises the importance of new European directives on the relationship between business, society, and the environment:

By taking over the presidency of the European Union at the start of 2022, France has a central role to play on the subject. It will lead the European negotiations on the definition of the Corporate Sustainability Reporting (CSRD) directive, which will be the basis of our new common language. Once adopted by the European States, these standards will be used compulsorily by nearly 50,000 companies and voluntarily by small- and medium-sized enterprises (SMEs).*

Additionally, Jean-Dominique Senard, Chairman of the Renault Group Board of Directors, has penned a fascinating article about Europe’s unique role on the global stage:

Another major challenge for responsible capitalism is to reach a critical mass: beyond the national approach, it is at the level of the European continent that it must develop, in order to capitalize on the effect of scale of the second largest economic zone in the world…

Europe must also define the ESG criteria which constitute the common basis of our values, and make national or European aid conditional on compliance with these requirements, while establishing a code of good conduct for non-financial rating agencies.*

* Extracts translated from the original French

What is the right level of profit? The new capitalism will have to respond

By Bruno Roche, Economics of Mutuality Founder & Executive Director

In today’s world, we face a deficit of natural resources and common prosperity coupled with a surplus of financial capital – new forms of scarcity and overabundance that require collective management. Multinational companies now rival nation states in terms of size and influence. A new digital economy is transforming the equation of value creation.

This demanding context compels us to rewrite the laws of profit – to alleviate our planet’s suffering and forge new paths toward mutual prosperity.

Our new economic horizon has shifted beyond the shareholder profit maximization doctrine championed by Milton Friedman’s Chicago school in the 1970s. It places a new burden of responsibility upon the leaders of companies, investors, and governments to manage these new forms of scarcity. Value creation has reached a new frontier.

The externalities of yesterday produced by business are the risks of today and the losses of tomorrow if nothing changes. The strategies that organizations put in place today in response to these challenges will determine the value creation opportunities of tomorrow as well as their long-term sustainability.

This is no longer a side issue. In the words of Joseph Stiglitz, winner of the Nobel Prize in Economics:

Like the dieter who would rather do anything to lose weight than actually eat less, this business elite would save the world through social-impact investing, entrepreneurship, sustainable capitalism, philanthro-capitalism, artificial intelligence, market-driven solutions. They would fund a million of these buzzwordy programs rather than fundamentally question the rules of the game — or even alter their own behavior to reduce the harm of the existing distorted, inefficient and unfair rules.

CSR is coming to an end

In the same vein, Nobel Peace Prize winner Muhammad Yunus wrote, ‘A charity dollar has only one life; a social business dollar can be invested over and over again’. The time when it was enough for a company to be responsible is over – to maximize its profit on the one hand and to finance charitable programs through foundations on the other. Why? Because this approach cannot solve the issues outlined above.

Similarly, the era of corporate social responsibility (CSR) is coming to an end – the idea that it’s possible to maintain an economic model based on profit maximization by combining it with a few targeted peripheral programs. Such initiatives are good for the environment and society, but small in scale. Furthermore, they are focussed more on risk and reputation management than large-scale impact.

CSR is not only inefficient but carries, and this is more serious, the risk of undermining the credibility of companies committed to adopting a responsible economic model. It can also pave the way to a form of sustainable development ‘ponzi scheme’ in which companies that make ambitious public commitments are tempted to hide their inability to meet them behind the making of new, even more ambitious public commitments, and so on.

Shaping a mutual economy

We therefore need a radical reform of capitalism. Reform that will include redefining the role of the company in society – its purpose; redesigning the economic, legal, and accounting models of value; and transforming teaching in management schools. This is the ambition of the Economics of Mutuality movement, born in response to a far-sighted question asked in 2007, ‘What should be the right level of profit?’.

Initially designed within Mars, Incorporated and co-developed with Oxford University’s Saïd Business School, this initiative set out to lay the foundations of a new school of thought for a capitalism that is less incomplete and more efficient than financial capitalism. It also carried the vision of developing a management innovation and a new investment model.

Testing around the world for fifteen years delivered clear results: if a company meets the following conditions, not only does the overall wealth of its stakeholders increase, but so does its financial performance.

  • Having a purpose other than maximizing its profit.

  • Investing in non-financial as well as financial capital in its ecosystem using standardized metrics.

  • Developing reciprocal relationships with its stakeholders as opposed to power relationships.

  • Equipping itself with an accounting system that takes into account material externalities and adopts an adjusted definition of profit.

The future of capitalism will depend on the answer to this question: ‘What should be the right level of profit?’.

Company (cum panis)

Therefore, to discover new pathways to growth, the company must no longer focus exclusively, and from a short-term perspective, on its own performance and the remuneration of financial capital.

The transformation from an economy that creates profit by producing social and environmental problems to an economy that creates profit by developing solutions for social and environmental problems is possible and within the reach of all companies whatever their size.

The ‘company’, deriving from the Latin cum panis meaning the sharing of bread, was conceived well before the appearance of capitalism and can thus, once again, become a powerful driver of mutual prosperity.


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