12 min read
Nov 2019

Bruno Roche Interview About the Economics of Mutuality in China

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Published November 2019

Bruno Roche was recently interviewed by the Cheung Kong Graduate School of Business magazine CKGSB Knowledge. Selected highlights have been reproduced below.


How does the Economics of Mutuality fit into our current climate of rapid technological change?

Over the past 150 years the world has gone through three economic cycles. We are now about to start the fourth one. The first was the agricultural economy where land was considered an asset. The second was the industrial economy where underlying assets were in the means of production. The third wave, which started in the early 1970s and is now coming to an end, is what is known as the service economy, where financial capital are the underlying assets. We are now moving into a new economic cycle, known as the knowledge economy or the digital age. This is where underlying assets are essentially human and social capital, powered by digital technology.

Our argument in the EoM is that there are two forces actioning the drift away from financial capital. The first one is based on the definition that economics is a “science which deals with the social management of scarcities.” Fifty years ago, financial capital was scarce, while natural capital and social capital were overly abundant. Today, financial capital is overly abundant, so it doesn’t make any sense at all to create more financial capital. Therefore a new economic model is required to deal with this new form of scarcity. This alone justifies the shift in economic models, from a pure financial capital-based model to a social capital-based model. The second is based on the fact that, in the knowledge economy or digital economy, for companies to be successful, they don’t need a lot of cash but rather a lot of other forms of capital, essentially the relationship between individuals.

Even large companies like Facebook, Google and WeChat are companies that are based on the production and commercialization of social connections. So the EoM is a good fit to actually appreciate and frame these new norms of value creation, which is based on human and social capital.


EoM started with the question ‘what is the right level of profit?’ Why is that such an important question to ask?

For the last 50 years, the response to this question has been based on Milton Friedman’s view that “there is one and only one social responsibility of business (…) to increase its profits”. That economic model has worked very well, primarily for financial capital holders, but increasingly at the expense of the environment and many other stakeholders. I can understand why it was such an important and relevant concept in the 1970s due to the lack of financial capital in the West—as the system, globally, needed more cash to increase liquidity and in turn to facilitate exchange. But today, with financial capital being overly abundant (with negative interest rates becoming the norm) and the emergence of other forms of scarcities (in social, human and natural capital), that economic model has become unsuitable, increasingly dysfunctional and even destructive.

I would say that the crises we had in 1987, 1994 and 2001 were early alarm bells, while the 2008 crisis was truly a wake-up call. Ever since then, alas, the system has continued to focus on creating financial capital for capital holders, with the consequence that only a small portion of the world truly benefited from the system, and with a visible negative impact on the environment.

Therefore the question of the right level of profit is, in my view, the core question as it goes straight to the core of the purpose of the company—which is to create profitable solutions to the problems of people and planet.


How does the answer to that question compare to the kind of profit that corporations are seeing today, particularly Chinese corporations?

At the moment there is an increase of profits not only in China, but also across the world. And while this race is not necessarily bad, the only purpose that companies have is to make more money just for the sake of making more money. This is not a healthy or sustainable game.

In the EoM, when profit-making has a purpose which goes beyond just making a profit, there is a possibility of even increasing a company’s bottom line. I am not challenging the level of profit in any economy; I’m challenging the purpose of profit-making. If profit-making doesn’t have a purpose, it will lead to predatory behavior and eventually will not last. Once profit-making has a purpose, including solving problems that we’re seeing on the planet and with people, then that’s how a business can re-connect with new growth levers and can become, in turn, truly sustainable.


You’ve spoken about the role of business in society. What in your opinion, are the pros and cons of the current business-society relationship in China?

I was amazed to see dragonflies a couple of weeks ago on Fudan University’s campus in Shanghai. It really revealed the power of the government in China and how they have managed to drastically reduce levels of pollution. It’s interesting, because the West doesn’t have the same level of power in involvement.

It’s clear that the relationship between business and society in China needs to take place in the context of the government’s vision and planning. This could to some extent be a catalyst to improve or enhance the value of business in society. But this actually requires an alignment of business, society and government behind the pain point that needs to be addressed in society.

As China becomes an incredibly rich and increasingly sophisticated economy, I would be very interested to see how the commission of business, government and society will address this phase of prosperity in society, with their own values in mind.


What are the biggest economic challenges that China’s leaders are currently facing?

The challenges that we face globally are in fact very similar, whether you are in the East, the West or in Africa. Climate change and the rise of inequality are challenges that the world will have to face as a whole.

And while these challenges are global, there are going to be, in my view, two broad ways to approach them. One system will be based on Western values while the Chinese system will be based on their own Confucian culture and statist approach.

And the two are facing the same challenges, with similar levels of resources, but two very different ways in approaching the problems.

One of the greatest challenges for the Chinese economy will be to organize the second system to address global challenges in a way that will also act in harmony with the Western system, so that both systems would be able to benefit from one another.

Perhaps the constitutional principle “one country, two systems” formulated by President Deng Xiaoping for the reunification of China during the early 1990s will be a source of insights to organize the global economy of the 21st century along the principle “one global economy, two systems”.


There’s been a great deal of talk about China’s economic slowdown recently. What impact do you see the slowdown having within the near future?

I think because China’s economy is so integrated with the rest of the world, any challenges occurring in China would have major repercussions for countries globally.

You could argue that there is a lot of anxiety at the moment and there is a fear of there being another economic crisis. And I think that the slowdown of the Chinese economy in that context could trigger such an event from happening because of its high level of involvement with the rest of the world.

The economic slowdown, as well as the US-China trade war, are conducive to even more conditions of protectionism. We are at a time where the limits of economic liberalism have become very clear and there are many voices around the world that goes against the doctrine. The trade war between China and the US is an expression of this change in philosophy.


This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business.

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