What is the point of profit?
Because "to make shareholders rich" isn't good enough anymore.
“I am a capitalist, I believe capitalism has the opportunity to be an incredible force for good,” says Davis Smith, CEO of Cotopaxi. “ It has lifted billions of people out of poverty. Like we are eradicating extreme poverty.”
According to the World Bank, since 1990 more than 1 billion people were lifted out of extreme poverty as a result of economic growth driven by capitalism. And the global extreme poverty rate has been cut by more than half since then. But if capitalism is creating economic opportunity worldwide, we can’t also deny the harm it has caused.
“Capitalism is destroying the planet—whether it's forests or oceans, we are destroying it,” Smith says. “And capitalism isn’t fair—there are people that will become extraordinarily rich, while others will not. Some are completely left behind—if you live in Burkina Faso, or if you live in Haiti, or if you live in North Korea, you are not benefiting at all. In the capitalist world that we are living in, they've been totally left behind.”
These downsides have led many to advocate for a “post-capitalism”—the end of corporations altogether—and here we are seeing a revival of socialist and communist thought. Karl Marx once advocated for “a class of laborers, who live only so long as they find work, and who find work only so long as their labor increases capital.” The juxtaposition between the top and the bottom isn’t quite so stark as it was then, but Marx’s critiques are at least still valid. His movement advocated for equality—especially between the employer and the employee—which then, as now, feels decidedly rift.
It is still the owner (shareholder) who grows richer by the work of the laborer (employee). And it is thus that we have arrived at a familiar caricature: Celebrity billionaires racing each other to space as their employees are peeing in bottles because they don’t have time to take a break. After one particular space flight, Jeff Bezos even had the gumption to declare, “I also want to thank every Amazon employee and every Amazon customer because you guys paid for all of this.”
Here we have a sort of Marie Antoinette preserved in modernity: a symbol of inequality presented in the form of a nouveau riche that would happily squeeze more profits from their subjects in the form of lower wages, less time off, less flexibility, all so that the company can earn more profits for the benefit of the owners of that company. Marx’s “bourgeoisie.” It’s no wonder that socialist sentiment would place our means of production, not in the hands of private corporations, but in the hands of the government.
We were less than 100 years into democracy when Marx called for the end of capitalism, and the government must have seemed a better arbiter of the public good back then. Unfortunately, in the hands of authoritarian governments, it didn’t really turn out that way. Smith studied communism in grad school, particularly the varieties found in North Korea and Cuba. “What I saw was that there was tremendous equality in these countries—in Cuba, there was more equality than any other country in Latin America—the problem is they're all just equally poor,” he said. “These are not things we want to model our country after.”
In a LinkedIn post, Smith described a trip he took to North Korea in 2010. “What I saw was a country crippled by communism. Just a few miles south, across the South Korean border, there is a booming capitalist economy driven by innovation and open markets. This unintentional 70-year experiment has shown the clear advantages of capitalism over communism. What if we could do a similar experiment today where we put traditional capitalism up against conscious capitalism?
“I suspect that 70 years from now, the conscious capitalism movement (using business as a force for good and protecting our planet) would outperform traditional capitalism (whose primary focus is on maximizing profits). The equivalent of today’s satellite imagery showing the night sky of North and South Korea, would reflect societies with less poverty, better health outcomes, higher levels of education, fewer people being left behind, and a much healthier planet… not only that, I believe it would create better financial outcomes for entrepreneurs and investors.”
The “traditional capitalism” Smith is talking about might best be defined as “shareholder capitalism”—the kind that claims the sole responsibility of business is to increase profits for the benefit of shareholders—that is why capitalism has been so successful—and that has been the prevailing philosophy of capitalism for quite an era. But Smith is part of a growing movement of capitalists who think profit could be put to better use. The “conscious capitalism” he mentions might best be defined as “stakeholder capitalism,” where the responsibility of business is still to increase profits, but for the benefit of “stakeholders”—which might include employees, customers, the community in which they are a part, and the world at large.
In the former, profits are for the benefit of shareholders. In the latter, profits are for the benefit of stakeholders.
In Allen Murray’s book Tomorrow’s Capitalist, recommended to me by Smith, he outlines several companies that exemplify this shift from shareholder capitalism to stakeholder capitalism: Mark Cuban using his profits to continue paying the hourly wages of employees at the Dallas Mavericks Arena, even when it was closed because of the pandemic. Target investing more than $300 million in employee wages, paid leave, and childcare services to support employees during the pandemic. MassMutual offering free life insurance to frontline medical workers.
If the modern socialist hopes the government will step in to solve the problem of inequality, the modern capitalist thinks the company can. And in fact, that they might be in a better position to do so. Paul Polman, former CEO of Unilever even went so far as to suggest that companies could do a better job of it than the government. “Governments in this world right now have a little bit of a hard time… I believe it is the duty of the private sector to step up and fill that void and be responsible. We are not elected bodies, but we do have to fill that void.”
Murray agrees. “Our governments have been proving themselves sadly incapable of addressing even some of our most obvious needs,” he said in his book. “Companies, on the other hand, are set up to solve problems, and CEOs are trained to do the same. Why not let them do what they can?”
It’s probably true that governments can’t solve all the problems of society—they have often become slow, bureaucratic institutions with quarreling leadership that, at least in the United States, spend much more money than they earn. How is a country with a $924 billion deficit supposed to step in and make sure everyone has enough money to thrive? Meanwhile, companies are often large and nimble, with focused leadership, and they are hugely profitable. In 2017, Global Justice Now made a list ranking the 200 richest entities in the world—157 of them were companies. Only 43 were governments.
That spreadsheet breaks my brain a bit. It says that companies make more money than governments. There are only nine countries that make more money than Walmart. Apple makes more money than Switzerland. I can’t help but wonder what happens when companies become so wealthy and powerful that they displace countries. Will there come a day when the US public school system gets so bad that eventually Google’s like, “we’ll pay for it because we’ll need employees one day.”
As it is, the Google campus acts like its own city—providing food, childcare, transportation, even security to its residents. If socialists once hoped the government would solve the problems of equality, companies might be better poised to pay for it. And they already are—in the form of wages, retirement wages, healthcare benefits, and many other perks, at least among their employees. And companies are increasingly finding ways to do even more—for their own employees and the communities outside of them.
Patagonia now donates nearly all of their profits for the good of the environment. Newman’s Own donates 100% of its profits to supporting children’s initiatives. The soap company Dr. Bronner gives away 45% of its profits each year. Cotopaxi is currently donating 1% of its profits to 1% for the planet, and another 1% of its profits to the Cotopaxi Foundation. According to their 2021 Impact Report, that amounted to $1.6 million that year.
Smith advocates, not the eradication of capitalism but for a better one. We take what is working and we build on it. We continue eradicating poverty and we scale it. Then we start working for equality. And we protect shared spaces for future generations. “We can do a better job than we have done,” Smith says. “I'm building Cotopaxi and I want it to be the next iconic outdoor brand—it will be a billion-dollar brand—but because I believe that it can have a tremendous impact on the world and that we're going to be able to fight and help eradicate poverty by doing business better.”
I like the idea that profits should be used to pay employees better, be better stewards of the environment, and benefit the greater communities they are part of and interact with—I think that’s a good vision for capitalism. Because if we can use profits for the greater good rather than the wealth of shareholders—if we can move to a stakeholder mindset rather than a shareholder one—we might be able to solve many of the problems of society. But I also think it’s going to take more than a few altruistic CEOs to achieve. Right now, not all companies can afford to use their profits for good. And many of the companies that can won’t. But that’s what I intend to figure out next: How do we incentivize companies to use their profits for good?
If we do, could we even achieve equality?
But I have some thoughts on that in my next few posts.
In the meantime, what do you think? Can all the wealth generated from capitalism be used for the greater good?
As always, thanks for reading. And for thinking through a better capitalism with me!
Elle
Further reading
Here are some of the things I read while I wrote this:
The Communist Manifesto by Karl Marx & Friedrich Engels
Tomorrow’s Capitalist by Allen Murray (Recommended by Smith)
The Wealth & Poverty lectures by
Utopia for Realists by Rutger Bregman
Inventing The Future: Postcapitalism and a World Without Work by Nick Srnicek and Alex Williams
It’s Ok To Be Angry About Capitalism by Bernie Sanders
Appreciate you writing about this so thoughtfully, Elle.
I don't have an economics or business background, so I feel like anything I have to say on this topic is out of a place of mostly-ignorance. But here I am commenting anyway, so: judge me accordingly, folks...
One thing I've seen critics of capitalism pointing out is that changing motivations at the top doesn't necessarily change behaviour at the consumer end, and this is one of the problems. For example: if a company with unethical, environment-ravaging tendencies is offering a product that's appealing enough in itself - or is offering a product at a price that undercuts its ethical, morally applaudable competitor, is it going to still clean up, because most consumers still don't care enough? If that is still generally true, the companies that focus on profits define the system, and everyone else has to compensate (and now it's so easy to view ethics as dependent on profits - if you're making enough of the latter, you can afford to do the former)? So this becomes: the whole system is the problem, because it has a core vulnerability that allows bad actors to thrive?
(I may be muddling consumerism with capitalism and...all sorts of other -isms here, apologies.)
But Davis Smith's examples and his faith in course-corrections here give me hope. One thing that's a staple of modern scifi is the "Megacorp," the corporations that gather up enough power to overrride governments and act as laws unto themselves. Usually they're depicted in a "capitalism gone Super Evil" sort of way, but - like A.I. - what if the opposite were true? It's interesting to think, and ponder how.
I'd add "Grapes of Wrath" to the reading list for this topic, only it's not exactly a brief read. The novel was published in 1939, and is perhaps more relevant today than it was then.