Watching the alarming scene of global capitalism today is akin to seeing a vehicle hurtling at full speed towards a wall and while shouting and screaming on the sidelines as the pilot remains oblivious and keeps pushing on the accelerator. You know it is going to crash as you watch in disbelieving horror. The Panama Mossack Fonseca affair is another milestone that the vehicle of 21st century capitalism goes whizzing by on the road to crashing against the wall.
“Ethical capitalism” has never been particularly conspicuous as a term and many might say it sounds more like an oxymoron. It’s not so much the system, but the people. Willi Schlamm, an Austrian-American journalist, who went from being staff writer of the Viennese communist paper Die Rote Fahne (The Red Flag) when young to associate editor of the virulent American anti-communist John Birch Society’s journal American Opinion when older (though obviously not more mature), had nevertheless a good turn of phrase when he wrote: “The trouble with socialism is socialism. The trouble with capitalism is capitalists”.
In other words, no matter how much idealism may lie behind socialism, ultimately it does not work. Whatever theories may say, experiments over the last century should be more than enough to prove the point: “the problem with socialism is socialism”. It is only when entrepreneurial and energetic erstwhile socialist countries turn to capitalism, eg China and Vietnam, that fast and solid growth can be achieved. This is what author Bill Hayton in his excellent book Vietnam: Rising Dragon calls “market Leninism”.
However, while the system of capitalism is viable and effective, it has a tendency for self-destruction due to the abuse, cheating, lying, and sundry other forms of unethical behavior of capitalists. Not all, of course. There are ethical capitalists; but there are enough of the other sort to discredit the system and risk bringing about its destruction. This becomes all the more the case when times are tough; or, more exactly, when times are tough for the majority while a small minority is seen to be wallowing in ill-gotten gains and in-your-face conspicuous consumption.
The Panamanian Mossack Fonseca affair may not surprise – what else can one expect from these people? – but it shocks nevertheless at a time when the global economy is suffering weak or negative growth, when unemployment levels, especially youth unemployment, are soaring (39% youth unemployment in Italy), and when uncertainty and brooding feelings of apprehension prevail.
However, far more damning than the individual cheaters stashing their money away in fiscal havens is the behavior patterns of too many “mainstream” corporations. In an article a year ago, following revelations that HSBC bank had been laundering money for Mexican drug lords, I asked what we can learn. The answer from Volkswagen – or Hoaxwagen as it is now disparagingly called – is obviously “not much”. I ask the same question I asked in respect to HSBC (and all other unethically behaving firms), how is it possible for the VW engineer to leave home in the morning, kiss his/her spouse and children good-bye, and then proceed to cheat and thereby endanger the future of humanity by installing “defeat devices” to skirt air-pollution controls?
What is shocking – though once again, alas not surprising – is not just the cheating and the harm, but the fact that while afterwards there have been acknowledgements and a few desultory apologies, no one from Volkswagen has publicly expressed shame. It’s more a “damn-we-got-caught-this-time-better-luck-next-time” syndrome.
Capitalists too often seem to know no shame!
There is a difference between what is legal and what is ethical, something about which too many capitalists seem to be oblivious. When PSA Citroën CEO Carlos Tavares draws a 2015 salary + bonus of over €5 million, it is legal, but is it ethical, especially when bearing in mind the times we live and the fact that his legendary cost-cutting (which earned him the superlative bonus) was achieved through significant layoffs? Did he even ask himself the question? Or was he more focused on the fact that the “other Carlos” in the French automotive industry, Ghosn, CEO of Renault, drew a cool €15 million +?
These are not isolated incidents, but conform to a mosaic of contemporary capitalist behavior patterns. To shrug these off by arguing “it has always been like that” is not good enough. In a recent brilliant report, Thinking the Unthinkable, authors Nik Gowing and Chris Landon state:
“Deep knowledge of history and narratives from the past is simply not there. If it were, then it would go a long way to easing the shock of analyzing the present in a way that is often only partially or scarcely informed. Its absence means failure to identify trends is at least likely and probably inevitable.”
They add, “C-suite executives and fast trackers spend far too little time reading history”.
If we want to know where we are going, first we need to see clearly where we have been and where we have come from. The intrinsic superiority and benefits of capitalism notwithstanding, it is not automatically, let alone self-perpetually sustainable. This is not to say history repeats itself necessarily, but as Mark Twain is supposed to have said, it rhymes. By learning from history, we may avoid repeating the same mistakes. To ensure greater ethical standards and especially an ethical sense – or a sense of shame – reading the 20th century history of capitalism can do a lot.
Of course, times have changed. They have changed, however, in a way that because unethical behavior can be much more easily revealed in this digital age, there is, apart from just morality, a compelling case of enlightened self-interest and self-preservation for capitalist leaders to be ethical.
Put the brakes on and change course before we hit that wall!
Jean-Pierre Lehmann is emeritus Professor of International Political Economy at IMD. Professor Lehmann teaches on the Orchestrating Winning Performance program.
This article was based on a piece by Jean-Pierre Lehmann published in Forbes.