Author: CRT Admin

Two years ago, Warren Buffet teamed up with Kraft Heinz to takeover Unilever with an offer to purchase its shares from owners. Kraft Heinz was a merger of two companies, each owned by 3G Capital in Brazil. 3G’s business model is to strip costs down, leaving only sinews and so boost short-term profits. The Buffet/3G alliance proposed to do the same to Unilever and so to maximize its profitability – survival of the fittest and no remorse for those deemed expendable in the drive to spend less and less.

My friend and our supporter Paul Polman, CEO of Unilever, stood up to them, saying the Unilever strategy for sustainability would be better for shareholders in the long run than selling out to Buffeet/3G for a premium of 20% over the market price of shares (depressed due to a lower British Pound as a result of Brexit anxieties).

Well, on Saturday, it was revealed that Kraft Heinz has been forced by market prospects to write down the value of two of its brands by $15.4 billion, a hefty loss for its owners, 3G and Warren Buffet. Turns out a focus on cutting costs while ignoring shifting customer preferences has cut down the equity value of Kraft Heinz.

Buffet’s Berkshire Hathaway investment company then had to book a loss as well – a $3 billion write down last year arising almost entirely from their equity interest in Kraft Heinz.

Polman’s moral capitalism business model has been vindicated. Unilever is better off – and its owners, employees and customers – under his stewardship than it would have been if Kraft Heinz were running it. Paul worried about all stakeholders first and foremost and how to make the company sustainable for the long haul.

Intense to the point of viciousness, cost-cutting does not invest in keeping up with the times, with responding to competition, new customer tastes or fading allure of old brand names. This is what I described as “brute” capitalism in my 2004 book, Moral Capitalism. Failure to invest properly compromises future ability to earn profits reliably, thereby lowering present discounted cash flow and company value.

The failure of the 3G Capital business model points to the need to re-think how we calculate the financials of business success over the long run.

The intransigence of American political leaders leading to the recent partial shutdown of our federal government shows intolerance of the views of others.

Stalemate in the United Kingdom between those who want their nation to remain in the European Union and those who don’t also shows narrowness of spirit in reaching out to others.

Thirdly, the rise of populist resentment and prideful visions of our own tribe as better than yours also reflects this constriction of empathy and care.

The Caux Round Table for Moral Capitalism’s Principles for Government call for government to be a trust for beneficiaries. This presumes a moral sense open to the needs, concerns and views of those reliant upon public power to do them justice.

In 1657 in the young American colony of New Amsterdam, Governor Peter Stuyvesant issued an edict proscribing Quakerism. In the small community of Flushing, now a part of Queens in New York City, citizens refused to obey the Governor. Their letter of remonstrance (PDF) makes the case for openness to those of good heart and goodwill.

The cover of this week’s Economist magazine features a discussion of millennial attraction to Socialism. But the track record of socialism in reality is dismal in advancing human happiness. Why might that be?

A good place to start in analysis is human nature. Not everyone does a good job in building up and exercising their Moral Sense. Especially when, as economists say, they can extract rents from the economy due to their political positions. If you live off rents – cash which just flows to you, come hell or high water, why be accountable to others, who are pestering you about your shortcomings? Whether French aristocrats under the Bourbons or today’s tenured faculty or civil servants, those who extract rents are walled-off from the stresses and strains of ordinary life.

In public administration, this aspect of bureaucracy is called public choice theory. It seeks to explain why bureaucrats on average don’t provide good personal service to the public or, rather, put personal advantage over the common weal.

A recent example of rent-extractors at work is the demise of the A-380.

Government bureaucrats and a government-led company, Airbus, could design and build a remarkable airplane the A-380. But they could not get customers to use it. So they had to stop making it.

Ultimately the values of ordinary people – where they chose to fly -did not provide enough money to pay for the making of more such giant planes.

Second, it may also be that high tax (Socialist) administrative regimes encourage rent-extraction behaviors. A recent commentary in the Feb 20 Wall Street Journal assembled data to illustrate the point that American states which collect the most taxes don’t deliver high quality infrastructure. In these administrations public employees and union members aligned with the ruling party collect a growing share of tax revenues.

So, for example where Europe and Japan can build subway tunnels for between $160 to $480 million per mile, New York City paid $2.8 and $2.1 trillion per mile to extend two subway lines. Unionize tunnel workers earned $111 an hour in New York while Detroit paid $38 per hour and Germany $40.

Wealth extraction in the form of zoning regulations restricting construction of apartments increases housing prices to the advantage of those with higher incomes.

Iranians just observed the 40th anniversary of the establishment of a theocratic state by the Ayatollah Khomeini. What lessons are there for us in this social experiment so at odds with the trend of modernity?

The Ayatollah and his followers and admirers practice Shi’a Islam, which originated among the Arabs as a consequence of arguments over who should lead the community of Muslims after the death of the Prophet Muhammad. But it seems to me the Shi’a faith found its deepest roots among the Iranians, an Indo-European people who over many centuries expressed themselves in the Persian Empire and successive regimes. Persian influence spread into what is now Iraq, where the Shi’a faith first grew into importance.

So perhaps it is not a coincidence that there are striking similarities between Indo-European Zoroastrianism, practiced in Persia for centuries, and Shi’a beliefs. The similarities pose a challenge to my understanding of ethics and right-minded, decision-making in a pluralistic, human community where human frailty and error are the norm.

Pluralism denies enforcement of any claim to possession of absolute truth and to the associated right to compel others to submit to such truth on pain of punishment or death.

Human frailty and error raise doubts as to the accuracy of any person to his or her claim to possession of the single, absolute truth.

Modernity, with its rationality and privileging of critical analysis, has pretty well exposed assertions to the possession of ultimate truth as pretentious. Nihilism is the current foundation of our authority to assess faith-based beliefs, leaving us intellectually in a live-and-let-live world community.

Perhaps as early as the second millennium BCE, Zoroaster, in what is now Iran, wrote poems (the Gathas) setting forth his perception of truth and reality. He believed there was a created cosmos, a divine order, which was good and true (Asa) but that there were oppositional forces (Druj) of ignorance and evil thinking which threatened that order with chaos. There was good in the world but he believed that it could be corrupted. Experienced life for him was a struggle between the tendencies towards good and right order and the tendency towards evil and chaos.

Humans had free will but were fallible. Our lot was to choose between either of two irreconcilable extremes: truth or lies; good or evil.

For Zoroaster, there was only one true path. All others were inferior. That path was to think good and do good, to be a co-worker with the spirit of Asa and so refresh creation.

In Shi’a faith, there is a conviction about ismah – that there are those without fault who are free from error and only they can show us to the right path with its right thought and right deeds.

Refusing to follow the path aligns such a reprobate with evil forces, with Satan. Thus, for the Ayatollah Khomeini, the United States was the “Great Satan” in the world, deserving unrelenting opposition until its power was fully suppressed for the good of creation.

Secondly, there is a calling among the Shi’a to direct others towards the good and away from evil.

Shi’aism points us towards a bipolar reality of only good and only evil, where toleration gives in to corruption and evil and compromise is impossible. Such a vision of life can easily justify violence against and oppression of those who are not seen as good.

It is not at all obvious to me that such bi-polarity is fundamentally good. It exacerbates our deeply rooted human tendencies to fear, despise and marginalize others.

But such bi-polar antagonisms between good and evil seem to be congenital to modern revolutions, from the Jacobins on down. When a revolution seeks to bring society back (to re-volve) to unquestionable first principles, it sets up a reign of oppression of free will, even of terror, in the name of virtue.

In the French Revolution, at the foot of the guillotine which was about to take her life, Girondist Madame Roland cried out “Oh Liberty, what crimes are committed in your name!”

Whoever or whatever created our cosmos and us did so leaving us imperfect creatures, condemned to live within limits and frustrations but also giving us a moral sense and the freedom to use it to link ourselves to others and to our surroundings in constructive and life-giving ways.

Reading the Qur’an has encouraged me to think that one can hold to an absolute truth, if at the same time one does not tread far from humility. Qur’an guides us to avoid Shirk, or making of ourselves, or anything else for that matter, the equal or partner of God.

The Old Testament book of Micah instructs us “to act justly and to love mercy and to walk humbly with your God.”

Aristotle thought that finding the Mean was the basis of ethics and that we needed inner strength (virtue) to do just that.

In the Confucian tradition, we find the Doctrine of the Mean, which advised us to keep to the balance of the Tao. And Buddha taught us in his first sermon to avoid extremes and find the middle path.

Our colleague Klaus Leisinger, by coincidence, just sent me this quote from Dietrich Bonhoeffer:

“Responsible action is no longer fixed from the outset and once and for all but is born in the given situation. It is not a matter of implementing a principle that ultimately breaks with reality but of grasping what is necessary, what is ‘commanded’ in the given situation. It must be observed, weighed, evaluated, all in the dangerous freedom of one’s own self.”

At the Caux Round Table for Moral Capitalism, we seek to follow this wisdom – to find principles of the good which must be applied in life in context where a humble, open-minded consideration of conditions avoids extreme judgmentalism and inflexibility.

U.S. Representative Joseph Kennedy III has picked up “Moral Capitalism” as his program for the U.S. He called asking for my help, which I said I would give him.

Last week, he gave a talk on the subject at Harvard Law School, which you can read here (PDF).

A commentary in Bloomberg by Harvard Law Professor Cass Sunstein notes Kennedy’s attachment to Moral Capitalism.

This adoption of Moral Capitalism is a compliment to the authors of our Principles for Business and to the Minnesota heritage they brought forward.