Category: Commentary

A recent story in the Wall Street Journal deserves our attention.

It reports on how a company – Starbucks – famous and once very profitable – can’t just float on the tides of capitalism, but must work for its money by taking care of stakeholders.

As I have asked students in my MBA classes on business ethics, “What is a company without customers?”

The students almost always show some surprise in their faces – thinking perhaps that “Of course companies have customers.  It’s a capitalist system.”

Then, I pause and answer my own questions: “Bankrupt.”

The students immediately get the point: in capitalism, you have to attract customers in order to profit.  No one directs them to spend their money in your store.

So, to prove my point, here are excerpts from the reporting of Heather Haddon:

In late summer, a customer started showing up at Los Angeles-area cafes at all hours of the day, quizzing baristas about their favorite drinks to make, or problems with how the stores operated.

That customer, Brian Niccol, is now Starbucks’s chief executive officer, and he is moving quickly to change the way customers experience the world’s largest coffee chain as it struggles to draw customers.

In less than two months in the role, Niccol has pushed to focus Starbucks’s operations, trimming menu items and paring back discounts.  Instead, Niccol is giving priority to delivering quality coffee quickly and accurately with friendly service, particularly in the mornings, when the chain needs to shine.

Niccol, an Americano drinker, said he sympathizes with customers who want drip coffee but have to wait while Starbucks’s baristas labor over elaborate, customized drinks.  “Sometimes you just want a brewed cup of coffee really quick,” Niccol said in an interview.

Starbucks’s challenges have mounted this year and deepened since Niccol assumed leadership in early September.  The company in October reported that U.S. transactions fell for a third consecutive quarter, while earnings and revenue for its most recent quarter undershot analysts’ estimates.  It scrapped its fiscal-year financial forecasts. 

Niccol has said Starbucks needs to be clear-eyed about its problems and move quickly to make customer-friendly changes—such as bringing back Sharpies for handwritten notes on cups, and possibly reinstating newspapers for those who linger in cafes.  When he announced last week that self-service condiment bars would come back to stores next year, some lapsed customers said they would return. 

Donald Trump has just been re-elected president of the United States, but with nearly half the American people voting against him.  As of this writing and somewhat surprising to me, is that Trump’s Republican Party has elected enough senators to take majority control of the Senate.

The recent campaigns reveal a deeply divided American people.  There are lessons here to be learned and multiple conflicting discourses to assess.

Seeking to expand the availability of heterodox discourse, Alpha News, a very small start-up source of news here in Minnesota, has produced a moving documentary looking at a fault line among Americans – the ethical quality of our police.

For many, the police are racist in their interactions with minorities, especially with African American men.  For others, the police are necessary to protect families and neighborhoods against violence and criminal trespasses on the vulnerable and the innocent.

In Minnesota recently, 5 police and firemen have been killed in trying to do their duty.  Alpha News believed that telling their stories and bringing forward to the public the grief of their families would provide more perspective to voters in this time of disagreement and intolerance of the views of others.

For some, this documentary – Minnesota v. We the People – brings out feelings of compassion and respect as emotional responses to individual sacrifices made that the community might be more safely livable and supportive.

For others, it may not be so welcomed and so be perceived as too one-sided in its appreciation of policing.

The producer of the documentary, Liz Collin, received our Dayton Award for 2023 for her courage and leadership in making an earlier documentary commenting unfavorably on the trial of police officer Derek Chauvin for murder in the death of George Floyd, when Floyd was in the custody of officer Chauvin and other members of the Minneapolis Force and protest riots breaking out in response to his death in police custody.

Criminality is everywhere a human failing.  Policing, rightly done, is everywhere a human social asset.  Discourse everywhere facilitates both our becoming aware of our failings and our seeking betterment in our lives.

By sharing this documentary, we hope to provide you with a discourse worthy of reflection on how we, in every country, city, town and village, should meet our need for security of self and others and for providing respect for self and others.

You may watch the documentary here.

Ten years ago, some Peruvian farmers started growing blueberries for export.  They wanted to compete with growers in Chili for “profits.”  Imported berries sold in the U.S. in the cold months when they don’t grow there command high prices.

In 2013, Peruvians earned about $17 million in sales.  In 2023, their income from exporting blueberries was $1.7 billion.  A lot of Peruvian families and workers were better off.  Today, Peru exports more than its competitors, reports The Economist:

Innovation made this happen.  Shades of Adam Smith and creating the pin factory to make more pins and sell them for lower prices so that users of pins, those who wore the clothes they made, factory workers and factory owners, all saw a rise in their well-being.

Peruvians took from inventors in the U.S. new varieties of blueberries which did not need chilly winters and which could thrive on Peru’s coast.  By 1922, the yield of the typical Peruvian blueberry field was nearly double the global average, giving Peruvian growers and their customers a cost advantage.

The provision of public goods also lifted production and private wealth creation – tax breaks and irrigation megaprojects to bring coastal desert land into cultivation.

But as often happens with free markets, competitors join the party.  “Colombia, Morocco, everyone is growing blueberries now,” said one farmer in Peru.

Perhaps the stickiest objection to capitalism is that it produces – maybe for some, even thrives – on inequality.  The rich get richer and the poor stay poor.

A recent comment in The Economist complained that “The poor among us have stopped catching up.”  The system has failed them: extreme poverty has barely fallen since 2015.  The magazine, however, does not blame capitalism for this failure of economic growth.  Rather, the magazine puts the blame on governments for shifting from markets to industrial policy and trade restrictions.  It seems constricting markets puts the brakes on wealth creation – just as Adam Smith pointed out 249 years ago.  Indices of economic freedom have been largely flat in most of Africa and South America.

In addition, other data has surfaced that points the finger away from capitalism to culture as the incubator of economic inequality.  It seems that individual behaviors contribute to individual outcomes in life.  As Smith assumed and German sociologist Max Weber made explicit, values drive behaviors and behaviors bring about outcomes.  Social and human capital accounts are the foundations for the creation of financial capital.

A simple example is the entrepreneur.  Starting a new business requires finance, but what are the conditions which permit obtaining monetary capital?  Usually, it is the intangibles – the reputation of the entrepreneur, the practicality of his or her business model, trust that consumers will buy the new product or service with ready money, availability of labor skill and quality of worker diligence, etc.

In a recent article, Professor Roland Fryer of Harvard argued that choosing your identity or living with an identity provided to you by family, community and history, determines much of what your life will be like.  “How you view your role in the world will affect your choices.”  He follows the innovative thinking of George Akerlof, a Nobel laureate, on the complexity of rational economic decision-making once identity perceptions and priorities are taken into account.  Individuals intend to gain from both material outcomes and actions that affirm their ego-identities.  “A corporate job might offer financial stability, but if it conflicts with an individual’s identity as an environmentalist or feminist, the mismatch can lead to dissatisfaction and underperformance.  Lab experiments have shown that people may opt for lower-paying jobs if it means greater congruence with their social group or might choose consumer goods that signal affiliation to a particular identity, despite higher costs.

Then, a recent study published by the National Bureau of Economic Research in the U.S. concluded that the more you work, the more you earn when the major determinant of total lifetime working hours is individual choice – values, again, driving behaviors and life outcomes.

Those who work more, earn more because they spend more time acquiring skills.

Thirdly, religion adds weight to the scales of human capital.  Pious students have higher grades, better attendance records and complete more years of college (The Economist, August 17, 2024, p. 19).  Religious communities tend to be learning communities.  They read together, engage in dialogue together and build all kinds of social skills.  I recall my more conservative Jewish friends in high school and college with all the hours they put into reading and debating the Talmud.

Within nuclear families, the more religious siblings perform better in school.

Doing better in school also happens with faithful atheists.

I have just learned from one of our fellows, Recep Senturk, dean of the College of Islamic Studies, Hamad Bin Khalifa University, Doha, that he is publishing an important new book on the topic of Adamiyyah.

Adamiyyah is a humanistic approach to application of Qur’anic teachings, an approach most needed at the present time.

Here is the pre-order flyer for his book:

You may recall from my report of our meetings at the Vatican in May that Recep spoke then about Adamiyyah at the Pontifical Institute for Arabic and Islamic Studies.  The audience was most impressed with and moved by his ideas.

I hope you will make time to buy his book and read it.

A recent CBS television program in the U.S. raised eyebrows and caused controversy within its culturally elite market segment.  Ta-Nehisi Coates was interviewed on his new book, which includes his vehement resentment of Jews in Israel.  Coates is African American, famous for his 2014 article in The Atlantic that America, because of its white racism and slavery, owes African Americans lots of money as reparations.  The CBS host – Tony Dokoupil – was not sympathetic in his questions to Coates and drew attention to Coates’ prejudice.

That put CBS in an awkward position of taking sides.  As the old movement song asked: “Which side are you on Boy, which Side are you on?  Do you march with Martin Luther King or do you “Tom” for Ross Barnett?”

Was CBS selling negative feelings about Israel and Jews or was it defending the cause of Israel as a Jewish homeland?  Hard to have it both ways.

But taking a side is selling a cultural product.

The interview led to dissension, recriminations and tensions in the CBS staff over what the company’s business should be, over what journalism is.  Really, the in-house debate was over the business model of CBS.  What is the product that CBS is selling – objectivity or emotions and prejudices?  What customer base do they seek to please?  Is that chosen product line profitable? What brand proposition does a company market when it associates itself with a cause or a lifestyle?  Is CBS selling news or entertainment?

One might argue that as long as CBS is meeting the needs of customers – a stakeholder constituency – it is a moral capitalist.  Or not?  What if its customers – like industrial polluters or individual drug users and alcoholics – generate negative impacts on society?  Some people’s values and beliefs make them despicable to others.

When values and lifestyles become products, business risks can rise, for not everyone likes every cultural or political value or personal lifestyle.  The business can follow its own values, but at an opportunity cost – it might make more money by selling the morality or the politics which are preferred by a different customer constituency.

But in closed societies, say theocracies or under intolerant authoritarian regimes that censor speech and seek to keep thinking straight and narrow, the choice of a business model is easier to come by: just do what the regime wants and don’t make waves by stirring up values and different opinions

Attached here is my report on last week’s conference in Jinju, South Korea, on a remarkable development in capitalism – a Korean cultural approach to entrepreneurship, which drew on inspiration from a 16^th century scholar centering his views on human-centeredness.

What the Koreans have achieved in providing well-being for their people and supporting a global economy at the same time deserves, in my judgment, our praise and appreciation.

I have been in the small southern city of Jinju in South Korea for a conference on entrepreneurship and wanted to send you the Declaration of Action.

I was a speaker, along with my Caux Round Table colleagues Lester Myers from Marymount University, Washington, D.C., Prae Piromya from the Sustainability and Entrepreneurship Center at Sasin School of Management, Chulalongkorn University, Bangkok and Claire van den Broek of True Price in The Netherlands.

I have learned much and will send you a longer report shortly.

I just read the current issue of The Economist while flying to Washington, D.C. to speak on a panel about Ukraine on ethics and economic development during a war.

I found it aligned with our thinking about moral capitalism in three articles.

First, about the virtue of capitalism in bringing forth innovation and new technologies:

Two years after ChatGPT took the world by storm, generative artificial intelligence seems to have hit a roadblock.  The energy costs of building and using bigger models are spiraling and breakthroughs are getting harder.  Fortunately, researchers and entrepreneurs are racing for ways around the constraints.  Their ingenuity will not just transform AI.  It will determine which firms prevail, whether investors win and which country holds sway over the technology.

Large language models have a keen appetite for electricity.  The energy used to train OpenAI’s GPT-4 model could have powered 50 American homes for a century.  And as models get bigger, costs rise rapidly.  By one estimate, today’s biggest models cost $100m to train; the next generation could cost $1bn and the following one $10bn.  On top of this, asking a model to answer a query comes at a computational cost—anything from $2,400 to $223,000 to summarize the financial reports of the world’s 58,000 public companies.  In time, such “inference” costs, when added up, can exceed the cost of training.  If so, it is hard to see how generative AI could ever become economically viable.

There is no need to panic.  Plenty of other technologies have faced limits and gone on to prosper, thanks to human ingenuity.  The difficulty of getting people into space led to innovations that are now used on Earth, too.  The oil-price shock in the 1970s encouraged energy efficiency and in some countries, alternative means of generation, including nuclear.  Three decades later, fracking made it possible to reach oil and gas reserves that had previously been uneconomical to extract.  As a consequence, America now produces more oil than any other country.

Already, developments in AI are showing how constraints can stimulate creativity.

Secondly, poverty needs good capitalism to put it out of its misery:

Since the Industrial Revolution, rich countries have mostly grown faster than poor ones.  The two decades after around 1995 were an astonishing exception.  During this period, gaps in GDP narrowed, extreme poverty plummeted and global public health and education improved vastly, with a big fall in malaria deaths and infant mortality and a rise in school enrolment.   Globalization’s critics will tell you that capitalism’s excesses and the global financial crisis should define this era.  They are wrong.  It was defined by its miracles.

Today, however, those miracles are a faint memory.  As we report this week, extreme poverty has barely fallen since 2015.  Measures of global public health improved only slowly in the late 2010s and then went into decline after the pandemic.  Malaria has killed more than 600,000 people a year in the 2020s, reverting to the level of 2012.  And since the mid-2010s, there has been no more catch-up economic growth.  Depending on where you draw the line between rich and poor countries, the worst-off have stopped growing faster than richer ones or are even falling further behind.  For the more than 700m people who are still in extreme poverty—and the 3bn who are merely poor—this is grim news. …

As the world has turned towards intervention, so the chosen instrument for poor countries has become trade restrictions, as IMF research shows.  This contains an uncomfortable echo of the failed development plans of the 1950s, built around freezing out imports rather than embracing global competition.  Fans of industrial policy will point to East Asia’s “tiger economies,” such as South Korea and Taiwan.  Yet, both embraced harsh global competition.  And several African countries that tried to copy their industrial policies in the 1970s failed miserably.

The world will pay for its failure to learn from history.  Rich countries will cope, as they usually do.  For the poorest people, however, growth can be the difference between a good life and penury.  It should not be a surprise that development has stalled as governments have increasingly rejected the principles that powered a golden era.  Nobody will suffer more as a result than the world’s poor.

Thirdly, woke antiracism and DEI programs are losing their welcomed seat at the table for discussions of what Americans must rightly do.  I argued 2 years ago that DEI, in particular, did not fit with the universalistic and humanistic ethics of moral capitalism:

The simplest way to measure the spread of woke views is through polling.  We examined responses over the past 25 years to polls conducted by Gallup, the General Social Survey (GSS), Pew and YouGov.  Woke opinions on racial discrimination began to grow around 2015 and peaked around 2021.  In the most recent Gallup data, from earlier this year, 35% of people said they worried “a great deal” about race relations, down from a peak of 48% in 2021, but up from 17% in 2014.  According to Pew, the share of Americans who agree that white people enjoy advantages in life that black people do not (“white privilege” in the jargon) peaked in 2020.  In GSS’s data, the view that discrimination is the main reason for differences in outcomes between races peaked in 2021 and fell in the most recent version of the survey, in 2022.  Some of the biggest leaps and subsequent declines in woke thinking have been among young people and those on the left.

The columnist, Lexington, ended that weekly commentary with these thoughts on white supremacy:

The left is due for a reckoning over the reckoning on race.  The protesters have moved on, the book sales have dried up, the DEI departments are emptying and the elite white groveling and self-flagellation … have been, on the left, politely memory holed.  Yet, a movement concerned with structural injustice has achieved little structural change, whether to policing or the black-white wealth gap.  Was it all, in the end, just a performance?

I attach here part of a recent article from the Wall Street Journal which I think has an important moral message:

Consider how stakeholders can benefit from free market entrepreneurship and how the externalities of entrepreneurial success can benefit society and culture.