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Giant, high tech firms with vast earnings and even greater stock market valuations are the cutting edge of evolving capitalism. I have suggested in previous commentaries that market power can lead a company to be placed under obligations to seek the common good. In the U.S., long after anti-trust officials in the E.U. looked askance on the market power of Google and Facebook, the U.S. Department of Justice has opened a broad review of whether dominant technology firms are unlawfully stifling competition.

The review will examine on-line platforms as gateways to commerce in internet searches, social media and retail services.

One point of worry for me is the ability of internet firms to suck in advertising revenues and so drive older forms of media – print media – into economic failure and closure, directing our politics towards demagoguery, delusions and dumbing down our people.

I have noted before that the opinion of the U.S. Supreme Court in the 1876 case of Munn v. Illinois, a case of cartel monopoly power over grain storage elevators in Chicago, provides an ethically based reason for restraining companies which stand at the gateway of commerce and take a toll to permit passage of goods. The Court asserted that a willing assumption of monopoly power brought upon a company acquiescence to the right of society to assert a license over the company to take care that the good of the public was not harmed.

The Court held by imputation that if a company did not want to operate under such a restricting license from public authority, then it need only not seek monopoly power. Instead, the company was free to choose to do business facing the hazard of competition.

The policy of the Court was to ensure that lawful commercial arrangements would not be misused and lead to inequitable outcomes in practice; that financial and economic power would be diffused widely and decentralized. This policy was the natural corollary to the principle of constitutional democracy that government power must be disbursed across institutions where one would check another from aggrandizement and tyranny.

I am reminded of the admonition of James Madison in commenting on the provisions of our U.S. Constitution: “If men were angels, no government would be necessary.”

Where there are no ethics, law must safeguard our wellbeing. Or to put it slightly differently: where there is no virtue, power assumes control and must be disciplined by law – even in capitalism.

Fifty years ago when the American Neil Armstrong first walked on the surface of the moon, I was in South Vietnam. I was actually in a car driving myself from the District of Tam Binh in the Mekong River delta Province of Vinh Long up to Saigon along National Route 1. I had been reassigned from serving as a civilian Deputy District Advisor to the position of Chief, Village Government Branch in the Saigon headquarters of our advisory effort to assist all South Vietnamese nationalists from hamlets and villages to urban centers in fighting back against unwanted conquest.

I had placed a transistor radio on top of the dashboard leaning against the front window of my International Scout to hear news of the moon landing in real time as I drove north. Just as Neil Armstrong spoke – “That’s one small step for a man, one giant leap for mankind.” – a U.S. Army truck passed me going south. One young GI sitting in the back of the truck threw his half-eaten ration can to the side of the road. Three young Vietnamese boys, about 10 years old each with delighted smiles on their faces, ran up from the shacks where they lived next to the highway and took the can, a trophy perhaps to them.

I still remember the stunning moral contrast that came to my mind between the two events – one so remarkable and the other so ordinary, even tawdry; one so magnificent as a marker of human achievement, the other so profane for its celebration of the timeless human condition – war and poverty.

As we reflect on humanity’s power over nature, the gaining on our own without help from God or the spirits the ability to reach the moon, what might we learn that would help elevate us away from more wars and move poverty?

I offer only one suggestion: human achievement depends on intangibles. We tend to pridefully rest our self-confidence on things – great buildings, pyramids and walls, cathedrals and bridges, money and machines, houses, cars, jewels and other owned possessions. But is it not our ideas, our ideals, our sense of purpose, our psyches, our cultures, our interpersonal relationships, our courage, our aspirations, our fears and our desirings which lie at the origin of all our achievements – good and bad?

I am reminded of Kipling’s warning to us all, a bit of wisdom from an imperialist who nevertheless worried that we humans too often lose a sense for the transcendental:

For heathen heart that puts her trust
In reeking tube and iron shard,
All valiant dust that builds on dust,
And guarding, calls not Thee to guard,
For frantic boast and foolish word—
Thy mercy on Thy People, Lord!

The then unsurpassed technical achievements which put Neil Armstrong on the moon – science, math, design brilliance, computers, manufacturing perfection and organizational harmony – all rested on social and human capital. The money, metallurgy, guidance mechanisms and flag planted by Armstrong were second order goods derived from human genius which can be neither touched nor boxed and shipped anywhere, much less to the moon.

As we seek to engineer a more optimal economic ecology for our global human family, let us have more respect for the moral factors in our civilizations.

A new colleague, Hans Reus of The Netherlands, just sent me an article he wrote titled “Call to Action: Accelerating Sustainable Business Leadership” on a vital topic: encouraging leadership.

As I ended my 2004 book Moral Capitalism, Hans agrees that leadership, not systems, is a key variable in human wellbeing, for better and for worse. Leaders make systems and sustain them. Systems sustain themselves by grooming leaders who align with status quo values and interests.

So if we want to make global capitalism more responsive to the demands of sustainability or fairness, we need to cultivate the right kind of leaders.

I put it: moral capitalism does not happen by itself; it must be made to happen.

The selection of leaders is paramount.

I believe his article is an excellent statement on how to improve corporate leadership.

Please read it and let me know your thoughts.

It seems to me that there is a non-trivial dependency of increasing concentration of wealth in the top 10% and the expansion of tradable contract rights such as stocks, bonds, derivatives, ETFs, futures contracts, options. Parallel with the expansion of financial opportunity in the buying and selling of such contracts has been government generated expansion in money and credit. Central banks have become expert in using fiat currencies and the provision of credit to pump liquidity into national economies. Qualitative easing has kept the OECD economies growing; China has funded much of its remarkable growth with government provided loans. There is so much liquidity in the E.U. that some instruments have negative interest rates.

Thus, when I read last Friday that the Dow Jones Industrial Average hit a record by closing above 27,000 for the first time, I was not overjoyed.

That day, the S&P 500 index climbed above 3,000 for the first time.

And this happened when, as Corrie Driebusch reported for the Wall Street Journal that “Second-quarter earnings are shaping up to be a challenge, but the stock trajectories of some companies that have already reported show that investors are forgiving. A handful of companies that reported disappointing earnings in June are now in a surprising place—their shares are near or above their levels prior to reporting results.”

My first questions was: what is driving stock prices up? Low interest rates making money cheap for those who have it?

My second question was: cui bono? – “For whose benefit?”

This was Cicero’s insight into explaining human behavior: finding out who benefits from an action will lead us to understand the cause of what happened.

Then, on Saturday, the Wall Street Journal ran a story that “prospects of a Fed rate cut propel stocks, oil prices.” So those with the means to speculate are made more wealthy by government policy.

And with low interest rates, savings – most important to the middle classes and even the poor – are discouraged. Asset accumulation is titled towards the rich.

As has long been said of financial capital: “Those that have, get.”

The Caux Round Table for Moral Capitalism, from the adoption of its ethical Principles for Business 25 years ago in 1994, accepted as necessary for good business risk management prudent responsibility for the impacts of a business on stakeholders.

Such concern implicates the future profits of a business. Good risk management of stakeholder relationships makes future profits more certain. Certainty of future earnings improves the net present value of a business.

But our financial mechanics of putting a value on a business is timeworn, placing a blindfold on owners, managers and investors, preventing them from seeing clearly the real value of a business.

We are convening round tables this year in various cities around the world to explore how valuation methodology can be modernized for the current era of sustainability.

We asked the noted research firm Oxford Analytica to prepare for us a background report on valuation methodology and current initiatives to improve it, which is available here.

I urge you to read it and let me know your thoughts on the role of valuation in today’s global capitalism.

The term “moral capitalism” is gaining traction.

In the June 24th online edition of the New York Times, Michael Kazin of Georgetown University asks “Whatever Happened to Moral Capitalism?”

Do you agree with his assessment? Have we ever had a moral capitalism? Do we now? If not, what’s your vision for one?

I am increasingly persuaded that the idea of “merit” goods should have a role in thinking about free markets.

The foundational moral basis for capitalism I have suggested is the willing assent of market participants to a transaction. The ethics of a transaction – a sale, a hiring – arise from mutuality, the interdependence on the parties that each has something of value to the other and that the exchange is freely entered into.

Thus, any factor which closes down the freely accepted terms of agreement – compulsion such as resulting from monopoly or monopsony, rent extraction by governments and other power imbalances, including ignorance and misrepresentation – detracts from the morality of capitalism.

Yet, what if buyers and sellers agree to do something harmful?

What if neither party cares about the negative externalities of a product? Who is to judge their ethics? God only? The state? Parents of naughty children?

The idea of a merit good creates space for freedom in markets. Merit goods and services should be sold and consumed. Unmeritorious goods and services, on the other hand, may be forced off the market or their sales regulated.

There are two recent examples of interaction between markets and unmeritorious goods:

First, the company Purdue Pharma LP is now in financial difficulty for promoting and selling Oxycontin, an opioid. Oxycontin has serious negative externalities which contributed to the opioid crisis and deaths in the U.S. The company’s revenue will drop below $1 billion this year for the first time. Employees are leaving and a potential bankruptcy filing looms.

Secondly, bullets. Bullets can be used to kill and wound people. What merit is there in that? California has passed a law requiring those who want to buy bullets for their guns to undergo a background check before they can make such purchases. Their freedom to buy has been circumscribed given the potential for harm possessed by the product they desire to have.

The law attempts to reduce the harm done by bullets by limiting their sale to those more likely to have “meritorious” intentions in shooting them.

A couple of weeks ago, Heather Gillers reported in the Wall Street Journal that the well-regarded California Public Employees Retirement System (CALPERS) is reconsidering its acclaimed practice of investing for social good following the theory of socially responsible investment.

CALPERS directors are keeping their ownership shares in private companies which run prisons, sell guns or have business links to Turkey (to protest that country’s lack of recognition of the Armenian persecutions 100 years ago) because of the potential for losing needed revenue with which to pay retirees or because of uncertainty about the beneficial effects of such disinvestment.

Underfunded public pension funds across the U.S., short some $4.2 trillion in assets necessary to earn enough money to pay promised pensions, are also thinking about their responsibilities.

On the one hand, they have a conflict between two different standards of merit: one is financial – earning money for beneficiaries and the second idealistic – promoting social good for third parties.

On the other hand, the micro-economic realities of marginal utility curves create their own moral imperatives. When you are flush with money, using some of it for social good does not come at a high cost. But when funds are low, the marginal utility of each additional dollar spent is high. The opportunity cost of not spending it on something else is significant. How, then, should your seeking to do good be balanced against using the dollar prudently to increase your assets?

When is the accumulation of assets for those who depend on them a higher social good?

CALPERS Chief Executive Marcie Frost said “With a targeted return of 7%, we need access to all potential investments across all asset classes. Divesting does the exact opposite – it shrinks the investment universe.”

Just as they teach in Economics 101: you can’t have it all; there is no free lunch; everything comes at a cost; choices must be made.

A recent article in the Atlantic was reassuring to me. It provided confidence that general wisdom – the kind provided by ethics and principles – can be more reliable than professional expertise in guiding our decision-making. Consider Boeing’s reliance on exquisite software to overcome a design problem with the large engines used in its 737 Max8 aircraft.

Philip Tetlock did a study of the reliability of expert predictions. Over 20 years at work, he gathered from experts 82,361 probability estimates about the future.

The experts were, by and large, very bad forecasters.

When they declared an event was impossible, in 15% of the cases, it happened. When they declared an event was certain to happen, in over 25% of the cases, it did not.

Later studies came up with similar results. There is a cost to focusing too narrowly when it comes to thinking about the future.

Importantly, a sub-group of scholars did better in predicting those events that did happen. They were not vested in a single discipline. They integrated conflicting views. They had personalities which made them effective collaborators. They were curious about everything. They viewed teammates as sources of new knowledge, not as rivals to be convinced.

When outcomes differed from what they had expected, these generalists adjusted their thinking, while more narrowly specialized experts barely budged from their established views. The best forecasters viewed their ideas as hypotheses in need of testing.