CAPITALISM TO CONSCIOUS CAPITALISM TO CONSCIENCE CAPITALISM: THEEVOLUTION OF AN ECONOMIC SYSTEM

L. SRIDHARA MURTHY, Ph.D.,PROFESSOR (ECONOMICS),

AMRITA SCHOOL OF ARTS AND SCIENCES(AMRITA VISWAVIDYAPEETHAM),BOGADI, MYSORE: 570 026

ABSTRACT

{Markets have established as far back as history goes. But

markets, whether they be exchanges between primitive tribes where

objects are casually dropped on the ground or the exciting

travelling fairs of the Middle ages, are not the same as market

system. For the market system is not just a means of exchanging

goods. It is a mechanism for sustaining and maintaining an entire society. Such a

mechanism has been undergoing tremendous changes especially during

the latter half of 20th Century, more so during the 1990s. The

traditional Market Economy, or to use a more political economy

based expression - Capitalism, has been seeing perceptible changes.

The Paper intends to explore the main contours of the emerging

paradigms. The first is already making waves in the West,

especially, the United States of America in the form of Conscious

Capitalism. A more refined form of this version of capitalism,

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which the author calls, Conscience Capitalism also needs closer

examination .

In the prologue to the book “Firms of Endearment: How World-Class Companies

Profit from Passion and Purpose” Rajendra S. Sisodia, David B. Wolfe, and

Jagdish N. Sheth  (Pearson Prentice Hall, Feb.2007), the authors

contend that the 21st Century is witnessing historic transformation

of capitalism. This is billed as a movement that will change the

underpinnings of modern business, taking companies away from the

sole pursuit of shareholder value to an order where the interest

and benefits of all stakeholders in a company – employees,

partners, community and shareholders are considered equally. Since

the launch of the book, the movement is now referred to as ‘Conscious

Capitalism’. It was formalised in July 2009, when the Conscious

Capitalism Institute was set up at Massachusetts, USA. The Indian

Chapter has also been launched. How relevant is this theory in

the Indian context when viewed from the prism of Indian corporate

entities needs to be analysed.

The author feels that a more refined form of ‘Conscious Capitalism’ which

he calls Conscience Capitalism is the need of the hour. The author

would like to view this in the context of new Companies Bill,

which has got the assent of the President of India.

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(Key words: Capitalism, Conscious Capitalism, Conscience

Capitalism, Seven Social Sins )}

Introduction

The term ‘Capitalism’ has undergone significant conceptual

change, in a way, a kind of metamorphosis. We now talk of ‘Market

Capitalism’1 , ‘Backyard Capitalism’ 2, and other terms used from

time to time. ‘Conscious Capitalism’ has become a Movement and the

author feels that the time has come for ‘Conscience Capitalism’.

Capitalism may be visualised as the larger social order in which

the Market plays a crucial role. The terms ‘Market’ and

‘Capitalism’ are used interchangeably.

The focus of this Paper is to briefly trace the evolution of

this economic system and the changes that have occurred over the

years, nay, centuries. In the light of the current corporate

thinking, an analysis of ‘Conscious Capitalism’ is attempted and

the author argues the need for a more refined holistic form of an

economic system, called ‘Conscience Capitalism’. The contours of

these are presented here.

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The Dichotomy of Traditional Capitalist System:

Capitalism is both an economic system and a political order.

The difference between the two is not as great as we might think.

The life process of capital expansion has political as well as

economic consequences, generating social ills along side material

well being.

Marx, a searching diagnostician of its political as well as

economic system, thought that the economics of capitalism was

dominated by the ‘contradictions’ generated by its drive for

production, and its politics by the ‘class struggles’.*

Capitalism as an Economic System: Capitalism’s most striking historical

characteristic is its extraordinary propensity for self-generated

change. It is a social order in constant change, a change that

seems to have a direction, an underlying principle of motion, a

logic. The thrust of Capitalist history conveys a notion of

immanent change – a past leading upward to into the present and a

present promising further upward into the future. It is this

strong feeling of self-propulsion along a rising gradient that

constitutes the core idea of progress.

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The idea of progress itself is an idea that is subject to

different view points depending both on spatial and temporal

factors. In a capitalist economy, the energy that it generates is

like the electricity generated by a battery. Everyone knows this

unique social voltage. These are the drive to get ahead, to make

money and to accumulate capital. The last phrase is integrally

connected to the system that is built on it, which may be veiled or

even concealed in the everyday use of the terms ‘getting ahead’ or

‘making money’. Thus a closer look at the word ‘capital’ is called

for.

Surprisingly, ‘capital’ is not the same thing as wealth.

Wealth is a very ancient aspect of human civilization, but the

drive to amass it has never become a force for continuous and deep

change. The rulers of India or China accumulated vast treasuries

of gold and built magnificient palaces and temples, but there was

never anything in their long histories that even vaguely resembled

the develomental logic we see now. Wealth is a symbol of power and

prestige, and it is inextricably associated with inequality. This

is an insight that we get from the first great philosopher of

capitalism who wrote that “Wherever there is great property, there is inequality…

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The affluence of the rich supposes the indigence of the many”. It is Adam Smith

speaking, not Karl Marx3.

Smith found two benefits that wealth bestowed. The first was

esteem, which is based on unequal

status. Second reason was rooted in another source of the

difference that wealth introduced. “Wealth” wrote Smith, quoting

Hobbes, “is power”. Power conferred by wealth is not political or

military although it may be stepping stone to the latter. It is

the “power of purchasing; a certain command over all the labour, or over all the produce

of labour which is then in the market”4.

An unaccustomed thought that flows is that a society of

equals–in–wealth, would, of necessity, be a society in which there

was no economic power. It is the right to deny access to the means

of production that is the central advantage conferred by wealth in

capitalism. An individual who owns no capital is perfectly free to

labour as he or she wishes, and may in fact, become very successful

using only the property of his or her body – actors or singers are

instances in point. But anyone who has no such personal talent

must pay for the privilege of making use wealth that belongs to

another. This puts into light the institution ‘wage labour’, which is

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the manner in which the labour of individuals is marshalled and

remunerated under capitalism.

Is capital wealth? Yes and No. Capital is certainly wealth,

insofar as one who possesses capital is usually a person who enjoys

esteem and wields power in the market place. The question, then

is, whether wealth is capital. The answer is that sometimes it is

and sometimes it is not. Capital is wealth which is used to create

a larger amount of capital. Typically, this follows the following

flow chart:

As a conequence of this endless turnover, the physical

characteristics of commodities have nothing to do with their

functions as a means of wealth. A capitalist can get rich on coal

or scrap metal, which no one could imagine as wealth. By the same

token, K.K. Hebbar’s painting, which is certainly an embodiment of

wealth, does not become capital by itself, but is used as a

stepping stone for amassing still more capital. Then the possessor

of Hebbar’s paintings becomes an art dealer. Capitalism thus

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Money Commodites (Raw materials

Finished goods and services

Sold on the

Buy more raw

Repeat the

differs from wealth in its intrinsically dynamic character,

continually changing its form from commodities into money and then

back again, in an endless metamorphosis that reflects the changeful

nature of capitalism itself.

Two motives of this system may be highlighted: First, the

motive of ‘maximising’ our satisfaction seems inadequate to account

for the insatiability of the drive that Marx described as “Accumulate

! Accumulate ! That is Moses and the prophets”5. There is the second motive

that supplements the first. It is that as a result of each

capitalist seeking to expand his scope of operations soon leads to

the collision of capitalist against capitalist that we call

competition. “One capitalist always kills many” said Marx. Thus

from this viewpoint, capitalist appears not merely as a social

order characterised by constant change, but as one in which the

pursuit of wealth fulfills some of the unconscious purposes.

Observe this assertion of Adam Smith that we are creatures of a

“desiring of bettering our condition” – a desire that he said, “comes with us from

the womb, and never leaves us till we go into the grave”- and his further

description of the most common object of this desire as an

“augmentation of fortune”, which is to say, making money.6

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Dynamism or Instability ?

The idea of ‘dynamism’ is in-built in the capitalist system –

representing vibrancy, flexibility and adaptability. How positive

is this dynamism is an issue that does not have a uniform answer.

While what has been said above is the positive, the ‘do good’

aspect of capitalism, there is the other side, where when ‘wealth

accumulates men decay’ or shall we say, the system dies or

collapses? Three such thinkers /masters in their own ways, may be

worthy of a brief analysis – Karl Marx, John Maynard Keynes and

Joseph Schumpeter.

Karl Marx – “the prophet of doom for capitalism and chief

saint in the communist hierarchy” – is one of those influential

thinkers about whom much more has been written than he himself ever

wrote. “Marx never underestimated the capacity of the capitalist system for economic

expansion. Indeed, in this respect he was perhaps more optimistic in his prognosis for

capitalist development than Malthus or Mill. True, he expected capitalism to break down,

but for sociological reasons, not because of stagnation, and only after a very high degree

of development had been attained.”7

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The capitalist class is at the center of the Marxian analysis.8

This group ushers in capitalism

by forced expropriation of the means of production from the

workers. Since these means are now possessed by the capitalists,

all that a worker can contribute to production is his labour

time. Naturally, all the efforts of capitalists are designed to

expand the flow of surplus value which accrues to them. For, in

doing so, they are able to raise their standard of living by

consuming a portion of the surplus value but also to increase

their power and control in society.

Marx considered technological change the prime mover of the

system. The technology of each era in a country’s develoment

determines not only the economic situation, but also the ‘style’

of the whole society. For Marx, capitalism is merely one of a

series of stages in the evolution of society toward the socialist

state, which is the inevitable final form of economic, social and

political organisation. Each stage of social evolution, with its

characteristic technology and ‘style’ breeds its particular kind

of class struggle which leads to its breakdown and the emergence

of the next, higher form of social organisation. Capitalism

brings a very high stage of technological advance. But

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capitalism leads eventually to a bitter class struggle between

workers and capitalists from which the workers will emerge

victorious and establishes the ‘dictatorship of the proletariat’.

Capitalists are caught in the pincers. In order to survive

the competitive race, they must be continuously introducing

improved techniques, which mean accumulating capital, using more

capital intensive and less labour intensive techniques.

Another major scenarist also expected a troubled future for

capitalism, of course for different reasons, and with different

outcomes. John Maynard Keynes is today regarded as a prophet of

capitalist decline. “If Keynes was an analytical pessimist, he was a visionary

optimist”, to borrow the expression of Heilbroner. He was

pessimistic because his analysis of the workings of the market

led to the disconcerting conclusion that a market driven society

could settle into a position of lasting underemployment. That

pessimism reflected a static view of technical possibilities. It

is doubtful whether the General Theory would have manifested its

discouraged tone had it been written in the post war era of

transformational change that Keynes did not live to see.

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The pessimistic analysis was balanced by a sanguine assessment

of capitalist political possibilities. Keynes could envisage

with equanimity not only ‘socialisation of investment’ as the

most feasible means of approaching full employment, but also the

‘disempowerment of the monied class’. Yet, all the while, Keynes

shrugged his shoulders at the idea of socialism, for which he

entertained a kind of tolerant skepticism. “His vision was one of a

stable and adaptive polity redressing the failures of an ill-working economy”.

The third of the scenarists without whom the analysis would be

incomplete is Joseph Schumpeter. He is at once an ‘analytical optimist

and a visionary pessimist’.

The central figure in Schumpeter’s analysis is the

entrepreneur. He is the innovator, the one who undertakes new

combinations of the factors of production. Innovations may occur

in the following forms: (i) introduction of a new product; (ii)

the use of new methods of production; (iii) the opening of new

market; (iv) the conquest of a new source of raw material supply;

and (v) the reorganisation of any industry. For him, ‘it is the

leadership rather than ownership that matters’. The existence of innovation

possibilities is a necessary but not a sufficient condition for

development; entrepreneurs are also needed for carrying out

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innovations. The entrepreneur’s motivation for profits (the

measure of his success) is based, not merely on the desire to

raise his consumption standard but also on such non-hedonistic

goals as the desire to found a private dynasty, the will to

conquer in the competitive battle, and the joy of creating.

Schumpeter assumes that changes in consumer tastes are brought

about by producer’s actions. This supposition is important, for

if this is not made, innovations would tend to be restricted to

those types that reduce the costs of producing existing products.

Without the entrepreneurial function, Schumpeter asserts that

progress under capitalism would be much slower than it actually

is.

For Schumpeter capitalism may be an economic success, but it is

not a sociological success. The great entrepreneurial adventure

comes to an end, not because the working class has risen up or

the system has finally been unable to master a worsening

succession of crises, but because the atmosphere has changed.

“Personality and force of character count for less; bureaucratic management for more.

Innovation itself becomes institutionalised and reduced to routine. The bourgeois

family, the great transmission belt of capitalist values, becomes infected with the

disease of rationalism. The bourgeois class loses faith in itself. Thus, while things are

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going well at the surface, there is ‘tendency toward another civilization that slowly

works deep down below’”9.

It is a very Schumpeterian kind of socialism, a benign,

bureaucratic, planned economy. He has beaten Marx on his own

ground. He surrenders to Marx in what seems to be the crucial

point of contention, namely, whether capitalism can survive. But

he has bested Marx by demonstrating - or at least arguing - that

capitalism will give way to socialism for Schumpeter’s reasons

not Marx’s !. Marx is accorded every honor, but Schumpeter’s

view nonetheless carries the day.10

What are to infer from the above three analytics? Capitalism,

or if you prefer, Market Economy, per se is not a bad system at

all. But there is an inherent tendency for it to be unjust. What

if we identify these unjust elements and introduce correctives to

make it ‘Just Capitalism’? What follows is a brief exposition of one

such attempt and the other an initial exploration.

Corporatising Capitalism: The ‘Conscious Capitalism’

“We’re entering an Age of Transcendence, as people increasingly search for higher meaning in their lives, not just possessions. This is transforming the marketplace, theworkplace, the very soul of capitalism. Increasingly, today’s most successful companies are bringing love, joy, authenticity, empathy and soulfulness into their businesses; they are delivering emotional, experiential, and social value – not just profits.”

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Our first theories of economics were developed during the

Industrial Revolution. Prior to that, economics did not exist

as a discipline. Economics was created as one explanatory

response to the Industrial Revolution and initial economic models

were based on industrial models of the economy. Although economic

theory has evolved since Adam Smith wrote The Wealth of Nations in

1776, many economists continue using industrial and machine

metaphors to explain how the economy works.

Now that we are well into the Post-Industrial Information Age,

these metaphors have become outdated and mislead our

thinking about business. For example, recall the trinity of

labor, land, and capital as “factors of production”, and

therefore as merely a means to the end of efficiency and profits.

According to this model, business operates like a machine—

business owners input various amounts of capital, labor, and land

at the start. Profits then spit out on the other side of the

metaphorical machine. As most modern economists continue to see

it, very much like this model, the purpose of business is to

transform factors of production into profit for the benefit of

the investors. The world has become much more complex since those

simple machine metaphors were first developed. Unfortunately,

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current business thinking does not easily grasp systems

interdependencies, and therefore often lack ecological

consciousness or a sense of responsibility for other

constituencies, or other stakeholders, besides investors. Large

corporations are still grounded in a theoretical model that does

not acknowledge the complex interdependencies of all of the

various constituencies. For business to reach its fullest

potential in the 21st Century, we will need to create a new

business paradigm that moves beyond simplistic machine/industrial

models to those that embrace the complex interdependencies of

multiple constituencies. This is the reality in which

corporations exist today and our economic and business theories

need to evolve to reflect this truth11.

In the prologue to the book “Firms of Endearment: How World-Class

Companies Profit from Passion and Purpose” Rajendra S. Sisodia, David B.

Wolfe, and Jagdish N. Sheth  the authors contend that the 21st

Century is witnessing historic transformation of capitalism.12

This is billed as a movement that will change the underpinnings

of modern business, taking companies away from the sole pursuit

of shareholder value to an order where the interest and benefits

of all stakeholders in a company – employees, partners, community

16

and shareholders are considered equally. Since the launch of the

book, the movement is now referred to as ‘Conscious Capitalism’.

It was formalised in July 2009, when the Conscious Capitalism

Institute was set up at Massachusetts, USA. The Indian Chapter

has also been launched.

In 2009, the Conscious Capitalism Institute (CCI) was set up

as a non-profit organisation to advance the understanding and

implementation of the Principles of Conscious Capitalism in all

forms of business and social organisations.

The SPICEE Model: The essence of this model is that business caters

to the larger interests of Society, Partners, Investors,

Customers, Employees and the Environment. (Note: Earlier it was

referred to as the SPICE model and environment was not there).

This model is in contrast to the conventional model of business,

which focuses solely on return to shareholder. The Conscious

Capitalism Movement is based on solid empirical evidence which

demonstrates the benefit for companies in pursuing the greater

interest of all stakeholders. Conscious Capitalism is not about

corporate social responsibility: it's about building companies

that can sustain success in a radically new era. It's about great

companies like IDEO and IKEA, Commerce Bank and Costco, Wegmans

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and Whole Foods: how they've earned powerful loyalty and

affection from all their stakeholders, while achieving stock

performance that is truly breathtaking. It's about gaining "share

of heart," not just share of wallet. It's about aligning the

interests of all stakeholders, not just juggling them.

Three common principles:

1. The company has a manifest purpose that goes beyond just

making money. For instance, one of the firms of endearment is

a US food retailer called Whole Foods – who have a Declaration of

Interdependence that spells out the interlinkage among all the

stakeholders.

2. The loyalty of employees is a gift that firms have to earn.

Ex.: UPS (a package company) and

3. Presence of a visionary, mentoring leadership. Leaders who

treat their stakeholders as complete human beings.

CEO compensation is also a factor that the survey has captured as

one of the attributes of a Firm of Endearment. Ex.: US Fortune

500 company is 1:400, while in the lowest case for a firm of

endearment it was 1:19 which was Whole Foods. Still the highest

ratio in a Firm of Endearment is 1:75. This is a critical

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statistic: the mindset of leaders is a crucial part of this

movement that will transform capitalism as we know today.

The optimistic expectation is that eventually, for the betterment

of society and the environment, the major business model will

incorporate the principles and practices of “Conscious

Capitalism.” In the long run, conscious businesses outperform

traditionally run companies by a wide margin. In fact, through

all the practical advice and insight proffered from successful

and compassionate entrepreneurs and businessmen, “Conscious

Capitalism” demonstrates conclusively that in business, nice guys

don’t always finish last. They may finish first.

Some Indian Examples13

(1) FORBES MARSHALL:

Forbes Marshall has always believed in the philosophy of

contributing and giving back to the community it operates in.

Thus when the factory was originally set up in Kasarwadi, Pune in

1958, Darius Forbes felt it was insufficient to merely purchase

land from the farmers who were the original owners of the land;

it was necessary to now actively and positively contribute to the

community the company would be operating in. So the first jobs in

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the company were offered to relatives of the farmers who were

then trained for operation and machining skills. In Kasarwadi,

street lighting was provided and basic sanitation facilities were

looked into.

A few years ago, the directors of Forbes Marshall found that

though SC and STs formed a quarter of the country’s population,

they accounted for only 6.8% of Forbes Marshall’s workforce.

Forbes decided affirmative action, rather than reservation. The

company adopted a four point plan put forth by the CII: direct

employment, improving employability, developing entrepreneurship and primary and

secondary education. For almost 40 years now, Forbes Marshall had

been shaping entrepreneurs. When people approached the company

for jobs, it would instead provide basic vocational training in

areas like carpentry and welding. It would absorb some of them

or help them set up independent units.

Marshall has started sensitising its employees to supplier

diversity. Simply put, all other things being equal, if the

company has to choose between two vendors, it will choose one

from an underprivileged background.

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(2) Mahindra and Mahindra: The wheels of change are turning at

Mahindra’s tractor dealerships. This auto major is transforming

these tractor-selling outlets by adding a repository of

agricultural information and advice to them. Their new name is

Samridhi (or prosperity). Farmers can bring here to buy tractors.

Farmers, whether they own Mahindra tractor or not, can also come

here to solve their agricultural problems.

Every Samridhi centre has an agricultural expert and a lab

technician. So far Mahindra has transformed all its 92 dealer

outlets.

(3) Marico: It is in the business of cooking oil, yet the FMCG

major Marico spends time and money telling people to go easy on

it. It is good business. Marico positions Saffola, its cooking oil

brand, as a healthy oil. It is also a belief system. The

company reinforces its belief system – consume less oil – in many

ways. It has a 9 a.m. to 6 p.m. phone line, where anyone can

talk to a nutrition expert for diet related queries. In 2009-10

for example, with every pack of Saffola Functional Food, it gave

away two coupons for a free lipid profile test.

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The Saffola Healthy Heart Foundation, set up by Marico in 1991,

holds free heart and cholesterol check-up camps and walkathons.

That many of them prefer Saffola for cooking shows healthy

practices can be healthy business too.

(4) Pepsico India: In 2009, PepsiCo India used 5.17 billion litres

of water for its products. The same year, it saved or put back 6

billion litres - 830 million more than what it consumed – into

the system according to the figure released by the company and

verified by audit firm Deloitte Touche Tohmatsu India.

PepsiCo India has achieved a positive water-balance through three

steps: One, the company helped its contract farmers change the

way they planted paddy. Instead of flooding the fields, it gave

them a direct-seeding machine, which could be mounted on a

tractor. This reduced water consumption by 30-40%. The direct-

seeding programme which covered 6,500 acres across five States,

saved about 4.7 billion litres of water. Two, it built check

dams and recharge ponds around its plants. It trapped rain water

and diverted some of it to people around the area for farming or

drinking. For instance, in Aurangabad, a water scarce area,

where it has a plant, it constructed 13 check dams and recharged

over 100 wells. This has created the potential to recharge 700

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million litres of water and benefited 12,000 villages. Three,

all its plants have rain or roof water harvesting, which brings

in 133 million litres.

In 2002, PepsiCo India started ‘revaluing’ water as a resource.

In 2009, it became the first company in PepsiCo to become water

positive. The Indian arm has now plans to extend its outreach to

its bottling franchisees and supply-chain partners. And the

parent plans to replicate this in other water-scarce markets like

China.

(5) Tata Steel: One of the Articles of Association of Tata Steel

says: “The company shall be mindful of the social and moral responsibilities to

consumers, employees, shareholders and the local community”. That thought in

mind, Tata Steel built the city of Jamshedpur to house people

working in the company’s plant there. All civic amenities in the

104 year old city are managed by Tata Steel’s subsidiary Jusco.

It spends about 100 crore a year on the city’s development and

maintenance.

Tata Steel which has a captive iron ore and coal mines has a

policy for minimum displacement. In 1979, it set up Tata Steel

Rural Development Society (TSRDS) as a subsidiary to address the

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needs of people near its plants and mines in Jharkhand and Orissa.

TSRDS promotes integrated rural development that include drinking

water, health and hygiene, education, environmental awareness,

youth development and income generating programmes. “Profit is not a

bad word; we make sure a part of it goes back to society where we operate”.

(6) Kannan Devan Hill Plantations (KDHP): In 2005, Tata Tea handed

control of its loss making tea plantations to its workers who

formed the KDHP. Today, they are flourising and are being

portrayed as a model for how to run a tea plantation. Among the

13,000 workers spread across seven gardens, Seethalakshmi a

plantation worker holds the plucking record of 110 kg in a day.

In 2009-10 as a reward for achieving the highest productivity

among workers, she was name a worker-director of the company.

This feeling that the company belongs to them has brought a

greater sense of commitment and responsibility. Today, 98% of the

13,000 workers own around 68% of KDHP while 18% is owned by Tata

Tea (the remaining 14% held by trust and others). Each worker has

a minimum of 300 shares. The share which has a face value of

Rs.10 is worth around Rs.50 now.

When the Tata handed over the plantations to the workers, it

was running at a loss of Rs.8 crore. In 2009-10, KDHP clocked a

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net profit of Rs.41 crore. The buoyancy in tea prices would have

helped KDHP but the turnaround is also a testament to the change

in the company’s management structure and operational processes.

Productivity has increased 58%. By benefiting all stakeholders,

the employee-run company model, as epitomized by KDHP is making a

strong case for itself in the people-intensive plantations

business.

It may appear somewhat coincidental that the new The Companies

Act, 2013 (NO. 18 OF 2013) which came into on 1st April, 2014, has

inserted Section 135 which commences as follows:

135. (1) Every company having net worth of rupees five hundred crore or more, orturnover of rupees one thousand crore or more or a net profit of rupees five crore or

moreduring any financial year shall constitute a Corporate Social Responsibility

Committee of theBoard consisting of three or more directors, out of which at least one director shall

be anindependent director………

A Refined form of ‘Conscious Capitalism’: Conscience Capitalism:

Having analysed the features of the traditionally viewed

Capitalism and the corporate view of the same in the current

context, it may not be inappropriate to move a step forward to

introduce what the author calls ‘Conscience Capitalism’. Indian

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thinking and culture as represented by the Gandhian perspective

has a lot to offer in this direction. Who has not heard of the

Seven Social Sins put forth by Mahatma Gandhi in his Weekly Young India

(22.10.1925)? Here is the full text14:

“The same fair friend wants readers of Young India to know, if they

do not already, the following seven social sins:

Politics without Principle Wealth Without Work Pleasure Without Conscience Knowledge without Character Commerce without Morality Science without Humanity Worship without Sacrifice

Naturally the friend does not want the readers to know those things merely through the intellect but to know them through the heart so as to avoid them”

Rights Without Responsibility (This is the 8th sin added by Arun Gandhi, Mahatma Gandhi's grand son). 

Commerce (Business) Without Morality (Ethics)In his book Moral Sentiment, which preceded Wealth of

Nations, Adam Smith explained how foundational to the success

of our systems the moral foundation is. If we ignore the

moral foundation and allow economic systems to operate without

moral foundation and without continued education, we will soon

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create an amoral, if not immoral, society and business.

Economic and political systems are ultimately based on a moral

foundation.

To Adam Smith, every business transaction is a moral challenge

to see that both parties come out fairly. The spirit of the

Golden Rule or of win-win is a spirit of morality, of mutual

benefit, of fairness for all concerned. People get in trouble

when they say that most of their economic transactions are

moral. Rationalised lies take over natural laws. If one can

get enough rationalization in a society, one can have social

mores or political wills that are totally divorced from

natural laws and principles.

How are we to give a concrete shape to this Moral side of Business? Here is a

tentative list of indicators/parameters that may be used to identify firms following

Conscience Capitalism:

Sl.

No.

Parameter/Indicator Explanation/Comments

1 Nature of the Product Not inimical to the general welfare

of the society

2 Pricing Strategy Transparency in pricing by adopting

morally acceptable strategies such as

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Cost Plus Method

3 Profit margin Not to exceed 100% of the cost even

when the market is willing to take a

higher price

4 Workers’ Participation Should be integral to the business

philosophy

5 Tax compliance Neither covert or overt attempt to

evade taxes

6 Gender sensitivity Adequate representation to

inadequately represented

7 Weaker sections and the

economically exploited

To identify and bring them to the

mainstream within the constraints of

business

8 Environmental concerns ‘Green’ technology to become the norm

rather than an exception of business

It should be noted that these are not unknown or fall in

the domain of the abstract. One can add more of these

‘desirable’ parameters to the list given above.

Conclusion: The long journey of market driven capitalist society

has seen many viewpoints but the essence of it remains: that

this System is what has driven innovations, entrepreneurial

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spirit and move towards ‘Where the mind is led forward by thee into ever-

widening thought and action--- Into that heaven of freedom, my Father, let my

country awake’, to borrow the immortal lines of Rabindranath

Tagore. Can we aspire to reach a Conscience Capitalist

society/economy any time soon?

References:

1. Market capitalism is a “socioeconomic system in which scarceresources (and the goods and services into which they aretransformed) are allocated by way of a complete set ofdecentralized markets. …The term decentralized means that systemwideresource allocation occurs because of many individual markettransactions, each of which is guided by self-interest”.Steven C. Hackett (2010): Environmental and Natural ResourcesEconomics: Theory, Policy and the Sustainable Society, M.E.Sharpe, New York.

2. ‘Backyard Capitalism – A term coined by Paul Krugman (1991) “Increasing Returns and Economic Geography”. Journal of Political Economy, 99(3), 483-99. It refers to a situation where in a world of constant returns to scale, small scale production is as efficient as large scale production, so every household should be producing a fully diversified range of goods and services in its own backyard. Cited in World Development Report 2009. Principal Theme: Reshaping Economic Geography, World Bank, Washington. P.135.

*This section draws heavily for its analysis from Robert Heilbroner (1993): 21st Century Capitalism. Affiliated East West Press Pvt. Ltd., New Delhi. Specially Chapters 3 and 4.

3.Adam Smith: Wealth of Nations, Modern Library, New York,

Pp.709-10.

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4. Adam Smith: The Theory of Moral Sentiments, Oxford,

Clarendon Press, 1976. Pp.50-51.

5. Karl Marx : Capital, New York, International

Publishers, 1967. P.595.

6. Smith A: Wealth of Nations, op.cit., P.324.

7. Higgins, Benjamin (1992): Economic Development - Problems, Principles and Policies, Universal Book Stall, New Delhi. P.77.

8. For a detailed treatment see Gerald M. Meier and Robert E. Baldwin (1957): Economic Development, Theory, History and Policy. Asia Publishing, Bombay, Pp. 48-66.

9. Heibroner, Robert (1992): The Worldly Philosophers, The Lives, Times and Ideas of the Great Economic Thinkers, Simon and Schuster Inc., New York P.303.

10. Ibid., P.303.

11. For an illuminating analysis of this new line of thought, please refer to John Mackey, CEO, Whole Foods Market co-founder, FLOW: Conscious Capitalism Creating a New Paradigm for Business. On the Internet.

12. Rajendra S. Sisodia, David B. Wolfe, and Jagdish N. Sheth (2007.): “Firms of Endearment: How World-Class Companies Profit from Passion and Purpose”  Pearson Prentice Hall. Also John Mackey and Raj Sisodia (2013): Liberating the Heroic Spirit of Business CONSCIOUS CAPITALISM. Harvard Business Review Press.

13. Information sources: Economic Times, 8th March 2010, 30th Sept 2010, 1st October 2010 and 13th October 2010. See also Economic Times, 26th November 2013 (When Everyone Gains in the Supply Chain). P.16. More information on Conscious Capitalism is available on its website - www.consciouscapitalism.org.

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14. Gandhi (M.K.): Collected Works, Vol. XXVIII (August – November 1925). New Delhi, Publications Division, 1968. P.365.

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