It is frustrating when people criticize capitalism as a economic system, because usually what they are really criticizing is the economic system that currently exists in the United States of America. Spoiler alert: the current economic system in America is hardly capitalism. It’s more like a mix of cronyism and feudalism, with a veneer of capitalism used to justify the system. In this post, I’ll focus on what briefly describing what capitalism done right looks like. I will go into more depth, as well as criticisms of current societal, market, organizational and individual practices in subsequent posts.
So what does “Doing Capitalism Right” look like?
The ideal of capitalism is some combination of those highlighted in the works of Max Weber and Adam Smith discussed in my earlier post:
An economic system that encourages the contributions of individuals to society in a way the maximizes the collective good of everyone by allocating resources and talents to those activities and outcomes that are most valued by individuals and society. The way that this is accomplished is by rewarding those who do a better job of meeting the needs and wants of individuals and society through the market mechanism.
It really is that simple. But as both Smith and Weber observed, the system doesn’t work correctly when the focus is on maximizing the wealth of those in power at the expense of individuals and society.
Market Focused Management as the Embodiment of Capitalism
In Marketing (as a practice and an ideal), we discuss three different assumptions that underly organizational cultures and how those organizations operate.
The focus here is on creating stuff as efficiently and effectively as possible and selling it for as much money as possible. It’s all about the innovator and producer. It’s a bit like the old saying, “Build a better mousetrap and the world will beat a path to your door.”
The focus here is on selling, selling, selling for as much as the market will bear. If we sell enough – for enough – we will make lots of money. (Unfortunately, what most people incorrectly refer to as marketing.)
A market orientation is an externally focused culture in which the preoccupation of the organization is “How do we make money by improving the lives of others?” The organization starts by understanding the context of customers (consumers or other organizations), as well as the context of potential channels and partners to serve those customers, and then develops solutions (value propositions) accordingly. Key to those solutions is that they make the channels/partners and customers better off than they would be without the solution. That might include a comparable solution at a lower cost to the customer or a solution that makes the customer better off at a price that is equal to or lower than the value of that improvement. (I published a book and an award-winning article that explain how to create a greater market orientation, in case you’re interested.)
I thought that this post was about capitalism….
Well, yes, it is. The point of this post is that the philosophy underlying capitalism is about making all of us, as consumers, better off over time. The people and organizations that are more successful at realizing the ideal of making people better off make more money than other people and organizations. This is an empirical fact that has been documented across a bevy of management and marketing studies.
Note that within capitalism, the “producers” are also consumers and many consumers also work for producers, so the notion that consumers are better off also includes that assumption that the system provides work and income for those same consumers. Providing goods and services to consumers who cannot buy them because they don’t have employment is not a functioning system.
When capitalism works correctly, everyone is better off over time. That is the ideal that capitalism promises. That is the ideal as described by Adam Smith and Max Weber. Unfortunately, that is not the situation in which America finds itself today. In future posts, I’ll be offering thoughts about how we can return to those ideals in practice, rather than rhetoric.