The essential question for this time is:  Of two capitalisms, Which capitalism?

The Old Capitalism

“Vulture Capitalists” are being seriously questioned for buying up companies, dismembering them, firing their workforces, selling off pieces of the companies, and generting substantial profits – all the while often leaving the companies bankrupt and the community where they were located with vacant buildings, high unemployment, and social dislocation.

Vulture Capitalists are an example of the Old Capitalism – a capitalism that preaches that businesses should only focus on making a short term profit at the expense of everything and everybody else. This is the same type of short-term-profit-only capitalism that led to the real estate bubble and the great recession, which was fueled by exotic financial derivatives (where, among other unfortunate practices, investment houses were making money by betting against their own financial products).

This Old Capitalism is rightly questioned for producing a high pollution, high carbon, waste-intensive, and ecologically disruptive economy that has led to serious economic instability, high persistent unemployment, and an extreme concentration of wealth in the 1% at the top.  In an October 2011 CBS/New York Times poll Sixty-six percent of people said money should be more evenly distributed in America.

The New Capitalism

However, at the same time that the Old Capitalism is under assault from within and without, a New Capitalism is emerging that is economically, socially, and environmentally sustainable.  It takes the forms of:

  • Hundreds of large corporations, linked through CERES and the Global Reporting Initiative, establishing and implementing policies that produce increasingly higher levels of sustainability performance.
  • Hundreds of clean technology companies creating the renewable energy and resource efficiency technologies needed to power a sustainable economy.
  • Trillions of dollars of socially and environmentally screened investment portfolios, often managed by members of the Social Investment Forum.
  • Thousands of small companies, affiliated with Green America and BALLE, pursuing local green economies.
  • Business organizations like New Voice of Business and the American Sustainable Business Alliance representing thousands of businesses supporting policies that foster the sustainable economy.
  • Hundreds of cities and counties adopting sustainability plans, climate action programs, or sustainable economic development strategies.  

The Three Forms of Capital

The New Capitalism is becoming more powerful than the Old Capitalism because the New Capitalism has a more powerful economic philosophy that produces an inherently better economic operating system.  The Old Capitalism recognizes only one basic form of capital – economic.  In fact there are two other essential forms of capital – environmental and social.  The recognition of these other forms of capital gives the New Capitalism an inherent strategic advantage.

Environmental Capital:The economy operates within design limits encoded in the natural environment. If the economy disrupts the environment it disrupts itself, at great financial cost to society and to individual businesses.  Historically, the Old Capitalism has often treated natural capital like a free asset to be exploited on a first come, first serve basis. As a result, enormous resources have been lost that were once, in fact, provided for free by intact ecosystems.

Conversely, the New Capitalism recognizes the economy‘s dependence on the environment for fresh air, clean water, climate stability, renewable energy, and a thriving eco-system.  Businesses need to derive value from the eco-system without disrupting it. In fact, the human economy is really a subset of the natural economy rather than vice-versa.

Social Capital:  A prosperous economy depends on a stable society with a skilled and productive workforce. The Old Capitalism threatens its own foundations when it disrupts society by allowing an extreme gap to emerge between the very wealthy few and the rest of the population or when it inadequately supports society‘s ability to ensure public safety, an effective educational system, a well trained workforce, and quality affordable health care.

From the perspective of the New Capitalism, a prosperous economy readily contributes to a stable society by creating the jobs, the opportunity for productive work, and living wage incomes that people need to live satisfying lives. The New Capitalism recognizes the profound contribution of social capital to a prosperous economy and builds social capital by paying its fair share of taxes and making investments in a healthy society in many other ways.

Economic Capital:  Economic Capital is the form of capital most widely understood by economists and policy makers. It includes the finance, manufacturing, production, and physical infrastructure (energy, water, transportation, and information). Sustained economic prosperity requires that both the private sector and the public sector operate according to sound financial principles within responsible regulations. Private and public players need to live within their means and continuously reinvest in their Economic Capital. The real estate meltdown and the resulting great recession is an example where the questionable practices of the Old Capitalism led to a massive destruction of Economic Capital.  The New Capitalism generates sustainable Economic Capital by following honest and honorable business practices while, at the same time, generating superior profits.

In sum, the Old Capitalism has attempted to accumulate short-term financial profit at the expense of economic, social, and environmental capital.  Any business-person knows that, over the long run, a successful business needs to generate more income than expenses and to grow, not cannibalize its capital.  If a business lives off its capital, it will eventually go bankrupt.  A homeowner who burns the wood in the walls of his/her house will soon be homeless.  The New Capitalism recognizes that long term, sustainable wealth creation requires building all three forms of capital.

The New Capitalism and Wealth Creation

There is quite a bit of evidence that the New Capitalism is taking hold.  This is not merely a moral imperative.  Over the long run, the New Capitalism should do better financially (out-compete) the Old Capitalism.  While no corporation is perfectly green or perfectly socially responsible, many leading larger corporations are embracing the perspective that green business is good business.

Examples of a few leading companies that have recognized the economic opportunities inherent in going green include:

Wal-Mart:  According to its Sustainability Progress Report, Wal-Mart has committed to an environmental responsibility program, targeting 100% renewable energy, zero waste, and the sale of sustainable products.  Wal-Mart has invested $500 million in sustainability, increased building and fleet efficiency by 15%, built a set of experimental green stores, and is requiring its suppliers to go green through its Sustainable Value Networks.

GE:  In its 2007 report, GE indicated that its Ecomagination initiative now has 60 products generating $70 billion in revenue, with overall corporate greenhouse gases reduced by 8% from 2004 levels.

DuPont: Dupont reports on its social and environmental progress using the Global Reporting Initiative reporting format and is independently monitored by Environmental Resource Management.  DuPont has saved $3 billion while reducing greenhouse gas emissions by 72% over a decade.  DuPont is aggressively developing sustainable products for buildings and construction, transportation, agriculture and nutrition, and communication.

Interface:  In its Sustainability Report, Interface, Inc., the world’s largest manufacturer of commercial and residential modular carpet and broadloom, shows that it has grown $200 million (to over $1 billion) without increasing resource consumption, and the company has avoided $250 million in waste management bills.

According to the State of Green Business 2009, 30% of the corporations in the S&P 500 now produce a non-financial report that addresses environmental issues.  The 2008 study, Going Green by Hudson Gain Corporation, found that 214 of the 1,200 largest corporations in the United States had some version of a Chief Sustainability Officer and a sustainability program oriented around achieving a “triple bottom line” of “profit, people, and planet.”

Other major U.S. corporations with comprehensive sustainability programs include: Dell, Johnson Controls, Hewlett Packard, Johnson and Johnson, Coca Cola, H.J. Heinz, Google, Random House, Nike, Starbucks, TimeWarner, UPS, Whole Foods, Xerox, Target, Walgreens, and many others.

Building social capital is also being recognized as good business. From 1997 to 2000, the stock price of Fortune Magazine’s 100 Best Places to Work has performed 3 times better than the S&P 500 (general market) – 11.06% for 100 Best Places to Work and 3.83% for the S&P 500.  That’s more than a 300% cumulative return for 100 Best Places to Work, compared to more than a 75% cumulative return for the S&P 500.

In short, the New Capitalism is made up of companies that:

  • Build all three forms of capital – economic, social, and environmental – at the same time.
  • Find strategic financial advantage in contributing to a healthy society and a thriving natural environment.
  • Are more profitable, more fun, and more fashionable.

It may be that the time of the New Capitalism has arrived.