Crony Capitalism
The left criticizes free market capitalism and the right defends it. Ironically, real free market capitalism is getting harder and harder to find. What is often called “free market capitalism” might better be called “crony capitalism.”
Wealthy and powerful individuals and corporations use their money and influence to get special favors from their friends in local, state and federal governments, which distort the so-called free market. Politicians provide tax breaks, zoning exceptions, favorable regulations, protective tariffs, non-bid contracts, financial subsidies, use of eminent domain and even infrastructure projects that favor certain companies or individuals—such as support for a new stadium. In return, crony capitalists support certain politicians.
Corrupt governance corrupts the free market. The free market, after all, is simply a democratic decision-making mechanism, in which people vote with their money. Their collective purchases, sales and investments influence what is produced, how much of it and how much it costs.
Caring Capitalism
Profit-making corporations also make contributions to the well-being of society. They often voluntarily contribute to many worthy civic causes. Sometimes they do so because it is good public relations and marketing. Others may be part of a growing movement called “caring capitalism.”
Among its pioneers was Ben & Jerry’s Ice Cream. In 1978, after taking a $5 correspondence course on ice cream-making, Ben Cohen and Jerry Greenfield opened their first store in a renovated gas station in Burlington, Vermont. Today Ben and Jerry’s Ice Cream is the world’s fourth largest producer, selling more than a third of a billion dollars in ice cream each year.
Since 1985 Ben & Jerry’s has donated 7.5 percent of its profits to charities and provides its employees with good salaries, profit-sharing, health club memberships, day-care service and college tuition aid. The company seeks organic suppliers, uses environmentally friendly packaging and creates opportunities for economically depressed areas and disadvantaged people.
However, in 2000 the “caring” corporation feared a challenge to its way of doing business when Unilever, the huge Anglo-Dutch conglomerate, decided to buy the company. Although the founders were reluctant to sell, they felt duty bound to maximize the financial benefit to their stockholders. In fact, under existing law, corporate leaders are vulnerable to stockholder lawsuits and hostile takeovers if they don’t make the stockholder their sole priority.
B Lab
That is, until “B Lab” was created to help corporations balance social responsibility and profit. Jay Coen Gilbert and Bart Houlahan, in 2003, sold their sports apparel business for a quarter billion dollars and joined with Andrew Kassoy, a successful private equity investor, to co-found B Lab, a non-profit corporation which they claim “serves a global movement of people using business as a force for good.”
B Lab has developed self-assessment tools and a certification process for companies who want to meet high standards of ethical governance and positive social impact. In 2012, with Unilever’s support, Ben and Jerry’s went through B Lab’s certification process and in doing so, formally joined the caring capitalism movement that the ice cream company itself had inspired.
In the meantime, B Lab invented the benefit corporation—a hybrid corporation merging the social goals of the traditional non-profit with the financial goals of a profit-making corporation. The benefit corporation can set goals, in addition to making a profit, and shareholders know this before they buy the stock.
Some critics see the benefit corporation as a threat to shareholder property rights—claiming that it’s socialism. But all the ownership and decision-making stays in private hands and—in the spirit of the free market—investors now have another choice.
Consumers also have a choice. Many would prefer to buy from what they consider ethical companies. Some people believe that capitalists are inherently greedy. But that attitude is contradicted by the growing interest in benefit corporations and in B Lab certification, which suggests that caring capitalism may be coming our way.
Although it was only in 2010 that Maryland authorized the first benefit corporation in the United States, 30 states now offer the option. B Lab Europe launched in 2015. Recently, Italy became the first country in Europe to authorize the benefit corporation. There are now almost two thousand B corporations in 50 countries in 130 industries. And more than 40,000 companies worldwide are using B Lab’s free assessment tool.
So, for business people who are interested in building a new reality for free market capitalism, to “B” or not to “B” …that is the question.
