Classic liberal capitalism and organizational design | Managing Leadership

In the course of examining the emerging management approach that has been referred to as “Karma Capitalism” (please see the 2 and 6 November 2006 posts), we have been trying to test it against two questions that should give us an idea of how robust a system of thought this really is.

The first question posed is this:

In “Karma Capitalism,” what is the philosophical cornerstone used to set the starting point and to discipline the construction of corporate structure and governance?

In Monday’s post, we looked at the proposition, offered by this managerial philosophy, that corporations should strive to achieve social justice as a more-or-less co-equal goal with increasing shareholder value, engaging in what one of the chief proponents of this view, C.K. Prahalad, is quoted in the cited article (see link in first paragraph) as calling “inclusive capitalism” (it is also known by some, without the pastiche of eastern philosophy, as “stewardship ethics“).

As we saw, the problem with this approach is that it is difficult to achieve consensus as to what it means. Most of us can support the general notion of social justice, and even the proposition that our public institutions should be organized to actively pursue its achievement. But beyond these general expressions of good intentions, what specifically do we mean - what exactly is social justice, what does it look like, and how, exactly, are these public institutions, such as our corporations, expected to be employed in its pursuit?

It is difficult to agree on these details. Yet, without a consensus about them, how are we to build the institutions intended to realize them? We can’t, of course, and are thus left expected to rely on a blind faith that subscribing to the means propounded by these Karma Capitalists will somehow produce the desired result even in the absence of an agreed understanding of what that is.

Classic liberal capitalism doesn’t suffer from this problem. It states very clearly what its starting point is: People are self-interested beings. Its goal, just as clearly, is the construction of a system designed to help people pursue their self-interest. With such a foundation, it is really quite straightforward an enterprise to build and test our economic and managerial structures against both theory and practice. It places little stress on organizational design efforts or on the gathering and assessment of performance data to determine if the organizational and managerial structures we build from this foundation to achieve that goal are likely to, and in fact are, accomplishing their objectives.

Which touches on another benefit of liberal capitalism: it doesn’t stipulate the means. It doesn’t tell us how to design the system, its components, or how to organize and manage them. These evolve naturally and easily from the elegant simplicity and fundamental veracity of the tenets.

As a result - and here’s perhaps the most important point - building an economic and managerial system on the basis of classical liberal theory flows naturally and easily from that theory - it does not require compulsion. Once the foundation is clearly elaborated, attains the credibility of practical veracity, and then attains a consensus of understanding and acceptance, the rest comes of its own accord. It is acknowledgment and acceptance of the foundation concepts that generates the means employed to express them. Put another way, we don’t have to build the structure: it builds itself. It springs of its own accord from the foundation set for it, naturally inclining for the goal that has been clarified out of the fundamental premise.

If you want to promote a particular way of managing, but cannot identify (in terms at once elegant and specific that people can agree are valid and that they can accept) your premise and your goal, then your only remaining recourse is to harangue them about that method.

Your disciples will constantly find it necessary to come back to you for guidance because they will have no independent measure against which to check that their actions fit your prescriptions for them. For your part, in response to their requests for specific landmarks against which to gauge their actions, you will be driven to providing ever more vaguely oracular pronouncements that superficially seem imbued with wisdom, but prove their lack of it by the continuous need for repetition, clarification, and restatement.

These assertions, of course, may be argued, and undoubtedly would be by the Karma Capitalists themselves. Unfortunately for them, however, the problems with their approach only begin here. They continue, and they get worse. We will take a closer look at why that is in the next post.

I look forward to seeing you then.

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Please be sure to see all the posts in this series:

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