This is the first in a series of three blog posts exploring the development of HUMAN CAPITALISM, the Occupy Wall Street movement and pains of the average worker, and identifying further advances needed in HUMAN CAPITALISM. The complete set was used earlier this year in the executive program at the Northwestern University Kellogg School of Management, in a course on Global Initiatives in Management.
Over the past 50 years, HUMAN CAPITALISM has steadily advanced, fueling business prosperity – and senior executive compensation. Meanwhile, employee prosperity has lagged. These two opposite trends beg the question: Whither Capitalism?
The piece is broken into three parts, which will be posted sequentially:
Part I: The Emergence of HUMAN CAPITALISM: Building People into the Formula for Company Success
Part II: The Great Economic Disconnect: The increasing Pain of the average Worker and what the Occupy Movement is telling us about Capitalism
Part III: Toward a Full HUMAN CAPITALISM: the Role of Forward-thinking CEOs in completing the transition to HUMAN CAPITALISM
In this blog post, we’ll address the first part: The Emergence of HUMAN CAPITALISM:
Traditional Capitalism believed that (financial) capital was the driver of wealth creation (and, hence, the providers of that capital owned the business). Marxism, by contrast, preached that all value of a product came from the labor used to make it – and thus that workers (through the state) should own and run businesses.
Despite the financial foundation of Capitalism, the last 50 years have seen huge leaps in understanding in the U.S. that the human component is indeed the main driver of business success and of wealth creation. These leaps include:
Gary Becker, a Chicago Business School Nobel economist, wrote about the then revolutionary concept of Human Capital in his 1964 book;
Milton Freidman, another U. of Chicago Nobel economist declared in his 1981 book Free to Choose that the return on human capital had risen so that it exceeded the return on physical capital.
Peter Senge in his 1990 book The Fifth Discipline described the human component as a “learning organization” – rather than people being merely “cogs” in a machine.
In a 1994 Fortune cover story, Thomas Stewart introduced the concept of Intellectual Capital, later publishing a book by the same name.
Stanford Professor Jeffrey Pfeffer wrote in his 1998 book The HUMAN EQUATION, “Companies that manage people right will outperform companies that don’t by 30% to 40%.”
In the early 2000’s, the concept of Spiritual Capital was introduced – by Robert Fogel, another Chicago Nobel Economist (in The Fourth Great Awakening and the Future of Egalitarianism 2000), and in several of my own writings – including a 1999 article “Bringing a Company Back to Life: The Role of the CEO” and the 2008 book Noble Enterprise: The Commonsense Guide for Uplifting People and Profits.
Meanwhile, leading CEOs showed an understanding of the human dimension – and began managing accordingly. A few examples illustrate this awakening:
Henry Ford paid above the going wage so his workers could afford to buy a Ford, and to keep turnover low;
In the mid 1990’s, Jack Welch of GE declared, “We are trying to differentiate GE competitively by raising as much intellectual and creative capital from our work force as we possibly can. That is a lot tougher than raising financial capital, which a strong company can find in any market in the world.”
A few years later, Herb Kelleher of Southwest Airlines said, “I’ve tried to create a culture of caring for people in the totality of their lives, not just at work….The intangibles are more important than the tangibles. Someone can go out and buy airplanes from Boeing and ticket counters, but they can’t buy our culture, our esprit de corps.”
Chip Conley of Joie de Vivre Hospitality took Maslow’s great teachings, simplified them (thereby making them more powerful) and put them to work in his company. Conley distinguished between motivation that is just about having a “job”, motivation that is about “career” and career advancement, and third, motivation that is about a “calling” in serving a higher purpose than material gain and self. His 2007 book PEAK: How Great Companies Get their Mojo from Maslow describes his interpretation and application of Maslow, and how he used it to build a successful company.
Thus competitive advantage, which used to be built entirely on material dimensions, like a low cost supply of raw materials, or low conversion costs, or production economies of scale, or an efficient distribution system, began shifting to the people (and culture) dimensions of the firm. Leading CEOs saw that and focused on raising and employing the best human capital they could.
But that’s only half the story of HUMAN CAPITALISM. The other, painful half, we’ll explore in the next blog post.
Darwin Gillett is author of NOBLE ENTERPRISE: The Commonsense Guide to Uplifting People and Profits, a consultant and speaker and founder and director of The Institute for Human Economics