Today's Capitalism Sucks. Here's More Evidence.

Pim
Written by
- 5 min read

"Too many companies that profited during the COVID-19 global pandemic over the past year have left a shameful record as they pursue anti-union agendas, deny workers sick leave, and refuse to pay workers a minimum wage on which they and their families can live."

Many of us already knew that today's version of capitalism is painfully broken. For those who weren't all too clear on that yet, the pandemic must have surely opened their eyes.

Not in this together

Let's take an example we are all connected with: supermarkets.

A recently published report by Oxfam evidences just how strongly the pandemic has worsened inequality. In it, they research large supermarket chains such as Ahold Delhaize, Walmart, Sainsbury's, Jumbo, Tesco, Costco, and many more.

Here's just a tiny fraction of the sickening data:

  • During the pandemic, listed supermarkets distributed 98% (!) of net profits to their shareholders via dividends and share buybacks.
  • Collectively, shareholders of listed retailers have benefited significantly from the pandemic’s payout. Between 2019 and 2020, total dividends distributed to shareholders increased by 123% – from about $10bn to $22.3bn.
  • The Walton family, owners of Walmart, saw their fortune grow by $3m per hour on average over the past year.
  • In 2018, it would have taken a woman worker processing shrimp at a typical plant in Thailand more than 4,000 years to earn what the chief executive of a top US supermarket earned on average, in a year. In 2020, it would have taken her more than 5,700 years.

It was bad. It got worse.

Exploitation as a business model

Value extraction is at the core of today's business world. Generating profit, however, is not the problem. The problem is that the profit that's being made is used to please just one group of people: shareholders.

The figures shared by Oxfam show how poorly value is distributed across the supply chain. The above numbers show that tens of billions of dollars are paid out to shareholders. Sadly, at the other end of the supply chain, it looks quite a bit different.

Let's take a look at supply chains related to the following consumer countries: Germany, the Netherlands, the UK and the US.

"For most commodities, the work in the fields, in processing or in aquaculture is paid out of the consumer end-price, with incredibly low margins. Values accruing to workers are consistently incredibly low for wine (around 1%), tea (between 0.7% and 3%) and shrimp (less than 1%). Due to endemic structural inequalities, the share received by women workers was even smaller."

With such extremely low levels of value distribution to that vital part of the supply chain, it's nearly impossible to not push people into inhumane working conditions.

The result? Violence, danger, poverty, modern slavery and many more types of worker's rights violations. As usual, women are even more severely affected by this than men.

Calling all supermarkets: step up your game

The world doesn't have to be this way. Businesses can - and should - take responsibility and proactively contribute to righting these wrongs. That all starts with transparency on how they're currently performing.

Here's an overview of the performance of various supermarkets:

Click image to enlarge
Click image to enlarge

Clearly, there's a lot of work to be done. Here's what Oxfam urges these supermarkets to do:

  • Urgently revisit relevant policies and practices to factor in the risks to workers and small-scale farmers from COVID-19 and the impact on their job and income security; supermarkets should show how their plans have been updated to reflect the specific needs of women workers in their supply chains.
  • Promptly address actual and potential human rights violations and respect workers’ rights, including by committing to achieving living wages in supply chains.
  • Urgently adopt a comprehensive gender policy and action plan to ensure that women’s rights are respected, in supermarkets’ own operations and supply chains.
  • Shift corporate practice on maximizing shareholder payouts and redirect spending towards long-term supply chain investment that ensures fair and decent working conditions for workers, farmers and women in their supply chains.

Politicians have to play their part too. We can't just wait for these companies to change by themselves. "Governments also need to act. They must repeal laws that discriminate against women, promote laws to guarantee a living wage for workers, adopt mandatory human rights due diligence legislation and put a stop to excessive shareholder payouts."

On top of that, customers can influence change by voting with their money while employees can exert power too (more on that in this previous post).

Shareholders Stakeholders first

To fix today's capitalism, we need to stop putting shareholders' needs above all else. We can't continue to generate profits in order to fill the pockets of the ones who are already wealthy. It's a zero sum game that's destroying both people and the planet.

All stakeholders (employees, customers, suppliers, communities, shareholders, the planet, etc.) need to be taken into account to ensure a fair (and sustainable) way of doing business.

We simply can't afford to continue to support business models that exclusively extract and exploit. Doing that will continue to set society up for categorical failure.

It's complete madness and it has to stop.

We've set up the Corporate Rebels Foundation to end inhumane workplaces. We raise money and support projects to fight this kind of injustice. You can help us do that in two simple ways:

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Replies (8)

Cecil

Cecil

Give an ear to this interview of Graham Boyd (Evolutesix), author of Rebuild (with economist Jack Reardon) : he addresses the problem by pointing at the meaning-making stories that have served building the business world and may have to be updated for our times of natural resources and trust scarcity. Insightful and spot-on !
https://open.spotify.com/episode/2ZRelOBwcSjJi4xyUIufmw

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Jim Johnson

Jim Johnson

This is all about competition over the distribution of power, among companies, workers, consumers and the groups that represent them.

Talking about injustice and the suffering caused by the mal-distribution of power can have at best a secondary effect on the situation. The entities with the power are not going to give it up out of compassion or shame.

They have to be out-competed. Which means that the competitors, if they should be workers or consumers, need to have better tools for competing for a more equitable distribution of power.

Of course this means "organizing", however, that doesn't seem have much traction, as it did in the 1930's. And in any case the first phase of organizing is increasing awareness.

With respect to awareness, the core issue is getting people to see the exact nature of the "struggle", which is exactly the psychology of power and the external mechanisms of power. The action points for change are all within that knowledge content.

The key problem there is that there is a virtual taboo of talking directly about power. I've written extensively about this on LinkedIn, under the hashtag #talkabout power, along with entry points for initiating conversations about power.
https://www.linkedin.com/search/results/all/?keywords=#talkaboutpower&origin=GLOBAL_SEARCH_HEADER

The current article actually makes me a bit nauseous, because the approach is so often repeated: moral outrage, statistics, un-penetrating logic, and unreachable aspirational demands without effective action points.

It doesn't work, it has seldom worked, and in the current age of information distortion it does not have a chance of working. To me it is an appalling waste of energy and intelligence, and possibly even counter-productive, as diversion from taking effective action. It strikes me as a form of emotionally simulating entertainment. Let's get exercised about how bad capitalism is, and go back to watching sports on TV. Oh, right, and please send money.

Of course I'm bitter.

The hard part is to break the taboo of talking about power. Corporate Rebels is well-placed to drive on that. I cannot understand why it/they do not, except that they too are caught in the taboo against talking about power, and don't even know it.

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Jim

Jim

On the other hand, the above rant did lead me to this site:
https://talkaboutpower.com.
So another action point is to start networking with the people who ARE talking about power. Optimism (partially) restored!

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Graham Boyd

Graham Boyd

Following on from Cecil and Jim

What we have today is the meaning-making stories of a century ago, turned into the artifacts of company law and practice. Including the meaning of power.

In our approach we look at those across 6 layers of structure, interaction, power and bonding.
6) Global economy, systems
5) Local economy, systems.
4) Stakeholders, capitals, etc.
3) Organising roles and tasks
2) Inter-human interaction
1) Inner-human interaction

To fix capitalism we need to have a coherent approach across all 6, and roll them out step by step in all 6 simultaneously,. What has been missing in almost all appraoches to Teal so far has been level 4, to incorporate in a way that includes all capitals in the governance at shareholder level, such that no capital has overwhelming power over any other capital. Nor can one narrow grouping / worldview / opinion have dominant power.

And, equally important, that all capitals and their representatives benefit from the wealth generated by the company. Inclusive governance and inclusive benefit. In essence, a highly functioning commons.

Even the benefit incorporation, steward owned, etc. falls short of that.

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Timothy Atkinson

Timothy Atkinson

Forgive me:

Where do 90% of CR profits go then?

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Pim

Pim

Forgive me:

Where do 90% of CR profits go then?

Timothy Atkinson

100% of profits are distributed as follows:
* 10% to our charity, the Corporate Rebels Foundation
* 20% distributed to employees
* 70% to a holding company to make new investments and start new initiatives around 'making work more fun' and part of it goes to dividends to shareholders

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DrRossWirth

DrRossWirth

I agree that Stakeholder Theory is an improvement on Stockholder Theory as we transition from an industrial model to one built on knowledge and human-centric ways of working together. However, some of the statistics employed here are confusing the core issue that the C-corporation is a relic of the industrial era. (Comments below are based on US tax law and accounting requirements that may not apply to other countries.)
• The double-entry accounting system is an invention designed for managing organizations. The Triple Bottom Line is a step in the right direction conceptually but lacking in many ways. We still need to invent more “tools” to complement how our organizations are changing.
• The 98% payout of net profit to dividends and stock buyback is misleading since there are only three ways to “spend” net profits within the accounting system – payout in dividends (value transfers to the stockholders), buy back stock (value transfers from short-term investors to those retaining for the long-germ), and investing in growth (transfers to future capital appreciation for the stockholders). In a down stock market, it is often wise to buy back stock knowing it can be resold into the market at a higher price later. Further, in a down market with no expansion plans in place, fiduciary responsibility imposed by law puts pressure on the company to remove unproductive cash on the balance sheet. Also, since depreciation is a non-cash expense, it is possible to pay dividends and stock buybacks in excess of 100% of net profits, in fact likely in a time of contraction like what has happened during the pandemic.
• The above statistic implies paying out to stockholders what should otherwise be shared with employees. This is again where the current accounting system gets in the way of understanding value distribution. Dividends and stock appreciation (growth using retained earnings) are not paid in isolation to the expectation of the stockholders as contributing capital. Investors have the ability to buy stock with increased risk offset with possible gains or corporate bonds with a fixed return. However, the cost of capital of the bonds is pre-tax, pre-profit while the dividends and capital gains are post-tax at the company level (with secondary taxation at the individual level) and post-profit calculation. If the investment return to bondholders is 5%, the return to the stockholders should be greater for the increased risk they take on (though lower cost of capital due to tax deductible interest expense).
• Since value distribution is hidden in the financial accounting system, it is only by looking at the managerial accounting system that one can understand the value chain, and even then, there is some assumption of value contributed to customers and local communities. Missing is transparency.
• The growth of business for the grocery companies highlighted is not necessarily driven by their business decisions as much as it was by pandemic responses that favored large companies with wide distribution capability over small local businesses and shifts of food demand from restaurants to grocery stores due to shutdown mandates impacting restaurants.

Jim Johnson’s comment on out competing others is critical as we promote human centric organizations and B-corp certification. Moving from C- to B-corporation status implicitly reduces the emphasis on stockholder returns alone. However, much of the “stockholder (owner) vote” lies in the hands of institutional funds that are evaluated by return on investment, which favors C-corporations. This raises the question on the extent people will vote with their feet in supporting B-corporates over personal self-interest alone. Government regulation and tax law also favors large companies due to ease of regulation and lobbying efforts affordable by large companies. (In many cases, it is easier to beat competition through favorable legislation and regulation than it is to compete in the marketplace. What we call capitalism is often “crony capitalism.”)

Out-competing others also requires building organizations that release people’s passions for providing a meaningful contribution for work. As organizations reduce their focus on control and allow purpose to drive decisions, bureaucratic waste should come out of the system. This vision for the New Era Organization are not new and can be traced back 20 years in various academic journals and professional magazines. What has been missing is a set of principles that can be implemented and sustained easily. Many of these experiments are now underway as highlighted here and elsewhere, but lack the reach to attain a critical mass for widespread change.

Please contact me at DrWirth@OrgChangeDoctor.com if you would like to be invited into discussions on designing human-centric organizations that are built for change.

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Sush

Sush

I thought some of you may be interested in a growing strand of thought among large institutional investors, called universal investors, or universal ownership.
It recognises that often, the ultimate shareholders are ordinary people in pension funds. And that those people are affected by the choices that institutions make - e.g. whether to encourage the company to pay out more profits, or rather to offer workers better conditions.

I won't pretend it's anything like a majority of investors who are thinking this way, but it's very much worth watching out for. *Especially* for those of you who liked Eric Liu; encouraging your pension funds to think this way can make a very big difference to very big companies, and the impact they have in the world.

For example, see https://shareaction.org/three-resolutions-that-show-investors-are-taking-notice-of-health/

| | 4 | Flag
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