Capitalism: how lost its mojo and how to get it back – a morality tale

We may think the current dominance of the Anglo-American model of business represents the ‘end of history’, that we have found the best or most effective way to run organisation. But this idea is still being tested, and the failure of the Anglo-American model so far has been its inability to engage with the bigger and broader issues of governance of a business operation.

Currently, most thinking is toolkit based – focused on the specialist activities of HR, finance, marketing, etc – to increase efficiency and maximise financial benefits. However, what is really needed from people within organisations – particularly now, when faced by threats to the existence of firms – is an ability to take more of a holistic view of what the organisation is, and how it should be run.

The current economic crisis demonstrates that a rethink is needed, but where are all the new ideas going to come from?

The future will see alternative ideas coming through from other cultures that will challenge and change the way organisations function. And the changes will have major consequences for HR in its role of developing, motivating and acclimatising people to different organisational cultures.

For example, there is the legal, contract-based nature of all business activity in the UK. In the Middle East and parts of Asia it is more common to have commercial relationships based on trust, without any form of written contract. The role of human dynamics, of person-to-person trust – a positive and mutual respect – is seen as being more powerful than any piece of paper and the accompanying threats.

The amazing success of the micro-credit organisations in Bangladesh are a good example of this – where small amounts of money are loaned to huge numbers of customers. Or there are Africa’s ‘merchant ladies’ who travel around communities providing loans to local businesses when they need them. In these schemes, quite unlike in our own banking system, the default rate is very low – because the contact and operation is local, there is a personal element involved.

How much of an outpouring of support and sympathy has there been for our suffering banks? The combination of large organisations based on genuinely local relationships and trust could make a big difference to the nature of business.

China will be a leader in contributing new ideas. And however much the country may have seemed to have fully embraced capitalism, its philosophical approach is basically different, emphasising the importance of the collective over the individual. China has always had doubts, for example, about how banks operate and the role of bonuses.

The central flaw in the Anglo-American approach is its reliance on abstract models. Even the famous ‘case study’ approach introduced by Harvard Business School in the early 20th century, which is regarded as ensuring a practical element in management studies, involves thinking about a stylised world, one step away from reality. MBAs themselves, in general, have become reliant on learning the ‘game’ of business – although more UK schools, including the Open University Business School, are making use of actual practice rather than case studies.

One South African business school has already begun to try and prick the bubble of managers, who can come from privileged backgrounds and with fixed ideas. Part of their development involves learning from prisons, the townships, and about people’s lives, rather than treating communities purely as markets.

The Western management tendency to apply models rather than approach reality directly also applies to risk. The abstract analysis and strategies involved can provide a great sense of security for leaders within complex organisations, that attention has been given to every detail and possibility. But can any strategy ever make organisations more secure? We can learn from other cultures in their attitude towards risk where processes are based firmly on reality.

In the noise and hurry of the rush to efficiency and maximisation of profit, the idea of what business is for and its place in society has been lost along the way.

While Adam Smith is seen as the father of capitalism and the benefits of the free market, it’s usually forgotten that his real interest was in moral philosophy, where he insisted on the crucial role of social relationships and ethics as a pre-condition to there being any advantages from capitalism.

James Fleck, dean and professor of innovation dynamics, Open University Business School

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