Better Capitalism

Jesus, Adam Smith, Ayn Rand, and MLK Jr. on Moving from Plantation to Partnership Economics

Paul E. Knowlton, Aaron E. Hedges

• Editore: Cascade Books
• Anno: 2021
• ISBN:
  9781725280953
• Argomento: Economics
• Categoria: Economic Theory

Sometime in your business life you've looked up from the task or person in front of you, paused before your head explodes, and thought to yourself, "There's got to be a better way!" This book offers you that better way. Whether you're in school preparing for the world of work or have experienced multiple careers, whether you make decisions that affect others or are affected by others' decisions as their employee or customer, whether you're part of a multinational corporation or a small business or a ministry or a government, this book shows how you're affected by plantation economics. It then shows you the more profitable--beneficial--viewing, thinking, and living of capitalism through the framework of Partnership Economics. Better Capitalism adds value across the full landscape of capitalism and the bridged worlds of business and faith. Ready for that better way? Read on to unleash a more profitable and ethical capitalism.

Part 1

Problems on Our Plantations
—Re-Viewing Economics

“To understand the hidden secret of the modern industrial world in which I find myself, I have to return to another world. The world is at once wartime Nice8 and the plantation—the sugar isles on which Europe’s prosperity was built.”

—J. M. G. Le Clezio

Plantation economics is one person or group destructively exploiting or wielding control over another and/or resources.

A plantation system is any human construct that creates and/or permits inequities in support of plantation economics.

In this Part 1 we introduce and survey the contours of the corporate plantation system perspective illustrated in the Introduction. This is a re-viewing of our economics, specifically present American corporate economics. From the insights of behavioral economics, we gain awareness of our situation, see it as it truly is, in order to realize the need and advantage for change. At the intersection of economic and theological understanding is the truth that our present corporate plantation systems are deeply flawed and destructive for all involved, including those at the very top. The need for change becomes unmistakable.

The first step is admitting we have a problem.

8. The Italian beachfront city where the Resistance launched a surprise attack and liberated it from Nazi occupation.

Chapter 1

Relentless—Vision, Rules, and Reality

“For a while he trampled with impunity on laws human and divine; but, as he was obsessed with the delusion that two and two make five, he fell, at last, a victim to the relentless rules of humble arithmetic.”

—Louis Brandeis

Something New Under the Sun

In 1951, twenty-one-year-old Princeton economics student John Bogle wrote a thesis on something he had never heard of before—the fledgling mutual fund industry. His two premises were that mutual funds do not generate returns higher than market averages and that the fees and expenses of mutual funds were too high. He concluded, “Future growth can be maximized by concentration on a reduction of sales loads and management fees.”9

Bogle’s work drew the attention of the founder of the Wellington Fund, who hired him. By 1965 he was executive vice president of Wellington Management Company. By 1966 he was CEO. By 1974, he was . . . fired. The bear markets of 1973–1974 and resulting poor funds performance led to disputes and Bogle’s ouster.

In Bogle’s words, he was “fired with enthusiasm.” “Our challenge at the time was to build, out of the ashes of major corporate conflict, a new and better way of running a mutual fund complex.”10 In 1975 Bogle launched not just a new company but a new kind of company. This was to be a mutual company—it would operate “mutual” funds with true mutuality, keeping costs low so fund investors would benefit along with fund managers. This new vision was named Vanguard.

In 1976, Bogle led Vanguard to launch the first index fund, a new kind of investment that tracked the returns of a full index of market stocks, and did so at the lowest possible costs. Industry veterans greeted the innovation as “Bogle’s Folly,” “un-American,” and “a sure path to mediocrity.” Bogle was relentless and pressed on with the expectation of opening his index fund with $150M in assets. Investors greeted the opportunity with just $11M.

Bogle still was convinced his new vision was right. “What I’m battling for—building our nation’s financial system anew, in order to give our citizen/investors a fair shake—is right. Mathematically right. Philosophically right. Ethically right.”11

And right it was. “Bogle’s Folly” has been relentlessly gaining steam for more than forty years and is now the largest issuer of mutual funds in the world. It has more than $5 trillion under management. If only we could all be so foolish.

Not only have millions of Vanguard customers benefited immensely from its thoroughly mutual nature, but its once-radical, low-cost, passively managed index funds have been mimicked throughout the fund industry. Broadly diversified funds with low costs that deliver fair, market-level returns have made compounding wealth dramatically more accessible for people around the world—and the fund companies have done just fine, too. Bogle had a “foolish” vision, put it into practice with a company, and transformed an entire industry and millions upon millions of lives.12 He changed the world. If only our world had more such foolishness.

Bogle innovated in both theory and practice from the mutual fund to the mutual company—Vanguard is owned by its funds, which are owned by their shareholders, so Vanguard effectively is owned by its customers. Whatever benefits the company benefits the customers and vice versa. The main way this plays out at Vanguard is that the company charges low fees (only the costs involved in running the company), and increasingly many customer-owners invest there because of those low fees. The customer-owners get their fair share of market returns, and the company gets a growing number of pleased customer-owners. This is an outstanding and now time-tested example of partnership.

We are innovating in both theory and practice for a mutual economy—not just a fund, not “just” a company (even one as successful and influential as Vanguard), not “just” an industry, but an entire economy and culture of mutuality and mutual benefit. This is no small undertaking, we realize, but it is a worthwhile one, and regardless of the odds, we have to start somewhere. Bogle himself urged, “Our ownership society is gone and will not return. Our agency society has failed to serve its principals, as corporate managers and fund managers alike have placed their own interests above the interests of their beneficiaries and owners. It is time to begin the world anew, and build a fiduciary society in which stewardship is our talisman.”13

Expanding Bogle’s “stewardship” in finance to a broader economic vision, we say “partnership.” It is time to “begin the world anew,” with partnership as the foundational principle. To that end we are also guided by the wisdom of the inventor and futurist Buckminster Fuller, a contemporary of Bogle’s, who wrote, “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”14 Our intention here is not merely to critique existing modes and ethics of capitalism but to constructively present theory and practice (together a disruptive technology) for an approach that is more profitable in the fullest sense.

Bogle is also instructive in the difficult realities involved with implementing such vision. His concepts and company were initially derided as foolish, guarantees of mediocrity, even un-American. Reflecting on the...