(May 25, 2019) Until now, we have been exploring the case for Conscious Capitalism on the basis of economic necessity. It is clear that the strength (68%) of America’s economy is based on consumer demand. Most of the consumer purchases in America are bought by the families of the middle class, because there are more of them and because their needs tend to cover a wide spectrum of goods and services. It is therefore critical that a majority of Americans have enough money to buy an ever-increasing supply of consumer goods and services if our economic engine is to keep on growing.

But the fact is that more and more of the available capital is ending up in the hands of the very rich, leaving the vast majority of the population with less and less disposable income. However, the consumer needs of the very rich are limited; most of their spending goes for investments and passive income. In order for our economic progress to continue to prosper, therefore, something must be done to distribute more of America’s wealth to a larger proportion of America’s population. The alternative is the eventual destruction of the capitalist system which has worked so well for us for the past two centuries.

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As our regular listeners and readers know, I have been talking about the “wealth gap” between the 1% of Americans – who control as much as 80% of America’s wealth –  and the rest of us for the past several weeks. In a consumer-dominated economy (68% of GDP), the major consumers are the middle class. If the buying power of the middle Americans continues to be eaten away by inflation, the economy will begin to contract, and recession becomes more likely and more severe than anything seen in America since the Great Depression of the 1930’s. So, my conclusion is that something has to be done to increase the wealth of the middle class.

I’m pleased to note that former Vice President Joe Biden has taken this issue as his campaign theme! He has not yet told us how he intends to rebuild the middle class. We shall have to see about that.

In the meantime, however, I have been looking for a capitalist means of redistributing some of the wealth produced by our inventive compatriots. The Bernie Sanders Democrats want to solve this problem by appointing the federal government as the re-distributor of the nation’s wealth, using the tax system.

This solution is courting the disaster which occurs eventually to every Socialist regime. Why? Because, like Detroit and Nicaragua, the state’s well eventually runs dry and government goes bankrupt. The simple fact is that governments know only how the spend money, not how to make money. It takes business to produce profits. To the extent that business is free to compete, to try new ideas and inventions, to that extent businesses will be profitable and the country prosperous. The secret to America’s enormous prosperity is our capitalist system which leaves business reasonably free to succeed.

So, we need a capitalist solution to re-distribute the profits generated by our successful businesses. Here is where we run into the core issue. American technology has always been driven by the goal of reducing the need for human labor. It started because simply surviving on the frontier demanded nearly all a person’s time and effort. As labor-saving devices gradually became available, they offered users some spare time. It is not a coincidence, for example, that the women’s suffrage movement coincided with the availability of tin cans and sewing machines. These inventions lessened the time women had to spend making clothes and preparing winter food.

But then a new issue began to surface: When labor-saving technologies are activated on a broad scale, what happens to the laborers who used to do that work? Theoretically, if the totality of human labor needed to produce greater profits is reduced, everybody should have more leisure time for other pursuits. But it hasn’t worked out that way so far. What has happened is that the savings in labor have resulted in a reduction of the work force (in any given industry) and the increase in profits has gone mostly to the inventors and investors.

Additional leisure (non-work time) time was given to post-WWII union workers in the form of the forty-hour week, sick leave and vacation time. But that formula became a standard benefit and has been frozen in place since the 1970’s. Not only that, but inflation also froze purchasing power. Since 1971 when the gold standard was abandoned by Richard Nixon, many workers have been receiving the same wages, while inflation has decreased purchasing power by 500%.

So, that is the problem: In order to preserve our capitalist system with its dependence on consumer activity, we have to distribute our national wealth more widely without using the Socialist solution of government intervention. What is the capitalist solution?

The capitalist solution is profit-sharing with employees. There are many forms of employee participation in ownership already in practice at some of our most successful companies. One movement which has recently been gaining momentum is called “Conscious Capitalism”. This is a revolutionary program, which has been developed and organized by a new generation of managers.

Conscious Capitalism’s two main spokesmen are Whole Foods CEO John Mackey and management consultant Raj Sisodia, who collaborated on the bible of the American version of this philosophy,  Conscious Capitalism, Liberating the Heroic Spirit of Business (2014 Amazon Books). They present a stunning re-thinking of capitalism. They begin by defining the goal of business as “the creation of value” for the entire ecosystem of the enterprise, which includes the customers, managers, employees, community, shippers, investors and the environment.

Leaders are the servants of all these stakeholders. Their job is to make them all happy. The first step is to identify the goal of the enterprise as a concrete value to society. For Whole Foods, this is to present to the public the freshest, most healthful, abundant and nourishing choice of foods available.

For Conscious Capitalism, shareholder profit is a means to an end, not an end in itself. It makes possible the realization of the true goal of the company. This philosophy extends to corporate responsibilities ranging throughout the entire outreach of the business, including the conservation of the earth, the financial welfare and safety of employees, etc.

Raj Sisodia makes a strong case for the ethical, noble, heroic and passionate character of capitalism properly conceived as well as its proven potential to alleviate world poverty. The idealism of these thinkers is the most compelling revision of capitalist theory since Marx objected to its every facet two centuries ago. Not that there are no dissenters. Along with Marx, there are still many who simply do not believe that any business can or will survive without bowing to the primacy of shareholder profits. Of course, if a large percentage of the shareholders are also employees, who knows?

If Joe Biden comes up with something like Conscious Capitalism as his solution to “rebuilding” the middle class, we may all have to revise our thinking about the Democrat Party. Seems highly unlikely, doesn’t it?

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