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Business - Written by on Monday, June 23, 2008 18:44 - 7 Comments

The End of Capitalism

At nGenera’s Gov 2.0 conference at Harvard last week, I had the opportunity to meet Ben Rattray. Ben founded Change.org, a Facebook-like social-networking site specifically designed for engaging people in social change. Change.org seeks to maximize social good, not monetary profit. So imagine my surprise when Ben told me that it is not registered as a non-profit, but as a corporation.

For about as long as corporations have been the dominant form of value creation in society, they have been viewed as enemies by social activists. Naomi Klein’s No Logo documents the rise of a social movement in the 1990s that is specifically anti-corporation. The 2003 book and film The Corporation has taught a generation of socially concerned youth that corporations act, by flawed design, like psychopaths. “The corporate model is broken and must be changed,” is perhaps one of the most unifying mantras across the diverse range of social activists.

And here’s this guy Ben, starting a network for social change, and he incorporated it? Did he not get the memo?

Actually, I believe that this is an example of a much larger trend that is remaking the model of the corporation, blurring the line between businesses and NGOs, redistributing corporate power from shareholders to communities, and marking the beginning of a post-capitalist society.


Change.org isn’t about making money, Ben told me, but it has equity investors and a “sound business model.” The site is free and has no advertising. But rather than support themselves by raising money, they charge NGOs for some higher-end consulting services, and use that revenue to pay for the rest of their work. The hope is that their business model will allow them to become completely self-sufficient.

Change.org acts like a business, and has a business model that could be used to make money, but chooses to be concerned with social rather than monetary profit. The same idea is found in micro lending: small loans given to entrepreneurs in developing countries. These loans make money, but more importantly, they create social value.

As NGOs become more business-like, businesses are becoming more socially-responsive, because their power is being redistributed from shareholders to communities. Wikinomics argues that businesses’ value is increasingly coming from their communities. As corporations own fewer and fewer physical assets and lose their ability to control their intellectual property, employees and customers are able to bypass shareholders and recreate a business in a new image overnight. This is even more true in an era where value is created by prosumers and outside-collaborators.

In order to keep their communities, businesses need to make the case that they are contributing to positive social change. A global talent crunch is forcing corporations to compete over employees, and one of the biggest sells is providing jobs that have a meaningful social impact. Customers are increasingly making socially-informed purchases, and increased transparency is giving them more information to do so than ever before.

Naomi Klein and others saw the rise of socially-concerned brands like Starbucks, Apple, Nike, etc. as a corruption of progressive values. But what has been overlooked is the fact that, in creating these brands, these companies have handed over power from shareholders to consumers.

When Greenpeace launched its GreenMyApple campaign to get apple to become more environmentally friendly, they did not attack the company, but created a community of appreciative Apple customers who wanted the company to do a better job at espousing their values. And guess what, they won.

We are moving to an era where NGOs behave like corporations, social activists collaborate with the businesses they are trying to change, and companies get their value from their ability to attract collaborators by showing how much social good they are doing. The corporation will survive, but it will be controlled not by the owners of capital (shareholders), but by the community it serves.



7 Comments

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DH
Jun 24, 2008 10:11

Great post, Will.

A couple of points – micro-lending has two forms: non-interest bearing (i.e.charity) such as Kiva vs. interest-bearing platforms such as MyC4 that follow a tried and true business model. Both models create end-value for the debtor but the process is by no means always altruistic.

Moreover, you’re in part referring to what is more commonly known as social entrepreneurship – see Bill Drayton and the work at Ashoka – wherein the end result is measured on impact rather than dollars and cents. But while Apple’s decision to drop PFRs and PVCs may be greener, does that example actually point to a shift in power and control – or does it simply point to good business sense and stategy akin to Wal-mart’s decision to go green a few years ago and where the proceeds and profit from those strategies are still deposited with shareholders? I’m enjoying a 50% return on my Apple shares since February so… I might beg to disagree!

Will Dick
Jun 24, 2008 12:10

Thanks for the comment.

My point is not that companies and shareholders will no longer make money. It’s that they will only make money if they behave in the way that their community wants them to behave. And therefore, that the power to steer the direction of a corporation no longer resides with its shareholders, but with the community it interacts with.

There’s that old story about how Henry Ford wanted to cut prices on his cars so that more people could afford them, but his shareholders got an injunction to prevent him from doing that because it wasn’t profit-maximizing.

I don’t think that could happen today. Why? Because the companies don’t own anything. They have no physical capital. Their intellectual property is impossible to control. And a ton of their value is being created by outside collaborators. If the company isn’t responsive to its communities, the community disappears. Or more accurately, the community kicks out the company.

Traditionally, companies got their value from owning and renting capital, and they didn’t have to care all that much about what people thought of them. But increasingly, they get their value from something completely different. Some have called it the brand. Wikinomics calls it a community. But they are really the same thing: getting people to engage with you, even though they don’t have to.

True, Apple and Walmart got greener because it was a good business decision. But why was it a good business decision? It raised costs. It probably didn’t bring in a lot of new revenue. But the customers wanted it. They demanded it.

If your value comes from getting people to engage with you, even though they don’t have to, you have to provide people with what they want. And both employees and customers seem to want assurances that your organization is providing social value.

Social value therefore becomes the main source of value for a company. It’s what convinces people to engage, and keeps the community and brand strong, allowing the company to be the place where value creation takes place. Since a company’s community determines social value, it is them who steer the company, not its shareholders. This is fundamentally different from capitalism, where value and power come from owning capital.

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Jessicapype
May 10, 2009 8:27

I really liked this post. Can I copy it to my site? Thank you in advance.

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