Equitable Capitalism
Posted on October 18, 2019
A town meeting with stakeholders in the diamond-rich country in Sierra Leone.
“Equitable Capitalism” seems like a paradox, joining two words that could not be more different: “Equity:” impartial, equal distribution of opportunities — and “capitalism:” a term that, in its extremes, evokes the massive inequalities and exploitations of colonialism, monopolies, and industrial barons.
Many systems have been proposed as alternatives to capitalism, but as the global market evolves, it’s clear that capitalism isn’t going anywhere anytime soon. There is no direct line from Point A to Point C: for now, the best alternatives to capitalism must exist.
Equitable Capitalism is a system of profit allocation that emerges from the principles of system thinking. Equitable Capitalism distributes a company’s sustainable financial revenue fairly among all stakeholders, which in this system includes every person contributing directly to the final product. It is willing to compromise the company’s net profit and build a stronger company by ensuring every individual laboring toward the end product receives what is fair. It challenges our current notion of value in order to address inequalities long-term.
Global inequalities are clearest in the contrast between advanced, industrialized western countries and the resource-rich but yet undeveloped nations they exploit for raw resources, whether food, metals, oil — any resource.
Perhaps this exploitation is clearest in Africa. The continent produces massive percentages of the world’s raw materials and yet receives very small percentages of the revenue from the end products produced from those materials. As of 2016, The African Development Bank reported that, while Africa produces 75% of all cocoa on earth, only 2% of cocoa revenue returned to the continent. Around $200 billion dollars are extracted from the continent every year — while only $30 billion returns in the form of aid. The list goes on; many countries, especially in the southern hemisphere, suffer similarly poor returns on their exported raw materials.
Corruption and other factors account for some of this profit disparity between raw-material yielding African nations and those importing raw goods for production elsewhere. However, value is being added to the materials elsewhere in the chain of production. For example, raw diamonds are exported from African nations, then cut and polished, in Europe, North America, and Eastern Asia, and sold at far higher values. By far, the greatest share of profits goes to large companies headquartered outside of Africa.
This disparity greatly affects workers in material-producing countries, where many households struggle to survive on less than two dollars per day. Large companies extracting resources from the continent do little to return value to those locals laboring on the ground. In turn, families, communities, and entire nations only benefit slightly while others outside profit off resources that originated in-country. Wealth and development gaps grow.
Miners in Sierra Leone in tough conditions working.
I spent the early stages of my life growing up in Sierra Leone, Africa, and have also returned there as an adult to visit and to do work. In my home country, as is the case in much of the continent, people struggle daily to meet the most basic of needs: food, shelter, and safety. Challenges such as limited or poor electrical and phone connections, serious infrastructure problems, and poor roads all contribute to under-development. Classrooms are overcrowded.
Very few people in these countries can achieve high levels of education or training due to the need to constantly focus on basic survival needs. For example, in Sierra Leone, a country of more than 7 million people, fewer than 200 are practicing doctors.
The problems facing these resource-rich yet destitute countries are what Horst Rittel and Melvin Webber termed “wicked problems:” complex problems of policy with many causes and without clear answers. These are problems that require a multitude of solutions, some of which will only be invented once other innovations have been tried and tested.
However, one thing is clear; economic deficiencies in underdeveloped Africa — and other underdeveloped areas of the world — cannot be improved without empowering those who have the least. Machiavelli wrote that “The reason there will be no change is that the people who stand to lose from change have all the power. And the people who stand to gain from change have none of the power.”
The question, as spoken by Google’s Director UX Design Kat Holmes, becomes, “Who needs to be in this room to solve this problem?” To solve the wicked problems facing the world, we need the voices of those who are now excluded. If current systems do not provide equitable results, those with power will not or cannot effectively implement equitable changes. The first step must be to empower those who have no power.
Equitable Capitalism’s principles are designed with this empowerment in mind:
- Within a company, the definition of the stakeholder is expanded to include those who directly contribute to the company’s offering;
- The net profit of the company is reduced to offer an equitable reward to the stakeholders who, in other models, were most likely to be under-compensated/exploited;
- Profits are distributed equitably and with integrity, which must be protected with accountability.
This system is not without precedent: a 2019 Associated Press article offers a decades-long overview of changing philosophies toward stakeholder value and the social responsibility of corporations in the United States.
Practically, an international mining corporation might apply the system of Equitable Capitalism by including its low-paid, in-country laborers, and the community that has historically owned the mining land, as stakeholders. Without the raw materials and the often grinding, physically-taxing labor others might be unwilling to do, the company could not offer a product. Therefore, the company deliberately values the contributions of its workers and laborers.
There are many ways to apply the first principle of Equitable Capitalism. Companies may consider many factors in deciding what an “equitable” share is: historical factors, opportunities for social impact, etc. Workers — now stakeholders — could be consulted directly. A company could also give equal wages to all employees.
However the company decides to create equitable rewards for its stakeholders, it will increase its payouts by sacrificing some of the net profit. The company takes the loss on paper; however, the rewards may be greater, from increased stakeholder investment to positioning as an ethical company.
Landowners in Kono, Sierra leone gather to tell their stories.
The system and the rules by which it is run must be publicly available and open to review; without accountability, some companies may exploit the language and ideas of Equitable Capitalism without initiating the empowerment that is its purpose. Without integrity, the other principles of the system will surely fail. Stakeholders, of course, must clearly understand what the company is doing, where money flows, etc.
Luku Diamonds is a company I founded based on these principles. Luku Diamonds extracts diamonds from Kono District of Sierra Leone and creates jewelry. 60% of all profits remain in the country: 10% in infrastructure development in the Kono region, 10% as loans for local entrepreneurs, and 40% as compensation for those whose land produced the diamonds.
Luku Diamonds’ model offers one possible application of Equitable Capitalism; there could possibly be as many different implementations of the principles as there are companies.
I do not consider Equitable Capitalism to be a “one-time,” “one-size-fits-all” solution. What it is is a beginning step, an intervention in systems of capitalism that are not working for some less-developed nations, and for those without power generally. It cannot solve every problem, no should we be satisfied with implementing it as if that were enough to address the status quo. After all, it addresses “wicked problems.”
However, I do believe implementing Equitable Capitalism to be a positive action. As a theory, it may progress the global conversation on income inequalities. In practical implementation, it may spark the next innovation or empower the next leader or entrepreneur in the developing world. For those essential but powerless members of the system, it can be part of a future-changing infusion of capital. For companies looking to examine their social impact and evolve, it can represent an opportunity to do business ethically. I am eager to see how its principles might be interpreted and applied in new ways and new contexts.
Fas Lebbie
References
Africa produces 75% of cocoa but gets 2% of $100b chocolate market revenue.
https://www.ghanabusinessnews.com/2016/05/25/157624/. Accessed 18 Oct 2019.
“Will Africa Ever Benefit From Its Natural Resources?”.
BBC News, 2019, https://www.bbc.com/news/world-africa-19926886. Accessed 17 Oct 2019.
Companies must rethink their social role moving into the future.
https://www.reuters.com/article/jp-morgan-business-roundtable/top-ceos-say-companies-should-put-social-responsibility-above-profit-idUSL2N25F0IU. Accessed 18 Oct 2019. “Top Ceos Say Companies Should Put Social Responsibility Above Profit”. Reurters, 2019,