Returning value to profit

On my late onset political awakening

AS THE CONSCIENTIOUS middle child of Holocaust survivors, my objectives as a young man were narrow and conventional: to become a better person, build a strong and loving family, achieve financial security and find happiness. I worked hard, was lucky in love and health, and built several successful businesses. Twenty-­five years ago I was able to lift my eyes and expand my horizons. It was time to give back. I began to volunteer a large proportion of my time and financial resources to community and philanthropy. These beginnings are hardly the makings of an economic radical. But my story has an unexpected twist.

Dipping in and out of business, community and philanthropy, combined with curiosity, a love of learning and a dutiful nature have, for me, been a potent and dangerous combination. I was increasingly confronted by two incompatible worldviews. On one hand I believed that our economic system, underpinned by capitalism, was a force for good, creating enormous wealth for society. I believed that those who create the goods and services that people need deserve the profit they earn – and the idea that profit should be aligned with social value is essentially the vision laid out by the father of economics, Adam Smith, more than 200 years ago. At the same time, I’ve come to understand over the past twenty-five years, and the past three years in particular, that there is a vast gulf between this vision of the economy and the way it operates in practice.

From dozens of books, countless conversations with economists, business leaders, philanthropists, academics, friends and family, and from the many projects I’ve initiated, I have reluctantly come to understand that capitalism is broken, and that trying to fix it will provoke ferocious resistance from those whom it enriches.

So here I am, approaching my seventh decade, a newly self-­styled political radical, and proud of it.

How did I go from being a capitalist and philanthropist to becoming a political agitator?


BY 2017, MY views on capitalism were a mixture of pride, gratitude, doubt and anxiety. My lived experience as a businessman affirmed my belief in the power of markets to create prosperity: goods and services for society and wealth for capitalists. When capitalists produce goods and services for society, they deserve their profit. I felt wronged and misunderstood by those who disrespected business. At the same time, my lived experience as a community worker and philanthropist stirred a growing sense of unease about social issues, such as entrenched inequality and disadvantage, and environmental problems, such as species destruction and climate change. I became increasingly unsettled about the role of business. Was it contributing to these social and environmental problems?

To buttress my defences, and my pride, I worked hard to conduct my businesses and investments ethically. To assuage my anxiety, I contributed to the not-­for-­profit sector. For years I had convinced myself that this was enough; the way of the world. I told myself that sweeping calls for radical change were unnecessary or unrealistic. But I was also experiencing a growing sense of foreboding, a sense that the system was creating problems it was unable to fix.

When the Harvard Club invited me to speak at their not-­for-­profit award ceremony in July 2017, I decided to air my longstanding doubts and grievances, both as a capitalist and as a philanthropist. I titled the speech ‘What’s Wrong with Profit?’

I asked the assembled business and community leaders three questions: Why does our economic system allow businesses to profit at the expense of the environment or to contribute to obesity or social isolation? Why don’t we celebrate profitable businesses which avoid harming the environment and society? Why are not-­for-­profits that protect and enhance the environment and society undervalued and underfunded?

My raw intuition was that these problems had a common underlying cause. They arise because, in our current formulation of capitalism, profit is not aligned with value. By ‘value’ I mean all the stuff that we, as individuals and as a society, care about: quality goods and services, power to keep the lights on, a roof over our heads, but also good health, a safe community, clean air, a stable climate and the prospect that our grandchildren might have the same opportunities we have.

My conclusion was straightforward: we need to change the formula so profit is aligned with value; to align profit and value so that enterprises make more money when they generate real value, and less when they erode it. If we aligned profit and value, good businesses and not-­for-­profits would thrive and the extractive ones would be forced to change their ways or die.

It seemed a simple and elegant solution: the economic system had a glitch that we needed to fix. I studiously ignored the political dimension of such sweeping changes. Politics was nasty. All my life, I had pursued narrower and, I thought, more productive pursuits.

Running on the fumes of my intuition, I set out to turn this vision of aligning profit and value into reality. So began my wild journey through economics, philosophy, evolutionary biology and the science of measurement.


I STARTED WITH a question: when profit and value are not aligned, what is the source of misalignment? This led me to the world of ‘social and natural capital’. Books such as Jane Gleeson-­White’s Six Capitals, which explains that the way we measure profit today focuses entirely on financial capital but largely ignores other forms of wealth – the air we breathe, the trust in our communities, the rivers that quench our thirst, the fish in the oceans and the ecosystems that support life. This gave me a new language for describing the problem: profit and value were not aligned because social and natural capital, which not only underpin the economy but also make life worth living, were often invisible to markets and irrelevant to the calculation of profit.

Because no one owns them, social and natural capital typically sit outside the economic system, unmeasured and unaccounted for. In the language of economists, they are ‘externalities’. A business can capture the value it generates by producing and selling a widget (which it owns), but doesn’t have to pay for the impact its carbon emissions have on the climate (which no one owns). Meanwhile, a not-­for-­profit that runs a literacy program (which must be funded with hard cash) can’t capture the value that a more literate community brings to all of its members (a benefit no one owns).

So why would anyone invest in reducing carbon emissions or improving literacy when there is no one to buy these improvements? Conversely, why would anyone pay for the damage they do to social and natural capital, like degrading health or polluting the air, if there is no owner to hold them to account?

This was where a conversation with my dear friend, the philosopher and ethicist Simon Longstaff, introduced a genuinely radical idea: one that remains a guiding light, at least morally. Simon pointed out that, in a way, social and natural capital is already owned: by everyone. Not in the private property sense, like having title to a block of land that gives the owner the right to exclude others from that land. But rather in a broader common property sense, in that we all have a stake in the literacy of our communities, the cleanliness of the air we breathe and the stability of our climate. He argued that all of humanity already ‘owns’ the world’s stock of social and natural capital, irrespective of where they are born, how wealthy they are or whether political entities recognise this fact. He called this idea the ‘Universal Commons’.

To my untrained mind Simon’s idea sounded idealistic, but not crazy. Dreamers both, our thoughts leapt beyond mere moral claims. If we could find a practical way to recognise this common property right, we reasoned, then people would act in their shared self-­interest and hold to account those who negatively impact our social and natural capital. Equally, this same shared self-­interest would incentivise all of us to reward businesses who preserve and enhance our common property rights.

Holding reality in a loose grip, I tried to imagine how to implement this universal property right. What if we created an organisation to claim symbolic ownership over the world’s social and natural capital on behalf of all of humanity, and then made every living person a member, issuing them with one indivisible and unsaleable share in the Universal Commons? Would this allow social and natural capital to be brought into the market alongside financial capital?

If it worked, the implications for the economy would be staggering. Current global GDP, measured in financial capital, represents only a small fraction of the value of the world’s unmeasured, unowned social and natural capital. Had we discovered a way of bringing untold riches into the market economy?

At the time, my wise son Oscar gently warned me that I was in over my head. Even assuming that the technical challenges could be overcome, we would quickly discover that the politics of our imaginings were impossible. He argued that such a sweeping reset of property rights would be resisted by those with vested interests in keeping social and natural capital unowned or weakly regulated by governments. But, like any good entrepreneur, I was undeterred. I sidelined the magnitude of the political challenges of implementing the Universal Commons and decided to use it as a conceptual stake in the ground.

Assuming this, or something like it, was possible, what was the next step?


HOW LONG IS a piece of social capital? How do we define clean air, a literate community or a stable ecosystem? To what exactly were we claiming property rights?

It quickly became evident that our first technical challenge would be measuring social and natural capital. When I spoke to my peers about the issue of measurement, their contradictory responses baffled me. One group told me it was impossible or undesirable to measure things like trust or the health of an ecosystem; others – mainly environmental, social, governance practitioners and impact investors – said they were already doing it! Which was it?

To get to the bottom of this, I spent over a year devouring a vast literature on the science and philosophy of measurement. I met with some of the world’s leading experts. In a fit of exuberance, I attended a conference on the epistemology of measurement in Paris. My conclusions were encouraging: the history of measurement mirrors the history of human progress. New and improved measurements have consistently increased human welfare and prosperity. For example, more accurate measurements of air pressure vastly increased the efficiency of steam engines.

Granted, some aspects of social and natural capital, like a parent’s love for a child or the beauty of a sunset, have value that cannot or should not be measured. But there are things like literacy, public health, biodiversity or climate stability that we can and should measure. There is also a critically important difference between measuring changes in the condition or quantity of social and natural capital and measuring changes in their monetary value. Scientific measurement does the former; markets do the latter. So we can’t directly measure the value of a literate person; rather, we can develop and agree on technical methods for measuring literacy, and then a properly designed market will place a value on improving someone’s literacy – or so I thought.

The problem is not that the science of measurement is lacking. The science of measurement has advanced tremendously in the last few decades, and there is a high degree of confidence among the experts that we can already measure many important dimensions of natural capital. Measurement of social capital is more difficult, but will improve over time. The main problem seems to be that we have not yet reached scientific agreement on the metrics to be used.

At last, I had found a useful project that I could sink my teeth into. While visiting London in 2018, I asked the National Endowment of Education Science and Technology and the Arts (NESTA) to undertake a research project on the viability of running a measurement prize to produce metrics for social and natural capital. It would be similar to XPRIZE, which runs competitions with large rewards to ‘crowdsource’ solutions to the world’s biggest challenges. We would award our prize to the team that developed a ‘measurement framework for social and natural capital’.

NESTA thought the idea had merit but suggested that we first research a more modest project: the measurement of clean air for human health.

With a measurement plan in motion, I returned to the pivotal question: how to bring social and natural capital into the market, so that the metrics from our prize could be turned, by supply and demand, into financial measures.


WHEN PURSUING A big opportunity, and confronted by seemingly insurmountable obstacles, an entrepreneur optimistically – and often naively – assumes these can be overcome and pushes on. By comparison, logical and well-grounded pessimists make poor entrepreneurs because they know in advance why opportunities may be unattainable. As an entrepreneur, I had optimistically planted the concept of the Universal Commons as my anchor. By extending ownership of social and natural capital to all people, we imagined the possibility of supply and demand – and thus a market. The ‘owners’ of social and natural capital would have a vested interest in preserving and improving it, thereby creating demand. That demand would then be met by businesses and other organisations that would, for example, invest in reducing pollution or improving public literacy. The time had now come to examine whether my anchor held.

Let’s say the measurement prize yielded an effective, universally accepted metric for clean air. How could we use that metric to create a market for it? What would compel a business to reduce its air pollution, particularly if its competitors could gain a cost advantage by ignoring their impact on the atmosphere?

At this pivotal moment two brilliant people entered my life and triggered my late political awakening.

The first was Eric Beinhocker, executive director of the Institute for New Economic Thinking at Oxford. Over a coffee in central London, Eric listened intently to my story, and commended my efforts to bring social and natural capital into the market. He agreed that scientific measures were a necessary condition for doing so. But he questioned whether measurement of social and natural capital was a sufficient condition. He pointed out that there was already a widely accepted metric for greenhouse gases: carbon dioxide equivalent. Even in the seemingly ideal case of carbon dioxide equivalent, where the consequences of inaction are catastrophic, the efforts of philanthropists, impact investors and concerned citizens, including two decades of voluntary markets, have barely made any difference. Because greenhouse gas emissions are neither capped nor taxed by law, carbon dioxide equivalent markets are voluntary, and those who participate do so altruistically, incurring personal sacrifice for the benefit of the rest of us. Most polluting businesses can, and have, ignored voluntary markets, making them too small to turn the tide. Only government action can turn weak voluntary markets into effective enforceable ones.

The second was Reuben Finighan, who had worked with many of the world’s top economists and was completing his PhD at the London School of Economics. Reuben’s feedback to me, delivered as a twenty-­five-­page report, was sobering. While endorsing my aspiration to align profit with value, Reuben raised several economic, philosophical and political problems with the Universal Commons and encouraged me to think more deeply about the nature of markets and how they come into existence.

For example, property rights, which are the bedrock of markets, are the rules of the economic system embodied in constitutions and legislation – and enforced by government. Making the property rights envisaged by the Universal Commons enforceable would require setting up a global government. Was I suggesting wrenching some of these powers away from existing governments? Or did I intend to persuade governments to adopt revolutionary change when they struggle to implement even minor regulations?

This was the mother of all dead ends. I now understood what my son Oscar had meant when he said that my ‘technical’ economic fix was deeply political. I wanted to radically transform an institution that sits at the heart of capitalism: property. The government, with its monopoly on the use of force – a concept that was entirely new to me – would inevitably have to play a central role in implementing and regulating such a property right.

I had started this project with my eyes wide open. Most ambitious projects fail. Reforming the economic system is more than ambitious. This was not the first time I had experienced the clammy feeling that I was in too deep. Nevertheless, I harvested my resilience, put the measurement challenge on hold and pushed on.


IN A MELBOURNE restaurant, Reuben explained that the misalignment of profit and value is far from a new problem. In fact, it is a modern manifestation of an ancient and ubiquitous problem faced by every civilisation, every tribal group.

He took a napkin and sketched a matrix, with individual profit on the vertical axis, social value on the horizontal, and the four quadrants labelled the mutualistic, the extractive, the altruistic and the folly.

The mutualistic is where capitalist magic happens, where individual profits and social value are created. Adam Smith’s insight was that in well-­governed markets, economic activity is mutualistic: the baker and butcher reap rewards for feeding the community; the wool spinner for clothing the community; and the builder for housing the community. Two people who agree to a transaction usually do so because it makes both better off. Over the past two centuries, the combined effect of billions of mutualistic transactions has been unprecedented economic growth. Capitalism in well-­governed markets is mutualistic. This is why I felt entitled to be proud of my achievements as a businessman: in these terms, I had created value for society and I was entitled to my profit.

The extractive is another story. It represents another ancient problem in biology and society: parasitism. Nature is full of extractive parasites, but parasitism is a flawed strategy: parasites that undermine their hosts undermine themselves. It is similar when businesses benefit by burning fossil fuels that damage the atmosphere or dump chemicals that poison drinking water. Their short-­term private gain undermines the ground on which we, and they, stand. Poorly governed markets enable extractive behaviour by allowing business to make a profit while harming society. This section of Reuben’s diagram was an elegant expression of one of my Harvard speech gripes.

Altruism is private cost and public benefit. When I pay my taxes, I incur a private cost. When the government spends that tax on public goods, such as public roads and schools, there is a public benefit. Similarly with philanthropy. When I donate to a charity that shelters and feeds the homeless, I am incurring a private cost and there is a public benefit. Sadly, altruism has always been a weak reed in biology and society. It’s not altruism that makes pollinators and flowering plants work together, nor, as Smith wrote, do the butcher or baker provide their services out of pure magnanimity. If the binding agent of a healthy society is altruism, it has its natural limits.

And in folly, all parties lose. Sometimes we find ourselves here because of bad judgement, or because of spite, where one individual is willing to pay a cost to impose a bigger cost on another. As the least economically important and most avoided space, activities here serve no one.

Reuben’s framework revealed a bigger picture, one that the evolutionary biologist David Sloan Wilson calls the ‘fundamental social problem’. The problem is that while individuals will seek actions across the top half of the graph – profit – genuine economic growth requires activities down the right half of the graph: value. The absence of growth throughout most of human history is a testament to this problem. Without intervention, too much of what people do is parasitic, and too many essential public goods are underprovided.

How do we fix this fundamental social problem and pull ourselves out of the mud? The trick is setting the rules of the economic game to align individual and group reward. This means introducing property rights so that people are punished for activities such as theft (in the extractive quadrant) and raising the payoffs of activities such as educating the poor or building roads (in the altruistic quadrant) by paying teachers and construction workers wages out of the public purse.

Reuben argued that putting a price on carbon does exactly the same thing: it reduces the profitability of extractive activities that harm the atmosphere. It also raises the profitability of mutualistic activities, like renewable energy, or altruistic ones, like planting trees. When the rules of the game include a carbon price, both parasites and altruists become mutualists.

By these measures, the things I had complained about in my Harvard speech – profits earned at the expense of society and the unprofitability of not-­for-­profits – were the consequences of setting the wrong rules for the economic system. By largely ignoring externalities, our current system could be termed ‘extractive capitalism’ because it enables businesses to make a profit while degrading social and natural capital.

Can we blame businesses when they operate in the extractive quadrant – that is, when the rules of the game enable them to earn a profit at the expense of society? It depends on how they interact with the rules of the economic system. Businesspeople who advocate for changes to rules from which they personally benefit but that harm society or the environment, like billionaire investor Warren Buffett saying he should be forced to pay more tax, are acting altruistically and should be lauded. However, relying on the altruism of business is no way to run an economy.

What about businesses that avoid politics and play by the rules? Can we criticise businesses that employ no lobbyists, seek no favours from politicians, pay their taxes, lawfully dispose of their waste and pay award wages? I don’t think so. I know from personal experience how hard it is to make a profit in a competitive market. Asking law-­abiding businesses to exceed their legal obligations – for example, ensuring that their supply chains create no negative externalities – places them at a cost disadvantage relative to their equally law-­abiding but more pragmatic competitors and threatens their survival.

The real culprits are businesses – usually large, powerful businesses – that undermine rules already designed to align profit and value, such as environmental or food safety laws, or block necessary changes to the rules (for example a sugar tax) so that they can continue to profit at the expense of society. This is not only extractive, it is parasitic and unacceptable. The ‘compact’ between business and society is that business must seek profit within the rules that society sets. If, instead, businesses use their wealth and political clout to influence those rules to maximise profits at the expense of society, they undermine the logic of the whole system.

The compact is broken and capitalism will not survive.

Stopping this egregious behaviour is a vital change we need to make in capitalism today, and it’s a political minefield. Which businesses would willingly give up their power to interfere with the rules? I doubt there are any. We must take that power away from them.

This is how I see it now. The goal of economic reform must be more than just calling for more altruism or mutualism within an inherently extractive system. We cannot rely on altruism; there is simply not enough of it. We cannot expect businesses to act against their self-­interest; they will at best do a little, and at worst they will fake it. We must instead reform the extractive institutions themselves or introduce laws to constrain them so that, as Smith hoped, the only way for business to do well is by doing good. If we measure our impact on social and natural capital, if we price in externalities, if we structure our institutions to promote what I call ‘mutualistic capitalism’, profit will be aligned with value. The legitimacy of profit will be restored and we will have an economic system that lives up to the promise of Smith’s vision.

The path to this end, I’ve come to see, does not lie primarily in changing business. It lies in changing laws: in funding literacy programs, protecting natural places, introducing an effective carbon price. It lies in ensuring that our tax system lives up to Oliver Wendell Holmes Jnr’s famous judgement that taxes are the price we pay for a civilised society. It lies, as my son Oscar told me at the start of my journey, in politics. 


WHY WAS THIS journey so difficult? Isn’t it obvious that everything, even economics, is political? Why did I resist the obvious? Because it would have required me to alter my entire worldview. If the economic system is indeed political, it undermines my lifelong belief that it is an efficient and fair servant of society, rewarding those who work hard and create value. If the economic system is political, it may be neither efficient nor fair. It may not be the servant of society I supposed it to be, but a handmaiden to capital, rewarding those who use their wealth and power to mould the economic system to serve their purposes. Being curious and open-­minded is one thing. Shaking off a lifetime of ingrained belief is entirely another. There is another reason why I resisted my political awakening. If the economic system is indeed flawed, then no number of technical projects will fix it. It can only be fixed by politics, and that space is one I have avoided my whole life.

So here I am in my late sixties, a freshly minted political radical, at least compared with where I started, calling for sweeping changes to the rules that underpin our economic system. I am aware of the powerful vested interests that will lobby mercilessly to maintain the extractive system that serves their interests. Like a good entrepreneur, I am sure I have underestimated the scale of the challenge.

On the other hand, I know that institutions are not set in stone. They are not the natural order, nor a divine right; they are not ordained by God, and they are not discovered by science. They are ours to create and they are ours to change.

Where to now? My first step will be to share my journey with my peers in the business, impact-­investing and philanthropic communities. This is the world I know, inhabited by decent men and women who are broadly content with our economic system, but who are racked by doubt and anxiety about its obvious shortcomings. That is, people like me before my late political awakening. I will ask them to promote the idea of ‘mutualistic capitalism’ by fighting for rules that better align profit with value. I will encourage them to re-­examine their own worldviews and apply their skills, energies and resources to support people and projects that seek to reform the laws that underpin our economic system and society.

If we want large-­scale change, we cannot avoid stepping on toes. We have to get political and change the rules of the game.

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