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Is Capitalism due an upgrade? We take a look at some alterations to business design that could bring capitalism up to date.

Aug, 2019

The origins of capitalism can't be attributed to any person nor a specific date in time, but some people agree that it started in the late 1700s when the theories Adam Smith proposed in his famous ‘An Inquiry into the Nature and Causes of the Wealth of Nations' led to a shift in the economic principles that drive business.

I'll spare you the long history, 1) because it's much debated, and 2) because I'm still learning about it today. What we do know is that the capitalist system and its merits have never been questioned as heavily as since it was first introduced.

The pro's and con's of capitalism have been done to death, especially since the spotlight has been cast on the free market model in this post-GFC (Global Financial crisis) era. But there is one aspect of capitalism that is especially relevant to one of our ventures (weSwitch4u) and one I'd like to highlight in this article;

In regular business, the owners are the owners, the employees are the employees, and the customers are the customers. Clearly, the interests of all three parties aren't well aligned. The owners (shareholders) want to extract as much as they can from their customers and to do this they need to keep costs down, which means paying the employees as little as possible.

The co-operative model tackles this, more specifically employee business ownership or part-ownership structures like those of John Lewis seek to reward employees in line with the success of the underlying business. But what about the customer??? Well, some will say that the free market does benefit the customer because goods and services are produced/delivered at a price which is as competitive as possible given the limitations of production/supply.

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True, as big consumers in the western world, we certainly have benefited from the low prices of goods and services which has raised the standard of living considerably since the late 1700s…. but can we do better?

If we consider customer behaviour in this, we see that as improvements in production techniques or reductions in labour costs become marginal, the business is forced to employ tactics that aren't very consumer-friendly. Exploiting customer behaviour has become a hugely important aspect of keeping consumer demand high, and free-market efficiency lower than it would otherwise. Let's take energy as a very apt example; Perplexing customers with unreadable energy bills, overcomplicating energy switching, and poor customer service serve as ways in which we can reduce the customer's mobility in choosing a supplier, and hence provide an obstruction to the free market mechanism. Now some of you will say that poor service is a function of reducing costs on support staff, which allows the supplier to lower prices, and that energy is an inherently complicated product, but could it be six of one and half a dozen of the other?

WS4U isn't owned by customers, and it's not a co-operative, so how are we proposing that we are any different… simply because our business has what we believe to be a socially beneficial blend of aims.

Now although the UK doesn't have a comparable vehicle to the US public benefit corporation, we would like to think of ourselves as something similar. We consider our giveback scheme, along with various other features, part of our business charter to perform social good. This isn't at the expense of profit, or even the driver to maximise profit, we understand the role profit has in the current economic system. Rather we feel the balance of priorities here at WS4U allow all parties (customers, staff, owners), to feel they are benefiting sufficiently for the venture to be worthwhile. So how do we feel we can make such a model work in a ruthless capitalist world, well:

Firstly, we compete on price. We operate in a market which has no special barriers to entry, and as such our service must be economically sound for us to entice your custom over a competitor (present or future).

Secondly, we have a social benefit component embedded into our pricing that ensures that we stay true to our responsibilities as a business to contribute meaningfully to society.

Thirdly, by operating in a market like energy and insurance, where customers are exploited by suppliers, we hope to counter the imbalance (which fundamentally addresses the flow of wealth from poor to rich), in the hope we can stem a tiny part of this monumental flow.

The paradoxical nature of our venture is that in some ways we are looking to assist the free market mechanism, improving the knowledge of the customer, and thereby ensuring that they are in a more suitable, and better value policy. Yet simultaneously, we want to elicit an emotional response in our customers, for them to want to use us because we want to achieve some social good through the medium of their custom.

What I am trying to say is that I don't believe socialism and capitalism sit at two ends of a scale where no practical middle ground appears to exist. I'm not suggesting that WS4U has struck the perfect balance, but we think it's a good start, an attempt to shift the balance of wealth away from the hugely concentrated pockets where it sits.

This idea isn't hugely innovative, or new. Will Hutton, Principal of Hertford College, University of Oxford, and former editor-in-chief for the Observer made the case for what he called ‘stakeholder capitalism' back in the mid to late 90s. He even campaigned for the creation of a public benefit company designation at companies house. So why does it seem like this seemingly simple but effective ‘idea' is so poorly adopted? Why don't we have PBC's all over the country?

I think part of that is the belief that social good or even matters of social support should be performed by the government, and that if we want to see change it has to come from the top. Numerous economists have made a case for policies which would undoubtedly be socially beneficial, but can we circumvent the government if it's not doing what we want it to do?

I believe we can! Dissatisfaction with government policy feels to me to be extremely high, and I believe the average voter feels like they have very little say over what goes on in this country including matters that might affect their local community.

I'd like to think that WS4U offers customers more than just a way to offload their household bills and chuck money in the charity bucket too. For me at least, it feels like a vehicle for hope. An opportunity for the general public to action change in the most direct way possible, by changing their very spending habits.

Ultimately this principle can be applied to numerous sectors, especially ones where the state previously controlled supply, or ones where the customer has a legal obligation to purchase a good/service. Whether we move to a less constrained market or the opposite, the structure exists for us to address the issues that matter to society by creating a vehicle to do just that.

The contribution to good causes embedded in our subscription fee isn't going to change the world, but it's a start, and the hope is that as we expand into different sectors, tackling the issues you want us to address, we can apply this same social benefit component to everything… and then it really could get big.


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