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The contradictions of capital

Patrick Smith
By Patrick Smith
Editor-in-Chief of The Africa Report.

Posted on Thursday, 27 February 2020 08:00

Windmills line a hillside in Palm Springs
Windmills line a hillside in Palm Springs, California, U.S., November 29, 2019. REUTERS/Lucy Nicholson

Amid the trade wars, populism and economic nationalism, capitalism is under fire. But which capitalism is that?

For the hard-nosed commercial titans of the roaring 2020s, the dictum by Milton Friedman that “there is one and only one social responsibility of business: to use its resources and to engage in activities designed to increase its profits” will remain the lodestar.

There is no question that this is the zeitgeist in Donald Trump’s dealmaking administration, and it is echoed in Brazil and India.

Some critics of capitalism find the ‘business of business is business’ approach more honest than a series of corporate social responsibility projects launched by communications companies.

For economist Léonce Ndikumana, who runs a commission on the reform of corporate taxation, the problem of cap­italism in Africa is not a laser-like focus on profits but a failure of companies to comply with fair rules on tax and royalties.

Ndikumana and his fellow researcher, James Boyce, calculate that capital flight from 30 African countries between 1970 and 2017 totalled $1.4trn.

That is almost three times the stock of debt the countries accumulated and 1.5 times the foreign aid they received. Those figures suggests that capitalism – or at least its regulatory institutions – are failing in Africa, at great human cost.

Is the revival of interest in ‘stakeholder capitalism’ – a kind of anti-Friedmanite formula that focuses more on customers, employees, suppliers – relevant to Africa? Given its recent endorsement by the US Business Roundtable, it does reflect local and international pressures on corporate behaviour.

How that plays out on the ground will vary according to the industry and the region.

Employees want more transparency and accountability in corporate finances. Activist groups demand respect for human rights and environmental standards in the supply chain. For example, conditions in the DRC, which supplies over half the world’s cobalt for electric car batteries, are under intense scrutiny.

Globally, investments motivated by envir­onmental, social and governance concerns are up to $30trn, about a third of the funds under professional management.

Pension funds, the biggest clients for asset managers in Africa and elsewhere, are using environmental, social and governance criteria. Analysts say they are producing higher equity returns than the old shareholder capitalist model.

Perhaps the biggest factor driving new thinking on economic systems has been the decline of trust in business and banking.

That, together with deepening inequality in most countries, informs critiques of a rigged economic system, whether in Joburg, London, Nairobi or New York.

The spiralling climate crisis along with the un-costed global effects of robotics and artificial intelligence are undermining faith in established models of trade and market capitalism.

At the least, the promoters of new ideas and strategies will have to fight it out in a new global arena.

Now, social and economic policies will have to start changing as fast as our technologies.

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