Umair Haque’s Constructive Capitalism and the Constructive Paradigm

Note: While this post is about Umair Haque’s book, the post is synergistic with
– The Meaningfully-Purposeful Enterprise
– The Purposeful Enterprise: Communities, Collaboration, Kanban, and Tribes
– Human Leadership: Servant, Appreciative, WE-Centric, and Tribal Leadership
– The Art of TransformationThe Awesomeness Manifesto: Beyond Innovation
– The Generation M Manifesto: Movement & Meaningful Stuff that Matters the Most
– The Smart Growth Manifesto: Creative People Collaborating to Create Value
– Manifesto for the Resilient Enterprise (Update)
– Manifesto for the Resilient Enterprise
– The Resilient Enterprise: Beyond the “Agile Enterprise” or “Lean-Agile Enterprise”
etc.


In The New Capitalist Manifesto: Building a Disruptively Better Business, Umair Haque (@umairh) of Havas Media Lab invites us on a journey to reinvent capitalism and explore tomorrow’s prosperity.

Gary Hamel (@profhamel) of the Management Lab sets the context in the Forward of the book:

Capitalism is dead. Long live capitalism.

I’m a capitalist by conviction and by profession. I believe the best economic system is one that rewards entrepreneurship and risk taking, maximizes customer choice, uses markets to allocate scarce resources, and minimizes the regulatory burden on business. If there’s a better recipe for creating prosperity, I haven’t seen it — and neither have you.

While one should never underestimate the ability of risk besotted financiers to wreak havoc, the real threat to capitalism isn’t unfettered financial cunning. It is, instead, the inability (or unwillingness) of executive to confront the changing expectations of their stakeholders about the role of business in society.

If individuals around the world have lost faith in business, it’s because business has, in many ways, betrayed that trust.

Make no mistake, though: capitalism has no challengers. Like democracy, it’s the worst sort of system except for all the others — and that’s exactly why we all have a stake in making it better.

Umair Haque shares his goal:

I’ll sketch a blueprint you can use to conceive of — and then, if you wish, to construct — structures set on new cornerstones, that can yield not just more, but more powerful value.

Umair Haque shares his vision (blueprint) of twenty-first-century (constructive) capitalism versus twentieth-century (industrial era) capitalism (emphasis added):

A capitalism where companies, countries, and economies reach a higher apex of advantage — one where bigger purpose rouses untapped human potential of every employee, customer, and future customer, instead of deadening it.

One where fiercer passion makes innovation as natural as drawing breath, spontaneously combusting the spark of creativity instead of dousing its flame with lowest common denominators.

One where deeper meaning replaces the drab grind of repetition with challenging and compelling work that elevates the soul.

Where more authentic power flows from shared principles instead of (yawn) sweeter carrots and heftier sticks.

Where greater resourcefulness means being not the natural world’s conqueror, but its champion.

Where higher-quality value is created by doing stuff of greater worth. And ultimately where companies compete not just to change the rules, but to change the world.

The Blueprint

Umair Haque approaches the fundamental question: Must profit always require economic harm? By comparing revolutionaries or “insurgents” (who are answering No) to foils or “incumbents” (fierce, historic rivals of revolutionaries) using an exhaustive study (through case studies, financial modeling, and interviews), he synthesizes the data to identify various new institutional cornerstones utilized by the insurgents.

The five cornerstones … invisible fixtures of everyday economic life: value chains as the means of production, value propositions as the means of positioning, strategy as the means of competition, protecting marketplaces as the means of advantage, and inert, fixed goods as the means of consumption.

Twentieth-century capitalism’s cornerstones shift costs to and borrow benefits from people, communities, society, the natural world, or future generations. Both cost shifting and benefit borrowing are forms of economic harm that are unfair, nonconsensual, and often irreversible. Call it a great imbalance: not a transient event, like the “Great [insert ominous synonym here],” but an ongoing relationship, a titanic glitch in the global economy’s vast scales.

What I call deep debt is the harm institutionalized by the cornerstones of industrial era capitalism. It can be conceived of as debt owed to people, communities, society, the natural world, or future generations. Debt is simply shifted costs and borrowed benefits, from an economic point of view.

Twentieth-century (industrial era) capitalism is founded on competitive advantage, dumb growth, and thin value where the link between cornerstones & performance and institutions & returns is mere advantage.

Twenty-first-century (constructive) capitalism is founded on constructive advantage, smart growth, and thick value, which brings rebalance to the great imbalance. Constructive capitalists don’t just outperform, they redefine the boundaries of disruptive outperformance — they “minimize harm and maximize authentic, sustainable, meaningful value”.

Cornerstones

Umair Haque explores the cornerstones of industrial era capitalism versus constructive capitalism:

How production, consumption, and exchange happen — To utilize resources by renewing them instead of by exploiting them

  • Industrial era Capitalism: Value chains
  • Constructive Capitalism: Value cycles

Which products and services are produced, consumed, and exchanged — To allocate resources democratically and respond better to demand and supply shocks

  • Industrial era Capitalism: Value propositions
  • Constructive Capitalism: Value conversations

Why production, consumption, and exchange happen — To become more competitive over the long term instead of just blocking competition temporarily

  • Industrial era Capitalism: Strategies
  • Constructive Capitalism: Philosophies

Where and when production, consumption, and exchange happen — To create new arenas of competition (in their marketplaces), instead of just dominating existing ones

  • Industrial era Capitalism: Protection
  • Constructive Capitalism: Completion

What is produced, consumed and exchanged — To seek meaningful payoffs that mattered in human terms, not just financial ones

  • Industrial era Capitalism: Goods
  • Constructive Capitalism: Betters

The cornerstones of capitalism shift from chains, propositions, strategies, protection, and goods to cycles, conversations, philosophies, completion, and betters.

Sources of Advantage

Umair Haque explores the sources of competitive advantage versus constructive advantage:

Cost advantage vs. Loss advantage

  • Cost advantage stems from a value chain that exploits resources until they are depleted.
  • Lost advantage stems from a value cycle that renews resources and makes waste useful.

Brands vs. Responsiveness

  • Brands are promises that convey the benefits of a one-sided value proposition.
  • Responsiveness is the result of fluid, ongoing, many-sided value conversations.

Dominance vs. Resilience

  • Dominance of a marketplace is the zero-sum result of blocking competition by acting strategically.
  • Resilience, an evolutionary edge, is achieved by competing with an enduring philosophy.

Captivity vs. Creativity

  • Captivity of customers, suppliers, or regulators happens when a firms protect a marketplace from entry by competitors.
  • Creativity happens when companies strive to complete marketplaces, creating new arenas of competition.

Differentiation vs. Difference

  • Differentiation happens through skin-deep (or even imaginary) differences in the features or attributes broadly similar goods offer.
  • Differences happen when companies seek meaningful payoffs that matter; when companies produce betters, they literally make a difference.

The sources of advantage shift from cost, brands, dominance, captivity, and differentiation to loss, responsiveness, resilience, creativity, and difference — in correspondence with the cornerstones of capitalism.

Value

Umair Haque explores thin value versus thick value.

Thin value is not authentic economic value, and “dumb” growth is the growth of “thin” value.

Thin value is artificial, often gained through harm to or at the expense of people, communities, or society.

Thin value is unsustainable, often “created” today simply at the expense of forgone benefits tomorrow.

Thin value is meaningless, because it often fails to make people, communities, and society durably better off in the ways that matter to them most.

Thick value is authentic economic value, and “smart” growth is the growth of “thick” value.

Sustainable value is value that lasts beyond production and consumption.

Meaningful value is value that matters. It has a greater, more positive impact on people’s outcomes (at an equal cost) in ways that matter most to them.

Authentic value is value that grows; it benefits boardrooms, shareholders, people, communities, society, and the natural world.

The notion of economic value shifts from thin, artificial, unsustainable, and meaningless to thick, sustainable, meaningful, and authentic — in correspondence with the sources of advantage and the cornerstones of capitalism.

Generally, thin value focuses on returns that exceed only the financial cost of capital (return to debt and equity holders) but thick value focuses on full-spectrum cost of capital, which “exceeds the cost of financial capital because it factors in many different kinds of capital utilized in production — natural capital, social capital, and human capital … [and] factors in returns to holders of equity, financial debt, and deep debt.” As Umair Haque emphasizes:

The full-spectrum cost of capital is a higher standard. No company has yet mastered the art of measuring, applying, and monitoring it. But this much is certain: applying the full-spectrum cost of capital would instantly and radically devalue the profits of industrial era businesses, pushing many into de facto losses.

The Capitalist Agenda

Umair Haque explores the twenty-first-century Capitalist Agenda.

So here’s the twenty-first-century capitalists’ agenda, in a nutshell. To rethink the “capital” — to build organizations that are less machines, and more living networks of the many different kinds of capital, whether natural, human, social, or creative. And second, to rethink the “ism”: how, when, and where the many different kinds of capital can be most productively seeded, nurtured, allocated, utilized — and renewed. Put both together, and the promise is for companies, countries, and economies to climb to a higher level of advantage, to scale a steeper apex of achievement.

The aforementioned shifts, and especially the shift from viewing organizations as machines to living networks, provide the foundation for higher levels of advantage and greater degrees of achievement. This is “how commerce, finance, and trade might — just might — be transformed, and more vitally, become transformative.”

The Journey

Umair Haque explores the journey to becoming a constructive capitalist.

Following the trail they’re blazing is a journey undertaken in six steps: mastering the five new sources of constructive advantage and the new cornerstone each rests upon, and then, finally, learning to wield them with maximum effect.

Step One: Loss Advantage (From Value Chains to Value Cycles)

Step Two: Responsiveness (From Value Propositions to Value Conversations)

Step Three: Resilience (From Strategy to Philosophy)

Step Four: Creativity (From Protecting a Marketplace to Completing a Marketplace)

Step Five: Difference (From Goods to Betters)

Step Six: Constructive strategy (From Dumb Growth to Smart Growth)

The aforementioned shifts are steps in the transformation of industrial era capitalists into constructive capitalists.

Future blog posts will further explore these steps.

The Constructive Paradigm

Umair Haque’s work is profoundly rich (broad and deep) and heightens awareness that the shift to Constructive Capitalism is indeed a paradigm shift — “not a small step, but a giant leap from one system of thought to its successor, which recasts an art or science in a radical new light” — founded on economic enlightenment — ” industrial age prosperity can advance only under a narrow set of conditions, all increasingly detached from today’s economic reality.”

This isn’t to disparage the great achievements of industrial age capitalism — but to praise them. The greatest powerhouse of abundance the world has ever seen led to an explosive rise in income and living standards for vast swaths of the world’s population. But that was yesterday. Toda, perhaps it is yesterday’s very triumphs that lay capitalism’s decline bare.

Industrial era capitalism is founded on “creative destruction” (the Destructive Paradigm) where its cornerstones “systematically and chronically undercount the costs of destruction and overcount the benefits of creation” while Constructive Capitalism is founded on the Constructive Paradigm .

Umair Haque’s work is tremendous in “reinventing capitalism” and offers the Constructive Paradigm for reinventing much more!

We now have the onus to further explore the Constructive Paradigm… to re-conceive such things as the Enterprise into the Constructive Enterprise or Constructive Organization, Leadership into Constructive Leadership, etc. … our journey begins!

Please see The New Capitalist Manifesto for more information.

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3 thoughts on “Umair Haque’s Constructive Capitalism and the Constructive Paradigm

  1. Great review, Sinan – you got me to buy the book! :-)

    I still have serious doubts, though: to me the core problem is not so much capitalism as the concept of possession that underlies and underpins it. Haque’s proposed ‘constructive capitalism’ will no doubt be an improvement on the current mess – which frankly isn’t hard… But so far I still cannot see any way in which a possession-based model of economics can be made sustainable in the long-term – which still leaves this as just another rearrangement of the deckchairs on the Titanic. I suspect we’ll still need changes that are a lot more fundamental than Haque proposes here – but I’ll hold back opinion on that until I’ve had a chance to read the book in full.

    Best wishes for the New Year and suchlike, anyway – and thanks again.

  2. hard to read this, too many words ….

    but/and ….

    following umair’s blogs for several years, it is clear he has come to the realization that the only way for his (completely correct) vision to manifest is through changing human character. raising consciousness (in terms of the actual frequency, not just “awareness”)

    who do you know on this planet that can do this? nature/time … and a few gurus. that is it.

    spiritual practices are the only way to raise the vibrational frequency of the world’s people.

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