How a Change in Perspective Is Changing Capitalism: Books

Standing on the Sun Book Cover
"Standing on the Sun: How the Explosion of Capitalism Abroad Will Change Business Everywhere" was published by Harvard Business Review Press on Feb. 21, 2012. (292 pages $27.95)

By Craig Torres

For all the political cacophony about creating American jobs, reviving housing and boosting manufacturing, there is a surprising dearth of insightful conversation about how the U.S. economy is actually evolving.

If policymakers recognized the scope of this transformation, they might better support the market-based changes already in progress. Into this vacuum comes the book Standing on the Sun by Christopher Meyer, written with Julia Kirby.

To gain perspective on any complex system, you must stand outside it, they argue. Hence the book’s title, which comes from a metaphorical comment MIT physicist Richard Morley once made to Meyer about how valuable an outsider’s perspective is to innovation. "In order to see the solar system as it is," Morley said, "Copernicus had to be standing on the sun." Because their perspective comes from outside the bounds of Western industrial capitalism, emerging-market economies are changing the rules about how free enterprise creates value, the authors argue. Meyer is the founder of Monitor Talent in Cambridge, Massachusetts, and Julia Kirby is an editor at Harvard Business Review.

We now live, and mostly work, in a world of cheap network access. Ideas are "goods," and information is replicable at a low cost, if not for free. Just as global trade has permeated national boundaries, information networks have blurred the line between corporations and the public. These days, anyone with an Internet connection can report on a company's social or environmental track records. Boot up, sign on and you’re instantaneously a corporate watchdog. A polluter that is "externalizing'' costs that society must clean up can be tracked, monitored, reported, exposed and embarrassed.

As a result, corporations are having to redefine value in terms of stakeholders -- their employees, the communities they work in, and in some cases future generations -- not just their shareholders, Meyer and Kirby say. Many companies have had an epiphany about corporate sustainability and are beginning to account for these factors, even though they don't exactly fit the classic notion of maximizing shareholder value. In a chapter called "Embracing Externalities," Meyer and Kirby envision corporate responsibility as a series of concentric rings of responsibility. They write, "We’ve pointed out that many corporations (and we’re speaking mainly of the United States here) tie themselves in knots trying with corporate social responsibility programs that have little apparent rationale. We believe that businesses needn’t be responsible for society--only for themselves, today’s externalities included. The challenge is clarifying what corporations are reasonably accountable for."

Type the word "sustainability" or "responsibility" into most S&P 500 companies’ websites and you will find annual reports on the topic. For-profit companies are accounting for social and environmental impacts, moving ahead of regulators and implicitly accepting a role in the management of these effects of doing business. These reports and the changes they document acknowledge that information has given consumers enormous power.

In the new economy, the invisible hand of capitalism is complemented by "invisible handshakes" of collaborative networks, where information can be shared in order to create value. Wikipedia and open-source software systems, such as WordPress, have become standard examples. These developments challenge the concept of "property." That’s the point of the book: Meyer and Kirby ask whether traditional measures of value hold when information is free.

What if the world's drug companies, they ask, shared research, especially the dead-end projects that are now filed away from public view? ``Which would be better for the economy -- keeping it there or disclosing it to the world of researchers?'' Sharing drug research could produce enormous gains for society, and it isn't hard to imagine companies would find ways to jointly profit. "In a society truly based on information economics, the non-sharing of drug research -- not the sharing of Metallica MP3s -- might properly be prosecuted as stealing," they write.

The chapter "Pseudocompetition," one of the best, documents failures of competition within Western industrial capitalism. Competition too often leads to domination, oligopolies and shallow innovation where large companies spend research and advertising dollars on minor differentiations of existing products. "The advent of yet another limited-edition color of wildly expensive nail polish, the scarcity of which is a triumph only of marketing, can scarcely be called the best allocation of resources," Meyer and Kirby write. They place innovation, not competition, at the center of capitalism.

Meyer and Kirby use company examples from emerging markets, yet by their own admission spend little time on whether the state-capitalist systems arising in many of these locales are sustainable. Weak, corrupt or dictatorial governments not only harm companies but can undermine public support for market economies. A more critical look at whether the governments will inspire or suppress innovation in the long-run would have been helpful.

Tackling those questions would have produced an entirely different book. Its absence doesn't diminish this insightful look at how the information economy is reshaping companies and economies. This year's presidential candidates and beltway policymakers can continue to try and revive legacy industries. Or they can take an easier, less costly path and ride the trends that, as Meyer and Kirby point out, consumers and corporations have already embraced. "Capitalism will adapt," they write, "with us or without us."

Torres writes about the Federal Reserve and the economy for Bloomberg News.

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-0- May/21/2012 13:47 GMT
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