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How To Be a 21st Century Capitalist – Umair Haque – Harvard Business Review

26 Oct

How To Be a 21st Century Capitalist – Umair Haque – Harvard Business Review.

Capital – it’s going up in smoke, right? That’s what, for example, Meredith Whitney – the analyst who predicted the banking meltdown – argued recently: that trillions in capital has been destroyed by the ongoing macro crisis.

It’s more accurate to say that what’s being destroyed never really existed in the first place. If my car’s a Ford – but I call it a Ferrari – capital hasn’t been formed, and value hasn’t been created. I’ve simply created a fiction – like those we belatedly discovered Wall St was peddling.

The macro crisis tells us in no uncertain terms that we’ve got to shed the stale economic logic of the 20th century. Economies are powered by capital. Whitney, Bernanke, and the bankers of the universe are right about one thing: we’ve got to recapitalize a starving economy. But they’re getting the bigger picture wrong: to power a wave of new industrial revolutions, we’ve got to seed it with newer, more valuable kinds of capital entirely.

So here’s what 21st century capitalism looks like.

The value equation of industrial-era capitalism was toxically imbalanced. Why is industrial era business so destructive – why does it slash and burn rainforests, endanger entire species, vaporize culture and community, marginalize the poor and disadvantaged, and erode our health and vitality?

Because none of those have value in an industrial economy: none are capitalized. So the beancounters of the world are free to plunder and ruin them – because, economically, they actually don’t exist.

20th century capitalism, in other words, marginally valued pure financial capital too highly, while marginally valuing human, natural, social, and cultural capital at zero – or, at the limit, negatively.

How messed up is that? Astoundingly. So here’s how we’re going to fix it.

21st century economics demand a rethinking of what capital isn’t – and what capital really is. Regulators and analysts alike have only got half the picture. Largely imaginary financial capital has been destroyed – like a house of cards finally falling. Today, in the twilight of the first decade of the 21st century, we must renew a failing global capital base with entirely new kinds of capital. The time is now to pump newer, more valuable kinds of capital into the veins of global economy. Why?

Reigniting global growth depends on deepening the global capital base. How will the macro crisis end? Why aren’t ultra-heavy doses of financial capital not only not fixing it – but seemingly worsening it? Because doing so only ultimately conserves the toxic imbalance built into 20th century value equation.

Economists refer to growth in capital intensity as capital deepening. Solving the macro crisis is dependent, in large part, on deepening the global capital base – reinvigorating it with new resources and assets. When new resources and assets are created, then entirely new markets and industries burst into life – while old ones are allowed to sputter out, instead of being continually bailed out.

Capital deepening is the foundation of next-generation value creation. Why is capital deepening so important? The reason that capitalism can destroy the world is that most of the world doesn’t exist in an economic sense. And so when we capitalize rainforests, endangered species, community, the foregone opportunities of the poor, our own well-being – then they will finally have value: they can finally be priced, and so the fatcats of the world won’t be free to destroy them with impunity.

Want a killer example? Read this article – in depth.

Once they’re capitalized, they become next-gen assets: assets that can be traded, hedged, remixed, tweaked, open-sourced, or shared. The difference is that they’re assets with intrinsic, durable, human value – not the lemons Wall St was in the business of hawking. It is only by capitalizing the things we really value that the spark of value creation can be lit again.

Next-generation businesses are built on next-generation assets. Yesterday’s businesses were built on cash, factories, and IP – financial, physical, and intellectual capital. Next-generation businesses are built, instead, on human, social, natural, and cultural capital – to name just a few.

Here’s a simple example. I love Rypple – it’s a new startup that provides simple, direct, anonymous feedback from anyone and everyone to anyone and everyone. Rypple’s economic engine is powered by human and social capital – Rypple taps the connections people have with friends, colleagues, bosses, and mentors, to help them get smarter and more productive.

Next-generation businesses are critical because next-generation assets are the key to rebalancing capitalism’s toxic value equation. Bailing out the same old assets, building roads to nowhere, or subsidizing overconsumption – none of those are necessary or sufficient to reignite global growth. Ultimately, only next-generation assets can redefine how productive capitalism can be in the 21st century.

Capitalize something. Here’s one of the commandments of next-generation business: capitalize something. That’s how a new generation of entrepreneurs will kickstart next-gen businesses and make their fortunes.

Today’s so-called capitalists are anything but: mostly, they’re charlatans, impostors, and poseurs. But today’s most radical innovators are revolutionary, ironically enough, because they are learning to be genuine capitalists once again – capitalists in the 21st century sense of the word. They are discovering how to create value by growing new resources composed of social, natural, human, and cultural capital. By doing so, they are pumping new blood into capitalism’s failing heart.

Capital is a consensus. Here’s a secret: capital isn’t just whatever beancounters and boardrooms decide it is. It’s what we – collectively, as global citizens – decide has value, because it impacts our productivity, well-being, and quality of life.

Want to capitalize something? Start a movement and build a consensus. Capital is formed when people are willing to agree that something has value. And the miracle of the 21st century is that in a hyperconnected world, millions of people can debate, discuss, and decide in the blink of an eye. It’s never been easier to capitalize something – so what are you waiting for?

For now, let’s discuss – that was an abstract post, so fire away in the (always killer) comments with questions, examples, or criticisms.

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