Pope Francis is right - greed has hijacked capitalism: Column

Ever since his selection as the leader of the largest Christian church, I, along with throngs of Catholics and non-Catholics looked with surprise, delight and admiration at this remarkable man.

He speaks truth to power. He is direct. He hopes to be transformational. And his agenda is clear. He wants to move the vast herd of mankind towards the good and greener pastures.

I am a businessman and one who has written about what it takes to succeed in business. (Creativity and values are at the top of the list). So in his most recent visit to Latin America, my hero, Pope Francis, had harsh words about capitalism, our way of doing business. He was forceful and direct. As the New York Times put it, he does more than excoriate the excesses of capitalism: "He does not simply argue that systemic 'greed for money' is a bad thing. He calls it 'a subtle dictatorship' that 'condemns and enslaves men and women.' He went on to compare the excesses of global capitalism to the “dung of the devil.”

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A mighty strong indictment coming from a partisan of the poor and the vulnerable. It’s easy to dismiss such an extreme condemnation. But not from this man. Not without giving his perspective careful consideration. Upon reflection, one has to consider the pope’s attack on capitalism partly fair (putting aside his rhetoric) but also seriously incomplete.

In today’s world, capitalism really means free market enterprise. The name capitalism came from a time when money was the most important scarce resource which enabled business success to flourish. Capital was power in a way that isn’t the case now. Today business success is driven by many other factors, importantly entrepreneurship and the inventive, innovative capability of men and women. By itself, money is plentiful. The real engine of growth and prosperity is a free market driven by human workers to create new value through products and services which are wanted/needed by consumers.

What Pope Francis did not acknowledge, is the extraordinary contribution of this free market capitalism system to lift hundreds of millions of people out of abject poverty into a much more humane standard of living. True miracles happened in China, India, Brazil, South Africa and more. And in America, a robust middle class was built. All of that in many of our lifetimes — the post World War II era of the 20th Century. Pope Francis also misses the amazing contributions of the good wealthy people who in America have contributed to creating remarkable achievements through their generosity to secondary and higher education, the well-being of academic medical institutions, the arts, sciences, and helping aiding the poor. This generosity of spirit is clearly compatible with the capitalism the Pope derides so vociferously.

So another, more generous way to look at Pope Francis’ concern with “capitalism” is by asking, what have you, capitalism, done for society lately? And here Pope Francis’ excoriation is much more on target. In reality, for the last several decades, the forces of greed have managed to hijack free enterprise. Short-term value maximization driven by quarterly capitalism, created a culture where short-term shareholder primacy rules. That is our zeitqeist today; that is our prevalent culture.

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Yet, a corporation has multiple critical stakeholders: the customers, the employees, the shareholders, the corporation itself and the communities in which the businesses exist. At capitalism's zenith, businesses thrived and prospered when a reasonable balance of a business’ profits were distributed among these groups. Alas, no more. Shareholder primacy demands short-term maximization to shareholders. The free market engine which created wealth for many, now creates mountains of wealth for only a few. These shareholders pretend they have special rights, that they are legitimate owners. What a myth. Shareholders buy shares when they want, sell at will. At best they behave like renters. And legally, as Cornell scholar Lynn A. Stout and others argue, the corporation owns its own assets — not the shareholders. Shareholders have rights, but so do the other stakeholders. Yet, the current culture of shareholder primacy dominates.

What’s worse is that this culture of greed benefits only few: shareholders, CEOs and a few in top management. Management in turn is being paid ridiculous sums to deliver the hijacked loot to shareholders. As a result of exorbitant CEO salaries and a dramatic diminution of relative employee income — as the Economic Policy Institute reports — we see greater inequality of income and wealth, an underclass with little opportunity, less and less hope, and a chronically vulnerable society. The ability to escape this newly created vast underclass is becoming close to impossible. Clearly this is what Pope Francis means by “enslavement”, strong words but Pope Francis sees the ugly reality which most of us want to ignore or deny.

Pope Francis refuses to give the system credit for yesterday’s remarkable positive contributions. Perhaps that may be unfortunate. What the Pope is clearly right about, is that our current version of capitalism contributes mightily to human suffering to the loss of dignity and our humanity. In the end, Pope Francis is holding up a mirror to our reality. It’s an ugly picture. The Pope is ringing the alarm bells. We better hear them. Our free enterprise capitalism has become dramatically less free. We had better have the courage to fix our damaged wealth creating engine. In the end, he might have done us a huge favor.

Peter Andrew Georgescu is chairman emeritus of Young & Rubicam and author ofThe Constant Choice: An Everyday Journey From Evil Toward Good and the forthcoming Capitalists Arise.

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