The current global confrontation with the SARS-CoV-2 virus could be a constructive turning point for humanity. Lessons learned from containing the pandemic can guide leadership towards reshaping our institutions to provide all of us with a more beneficial and just civilization.
Before the virus began its global dispersion, our global community was challenged environmentally by climate change, socially by disparities in wealth and income and aspirationally by achieving the Sustainable Development Goals (SDGs). Many blame our institutions for causing the dangers and injustices we face and many demand that those same institutions take immediate, remedial action. The SARS-CoV-2 virus has only intensified suspicions that our institutions need to be re-designed with their missions re-focused and their practices improved.
The Three Sectors of Modern Civilization
Our modern civilization, arising out of the industrial revolution, rests on three functional sectors: government, civil society and enterprise. Whether our economies are old socialist, new national socialist, welfare-state capitalist or neo-liberal capitalist; whether our economies are advanced post-industrial or poor and still developing; whether our political systems are constitutional democracies, one party hierarchies or directed by despots; whether our societies are open and pluralistic or constrained by ideology or theology, each nation nevertheless needs, through responsible and inspired leaders, to 1) create wealth that can sustain wellbeing, 2) provide public goods, such as law and education, and 3) maintain normative legitimacy for its institutions and proclaim moral purpose that the lives of its citizens may have reassuring meaning.
Our global civilization and each society therein are systems integrating sub-systems with different purposes to achieve. Each functional sector – enterprise, government and civil society - has its own specific tasks and duties which, taken all together, jointly deliver the common good. Successful modernity, thus, depends on enterprise, government and civil society, each making their separate contributions to the whole through a division of labor.
Government provides public goods, obtaining its income from the wealth created by enterprise and its purposes from civil society. Enterprise provides wealth to fund government and civil society, depending on government to furnish public goods, such as markets, contracts and law and on civil society to bring forth capable employees, customers and constructive shared values through the cultivation of successful families, wise religions, excellent schools, compassionate charities and inspiring cultural venues for the arts. Civil society, for its part, depends on enterprise for the wealth which nourishes its families and private institutions and in government for the public goods which encourage interpersonal commitments and social undertakings.
Each sector must support the two others in order that, in return, it can thrive on contributions received from them. No sector is justified in seeking preference for itself over the others.
Balanced Interdependency Among the Sectors
The quality of our lives rises or falls on the quality of balanced interdependency among the three productive sectors of modern society. Achieving such balance is the task of good governance in each sector and of society as a whole. If any one sector gains excessive power over the others, an imbalance arises which undermines social justice. Too much government undercuts both enterprise and civil society. Too much enterprise, especially in its mode of financial intermediation, imposes inequalities on politics and marginalizes many values proposed by civil society. Too much conformity or too much conflict in civil society degrades politics and government and undermines enterprise.
Sector interdependency is the most important truth taught us by the pandemic. Public health cannot be totally divorced from the economy since lives cannot be divorced from livelihoods. Closing down enterprise to await the dissipation of virus transmission has caused anxiety and other harms. But, not closing down enterprise would impose its own costs in more disease and deaths. In responding to the pandemic, government could not avoid balancing restrictions on the economy and civil society against gains for public health. Enterprise and civil society looked to government for rules and decisions on permissible conduct. Government, in turn, took action with a considered view towards just wealth creation and simultaneous regard for the common good provided by a healthy community impervious to further spread of the virus.
Interdependence in a complex society relies on constantly reaching dynamic balance to keep its interrelated parties in proportionate reciprocity, one with another. As in a factory assembly line or in a smoothly run bureaucracy or a constructive social network, no one activity or motion can be out of synchronous interface with its neighbors. Interdependency is symbiotic.
Imbalance in the creation of energy, imbalance in access to financial wealth and a third imbalance in the distribution of political power with too much given to elites and not enough to citizens, each in its own way has contributed to our present distempers and anxieties. In human interactions and institutions, symbiosis and interdependency draw on the moral sense of participating individuals. The moral sense – ethics, taking personal responsibility, following the Golden Rule, being prudent and compassionate – acts as a kind of capital asset for each person.
A brief reflection on the teachings of many wisdom traditions from the Stoics, Old Testament, Confucius, Buddhism, Christianity and Islam affirms the importance of the moral sense animating each person as the gateway to justice and happiness within community.
Civilizational Stakeholders
Each functional sector is a stakeholder in the outcomes generated by other sectors, while having the others as stakeholders in its own successes and failures. Modernity is, thus, a conglomerate of three mutually dependent subsidiary networks of action, each a stakeholder in the other two.
This structural reality of the modern era became more clearly apparent after the collapse of Communist systems in the Soviet Union after 1989 and in the People’s Republic of China under Deng Xiaoping, systems where the state had dictated to enterprise and civil society. The subsequent Washington Consensus on how nations should achieve modernity embraced sector autonomy, but with interdependence. The Millennium Development Goals, Monterrey Statement on financing those goals and the subsequent SDGs also affirmed the necessity of mutual engagement of government, enterprise and civil society to achieve modern standards of wellbeing and comprehensive enjoyment of human rights.
Late last year, the World Economic Forum released its Davos Manifesto 2020 and the Business Roundtable issued its Statement on the Purpose of a Corporation. Both statements affirmed an understanding of modern society as stakeholder centric.
To minimize imbalances among the sectors of modernity, the new model of our institutions in government, enterprise and civil society must instill fidelity to shared responsibility. How can this be arranged?
Institutional Innovation
Direction can be given for how each sector should use its core asset. Enterprise requires capital. Government asserts a monopoly over violence and coercion, what jurisprudence calls the police power of the state. Civil society deploys the power of the mind, its ability to reason, to imagine and its conscience.
Our institutions need co-creativity to better direct enterprise in its use of capital, government in its deployment of the police power and civil society in its shaping of our minds.
Capital
The power of enterprise derives from capital. But capital must not be restricted to only money, either owned or borrowed. Successful enterprise requires more than funds to make a profit. In addition, any profitable enterprise requires, on a steady basis, the resources provided by customer patronage, employee productivity, social norms, legality and community tolerance. Social and human factors multiply the possibilities provided by funds, but more importantly, they reduce the risks of enterprise and so increase its prospects of earning revenue. The cost of financial capital to a firm is determined by assessments of the intangible factors which drive its risk profile.
Capital is a composite of multiple and stable advantages. Among the intangible forms of capital are: intellectual capital; the goodwill of the business in the perception of consumers; employees and potential employees; investors and creditors; moral capital expressed in its culture; the quality of its governance; and its integrity. And, to some extent, a firm also relies on the products of nature as a drawdown of natural capital.
In enterprise, all forms of capital should be reflected in the accounts of a firm, in a new template for its balance sheet of both tangible and intangible assets and liabilities.
Then, the profits of enterprise can be returned as dividends on all forms of listed capital, not just to the financial capitals of equity and debt. Wages and working conditions can be reimagined as returns on capital. Quality of goods and services are equally a form of return on the social capital provided by customers. Altering products and services along with the methods of production are a form of return on the capital derived from nature.
Now, the payment of dividends on all forms of capital from its earnings will cause firms to be prudent in their uses of capital and will cycle the flow of funds in society to the providers of social, human and natural capitals, reducing stress on the environment and more justly distributing wealth across society.
In keeping with a new appreciation of the complexity of capital, a new understanding of ownership, of private property, will be advisable. Ownership of a compound asset, such as total capital, requires more stewardship than does possession of cash or its equivalents in hard assets or contract rights. Ownership of tangible assets, by contrast, provides more autarchy for whomever holds title to the assets and permits raw dominion, arbitrary and self-interested, over their use.
Public Power
Government should similarly separate its work from private dominion and hold its powers only in stewardship as a public trust for the common good. Government is a service function. In particular, its powers must never be manipulated for the extraction of rents from the economy for the personal benefits of its officers. Nor should government permit its officers to use public power for any other form of personal advantage due to taking pleasure in self-magnification, intimidation or oppression or the willful imposition of invidious discrimination or taking revenge.
Mind
Civil society brings forth the beauty and the miracles of the mind, including all its faculties, including emotions, reason, intuition, calculation, moral priorities and empathy. Civil society, whether in religion or other expressions of spirituality, in education, in service of those in need, in arts and culture, in media and entertainment, in literature, poetry and speech, in all forms of collaboration to achieve goals of desire and the imagination, in sports and families, in good times and bad, puts our interior powers of personal genius to work. The responsibility of civil society in its use of the mind is to enhance and not damage or degrade the moral sense because the mind gives birth to human agency.
A New Integrity Among the Sectors
Capital is generative of stewardship capacity, empowering government with resources to meet its obligations. Capital is generative of mind in its social and human capital expressions and creations.
Stewardship of public power is generative of capital, protecting owners and innovation, risk-taking and elevates the quality of our lives. Public power is protective of civil society which cannot create and produce works of the mind without society having rights and individuals having security of persons, thought and expression.
Mind is generative of capital in innovation and necessary social and human capitals for reliance and institution building. Mind guides those having public power toward stewardship and wise policies.
The three civilizing factors of capital, stewardship and mind provide their respective social domains with directed motion consistent with the natural potential of each. Each factor presses forward towards its special telos. Each factor prevents retrogression and resists status quo equilibria.
But the ability of each civilizing factor to improve the human condition is compromised by humanity’s tendency both to abuse what is good and to enjoy what is short-sighted or unhealthy.
Our World after the Pandemic
Words divorced from realities are a personal indulgence; ideas divorced from realities can be dangerous. Seeking responsible investments from enterprise, responsible policies from government and respect for human dignity from civil society demands that enterprise, government and civil society confront reality and demonstrate value in all that they do. As Cicero demanded of virtue, what is honest in thought and feeling (honestum) must also be congruent with what is practical (utile).
Accordingly, as we make decisions on what freedoms and activities our citizens are to enjoy as the SARS-CoV-2 virus is contained, we need to set standards of excellence for each social sector.
As we ponder our respective responsibilities in the coming months and years, the priorities for each social sector must align with the essential purpose of that sector. Enterprise is called upon to create wealth justly and sustainably. Government’s vocation is to serve the needs of individuals and communities, enterprise and civil society with public goods. Civil society’s calling is to empower our growth as persons, enhancing our intellectual achievements and our moral sense.
As we ask our institutions to accelerate recovery from the SARS-CoV-2 pandemic and revitalize productive economies, each sector should measure its decisions by the degree to which they honor the agency capacity of each person. Enterprise should promote agency with income and wealth. Government should promote agency by respecting civil liberties and human rights. Civil society should promote agency by enlivening the disciplined, optimistic and compassionate use of our minds.
Conclusion:
To paraphrase Virgil, we can and must inaugurate a “new order” for our age right now.
Stephen B. Young is Global Executive Director of the Caux Round Table for Moral Capitalism.