Harvard Business Review Touts “Shared Value”
For Economic Transformation
By Tom Stephens
05 January, 2011
The excellent documentary film “Inside Job” explores the 2008 Wall Street crash and its devastating effects on the world's economy. In the film, a number of Harvard economics professors are interviewed, taken to task and exposed – to be charitable – as rather inarticulate spokesmen for capital.
The January – February 2011 issue of the Harvard Business Review contains an article by Michael E. Porter and Mark R. Kramer (1) entitled “Creating Shared Value.” This article, in spite of some presumably well-intentioned suggestions for reform, and particularly in light of the Harvard Economics Department's gross intellectual and ethical deficiencies revealed by “Inside Job,” raises the question of whether highly qualified scholars connected to this august academic institution are superficial analysts, or merely fumbling apologists for predatory corporate greed and piracy.
To begin on a positive note, the “Creating Shared Value” article endorses an idea that, if embraced and applied, would result in significant beneficial social change:
“…the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center.”
Another related statement claims transformative potential for the shared value concept:
“The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society.”
Such a frank demand for redefining capitalism itself, ending it and replacing it with a new system (if that is what this is), is to be applauded. However, the authors give away their distorting bias with their next sentence: “ Perhaps most important of all , learning how to create shared value is our best chance to legitimize business again.” (emphasis added)
With all due respect to the authors, Harvard and everything they stand for, there are literally billions of starving people in this world, and those who barely get enough food to eat to survive, victims of war and other systemic violence, racism and other injustice, such as preventable diseases and educational inadequacy, all in the context of a profound, historic global crisis of society, economy and democracy. “Legitimizing business” is far from “most important of all.”
At the beginning of a short three-paragraph section of the article, entitled “How Shared Value is Created,” we read another one of its great truthful outbursts:
“Companies can create economic value by creating societal value. There are three distinct ways to do this: by reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters at the company's locations. Each of these is part of the virtuous circle of shared value; improving value in one area gives rise to opportunities in the others. The concept of shared value resets the boundaries of capitalism.”
Similarly, the authors begin a short section on employee productivity with a sentence that recognizes the value of “high-road” economic development policies which have been promoted for decades by labor-affiliated and community-based advocates:
“The focus on holding down wage levels, reducing benefits, and offshoring is beginning to give way to an awareness of the positive effects that a living wage, safety, wellness, training, and opportunities for advancement for employees have on productivity.”
Statements in another long passage, under the title Creating Shared Value in Practice, are among the article's best:
“Not all profit is equal—an idea that has been lost in the narrow, short-term focus of financial markets and in much management thinking. Profits involving a social purpose represent a higher form of capitalism … The opportunity to create economic value through creating societal value will be one of the most powerful forces driving growth in the global economy. This thinking represents a new way of understanding customers, productivity, and the external influences on corporate success. It highlights the immense human needs to be met, the large new markets to serve, and the internal costs of social and community deficits—as well as the competitive advantages available from addressing them. Until recently, companies have simply not approached their businesses this way. …
A shared value lens can be applied to every major company decision. Could our product design incorporate greater social benefits? Are we serving all the communities that would benefit from our products? Do our processes and logistical approaches maximize efficiencies in energy and water use? Could our new plant be constructed in a way that achieves greater community impact? How are gaps in our cluster holding back our efficiency and speed of innovation? How could we enhance our community as a business location? If sites are comparable economically, at which one will the local community benefit the most? If a company can improve societal conditions, it will often improve business conditions and thereby trigger positive feedback loops.”
All I can say is “Amen,” and I wish the authors had spent a lot more time providing concrete examples, illustrations and advice about how to create social value, reconceive products and markets, redefine productivity (and prosperity), build supportive clusters, transform energy use, logistics and procurement, and reset the boundaries of capitalism. The examples of these things they do provide are some of the strongest parts of the article. However, as discussed in detail below, they wasted significant time in a long article redefining hard reality as mere perception, bemoaning the siege of capitalism, and otherwise burying some important ideas under a torrent of business school jargon.
In a disorienting demonstration of Winston Churchill's maxim that sometimes "the truth is so important it must be surrounded by a bodyguard of lies," the best parts of the article struggle to emerge from a quagmire of delusions, half-truths, and corporate propaganda.
For example, consider the article's very first paragraph, consisting of three utterly misleading sentences:
“The capitalist system is under siege. In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community.”
“Under siege?” Really? By whom? Scruffy rioters in Greece and Ireland ? Four dissenting US Supreme Court Justices from the infamous Citizens United decision, which granted corporations the “First Amendment Right” to control election outcomes by spending their unchallengeable wealth to support and oppose candidates? The too-big-to-fail banks hoarding hundreds of billions of dollars in cash for speculation, and refusing to loan capital for productive purposes? I could give many, many more examples of how major transnational corporations dominate our world today, rather than being “besieged” by hostile forces, but hopefully the point has been made.
To say that modern capitalism may be collapsing of its own unsustainable inequality and injustice, excessive waste of resources, and other internal “contradictions” is one thing. It's not the same as saying it's “under siege.” That first six-word sentence gives pause as to which planet Professors Porter and Kramer inhabit. Assuming the heretofore unheralded “siege of capitalism” reflects a certain unconscious vulnerability of the authors' world-view, and their semi-consciousness of theoretical and practical inadequacy of the system's major institutions, let's continue to interrogate their statements, because there is much to question.
The next two sentences quoted above require wholesale translation to understand where they are coming from. By “In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community” (emphasis added), the learned professors presumably mean something like: “In recent years corporate domination of democracy and society increasingly has been a major cause of social, environmental, and economic problems. Corporations invested in destructive, selfish and unjust activities are prospering unfairly at the expense of the broader community.”
What “shared value” do Professors Porter and Kramer believe is created by recasting the real world's most pressing actual problems in terms of perception? What intellectual values are served by their a priori redefinition of corporate abuses as bad public relations? It appears to this reader after the very first paragraph of their “shared value” article that I do not in fact share the authors' values or their understanding of the real sources of capital's current blues.
Unfortunately, and with the exception of some praiseworthy allusions to the principle of shared value as a prime tenet of a new economic system, as noted above, the article largely proceeds downhill from its intellectually vacuous and/or dishonest beginning. Without citing any evidence, it asserts that business “has been blamed for society's failures. The legitimacy of business has fallen to levels not seen in recent history. This diminished trust in business leads political leaders to set policies that undermine competitiveness and sap economic growth.”
Blame, and diminished legitimacy and trust seem like a small price for corporate capital to pay, for the kinds of excess profits, unparalleled prestige and dominating political power that corporate capital wields in today's world. As noted by the documentary “Inside Job,” criminal prosecutions for fraud, racketeering, obstruction of justice and the like would seem to be appropriate measures, but they are not being pursued. With freedom and the opportunity to continue to seek profits at the expense of everything else, capital can probably stand some blame, illegitimacy and mistrust, especially if they continue to be unaccompanied by any legal consequences.
The next paragraph continues the misleading word games, asserting that “companies … remain trapped in an outdated approach to value creation.” Perhaps some more “translation” is in order. Significant words and ideas are omitted from this article's broad-brush approach. Words like “corporate globalization,” “neoliberalism,” and “social injustice.” Translated into such terminology, the unsupported claim that “companies remain trapped in an outdated approach to value creation” may be understood as something like: “Consolidated and predatory corporate capital, even after collapse of its globalized neoliberal order in 2007-8, continues to deregulate, privatize, outsource, downsize, and otherwise wage relentless, brutal class war against working people and our communities.”
The article next claims that “Government and civil society have often exacerbated the problem by attempting to address social weaknesses at the expense of business.” No examples illustrate what they think they are talking about here. Perhaps the low point comes in the next paragraph, with an arrogant statement of unquestioned, entitlement, authority and leadership: “Companies must take the lead in bringing business and society back together. The recognition is there among sophisticated business and thought leaders, and promising elements of a new model are emerging.”
The professors are merely pouring old wine into new bottles, claiming that the abuses of the past are now in the process of being corrected by “companies taking the lead” and “sophisticated business and thought leaders.” The breathtaking lack of specificity, evidence or even detailed analysis or argument is apparently to be excused by the fact that, after all, this is Harvard we're talking about here.
The authors define the problem clearly enough, if inaccurately. They say that “a narrow conception of capitalism has prevented business from harnessing its full potential to meet society's broader challenges.” Moreover, “opportunities have been there all along but have been overlooked. Businesses acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues we face.”
Although I never went Harvard, I beg to differ from each and every one of these assertions, as follows:
A militant form of predatory, speculative monopoly capitalism has effectively seized governing power and immensely exacerbated society's challenges.
“Opportunities” have been exploited massively and unjustly. It is responsibilities that have been overlooked, indeed abandoned by corporate power serving greed and enriching those at the top of the globalized hyper-capitalist system of recent decades.
Business acting as businesses have been the most powerful single force that have created a vast social, economic, political, security and spiritual crisis for the world's people and communities. The most powerful force for addressing the issues has always been, and continues to be grassroots movements expanding democracy, equity and social justice in the service of the least among us.
This paragraph of the article concludes, “a new generation of young people are asking business to step up.” Again, perhaps something has been lost in the translation. In fact, they are asking corporations to take their [expletive deleted] foot off our necks.
The next section of the article, entitled “Moving Beyond Trade-offs,” begins with the sentence: “Business and society have been pitted against each other for too long.” The authors' vision of a new unity between “business” and “society” assumes a conflict between the two, which they grossly overstate. Asserting that “firms … have largely excluded social and environmental considerations from their economic thinking,” while “Governments … have often regulated in a way that makes shared value more difficult to achieve,” the authors posit that “each side” shares culpability. They don't ask whether corporations and the governments they dominate can fairly and in reality be considered to be opposite “sides” in conflict or opposition with each other, compared to, for example, economic classes, races or other sectors of humanity and the natural world.
That false dichotomy between business and government, while ignoring other sectors, leads into a short discussion (all the discussions in this article are short, and they obscure meaning behind their buzz words) of “societal needs” vs. “economic needs” (as if social needs weren't economic in nature), as well as “social harms or weaknesses” and “social harms and constraints,” which are apparently noteworthy primarily because they “create internal costs for firms.” (emphasis in original) Such concerns don't necessarily raise firms' costs, according to the authors, “because they can innovate through using new technologies, operating methods, and management approaches.” This sounds more like pouring old wine into old bottles; the same entrepreneurial mantras corporations pull out every time they say they want to change anything. The “social harms” are given short shrift, essentially as opportunities for private profits, rather than systemic injustices.
“New technologies” have rendered millions of people economically disposable. “Operating methods” from Fordism and Taylorism to offshoring and globalizing have abandoned countless communities. “Management approaches” could mean anything from the African slave trade, to siting the Auschwitz concentration camp near an ersatz rubber and oil factory in Poland as a source of slave labor, to Union Carbide's gross negligence and avoidance of liability for the chemical poisoning horrors of Bhopal , India . But if they lower firms' costs both “sides” of the business/government dichotomy enthusiastically support them. This is not a promising analytical approach to the promised benefits of “shared value.”
At this point the article slides into a substantive policy argument. Shared value, we are solemnly assured, is not “a redistribution approach.” Redistributing wealth is bad . Shared value is good , because “it is about expanding the total pool of economic and social value.” “Fair trade” campaigns that seek to pay “higher prices” to “poor farmers” “may be a noble sentiment,” the authors intone. But a “shared value perspective, instead, focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers' efficiency, yields, product quality, and sustainability.”
Here they finally give us what may resemble an actual example of something empirical in the real world! What's the evidence that the above mouthful of Business School jargon beats paying “higher prices,” in terms of the farmers' interests? No citation is supplied, but unspecified “Early studies of cocoa farmers in the Côte d'Ivoire, for instance, suggest that while fair trade can increase farmers' incomes by 10% to 20%, shared value investments can raise their incomes by more than 300%. Initial investment and time may be required to implement new procurement practices and develop the supporting cluster, but the return will be greater economic value and broader strategic benefits for all participants.”
If this is the standard for intellectual rigor that applies at Harvard (as evidenced by “Inside Job”), maybe capitalism is “under siege” after all, by morons and charlatans in academe. The article's non- citation and cryptic allusion to “early studies” promising (or at least “suggesting”) 30 times greater returns, as compared with paying “higher prices,” as well as caveats in the fine print about how it all takes time, implementation, and development, ends up sounding like a tale Bernie Madoff or another Ponzi-schemer would spin to lighten his mark's wallet.
It may well be true that a more holistic, systematic “shared value” system of market development integrating procurement and business clustering can generate even greater income than “fair trade” models calling for adequate prices paid to the less powerful participants in a transaction. The article later, in its stronger sections, even provides some concrete examples from the real world of bolstering community clusters of interrelated economic activities and otherwise strengthening value chains. But neither the evidence, the numbers, the business case, nor anything beyond unsupported rhetoric, is supplied in the article to support the ideological conclusion that “shared value” provides many times better returns than “fair trade.”
Having touched vaguely on one set of “early studies” in connection with “Moving Beyond Trade-Offs,” the article turns to a section on “The Roots of Shared Value.” It begins with a paean to “interdependence” of business and community, which the authors say “means that public policies that undermine the productivity and competitiveness of businesses are self-defeating, especially in a global economy.” From my non-Harvard perspective I would have thought that interdependence meant much, much more than that. What they are alluding to is immediately explained: In the global economy “facilities and jobs can easily move elsewhere. NGOs and governments have not always appreciated this connection.” In Detroit we call this “jobs blackmail,” and governments, non-profits, laid-off workers, their families and neighbors have “appreciated” its connection to productivity and competitiveness for several decades.
Having suitably enlightened readers who may not have appreciated the role of jobs blackmail in corporate globalization, the learned professors turn to the heavy task of debunking (or is it fleshing out?) “the argument persuasively advanced by Milton Friedman” that “business contributes to society by making a profit.” Operating under this Pinochet paradigm, communities “perceive” (again) little benefit from rising corporate profits, and “perceive” (yet again) that profits come at communities' expense. It is not hard to see why people and communities share this “perception,” because the authors freely acknowledge that “in the current economic recovery … rising earnings have done little to offset high unemployment, local business distress, and severe pressures on community services.”
(I really wish I could discuss this article without parsing it sentence-by-sentence, but when the authors describe as a reality in the same paragraph the same phenomena they just said twice were “perceived,” I don't know of any other way to engage their statements. It requires locating meaningful ideas in prose that is designed to obscure meaning. But hold on, I offer alternative approaches at the end, which is mercifully approaching!)
The need for a new approach to value creation and business management is perhaps best demonstrated in this article by the following sentences:
“As the vertically integrated firm gave way to greater reliance on outside vendors, outsourcing and offshoring weakened the connection between firms and their communities. As firms moved disparate activities to more and more locations, they often lost touch with any location. Indeed, many companies no longer recognize a home—but see themselves as “global” companies.”
Again, putting aside the authors' penchant for characterizing realities as perceptions of how companies “see themselves” and others' responses to their actions, it seems relatively easy from my perspective in Detroit in the early years of the 21 st century, a once-great industrial powerhouse now abandoned by the incredibly profitable corporations that drew wealth, labor and value from this community, to its current status as international poster child for deindustrialization and urban decay, to see some basic problems with capitalism that go well beyond perception, public relations and understanding the interdependence of business and community. But then I never went to Harvard, so I probably lack sufficiently nuanced sensitivity to the deeper feelings of the homeless transnational corporation and its top management. Similarly, I don't understand why criminal sanctions shouldn't apply to the too-big-to-fail predations of Wall Street that are exposed by “Inside Job,” in spite of the dedicated efforts of Harvard professors to explain the ethical, financial and cultural parameters of these important social questions.
The next section, entitled “Reconceiving Products and Markets,” opens up with the article's funniest sentences:
“Society's needs are huge—health, better housing, improved nutrition, help for the aging, greater financial security, less environmental damage. Arguably, they are the greatest unmet needs in the global economy.”
The perceived need to state that society's needs are “arguably” the greatest unmet needs in the global economy argues for Harvard professors to spend some time outside their ivory towers in less fortunate, oppressed communities where economic suffering is the order of the day. Isn't it a tautology to say that society's aggregate needs are the greatest needs in the economy?
From the authors' perspective however, their faith in the power of capitalism to correct the injustices created by capitalism is touching. They say “As capitalism begins to work in poorer communities, new opportunities for economic development and social progress increase exponentially.” We definitely don't have the time or space here to debate whether or not capitalism has in fact been “working” in opportunistic ways in poorer communities up to now, with negative consequences. But it will take a lot more than academic journal articles about potentially reframing ideas like “shared value,” even the best articles, to make the kinds of changes we need. If it were as easy as this article implies, it would have been accomplished a long time ago.
In essence, Professors Porter and Kramer seem to base their article on an unacknowledged and unsound pair of premises: 1) that business, on its part (and in spite of the long and terrible history of corporate abuses) can and will change course and begin serving social justice once its leaders understand the concept of “shared value;” and 2) that government can regulate based on the inevitable triumph and contributions of shared value, as if a “high-road,” high-wage, ecologically sustainable society will be the inevitable result of adopting “shared value” as the basis for growth and management dynamism, and as if there were nothing more to fear from unregulated corporate greed. The authors' naiveté in this respect is breathtaking.
Fortunately, Professors Porter and Kramer and the Harvard Business Review, with their advocacy of the principles of “shared value,” are far from the only (or the best) thinkers who recognize the need for sweeping socioeconomic change today, and who also have practical suggestions for the nature of the necessary changes. For example, consider the following excerpts from the Alliance for Democracy's Justice Rising Fall 2010 newsletter: (2)
Jim Tarbell, "Building an Economy for People & Nature:"
An economy that eschews greed, envy and competition in favor of cooperation, democracy and generosity is all around us. It is thriving in cooperatives, worker-owned businesses, listener-supported radio stations, non-profit health clinics and any number of other community benefit enterprises that abound in our cities and towns.
These institutions are not isolated entities but part of a thriving, expanding Solidarity Economy. This expansion becomes geometric as these institutions recognize their affinity with each other and purposely support each other through buying and selling of economic products and services.
Nancy Neamtan, "Growing the Solidarity Economy" (summarizing a talk at the US Social Forum in Detroit ):
The Solidarity Economy refers to cooperative, collective and non-profit, democratically-controlled enterprises, that emphasize the primacy of people over capital and embrace a philosophy of empowerment, equality and inclusivity. Their goods and services respond to the needs of the community. These enterprises do not move away, sell out, or lay off masses of workers in order to maximize return to shareholders. They are born out of the need and aspirations of the community...
The old top-down approach does not work, because you cannot force programs on people. Having useful public policy means that the priority has to come from the bottom up.
Similarly, It is important to closely examine what the “Creating Shared Value” article repeatedly describes as perceptions” of capital's social abuses, and even “capitalism under siege.” Egyptian-born political economist Samir Amin outlines the deep roots of today's crisis of capitalism: (3)
“ This is not just a financial crisis which started with the breakdown of the financial system in September 2008. The financial crisis is itself the result of a long, deep crisis which started long before, around 1975 with, as of that time, unemployment, precarity, poverty, inequality, having grown continuously. And this real crisis of really existing capitalism has been overcome by financialisation of the system and the financialisation of the system has been the Achilles heel of the system. … that deep crisis of the system was the signal that the system is an obsolete system. That is, it has now come to a point where continuing the accumulation of capital is deepening and continuing the destruction of the natural basis for the reproduction of civilisation. And therefore that we ought to move and start moving beyond capitalism. ” (3)
The importance of the reference to the natural environment as the basis for human civilization cannot be overstated. It is interesting to hear the Harvard Business Review's earnest calls for sharing value and resources at this particular time in history, when resources are so gravely imperiled. Longstanding historical presumptions of abundant resources no longer apply, and now the powerful say it is time for us to share. The key relationships between environmental and political economic crises today have been summarized by Tom Whipple in recent commentaries regarding the critical “peak oil” issue:
“A completely new paradigm of what we do to sustain life is going to have to emerge or things will become far worse than most of us have ever known. Modern civilization simply cannot stand a situation in which a substantial share of its people is destitute. … somewhere in the next five years a critical mass of us will realize that new foundations for civilization, and new ways of life must be found and implemented… ”(4)
“…[O]nce global energy production starts to decline, capitalism as we have known it for the last few centuries will no longer be the same. While some new form of an economic system will evolve, the transition is likely to be long and painful.” (5)
Hopefully the principles of “shared value” can help diminish the pain of the inevitable long-term transition from the world of today that was made by capital. Honest and unflinching evaluation of the reality we face will be an essential first step in making it so.
January 4, 2010
2. http://www.thealliancefordemocracy.org/html/eng/2592-AA.shtml Jim Tarbell's piece is at http://www.thealliancefordemocracy.org/pdf/AfDJR5101.pdf . Nancy Neamtens' is at http://www.thealliancefordemocracy.org/pdf/AfDJR5102.pdf
4. Tom Whipple, “The Future of Government” (Post Carbon Institute) http://www.postcarbon.org/article/198393-the-peak-oil-crisis-the-future
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