Ethical ways of doing business

BEN ANDRADI

For love not money

David Cameron has talked about ‘moral capitalism’ but Pope Benedict XVI is streets ahead with his concept of ‘gift and gratuity’ – an idea which has been taken up by radical economists

Among of the most intriguing concepts in Pope Benedict’s encyclical Caritas in Veritate is the idea of “gift and gratuity” in the modern economy. Specifically, the Pope says, “the logic of gift as an expression of fraternity can and must find [its] place within normal economic activity”, and “economic, social and political development, if it is to be authentically human, needs to make room for the principle of gratuitousness as an expression of fraternity”.

This idea of “gift and gratuity” in the capitalist system makes no sense to most business people. In fact, the modern market economy functions on the basis of the “logic of equivalence” in exchange and not on the logic of gift. In other words, the idea of “owt for nowt” fills a modern Anglo-Saxon model capitalist with horror. However, in these times, when we are looking for a “better version of capitalism”, the Pope’s intriguing idea of “gift and gratuity” could be a breakthrough concept. But we need to find a way to put this concept into operation.

The current economic crisis has led to much soul-searching on what is meant by a “good business”. Politicians, church leaders and management gurus all have opinions on what has gone wrong with modern capitalism and how it should be fixed, with most thinkers, such as Dominic Barton, the global head of McKinsey, who has written extensively on this, pointing to flaws in the current model of market capitalism. Barton identifies three specific flaws. He points to the tyranny of short-termism, the need to serve shareholders only as opposed to stakeholders, and the lack of effectiveness of many corporate boards.

Beyond what Barton identifies, many commentators also believe that financial markets have more endemic failings. Experts say that trading in some of the key financial instruments in the major capital markets are rigged to favour the large investment banks and hedge-fund operators and in some cases, there are significant allegations of insider trading.

So can the economy of “gift and gratuity”

help to address these flaws in market-based capitalism? My view is “partially”, but even this would be significant progress from where we are today. And how does this concept manifest itself ? In fact there are examples from the last 20 years where at least some partial manifestation of the economy of “gift and gratuity” has become good business practice. Primary among these examples is that of fair trade, invented by a Catholic priest, Frans van der Hoff, which has now become a global force for progressive development (sadly, the Catholic Church does little to promote the key role that one of its priests played in the origins of this movement). The key idea of fair trade is justice. Fair trade guarantees a “fair” price to the producer so that he or she can live, work and grow. It also encourages socialisation, by the creation of cooperatives that bring together small producers.

Another example of “gift and gratuity” at work from the last 30 years is microcredit, the development of which earned the Bangladeshi economist Professor Muhammad Yunus the Nobel Peace Prize. Microcredit enables the poor to access credit without paying usurious rates. There are several more recent examples of business models based on “gift and gratuity” that have come about through the internet. Google’s core business model – searching the internet – is entirely free of charge. Google makes its money by advertising and sponsored links but keeps its core service free. Another example is that of Skype, which has revolutionised telecommunications by enabling free computerto-computer phone calls for both personal and business users. It makes its money by offering ancillary telecommunication services for which it charges a fee but again its core service is free. This internet-based example illustrates an interesting phenomenon around “gift and gratuity”, which is how mass free collaboration is reinventing the way businesses communicate, create value and compete in the new global marketplace. Don Tapscott and Anthony Williams in Wikinomics: how mass collaboration changes everything illustrate how ordinary people and firms are linking up and sharing ideas freely to drive innovation and success.

Perhaps the most intriguing example of such open access involves a small Torontobased gold-mining firm, Goldcorp Inc., whose chief executive, Rob McEwan, asked the world via the internet to save his ailing company. Goldcorp was considering stopping operations at its 50-year-old mine at Red Lake, Ontario. Without substantial new gold deposits, the mine seemed destined for closure, and Goldcorp was likely to go down with it. McEwan’s idea was to freely share that most precious and carefully guarded resource of any mining company, its geological data, by posting it on the internet and asking for help to find more gold. As an encouragement, McEwan put up some Can$575,000 (£365,000) in prize money, and in March 2000 launched the “Goldcorp Challenge”. News of the contest spread quickly around the internet, and more than 1,000 virtual prospectors from 50 countries got busy crunching the data. Within weeks, submissions from around the world came flooding in from geologists around the world. Other professionals also got involved, including graduate students, consultants, mathematicians and military officers. The results were successful and Goldcorp discovered a further eight million ounces of gold.

Beyond the internet, the economy of “gift and gratuity” has found many influential backers, including “premier league” management thinkers Michael Porter and Rosabeth Moss Kanter, both from the Harvard Business School, though they couch the concept in the lexicon of management. Both are strong believers in market capitalism and feel that the economic system is the only realistic and pragmatic way to improve the condition of

4 | THE TABLET | 28 January 2012