At the center of the debate is whether a free market economy, state-managed capitalism/economies, or a third option, often referred to as “cohesive capitalism” are best suited for achieving growth, curbing unemployment and preserving the environment.Economies, entrepreneurs in the spotlight
There were times when it was a commonly accepted fact that any functioning market economy depends on individuals who either work on behalf of shareholders and/or for their own profits, which in turn guaranteed employment and subsequently generated sufficient consumer demand. Not any more, as even “functioning” market economies have recently plunged into free fall. Besides, those individuals in charge of large and medium-sized businesses have become subject to much more intensive scrutiny both from analysts and civil society. While consumers still want to be able to buy whatever they fancy at a reasonable cost, they expect a modern entrepreneur to be socially motivated, environmentally aware and much more than a mere “profit generating medium.”
Focusing on earnings per share no longer enough
When the world’s business leaders and global bankers came together for this year’s World Economic Forum in Davos, Switzerland, many pressing items were on their agenda. They ranged from how to restructure ailing economies to whether to cap bankers’ sky-rocketing bonuses. Being on location, Ben Verwaayen -- CEO of Alcatel-Lucent -- tried to redefine how today’s economies should work. Writing from Davos (widely published, one source: http://blog.livemint.com, as well as explained in detail during an interview with CNN’s Richard Quest live from Davos), he reiterated the need to make profits but at the same time stressed, “The world in which EPS [earnings per share] is the only measurement of success seems to be disappearing. Enters the scene: the human being. The notion that talent determines the fate of business is not new. But the voice of the environment, the society in which we operate, is stronger than ever before. Do our activities contribute to the society in which we operate? Do we contribute to solving the real issues we are facing as communities?”
Verwaayen argues that Corporate Social Responsibility (CSR) is simply not enough. He goes on to say, “Capitalism as we know it just became a little bit more interesting: it has to show its contribution to strengthen the cohesion of society at large. ‘Cohesive Capitalism,’ therefore.”
Should executives’ bonuses be capped?
Whereas the discussion about which methodology will work best in times of financial turmoil is complicated enough, questions linked to whether executives’ salaries should be capped or frozen if they are responsible for serious mismanagement or more, generally speaking, in times of a large-scale economic crisis, are on the agenda, too.
One such case is the recent dismissal of BP CEO Tony Hayward. Without judging whether it was only Hayward who is responsible for the world’s most catastrophic oil spill, I wish to raise the question of whether the salaries received by executives in the ivy league of big business are merited, scandal or no scandal. I have inserted a table with Hayward’s accumulated income received from BP for the last year.
I am not arguing against elite circulation per se, under which a member of the board at one company can easily be appointed member of another company’s board, or a musician from one state orchestra may be hired by another leading symphony. As long as every citizen at least theoretically has the chance to become part of this upward mobility, the system is useful for refreshing otherwise rather static organizations. New people bring new ideas with them. What I do suggest, however, is that when an individual has made serious errors and not only betrayed his shareholders but the general public (and, in the case of BP, endangered large swathes of marine wildlife), the time has come to leave one’s position instead of being further promoted. By the way, the same should also hold for politics and politicians, too!
Individuals matter and so do currencies
Although the most recent financial meltdown was a global phenomenon I now wish to focus on both the Turkish and European perspectives. We must take a close look at the euro. Is the common currency the cause of, or the solution to, the crisis? In the past few months voices have become louder from those who openly question the future of the euro. This includes not only observers hailing from the school of EU-skeptics, but also from many political circles that under normal circumstances favor further EU harmonization and integration.
From Turkey’s perspective it is necessary to follow both arguments closely, as it is far from certain what kind of EU Turkey is going to join once the time has come: a more centralized block with a full-fledged president, a foreign service and a strong common currency, or perhaps a more loose structure in which member states continue to carry enormous political weight, with many governments deciding to remaining outside the euro-zone -- if it survives the current economic turmoil in the first place?
According to Professor Tim Congdon CBE, one of Britain’s leading economic commentators and a frequent commentator on monetary policy, “The euro-zone is close to breaking-point.” He bases his argument on that fact that ‘the banks of Ireland, Greece, Spain and Portugal have become heavily dependent on the European Central Bank for their funding -- but there must be limits to how much the other euro-zone member countries are willing to let the ECB lend to the troubled banks in those four countries.”
Being somewhere in between defending a more loose group of nations and aiming at improving today’s EU internal structures, Professor Congdon complains about that when the single currency was designed its founding fathers did not think hard enough about the role of the European Central Bank and would certainly never have anticipated any monetary crisis.
Needed: Civic entrepreneurs
Taking Ben Verwaayen’s predictions into account while not unduly criticizing Tony Hayward but certainly opposing unrealistic executive paychecks and bonuses, it makes sense to ask ourselves whether a new breed of businessperson, a new type of entrepreneur, can become part of the solution that yields sustainable growth instead of short-sighted profit maximization. Some time ago I had the pleasure of speaking with Economic Competitiveness Group Inc. President Alec Hansen upon his most recent visit to İstanbul. He wrote a fascinating article titled, “What motivates civic entrepreneurs?”, first published in 2002. Taking California’s Napa Valley as example he presented Robert Mondavi; Mondavi had helped to transform an entire region and always had its inhabitants’ well-being in mind as opposed to only making (more) money. Businesspeople should interact with the communities they live in. While this is much easier for ‘local’ entrepreneurs, it is more complicated for managers and CEO’s of multinational companies. However, why should it not be possible even for CEO’s to develop a taste for bringing good to society, safeguarding our environment and setting examples by foregoing a year’s bonuses if they did not deliver what had been expected of them?
Turkey came out of the global crisis better than most of her European neighbors and may very well one day soon overtake existing EU member states’ economic performances, including a much reduced rate of inflation (expected to hover around five per cent) and over time further increasing individual purchasing power.
While Turkey seems to initially have used a combination of all the approaches I featured in this contribution, it has more recently employed a less state controlled, more privately supported’ economy, with on-going privatization as a (successful) case in point. More private involvement in the economy, with an emerging middle class as a welcome result, requires more individual social engagement, too. What is missing is that management and business schools all over the country should now engage in more pro-actively training future CEO’s and company owners to acquire a taste for ‘social responsibility’. A suggestion probably valid for fellow European economies, too!
