Dear Dean Nohria:
Thank you for sending the statement of your vision and priorities for Harvard Business School. You have the opportunity to lead towards the democratic capitalist alternative that improves lives, and away from shareholder capitalism that caused the unnecessary economic disaster. This will, however, require radical change.
Democratic capitalism is based on the worth and potential of each person in an environment of trust and cooperation. To manage in this culture[,] MBA’s must have integrity, with a respect for people, an empathetic nature[,] and a desire for a contributory career. This value system is well formed in some young people by the time they apply to HBS and needs to be part of the selection process. A new generation of MBA’s will then learn that the moral system produces greater profits.
The argument that Business Schools need radical change is not original with me. Jeffrey E. Garten, upon retirement as dean of Yale School of Management, questioned: “Are business schools failing the world?” (NYT 6/15/05). Joel M. Podolny, a former HBS professor, challenged: “Unless America’s business schools make radical changes, society will become convinced that MBAs work to serve only their own selfish interests.” (Harvard Business Review, June 2009)
I invite you to look at the website of the Carey Center, www.democratic-capitalism.com, where you will find the articles and a reform agenda to which I refer to in this letter. My bio, also there, will inform you that I am a grad of HBS, and was for 18 years the CEO and chairman of ADT, Inc., a NYSE company. I have participated on many Boards in many countries; I have supported over 50 “Carey Scholars;” most recently I have helped to found a Carey Fellowship in Democratic Capitalism at Rutgers; and I am the author of Democratic Capitalism: The Way to a World of Peace and Plenty.
Case studies are available of thousands of self-taught democratic managers who maximized the building and distribution of wealth by motivating workers to participate through profit-sharing and ownership opportunities. Information Age industries have adopted this culture as a competitive necessity to release the cognitive power of people, their prime resource.
In addition to case studies, the history of the development of democratic capitalism is inspiring. Adam Smith outlined the benefits of free markets and limited government[,] but he also emphasized the natural instinct for cooperation, money as a simple medium of exchange, and control of speculators--“prodigals and projectors” as he called them--to prevent their deflecting capital from the job-growth economy. (See article # 4.)
Robert Owen confirmed Smith’s theories by producing greater profits in his spinning mill through investing in the people in contrast to the mercantilists’ brutal treatment of workers, including 8-year-old kids. (See article # 5.)
Karl Marx’s visions included social progress based on movement to the superior economic system, the worth of each individual, a culture change from alienation to cooperation, workers motivated by ownership opportunities, and economic common purpose that would make the warrior state irrelevant. (See article # 10.)
John Stuart Mill foresaw both material and spiritual benefit when he proposed integration of private property and competition with Marx’s vision: “It is scarcely possible to rate too highly this material benefit, which yet is nothing compared to the moral revolution in society that would accompany it.” (See article # 11.) Mill’s chapter “On the Probable Futurity of the Labouring Classes” (Principles of Political Economy. Book IV chapter VII) should be required reading for every MBA student.
The education of new MBAs going into non-financial work will not be so difficult as those going into finance capitalism. The latter will need both dedication and knowledge to reform of the following systemic problems:
- Long-term economic growthhas been systemically sacrificed for the sake of quarterly earnings and stock price. Tax policies and measurement performance must be changed to stimulate long-term growth (See “Reform Agenda.”)
- The stock market’s function of moving savings into investment has been abandoned in shareholder capitalism. More money now comes out of the market in stock buy backs and deals than goes into new equity for growth. Tax policies must direct corporate surplus (now about $2 trillion) to growth investment and dividends.
- Mandated pension funding added trillions of dollars and turned wage earners into capitalists, but they have been treated worse than any other investors in history. (See article # 13.) Retirement money was devestated by the crash, money managers of retirement funds are charging fees ten time the rate of managers of index funds; the low-risk alternative of bond investment has been shut down by zero cost money. Tax-free dividends and infrastructure bonds would rebuild retirement accounts. (See “Reform Agenda.”)
- The business cycle, asset inflation, and the resulting recessions can be eliminated by a coordinated use of bank reserves, cost and supply of money, and taxes. The government already has the tools[,] but the politicians do not have the courage to oppose Wall Street that wants no interference in the up side of the business cycle and craves bailouts in the down. (See article # 19.)
- When investment banks went public[,] they perverted their mission to serve their investors to maximize returns for their new shareholders. New MBA’s must learn to think again like partners to eliminate the many conflicts of interest that have disgraced previously proud companies such as Goldman Sachs and Merrill Lynch.
I hope that HBS can become the center of knowledge about democratic capitalism and a leader of other Business Schools. Study of the economic system that can eliminate material scarcity in a moral way should be taken up by Humanities programs and other disciplines in the university to clarify the mission of economics in a democratic society, and to articulate the social value of a system of capitalism that has been thoroughly democratized. Numerous academicians have written about the confusion of the economic mission and the value void. (See article # 12.) Further elaboration of this vital subject does not begin to make sense unless one brings democratic capitalism into the picture. We do, after all, have a Constitutional mandate: The federal government is charged in the founding document to “promote the general welfare.” The time has come for Americans to apply the principles of democracy as radically to economics as we have already applied them to politics, civil and human rights, and other aspects of our society. HBS is the ideal place for the full amalgam of democracy and capitalism to be forged.
I hope, Dean Nohria, that you can initiate these radical changes at HBS to “make a difference” and show the way to peace and plenty. I would be pleased to meet with you and your associates at any time for further discussion.