Capitalism needs a new (benevolent) heart… but it doesn’t need a new nervous system.
Do you still believe in capitalism? We can all feel that capitalism is sick. Profit-focused companies are harming people, from big pharma prioritizing profit over healing to supply chains abusing marginalized people to systems that leave the poor falling further behind. Our bodies are sick too. As a society, we have higher rates of depression, loneliness, and anxiety, even though we have higher incomes than at any time in history. (Reference: Becoming Whole by Brian Fikkert) At its worst, capitalism significantly has harmed the already marginalized because they didn't add to the bottom line.
We can feel that something is wrong with capitalism, and in the past 20 years socially conscious investors have tried to address the sickness, attempting to bring ethical paradigms into a system that at its core is built to serve profit. Investors are reacting to the sickness by calling on companies to express their values and for these companies to carry a weight of social responsibility. At its best, socially conscious investing refocuses investors toward long-term value creation over short-term value creation and brings traditionally non-financial factors into valuation so that companies respond to the needs of all their stakeholders. The problem is that many values-driven approaches to investing are merely bandaids, when capitalism needs a heart transplant. The core sickness shows its symptoms in practices like “greenwashing,” where investment firms inaccurately hype the positive impact of their investment offerings to gather more capital. At its worst, these efforts sometimes smell like the historic practice of absolution in Renaissance Europe where wealthy people could pay off the local Catholic priest to garner redemption of sin, giving those who could afford it a good feeling that they have dealt with the problem while completely ignoring the root cause.
The nervous system of information flow in capitalism is extraordinary.
I propose the thesis that capitalism needs a new (benevolent) heart, but that it does not need a new nervous system, and we shouldn’t throw the baby out with the bath water. The nervous system of information flow in capitalism is extraordinary. The information flow that connects consumers in London with producers in Vietnam with financiers in Switzerland, and logistics companies in Turkey is stunning. Every transaction that does and doesn’t happen in the global economy transmits information about the usefulness, price, and quality of their solutions. Entrepreneurs build organizations to solve problems, and the market gives them brutal and rapid feedback about the value of the solution they create. Just like the nervous system in the human body takes information from a finger tip to the brain, capitalism takes information that a good or service is needed in greater amounts than is available by driving the price up.
To illustrate the value of the nervous system, consider situations where the nervous system isn’t working. China‘s Yingkou City is an example of a “ghost city” that has five years of unsold apartments flanked by a number of abandoned large scale projects because the provincial leadership ignored capitalism. Governments don’t experience the feedback loop of priced transactions, and they struggle to run efficiently, like the story I read of a government “losing” $25 billion dollars without explanation. Or take, for example, the nonprofit sector, where well- intentioned donors can be disconnected from those in need, starving charity organizations for the feedback loops that might drive innovation.
profit is like breathing
As we come to appreciate the living, breathing flow of information at the heart of capitalism, we understand that capitalism doesn’t need a new nervous system, but it does need a heart transplant that shifts the purpose of business from profit to passion. The magic happens when we can step into passion-driven projects without letting go of the nervous system. Passion projects used to be the purview of the nonprofit world, but today the lines are blurring. At Eagle, we like to talk about how profit is like breathing in oxygen. Breathing is essential for life, but it’s a terrible reason to live. Profit is a good and appropriate fruit from solving problems, but it is not a good reason to found a company. Capitalism is sick because its core “why” is off target. Myopic focus on profit misses the heartbeat of love. We are more than earning machines. We are worshipers. At its best, capitalism highlights our God-given ability to create and solve problems.
When we see the world in this new paradigm, the purpose of business becomes to solve problems and express creativity, and a fruit of solving those problems is profit that promotes human flourishing and providing opportunities for meaningful work. As humans, we are given the unique opportunity to be "coworkers" with God, to use our own giftings to serve others.
the purpose of investing... is to empower teams that solve problems and express creativity.
If the purpose of business is to solve problems and express creativity, then the purpose of investing, which provides the fuel for businesses to start and grow, is to empower teams that solve problems and express creativity. If problem solving is our core calling, we will aspire to build portfolios of audacious entrepreneurs working together to solve larger problems than any single business or organization can tackle on their own. We believe the future of faith-driven investing is thematic portfolios built around solving problems and expressing creativity. Eagle Venture Fund is exploring this through the Eagle Freedom Fund, dedicated to combating human trafficking through for-profit businesses, and Eagle City Fund Dallas, dedicated to the flourishing of all people in Dallas-Fort Worth. The redemptive entrepreneurship organization, Praxis, is exploring this through their Opportunities for Redemptive Innovation [ORI’s], building coalitions of entrepreneurs and investors around problems. We envision a day when there is an investment fund dedicated to every ORI at Praxis.
If the purpose of investing is to solve problems, then we must measure success differently. We define success as investors at Eagle as skillfully taking risk in ways that transform people’s lives. The mission of Eagle is to transform millions of lives through for-profit investing, and we believe that healthy ventures produce good fruit, including profit. Our method to achieve this mission is through skillfully stitching together profitable and impactful portfolios. If we get our “why” right, the result yields not only a healthy crop of non-financial fruit, but also profit.
At Eagle, we’ve found this paradigm shift of capitalism needing a new heart, not a new nervous system, to be a profoundly helpful operational principle. It helps us to think clearly to keep the nervous system engaged as we pursue passion-driven enterprises. We’d love to know what you think. Is this illustration helpful? What do we need to add to it?
