Written by Scott James
This month I sat down with John Perkins, the author of the New York Times bestseller, Confessions of an Economic Hit Man, and many other titles, and former chief economist at a major international consulting firm.
Scott: Tell me about your work with business students around the US, particularly as it relates to Corporate Social Responsibility.
John: We talk about what’s really important for any business leader to understand today. We have moved into a new era where people understand we’ve created a failed system. When less than 5 percent of the world’s population live in the United States and consume more than 25 percent of the world’s resources, while roughly half the world is either starving or on the verge of starvation — the only way you can define that system is as a failure.
It’s not a model that we can sell to Africa or Latin America or India. It’s not something we want to pass onto our children. And an awful lot of business people are beginning to understand this. Young people are getting it, including young MBA students. Those who are going to be running our companies in the future years are waking up to these facts. I’m very familiar with this, because I’m going out and meeting with them, speaking to them in large assemblies and at much smaller gatherings, going to classes with them, and teaching classes for them.
Any responsible executive today of any corporation needs to understand that this is the future. And let’s face it: people who stay with the status quo have never been the really successful ones in history. The ones who understand future trends have always been the ones to prosper most.
When city-states became nations, very few people understood the implications, but the Medici did. They knew that their bank wasn’t any longer just about Florence. They needed to go to Venice. They needed to go all over Europe. They got it, and as a result were very successful.
We’re in a stage like that today where things are changing radically. We’re moving from this time that was defined, when I was a young person in the ’50s and ’60s, as the time to just continually expand materialism, produce things that seemed to make life easier – vacuum cleaners, dishwashers, mass-produced food, etc. Now we’re moving into a time when people are really getting the fact that we have to be sustainable, that that has to be the driving force.
And sustainability includes social justice. So we can’t be sustainable if people in the world are starving and being exploited. That’s not working. It seeds the roots of turmoil, even terrorism, and it creates tremendous problems for our children. We’re now finally beginning to understand these new facts of life, and our young people are waking up the fastest.
Corporate executives who understand these new trends and steer their companies in directions that recognize(s) that they are not just about making profits regardless of the social and environmental costs will thrive.
When I went to business school in the late ‘60s we were taught that a good CEO is like a good soldier – he protects the long-term interests of his employees and the communities where they live and work, as well as looking out for the interests of his stockholders. That all changed in the ‘70s and 80’s with the adoption of what we now think of as the theories of Milton Friedman and the Chicago School of Economics. They said that the sole responsibility of business is to maximize profits regardless of everything else. They said: to hell with the long term and the idea of being socially and environmentally responsible! But today we are understanding that profits are not the sole responsibility of business.
We recognize – as our grandparents did – that to be responsible and successful, businesses are going to have to pay decent rates of return to their investors while taking into account the creation of a world that we want to pass onto our children; a sustainable world, a just world, a world where everybody can thrive on some level.
All executives – even executives of corporations that today appear extremely successful and profitable – need to understand that their corporations are very vulnerable to these future trends. They need to get on the sustainability bandwagon; the ones who do so are going to be successful in this new era.
But many business leaders who are already CEOs and CFOs, who graduated with my generation – 30 or more years ago, often take the attitude that this is their system, and that as far as they’re concerned, everything’s working just fine. They are wrong and ultimately they – or their companies – will pay a very high price for these outdated attitudes.
Scott: What does a world look like without CSR…where corporations are all simply responsible enough that we don’t need to tack a CSR department onto them?
John: We have a precedent in this country for that. For the first hundred years that the United States was a nation, no corporation could get a charter unless it proved that it was going to serve a public interest. Charters lasted on average for ten years. There were exceptions – such as building a highway or a bridge – but on average ten years. Then the corporation had to go back and prove that IT had met the public interest and would continue to do so, in order to renew its charter.
That all changed in the 1880s when the Supreme Court decided that corporations had the rights of individuals but not the responsibilities, and we’ve been moving further and further in that direction ever since. “Citizens United” is the most recent example.
There’s a backlash today. The general population – despite the recent Supreme Court rulings that seem to favor corporations – are really beginning to get it. that backlash is going to increase as people decide they only want to support corporations that really are committed to creating a better future, to serving a public interest.
Scott: As this backlash is happening people are not only reacting against the negative but also moving towards the positive. What are the positive aspects within CSR that you’re seeing abroad from which the North American CSR community could benefit?
John: In the last decade, we’ve witnessed a revolution in Latin America against the form of capitalism that I call “predatory capitalism,” the Milton Friedman form of capitalism. We’ve seen ten countries which represent roughly 80 percent of the population of South America vote during democratic elections for presidents who campaigned with the promise of reigning in the corporations.
These countries are not getting rid of the corporations, not nationalizing them, not driving them out – because they recognize that they need them – but saying to these corporations, “If you’re going to drill for oil here in Ecuador, or if you’re going to drill for gas here in Bolivia, or grow bananas in El Salvador, that’s okay, but you must share a larger percentage of the profits with our people. You’ve got to pay higher taxes, and you’ve got to pay higher wage rates. You must make sure that the people working on these projects are adequately compensated and that they’re not working as slaves to you. And you have to offer the same protections for our environment as those required in alaska and other states.”
The old model used to be that when a foreign corporation went into another country, it would set up a contract whereby it got about 80 percent of the profits, and the country got 20 percent. The new leaders are changing this. For example, Rafael Correa who’s president of Ecuador and has a Ph.D. in economics from the University of Illinois understands the system, he’s a capitalist. He’s not trying to get rid of corporations, but he is asking the corporations to stop externalizing the costs associate with destroying the local environment and exploiting local populations. Correa, like other latin leaders, is demanding that corporations internalize those costs and that they return a much larger percentage of the profits to the people. These presidents are not asking for a reversal of the 80-20 formula but they are asking for something that is fairer for their people.
Every one of these countries, for most of my lifetime, was run by brutal dictators often put into power by our own CIA. Now, in peaceful, democratic elections all that has changed. I want to point out that these countries are not opposed to the United States. They’re not anti-American. They’re not anti-corporation. They’re just trying to say, “Listen, you’ve got to be socially and environmentally responsible if you want to work on our lands.” And the interesting thing is that many of the corporations – the ones that will truly thrive – are getting it.
I recently was a keynote speaker at a conference which was held in Panama which was primarily CEOs and CFOs of extractive industries in Latin America, mostly Canadian companies.
Before I accepted the invitation, I asked them, “Why me? What do you think I’m going to offer you?”
They said that policies in Latin America have changed. These elections have proven that business is not “as usual.” They told me, “We still want the minerals, and we understand we have to be good neighbors. We hear what they’re saying, and we want to cooperate.” these are very forward-looking senior business leaders saying they get it, and that they want to move forward. They want to be at the top of the curve, to continue to innovate and be the pioneers in this new and changing business environment.
That’s the real message today from all over the world – what I find in China and Latin America, Europe, and the Middle East. People understand that capitalism is a very effective system to channel human and natural resources and to apply creativity in areas that result in very productive activities. Now it simply needs to redefine its objectives. Capitalism must accept a goal not just of making profits but also of serving a public interest. When it does that, we arrive at a win-win, a true partnership. Those who understand this will become leaders in this new era. They will thrive, prosper, profit, and create beneficial environments for themselves, their customers, their suppliers, their employees, and the communities in which they work. And for their progeny.
Scott: Yes, definitely a more equitable and respectful relationship, one that can be sustained indefinitely. Any parting words of wisdom?
John: Simply this – that any truly responsible businessperson has to look to the long term. Bonuses may be measured by the quarterly profit statements but true success has to be long-term. As a society, as a species, it is imperative that we understand the importance of creating a world our grandchildren will want to inherit.
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