Repubblica - 18/09/2010

The bet of new entrepreneurs

By Luigino Bruni

Published on Repubblica, Florence section on 18/09/2010

There is a bizarre aspect in the debates that have followed the crisis of these last two years: everything is
questioned, but nobody talks seriously about questioning the only thing that is truly important: the capitalistic economic system. Besides Pasolini or Don Milani, it seems that the moral stature is missing in our intellects; there is no talk about going beyond capitalism without using worn out words of ideologies, of right and left, lay or Catholic. And so, we all limit ourselves to talking harmlessly about the need of a more ethical economy (one day, someone will explain to us what this phrase actually means: is it the ethics of the wolf or that of the lamb? The ethics of state bond holders or those of the homeless?), of responsible business, of nonprofit and philanthropy. In a closer look, not only do these phenomenon not question our economic system, but they are functional and necessary to it. We need to be more daring, and we need the intellects, economists and the social scientists to return to their trade as critics of society, even our society.

Let's start with a question: are we sure that the goal of a business's activity is maximizing profit?

First of all, let's remember what profit is. If we limit ourselves to just the more positive environment of the market economy, we can affirm that profit is part of the added value generated by a business activity that is attributed to the owners of the business, whom we once called capitalists. Profit, therefore, is not the entire added value but only a part of it. An example: business A produces automobiles, transforming steel, plastic, rubber and electrical components, etc., into a final product that we call "car". Let's suppose that the sum of the cost to produce a car by business A using raw materials is 10. If business A sells that car for 30, the profit is not equal to 20 (30-10). Among the costs are other important elements, including a crucial one - labor. If we suppose that the cost of labor is 8 (for every car), and that other costs (financial charges, payment installments, etc.) are equal to 3, then gross profit (before taxes) would be equal to 9. If the business then pays taxes of 4, our net profit becomes 5. Today, we know that there are many things in added value, among which is the creativity of the entrepreneur and human work, the institutions of civil society, the tacit culture of a people, and the quality of family relationships in which children grow during their first 6 years of life (as Nobel winner James Heckman has shown us). Certainly, in that added value of "5", there is not only the creative role of the owners of a business's production but also much more dealing with the life of the entire collectivity. There is also this awareness behind article 41 of the Italian Constitution when it declares the "social function" of a business, meaning that a business has a function that is also social in nature. One thing is for certain: if business A sells a car for 30, and receives 5 in profit, in a hypothetical "non-profit" world (where profit is 0), cars would cost 25 instead of 30. In other words, profits of businesses are also a way of taxing goods paid by citizens that reduce the collective well-being of a population. That is why a "non-profit economy" was often desired, dreamed of, and in certain moments of history made reality on small or vast scales, even if they often created greater damage than the problems they wanted to resolve, as in the case of the collectivist experiments of the 20th century. These collectivist experiments did not work for many reasons, all deep, but one of these reasons is that we have realized that in removing that "5" and giving it to society, whoever begins a business (private or state) no longer commits himself to innovation and work, and the wealth of a nation (not only economic wealth) decreases. We make ourselves poorer, and even that 5, which we wanted to give to society, disappears. At the same time, this great crisis that we're living is telling us that the economy founded on profits and speculation is also unsustainable. What do we do then? 

There is another way of reading this civil economy movement: imagine, for now just on a small scale, an economic system where added value, economic or social, is distributed among many (and not only the shareholders). Imagine that this happens without entrepreneurs and workers losing their commitment for lack of incentive, in order to avoid the same problems of the collectivist and socialist economy. The true bet of the new market economy that awaits us will be to show a new season of entrepreneurs (individuals and communities of entrepreneurs) that are motivated by reasons greater than profit. 

The last phase of capitalism (which we can call the financial-individualistic phase) arises from anthropological pessimism, which in reality leads back to Hobbes: human beings are too opportunist and self-interested to think that they can commit themselves to higher motivations (like the common good). However, we cannot leave the last word on common living to this anthropological defeat. We have an ethical responsibility to leave future generations a more positive outlook on the world and on man. But in order for this to not remain words on a page and rather to become life, we need a new humanism, a new educational season where everyone is educated - youth, children and adults - to an economy of sobriety, where one learns that human happiness is not in consuming more goods but in enjoying collective, social, environmental and relational goods together and even more.

The 17th century Italian illuminists understood and placed public happiness at the peak of the reform agenda for Italy, as happiness is either for everyone or for no one. Today, we're realizing, and paying a heavy price, just how much that 17th century prophecy was true, as the challenges in environment, terrorism, energy and immigration tell us even more that in this era of globalization we will not be happy alone, against the others. In this challenge, the great tradition of cooperatives still can and must say much to the world, on the quality of life within and outside of the markets in the decades to come.

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