Adam Smith ist ein Rhinelander

Germany is a tainted brand: like ‘Communism’, Marxism’ or ‘Socialism’ these labels are so loaded with baggage they obfuscate rather than clarify. I first became aware of the tainted Germany brand as a young teenager when the rabbi of my reform synagogue in Oakland, CA - wait for it – bought a Mercedes Benz!! The congregation were outraged, including if you can believe it the rich Porsche-driving lawyers and doctors of the congregation - presumably Porsches are too cool to be associated with the Holocaust. No one cared when the rabbi was driving a Ford from Henry who was a notorious anti-Semite - not the current fake kind labelled as such for criticizing Israel’s inhumane abuses but the good ol’ fashion racially prejudice Fascist sympathizing kind. I liked playing a game when I taught leadership & change at MBA level or go to an academic leadership conference: I set my watch to see how long before Germany and Hitler’s name came up (‘a despicable man but an effective leader’) - it usually takes about 10-15 minutes.

Society?

I’ve come to know the Germany behind the baggage having a daughter brought up in Berlin to my German ex-wife. The more the layers of German’s socio-economic model are uncovered, the more I marvel at the elegance of a model that we helped create after WWII but didn’t bother to use to improve our economic model. And we’ve forgotten what we already know: Adam Smith’s original ideal of a well functioning economy, where all prosper not just the few, gives clues to how to re-imagine it. Based on Adam Smith it’s Germany 1 United States 0.

Blank Sheet of Paper

After WWII during the Marshall era we helped West Germany set up their management & social-economic model with the purpose of creating socio-economic harmony to avoid the conditions for another Fascist regime. This was done by explicitly creating a socio-economic system based on cooperation, consensus and social justice to serve the interests of multiple stakeholders: a mutualistic system, like bees pollinating flowers allowing bees to feed their colonies and plants to reproduce. Germany has structural systems in place to achieve this, such as Co-determination ‘Mitbestimmung’ whereby employee representatives sit on companies’ supervisory boards. I would have loved to be a fly on the wall of those initial meetings between American Marshall era planners and their West German counterparts to discover why the hell the planners thought it was good enough for Germany but not the US. It would be like building Seattle, the last major city built in the US, and not adopting the latest in urban planning or learning from the experience of other major cities in the US. Why didn’t US policy geeks in Berlin take ‘best practice’ back to DC? Arrogance? Laziness? Complacency?

To illustrate elements of the Rhineland model, my ex-wife, let’s call her Helga, was a single mother in her early 50’s when her employer, a corporate publishing company, was bought by a competitor. Amongst other mostly older employees, she was told she’d be fired; the less experienced younger and predominantly 20-30 year old males would be replacing them in the new corporate structure. Not so fast. In Germany, that list of those to be fired has to be shared with the employee representatives sitting on the supervisory board first. The employee representatives reversed the firing list based on German Federal law that stipulates the most vulnerable are fired last; those most able to find a new job are fired first. Helga was reinstated and still works there today. Unthinkable in Anglo-America.

The systemic, long-term and elegance of the system is clear: if Helga as a single mother in her 50’s is fired she’ll be a burden on the state and most likely be under employed, i.e. not able to get a job at her current level for the rest of her career due to ageism. She spends her money in the community where she and her daughter lives strengthening the local economy which her job sustains. By keeping her job she doesn’t drain taxpayers’ money and she’s boosting the local economy. Contrast that with the 20 something digerati (digital literati) who not only will find a new job quicker but they don’t tend to spend their money in their local communities; rather, it’s spent on tech-bro city breaks to Barcelona, Paris, Las Vegas and in off-shore tax-‘efficient’ investment schemes thereby contributing less to the prosperity of the local economy. These German structural impediments to short-term bottom-line thinking leads to a far more resilient social economy.

Helga had a heart attack a few years ago. The German health system sent her for a 2 month spa retreat to recuperate – I fell off my chair when she told me. Again, unthinkable in the Anglo-American system. Let that sink in the public health care system - not private - sent her on a 2 month spa retreat to get well. During her retreat she attended classes on nutrition, diet, yoga, leading to a much healthier and active lifestyle prolonging her health and sustained productivity.

Adam Smith Revisited

Socialism you say. Too many damn people in Europe riding in the economic cart and not enough pulling it right? That’s what the free market fundamentalists want you to believe. They tell you about Adam Smith’s ‘invisible hand’ and ‘enlightened self-interest’ from the (1776) The Wealth of Nations and extoll the virtues of the great Chinese Jew ‘Max U’- maximizing utility – which underpins everything (certainly our amoral business school teaching where I work).

The free market fundamentalists conveniently either forget or redact Adam Smith’s first book, (1759) Theory of Moral Sentiments, which laid the foundations for his second book. Smith was a moral philosopher first - economists didn’t exist back then, but if they did he would second be a behavioural economist, not the free market fundamentalist kind at all.

What Adam Smith actually said was that economic systems based on private property would create social tensions requiring clear governance systems. Markets, like people, are not only not self-regulating, they are prone to excess and abuse. As such, the market requires a moral framework for personal behaviour and a set of governance rules which regulate the relative power exercised within and across social groups. His detailing of such principles called virtues and sentiments are linked to moral judgements. As a practicing Christian his words read like a sermon – an inconvenient truth to the amoral and immoral free market fundamentalist.

Without clear guiding principles, rewards from commerce for the few will not sustainable prosperity for the many and prosperity for all would remain illusory and unachievable. He foresaw that ‘mere wealth and greatness, abstract from merit and virtue’ would lead to a gaming of the system. Adam Smith’s first instinct and wish was prosperity for all - the possibility of creating a better future where everyone contributed benefits: the ‘happiness of a great community’.

Smith reminds us that since benevolence is the only motive that can make an action virtuous, the greater the benevolence an action shows the greater is the praise that it deserves, i.e. the actions which aim for the ‘happiness of a great community’.

The Anti-Smith Shareholder Capitalism

If we consider the extent to which organisational ownership structures are designed to deliver ‘happiness of a great community’, America’s ‘Turbo-Capitalism’ juiced by the publicly traded shareholder model is amoral at best, immoral at worst. Under this model, the key decision-makers are the Directors acting solely on behalf of shareholders. The major shareholders of modern corporations are an elite group of the very richest in society including institutional shareholders. In the US, 1% of the shareholders own 2/3rd of all shares. Major shareholders vote - 1 vote for every share - for the Board of Directors, typically comprised of 12-20 Board members. The 1% who own most of the shares decide the outcome. An economic model whereby the mass of people, employees and the communities within which corporations operate are legally and practically excluded from key decisions, by definition, cannot deliver inclusive ‘happiness of a great community’. Nowhere in nature is there an equivalent magnitude of such self-centred exclusive hoarding. Ever see a fat lion? Of course not: nature only takes what it needs. Leave it to humans to break with the natural world that we are part of to create financially obese ‘fat cats’.

Adam Smith would argue commerce without morality is like politics without principles, education without character or science without humanity: they are not only useless but positively dangerous.

The Hidden Champions

At the heart of the German economy is the Mittlestand medium-sized firms which account for the largest share of the country’s economic output, employing about 60% of all workers in Germany. The Mittlestand are known as the ‘Hidden Champions’: ‘hidden’ because they tend to be in business-to-business segments e.g. Hauni (cigarette machines), Webasto (sunroofs and auxiliary heating systems for cars), or Dorma (door control hardware and systems moveable walls), but also because they eschew the aberrant self promotion of their US celebrity CEO counterparts and prefer to role up their sleeves and quietly focus on being #1 or #2 in their global niche, hence, ‘champions’. Most of these companies are family-owned and based in small towns, yet they hold market shares of up to 90% in worldwide market niches. Hidden Champions are like pocket-sized multinationals, with on-average employing 2,037 employees, an average sale volume of $326 million, very high operating profit margins, prize employee loyalty and have an export rate of 66%. And boy do they export: a country ¼ the size of the US has about the same exports as share of world GDP as the US.

The dominant discourse of the corporate owned media would have you believe the anti-Smithian US shareholder capital model is the only game in town. Germany’s alternative socio-economic and corporate model is far more aligned with Smith’s concept of a beneficent economy of prosperity for all and serves as a poignant alternative to the mofos that put ‘neo’ in front of a perfectly good word ‘liberalism’ to peddle their propaganda.

Making Smith Non-Fiction Again

The World Economic Forum back in 2020 proclaimed re-imagining and renewing the American-style broken socio-economic architecture as this generation’s defining task. Nobel Prize winning Joseph Stiglitz economist (2001) and ex-president of the World Bank in 2012 warned about America’s slide from social cohesion to class warfare, “The political system seems to be failing as much as the economic system. (American) Capitalism is failing to produce what is promised and delivering on what was not promised: inequality, pollution, unemployment and the degradation of values and no one is accountable.” This is what Smith predicted of an amoral and immoral system.

I disagree with Stiglitz: America’s corpocracy is doing exactly what it’s designed to do. As US President FDR observed as far back as 1936, the financial and corporate elite he termed the “economic royalists” rule with a new despotism: “wrapped in the robes of legal sanction and govern without the consent of the governed putting the average man’s property and the average man’s life in pawn to the mercenaries of dynastic power.” Even back then he could see the political elite would be sock-puppets of the ‘economic royalists’: “We know now that Government by organized money is just as dangerous as Government by the organized mob.” Could you imagine an American president saying that today? Can you imagine an American president coherently stringing sentences together or not spewing a pack of lies? America’s current corpocracy makes FDR’s 1936 America look like the Archies.

If policy makers have the benevolent intention, will and humility guided by Smith’s potent principles, German’s Rhineland model and other such mutualistic regenerative systems can provide potent examples for re imagining and revitalising America’s dysfunctional socio-economic system. Fortunately, there is a new generation of moral and amoral young social and environmental impact entrepreneurs imbued with the spirit of Adam Smith’s beliefs of a beneficent socio-economic and corporate system who are re-imagining and renewing America’s broken parasitic one.

There are several practical steps we can begin with now. First and foremost, have the moral develop the amoral to become moral. Next, select out the immoral from organisations and don’t select them in; this will keep them from degrading our systems. Politics is the last bastion of human endeavour that doesn’t use psychological testing to weed out the immoral: the military was an early adopted of this, why not also political parties & government? Moreover, stop wasting valuable time, money, energy and resources trying to develop the immoral: taker’s gonna take. According to neuroscientists, unless immoral taking is detected, and a therapeutic intervention is made before the age of seven years old they cannot be developed; they will never even become amoral. Empaths may squirm at this notion, but moral cowardice, particularly at board level, will only provide more fuel for them.

My best guess based on research and anecdotal conversations with therapists is that the immoral make up approximately 30% of the working population. The moral and amoral must cushion themselves from the immoral, as anyone who has been attacked by them knows. To protect yourself from the attacks of the immoral, outsource to a professional hired gun and let them fight it out in the court room, battlefield or (stock) market. So when an immoral taker cries ‘Discrimination!’ as they will because fighting is how they get their kicks, don’t take it personally: leave it to your systems, processes, governance procedures and professional hired guns to insulate you and the organisation. The organisation’s processes and governance systems will be tested, and in the long run this is a good thing.

With the right intention, board level ethical fortitude and governance systems, the right tools and implementation plan the anti-Smithian global Corpocracy model can be eclipsed and Smith’s envisioned socio-economic system can become non-fiction.