Sarah Green: Welcome to the HBR IdeaCast from Harvard Business Review. I'm Sarah Green. I'm here today with Umair Haque, director of the Havas media lab and author of the new book The New Capitalist Manifesto: Building A Disruptively Better Business. Umair, thanks so much for joing us.
Umair Haque: Thanks for having me, Sarah.
Sarah Green: So my first question to you, you're at the vanguard of a bunch of economist and strategists who say the old way of capitalism is dead. That we need something new to replace it. Tell us in a nutshell, how you see the problem.
Umair Haque: Well, I think what has happened over the last several years is that we've had a really big crisis. And that crisis has highlighted a lot of the shortcomings with capitalism as we're practicing it. And if you think back about the performance of the US over the last decade and longer, that also highlights a lot of the shortcomings with capitalism, as we know it and we live it. If you think about the inability to create jobs, for example. If you think about the inability to create new industries, for example.
So the question that these larger sets of crises beg is, is capitalism moving in the right direction? Because after all, capitalism is a human creation. It's not a static thing. We often think it's eternal and God given, but it's not. We made it. And we can remake it. And in fact, we have remade it before. And it may be that this is a critical juncture at which we have to remake it again.
Sarah Green: So how do you see this remade capitalism? What would you put in the place of the system we have now?
Umair Haque: Well, I think that the first thing we have to do is define what we mean by capitalism. And I think capitalism is a set of institutions. So a set of cornerstones, if you like. A that those cornerstones are so familiar to us we don't even bother to question them. We don't even notice them a lot of the time. And so I think the challenge of remaking capatialism begins with recognizing what those cornerstones are. And I think many people are approaching it from different angles. So for example, you've got a great movement toward social entrepreneurship now. Which is really about reimagining the cornerstone of profitability.
The cornerstone of what does it mean for a company to earn a return? You've got movement towards green business. You've got many different kinds of exchanges and markets spring up. You've got networks and communities springing up. I think all of these are precursors to a very different kind of capitalism that is centered on what I call thick value. So what I mean by thick value is value that is authentic. Value that's sustainable. And value that's meaningful. And if you think about what's happened over the last decade, we haven't been creating that value.
So we had an epic bubble which led to a catastrophic meltdown. And the value we thought that we were creating went up in smoke. And it was revealed to be mostly an illusion. I think that when you actually look at the numbers, those crises are occurring at a more and more frequent rate and they're becoming more violent, in many ways. And so I think our challenge is rebuilding a set of institutions for business that are focused on creating real value. Value that matters to people. Value that just doesn't vanish in a puff of smoke in a big crisis.
Sarah Green: Do you think -- I want to just press a little bit on this idea -- it seems to me like when you talk about thin value, I don't know if there are many companies or capitalists out there who would see themselves as creating fake value. So how do you know the value you're creating maybe fake? Even though you would intend it to be otherwise.
Umair Haque: Sure, so let's talk about a really interesting study that was commissioned by the UN. And the UN wanted to figure out how much harm is business actually doing to the natural world. And so they went out and studied it. And they found out that the 3,000 largest firms are doing something like $2 trillion dollars worth of damage according to their numbers to the natural world. That's a pretty significant number. And that is what I mean by thin value. If we apply that number to the profit margins of those firms, which we haven't done yet, but my guess is that it would reduce many of them to a state of bankruptcy in many cases, right?
So that's an example of thin value. It's about creating value that isn't counter-balanced by harm to people, to the natural world, to communities, to society, or even to tomorrow. And if you think about it, though many businesses may not want to admit it, the truth is that they are having those negative effects on all of these constituencies and more. And it's for that reason I think that many of these constituencies are beginning to take a much more critical look at business and say what are you really contributing to us?
Sarah Green: This all sounds great. But why should companies really do this? Especially if they are making money now and feeling successful.
Umair Haque: I think the story here is about advantage. When we actually look at the real probability of companies as John Hagel has very elegantly demonstrated in the Power of Pull, profitability in terms of return on assets has been declining since the 1960s. And it's pretty close to hitting zero boundary. So firms are not wallowing in real profits at the moment. Indeed, it's the opposite. So why companies should make the leap into this new paradigm is a story of advantage.
It's about rediscovering profitability. And I think that has to do a log with a changing expectations of the different constituencies. So let me give you a little anecdote. So many companies think that they can outrun the decline in prosperity here by shifting into emerging markets. And they think that they can replicate the business models that they've utilized last two decades in emerging markets. But the truth is when you actually look at what consumers in emerging markets want, they are much, much more sensitive to whether products have green benefits, whether products are produced ethically.
Those gaps are much bigger than they are here. So the expectations of constituencies are changing. And it's a global change. And it seems to be happening faster, in fact, in emerging markets, in some cases. So if the expectations are changing of all these constituencies, consumers, investors, employees, everybody, then profitability, the bases of profitability, are also going to change. So on one level, it's a story of supply and demand.
Can you supply the things that all of these different constituencies are beginning to demand? If you can't, then odds are you're going to suffer the same fate that people who cannot supply what is in demand always suffer, which is commoditization. So I think it's a story of advantage.
Sarah Green: I'd like to just get a little bit more specific. I think, because it's easy for some of these ideas that sound very abstract. Can you tell us maybe some examples of companies who are may be creating thin or thick value? Maybe one of each.
Umair Haque: Sure, let's think about Wall Street, for example. OK, the idea over the last decade was that Wall Street had pioneered a bunch of ground breaking innovations that would allow people to access credit sustainably for a long time at a much cheaper rate. And so we had a boom. And that boom was manifested in many different measures of value, right? So earnings went up. Shareholder value went up. What happened next was an epic crash. OK.
A huge crash. And that value disappeared. That is a perfect example of thin value. What had really happened was that Wall Street was passing the buck. And who did it pass the buck to? It passed the book right back to society. Because society is now bearing the cost of a historical bailout. So the value that was created was an illusion. It never really happened. So that's an example of thin value. Now let's talk about thick value for a second.
One of my favorite examples is a company that you would least expect to be creating thick value. And they're taking baby steps towards trying to create it. And that's Walmart. So Walmart's new sustainability goals are centered around having zero waste, around using 100% renewable energy, I think, and only selling stuff that benefits the environment. So those are kind of perfect examples of thick value. So they're trying to create a win-win for all their constituencies. They are trying to create value that matters, value lasts, value that grows.
Instead of powering through the world, and eating up all the natural resources, and crushing communities, and doing all these awful things, which Walmart has been excoriated for over the last two decades. So they're taking small, but I would say, meaningful steps. The challenge for them, of course, is now actually breathing life into these wonderful girls. But I think that's an example of the difference between thin and thick value.
Sarah Green: So let's go then to an even bigger, harder question for our last question. When you talk about different companies, different industries, doing all these things, if companies really start to all do this, and not just in the environmental sector we've been through focusing on, but about communities, societies, the future, what does capitalism look like in this new world when companies are all creating thick value, what's the desired end state?
Umair Haque: Well, I think the desired and state is what we have always relied on and desired from capitalism, which is prosperity. A prosperity that lasts. And a prosperity that grows. I think that the more companies act constructively, the more that we will be able to take a quantum leap into a renewed prosperity. I think that what we want to see in that era is the things that we've always associated with capitalism.
The things that make capitalism special. We want to see in fierce competition. We want to see real insight. But we won't see these things operating at a higher level now. We want to see real insight about how can you create positive sum games for all of these constituencies, instead of just giving with one hand and taking with the other. So we want to see the mechanisms of capitalism working, but much more efficiently, productively, and effectively.
Maximizing the effectiveness not just of outputs, the stuff you make, but of outcomes, the stuff that happens after people consume the stuff you make. So that's next generation capitalism it action. I think that a small generation of renegades is leading the charge. And I think we are getting there. I think the real question is are you willing to make the leap or not?
Sarah Green: Umair thanks so much for talking with us today.
Umair Haque: Thanks for having me, Sarah.
Sarah Green: That's Umair Haque. And the book is The New Capitalist Manifesto. For more, including Umair's HBR blog, go to hbr.org.