Compassionate Capitalism

Recently, Narayana Murthy raised concerns about the big difference in income between top executives and lower-level employees in Indian companies. He suggested practising compassionate capitalism to solve these issues.

A report from the Wealth Inequality Lab found that in India, the richest 1% of people earned 22.6% of the country's income in 2022-23.

There were also reports that Amazon warehouse workers were not allowed bathroom breaks or water until they met their daily work quotas.

These examples show why we need to rethink traditional capitalist practices.

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." — Adam Smith

What is Capitalism?

1. Capitalism is an economic system where private individuals own and manage property based on their own goals.
   1. Prices in markets are determined freely by supply and demand, which ideally benefits society as a whole.
   2. Adam Smith's "The Wealth of Nations" established the fundamental principles of capitalism.
   3. According to Smith, in voluntary exchanges, both parties pursue their interests, but they must also consider the desires of the other party to achieve their own goals.
   4. This rational pursuit of self-interest drives economic growth and prosperity.

What is Compassionate Capitalism?

1. Compassionate capitalism seeks to combine capitalist opportunities with fair distribution of wealth inspired by socialist ideas.
2. Compassionate capitalism integrates Adam Smith's focus on individual economic initiative with Karl Marx's principles of equitable wealth distribution.
3. It blends the ideals of communism's fair wealth sharing with concepts like work ethics, opportunities, and just economic rewards.
4. Compassionate Capitalism is about ensuring everyone has fair access to abundant economic opportunities and supporting others to achieve personal and collective benefits through this process.

Difference between Capitalism and Compassionate Capitalism

Capitalism	Compassionate Capitalism
Concentration of Wealth (perpetuates in equality)	Redistribution of Wealth
Profit to the Business	Profit to all Stakeholders
Exploitation of Resources	Sustainable use of Resources
No accountability towards society	Accountability to society for their decisions and actions

 

Contribution of Moral Thinkers to the Idea of Compassionate Capitalism

Various moral philosophers have laid the foundations for compassionate capitalism. These philosophies emphasise human dignity, societal welfare, and environmental sustainability, aligning with compassionate capitalism's goal of balancing financial success with ethical responsibility to stakeholders.

1. Buddhism's Pratityasamutpada: Based on dependent origination, this view holds that people are interconnected with each other and the Earth. It promotes shared prosperity in a sustainable world with minimal suffering.
2. Immanuel Kant's Categorical Imperative: Kant emphasized treating every person as an end in themselves, not merely as a means. His moral law dictates acting out of duty to ethical rules, not mere self-interest.
3. Gandhian Thought: Gandhi’s principles of truth, non-violence, and socio-economic ideals include simple living, uplifting all (Sarvodaya), and trusteeship.
4. Amartya Sen's Capability Approach: Sen's framework evaluates individual well-being and social policies based on people’s capabilities and freedoms, not just monetary metrics. This approach provides an alternative to pure profit-driven models.

"From each according to his ability, to each according to his needs". — Karl Marx

Practices that make Capitalism Compassionate towards various stakeholders

1. Workers:
   1. Open and flexible work cultures promote collaboration, innovation, and creativity while investing in skill development to enhance workers' capabilities.
   2. Equal opportunity for growth can be seen in initiatives like Infosys' Employee Stock Ownership Plan (ESOP), which democratizes wealth by granting company stock to employees.
   3. Financial security and fair wealth redistribution are exemplified by Tata Steel's commitment to pay the families of employees who died from COVID-19 their last drawn salary until the deceased would have turned 60.
   4. Compassionate leadership fosters values like empathy, openness and communication, physical and mental well-being, inclusiveness, and integrity in leadership.
2. Environment:
   1. Environmental accounting involves including environmental and ecological damages in the cost of doing business.
   2. For example, in 2012, SEBI issued a guidance note on environmental, Social, and Governance (ESG) disclosures, requiring companies listed on Indian stock exchanges to report their ESG performance in annual reports.
   3. Reducing pollution efforts include initiatives like the carbon action initiative, which focuses on high greenhouse gas emission companies.
   4. Adopting a circular economic model, such as the one implemented by ITC, helps reduce environmental footprints while achieving greater efficiency and cost savings.
   5. Minimizing consumerism is based on the "Limits to Growth" principle proposed by the Club of Rome, which suggests that humans can live sustainably on Earth by limiting the production and consumption of material goods.
3. Society:
   1. Corporate Social Responsibility (CSR) is a commitment by businesses to integrate social and environmental concerns into their operations.
   2. In India, CSR is also a legal requirement under Section 135 of the Companies Act, 2013, and the Companies (CSR Policy) Rules, 2014.
   3. Redistribution of wealth generated from development can be seen in initiatives like the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY), which ensures that the benefits of development reach the people and areas affected by mining.
   4. Addressing societal needs is another aspect, exemplified by the 'Goodfellows' initiative, which helps the elderly in India, catering to the country's ageing population.

Ethical dilemma associated with compassionate capitalism

1. Balancing employee welfare and profit maximization involves ensuring fair wages, reasonable working hours, and good working conditions, which may increase operational costs and potentially reduce profits.
2. Focusing on consumer interests by producing higher-quality, safer products may result in higher costs and impact profit margins.
3. Balancing environmental responsibility with cost efficiency can be challenging, as eco-friendly initiatives might increase expenses and affect competitive pricing and profitability.
4. Offering competitive compensation packages to attract top talent can create a significant income gap between the highest and lowest earners.
5. Investing in community projects and social causes can enhance a company's social responsibility image but might not provide immediate financial returns to shareholders.

Way Ahead

1. Business is a dominant force globally, crossing national and international borders and operating beyond financial, political, cultural, ethnic, or religious constraints.
2. As such, it holds a moral responsibility to positively influence and support everything it impacts.
3. The true purpose of business should be to enhance the quality of life.
4. Traditional capitalism, however, often falls short of this goal, making a shift towards compassionate capitalism necessary.
5. This concept aligns with principles embedded in the Indian Constitution, specifically Article 38 and Article 39(C), which urge the state to reduce income inequality and prevent the concentration of wealth.

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