Good afternoon, ladies and gentlemen, and a very warm welcome to the Oxford Martin School for this wonderful afternoon of two lectures.
I should explain that for those who are mystified, I am not Sir Charles Godfrey, who is the director of the Oxford Martin School.
I'm the being called off the substitutes bench. My name is John Krebbs.
I've served in various roles in the university. Most recently I was principal of Jesus College and like Charles Amos, I will adjust my background.
In fact, my main claim to fame is that I taught Charles when he was an undergraduate.
So this afternoon, as as you know, we have two very distinguished speakers, both based here in Oxford.
So we're extremely fortunate to have two members of the home team talking on the overall theme of the future of the corporation, economy and society.
And I should. In case Paul and Colin are too embarrassed to do their own marketing,
I should mention two fantastic books that have been published relatively recently won by Colin and won by Paul on related themes.
And I am not sure to what extent they'll cover those topics in today's talks, but I highly recommend them in recommending Paul's book,
I have to add a caveat it's proved so popular that actually it's sold out in hardback.
But if you can just be patient and hang on till the Fourth of July, you can slake your thirst on the paperback version.
So, but Colin Collins book is available here and now, and there'll be copies available afterwards, as well as copies of Paul's earlier book,
The Bottom Billion, which many of you may have read an absolutely fantastic book about why a billion people in the world are stuck in in real poverty.
So without further ado, I will introduce our first speaker support, Collier,
professor of Economics and Public Policy at the Blavatnik School of Government here in Oxford, Professorial Fellow of St. Anthony's College.
He urged me to be very brief about singing his praises, so I'm not going to say really much more.
Other than that, he has written well.
I've already mentioned this fantastic book, The Bottom Billion, which won numerous prises four for a distinguished book of that time.
And he often writes in newspapers such as the New York Times, Financial Times, The Wall Street Journal and Washington Post.
So without further ado, I'm going to hand over to Paul for the first of these 25 minute talks, and then I'll introduce Colin in the second part.
Over, would you both? Bill, thanks so much for coming.
The current I. Work fits together, wrote the books at the same time, sort of it was loosely coordinated and I do the society and and broad economy.
And Colin does the the the corporation firm and so that the themes are very much in common and so am the future of capitalism and.
Does he have a future and it needs to have a future, because in the 10000 years of human civilisation all around the world,
there's only one system that's been discovered that actually kind of has the capacity to work and drive up living standards fairly continuously.
And that's that that's capitalism.
Because capitalism by that I mean decentralised decisions taken in firms subject to some discipline of market competition.
And we're in that works is that the the miracle of productivity,
which is the only thing that drives up living standards is the miracle of productivity, requires scale and specialisation.
So you need big. And for most of that 10000 years, we only had small household production.
So you need big. But we tried a different form of big, which was communism, the Soviet Union.
That's certainly very big, and it just didn't manage to show that it was productive or even equitable because it
didn't have this discipline of decentralised decision taking subject to competition.
So that's to my mind, sort of the miracle of capitalism. But and this is a big part.
It doesn't work on autopilot. Periodically, capitalism derails and then it's a matter of public policy.
Putting it back together again, put it back on the rails. And I'm a pragmatist in the sense that I believe there is no guidebook that gives us a.
Route to Utopia. In fact, there is no utopia. Our world is subject to radical uncertainty.
We don't quite know where it's going. And periodically capitalism will derail.
And then the best you can do is the philosophy of pragmatism is in contrast to ideology.
There is no utopia. There is no permanent guidebook. All you can do is study the context of the time as best you can.
Try and understand what seems to work at the moment through a bit of experiment trying to never.
And then let's do that, and it'll work for maybe 20 years, maybe longer.
But don't think it's going to live forever, it's going to derail again. And then you're going to have to go back to study the context.
That's the philosophy, pragmatism, right? So capitalism, in my view, is derailed.
It started 250 years ago. It's derailed big time at least three times in that 250 years.
And my talk is mainly going to be is derailed now.
But I just want to get users to think about what should happen by talking a little bit about the first derailment of capitalism,
which most people don't know much about. And this was in the 1840s, and it occurred in the the cities where I grew up.
The north of England, I grew up in Sheffield and the industrial cities of the north of England were the first such cities on Earth,
the first industrial cities and the most booming city in the whole of Europe.
At that time.
The first half of the 19th century was Bradford, where my German grandfather moved from some impoverished little village in southern Germany,
and he was booming factories very productive and that Bradford turned into [INAUDIBLE] on Earth, as did the other northern cities.
Because when you crown people together and you don't have public policy, which we didn't.
What happens is you've got a health crisis.
The drinking water gets mixed up with the sewage, and people get contagious diseases because they're all so close together.
And so I'm going to take us to Bradford in 1849, and Bradford was run in every sense by Mr Big.
Mr. Big was tied to salt, and I to soap was the billionaire industrialist of the time dominated the city.
He was also the mayor and he was also the local MP. Mr Big.
And there is, in 1849, more ATMs in Bradford Cholera. People are dying.
Hundreds of his workers, thousands of his citizens, cholera just know what to do, but what it does do as far as we can see, is it as his sole?
Because he becomes the first billionaire philanthropist, he gives his entire fortune away.
And he does. First, he recognises that he's got obligations to his workforce.
And so he builds the first ever purpose built town on Earth for employees.
That's Saltaire now World Heritage Centre. Quite rightly so.
And then the rest of his fortune, he goes to cleaning up Branford parks.
And so when he dies, he's the local hero. His work forces loyal.
The community responds with a big statue, and he's still very well regarded in Bradford as the local hero.
That was business. Responding to the new anxieties generated by the derailment of capitalism.
Then you go a few miles away still in the 1840s, and you get to Rochdale.
Hopefully, you know what happened to Rochdale and here is not business.
It's families. Families face the new anxieties.
Life expectancy has fallen to 19. On average, you're dead at 19.
So one of the new anxieties is, do you go to a funeral? People are really poor.
Do you get a funeral and people, families start the gang together and say, I'll tell you what,
I'll accept obligations against you if you accept obligations against me.
That's the birth of the co-operative movement. The world birth.
A couple of years ago, the Belgium co-operative movement, which is huge, it runs the health system.
It's as far as I can see the only thing that works across the two linguistic communities and they are awarded me the the Belgian Citizenship Award.
And so I asked them, How did you come to get all these cooperatives?
They said, Oh, people came from Rochdale to Ghent and they taught us, you know, and it's now the world movement.
So what was happening in Rochdale and of course, in Halifax, they got together the other big anxiety.
What are you going to the liver building society, becoming the biggest bank in the country?
So this is the business response to these new anxieties.
This is a type salt and the family response.
Rochdale, Halifax These have the same basic structure.
They were recognising the new anxieties dealing pragmatically finding solutions.
And what were those solutions? Reciprocity. Recognising obligations to others?
That was then. Let's go to them now.
Right. They recognise that the actors in those stories of firms and families.
Not just individuals.
Films from families, I'm going to be awfully important because remember, we need scale and specialisation to achieve our purposes.
If you want if your purpose is you want to produce, you want goods, you'll need firms.
There's only one organisational form we know works for raising children and those families.
So these two organisations larger than the individual achieve the purposes that we all have.
So let's move from then to now. And we're now living in the third derailment on the second am, not so unemployment, right?
Each time capitalism derails is different. What's the derailment now?
Well, it's two divergences, social divergences that started around 1980, and it just got worse and worse.
And one divergence is spatial, and it reverses 200 years of spatial convergence.
Poorer regions catching up with richer regions from 1980 onwards, exactly the opposite happens, and the richest regions,
which are always the metropolis, start to boom and diverge from the periodically the provincial cities get broken.
The emblematic, broken city is unfortunately my own Sheffield. Many of you will have seen the full Monty.
You just have forgotten. That's Sheffield. Right? And it's a very funny, poignant film.
But if your relatives are living through that, it was very painful.
So that's the spatial divergence.
It's not complicated to understand what caused it, it doesn't matter very much globalisation, there are fewer of the bigger cities, the winners.
I love the booms because it becomes the global city for finance and Sheffield,
the the steel industry, which was there for 700 years, crashed because it moved to South Korea.
The other divergence again reverses 200 years of convergence, and it's between the less educated and the more educated.
And what's driving that is rising complexity productions getting more complex, that's the price you pay for higher productivity.
But that complexity requires new skills. Well, specialist skills and they have to be built on the back of a decent tertiary education.
Meanwhile, the people who didn't get much education, they've invested in manual skills and the same process of rising complexities,
making those manual skills less valuable in the market.
And so for 40 years, we've had the divergence of the highly-educated from the list that you take,
these two divergences then get correlated because if you're.
Well educated in the provinces, when you go, you go to the metropolitan.
And so we've had 40 years of the skilled metropolitans on a rising escalator and the less skilled provincials on a falling escalator,
the puzzle is not why it happened. Is why nothing's being done about it?
For 40 years, that divergence has continued pragmatism. This is not working.
That's the puzzle politically is no harder to heal these rifts.
Then it was to fix the health crisis in the 1840s with the mass unemployment in the 1950s, know how the both of those.
But we've just let this run for 40 years. What's the consequence of letting these divisions run?
Mutinies eventually, the neglected. Get angry.
You can't blame them. And the tragedy is the mutinies, Brexit, Trump, of course, a backward looking strategies reflecting anger of neglect.
They're not forward looking strategies of solutions.
The most famous mutiny of all time mutiny on the bounty was provoked by the fact that the sailors on the boat were going through the tropics.
It was only so much for drinking water, and the drinking water was being used to keep the plants alive.
So the breadfruit will be brought to the botanical gardens and the sailors eventually, as they get hot and thirsty, start to find that unreasonable.
And, you know, maybe I would, too. Right. And.
What it wasn't about was let's all go and live on Pitcairn.
Huh. That's what happened. So rage left them, they ended up in a little island in the middle of nowhere.
All right. And maybe Brexit has the same overall structure.
But you can't blame the people who mutinied the mutiny is caused by neglect and the political puzzle.
I'm going to address in my last little while. Why did it happen?
Why did it happen? Why was there this time? Neglect and abuse two processes to two things that diverted the politics from its usual mechanism of.
Is the anxieties the new anxieties emerging is the pragmatic response this time it didn't happen.
Why not? Well, one thing. That brings it on is is a divergence of identities.
So the we get a new ideology of which basically allows the successful to exit their obligations.
And it's a sort of ideology of individual success. I deserve it.
I deserve it because I'm so productive. And that move from recognising obligations to to my god, I'm clever.
I'll give you one example of this, which is the finest political commentator in the country.
My view is John Ganesh, the Financial Times political commentator,
but he very accurately describes them and indeed exemplifies the metropolitan skills.
And so in one of his articles, he gave a view of what from now from London, what the what the provincial Britain looks like.
And he describes it, he says it feels like being shackled to a corpse.
Hmm. Shackled to a corpse. Huh. The London perspective and everything he's done on prevention, but you hear the empathy.
You hear the recognition of obligation. You hear the shared identity.
I mean, my goodness, if this guy had written something like that about one of the favoured victim groups, he'd have been out of his job in two days.
But no, not a ripple. Yeah. Shackled to a corpse.
That's the exit from shared identity of the successful it exemplified.
So that's one of the problems that the metropolitan skilled set themselves up in in a new ideology of personal success,
personal achievement and wonderful. You know, and and of course, they then take on pet projects of victim groups who come to the victim groups.
And so and and the other current is economic man contributed by the wonderful subject in and
are those have chairs in economics and economic management American discovered in the 1950s.
And it's and it's it's the economists reading of evolutionary biology of the time.
And they think what the Darwinian process of the survival of the fit leads to is the inevitable survival of the [INAUDIBLE].
And what is the shape? He's greedy and he's selfish, and he's lazy.
Right. And that's it, we are all a bit greedy and a bit selfish, easy, but economic man.
That's it. There's nothing else, right? Greedy, selfish, lazy, huh?
And notice one consequence of that is economic man is incapable of being morally load bearing.
It can't be. He's just greedy, selfish, lazy.
And so that's a problem for economists. When you come to public policy.
Because public policy, the economists that we're all trained to maximise something, so you need something that you can maximise.
And obviously utility. And then we reached to utilitarianism is.
Ridiculous philosophy dreamed up by two, truly, we had people Fensome and Mill,
right then some so weird that he has himself stuffed and put in a case so that he can continue to chair meetings at UCL after he's dead.
All right. I mean, you got to be seriously creepily weird. And Bentham, just sort of.
I've been the founder of the his his his disciple mill is brought up so that he's separated from other children.
Brought up to be able to speak ancient Greek and read it. But he knows nothing about his own society, so these people are seriously weird.
Utilitarianism would have never caught on, except it has one wonderful property.
It instructs you to just adopt the utils. Add up utility and economists are really good at us, so we do constraint constrained utility maximisation.
We will learn that from birth, you know, and so great.
We got the sigma sum of utilities and we just maximise it.
Now there's a little problem in that. Who the people we're trying to get to behave well.
We know what they are. They're greedy, selfish, lazy. And so that's a problem.
They're not going to maximise global utility. They're going to maximise their own interest, right?
So the what you need is some sense. And here Plato comes in handy because he thought that to you need seems platonic guardians.
You hold me a little bit mistakenly thought they were philosophers, but we soon put him right about that.
So you've got a state where at the top you got economist saints, not lawyers like to get in on the act as well.
See what economists and lawyers at the top. And then our problem is, how do you control these wretched people underneath?
The greedy, selfish, lazy and the answer comes out from economics and law and economics,
we pioneer whole block a theory called principle agent theory,
which is to say, Well, you provide high powered incentives and you link those incentives, those carrots and sticks to monitoring of performance.
And the lawyers then very helpfully write long contracts to say this is the performance that matters, right?
And so we move to a system which is called which I call social paternalism.
The top knows best, and it's got this control problem, which it solves by the carrots and sticks and the monitor performance.
That's what happens across society, and it's taught in business schools calling.
Explain that and and it pervades the public sector because the public sector the things Oh,
if it's good for the private sector, it must be good for us. We must ape the private sector.
So just as evidence for that is a survey called the Jobs and Skills Survey, which is an annual survey done in Britain.
It has the same question for 25 years. Do you have enough power of autonomy and discretion to do your job properly?
And 25 years ago, most people say yes, there's been a 40 percent drop in.
Yes. Now, most people say no. Because most people are now in prison to this carrots and sticks to monitor performance.
You see it in the social sector, and there's a very good book by Hilary Cottam called Radical Help,
which is a detailed analysis of how the social sector works or rather how it doesn't work.
And 86 percent of social workers time is taken in administration.
Servicing the system of monitoring and control that is 14 percent for contact with the families who need help.
So at least at 14 percent that actually it isn't because what that contact is used for is to get the information you need in this 86 percent.
All right. So it's no surprise that the social sector utterly fails.
It can't do anything but fail. What's the problem with this? It denies that people are capable of morally load bearing.
It denies you don't trust people because if you trust them.
They'll run off, they'll be greedy and lazy. Right?
And so there is a is a complete tragedy, and it's also wrong if we turn to modern evolutionary biology, there's a wonderful.
There's two wonderful new books on this list the 2016 Joe Heinrich or The Secret of our success,
which is all about the social brain, the collective brain that we build and the others just come out this year.
And Christopher, his talk is.
And or Christakis shows, is that we are basically hardwired to be pro-social, we're hardwired to their obligations to each other.
And I would. I'll close with one with one experiment the social psychologist do, and you can all do tonight on your own.
And I've tried it and I don't recommend it for the over60s, as can be really painful.
All right. So it's this and you get a piece of paper and a pen.
And you write down the three decisions you took in life that you most regret.
You have to do it honestly. You only got three the three most. So what the social psychologist do is.
They produce various buckets. So here's the bucket for economic man.
We know what the decisions are. The economic man regrets, huh?
If only I hadn't messed up that interview with Goldman Sachs, huh?
If only I bought that house. You know, if only I bought Apple shares, you know, and you got to look in that bucket is empty.
We all make mistakes like we all regret those decisions, sort of things.
They don't, frankly, don't make it to the top three anywhere near. All right.
And there is one bucket that is overflowing, and that's why if you're over 60, don't do it right.
That's the thing that says. I let down my mother. I let down my wife.
I'm down my colleagues, my friends, is the breaches of obligation.
We are hard wired evolutionarily to bear moral obligations, and that's why when we occasionally breach them.
We suffer them. And so we are naturally.
Morally load bearing.
And we need to get back to a society in which moral load bearing is properly distributed, not just at the top of government, the Saints.
Those things are no more cynically than any of the rest of us, right?
But we need to get back to a system where families are morally load bearing,
have responsibilities and have the assistance which enables them to to bear those responsibilities.
So the secret of social care is to separate out the business of help completely
from the business of scrutiny so that the helpers can actually be trusted.
And finally, it means the films have got to be load bearing, morally load bearing.
And on that note, I'm going to hand over to call. Thank you.
Thank you very much. All that was absolutely riveting and brilliant and inspiring and raises lots of questions
that we will have time to put to our two speakers after Colin Mayor has finished his talk.
Colin is also a professor at Oxford. As I mentioned at the beginning,
he's the Peter Moores Professor of Management Studies at the Side Business School and a professorial fellow of Wadham College.
He's done many important things in his distinguished career, both in academia but also more broadly in relation to public policy.
For example, as a member of the UK Competition Appeal Tribunal,
the government's Natural Capital Committee and the International Advisory Board of the Securities and Exchange Board of India.
Again, I won't go through all the many achievements that I could have referred to,
call it in the interests of people wanting to listen to you rather than me.
But I'd now like to hand over to call in to continue the story.
And as I mentioned his book Prosperity, That's a Business Makes the Greater Good,
which came out last year, will be available afterwards in the reception to you.
Call him. Thank you very much, John.
I'm going to be talking to you about one of the most important institutions in our lives.
It's not the state, religion or even Oxford University.
It's an institution that clothes, feeds and houses us that employs us and invest our savings.
It's the source of economic prosperity and the growth of nations around the world.
But it's also been a cause of growing inequality. Environmental degradation.
And mistrust. Every year for the past thirty five years, Ipsos Mori, the market research company,
has undertaken the survey of which professions in Britain people trust to tell the truth.
At the top alongside doctors, nurses and teachers.
I'm pleased to say, come university professors, we might not have much power pay or prestige,
but at least people trust us to do nothing, earn nothing and take no credit for it.
But at the other end come business leaders just ahead of estate agents, professional footballers, journalists and rock bottom [INAUDIBLE] politicians.
They come below trade union officials, bankers and the man in the street.
And it's not just a recent phenomenon, dates back pretty much to the start of the survey.
Mistrust in business. Is profound, pervasive and persistent.
Why is that the case? I'd suggest that the reason is this what is sometimes termed the Friedman doctrine.
That there is one and only one social purpose of business.
To increase profits so long as it stays within the rules of the game.
And that has been the basis of business, practise, business policy and business education ever since.
But it wasn't always. Indeed, the corporation was established under Roman law as the associates public general.
Some 2000 years ago to perform very public functions of collecting taxes, minting coins and looking after public buildings.
And for nearly all of its 2000 year history, it has combined its commercial activities with such public functions.
It's only over the last 60 years that this idea has emerged that there is only one purpose of business to make, money has arisen.
And that is the cause of growing inequality, environmental degradation and mistrust.
And it's going to get worse before it gets better, because while technological progress offers remarkable opportunities for improving our well-being.
It also poses serious risks, not least in terms of, for example, artificial intelligence,
where people talk about risks associated with the future of work.
But actually, there are much more profound risks associated with the control of our minds and who takes decisions.
And in relation to biotechnology, which raises similar issues in relation to species.
The question is to who controls and for what motive those machines and those processes is, of course, of growing critical importance.
But things are changing.
At the beginning of this year, someone who's got the real power to influence our lives said that every business needs a purpose.
Not a strap line or a marketing campaign, but a statement of its fundamental reason for being.
What it does on a daily basis. Purpose, he said, is not the sole pursuit of profits, but the animating force for achieving them.
That person was Larry Fink, who is the CEO and president of BlackRock,
which is the largest investment management firm in the world, with some seven trillion dollars under management.
And leaders of some of the other multi-trillion dollar investment management firms, such as Vanguard State Street have said very similar things.
And it's not only leaders of multi-trillion dollar investment management businesses who are saying this, so too are policy makers.
Britain led the world in terms of the standards of corporate governance, as it's termed,
by which management was deemed to be accountable to one particular group in society, namely its shareholders.
Corporate governance was all about. Aligning the interests of management with their shareholders.
But last year. The UK brought out a new corporate governance code, which says that actually that is not what corporate governance should be about.
It should be about aligning the interests of management with their corporate purposes.
And some of the main political leaders have been saying similar things.
Elizabeth Warren, the presidential candidate in the US presidential race,
has put forward the notion in her Accountable Capitalism Act that every business should
have a public statement of its purpose if it has revenues in excess of a billion dollars.
And President Macron in France has put forward the notion of raison d'etre, an intrinsic notion of purpose as being at the heart of French Civil Code.
Now, all of this is indicative of the scale and the speed of change towards a recognition of the importance of why business is created, why it exists,
what it's there to do and what it aspires to become,
namely its purpose and everything should follow from that in terms of business, practise, business policy and business education.
The purpose of business is not to produce profits.
The purpose of business is to produce profitable solutions to the problems of people and planet.
And in the process, it produces profits. But profits are not per se.
The purpose of business. Everyone who runs successful businesses knows that to be the case,
and they do not profit from producing problems from for people and planet, and they don't profit from it.
Instead, what they do is they commit to their corporate purposes.
And they commit to those who help to create those corporate purposes and those people in turn commit to creating that could propose.
And that gives rise to reciprocal relations of trust, the sort of reciprocity that Paul was just talking about.
And that, in turn, gives rise to mutual benefits.
For the parties, to the firm and to the firm itself, it creates more engaged employees,
more reliable suppliers, more supportive shareholders and communities, more loyal customers.
And that, in turn, gives rise to greater revenue, lower costs.
And will profits. And underpinning that is the trustworthiness of business to uphold those corporate purposes, and that,
in turn is dependent on their values, values of integrity and honesty and cultures of commitment to those corporate purposes.
And it's those notions of purpose, trustworthiness, values and culture that underpin a real conceptualisation of business for the 21st century.
To bring this about, one needs to have four pairs of key policy changes.
The first is in relation to law and regulation.
At the moment, corporate law is about the alignment of directors interests with those of the shareholders
and the fiduciary responsibility of directors to uphold their shareholder interests.
That is not. Well, corporate law should be solely about it,
should be particular about the fiduciary responsibilities of directors to state that purposes and to demonstrate that they're upholding the purposes.
Regulation is regarded as being about the rules of the game that define how business can behave.
And the enforcement of those rules to penalties and criminal offences.
But it shouldn't just be a crime and punishment system.
Regulation should be about aligning the corporate purposes with public interest in those companies that perform vital public services.
For example, the utilities, banks, auditing companies, companies that perform public services.
Those are companies which an alignment between their private interests and social interests are critically important.
This second pair of policies relate to ownership.
And governments at the moment, we associate ownership with the rights of shareholders.
But it shouldn't just be about the rights of shareholders.
It should be about the importance of security companies in which investors invest their money,
and institutions have a critical role to play in terms of not only upholding the interests of their investors,
but also promoting the successful implementation of purpose in companies.
And governance, as I've just described, is traditionally viewed about aligning the interests of management with our shareholders.
But it should be about aligning the interests of management with corporate purposes.
The third set of policies relate to measurement and performance at the moment,
what we measure is the financial capital of companies and their material capital, their buildings and the plants and machinery.
But increasingly, companies are moving away from being businesses that fund large expenditures on buildings,
plants and machinery to bring about the human assets, the social assets and their dependency on their environment and natural assets.
And we need to measure those as well and account for them and performance at the moment we evaluate in relation to profits.
But what we should be evaluating is the performance of firms in relation to the fulfilment of their purposes.
The final area is in relation to finance and investment.
Finance at the moment is viewed in terms of the efficiency of markets and the contractual relations between providers and users of finance.
We need to recognise the importance of building relationships between providers of finance and users of finance,
and also the fact that private capital markets cannot on their own.
Offer the levels of investment that are required in particular in large scale infrastructure projects.
We should be looking to build real partnerships between the public and the private sector in achieving that.
And that means aligning the private purpose of companies with a public interest in companies that perform those infrastructure functions.
Now, those four policies in relation to law and regulation, ownership and governance measurement and performance,
finance and investment offer the potential for really bringing about the type of
transformation that I'm talking about in terms of creating purposeful businesses.
Now, I want to illustrate this in relation to a company that has been one of the most successful companies in the pharmaceutical industry.
It's a company that produces insulin. It's a Danish company called Novo Nordisk.
And it's been extremely successful in producing insulin, except that a few years ago it recognised that there was a problem.
And that was that it wasn't reaching the market where the type two diabetes, which is designed to treat was most serious.
85 percent of diabetes is found in low and middle income countries around the world,
and they simply could not afford to purchase the insulin that was necessary to treat patients.
So what Novo Nordisk did was to say, right, OK, well, we should cross-subsidise.
The price at which we sell insulin in the developing world from the profits we make in the developed world.
That was a moderately interesting development, but not particularly profound.
What he then realised was that his purpose was not to produce insulin.
It was to help to treat people who got type two diabetes, which insulin might be one approach, but there were many others.
And so it started to work with medical practitioners, with doctors,
the universities around the world in terms of thinking about what was the most
appropriate form in which to provide treatment for diabetes in different locations.
And then it realised, well, actually its purpose was not just to treat people who've got diabetes.
Its purpose was to try and prevent people from getting type two diabetes in the first place, which was often a matter of lifestyle changes,
so it worked with local communities, with NGOs to try and find ways of influencing the lifestyles of people in different parts of the world.
Now, you might say, well, that's all very noble,
but isn't it rather unfortunate for Nova know this business model because it meant that it was going to sell lessons.
The answer was, of course not.
It is exactly the opposite, because what emerged from that was that Novo Nordisk was deemed to be a trustworthy supplier,
not just of insulin, but of health products much more generally and for advice and assistance in finding real solutions.
It demonstrated a real interest in the benefits it was conferring on its customers, its patients and the various parties it was working with.
And as a result of that,
it's business bloomed and flourished on the back of the trust that it created with the various parties with which it was working.
I want to take a second example. It's of an institution that operates in one of the most unsuccessful sectors of the world's economies over the last.
Ten or 12 years, namely banking?
It's a bank that's been one of the most successful banks in Europe in terms of its financial performance and in terms of its financial stability,
it needed no bailing out during the financial crisis. It's got a very clearly defined purpose,
namely it views itself as a humane bank in terms of the way in which it treats not just its customers, but also its employees.
And indeed, it has some of the most satisfied customers of any banks in Europe.
Repeatedly, according to surveys, and as a result, some of the most loyal customers.
Which is again, an illustration of this notion of reciprocity that Paul was talking about give to others,
and they will give it to you in terms of providing you with a loyal customer base.
But what's more interesting about it is the way in which it illustrates another principle that Paul was just talking about.
Because the model that.
Handelsbanken has used for running the bank is exactly the opposite of the way in which nearly all British American banks run their businesses.
And that is in terms of running everything from the top issuing rules from the top, then permeate through your organisation.
What it does is exactly the opposite.
It delegates all decision taking down to the individual branches and the mantra of the bank is the branch is the bank.
And what's the effect of that? The effect of that is that it thereby allows people working those branches actually to take decisions.
They don't simply have to refer decisions up the organisation, wait for them to come back down again and then have to tell their customers,
I'm terribly sorry, I can't give you approval for the loan that you've just requested.
So, of course, this allows them to build up real relations with their customers in a way in which if one has this authority only coming from the top,
it's impossible to do. And what underpins that ability to say that the branch is the bank is the way in which they treat their employees,
that humane notion not only in relation to their customers, but in relation to their employees.
They select the branch managers very carefully. They instil the values of the bank in their employees,
but then they put trust in people who can take decisions at the level of the individual branches.
And again, it's this notion of trust, which is critically important.
Now, a common feature of both Novo Nordisk and Handelsbanken is the way in which they are owned.
Novo Nordisk is owned by what is termed an industrial foundation.
The families who created Novo Nordisk for some reason or other decided not to pass on the company to their descendants.
Instead, they put it in an industrial foundation, a foundation that not only gives money away to charities but actually runs the company.
And Handelsbanken has the structure by which it's listed on the stock market, but is tightly controlled essentially by the bank itself.
Now, that notion of ownership as being essentially one in which it's possible for a company to take a long term profile because it's
got a stable ownership is a key feature of the success of those companies stands in marked contrast to what happened in Britain.
Britain once had some of the most highly regarded companies family companies in the world.
Companies such as Rowntree, Cadbury, Bootes, Beecham, Ricketts, Coman's, nearly all Quaker companies with very strong ethical principles.
But because they did not have a similar stable ownership structure.
They've all disappeared as independent family farms taken over.
Gone bankrupt. All sold out. And that aspect of them finding a way in which one can really create the ownership and
the governance of purposeful companies is critical to the success of those films.
But is also critical for the issue that Paul was talking about capitalism, a capitalist system.
And let me just end by restating, reinterpreting some of the notions of capitalism that Paul was talking about.
The traditional view of capitalism is that it's an economic system of private ownership, of the means of production,
and that operation for profit and ownership is regarded as being a bundle of rights
over the assets of a firm that confers strong authority on the owners of these firms.
Firms regarded as being nexuses of contracts that are managed by the boards of companies for the benefit of their owners.
And that's a consistent, coherent description of capitalism, which says it's all about private ownership.
Profit. And strong forms of control of the rest of us who are employed through contracts.
But what I'm describing here and what Paul was talking about.
It's a different parallel world. It's a world in which capitalism is an economic and social system.
To provide profitable solutions to the problems of people and planet by private
and public owners who do not profit from producing problems for people or planet.
And ownership in this context is not just a bundle of rights, but a set of obligations and duties to uphold those purposes.
And firms are not just nexuses of contracts, but nexuses of relations of trust.
Upheld by the boards of those companies. Now,
what underpins the traditional view of capitalism is that it comes in the context of competitive
markets that align the interests of companies with our interest as purchases of employees,
as investors in them. And if those markets failed for some reason and regulation moves it.
But what was the alternative parallel view of capitalism suggests is that between that market efficiency and regulatory effectiveness,
there is a void that is increasingly becoming a chasm.
As technology accelerates, regulation gets further and further behind and governments become ever more dysfunctional.
Well, both markets fail and governments and regulation.
And in that void,
we increasingly rely on business to convert individual self-interests as economic man into a collective cooperative interest in a common good.
And to do that, we rely on the trustworthiness of businesses to uphold them.
Because ultimately, trust is one, if not the most important and yet unrecognised assets of companies.
Because trustworthy companies are competitively successful companies and the competitiveness
of our nations depends on the trustworthiness of our companies for the benefit of the many,
as well as the few for the future as well as the present.
Thank you very much.
Well, again, thank you, Colleen, for a brilliant exposition about the company and very neatly weaving together in your final few minutes.
Your theme and and pulls. Now we do have time for some questions.
And there's a roving microphone that Claire is holding up at the back.
If you wish to ask a question, please, could you raise your hand and I'll pick you out.
And when you before you answer, could you just say who you are so that it's picked up for the rest of the audience?
So I'll start right back there next to you and then I'll come to come to you.
Hi, my name is George. Missed you and environmental governance.
So my question is mostly for Colin, which is the CEO of Coca-Cola, was in Oxford last week and he was answering a question about purpose,
said, Well, of course, the purpose of Coca-Cola is to make the world a better place.
And that was this old ripple of laughter throughout the room, which he appeared slightly shocked.
But I think what people were responding to was the idea that, of course,
the purpose of Coca-Cola is to produce beverages and excite these kind of products,
etc. So when a company states the sort of wishy washy, pompous light to make the world a better place,
what do you think they need to do to really articulate that? And you know, what counts as a good part is that people can actually believe in that.
It's not just that doesn't just come across as a sort of corporate tagline, so to speak.
Yeah, OK. And that is a typical example of what people term greenwashing in this area.
So, so there are three types of purpose statements the one.
The first one is a descriptive statement. We produce cars, we produce washing machines.
That's our purpose. We that to produce the most efficient and reliable cars with the lowest cost refrigerators or whatever.
That's not very helpful. The second is exactly along the lines of what you're describing, which one might term aspiration, where to save the world.
Right? That doesn't help very much, either. So that's why I was very careful in terms of defining what a purpose statement should be about.
It should be about identifying the type of issues and problems that you are there to solve and whose problems you are trying to solve in what way.
And to in the process make it clear that you're not going to profit from creating problems in doing it.
OK, so if you come back to the example of Coca-Cola, it might go on to talk about providing people with enjoyable, low cost forms of beverage.
But at the same time, what they're doing is creating a great deal of ill health.
Indeed, probably one of the main suppliers for the example I was giving of Novo Nordisk providing insulin.
And that element in terms of damage and profiting from damage means that
actually the profits that Coca-Cola are reporting are what I term fake profits.
They are not a true reflection of the costs incurred from cleaning up the mess.
And that element is both critical to that purpose.
And also critical to the way in which they account for their performance.
All you wrote about it. I just wanted to add a little story of Goldman Sachs. It's been a court case because Goldman Sachs has a very noble purpose.
We are we work in the interest of our clients, interest of our clients.
So one of their clients is unfortunately suing them on the grounds that whatever you were doing, you clearly wasn't in my interest.
But the interesting thing is Goldman Sachs defence, because I think you bring the lawyers in and you say also the defence,
what you you could say it was really they decided that wasn't a good idea.
So they then always could say this is a rogue employee and we distance ourselves from what he did.
You know, they didn't do that. So their defence was, of course, we don't work for the interests of our clients.
Of course not. Don't be crazy. Of course not.
We work in our own interest, and but not only did we know that all our clients knew it.
They didn't believe this [INAUDIBLE]. It was meant to fool the general public.
And so the course, he says,
unfolded he lost his money because he knew that we weren't looking is it is an
infrastructure that is sort of the greenwash am to right to a higher order of the.
Thank you. The next question just here. So I do wonder if sorry, could you just say here?
Oh yes, sorry, my name is Ross Warren and I live in Oxford.
And my question is really, I guess, for for calling.
But I just wonder, do we, as customers of these companies, get the world that we deserve?
I'm just thinking, why is it that John Lewis's business is booming and Amazon is doing so well when we all know?
I mean, you know, there's been a lot about how much tax Amazon pays,
and John Lewis is always held up as the exemplar of a company that actually does have a purpose and does treat it stakeholders well.
And so I'm wondering if we are sort of overdoing that role of trust.
And the other example I was thinking of was when there was the outbreak of BSE and the price of beef
starts to fall because people stopped eating beef because they didn't trust it until it fell so much.
The people beef became cheap enough that people actually started to eat again.
So actually priced from Cross Trust. OK, so price by no means always trumps trust.
And actually, John Lewis is a very good illustration of how it doesn't always drop because one of the
features of John Lewis is the way in which it has survived through very turbulent periods.
Now is currently quite a turbulent period for it.
But the response that it gets from the party for which it's basically established, namely it's established as a trusted.
It is one of the examples of what I was talking about earlier on.
It's actually owned by a trust. It's sometimes described as being an employee owned.
It's not. It's owned by a trust that is there to act on behalf of the employees.
And the reason why that is an important distinction is because it does create the
stability over a long term that even employee ownership doesn't necessarily do.
Namely, that the trust is there not simply to look after the current generation of employees,
but to look after future generations of employees as well as the current.
And that means that it is looking from for sacrifices periodically from the
employees in terms of the extent to which they're willing to take lower bonuses.
And that's precisely the sort of response that John Lewis gets and a willingness to accept
that type of necessary adjustment to allow for the long term survival of the business.
The other the other company that illustrates very well that sort of thing that you're referring to.
What I'm describing response is, of course, Marks and Spencers,
which at one stage had exactly that same feature of being a highly trusted business, not just by its customers, but also by its suppliers.
And the reason why it was so highly trusted was the way in which it built up relations with local suppliers on a long term basis.
It was a change in the in particular, the sell off the see family of the ownership of the company.
It became a listed company. It became subject to exactly the same pressures as most companies are subject to and the nature of the philosophy.
The company changed fundamentally to a point where it has lost not only that element of trust, but a huge amount of value for its shareholders.
In the process of all, successful organisations need to build a capacity that when times get tough,
they can say we now need to make a common sacrifice for a better future.
And Bill's willing compliance to do that.
And that's what John Lewis has been able to do, thanks to years of demonstrating that common purpose and sacrifice for a better future works.
And so they built the we. It's very, very interesting structure.
The John Lewis. The bonus system is, is,
is is is standard across the the bonus for the chief executive relative to pay is the same as that for
everybody else and are very proud of that because the chief executive for many years was Garry Marshall,
the student and and so it's it's ethical that he can actually use the word we.
And it sounds silly. And of course, when the chief executive of a bank is paid 500 times what they average employees, you can't use that we.
And be taken seriously. And. Sure.
We still use the services of those companies that have these huge different sets of sites that have those who have those huge salary differentials,
and Amazon is still, you know, really people use Amazon now more than they used John Lewis.
So I mean, that's five things. Did you want to comment on yet with the consumers that and that is exactly what a is beginning to change.
And B is the way in which we can influence change in this area because what concerns companies as much as
a hedge fund activist buying up shares and threatening to throw out the management does is a campaign,
a social media campaign which undermines the reputation of business.
So we are now in a position where we're able to influence as consumers,
as employees the decision taking of companies in a way that doesn't exploit that trustworthiness.
And if and if we use that, then we can really bring about some change.
OK, I'd like to do a lot more questions and we've got probably Claire.
I'm about to run over a few minutes, so we've probably got about five five minutes plus to go.
So let me see there was born just on your left, Clara.
Hi, my name is Clint Bartlett. I just moved from South Africa has a very interesting relationship with exploitation.
I mean, the impact investment environment at the moment. So my question, I think, is probably to Paul, you spoke about the morality behind business.
How do we achieve that without having regulation that forces firms to provide public goods in one way or the other?
And then the second aspect of that is the holders of the actual capital who who require the profit maximisation are often pension fund holders
who eventually is going to have to come to us as the end recipients of pension funds to say we will not accept 15 percent return every year,
we will accept seven or eight or nine percent because the alternative is the kind of exploitation that we were facing.
You know, I think this is real.
As Colin said, the real limits to regulation and it's the game that the banks are played is a sort of whack a mole type thing.
But what we can be absolutely sure of is the next time the banks go bankrupt, which they will.
Not a single chief executive or senior executive will be guilty of anything
because we've got one team of very well-paid lawyers making the regulations.
And then there's another team of even better paid lawyers,
really seriously well-paid lawyers who are making sure the tick box applies so that the regulations are followed to the letter.
But of course, not to the spirit. And I've got to leave the pension so.
So there's been a really interesting development in this regard.
You know, to the extent we invest in stock markets tend to do so through index funds, funds that invest globally around the world.
So the sorts of things that I was referring to in relation to BlackRock, Vanguard, et cetera.
Now those funds therefore basically hold the global portfolio.
And as investors in those portfolios.
We are not in the slightest bit interested in the performance of an individual firm, even if it's Apple, it's not.
It's frankly not negligible in relation to the size of the total portfolio.
What we're interested in are the things that affect the world stock market as a whole.
Which is essentially political risk. Regulatory risk.
Trade war risks. Environmental risks, precisely the systemic issues that companies should be taking on board.
And so the reason why Larry Fink was made that sort of statement that he did
and BlackRock was it's a recognition that actually what is in the interests
of these customers is investors isn't precisely dealing with those types of systemic risks that companies should be beginning to internalise.
And so that sort of move is an illustration of how it's not just customers who can exert influence,
but we as investors have an interest as well in addressing the sorts of problems to which I was just referring.
And I know there are a lot more questions on people's minds.
But I've just got time for one more.
So if somebody particularly got a pressing question, yes, at the back there and you that there will be an opportunity.
I think both Colin and Paul will be at the reception afterwards to follow in the A-League cafe, which is just through the door to the right.
Yeah. So you can nailed it at that point and put your question to the person.
Grab them by locals. So thank you very much.
Thank you very much for an excellent discussion. My question is for you.
Sorry. My name is Rohan. I'm working in a research consultancy here in Oxford.
My question is for Paul Collier.
You rightly mentioned the divergence between the educated and less educated people, and you also explain why it is growing progressively.
I was just curious to know if you could think of any any pathway or how we can reduce
this particular gap or what can be to be based on what happened in the previous season.
Yeah, that's a good question. We're not. And as I started by saying these, these divergences are entirely fixable.
So let's take the the the less well-educated half of the population.
And let's try and think why that less educated twenty four year old is unproductive or not very productive, and let's try and change it.
And the challenge is to take a baby is born with the individual endowment of the brain.
It's turned that baby with a brain into a 24 year old with a mind.
That mind is a social construct. The brain is a physical endowment.
The baby with the brain doesn't have a mind. All right. The 24 year old has a mind that is produced.
All right. Twenty four years of social interaction. Now what?
We want to end up with a 24 year old that is capable of being productive and motivated to contribute to society.
That's what we want to end up. And this would chain of a entities that produce that 24 year old school.
I call it the social maternal chain zero to three.
There's only one formula that works the family.
If the family fails the by three, the child is full of dysfunction that is largely irretrievable from three to five or six.
It's in pre-school in various forms, and this is one form that works very well.
And that's the French system they call maternal. It's free. It's standard state provided because it's free and standard and sleep provided.
Everybody goes because everybody goes. The children in the pool go. What you learn pre-school is socialisation.
Then you go from six to to sort of 17 and don't do the British model top down scrutiny.
Bonus performance measurement of teachers.
No trust. Finland does exactly the opposite, decentralise everything to the teachers, no scrutiny monitoring, all decentralise.
Don't even test test, test the children. Just wait till the end. They do the only thing the only time we've got in common is the PISA scores.
There they are. We're down there. All right. And then finally, post-school, what really, really matters?
It's vocational training. I live in Britain and have occasional training has systematically been dismantled the last 40 years.
It was never great, but is now hopeless. The world leader in Switzerland, who does it, a lot of the money is is from firms.
Half the money is from firms. It's very expensive and it's a combination of college and firm.
Because the firms are putting so much money in, they make damn sure that this thing works, is prestigious, is paid.
You can become a chief executive of the Swiss bank. Screw that route. So that's the social and eternal chain.
We know what to do, and we know we're not doing it right.
On that note, I would like to thank our two speakers for excellent presentations really inspiring.