Social Capitalism

Social Capitalism

Adam Smith’s the Wealth of Nations, the book that laid the groundwork for capitalism, contains a surprisingly number of perquisites that are contradictory to the capitalist system that we live in today. Many people would be surprised to find for instance that according to Smith’s perquisites things such as the financial markets and large retailers should not exist. In Smith’s time capitalism was still just a theory however and times do change. Similarly, the old theory of supply and demand is also in the process of changing.

Traditional microeconomic theory holds that people’s demands are affected be perceived product quality and price, two factors that affect mainly the individual. However, the 90’s brought a form of activist capitalism, where products weren’t just judged solely by individualistic qualities but the larger social and environmental footprint of their consumption. Today, many companies are taking advantage of these new demands for social responsibility by creating ethical products such as sweatshop free clothes, fair trade agricultural products, hybrid automobiles. American Apparel, now makes not only trendy clothes but trendy sweatshop free clothes. Ad-Busters, a magazine often accused of being anti-capitalism introduced sweatshop free sneakers in the late 90’s to combat the flood of Nikes, Adidas and Reeboks on the market. The concept of thinking locally and acting globally is not only alive in people but now, companies.

In the new millennium, we are now entering this second stage of social capitalism by integrating these concepts into capital markets. Ideas such as pollution credits, which ties pollution directly to the profits of a company – it’s very reason for their existence, have taken hold. Publicly traded companies now publish social reports that are freely available to their shareholders and there are even funds such as Ethical Mutual Funds in Canada that hold all the companies to an ethical standard before investing in them.