Episode 23 - Redeeming Capitalism for the Common Good with Ken Barnes
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We hope you’re ready to learn because today’s episode is chock-full of lessons, insights, and theories that are here to educate and inform you, the Faith Driven Investor.
Today’s guest is Ken Barnes. Ken works as the Director of the Mockler Center for Faith & Ethics in the Workplace at Gordon-Conwell Theological Seminary. He is also the author of Redeeming Capitalism, which takes a look at our current capitalistic society through both a theological and economical lens.
Ken shared a history of the relationship between capitalism and morals, where the two began to separate, and what we can do to bring them back together. As always, thanks for listening.
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Episode Transcript
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Henry Kaestner: Ken, thank you very much for being on the show. It's awesome to have a guy that's been as thoughtful as you have about a really important topic. And you've written a book recently and given a talk that I heard and Wichita, Kansas, that really compelled me, compelled me to think in a way that was different than I had before. And as I heard, I thought, gosh, we really need to have our audience listen to this as well. I presume that as people listen to this they will have all sorts of different views on the topic. And yet I am sure that our time together will be able to provoke people into thinking more seriously about how God might entrust them and be glorified through the shepherding of his investment resources. So your book is called Redeeming Capitalism. It's that subject of the talk you gave. So I'll start off with capitalism. Does it need to be redeemed?
Ken Barnes: Well, first of all, let me just say thank you for having me. It was a pleasure to finally meet you at the summit and really a joy to speak to you and your guests on the podcast. So, great question, does it need to be redeemed? And the answer is yes, because everything needs to be redeemed. You know, we live in an imperfect world. We live in a world which is marred by sin and corruption and our economic system is not immune to that. So as somebody who spent the overwhelming majority of his life, not as an academic, but actually as someone who was deeply involved in the markets, I did business all over the world at a very high level. Loved my business career, but I saw firsthand the good, the bad, and the ugly of global capitalism. And I've thought deeply about this for a long time. And I really think it not only needs to be redeemed. I think if people of faith and goodwill don't redeem it, we're going to hate what replaces it. And so I think it's a really important discussion to have. And so that's why I wrote the book.
Henry Kaestner: So your theory is that capitalism works. And that the challenge before us is not to change the structure necessarily, but to address the moral vacuum at the core of the way it's done now. So I love that phrase moral vacuum. Tell us more about what you mean by that.
Ken Barnes: Sure. So as I say in the book and I tell my students all the time when I go on the road and give lectures, I remind people that capitalism is a subject, not an object. It doesn't have any agency of its own. There is no, what we theologians call hypostatis about it. It is simply a term we use to describe a particular phenomenon. And that phenomenon is the remarkable way that lightly regulated, highly monetized, free markets create wealth. That's all capitalism is now. Because of that, it has no moral compass of its own. So it will reflect either the morality or the lack thereof of the cultures that choose to employ capitalism as a system of wealth creation. And that's why we have the moral vacuum, because we are living in an age where we have lost our moral standards, if you will, which traditionally in capitalist countries were built on Judeo-Christian values.
Henry Kaestner: So building on the idea that capitalism can't be mischaracterized as some sort of living, breathing organism, but rather it's just more along a system and maybe a collection of decisions made by actors all acting independently. You bring up this concept that every economic decision effectively made by a person represents a moral choice. And I found that fascinating. Tell us more about that. What does it mean when we make economic decisions? First of all, maybe you can unpack what are those economic decisions and then what do you mean by a moral choice when I decide to make an investment in that mutual fund or in that stock or that private equity?
Ken Barnes: Sure. So there is a cause and effect to every decision we make. And capitalism is, as you just said, nothing more than the cumulative effect of those countless decisions that are made both by individuals and by corporations and by governments, etc.. So because there is cause and effect by definition, every one of those decisions is a moral choice because it affects someone or something. So if you think about the decision, whether or not I should buy a 100 dollar pair of shoes or a thousand dollar pair of shoes. There is in essence a moral choice there because I could do something else with that delta of $900. So there might be a very good reason to buy a thousand dollar pair of shoes. There might not be, but I can't deny the fact that there is that delta that has to be dealt with.
And so if you take that concept and you apply the costs, all economic decisions, it means that we can't just make economic decisions in a moral vacuum. We can't pretend that there is neither cause nor effect. We can't pretend that it doesn't involve how we steward God's resources, how we steward the wealth we've already created, how we steward the planet, because at the end of the day, we were created right from the earliest mandate of the Bible, the cultural mandate to go and multiply. Which means we are supposed to take all of the gifts that God has given us in creation and participate with God, if you will, on this ongoing creative process. So we must do it in a way that reflects kingdom values, the values of the God in whose image we are created.
So this is very, very much a moral question. And by the way, sometimes people will ask me, they'll say, Ken, are you an economist? And I will say to them, not in the sense that the Guild of Academic Economists think of themselves because economics has become a mathematical modeling science no more. They try to predict what the cause and effect of decisions will be. But traditionally, economics was indeed a moral science. And we can go all the way back to Adam Smith, who was a moral philosopher, not an economist who originally codified what we now call capitalism.
William Norvell: Interesting. OK, so take us back a little bit, because you kind of walk us through a little bit. But I guess my first question is, how did we end up here? You know, you mentioned where God created us. You mentioned a few other people on the road to capitalism. Walk us through how we sit here today with the system that we have, then kind of want to build on that. But what sort of happened to separate these things? And are these cracks inherent in the structure that we find ourselves? Or is it possible, I know you've been talking about redeeming it, but just walk us through how we stand here today would be great.
Ken Barnes: Sure. So I purposely use the term redemption because that is a theological term, although ironically in its earliest usage, it was an economic term. Then it became a theological term. We think about the redemption of our souls. And it's a term that people understand that overcoming the effects of previous sins. That's what redemption means theologically. So if we think about we want to redeem culture, we want to redeem education, we want to redeem society, we want to redeem capitalism. That simply means we have to recognize, just as what we talked about, redeeming our souls, that there is a need for redemption. We have sinned. Secondly, that we are responsible for our sins. Thirdly, that there are some things we can change and some things we merely have to endure. And fourthly, that God expects us to do our best to bring about that redemption, to bring healing to that which is broken, because that's what the cross is all about, to bring healing to a broken world. So when it comes to economics, if you go back to the earliest days of economics, I tell people that capitalism hasn't always existed, but markets have. There have always been opportunities for exchange. And so the old adage is that two men went down to the river. One had wool, one had wheat. The one with the wheat was cold. The one with the wool was hungry. And you had your first market. But that's not capitalism, because capitalism is much more complex. But over time, as human beings begin to trade primarily to overcome scarcity, which is a direct result of the fall, we found that human nature sometimes got in the way. And so instead of acting in the most virtuous manner, we acted in very selfish, even exploitative manners. And that has been true throughout history. And the Bible speaks to how we are to conduct business. And it goes again all the way back to Torah, all the way to the teachings of Jesus and the apostles, that God hates dishonest scales, that God expects us to operate with virtue and integrity and honesty, and that we view economic activity as being more than just wealth creation or accumulation. But economic activity ultimately is about human flourishing. How can we use the resources, the labor and the technology that God has given us and or we have created from what he's given us, in order to help human beings flourish? That's the purpose of business and economics. And if we allow sin to corrupt it, then we will have a bad economic system. However, if we apply kingdom values and virtues then we can redeem it.
Henry Kaestner: I want to go back a second just to the science of economics, because one of the things that you do a really good job of building out in the book and in your talks is how Adam Smith had been misconstrued. You look at some of the other historical economists and the way that we've kind of co-opted some of this original teaching about the way that markets work and what the purpose of, I shouldn't say, the purpose of capitalism because it's subject rather than an object. But tell us more about where we may have gone wrong. One of the things that maybe I'll do is even take a step back. When we talk about capitalism and when you talk about capitalism, you take great measure to make sure that people understand that there's been a lot of good that's been achieved. Their global wealth is increased fashion, global population or poverty has been reduced, average income, longevity, infant mortality, etc. is making improvements, but that there still 750 million people live on less than $1.90 a day and wealth tends to be unevenly distributed. Give us a construct, if you can, about the economic theories that have been presented over time and how if we're sitting here and we're with Adam Smith and he were to reflect back on the market and he were to understand that he's oftentimes built up as a person that is the capitalist ideal, how would he react to that in light of the good and the bad of capitalism, a system that has been widely attributed to him?
Ken Barnes: People mistakenly attribute that to him, but he had nothing to do with it. He was an observer. I always remind people that the title of the book wasn't Wealth of Nations. It was an inquiry into the nature and the causes of the Wealth of Nations. He was keenly interested in what human motives drive people to create wealth and why some nations and cultures do it better than others. That was his intellectual curiosity. What people forget, however, is that 20 years before he wrote that book, he wrote a book called Moral Sentiments. And in Moral Sentiments he describes really quite eloquently that what it means to be human means to be reflective of the divine. And he talks about what we would call empathy he calls sympathy in the book, but he talks about how every human being has an innate desire not to merely please themselves, but also to serve others, because it's a reflection of the goodness of God. And so he took that for granted when he wrote his later work, Wealth of Nations, and what he was more interested there was not so much the way people empathize for others or the way people reflect God morally. For him, that was a given. That was a truth that was self-evident to Adam Smith. A lot of Enlightenment thinkers, actually. What he was interested in was what were the motives that made this new economic system work. And what he decided was that what made it work was the fact that no one was actually behind it, that no one was manipulating it. You know, he was speaking against the previous economic ethic, which was mercantilism. And the mercantilist system was a closed economic system, basically. And the only way you could create wealth, it was seen, was if you could go out and find more gold. And so you would go out and you would travel to the new world that if you bought that gold, that meant you were richer and then you would hoard the gold. So when it came to the settlement of international transfers and things, your objective was to keep your gold balance higher than the other nation states' gold balance so you could defend yourself more efficiently. That was the mercantilist system. And so it was basically an unholy alliance between a very selected government and private monopolies whose sole purpose really was to make the state richer. That was the mercantilist system. He looked at what was happening, particularly in the American colonies. By the way, and he said, if we liberalize this system, if we unshackle this system from these monopolies, and if we allowed human beings to simply be creative in the marketplace, the cumulative effect of people doing that which is good for themselves, will also be good for the community, will be good for others. So he famously made the comment about it's not from the benevolence of the baker and the butcher and the brewer that we get our dinner but from their self interest. Well, some people over the years have mistakenly identified that as an argument for ethical egotism, an argument for, if you will, kind of a selfish rule of if I only look after myself, everyone else will be OK because they're doing the same thing. That isn't Adam Smith at all. It's Adam Smith if you take that particular quotation out of context and if you misunderstand what self-interest is. When Jesus gave the double love command. He said, Love the Lord, your God with all your heart, your mind, your soul, your strength, and your neighbor as yourself. The natural presumption is that we all love ourselves. Self-love is not selfishness. There is nothing evil about self love. There's nothing evil about wanting to create a business that makes your life better as well as other people's better. Where it becomes evil is when we look after ourselves at the expense of the other, or we exploit others for our own benefit. That's when it becomes evil. So people have completely misunderstood. Adam Smith And in fact, if anything, he was a de-ontologist or even a virtue ethicist because he understood that in order for the system to work for everybody, then there had to be a certain moral purpose for it beyond just an individual person making more money. And so when you unpack Adam Smith, you see that, you know, he didn't believe in things like inheritances. He thought inherited money concentrates wealth to a degree that actually hurts people in the long run. Adam Smith thought that no human beings should make less than enough to have more than what is required for subsistence. That's what we would call a living wage. Adam Smith actually promoted the living wage and was vehemently opposed to slavery because he said if you have an economic system where everyone doesn't have the chance to flourish and participate, you kill the system. He even went so far as to say that excess profits have the same impact on an economy as high interest rates, again, because if you have too much money concentrated in too few hands, you actually hurt the liquidity of the system and everyone doesn't flourish. So Adam Smith had a completely different view of liberal economics than what he has been painted as over the years.
Henry Kaestner: So that's fascinating to me. And we recently had a podcast episode where we unpacked motives a little bit and what purpose and what mission is. So you're suggesting that people have misread Adam Smith and I don't want to put words in your mouth, but maybe you're also suggesting that some people have also misread the word of God a bit. Maybe people would associate Adam Smith with just self interest and therefore validating that view of market. And then maybe some Christ-followers have said, well, self-interest is awful. We just need to love our neighbors well. But they're leaving out as myself. So there are number of entrepreneurs that are listening to this in addition to investors, and a Christ-following entrepreneur wrestles with things often, maybe more so than the secular entrepreneur, but they look at proverbs twice a month and they see that all man's ways seem pure to him, but his motives are swayed by the Lord. And you're suggesting that if we see an opportunity to build a business for ourselves that we're interested in and we see an opportunity to be able to provide for a family, that in and of itself is not a bad motive because we're to love our neighbors as ourselves. But it's when we do it at the expense of others. That's where the problem comes in. Talk about that also within the context of what's recently come out from the Business Roundtable. I know that you've talked about Friedman in the past. Big news that came out this summer is the redefinition or repurposing of business. What's your reaction to that?
Ken Barnes: I thought it was an excellent statement and long overdue. Let me say something about Milton Friedman and the Friedman doctrine. As I say in the book, in a footnote when I talk about his ethic of morality in business. I am highly critical of his understanding of business ethics, but I'm not highly critical of his economic theory. You know, if you think about the time and the circumstances of Milton Friedman, when he was at the height of his powers in winning a Nobel Prize in economics, he looked at the world and he said, we have a glut of resources, a glut of labor power and not enough capital. So we need to find a way to monetize the system better in order to create wealth across the board. He was right and that was a good idea. Where he went wrong is when he said that the only ethical responsibility, the only moral responsibility of a business executive was to make as much money as possible within the constraints of law and customs. And the reason why he was wrong about that is because that then becomes an idol, that then becomes a God, that then becomes the purpose. Not to mention the fact that he doesn't bring time into the equation. And I can give a lot of examples and I give some in the book where someone can make a lot of money and they can do it under the guise of that's my responsibility as an agent for the shareholders. But if you don't take time into the consideration, you can see opportunities for people to make excessive profits doing very, very dodgy things in the short term and actually create an existential threat to the business, which is very bad for the shareholders in the long term. So he doesn't take time into consideration. Also, when he speaks about law and custom, the law and the custom are two different things. And the law is always one step behind the bad guys, right? Law is not a replacement for ethics. Business schools 30 years ago didn't teach business ethics. They taught compliance. Now they teach business ethics because they've realized that you can comply with the law and still do very, very bad things. And in terms of local custom. Again, he doesn't clarify what he means by that. But what we've seen is that as cultures, especially in the West, abandon the moral underpinnings of their societies, the custom soon becomes to lie, cheat, steal, do whatever you can to get ahead. So that's not obviously an acceptable ethic. When the CEO roundtable came out and you know, when the news hit the wires and Jamie Diamond makes this announcement, he didn't just make it on behalf of himself, he made it on behalf of 500 CEOs who recognized the fact that while every CEO has a duty and responsibility of calling to serve their shareholders and to maximize shareholder value, it must be done within the context of a larger stakeholder requirement because no one creates wealth in a vacuum. We all create wealth based on the environment around us. So the infrastructure, the education, the technology, all of the things that support economic activity, they are all vital to the creation of wealth. And so therefore shareholders have a position of first among equals, among other shareholders, because the common good is ultimately the most important good that we seek. And that's not exclusive from individuals seeking wealth, but it means it's seeking wealth subordinate to the common good. So I thought the statement from the CEO roundtable was excellent.
William Norvell: Ken, I want to go back to one thing you said aboutt the time component. I think that's really interesting as investors, because at some level, different investors have different time horizons, different managers are the heads of companies for different time. How do you think about that in the system as a believer? You know, I feel like I can make arguments for both sides if I thought hard enough. And sometimes thinking hard is hard for me. But I think it might be easier for you. Walk me through that to go one layer deeper on how to think through different time horizons, how that impacts people, how that impacts employees, how that impacts human flourishing and how that impacts returns, which is as part of the capitalism system as well.
Ken Barnes: Yeah, that is a great question. So if you think about the original Borse concept, the public trading of shares, the purpose of that was to allow the public a broader community of people to share in the benefits of the wealth created by private companies. That was also designed to raise capital for investment for those companies to grow. But the general consensus was that people bought and held shares for the purpose of enjoying part of the profits. Now we all know that that doesn't happen anymore on a wide scale. Yes, there are pension funds and things that are long in the market. And your listeners understand this better than they need me or anyone else to explain it. But part of the problem is because of trading technology, because of the excess liquidity in the market, because of a lot of reasons. We now have a situation where a lot of the economic activity that is taking place in the markets themselves is really churning money more than creating actual wealth. And so we've developed the very short term horizon. And I'll give you a classic example. I worked for a multi-billion dollar company. Those of us who were senior executives, we all had share options more than others. And the concept of a share option is that if you rewarded executives by encouraging them to increase the share value of the company, they then eliminate the conflict between their interests and their interests as agents because they share in the higher price of the stock. The problem is we all know that it's quite possible and happens fairly often that executives will make short term decisions in order to get a buy recommendation from the analysts on a conference call because they are about to have, you know, a million share options strike date hit. And so they get a bump in the stock because the analyst really liked what they heard. Oh, we're going to, you know, trim a thousand jobs. We're going to do whatever it might be and we're going to increase our ROI's. So therefore, we want to buy recommendation. And in fact, it may actually not be good in the long term or even the medium term interests of the business to do some of those things. But they do it because they will get a bump in the share price of the exercise, the options, and pay themselves, if you will, an off the balance sheet bonus. So that sort of thing, that kind of manipulation of the way markets can work is a serious problem and the time horizon issue is part of it.
Henry Kaestner: So now that we have this broader definition of the purpose of work and of mission to include these other stakeholders, do we as a Christ-follower, do we have the opportunity, do we have the responsibility maybe to think about sharing the good news of Jesus in a culturally appropriate way, in a winsome way, with gentleness and respect? Do we add that fifth bottom line that actually makes those middle additional bottom lines have more sense? Or just I'd be really curious to hear your reaction to that.
Ken Barnes: I think that's up to the individual investor and the people who are running the companies. If that is at the core of who they are as a business, then absolutely, because that's their telos, right? That's their purpose. But that doesn't mean even in the general economy that we can't exercise these virtues because, you know, virtue is part of God's calming grace. I always tell people that even an atheist knows the difference between right and wrong. Whether they acknowledge God as the source of that knowledge is one thing. But even if they don't acknowledge the source, it's there. The imago dei, as it's called, the image of God that is written on the hearts of everyone created in His image, which is everyone, is there whether you know it or not. And so the common grace allows us to have these conversations about bringing virtue in to business and economics without even having to worry about whether we're going to become accused of proselytization because we've got to specifically talk about the gospel. In some places that's appropriate and people shouldn't be afraid to do it. In some places, it's more problematic. So they're going to have to let the Christ in them shine through. But let me tell you something about virtue as well in common Grace. The thing that separates, frankly, my book from other books that people have written about virtue and business is that I include the so-called theological virtues as business virtues, as common grace virtues. I think faith, hope and love should be at the center of economics, should be at the center of business. And when people experience faith, hope and love in business, they will want to know the source. They will want to know how that happened. So I'm very enthusiastic about Christ followers getting involved in this conversation.
Henry Kaestner: So if you're listening to this and your saying, OK, yes, I get it. I know faith, hope and love. They're important virtues and the fruit of the spirit. How do I exhibit them in my workplace and then how do I exhibit them as an investor? How do we get beyond the theory of that and how do I actually get involved in the practice of that? Are there any examples that come to mind where you see that it's been done well with faith, hope and love have been brought to bear in a business or in an investment policy where indeed the shareholders are ministered to, and then the other stakeholders are as well in a way that's consistent with one's faith and maybe even bears witness to the source of their faith.
Ken Barnes: Yes. And I talk about a few of them in the book, but one very interesting one happens to be a privately held company, not a publicly held company. But I happen to have some intimate knowledge of it from when I was in Oxford. The Morris Corporation established something called Morris Catalys, and it was a program, if you will, within the business to figure out what the purpose of their business was. Basically, they started with a very simple question how much is enough? I mean, how much is enough? The Morris Corporation makes billions and billions of dollars and it's a family owned business. And so when they came to the conclusion that X was enough and they realized that there was a significant delta between X and Y. Y was what they were probably going to make X is what they thought was enough. The moral dilemma became what do we do with that Delta? Now, one option would have been to start a foundation and put the money into the foundation and then, you know, give it away to charity and that's fine. They decided instead to look at their entire supply chain and not just the businesses in the supply chain, but even the communities that support the businesses in that supply chain. Because let's face it, a confectionary company spends a lot of time and a lot of money in places where they make cocoa beans and sugar cane, which is a big part of their product. And the people live very often very, very close to subsistence level. So they went to those communities and even in the distribution channel and all the way through to the Western distribution channels and across their other businesses, not just candy, but pet food and all the things they do. And they said, what if we backfed that excess profit into the supply chain, but had partnerships with the communities to ensure that that money just didn't go to one entrepreneur in the community and he became rich and everyone else remains poor. And they found ways to ensure that communities were building hospitals and schools and irrigation and, safe plumbing. On and on. And it was a remarkably successful endeavor. And guess what? They've actually ended up making even more money. So, you know, I honestly believe that God rewards that kind of virtuous behavior. And I'm sure you know that if you look at how investment funds that specifically are geared toward this kind of activity compared to the rest of the industry, they almost always outperform those other funds.
And so there are a lot of examples out there and also from an investment standpoint. I think one of the great challenges that's going to be coming down the future is also what are the best opportunities. And that's how we use artificial intelligence in making these investment decisions. As you know, algorithms are being created all the time where they try to use knowledge, economic data to predict how markets are going to move and then buy and sell recommendations are done electronically without any human control based on the information that comes into the algorithms. Well, we could do the exact same thing with it comes to virtuous companies that we want to invest in virtuous companies. I believe we can create algorithms that tap into non-economic data to see how companies are treating their suppliers, how they are treating their other stakeholders, how they are perceived in the community, how they are paying their people, etc. And we can really start to identify virtuous companies beyond just their balance sheets.
William Norvell: That'll be a fun day. That's really exciting. And I agree. I mean, I could foresee that coming if anyone is working on that. Let us know. I got a feeling there might be.
Ken Barnes: I just finished a course at M.I.T. in my spare time, if you can call it that. And I'm looking at this very thing. So if I get the information, I'll tell you.
William Norvell: Let me know and Ken this has just been a joy. You know, we're coming towards the end of our close here. And I want to take a little bit out of economics and jump to, if you wouldn't mind, would really love to know where God has you right now. Let our listeners into your life. And maybe specifically we try to figure out, you know, where in his world is he taking you on a journey to be this morning? Something you read can be this season that he has you meditating on. And it's always fun to hear how the living word of God continues to push, encourage and change our outlook on things such as capitalism and our personal life and all other things. But let our listeners into your world a little bit, if you would.
Ken Barnes: Yeah. Thank you very much. So, you know, I had this magnificent career, international business, and I loved it. But I also, for you know, 30 years served the church as part of the staff team, as an ordained minister and also studied theology, which allowed me to eventually do what I do now, which is to be a seminary professor. And my area as my title implies is I deal in workplace theology and business ethics. And so what I love and what's really keeping me motivated and exciting is seeing future pastors coming into Gordon Conwell Seminary. And instead of just being taught how to do good systematics, or how. todo good exegesis, which is all very important, they engage with our work at the Mockler Center because they want to go back into their churches and they want to be able to equip and empower and encourage Christian investors. Christian business people, Christian entrepreneurs to act Christianly in the marketplace, you know. So that just turns me on in such a big way because they didn't have that when I was a seminary. And I wish I had had that when I was running businesses as well. All my life, I'm happy to say, is very wrapped up in the rhythm of the seminary. I get to go to chapel often. I interact with these future pastors and with my theological colleagues. I have, I think, a pretty disciplined prayer devotional life. I highly recommend that. But a very important thing of what I do is I think it's my job to explain to churches that people like yourselves and your listeners very often feel unloved and misunderstood and underappreciated in their own churches. Except when someone needs a donation and sometimes they feel spiritually bereft and maybe even a little bit theologically challenged.
I want to see a whole generation of pastors be raised up who will love business people, who will love Christian investors, who love Christian entrepreneurs and help them get alongside them to be Christ followers in the marketplace. To me, I've got the best job in the world, and that's what I do.