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The six guiding principles are NetWork Capitalism’s backbone for doing business. They make deteriorations like those in contemporary Capitalism less likely. These guiding principles are complementary to the three basic institutions on which Adam Smith founded Capitalism in the first place.
Guiding principle 1: Purpose
The purpose of NetWork Capitalism is to raise the general level of well-being in society. This means to increase happiness, social mobility, healthcare standards, access to education, financial maturity, cultural awareness, clean air and water, healthy food, freedom to travel, safe and liveable habitats, and last but not least, freedom to master your own destiny.
The objective of the first guiding principle is twofold. First, to reinstall Adam Smith's thriving belief that Capitalism is about increasing wealth within society at large. And second, to be specific about what 'increasing wealth' means in a 21st century setting. This guiding principle is a direct response to the common held misbelief in first generation Capitalism that maximizing short term profits is all that matters and that a company only exists for the sake of its own interests.
NetWork Capitalism considers companies to be the primary contributors to progress and prosperity.
Companies have a responsibility towards society that goes well beyond hiring employees, paying taxes and contributing to civil society. In the era of NetWork Capitalism inclusiveness is above all a matter of self-interest. Companies who succeed to align their own interests with those of its stakeholders will be both winners as well as heroes. Their success is driven by intrinsic values and not by morality. Rewards include financial and non-financial elements.
Guiding principle 2: Economic value
The economic value of a company is the sum of its financial/tangible value, its intangible value and its social value. Successful companies make these three values interdependent via a sustainable business model so they can increase them in coherence.
High value networks and mutually beneficial stakeholder partnerships demand a new business acumen. The traditional one-sided financial interpretation of doing business is no longer fruitful and even counterproductive.
In contemporary Industrial Capitalism economic value is predominantly regarded as financial/ tangible value only. It is represented by the facts and figures that are found in annual reports and balance sheets. NetWork Capitalism's multidimensional purpose demands a more comprehensive definition of economic value.
Therefore, NetWork Capitalism adds intangibles and social value into the definition of economic value. Intangible value includes reputation, intellectual property, human talents, company brands, access to new technologies and the quality of stakeholder networks. Social value is about the company's contribution towards society.
One of today's key challenges for every company is to get a grip on its intangibles and social value. This is a prerequisite for understanding how the three components of economic value interrelate and should be combined. Only in coherence companies are able to redefine economic value and manage the consequences for daily practices within the company as well as in stakeholder relations.
Guiding principle 3: The role and responsibility of companies
Companies have been, are and will remain the most important contributor to innovation, progress and prosperity. Given this role companies have the moral obligation to enhance the prestige of free entrepreneurship and make sure their own behaviour does not call for government interference, additional laws and regulations or any other kind of non-value adding intervention.
There are no other institutions that are capable of creating progress and social welfare to the extent companies can. For creating economic value all alternatives to companies that have been tried so far ultimately proved to be a hoax. For true entrepreneurs who have a clear idea about their company's purpose, this won't be a surprise. However, those who are in it only to make money, they should be considered salesmen, not entrepreneurs.
The social responsibility of companies needs to be institutionalised much stronger and companies must never take (free) entrepreneurship for granted.
Via their daily behaviour companies must show they consider themselves to be entrepreneurship's most fierce advocates. This is not only an existential issue, but also plain and simple economic cleverness. Companies who align their own interests and behaviour with their stakeholders' are being trusted to a greater extent and will do business at structural lower levels of transaction costs.
Guiding principle 4: Innovation
True innovation has two distinctive features. It disrupts the existing status quo and must always result in increasing economic returns for both the innovator as well as its stakeholders.
Adam Smith's concept of the division of labour is primarily inward oriented and focussed on (continuous) optimization to increase productivity. NetWork Capitalism regards innovation to be more encompassing and outward oriented. Discovering new types of mutually beneficial partnerships that result in creative destruction replaces the traditional tech-oriented focus on innovation.
Only when innovation contributes to raising the level of well-being outside of the company the innovator obtains sustainable competitive advantages.
Innovation that leads to shared benefits (financial and non-financial) for both the company as well as its stakeholders releases companies from the burden of the economic law of diminishing returns. According to NetWork Capitalism the value of this kind of inclusive innovation will always exceed the sum of the parts.
Guiding principle 5: Competition
In order to be the inexhaustible source of energy that fuels economic growth, competition should be based on strength, qualities and integrity. Without these three elements competition is degraded into what is called cheating.
Competing with other companies by damaging a competitor, by exploiting stakeholders or resources, or by intentionally disturbing the level playing field is unacceptable. In the end this kind of competition turns out to be counterproductive for increasing the level of well-being because the sum of the costs simply overtakes the benefits.
Genuine competition is easier said than done. Without it, overall results will always be suboptimal.
The magnitude of competition can never be underestimated. It drives alertness and quality in the process of creating better products or services and it is of vital importance to attract the best employees, suppliers and investors. Not only for existing companies, but also for new entrants.
Guiding principle 6: Profit
Profit is a manifestation of success, a reward for taking risk and indispensable to do investments. However, only if stakeholders support the legitimacy of a profit, then it also strengthens an organization's license to operate.
The sixth guiding principle has two distinctive objectives. The first is to stress there is nothing wrong with making (big) profits. The second objective is to explain that profit and license to operate are inextricably linked.
Making a profit only strengthens an organization's license to operate when stakeholders consider the profit made to be legitimate in the sense that it originates from activities that not only benefit the company but also society at large.
According to Network Capitalism if an organization is simply the best, its innovations make customers willing to pay premium prices and other stakeholders are aligned with its purpose, this is the ultimate form of being successful. It is an example of a triple win-win-win. The entrepreneur wins, stakeholders win and society at large wins.