Capitalism acknowledging reality? Only if Al Gore has his way.

A century ago, Henry Ford shocked American industrial culture by raising assembly workers’ wages to an astounding $5/hour.

In doing so, he reduced attrition and absenteeism, as well as expanding the population who could afford his product. In 1916 two brothers, John and Horace Dodge, sued Ford over paltry dividends to shareholders while the company recorded phenomenal profits. Ford lost, then appealed.

In 1919, an appellate court upheld Ford’s loss affirming that the corporation’s primary responsibility was to maximize stockholder profits. A decade later, the stock market caused the Great Depression.

Former VP Al Gore helps run an environmentally-oriented investment firm, Generations. A recent white paper release advocates five tactics for creating a “sustainable” capitalism – chiefly by incentivizing long-term performance. Immature industries, such as clean energy technology, require extended patience to capture high returns. Gore urges major long-term investors like pension funds to reward such investments.

He nods to capitalism as the economic system superior to all others, even though socialist economies have been implementing his five tactics for decades. But what else can he say? He’s operating an investment firm in the United States. Mr. Gore makes a compelling case for long-term perspective as an enlightened investment strategy. However, just as a century ago, there are legal requirements for companies to maximize shareholder returns.

The advent of some new legal structures for businesses may make Gore’s five tactics for sustainable capitalism legally feasible. The B-corporation (B for Benefit) and the L3C (Low-profit, limited liability) company broaden management’s mandate to include social and environmental performances in their bottom line. The Benefit Corporation is recognized in seven states, while the L3C is posted in nine.

Whether applied to an investment strategy or a legal structure, there is an existing phrase which captures the intent behind “considering social and environmental impacts.” The phrase is “facing reality.”

Facing reality is profitable in the long term for commerce, irrespective of the economic system in which it operates (as the Chinese Communist Party is also beginning to realize). Factoring in the social and environmental consequences of human activity is a solid step in the direction of sustainability. It may even lead humanity to an economic system which is truly superior.

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