Wealth will be achieved by the country, company, team, and individual able to create the currency of competition in the new capitalism. The measurement of wealth will not be by money alone, but the abundance of all five forms of capital.
Capital and capitalism need redefining. Capitalism is not only the private control of financial capital, it is also the private control of social capital, human capital, spiritual capital, and technology or process capital. What you own when you buy the stock of a company, is not merely the value reported on the balance sheet and income statement. If you knew that a corporation, with no current income, had just hired a team of scientists who had the capability to discover the cure for cancer, the financial statements would in no way reflect the value of that firm. The same is true of Pixar and almost every other firm whose value is in human talent and creativity. If you knew that the leaders of a company adhered to the highest ethical standards and were motivated by a worthy purpose that inspired the members of the organization to their highest possible efforts, the value of the firm would be greater than if the reverse were true. And, if you knew that the firm had instituted the most productive and effective sales, manufacturing and product development processes, you would know that the firm possessed an asset that might be deficient in another firm. True wealth, net asset value, is not measured by the financial balance sheet.
What I have attempted to do in my new book is to define what really matters in the process of wealth creation. Of course, it is easiest to measure cash flow, net income and the financial balance sheet. But, most often, this is not the root cause of either building great companies or their decline and defeat. Rather, it is much more likely in the success or failure of human, social or spiritual capital. Many companies that are gaining market share, such as Toyota and Honda, are doing so because of their superiority in process capital. If you have organized your production process according to “lean production” you have acquired an asset, the asset of process capital.
Many companies, particularly those that depend most on human performance, rely on social, human and spiritual capital. Examples of these types of capital and what you can do to develop them, will be the primary subject of future posts on this blog. It is also the focus of my soon to be published book.
Social capital has been the subject of investigation by the World Bank and the International Monetary Fund as factors in economic development. It is now well accepted that countries must develop in a balanced way, both socially and economically. No country that relegates half of its population, women, to menial roles and supresses free expression and science, can possibly develop economically to compete in the world market place.
Social Capital on a country level is generally considered to be the degree of trust, social networks, or what Francis Fukuyama calls “sociability” which defines the “radius of trust” prevelant in a culture. This, Fukuyama found to be a predictor of economic progress since all commerce is ultimately an act of trust or sociability. If it is true that the degree of sociability is related to economic progress, isn’t it also logical that the degree of internal sociability within a firm may be related to its ability to innovate, to solve problems, and to make effective decisions? I have attempted to define not only social capital, but human, spiritual, and technology or process capital within an organization (private or non-profit) and provide a roadmap to building these forms of soft-capital that are the necessary anticedents to financial capital.