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Collaborative Capitalism is the realization of a community's highest economic and social aspirations through the enterprising deployment of ideas, capital, and shared resources in pursuit of common impact.

Collaborative Capitalism is manifest at many levels and in many ways, within and between companies, investors, and the markets and communities in which they operate. It has evolved out of the creative adaptation of business norms, practices, and relationships to address the ultimate effect of capitalist activities on broader social and environmental purposes. At the organization or company level, it is driven by what we often refer to as “mission”; at the fund or investor level, it is usually in the details of the transaction, in the price premium, in the metrics of accountability, or in the ways that risks are mitigated to allow more stakeholders to achieve their goals.

But let's get down to brass tacks. Collaborative capitalism is not a theoretical construct. It is made real in myriad markets through a wide range of business approaches and financial innovations.

Consider Fair Trade, a prototypical impulse of Collaborative Capitalism applied to global value chains. A key concept of Fair Trade is to recognize the supplier as a constituent of the business, who is affected by lowered commodity pricing, such as for coffee or bananas. Fair Trade advocates have applied diverse sets of strategies to align the tools of capitalism with working to ensure a fair wage is offered to the supplier in local communities.

In essence, Fair Trade labels aim to make transparent the effect that a fair, living wage has on this constituent, and ask the customer to agree to pay for those benefits up front. Advocates of Fair Trade then use a host of accountability practices to ensure this price premium is protected all the way down the value chain.

The outcome at the end of this process – the targeted impact Fair Trade seeks – is a supplier farm, cooperative, or worker with a higher quality of life due to a higher income. This seemingly small innovation in the supplier-to-consumer relationship has become a practice hundreds of companies may now build on and extend to other areas of corporate practice. Collaborative Capitalism–based movements and industries are born of effective innovations like this.

Peer-group-based microfinance is another example of Collaborative Capitalism at work. In this case, the transparency of peer pressure within a borrower group replaces the need for hard collateral assets, transforming local peers into stakeholders who are highly motivated to ensure regular payments, and obviating the need for layers of risk protection by the lender.

In our introduction, we presented this idea of Collaborative Capitalism as a larger field of practice encompassing everything from corporate social responsibility (CSR) to operational and supply chain sustainability, public private partnerships, and socially responsible investment. Indeed, it is a broad term we use to describe many different impulses with various terms and names. In this chapter, we explore the roots of Collaborative Capitalism, define its subfields more concretely through the Collaborative Capitalism pyramid, and parse three essential elements of Collaborative Capitalism: transparency, attention to constituency, and an outcomes orientation.

The Roots of Collaborative Capitalism

There are three major trends that, taken together, have fused into the widespread practice of Collaborative Capitalism. They include the acceptance of a social role and responsibility for business as a core aspect of business, the development of a new feeling of “agency” among the Millennial generation and entrepreneurs, and the realization that risk mitigation by investors can be aligned with achieving better outcomes – both financial and extrafinancial.4

The Social Role and Responsibility of Business

Since the time of Andrew Carnegie and John Rockefeller, charitable organizations – alongside or as a complement to government programs, and fueled by the profits of business success – have been counted on to fill gaps in the fabric of society left by the failures of markets to meet human needs and potentials.

Some would say the historic vision of the role of charity as the sole agent advancing a private sector social agenda is very much in the past. Today, business itself is viewed as one of many stakeholders in a system that perpetuates inequity.

“I truly believe that capitalism was created to help people live better lives, but sadly over the years it has lost its way a bit,” said Virgin's Richard Branson in 2011. “The short-term focus on profit has driven most businesses to forget about the important long-term role they have in taking care of people and the planet.”5

Writing in Atlantic in November 2013, Chrystia Freeland described the concerns of a number of other high-profile critics:

“Capitalism, even 150 years ago, was more inclusive; there was more of a sense of social responsibility,” Dominic Barton, [the global managing director at McKinsey] told me. Today, trust in business is declining. “The system doesn't seem to be as fair or as inclusive. It doesn't seem to be helping broader society.”

Barton's concern is shared by David Blood, former head of Goldman Sachs Asset Management, who cofounded Generation Investment Management with former vice president Al Gore a decade ago. “Some people say income inequality doesn't matter. I disagree,” Blood said. “We are creating a situation in which only the elite of the elite can be successful – and that is not sustainable.” Both men worry that if capitalism doesn't deliver for the middle class, then the middle class will eventually opt for something else. Barton says that business needs what he calls “a license to operate,” and without a new approach, he fears, it risks losing that license.6

Attempts to understand the business community as a morally legitimate and important actor in the resolution of these problems have followed naturally, because of what are perceived to be at least four key assets.

First, businesses have important sets of relationships, such as with suppliers and value chains, entities they may nudge, negotiate with, or block. They also have influence over their workforces and often the communities in which they work, and they can set hiring policies, implement broad training programs, or encourage healthy and positive environmental behavior among employees and their families through internal rewards and programs. Large companies may choose with whom they do business in every community, from the local bank to the food vendor. They wield an influence rivaling that of local governments.

Second, businesses have operational capacity, which means they can have direct impact on all sorts of outcomes and ideas. Large manufacturers can, for example, experiment with efforts to reduce harmful environmental effluents coming from their factories and, when they discover what works, serve as conduits for that knowledge. Companies of all sizes in all industries, from Stonyfield Farm (organic yogurt) to Interface (sustainable carpets), have spent a great deal of time and energy experimenting with new ways to be environmentally sustainable and in the process spreading the word with more credibility and authority than a nonprofit in the same field might have. Small private companies have the power to be R&D labs for new ways of doing business (as Ben & Jerry's was from its inception) and, when they get large, to efficiently operationalize global implementation of those innovations (as Ben & Jerry's can do now, as a subsidiary of Unilever). As philanthropy and government working in lockstep may have done fifty years ago, so business today represents the potential of a whole value chain in the production of social and environmental outcomes and influence at the same time that business generates financial returns for shareholders.

Third, businesses have the power to create markets that allow others to emulate and follow their formulas for success. Very few industries are made up of a single business – successful value chains, customer bases, and innovations tend to create clusters, and many businesses flourish in them, sometimes for decades, before a new disruptive innovation comes forth and a new industry takes over.

Fourth, businesses have access to capital at levels that dwarf philanthropic resources – and sometimes governmental will and capacity – to scale solutions. The kind of investment capital that Coca-Cola can access to ensure the availability of clean water for its own global supply chains almost certainly supersedes what the most dedicated philanthropically supported nonprofits or separate government agencies can do to develop clean water systems and try to maintain them. And a start-up company may access more capital for social good than nonprofits that are many decades old, if it has a scalable business model. For a social change maker, this ability to scale what works and sustain it over time is the impact equivalent of pixie dust – magical stuff that dreams are made of. Although there are plenty of problems that cannot be addressed by business and for which government and nonprofit attention is essential, smart change makers look for the most effective solution agents, and increasingly they are turning to business as a key partner in their efforts.

With power comes heightened responsibility. Many believe it is in businesses' interest to wield their influence to provide social good alongside financial return. As Rockefeller Foundation president Judith Rodin argues, “This new way of doing business extends beyond just the mainstreaming of ‘impact investing.’ The needs of business blend the lines even further, as businesses look to philanthropic models to keep their value chains sustainable and their customers and employees healthy and secure. As companies expand globally – especially into the developing world – it will no longer be profitable to exist without taking the community and the work force in which they work into consideration.”7

The profound role for business in society may seem obvious and has been a fact well understood for decades by titans of industry, such as Henry Ford. But we must remember efforts to include business in discussions about explicitly improving society and the world have been relatively recent. For example, the United Nations Global Compact, an initiative to encourage businesses worldwide to adopt sustainability policies and to report on their implementation, was not created until 2000. Financing for Development, a UN conference held in Monterrey, Mexico, in 2002, was the first meeting of its kind to include the private sector as a formal “interlocutor,” alongside the public sector (UN member states) and nongovernmental organizations.8