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7D-CAPITALISM ... Capitalism for the 21st Century
Capitalism and a free market environment has proved to work better than Communism, but that does not mean that the former is anything like optimum. In fact, for almost everyone except the 'ownership class', the existing enviro-socio-economic system is something of a failure.
7D-Capitalism builds on what works well in the prevailing system, but instead of having a singular focus on financial capital, applies the same type of transaction logic to a set of 7 capitals ... hence 7 dimension or 7D-Capitalism. These are:
...... Human Capital (HC);
...... Natural Capital (NC);
...... Financial Capital (FC);
...... Physical Capital (PC);
...... Knowledge Capital (KC);
...... Institutional Capital (IC); and
...... Social Capital
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Go to Human Capital (HC)
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Go to Knowledge Capital (KC)
Go to Institutional Capital (IC)
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MDIA ... Adjusting Financial Accounts to Account for Impact
HC - HUMAN CAPITAL
For all of history, the purpose of economic activity has been to improve and maintain quality of life for an individual and the family. Increasingly, over the past 300 years the focus on economic performance has centered on the organization with the assumption that what is good for the organization is good for people. This was a reasonable assumption (maybe) until the 1970s when productivity enabled more and more production with less and less need for labor. The owners of financial capital have done well over the past 50 years, others, mainly those relying on wages from employment, have done less well. Business schools have powered this for many decades and generations of students. While technology has enabled productivity to go up, profits to go up, the result has also been for human capital to go down.
Human capital is about an individual. An individual's wealth (financial capital) as described
above is a part of an individual's human capital, but only a part. Human capital in the present has
been achieved by an individual's history … such things as parenting, nutritious food, good
healthcare, good education, good surroundings, role models and so forth. Skills and experience
are accumulated over time. There is a historic cost to getting these things, but the value
accumulation is reflected in the present. Past earnings that are not spent but saved, factor into the
human capital of the present. Society or community also feeds into an individual's human capital.
A society that has no violence and is supportive of an individual adds to human capital. A society
where there is a future full of opportunity is also part of the state of human capital in the present.
The present value of the future depends on what the future looks like, but also depends on what
the individual has done in the past to be in a position to take advantage of the future.
NC - NATURAL CAPITAL
There are many components to natural capital. There is the sun. There is life … whether this is
human life or all the other life forms from single cell organisms to all sorts of fish and animals
and to plants in all their varieties. There are minerals and there are fossil fuels that represent
millions if not billions of years of sun energy capture. There is land and water and atmosphere.
There are ecosystems and biodiversity. Nature works in many mysterious ways that we know
nothing about, but are essential to the good health of people and the planet. We now know
something about the important services that the natural world provides which enable a natural
environment in which animals, including humans can thrive. We do damage to natural capital at
our peril. Despite this, there is no accounting for the impact economic activity has on natural
capital … no accounting for the depletion of resources, no accounting for the degradation of the
environment, no accounting for the good that arises in nature (biodiversity, ecosystem serves,
etc). This has to change.
FC - FINANCIAL CAPITAL
Financial capital is also man made. Financial capital is the only capital that really does not exist
per se, but is a function of the ownership and deployment of the other capitals. This is clear from
a company balance sheet where the financial capital of the company is represented by the
(physical) assets of the company less the liabilities. Similarly an individual's wealth (financial
capital) may be represented by ownership interest in various assets … house, car, personal
property, stocks and bonds, insurance policies, etc … less liabilities. Financial capital presently is
the dominant component in the perception of success.
PC - PHYSICAL CAPITAL
Physical capital is man built. Some of the physical capital is owned by people, some is owned by
companies and some is owned in the commons by the state. There are factories, machinery and
equipment, jigs and dyes, vehicles, furniture fixtures and fittings that are assets of companies and
on their balance sheets. There are roads and bridges, airports, seaports and water systems and
sewer systems that have been built by government and are maintained by government or others.
There is working capital, and specifically inventory of product, that is mainly owned by private
sector organizations. There are products that are consumed by people to satisfy their needs and
their wants. There are houses owned or occupied by people. There are commercial buildings.
There are city transit systems. There are parks, theaters for cultural events and stadiums for
sports events. There are hospitals and there are schools, universities and research apparatus.
Money is in part a piece of physical capital in the sense that physical money (or its virtual
equivalent) is needed to make transactions efficiently. Everything in physical capital has been
built using resources and impacting the environment.
PBS - IC - INTANGIBLE CAPITAL
KC - KNOWLEDGE CAPITAL
Knowledge capital is man made. Some might argue that it is mankind's ability to build
knowledge capital that has differentiated mankind from the other animals. Knowledge has grown
at an amazing pace for the past 200 years, and continues to accelerate. The technical limit to
knowledge capital is the ability of the human brain to process information and understand. There
is a prevailing system constraint associated with money not being available to deploy and pay for
the available brains. There are other issues with knowledge. One is that some knowledge is
hidden and/or controlled by knowledge ownership otherwise referred to as intellectual property
(IP) which is used or not used at the owner's option. Another issue is that knowledge has the
potential to be used for bad rather than good. In many cases the use of knowledge results in
change with some being winners and others being losers.
IC - INSTITUTIONAL CAPITAL
Institutional capital is also man built. There are institutions that have a role in enabling an
efficient economy and better society. There are laws, rules and regulations that are man made and
part of an enabling environment. There are a variety of organizations that enable efficient
economic activities, and provide all sorts of services that make for a better society. There are
security services, there are police and courts and prisons. There are religious organizations and a
variety of organizations for recreation, the arts and sports. There are organizations that specialize
in healthcare and organizations that specialize in education and the creation of knowledge. There
are utilities that take care of the supply of water and sanitation and utilities that generate and
distribute electricity. Institutions are a critical part of the enabling environment for efficient
economic activity and for people's quality of life.
SC - SOCIAL CAPITAL
Social capital is not the same as human capital, but is closely related. It is about community and
friends and the good that emerges from a group of people. Social capital feeds into human capital
and vice versa. Social capital is what people as a whole contribute to a community or place.
Social capital is influenced by the institutional capital that exists in a place, especially things like
religious organizations, cultural organizations, sports organizations and the security services that
keep violence at bay.
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