First published in the DAILY NATION

A business aims to maximize profits from capital within all means possible. This capitalist model has held sway for centuries and is touted as the reason there has been a spike in economic growth, business expansion, foreign direct investment, job creation and globalization.

But capitalism, at least in Africa, has also contributed to high rates of unemployment, child labour, environmental degradation, trade in minerals conflicts, poor governance, corruption, high inflation rates and a huge gap between the haves and have-nots.

The current fall of the Kenya shilling in the forex market has largely been attributed to irresponsible forex trading by financial institutions.

This not only hurts the economy through spiralling inflation, but diminishes the profitability of other financial products sold by the particular financial institutions.

In an article in the Harvard Business Review titled Creating Shared Value: how to reinvent capitalism – and unleash a wave of innovation and growth by Michael Porter and Michael Kramer, capitalism, as a concept, is put on its head.

Porter and Kramer rightly underscore the fact that businesses are reaping massive profits at the expense of the environment, communities, good governance and social and economic development.

With the shilling dropping in value against the US dollar, financial institutions are earning large profits from forex trading while the rate of inflation is way past double digits. In fact the cost of carrying out business in Kenya is rising by the day.

The question posed by Porter and Kramer is whether businesses can reinvent the capitalist model of doing business by making profits while taking care of societal needs.

How do we define the intersect between business and societal interests?

Many CEOs will argue that their mandate is to make profits at all costs and perhaps this is the thinking of all financial institutions.

Research and realities have, however, indicated that this thinking is bound to fail.

A good example is the collapse of the investment and financial sectors in the US and Europe.

Profits were fuelled by corporate greed that led to a worldwide financial meltdown.

Even with greater regulation, the international investment and financial market is climbing a slippery slope.

My view is that regulation is always a short-term remedy; ethical and sustainable business practices hold the key to better financial and investment health.

Hence, even with the intervention of the Central Bank, the system is bound to slither back to its old greedy ways.

The writers postulate that societal needs and not just conventional economic needs, define markets, and social harm can create internal costs for firms.

At the moment financial institutions theorise on large profit margins but do not foresee the threat to their stability in the long term.

With inflation hitting double digits, interests rates soar, loan defaults increase, the cost of maintaining business goes up, regulators break into the scene, the financial market becomes hostile and volatile and profits dwindle by the day.

The US and Europe responded to the credit crunch through more regulation and pumping tax money into private financial institutions.

The Central Bank of Kenya has responded by selling US dollars directly to essential commodities importers. This is unsustainable.

Where does the solution lie? Financial institutions require a paradigm shift in their mode of operation.

They should adopt policies that enhance profits while advancing the social and economic well-being of communities in which they operate.

Creating shared value maximises the value of all participants in the chains of supply including suppliers, employees, shareholders, customers and surrounding communities.

In this sense businesses have a greater measure of sustainability.

What businesses are not aware of is that their productivity is directly impacted by communities that may not even be directly linked to them.

Maximising profits while not affecting the social, economic and political conditions of society should be the ultimate objective.

Presently it may be seem utopian but do we have the economic muscle to revive a shrinking economy?