Financial advisors could play a leading role in unlocking trillions of dollars in wealth by helping society cast off a damaging "zero-sum" mentality, according to the author of a new book.
The "censorship of everything we think of today as stakeholder capitalism" from the works of free-market acolytes such as Adam Smith and Milton Friedman is costing everyone, said Roy Swan, whose book, "Positive Sum," was published last month.
Swan is the director of the Ford Foundation's Mission Investments team, which is deploying more than $1 billion toward "mission-related investments to address social problems while seeking risk-adjusted financial returns" around themes such as affordable housing, quality jobs, financial inclusion and global health. He's also the former co-head of Morgan Stanley's Global Sustainable Finance unit.
With "a lot of social media out there that is more divisive and atomizing and polarizing than unifying," Swan believes that "capitalists are best-positioned" to lead a unifying movement that rejects the singular focus on profits at any cost, he said. "I just want this book to be part of the pantheon of hope and inspiration that brings people together."
While Swan also said that "everything I do is nonpartisan, and at the same time bipartisan," that mission could prove especially difficult in a time of political pushback against concepts such as ESG investing and diversity, equity and inclusion.
But signs of some shifts have already started to emerge. The second quarter marked the first period of positive flows to sustainable investment funds since the beginning of 2022, to the tune of $3 billion and an all-time record of $398 billion in assets, according to
"Society has long viewed capitalism as a ruthless, zero-sum competition," Pete Stavros, co-head of global private equity with KKR, and former Ford Foundation President Darren Walker wrote in the foreword to the book. "But Roy shows us how this whole story is little more than a myth. Rooted in misunderstanding compounded over centuries, our most hallowed economic gospel is undermining capitalism's true potential at the very moment we need it most."
Dispelling mythology
In the book, Swan compares that mythology to the diagnoses he received following a football injury in 1980 suggesting he would be paralyzed from the waist down, even though he would compete in a track meet six months later. While most of the doctors were just viewing his smashed and dislocated vertebrae "based on their knowledge and experience," they were "trapped in what I now recognize as zero-sum thinking — the idea that you are either whole or broken, mobile or paralyzed, winner or loser," he writes. Such thinking rules out any possible middle ground or a potential transformation.
"Drawing on the fields of psychology, neuroscience, history and anthropology, I show how we can realize the true ideals shared by two of capitalism's most celebrated founders, Adam Smith and Milton Friedman (yes, both of them), by prioritizing what really matters," Swan writes. "It's a vision with the power to heal America's wounds that offers investors, policymakers, business schools, students, philanthropists and anyone interested in economic fairness a concrete plan for crafting a fair and profitable future. It's a recipe for the kind of positive-sum economy where everyone gets a generous, juicy slice of pie."
In laying out his argument, Swan presents a table that shows actual Smith and Friedman quotes next to "what we assume they said." For example, he points out that Friedman called for a "negative income tax" that would essentially act as universal basic income and end "the ragbag of 126 separate anti-poverty programs," rather than suggesting that every social program is bad. The table includes other quotes that call ideas like, "Greed is good," "The pure free market regulates itself" and "markets are amoral" into question, quoting Smith on the latter one.
"How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others and render their happiness necessary to him," Smith writes in "The Theory of Moral Sentiments."
While Swan's book dives into the history of developments that he deems essential to fueling these false assumptions, he attributes the misunderstanding to forms of bias as well.
"These misinterpretations are not the product of villainy or selfish scheming," Swan writes. "They are the natural byproduct of the zero-sum view that hovers over us, clouding our vision like a blanket of fog. When we assume that helping others automatically hurts us; when we believe that moral choices will inevitably weaken our competitive advantage; when we see ethical constraints as a limitation rather than an enabler of prosperity, it becomes much more challenging to grasp the true collaborative insights of Smith and Friedman."
Practical implications
For advisors, the implications may prove as simple as nudging more clients to consider donor-advised funds, according to Swan. The "quid pro quo of tax benefits" amount to "a social policy designed to advance the common good," he noted.
On a deeper level, though, Swan is seeking to create an alternative to the popular narratives that may cause people to immediately associate "low returns" with terms like "impact investing," he said. Instead, advisors and their clients can find impact investments with market rates, keeping in mind that conventional wisdom "might be collective illusion, and it often is," he said.
"The most basic elements are overlooked when conventional wisdom is stubbornly persistent, so people can unknowingly walk blindly off a conventional wisdom cliff," Swan said. "Impact investing is the most effective way to increase national prosperity and enhance national security. Both those spheres are patriotic."
