To ensure its future, capitalism needs to embrace sympathy alongside self-interest, says Charles Handy

Adam Smith famously argued that the pursuit of self-interest in a free market would benefit all in society. What is less well remembered is that he also said that sympathy, by which he meant a concern for one's fellows, was also essential for the cohesion and stability of that society. Business eagerly embraced the self-interest part of the equation, leaving sympathy for others, usually the government, to deal with.

In the long run, that has undermined the spirit of capitalism, which many now see as an invitation to selfishness on the part of companies and individuals. Unless the selfishness is balanced by an obvious sympathy for those left behind, society can become resentful. That may force government to put constraints on the capitalists that will frustrate and inhibit their energies, even drive them to other shores.

The more successful we are as a country the more urgent becomes the challenge to balance Adam Smith's concerns. Take an economy today that is increasingly dependent on knowledge and information, place it in a global world where technology knows no boundaries, and you have the makings of a winner-takes-all society. If you have the money, why not buy the best in the world, be it the best lawyer, the best doctor or the best financial advice?

Britain is fortunate in that many of her knowledge businesses, particularly in finance, are among the best in the world. In the knowledge industries, however, the wealth does not trickle down as it used to in the old manufacturing organisations, but tends to stick at the top.

We have not yet reached the level of inequality seen in the US, but the publicity given to the City bonuses in recent years, to the fortunes earned in private equity and to the take-home pay of some top executives in the bigger firms, has reinforced the impression of a "greed is good" philosophy at work in the business world. No sensible person should begrudge the successful the fair rewards of their talents. In a global world the best deserve the best. But if their legitimate self-interest is not to end up as crude selfishness the surplus money needs to be put to use, with some of it used for purposes other than oneself. The sympathy needs to be evident.

The Victorians understood this well. Many of the most successful industrialists in Britain in the 19th century poured money into their local communities. Andrew Carnegie, by all accounts not the most enlightened of employers, turned into a famous philanthropist, famously saying that 'he who died rich died ashamed'.

In the US, the tradition of giving back to society some of the rewards of your success has lived on. Bill Gates and Warren Buffet hit the headlines last year for their extravagant philanthropy, but in Britain the tradition died away in the last century, partly because there were fewer of those rich industrialists, partly because the arrival of the welfare state implicitly suggested that it was the job of the state to look after the less fortunate.

Things are beginning to change. As a result of the new economy we are witnessing the emergence of business people who have made their own wealth, who are still in mid-career, and have talents and skills to apply to its use. Ten years ago 75 per cent of those on the Sunday Times Rich List had inherited their wealth. That has now reversed—75 per cent have made it themselves. For most, the money is the incidental outcome of doing a job very well, but it gives them a resource that aches to be put to good use. That is their challenge and their opportunity.

Those who find themselves with more money than they need or want are looking for ways to do something useful. Sir Tom Hunter recently announced that he intends to invest £1bn of his money in good causes over the next 10 years and he is only one of a growing number of successful entrepreneurs who see philanthropy as the natural corollary of their business success.

Bankers and hedge fund managers have also emerged as generous sponsors of social causes, including some of the new City Academies. For those less affluent, time and energy are there to give, particularly now that we live longer and often retire earlier. Nor should it be left to retirement. More businesses now recognize that it makes all sorts of sense to allow employees time off for voluntary work, which many feel adds more meaning to their lives.

Anthropologists have long suggested that altruism is part of our human condition, just as it is in the animal world. It could be that a combination of capitalism's focus on self-interest and the ambitions of governments to look after all our needs have repressed that altruistic side of our nature.
Cultures change slowly, but as more examples of the new generosity emerge we could begin to see the marriage of sympathy and self-interest that Adam Smith hoped for all those years ago, a marriage that would provide capitalism with an acceptable human face and do a lot to ensure its future.

Charles Handy is the author of  The New Philanthropists, with photographs by Elizabeth Handy, published by Heinemann in 2006.