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Inside Out | Capitalism is in crisis. It cannot be business as usual for very much longer
- Capitalism has been keeping shareholders happy with merger mania, tax avoidance and an unhealthy preoccupation with share price that has inflated CEO pay beyond the reasonable
- It is time for a painful reset to focus instead on economic growth and improving livelihoods – or risk jeopardising capitalism itself
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Last Wednesday, the congenitally discrete Financial Times wrapped itself in a shockingly garish yellow shroud and told the world: “Capitalism. Time for a reset.” Referring readers to its “New Agenda”, it added that “Business must make a profit but should serve a purpose too.”
This came just a month after 181 American chief executives gathered under the banner of the Business Roundtable to issue “a statement on the purpose of a corporation”. In a shift that would have Milton Friedman squirming in his grave, the executives called for companies to stop focusing exclusively on short-term shareholder returns, and instead to focus on the long term, and on all stakeholders, including employees, clients and communities.
These sentiments have been simmering since the 2008 global financial crisis raised doubts about the merits of unfettered shareholder primacy, and began to take clear shape a couple of years ago around the marketing mantra of ESG – environmental, social and governance – goals.
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I have for long been sceptical about executives who come to me preaching their ESG commitments, and about asset managers who claim they are “greening” their portfolios around companies committed to sustainability. Many such executives are doing little more than spinning their marketing lines.
But it seems there are now some very powerful – and seriously rich – corporate titans who recognise that some very bad things are happening around capitalism as it has been practised in the past couple of decades. They acknowledge that unless significant change happens, capitalism itself may be in jeopardy.
I have had my own layperson concerns for many years about how capitalism and the financial sector have morphed in recent years. When my London bank manager told me in 1984 that his client services department was closing, and being shifted to a call centre in Cardiff, I recognised that the boring and modest era of banking to support the financial planning needs of companies, and of young savers like me, was coming to an end.
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