What kind of capitalism does the world need? One where business leaders fulfil their duty to society

Amid climate change and rising consumer repugnance for profit-focused enterprise, businesses have finally started to move towards stakeholder capitalism, a concept enshrined in the 1973 Davos Manifesto

Reading Time:3 minutes

A college student leans against a wall painted with anti-capitalism graffiti in Mumbai, India, in 2004. Photo: AFP

Published: 3:00pm, 2 Dec 2019Updated: 10:25pm, 2 Dec 2019

What kind of capitalism do we want? That may be the defining question of our era. If we want to sustain our economic system for future generations, we must answer it correctly.

Generally speaking, we have three models to choose from. The first is “shareholder capitalism”, embraced by most Western corporations, which holds that a corporation’s primary goal should be to maximise its profits. The second model is “state capitalism”, which entrusts the government with setting the direction of the economy, and has risen to prominence in many emerging markets, not least in China.

But, compared to these two options, the third has the most to recommend it. “Stakeholder capitalism”, a model I first proposed half a century ago, positions private corporations as trustees of society, and is clearly the best response to today’s social and environmental challenges.

Shareholder capitalism, currently the dominant model, first gained ground in the United States in the 1970s, and expanded its influence globally in the following decades. Its rise was not without merit. During its heyday, hundreds of millions of people around the world prospered, as profit-seeking companies unlocked new markets and created new jobs.

But that was not the whole story. Advocates of shareholder capitalism, including Milton Friedman and the Chicago school of economics, had neglected the fact that a publicly listed corporation is not just a profit-seeking entity but also a social organism.

Together with financial-industry pressures to boost short-term results, the single-minded focus on profits caused shareholder capitalism to become increasingly disconnected from the real economy. Many realise this form of capitalism is no longer sustainable. The question is: why have attitudes begun to change only now?

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x