Stakeholder Capitalism
I hope the post-pandemic world could be to our generation what the post–World War II era was to my parents’ generations: a moment of unity, where the recent past is a stark reminder of a world that nobody wants, and the present and future are an opportunity to create a world where everyone can thrive.
America did not limit its efforts to aid. It also encouraged trade by setting up European markets for coal, steel, and other commodities. That led to the creation of the European Coal and Steel Community, the embryonic form of what is now the European Union.
During the immediate post-war years, it was believed that increased economic prosperity was something that everyone had contributed to, and so it had to be shared by all. It was an industrial model of progress built on partnership between company owners and their workforces. By contrast, the growth phase of the 1980s was based more on market fundamentalism and individualism and less on state intervention or the building of a social contract. I think this was a mistake.
According to the Global Footprint Network,27 1969 was the last time the global economy didn't “overspend” nature's resources for the planet. Fifty years on, our ecological footprint is greater than ever, as we use up more than 1.75 times the resources the world can replenish.
In fact, it was movements in the Mediterranean and Middle East that inspired Occupy Wall Street, Kalle Lasn, one of the founders of Occupy, told one of us in a 2012 interview.44 There, in the early years of this decade, Spanish Indignados took to the streets in protest. A year later, Arab Spring protesters in Tunisia, Egypt, Syria, and other countries took the streets to express their anger over economic inequities within their countries. In Tunisia, they forced a regime change.
The Kuznets curve
2020 Financial Times article summarized that by the end of September 2019, a record 56 percent of all US equities was held by the top one percent wealthiest households, amounting to $21.4 trillion. Read that again: the “one percent” does in fact own more than half of all stocks in America.
US economic mobility is increasingly a thing of the past; even a long or healthy life is out of reach for many. He decried the situation in his 2019 book People, Power and Profits: Progressive Capitalism for an Age of Discontent, and a prior Scientific American essay.
No phenomenon displays this “wealth and health” nexus in America more than COVID-19, which affected those with fewer means much more than others.
In the early weeks of the pandemic, many of the wealthier Manhattanites could seek shelter in an upstate or out-of-state property, get care in a private hospital, or otherwise protect themselves from the virus. Poorer New Yorkers, by contrast, were much more exposed. They were more likely to work and live in at-risk environments, less likely to have adequate health care coverage, and largely unable to physically move elsewhere.
Among the 36 member states of the Organization for Economic Co-operation and Development, for example, only Mexico had a lower percentage of people covered than the US, and most countries achieved a 100 percent coverage rate,56 either through public or primary private health insurance.
A 2018 World Bank report showed that only 12 percent of young adults in regions like Africa and South Asia have more education than their parents—often a prerequisite to climb higher up the socioeconomic ladder.58 Other regions, including East Asia, Latin America,
The World Economic Forum first raised awareness on this emerging problem in 1973. Then, Aurelio Peccei, who was the president of the Club of Rome, a think tank, gave a speech in Davos about his famous study on “The Limits to Growth.”
coal, oil, and natural gas still account for about 85 percent of the world's primary energy consumption67 and two thirds of world's electricity production.68
Despite calls to phase them out, their production even increased in 2018. It is a statistic that unnerved even BP's chief economist Spencer Dale:69 “At a time when society is increasing its demands for an accelerated transition to a low-carbon energy system,” he wrote in his group's 2019 Statistical Review, “the energy data for 2018 paint a worrying picture.”
by current measures, it is estimated we could end up with more plastic than fish in our oceans by 2050.73
The kernel of the economic turnaround in this model lay in attracting FDI from some of China's neighbors, including Hong Kong, and allowing these investors to set up businesses in Special Economic Zones (SEZs) on various stretches along the populous Guangdong (Canton) coastline in Southern China. Shenzhen, north of the Sham Chun River, was one of them.
As a result, people from all over China began flocking to the SEZs, drawn by the jobs and the allure of being part of something new and growing. From some 30,000 residents in the early 1980s, Shenzhen grew to become a fully-fledged Tier 1 city of more than ten million people, alongside Beijing, Shanghai, and Canton's capital to its northwest, Guangzhou. Gone were the days of Shenzhen as a “sleepy fishing village” next to some paddies of rice.
China's cities exploded, and its rural hinterland emptied.
in the marginDemographic transition
BYD (1995): Short for “Build Your Dreams,” BYD is now the world's biggest manufacturer of electric vehicles (EVs), according to Bloomberg, “selling as much as 30,000 pure EVs or plug-in hybrids in China every month.”8
in the marginMajor chiese company
Figure 3.3 By Some Measures, the Asian Century Has Already Begun
After the most recent elections in September 2019, the once unthinkable happened. The two major parties received far less than half of the vote, coming at 42 percent. Even adding in the third traditional party, the Left (the former Communists), didn't change the calculation much. From peak to zenith to nadir, the Big Three lost almost half of their voters in Brandenburg. The winners were two parties on opposing sides on the social and political spectrum. The climate-centered party Die Grünen (the Greens) got about 10 percent of the vote in Brandenburg. They embodied the growing concern in society over climate change, and their entry in the political arena was mostly welcomed by the other parties. More worryingly however, the radical right and anti-immigration party Alternative for Germany (AFD) got a historic 23.5 percent of the vote as well—the highest result for a radical right party since the last democratic elections of 1930s Germany.
Since the military dictatorship fell in the country in 1988, Brazil had had instead center-left or left-leaning presidents. Bolsonaro's election changed that, as voters gave a strong mandate for his brand of radically conservative politics at the ballot box.
It isn't so much that the extreme right or extreme left is replacing the center right or center left in society and politics. It is that voters often simply no longer support and believe in any establishment political parties or even the current democratic system itself. Many either don't show up to vote or opt for non-democratic parties. Even more problematically, attacks on democratic institutions are widespread around the world.
That is that the leading political and economic class has failed to bring them into the fold, both economically and socially. The initial response, then, should be one of humility and introspection, rather than outright condemnation or indignation.
Many societies no longer have a majoritarian political center, as radical figures have taken over the political system, a consequence of the societal divide we've seen in many places. And this societal divide, in turn, is consequence of the crises in our economic and environmental systems, as well as an obstacle to overcoming them.
12 For a full discussion of the state of global inequality, both within various countries and around the world, I refer to the excellent book Global Inequality: A New Approach for the Age of Globalization, by Branko Milanovic.
Human encroachment on natural habitats is the likely cause of the spread of many new viruses to humans from animals, from Ebola to the coronavirus that causes COVID-19.
native peoples had settled in the Americas long before any Europeans were aware of the existence of continents between them and Asia. It is also now widely understood and accepted that Columbus was preceded by Viking Leif Erikson, who is credited with being the first to make the journey from Europe to America.
And, despite having very low official unemployment numbers until the pandemic hit, the US labor force participation dropped from an all-time high of over 67 percent in 2000, to around 62 percent in 2020,15 meaning many people stopped looking for work altogether. In Denmark, by contrast, the labor force participation continued to hover around 70 percent even after the pandemic hit in early 2020.16
While Singapore is one of the most remarkable success stories of the past half century, the Southeast Asian nation understands that they will need to continue adapting to changes in the global economy today, where new technologies and service jobs are becoming ever more important. It's why it recently set up a government-led SkillsFuture initiative. Through this system of lifelong learning, Singaporeans of any age can learn new skills to ensure they are prepared for the job market of the Fourth Industrial Revolution.
One of the features of the ongoing Fourth Industrial Revolution, the reasoning goes, is that it's hard to predict the labor market of the future. Who thought some of the most successful twentysomething professionals today would be YouTubers playing videogames or influencers making 10 second TikTok movies?
PwC found that “over 90% of the Singaporean respondents said, they will take any opportunity given by their employers to better understand or use technology.”30 It shows the triple challenge for economies like the US and Western Europe. Governments and companies must invest more in continuous retraining of workers, unions must be stronger but have a cooperative approach to business and government, and workers themselves should be positive and flexible about future economic challenges they and their country face.
But for Tim and his brother, the Apple II was first and foremost an exciting way to get acquainted with a new technology. “My brother and I loved Apple, we were obsessed with it,” Wu told us.31 The two preteens would make it their hobby to get the computers chips out, reprogram them, and put them back in. A couple of years later, when computer networks were first introduced, they would set up a dial-up modem, connect to other computers, and create their own networks. Those formative years made the Wus lifelong nerds for technology.
today the top five Big Tech companies more resemble monopolists like telecom provider AT&T in the 1980s than the upstarts they were not too long ago. They buy or copy competitors to protect their markets, he said, act as both a platform and seller, and favor their own products on their stores.
Socially, the new sedentary lifestyle allowed for the development of villages, cities, societies, and even early empires. Politically, these societies started to see hierarchies for the first time, as the food surplus allowed certain classes of people to live off the foods produced by others. And economically, early trading and specialization led to a modest increase in overall wealth. Almost invariably, the emerging civilizations that ensued consisted of a top class of warriors and spiritual leaders, a middle class of merchants, traders, and specialized workers (making pottery, clothes, and other products), and a large base class of serfs and farmers, who produced foods for themselves and others, most often in a system of subservience to the top classes. It is an early pattern we'll see throughout history: technological breakthroughs lead to a significant increase in wealth, but that surplus almost always gets unevenly distributed and even monopolized by a small group of people at the top of society.
In Europe, which lagged the Eurasian trend, the Renaissance and early modern period finally saw a true scientific revolution. It led to great changes in society and politics, including the dominance of European powers in the global economy, the Reformation in European Christianity, and the Peace of Westphalia in European politics. And, with the aid of the compass, sail ships, firepower, and other applications of this scientific revolution, European powers also established a number of global trading empires, epitomized by the gigantic East India Companies we wrote about in the previous chapters.
By the 1760s, James Watt and his steam engine were poised to revolutionize industry. Progress was irregular at first, but by the early 19th century Britain's entrepreneurs were well on their way to becoming the world's most successful. In a matter of decades, British steam trains, ships, and machinery took over the world, and Great Britain became the most powerful empire in the world.
The ones who benefited most from this First Industrial Revolution were Britain's capitalist entrepreneurs. Capitalism was nothing new. It had existed in Europe at least since Venetian merchants pooled their risk of shipping in the medieval Mediterranean trade—but was now mainly used to fund factories and their machines, rather than trade. Those who had enough capital at hand—often large landowners, successful merchants, and members of aristocratic families—could invest in new technologies and start successful companies.
The technological transformation coincided with a political, economic, and social transformation here too. By the end of the 1800s, the plight of ordinary workers had become so problematic in England, Belgium, France, and Germany, that some members of the new leading classes decried the excesses. Les Misérables was written, highlighting the exploitative conditions in which regular Frenchmen had to work. German émigrés Karl Marx and Friedrich Engels wrote newspaper articles and even books about the fate of the proletariat in industrial England, which was all but positive. And Charles Dickens, writing a few decades earlier, most famously wrote it was not just the “best of times,” but also the “worst of times,” the “season of Darkness,” and the “winter of despair.”37 Was it the result of industrialization or globalization? In truth it was probably both.
In America, too, the first Industrial Revolution led to an untenable situation. The technological advances in transport, finance, and energy led to the formation of oligopolies and monopolies: companies with the most capital and initial resources could best afford to deploy the latest technology at the greatest scale, offer the best services, and in turn win a higher market share, make the most profit, and outcompete or buy up other companies. In the transportation sector, for example, it led to a dominant position for the railroad companies connecting the Midwest to New York, controlled by Cornelius Vanderbilt, a tycoon also active in shipping. In the energy sector, it allowed the astute John D. Rockefeller to come from almost nothing to build the world's largest oil company, Standard Oil, and later also created the first business trust (Standard Oil today lives on in ExxonMobil, still America's largest oil company). In the steel industry, it enabled the Scottish-born American Andrew Carnegie to create the forerunner of U.S. Steel, which later became the monopolist of steel production in the US. In coal production, it led to Henry Frick establishing the Frick Coke Company, which controlled 80 percent of the coal output in Pennsylvania,38 and taking the helm at several other conglomerates of the time. And in banking, it created a situation where magnates like Andrew Mellon, of BNY-Mellon fame, and John Pierpont Morgan, founder of what is today JPMorgan Chase, could build…
The contrast between rich and poor living standards was so shocking that Mark Twain and Charles Dudley Warner in 1873 wrote a satirical book about it, which became a nickname for the era: The Gilded Age: A Tale of Today.
By the early 1900s, the situation also led to the first era of “populism” in American politics. The People's Party in 1892 became the first third party to win electoral seats in the presidential election, coming up for the rights of “rural and urban labor,” and against the “moral, political and material ruin” the then-leading class had allegedly brought about.
In Europe, from the UK to Germany, socialist parties were elected to government after universal suffrage was introduced in a series of reforms from the 1870s to the 1920s.
Otto von Bismarck's government in Germany, for example, which had a conservative bent, implemented nevertheless a series of social reforms in the 1880s, which were the kernel of the social security Western Europe knows today.
In America, by contrast, the focus in those early years was less on providing social security and more on enforcing antitrust. (The Social Security program wouldn't arrive until 1935, on the back of the Great Depression,39 which left tens of millions without jobs, food, and homes.)
By 1890 it dawned on lawmakers they needed to address the hurtful actions of the robber barons, which corrupted politics and monopolized entire industrial sectors. The first antitrust law was passed that year and was amended several times in subsequent years. In 1914, two more important laws were passed, including one which created the Federal Trade Commission. Together, these laws had to make sure the trusts of men like Rockefeller could no longer create de facto monopolies, either by buying up all their competitors or by colluding with them on prices. The most famous breakup that followed was that of Standard Oil in 1911, which “controlled over 90 percent of the refined oil in the United States”40 by the turn of the century. The company was split up into 34 different parts, some of which today survive as brands or separate companies, including ExxonMobil (once separated as Exxon and Mobil), Chevron, and Amoco.
A Second Industrial Revolution had taken place, and the technologies it spawned, the internal combustion engine and electricity, led to a new set of products, such as cars, planes and electric networks, and the telephone.
But geopolitical friction in 1914 interrupted the economic dynamics of the industrialized world. In the First and Second World Wars, technology was seen as more of a destructive power than an economic driver. The First World War was the last one in which horses were strategically deployed. The Second World War was the first in which tanks and planes dominated the battlefield. Tens of millions of people died, many of them through tools of the latest technologies.
By 1945, a new world emerged, and this time, technology would go on to play a much more universally positive role in the West, especially for blue-collar workers and the middle class, economist Carl Frey pointed out in his book The Technology Trap. The automobile on both sides of the Atlantic quickly became a mass market means of transportation, affordable as much for the ordinary worker as for the upper class. Electricity became standard in every home, and its applications included the washing machine, air conditioner, and refrigerator. They made life easier, healthier, and cleaner for everyone and greatly helped to emancipate women. And the industries that electricity and transportation helped create opened many middle-class job opportunities, even for medium-and low-skilled workers. Factory machines this time were complementary to workers, relieving them from heavy physical duty while still requiring them in great numbers. And drivers, telephone operators, secretaries, and cashiers all were in high demand in an economy that increasingly held the middle between one based on manufacturing and one based on services.
In America, President Lyndon Johnson announced a Great Society program.41 It aimed at eliminating poverty and racial issues through initiatives such as the War on Poverty, introduced health programs such as Medicare and Medicaid, and mandated the building of many new schools and colleges, as well as the establishing of grants and a Teacher Corps.
All the while, antitrust action remained on the political agenda. In America, the newly emerged telecom industry had consolidated to such an extent, that by the 1960s, the Bell Company (now AT&T) was a de facto monopoly. Using the antitrust legislation put in place after the First Industrial Revolution, it too was broken up, lowering prices and improving service drastically in the decades after and unleashing a new wave of innovation, which ultimately led to mobile telephony.
In Europe, countries chose a more direct form of regulation, setting up electricity and telecom providers as state-owned monopolies. This too ensured any profits beyond market rate would ultimately benefit society, albeit indirectly. But this stifled innovation and competition, as the state-owned enterprises over time lost their appetite for providing better service or a lower price, lacking a strong competitive incentive.
Technology did of course allow these companies to continue their global growth. It created the tools for them to entrench their market positions. But it was the state which allowed this to happen. How? First, by focusing its antitrust actions in the technology sector on consumer prices, as the Chicago School had argued for a few decades earlier, it missed the broader picture of what was happening.
Among the 10 most valuable tech companies in the world in 2020, six came from the US, and four from Asia.
The optimal way to create a level-playing field, of course, would be a more international policy and regulatory approach, possibly integrating antitrust measures into a deeply reformed World Trade Organization.
This Fourth Industrial Revolution is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. Already, artificial intelligence is all around us, from self-driving cars and drones to virtual assistants and software that translate or invest. Impressive progress has been made in AI in recent years, driven by exponential increases in computing power and by the availability of vast amounts of data, from software used to discover new drugs to algorithms used to predict our cultural interests. Digital fabrication technologies, meanwhile, are interacting with the biological world on a daily basis. Engineers, designers, and architects are combining computational design, additive manufacturing, materials engineering, and synthetic biology to pioneer a symbiosis between microorganisms, our bodies, the products we consume, and even the buildings we inhabit.58
The technologies of the Fourth Industrial Revolution once again have the possibility to greatly enhance global wealth. That is because they are likely to turn into general-purpose technologies (GPTs) such as electricity and the internal combustion engine before them.
The most powerful of these GPTs is likely to be artificial intelligence, or AI, according to economists such as Eric Brynjolfsson.59
in the marginInteresting to see AI as a common tool like the internet. I agree with this.
As in previous eras, these technologies could just as well increase inequality and social and political rifts, which could bring our existing society close to collapse. Already, companies such as Facebook are facing criticism that their algorithms are designed to sow division and have contributed to the great schism in American society, which is characterized by contentious opposition between the political left and right. This may well just be the beginning of much worse to come as people spend more time online and face ever more interactions with artificial intelligence (AI). Moreover, the advances in biotechnology and medical science could amplify inequality to levels never seen before, improving the lives and even bodies of wealthier humans to the point of creating a biological divide as well as a wealth divide. And technology could be applied to commit cyberwarfare too, with severe economic and social consequences.
in the marginFear mongering or valid?
As a frustrated chief executive once expressed to me: “Business moves in an elevator lifted by the force of creativity; government and regulatory agencies take the stairs of incremental learning.”
This is the purpose of the World Economic Forum Centre for the Fourth Industrial Revolution in San Francisco, which was created in 2017. Its goal is to develop policy frameworks and advance collaborations that accelerate the benefits of science and technology.”60
It is only when technologies are shared widely, that they reach their full potential. And that will be more crucial than ever before in the age of AI.
In previous industrial revolutions, industrial firms operated mostly in national markets. It meant that governments could intervene to ensure that value was equitably shared between all market participants. With AI, however, the picture looks different. Many companies active in Internet technology offer their services for free, meaning there is no price to regulate or tax to levy at the product level. And with almost all of the leading tech firms being American or Chinese but globally active, many national governments have not been able to tax profits either, which are often shielded through transfer pricing and IP-related exemptions.
And then there is a final consideration: even if we get the Fourth Industrial Revolution right, there is still another global crisis we need to address as well: the ongoing climate crisis.
As mentioned in Chapter 2, that had been the message from the Club of Rome in the early 1970s, whose president Aurelio Peccei had come to Davos. He had warned participants already in 1973 that we had reached the limits of growth. “The earth's interlocking resources—the global system of nature in which we all live—cannot support present rates of economic and population growth much beyond the year 2100, if that long, even with advanced technology,”8 he said. Looking back, it proved to be a remarkably prescient message.
Collectively, Europe (including Russia) and North America saw their carbon dioxide (CO2) emissions decrease from about 13 billion tons in 1990 to 10.8 billion tons in 2017, a decrease of over 15 percent. But the rest of the world, including major emerging markets such as China and India, and other industrializing nations such as Indonesia and Ethiopia, saw its CO2 emissions explode from about 9 billion tons in 1990 to some 24 billion in 2017, an increase of over 150 percent. As a result, total global emissions went up significantly between 1990 and 2017, from below 25 billion tons to over 36 billion.
But the fastest and most important action we can take in this regard is to eliminate coal and other fossil fuels from the energy mix. We are not there yet. Dozens of new coal plants are in fact still opening every year in emerging markets, primarily China and India. But change is underway. Increasingly, large institutional investors in the US and Europe are turning away from companies that operate coal plants. They are pressured by activists and clients that demand it from them, or simply following rational concerns that fossil fuel plants will eventually become stranded assets, as former Bank of England governor Mark Carney has warned.38
Besides altering the sources of energy production, a second major method to reduce greenhouse gas emissions is the worldwide implementation of carbon pricing and “cap-and-trade” mechanisms.
This isn't a theoretical consideration. The European Union has been operating its EU Emissions Trading System (EU ETS) since 2005.46 According to the EU, it limits emissions from more than 11,000 heavy energy-using installations (power stations and industrial plants) and airlines operating between these countries, and covers “around 45% of the EU's greenhouse gas emissions.” And according to researchers of the National Academy of Sciences in the US, the scheme has been a modest success,47 leading to cumulative emissions of about 1.2 billion tons CO2 from 2008 to 2016 or roughly 3.8 percent relative to total emissions. The European cap-and-trade system is the largest of its kind but far from the only one. Countries such as Australia and South Korea, and states such as California and Quebec also have their own versions of the system. In many other places, more straightforward carbon prices or carbon taxes have been introduced.
At the World Economic Forum, a group of so-called CEO Climate Leaders48 has over the years committed to ever more far-reaching voluntary action by their companies. They do so because they understand there is no point to being a free rider in the short run, when at the end of the ride, everyone loses.
Refocus investments in other companies, to include only those that are clean, and apply internal carbon prices to reveal the true cost of certain operations;
One company that provides an excellent example of this is global shipping giant A.P. Møller-Mærsk, a case study we'll look at in more detail in Chapter 9. On greenhouse intensity of its operations, Mærsk is experimenting with more efficient ways to keep its food containers refrigerated and using ships that use less fuel and more wind power. In its own portfolio, Mærsk also divested its oil division, focusing instead on its core shipping business. And it is also pursuing a new business model, by expanding its activities from moving goods only from port to port to providing door-to-door solutions. It will allow Mærsk to keep growing, while optimizing more of the total emissions associated with transport. If a company such as Mærsk, which has been very active both in fossil fuel production, distribution, and consumption, can make a green turnaround, surely the vast majority of other companies can, as well.
in the marginMaersk is a good example of a green pivot
The world currently knows two prevailing and competing economic systems: shareholder capitalism, which is dominant in the United States and in many other countries in the West, and state capitalism, which is championed by China and is gaining popularity in many other emerging markets. Both have led to tremendous economic progress over the past few decades.
Given the shortcomings of both of these systems, we believe we need a new, better global system: stakeholder capitalism. In this system, the interests of all stakeholders in the economy and society are taken on board, companies optimize for more than just short-term profits, and governments are the guardians of equality of opportunity, a level-playing field in competition, and a fair contribution of and distribution to all stakeholders with regards to the sustainability and inclusivity of the system.
Advocates of shareholder capitalism, including Milton Friedman and the Chicago School [of economists], 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.
Moreover, as companies increasingly became global, the power of unions evaporated, and the ability of national governments to act as an arbiter declined. It led to a situation where shareholders became not just preeminent nationally but dominant globally, and many other stakeholders—employees, communities, suppliers, governments, and the environment—lost out as a consequence.
But as economists such as Branko Milanovic (in his book Capitalism, Alone) have argued, state capitalism too has its fundamental flaws.
Most importantly, given the hegemony of the state, corruption is a constant threat. Favoritism can play a role in distributing contracts, and the application of the law can become arbitrary, given the lack of checks and balances.
The extensive spread of Internet technology also makes people around the world more aware than ever of the fortunes of people elsewhere. This draws attention to global equity, making it an important objective, perhaps for the first time in history. Indeed, people are social animals, and their absolute well-being is less important than their relative well-being.
Governments, notably, focus on creating the greatest possibly prosperity for the greatest number of people. Civil society exists to advance the interest of its constituents and to give a meaning or purpose to its members. Companies obviously aim to generate an economic surplus, measurable in profits. And the overarching goal for the international community is to preserve peace.
These stakeholders each have their own primary objectives: companies pursue profits and seek long-term value creation; civil society's primary aim is each organization's purpose or mission; governments pursue equitable prosperity; and the international community works toward peace.
Going from a global to a local perspective is a crucial element for the stakeholder model's success. Indeed, although the stakes of the economic system are more global than ever, the implementation of any approach will mostly be done at a more local level. Communities are locally embedded, and people know and trust those they live and work in close proximity to.
Though 20th century neoliberalists once may have seen such a global model as a Utopian ideal (as Quinn Slobodian asserted in his book Globalists, The End of Empire and the Birth of Neoliberalism), it would inevitably end in the political disenfranchisement of local communities. When the center of power is too far removed from people's everyday realities, neither political governance nor economic decision-making would have popular support.
A primary principle for the implementation of stakeholder capitalism is therefore that of subsidiarity. It is not an untested or purely theoretical principle. Applied most famously in the governance of the European Union,9 the subsidiarity principle has also been used in the Swiss Federation, the UAE, Micronesia, and other federal states around the world. It asserts that decisions should be taken at the most granular level possible, closest to where they will have their most noticeable effects.10
That different view on value creation, and the practices that went along with it, Mazzucato asserted, created a system in which value extraction became normalized, as many of the most productive members of the economic system, including those active state-funded scientific research, education, and social services, were undervalued. It also led to a financialization of the economic system, in which revenues and profits were confounded with true value creation. And it created a cult around CEOs and tech start-up founders, in which private innovations generated more praise and protection than the fundamental breakthroughs achieved through public funding and institutions.14
the equilibrium of the stakeholder economy needs to be restored. To do so, stakeholder capitalism must ensure that: all stakeholders get the seat at the table of decision-making that concerns them; the appropriate measurement systems exist to calculate any stakeholder's true value creation or destruction, not just in financial terms but also in achieving of environment, social, and governance (ESG) objectives; and the necessary checks and balances exist so that each stakeholder compensates what it takes from society and that it receives a share of the total pie commensurate with its contributions, both locally and globally.
On the economic front, for example, there is a highly positive correlation between strong stakeholder representation on the one hand, and low inequality and commensurate wages, for example, on the other. One striking visual representation, which we saw in Chapter 6, comes from the United States, where the Economic Policy Institute plotted union membership against income inequality over the past 100 years. It showed that income inequality was high when organized labor was absent and that it dropped during the golden age of American organized labor, roughly between 1940 and 1980, as union membership surged.
The fact that worker wages haven't gone up in a commensurate way in the United States for decades led to a less cohesive and resilient society, which was ill-prepared for once-in-a-century events such as COVID-19 or the disruption of the Fourth Industrial Revolution.
And it may have been at least partially the result of exclusive social and political policy choices as well, as was brought to the fore by the Black Lives Matter movement in the United States. After decades of facing discriminatory government policies and actions, many rose up to decry this situation. The lessons from countries such as Malaysia, where inclusive policies have been a focal point for policymakers, shows that a more inclusive approach to government could have and can still avoid such unequal outcomes.
Making sure management teams, corporate boards, governments, and other leadership committees reflect better the setup of society in its entirety is a recipe for more holistic decision-making and ultimately, better and more performant organizations.
Once all stakeholders have a seat at the table, corporations, organizations, and governments must move away from the fetishization of profits or related metrics, such as gross domestic product (GDP).
To put it more simply still, if you have a society in which all people are well educated and environmentally conscious, you have a higher chance that the society as a whole will make choices that make the economy more prosperous and more sustainable in the long run. The other explanation for the correlation is that economic competitiveness ultimately depends on the planet's resource function and a society's human capital, whether those are accounted for in GDP or not. Countries that truly only account for GDP will run into a wall sooner or later, as you can only ignore investments in education, training, and care for the planet for so long before they start to affect the economic production function.
In September 2020, the International Business Council of the World Economic Forum—comprising 140 of the largest global companies—presented the “Stakeholder Capitalism Metrics.” They are a core set of metrics and disclosures on the non-financial aspects of business performance, including variables such as greenhouse gas emissions, diversity, employee health and well-being, and other factors that are generally framed as ESG topics.35
One country that did an interesting experiment in this regard is Ireland. “For decades, abortion was political kryptonite for Irish policymakers. But then Ireland tried a socio-political experiment that is fit for our age of division: it convened a citizens’ assembly to devise abortion legislation that a broad base of voters could support. The Irish assembly selected 99 citizens (and one chairperson) at random to convene a body that was “broadly representative of society as reflected in the census, including age, gender, social class, regional spread.” As such, it achieved a much wider diversity of views than one finds in the established political system.
By design, deliberative gatherings of ordinary citizens—whose primary task is to reach agreement, rather than get re-elected—can bypass political antagonism and move toward pragmatic solutions to specific issues. Although they cannot replace democratically elected legislatures, they should supplement them when needed.37
Afghan-American writer Tamim Ansary pointed out that the American-imposed democracy in his country in practice meant a continuation of a much more tribal political system, as communities reverted to voting for candidates whose families had played a leading social and economic role in their town for generations. If the goal was to put a democratic layer on top of the existing societal and political structure, the effort was successful. But if the goal was to increase the direct participation of citizens in decision-making, it would have been a better idea to let communities decide for themselves which system was better suited for that.
In the US, for example, a decline in public trust in institutions went hand in hand with a perceived decline in their performance.39 On the other hand, in the Scandinavian countries, Switzerland, and Singapore, and even in larger countries such as Indonesia, China, and India, citizens do still strongly trust public institutions, which is one crucial building block to keep them more robust.
Seen from the stakeholder perspective, public institutions have a central role to play, so it is important to act to make them both strong and competent (again).
Moreover, with companies growing more global, their ability to optimize their obligations and maximize their influence creates an imbalance in their relationship to national governments. Representative international organizations such as the United Nations and its committees, arbiters such as the European Court of Justice or the Appellate Judges of the World Trade Organization, and regulators such as the European Commission or the Universal Postal Union will and must continue to play an important role in global governance.
To this day, for example, no international organization has an agreed metric for the global digital economy, despite it clearly being of major importance both economically and socially. (The best estimate comes from consulting firm McKinsey's Global Institute, a private institution.)
to take another example, the Universal Postal40 Union until 2019 unknowingly contributed to unfair international competition and a rise in emissions coming from international shipping. It had set outdated rules on sending packages between countries of varying economic income status. In practice, it meant that sending a package from China to the US often cost significantly less than sending the same package from one street corner to another within a US town.
Finally, let us consider how the decision-making process among stakeholders can function. It is easy to imagine this becoming a hodgepodge if no clear processes and guidelines exist. For example, if a government, organization, or company first has to get the sign-off from all its stakeholders before it can make a decision, how can they still effectively steer their organization? It may well be that the interests of various stakeholders diverge in the short term. It is also not far-fetched to see a scenario in which the most vocal stakeholder would try to monopolize or block decision-making, leading to a standstill or lopsided outcomes.
The solution, I believe, lies in separating the consultative process from the decision-making one. In the consultative stage, all stakeholders should be included, and their concerns should be heard. In the decision-making stage, by contrast, only those mandated to make decisions should be able to do so, which means in the case of companies, respectively the board or the executive management.
As with every behemoth, Mærsk was once a small start-up, looking to capitalize on new opportunities in a changing world. The company was founded in 1904 in the small Danish coastal town of Svendborg by a young man, A.P. Møller, and his father, Peter Mærsk-Møller, to bring goods in and out of the tiny Baltic port. Over the course of the next 100 years, it grew from being the owner and operator of a second-hand steamer to the largest shipping company in the world and the pride of Denmark's economy. The conglomerate was active in everything from oil exploration to transportation, from freight forwarding to rescue operations, and from container manufacturing to the shipping of goods to over 120 countries in the world. It counted for about 15 percent of global sea freight,1 making it the largest such company in the world.
To find out, Mærsk started “a profound conversation about purpose.” “Why do we have this company? Why does it exist?” Snabe asked. “We went back in history, to the roots of the company. Then we would find out who the stakeholders are for what we did,” he said. Yet at Mærsk, the exercise didn't immediately yield a satisfactory answer. “We're a transportation company,” Snabe realized. “We move boxes around. That's not a compelling purpose.” But one level deeper, he did find the answer. “Why do we move boxes? Well, we connect any place in the world that produces things, to global markets. And because the cost of moving is very, very low, sellers can reach global markets at almost zero costs, but with substantial added revenues. So, we create livelihoods by moving products anywhere in the world.” Snabe gives the example of bananas to make his point. “It is better not to produce bananas in Denmark,” he said, referring to the Northern European country's inhospitable climate. Moving them from where they were grown, Mærsk could create jobs, opportunities and prosperity.” That was Mærsk's first contribution: to enable global trade, and thereby livelihoods. And there was a second, thanks to its refrigerated containers. “Once bananas get into our refrigerators, we lose only 0.4% of them to waste,” he said. “Compare that to the average 40% loss elsewhere along the supply chain, and suddenly we reduce food waste.” It showed what Mærsk's purpose really was. Not to move boxes. Instead it…
From there, it was much easier for the company to reprioritize its activities. Drilling, tankering, and selling oil clearly no longer fit its purpose, and moreover deteriorated the environment. It made sense to divest them. But trade, another aspect of the global economy that had come under scrutiny, did fit within the company's goals. In fact, it was core to it. So Mærsk chose to defend trade and expand its efforts to connect the world. To ensure that goal did not clash with care for the environment, Mærsk set aggressive goals on trade emissions: it aimed to “to decarbonize its own operations, and decouple growth in its business from CO2 emissions,” and it committed to net-zero emissions by 2050. From a 2008 baseline, it achieved 41 percent like-for-like reduction in transportation by 2018, and more aggressive goals followed. “It's not our core business,” Snabe said, “but it is a good business. When we save 41% of CO2 emissions, we save an equal amount of fuel. That's not a bad business. We earn more money because we do that.”
Peter Thiel, co-founder of PayPal and Palantir, and an early outsider investor in Facebook, made that case powerfully in a 2014 editorial. Wall Street Journal editors headlined it: “Competition Is for Losers.”19 Of Google, he wrote: A monopoly like Google is different. Since it doesn't have to worry about competing with anyone, it has wider latitude to care about its workers, its products and its impact on the wider world. Google's motto—“Don't be evil”—is in part a branding ploy, but it is also characteristic of a kind of business that is successful enough to take ethics seriously without jeopardizing its own existence. In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can't. In perfect competition, a business is so focused on today's margins that it can't possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.
“Trust has to be your highest value in your company,” he said in Davos, “and if it's not, something bad is going to happen.”
Apple's Tim Cook wrote ahead of Davos in 2019,27 “but it will never achieve that potential without the full faith and confidence of the people who use it.” He laid out four principles that he believed should guide legislation in the United States, which lacked rules similar to the EU's General Data Protection Regulation: minimum personal data use, the “right to know” who uses your data, the “right to access” your data, and the “right to data security,” “without which trust is impossible.”
In 2020 Facebook's Mark Zuckerberg joined the chorus to ask for regulation. He suggested the European Commission look at implementing tighter rules on political advertising, the portability of user data, and the oversight over tech companies like his, so regulation could “hold companies accountable when they make mistakes.”28 But importantly, he also supported new rules on taxation: “Tech companies should serve society,” he wrote. “That includes at the corporate level, so we support the OECD's efforts to create fair global tax rules for the Internet ... good regulation may hurt Facebook's business in the near term but it will be better for everyone, including us, over the long term.”
mark a new stage in the maturity of the tech sector dominating the Fourth Industrial Revolution and are a step toward a better regulation of it, too.
For Benioff, it was a way of giving back to the community he and his company called home. In a New York Times editorial,30 he left no doubt as to the reason for his support. The time for stakeholder capitalism, he said, had come: Proposition C is a referendum on the role of business in our communities and, by extension, our country. The business of business is no longer merely business. Our obligation is not just to increase profits for shareholders. We must also hold ourselves accountable to a broader set of stakeholders: to our customers, our employees, the environment and the communities in which we work and live. It's time for the wealthiest businesses and business owners to step up and give back to the most vulnerable among us.
For those who are willing to choose this route, the aspects of business to focus on look a lot like those Snabe, Benioff, and others already identified: accepting a level playing field in competition; striving for improvements in working conditions and employee well-being; supporting the communities in which the company is active; looking after the environment and the long-term sustainability of their business; and paying one's fair share of taxes.
As we know, management often happens by numbers, and this stakeholder responsibility must also be measured. As we already briefly mentioned in the previous chapter, recently a big step forward has been made on this front. The World Economic Forum's International Business Council, led by Bank of America CEO Brian Moynihan,31 late last year presented the “Stakeholder Capitalism Metrics.” They measure companies’ progress toward environmental, social, and governance (ESG) goals in numbers and thereby allow them to optimize for more than just profits. More specifically:32 The Principles of governance pillar includes metrics and disclosures on the company's stated purpose, board composition (relevant experience, gender, membership of underrepresented groups, stakeholder representation), stakeholder engagement (which topics that are material to stakeholders were identified? How were they discussed with stakeholders?), anti-corruption efforts, mechanisms to report on unethical and unlawful behavior, and risks and opportunities that affect the business processes; The Planet pillar includes metrics on climate change, such as all relevant greenhouse gas emissions (and plans to get them in line with Paris targets), land use and ecological sensitivity of business activities, and water use and withdrawal in water-stressed areas; The People pillar includes metrics on diversity and inclusion, pay equality (for each relevant group: women vs. men, minor vs. major ethnic groups, etc.), wage…
Such a short-termist approach could do considerable harm to society, the planet, and ultimately to the investors and the companies themselves. It needed to change. That was the gist of the message Fink delivered in 2018, in his annual letter to CEOs of companies he invested in. “Society is demanding that companies, both public and private, serve a social purpose,” Fink wrote in his letter. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
The stakeholder model is better suited even from a capitalist perspective, Fink said, because “companies that are just focusing on shareholder capitalism are not fast enough.” They don't see the macro-trends that will affect them in the long run, such as the changing preferences and concerns of new generations. They are blinded by the pursuit of profits and growth, without understanding their underlying drivers. And that may ultimately be the cause for their demise. Consider in this regard and in closing, the story of Enron.
On March 21, Prime Minister Ardern made her government's decision public. They went with the “sledgehammer” plan advocated by Baker and others. Almost overnight, New Zealand's public life would come to a standstill. Every citizen would have to stay at home. Schools would be closed. All non-essential shops would be shut. The economy would greatly suffer. But in a speech announcing the government's actions, given a few days after the first lockdowns went into effect, Ardern didn't linger on the economic fallout. Instead, she pointed to what she believed mattered much more: “Without the measures I have just announced, up to tens of thousands of New Zealanders could die from COVID-19,” she said on national television.4 “Everything you will all give up for the next few weeks, all of the lost contact with others, all of the isolation, and difficult time entertaining children—it will literally save lives. Thousands of lives.” In her opinion, she said, “the worst-case scenario is simply intolerable. It would represent the greatest loss of New Zealanders’ lives in our country's history. I will not take that chance.”
compliance among the population was high too, perhaps in part thanks to the empathetic approach of their prime minister. “Be kind,” she asked the population before asking her finance minister and police commissioner speak about the economic consequences and enforcement. “What we need from you, is support one another. Go home tonight and check in on your neighbours. Start a phone tree with your street. Plan how you'll keep in touch with one another. We will get through this together, but only if we stick together. Be strong and be kind.”
The choice was perhaps made easier also because it could more easily be measured in other metrics. Just over a year earlier, New Zealand had created a Living Standards Framework (LSF) dashboard with broad well-being indicators, to add to the existing measurements of GDP growth. The dashboard was meant to provide “policy advice on cross-government well-being priorities,” and it was updated regularly. Looking at the COVID crisis with this broader mindset, the chosen Kiwi approach made a lot of sense. Yes, GDP growth may suffer in the short run, but health, safety and security, and social connections, all metrics measured in the LSF dashboard, would benefit. The LSF dashboard was not an end to itself but just one of various tools that reflected the different approach New Zealand had taken to governing. It is also an approach that fits with the principles and beliefs behind stakeholder capitalism: a society will do well if everyone does well; progress is about more than profits or GDP, everyone's contribution to society and the economy need to be valued, and both effective leadership at the top and empowerment of action at the base of society matter.
Approving of her government's approach, voters in October 2020 gave Ardern a historic election victory in a COVID-free New Zealand.
Many Latin American countries, including Argentina, Brazil, Bolivia, Mexico, and Venezuela, turned from neo-liberalist governments to “21st century socialism” at some point in the 2000s or 2010s, in part because of the economic inequality that resulted of relying too much on the market. The result of these pendulum swings was often disastrous, showing that neither the neoliberal ideology nor the socialist one works well in our current era.
First, a government should value the contributions everyone makes to society, provide equal opportunities to all, and curb any excessive inequalities as they arise. Second, it should act as an arbiter and regulator for companies operating in the free market. And third, as a guardian of future generations, it should put a stop to activities that degrade the environment.
I believe a government will be most effective when it focuses on three age-old societal needs: education, health care, and housing. And, in a world where people are increasingly dependent on their online activities as well, I might add that digital connectivity should be a fourth core pillar. From China to the United States, these domains matter to every person in society, and they often provide a government's greatest challenges.
In Singapore, “the government holds the cards,” Aaron E. Carroll, a professor of pediatrics, noted in his analysis of the Singapore model for The New York Times. “The government strictly regulates what technology is available in the country and where. It makes decisions as to what drugs and devices are covered in public facilities. [And] it sets the prices and determines what subsidies are available.” The government also acts preventively, for example, in regulating food quality. But the private sector and the free market play a major role too. For one, “primary care, which is mostly at low cost, is provided mostly by the private sector,” with about 80 percent of Singaporeans getting such care from general practitioners32 (the share is flipped for hospitalizations, which mostly happens in large public hospitals). And citizens—not the government—largely pay for their own health care costs through two major programmes, journalist Ezra Klein explains.33 One such fund is for routine health care (Medisave, which is mandatory), and one is for non-routine interventions (Medishield, which is automatically added to your payroll, but you can opt out of). Only when these two privately funded schemes don't suffice, the government steps in with Medifund, a payer of last resort. In this way, the Singapore model is the opposite of what you would find in, say, the United States: “[The United States has] a largely publicly financed private delivery system,” Carroll explained. “Singapore has…
But we also know GDP was never meant to be a measure of well-being. In the late 1930s, when GDP started its ascent, it was used primarily to estimate the war-time production capacity of a country—no luxury with the Second World War around the corner.
Conceptually, the Living Standards Framework is meant to provide it with “a shared understanding of what helps achieve higher living standards to support intergenerational well-being.” Seen from this perspective, well-being is not measured (solely) by GDP but by the country's four capitals”:40 Natural capital, consisting of “all aspects of the natural environment that support life and human activity,” which include “land, soil, water, plants and animals, minerals and energy resources”; Human capital, or the “capabilities and capacities of people to engage in work, study, recreation, and social activities,” including “skills, knowledge, physical and mental health”; Social capital, which are the “norms, rules and institutions that influence the way in which people live and work together and experience a sense of belonging.” They include “trust, reciprocity, the rule of law, cultural and community identity, traditions and customs, common values and interests”; and Financial and physical capital, most closely associated with GDP, as it includes “financial and human-made (produced) physical assets, usually closely associated with supporting material living conditions.” These include “factories, equipment, houses, roads, buildings, hospitals, and financial securities.” Figure 10.1 A Representation of the New Zealand Living Standards Framework Source: Redrawn from New Zealand Treasury, “The Relationship between the Sustainable Development Goals and the Living Standards Framework…
Humanity Forward is one example of a modern consumer rights group. It's a nonprofit founded by former US presidential candidate Andrew Yang.
We already saw how in some countries, such as Denmark, union membership remains high, and constructive attitudes lead to more competitive companies and salaries there, as well as a workforce that is constantly reskilled. That is the power of unions at their best.
equally, we've seen how in countries such as the UK or the US, unions have lost a lot of membership and power over the past few decades, coinciding with lower wages and fewer investments in employee training. To the extent that this decline in union adherence and power is the result of anti-union policies, the right answer is to end such practices. At the same time, there is another factor at work: work in the gig economy globally has been on the rise, but traditional unions have so far largely been unable to provide adequate answers to its challenges.
For gig workers, forming a modern union may be most important. Already, in the US, an estimated 57 million workers are freelancing,48 meaning that they work without a traditional employee contract. As a sign of how much this trend represents the future of work, more than half of the Generation Z—those born in the 1990s and early 2000s—are starting their careers by freelancing, with many seeing it as a long-term career path. Similar trends are playing out in countries such as Serbia, Ukraine, Pakistan, India, or Indonesia, home to Puty Puar, the successful designer from Chapter
There are certainly benefits to this situation, as it helps prevent a “brain drain” away from these countries, ensures that dollars or other, stable foreign currencies flow into these economies, and strengthens the local economy through the additional purchasing power of these tele-workers. But there may be significant downsides too. As one media report showed, such graduates end up dreaming of earning $2,000 a month or more telecommuting.49 But they may not immediately realize they're in a more vulnerable position than salaried workers, as they don't have long-term contracts, benefits, or legal protection, including against unemployment.
As Alex Wood of Oxford Internet Institute in the UK argued, in an interview with Wired magazine:54 “If you are dependent on that platform for your livelihood, there aren't rival platforms you could work for, if they control your data, and if the reputation system locks you into the platform—then that's when you need labour protections and that's why we have labour laws.” From their side, the companies in question would do well to take into account their demands and set up a consultative body with these organizations, rather than fight them in court.
In New York, one of the largest organizations for freelancers is Freelancers Union,55 an organization founded by Sara Horowitz, a lawyer and daughter of union representatives. Freelancers Union mostly distinguishes itself by offering discounted health insurance, skills training, and a co-working space. It was also an early and vocal advocate for The Freelance Isn't Free Law, which it says “protects freelancers from non-payment” and “serves as a blueprint for other cities and states.”56
But it has so far shied away from advocating for minimum pay and benefits for the freelancers it represents, making it less a union and more a member-based organization offering membership benefits. That's also the main criticism it has received from the left: “the Freelancers Union treats workers like consumers of the services they provide. It doesn't deserve to be called a union,” the socialist publication Jacobin Magazine wrote in an early critique of the organization.57
Advocacy Groups A final segment of civil society whose concerns should be heard in the stakeholder model are the newly formed advocacy groups and other movements asking for social justice.
They are often led by new generations of citizens and workers, whose concerns will only grow over time and whose pulse is, therefore, closer to the future direction of any society.
A society can only advance if everyone is on board, and it is no longer acceptable to leave anyone behind.
In response to these demands for social, economic, and climate justice, company management and boards should first of all subscribe to the notion of stakeholder responsibility and make it an agenda point on their quarterly and annual meetings.
Second, they should be explicit about the targets they have in domains such as diversity and inclusion, pay equality, and wage levels and indicate which groups they are seeking engagement with. (In recent years, some US companies, from FirstEnergy61 to Starbucks,62 have started to tie executive pay to diversity hiring and promotions.)
Finally, they should report every year on the progress they have made on their chosen metrics and targets and be accountable to their stakeholders on their progress.
the World Economic Forum's Global Shapers, a network of young people from around the world. (The Forum created the community of Global Shapers to ensure that the next generation—people between age 20 and 30, roughly—would be empowered to help shape our common future, by informing each other about the local and global challenges they see and addressing them together. It is active in more than 400 cities all around the world, from Atlanta to Accra, and from Zurich to Zagreb.64)
The Sheedi are South Asia's largest African minority, numbering several hundreds of thousands, and “the descendants of the African slaves, sailors, and soldiers who made South Asia their home in centuries past.”65 For decades, this group was marginalized, “battling both prejudice and wider socioeconomic ills.”
Tanzeela Qambrani, then a 39-year-old Sheedi mother of three, was the first Sheedi to be elected to parliament in Sindh, the country's province with the largest African-Pakistani population. As the Shapers pointed out, “the groundbreaking election was marred by dissent, including the resignation of a fellow party member,” but Qambrani has been “vocally outspoken on the discrimination against Sheedi people in Pakistan” ever since and received support from her party leader, Bilawal Bhutto (the son of murdered former prime minister Bhenazir Bhutto). Indeed, “in March 2019 she pushed through a resolution that penalized educators who displayed racist behaviour towards Sheedi students,” the Shapers wrote,66 and “she is also leading a protest resolution in the provincial assembly against anti-Black racism in the US, in the wake of the killing of George Floyd.”
Representatives can help point to the issues minorities or other groups face and help establish credibility in their fight for justice. Reuters, the international press agency, for example, in June 2020 reported on the protest resolution Qambrani submitted in the Sindh parliament against a “wave of racism” after the killing of African American George Floyd in the US.
Similarly, our Shapers wrote an article for the World Economic Forum's Internet Agenda, again hailing Qambrani as a community leader and drawing parallels between the Black Lives Matter fight for social justice in the US and that of the Sheedi in Pakistan. In both cases, Qambrani's status as MP helped establish the credibility of the article and with it, the cause it was about.
The lesson of Mærsk, New Zealand, and the civil society groups we just discussed is that success of organizations and individuals cannot be achieved in following traditional patterns.
The time where an organization has only its own interests in mind and pursues them without taking into account the interests of its stakeholders is over. In a society that is so interconnected and where the success of each actor depends on great connectivity and interaction with many other actors, decisions can only be taken if there is a positive outcome for the whole system.
39 It is not hard to understand some of its drawbacks: GDP goes up when oil or coal is produced and consumed, but it goes down when people switch from using a car to a bicycle or public transportation (assuming a car is more expensive). GDP also goes up when banks post financial profits, but it remains stagnant when digital innovations get introduced that make our lives easier.
my belief that a more virtuous capitalist system is possible was reaffirmed by the “Stakeholder Capitalism Metrics” initiative of the Forum's International Business Council led by Brian Moynihan of Bank of America.
around 2016 a handful of business leaders emerged who wanted the private sector to play a concrete role in achieving the United Nations Sustainable Development Goals (SDGs). Individuals such as Brian Moynihan and also Frans van Houten of Philips and Indra Nooyi, then at PepsiCo, subscribed to this notion and enlisted many of their peers to sign a compact confirming their commitment.
In the following years, pressure from social and climate justice movements such as Fridays for Future (inspired by Greta Thunberg), #MeToo, and Black Lives Matter added to the sense of urgency. Business needed to do more than make a well-intentioned but vague pledge.
By the summer of 2019, Brian and others put forth the idea of creating a tool to measure themselves, to replace the “alphabet soup of metrics”2 that existed until then. By the fall, the work was underway, and the “Big Four” consulting firms—Deloitte, EY, KPMG, and PwC—signed on to define the metrics.
I hope that you concluded—as have I—that the state of the world isn't a given but that we can improve it if we are all committed to a better world.
That is the essence of stakeholder capitalism: a global economy that works for progress, people, and planet.
I would like to thank my late parents, Eugen Wilhelm and Erika, who, despite living in extremely difficult circumstances during the war and in its aftermath, provided me with all the possibilities to become an international citizen. Through my parents, I got to meet people from other countries, to travel, and to study abroad. My father was also a role model in another way. He inspired me in his own role as company leader but also in his role of assuming many functions in the public life in post-war Germany, to embrace the stakeholder model. He demonstrated that business leaders should bring their experience and capabilities also to public functions and that we should all try and build a better world together.