The collapse of the communist regimes in Europe, almost 30 years ago, marked the beginning of the steady domination of capitalism as the primary way of economic thought, not only in previously socialist states, but also across the world. The world’s leading economic powers nowadays adopt a decentralized system of production, employing legally free labour and privately owned capital in their economic systems, and compete in the global markets. But what is the future of this “school of thought”? Is capitalism strong enough to survive the passage of time?
America has become the synonym of capitalism, though some suggest the other way round is also true. Undeniably, American capitalism is the purest, freest from of the model that is currently adopted and that lies at the heart of the global market economy. Now, the continuously worsening climate crisis and the increasing social challenges have raised more questions about the viability of the system. There’s a common sense among businesses and world leaders that the prevailing economic ideology, which has reigned unstoppable for the past 40 years, is in need of an update.
“And now, what?” you may rightly ask.
Now is the time when the tide has already started shifting. The need for a model that encompasses capitalism’s core values, but also contributes to the closure of the income inequality gap and becomes more aligned with economic goals set by the UN, the World Bank and the World Economic Forum, has become the primary concern of economists and dominant market players, such as Larry Fink of BlackRock, the world’s largest investor with $7 trillion in assets under management.
Is the current model of capitalism unsustainable? Probably, as has been argued by leading CEOs and economic scientists. Undoubtedly, the model as a form of economic thought has been very successfully employed and has delivered very fruitful results, allowing economies to expand further in the span of the previous decades. But what the world now needs is a new era of capitalism, a new wave of economic thought.
The prioritization of short-term profits at the expense of other goals can no longer be a viable model. This outdated system has to be replaced by the so called “stakeholder capitalism”, under which profit maximisation remains a key element of the entrepreneurs’ goals, but also encourages entrepreneurs to take active steps towards meeting social and environmental goals. The pivotal role of companies in the economy is not the issue that comes under the microscope; their orientation, however, is.
Our social systems are cracking and can no longer contribute in sustaining inclusive growth. Though we shouldn’t want to replace that system, its current form strongly endangers its survival prospects. Unless rigorous reform derived from within takes place, the likelihood of survival is dangerously low.
What can be done to ensure that the move towards “stakeholder capitalism” is not only successful but also viable for the worlds’ very diverse economies?
The “green challenge”, the social inequalities and ongoing political crises demand laser-like focus. This means that there is a potent need for remedies that will improve the triangular relationship between businesses, society and the government. The latter is continuously faced with new social, political and economic challenges, which weaken its grip on power and leave the monitoring of the economic sector unattended. The weakening of the government has, therefore, as a result the undermining of the role of corporations as drivers of economic growth.
Corporations need to be able to set clear and definite goals, which will be related to economic growth but that will also pay close attention to sustainable actions and social progress. In this process, the measurement of correct indicators is necessary. Businessmen need to have a clear view of the exact performance of their enterprise, so as to be able to shift their attention on all the sectors of their corporation which need greater focus.
The only way to ensure that such situations will no longer prevent economic growth is that corporations and governments form closer bonds and align their policies together in pursuit of similar goals. The desire for profit and growth maximisation should still be at the heart of both institutions, yet the incorporation of planning to achieve social and environmental goals is necessary. Businesses should become more committed to paying fairer prices and salaries and respond to the taxation rules set out by each government, so as to turn this school of economic thought into both an applicable and social-friendly system.
Corporations should also rethink their stance towards government regulations. It may be true that the greater the degree of freedom, the better the environment for businesses. Yet, the rapidly changing conditions of the market may deem additional oversight necessary. As Facebook founder Chris Hughes argues, “we can get regulation right”. Hence, should a private industry be recognized as crucially important in the operation of the economy, governments have to ensure that this firm is operated by the people and for the people. A closer alignment of the government and the corporations, therefore, might seriously contribute to better long-term performance.
These steps will require no small changes; the transition to a more sustainable, more inclusive economic model never comes at a low cost. Yet the fruitful results it will produce will ensure the future of capitalism, while at the same time embracing the new decade’s social issues of equality, environmental protection and sustainability.
The joint efforts of corporations and businesses to pursue these goals, rather than one entity posing as the “Leviathan” of capitalism’s future will ensure the viability, success and future of the world’s dominant economic model. Providing incentives to firms as well as the government to adopt this specific line of action would ensure that the majority of the aforementioned proposals is actually implemented. Societies have developed in such ways, in which incentivisation of individual actors has become a challenge for the government. This is why the formation of closer bonds between these two institutions through the alignment of their goals and prospective actions, would ensure the smoother operation of our ever-changing economic societies.
Humanity has never had to deal with the challenges our societies are currently facing. The viability and duration of capitalism was never questioned, primarily because the focus of governments and corporations was turned elsewhere. Nowadays, the several and ever-escalating crises call for the modernization and rapid updating of the leading school of economic thought.
It might be time to re-write the chapter on capitalism, before it’s too late.
by Katya Mavrelli