Chief economist, the Institute for Public Policy Research
“We need an economy in which markets serve society, not the other way round”
One doesn’t need to look far to see evidence of problems with the UK’s current brand of capitalism. Although the employment rate is currently high, an increasing proportion of workers are in low-paid, insecure work, and increasingly, work is no guarantee of escape from poverty. Earnings growth has consistently disappointed since the financial crisis. At the same time, wealth inequality has steadily increased, with the long-term trend of rising house prices widening the gulf.
The IPPR Commission on Economic Justice argued that to solve these long-standing problems, the economyneeds to be hard-wired for economic justice, rather than hoping the benefits of economic growth will trickle down to the population at large.
This will require several shifts. The financial sector will need to move from focusing on short-term profits to long-term investment. Our industries will need to get much better at selling goods and services to the rest of the world – which requires a more active and commit- ted industrial strategy.
Rather than prizing employment of any kind, even when it is low-pay and low-skill, the government will need to focus on making our ‘everyday economy’, which provides the basic necessities of life, more dynamic and productive – which will involve embracing new technologies and speeding up their adoption by our businesses. And we will need to break out of our current trend towards ever-greater market concentration to more open markets that promote investment, innovation and entrepreneurship.
We need an economy in which markets serve society, not the other way round. By rethinking our current version of capitalism we can create an economy that works for everyone.
Professor Atul K Shah
Chartered accountant and author of four books published by Routledge
The 21st century has shaken the core of our thinking – we cannot separate animals and nature or continue to exploit them. Capitalism, by assuming that material prosperity is the best way to achieve happiness, embodied a certain way of viewing nature, and in the process transformed our culture and society towards exploitation and violence.
I have tried to explore this thinking and its relationship to corporate fraud, corruption and failures. When I studied the failure of HBOS, I found that the board and auditors became intoxicated by the power of money, rather than responsibility and accountability. My own Jain culture and wisdom has a different way of looking at the world, where humans are responsible and accountable trustees, and must act with the minimum of violence (ahimsa).
This philosophy has also given the Jains sustained success in business and finance, illustrating that there are other ways of living, caring and giving. In my book Reinventing Accounting and Finance Education, I chart a new hopeful course for educators to take responsibility for the content of their theories, and make them more holistic, sustainable and compassionate. Such a journey can be peaceful, joyful and harmonious for animals and nature.
Capitalism detached business from social and environmental responsibility and encouraged the accumulation of wealth and abuse of power. This can and must be reversed, and we have the wisdom to be able to transform ourselves. Let us rise to the challenge.
Mark L Vorsatz
Managing director, Andersen Tax
The fundamental aspect of capitalism is that the means of production and resource allocation are controlled by private enterprises and are determined by market forces rather than centrally controlled and planned by a state economy. Inherently, this creates efficiencies because the law of supply and demand determines how the market allocates resources.
In the ideal business environment, private enterprise would address some of the issues of market inequality and combine in a public- private partnership to establish a social contract with employees, while creating opportunities for professional and financial growth. The outcome of these decisions must be made so that people feel a sense of ownership.
As companies mature, the challenge is to maintain an entrepreneurial environment where individuals are motivated to take initiative, improve productivity, and create a stimulating atmosphere of creativity. It equates to balancing the advantages of scale with the benefits of a small business.
We have experienced exponential growth and some of our success has been a function of operating in a decentralised manner. This facilitates a nimble environment where individuals take ownership for the activities and are motivated to grow with increased profitability. Colleagues learn from each other to improve processes and develop consistency.
When we restructured our business last year, we engaged with 32 partners representing most of our countries so we all had ownership in the process. The outcome resulted in a model that phases in global profit sharing but retains a material local profit share to drive collaborative behaviour as well as economic motivation.
We want to attract people who do not want to be managed but want to work within an organisation that values their input and rewards their success. Leadership is not about titles but the ability to persuade one to a point of view. This creates ‘owners’ of the business and not ‘employees’.
Chair, the Maturity Institute and author with Stuart Woollard of The Mature Corporation – A Model of Responsible Capitalism
“We have all benefitted from capitalism but it is a system that must now be redesigned”
Capitalism was a naturally occurring human system long before govern- ments and regulators got involved. Natural systems are not always the best designed though and failure can be traced back to humans. Some people play by their own rules; others game the system (tax avoidance). The global financial crisis cruelly exposed the power of human behaviour to destroy the whole system.
Behind the PR veneer of corporate reporting is a wild beast straining at the leash of Adam Smith’s ‘theory of moral sentiments’, his lesser-known work that imbues his Wealth of Nations with its social licence. We have all benefitted from capitalism but it is a system that must now be redesigned to heal itself. It has to be driven explicitly by societal value, not profit.
Balance sheets and P&L conventions never accounted for the ‘intangibles’ of corporate governance and culture, so it is no wonder this failing under- mined the whole edifice. Shareholder and societal interests are neither mutually exclusive nor a zero-sum game. There is already clear and convincing evidence that the best returns come from companies that put customers and society first.
If accounting theory and practice can catch up with this reality the profession will be able to transform itself.
It means learning how the scientific method can be applied to intangibles. Measures of sound corporate governance and healthy organisational cultures are available for your next annual report. Capital- ism is still the best option available for total stakeholder value and social cohesion. It requires more than a makeover. This is a new paradigm of responsible, inclusive capitalism.
Innovation, inclusion and growth director, the City of London Corporation
“Change happens in stages. The UK is trailing some truly vibrant alternatives to business as usual”
Thirty-one years ago, the City of London Corporation launched the Lord Mayor’s Dragon Awards – a celebration of the businesses that have a positive impact on society’s most pressing problems.
The responsible business bug has taken hold across a huge range of sectors and sizes of firms. The early applicants primarily volunteered in schools and didn’t always think about how they could have a sustained positive impact. But recently we’ve seen much more diverse applications – from developing a programme to address the STEM skills gap to providing legal support for an app providing vision- impaired people with audio-directions around the London Underground.
I’ve also seen firms adopt a more philanthropic approach, with an increasing emphasis on how they give away money or time, and a focus on internal operations – fair recruitment, and responsible procurement. The next frontier will be in how companies make their money as the case for responsible business grows.
The UK is trailing some truly inspiring alternatives to business as usual, with a vibrant social enterprise economy and the growth of the ‘B Corp’ movement, which pushes businesses to work for the triple bottom line: people, profit, planet.
We have long championed responsible business, whether it be the Dragon Awards or more recently our work supporting the future of green finance – with our Green Finance Initiative bringing together some of the world’s foremost thought leaders and businesses promoting green finance globally. Change happens in stages, by individuals and in collectives, and I am confident that together we will keep making progress.
Managing director, The Supper Club
Capitalism has morphed into a more purpose driven idea. This change is partly due to the expectations of the millennial workforce and the need for employ- ers to demonstrate a bigger unifying purpose to recruit and retain top performers. Technology is also enabling Gen X to work more flexibly.
The Supper Club has been tracking recruitment and retention trends with high-growth entrepreneurs over the last two years. Its Talent Tactics report presented case study insight from 25 entrepreneurs, which found that founder-led businesses are success- fully competing for talent against corporate employers because they can offer an authentic sense of purpose. Millennials want to feel that they’re having an impact. Many prefer status or an opportunity to learn.
Millennial founders have built their businesses around purpose from the
outset and better understand the need to find out what personally motivates each employee. They have found that an investment in personal and professional development instils more loyalty because it’s tracked to a clearly defined career path. They prefer spot bonuses, rewards and recognition to share schemes and options because they are more immediate.
Leaders need to adapt more quickly because they are recruiting people used to a rapid pace who expect accelerated career progression. Flexibility and autonomy are more important for millennials who are at a later stage in life in career and more conscious of work life balance. Advances in communication technology and the rise of the co-working space have enabled this flexibility. Employers have embraced the freelance and gig workforce because employment costs are lower.
This has created a more even balance of power between employers and employees; but it has also created new challenges, like the tax implications of a freelance workforce, the skills needed to manage remote workers, and how to find, motivate and develop future MDs and CEOs.
Vice president, the Aspen Institute
I wish we could stop using the word capitalism.” So began a speech delivered in March 2018 by economist and scholar John Kay, who was examining the ways in which Apple is typical of a fast-moving modern business. The company has very few assets. Its full-time global labour force logs in at about 125,000. It is what Kay calls a ‘hollow’ corporation; one where the only thing shareholders own is the stock certificate itself.
For stocks that dominate the market – Apple, Amazon et al – the capital deployed to produce the product does so at a great remove from the company. If there is real estate involved, it might be owned by a sovereign wealth fund. Employees who touch the product, if the company manufactures at all, are contractors in an equally remote location. The need for fresh capital is modest, or even non-existent. Companies that go public today are doing it to allow the venture capitalists and early round investors to exit.
Private shareholders, who can exit the stock or are protected by a broad index, bear a lot less risk than employees who may have shares but also derive their income directly from the enterprise. Increasingly, society asks, do employees receive a fair share of the profits?
If capital is not central to the enterprise, company executives and directors need to rethink priorities. The real conversation about corporate risk and reputation has moved from Wall Street to employee hangouts – virtual ones like Glassdoor, and real ones like interview rooms on college campuses – and into the public square.
This is where company executives invest to save or build reputation. The young talent a company hopes to attract and retain has big ideas about the business of business. The wealth of individuals who own stock on a given day isn’t a priority. The stock market is aftermarket, pure and simple. Intangibles – asset-light and much less dependent on capital are the true measure of value. Whither capitalism?
Managing director, Reboot Digital Agency
“It’s no longer primarily about making a profit to satisfy and benefit shareholders”
We live in a turbulent economic climate. This has created uncertainty, which has clouded the ability of households and businesses to make calculated and secure choices.
The principles of capitalism have steadily evolved. It’s no longer primar- ily about making a profit to satisfy and benefit shareholders, senior manage- ment and owners. Many organisations realise that customers should be at the heart of any decision they make.
In the past this may have been hard to conceptualise and achieve, but we are now living in an era where organisations have a plethora of tools to gain better customer insights. Big data allows them to understand the vital attributes that shape the decision-making process.
In creating these profiles, organi- sations can better improve their product/service offering, which means better retention and acquisi- tion of customers. Organisations benefit from greater loyalty and higher revenue streams, which they now realise should be distributed back to improving their products/services and the employees who contribute towards their success. This rewards the best talent and ensures a more motivated workforce to weather the tough economic times and maintain competitive advantage.
Chief executive, ICAEW
I am sceptical of things claiming to be ‘new economics’ – they invariably turn out either not to be new, or not to be economics. Capitalism has existed in forms not very different from now since the 14th century, and throughout that time has assimilated fundamental changes in society, technology, growing populations and an ever-changing environment. The question is not “is capitalism sustainable?” but “how will it adapt to today’s challenges?”.
This is not to say no changes are necessary. We are operating a tax system originally designed for the first Industrial Revolution. This may not be appropriate to a new, more dynamic, shifting economy, with a significant increase in freelancing, contracting and portfolio careers. We need to anticipate how to sustain public finances in a world where more labour is automated – how do you tax a robot? Medical advances mean an ageing population requires exponentially more expensive care. Career structures, and companies, will need to change.
The nature of capital, too, is changing. In the modern world data is a currency. The internet may be nearly 30 years’ old, but we are still in the early days of an information society; today’s young people are digital citizens in a way their forebears aren’t. How do we manage value in such a society? How do we prevent disenfranchisement, regulate markets? There is as much need to maintain the social contract now as there was in the age of Rousseau.
It is worth remembering what capitalism has delivered. Life is no longer “nasty, brutish, and short”. At the turn of the 20th century, 25% of the UK population were categorised as living in absolute poverty. By 1959, a Labour government was able to announce we had “abolished dire need and want”.
In the 1840s starvation was a leading cause of death in the UK; it is all but eradicated today. But obesity is now a leading health concern. As we move to a more technological society, capitalism will need to adjust in order to accommodate the new normal. But history tells us that it will.
Assistant professor of business ethics, Trinity Business School, Trinity College Dublin
A common misconception about capitalism is that it is fundamentally amoral. The history of capitalism demonstrates that it is constrained by shared ideals. Markets reflect an evolving shared morality of what is acceptable economic behaviour. This is why market norms have gradually moved from condoning to rejecting transactions involving human trafficking, child labour, and sexist exclusions to the ownership of property.
Still, there remains a widespread attitude that takes capitalism as amoral, and the truth is that this view is not entirely mistaken. For as Marx realised long ago, there is a corrosive cultural aspect to economic incentives. And in a cultural atmosphere in which those incentives become ubiquitous, there is a real danger of widespread dissolution of civic engagement and collective concerns that are detrimental to sustainability and aggravate inequality. There is also the problem of our increasing consumer interactions with AI-assisted platforms programmed to outsource annoying and mundane tasks. While these services are convenient, the more we outsource ordinary activities to automated systems, the more control we cede over our lives.
We may find that this can lead to significant losses of agency and responsibility, detachment, deskilling and ignorance. We need to design market environments that work to hone our moral attention by triggering self-reflection on our own economic activities. The new iPhone gives its users greater control over their screen time usage.
This kind of design approach could be used to restore our moral attention in many different areas of life from smart refrigerators helping us to take better control of our dietary habits, to mapping technology that helps keep us aware of our surroundings, to personal assistants that help us develop more refined tastes in leisure activities. There is great potential for increasing general wellbeing via this new market for moral attention.
Marc Ruiviejo Cirera
Founder, Companies for Good
“There is a form of business that will transform the world economy for good social enterprises”
Capitalism is the best-known system for economic growth. But when it comes to making us happier, healthier and more sustainable, capitalism isn’t delivering on its promises. You only need to look around to realise that capitalism is benefiting a few.
Capitalism’s intrinsic purpose is to maximise profits and achieve growth. But how can we grow endlessly in a finite world? Climate change and resource scarcity are a reality. Even if the capitalist system does manage to create wealth and social equality, it will be in vain if we don’t have quality air to breathe or water to drink.
We’re not doomed to collapse. There is a form of business that will transform the world economy for good. Social enterprises are businesses whose purpose is to maximise economic, social and environmental performance.
Last year I founded my own social enterprise in Dubai, Companies for Good. We connect organisations with opportunities to do good – for their communities and environment. I spent years as a consultant helping big businesses become more sustain- able. Now, I’m able to help businesses make the world more sustainable. Capitalism might be failing us, but I know that companies – and the people working for them – have the potential to save us.
Inclusive economy lead, Nesta
“Capitalism must create value with values – recognise that business is not apolitical”
To tackle the most pressing problems the world is facing, such as inequality, poverty, homelessness and climate change, we need to use the unique resources, skill sets and power of multiple sectors.
Without the private sector it is difficult to reach the scale and systems change that is required to solve these challenges. However, for too long the private sector has acted in a separate part of society – creating value too often by extracting value from society and just sometimes returning some of that to the community through donations and philanthropy.
Capitalism must create value with values – recognise that business is not apolitical. Each action has consequences and leaders can choose to do this in a way that promotes inclusive growth and shared prosperity rather than the winner takes all.
At Nesta, the UK’s innovation foundation, we work with business, civil society and government to form innovative partnerships that drive value and values. We are on a mission to move corporate social responsibility beyond compliance and public relations to corporate social strategy with social objectives at the heart of business.
We believe corporate social innovation is one way to achieve this. We are working with large private sector organisations to engage in social innovation and test this new operating model for government and business through the Inclusive Economy Partnership, which is a unique partnership between government, business and civil society led by the Cabinet Office and DCMS. Nesta acts as a backbone to support social innovators to engage with, and scale with the support of the partners. The future of capitalism is inclusive, shared and requires collaboration.
Frank van Lerven
Economist, the New Economics Foundation
People in the UK have been through a ‘lost decade’ of growth. Many are feeling left behind as capitalism in its current form is not working for them. Our economic model is edging towards the brink of collapse; without serious overhaul it not only threatens the foundations of our democracy but the ecosystem we depend on.
We have an economy, powered not by business investment but by household consumption, unsustain- ably fuelled by historically high levels of household debt. It is severely unbalanced, heavily skewed towards property markets and the financial sector.
As property prices reach new heights, affordable housing wanes. As financial markets soar, wages, productivity and investment languish.
Corporate models of governance put shareholder interest first, pouring company profits into dividends and shareholder buy-backs instead of wages and investment. These models often mean short-term profits are prioritised.
Harnessing capitalism to serve people and the environment is now the most important project of our time. We need capitalism with a purpose, guided by the principles of the people who experience it. We need a version that is genuinely geared towards empowering people and protecting the planet. This means encouraging and discovering new models of co-operative ownership, building a decentralised and active state, and driving powers down to the level of communities.
It requires fashioning a capitalism that seeks to build the space for progressive business to thrive, while curbing the practices of corporates, which work against our collective interest. Finally, it means re-aligning finance with democratically defined social goals, to help us tackle some of our biggest and most pressing challenges – such as climate change, the housing crisis, inequality, and the productivity puzzle.
Capitalism with a purpose, that puts people and planet before the interest of the market, is not only possible, it is urgently necessary.