by Michael Roberts
Stakeholder capitalism – that’s the way to ‘shape’ capitalism
into something inclusive of all. That was the message of Klaus Schwab,
the co-founder of the World Economics Forum (WEF), now in its 50th year
with its annual jamboree in Davos, Switzerland.
Schwab was professor of business policy at the University of Geneva from 1972 to 2002. Since 1979, he has published the Global Competitiveness Report,
an annual report assessing the potential for increasing productivity
and economic growth of countries around the world, written by a team of
economists. During the earlier years of his career, he was on many
company boards, such as Swatch Group, Daily Mail Group, and Vontobel
Holdings. He is a former member of the steering committee of the
notorious Bilderberg group. This group has an annual conference established in 1954 to bolster a consensus among elites to support “free market Western capitalism” and its interests around the globe. These meetings are private and attended by the big players in the world.
Schwab now runs the WEF as a meeting place and think-tank for the
global elite in business, government and academia to develop ideas to
make capitalism work. New EU Commission President Ursula von der Leyen
nipped over to Davos this year to tell the gathering that “Davos is
the place where conflicts are averted, business is started, disputes are
finished. Thank you to Klaus Schwab for bringing together bright people
and for his vision on how to shape a better future for the world.”
And what does Schwab think we want now? Stakeholder capitalism. “Generally
speaking, we have three models to choose from. The first is
“shareholder capitalism,” embraced by most Western corporations, which
holds that a corporation’s primary goal should be to maximize its
profits. The second model is “state capitalism,” which entrusts the
government with setting the direction of the economy, and has risen to
prominence in many emerging markets, not least China. But, compared to
these two options, the third has the most to recommend it. “Stakeholder
capitalism,” a model I first proposed a half-century ago, positions
private corporations as trustees of society and is clearly the best
response to today’s social and environmental challenges.”
So the big corporations should be ‘trustees of society’ and the main force in solving “today’s social and environmental challenges”. We need to replace ‘shareholder capitalism’ which is the dominant model right now. That’s because “the
single-minded focus on profits caused shareholder capitalism to become
increasingly disconnected from the real economy. Many realize this form
of capitalism is no longer sustainable.” Also there is a popular
reaction to the failure of ‘shareholder capitalism’ to deal with rising
inequality of income and wealth, climate change and environmental
disasters and the impact of new technology. Stakeholder capitalism
instead, according to Schwab, can “bring the world closer to achieving shared goals”.
But what is this stakeholder capitalism? Schwab offers what he calls a Davos Manifesto. This calls for
“corporations to treat customers with dignity and respect, to respect
human rights throughout their supply chains, to act as a steward of the
environment for future generations and, most significantly, to measure
performance ‘not only on the return to shareholders, but also on how it
achieves its environmental, social and good governance objectives.” In
effect, then capitalism as a system of production for profit must be
transformed into a system that involves other sectors of society being
part of a corporate-led system of ‘shared goals’.
This smacks of the same themes presented by more radical economists
and politicians who seek to modify capitalism in order to make it work
for more people. There is Nobel prize winner in economics, Joseph
Stiglitz, with his ‘progressive capitalism’ and then there is the Democrat presidential hopeful Elizabeth Warren with her ‘accountable capitalism’. The
aim in all is to find a way to ‘shape’ capitalist corporations so that
they take into account all ‘stakeholders’, ie workers, customers, local
councils etc – all working together. All hope that capitalists can be
made to or persuaded to act to reduce inequality, create a better
environment and adopt moral policies in investment. As Schwab puts it: “Business
leaders now have an incredible opportunity. By giving stakeholder
capitalism concrete meaning, they can move beyond their legal
obligations and uphold their duty to society.”
Of course, this is disingenuous nonsense. Indeed, as Nick Buxton points out, “the profit motive will always win out.” He argues “nowhere
is there a mention of enforcement mechanisms, legislation or regulation
to ensure companies abide by their commitments. It is an entirely
voluntary process that is completely dependent on self-regulation, which
does not challenge the overriding profit-making purpose of
corporations.”
At the same time as Schwab and others at Davos were talking about the
mega corporations taking a lead in solving the world social problems
and not just making money, US president Donald Trump turned up to tell the elite gathered there
that it was great news that stock markets were hitting new highs, that
capitalism was doing very well thank you, and there is no need for
pessimism or talk about environmental crises or rising inequality.
At the same time that Schwab issued his Davos Manifesto, Oxfam released its annual report on global inequality.
According to Oxfam, the world’s 2153 billionaires now have more wealth
than 4.6bn people who make up 60% of the world’s population. The 22
richest men in the world now have more wealth than all the women in
Africa. Women and girls put in 12.5 billion hours of unpaid care work
each and every day —a contribution to the global economy of at least
$10.8 trillion a year, more than three times the size of the global tech
industry. Getting the richest one percent to pay just 0.5 percent extra
tax on their wealth over the next 10 years would equal the investment
needed to create 117 million jobs in sectors such as elderly and
childcare, education and health.
So much for corporate leadership in reducing inequality. And it’s
same story with climate change. Average world temperatures were at
record levels in 2019; and bush fires raged in extreme heat in
Australia, while floods enveloped Indonesia. But the United Nations report on the current emissions gap concluded that “there
is no sign of GHG emissions peaking in the next few years; every year
of postponed peaking means that deeper and faster cuts will be required.
By 2030, emissions would need to be 25 per cent and 55 per cent lower
than in 2018 to put the world on the least-cost pathway to limiting
global warming to below 2˚C and 1.5°C respectively.” As Greta Thunberg said at Davos, there is a lot of talk about dealing with climate change but little effective action.
And then there is the state of the world economy itself. While
‘shareholder capitalism’ booms, with stock markets at record highs,
‘stakeholder capitalism’ is struggling. At Davos, the IMF delivered its
report on the prospects for the world economy in 2020. Chief economist
IMF chief economist Gita Gopinath announced a reduction in its growth
forecasts for 2020 and 2021 from the previous October estimate, while IMF boss Kristalina Georgieva warned that the global economy is at risk of a return to the Great Depression of the 1930s. Georgieva said the current world economy could be likened to the “roaring 1920s” that culminated in the great market crash of 1929. “Rising
inequality and ‘increased uncertainty’ caused by the climate emergency
and trade wars was “reminiscent of the early part of the 20th century –
when the twin forces of technology and integration led to the first
gilded age, the roaring 20s, and, ultimately, financial disaster.”
What was her answer? A more inclusive financial sector! “Financial
services are primarily a good thing. Developing economies need more
finance to give everyone a chance to succeed. While fiscal policy
remains a potent tool, we cannot overlook financial sector policies. If
we do, we may find that the 2020s are all too similar to the 1920s.” But, “It’s
just that too much of a good thing can turn into a bad thing. Excessive
financial deepening and financial crisis can fuel inequality. So we
need to find the right balance between too much and too little.”
None of this inspires confidence in the likely success of ‘stakeholder capitalism’. No wonder a global survey released just before Davos found that over half of respondents believe capitalism in its current form does “more harm than good.”
That belief was expressed by a majority across age group, gender, and
income level divides. In fact, there were just six markets where the
majority did not agree—Australia, Canada, the U.S., South Korea, Hong
Kong, and Japan. Strongest support for the statement was found in
Thailand (75 percent) and the lowest level in Japan (35 percent). In the
U.S., just 47 percent agreed with the statement.
The survey also
found that 48 percent of respondents believe the system is failing them,
while just 18 percent believe it is working for them. Seventy-eight
percent agree that “elites are getting richer while regular people struggle to pay their bills.”
And in 15 of 28 markets, the majority are pessimistic about their
financial future, with most believing they will not be better off in
five years’ time than they are today.
Not much support for capitalism, whether shareholder or stakeholder.
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