Leaders 7A
cross theWest, capitalismisnotworking aswellasit
should. Jobs are plentiful,butgrowthissluggish,inequality
is too high and the environmentissuffering.Youmighthope
that governments wouldenactreformstodealwiththis,butpol-
itics in many places is gridlockedorunstable.Who,then,isgo-
ing to ride to the rescue?Agrowingnumberofpeoplethinkthe
answer is to call on big businesstohelpfixeconomicandsocial
problems. Even America’sfamouslyruthlessbossesagree.This
week more than 180 of them,includingthechiefsofWalmartand
JPMorgan Chase, overturned three decades of orthodoxy to
pledge that their firms’ purposewasnolongertoservetheirown-
ers alone, but customers,staff,suppliersandcommunities,too.
The ceos’ motives arepartlytactical.Theyhopetopre-empt
attacks on big business fromtheleftoftheDemocraticParty.But
the shift is also part of anupheavalinattitudestowardsbusiness
happening on both sidesoftheAtlantic.Youngerstaffwantto
work for firms that take astandonthemoralandpoliticalques-
tions of the day. Politiciansofvarioushueswantfirmstobring
jobs and investment home.
However well-meaning,thisnewformofcollectivecapital-
ism will end up doing moreharmthangood.It risksentrenching
a class of unaccountableceos wholacklegitimacy.Anditisa
threat to long-term prosperity,whichisthebasicconditionfor
capitalism to succeed.
Ever since businessesweregrantedlimited
liability in Britain and Franceinthe19thcen-
tury, there have been argumentsabout what
society can expect in return.Inthe1950sand
1960s America and Europeexperimentedwith
managerial capitalism, in which giant firms
worked with the governmentandunionsand
offered workers job securityandperks.Butafter
the stagnation of the 1970sshareholdervaluetookhold,asfirms
sought to maximise thewealthoftheirownersand,intheory,
thereby maximised efficiency. Unions declined, and share-
holder value conquered America,thenEuropeandJapan,where
it is still gaining ground.Judgedbyprofits,ithastriumphed:in
America they have risen from5%ofgdpin 1989 to8%now.
It is this framework thatisunderassault.Partoftheattackis
about a perceived declineinbusinessethics,frombankersde-
manding bonuses and bail-outsbothatthesametime,tothesale
of billions of opioid pillstoaddicts.Butthemaincomplaintis
that shareholder value producesbadeconomicoutcomes.Pub-
licly listed firms are accusedofa listofsins,fromobsessing
about short-term earningstoneglectinginvestment,exploiting
staff, depressing wages andfailingtopayforthecatastrophicex-
ternalities they create, inparticularpollution.
Not all these criticismsareaccurate.InvestmentinAmericais
in line with historical levelsrelativetogdp, andhigherthanin
the 1960s. The time-horizonofAmerica’sstockmarketisaslong
as it has ever been, judgedbytheshareofitsvaluederivedfrom
long-term profits. Jam-tomorrowfirmslikeAmazonandNetflix
are all the rage. But someofthecriticismringstrue.Workers’
share of the value firms createhasindeedfallen.Consumersof-
ten get a lousy deal and socialmobilityhassunk.
Regardless, thepopularand intellectualbacklash against
shareholdervalueisalreadyalteringcorporatedecision-mak-
ing.Bossesareendorsingsocialcausesthatarepopularwithcus-
tomersandstaff.Firmsaredeployingcapitalforreasonsother
thanefficiency:Microsoftisfinancing$500mofnewhousingin
Seattle.PresidentDonaldTrumpboastsofjawboningbosseson
wheretobuildfactories.Somepoliticianshopetogofurther.
ElizabethWarren,a DemocraticcontenderfortheWhiteHouse,
wantsfirmstobefederallycharteredsothat,if theyabusethein-
terestsofstaff,customersorcommunities,theirlicencescanbe
revoked.Allthisportendsa systeminwhichbigbusinesssets
andpursuesbroadsocialgoals,notitsnarrowself-interest.
Thatsoundsnice,butcollectivecapitalismsuffersfromtwo
pitfalls:a lackofaccountabilityanda lackofdynamism.Consid-
eraccountabilityfirst.It isnotclearhowceos shouldknowwhat
“society”wantsfromtheircompanies.Thechancesarethatpoli-
ticians,campaigninggroupsandtheceos themselveswillde-
cide—andthatordinarypeoplewillnothavea voice.Overthe
past 20 yearsindustryandfinancehavebecomedominatedby
largefirms,soasmallnumberofunrepresentativebusiness
leaderswillendupwithimmensepowertosetgoalsforsociety
thatrangefarbeyondtheimmediateinterestsoftheircompany.
The second problem is dynamism. Collective capitalism
leansawayfromchange.Ina dynamicsystem
firmshavetoforsakeatleastsomestakeholders:
a numberneedtoshrinkinordertoreallocate
capitalandworkersfromobsoleteindustriesto
newones.If,say,climatechangeistobetackled,
oilfirmswillfacehugejobcuts.Fansofthecor-
porategiantsofthemanagerialerainthe1960s
oftenforgetthatat&trippedoffconsumersand
thatGeneralMotorsmadeout-of-date,unsafe
cars.Bothfirmsembodiedsocialvaluesthat,evenatthetime,
were uptight.They were sheltered partly because they per-
formedbroadersocialgoals,whetherjobs-for-life,world-class
scienceorsupportingthefabricofDetroit.
Thewaytomakecapitalismworkbetterforallisnottolimit
accountabilityanddynamism,buttoenhancethemboth.This
requiresthatthepurposeofcompaniesshouldbesetbytheir
owners,notexecutivesorcampaigners.Somemayobsessabout
short-termtargetsandquarterlyresultsbutthatisusuallybe-
causetheyarebadlyrun.Somemayselectcharitableobjectives,
andgoodlucktothem.Butmostownersandfirmswilloptto
maximiselong-termvalue,asthatisgoodbusiness.
Italsorequiresfirmstoadapttosociety’schangingprefer-
ences.Ifconsumerswantfair-tradecoffee,theyshouldgetit.If
universitygraduatesshununethicalcompanies,employerswill
havetoshapeup.Agoodwayofmakingfirmsmoreresponsive
andaccountablewouldbetobroadenownership.Thepropor-
tionofAmericanhouseholdswithexposuretothestockmarket
(directlyorthroughfunds)isonly50%,andholdingsareheavily
skewedtowardstherich.Thetaxsystemoughttoencourage
moreshareownership.Theultimatebeneficiariesofpension
schemesandinvestmentfundsshouldbeabletovoteincom-
panyelections;thispoweroughtnottobeoutsourcedtoa fewWhat companies are for
Competition, not corporatism, is the answer to capitalism’s problemsLeaders
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