There is no doubt that capitalism has brought enormous prosperity and wealth to more and more sections of the global population. But, increasingly, we hear more skeptical voices claiming that capitalism is failing, that the benefits of this prosperity are unevenly distributed and that modern capitalism is producing increased inequality and social injustice.
What then is the contemporary state of capitalism and its likely future direction? And what role might business have in providing capitalism with a new direction relevant to complex modern economies characterized by rapid technological change and increasing globalization?
As capitalism developed in the nineteenth century, numerous firms were incorporated for the purpose of building roads, canals, railroads, and telegraph lines. The improved transportation and communication infrastructure created by such firms facilitated the development of other corporations that, in turn, produced the consumer goods and services that came to dominate industrial economies. Unsurprisingly, the original architects of the modern corporate form are now regarded as some of the pioneers of the Industrial Revolution.
Of course, stock market bubbles and periodic recessions have fueled an anti-corporate sentiment and highlighted the inequalities and instabilities of capitalism. For some commentators, the capitalist system has become associated with a culture of self-interest and greed. There is no doubt that the main preoccupation of corporate managers has been on corporate profits and such exuberance has, on occasion, gone too far. The inevitable effects of corporate scandals have been feelings of dissatisfaction, frustration, inequality and — ultimately — anger (as recently shown by the Occupy Wall Street movement, for instance).
Even global celebrities — think of Leonard Di Caprio, George Clooney or Angelina Jolie — have joined the chorus of disapproving voices, using the platform afforded by their fame to berate today’s culture of corporate greed for the harm, social and environmental, that it is causing.
We need more regulation to mitigate the unfettered greed that has come to be associated with modern corporations and capitalism. However, well-intended regulatory reforms have only fed the growth of a more bureaucratic and conservative corporate culture — what can be termed a “corporate attitude” — in which initiative and imagination become marginalized and stifled.
A bureaucratic and conservative corporate culture creates strong incentives for executives and senior managers to focus on financial gains (usually short-term gains). The emphasis on investor protection communicated to key actors within the company has led to an attitude that making money for investors in the short-term is the primary index of corporate success. This emphasis on the short term might not be a bad thing. But an overriding focus on quarterly financial performance, dividends and share buy backs arguably damages a firm over time by distracting from the equally important tasks of long-term planning, product development and innovation. A paradoxical effect of regulation might be that corporations — and capitalism, more generally — become more de-personalized and associated with finance and greed, rather than delivering the kind of new products, services and experiences that made them a success in the first place.
What does business need to do in the face of these challenges?
Well, for a start, they need to move beyond the current focus on formalistic compliance and shareholder value maximization. Organizational design within large firms needs to be re-directed to the products and the people, i.e., the key determinants of firm success.
Today’s consumers expect products to deliver efficient performance over time. That much is obvious and, at least in this regard, there is little difference between earlier forms of capitalism and today. What has changed, however, are consumer expectations regarding the speed with which innovation in functionality is brought to market. Consumers of today — particularly, but not exclusively, Millennials — demand constant innovation and even disruption in functionality, leading to much faster innovation cycles.
Particularly important in a contemporary context is the role that consumption plays in constructing a personalized and authentic experience of self-improvement. Again this is a phenomenon that is particularly associated with Millennials. An individual’s consumption activities become central to highly personalized narratives of self-control, participation and identity. In this respect, consumers expect products to be aspirational, as well as functional and connected. Product choices are expected to provide an individual with the opportunity to make a statement about who they are and what they stand for. Products are expected to inspire and, by doing so, to allow an individual to push beyond their perceived limitations and to develop themselves, often as members of a community of users that matters to them.
A second way that contemporary consumption has become a site for personalized expression is connected to the environment. A commitment to environmental sustainability has become part of the personalized expression that Millennials, in particular, are pursuing. Both in terms of product performance and working environment, individuals demand firms to act in a more environmentally responsible manner.
What then should firms do to offer the most meaningful experience for people, i.e., consumers and stakeholders?
In answering this question, we want to suggest that best practice in this field is currently driven by a desire to“un-corporate” the firm. Firms that are grappling with the twin challenges of business complexity and regulation often see talent leaving for more agile competitors, usually resulting in chaos within the firm. But the world’s most innovative firms appear to have found a way to increase the proportion of talent even as the company and business complexity increase.
The latter firms understand that culture matters. The more “corporate” a firm acts, the more likely the exit of talent. Again, this is particularly true for Millennials who often abandon a firm once it starts “corporatizing” and exhibits signs of being transformed into an unwieldy and bureaucratic multinational.
Acknowledging the importance of adopting an “un-corporate” / “personalized” culture also allowed my co-author Mark Fenwick and I to re-visit contemporary debates around capitalism in our recent paper The Future of Capitalism. The corporate’s main objective of “making money” should no longer be thought of as the primary goal of business, but rather as a “by-product” of delivering a meaningful experience to the consumers of a firm’s products, as well as employees and other stakeholders working in that firm. As such, it could plausibly be argued that contemporary “capitalism” is developing a distinctive character that we might describe as “entrepreneurism” or “human capitalism”.
Along with a number of other commentators who have reflected on the value of capitalism in the wake of the 2008 Financial Crisis (e.g., John Plender, a business and economics journalist at the Financial Times, in his book Capitalism: Money, Morals and Markets) this approach involves advocating a middle way between a neo-liberal, market fundamentalism, on the one hand, and an outright rejection of capitalism, on the other. It involves recognition of the diverse benefits that capitalism provides, but also acknowledges the validity of arguments about the morality and sustainability of any model of capitalism that over-emphasizes the pursuit of money.