Capitalism’s New Agenda
Do Wall Street protesters have a point?
It was easy to dismiss the Occupy Wall Street protesters. By many accounts, they were disorganized, lacked a clear agenda, advanced arguments that were inconsistent and poorly reasoned, and had no solutions. In style, they were a bit too scruffy and theatrical for some people. But odd as it may seem, their concerns were not very different from the concerns we heard when we talked to business leaders around the world about the problems they thought might constitute material threats to the sustainability of market capitalism.
As part of Harvard Business School’s centennial celebration a few years ago, we convened groups of business leaders in Europe, Asia, Latin America, and the United States to consider the future of the global market system. In keeping with the School’s learning model, we provided participants with a “case”—this one consisting of the World Bank’s scenario for global economic progress out to 2030. While cheered by the prospect of continued economic growth that is expected to triple the middle class from 400 million to 1.2 billion people, the business leaders were disturbed by the growing inequality of income within many nations, across nations, and across regions. Half the world’s poor are projected to be in sub-Saharan Africa, living on incomes a small fraction of those in developed countries. Of 4.1 billion workers, 3.3 billion will be unskilled and living in developing countries. In developed countries, the benefits of growth increasingly will be enjoyed only by the top quintile, and mostly by the top 1 percent.
The business leaders we spoke to were disturbed by the environmental challenges of climate change, scarce water, and depleted fish stocks as well as by human migration driven by both income inequality and the environment. Interestingly (given that we interviewed them in late 2007 and early 2008), they were very concerned about the volatility and fragility of the financial markets. They thought the financial world had become detached from the real economy. And they were distinctly upset by the potential for populist reaction to these problems that could lead to damaging legislation.
We classified what we heard as 10 potential disrupters of the global market system: the functioning of the financial system; barriers to world trade; inequality and consequent populism; migration; environmental degradation; failure of the rule of law; failures of education and public health; state capitalism; radical movements and terrorism; and pandemics. But the business leaders were also disturbed by an 11th disrupter: the inadequacy of existing government and multilateral institutions to deal with these problems. When we stepped back from our discussions and considered what was being said, it was clear that the golden goose—global market capitalism—was at risk from the impact of an interrelated set of forces more powerful than the economic and political capabilities of national governments.
What did these leaders think should be done? Their answers varied. Some thought that bad things happen on occasion and that if governments didn’t get in the way too much, things would sort themselves out, and we would muddle through. Others were very worried that governments would intervene with populist remedies that would make things worse, but were against any intervention by business because business had no legitimacy—“it’s above my pay grade.” Still others thought that business should use its influence to activate government. A final group thought companies were the only ones that had the capability to turn the problems identified into opportunities.
This last group, which saw the innovative potential of companies as the way out, interested us most. Working alone or in coalitions, they saw the possibility of building businesses using the kinds of innovation and technology that brought hundreds of millions of rural poor into the market system (as China Mobile did by bringing mobile phone service to the Chinese countryside), that brought medicine where it had been unaffordable (which the Indian pharmaceutical firm Cipla did with HIV/AIDS drugs in Africa), and that brought housing to the urban poor (one of CEMEX’s accomplishments in Mexico).
Based on our research, we believe the time has come for companies to accept the challenge to use their entrepreneurial skills on a broader canvas. Companies today complain that their recruits aren’t adequately educated. In response, they are going to have to either train their workers themselves or go elsewhere to find customers. Bankers bemoan Dodd-Frank, but where is the financial industry’s proposal for adequate capital and an end to predatory lending practices? Firms lament skyrocketing health-care costs, but why is there such a limited effort to organize preventative care? Cutting Medicare will not stop the epidemic of obesity.
The market system cannot work if its consequences are seen to be unfair, in the sense that its benefits are not distributed widely. That is what our business leaders said—and that seems to be what the protesters are saying as well. Many of them are upset because they are young, without jobs, and well aware that their future is uncertain.
Rather than dismiss the protesters for not being able to understand or provide solutions for the problems they identify, we might do better to worry what the consequences might be if the real concerns they identify become the basis for populist political legislation. Defenders of capitalism need to get busy solving the problems the Wall Street occupiers have spotlighted.
—The authors, all professors at Harvard Business School, have recently published Capitalism at Risk: Rethinking the Role of Business (Harvard Business Review Press).