During the last four decades, the U.S. has experienced a form of capitalism that has led to growing economic inequality and increasing dissatisfaction with our capitalist system—a discontent highlighted by prominent politicians like presidential candidate Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez who embrace tenets of democratic socialism. As economist Joseph Stiglitz recently warned, “[T]he American economy is failing its citizens. Some 90% have seen their incomes stagnate or decline in the past 30 years.”
Ever since Nobel laureate economist Milton Friedman wrote his 1970 article, “The Social Responsibility of Business is to Increase its Profits,” a debate has raged between financial advocates of shareholder primacy and business leaders who believe business must serve all its stakeholders. Beginning in the 1980s, short-term shareholders gained the upper hand as hedge funds, activist investors, and private equity firms pushed management teams to increase debt, cut costs to the bone, and forego long-term investments in order to return more cash to shareholders. The social contract of employment frayed, as even long-term employees realized they could be fired at any time, losing their pensions and health care. Overleveraging in the financial system resulted in the 2008 financial crisis, triggering the recession that followed, which greatly exacerbated income inequality.
As a result, public confidence in capitalism has continued to decrease.
Fortunately, the tide is turning now toward a new model: responsible capitalism. Responsible capitalism recognizes that companies have a clear purpose to serve society, their customers, and their employees as well as their investors. When they do so, they create the most sustainable long-term value for their shareholders. In the past decade, practitioners of responsible capitalism—like former PepsiCo CEO Indra Nooyi and former Unilever CEO Paul Polman—have flourished.
Recently, more leaders of the financial community have come forward to advocate for responsible capitalism. Last January, for instance, Blackrock founder and CEO Laurence Fink wrote in his annual letter to CEOs that with “the failure of government to provide lasting solutions, society is increasingly looking to companies, both public and private, to address pressing social and economic issues.” He called on CEOs to look beyond just profits and “begin with a clear embodiment of your company’s purpose in your business model and corporate strategy.”
In JPMorgan Chase’s 2018 corporate responsibility report, CEO Jamie Dimon called on CEOs to “buck short-termism,” stating that “[w]hen everyone has a fair shot at participating in and sharing in the rewards of growth, the economy will be stronger and society more cohesive.”
In his treatise, “Why and How Capitalism Needs to Be Reformed,” Bridgewater Associates founder Ray Dalio went even further in recognizing that “capitalism isn’t working well for most Americans,” noting low wage growth, the ascendant income gap, and educational failures. “These conditions pose an existential risk for the U.S.,” he emphasized. “I think the American dream is lost,” Dalio said on CBS, also stating that he believed the growing wage gap to be “a national emergency.”
These powerful voices cannot be ignored. Capitalists must take the lead in reforming capitalism from its unrestrained vices into its responsible virtues. When practiced responsibly, capitalism can be the greatest wealth creator and builder of societies and nations. But when wealth is hoarded by the powerful few at the expense of the many, people question the legitimacy of the economic system.
Recognizing the challenges of income inequality, global warming, rising health care costs, data privacy, and technological obsolescence, corporate CEOs are stepping up to address societal challenges through their mainstream missions. Here are a few examples of responsible capitalists taking the lead:
With the federal minimum wage stuck at $7.25 for the last decade, leading CEOs recognized the growing wage gap and began to raise their minimum wages. Last fall, CEO Jeff Bezos raised Amazon’s minimum wage to $15 per hour for all employees in the U.S. Moreover, he encouraged his competitors to match Amazon. Bank of America CEO Brian Moynihan went even further: he announced that the company’s minimum wage would increase to $20 per hour by 2021 for his 205,000 employees.
Responding to rising concerns over global warming, General Motors CEO Mary Barra created a bold goal of “zero crashes, zero emissions, and zero congestion.” In the last five years, Barra has also transformed GM’s hierarchical culture into a dynamic meritocracy that is responsive to the marketplace and societal concerns.
In the context of high health care costs, rising drug costs have become a major policy concern for pharmaceutical companies. In response, Merck CEO Kenneth Frazier cut the cost of its hepatitis C drug, Zepatier, by 60% and reduced (by 10%) the price of six other medications. Frazier also pledged not to increase other drug prices by more than the rate of inflation.
Recognizing the controversy surrounding consumer privacy on social media sites, Apple CEO Tim Cook took a principled stand on the matter, asserting “that privacy is a fundamental human right,” as he called for government regulations on data privacy.
Expressing concerns about artificial intelligence eliminating jobs, IBM CEO Ginni Rometty emphasized how the company is focused on reskilling its 350,000 employees. “[A]ll jobs will be forever changed by A.I.,” she said during a panel at this year’s World Economic Forum. “To address this massive shift, we need to build a global workforce that’s equipped with a new generation of skills.”
These are just a few examples of corporate CEOs who recognize that they have the power and responsibility to build their business and simultaneously address pressing social needs through their mainstream resources. As CEOs take action on these issues, responsible capitalists are recognizing the tremendous potential they have to improve the world while restoring trust in the capitalist system.
Bill George is a senior fellow at Harvard Business School and former chairman and CEO of Medtronic. Follow him on Twitter or read more at BillGeorge.org.
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