Capitalism is the most successful economic system in the history of mankind. But capitalism is far from perfect, and like all human endeavors, capitalism has evolved over time to reflect the culture and moral values of the societies where it is practiced.
Early 21st-Century capitalism is clearly veering out of control to only benefit a few and is in dire need of a new model of practice. Shared value capitalism, a new, more moral capitalism, offers the possibility of making capitalism once again benefit the many instead of just the 1%.
Pros And Cons Of Tail Risk Funds
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The evolution of capitalism
Bill George of the Harvard Business School breaks down capitalism into four historical phases:
Entrepreneurial Capitalism — This early form of capitalism was all about building businesses, and lasted from 1800 to the 1940s. John Jacob Astor is mentioned as the prototypical entrepreneurial capitalist. The problems with the entrepreneurial model of capitalism are that it doesn’t scale well and offers little creation of opportunity beyond the founder.
Managerial Capitalism — In his paper, George highlights Alfred Sloan as the prototype of a managerial capitalist, and notes this technology ad process-focused form of capitalism was prevalent from the 1920s to the 1980s. George points out that managerial capitalism often leads to too many managers and management complacency.
Financial Capitalism — George describes the current era of financial capitalism as all about junk bonds, hedge funds and activist investors all looking out for themselves. He argues this phase of capitalism developed around 1975 and has lasted until now. He points to corporate raider/activist Carl Icahn as the prototype of this self-centered phase of capitalism that enriches the 1% at the expense of the 99%.
Shared Value Capitalism — The goal of shared value capitalism is to create value for all stakeholders, including clients, customers, employees, owners and investors as well as local governments and communities. Shared value capitalism will be driven by the millenial focus on mission (the idea that work should make the world a better place) and the inexorable trend toward globalization.
More on shared value capitalism
Businesses of all sizes today need to start thinking of themselves as “stakeholders in society”. By doing this, and keeping the focus on people, not profits, corporations can begin to set up a virtuous cycle of innovation with happy employees leading to improved products and customer service, in turn leading to greater customer satisfaction, and therefore increased sales and profits.
The rise in income inequality and wealth inequality over the last decade or two, and the dramatic acceleration of the process since the financial crisis, is clearly symptomatic of the end of financial capitalism. The pendulum has clearly swung too far in favor of the rich, and its time to recreate our versatile economic system in so that everyone shares in the great wealth we are creating as a society.