At a time that’s seen the greatest reduction in global poverty in history, for many people in the West it doesn’t feel like things are getting better economically. And that feeling of being left behind has fueled populist movements that have upended traditional political systems across the United States and Europe. Tackling this paradox, a 2017 Aspen Ideas Festival panel discussed the merits and challenges of inclusive capitalism, a concept which simply suggests that the American capitalist system must work for everyone.
Although the term “inclusive capitalism” can sound like an oxymoron to the millions who feel the system is not working for them, it’s not an entirely new concept. Impact investing, “B” corporations, and corporate social responsibility have been around awhile now and are arguably gaining traction, especially among younger generations who increasingly prefer to be aligned with companies that do good.
And focusing on doing good, internally or externally, is not necessarily a money loser, according to panelist George Serafeim, a Harvard Business School professor. “We now have evidence that purpose-driven companies, ones that invest in their employees, quality, and safety are better-performing companies,” he said.
Yet for inclusive capitalism to have a true impact, much more needs to be done, argued Lynn Forester de Rothschild, founder and CEO of the Coalition for Inclusive Capitalism.
“This movement is nothing less than the complete reform of capital markets,” said de Rothschild, who added that investors, shareholders, and others who control the world’s capital markets must be convinced that acts like training employees and taking care of one’s community “are actually long-term value creators.”
And that speaks to what Case Foundation Chairman Steve Case sees as the two central challenges of inclusive capitalism. Case, who is also chairman and CEO of the investment company Revolution, says we need to rethink what capitalism is — “move away from the view that business should focus exclusively on profit.”
Second, the playing field for entrepreneurs needs to be leveled, he argued. In the United States, three-quarters of venture capital funds went to three states and 90 percent went to men, so while entrepreneurship can be the great American hope, “it does matter where you live, what you look like, who you know,” said Case.
Meanwhile, it’s not that business and politicians don’t care, said Mark Weinberger, global chairman and CEO of EY, who has also held several business advisory roles to American presidents. Today, business executives are dealing with “fundamental structural changes in the world,” with wealth being distributed globally and technology enabling workers in emerging markets to compete with Americans for jobs.
One solution being floated by Weinberger and de Rothschild is a framework that will better measure long-term value creation of things like human capital and purpose. An 18-month effort launched by EY and the Coalition for Inclusive Capitalism, The Embankment Project involves 20 corporations and investment and asset managers, who are charged with testing and refining this set of metrics, which can then be used to deliver information to shareholders and customers about the long-term value of these intangibles.
But if a system radically changes the way Americans think of capitalism, it won't just benefit CEOs. In this video clip, Serafeim explains how it can help more Americans feel a sense of purpose in their work.
The full session can be viewed here.
Written by Catherine Lutz, guest blogger