Four Reasons We Must Re-engineer Free Market Capitalism
We stand today at a crossroads for free market capitalism. We are witnessing the attrition of the American middle class against the backdrop of a marked disparity in wealth. These are warning signs that capitalism is failing to deliver what its early architects had hoped for: a prosperous society for all.
Many voices are proclaiming that capitalism must change. Respected economists, thought leaders, and social visionaries are saying that capitalism has become a deeply flawed system. The financial crash of 2008 and the resulting deep recession exposed a corporate system determined to fight against government regulations, ignoring public opinion, and overlooking the greater good of society. If we allow capitalism to continue down this path, we will find ourselves living in an increasingly imbalanced, dysfunctional and unsustainable world.
Let’s examine the five top reasons we need to reengineer capitalism:
The selfish ways we currently practice capitalism cannot be maintained indefinitely.
1. Free market capitalism is simply not sustainable.
As much as we pretend it’s not true, the selfish ways we currently practice capitalism cannot be maintained indefinitely. Today’s world is not the same one we inhabited in the post-World War II years when modern free market capitalism took shape. Back then, we could naively believe that capitalism would provide limitless benefits with no harm. We thought the earth had infinite resources that provided us the opportunity to gain unending profits if we worked hard, created new ideas, and expanded our technologies and businesses.
But today, we find ourselves on the flip side of this worldview. We have proof positive that we exist on a finite planet with finite resources. We can no longer allow capitalism to be practiced recklessly. We can no longer allow the selfish interests of a small group of wealthy to dominate the interests of the majority of people around the world. We need an economic system that is more sustainable economically, environmentally, morally, ethically, and socially.
We need to alter capitalism so that it values purpose as much as profit.
2. The unbridled pursuit of profit can no longer be the dominant driving force of capitalism.
The corporate pursuit of profit for profit’s sake is poisoning the paradigm of capitalism, transforming business from an admirable, constructive human activity into the pursuit of narrow-minded, selfish goals. The relentless effort to maximize profits fosters short-term thinking and self-centered decision making. It opens the door to greed, deceit, manipulation, and fraud.
We can no longer overlook or dismiss corporate greed, even if we believe it benefits us as investors or employees, because it ultimately comes back to haunt us. As citizens, all of us pay for these excesses one way or another. The reckless pursuit of profit led to the financial crash of 2008, causing millions of people to lose their jobs and hundreds of millions to lose a large portion of their savings. Greed causes corporations to take shortcuts such as paying workers less than living wages and damaging the environment. Investors deserve a fair return on their investment, but not at the expense of a healthy society and the planet.
We need to alter capitalism so that it values purpose as much as profit. The goal of human industry and commerce must go beyond profit to include building prosperous communities, educated citizens, and meaningful lives for everyone on the planet.
We are simultaneously workers, investors, consumers, and citizens.
3. Self-interest leads to the illogical, destructive illusion of progress.
We tend to believe free market capitalism is the best economic system because it allows average people to pursue their self-interests to the fullest extent. But what we neglect to consider is that we have many self-interests. We are simultaneously workers, investors, consumers, and citizens.
The problem is, these four versions of our self-interest conflict, leading to illogical and destructive results. If as a worker, you want a stable job and a good salary, you need to support fair pricing that funds sufficient wages that workers can buy the products you make. However, when as an investor you seek greater profits, you are responsible for driving corporations to cut jobs in the U.S., to seek out cheaper labor overseas. Meanwhile, since the consumer in you wants lower prices, you push corporations to minimize their expenses at any cost, potentially cutting wages. And, finally, if as a citizen, you want to create a safer, more prosperous world, you should want to ask corporations to save jobs, pay workers well, and pay as much attention to purpose as to profit.
These competing self-interests drive a dysfunctional practice of capitalism. We need to change capitalism so that it achieves all of our mutual self-interests rather than a narrow-minded set of individual self-interests.
If the corporate world does not take on a greater role to help build a prosperous, healthy, well educated society, it will effectively destroy the market on which it depends.
4. We can no longer count on governments to repair the social and economic problems of the world.
For decades, the prevailing philosophy has been that capitalist corporations are not responsible to the societies in which they operate. Traditional and conservative economic thinkers like Milton Friedman claimed corporations only have to fulfill the profit-making interests of their shareholders. As a result, governments have been forced to act pick up the slack, managing the most pressing ills of society like poverty, crime, and urban blight, some of which are negative externalities caused by capitalism itself.
While this philosophy might have worked in the past, it is simply no longer a valid premise. Capitalism must change because the world needs another pillar of social transformation to assist governments and philanthropies. If the corporate world does not take on a greater role to help build a prosperous, healthy, well educated society, it will effectively destroy the market on which it depends. It won’t matter that capitalism is the greatest economic system ever invented if corporate practices reduce society to a community of disenfranchised, impoverished citizens and consumers.
Prosperity is the well being of the many, not the wealth of a few.
Capitalism is not Immutable
For most people, it is a threatening idea to accept that the current practice of capitalism is flawed and needs to change. As Americans or Westerners, we grew up under free market capitalism, built our careers on it, and have seen our communities and our families prosper, at least until recently. But the events of the past few years are warning us that something is profoundly wrong. The middle class is disappearing, the unemployment lines getting longer, our cities deteriorating, the ranks of the working poor getting larger, the air dirtier, the supplies of clean water scarcer, the climate is getting more unstable, and global tensions between the haves and have nots are escalating.
We need citizens, consumers, and our corporate and political leaders to change course immediately. We need to seek and implement greater regulation of our corporations, stronger laws to ensure ethical conduct, and tighter supervision of environmental compliance. We need to re-educate investors that their best interests are not served by companies destroying the planet and the societies we live in over the long term, to ensure disproportionate wealth in the short term. We need to recognize and act on the belief that prosperity is the well being of the many, not the wealth of a few. We must reengineer capitalism to be an economic engine that works for the benefit of the greater good of humankind.
Simon Mainwaring is the founder of We First, a social branding consultancy, and the author of a new book, We First: How Brands and Consumers Use Social Media to Build a Better World.