In January, the World Economic Forum updated its Davos Manifesto for the first time in over 40 years, to reflect the organisation’s renewed interest in stakeholder capitalism.
Stakeholder capitalism balances the interests of employees, suppliers, customers, local communities, and shareholders. It’s a stark contrast to prevailing shareholder capitalism, which is increasingly criticised for maximising shareholder profits at the expense of workers rights and the environment, among other things.
Stakeholder capitalism was popularised in the 1930s and remained influential until the early 1970s. However, in many cases, unclear stakeholder priorities led to inefficient organisations.
A backlash spearheaded by economist Milton Friedman led to the free-market, shareholder-oriented model we observe across the globe today. US President Ronald Reagan and UK Prime Minister Margaret Thatcher were especially pivotal figures in dismantling unions, slashing corporate taxes, deregulating the markets, and augmenting overall inequality in shareholders’ favour.
The 2020 Davos Manifesto, which called for a more “cohesive and sustainable world”, was dismissed by some as woke-pandering. The proposed shift would demand reforms such as fairer minimum wages and union rights for workers; raised and loophole-free taxes for the wealthiest earners; more transparent and ethical marketing practices; tighter environmental regulations including carbon taxes; and increased investment in local communities. Foolishness, critics claimed.
Then the pandemic hit, making stakeholder capitalism appear more attractive than ever.
Winner Takes All
Covid-19’s fallout revealed the stark inequity of our modern economy, particularly for workers.
During the pandemic, ten American billionaires saw a combined wealth increase of US$400 billion. Meanwhile, the US national unemployment rate skyrocketed from 3.8 percent to 13.0 percent. Marriott International furloughed tens of thousands of employees in March, and just a fortnight after it paid shareholders US$160 million in dividends.
Jeff Bezos’s Amazon continued to operate fulfilment centers despite PPE shortages and weak safe distancing measures. The company, which allegedly received a 2018 tax bill of negative US$129 million on earnings of US$11 billion, solicited public donations to supplement its Covid-19 Relief Fund for contract and seasonal workers. Perhaps worst of all, following a walkout led by warehouse employee Christian Smalls over safety concerns, leaked notes from company leadership meetings exposed plans for an anti-union smear campaign.
Amazon subsidiary Whole Foods responded to similar protests over lacking health insurance and paid sick time for intermittent workers by encouraging full-time employees to “donate” theirs. The company also warned full-timers that staff whose peak-hour availability dipped beneath 70 percent would lose their health benefits.
These are not isolated incidents, but signs of systemic avoidance of accountability. For decades, wisdom held that prioritising shareholder wealth would create a trickle-down effect, enriching those lower down the corporate hierarchy. It’s now apparent that this wisdom, which informs policy making in free market economies the world over, was false.
A recent study of tax cuts over five decades and throughout 18 countries concluded that “cutting taxes on the rich increases income inequality but has no effect on growth or unemployment” in the short or long term.
Furthermore, an October report by the USA’s Government Accountability Office revealed that major corporations such as McDonald’s and Walmart are among the top employers of federal aid program beneficiaries. American taxpayers are funding employee welfare for the nation’s most profitable companies, which then aggressively lobby for tax cuts and suppress attempts at unionisation.
The Harvard Business Review points out that “forty years ago, business, labor, and public interest group lobbying was on relatively equal footing. Today, large corporations and their associations outspend labor and public interest groups 34 to 1 on lobbying efforts”, which signals an alarming power imbalance.
A global redistribution of economic influence is due. Business leaders, however, cannot be trusted to rein themselves in: A survey of 200 S&P 1500 Index CEOs and CFOs revealed that most feel they already balance stakeholder interests effectively.
Employees, local governments, consumers, and other stakeholders must step in. The obstacles awaiting them are predominantly cultural ones, and are all the more challenging for it.
Turning the Tide
Decades of corporate lobbying has convinced many that social welfare and market regulation reduce productivity; that high inequality is a great motivator for success; and that all wealth is fairly acquired, thus taxes are practically a form of theft.
However, in today’s high-inequality climate, economic mobility is measurably more limited than ever. Simply put: things aren’t fair, they haven’t been for some time, and big business is trying to fool us with “the money will trickle down eventually” spiel. Economist Jonathan Aldred writes that pervasive “you-deserve-what-you-get beliefs are strengthened by inequality… We adopt narratives to justify inequality because society is highly unequal, not the other way round”.
George Monbiot challenges the notion of a free market as “a kind of biological law, like Darwin’s theory of evolution.” While corporate narratives have misrepresented state regulation, employee rights, and even environmentalism as “distortions that impede the formation of a natural hierarchy of winners and losers”, in reality the reverse is true. Taxation and laws protecting the environment, consumers, and workers don’t damage the economy — they protect it.
It’s hoarded wealth and corporate power that artificially suppress innovation and progress. To cite just one example: Facebook Inc.’s political woes aside, consider its ownership of WhatsApp and Instagram, for which it now faces antitrust lawsuits.
Instagram recently made headlines for ripping off TikTok via its new Reels feature and replacing the app’s activity tab with a shopping tab, the ethics of which are highly dubious. With any competition acquired or effectively marginalised, Facebook Inc. has left discontented parties with few alternatives, and can do pretty much what it pleases. It’s no longer innovating or creating user value, at least not at the rate it used to when the company was new and hungry. This is the standard script for shareholder capitalism, which ultimately delivers a net loss for everyone except, of course, company shareholders.
It’s time for a cultural reset. Far from being a naive, hippie fantasy, redistributing power from Mark Zuckerberg, Jeff Bezos and their peers may revitalise our ailing global economy instead of ruining it.