Capitalism needs an update

BORDER CROSSINGS Op-ed by Katja Gentinetta, published at NZZ Magazin

In the pandemic, it is clear that the economy cannot be solely about making companies profitable, while social problems are left entirely to the state. And then Corona came along. Almost exactly a year ago, I reported here about the WEF, which was still taking place in Davos in person – an event that today can only be imagined as a «superspreader event». It was about „stakeholder capitalism“. Time to pick up that thread again? Some entrepreneurs may disagree now we have other concerns. But that could be the wrong assumption.Indeed, public attention is now focused on the economic consequences of the pandemic. However, the question of how to preserve the fundamental structures which are a prerequisite for our prosperity, for the benefit of all and without unilaterally passing on the costs, is by no means a national issue. On the contrary, not only climate change, but also the increased inequality caused by Corona, as well as overstretched state and social institutions, are calling for solutions on a global scale that no one can tackle alone. Under the title „Reimagining Capitalism“, economist Rebecca Henderson has devoted herself to precisely this question. The MIT professor had a long career advising companies to make them even more profitable, until she began to question her work in the face of the problems in the world. She soon realized that precisely these major problems could not be solved without functioning and, above all, scalable business models. For more than 15 years now, she has been collaborating in her research with companies that are committed to effectively tackling environmental and social problems on a large scale – through innovation, transformation and economies of scale.

Shared value creation

In their view, five elements are crucial to moving the global economy and society forward: joint value creation instead of corrupt business practices and exploitative regimes; goal-oriented companies that are aware of their existential importance to their environment and their employees; a capital market that directs money towards environmentally friendly technologies, forward-looking innovations and well-managed companies; cooperation within the industry to steer their own practices in the right direction through self-imposed rules; and finally, cooperation within the industry and the economy. rebuilding strong state institutions. Much of this is already happening and is part of comprehensive corporate strategies. The last point, however, that companies should support states in their regulation and even cooperate with them, may still be a strange idea for many managers. Instead of rejecting it outright, however, we should be aware of the conditions for our prosperity. In Switzerland in particular, we can rely on solid institutions that have been built up over decades. Because of these, the economy was able to reach out globally and domestic politics were able to compensate for what the market alone was unable to do – the so-called „accompanying measures“ are an example of this. Business cannot be about making companies profitable while social problems are left to the state alone. Switzerland also has a long tradition of joint formulation of framework conditions: a corporate system in which business and politics jointly formulate and define the rules, to which companies commit themselves and self-monitor. Corporate governance rules, which are intended to anticipate state regulation, are now a matter of course.

Capitalism is capable of this

In recognition of these achievements, the economy cannot be pitted against health or the state. Tackling the economic consequences of the crisis provides a good opportunity for businesses to play their part. Just as health care is not just about making health insurance companies profit and making hospitals pay off, but about ensuring that public health is as efficient and effective as possible, business is not about making companies profitable while social problems are left to the state alone. It must be a matter of jointly solving the problems at hand, drawing on a united effort. After decades of conflict between business and government, this is likely to be the next big joint task. There are plenty of topics. Whether capitalism has to be rethought and renamed for this, remains to be seen. There is no question that it is capable of doing this and that it benefits from it.