Professor Klaus Schwab is founder of the World Economic Forum, the organisation which hosts the exclusive and headline-grabbing event in Davos, Switzerland each year.
His new title Stakeholder Capitalism is a stimulating combination of economics book, business book & politics book. The emphasis is economics; with the opening chapters setting the scene for the current state of world affairs:
- Economic growth trending downward
- Debt burden trending upward
Despite the rapid progress of economies such as China, India and Brazil in the last two decades, we are yet to live in a world of plenty and prosperity. This raises the even more radical question – under the current system of private capitalism of the West or state-managed capitalism of China, is prosperity even inevitable? Will the inherent weaknesses of these systems to blame for the current economic and social malaise, and is action required?
Klaus touches upon topics such as:
- Wealth & opportunity inequality
- Climate change
- Behavioural economics
On his way, he develops a theoretical model for a new economic system which he coins as stakeholder capitalism. A system driven by more than self-interest. Stakeholder capitalism isn’t a new term for Klaus, he has been developing the concept for more than 40 years.
The dilemma of modern capitalism is that firms aren’t incentivised to reduce the side-effects of their activity, known as externalities. These include carbon emissions and wider pollution or damage to environmental ecosystems. Their personal results are not buoyed by positive progress on these fronts, and therefore their organisations do not place these high upon their agenda. Indeed in some cases, a firm will maximise its profit at the expense of higher pollution.
The same could be said for a whole host of societal issues, including access to employment, working conditions. The list is endless.
Enter Stakeholder Capitalism. We won’t go into too much detail on the concept – you’ll have to buy the book to find out more. However, suffice to say, it’s a system that looks most like private capitalism (private firms, innovation, profit) with an expanded series of objectives that serve the interests of civil society, governments and the environment in addition to shareholders. This could be implemented through an increase in the representation of non-shareholder elements in the board, voting power or regulatory environment in which firms operate.
Schwab has his finger on the pulse of large, international businesses. He has seen the problems, and he understands the problems with the current solutions. It’s almost a shock to see such a title from a man who shakes hands with billionaires every year. But upon reflection, this makes Klaus a sensible source for a credible and pragmatic solution that might just work.
A delightfully informative book, Schwab writes with authority and wisdom and uses this title as a vessel to share his endlessly optimistic internationalist mindset. Stakeholder Capitalism is available now in hardcover, Kindle and audiobook editions.