Davos may be virtual again this year, but the recent tradition of its founder Klaus Schwab releasing a book around the annual World Economic Forum gathering carries on. In past years, Schwab has published books about what he calls the “Fourth Industrial Revolution,” focusing on the impact of artificial intelligence and other technologies on our work and our lives.

Schwab this week released a book called Stakeholder Capitalism. Written with his Forum colleague Peter Vanham, it tackles one of the most popular business thought leadership topics of recent times, the idea that businesses should not be run primarily for profits, but rather for the benefit of stakeholders such as their employees and the communities around them. 

The book’s subtitle refers to “a global economy that works for progress, people, and planet.” That is what Schwab has been preaching since starting the Forum in 1971—the original Davos Manifesto from that era (p. 13) is a compelling  statement of the purpose of business. But today’s shocking economic inequality and the climate crisis demonstrate that it’s clearly an unfinished project, with much more work to do.

Stakeholder Capitalism is in large part a global economic history, recounting the development over time of trade, industrialization, and economic systems including shareholder capitalism and state capitalism. Schwab identifies economic inequality, slowing productivity and economic growth, mounting debt, growing emissions and environmental destruction,  and the decline of the political center as some of the key problems we face. It’s pretty sobering. 

He suggests that the shared prosperity of the post-World War II period is a model that we should look to now, and argues that coming out of the pandemic there’s a similar opportunity to redefine the rules of the economy. As the book’s title implies, he’s putting forward a stakeholder capitalism model of the sort that he experienced growing up in postwar Germany, and was similar to the approach in the US at that time—but that was widely abandoned starting in the 1970s with the singular focus of chief executives on serving shareholders.

As Schwab writes, in stakeholder capitalism: 

“The interests of all stakeholders in the economy and society are taken on board, companies optimize for more than just short-term profits, and governments are the guardians of equality of opportunity, a level playing field in competition, and a fair contribution of and distribution to all stakeholders with regards to the sustainability, and inclusivity of the system.” (p. 171)

What’s expected of businesses is that they are:

  • “Accepting a level playing field in competition;
  • Striving for improvements in working conditions and employee well-being;
  • Supporting the communities in which the company is active;
  • Looking after the environment and the long-term sustainability of their business;
  • And paying one’s fair share of taxes.” (p. 213)

Schwab brings convincing urgency to his focus on the implications of slowing global economic growth. “While global growth reached peaks of 6% and more per year until the early 1970s and still averaged more than 4% in the run up to 2008, it has since fallen back to levels of 3% or less,” he writes (p. 25.) The result is that it’s harder to close gaps of inequality, and for future generations to pay down debt burdens. 

In a compelling section of the book, Schwab acknowledges the criticisms of the globalization of trade, which Davos has helped enable. He argues that globalization works best for everyone when:

  • A country has a generous social compact, like Scandinavian nations that provide support and retraining when jobs are displaced.
  • Political leaders don’t completely surrender to free trade, but rather retain sovereignty and control, such as in Indonesia today.
  • Technology plays to the strengths of a country. 

“In the absence of any of these three factors, however,” Schwab writes. “Globalization leads more often to unequal progress and sometimes even decadence or disruption.”

To be sure…

  • Schwab writes that he’s hopeful that the world will emerge from the pandemic with a fairer, more long-term mindset. And he cites the pressures younger generations, including climate activist Greta Thunberg, bring to bear. But, as I’ve noted a number of times, US companies whose CEOs made pledges around stakeholder capitalism in 2019 treated their workers as bad or worse than others during the crisis. There are powerful incentives for CEOs to not follow through on change, such as bonus packages linked to short-term stock prices, so it’s hard to have the confidence that Schwab does.
  • In that vein, Schwab has been calling for a more inclusive economy for decades, but he has also presided over Davos gatherings that effectively exalt the plutocratic set. A vocal Forum critic, writer Anand Giridharadas has suggested cancelling Davos, which he has described as “lobbying under the guise of an ideas conference.” 
  • Some of the people who Schwab praises in the book, such as Salesforce CEO Marc Benioff and Maersk chair Jim Snabe, are regular speakers at Davos and their organizations presumably contribute at least hundreds of thousands of dollars annually to the Forum (the cost of a corporate membership with Davos passes.) It’s understandable that Schwab wouldn’t highlight that in the book—but it is worth readers being aware. 

Memorable anecdotes:

  • Schwab introduces the figure of Russia-born American economist Simon Kuznets, who in the 1930s developed a standard way of measuring GNP and was the intellectual father of GDP.  Kuznets, who won a Nobel Prize in 1971, ultimately felt that GDP was a poor way to measure broader societal prosperity. (It’s better suited to its early use as a measure of war-time production capacity—and unlike New Zealand’s Living Standards Framework, for example, GDP doesn’t factor in progress on things such as a country’s health and education or environmental state and resources.) And Kuznets’ observations around 1950s reductions in inequality were cited to justify economic programs he wouldn’t have supported.
  • Denmark comes in for outsized praise. Schwab writes about how Danish union workers are fine with automation because of the continuous retraining and social safety net they’re provided with. And he cites Danish shipping giant A.P. Moller-Maersk’s adoption of stakeholder capitalism approaches in recent years, including by divesting its profitable fossil-fuel activities, providing greater financial transparency, pledging to work more with small- and mid-sized businesses, and committing to net-zero emissions by 2050.

Choice quotes:

  • “The sudden and all-encompassing impact of Covid-19 made us understand, much more than the gradual effects of climate change or increasing inequality, that an economic system driven by selfish and short-term interests is not sustainable.” (p. xv)
  • “We can’t continue with an economic system driven by selfish values, such as short-term profit maximization, the avoidance of tax and regulation, or the externalizing of environmental harm.” (p. xv)
  • “Today we live with the consequences of not having been more rigorous in our analyses or having been too dogmatic in our beliefs. GDP growth has become an all-consuming goal, and at the same time, it has stalled. Our economies have never been so developed, yet inequality has rarely been worse. And instead of seeing a drop in environmental pollution, as one might have hoped, we are in the midst of a global environmental crisis.” (p. 22)
  • “We never should have made GDP growth the singular focus of policy-making.” (p. 25)
  • “Technology has a tendency to increase inequality, but as we adapt to it and take measures to deal with the inequality it creates, we can achieve a reduction of inequality later.” (p. 45) 
  • “We must acknowledge that we have not lived up to the expectations of the current and future generations.” (p. 89)
  • “Globalization is, theoretically, a force for good, but in practice, it can be a positive force only if guardrails ensure that it benefits everyone and ensures resilience and sovereignty.” (p. 108)
  • “If human beings are so innately motivated to seek a better lifestyle, and if in the course of the past 200 years that has meant increasing one’s carbon footprint, are more sustainable carbon policies even feasible?” (p. 159)
  • “In both shareholder and state capitalism, the dominance of one stakeholder over the others is the system’s greatest flaw. In shareholder capitalism, shareholders’ aims are often the singular focus; in state capitalism, the government wields too much power.” (p. 173)
  • “The planet…is the central stakeholder in the global economic system, and its health should be optimized in the decisions made by all other stakeholders.” (p. 176)
  • “A society will do best when all of its people thrive, rather than a small subset among them.” (p. 184)
  • “Be strong and be kind.” —New Zealand prime minister Jacinda Ardern, in her March 2020 lockdown speech. (p. 221)
  • “Most people want to do good. But what’s been missing in recent decades is a clear compass to guide those in leading positions in our society and economy.” (p. 249)

The bottom line is that the stakeholder capitalism model makes sense, and Schwab’s track record of espousing it goes back as long as anyone’s. Reading Stakeholder Capitalism is an efficient way to review the history and current state of the world’s biggest economic problems, get a survey of some of the key voices and research on the topic, and understand a sensible approach to a more sustainable and resilient world. (It would be an excellent briefing book for any executive attending Davos, for example.) 

Schwab believes our current crisis could shock people into pursuing the more long-term thinking that prevailed in the postwar period amid the investments in rebuilding and shared prosperity. We should hope that he’s right.

You can order Stakeholder Capitalism at Bookshop.org or Amazon. (We may make a commission when you buy a book.) All page numbers referenced above are for the hardcover edition.

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