17 February 2019
An astonishing 65-70 percent of household incomes stagnated or declined between 2005 and 2014, according to a McKinsey Global Institute report on incomes in 25 advanced economies worldwide.Photo:
An astonishing 65-70 percent of household incomes stagnated or declined between 2005 and 2014, according to a McKinsey Global Institute report on incomes in 25 advanced economies worldwide.Photo:

Inclusive capitalism or bust

“Science knows no country,” said the great 19th century chemist Louis Pasteur, “because knowledge belongs to humanity, and is the torch which illuminates the world.”

Today, the innovative technologies and ideas that are driving the Fourth Industrial Revolution belong to all of humankind, and they are proving Pasteur right in ways that he could not have imagined.

But while the impact of technological innovation is global, it affects different populations in dramatically different ways.

Rapidly changing conditions have brightened some people’s economic outlook; but they have left others behind, casting a dark shadow of dissatisfaction across the global economy.

For those of us who know from history and experience that innovation creates new opportunities and prosperity around the world, it is time to redouble our efforts to forge a more inclusive capitalism, so that everyone can share in the benefits of progress.

Historically, there is no question that technological innovation and global commerce have underpinned rapid material progress and dramatic gains in living standards.

According to the latest available data, the global economy is more than five times larger than it was a half-century ago, with global per capita GDP more than doubling over this period.

These numbers represent more than higher profits for corporations; they also amount to millions of jobs created, and billions of lives improved.

In 2015, the World Bank estimated that the share of the global population living in extreme poverty would soon fall below 10 percent for the first time – down from over 40 percent barely three decades ago.

But the global economy clearly is not serving everyone equally, and many people believe – with good reason – that it is not serving them at all.

In July 2016, the McKinsey Global Institute released an extensive report on incomes in 25 advanced economies worldwide. An astonishing 65-70 percent of household incomes stagnated or declined between 2005 and 2014.

That figure is even more remarkable when compared to the 12 years leading up to 2005, when less than 2 percent of household incomes were flat or declining. It should surprise no one, then, that a majority of citizens in several of these countries say the global economy is no longer a force for good.

To sustain economic progress in the face of widespread – and justified – frustration, we must take steps to fix what is wrong with the global economy, while continuing to participate in it.

Unfortunately, recent political disruptions will not help this effort. The United Kingdom’s Office for Budget Responsibility, for example, projects that leaving the European Union will reduce Britain’s economic growth by 2.4 percent by 2020. The election of Donald Trump in the United States similarly demonstrates the need to take decisive action to make the global economy more inclusive, or risk seeing more political and economic upheavals that will further hinder growth.

Toward that end, governments will have an indispensable role to play; but so, too, will the private sector. Business leaders now have a genuine opportunity to advance a more inclusive capitalism, one that not only generates profits, but also creates opportunity and prosperity for everyone.

Success will require individual enterprises – and particularly those with a global reach – to think beyond their balance sheets, and to take on responsibilities that traditionally have not been central to their missions.

Companies must do more to maximize their value not just to shareholders but to all stakeholders in the communities their business affects. Business leaders can – and must – redefine the role of business in society.

Of course, this is not to suggest that profit-seeking enterprises should become charities. Rather, the businesses that grow and succeed in an increasingly volatile environment will be those that create the most value for society as a whole.

The companies that will define the 21st century will recognize that their license to operate is not simply a gift from shareholders or governments; rather, it must be earned by providing real solutions, creating jobs and playing a constructive role in communities around the world.

Inclusive capitalism is ultimately about re-embracing business’s purest purpose: to solve problems and improve people’s lives. Doing so is especially necessary in an era of crisis and uncertainty.

With so many global challenges to confront, inclusive capitalism is the only way to ensure that the progress achieved over the past century continues in the coming century and beyond.

Copyright: Project Syndicate

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