ℹ️ You’re reading Quartz Essentials: quick, engaging outlines of the most important topics affecting the global economy.
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The most pressing question
Can capitalism work for stakeholders as well as shareholders?
For decades—centuries, even—capitalism was sustained by individuals pursuing their own self interest, with the “invisible hand” of the market efficiently allocating resources and opportunities. Now this approach is under reappraisal, and a growing number of CEOs are realizing that businesses have a broader responsibility to a broader array of stakeholders: their employees, their community, and the environment.
Stakeholder capitalism can be smart business, but it can also force companies to make tough choices. And shareholders aren’t going down without a fight.
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By the digits
€12.1 billion ($13.3 billion): Fines collected by the European Commission since it began scrutinizing tech giants on competitive grounds in the 2000s
~40%: Share of present underdevelopment and inequality in Africa linked to slavery, according to calculations by Kenyan academic Ali Mazrui
2.59: Average number of women on S&P 500 corporate boards in 2018 (the average number of board members was 11)
2,900%: Increase in the number of workers enrolled in Germany’s Kurzarbeit program to receive government wage supplements in exchange for cutting their hours after the 2008 financial crisis
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One big number
320:1 — That’s the ratio that expresses the difference in average pay between CEOs and workers at the 350 largest US companies in 2019. In 1965, the ratio was 21:1.
What happened? A steady decline in the power of labor, through the erosion of unions and the globalization of manufacturing, combined with skyrocketing CEO pay driven by stock market returns. Taming runaway CEO compensation isn’t easy, but some municipalities are trying: San Francisco, for instance, is levying a tax on any company whose CEO is paid more than 100 times its median employee salary.
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In the world’s most populated countries, the very highest earners are getting an increasingly bigger piece of the pie. Between 1980 and 2015, the share of pre-tax income going to the top 1% more than doubled in China and India, and grew by 80% in the US.
This rise in inequality is largely the result of the highest educated workers making a lot more money. If income is to be distributed more equally, it either means broadening access to education or pushing laws to force employers to give the poorest a raise.
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“I believe in capitalism, but I think that the way things are working right now, it’s broken. There’s too many people that aren’t participating. It’s about opportunity, and we have to figure out how we fundamentally solve this problem. … If you naively believe that we don’t need to prop some people up for awhile, well, I believe that’s wrong. I think it’s a public-private partnership that needs to be done; I think it’s government with business, not government [doing things] to business.” —Chuck Robbins, chairman and CEO of Cisco, on the future of capitalism
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Commonly held question
Is GDP the best measure of how the economy is doing?
GDP—a single figure, universally understood, and widely used for almost a century—is still the dominant economic indicator. But growing awareness of its shortcomings in gauging wellbeing and other factors important to a nation’s economic health is spurring the creation of alternatives. One group of economists came up with “GDP-B” to calculate free digital goods and services, something plain GDP neglects. Some countries, meanwhile, are collecting statistics on emotional and physical health, and on whether people find their lives meaningful. Advocates of these measures hope they’ll better reflect people’s economic reality—and guide policies to improve it.
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Person of interest
Western capitalism is asking questions about its identity, and Mariana Mazzucato is ready with the answers. The Italian-American economist believes governments should do more than play a passive role in fixing market failures, and should be allowed to embrace their entrepreneurial spirit to steer the direction of innovation and economic growth. Her approach appeals to politicians who want to make governments stronger and more dynamic rather than smaller, and her influence even extends to space: Mazzucato has been advising NASA on how to create an economy in low-earth orbit.
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Four novel (and sometimes eyebrow-raising) takes on how to identify and fix the world’s bedeviling economic problems:
- One Billion Americans: The Case for Thinking Bigger. Author Matt Yglesias’s big idea is to grow the US population to that eye-popping number. His argument: A population growth agenda would force the US to address a bunch of basic American problems, from unaffordable housing to lack of childcare.
- Capital and Ideology. A follow-up to Capital in the 21st Century, Thomas Piketty’s new book widens its scope to focus on inequality in places like India, Brazil, Russia, and China. His findings earned the tome a frosty reception in China.
- The Limits of Markets. London School of Economics’ Paul de Grauwe argues the “market or state” debate is obsolete, warning that the nature of swings between the two can be dangerously disruptive.
- What Money Can’t Buy. This video series led by Harvard philosopher Michael Sandel explores the moral limitations of markets. Each episode begins with a provocative question—for example, should you be able to profit off someone else’s death?—and follows a group of students as they debate the answer.
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You’ve probably heard “late capitalism” in reference to the excesses of developed market economies, from $400 jeans flecked with fake mud to Chernobyl tourism. But the term was coined in the early 1900s by German economist Werner Sombart, and popularized in the 1970s by Belgian economist Ernest Mandel to refer to the post-World War II period, when large multinational corporations gained strength. These days, it’s devolved into the kind of academic-sounding jargon that is supposed to make the user sound smart without saying much about our economic structure.
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It used to be that workers put in their hours as and when they wanted to, based on what they needed to earn. “They worked hardest on Friday, handed their work in on Saturday, but took off Monday as well as Sunday, and often Tuesday too, and sometimes Wednesday,” says Theodore Zeldin of 18th-century artisans in the UK. It wasn’t until the industrial revolution that factory bosses instituted the regular workweek, which back then averaged 69 hours. Today’s 40-hour workweek was a triumph of social campaigning, though these days some find it’s still too long.
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Here are four things individuals can do to help fix capitalism:
- Learn how to build an anti-racist company. Lessons on how to combat injustice can come from places as diverse as post-apartheid South Africa and a TV writers’ room.
- Find out where your retirement money is going. In Britain, the vast majority of pension money goes into a default fund, which is likely piping capital into mining and fossil fuel companies.
- Lead with humility. In The Extraordinary Power of Leader Humility, Marilyn Gist proposes a framework for thinking about humility through three questions people wish they could ask of leaders: Who are you? Where are we going? Do you see me?
- Prepare for robot takeover. Acclimate to automation by unleashing your creativity with tips from Scott Belsky, chief product officer of Adobe.