As is expected in the Democratic presidential debates, candidates have continued to leverage the debate stage as a means to critique our existing economic system. As they should: Americans today bear the burden of astronomical student debt, the threat of job losses in the face of increased automation, the rise of the gig economy with fewer labor protections, and the struggle of living paycheck-to-paycheck while the wealthy receive tax cuts.
If one this is clear, it’s that capitalism is not working. Not as it should be, at least.
And politicians are not the only ones recognizing the problem. Even business leaders who have benefitted the most from our capitalist system are voicing their concerns: Jamie Dimon, Warren Buffett, Larry Fink, and most recently, a group of 19 billionaires asking 2020 candidates for a tax on their fortunes.
For decades, markets have been largely immune from such questions, making this debate not only welcome, but in fact urgent. While we should welcome questions from those who have benefitted massively from our current system, questions alone are not enough. We need real changes, not just critiques, if the excesses of capitalism are to be curtailed and the benefits of capitalism are to be more widely shared.
To start, it’s important to remember that markets—under the right conditions—work.
They are designed to deliver innovative products that make life better and more interesting. In our current system, it is possible for business to be a force for good while simultaneously delivering profits. At BSR, where we focus on sustainable business practices for corporations, we work with some of the world’s largest companies to ensure they do business in a way that considers the Earth’s resources and respects the rights of workers and communities.
Our work encompasses the many facets of sustainability, from helping companies like Walmart and General Mills set ambitious climate targets to delivering empowerment programs to women factory workers in global supply chains through our HERproject initiative.
But the modern form of capitalism also has produced widening income inequality and urgent environmental problems. A new business agenda, one that pays greater attention to our shared public interests, is essential.
Here’s what it should include:
CEOs must reject the spiraling level of executive pay
This is necessary in order to help address income inequality. In the 1950s, the average CEO made 20 times the salary of an average worker. In 2018, one report found some CEOs of S&P 500 companies earn as much as 1,000 times their employees’ median annual salary.
As welcome as it has been for business leaders to acknowledge the flaws in the market, what we really need is for CEOs to step forward to take less than they are contractually entitled to—and make the bold point that they are overpaid. This kind of leadership is in short supply now, and the world is hungry for it.
Generalized calls for change are fine; but examples of real leadership—and sacrifice—are needed. We need to create a peer pressure that might actually start to reverse the steady increase in executive pay over the past few decades. It would also earn a given CEO’s company immense goodwill, as it would demonstrate a commitment to stopping the trend of increasing incoming inequality.
This would also provide a much needed counter-narrative to prevailing beliefs: A recent Pew Research Center survey exploring Americans’ pessimistic view of the future found 73% of respondents expect income inequality to increase.
Restore social mobility, restore economic security
Because of the structural changes taking place in our economy, business leadership is needed to contribute to a 21st century social contract that reflects the profound changes remaking the world of work. At a time when we are living longer, job tenures are shrinking and retirement security is shaky for most people. Business leaders should dive in to help reshape skill development, lifelong learning, portable benefits, and transition assistance. This is essential if business innovation is to coexist with economic mobility. And without the latter, support for vital entrepreneurship will evaporate.
Companies must act with more urgency on climate challenge
Climate impacts are being felt today, as evidenced most recently by the epic flooding in the American Midwest. A rising tide of activism—from students across the globe and the shutdown of central London this spring to employee and investor demands for action—show that the time for decisive action is now.
It is essential that businesses embrace a leadership role on climate, creating a clean energy economy that will avoid the worst impacts of climate change while also generating new jobs and unleashing innovation. Business leaders from across industries expressed their disagreement with president Donal Trump’s declaration that he would withdraw the US from the Paris agreement.
Concern about climate change has only increased across the private sector, as a wide range of companies—from Coca Cola to Walmart—work to limit emissions, prepare for climate risks, and develop more resilient business strategies. Why not create a coalition of CEOs pledging only to support candidates in 2020 who will commit to continued US commitments to the Paris agreement?
New technology must commit to human rights
As the impacts of new technologies both seduce and repel us, we need a more serious dialogue on rules of the road for innovation that also preserves public trust, privacy—and yes, democracy. More calls to action of the sort issued by Microsoft president Brad Smith, who advocates for regulatory frameworks that protect human rights principles for facial recognition and other exciting technologies, are needed.
Business can’t afford to prioritize short-term advantages
The US business community was nearly unanimous in its support for the 2017 tax bill, which reduced the corporate tax rate while providing time-limited, and much smaller, tax cuts for individuals and families. That was a strategic mistake. It reinforced both the reality and the perception that business was happy to take tax cuts without regard for the fiscal implications or economic fairness. Indeed, a new report has found that the tax bill did not deliver on its promises to increase wages or drive investments. Support for this bill not only is bad on the merits, but increases the likelihood of a sharp backlash against those supporting the bill, including business. The response to the tax bill, when it comes, may produce reforms that hinder competitiveness. Business will come to regret its support for the legislation.
Change is coming to the capitalist system, and business needs to be part of the solution.
We’ve been here before; Franklin D. Roosevelt was derided as a socialist in his day (… sound familiar?) and a traitor to his class. But he is remembered in history as the person who saved American capitalism.
History will not remember fondly those who diagnosed the problem but failed to take action to fix it.
It is wonderful that business leaders have stepped in to recognize the flaws in our current system. But now it’s time for them to step up to actually fix it.