The vaccine developed by Pfizer and BioNTech which is offering 90% protection has given us hope that the global pandemic can finally come to an end. With scientists and politicians suggesting that life could return back to normal by summer, now more than ever is a time to consider what type of life we will be returning to, specifically how we shape the economy.
The World Economic Forum have called for a ‘great reset’ of the world economy. In short the great reset moves away from ‘shareholder capitalism’ to ‘stakeholder capitalism.’
Shareholder capitalism is the practice of ‘shareholder theory’ proposed by Milton Friedman. The main premise is that a business’ main responsibility is to its shareholders and thus it should do everything in its power to maximize returns to the shareholders. In simpler terms shareholder capitalism basically espouses that businesses are there to make money and nothing else.
Stakeholder capitalism on the other hand asserts that a business’ responsibility is to the stakeholders. Stakeholders being customers, employees, suppliers, shareholders, the local community etc. Stakeholder capitalism seeks to serve all the interests of its stakeholders rather than serving the interest of the shareholders to the detriment of the other stakeholders.
Shareholder capitalism is controversial and there have been many criticisms of it. This not only targets the morality of the theory, but also, criticizes any claim that it is the best model for making money in the long term. Whether or not shareholder capitalism is the better theory economically to maximise revenue is besides the point. Shareholder capitalism is a proven model for making money and increasing economic growth. Which arguably is needed to rebuild the post COVID-19 world economy.
However, this raises the question of whether it is too risky to try to change the system away from something that is proven and known to work. Should companies fully commit and then switch their model to stakeholder capitalism, especially now that there is a perfect opportunity to restructure economies, or is this not the right time to make such a radical change?
Currently shareholder capitalism is the main theory that dominates the business world, particularly the financial sector. While companies over the last few years, have been more conscientious towards the community at large and the environment, many have argued that this alleged change in business attitude is merely just paying lip service to the idea of stakeholder capitalism and there is no real commitment to change.
Whether corporations are now genuinely or disingenuously are paying more attention to other stakeholders, shows that there is some change in attitude of what is expected of big business these days. Once the COVID-19 pandemic is over, the next great issue that will be facing humanity is climate change and one solution is changing the way we do business.
This change does not need to be radical, in fact, this change has been emerging slowly. Therefore, if Stakeholder capitalism is the way of the future, arguably now is the time to make the change. There is an opportunity to change the underlying system of how business is conducted and there is a slim chance that we will get one anytime soon.
Arguably the least radical, least disruptive, and most efficient way of making this change would be now - seeing as the globe will have to rebuild the economy anyway. While the world moves on to the next chapter after COVID, it may be time for governments and corporations alike, around the world to think about The Great Reset.