Capitalism is in a crisis. It is not a structural economic crisis, such as the one pointed out by Raghuram Rajan, India’s central bank governor, in his much-praised book Fault Lines. This is also not about a new class struggle between the 1% and the rest or about low European inflation and China’s slowdown. It is a crisis caused by massive contradictions caused by the implicit philosophical framework still held by key actors in the system: investors and those running the world’s capital markets. It is a battle that might lead to further Lehman crises also before a new balance arises.

The crisis is most visible in companies around the world, which are being torn between two opposing forces driving them simultaneously towards an increasing inward focus on themselves as well as an increasing outward focus on society. The self-focus stems from investors. Capital markets are increasingly forcing companies to focus primarily on their own short-term financial results. In a 2013 global McKinsey study, 63% of the world’s top corporate executives said the pressure to demonstrate short-term financial performance has increased over the past five years. Companies are under threat of being bought, broken-up, sold and the management fired if they do not perform. This shareholder capitalism perspective was summed up best by Milton Friedman in a 1970 The New York Times Magazine article: The social responsibility of business is to increase its profits.

On the other hand, society at large is forcing firms to act with ever more concern for the long-term common good, beyond the immediate financial self-interest demanded by their investors. Society wants firms to help clean and prevent the many negative externalities associated with a pure focus on profit. Negative externalities arise when companies inflict costs or problems upon others, for which these companies are not paying the price. Pollution or bad labour practices are examples. Because companies are not paying this price, their products or services are artificially cheap, which increases demand, which increases the negative externalities and increases their profits. Society is gradually forcing companies into a form of stakeholder capitalism in which the social responsibility of business is to balance the interests of all stakeholders (including investors). At the threat of being tweeted about, disliked, boycotted, fined and shamed globally at the click of a mouse.

Chief executives in many companies around the world are torn by these opposing forces. Investors are pitted against society, with companies caught in the middle. This represents a crisis in capitalism.

One way to better understand this crisis is to look at the philosophical views implied by these two forms of capitalism. Shareholder capitalism assumes that companies are economic entities owned by the shareholders and exists to maximize profits for their owners’ benefit. In practice this approach often causes negative externalities (pollution). Yet, it is inherent in the profit (or shareholder value) maximization objective to disown these negative effects. Why? Precisely because that increases revenues and profits.

A company is only justified to not take moral responsibility for these effects when it is seen as a separate, autonomous actor. The worldview that justifies this way of looking is the classical mechanical perspective, which arose out of the scientific theories of the 16th and 17th century European Enlightenment. Especially, Newton’s success in understanding the natural world in terms of separate, independent objects interacting according to mathematical laws led social theorists to apply that same tableau to society and economics. Companies, customers, suppliers and regulators are then seen as independent entities, who pursue their own self-interest independently of each other. We can say that shareholder capitalism today still assumes a mechanistic worldview—a so-called atomistic society.

The idea that companies must be good corporate citizens assumes the opposite—that they are not independent, but part of the fabric of society. Stakeholder capitalism assumes that companies must strive to balance the interests of all stakeholders. This implies a more ecological, everything-is-connected worldview. It is more in line with a universe implied by the scientific theories of relativity and modern quantum physics, in which the world is an undividable whole. The clash in capitalism can be seen as a battle of world views: the world as atomistic or as an interconnected one-ness. Like Newtonian mechanics was embedded in the larger theories of relativity and quantum physics, the fragmented and mechanical shareholder view of business is being embedded in a larger more purposeful ecological view. And this signals a fundamental reorientation of at least western companies and of the western brand of capitalism.

The transition puts huge pressure on CEOs and their ability to communicate how they create value. They must be brave enough to rail against extremely powerful, short-termist capitalist forces. But the new world offers massive new opportunities for purpose-led value creation by companies. It is the future. Investors must wake up.

Tjaco Walvis is managing director of brand consulting and advertising agency THEY India, and a speaker at the Outstanding Speakers’ Bureau. He writes a fortnightly column on the softer cultural aspects of marketing that often tend to be ignored by marketers.​

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