The future of capitalism

01The future of capitalism


Is the world’s most successful economic system in need of some work? The short answer is yes. Still, as a time-tested engine for growth and prosperity, capitalism is worth fixing for the future. And there’s a surprising amount of agreement by the next generation of business leaders on how to go about it.

“Modern capitalism has the potential to lift us all to unprecedented prosperity, but it is morally bankrupt and on track for tragedy,” development economist Paul Collier wrote in his 2018 book The Future of Capitalism. A year later, the billionaire investor Ray Dalio, founder of one of the world’s largest hedge funds, Bridgewater Associates, wrote: “I believe that all good things taken to an extreme can be self-destructive and that everything must evolve or die. This is now true for capitalism.”

Reforming, reimagining or regenerating capitalism: Concerns were being raised long before the 2020 pandemic made even the most committed capitalists join the growing chorus of those calling for serious changes to the world’s dominant economic system.

Business leaders have their work cut out for them. As a new generation inherits a system in need of repair, serious reflections on the future of capitalism are required. Rising to this challenge is an innovative course called, in no uncertain terms, “The Future of Capitalism,” jointly offered by IESE Business School and Shizenkan University, Japan, in cooperation with the School of Inspired Leadership (SOIL), India, and the Getulio Vargas Foundation (FGV), Brazil.

This intercontinental educational journey, launched amid the COVID-19 crisis in 2021, was first experienced by 81 MBA students, representing 22 different nationalities. The students conversed with top executives, entrepreneurs, policymakers, activists and academics who connected via Zoom from Amsterdam, Barcelona, Boston, Delhi, London, New York, Sao Paulo, Silicon Valley and Tokyo, to name a few places. Also prominent in the syllabus were video calls with formerly homeless children in Bangladesh and former child soldiers in Uganda – people dramatically affected by the current system.

Arriving at a moment when we’re still suffering COVID, “one bright side is that we can be connected anytime and everywhere,” enabling a rich exchange of many different angles and points of view, noted one of the academic directors, professor Tomoyoshi (Tomo) Noda of Shizenkan University. This was crucial because, as Noda explained, it’s “not only a course but a project for social change.”

It’s not only a course but a project for social change

What is capitalism?
The dictionary definition of capitalism doesn’t sound like an immediate cause for panic: “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production and the distribution of goods that are determined mainly by competition in a free market.”

In a 2013 interview, IESE professor Jordi Canals put it more succinctly: “Capitalism is a combination of free enterprise, entrepreneurship and free markets.” But then he made an important observation: “Until the 1960s, we all agreed that capitalism required ethical rules and that it was at the service of the wider society.” And therein lies the first sign that something has since gone awry.

In 2015, an International Monetary Fund (IMF) primer highlighted “the motive to make a profit” as “the essential feature of capitalism.” Few would argue that point, but some critics point to the profit motive as being part of the problem. More on that later.

“It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest,” wrote Adam Smith in The Wealth of Nations (1776). Considered the father of modern economics, Smith argued that the profit motive could benefit society at large, a view which powered the first Industrial Revolution. As the IMF primer summarized, with free-market capitalism, “parties to a voluntary exchange transaction have their own interest in the outcome, but neither can obtain what he or she wants without addressing what the other wants.” And “it is this rational self-interest that can lead to economic prosperity.”

Although capitalism pits private or corporate against state ownership of capital goods, this is not to say that governments have no role to play in making the capitalist system work efficiently and effectively. At a minimum, some state regulation is required to avoid exploitation, limit the power of monopolies and otherwise maintain open competition in the coveted “free market.” Businesses also need a “social license” to operate, without which they will have a harder time finding willing customers.

We face a new model of capitalism linked to the Fourth Industrial Revolution and digital technologies

Capitalism’s evolution
What we think of as capitalism today is constantly evolving. From a book-lined office, Stefano Zamagni, an economics professor and president of the Pontifical Academy of Social Sciences, provides some historical context.

Unlike the older “market economy,” Western capitalism emerged relatively recently, toward the end of the 17th century, with the Agricultural Revolution. It really caught on during the second half of the 18th century, during the Industrial Revolution (Adam Smith’s era), when agricultural capitalism was replaced with industrial capitalism. Then, in the 20th century came financial capitalism (aka “the financialization of the economy”). This is when the financial sector eclipsed many other sectors in economic importance – a sign of problems to come. Now, we face a brand-new model of capitalism linked to the Fourth Industrial Revolution and, in particular, digital technologies. In Zamagni’s view, “we know a little but not enough” about the next form that capitalism will take.

The view from Silicon Valley
One who has an on-the-ground view of how capitalism is playing out in Silicon Valley is Scott Belsky, a youthful entrepreneur, investor and author who, after selling his startup to Adobe, is now Adobe’s Chief Product Officer. He describes what he sees as both “exciting and increasingly scary.”

On the plus side, Silicon Valley entrepreneurs, with their penchant for disruptive and contrarian thinking, tend to be driven by the pursuit of impact rather than purely economic rewards, says Belsky. Making an impact may mean offering solutions to society’s biggest challenges, including the climate crisis, COVID-19 and social injustice. Digital platforms and services have made reaching a global audience easier than ever before. Belsky also says creativity has become the most prized contribution at work, replacing productivity, which is something robots or machines can do. All this helps to raise more capital, attract more talent and gain market momentum.

But there are risks to having so much cheap capital available to throw at yet more tech entrepreneurs who famously live by the motto, “Move fast and break things.” Companies like Facebook, Uber and Airbnb have pushed the boundaries of existing industry regulations and found ways to innovate in gray areas. But it is precisely in those gray areas where many new problems are emerging, caused by unrestrained technocapitalists who pride themselves on “seeking forgiveness, not permission,” but then don’t even ask for forgiveness when confronted with the unintended consequences of their actions. What about protecting data and privacy? Did anyone imagine that nefarious actors might exploit these selfsame technologies to have an impact for bad as well as for good? Foreseeing the downsides of creative leaps is not a Silicon Valley strength, Belsky laments.

Also based in Silicon Valley is James Higa, former Senior Director of the Office of the CEO at Apple and now the Executive Director of the Philanthropic Ventures Foundation. He agrees that many tech entrepreneurs would “rather be pirates than be in the navy.” But he is optimistic about the promise of technology put in good hands. From revolutionizing clean energy to making money itself more accountable, Higa believes it will take contrarian thinkers, like those of Silicon Valley, to solve the problems of capitalism today.

Creating a better world is within our reach, but it requires global cooperation at unprecedented levels and system change

What’s wrong with capitalism?
To paraphrase Winston Churchill, it could be said that capitalism is the worst economic system except for all those other systems that have ever been tried. With that in mind, here’s a limited look at just three of the many issues raised in “The Future of Capitalism” course. As many speakers note, these issues are interconnected in ways that are hard to separate out.

Problem 1. It’s unsustainable: We’re in danger of killing our planet. Case in point: We’ve known about the environmental harms of extracting and burning fossil fuels for decades now, but the current capitalist system doesn’t seem capable of doing enough to stop it.

From Amsterdam, Jennifer Morgan, the current Executive Director of Greenpeace International, speaks to this: “One of the most perverse ironies, which future generations will look back on, is not just that we knew what was causing this climate breakdown and we didn’t take immediate action to stop it, but that our governments continue to offer incentives and subsidies to the very industries that created the crisis in the first place.”

She explains that fossil fuels are still attracting three times as much money in investments and subsidies as green solutions are. “You don’t cut emissions by bailing out airlines.”

Unfettered capitalism is extractive and our planet’s resources are finite, Morgan stresses. Success, in capitalistic terms, is measured by growth which is not sustainable. The system has encouraged consumption beyond our planetary constraints.

Unfettered capitalism is extractive and our planet’s resources are finite

Problem 2. It’s rigged: Winners take almost all. Evidence abounds that the easiest way to make a fortune these days is to start with one. For one angle on the problem, look at CEO pay over recent years. In order to align CEOs’ incentives with shareholders’, much of CEOs’ compensation has come in the form of stock options. With the stock market soaring – stoked recently by COVID-19 rescue packages – CEOs in particular have amassed staggering amounts of wealth, and many pay shockingly little in the way of taxes. (By keeping their stock options invested and taking out loans to amass more properties, billionaires’ tax bills stay scandalously low, as recent investigations indicate.)

There are many ethical, economic and social problems strongly associated with exaggerated inequality. One is a “near-constant proliferation of corporate scandals,” to quote from recent research by Stephen J. Smulowitz and John Almandoz titled “Predicting employee wrongdoing: The complementary effect of CEO option pay and the pay gap.” In this quantitative study of U.S. banks from 2007 to 2013, the co-authors find direct evidence that inflated CEO pay was associated with negative behaviors of employees in the same firm. That is to say, cheating and other ethical problems are proliferating most where pay gaps are widest. That is probably because ethical decision-making gets replaced with “what’s in it for me,” as feelings of unfairness and envy rise. This was found especially when CEO option pay was high, which could be an indication that the CEO’s attention becomes focused more on the stock price than on the company’s control systems. The research highlights that executive pay can influence wrongdoing both in terms of incentives as well as social comparison.

Negative feedback loops that exacerbate inequality threaten our social fabric. Ray Dalio writes: “The pursuit of profit is … now producing a self-reinforcing feedback loop that widens the income/wealth/opportunity gap to the point that capitalism… (is) in jeopardy.” In a widely shared post, Dalio observes that resources are being shifted to “what the haves want relative to what the have-nots want, which includes fundamentally required things like good care and education for the have-not children.”

Cheating and other ethical problems are proliferating most where pay gaps are widest

Problem 3. GDP growth is emphasized at the expense of our wellbeing. In most places, GDP carries more weight than Gross National Happiness, or wellbeing, as is measured in Bhutan. As Zamagni says, capitalism as we have it now is “great at growth but not great for development.” In other words, capitalism isn’t aimed at making sure that human beings flourish. And by human flourishing, we’re talking about basics like education, healthcare, a just legal system, a healthy environment and other foundations necessary for supporting the common good.

Consider affordable healthcare. This is a particular problem in the United States, the setting for a growing number of “deaths of despair.” The phrase was made famous by economists Anne Case and Nobel prizewinner Angus Deaton, authors of Deaths of Despair and the Future of Capitalism. The world’s richest country (measured by GDP, of course) has some of the world’s highest priced and hardest to access healthcare, which actually contributes to its GDP but not to its citizens’ wellbeing. Life expectancy in the United States has been declining due to opioid abuse, suicides and other acts of self-destruction.

Case and Deaton’s work has sparked new research lines – for example, “Housing wealth, health and deaths of despair” by UCLA’s Ariadna Jou and IESE’s Nuria Mas and Carles Vergara, which links wealth and health outcomes.

Capitalism as we have it now isn’t aimed at making sure that human beings flourish

So what’s the solution?
As a social project, “The Future of Capitalism” course aims to arm its students with inspiration for a better future. Speakers emphasize solutions on many different levels – global, systemic, national, organizational, local/communal and familial/personal.

Global/system-level change. “Creating a better world – one that’s greener, safer, happier and healthier – is within our reach, but it requires global cooperation at unprecedented levels,” says Greenpeace’s Morgan. “And it does require system change, not half-baked tweaks here and there. It requires new rules, new investments, not saving the old failed system via adaptation or reform. Without fundamental changes in trade or finance rules, for example, there can be no just economic recovery.”

In Morgan’s view, working within the current capitalist system has blinded us to any alternatives. The COVID-19 crisis “might just be the opening we need to allow alternative socioeconomic models that have reemerged over the last decade to take off and then take over,” she says. Without advocating one particular model, Morgan points to several sources of inspiration, including the wellbeing economy (advocated by the Wellbeing Economy Alliance); the principles of the People’s Sustainability Treaty (advocated by the Radical Ecological Democracy Network); the social solidarity economy (advocated by Réseau intercontinental de promotion de l’économie sociale solidaire); and the doughnut economy, a model in which regenerative and distributive economic activity is carried out within the bands of an “ecological ceiling” and a “social foundation” (the name comes from its doughnut-shaped visual framework).

Can change occur within what we know of as modern capitalism, even at an international level? There’s evidence that it can. For instance, in July 2021, 130 countries and jurisdictions, representing more than 90% of global GDP, joined forces to establish a new framework for international corporate tax reform. This will prevent multinationals from shopping around to find the countries with the lowest corporate tax rates and then registering themselves for tax purposes there; instead, those multinationals will be taxed at a minimum global profit tax rate of 15% not in their country of residence but in their place of sale. In the words of French Finance Minister Bruno Le Maire, this will “put an end to the race to the bottom.” Big Tech multinationals that now allegedly evade taxes (fingers point at Amazon and Facebook) are the most likely to be affected. Governments can use the extra monies raised to fund development goals.

Systemic changes can also include new measurements, mindsets, responsibilities and a shift from a shareholder to a stakeholder focus in businesses across borders. See Global alternatives for a snapshot of how capitalism finds distinct expressions around the world, to help expand your thinking beyond your own social, cultural and political understanding.

How can companies pull themselves out of their profit-obsessed spiral?

Organizational change. Drilling down, “firms are at the core of capitalism,” writes Paul Collier. “The mass contempt in which capitalism is held – as greedy, selfish, corrupt – is largely due to (firms’) deteriorating behavior.” He continues: “If there is one feature of modern capitalism that people find most repellent, it is this obsession with making profits.” How can companies pull themselves out of their profit-obsessed spiral?

“Companies need a social license to operate,” emphasizes Francesco Vanni d’Archirafi, former CEO of Citi Holdings and an active philanthropist now based in London. Taking care of stakeholders, not just shareholders, is paramount for long-term success, and Vanni d’Archirafi sees this being increasingly recognized in the financial industry and beyond. “Environmental, Social and Governance (ESG) criteria and the Sustainable Development Goals are now on the top of everyone’s business agenda,” he says, adding that more and more firms are embracing a new ethos: “We want to leave the world a better place than we found it.”

At the organizational level, “purpose should be at the center of corporate governance,” argues IESE’s Jordi Canals. “It defines a clear reason why a company exists, sets some standards of corporate effectiveness and value creation, focuses the organization on the long term, and helps align the interests of the different stakeholders.” See interviews with Paul Polman, Nitin Nohria and Rebecca Henderson who elaborate on these themes.

The next generation seems well-positioned to utilize the tools more responsibly than the last

Personal change. Recognizing the power of business as a potential force for good is also recognizing the power of the business leader on an individual level. At the individual level, how does change come about?

In “The Future of Capitalism” course, tomorrow’s business leaders shared their own visions of capitalism for the next decade. There were many common threads in their presentations, as they recognized the power of long-term thinking and measures aligned with wellbeing and sustainability. See the Checklist for change.

Notably, the students’ visions of the future are optimistic about the power of social media and other digital platforms as a means for positive change. When it comes to attracting the best global talent and giving voice to the previously voiceless, they believe digital platforms can help level the playing field. And, as digital natives, the next generation of business leaders seems well-positioned to utilize the tools more responsibly than the last.

An audacious idea that emerged from the class discussion is to embed digital money with more meaning and provenance. A new money could be more transparent, so leaders and their businesses could align it with their missions. Imagine: What if monetary tokens contained a trove of valuable information regarding supply chains, such as whether fair-trade and sustainable practices were adhered to? For a generation that is used to mobile transfer services such as M-Pesa, not to mention cryptocurrencies, encoding such information into money itself to increase transparency isn’t a big leap.

In this idea and its implementation, personal choices, business leadership, organizational commitments and system-change overlap, as they so often do. Individual responsibility adds up, inspiring business and even systemic change at the top.

“I love the notion of the leader as a social architect,” says Anil Sachdev of the School of Inspired Leadership, “convening the right people around the right questions. So keep asking those questions. Don’t let your schooling interfere with your education,” he told the MBA students. “We’re on a quest: What is capitalism about? What is business about? In what way are we making a difference to each other and to our collective dreams, hopes and aspirations? How are we living the highest within ourselves at our workplaces, so that business can become a true platform for doing more good, rather than what it is today?”

As the course leaders pointed out, capitalism is not a law of physics; it’s a manmade system of commerce and trade that came into practice 400 years ago and which reflects each generation’s values and priorities. And just like governments, empires and dynasties throughout history, its legitimacy lasts as long as it is aligned with human values, serving all our needs.

The next edition of “The Future of Capitalism” will take place in 2022, with the aim of opening up the course to more participating schools, thus increasing its impact. The objective is to convert the course into a global platform where around 300 students from 30 business schools, together with other supporters from the world of business, can join for the 2024 edition.

Watch it

Raise your consciousness of capitalism’s collateral damage with these documentaries and a drama, widely available in multiple languages.

Saving Capitalism
2017: 73 minutes
“We are a two-tiered society composed of a few winners and a larger group of Americans left behind,” says Robert Reich, former U.S. labor secretary and a professor at the University of California at Berkeley. Inspired by Reich’s 2015 book of the same name, this Netflix documentary follows the author as he talks mostly to those left behind. “In the richest country in the history of the world, nobody should be working and not making it,” he states. “The game is rigged.”

An Inconvenient Sequel: Truth to Power
2017: 99 minutes
A decade after An Inconvenient Truth (2006) raised public awareness about climate change, this follow-up continues former U.S. vice president Al Gore’s mission to save Planet Earth. The good news is the 2016 signing of the Paris climate agreement. The bad news is there’s much more to be done. “The next generation would be justified in looking back at us and asking, ‘What were you thinking? Couldn’t you hear what the scientists were saying? Couldn’t you hear what Mother Nature was screaming at you?’”

Inside Job
2010: 108 minutes
Was the 2008 financial crisis an “inside job,” as this hard-hitting documentary’s title suggests? Interviews with some of those wielding power and close observers help make a powerful case. In the words of its director, this film is about “the systemic corruption of the United States by the financial services industry and the consequences of that systemic corruption.” Unfortunately, unlike in a Hollywood movie, the alleged bad guys get away with it all.

Blood Diamond
2006: 143 minutes
A fictional rendering of the horrors of the trade in blood or conflict diamonds, including the plight of a boy forced into service as a rebel soldier. Set in Sierra Leone amid its civil war in the late 1990s, the film stars Leonardo DiCaprio as a rogue gem smuggler who finds himself caught up in the saga of a family pulled apart by forces that value stones as more precious than human lives.

Checklist for change

02The future of capitalism

To rebalance capitalism, consider adding these items to your agenda. The list comes from suggestions presented in “The Future of Capitalism” course – including from the top two MBA teams’ presentations, bringing together their perspectives from Brazil, China, India, Japan, the Netherlands, Peru, Spain, the United States and Zimbabwe.

Change metrics to measure what you treasure

Instead of fixating on the financial return for shareholders, use Environmental, Social and Governance (ESG) metrics and the U.N.’s 17 Sustainable Development Goals (SDGs) as measures of success, taking stakeholders into account.

Report in alignment with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) if you are a public company or a larger private firm. (While there are other sustainability-disclosure standards, the TCFD is currently the most widely used and therefore on track to become the global standard.)

Emphasize longer term results over quarterly financial returns. Half-yearly reports of results are sufficient to stay transparent to stakeholders (following the European Commission’s requirements) and forecasts can look ahead several years.

Align business metrics and language with broader, multilateral goals – like the EU Green Deal and the SDGs – to help expand their positive impact.

Remember the limitations of GDP, which records prices paid, not value created, whenever reading the news, deciding where to invest or otherwise informing your business decisions.

Run your business with the big picture in mind

For top management, pay moderate salaries to avoid upping the ante in your industry.

For entry-level staff, provide a living wage, above and beyond the regulated minimum wage.

Design your corporate strategy, business model, R&D and investment practices with sustainability and the common good in mind.

Work to win, or win back, trust in the systems and institutions that you are part of.

Put purpose at the center of business

Help people within your organization feel part of the mission, connecting with stakeholders.

Align incentives with corporate purpose.

Embed ethics in everything, including in the design of algorithms and financial reporting. This may involve creating new positions for “AI ethicists” or “financial ethicists,” for example.

Invest in people’s wellbeing

Recruit talent from a diverse pool of applicants, and work for inclusion and equality.

Allow flexible work arrangements.

Listen, empathize and build trust when working with people online or off.

Rethink your relationship with money

Think of money primarily as a medium of exchange, not as a goal in its own right. Money works best for the common good when it’s circulating.

Consider ways to add more information to money using technology. ESG information about supply chains and trade practices, for example, could make money itself more transparent as it circulates.

Be an activist with system-change in mind

Work your own circle of influence: Which people are hostile to change? Which ones are open to change? Which ones are already making changes? Focus on the middle group: Those are the ones who can be shifted. And as the balance tips, the rest will have to join so as not to get left behind.

Resist denialism and pessimism: “Nothing will ever change” is an argument for maintaining the status quo. To combat this, find a debate or an issue that’s personal to you and get involved, starting at the local level and then broadening out. Become a vocal advocate for the change(s) you seek, until the voluntary action becomes a new corporate value.

Global alternatives

03The future of capitalism

Many of the crises in capitalism stem from how it is practiced in the Global North, with consequences felt in the Global South. Here we present different takes on capitalism from around the world.



The Amazon rainforest – our planet’s air conditioner – is now emitting more CO2 than it is able to absorb, owing to fires and deforestation, often done deliberately to clear the way for more arable land to produce more exportable goods. The loosening up of environmental controls is in line with the drive to liberalize the economy. Traditionally, Brazil has had strong social policies targeting poverty and inequality, including making direct cash transfers to struggling families so children don’t have to choose between going to school and having to work. But progress is threatened by populist, nationalist political tendencies, making institutional reforms more urgent than ever. There are some grassroots movements to guarantee food sovereignty, giving communities, rather than corporations, control over the way food is produced, traded and consumed; indeed, other South American countries, including Ecuador, have enshrined as much in their constitutions. “We cannot keep doing what we have been doing,” notes FGV economist Carlos Ivan Simonsen Leal. “It’s crucial to fight against corruption and rebuild trust, without which there can be no healthy capitalism.”


“I am because we are.” So the concept of ubuntu goes. Although hard to generalize about such a grand continent, collectivism with an emphasis on pulling together is a common thread (known as harambee in Kenya). For many Africans, capitalism has negative connotations related to colonialism and globalization, both of which have tended to exploit the continent’s resources. Although some early postcolonial leaders, such as Ghana’s Kwame Nkrumah, considered capitalism part of the problem, many of today’s leaders recognize that the private sector can and must play a leading role in the continent’s development. But a better form of capitalism for the context would reflect African values – a so-called Africapitalism that promotes shared value creation for local stakeholders to ensure that more of the benefits remain in Africa. The Tony Elumelu Foundation in Nigeria, for example, has pledged $100 million over 10 years to help homegrown SMEs; aiming to empower 10,000 entrepreneurs by 2025, over 9,000 have been helped to date.


2022 marks 80 years since Gandhi launched the movement to end British colonial rule in India. One of its hallmarks was nonviolence, a tradition dating back to the ancient Indian sage Patanjali (200-150 B.C.) who identified nonviolence as a key leadership virtue. Violence is not just physical but can be wrought through systems that subjugate and exploit others. Recognizing this, Indian philosophy has a strong ethos of serving the wellbeing of all. Which leads Ravi Chaudhry, a thought leader in India, to ask: Why don’t we, as a society, change metrics to motivate and reward this kind of healthy ethos?

B. Muthuraman, who worked nearly 50 years for India’s famous Tata Group, explains that the purpose of business is to improve the quality of life of people, plowing part of the profits back into society and contributing to nation-building. This was one of the founding principles of Tata in 1868, which instituted an 8-hour workday, free healthcare and maternity leave long before these existed in national law. Tata has a unique ownership structure, with two-thirds of the equity share capital held in public philanthropic trusts that can only be spent on social and community development. Muthuraman believes taking care of workers and going beyond the minimum required by law is more than possible, it’s ultimately profitable. “I would put forward that you can be profitable, grow and satisfy the shareholders while simultaneously satisfying society, doing good and being environmentally friendly.”


It’s fitting that in 2024 the new 10,000 yen note will feature Eiichi Shibusawa (1840-1931), responsible for Japan’s first bank. Known as the father of Japanese capitalism, his vision was closer to what we might call stakeholder capitalism today. He felt the fruits of labor should be reinvested back into society. For him, the Analects (the teachings of Confucius) were inseparable from the abacus (symbolizing money), meaning economics had to have a moral dimension; indeed, he wrote a book on the subject, Rongo to Soroban (The Analects and the Abacus). Apart from Confucian ethics, the other philosophy that influences Japanese capitalism is Shintoism, or Kami no michi, meaning “the way of those above.” This stresses the importance of people living in harmony with their environment, contributing to maintaining the unity and integrity of the nation. As Shibusawa believed, the point of business is not to accumulate wealth but to bring greater wealth to the nation and the people.

SOURCE: Based on comments shared during the sessions “Capitalism and International Conflicts,” “Inconvenient Truth Continues,” “Trust: Sine Qua Non of Capitalism” and “Eastern Philosophies,” delivered between February and April 2021 as part of “The Future of Capitalism” course.

Paul Polman and Nitin Nohria: “This time is different”

04The future of capitalism


“I believe capitalism is still the best engine to create prosperity in the world. The biggest reason to reimagine capitalism is that if we don’t fix it, then we will all be worse off.” So says Nitin Nohria, speaking on a panel alongside Paul Polman, who concurs with Nohria’s assessment: “I’m not so much worried about capitalism as a concept; I’m more concerned with how we bend the curve of capitalism to make it more sustainable, more inclusive and more functional for generations to come.”

After a decade as CEO of Unilever, Polman now uses his voice and influence to galvanize industry leaders to transform the way business is done and advance the U.N. Global Goals, which he helped to develop. Similarly, after a decade as dean of Harvard Business School, Nohria is now reflecting and speaking on the education of business leaders to prepare them for the challenges ahead. The issues are big, which is why, they say, we need a new type of leader.

What’s gone wrong?

PP: Our economic system was failing even before the pandemic: people left behind, growing inequality and debt for future generations. COVID-19 amplified all that. The financial toll, combined with the trillions spent to deal with the crisis, has made people realize that the costs we are incurring are significantly higher than if we had just made the right decisions and invested in the right things that would have avoided these issues in the first place.

NN: After every crisis, whether the 2008 financial crisis or COVID-19, we keep seeing a K-shaped recovery, where the rich get richer and the poor get poorer. More generally, our economies are structurally becoming more K-shaped. We have to find a way to change that. Support for capitalism and democracy – the two great engines of the Enlightenment – comes when capitalism and democracy create shared prosperity. I don’t think society cares so much about inequality of outcomes as long as everyone is doing better overall. People start to become anxious about inequality if one group keeps doing worse while another group consistently does better. If you have structural rigidities that repeatedly determine who does worse and who does better – which is the world we’re in – that’s when you lose trust in the systems and institutions that have served us until now.

Are there signs of change?

PP: More and more people are waking up to the fact that our current economic system isn’t working, and they’re demanding more from their governments and from companies. Polls of CEOs show that the vast majority want to come out of this crisis better and do things differently, not simply go back to how things were before. This is different from what happened after the 2008 global financial crisis, when we didn’t learn the lessons and didn’t take the necessary actions. Back then it was felt that banks were too big to fail but people were too small to matter. This time I think it’s different. We’re seeing some tipping points, such as financial markets waking up to Environmental, Social and Governance (ESG) standards. We see companies operating under a multistakeholder, longer term economic model, with purpose at the core, and those companies are performing better. Governments are redefining social contracts on everything from healthcare to social safety nets and just transitions, just like FDR did with the New Deal after the Great Depression when the U.S. introduced social security and more inclusive economic growth. We’re trying to decarbonize our economies. We’re trying to make the financial markets subservient to the real economy, not the other way around. We’re starting to make the U-bend in the history of humanity in our economic models.

So it’s all good news?

PP: There’s no time for celebration yet! Many promises have been made but the speed and scale at which we’re moving isn’t enough. Whenever you try to make system changes, the current system pushes back. There are still lots of vested interests and bottlenecks to solve.

“We’re starting to make the U-bend in the history of humanity in our economic models”

Does it make sense to work through the system then, or go around it?

NN: Throughout human history, there has been a tension between individual and collective action. We used to believe the locus of individual action was the private sector and that collective action lied with the State: That was how we coordinated action, with the State creating the policies, structures, incentives and legislation to enable and constrain individual action. While the State might still be the best entity for collective action, it depends on effective government, and that’s not what we see in most countries today. As a pragmatist, I see more progress being made through private citizens and private entities taking collective action themselves.

PP: Given that the issues are so big, and governments’ ability to work together and look long term is limited, here is where I think businesses have a role to play. Responsible businesses need to step up and fill the void. They cannot just myopically focus on their own organization; they cannot be bystanders in the system that gives them life. They have to become part of these broader system changes that are needed.

NN: I feel the approach of a company not acting alone but working with and through other partners – getting other people in an industry to act together and commit together to a higher set of standards – is the way in which we can start to rebuild social confidence. I don’t think people are that confident in any one government or in any one firm solving these problems for us. In the same way as we created government multilateral institutions, we need to create private multilateral institutions that build confidence in society, so that when we commit to collective action, we actually do it.

Are business leaders ready for this?

PP: It takes moral leadership, willpower and courage. As representatives of our organizations, we need to be strong advocates in making sure all the stimulus money coming into the global economy is spent right. We need to start measuring what we treasure – not just measuring ROI but measuring returns on environmental and social capital. We certainly need more courageous leaders, those who put others’ interests ahead of their own. Do you care? Courage comes from the French word coeur, meaning heart. We need leaders who work not only with their heads but with their hearts, who first and foremost are good human beings, with empathy, compassion, humility and humanity. These are the words to describe the leaders of the future. Leaders who can think multigenerationally. Leaders who are system thinkers and can wrap their arms around complexity, distill it to simplicity and take action. Leaders who understand the power of partnership for the common good.

Are business schools preparing these kinds of leaders?

PP: Milton Friedman’s myopic view of shareholder primacy is still the basic premise of most business school education. If we don’t change the core of our business education, we won’t change the core of our business leadership.

NN: You can think of the education of leaders as knowing, doing and being. Knowing is amassing a body of knowledge. Doing is applying that body of knowledge in a rigorous, disciplined way. And being is the character of the person doing it: What’s the identity you carry as a business leader? Over the past 100 years, business education has done a great job of advancing knowing, a less good job at translating that knowing into doing, and an even worse job at translating doing into being.

However, over the past 10 years, I think that has flipped. We now have a generation of people for whom the being – the values they want to express in business – has become clearer. The problem now is that we’re unsure how to arm them with knowing and doing.

The quality movement provides an object lesson for us. For a long time, people had good intentions about producing quality but it took lean manufacturing – a whole system of ideas about production – to make that aspiration into a worldwide practice that everyone can rely upon. I think we need to do the same on the environment, living wages, and so on. We can teach discounted cash flow, but how do we teach how to calculate environmental impacts in a way that is equally rigorous? What are the best models? We need to get much better at arming this generation of people who have their values in the right place with the knowledge and tools they need to act on their values.

“If we don’t change the core of our business education, we won’t change the core of our business leadership”

What else needs to change?

PP: Rankings: As long as we continue to rank business schools on the basis of salaries, banking and consulting will be the primary focus of most students, and Milton Friedman will prevail. Schools need to take the Sustainable Development Goals as their template and make them the core of their curriculum. They need to combine STEM subjects with the Humanities to be able to solve real-world problems. We need to instill a sense of purpose for people and the planet in those who will be the leaders of tomorrow.

NN: One of the most exciting experiments I’ve seen is a computer science course that includes something called embedded ethics. Someone from the philosophy department participates in every class and pushes the students to think about the loss of privacy that results from network effects or the biases that result from AI algorithms and other ethical issues that they might otherwise consider only superficially. These experts in ethics help create a much richer conversation about the interaction between technology and society than if the computer science faculty member had asked similar questions. Generally, business schools have done a better job at embedding STEM in their curriculum – bringing in more technology, more machine learning, more data analytics – but a less good job at embedding ethics and humanities and making those a core part of the business education. We need to encourage more of that.

Any final thoughts?

PP: Never in history have we been so forewarned and never have we been so forearmed with the tools to do something about it. Most of us have been lucky enough to win the lottery ticket of life: We have financial and intellectual freedom, we can choose the job we want, we’re in privileged positions that only 5% of the world’s population are lucky enough to have. So I ask: What have you done for it? What will you do next? My challenge is simple: If you belong to the 5%, then put yourself in the service of others and live your life with purpose.

Nitin Nohria is a Harvard University Distinguished Service Professor and former Dean of Harvard Business School (2010-2020).
Paul Polman is a U.N.-appointed Sustainable Development Goals advocate, author of Net positive: How courageous companies thrive by giving more than they take (Harvard Business Review Press, 2021) and former CEO of Unilever (2009-2019).

Rebecca Henderson: “Business must step up”

05The future of capitalism


Rebecca Henderson ( is the John and Natty McArthur University Professor at Harvard Business School and author of Reimagining Capitalism in a World on Fire (2020).

Rebecca Henderson is a firm believer in capitalism’s capacity to lift millions out of poverty and spread freedom, innovation and prosperity around the world. However, against the present-day backdrop of immense environmental degradation, burgeoning inequality, rising populism and extensive social unrest, she believes the time has come to reimagine capitalism, with purpose-driven firms at the helm.

Surely the purpose of the corporation is to make money?

Well, yes, but what we really want are firms that are authentically committed to a purpose beyond profit maximization. That is what we mean by purpose-driven firms. To paraphrase Colin Mayer (Saïd Business School professor at the University of Oxford), purpose is about solving problems in ways that are profitable but without causing new problems. Purpose is not at odds with financial returns; rather, avenues exist for what my Harvard Business School colleagues, Michael Porter and Mark Kramer, term “shared value opportunity.” This essentially entails solving large social problems while making money at the same time.

Are there not some problems, such as climate change, that are simply too big for business to solve?

Some might argue that colossal events, such as climate change, are public-goods problems and, as such, need to be addressed by government. Indeed, as a collective-action dilemma, government may need to take the lead. But global business still has a critical role to play in driving systemic change, since companies are uniquely poised to create shared value, rewire finance and build cooperation.

In the case of climate, for example, it’s increasingly clear that in many industries there is a business case for addressing climate change at multibillion-dollar scales. Walmart is one example: They took a billion dollars in incremental profit to their bottom line after rejigging the efficiency of their trucking fleet and significantly reducing their energy and greenhouse gas emissions. Another example is Tesla’s Elon Musk, whose focus on electric vehicles has almost certainly accelerated the transformation of the world’s automotive industry by five or six years, while simultaneously building one of the world’s most valuable automotive companies.

Although the individual actions of these forerunning firms aren’t yet enough to move the needle, they are undeniably a step in the right direction. They inspire positive change for companies, both inside and outside their industries, especially those in the midst of transformation, like electric power, transportation, agriculture and construction. Once one firm steps up and shows there is money to be made, other firms make the leap.

“The time has come to reimagine capitalism, with purpose-driven firms at the helm”

But can we trust companies to innovate and self-regulate when their bottom lines demand otherwise?

No, we can’t! We know from the fields of political science and developmental economics that prosperous societies rest on three foundations. The first is genuinely free markets, which are at the heart of freedom and prosperity.

But markets only work their magic when prices reflect real costs – “real” being the operative word. We have seen numerous cases where profits are maximized to the detriment of global health and social welfare. For example, coal-fired electricity is only so cheap because companies are not paying for the harm it causes – billions in healthcare costs and the deaths of hundreds of thousands of people, not to mention the lasting damage to the environment. Generating $10 worth of coal-fired electricity costs at least $8 to human health and another $8 for the environment – costs that are not being factored into the bottom lines, but instead are being footed by society. And that is hardly fair.

Just as unfair are the enormous hidden costs of burning oil and gas, and of eating red meat. Those trying to build a clean economy have to compete with other firms whose destruction of our health and our environment is being heavily subsidized.

In these kinds of cases, the government needs to take action to change the rules of the game and price these externalities. After all, it is not a free market if firms can lobby governments and fix the rules to their own advantage. They need to be counterbalanced by democratically elected, transparent, accountable and capable governments able to prevent companies from generating massive negative externalities that degrade environmental, educational and healthcare systems. That’s the second necessary condition.

Equally, there is the need for a third key component: a strong civil society to guarantee the rule of law, a thriving democracy and a free press.

However, in a context of extensive global unrest and institutions under stress, to preserve the legitimacy of capitalism, we need a fourth thing: Business must also step up.

What is the incentive for firms to address such externalities and become purpose-driven?

Research conducted over the past 20 years finds that purpose-driven firms reach higher levels of corporate performance, as defined by financial results, innovation and productivity. All the data suggest that business, as a whole, has a deep economic interest in solving complex social issues like climate change, racial exclusion and inequality. Economic growth is stronger and more sustainable in societies with strong, democratically accountable governments that provide a solid framework to enable profit maximization to thrive.

Unfortunately, sustaining voluntary self-regulation is nearly impossible at a global level, which is why a comprehensive approach is needed. The system must espouse a long-term perspective, offer solid economic incentives for cooperation, monitor corporate behavior and sanction firms that don’t comply.

Economic incentives aside, it boils down to doing the right thing. A popular political cartoon captured it well: 20 or 30 years down the line, we don’t want to end up saying, “Yes, the planet got destroyed. But for a beautiful moment in time, we created a lot of value for shareholders.”

“Economic incentives aside, it boils down to doing the right thing”

Doesn’t this create a conflict with shareholders?

Investors have an interest in enforcing action to resolve large social and environmental problems for two main reasons.

First, investors, particularly very large ones, cannot diversify away from major systemic risks like climate change or political instability. Increasingly, there’s a recognition that environmental degradation is responsible for massive floods, wildfires and the very real collapse of agricultural systems in vulnerable countries. It’s not going to be good for investors if there is stress on the food supply or mass displacements of people. And it’s going to be hard to make money if most people believe the rich are trashing the planet in their own interest.

Already we are seeing declining trust in elites on both the left and the right and a move toward populism, especially in the developed world, where much recent growth has been concentrated at the top end of the income distribution and where social mobility has been falling consistently, to the point where the average U.S. adult statistically cannot expect their children to do better than them.

The smart investors have realized that companies need to serve a social purpose or eventually we are not going to have a society or an environment in which to make money. Even BlackRock’s Larry Fink has said that companies must benefit all of their stakeholders, which, considering who he is, is significant.

Second, caring about these issues is, in fact, incredibly strategic. Consumers want sustainable products and are increasingly willing to use their consumer power against toxic brands. Particularly in industries where there is pressure on resources – in waste reduction and decarbonization, for example – there are huge opportunities and fortunes to be made, and I think investors are waking up to the potential of that. And where they go, more will follow, not just in terms of other companies wanting to get in on the action, but also in terms of the best talent gravitating toward those areas.

You mean these big problems could offer a roadmap to growth and talent engagement?

Absolutely. Both millennials and baby boomers are increasingly demanding that their work have meaning, and companies are starting to talk about purpose as a talent attraction strategy. Nearly 90% of managers say a company with shared purpose will have greater employee satisfaction. New research in economics and psychology is highlighting the role of purpose in intrinsic motivation, as opposed to the traditional carrot-and-stick approach. If a firm is purpose-driven, it is more likely to attract employees who want to have an identity as someone who does the right thing.

Rebecca Henderson spoke on the Purpose of the Corporation as part of the IESE-ECGI Corporate Governance Conference held in October 2020. The next conference organized by the IESE Center for Corporate Governance (IESE CCG) and the European Corporate Governance Institute (ECGI) will take place on October 4-5, 2021, on the role of the board in corporate strategy in an uncertain business environment. Contact

Rebecca Henderson’s 4 pillars of change

1. Build a business that can set the right price and still be profitable.

2. Persuade your competitors to do the same.

3. Make sure that investors understand there is money to be made.

4. Push governments to put the right price into law, so that bottom feeders can’t survive.

Looking toward a brighter future

06The future of capitalism


By Franz Heukamp

In the face of so much injustice and inequality around the world, combined with the looming threat of climate change, it’s easy to get discouraged about the future. Yet when I look ahead, I see strong grounds for optimism.

There’s a groundswell of discontent over systemic problems that have resulted in some dysfunctional business practices, the consequences of which we are living with today. Now, people are coming together to understand how business can be reimagined, so that we might better tackle the twin global challenges of climate change and widening social inequality.

Capitalism has been one of the most important forces driving prosperity around the world. Yet, despite the promise it can hold to improve lives, it’s not infallible. As Pope Francis writes in his 2020 Encyclical on fraternity and social friendship (Fratelli Tutti), focusing solely on profit for profit’s sake subverts the original purpose of business. “Business abilities should always be clearly directed to the development of others and to eliminating poverty, especially through the creation of diversified work opportunities. The right to private property is always accompanied by the primary and prior principle of the subordination of all private property to the universal destination of the earth’s goods, and thus the right of all to their use. … The marketplace, by itself, cannot resolve every problem. … Without internal forms of solidarity and mutual trust, the market cannot completely fulfill its proper economic function.” The pandemic has shown “the fragility of world systems” and “demonstrated that not everything can be resolved by market freedom.”

“We must put human dignity back at the center, and on that pillar build the alternative social structures we need.”

The fact that so many of the world’s brightest minds and leading voices are collectively focused on exploring and proposing solutions for how we can do better at redressing the balance is extremely encouraging to me.

This is not to downplay the size of the challenges before us. “Do no harm” doesn’t cut it anymore. We need business leaders willing to step up and proactively make a positive impact on society, revitalizing and reinforcing the social contract by which companies are allowed to operate.

We need business leaders willing to step up and proactively make a positive impact on society

Nor should we become complacent, merely content to place our faith in future generations to fix these planetary and social issues for us. On the contrary, all of us need to use our own circles of influence to help drive systemic change.

This isn’t easy. It will involve rethinking, from the ground up, not only how we conduct our daily operations, but how our systems are incentivizing, measuring and regulating entire industries. It will also involve coordinated collaboration across disciplines, sectors and regions.

It’s also clear that business schools have a key role to play in teaching the true purpose of business and its role in society, putting “human dignity back at the center.” We need to make sure we’re giving business leaders, both future and present, the tools they need to translate good intentions into decisively positive impact.

I’m encouraged by movements within the business education sector to embed ethics and purpose throughout all programs and activities, and to equip participants with new frameworks and knowledge on running sustainable organizations.

The Future of Capitalism” course that IESE launched in 2021 with Shizenkan University – our strategic partner in Japan – is a great example of this. More than just another MBA course, it’s a program designed “to promote social change,” as my good friend Tomo Noda described it. The fact that it brings together so many different schools and institutions across diverse continents speaks to the spirit of collaboration. After all, these are global problems that need global solutions. And we hope to build on this over coming years.

Of course there is still so much to be done. Reshaping our businesses, industries and educational systems as part of wider global efforts to promote a more inclusive and sustainable form of capitalism is hard work. Yet we must not forget why this needs to be done. We have seen in our own lifetimes the power of business to drive positive change. But to continue in a positive direction, we need to come up with new and better solutions that will make the world a fairer, greener, more inclusive place for all. Apart from any economic motives, this is ultimately about securing the long-term future of the people around us and our planet.

Franz Heukamp is Dean of IESE Business School and one of the driving forces, with Tomo Noda of Shizenkan University, behind “The Future of Capitalism” course.

This Report forms part of the magazine IESE Business School Insight #159. See the full Table of Contents.

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