T

he future of capitalism is at great risk

The problem with socialism, wrote Willi Schlamm, the Kingdom of Galicia born journalist, '€œis socialism. The problem with capitalism is capitalists.'€ In other words: socialism as a system ultimately proves dysfunctional and inevitably has to undertake market-oriented reforms, '€œsocialism with Chinese characteristics'€ being the most remarkable illustration of the phenomenon. The problem with capitalism, on the other hand, is not the system. It'€™s the people, the capitalists, who are the problem. And this is what we are experiencing now.

It is not so much that capitalists, according to leftist stereotypes, are greedy, ruthless and amoral '€“ though there is some of that, as our late and greatly missed IMD colleague Stewart Hamilton forcefully put across in his book Greed and Corporate Failure. Rather, they are blinkered and ignorant of history, adhering to Henry Ford'€™s famous quip that '€œhistory is bunk'€. Perhaps especially for that reason, arguably the greatest single '€œsin'€ of capitalists is complacency.

This was highlighted by The Economist in the leading article of its 2014 New Year edition, Look Back in Angst: '€œThe most troubling similarity between 1914 and now is complacency. Businesspeople today are like businesspeople then: too busy making money to notice the serpents flickering at the bottom of their trading screens.'€

There are four big serpents that business leaders (and business schools!) need to confront: gross social inequality borne from injustice; abysmal environmental degradation; the erosion of democracy; and war. Should these four serpents not be tamed, there is a grave risk the planet will plunge into apocalyptic horrors comparable to those experienced during much of the 20th century, which the late historian Eric Hobsbawm called The Age of Extremes.

There is a tendency among those who have, as opposed to those who have not, to shrug off inequality on the grounds that it is '€œnatural'€ and a feature of humanity since time immemorial. This is of course partly true.

The problems with inequality today, however, are: 1) because of greater global connectivity and social media, it is more visible, indeed flagrant; 2) it is primarily due to inequality of opportunity and therefore arises from social injustice; 3) it is expected to get worse, not only by experts, but especially by the have-nots, the unemployed youth, what the Spaniards call los indignados (the indignant). If youth does not have hope for the future, there can be no hope for the future.

Democracy is in grave global peril'€”witness the rise of extremists in recent European elections, the coup d'€™Ã©tat in Thailand and so on. This is a great paradox. The 1990s, following the collapse of the Soviet Empire and the erosion of communist ideology, witnessed a huge tidal wave of democratization pretty much across the planet.

Officially, there are still more democracies than autocracies. Yet the 1990s'€™ tidal wave of democracy has been followed by a backlash tsunami of alienation from, and indeed outright hostility to, the democratic state; indeed, a number of '€œdemocratic'€ governments have violated democratic principles. In a thoughtful recent piece, economist Dani Rodrik argues that in light of the profound transformations the world has experienced this century and the tremendous challenges that lie ahead, '€œif democracy is to have a future, it will need to be rethought'€.

It is not historical determinism to argue that patterns from the past can be discerned and lessons can be learned'€”but only if the patterns are studied and discerned in the first place. Shortly before he died in December 2000, the former Chairman of The Evian Group@IMD, David de Pury, urged: '€œlet us not repeat the mistakes of the past'€. Were he to return today, he would hardly be impressed by the impact his words have had.

To avert disaster, capitalists need to be shaken out of their lethargic geopolitical complacency and too visceral indulgence in wishful thinking. They need to study history. They need to listen to different voices from the ones they normally only pay attention to'€”their own. They have to deepen their thoughts and broaden their horizons.

There are some encouraging signs. In that vein I conclude with an extract from a recent article by Paul Polman, CEO of Unilever (co-authored with Lynn Forester de Rothschild) in the hope that this may become a chorus among business leaders and business schools:

Capitalism has guided the world economy to unprecedented prosperity. Yet it has also proved dysfunctional in important ways. It often encourages short-sightedness, contributes to wide disparities between the rich and the poor, and tolerates the reckless treatment of environmental capital. If these costs cannot be controlled, support for capitalism may disappear'€”and with it humanity'€™s best hope for economic growth and prosperity. It is therefore time to consider new models for capitalism that are emerging around the world'€”specifically, conscious capitalism, moral capitalism and inclusive capitalism.

The writer is emeritus professor of international political economy at IMD, founder of The Evian Group@IMD and visiting professor at the University of Hong Kong and NIIT University in India.