President Mokgweetsi Masisi and his team have just returned from the World Economic Forum in Davos where ‘stakeholder capitalism’ made its grand re-entrance into mainstream media again.
Although the President’s team didn’t take part in any of the discussions on the evolving nature of capitalism, I couldn’t help but relate the debate to our own shores where big corporations have become mega institutions interwoven into public, government and private institutions. In a country boasting one of the highest levels of income and wealth inequalities (third highest in the world), the few with lots of private capital, and in monopolistic corporations are thriving for their stakeholders despite a nascent private sector that apparently holds the key to economic growth, economic diversification and jobs creation.
Stakeholder capitalism first reached its pinnacle in the early 2000s when British Prime Minister Tony Blair challenged corporate entities to take into account the interests of staff, customers, suppliers and the environment. Nowadays, the global technological, environmental, geopolitical, and socio-economic transformations of the past two decades are driving a re-examination of the prevailing corporate-governance model, just as they are posing fundamental challenges to many areas of public policy and governance.
Stakeholder Capitalism’s grand entrance signals an emerging shift away from the paradigm of “shareholder capitalism” that has dominated and guided the world economy since the 1970s. We grew up learning and knowing that the true core purpose of any business or firm, is, simply put, to generate profit for its shareholders. This key principle was aptly coined by Nobel Laureate economist Milton Friedman as “the business of business is business.” But now, this proverbial focus on profit-making is being blamed for almost every problem facing the world and our communities. The financial crisis; rising inequalities; populist politics; climate change; corruption; you name it, big corporations will likely carry the blame on its shoulders.
Mega corporations like Choppies and others have carried the brunt and blame for their ridiculously low wages despite the defect being a policy and legislative matter. Such a conundrum, that, while Choppies major shareholders drive away in their fancy cars to their suburban homes, customers, suppliers, employees and local communities languish in their own misfortunes, repeatedly disappointed by ineffective public institutions and political establishments.
So while the theme at Davos and the irony of the elitist gathering itself stand in question, it really does bring to the fore the global political mood and the repeated concession that there is and there has to be another way to fix society.
The newly found realisation that capitalist entities continue to realise is that the purpose of a corporation should not just be the creation of large financial returns for its shareholders, but to create benefits to all of its stakeholders, being: customers, employees, suppliers, local communities, and shareholders.
This is where the intersection of business and politics finds itself. The status quo (political formations and governments) has failed to ensure equal prosperity for everyone. Scholars like Nobel Laureate economist Joseph Stiglitz have long pointed out the limits of winner-take-all business models in the form of “shareholder capitalism” and called for an evolved social contract that tames the power of markets. The growing agenda that casts the spotlight on stakeholder capitalism suggests a growing consensus to re-evaluate the role of private corporations in social value creation, creating shared value and “shared prosperity.” This already sounds like a Labor Party campaign slogan. But it is where we find ourselves at.
The shift to a more nuanced strand of capitalism is not confined to Davos alone. The rippling effects continue to reverberate through important social circles including academia.
So while the conversation carries on, with corporations like Choppies under heavy scrutiny and being the poster child for unfair wages, over-the-top monopolistic behaviour, perhaps we may also indict them to start thinking about the purpose of business not just as a means to generate profits, but as a means to produce profitable solutions to the dire problems that the country faces.
But as always there’s a double edged sword on the other side. As much as the notion of stakeholder capitalism seems to be gaining momentum, it is also riddled with challenges and contradictions that surround its application and reality in general. The first question executives would likely ask themselves is; why should we clean up after the mess that politicians are largely responsible for? More often than not, business corporations and firms have been at the centre of creating multiple crises we find ourselves in. And they were probably in bed with politicians when they did. But that isn’t what is up for debate here. This is a call and an opportunity for collaborative relationships between government and the private sector. Sustainability is as equally an environmental, climate and economic issue as it is a business one. Welfare of employees and customers determines how far a business will go and at the end of the day, the fate of humanity is as intertwined with the fate of private corporations.
Serving the interests of all stakeholders, as opposed to only shareholders, is essential to the long-term success and health of the business community. Notably, there is an easy case to make for stakeholder capitalism. It is a sensible business decision and equally an ethical choice. Where politics and governments fall short, business must be proud to sweep in and work to find solutions to innovation, climate change, food security and technology. Also, companies that have done incredibly well must commit to paying fair wages, reducing executive-worker pay ratios, ensuring safety in the workplace, lobbying for higher tax rates for the wealthy and avoiding tax loopholes. It also speaks to engaging in honest marketing practices, investing in local communities and protecting the environmental at all cost.
*Bakang Ntshingane is a writer and political analyst with interests in politics, foreign and trade policy