The wealth gap is real, but capitalism can work for all

The wealth gap is real, but capitalism can work for all
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The billionaires attending the recent Milken Institute Global Conference were given a sober warning about the growing backlash against capitalism. Bridgewater’s Ray Dalio and J.P. Morgan’s Jamie Dimon said unless capitalism is reformed, there will be “class warfare.” Eric Schmidt, the former executive chairman of Alphabet, championed capitalism as “the source of our collective wealth as a country,” but expressed a fear that, because of wealth disparity, “socialism’s going to creep back in.” 

To be sure, the disparity of wealth is a real issue, particularly when we consider that 78 percent of workers in America live paycheck to paycheck; 57 percent have less than $1,000 in savings; 50 percent of Canadians are $200 away from insolvency; and the gender pay gap has moved barely a notch — while the stock market and CEO pay ratios are at nosebleed highs. 

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However, to understand the growing backlash, the much broader issue is the lack of confidence in our overall economic, social and political systems. One reason for this are the scandals and other wrongdoings that have rocked every aspect of our society. Most of the trust erosion, however, is based on what people, or someone close to them, have experienced. Given this, the call for reform must go beyond fixing the wealth gap. Systemic changes are required, and despite their failure to do so over the past decade, capitalists are in the best position to lead the charge.

This call to action is not new. In 2010, after the financial collapse, the Conscious Capitalism movement was formed to provide a framework for reforming companies. The movement “builds on the foundations of capitalism — voluntary exchange, freedom of trade and the rule of law. These are essential to a healthy functioning economy as are other elements including trust, compassion and value creation.”

John Mackey, the founder and former CEO of Whole Foods, describes it as “a more complex form of capitalism that reflects and leverages the interdependent nature of life and all of the stakeholders in the business.” 

Sadly, few companies adopted the principles espoused by the movement, and one could argue that if they were universally applied, we would not be facing a revolution that could usher in socialism. 

Today the demand for change is even more intense than it was a decade ago. Brexit, climate change and environmental activism, the Yellow Vests movement in France, the walkout by thousands of Google employees globally, and the #MeToo movement are early indicators of a modern-day industrial revolution that potentially will grow unless our economic, social and political systems are reformed. 
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My worry is that the capitalism v. socialism debate is put forward only from the perspectives of the far right and the far left, becoming an either/or proposition. At the Milken Institute, Ken Griffin, founder of Citadel, blamed “people not understanding history” and suggested that if they followed the collapse of the Soviet Union, they would not heed the far-left agenda. Well, people may not understand history, but it is fair to say they understand the current state of affairs — that capitalism isn’t working for everyone. So, the answer is not teaching a history lesson; rather, it is convincing people that a conscious capitalist economic system can work for all.

Economic, social and political systems are not pure. They are value propositions that are balanced against the interdependencies, needs and expectations of individuals, institutions and governments. Reform is a recalibration, not an either/or choice between capitalism or socialism. And these are the debates we should be having based on facts while factoring in these interdependencies, needs, expectations and responsibilities.

From an employment perspective, these debates should be grounded in the international covenant of economic, social and cultural rights that went into force in 1976 — the right to work in just and favorable conditions; to social protections; to an adequate standard of living and the highest standards of health; and the right to education and cultural benefits.

These rights need to be re-ratified by individuals, institutions and governments as still being relevant in today’s environment. Once that happens, the debates should center around how this is applied.

Unless the universal consensus is that government should be responsible for the application (which means a socialist model), employers should take the lead on this by recalibrating the value exchange proposition they have with their stakeholders. I have found that most businesses apply it to the relationships they have with their shareholders and customers, but less so with their employees, vendors and other contractors. 

It should start by clarifying what they expect in terms of performance, activities, products, services and behaviors, and then soliciting what they need from the company to deliver on what is expected of them. Once agreement on this is reached, it becomes their covenant. It requires continuous review to ensure that it works for everyone.

I have spent the bulk of my career transforming corporate cultures using this value exchange model, following the international covenant of rights and espousing the principles of conscious capitalism (even before it was called that). It has worked for me — but more importantly, it has been spectacularly successful for our stakeholders. 

Andrew Faas is co-CEO of Accordant Advisors, a Public Voices fellow at Yale University and former executive with Weston/Loblaw and Shoppers Drug Mart in Canada. He is the author of “From Bully to Bull’s-Eye: Move Your Organization Out of the Line of Fire” (RCJ Press Inc., 2016). Follow him on Twitter @andrewfaas.