Capitalism – What the Future Holds

Wall Street

Image by Mirka23 via Flickr

The world is in a state of flux.

With the economic downturn lingering far longer than most people expected, governments are under growing pressure to kick-start economies. However, a growing number of countries with looming debt crises and a consequent unwillingness or inability of governments to spend more money hampers this.  And, as the northern hemisphere weather warms up, we can expect to see growing numbers of demonstrations by people wanting jobs or, at least, a reduction in job cuts.

All of which leads to the question – is the capitalist system doomed?

I don’t believe for a moment that this is the case – history shows that capitalism is the most effective way for countries and people to grow their wealth – but I do think we’re going to see some far-reaching changes.

Back in September 2009, I suggested in my post, “The Perils of Quarteritis” that the short-term thinking so prevalent in recent years had contributed significantly to the crash, and that businesses would move to a longer-term, more strategic model.

The March 2011 edition of Harvard Business Review has a wonderful paper, “Capitalism for the Long Term,” by Dominic Barton, Global Managing Director of McKinsey & Company where documents his findings from 18 months of research and hundreds of meetings with business and government leaders. In this paper, Barton makes 3 points to support his conclusion that capitalism must survive, but that it needs to change, too:

  1. A return to longer-term thinking by companies, investors and politicians alike – he refers to this as “The Tyranny of Short-Termism” (my version was Quarteritis).
  2. That there is no difference between serving the interests of shareholders and of stakeholders – in spite of a more recent belief that serving stakeholders made shareholders poorer, managing for long-term value growth benefits not only stakeholders and society but shareholders, too.
  3. Company executives and boards need to act more like owners, not temporary care-takers – as by doing so they will naturally look to the long-term and so benefit the company, its shareholders, its stakeholders and society as a whole.

Basically, it all comes down to taking a longer-term view of business (as well as the economy, in the case of government) and a consequent change in leadership style, too – see my post of November 2009, “Leadership for the New Business World.”

This longer-term thinking and more inclusive leadership approach will ultimately be to the benefit of all – investors, executives, employees and society as a whole.

What do you think?

Update (31Mar11): Read the Leadership Interview with James Quigley of Deloittes, just out at N2growth.com – leadership is about trust and looking to long-term sustainability.

Advertisements

6 responses to “Capitalism – What the Future Holds

  1. Dear Guy
    You have raised an essential issue : short term v/s long term. I will tend to put the debate differently as the opposition between performance/profit against long term survival. Whilst in theory, one is the corollary of the second, in my view, the flaws of the system lie in the role of the authorities- i mean absence of appropriate checks and balances to regulate the business world.

    Remember, the crisis took its origin from the eager to have quick profit – sub-prime crisis….it is clear that either there were no adequate controls or some people from the regulatory instances clearly did not understand the system.

    there is no good or bad system….

    • Thanks for your comments Joy.

      While I agree that the authorities certainly share some of the blame for what happened, I equally believe that the main culprits were the business leaders involved. We cannot, as adults, expect to abrogate responsibility for our actions and must take responsibility. Quite simply, greed was the driving force and cost investors and the general public (through taxes, etc.) a great deal of money – money that everyone will be repaying for years to come.

      If one manages for the long-term sustainability of a business, survival will follow.

  2. Guy, I agree with you completely that capitalism will always be a driving force in society. Not least since people, no matter what nationality and culture, want to make money.

    Would be good if we could move on to long term thinking instead of the short term goals that caused the recent recession. It’s definitely in the interest of humanity as a whole.

  3. Things they are a changing my boy and those three bullet points need to be reinforced to all the accountants in the world … then we can move to a brighter tomorrow.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s