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Why Capitalism as we know it is unfit for the Future

Written by Gerd Leonhard and Matt Ward

Covid-19 has accelerated the demise of traditional corporate capitalism

2019 was a year of great prosperity and innovation, with stock markets booming, democracy largely thriving (well, apart from what went down in Trump's USA), and unemployment at near-record lows throughout much of the developed world. But then, Covid-19 struck and changed everything as half the world went into lock-down, economies and supply-chains ground to a halt, unemployment skyrocketed, and the world suffered its greatest health/humanitarian crisis since World War II. All of a sudden, the future look bleak.

The myth that many people want to believe is that things will somehow go ‘Back to Normal’ – that sooner or later, the world will return to its pre-pandemic ways. But is that really possible, and is it really what we want – or indeed, what we need? Was the good old ‘Normal’ really good enough? Was the world really doing that well ‘before covid' – considering the growing political polarization, increasing inequality (especially in the US and Brazil), and the escalating climate crisis? Could it be that because of the hardships and pains of the Corona crisis, we’ve talked ourselves into believing that ‘Normal’ was good enough in the first place?

Covid has amplified both the divisive as well as the unifying forces in our society

None of the consequences of Covid-19 are entirely new. All of the trends such as remote work / WFH, the move to digital/virtual everything (watch: ‘The end of Analog’), and the increasing gap between productivity increases due to technological innovation, on the one hand, and workers' stagnant compensation and declining economic perspectives, on the other hand, were already present prior to Covid. While the crisis has served as a major accelerant of many positive trends (such as faster digital transformation and increased climate change awareness), it has also forced us to pay more attention to those enormous challenges we've been facing for quite some time, already, such as underfunded healthcare systems, unequal access to education, and an over-reliance on just-in-time manufacturing. And as Gerd likes to say, Covid-19 a mere test run for the challenges we are facing from climate change (Moving Beyond Corona has been Gerd's most requested speaking topic of 2020/21).

Fixing the broken incentives of corporate capitalism will require a complete system overhaul

Albert Einstein once said, “We can't solve problems by using the same kind of thinking we used when we created them.” And when it comes to problems like climate change, income inequality, polarization, disinformation and algorithmic manipulation we couldn’t agree more.

To tackle these existential problems, we must address the underlying operating system that created them: Extreme corporate capitalism and Milton Friedman’s enormous influence on the outmoded principle of ‘shareholder return above all else

As we stand here today looking back at the past 14 months, it is now glaringly obvious that ‘shareholder return‘ simply can no longer be more important than everything else. This kind of thinking (sorry, Milton) has led us to the anthropocene – it's an outmoded and increasingly harmful leftover of the industrial economy. After all, who can do business on a broken planet? While the rising tide can usually floats all boats, the absence of any water whatsoever will equally impact anyone, rich or poor. If the stock markets around the globe continue to incentivise short-term profits and perpetual growth at the expense of ‘people and planet‘, the future of our children will be bleak.

Capitalism is both the biggest source of prosperity as well as the greatest threat

The pursuit of profit and growth built the modern world. It brought us iPhones and the Android OS, free phone calls, music & films in the cloud, increased life expectancy, a decline of extreme poverty, and of course the creation of the Covid-19 vaccine in less than 12 months. So it seems that overall, capitalism worked better than anything else we tried – until we got to the top of the growth spiral, until we used up all the ‘free' supplies of nature as well as of people (see Facebook), and until we ran out of space we could annex for the sake of monetization.

Corporate capitalism as Friedman propagated it has now outlived its purpose. But yet: “When you’re a hammer, everything looks like a nail.”

“Capitalism is the worst economic system, except for all the others…” ?

The world has changed since everything around us went digital (5G, IoT, AI…), and today we are truly at the pivot point of exponential change. While ‘trickle down economics' may once have worked in some countries or regions (like Germany) to “redistribute” wealth across society, those days are gone. In this exponential era where a small team of some 13 people can create something like Instagram and be quickly sold to Facebook for a billion dollars, and where global tech-companies are formed from a few lines of code, the “economic pipes” have gone logarithmic, as well. No longer do the fruits of labor flow proportionally to the factory workers assembling Ford’s cars. Instead, software (written and controlled by few) is eating the world, and now, AI is eating software. Digital darwinism and the surveillance economy, everywhere.

A slave to the markets

Most public companies today cannot escape the ‘growth at all costs' dogma of the stock markets driven by short-term thinking. This is how we got into the Facebook dilemma that has now proven to be so detrimental to our democracies, as Gerd laid out 3 years ago, here on this blog. Because of this narrow focus on GDP-growth and corporate profits, it is entirely possible – and in fact, considered ‘normal' – to make oodles of money doing things that are detrimental to society. In fact, every time Facebook is ordered to pay a steep penalty for privacy and data violations, data-breaches or worse, their stock goes up.

Patagonia or maybe even Unilever may beg to differ, but even the Business Roundtable’s CEOs seem to be only at their very beginning in terms of actually changing the way they operate.  Until Covid-19 happened, we didn’t really reward a focus on sustainability – but because of the tough Covid-19 learnings we set forth that ‘Green is the new Digital, and Sustainable will become the New Profitable'.

Our apparent inability to act BEFORE facing an emergency situation or disaster makes solving long-term problems like climate change incredibly difficult. To make things even more challenging, we tend to believe there is no way that we will really tackle this massive challenge without changing the underlying paradigm of traditional capitalism first (a good example for this tragedy of the commons might be that reducing CO2 emissions is in all of our best interests, but we are likely to only do so if others do the same).

An entirely different form of capitalism?

No, we are not proposing a kind of ‘digital socialism' as the answer to humanity’s woes. And we're not saying that simply more and ‘better technology' will solve all of these problems, either. But Europe's ‘social capitalism' seems like a good starting point, though, despite all all its issues (be sure to watch Gerd's keynote at the European Liberal Forum, on these topics, below or here).

We believe the key to designing a better future is to lessen the focus on GDP-growth, and to instead set our eyes on a new operating principle and a new set of metrics we like to call the 4Ps: People, Planet, Purpose, and Prosperity (see Gerd's speaking topic for more details). We will be elaborating on this in a series of upcoming posts (in the meantime, be sure to read about John Elkington's related work on People, Planet, Profit in the meantime).

Winston Churchill allegedly said, “You can always count on Americans to do the right thing – after they have tried everything else.” We like to say that this also applies to humans, generally (watch Gerd's video on Pain and Love, below).

We have great hopes that Covid-19 can be the catalyst for the sweeping economic and societal changes that are urgently needed to create A Good Future for all of us because we are truly at a fork in the road (JOIN US!!) in humanity’s history – the next 10 years will determine our future!

The good news is that it is up to us. And the #1 challenge is this: While we will have all the tools, will we have the TELOS (will, purpose and wisdom)?

The Future of Europe, Media and Technology
Pain and Love – that's how humans change

“As we see future, so we act; as we act, so we become” (Barbara Hubbard, Buckminster Fuller's protege)

Interested in the Post-Covid Future and Moving Beyond Corona? Check out Gerd's #1 most requested speaking topic of 2020/21 here or review his Core Topics.

Matt Ward is working on TeamGerd. He's a serial entrepreneur, business strategy consultant, marketing growth hacker, startup advisor, and futurist focused on helping mission-oriented companies build a better world – Find out more here.

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