We’ve heard it again and again that the economic system is broken, that capitalism has had its day and it’s time to move on. I disagree with this; capitalism has overseen a huge growth in global prosperity, there are fewer people in poverty than at any point in human history and (with some very notable exceptions) the market mechanism has allocated resources, at a macro level, in an acceptably efficient way. I do have to caveat here that there is no control test, therefore, we have no evidence on other paths we could have taken.

Let’s use the popular misquoting of Churchill; ‘capitalism is the worst system, except for all the others. The alternatives to Churchill, in particular, socialism, didn’t appear to have any more success or benefits. However, the entrenched free marketeers are missing the point if they don’t think that improvements cannot be made to the model. If we on the liberal right are to save capitalism it will start with the acknowledgement that it is not perfect and that it needs help to be corrected. The dreaded word amongst those groupings is intervention and the next most hated word to precede it is government. For every government policy that has been positive, most can name a handful that, at best, have not had the desired effect and, at worst, has made things worse.

Before you turn off as this isn’t the normal people/HR/Human capital material you’re used to, I will come to that point.

Corporate capitalism has always centred itself around returns; in the early 20th century that meant to the ruling classes and by the mid to late 20th century that began to be the shareholders as most large organisations were owned and traded on a stock market. We could call that an evolution of sorts from a closed cabal of rich aristocrats and businessman to the availability of ownership (not necessarily the means) to all. The internet and stock dealing age has made this even more frictionless. However, it is only in the last couple of decades that we’ve truly reconciled and embraced shareholding as it equates to ownership and therefore responsibility. We’ve seen shareholder activism rise and asset owners take their responsibilities more seriously. Even though some outsource this responsibility, I still feel that is a better outcome than apathy. However, in my opinion, this has only solidified these large corporates focussing on shareholder value, shareholder return and ultimately shareholder happiness as their primary goal.

I would posit that companies have 2 major other functions which are rising to prominence but I’m not sure if they are coming quickly enough. The first which I’m not going to discuss in detail, but I could write a whole other blog on, as many others have, is around the societal good they create. Yes, this encompasses their ESG responsibilities, but it also includes their contribution to the communities they’re based in, the care they show towards the less fortunate and the role in the progression of the human race. I know that last one sounds rather grandiose but if capitalism is to survive then we will be looking to our corporations to be key to the scientific, biological and political advances. Take climate change, for instance, the prominence it has attracted in the past 2 years, we’ve seen government intervention have mixed success, but the genuine advancement has been when businesses have shown positive leadership in their sectors (i.e. Volvo and their switch to electric-only cars).

The third function that I want to talk in a bit more detail about and is relevant to me and the people who will usually read my blogs (all 3 of you!) is employee value, employee return and employee happiness. There are many factors that have led to the increasing focus in this area; the always-on nature means more and more people are ‘living to work, rather than working to live’, the changing demands generationally where younger employees now consume employment much like consumers and change brands they’re unhappy with like consumers, the rise of large private companies particularly in tech has blurred the lines between shareholder and employee in parts of our economies in the west and many more.

I believe for capitalism to survive companies need to rebalance their focus towards shareholders, employees and the outside world. I’m not advocating an equal balance for all, but an appropriate one for each company, I can’t think of a company out there that shouldn’t be focussing on all 3 to some extent.

We’ve all heard about the benefits of employee engagement, so I won’t go over those again. However, I don’t think companies often relate that treating your employees on a par with shareholders is one of the strongest engagement tools in their armoury. Right now, I can hear those free marketeers complain that shareholders risk the capital, surely, they should get the reward? But my question to those individuals would be who physically creates the value? It’s in long term shareholders’ interests to have employees get a ‘return’ on the value they create for a company.

Many of you might read this as increasing employee ownership is the key here to align shareholder and employee interests but that misses the point. The key is to have differing shareholder and employee interests perhaps even opposing in order to challenge businesses to find a balance (while I applaud Richer Sounds for what they’re doing, it’s probably not the example needed here). Many companies ask their employees to ‘behave like owners’ or ‘think like owners’ and the sentiment is correct here but to do that we need to treat employees like shareholders not necessarily make them ones. We should be reporting back to them via a variety of metrics showing engagement, diversity and other employee drive indicators, we should be accountable to them through scheduled general meetings and they should have voting rights over the compensation and appointments at the top level. I’m not sure all of these are necessary but hopefully you can see when I say treat employees the same as shareholders, is not about ownership itself.

I’ve said this for many years that I think we may look back in 25 years’ time and be bemused or horrified that we judged company performance solely on share price and fundamental financials. I can see the tide changing in my industry particularly with the FCA’s focus on culture as a part of compliance and risk. I believe companies will be judged on their financial, social and employee performance in the future.

(Coming up with the measures for the final 2 is difficult. Economists have spent decades trying to understand positive and negative externalities and how to measure or account for them, I don’t think I’ll solve that here.)