COVID-19 offers us a major opportunity to reform capitalism

With multilateralism in peril, so, too, is financial capitalism. Populist political movements and the pandemic-induced global economic catastrophe have shown that both, rather than being pillars of stability, are levers of political and economic power.

As the world struggles to overcome from the COVID-19 crisis, recasting multilateralism and reforming capitalism have become crucial tasks. Both need to become force multipliers in a new system of dynamic value creation. But the fundamental purpose and underlying principles of each will first need to be redefined.

Today’s multilateralism, conceived by the victors of World War II, was geared toward preventing global conflicts (through the United Nations), organizing collective defense (through NATO, and the now-defunct Warsaw Pact, for example), and supporting economic reconstruction and development (through the Marshall Plan, the International Monetary Fund, and the World Bank). Globally, it established common economic rules of the game.

But this bounded, regulated form of capitalism soon came under attack, not least by Chicago school economists espousing a free-market agenda favorable to financial capitalism. Businesses and educators alike embraced the new orthodoxy, which by the 1970s had come to dominate the commanding heights of the global economy. One of its central pillars – corporate governance based solely on “maximization of shareholder value” – became an unquestioned assumption.

As it turned out, post-war multilateralism and financial capitalism reinforced each other, because both were based on relationships that typically result in “winner-take-all” outcomes, or that otherwise exhibit a systemic bias in favor of those with more power. To be sure, this power-driven multilateralism ushered in a long period of relative global stability, and the Chicago school’s policy prescriptions helped to create the conditions for the expansion of financial empires and the emergence of new middle classes, lifting tens of millions of people out of poverty. Some individuals and families enjoyed unfathomable levels of new wealth.

But that doesn’t mean the arrangement was optimally efficient for society as a whole. Throughout history, various systems of exploitation have built empires and amassed great wealth while performing atrociously in terms of human wellbeing and social capital (trust, community cohesion, a capacity for collective action). Their collapse represented moral progress, because it allowed for a new era in which human rights and shared prosperity could prevail.

For multilateralism and capitalism to regain their legitimacy and widespread appeal, they must be refashioned as systems of mutuality and reciprocity. A good way to start would be to revive the vision of Robert Schuman, widely considered the father of European unification, who proposed just after WWII that Europe abandon power politics in the name of solidarity and mutuality. That vision has underpinned a period of European peace and prosperity not seen since the Roman Empire, demonstrating, despite its many shortcomings, that reciprocity can be more effective than realpolitik in advancing collective goals.

In meeting the COVID-19 crisis, many companies are preparing to contribute to a Schumanesque reform agenda by adopting new models of corporate governance and innovation, with an eye toward purpose-led value creation. The business community is recognizing that addressing stakeholder problems is a better approach than maximizing shareholder returns without considering the consequences.

Stakeholder capitalism is no longer just an aspiration. Business leaders and investors are launching and joining encouraging real-world initiatives that will elevate the place of long-neglected participants in the corporate calculus. Most important, promising new schools of economic thought are being tested and applied to transform value-creation models across business and finance. For example, the “Economics of Mutuality,” a course co-created by scholars at the University of Oxford and Catalyst, Mars Inc.’s in-house think tank, is now being taught at leading universities, including Oxford, Sciences Po, and the China Europe International Business School. And there is growing enthusiasm for Harvard Business School’s Impact-Weighted Accounts Project, the Impact Management Project, and other initiatives.

Among business leaders, investors, and educators, support for these new approaches has been growing, because they can empower businesses to solve key social and environmental challenges in the ecosystems in which they operate without sacrificing performance. More industry leaders are acknowledging that the purpose of business is not to earn profits at the expense of people and the planet, but rather to develop profitable solutions to shared problems.

Just as companies and financial institutions need to reform their models to remain relevant and sustain performance, so must multilateral systems and institutions be redefined in order to promote peace and shared prosperity. Policymakers around the world have an opportunity – as well as an urgent duty – to attach purpose-driven conditions to emergency policies during the crisis, and to bring a multi-stakeholder mindset to the task of restarting the economy.

Such a broad-based shift in perspective can bring about systemic change. At the same time, it can reinforce the foundation underlying business: venturing out onto the shifting sands of unfulfilled promises.