‘Stakeholder Capitalism’ Review: The Global, Olympian ‘We’

Date: 27‑01‑2021

Source: The Wall Street Journal

Nations decide which problems to solve through politics. Global elites already know what problems need solving. Just ask them.

Klaus Schwab, founder and executive chairman of the World Economic Forum.

Refugee Run is an immersive theatrical experience at the World Economic Forum in Davos, Switzerland, in which billionaires and other global elites pretend to be refugees for a little over an hour. In one promotional video, corporate executives wearing $1,000 loafers “escape” their “village” and make their way to a “refugee camp,” where they must “bribe” actors playing camp guards. Facebook’s Sheryl Sandberg flashes on‑screen to attest: “I found it incredible . . . that you can put yourself in a room like this and feel as much as you feel.” This focus on eliciting emotional responses from the wealthy and powerful at an Alpine ski resort, rather than providing material assistance to actual refugees, makes Refugee Run an appropriate charity for the Davos set.

The founder and executive chairman of the Davos forum is Klaus Schwab, a German engineer and former academic. Mr. Schwab is a prominent evangelist for the virtues of “stakeholder capitalism,” the belief that corporations answer not just to shareholders—that’s ordinary capitalism—but to communities, marginalized minorities and society in general. This vision for capitalism has steadily become the dominant philosophy among Western business elites and even some Republicans.

Mr. Schwab argues in “Stakeholder Capitalism: A Global Economy That Works for Progress, People and Planet” that to make the world a better place captains of industry must work together to solve global problems. “Building such a virtuous economic system is not a utopian ideal,” he writes. “Most people want to do good. But what’s been missing in recent decades is a clear compass to guide those in leading positions in our society and economy.” Mr. Schwab believes that he possesses such a compass.

Unfortunately, his compass points in multiple directions. In lieu of mere profit, Schwab argues that businesses should pursue the four P’s: Principles of Governance, Planet, People and Prosperity. He offers no guiding principle for how these vague, expansive and competing interests ought to be weighed and weighted.

Like other stakeholder proponents, Mr. Schwab cherry‑picks examples to support his claim that shareholder capitalism is somehow ignoble or prone to disaster rather than deriving his claims from the totality of available examples. He predictably invokes Enron but fails to mention Volkswagen, Wirecard or Wells Fargo—examples of large‑scale fraud perpetuated by executives who long escaped scrutiny in part by ostentatiously championing fashionable social causes.

STAKEHOLDER CAPITALISM

By Klaus Schwab

Wiley, 285 pages, $24.95

Mr. Schwab laments that elites haven’t done enough to address a variety of global problems. But the reason ordinary people around the world are revolting against elites isn’t that the elites haven’t done enough—it’s that they’ve seized too much power and done too much. Mr. Schwab is obviously correct that “society will do best when all of its people thrive, rather than a small subset among them.” But “thriving” as a democratic citizen means having an equal voice in shaping the social and moral values of one’s community and country—yet leaders like Mr. Schwab have no patience with the self‑determination of ordinary people when it conflicts with their orthodoxy.

Mr. Schwab is careful to stay within the well‑prescribed confines of cultural‑progressive orthodoxy. He is largely disdainful of populism but makes a notable exception in his remarks about the Black Lives Matter movement, which he treats with practiced sympathy. He appears more of a climate‑change zealot than a diversity zealot, but he understands that in today’s world those two things strangely go together. So I couldn’t help chuckling when he bemoans a “mono‑culture harmful to all kinds of fresh and diverse perspectives.”

Marxists will be as disappointed by this book as classical capitalists. Mr. Schwab makes clear that “companies do not have to stop pursuing profits for their shareholders.” All he requires is that “they shift to a long‑term perspective.” Why this truism requires a book and a new name for capitalism is never quite explained. Even Milton Friedman —whose famous “Friedman doctrine” held that corporate executives are primarily responsible to company shareholders, not to “society”—believed in the importance of prioritizing long‑run profit interests over ephemeral short‑term gains.

Mr. Schwab’s book is defined more by what it doesn’t say than by what it does. For a book whose thesis is that corporate leaders make the world a better place by pursuing social goals in addition to profit, one would expect some discussion of the most important counterargument—namely that corporate leaders might actually make the world worse, either intentionally or unintentionally, by doing exactly what Mr. Schwab demands. He is silent on that possibility.

Mr. Schwab ignores that, to solve the world’s problems, executives must first decide which problems to solve. That isn’t a technocratic judgment; it’s a moral one. Mr. Schwab sidesteps this question by saying that the final decisions should be made by “the board or the executive management” and that the board should make its decision after going through a “consultative process” in which “all stakeholders should be included.” In the end, the opinions of powerful business leaders take precedence over those of everyone else.

Democracy offers a different vision—the idea that citizens, bound together as a nation, determine the common good through public debate culminating at the ballot box. Mr. Schwab has plenty to say about the role of elites and multinational institutions but leaves no room for actual democracy.

Stakeholder Capitalism. The Great Reset. Corporate Social Responsibility. ESG (environmental, social and corporate governance). Common Good Capitalism. The list goes on. What’s in a name? More power for the people who coin the terms. As best I can tell, “stakeholder capitalism” may indeed be a more profitable version of classical capitalism—because it tricks the general public by muddying the waters.

Mr. Ramaswamy is a biotech entrepreneur and author of the forthcoming book “Woke Inc.”