WHAT, THEN, should be done about the challenges facing market capitalism? And what, specifically, is the role of business in this effort? In our conversations, we heard answers reflecting a spectrum of views. Although executives in our forums did not use our terminology, their positions clustered into four broad categories that we term business as bystander, business as activist, business as innovator, and business as usual.
In this chapter, before offering our own view, we take a closer look at these four positions. Although we find none of them entirely satisfactory, each contains some important insights. A closer look will help us construct a fifth position—business as leader—and suggest an alternative understanding of what business can do to help address the potential disruptors and strengthen the market system.
In what follows, we try to give a fair presentation of each view, although, as will become clear, we do not agree with all the points made. Indeed, on some issues, the differing views are in direct conflict with one another. In spelling out these positions, we draw on comments from our forums and sketch some of the classic arguments and rationales offered for each.
At one end of the spectrum are executives who see little, if any, role for business in addressing the challenges facing market capitalism. This group includes executives, like the one quoted earlier, who view these challenges as “above my pay grade” or lying outside the sphere of legitimate business activity. For these individuals, the potential disruptors may be important, but they are best dealt with by someone other than business—most typically, by government. As an advocate for this position put it, “The world would be a better place if business stayed out of these issues. The best solution is a well-functioning government pursuing social justice.”
This view, which we call business as bystander, has its roots in neoclassical economic theory and nineteenth-century liberalism. Starting from the proposition that business is—and should be—about the pursuit of financial self-interest, proponents of this view often frame the challenges to market capitalism as public-goods problems. As defined in standard textbooks, public goods are socially valuable goods whose enjoyment cannot be easily restricted to those who are willing to pay for them. Once created, public goods can be enjoyed by all, and additional beneficiaries can be served at little incremental cost. A classic example is a clean environment, but other examples might include a stable financial system, social justice, and the rule of law.
According to this perspective, markets are an effective mechanism for providing society with private goods and services—those whose benefits flow mainly to the private parties who purchase them and for which the beneficiary can easily be required to pay. But the market is problematic as a delivery mechanism for public goods and services.
One difficulty is that public goods can be produced and maintained on a scale adequate to meet the public’s need only through the coordinated actions of many parties. No single firm or group acting alone can generate clean air, social trust, or respect for law—and it is unlikely that a sufficient number of individual firms will spontaneously cooperate for these ends.
Providing public goods, moreover, is costly, and recouping the cost is often difficult since, by definition as noted above, those who are unwilling to pay cannot be easily prevented from enjoying the benefits. Public goods, in other words, are susceptible to the free-rider problem. Many beneficiaries will not pay if they can access public goods for free, and it may not be possible to attract a sufficient number of willing payers to cover the necessary cost.
A firm that voluntarily undertakes to do its share to provide a public good thus runs the risk of putting itself at a disadvantage relative to its less public-spirited rivals. A company that scrupulously follows the letter of the law, for example, will often incur higher costs than one that is only selectively obedient. And at the same time, unless the volunteer firm is joined by others in a large-scale and well-coordinated campaign, the ultimate contribution to meeting the public need is likely to be negligible.
The logical conclusion is that some higher authority is required to compel collective action to supply the desired public good and to ensure that the costs of providing it are equitably borne. Since governments are the only agents with the authority and legitimacy to play this role, it follows that governments are the proper agents to address public-goods problems and, moreover, that business efforts in this domain are likely to be both costly and futile.
Seen from this perspective, business efforts to promote public goods may also be challenged as a usurpation of governmental authority or an illegitimate interference in the democratic process, particularly if the goods at issue are not (yet) highly valued by the broader society. Once threats to market capitalism are framed as public-goods problems, the conclusion that they should be dealt with by government follows almost inexorably, by the logic of this perspective. Several of our business leaders seemed resigned to this stance, even though they were not particularly happy about it. “The power is in the hands of the government,” noted a European executive when asked what companies could do about threats to the market system.
In our sessions, proponents of the business-as-bystander view also questioned the business community’s competence to handle the political and public-policy issues raised by the problems identified. Executives may know about sourcing inputs and achieving operational efficiencies, commented one participant, but what do they know about designing a regulatory system or reducing poverty? Echoing this sentiment, a former CEO who was quoted earlier candidly acknowledged the limitations of the typical executive’s expertise. Most executives, he observed, know how to deploy their assets or structure their operations based on current rules, but few know how to go about making a contribution to worldwide stability.
Business, moreover, is not organized to work in a cooperative fashion, especially on global concerns. “The business community is completely disparate and desegregated,” noted one participant, likening it to the Austro-Hungarian Empire. And few executives have the patience needed for the lengthy discussion and airing of views that are a necessary part of tackling public issues. “Businesspeople are not very good at coping with differences of opinion and different ways of looking at things,” said one executive, citing his own experience in discussions of public issues among his peers. “In a diverse group, they grow impatient.”
Many proponents of the bystander view are deeply skeptical of business morality as well. This attitude flows in part from a theoretical framework that posits purely self-interested behavior by market actors. But the bystander group’s skepticism also finds support in examples of self-serving corporate behavior, overreaching, and outright misconduct by companies and executives that regularly appear in the news. Revelations of widespread fraud and deception in the mortgage market prior to the financial crisis, for example, only reinforced this group’s conviction that business is driven by greed and cannot be trusted to consider the public interest.
Bystander advocates also point to the recent growth in corporate lobbying as further evidence that business is indifferent to the greater good. According to the Center for Responsive Politics, business was a major contributor to some $3.5 billion spent on lobbying the U.S. federal government in 2009, up from $1.4 billion ten years earlier.1 Lobbying expenditures at the state level in the United States have historically been about half that at the federal level.2 Although the amount of dollars spent says nothing about the positions taken, most bystander advocates believe that business lobbying is—and can only be—wholly self-serving.
As a recent case in point, one speaker cited what happened when the private sector was invited to participate in the Basel II process on capital requirements for financial institutions: “The private sector took government to the cleaners.” The result was lower capital requirements for financial institutions, which, combined with the high leverage adopted by many banks, made the banking system even more vulnerable to the meltdown of 2008.
Such examples all feed into a view, prevalent in the bystander camp, that businesspeople lack the motivation and commitment required to think broadly about the public good. To paraphrase the conclusion of the speaker quoted above, if you wanted to choose people to set the broad direction of public policy, you’d be better off selecting a random set of individuals from the phone book.
Even if they wanted to, companies would be unable to take a more public-spirited stance, say business-as-bystander advocates. Executives are fiduciaries for their shareholders, and spending money to benefit the public beyond what the law requires would violate these duties—or so it is often argued. Shareholders, moreover, would surely balk at the use of corporate funds for what was described as “pursuing social passion with shareholders’ money.” An Asian executive spoke candidly about his unsuccessful efforts to engage executives in discussions of major public issues: “Frankly, most of them say, ‘Hey, look, my primary responsibility is to my shareholders, my board, and my business.’ ”
Such shareholder-based arguments for corporate noninvolvement in addressing threats to the market system often assume that shareholders, as a group, are opposed to such involvement. Investors are thought to be interested first and foremost in maximizing their short-term financial interests. Since efforts to foster the system’s long-term health are presumed to be antithetical to these interests, it follows, according to this view, that companies would be both wrong and foolish to take a more active stance. The business-as-bystander advocate often cautions that executives who take sustainability issues seriously are likely to be shown the door—they may even be charged with breach of fiduciary duty and sued for their trouble.
On the business-as-bystander view, the role of business in addressing the challenges to capitalism is largely a negative one—to get out of government’s way. More dramatically, some proponents of this school of thought hold that business should stop lobbying, stop making campaign contributions, stop trying to influence public policy, and stop seeking tax breaks. In other words, business should let government do its job and should not meddle in policy making.
More positively, companies should focus on producing the goods and services that markets require and, in so doing, generate as much wealth as possible. In the words of one executive, “What we should do—the best contribution we can make—is to run our companies and make them as efficient as possible.”
Another group sees a very different role for business—not as a bystander waiting for government to act, but as an activist spurring and guiding governments toward policies and programs that will strengthen the market system. Like advocates of the bystander view, proponents of the business-as-activist viewpoint frame the challenges to capitalism largely as public-goods problems and see governments as the principal actor in addressing them. But members of this group are far less sanguine about the ability of governments to effect the needed changes. Largely for this reason, executives in this camp argue that business can and must become more actively engaged in shaping and influencing public policy.
This group’s pessimism about government stems in part from the limits of national authority. As business leaders in all regions pointed out, the problems facing capitalism are largely international. The prime illustration is climate change, which affects the globe and is caused by greenhouse gases that defy jurisdictional boundaries and cross borders with impunity. But other challenges, such as ethnic conflicts arising from mass migration or financial system weaknesses arising from differences in national regulations, are essentially international as well.
Unilateral action by national governments can go only so far toward addressing these issues. As one executive said, “We know that trade and investment issues, climate change issues, terrorist issues, financial crime issues, are issues that cannot be handled at the national level. They can only be handled at the international level. Unless we develop this international framework, we have the risk that there will be backlash against the very concept of capitalism itself.”
Yet many executives doubted that governments unaided would rise to the challenge. Even if national leaders are otherwise inclined to collaborate on international solutions with their counterparts in other countries, their ability to do so is limited since they are, after all, elected by, and accountable to, a national citizenry. With many voters feeling that globalization threatens their livelihood if not their national identity and their country’s sovereignty, democratically elected leaders are understandably loath to tackle issues that touch these sensitive areas. As a European executive noted, “Even if you are a national politician who is worried about something that’s going on in the international environment, it’s often very hard to develop a local constituency, particularly for any kind of sacrifice that you would be asking for on behalf of some larger global gain.”
Indeed, numerous executives in our sessions voiced concerns about the rise of protectionist sentiment in many countries. Citing the business community’s considerable experience with internationalization, leaders in the activist camp saw a crucial role for business in developing proposals for dealing with volatile international issues. And many thought it would be easier for business to agree on a path forward. Migration, for instance, was seen as “an area where it will be much easier for companies to reach consensus than [it will be] for governments.” Similarly, climate change was identified as an issue for which “it’s probably easier to get agreements between national companies and NGOs” than among governments.
“Short-termism” was cited as another obstacle to effective government action. As several discussants observed, short election cycles and long campaigns do not encourage long-term thinking. In some countries, politicians’ time horizons seem to be even shorter than those of corporate executives. And good policies put in place by one administration can be quickly undone by a successor administration with different goals and priorities. Despite the pressures of quarterly reporting and short-term investors, participants in our forums felt that businesspeople, as compared with politicians, had more flexibility to embrace the long-term orientation needed to develop and implement policies to strengthen the market system.
Many business-as-activist proponents also question government’s competence to devise the needed reforms and worry that policy makers lack the necessary knowledge. One U.S. business leader’s comment was typical: “Our politicians don’t really understand the dynamics of the global economy and the implications for business and for their constituents’ issues such as jobs, health care, and standard of living.” In our discussions, executives shared their fears that misguided governments acting alone would weaken the market system and make problems worse through misguided or overzealous regulation or by expropriating private property.
Although concerns about government competence were more pronounced in some regions than others, these worries were nonetheless widespread. Indeed, as noted earlier, one U.S. executive called politicians “the number one threat to capitalism,” explaining that “politicians create the rules that we all have to live by, and politicians responding to voters can create rules that could be very, very damaging.”
Some in the activist camp pointed to resource constraints as another reason that business must work closely with government. Governments cannot invest in improving the market system—or even take on more limited tasks that fall clearly within their purview—because they are simply stretched too thin. Arguing that business is needed to help cover the shortfall, a European executive described the situation in his own country by way of example: “A lot of our budget is really being misused to pay back interest on this [huge state] debt, instead of investing it into education and things that look forward, rather than paying off the past.”
Proponents of business as activist point to the moral failings of bureaucrats and politicians as further reason that business cannot simply step aside and leave the care and protection of the market system to governments. If advocates of business as bystander take a dim view of business morality, advocates of business as activist take an even dimmer view of political morality. Citing abuses of authority and high levels of corruption in governments around the world, many executives expressed deep distrust of the public sector’s motives and commitments. Recall the Latin American executive quoted earlier: “We are not trusting [of government], and there is a reason why.” Other data suggests similar views among thousands of executives polled by the World Economic Forum. Over the past decade, these annual surveys have shown that executives consistently rate the trustworthiness of politicians as low or very low in more than half of the countries examined.3
While our CEOs saw specialized multilateral institutions as partial solutions to the deficiencies of national governments, these leaders were also pessimistic about the capacity of existing multilaterals and development organizations to deal effectively with challenges facing the system. As noted earlier, executives from all regions viewed these institutions as hobbled by bureaucracy, inefficiency, and public distrust; poorly designed for the problems of today; and lacking in support from major countries such as the United States, China, and Russia. Existing institutions are also perceived by many in the developing world as one-sided in their agenda. As expressed by an executive at our Asia forum in Hong Kong, “Internationally, in my view, the weakness [of] and the challenge to most of our multilateral institutions is that they are perceived as not serving the interests of all humanity.”
Executives in the business-as-activist camp called on their fellow business leaders to speak out for better international governance. Business, they argued, should be more supportive of efforts to build new and improved multilateral institutions to tackle problems such as climate change, financial system stability, and international crime. “I think that businesses around the world not only have a role but have a responsibility to think about this,” urged an Asian executive referring to the mismatch between the design of existing multilateral institutions and challenges facing the market system today.
Others called on business to advocate more strongly against protectionism and in favor of free trade and to speak up for national policies to combat the problems of rising inequality. In our Latin America forum, for instance, executives stressed the importance of policies that promote training and employment as a counterweight to rising inequality. In other forums, discussions focused more on tax and education policies as a lever on this problem. Similarly, on other issues, the business-as-activist participants in our forums saw opportunities for business to put its voice behind greater transparency and other constructive suggestions for improvement.
In addition to expressing the voice of business more clearly and forcefully, many in the business-as-activist group argued that business should take a leadership role in opening up discussions of critical issues with other segments of society. In Europe, for example, participants suggested that business leaders might initiate discussions with the Greens on climate change and with trade unions on international trade and investment. Such efforts, even if “very difficult and slightly subversive,” to quote one executive, were seen as crucial for building a decentralized social network with the power to shape public discourse and opinion.
Some in the business-as-activist camp saw business taking the further step of forming ad hoc consortia or standing organizations to develop public policies for consideration by the relevant governmental bodies. An advocate of this approach urged similarly that such groups should be “a little more embracing of people who don’t usually talk together: union leaders, NGOs, people from the political world, and businesspeople … I’m more of a believer that with the right people in the room you can get pretty close to the truth and therefore pretty close to some practical lines of possible legislation.”
Alternatively and more modestly, business-sponsored consortia could help define the range of policy options available and contribute to public understanding of the choices at issue. These organizations, our executives suggested, might also conduct or sponsor independent fact-finding and research. In our Latin America forum, we heard support for even a further step—business-sponsored watchdog organizations to monitor and report on government spending.
While urging greater business involvement in the policy arena, the business-as-activist group nonetheless sees government as the central and most important actor for strengthening and supporting the market system. The role of business is critical, but it is secondary to the role of government. Business can propose, advocate, sponsor, and support solutions, but, ultimately, governments must act for these solutions to take effect.
In viewing government as the central actor in addressing threats to capitalism, activists are like the business-as-bystander group discussed earlier. Activists part company with their bystander cousins, however, when it comes to lobbying and other efforts to influence public opinion and public policy. While bystanders argue that such efforts are inappropriate attempts to distort democracy and to usurp government authority, activists see the use of influence techniques as a legitimate exercise of free expression and a necessary response to the threats facing capitalism both nationally and internationally. “I don’t think we want to treat good governance as exogenous [to the market system],” noted one proponent of a more activist stance. “We regard it as the outcome of things that smart people in the society do.” But activists are not confused about their authority. As one executive put it, “The only authority that any business group has comes from its leadership. There is absolutely no authority whatsoever other than that.”
Yet another group of executives at our forums saw business as more than a supporting player to government. This group envisioned business as a force for change in its own right, taking direct action to address the emerging threats and challenges to the market system. Advocates of this perspective, which we call business as innovator, tended to frame the disruptors and dysfunctions more as practical problems to be solved on a company-by-company basis than as broad public policy issues requiring government solutions. As one executive put it, “It’s companies which are over and over and over again at the front line [and that] pragmatically have to deal with [these] very profound problems.”
For the business-as-innovator group, improvements to the market system will be driven not by governments and public policy changes but by firms and individuals developing innovative business models and improved management practices. Where bystanders and economic theorists see public-goods problems, the business-as-innovator group sees unmet needs and unrealized opportunities for business leadership. One participant, for example, pointed to the vast numbers of people currently excluded from the market system around the world and especially in emerging-markets countries. By developing new business models and new organizational structures, she argued, companies could “actually take advantage of all the opportunities that exist in these economies while at the same time being part of the solution.”
In contrast to those who stress the need for governments to compel coordinated action, proponents of business as innovator view social and economic change as a bottoms-up phenomenon that is better understood through a cultural or social lens than a legislative, regulatory, or public policy lens. The innovator group points out that government action is almost always a lagging indicator of social, economic, and technological developments and that these developments are themselves the result of experimentation and risk-taking by pioneering thinkers and entrepreneurs. Moreover, governments can act only after ideas have gained wide acceptance, since otherwise, political support would be difficult to mobilize.
According to the innovator view, new ideas and practices gain adherents not through legislative fiat but through the power of positive example or what social scientists term positive deviance. Business as innovator readily acknowledges that no single firm or business leader acting alone can solve problems that cut across the system. Nor do individuals and firms have the sovereign power of government to compel a collective or coordinated response to these problems. However, individual companies can, by example, inspire others to act and, through the force of competition, spur innovation and improve practice throughout an industry or a sector and, in the best case, drive a “race to the top.”
From the perspective of innovators, government is, at most, an enabler. Whatever incentives or rules the government may put in place, the decision to act or react lies with the private sector. And it is the private sector that transforms policy goals and objectives into the concrete activities that affect people’s lives. As one member of this camp put it, “Governments can make policies and pass laws, but it is ultimately business that creates jobs and provides employment.”
An advocate of business as innovator illustrated the point with the example of poverty: “When we talk about roles, often the problem of poverty is seen as the problem of government. You know, just educate them more, give them a little more health care, and pretty soon, they will get on board. The reality is that the single biggest problem of poor people is that they don’t have enough money. And that sounds like a tautology, except that if poor people have the capacity to earn, then they will send their kids to school, they will use the health clinics, and they will vote for private-sector, market-oriented governments.” In other words, the solution to poverty lies ultimately in developing business models that create more jobs. Government programs to provide education and health care are important, but on their own, they will not solve the fundamental problem confronting the poor—namely, the lack of employment.
Innovators tend to be optimistic about the prospects for business-generated solutions to many of the problems and challenges outlined earlier. Taking inspiration from history, they point to technologies that have revolutionized how companies operate and transformed how societies function. This group cites the speed with which new management practices and business models have traversed the globe in recent decades as evidence that business can transform itself without the need for government intervention. Indeed, many leading multinationals operate their facilities to higher standards of safety, employee relations, and environmental protection than required by local law and regulation in many of the jurisdictions where they do business.
By and large, the innovators share with activists a generally pessimistic view of government. For innovators, though, a particular point of concern is the overly broad nature of mandates that typically issue from government bodies. Government policy making is just too cumbersome, and the one-size-fits-all directives that often result cannot accommodate the many variations in company size, structure, strategy, and circumstances. Moreover, government officials rarely have the in-depth business knowledge needed to translate general societal objectives into specific company- or industry-level operating procedures. All too often, say the innovators, business gets saddled with costly compliance responsibilities that make no sense for the enterprise and that contribute little to the intended policy objective.
A frequently cited case in point were the internal controls mandates of the Sarbanes-Oxley Act—specifically, the much-maligned section 404(b) requiring auditor attestation to management’s assessment of a company’s internal controls. Drafted with large companies in mind, these provisions proved costly and difficult for small companies to implement, and many critics argued that the costs for small companies far outweighed the benefits. In a similar vein, innovators worry that government limits on greenhouse gas emissions will have disproportionate impacts on some sectors of the economy and put smaller companies at a competitive disadvantage compared with their larger brethren. Far better, say innovators, for companies to take the initiative in finding creative and competitive ways to limit their own greenhouse gas emissions.
Those who see business as the primary engine of systemic improvement often cite the global reach of business as another reason to favor business-driven over government-driven solutions. With authority that transcends national boundaries, leaders of multinational companies can introduce problem-mitigating innovations that span the globe and engage people of different creeds and nationalities far more quickly and effectively than governments can. Indeed, as one executive stressed, big, global companies are by their very nature forced to “make people work together in a constructive way,” despite differences in the attitudes and assumptions people may bring to the workplace.
Global reach and integrated operations and decision making also give large corporations considerable clout. For example, when McDonald’s told its french-fry suppliers that it would no longer accept potatoes that had been genetically modified to resist the Colorado potato bug and were thus popular with farmers but controversial with environmental advocates, the response in the potato market was immediate and widespread. The manufacturer quietly withdrew the genetically modified seeds—its first genetically engineered product—from the market shortly thereafter. When Walmart announced that it was seeking products with improved energy efficiency, its suppliers across the globe scrambled to get on board. Implementing similarly significant changes over as broad a geographic area on as aggressive a time scale through government regulation alone would be nothing short of miraculous.
Global companies have the further advantage of access to ideas and talent around the world. Although relatively few multinationals have begun to take full advantage of this access, some are beginning to set up research and development (R&D) centers at key locations in different regions. By building a truly global R&D function, companies can more easily tap into insights wherever they emerge. These companies increasingly view China and India, for example, not just as sources of cheap labor or even as markets for stripped-down versions of products designed in the West, but as hubs of innovation and sources of insight and talent.
Among the business-as-innovator group in our forums, many executives called on companies to take a more active and direct role in addressing the market system’s potential disruptors and dysfunctions. Some people urged more investment in new technologies with the potential to mitigate looming environmental, energy, and health-related problems. Others emphasized the need for new business models and structures to help alleviate poverty and give the disenfranchised a real stake in the market system. Still others called for more humanistic management practices, changes in executive compensation, and reforms in corporate governance to better moderate the system’s outcomes and better manage systemic risk.
Members of this group also called for changes in the dominant patterns of business thinking. Executives’ tendency to ignore the environmental and human impact of their decisions, argued some, needs to be replaced with a more sustainable way of thinking. As expressed by one executive, this means replacing a single-minded focus on profitability with a richer set of decision criteria—one that includes profitability but also recognizes the limits of our natural resources and the profound consequences that business decisions can have for people’s lives. This executive urged others to pay more attention to impacts on employees, customers, and members of the community as human beings and not just economic actors in a marketplace.
Other participants called for a comparable shift in the thinking of investors whom they perceived as overly focused on the short term and indifferent to the broader consequences of their investment decisions. Many felt it would be difficult to change the mind-set of business executives without a parallel change in investors. Commenting on innovations that could help alleviate poverty, for example, one executive urged that a successful effort “means not just changing the mentality of the business executives that have to make the decisions but also changing the mentality of the investors, the shareholders of the businesses where these executives are working.”
Importantly, the business-as-innovator proponents saw their proposals for addressing the challenges to capitalism as fully consistent with the wealth-creating role of companies. Unlike bystanders, who, in keeping with their characterization of the disruptors as public-goods problems, tend to presume a conflict between the good of the firm and the good of the system, innovators are more apt to assume that creative thinking and entrepreneurial effort will generate solutions that simultaneously advance the good of both. Similarly, bystander proponents often take the disruptors as evidence that profitable private-sector solutions to these problems do not exist, while innovators simply believe that such solutions have not yet been invented.
Indeed, some innovators see bystander thinking itself as a serious threat to capitalism. As one proponent of business as innovator put it, “I think the biggest threat to market capitalism is that large corporations in the United States and in the emerging markets will not figure out that they need to be part of the solution.”
The three groups described above all argued that a successful attack on forces threatening to disrupt the market system would require fundamental changes in how business functions. Proponents of the bystander view called for business to withdraw from the law- and policy-making arena and to end its efforts to shape public policy to its own ends. The business-as-activist group called for the opposite—a more robust and informed effort by business to engage with government and shape policy, albeit with a focus on the public interest rather than just the narrow self-interest of particular companies and industries. The business-as-innovator group called for a range of reforms in the internal operations of business—the development of new business models, more investment in new technologies, the adoption of new ways of thinking and making decisions.
A fourth and smaller group, however, felt that the disruptors would be addressed without the need for focused attention or fundamental change. We call this stance business as usual. Proponents of business as usual did not dispute the evidence of problems and challenges. But they felt the seriousness of these problems was overstated and that the capitalist market system, as it currently functions, is fundamentally sound. Over time, argued members of this group, the issues needing attention would take care of themselves through the normal workings of existing government, business, and other institutions.
The business-as-usual group included those very few who were generally untroubled by the problems identified by others in our forums, as well as those who saw the problems as worrisome but not particularly threatening to the market system. One speaker, for instance, characterized the growing gap between rich and poor as a serious moral problem and, therefore, an issue deserving of much more attention from both the public and the private sectors, but he did not see it as a threat to the market system.
From the business-as-usual vantage point, episodes like the 2008 financial crisis are taken as evidence of the market system’s remarkable capacity for self-correction. Human behavior being what it is, booms and busts are an inevitable part of the system’s functioning, and the pain associated with periodic busts is more than offset by the wealth created during the corresponding booms. Proponents of this view tend to believe that efforts to moderate this cycle—and, more generally, efforts to adjust the system to address other destabilizing forces—are likely to generate new and potentially worse problems, and their benefits are unlikely to outweigh their costs.
Although proponents of business as usual tend to be pessimistic about particular efforts to improve the market system, they are nonetheless optimistic about the system’s overall ability to improve over time. They point to the enormous changes that market capitalism has undergone throughout its history. Contrast, for example, working conditions in the factories of late nineteenth-century America with those in today’s Six Sigma workplaces. Advocates of business as usual see changes like this as part of an inevitable and impersonal evolutionary process rather than the product of leadership and focused effort. And they are confident that this same evolutionary process will enable the market system to overcome or adapt to the challenges ahead.
As this discussion indicates, the positions taken by the participants in our forums reflect wide differences in outlook and experience. Most leaders agreed with the broad outlines of the problems presented, but described them in different language and approached them from different vantage points. Some took a top-down perspective; others saw the issues from the bottom up. As discussed earlier, leaders applying a public-goods frame reached very different conclusions from those adopting an entrepreneurial frame. Participants’ comments revealed a wide range of beliefs and assumptions about other topics—the dynamics of social change, the sources of executive authority, the morality of business and government, and the capabilities of business and government, to name just a few.
Taken together, however, their perspectives suggest that business has a crucial role to play in addressing the various forces that threaten the market system. We agree. And in the proposals put forth at our forums, we see an intriguing menu of possibilities for business-led action to do so. While we came away from our discussions with a heightened awareness of the challenges that must be overcome, we also developed a richer appreciation of the possibilities for leadership to address these challenges.
Our principal conclusion is that business can and must play a central role in sustaining the market system and improving its performance for society. Borrowing elements from each of the perspectives above, we see this role as multifaceted—part innovator, part activist, part bystander, and even, in some respects, carrying on with business as usual. (Even though we call for significant changes in business behavior—and, in this respect, differ from the proponents of business as usual—we also emphasize that many of the “usual” skills and capabilities of business, including the ability to innovate, are crucial for meeting the challenges ahead.) We call our view, which incorporates the most convincing aspects of the various schools of thought on the role of business in market capitalism, business as leader.
To be more precise, our vision calls for business to continue doing what it does well and, at the same time, help raise the market system’s functioning to a higher and ultimately more sustainable level through innovations in business operations and activism for good government and sound public policy. The activism we envision respects the authority of government and seeks to uphold the democratic process. As we will discuss in chapter 7, this constructive engagement between business and government, while not unprecedented, is nonetheless a far cry from the kinds of lobbying and influence tactics that the public—and the bystander school—associates with business today.
Unlike those who say that business should sit on the sidelines while governments address the system’s problems, we believe that business has much to contribute both directly through its own activities and indirectly through inputs on critical policy and regulatory questions. Moreover, we are not persuaded that governments can do the job alone. Even apart from the resource constraints that governments are facing around the world, governmental capacity is limited. Although most business executives know little about public policy (as bystander advocates rightfully argue), most governments have limited knowledge and expertise when it comes to developing effective policies on climate change, financial regulation, poverty reduction, and other challenges discussed at our forums.
The activist and innovator schools correctly argue that policy makers and regulators need a practical understanding of the private sector to shape the sector’s activities. The recent financial crisis is yet another example of what can happen when the complexities of business outstrip the understanding of regulators and policy makers. At the same time, BP’s early handling of the 2010 oil spill in the Gulf of Mexico did little to inspire confidence in the private sector’s capacity to address the large-scale environmental and other challenges facing the market system. Neither sector—public or private—has a monopoly on the expertise and knowledge that will be needed. Rather, as acknowledged by many business leaders in our discussions, both sectors will need to acquire new knowledge and build new competencies to address these challenges successfully.
Nor is the public sector morally better equipped for these tasks than the private sector, as suggested by the bystander camp. Regrettably, as the daily news attests, no sector is immune to the forces of corruption. Public-opinion surveys consistently report low levels of trust in both government and business. Surveys of Americans conducted by Gallup in 2010, for example, indicate that big business and the U.S. Congress are the country’s two least trusted institutions. Only 19 percent of Americans expressed “a great deal” or “a lot” of confidence in big business; only 11 percent, in Congress.4 Other surveys show that across the world, people regard business and their country’s national legislature as the institutions they least trust to act in society’s best interests.5 According to some polls, the highest levels of public trust in business and government to do what is right can be found, perhaps surprisingly, in China.6 Taken in its totality, the evidence indicates that both sectors face serious credibility challenges that, if unaddressed, will increasingly compromise their effectiveness as purveyors of solutions to the challenges we have outlined.
Of course, the role of governments in making the market system stronger and more resilient is crucial. Our call for business to take a leadership role in this effort in no way diminishes the importance of government. As noted earlier (and will be discussed more fully in chapter 7), there are some things that only governments can do, and the business-as-bystander proponents make a useful point in emphasizing the limits of voluntary action by private-sector actors. While at least some of the disruptors represent near-term business opportunities for forward-thinking companies, government involvement is sometimes necessary to level the playing field or to provide incentives for desirable activities that would otherwise be prohibitive for individual companies.
In summary, though the task of improving the market system’s performance for society is necessarily a multisector effort, business must take a leadership role in driving this effort. But what, specifically, can business do? In the next two chapters, we suggest some possible avenues. Chapter 6 examines what companies can do on their own and considers the innovators’ notion that the market system’s potential disruptors contain the seeds of business opportunity. In chapter 7, we explore what companies can do when they work with and through governments, other business and industry groups, and the nonprofit sector.