Capitalism is a strong brand. It has served its citizens well in the past. But today, it’s in serious need of renewal if it is to continue to be relevant and strong in the future.
If we think of Capitalism as a brand it might give us some insights as to what has gone wrong. Capitalism, quite simply, has lost touch with its customers—its citizens, or citizen-customers we might call them.
Between 1982 and 2010, the top-earning one per cent of Americans captured 59.6% of income growth in the United States. For Canadians, who are often smug when comparing themselves to the USA, it’s even worse—the top-earning one percent of Canadians captured over 60% of all income growth during the same period.
This is having a huge impact on the middle class as their dreams and aspirations are being eviscerated. As a brand, Capitalism must be refreshed, reinvigorated, and transformed if it is to maintain its relevance.
It must earn the loyalty of a new generation of citizen-customers, a generation that has never experienced the halcyon days of the last century when capitalism flourished, brought prosperity and opportunity to its citizens, and brought its competition, Communism, to its knees.
For the under twenty-five generation their reality is different; Capitalism is associated with greed, pessimism, high levels of underemployment that offer dim prospects, and a growing divide between the middle class and the rich.
Capitalism must also re-earn the loyalty of a generation who will be severely tested as they look forward to see diminishing pension benefits and poor prospects for retirement.
Capitalism must recognize the symbiotic relationship it has with the citizens it serves, and whose support it must have if it is to continue to be relevant. It must find a way to serve the interests of the many, rather than just the few.
What’s the way forward?
Roger Martin, the former dean of the Rotman School of Management, and Dominic Barton, the global managing director of McKinsey & Company, are amongst those who have written about the causes of Capitalism’s current troubles, and who have provided ideas about how brand Capitalism can renew itself for its citizen-customers.
There is only one valid definition of a business purpose: to create a customer. Barton and Martin conclude that [the brand called] Capitalism has lost its way because of the idea that the purpose of the firm is to maximize shareholder value—enrich its owners—rather than serve its citizen-customers.
Martin postulates that:
The trouble began in 1976 when finance professor Michael Jensen and Dean William Meckling of the Simon School of Business at the University of Rochester published a seemingly innocuous paper in the Journal of Financial Economics entitled “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure…Ignoring Peter Drucker’s foundational insight of 1973 that the only valid purpose of a firm is to create a customer, Jensen and Meckling argued that the singular goal of a company should be to maximize the return to shareholders.
Therein lies the problem.
Barton and Martin say that business needs to recalibrate and refocus its efforts on creating compelling value for its customers. That’s the best way to serve the interests of its shareholders.
I concur. Capitalism needs to recalibrate and refocus its efforts on creating compelling value for its citizen-customers. That’s the best way to ensure that Capitalism stays relevant and continues to serve everyone it serves.
Capitalism’s best days were when it offered its citizens the promise of a better life and served the interests of the many rather than simply enriching the lives of the few.
If Capitalism’s best days are to lie ahead, those who most influence the direction of our chosen economic system must recalibrate and refocus its efforts on doing what it has proven its capacity to do in the past: to serve its citizen-customers by enriching their lives.
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