(May 6): The flames that tore through the famed Notre Dame cathedral in Paris not only exposed how vulnerable historic icons are to fire, it also revealed how the jarring divide between rich and poor threatens to bring down the system of capitalism. The ostentatious pledges of hundreds of millions of euros by France’s elite to restore the cathedral sparked outcry; France had already witnessed months of protests, some of which turned violent, led by the so-called Yellow Vests. The movement started in November 2018 after an online petition was posted in May in response to impending hikes in fuel taxes, but escalated to widespread expressions of discontent against France’s socioeconomic inequality.
The protests in France are not the only signs of growing disenchantment with the current economic system. Tellingly, Ray Dalio, the billionaire hedge fund manager and one of the world’s richest men, has declared growing wealth inequality in the US as a national emergency. Capitalism was not working anymore for the majority of Americans, he says. What is needed is accountability at the top, and reform in policies, including taxes on the wealthy.
Dalio’s comments follow from similar pronouncements by other wealthy, successful men, including BlackRock’s Larry Fink. Morris Pearl, a former BlackRock managing director who chairs the group Patriotic Millionaires, has also been lobbying for higher taxes on the rich for years. “Given the choice between pitchforks and taxes, I choose taxes” was his pithy conclusion.
The cynics among us will say that it is easy for them to preach reform from a cushy pulpit; Bridgewater Associates is the largest hedge fund in the world and Dalio took home US$2 billion last year.
But reforming capitalism is more than talking about it or taxing the rich. Rather like the challenge with climate change, it will require a comprehensive, cathedral-like approach from all of us. We need to consider and start building the new foundations for a new model of capitalism that will enable sustainable and inclusive participation.
If we were to fail, the rising tensions will eventually reach a tipping point and trigger populist revolutions that seek to bring down existing institutions, without room for dialogue and collaboration for solutions. In the late 18th century, ignoring such protests about inequality paved the way for the rise of totalitarian movements that urged a fairer economy by force. We know how that ended; it was nearly two centuries of bloodshed before we eventually normalised and settled into the current system. The entire planet is dealing with two parallel tensions that are threatening global human development: the rising of temperatures due to climate change and worsening inequality due to the current system of capitalism.
If we were to consider shaping a new vision for capitalism, like rebuilding a cathedral, there are three aspects to consider.
We need a new purpose for capitalism
When capitalism was born as a concept 500 years ago in northwestern Europe, the financial system was simplistic in nature and limited to a small region. Today, with global transactions in the billions of dollars taking place in seconds, and those with technological, legal and financial know-how are guaranteed an edge, the idea that capital flows will trickle down to the masses is little more than a pipe dream.
What we have seen instead is the rise of “walled gardens” where a limited group of individuals and institutions profit immensely and quickly without the need for contribution to the common good, such as through taxation or human development. In other words, the current form of capitalism is a form of capitalist extremism. It may be that no one intended for it to be so, but it is only getting worse. When most of the capital is locked up in such “walled gardens”, inaccessible for the common good, it is akin to storing large granaries of rice for a rainy day and letting the surplus rot while the people who are in need of it are dying of hunger.
Traditionally, governments collect taxes to pay for human development. But as individuals and companies became efficient in accumulating and retaining capital, governments are lacking the means to deliver on human development or even tackle rising unemployment as a result of the global economy becoming less labour-intensive.
It is certainly not in the interest of companies to lose business as people’s means of income decline. We need an update to the purpose and principles of capitalism, to switch from growth to sustainable and participative growth. This will in turn shape a coordinated approach involving the government and private sector to develop an inclusive vision of capitalism. Much like how the green movement inspired companies to adopt sustainable green practices, and the state subsidises such initiatives, we need corporations to adopt or invest in “red” practices that contribute to human development, and for governments to incentivise them.
We need a movement for sustainable capitalism
There is now a lot of mistrust between companies and activists for change. If we were to gather industrialists and activists into one room, it will likely end up as a shouting match. If we truly want sustainable change, then we need everyone to shape a viable middle ground. We need to create regular forums to build understanding, but more importantly to nurture alliances everywhere comprising of individuals and institutions who are for sustainable capitalism.
Just like with the green movement again, we need the media, consumers and leaders in every field to be involved in thinking and redesigning their roles and work; to help to advocate change; and to share their solutions for sustainable capitalism. This is the time for solutions and not more TED Talks.
We will also need institutions to declare themselves as willing hosts for sustainable capitalism and to establish centres of innovation to develop solutions that will result in better and sustainable participation in the economy. Again, it is too risky to leave it to governments alone to solve this problem; we need a massive movement of solution thinkers and doers to shape a new type of economy.
We need to be bold to reimagine every aspect of the economy
It cannot be business as usual as we face an existential crossroads.
If we are serious about sustainable and participative growth, then we need to rethink the way we educate our kids. For example, how are we preparing them to be multi-skilled and to be more creative in the age of robots? As our planet runs out of resources and wars can be triggered, it is time to rethink our right to use resources as we please.
We will need to reimagine the way we work, and the monetary system: Our current system is too fixated on finance; how can we shape a more sustainable approach? Taxation has to be reformed, and sustainably so, so that governments will have the means to improve quality of life. Taxation is at such a crisis level that it will require all governments and major global corporations to meet in a worldwide forum and agree to a sustainable level of taxation increase, for shared responsibility. We are too interconnected not to have this conversation taken seriously. Then major financial institutions and the accounting firms will need to be part of the new solutions to shape sustainable capitalism.
Lastly, we must be willing to see that this problem of inequality is a shared one, and to work with each other to tackle it. It is something that can be done from the global level, right down to the city, town and personal levels. We may not live to see how this new model will pan out, but if we start laying the right foundations, another generation will be able to help complete the work that we have begun. The time is now to get to work to reform capitalism.
Lawrence Chong is the group CEO of Consulus. Paolo Frizzi is the regional director for Europe and the Americas of Consulus. He will be speaking at Shape the World Summit on June 21 and 22, 2019 at the National Design Centre.
Consulus is an innovation by design consultancy firm specialising in advising governments and businesses on economic transformation by design and the co-organiser for Shape the World Summit with the theme: Designing a More Equitable Economic System
This story appears in The Edge Singapore (Issue 880, week of May 6) which is on sale now. Subscribe here
