Historian Heather Cox Richardson recently highlighted a shocking statistic about the political and economic trend known as neoliberalism: “That system, begun in the 1980s, called for the government to allow unfettered markets to organize the economy. Neoliberalism’s proponents promised it would create widespread prosperity, but instead, it transferred more than $50 trillion from the bottom 90% of Americans to the top 1%. As the middle class hollowed out, many of the huge numbers slipping behind lined up behind an authoritarian figure who promised to restore their former centrality.”
This $50 trillion transfer (calculated by researchers from RAND and featured in Time magazine) got me thinking. As regular readers know, I am a strong advocate for multi-stakeholder capitalism as the best path to driving better outcomes for all members of our society, including investors, executives, customers, employees, and communities at large. I’ve explored research showing that all of those stakeholders can win when companies give up the narrow-minded, ineffective mindset of shareholder primacy.
I now realize that there’s another essential reason to embrace multi-stakeholder capitalism: it’s also the best tool we have to protect and preserve our democracy. With the resources of government increasingly overstretched and diminished, only corporate America can reverse the hollowing out of the middle class that now threatens our political and social stability.
“Democracy” comes from a Greek word meaning “rule by the people.” And “the people” has always been the foundation of our country, highlighted everywhere from the Declaration of Independence (“It is the Right of the People to alter or to abolish [destructive government]”), to the Constitution (“We the people”) to the Gettysburg Address (“Government of the people, by the people, for the people.”)
When those historic words were written, everyone presumed that “the people” could only be defended by their elected officials. It was the government’s job to safeguard democracy, while companies were expected to provide goods and services for customers and jobs for workers. But that neat dichotomy between government and business has blurred to the vanishing point. Today’s companies must accept their share of responsibility for helping to protect our democracy against dark and destructive forces from abroad and at home.
For nearly four decades following World War II, most corporate executives saw themselves as a force for public good, in addition to their role in seeking profits for their shareholders. Their decisions about how to treat employees and customers helped build the strongest, broadest middle class in the world, and generated enough tax revenue to help build the world’s greatest economy and military. Partnerships between the government and companies led to tremendous public benefits, ranging from infrastructure like the Interstate Highway System and major airports to technological achievements like the polio vaccine, the moon landing, and the internet.
But as Richardson notes, a fundamental shift took hold in the early 1980s. Businesses increasingly stopped treating their employees, customers, and communities as equal stakeholders, instead focusing entirely on boosting their stock prices. The ensuing four decades of shareholder primacy have done major damage to the American dream of rising prosperity for anyone willing to work hard. OECD data shows that the U.S. is now the most unequal nation in the developed world, as well as most difficult country among our peer group for working people to achieve upward mobility.
These are not my opinions; they are facts backed by global research on the Gini coefficient, which measures inequality, and the Gatsby curve, which measures mobility. And these facts are consistent with polling and focus groups. For instance, one recent poll found that 60 percent of middle-class Americans are now “struggling financially” and do not expect things to turn around for the rest of their lives. Furthermore, 40 percent of all Americans said they can’t plan beyond their next paycheck, and 46 percent said they don’t have enough savings to cover an emergency expense of just $500.
The business community often focuses on systemic risks that can derail an industry or the entire economy. It’s hard to imagine a worse systemic risk — or a bigger threat to our democracy — than a growing percentage of chronically struggling, economically immobile, disgruntled Americans. Individuals in distress find it hard to think of themselves as “we the people” and hard to feel good about voting or other forms of civic participation. So it’s no surprise that rates of voter participation have mostly dropped in recent decades. When people become convinced that voting won’t improve their lives, they tend to stop voting. And they become more open to radical alternatives, perhaps even violence and anarchy.
America has reached a crossroads: we can either reverse these ominous trends or watch them worsen into full blown crises. The big question is how can we turn them around?
Government alone can’t do it. Neither major party can command the resources to reduce inequality and immobility, even if they had the determination to do so. The federal government takes in about $4.4 trillion in annual revenue and spends about $6.1 trillion, most of it pre-committed for defense, social security, health care, and other huge programs, and the federal debt already exceeds $35 trillion. The national piggy bank contains nothing but IOUs. Governments in other countries have tried to spread prosperity via various forms of socialism, including nationalizing key industries, but the results were always disappointing, if not catastrophic.
Corporate America has deep pockets, but that doesn’t mean business alone can solve inequality and immobility. Unfettered capitalism tends to lead to monopolies that exploit their customers and employees, thus making these problems worse. For instance, in the late 19th century big business had so much power that it became unhealthy for every part of society. Giants like U.S. Steel and Standard Oil began to monopolize their industries, then abused their employees and customers. The government had to step in to restore fairness and reduce monopoly power.
The best option, whether in 1905, 1955, or 2025, is a productive partnership between government and business that enables a growing middle class and broadly shared prosperity. With a return to the mindset of multi-stakeholder capitalism, business can deploy its resources to improve conditions for employees, customers, investors, and citizens alike — who are, of course, the same people wearing different hats at different times. And the government can and should be a supportive partner by enforcing reasonable regulations and a level playing field for companies, employees and consumers.
This partnership requires an end to mutual demonization. Business leaders can’t trash government as the enemy of prosperity, because sometimes only governments can make essential investments that drive prosperity. No single company or alliance of companies could have spent enough to map the human genome, build the interstate highways, set up the air traffic control system, or link distant computers into the early internet. Capitalists must acknowledge that such huge public investments have unlocked enormous value for private industries.
Similarly, we can’t encourage government to tear down the business community, including via punitive levels of taxation. Beware of any politician who doesn’t recognize the amazing power of capitalism, properly harnessed, to drive broadly shared prosperity.
We know that a return to multi-stakeholder capitalism will work better for everyone, both by studying history and studying the present. JUST Capital, the nonprofit research and advocacy group where I serve as a director, ranks the 1000 largest public companies on how well they support multi-stakeholder capitalism. We’ve found that the top 100 on that index — the ones that pay their people better, provide the best benefits, deliver the best customer service, and contribute to their communities — also deliver the highest returns to their investors.
A widespread return to multi-stakeholder capitalism will also make people feel better about their country and therefore more likely to vote and participate in politics, strengthening the foundations of our democracy and greatly reducing the systemic risk of social disruption and chaos.
The headline is simple and clear. The 40-year era of shareholder primacy badly damaged our country and our democracy. A wiser, newer version of business governance, multistakeholder capitalisms, together with a supportive government can help our democracy and all our people recover and prosper. There is no practical alternative if we continue to want a healthy, stable successful nation of thriving and widely diverse citizenry in the decades ahead and beyond. Our role now is to choose and to act.