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Capitalism - the growing need for a new direction

Written by on 20 January 2012

In the last few months, there has been a growing call from politicians and industrialists for a new form of capitalism. The recent economic crisis has caused significant pressure within society. The focus on corporate performance and reward has intensified. Questions have been raised as to the justification of the high-reward-low-return corporate leadership that has become commonplace within the globalised landscape. The pressure has been increasing as the age of austerity affects an increasingly larger proportion of the population.

What wrong with capitalism?

The model of capitalism is a proven model for fuelling the growth and dynamic diversity of the economy. The call to action has been raised by many parts of our society and is underpinned with a very real sense of moral outrage at the apparent inequality within our society. A significant problem to addressing this issue is the lack of a new direction, the crystallisation of what the alternative would look like. I believe the problem is not capitalism but the way the capitalist model has evolved.

Diminishing Returns

The present model of capitalism has witnessed the growth of powerful employees who have risen to the very top of global organisations. They reap the rewards of organisational performance whilst not sharing in the risk of failure. This phenomenon has allowed CEOs and senior managers to adopt increasingly risky operating strategies and has developed a concept of value that has distorted the real basis of sustainable transactional relationships. As the world has become smaller the trading within the capitalist structures has become marginal with the inevitable collapse of value creation (illustrated by the development of subprime loans – lending more money than the asset was worth – which became an acceptable basis of trade).

Leaders of capitalism and the free market

John Acton once said that ‘Power tends to corrupts; absolute power corrupts absolutely’. The last 20 years has seen the embracing of the concept of the free market, a place where economic forces will self regulate. This does not fully reflect the reality of the market and the force of capital flows, and it is also naive to think that markets are not perverted by the influence of individuals. Self-regulation is an abstract model and fails to acknowledge the role of capitalism as a part of social order. The capital markets do not exist within economic isolation; they have evolved to serve society. The issue is that capitalism has been manipulated to become the master of society and dictates social order.

Leadership is the key to new forms of capitalism

As I have stated, capitalism is a very good model for driving society forward, however it must - at times – be regulated, in order to ensure that the capital structures serve society and not the other way around. Our leaders have proven that they are incapable of self-regulation and moderation. They have become unaccountable, as the reality of the shareholder model has been eroded through the growth of international investment companies/funds. We need good leaders who have an innate understanding of wider responsibilities, people who share social values as a central part of their management philosophy.

Values based leadership

Values based leadership supports the selection of leaders with deeply held beliefs. These values should reflect the wider society; an understanding of what is justifiable and sustainable. These individuals can shape the evolution of capitalism within a semi-regulated environment. Checks and balances also need to be enforced in order to remind individuals of the wider commitment and legitimacy from which they operate.

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