The men and women of Real Davos support stakeholder capitalism

As a long-time contributor to the World Economic Forum, Peter Goodman is well placed to weigh in on the causes and solutions to economic inequality. But in his new book, he shines more as a journalist, relaying the testimonies of workers and small entrepreneurs from the American Midwest to Tuscan Italy. It highlights the link that exists around the world between rising economic hardship and political anger.

The author puts faces to the statistics long identified by the world’s leading economists; namely, that over the past few decades of globalization, the gains of the emerging middle classes in Asia and other developing countries have been partially and painfully offset by the relative losses of Western industrial workers.

The past connection between the economic ideology of shareholder primacy and government policies that have led to more economic inequality in the US, UK and much of the Western world is also aptly portrayed. For too long, the idea that wealth comes from the top, that taxes weigh on the innovative power of entrepreneurs, and that government is the problem, has helped create destructive economic outcomes for many workers.

As long as economic growth was high, these results were not as visible. But as our societies have undergone several transformations over the past 15 years, the accounts had to come. When only a small percentage of people benefit from economic changes; when profound environmental, social and technological transformations upset society; and when political leaders fail to provide answers, it is normal for people to lose confidence and revolt.

But there’s also a danger for watchers to react in polarized and emotional ways, and Goodman falls victim to that. It juxtaposes the disillusioned working class with successful billionaires. It works for contrast. But he takes the shortcut all the way, advancing the idea that the increase in economic inequality and political and social polarization are due to a handful of individuals.

It’s not correct. Given their increased role and influence, business leaders should of course take on a broader social responsibility. It starts with taking money out of politics and following the medical adage of “primum non nocere” – first, do no harm. But blaming a few businessmen for all the ills of society is both wrong and harmful.

The combination of contempt for a billionaire’s choice of dress and unsubstantiated allegations of profiteering at a nonprofit weakens this controversy’s attempt to stir up outrage. It is a sign of the decadence of speech, that we undermine people of different opinions through personal slander. It would be better to accept that different opinions exist and that a serious intellectual dialogue could – in the best interpretation of Hegel – create a better vision of the future.

In fact, the challenges we face in the global economy are the result of seismic and systemic changes. They include the imbalanced effects of the technologies of the fourth industrial revolution, globalization, climate change and social factors, including demographic changes, the rise of nationalism, protectionism and social discord, as well as the poor governance of institutions that are no longer suitable for their purpose.

What can we do about it? As often, it is useful to look to the past for ideas.

Goodman briefly mentions a Davos conversation he had with historian Ian Goldin about the similarities between our present time and that of Europe. The Age of Discovery. At the time, new technologies and discoveries, from the printing press to the explosion of world trade, also led to a concentration of markets and wealth, as well as social upheaval. The institutions and ideologies of the time could not keep up with the technological, economic and intellectual changes that were taking place.

Today, once again, we need to update our institutions and processes, and how they relate to each other. This primarily includes business and government, the two main institutions that emerged from the Industrial Revolution. This will mean, among other things, that companies will have to take on broader social and environmental responsibility, in line with their increased influence and power. Some business leaders have already understood this, others have not yet.

However, the book does not reflect on these systemic issues and does not discriminate between different business leaders. Instead, there are easy answers. For the New York Times’ global economics correspondent, greed and selfishness are to blame. It goes against both the trend of “stakeholder capitalism” and the “spirit of Davos” that has guided the World Economic Forum for more than 50 years and inspired business leaders world to reconsider their role.

Already in 1973, the participants of the World Economic Forum approved the official “Davos Manifesto”. It’s a code of business ethics, endorsed by the real “Davos Man” of the day. Remarkably, he explicitly stated that “management must serve society,” that profitability is a “means,” not an end, and that every business “must pay appropriate taxes”—precisely the solutions Goodman proposed.

For the author, stakeholder capitalism is “just an elaborate PR exercise”. During his half-dozen visits to the Annual Meeting, he acknowledges that many of his insights came from his discussions with other Davos attendees, such as economist Joseph Stiglitz, writer Anya Shiffrin and the FT columnist Rana Foroohar. This is also the goal of Davos – to create new ideas, not to crush them with a kind of reflexive cynicism. That this book is his answer to the question is perhaps very disappointing.

By blaming society’s ills on a select group of individuals, this book misses an opportunity to make a more substantial and credible contribution to the very important economic issues it raises in the first place. At a time when we need more fact-based, credible and rigorous economic analysis to guide us towards a better future.