MyLearnings

Stakeholder Capitalism by Klauss Schwab and Peter Vanham

Industrial Revolutions of the world

First Industrial Revolution

Started in 1770s with the advent of steam engine that allowed mass production of commodities especially textile. For the first time in human history production was not directly proportional to workforce but was possible at a higher rate. This phase of industrial revolution favoured the rich than the factory workers and the unindustrialized nations of the world. In a sense the people at the helm of industries got richer and mostly everyone else were at the shorter end of the stick. By late 19th century workers started organizing to demand better pay and working conditions. Globalization during phase was mostly due to colonialism and did not work in favour of the colonies.

Second Industrial Revolution

This started in the 20th century and was fuelled by electricity, diesel powered engines and assembly lines. Electrical appliances and mass produced cars were introduced. Since now machines required more skills than during the first industrial revolution and the world needed more services this industrial revolution saw the rise of a middle class. This revolution sped up after World War 2 and manufacturing picked up in terms of process and productivity. Globalization became more and more apparent with the passing of time during this phase. Multi national supply chains had started coming into picture.

Third Industrial Revoution

This revolution was related to the adavances in silicon and communication technologies. Internet was the new world highway and information can be sent from one part of the world to another at unprecendeted speed and cost. This gave shape to the globalization as we know it today. Because information was quick to go around supply chains widended further to take advantage of cheap labour available in emerging markets. China, the Asian Tigers, India and south east asia as a whole saw increased prosperity and industrial activity. However this phase in a way hurt the middle class in the west that had come up during the last industrial revoulution. This phase also saw the steep rise in income inequality with the top 1% of the world controlling more than half of the wealth of nations.

Fourth Industrial Revoution

This phase started with the advent of cloud computing, artifical intelligence and big data. During this time data became the new oil. We saw the emergence of gig economy and platform economy. In 2021 we’re still in the middle of this phase and blockchain is an emerging technology which will drive this phase further. This phase has most probably seen the most dynamic market actions with products and services reaching millions of users in a matter of months. It has seen the fastes cycles of wealth creation, as well as destruction, in human history. This phase is lso the one in which the question of climate change has taken been brought to the forefront. This phase of revolution has also seen a new product “content” being democratized and commoditized. It is now extremely easy to produce and distribute content over the internet, so much so that it has made things like “fake news” and “hate speech” a real and physical threat to the nations of the world.

Stakeholder Capitalism

Primary Ideas that guide the world today

  1. The bussiness of bussiness is bussiness. Formalized by Milton Friedman, the sole objective of any business is to generate profits for it’s shareholders and as long as bussiness do just that, everything will work fine.
  2. Gross Domestic Product (GDP), a measure devised by economist Simon Kuznets in the war years to measure the production output of a nation, is the primary yardstick to measure the “development” of a country. Derivative measures such as “per capita GDP” are used to describe how well the population of the country is faring.
  3. We’re consuming more resources every year than the earth can replenish. We consume almost all the resources that earth produce in an year by August!
  4. Free markets and the invisble hands are the only solution to all the problems of the world.
  5. Technology companies are the biggest comapnies of this day and age.

Ideas that Stakeholder Capitalism professes

  1. The bussiness of business is not just bussiness. It’s responsibilites include well being of the planet, consumers, employees, society in which they operate as well, apart from the well being of the shareholder.
  2. GDP and Bottom Lines are not correct measure of the progress of a country or comapny, in fact they are outdated measures. We need measures that take into account the well being of the different stakeholders in the ecosystem. For a country it includes how well it is doing in preserving the environment, how well is it providing basic amenities to it’s citizens etc. For companies it is how well are they contributing to the societies they operate in, in terms of taxes, compensation to their employees and their treatment, caring for the environment etc.
  3. We have to check our activites now, that are harming the earth, otherwise it will be very late. Environment has been a stakeholder that had no tangible representation till now, but this has to change.
  4. The society should neither operate on the principals of free market capitalism or state capitalism. The direction of the society should be influenced by all stakeholders. These stake-holders are -
    1. Companies - the private sector including enterprises and freelancers
    2. Governments - bodies that have legal authority over geographical regions
    3. Civil Society - labour unions, advocacy groups, NGOs, student unions, teachers unions, all the representatives of the organizations of societies
    4. Internation Community - UN, WTO, signees of Paris Agreement etc.
  5. All stakeholders should have a seat at the table. All of them must be heard though it is not necessary that all have to agree on the decision. For a company that means that not only the board of directors should be the sole source of decisions but also representatives of employees, suppliers, consumers and local government bodies should be heard while making decisions.

How can Stakeholder Capitalism be made a reality

  1. Companies should not only focus on improving and reporting their bottom lines but also disclose and work towards improving other metrics. Stakeholder Capitaism metrics is a set of metrics that companies should talk about in their annual reports. The World Economic Forum came up with these metrics in 2020 in collaboration with companies from all around the globe and the big 4 auditing firms have also contributed to building these metrics.
  2. Nations should correct their myopic view that only perceives the GDP as a measure of national well being and look at other indicators that talk about inequality, state of environment and well being of citizens. Countries should ensure facilites for education, healthcare and housing for all it’s citizens. A very good example is given by New Zealand that came up with a Living Standards Framework that talks about other measures of well being of their citizenry. It is accompanied by a dashboard that dsiplays how the country is doing and is definitely a step towards a holistic measurement of a country’s progress.
  3. Labour Unions of a new kind have to come up that represents the new workers of today. The only way to protect the interests of workers in this age of rapid changes is having avenues for reskilling that are easily accessible to all in the workforce. The labour union of Denmark is unique in it’s positive stance towards technological development. They are not scared that robots will take away their jobs, and one of the reasons for this is that they have a very strong and well connected union that takes care of the reskilling needs of the workfocrce. Singapore had been a roaring success of globalization and a part of credit has to go to how quickly it helped it’s workforce to reskill. In a span of less than half a century they reskilled their workforce from agrarian workers to factory workers then to service workers and then to information technology workers. This has provided social security to the work force, which in turn helps the country to do really well with liberal labour policies which attract companies to this city state, further increasing the opportunities for the workforce.