Why Ray Dalio and other captains of industry are rethinking traditional “winner takes all” capitalism?
Why shared ownership is having a moment
Last November, Dalio, the founder of Bridgewater Associates, with $160 billion in assets under management, the largest hedge fund in the world publicly exclaimed that “Capitalism basically is not working for the majority of people, that’s just the reality.”
Then this past August, 181 of the Fortune 500 CEOs representing the Business Roundtable announced the release of a new Statement on the Purpose of a Corporation essentially that corporations need to think about long-term value for all stakeholders, not just those who have traditionally benefited. “The American dream is alive, but fraying,” commented Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co. and Chairman of Business Roundtable.”
What in the zeitgeist is going on? Not only were these comments by Dalio and Dimon unsolicited, but the statements stand in direct contrast to Milton Friedman’s 50 year old doctrine that the purpose of a corporation is solely to maximize investor financial return.
The statement from the Business Roundtable executives feels particularly noteworthy because these are executives from our nations’ largest public companies who have historically needed to convince their shareholders that their sole focus is financial return.
Clearly something has shifted within the wall street narrative that free market capitalism is a tide that will lift all boats. And yet to many on main street, these statements felt not only overdue, but obvious and somehow not enough.
Restating the rise in wealth inequality almost feels overdone at this point. But it is difficult to describe capitalism’s challenge without doing so. So instead here is Ray Dailo describing the challenge: “Today, the top one-tenth of 1 percent of the population’s net worth is equal to the bottom 90 percent combined. In other words, a big giant wealth gap. 40 percent of adults can’t come up with $400. It gives you an idea of what the polarity is. I think the American dream is lost. I think — for the most part we don’t even talk about what is the American dream. And it’s very different from when I was growing up. It’s not redistributing opportunity. We can call it a wealth gap, you can call it an income gap. I think that if I was the president of the United States… what I would do is recognize that this is a national emergency.”
Quite literally, Dalio built his fortune thanks to capitalism. But he is sounding the public alarm that something in our current winner takes all system is no longer working. Notably Dalio feels also that the income gap will only get worse from here, not better.
Why did these executives issue a public statement that shareholder value is no longer the only goal of a corporation? They weren’t asked. Those who have profited most from capitalism have decided that capitalism has gone too far.
Wow. Just let that sink in for a moment.
Dalio and others are observing what the rest of all know already, that we have an economic tragedy of the commons, where the individual actors acting in their best interest is no longer producing the common outcomes we all desire for our for our society.
Many of these same CEO”s are now scrambling to come up with new metrics based on sustainable development goals, but yet what that looks like is still muddy. The traditional company/shareholder relationship is clearly defined. More difficult is how to reconcile profit motives interests with workers goals, or with consumers goals, or with the needs of the climate.
Dalio and the Business Roundtable executives undoubtedly mean what they say, however it is difficult to not be skeptical. Executives understand that at the end of the day behavior typically follows incentives, so when push comes to shove, will their businesses actually choose social impact over shareholder profits? Will their good intentions or their financial incentives win out?
Rather than depending on the noblesse oblige of corporate executives, what if we could design ownership where the incentives actually aligned?
What if all stakeholders had a seat at the board table, where consumers and workers sat alongside capital shareholders? Modern multi-stakeholder cooperatives align incentives toward better long term outcomes, not just short term investor profit. And aligned incentives are something that even a corporate executive can feel good about.
