As traditional models of capitalism fail to deliver on the needs of the society, discuss whether an alternative model of capitalism can rectify the current situation.

In this new era where Humanity is facing problems as diverse as rising income inequality to severe environmental degradation, we need to ask ourselves whether the current economic system is sufficient to deal with these challenges?  The trillion-dollar question is what kind of economic system we want in this new era? 

Needless to say the current models of Capitalism- Chinese style State-led capitalism and American shareholder capitalism have failed to deliver the required results. 

The Chinese style of capitalism has resulted in severe environmental degradation, little regard economic/political freedom and Politician-Bureaucratic corruption as seen in China and in other countries which possess significant Public Sector companies, India is a and Latin America are good examples. 

The American “shareholder capitalism” has resulted in rising income inequality, division and discord in society that goes far beyond wealth, regulatory capture by companies where they influence the government to make policies that are suitable for corporations and not the citizenry and environmental degradation.   

Both these systems have their flaws and looking by example its clear that for the future of the planet we cannot afford to use these economic systems anymore. However, there exists a third option “Stakeholder capitalism”.

Stakeholder style of capitalism is a system where corporations exist to serve the interests of all their stakeholders and not just the interests of their shareholders or the state. Stakeholders of a corporation are its employees, customers, suppliers, local communities, shareholders. A company’s purpose to create long-term value does not simply mean to enhance shareholder wealth but also create value for all its stakeholders. 

Shareholder capitalism was the norm until shareholder primacy (the idea that shareholders are the most important stakeholders in a business), was made popular by economist Milton Friedman in the1970s.

In 2019 as capitalism suffering from a period of crisis time is ripe to take out this old system from the storage. The simple truth is that the government on its own cannot solve deep and systematic issues like income inequality, environmental degradation and climate change on its own. Both the corporations and the government must recognize that in order to sustain our very way of life we need to acknowledge that we must replace the current system with a more humane system, one that takes the interest of the environment and society at its heart.

Topics: GS-III: Economic Growth Development