The Stakeholder Economy: An Antidote to Privatised Profits and Socialised Losses

Kezya de Braganca | May 23, 2023

Complexity is the source of uncertainty in human systems. Over thousands of years of innovation has sought to manage this uncertainty, resolve complexity and transform social systems. Yet, innovation takes place in silos, simplifying complex issues but amplifying the overall complexity in a finite ecosystem.

Redefining Success in an interconnected world

Complexity is the source of uncertainty in human systems. Over thousands of years of innovation has sought to manage this uncertainty, resolve complexity and transform social systems. Yet, innovation takes place in silos, simplifying complex issues but amplifying the overall complexity in a finite ecosystem.

Modern schemes of measuring the success of nations, corporations and individuals have brought about much wealth and prosperity but its flaws are more apparent than ever before. The dominant economic model of the world, its metric system and the pursuit of endless financial growth supported by accounting principles that disregard an ecosystem approach, is unsustainable. Endless growth is not only socially divisive but also environmentally unsustainable. As we grapple with the realities of climate change, the idea that we can continue to grow indefinitely on a planet with finite resources appears increasingly untenable.

Nevertheless, the idea of endless economic growth is deeply entrenched in our collective psyche, we are rewarded this way from a very young age. It underpins our measures of success, from personal net worth to stock market indices and even Gross Domestic Product (GDP) of nations. There is no doubt this relentless pursuit of growth has led to remarkable advancements in living standards. Yet, it has also fueled a system where the gains are increasingly concentrated among a small elite, while the costs – economic, social, and environmental – are borne by the many.

The prevailing capitalist model has largely been a game of winners and losers, where profits are privatised, accruing to a select few, and losses are socialised, shouldered by broader society. Consider the global financial crisis of 2008. Major financial institutions, driven by the pursuit of profit, engaged in risky practices that ultimately led to a market collapse. These institutions, the ‘winners,’ had enjoyed enormous profits during the boom years. However, when their risky bets failed, they were bailed out by government funds, essentially passing on their losses to the broader society. Taxpayers, many of whom had little to do with these risky practices, found themselves footing the bill.

However, a rising chorus of voices, from boardrooms to grassroots movements, is calling for a shift to conscious capitalism, a model that emphasises a holistic approach to success. The worlds problems cannot be solved by Governments and Philanthropists alone. We must leverage the power of business as a force for good. In a world where the bottom line has traditionally held sway, a new economic model is emerging, one that places equal importance on all stakeholders, not just shareholders. This stakeholder economy is not only reshaping how we perceive success in business but also offers a potential antidote to the issue of privatised profits and socialised losses. Within this stakeholder economy, success is not just about financial profitability but also the positive impact on all stakeholders – employees, customers, suppliers, the community, and the environment.

This approach hinges on the understanding that all stakeholders in a business ecosystem are interdependent. In a stakeholder economy, businesses recognise that their long-term prosperity is intertwined with the well-being of all their stakeholders. This shift could help redistribute the benefits of capitalism more equitably, effectively challenging the paradigm of privatised profits and socialised losses.

Challenges and Skepticism of the model

Under the current paradigms, much of what must be done to solve for this is unprofitable. And without economic incentive, this is a herculean task. Additionally, the absence of a universally accepted system to measure success beyond financial performance adds to the complexity. Several companies offering ESG management and reporting tools use different frameworks that make it difficult to standardize. Some of these tools are being misused to make misleading claims about the social, environmental benefits of a product, service or company – effectively ‘greenwashing’. Without a universally accepted framework, companies might exploit their reporting outlets for public relations gains without making substantial changes to their operations.

In order to build a more equitable & just world where regenerative economics takes centerstage, there is need for a new paradigm in public policy, corporate governance and human consciousness. All is easier said than done, with challenges ranging from the practical – how to measure success beyond the bottom line – to the philosophical – whether businesses should even have a social purpose.

Proponents counter that in an increasingly interconnected world, businesses cannot afford to ignore their social responsibilities. Indeed, the COVID-19 pandemic has underscored the interdependence of businesses and society, with companies facing backlash for practices perceived as putting profits before people. The crisis has also demonstrated the potential of businesses to be a force for good, with many stepping up to support their employees, customers, and communities in unprecedented ways.

As for the philosophical argument, proponents of the stakeholder economy argue that businesses, as integral parts of our society, inevitably have a social purpose. They can choose to recognise this and harness it for mutual benefit, or ignore it at their peril.

In conclusion, while the shift to a stakeholder economy may not be without challenges, it offers a promising antidote to the imbalance in the distribution of wealth. By broadening our definition of success, we can evolve a form of capitalism that is not only more equitable and sustainable but also more resilient and successful in the long run.

Governments, industries, corporations, businesses and communities cannot effect meaningful change in insolation. We are part of a dynamic interconnected ecosystem and it is collectively that we can effect systemic change. The hope is that one day all companies compete not only to be the best in the world, but the best for the world. Together we must build a more human centred economy, for the sake of our children, our societies and the natural world.