Reinventing capitalism: a transformation agenda for business

‘Capitalism is both the greatest source of prosperity and progress in human history and the greatest threat to it. This paradox is at the heart of the case for reinvention.’

This line comes from a new report — Reinventing Capitalism: a transformation agenda ­ — which is the latest product of Volans’ partnership with the World Business Council for Sustainable Development (WBCSD). The report synthesises the best available thinking on why capitalism needs to be reinvented if it is to create the conditions for long-term success, and the actions that business, investors and policy makers can take today to drive transformation.

We make the case that the capitalism we need is one that rewards true value creation — not value extraction as today’s model does. Specifically, this means that all social and environmental costs and benefits should be internalised and reflected in the relative price of goods and services, and in companies’ profit & loss statements, costs of capital and market valuations.

To get to such a version of capitalism, we need to realign the incentives that drive businesses’ and investors’ behaviour, adopting new and better ways of measuring performance, and tackling failures at the market and institutional level that favour financial value extraction over true value creation.

Reinventing capitalism will require complementary action from businesses, investors and policy makers, with voluntary action from the private sector and changes to law and regulation going hand in hand. Business therefore has a dual role to play:

• “Walking the talk” — adapting and aligning business models, decision making processes, governance models, incentives, approaches to tax, remuneration, reporting and accounting with a vision of capitalism that pursues true value.
• Leveraging its relationships with other stakeholders — from suppliers and customers to policymakers and civil society — to influence the norms and rules that shape capitalism as a whole.

To that end, WBCSD and Volans worked with member companies and partners to identify a set of priority actions that business can take, linking these to corresponding policy and regulatory changes that companies can call for. Download the report to find out more.

As Peter Bakker, President and CEO of WBCSD, notes, “capitalism’s core features of private enterprise and competitive markets are indispensable if we are to achieve the scale and speed of transformation needed to achieve our Vision of a world in which 9+ billion people can live well within planetary boundaries. But our success or failure in achieving our Vision 2050 is likely to hinge to a significant degree on whether capitalism can be reinvented for the better, and for its own good, during the next ten years.”

This report is intended, first and foremost, to be helpful to forward-thinking business leaders and investors who recognise the need to go beyond simply supporting calls for a “reset” and to get strategic about what it will take. If you are one of those leaders, we’d love to hear from you.