LONDON – Capitalism is the greatest engine for prosperity that the world has ever seen. But the democratic institutions that create the space for business leaders to operate have not kept up with accelerating economic and technological change; nor have they made the necessary adjustments to ensure that enough people benefit from the system to which they all belong. All leaders should keep these two thoughts firmly in mind as they respond to 2016’s populist backlash – manifested in Brexit, Donald Trump’s election victory in the United States, Italy’s failed constitutional-reform referendum, and so forth.
We capitalists can no longer simply celebrate the fact that open markets and technological innovation have lifted more than one billion people out of extreme poverty since 1990, including hundreds of millions in China alone. We must acknowledge our postwar global order’s failures, such as rising inequality, decades of stagnant wages in many developed markets, and sustained unemployment at or above 20% – and over 40% for young people – in several European countries. Most of all, we cannot simply assume that the system will somehow “self-adjust.” Instead, we need to act.
Of course, meeting the challenge of populism is not a task for business alone. Political leaders have a critical role to play, by shoring up and extending the social safety net to cover those who have been, and will be, “left behind,” and by providing – through smart infrastructure investment and policy reforms – a stronger foundation for inclusive growth. But, beyond creating good jobs and higher-quality products and services at lower prices, private-sector executives must lead in several key areas.
First, they should ensure that their organizations pay taxes. While a company’s shareholders and employees rightly demand sensible stewardship of its financial resources, nothing does more to undercut the case for globalization than the specter of wealthy individuals and institutions gaming the system to reduce their tax bills far below the rate that the struggling middle class pays.