In the fall of 2009, as green shoots emerged from the ashes of America’s economy and the panic wrought by the Great Recession turned to outrage over the taxpayer bailouts handed to the very Wall Street banks whose reckless lending and disastrous bets caused the crisis, filmmaker Michael Moore debuted his latest documentary, Capitalism: A Love Story. It was anything but an ode to America’s economy. Moore’s film took angry aim at a laundry list of recent ills he blamed on an “evil” capitalist system: inequality, corrupt politicians, Wall Street’s casino-like mentality and out-of-control corporations.
As with all of Moore’s earlier documentaries, an underlying theme in Capitalism was his criticism of the way corporations concern themselves primarily with turning a buck for shareholders, damn everything, and everyone, else.
Who would have thought that almost exactly one decade later, America’s biggest capitalists would be saying the same thing?
Last August the Business Roundtable, an organization made up of the chief executives of America’s biggest companies, issued a statement on what it calls the new “purpose of a corporation.” After decades of hewing to the principle that “the paramount duty of management and a board of directors is to the corporation’s stockholders,” 181 CEOs from the likes of Goldman Sachs, Johnson & Johnson, IBM and Amazon agreed that companies have a responsibility to all their stakeholders—customers, employees, suppliers and communities—and not just their investors.
Jamie Dimon, the CEO of JPMorgan Chase, America’s largest bank, and the chairman of the Business Roundtable, summed up the sentiment of his fellow chiefs. “The American dream is alive, but fraying,” he warned. He later wrote, “Capitalism must be modified to do a better job of creating a healthier society, one that is more inclusive and creates more opportunity for more people.”
Welcome to the era of woke capitalism. There’s always been angst and apprehension toward capitalism on the left, but now some of America’s biggest and wealthiest capitalists are expressing, if not misgivings, then at least acknowledgement that American capitalism has not lived up to its promise to a lot of people. In part, the change of heart reflects a generational shift, as companies struggle to adjust to the demands of younger consumers and employees who are more concerned with problems such as inequality and climate change than past generations.
But it’s also a sign of panic at the prospect of what could unfold in this year’s presidential election. Elizabeth Warren and Bernie Sanders, two frontrunners in the race to lead the Democrats, are vowing to remake America’s economy and impose new taxes on the wealthy and corporations.
“They’ve seen the polls and they know an increasing number of Americans are critical of big corporations and the American form of capitalism,” says Robert Reich, a professor at the University of California at Berkeley who served as labour secretary in the Clinton administration and was an economic adviser to president Barack Obama. “Most people in America have given up on the idea that they or their children are going to do better in the future. That was the essence of the American dream under capitalism, and it has disappeared.”
The past year has brought several high-profile examples of the crisis of faith within American capitalism. Ray Dalio, the founder and co-chief investment officer of Bridgewater Associates, one of the world’s largest hedge funds, penned an essay in April on his personal website, Economic Principles, arguing why and how capitalism needs to be reformed. “I believe that all good things taken to an extreme can be self-destructive and that everything must evolve or die,” he wrote. “This is true for capitalism.” The Aspen Institute, which counts among its members former U.S. Federal Reserve chairman Ben Bernanke, General Motors CEO Mary Barra and Laurence Fink, head of the world’s largest institutional money manager BlackRock, published a policy report last February warning of “rising frustration with American politics, a populist backlash, social fragmentation, and a sense that the ‘American Dream’ is becoming more and more elusive.”
Then, at the end of January, scores of billionaires descended on Davos, Switzerland, in their private jets and helicopters to pool their anxieties about capitalism’s shortcomings. The World Economic Forum, which organizes the annual Davos event, issued a manifesto urging a kinder, gentler capitalism: “Companies should pay their fair share of taxes, show zero tolerance for corruption, uphold human rights throughout their global supply chains, and advocate for a competitive level playing field.” At one Davos event, Marc Benioff, the billionaire CEO of Silicon Valley software company Salesforce, declared, “Capitalism as we have known it is dead. This obsession that we have with maximizing profits for shareholders alone has led to incredible inequality and a planetary emergency.”
Which raises the question: if modern capitalism is indeed on its death bed, what comes next?
This burst of self-reflection in the corner office didn’t spring from itself. Survey after survey has shown that Americans, particularly younger voters, have increasingly lost faith in their economic system. In November, the Gallup polling firm found that among millennials and Gen-Zers, just over half had a favourable view of capitalism, down sharply from nearly two-thirds only a decade ago. The poll found 49 per cent felt positively toward socialism. Meanwhile, the latest edition of Edelman’s annual “Trust Barometer” report revealed that across the world, since the collapse of the Soviet Union where one form of capitalism or another has taken hold in almost every country, save for the likes of Venezuela and North Korea, 56 per cent of people believe “capitalism as it exists today does more harm than good in the world.” In both America and Canada, 47 per cent agreed with that statement.
“American capitalism has lost its moral justification,” says Steven Pearlstein, a Pulitzer Prize-winning columnist for the Washington Post and author of the 2018 book Can American Capitalism Survive? “It seems to venerate and reward qualities that people don’t like, like greed, a lack of empathy and selfishness, and punishes things we think of as good traits, like fairness.”
For a large swath of the American public, recent decades have been anything but fair. While the top one per cent of earners in the U.S. have seen their after-tax incomes soar 226 per cent since the late 1970s, the middle 60 per cent managed just 47 per cent, according to the Center on Budget and Policy Priorities. For specific groups, the past half-century has been a step backward—wages for American men, after adjusting for inflation, remain three per cent below where they were in 1979. Meanwhile, in terms of wealth, the top 10 per cent of Americans hold nearly 70 per cent of all household wealth, up from 60 per cent in 1990, leaving the bottom 90 per cent with a shrinking size of the wealth pie, according to the U.S. Federal Reserve.
Canadian workers have fared better. While inequality exists, it has not worsened to the same degree—the top one per cent took home 9.9 per cent of total income in 2017, down from 12 per cent in 2007 and close to where it was in the 1980s, while the bottom 50 per cent took home 17.8 per cent, the same level as nearly four decades ago. But while Canadians have seen their incomes grow since the 1970s, that’s only been the case for older workers. After adjusting for inflation, incomes for Canadians aged 16 to 44 have declined.
One group not hurting is CEOs, who’ve seen their pay skyrocket. Since 1978, chief executive compensation in the U.S. ballooned by 940 per cent, while the typical worker saw a gain of just 12 per cent, according to the Washington-based Economic Policy Institute, a non-partisan think tank. With an average pay package of US$17.2 million in 2018, CEOs took home 278 times the pay of the typical worker. It’s much the same in Canada, where the average CEO at the 100 largest companies earned $11.8 million, or 227 times more than the average worker.
Where Canada differs is in equality of opportunity, a feature once heralded as a cornerstone of American capitalism—hence the old saw that with enough grit and determination, anyone in the United States, regardless of class or race, can achieve a better life. Relative to the U.S., Canadian children born into low-income families have a far greater chance of making it into the middle class, research from economist Miles Corak has shown. To that point, the World Economic Forum debuted a new social mobility index at Davos this year, tracking the ability of citizens to reach their full potential regardless of household income. Of 82 countries, Canada ranked 14th. That was still behind Slovenia but well ahead of the 27th-ranked United States. As CNN noted in reporting the findings, “the American Dream is much easier to achieve in Canada.”
The fact is the onslaught of data showing that many workers have been left behind has become too pronounced to ignore. “People have caught on to the phoniness of claims repeatedly made about capitalism—that if you work hard you’ll do better or that we have a meritocracy that rewards talent,” says UC Berkeley’s Reich. “These homilies have been shown to be false.”
Pearlstein traces the problem with modern capitalism to the 1980s, when, in response to rising global competition from Japan, the U.S. economy needed to recalibrate. But the pendulum swung too far as several ruthless principles became entrenched: that, as Gordon Gekko famously pronounced in the movie Wall Street, “greed is good”; that incomes are a purely objective reflection of one’s value in the economy and any effort at redistribution is akin to theft; and that some inequality is necessary to increase growth, so any efforts to make the economy fairer would also make it less efficient and less prosperous.
Add to that the embrace of shareholder capitalism, as famously championed by economist Milton Friedman in his 1970 New York Times Magazine essay titled “The Social Responsibility of Business Is to Increase Its Profits,” and you had the makings of decades of tax and regulatory policies that favoured corporations and the wealthy over workers, communities and the environment.
The result, says Pearlstein, has been an erosion of “social capital”—a breakdown of trust between people and institutions, and each other. “We used to trust our employers, we trusted companies we bought things from, we trusted companies we invested in, and employers trusted their employees,” he says. “This mindset that we’re out for our shareholders, that we’ll do whatever is necessary to maximize profits, has caused companies to behave in ways that led people to lose trust in them.”
And with that loss of trust has come the bitter partisanship and broken politics that characterize many Western democracies today. Both Pearlstein and Reich point to the election of Donald Trump as a form of revolt after years of mounting inequality and frustration. “When people are angry to the extent most Americans are, when they feel the game is rigged, one way they respond is they elect demagogues who they think are on their side,” says Reich.
Capitalism’s defenders—often the same people calling for reform—are quick to point out that the world’s embrace of freer markets and private enterprise over the past three decades has helped lift billions out of poverty. The number of people who live on less than $1.90 a day, which the World Bank sets as its threshold for extreme poverty, fell from nearly two billion in 1990 to 700 million today, during a time when the world’s population grew by 40 per cent. But for rust belt workers who watched as factories closed, or millennials who find themselves caught in a cycle of gig jobs, that’s hardly comforting.
Still, it’s interesting that capitalism’s crisis of confidence should come now. It’s been more than eight years since Occupy Wall Street protesters took over New York’s financial district for three months. Today’s mass protest movements in America—and Canada for that matter—are more likely to focus on tackling climate change than inequality or corporate behaviour.
Perhaps the timing reflects the fact that the U.S. economy is on firmer ground now than in the years immediately after the financial crisis. Conditions could be ideal to reform how capitalism works, says Pearlstein. “A stronger economy gives you a luxury to be concerned with these things,” he says. “Sometimes you need a bad economy to make things change, but sometimes you need a good economy to give people the comfort level to make things change.”
Changes in the workforce are also making it harder for business leaders to ignore complaints about inequality and their environmental records. Millennial and Gen Z workers now account for more than 40 per cent of the U.S. labour force and, with unemployment at the lowest level since the 1960s, companies are having to heed their concerns after years of indifference. “The people who are in charge are hearing from the people they care about or are being made to care about,” says Pearlstein. “It took time to break through to the corporate elites and the financial elites, but after being dismissive for too long they’re getting real about stuff.”
CEOs are also no doubt closely watching the Democratic primary race, and the success both Warren and Sanders have found with voters for their promises to dramatically overhaul the balance of power in the economy. For her part, Warren has promised to impose big tax increases on the wealthy and corporations, break up monopolies, make it easier for workers to unionize and require large corporations to have 40 per cent of their boards made up of directors elected by employees. But if a President Warren worries Wall Street, a President Sanders is the stuff of C-suite nightmares. An avowed “democratic socialist,” Sanders has crafted a platform—which shares similarities with Warren’s—that promises labour reform and tougher anti-trust regulations. He’s also proposed legislation that would see employees of large companies eventually take control of up to 20 per cent of their shares. He would seek to abolish private health insurance and establish a Medicare-for-all program. Meanwhile, his US$16.3-trillion Green New Deal would end fossil fuel imports and exports and establish state-owned clean-energy utilities, among many other huge changes.
The election is still many months away, and much can and will change between now and then. But Donald Trump’s election has made it clear that no scenario can be ruled out.
Which is why Dimon, the CEO of JPMorgan Chase who has spoken so often about the need to reform capitalism, is also starting to sound nervous about what could come next. “I don’t think people understand what socialism is,” he said during an interview with CNBC in Davos last month. After being asked if he thought Warren and Sanders were socialists, he demurred. “I don’t want to talk about any particular people,” he said. “But if you’re talking about governments controlling corporations, that’s socialism.” Eventually, he added, socialism would lead to “eroding society.”
No one could be happier than Sanders to be called out by the CEO of a giant bank. “That’s funny,” he tweeted to his 10 million followers. “Jamie Dimon seemed fine with corporate socialism when his bank got a $416- billion bailout from American taxpayers.”
But the episode raised an important question: just how far are capitalists willing to go to save capitalism?
As of yet, no Fixing Capitalism for Dummies guide exists, but several themes are emerging. In his essay on reforming capitalism last year, Dalio, the billionaire hedge fund manager, called for investment in “double-bottom line” projects that offer both social and economic returns. These could be paid for, he argued, by taxing pollution as well as some form of higher tax on the rich, albeit one that doesn’t harm productivity. Others have been more explicit in their “tax me” calls. After acknowledging in a New York Times essay last October that “capitalism . . . has been good to me,” Benioff, the CEO of Salesforce, wrote that “increasing taxes on high-income individuals like myself would help generate the trillions of dollars that we desperately need to improve education and health care and fight climate change.” Likewise at Davos, a group of 121 rich people, including actors, investors, heirs and heiresses, released a letter titled “Millionaires Against Pitchforks,” which called for “higher and fairer taxes on millionaires and billionaires.”
There is also growing enthusiasm, particularly in Silicon Valley but also elsewhere, for some form of universal basic income, which would see governments guarantee that every citizen receives at least a minimum income.
However, those measures all entail significant change in government policy, and while there’s almost universal agreement among the capitalists-worried-about-capitalism crowd that change depends on a leader emerging who can bridge the partisan divide in America—a “charismatic unpopulist” is how Pearlstein puts it—it’s all too easy for CEOs to offload responsibility for reform to politicians. It’s worth noting that since putting their names to the Business Roundtable’s “purpose of a corporation” statement, more than a few of those 181 CEOs announced layoffs or slashed employee benefits in the name of meeting quarterly profit targets.
Yet fans of capitalism shouldn’t lose sight of the risks of inaction. Dalio laid bare what’s at stake if no consensus can be met to “re-engineer the system” in a way that divides the economic pie more fairly and ensures it continues to grow: “We will have great conflict and some form of revolution that will hurt most everyone and will shrink the pie,” he wrote. It’s a concern Pearlstein shares. “If you go too far, you can have Hong Kong type protests; you can have revolutions,” he says.
Ultimately, capitalism’s fate may come down to an acceptance that it’s not an all-or-nothing choice between unfettered greed and breadlines. “American capitalism is the most extreme, brutal form, but there are other forms of capitalism out there doing well,” says Reich. “The fact is there’s a lot in between American capitalism and socialism.”
This article appears in print in the March 2020 issue of Maclean’s magazine with the headline, “The crisis in capitalism.” Subscribe to the monthly print magazine here.