Inclusive capitalism

an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.

As a noun, capitalism is used a lot in western society. We take it for granted. And like everything in life, capitalism is evolving.

One of the current trends is for inclusive or conscious capitalism. The theory is admirable - the aim of inclusive capitalism is to work towards fixing the problems that capitalism itself has created, while not disassociating from the idea of privately owned companies. 

The Henry Jackson Initiative for Inclusive Capitalism released a paper in 2012 which discussed the impact of the then-recent financial crisis and how it had highlighted weaknesses in business and the economy. The paper emphasised how capitalistic moves over the past 30 years had simultaneously boosted and hindered western economies. For example, many people are now better educated and therefore able to earn more money. But, conversely, many workers in the manufacturing sector have lost out to countries that are able to provide cheaper labour and so those in the developed world are left without work or transferable skills.

Inclusive capitalism promotes the idea that the benefits of capitalism can be shared by all, not just the shareholders. So it encourages increased education and development for employees; promotion and support for new, small and medium-sized companies and improvements in the long-term planning and governance of larger companies.

 The concept is not new (a now world-leading group of social entrepreneurs, Social Ventures Network was set up in the 1980s in America). What is new is the increasing number of those willing to follow.  According to Stanford University, more than 97 percent of MBAs (from a sample of 800) said they were willing to accept a lower salary to work for an organisation with a better reputation for corporate social responsibility and ethics.

Historically, the key objective for most public companies 
has been to generate profit for their shareholders. In fact, in 1916 in the US, shareholders of Ford motor company took Henry Ford to court. Their goal: to prevent him running the company in the interests of the community and employees, rather than in their own financial interests. The shareholders won, and this judgement, that shareholders alone should be the beneficiaries of a company, has been borne out in other cases since. Perhaps some more fundamental changes are needed to our understanding of companies, and what they’re for, before inclusive capitalism can fully take off.

Of course, as an investor it may initially appear that inclusive capitalism isn’t in your interests. It means that companies may no longer have shareholder value as their sole, defining aim. But companies that want to attract and retain the best employees, and to draw in increasingly socially-conscious consumers, may have to embrace these ideas.

Our thematic approach to investing aims to take advantage of a changing world, and evidence suggests that this means paying attention to inclusive capitalism. In particular, our Debt Effects theme considers the after-effects of the global financial crisis. These after-effects include a significant increase in awareness of, and belief in, inclusive capitalism.

For consumers and individuals who subscribe to these ideas, it’s no longer what we do that sets us apart from the rest; it’s how we do it. We’re leaving the world of ‘profit at all costs’ and are entering an era of 'profit with responsibility'.


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