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Saturday, 3 December 2011

We need to talk about capitalism, say CEOs

Simon Mann

Professors from the Harvard Businees School have identified ten major threats to capitalism. Professors from the Harvard Businees School, above, have identified ten major threats to capitalism. Photo: Greg Newington

Three professors from the world's pre-eminent business school have co-written a study that at first blush looks to fall more into the genre of horror story than business text.

But in identifying 10 powerful forces that threaten the existence of the capitalist system - the most successful engine of economic growth the world has known - the dons of the Harvard Business School appear to have drawn a line connecting the fears of the boardroom and those of the protesters of the Occupy Wall Street movement.

Income disparity, resource depletion and potentially cataclysmic climate change were recognised by CEOs in a series of conversations conducted by Harvard as among the potential ''disruptors'' of global prosperity. The financial meltdown of 2008 and the Occupy movement are clear manifestations of those fears.

''And we would expect more [of the same],'' says co-author Joseph Bower. ''Because people really feel outraged.''

Professor Bower and his colleagues note in their study the broad concerns of the 46 business thinkers brought together in forums on three continents, but by far the most widely held was ''the tendency of capitalism, as it currently functions, to produce extreme disparities of income and wealth''.

Said one unidentified Asian business leader: ''Herein lies a major challenge, because the world has become very much more prosperous as a result of market capitalism. The rich have become richer. The poor in most cases have become richer. But the gap between the rich and the poor has grown wider … There is the growing sense of being left out, even as people are getting better off.''

One European executive said: ''What was the good of capitalism? Was it the fact that we were building a very large, very well off - not wealthy but well off - middle class? We are not doing this any more.''

The Harvard project coincided with the Business School's centenary. What better way to celebrate it than to examine the state of the system that had nurtured its own rise to prominence? By then, it had conferred nearly 56,000 MBAs on men and women, many of whom went on to head prominent companies in the US and around the world.

The school brought together chief executives and business leaders in 2007 and early 2008 for its series of discussions. They included Australia's David Murray, the former Commonwealth Bank boss who is now chairman of the Future Fund.

Using its famous case-method approach to inquiry, it took as a starting point the then most recent World Bank growth projections and batted around the issues. Capitalism at Risk: Rethinking the role of business, just published, is the result.

Joining in the talks were executives such as Jeffrey Immelt of General Electric, John Elkann of Fiat and Bertrand Collomb of Lafarge.

That capitalism has delivered for billions is not at issue: in the last decades of the 20th century, 97 per cent of countries enjoyed increased wealth, according to the World Bank. But the executives cited as potential threats the powerful forces within financial markets, environmental degradation and political populism, terrorism and war, migration and pandemics.

''History tells us that when an awful lot of people are disenfranchised, they have no incentive to play by the rules, and given today's communications availability, weaponry … that's an issue we have to really think about,'' one said.

Unsurprisingly, they back business, not government, to ameliorate strains on the system through innovation and activism. ''Good government is crucial, to be sure,'' write the Harvard professors. ''But government … needs the support and engagement of business to function effectively.''

In the US, the argument for higher taxes on the wealthy has coalesced around billionaire investor Warren Buffett, who has become a poster boy for the Obama's administration's campaign to raise revenues, resisted by Republicans.

''Finding a way to mobilise the entire relevant business community - and others - to help support the needed taxes simply makes sense,'' the Harvard dons conclude.

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