Embracing Social Capitalism

It’s now been 300 years since the birth of Adam Smith, the philosopher considered the father of modern capitalism, whose book The Wealth of Nations helped usher in a transformative moment for economies and societies all over the world. Capitalism has a checkered history, at turns considered responsible for creating opportunities out of abject poverty as well as the source for worker exploitation and oppression. 

A recent sweeping study of capitalism’s impact has helped provide more clarity into the picture by going beyond traditional economic metrics—like GDP per capita—to explore how this philosophical system has shaped real wages, mortality, and human’s physical height (stunting has correlations to poverty). The study helped illustrate what many economists, social thinkers, and philanthropists had always argued: that, left unregulated, businesses and corporations would exploit workers in pursuit of easy, fast money. 

Capitalism, Unchecked 

We saw clear examples of this during the pandemic. This once-in-a-lifetime crisis created immense, outsized demand for essential goods, including hand sanitizers, face masks, personal protective equipment and other healthcare equipment. To illustrate: in the UK, hand sanitizer sales grew by 255% year-on-year, leading some retailers to limit purchases and others to run out of stock completely. The shortage also led to sharp rises in prices as sellers looked to capitalize on consumers demand—in Singapore, eBay vendors were found to sell two 10 fluid-ounce bottles of sanitizer for U$527, while store-bought US$4.46 bottles of sanitizer sold for US$136.77 per bottle on Amazon. 

This is just one small case of capitalism’s lack of boundaries when it comes to fulfilling market demands to make quick profits, even if it means disregarding social norms and basic human rights. In the previously mentioned study, it was noted that “the rise of capitalism caused a dramatic deterioration of human welfare” across many parts of the world, especially former colonies. 

There is no doubt that capitalism has been an essential force in transforming our economies and in playing a key role in creating social mobility—it made key goods and services widely available. However, unchecked, capitalism can (and has) wreaked immense havoc, emphasizing the need for the steady hand of government regulation to keep it in check. It was also noted in the study, which found that the rise of anti-colonial movements and organized labor—both of which focused on wealth redistribution—were essential to mitigating capitalism’s worst tendencies. 

One example of how government regulation is essential to reining in capitalism can be found in India, where the government controlled the price of hand sanitizers to prevent companies from exploiting desperate customers. Not only were large FMCG companies ordered to reduce the prices of hand sanitizers, they were also asked to increase its production to meet the sudden spike in demand amid the COVID-19 scare.

Centering Benefits for All

That said, this is not a call to throw capitalism out of the door entirely—instead, it is a suggestion that capitalism needs to be rethought to bring into focus a more socially-oriented, inclusive approach that centers on humanity. Industrialization has acclimatized companies to a profiteering attitude, which might have been useful at one point in history, but with time and change, this posture must also adapt.  

We need a new form of social capitalism that combines the best parts of capitalism with the necessary speed brakes of regulation and social redistribution. Civil society has traditionally been central to this, but so are business and government. 

Businesses are vital cogs in the global economic wheel, which is why they must be involved in the work of reorienting capitalism around people and the environment. Here are a number of steps they can take to do so: 

• Ensure the development of ESG strategies that adhere with the United Nations’ Sustainable Development Goals and net-zero emissions targets. 
• Focus on enhancing diversity and uplifting the wellbeing of the employees—satisfied employees lead to better productivity, as well as overall better retention. 

Commit and implement basic social ethics and norms, as well as sustainability goals to ensure profits aren’t made at the expense of the environment. 

Similarly, governments can play a critical role in this process by acting as an overseer and regulator to ensure markets and companies are working for the benefit of wider society and the environment. Here are some strategies they can actively pursue: 

• Stay ahead of developing geopolitical situations and global macroeconomic conditions to ensure they can prepare for sudden disruptions or crises.
• Engage consistently with industry leaders to ensure a good understanding of developments in the market, as well as companies’ demands and needs.  This will be key to creating laws that are responsive but also effective.  
• Commit to and promote net-zero and sustainability targets for nationwide adoption. Governments have immense influence in shaping how companies and economies work, so regulatory agencies may also wish to consider how they can implement rules that are supportive of business and the environment. 
• Promote inclusiveness, openness and competition in the market, and create an environment that dissuades monopolies and encourages innovation. Demand more sustainability from companies so they are not pursuing profits at the expense of society. 

Social capitalism can’t be achieved overnight—rather, it will require multistakeholder participation, from across the public and private sectors. Only with equal participation and inclusive thinking can social capitalism be attained. 

Photo Caption: Corporate employees engage with the local population in Sao Luis, Brazil