Capitalism, in its most basic form, is an economic system in which a country’s trade and industry, rather than being controlled by the state, are managed by private owners for profit. The four factors of capitalism are entrepreneurship, capital goods, natural resources and labor. In addition to these factors, the state may influence the production and availability as well as the cost and distribution of resources produced. Furthermore, governmental regulations, tariffs, taxes, treaties, and labor laws can significantly impact the nature and function of capitalism. Capitalism must therefore co-exist with government.
Entrepreneurship, a key aspect of capitalism, is defined as the capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit.1 The entrepreneur combines the other aspects of capitalism (natural resources, capital, and labor) in order to achieve the profit goal. Throughout history, there has been a higher importance placed on those tasked with the management of resources, capital, and labor. For instance, the economic disparity between kings and slaves can be traced as far back as ancient Assyria, Babylon, Egypt, and Rome. Such inequality exists even in the 21st century. Today, the brazen slavery in parts of Africa, and the “economic slavery” of migrant workers throughout the world, is readily observable.
Responsible Capitalism, as defined by the author, addresses the need to recognize and understand the societal responsibility of each and every executive. The disparity between the pay of executives and laborers, for example, is often out of balance. Bloomberg asserts that the ratio of CEO-to-worker pay has increased 1,000 percent since 1950. In contrast to the 20-to-1 ratio in 1950, recent numbers of 200-to-1 seem extreme.2 “U.S. income inequality, on the rise for decades, is now the highest since 1928” is the title of a Pew Research Center report published in 2013.3 The seemingly exponential increase in wealth disparity across the U.S. is alarming.
In order to stay in business, it is management’s fiduciary goal to maximize profits. Management strives to employ all methods legally available in order to maximize growth opportunities. In a mature economy, however, economic growth traditionally slows as supply and demand reach equilibrium. Since a great deal of productivity is currently driven by technological advances, it seems like the right time to redefine management responsibilities. In addition to maximizing profits, executives must also consider the welfare of their workers. After all, a happy employee is a productive employee, helping management fulfill their goal of profit maximization.
Many examples of this expanded definition have already been put into effect by executives. For example, many large corporations have announced that they are now paying or raising entry-level positions above minimum wage levels, and offering health insurance and retirement plans. Profit-sharing is another way to reward employees. Furthermore, tuition assistance, career-advancement training, and improving workplace safety standards mean that companies are paying attention to the welfare of their employees.
When moral responsibility meets capitalism, better things happen. Rex Tillerson, current Secretary of State, left his lucrative role at ExxonMobil in order to serve his country. Medical research and breakthroughs have been funded by private foundations such as the Gates Foundation and the Rockefeller Foundation as philanthropic entrepreneurs are motivated to tackle some of the world’s most complex problems.
Capitalism is a system which creates great wealth. Responsible capitalism addresses the need for entrepreneurs and management to contribute to the wealth creation of our society through the greater sharing of profits with laborers. It is the challenge for 21st century business and political leaders to rethink the process of the creation and distribution of wealth in our society.
A genius and visionary, President Theodore Roosevelt noted, “The man who wrongly holds that every human right is secondary to his profit must now give way to the advocate of human welfare, who rightly maintains that every man holds his property subject to the general right of the community to regulate its use to whatever degree the public welfare may require it.” There is no better time than now to put Roosevelt’s vision into action!