For the last 200-plus years, capitalism has essentially been guided by one central tenet: delivering the most value to shareholders as possible.
Capitalism, of course, is not perfect.
So while companies scrambled to increase value for their shareholders, they did all sorts of atrocious things — forcing the government (or unions) to intervene on behalf of the citizenry.
In 1938, for example, the Fair Labor Standards Act became the law of the land, ostensibly outlawing child labor. In 1970, along came the Occupational Safety and Health Act (OSHA), which was designed to improve workplace conditions. The Family and Medical Leave Act became law in 1993, enabling workers to take extended breaks from their jobs for medical and family reasons without having to worry about becoming unemployed. There have also been laws passed to regulate the environment and prevent securities fraud.
The list goes on and on.
Focusing on the Wrong Thing
When companies are guided solely by maximizing shareholder value, management tends to focus on the wrong thing.
This is why you get Enron-style scandals, the collapse of Lehman Brothers, the tech overlords spying on you and other booms and busts that end up wiping out everyone’s savings.
This is also why you get United dragging people off of planes.
There must be a better way forward.
Something Needs to Change
Capitalism, as it’s currently conceived, is far from perfect. Something needs to change — and everybody understands this.
This is why Bernie Sanders and Donald Trump — who actually had very similar messages — were so popular last election cycle. Both were a reaction to what is broken with the traditional model.
Capitalism is great — don’t get me wrong. But the misguidedness of focusing exclusively on maximizing shareholder value is what is broken.
Here’s where Bernie and others at war with capitalism get it wrong: Instead of focusing on the entire philosophy, they should be focusing on the shareholder value part of the equation.
Capitalism 2.0
I believe we’re in the middle of a defining moment. Capitalism is evolving into what I call Capitalism 2.0.
Capitalism 2.0 is straight up capitalism — but with a twist. Instead of focusing solely on shareholder value, companies operating under this model will prioritize the customer experience first and their contributions to society second.
By focusing on these two areas, shareholder value will automatically increase.
This is the philosophy of the Laudato Si’ Challenge accelerator, which I’m happy to be a part of.
We accepted nine startups that not only are going to get rich by focusing on the customer, they will add enormous social value doing so.
It’s truly a win-win-win for everyone involved — and even those who aren’t.
Ultimately, I envision a world where all companies operate this way.
Right now, it’s mostly just the startups built by the younger generation that are focusing on more than mere profits.
But give it 10 years.
Don’t be surprised when you look around and see that every company — even the ones that have been around forever — is operating similarly.
The Rise of Capitalism 2.0 was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.