Capitalist evolution and stakeholder capitalism

The development of the capitalist system can be divided into phases that reflect economic, social, and political changes over time. The division can vary depending on the perspective and economic theory used. Below, we present phases generally recognized in texts about the history of capitalism, especially the first five.

1) Primitive capitalism

This corresponds to the initial period of transition from feudalism to capitalism. It took place in Western Europe from the late Middle Ages. It was characterized by private ownership of means of production, such as land and workshops, with the technologies of that time, and the emergence of early forms of trade and markets. Wage labor was not yet predominant, and production was predominantly based on feudal agricultural systems.

2) Commercial capitalism

This phase developed in the 16th and 17th centuries with the growth of international trade and the accumulation of capital through commerce. The mercantilist system expanded, where European nations sought to accumulate wealth through the control of trade and colonies. The Commercial Revolution and the formation of large colonial empires are characteristics of this period, which contains the origins of globalization.

3) Industrial capitalism

The 18th century and, especially, the 19th century were marked by the Industrial Revolution, which brought technological innovations such as the steam engine, mass production, and mechanization. Manufactured production was replaced by large-scale factory production. A salaried working class emerged, and capital became concentrated in the hands of industrial entrepreneurs.

4) Financial capitalism

This phase is said to have started in the late 19th century and continues to the present day. It is characterized by the growing importance of the financial sector in the economy. Investment banks, capital markets, and multinational corporations emerged and developed. Financialization of the economy became one of its central features, with financial transactions playing a significant role. This financialization intertwines with the next two phases described.

5) Contemporary capitalism or post-Fordism

From the late 20th century to the present, capitalism has been undergoing significant changes. New information, communication, and automation technologies intensified a process of economic globalization that began with the great explorations. The growth of the service sector, the emergence of a knowledge economy, and more flexible forms of work have become integrated into different capitalist economies. Themes such as innovation, capital mobility, and production flexibility have entered corporate agendas.

6) Stakeholder capitalism

The stakeholder capitalism, a movement that has been ongoing since the late 20th century (the 1990s) until the present, can be described as a response to the crisis of trust in business organizations. Companies traditionally focused on maximizing economic returns have often neglected employees, customers, suppliers, communities, and other stakeholders, as well as disregarded the externalities they create and their impacts on the environment. This one-dimensional focus has resulted in increased social inequality and environmental degradation.

Capitalism 4.0: Another View of the History of Capitalism

Economist Anatole Kaletsky, in the book "Capitalism 4.0 - The Birth of a New Economy in the Aftermath of Crisis" (2010), identifies four major phases of the capitalist system: Capitalism 1.0 - based on broad economic freedom, which lasted from 1776 to 1930; Capitalism 2.0 - based on Keynesianism and a social perspective, lasting from 1930 to 1970; Capitalism 3.0 - emerging from the 1970s, especially during the Reagan-Thatcher era, culminating in financial globalization and the 2009-10 recession; and Capitalism 4.0 - an open vision that combines elements of liberalism and Keynesianism.

Kaletsky's historical perspective on the evolution of capitalism is a distinct approach, going from laissez-faire to the trends envisioned by the author, who believes that capitalism always changes and moves forward, demonstrating great resilience. In this article, we consider the six phases discussed earlier, with a more extensive and detailed time scale, while recognizing the possibility of other relevant viewpoints.

The Interweaving of Three Phases

The six previous phases are not strictly linear, and three of them are interpenetrated - phases 4, 5, and 6. They may also have different stages in different parts of the world. Furthermore, scholars of the history of economic systems may consider various approaches to understanding the evolution of capitalism, as mentioned and emphasized. The starting and ending moments of various phases can also be subject to disagreements, and what appears to be most important to us is the central idea of each phase rather than its exact timing, given the controversy.

Another important consideration is the presence of characteristics of all six previous phases in the economic systems of countries around the world, which are substantially unequal among themselves and, if considered individually, also within their borders. We will not dwell here on these characteristics, but they exist.

Advancing in our reasoning, we understand the following: we are not currently experiencing financial capitalism, post-Fordism, or stakeholder capitalism, but we are navigating these three currents simultaneously, using a maritime metaphor. We are experiencing what we call in this article polyphasic capitalism or complex capitalism, remembering that nothing prevents other relevant viewpoints, such as the Capitalism 4.0 envisioned by Anatole Kaletsky, from emerging and gaining momentum.

Some Premises of Stakeholder Capitalism

After these considerations, we focus on the current that we believe has the greatest potential to change the status quo from within, namely, stakeholder capitalism. This model places ethics, corporate governance, and sustainability at the forefront of companies and other organizations in the economy, meaning that these issues cannot be ignored, starting with large organizations.

Stakeholder capitalism can make a significant difference in modulating for the better an economic system that, on one hand, led to the creation of constitutional states and democratized access to goods and services for millions of human beings but, on the other hand, did not solve and even exacerbated social inequality in various situations, creating serious risks for the environment and endangering vast areas of the planet.

What are the premises of this model? We observe, without exhausting the possibilities:

1) In stakeholder capitalism, companies and other organizations in the economy operate in a broad ecosystem and have various responsibilities to their stakeholders. In the case of companies, this implies considering not only profits and returns on investments but also the social and environmental impacts of their operations.

2) Stakeholder capitalism incorporates ethics, governance, and sustainability. If financial capitalism and post-Fordism are characterized by the specific elements of each of these two waves, stakeholder capitalism considers the classic triple bottom line, encompassing the economic, social, and environmental dimensions of sustainability and postulating sustainable economic development.

3) Stakeholder capitalism requires ethical organizational cultures, as well as business strategies and practices genuinely concerned with these stakeholders, which requires awareness, committed leadership, appropriate performance metrics, and significant cultural change.

4) Genuine concern for the interests of stakeholders tends to build stronger and more loyal relationships with customers, suppliers, employees, and other stakeholders, resulting in greater satisfaction for those involved and increased productivity.

5) By considering a broader range of perspectives, companies in stakeholder capitalism can identify innovation opportunities that might otherwise be overlooked.

6) Companies operating under the logic of stakeholder capitalism are better positioned to face financial and economic crises, as their balanced approach reduces exposure to social and environmental risks.

Some Challenges of Stakeholder Capitalism

What are the main challenges of this model of capitalism? Without being exhaustive, we list the following points that require close attention:

1) Mindset change - the stakeholder view requires the effective internalization of ethical principles in shareholders and organizational leaders, rejecting the idea of mere marketing strategy.

2) Delicate balance - finding the balance between the interests of different stakeholders can be difficult. Prioritizing one group too much at the expense of another leads to conflicts and inefficiency.

3) Short-term pressures - the traditional model of profit maximization often places excessive emphasis on quarterly results, making it difficult to adopt long-term strategies oriented toward the well-being of all stakeholders.

4) Impact measurements - assessing the social and environmental impact of business operations is not straightforward and requires appropriate metrics and procedures, as well as discipline.

All of this requires committed leadership and the pursuit of significant cultural change.

In Conclusion

Stakeholder capitalism adds a more equitable and sustainable logic to business. It has an ethical foundation. It recognizes governance and sustainability. And it acknowledges that companies and other organizations in the economy have a crucial role to play in addressing the social and environmental challenges of our time.

At the same time, we must consider not only the challenges specific to this model of capitalism but also the broader scope of polyphasic or complex capitalism, which also encompasses two more currents: contemporary or post-Fordist capitalism and financial capitalism. We are particularly concerned about financialization and its impacts and risks on nation-states, companies, and families, with a special emphasis on the risk of indebtedness for these agents. This is not only an issue to be addressed by Brazil, it must be recognized.

We conclude by noting that the recently updated Code of Best Corporate Governance Practices of the Brazilian Institute of Corporate Governance (IBGC) has incorporated a principled approach that values stakeholders. And we take this opportunity to remind you that the traditional IBGC Congress this year, in 2023, will focus on Network Governance: Connecting Stakeholders.

Mônica Mansur Brandão

Mônica Brandão lives in Belo Horizonte, in the state of Minas Gerais, Brazil. She has been working as an executive and advisor in various organizations. With a master's degree in Administration, she is an electrical engineer and is currently pursuing a degree in Law. She has been publishing articles in different outlets in her country.


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