Stakeholder Socialism Ch.8: The conceptual hearth of the matter

In a series of blogpost, I’m reflecting on the book Stakeholder Capitalism, written by Klaus Schwab with Peter Vanham.

The core concepts of the book are described in chapter 8. These concepts must be sound to offer a solid base for the recommendations that will be given later in the book. The concepts are based on the diagnosis (problem descriptions, history and expected developments) given in earlier chapters.

The book is titled “Stakeholder Capitalism”, but reading these concepts and other parts of the book gives the impression that “Stakeholder Socialism” would not be much off either. Capitalism is based on the idea that money expresses value and can be exchanged, stored, given and invested. Capital (money) is the ultimate metric of capitalism. The authors, however, propose metrics based on many dimensions that cannot accurately be expressed by money. Instead of the GDP, they propose a compound metric.

The book mentions different compound metrics and their benefits. The main disadvantage, however, is not mentioned: each such metric suffers from ideological, cultural and other biases. There well be a “war on metrics” while the GDP, despite its many (!!) shortcomings, is valid across cultures. The compound metrics proposed by the WEF include dimensions taken from climate ideology, which might be a problem, as I’ve shown earlier.

Many of the proposed metrics include dimensions that could be classified as societal or communal factors. Scoring on such metrics would move a society towards a design close to social-democratic countries. In fact, such countries in North-West Europe are given as positive examples in the book. I do agree that such countries are great to live in – I live in Holland, for example – but calling it “capitalism” might be a little bit of a misnomer. It sits somewhere between capitalism and socialism.

Let’s see which kinds of capitalism the authors recognize. They describe tree models of capitalism in this chapter, which I have summarized in the table below.

Heroes of shareholder capitalism are Milton Friedman and the Chicago school. When becoming global, it erodes the influence of national governments and other stakeholders such as unions. Such globalizing companies are loosening their ties with local communities and focusing on short-term profits. I think this critique is valid and indeed a cause of many ills.

State capitalism might look great but is susceptible to corruption and favoritism. The state becomes too strong; law can become arbitrary.

The authors propose a third system: stakeholder capitalism, in which the broader objective is “the health and wealth of societies overall, as well as that of the planet and that of future generations”. This model is based on cooperation such as was the case in earlier days in North-West Europe, where companies had a symbiotic relation with local suppliers, clients, employees and traditions. But in a world globalizing due to technological developments, such a local system can no longer survive. Therefore, the authors propose a model “global in nature”, with two primary or natural stakeholders: planet and people.

The planet stakeholder concerns the climate (again), and I suspect this theme to be the “enabler” or pillar on which much of the global stakeholder model rests. People are becoming global citizens. This is, according to the authors, also due to the Internet, changing their reference point from a local one to a global one. Everyone is comparing themselves with the most advanced areas of the word. I believe the authors are right on this connectivity aspect, but neglect the formation of “bubbles” in social networks and the creation of “firewalls” between countries. I would advise to read Huntington on the formation of several big civilizational clusters in the world.

Nowhere do I read on the dangers of such a global system. Once the top of the pyramid is corrupted, resting on the four corners of the world, where can you hide? Such a system has a single point of failure. However, I have to credit the authors for including the principle of subsidiarity. This principle states that decisions and authority should be as much local as possible. They paint the European Unions as a positive example. I’m afraid this example is a bit lacking. The EU is criticized for concentrating too much power centrally, for a deficit of democracy, and failed to keep the UK. Brexit shows that you can only so much try to bring everything under one umbrella. Denmark, often used as a positive showcase in the book, keeps its borders quite closed for immigration, has strong cultural integration processes, and doesn’t participate in the Euro currency. Subsidiarity is a great principle, but hard to implement correctly because of this tendency for centralization. The authors seems to recognize this and call for solid foundations at the base:

It is thus needed to first strengthen the trust in government from the ground up and only then to strengthen the mandate of decision-makers from top to bottom. […] [R]ather than focusing on the pinnacle of the global-governance pyramid, we should be tending to the fractures in its base.

This chapter on concepts lacks, in my opinion, a self-critique; the global concept is marketed as something with unifies all interests and stakes, both local and global. This resembles somewhat of the “golden age” archetype described by C.G. Jung, also called “Utopia” or paradise lost. I’m exaggerating a bit, but you get the picture. It does not describe the often seen tendency to centralization of power. After a while, bureaucracies serve themselves. A global bureaucracy could be nightmarish. The authors propose global taxation to keep globally operating companies in check and to ensure that such companies contribute back to societies. That is, in theory, a great idea, and does justice to the local services used by such companies such as education, transport and so on. But in order to enforce such a global taxation, you need some kind of global power.

So while we should welcome the tending to the base, we should be wary of giving too much power to the top of the pyramid. There should be strong opt-out possibilities, keeping the top in check, and making sure some countries can “go their own way” when the top goes Sith.

Currently some nation-states are already fighting off global companies. Big Tech developed itself very fast, but some governments are now catching up in the game for power. E.g. Turkey has forced Twitter to play by its rules.

This will not be enough to really contain global companies, we have to agree with the authors on the real problems in this globalizing world. The answer to that, however, is not straightforward. The authors themselves list and explain tree factors to ensure that their stakeholder concept can work:

• All stakeholders must have a seat at the table (decision-making).
• The needs to be good measurement systems (metrics) for environmental, social, and governmental (ESG) objectives.
• Good checks and balances must exist between the interests of individual stakeholders and society at large (give and take), both locally and globally.

I already mentioned the cultural and ideological complexity of multidimensional metrics. This ideological factors can be recognized in this chapter. The authors virtue-signal their own ideology by using “her” instead of “his” (“every stakeholder gets a seat at each table that concerns her”), by referring to Black Life Matters (BLM) (whose organizers are trained Marxists), and by the recurrent use of the words “diverse” and “inclusive”. It is easy to see how such ideological and emotional factors will influence the metrics proposed by the WEF. Solutions to “representation issues”, in itself a valid problem, often become problematic because of this. I don’t think the authors have an “agenda”; they also mention other groups such as the Yellow Vests in France. Even when trying to be politically neutral, you end up by giving more attention to some groups. This is a hard problem.

Where I do agree with the authors is on the importance of institutions, their partial decline, and the need to (re)strengthen them. Again, I’m afraid for single points of failure, so maybe institutions should also be split up and being forced to compete with each other (think trias politica or no monopolies). Furthermore the authors give an example of democratic experiments that went very well, by selecting random citizens instead of elected representatives; this indeed is the original idea of democracy and worth playing with. The authors also propose a practical solution to the chatter and possible chaos emerging when a lot of stakeholders debate with each other. The consultative process – a stage where all stakeholders can voice their interests and opinions – must precede, and be kept separate, from the decision-making stage.

In conclusion, I thinks we can like many of the concepts, but having to deal with a complexity and diversity of stakeholders, systems and metrics is both its strength and its weakness. Without something like “strange attractors” as described in chaos theory, such a complex system might become too complex and give rise to the problems that we saw earlier with over-engineered systems. In my view, the concept lacks a (self-)destructive principle, a cleanup agent or something like that. On the other hand, ignoring all problems that gave rise to this stakeholder concept isn’t going to avoid damage either.

If you want to follow my adventure with this book, just follow this weblog or check my twitterfeed or Facebook timeline with the hashtag #wefbookclub or the mention @WEFBookClub for the next few weeks. You might also order the book, and maybe even join the WEF Book Club on Facebook, so you can make this a participatory experience for yourself.

Also check the index page of my review series that I will update as I add blogposts on this subject.

Deze blogpost werd in december 2022 overgezet van WordPress naar een methode gebaseerd op Markdown; het is mogelijk dat hierbij fouten of wijzigingen zijn ontstaan t.o.v. de originele blogpost.