Manhattan Institute

Capitalism to the Rescue

The present crisis is a bracing reminder of the social value of free enterprise.

Among the few silver linings to the otherwise grim Covid-19 pandemic is the way in which strained circumstances remind you of what really matters. When switching from business-as-usual to shelter-in-place, you soon realize what you can and can’t live without.

What’s true in our daily lives is true in politics, too. Culture-war flashpoints now look trivial. No one is complaining that the U.S. government’s coronavirus task force is “too pale, male, and stale.” Well, some are. But these arguments have been given reassuringly short shrift. The same clarifying effect can be felt in economic debates. Chin-scratching about capitalism’s future, debates regarding the problems with shareholder primacy, and the merits of “stakeholder” capitalism feel beside the point when the global economy is in an induced coma.

That hasn’t stopped some, however, from trying to crowbar the stakeholder agenda into the present moment. Writing in the Financial Times last month, Klaus Schwab, Davos ringmaster and reliable source of received wisdom among the jet set, described Covid-19 as a “litmus test for stakeholder capitalism.” The idea that firms have a broader social purpose beyond the pursuit of shareholder interests was in vogue in boardrooms before the coronavirus arrived. Last year, the Business Roundtable, a lobby group for corporate America then led by J.P. Morgan boss Jamie Dimon, published a “statement on the purpose of a corporation.” Signed by nearly 200 CEOs, it was a pledge to serve all corporate “stakeholders.”

The coronavirus has superficially offered plenty of evidence of firms walking the walk on this approach. French luxury goods giant LVMH, for example, won praise when it switched perfume factories to the production of hand sanitizer. Uber has offered free meals and discounted rides to health-care workers. Some CEOs have even forgone salaries in solidarity with their workers.

Though such acts of corporate kindness are welcome, they remain little more than a sideshow. The present crisis is a reminder of the social value not of a certain type of “good” capitalism, but of capitalism—full stop. As economies have powered down in an effort to slow the spread of Covid-19, no one is worrying much about “corporate social responsibility.” Instead, the focus is on jobs and profits. Can firms remain viable? Can they satisfy their customers and continue to employ their workers? Those are the questions that matter.

What has counted during the crisis is the ability of certain businesses to carry out their core functions at a very high level: the efficiency with which Amazon can deliver essential goods to our front doors; the ability of communications firms to give us socially distant social lives; and, above all else, the ingenuity of pharmaceutical companies searching for treatments, better testing, and a vaccine. In all these cases, the pursuit of shareholders’ best interests looks much less parasitic and much more aligned with society’s wider interests than it might have appeared before the crisis.

Not everyone sees it that way. Many on the left and on the right view the crisis as a chance to build a different kind of capitalism. They aren’t interested in something as trifling as the kind of change in boardroom culture that Schwab, Dimon, and others advocate. Instead of hoping that CEOs find their softer side, they want to see the state force change—and the virus’s economic devastation offers a clear opening. The U.S. bailout of the airline industry, for example, imposes restrictions on buybacks and dividends. The case against mandatory paid sick leave in the U.S. will be harder to make after the coronavirus. The broader health care debate will surely evolve.

And yet, if American capitalism’s edges are softened after the pandemic, that would be a repudiation, not a validation, of the stakeholder crowd’s arguments. If you want firms to do something differently, pass a law. And if you can’t do that, then shame bad actors into doing the right thing. Mental notes are being made of which firms are rising to the Covid-19 challenge and which aren’t. For the CEO guarding the interests of shareholders, making sure that your company is on the right side of the moral ledger is one of the easier decisions right now.

Stakeholder capitalism was a flimsy, unhelpful concept when times were good: an indulgence of the corporate ruling class, when it had time to worry about something other than the bottom line. The present crisis has not only revealed what a needless luxury that idea always was but also served as a bracing reminder of the social value of free enterprise.

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