Friday, April 17, 2020

Reimagining Capitalism

Reimagining Capitalism

I’m Anthony Day 
Welcome to the Sustainable Futures Report for Friday 17th April.

Exclusive Interview with Professor Rebecca Henderson of Harvard University and Business School.

Anthony:       My guest this time is Rebecca Henderson, who is a professor at Harvard University and Harvard Business School. And among other roles, she is a Research Fellow at the National Bureau of Economic Research in Cambridge, Massachusetts. She's author of "Leading Sustainable Change," and "Accelerating Energy Innovation." And her upcoming book, which is due for publication at the end of this month, is "Reimagining Capitalism."

                    Now, Rebecca, I think in the last very short few weeks since the pandemic has taken over the world, a lot of people are saying we really need to reimagine capitalism because it has become absolutely clear that the market cannot deal with events such as these. What's your take on it?

Rebecca:       I completely agree. I think COVID-19 has highlighted why we need to reimagine capitalism. I do believe, however, that it was fairly clear beforehand that we needed to do something. We were spectacularly failing to deal with climate change, and we were also failing to deal with accelerating inequality, particularly in the US and the UK.

                    It was clear that the system -- if we may call it that -- was not working for everyone and was not going to leave our grandchildren and their children with a liveable planet. And what I think COVID has done is really highlight those issues. It feels to me as if the central issue with capitalism and why it needs to be reimagined is that we fell into the trap of thinking the free market could fix almost all our problems. And what COVID-19 shows us, dramatically every day, is that's clearly not the case.

                    For me there are two key examples of that. The first is our total dependence on the health care system and on the courage and bravery of people who get up every morning and go to work and come back to their families and know they're putting both themselves and their children and their partners at risk. That's not something that the market can buy.

                    We cannot function as a society without individuals standing up and doing the right thing. And I think COVID is really reminding us of that, and that it's not just about me and mine, and now, but about us and later and the common good. And that's always been a tension in our society, but COVID really shows it up.

                    The second example that really captures the need to reimagine capitalism for me is the spectacle of the president of the United States telling the individual states that they should bid for vital healthcare equipment, and states bidding against each other, using the market to allocate lifesaving equipment at a moment of national emergency. The total failure of the federal government to step up early enough, or on a serious enough scale to take a coordinative role is mind blowing. But what's amazing is it's been going on for a while. It's not just COVID.

Anthony:       Okay, okay. Well, of course, free market is the philosophy of the American government. It's very much, until recently, anyway, been the philosophy of our Conservative party here in the UK.

                    Well, clearly free markets have been found wanting, as you've just described. But once we get through this and I think it's going to take a long time, and it's going to be a very gradual exit, but once we do get through this, where do you see the governments going? Do you see them taking us back to where we were before? Or is this time for more government intervention on behalf of the people at large and which, incidentally, will reduce hopefully inequality?

Rebecca:       Nobody knows. I think it's possible to paint some very dark scenarios. I'm particularly worried about the increasing concentration of business power. I think a lot of small and midsize firms will have difficulty, both this year and perhaps going forward. And it provides an opening for large firms to get even bigger.

                    I mean, one of the things that should be clear is, I'm a huge fan of the free market. In its place and at the right time it is seriously amazing. I don't think we're going to fix any of the major problems we face without enlisting it. But you're right. My hope coming out of this emergency is that governments will step up to their role as providers of public goods, public health, most obviously, but also a liveable climate, and as let's call them watchdogs or guardians or referees of business. Because without a referee, without a government setting the rules of the road, things like a minimum wage, things like perhaps mandatory sick pay, you're not in the long run going have a functional society.

                    So I really hope governments are going to step up. I think it's likely, I think there's a renewed understanding of what governments can do in these kinds of moments.

Anthony:       Right. How do you think the pressure will come on to governments to make them change towards something which is more inclusive? I mean, for example, do you have a view on Extinction Rebellion? Is that going the right way towards actually getting things changed?

Rebecca:       Can I start with something easier than Extinction Rebellion?

Anthony:       Okay, okay.

Rebecca:       Let me start with inequality and the ground swell in the US. The way I hear it phrased here is -- wait, wait, wait. We've said that some people are essential, the people keeping the lights on, running the food chain, delivering our groceries. And yet we've been paying them really not enough to live on, they have no savings. They have very patchy access to health care and no sick leave. So when they get sick, you know, I can't afford to be sick, I have to keep working, how else am I going to do to keep my family?

                    And I think that's been so highlighted that I think the kind of labor legislation that many people been arguing for in the US for the lost 20 years has a much better chance of passing. I'm very hopeful we'll see a change in administrations and that that administration will come in with a very strong, let's really address inequality, let's make this a society that works for all of us.

                    Now, you asked me about climate change and whether governments will come in strong on climate change. So, I think it's very important that we frame climate change as an issue of about people and communities. I mean, I believe it's an enormous threat to the long term health of all of our societies. And I think it's really important to communicate that, that climate change is a major driver of long term damage to human health, that burning fossil fuels is killing people right now. I'm sure you've seen the statistics, that it seems plausible that the reduction in air pollution from burning less fossil fuels has prevented more deaths than COVID. I mean, it's just amazing that we tolerate people burning these fuels that routinely attack the lungs of women and children and dump mercury into all our blood. I mean, statistically, my blood is full of mercury.

Anthony:       Well, this is the question. Are we going to go back to business as usual in the knowledge that this is the sort of damage that we causing?

Rebecca:       So I'm really hopeful that our renewed awareness of health first, common health first, will help us talk about climate change in a way that really builds political support for it. Now, I'm very sympathetic to Extinction Rebellion. Sometimes I want to go out and chain myself to railings because, like, what are we thinking?

                    The idea that we have the technology and the resources to address climate change and somehow we're busy or, we can't get it together. Now, I'm very aware that I believe at least, the costs of fixing climate change should be born by the people who have the resources to fix it. That, for example, I would advocate replacing a payroll tax with a carbon tax. So instead of giving employers an incentive not to employ people, crazy, let's give people an incentive not to use carbon. And if we have more money left over from the carbon tax, let's send it back in the form of a tax and dividend.

                    So we make burning fossil fuels expensive, which gives business the incentive to stop doing it, which lets them use all their innovation and productivity and sort of really focus on doing that, because now they have an economic reason to do so. And let's send the money back to the people who need it, the people at the bottom of the income distribution.

Anthony:       But you're talking about some really fundamental changes to some very, very large and powerful industries. Now you've spoken about how business, in your book and videos on your website, you've spoken about how business can be the key to this. But people have been making the case for sustainable business for a long time.

                    I'm sure you're familiar with Bob Willard and there are many others. And the thing is while we have people like the CEO of J.P. Morgan, saying we need suddenly to take these things seriously. While we have people like Paul Polman at Unilever, who's doing vast good things, you also have people like Bolsonaro in Brazil who is driving business into the Amazon to plunder whatever it can find. And you have people like the trader in the last couple of weeks who invested $27 million and came out with $2.4 billion. This is business at its naked profit seeking and this is not business which is going to do anything for the common wheel, and it is not going to do anything to help the world avoid climate change.

                    How can we actually change these powerful actors to act on our behalf?

Rebecca:       When I was trying to sell my book, I was with a major publishing house in New York and the editor looked at me and he said -- Rebecca, Business Saves the World, you have got to be kidding. Don't you read the papers?

                    So I'm with you. I mean, I absolutely get, but simply saying, oh, business will step forward and step up, clearly not the case. So let me very briefly summarise why I think business could nonetheless play a super important role.

                    So first we absolutely have to change the rules. Changing the rules is the only way in the long run that we will address these kinds of massive problems. And so it has to be all about, in the end, political, social, cultural change. The question is, how do we get there? It's not a done deal that we'll come out of this emergency with government saying -- okay, I understand, I need to focus on the common good, I need to set the rules for the long term, I need to address these issues. That's not a done deal. I really hope it's the case, but it's not a done deal.

                    So what my book is about, is the idea that having some significant fraction of business making the argument for change might increase the odds that government will act. That's essentially what my book's about. And as you know, because you've been polite enough to read it, I lay out four steps as to how business starting right now in their own organizations can begin to build that momentum for change. Because I think at root, this is easy to say, but I think at route we're talking about a moral shift, as well as a political shift.

                    No business person right now would say, hey, I'm going to employ more child labor because you know what, it's fabulously profitable. Nobody would say that in public. Alas, it still goes on, but everybody knows it's not okay, you wouldn't boast about it at dinner parties. You wouldn't tell your customers. And what we need to do is make sure I think, that climate change becomes just like that, that saying, well, I throw carbon dioxide out the window and of course I lobby against climate legislation because climate legislation would reduce my profits. And people do say that. It should not be okay.

                    And I think what we need to see is this major shift in business. I think you've got these pioneers moving forward, raising awareness among employees and customers and my hope is we could get a virtuous circle going, where it becomes increasingly unacceptable to move into the Amazon and take as much money as you can get.

                    I think Brazil is an example of just what we're talking about, which is before Bolsonaro, the private sector was playing an important role in the preservation of the Amazon and supporting the politics that led to that. When the politics shifted, everything fell apart, as you said.

Anthony:       Right. Do you don't think though, that once we get through this pandemic and all the turmoil which it's brought with it, people are going to say I really haven't got time to look at doing things to save the world, I've just bean driven almost to the wall, I've got to do everything I possibly can to claw my business back, to get back into operation, to re-employ my employees, I've got my mind focused on survival?

Rebecca:       So I sit on the board of two large public companies and I understand, at least a little bit of what it means to be trying to run a business at this moment, and it's super tough. I mean to a first approximation, either you're running absolutely flat out in the midst of a pandemic, trying to keep your people safe, or your revenue has dropped by 50%. I mean, I have a bunch of friends.... I have a friend who built a software company, for 30 years, he worked at building this company. Amazing job, 200 employees, worth approximately fifty-million dollars. His revenue went to zero. Why? Because he was writing software that sold tickets for live events. Zero revenue?

                    So of course as we come out of this pandemic business will be focusing on making sure they can rebuild. And I think that's understandable, and we shouldn't like yell at people who are doing that. It's not helpful. At the same time, I think there are at least three forces that work for us. One is that the knowledge that the world could suddenly change, that disasters are real, that when that happens, you would have done anything to fix it before it happened. I don't think that knowledge will all together go away.

                    So I think there'll be the kind of acknowledgment that things might shift. Maybe, maybe, maybe, who knows? But I think that could happen.

Anthony:       The thing though, just taking up that point. The pandemic has happened almost overnight. The thing about climate change is that we know it's going to happen, but it's happening so gradually it's like the boiled frog syndrome, which I'm sure you're aware of. People think well, it's just not quite bad enough for me to have to do anything about it. If we get a cataclysmic event like a tidal surge, which overwhelms New York or something, then maybe that's the sort of incentive which will make people think just as this pandemic has done. But if climate change gradually gradually, gradually gets worse, is the incentive there?

Rebecca:       So two points. First, I think we're going to see a repetition of things like the California wildfires and the Australian fires and the floods in Jakarta and the storms that hit the Carolinas twice, and the flooding in Houston and the flooding in the Midwest and the failure of the harvests in Africa. Alas, I'm afraid, I think we're going to see more of these kinds of events.

                    But I agree with you, for many people, it will still be later, later, later. But I think the good news there, is that it's increasingly clear that there's an economic case in many businesses to be made for switching to clean energy. I mean, for most businesses, it's only about 3% of costs, and many companies are finding that the declaration of, you know, we're going to do this because it's the right thing to do, we have a long term purpose to contribute to our society, to care about public health and addressing climate change is a big part of that. We're going to switch. It's going to be a marginal increase in costs. But as my research suggests, there is for many firms, the probability of a significant increase in productivity, in innovation, in creativity. So many people are not working at their full capacity. It won't work because you have to go to work.

                    And I think the research is now overwhelming, and I try and summarise some of it in my book, together with some good stories about, no, no, no, that when people believe that what they're doing makes a difference, that they're part of something larger than themselves it's not just happy talk, it really helps and it helps the bottom line.

Anthony:       Changing tack perhaps a little bit. What do you think about the concept of universal basic income as a way of perhaps smoothing the recovery and in fact also reducing inequality in due course?

Rebecca:       So I love the idea of cash transfers to those who have less income. I think there's a huge amount of evidence to suggest that, for example, the fastest way to help a homeless person is to give them cash. And they've been a number of experiments done on this, that, if you're homeless, oh we have this service and that service and this service, and if you're mentally ill, or if you have other issues, absolutely, that's appropriate. But for people who are down on their luck and sleeping rough, what they need is cash. And I think we have too many jobs which don't pay enough.

                    So I'm a huge fan of raising incomes at the bottom. I don't know enough about the policy details, I have colleagues who do, to know in which situation which policy makes the most sense. I see UBI as one potential instrument that has some strengths, has some weaknesses. I certainly think I shouldn't be getting UBI, that makes no sense. So there has to be some correction for people who are doing okay. But in general, I think re-balancing income. I think some of that could be done by straight re-distributive taxation. But because I'm such a fan of like free enterprise, I think it's also super important, to create more jobs and make sure those are really good jobs.

                    So, at least in the US employers have been able to really push their way to the bottom on wages. And some of the big firms, like, say, Walmart are going like, whoa, that was a mistake. If you're paying people so little money that they're dependent on food stamps and Medicaid on and just making their lives work is impossible, that's not good for business. That's no good for us right now. That's certainly not good for business in the long term. 50% of the Children in the US were taking our government subsidised lunches. I mean, half the population in the US is nutritionally at risk. This is a problem for business. It really is.

                    So I think finding ways to raise wages and to create more good jobs might be just as important as sending people checks, and in many cases might be more effective. Because, a good job is a source of immense dignity and pleasure and meaning. Working two jobs, riding the lousy public transportation for three or four hours to get to them, having to leave your children with strangers for far too long, not being able to feed them properly, that's not good. I mean, we have to address that problem. But I think you know, to be a moment the pointy headed academic, both supply and demand.

Anthony:       All right. There is an elephant in the room, though, isn't there, or, some would say, called Artificial Intelligence, which will dehumanise labor. Now if the values, if the profits from artificial intelligence, go to the owners of capital then a lot of people are going to be left on the sidelines with nothing. How do you think we should approach that?

Rebecca:       Oh, you know, sometimes I miss the times when my career was just -- how do I make my business more innovative? Because I sort of knew the answer to that.

                    So AI is a huge issue. And I think it's important when we talk about it to remember that used well, it could really increase the happiness and living standards of the entire human race. As you said, the question is, who gets to decide how it's deployed and who gets to reap the returns from owning the robots?

                    So I think if I were running things I would really explore diffusing the ownership of capital. This is a big topic. And I think there are a number of problems with just leaping into it with both hands. Firstly, I am not a big fan of state ownership of the means of production. I've read too much about the history of China before they turned capitalist and Russia. I'm too much a fan of capitalism.

Anthony:       Do you see a role though for the state in things like utilities, like transport, like energy and so on?

Rebecca:       I do. I do. I do see a role for the state in natural monopolies and in utilities. But I also see an immense role for the state in antitrust policy, in making sure there's not too much money in politics, so business doesn't control politics. But sort of if my vision is a strong private sector, but one where ownership of capital is widely diffused. Now partly capital is defused, it's in pension plans and places like that, and the people running the pension plans have been running the plans for short term return, short term return, short term return, since we can talk about. So one thing is the people running the money need to think about issues like AI and the long term and we could talk about ESG and the movement to think about externalities as something investors should be thinking about.

                    But the other route we could go down is to make sure that firms have more employee ownership, and I think that's potentially very interesting. It can be done badly. It can be done well, but done well, I think it could have multiple good effects. I have a colleague called Richard Freeman, who has a book called "The Citizens Share," which is all about employees owning shares in their own company. And I talk in the book about a number of firms where the employees basically own the company and have decision rights. And it's not paradise, there are all kinds of issues, but done well I think it could make a big difference.

                    I also think we should have very thoughtful government policy about how we deploy AI, about how we think about transitioning workers who are affected. We should have massive R&D support for how do we make sure that AI is augmenting human labor? That it's a compliment to human labor, not a substitute. And that's not a pipe dream. I have a great friend called Susan Helper at Case Western Reserve who is working on -- so how do we think about AI in a way that really improves the productivity of the humans we already have, rather than replaces them? And that feels to me the kind of avenue we need to go in.

                    But to the point you opened with, it's not about letting the free market rip. The free market's and unbelievable source of productivity and growth and entrepreneurship, but it needs to be in partnership with the government and in partnership with a voice for labor, and in partnership with civil society. Because AI is absolutely something we need to deal with. Otherwise, bad things are going to happen.

Anthony:       Rebecca, you've given us a vast range of really interesting ideas. I'm going to close by asking you, what should we do next? What can we as an individual do next? What should business do next? What could we do to perhaps influence business to do it?

Rebecca:       So I think it's super important that we individually start to act. I think the most important thing we can do is vote and get politically active. But I think it's also really important to use our roles as consumers and as employees, and perhaps as managers or owners, to begin to move our society in this direction. One of the things the pandemic has shown us, which I think is so striking, is how much humans care about the common good. If you ask people.... And there was a wonderful survey done, actually here in the UK just last year, do you think of yourself as more oriented to the common good or more selfish?

                    It turns out that roughly 71% of people say -- I think I'm more oriented to the common good. So I think there's something in humans that wants to focus on the long term. But at the same time, 77% of people said, well everyone else is not like me. Everyone else is selfish.

                    So I think stepping up as a consumer and saying, I will only buy from firms whose values I share. And as an employee talking to CEOs, the single biggest driver of change over the last couple of years has been their employees. CEOs have said, you know, I didn't care so much about climate change, but my employees are all over it, and so I looked into it and it turned out that I could do all kinds of things. So we tend to think CEOs run firms, I actually think the people in the firm actually ultimately have a huge amount of control.

                    So where you work, check things out, pick a project that you think would make a difference. It's these small kinds of actions that then get scaled up across the organization that really make a big difference. And I don't want to forget what we as individuals should do, because we know from social psychology that if the person across the street from me is flying less because they think it's the right thing to do, I'm much likely to fly less.

                    And one of the things that needs to happen is we all need to support each other in learning to behave in new ways for the sake of our children and our children's children. I think if we can get that ball rolling, it will be very powerful.

Anthony:       Rebecca, thank you very much. Now, as I said, to start with your book is called "Reimagining Capitalism." And I right, it's published at the end of this month, April?

Rebecca:       It is. April 28th.

Anthony:       Okay, it's published in the US. Is it published in the UK as well?

Rebecca:       Absolutely. Penguin Random House is bringing it out April 28th. It will be only an ebook and an audible edition on the 28th in the UK. The paper edition will be out in September.

Anthony:       Well, Rebecca, I'm most grateful to you for taking the time.

Rebecca:       Anthony, thank you very much. And thank you for asking me questions about inequality as well. Because I know you're mostly a climate person. I tend to think of them is intimately linked, that essentially we've lost sight of public goods and that we won't fix the climate change problem unless and until we also address the inequality problem. So I really like being able to talk about them both at the same time. So thanks very much.

Anthony:       It's been great to talk to you. Thank you.

That’s almost it for this week, but before I go I’m delighted to tell you that we have another patron, Dave Borlace. You may remember that last week I drew your attention to an excellent account of Global Dimming that he’d published. His latest video, by the way, is on climate change and the coronavirus. He too is on Patreon, so I had a look at his site and decided to subscribe. He was good enough to subscribe to the Sustainable Futures Report in return. Welcome Dave.
If you want to be a patron, go to, or for Dave’s Patreon account search for
And that is it for this week.
I’m Anthony Day.
That was the Sustainable Futures Report.
There will be another next week.

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