Good afternoon.
OK, great.
Thank you.
Thank you.
How's the day been?
Fantastic.
OK.
We have a super
exciting session for you
to end today's formal events.
And then we'll have a
reception in the Williams
Room in Spangler.
I can't tell you
what a pleasure it
is to introduce Rebecca
Henderson and Michael Sandel
for our last session.
So this session is about
the future of capitalism.
And we have, probably, the two
colleagues at the University
who've poured, worked,
researched more
about this question than
anyone else I know of.
Let me just introduce
them briefly.
Rebecca Henderson is John
and Natty McArthur university
professor at Harvard,
a distinction given
to very few faculty
across the university.
A dear Colleague of mine at HBS.
She's an expert on technology
and how organizations
respond to large shifts such
as energy, the environment,
and so on.
Rebecca created a course
on reimagining capitalism
several years ago at Harvard
Business School when frankly,
almost no one else
on the campus saw
this debate coming nor
its full implications.
Her teaching has
evolved over the years
from modular
architectures to purpose.
Just a brief anecdote.
The first seminar for a job
talk given by a PhD candidate
that I ever saw was
Rebecca's job talk at MIT.
I was an undergraduate at
the time, just to clarify.
She made it look so easy that
I thought, I can do this.
Boy, was I wrong.
The last thing I want to
add is Rebecca's course
in reimagining capitalism is
going to be created for HBX as
well over the next year.
Delighted to have you here.
Michael Sandel.
Michael Sandel is a political
philosophy professor
at Harvard.
His course of justice was
the first Harvard course
to be made freely
available online and on TV.
He has been described, quote,
"as a global philosopher
with the profile
of a rock star."
He's developed such an enormous
following around the world
that someone said he conducts
the best Socratic dialogues
since Socrates.
We're going to have
him here in a fall is
slightly smaller than
a stadium and the place
within Harvard University,
where Socratic teaching is
in the air.
I also know a bit or two about
Michael's teaching prowess.
When I first arrived
on this campus
as an undergraduate
a few years ago,
my first course was
with Michael Sandel.
You can imagine someone from
India getting off a plane,
being thrust into
this course where
he's asking these questions,
which just burn your mind.
I thought, if this is
Harvard, I'm going to fail.
As it turned out, there
was no one else like him.
His latest book is titled,
What Money Can't Buy, The Moral
Limits of Markets.
And by the way, just as
an anecdote, one of you
was telling me today that the
first online course you ever
took was Justice and it
lit a fire under you.
And that's what eventually
got to you to HBX.
So small world.
Delighted to welcome
you, Michael.
Here's how we're going
to run the session.
In fact, they're going to engage
with you partly to begin with.
And then have a dialogue
between themselves
for about 30 to 40 minutes.
And then we'll have
questions and answers.
If you don't mind going to
your phones and just typing
in the website, slido.com--
S-L-I-D-O.
You will and you'll be able
to input questions from there.
S-L-I-D-O.com.
The first thing you'll
see is an event number.
We'll give you the event number
in about half an hour, OK?
But just make sure you're
logged into the page.
And so when we're
ready for Q and A,
we'll turn it over to you.
I don't know what Rebecca
and Michael are going to say.
Honestly, I think
they don't know what
they're going to say either.
With that, I turn it over.
Thank you very much.
It's an honor and a
pleasure to be here.
Have you guys had a good day?
Yeah.
Well, thank you for spending
your final hour with us.
We're going to talk a little bit
about the future of capitalism.
And I have the
mission of kicking off
this tiny narrow topic.
So let me see if I can get
the conversation going.
I think the first thing
to raise is, why you think
about the future of capitalism.
The easy answer, perhaps,
is that capitalism
is an unparalleled source
of prosperity and innovation
and we're going to
need it more than ever
in the next few years.
Before the century is
up, we'll have 3 billion
more people on the planet.
They will all need jobs.
They will all need
things to eat.
Capitalism is our best
way of making sure
that we build an economy that
can sustain all the people that
will be here.
We also need capitalism because
it's an incredible driver
of innovation and change.
And the problems we face--
the environmental
problems, building cities
for 3 billion people--
we're going to need
a lot of innovation.
So that's a reason
in itself to think
about the future of capitalism.
I think however, there's an
additional important reason,
at least one.
In fact, I'm going
to suggest there
are three additional reasons to
think about the future of what
we think of as capitalism.
And in my mind, they
all stem from the fact
that capitalism is a fabulous
tool but a bad master.
That markets work best when they
are genuinely free and fair.
When they are embedded
in institutions
that make sure that
externalities are properly
priced.
Tiny bit of academic speak.
What do I mean?
I mean we face three big
problems that markets
are really bad at solving.
The first is the massive
environmental degradation
we're looking at.
Most obviously, global warming.
But we're also looking
at the exhaustion of many
of the world's aquifers
and it running out of water
within the next few years.
We're looking at
topsoil degradation.
We're looking at an ocean
that is being poisoned.
We're looking at
widespread deforestation.
Why is environmental
damage such a problem?
Well partly because if
you're a firm and nobody
tells you otherwise.
Why not just throw your
carbon dioxide out the window?
Why not just cut
down all the trees?
Why not just catch all the fish?
If a resource doesn't
have a price on it,
you're going to use as
much of it as you can.
So that's our first problem.
Our second problem is steadily
increasing inequality.
Inequality is interesting.
You know, if you're a
capitalist, if you run a firm,
differences in outcome
are a feature, not a bug.
One of the reasons we
celebrate capitalism
is because people who are
really good, they get ahead,
they make a ton of money.
That's really good.
But it has a number
of side effects.
Side effect number
one is that then they
can give their kids much better
education, much better life
chances than someone who's
not been so fortunate
in their business career.
But number two, if you don't
have adequate investment
in education and in health,
you have children growing up
who do not really have a
shot at ever participating,
no matter who their parents are.
And we're seeing
a world in which
more and more of the returns
to this very successful system
are going to fewer
and fewer people.
Why is that a problem?
I believe it's
inherently unjust.
But it also leads to
significant social instability.
Third problem-- but
wait, it gets worse.
And I think you're going to make
it still worse, right Michael?
Third problem--
way it gets worse--
is markets work great when
someone is setting good rules.
When firms can't
collude with each other
to keep out new entrants.
When firms can't fix regulations
to advantage themselves.
Well, the theory of
capitalism has in it, per se,
no theory of who
fixes the rules.
Somewhere, there's supposed
to be a wise and beneficence
and a well-run government.
Those are nice but
they're not everywhere.
So we have a market that
is still going strong,
that's generating
a lot of wealth,
but in the meantime
strip mining the planet,
causing huge amounts
of inequality,
and writing the
rules to suit itself.
So what can be done?
So my course, Reimagining
Capitalism, is 28 sessions.
We have nearly 300 second
year MBA students in it now.
Nearly a half of a
second year class--
people really concerned
about these issues.
The course is about how
the private sector--
how people like you--
can make a difference
against these problems.
As I said, it's 28 one
and a half hour sessions
and I'm going to summarize
it in five minutes.
So this will be a
tiny bit abbreviated.
Are you ready?
Here we go.
How does business
save the world.
Step one.
Something called shared value.
You may have run
into this concept.
Michael Porter gave it its
name, but it's an old idea.
The idea is you can make money
while simultaneously really
addressing social problems.
So an obvious example would
be Unilever's team business.
Unilever grows a third of
the branded tea in the world.
They came to be concerned that
environmental damage was making
tea less and less sustainable.
And they were worried that
the fact that their tea
workers were paid
almost nothing was going
to lead to long term trouble.
So they adopted sustainable tea.
100%-- they said--
100% of our is going
to be sustainable.
And what did they find.
They found the growing tea
that way it was cheaper.
That consumers were more
interested in buying tea
if it was grown the right way,
their market share went up.
We are seeing hundreds
and thousands of firms
discover things like this.
Walmart has doubled
the efficiency
of its transportation fleet in
just 10 years, saving a billion
a year as they did it.
We are seeing firms
invest in local training,
in raising wages, in discovering
that working with people who
are properly paid and properly
trained is better for the firm
and better for their employees.
So that's step one.
Shared values.
Very exciting.
Lots of it going on.
Clearly not enough to solve
the big problems we face.
But maybe, just
maybe, catalytic.
Because you know what happens
when you work on shared value?
You discover that, whoa, there's
a bunch of problems I can't
solve as a firm on my own.
I can say I'm going to lower
my carbon emissions and use
renewables but that
raises my price.
And if all my competitors
are going right ahead
and burning fossil fuels, it
puts me at a disadvantage.
Nike discovered that
when they committed
to driving child labor
out of their supply chain
because they were
afraid of brand damage,
they thought they
could do it alone.
But they couldn't.
Supply chains for
textiles are far too
complicated to have any
one firm turn it around.
So firms are increasingly
turning to industry consortia.
To cooperation
within the industry,
within the region so
that everyone says,
tell you what, let's
not use child labor.
Let's not use fossil fuels.
Let's not dump our
waste in the river.
That way, it's not to anyone's
disadvantage to behave well
and we can compete on
what we really care about.
That will preserve our
brands give us long term
traction with consumers.
Make sure that we're
not subject to long term
degradation of the resources
on which we all rely.
So that step two.
Industry cooperation.
Bad news about
industry cooperation
is it's tricky to maintain.
Get a bunch of CEOs in a
room and tell them, well, OK,
next year, nobody
pays any bribes, OK?
We're going to solve corruption.
Nobody pays any bribes.
Nice idea, nice agreement.
Everybody leaves the room, who
knows what's going to happen.
So of course, you invest
in auditing and metrics
and tracking.
But it's tricky.
So after a while,
you discover that it
would be nice to engage with
competent local authorities.
With well written regulation.
With government that
knows what it's doing.
That can create the
playing field that
enables you to do
what you want to do,
which is build a great
and thriving business.
You want a local
government that has
a strong educational system.
So perhaps you do what
they did in Minnesota.
All the big CEOs in Minnesota
got together and said,
we have a problem with
early childhood learning.
Far too big a problem
for just the CEOs to fix.
But they spent the money to
do some of the early studies
to say how it could be done.
They ran the early experiments
about how the whole system
could be improved.
And they improved
the whole system.
This can sound a
little wild and crazy,
a little pie in the sky--
business can change the world.
But it's happened before.
We have seen at times
of major crisis,
a significant fraction
of the business elite
say, you know,
this isn't working,
we need to do it differently.
We need a world in which
business and government are
in partnership in service
of the greater good
and yes, the free market.
The really free and
fair market, which can
only exist when you have
strong institutions.
We saw that happen in-- can
anyone tell I'm British--
England in the 17th century
and the Glorious Revolution,
when a very important part
of the ruling class said,
you know, this old way--
keep the peasants on the land
with the turnips and the King
has all the power--
that's not working for us.
Let's change it.
We saw it in France.
We saw it in Chile.
We're even seeing it
happen in parts of Brazil.
This is when business
gets together.
And in the US--
for those of you in the US--
it happened here.
It happened right
after World War II.
After World War II,
business was afraid that
would be a massive depression
so they worked closely
with the administration
on jobs training,
on programs, on the
core infrastructure
that we take for granted as
a root source of prosperity
in this country today.
Business can save the world.
I've run out of time so I'm
going to say one more thing
and then I'm going to
hand over to you Michael.
And this is where
I'm going right on
to Michael's territory, so
watch my body language like,
get a little bit nervous here.
For 20 years, I was the Eastman
Kodak Professor of Management
at MIT.
So I know how hard change is.
That's what I did--
I studied firms like Kodak.
This program I've just laid
out to you-- firms do it alone,
then they cooperate,
then they work
on building great government--
sounds great, right?
Any of you going to do
it on Monday morning?
It's going to be tricky.
It's going to involve hard work.
It's going to involve
a lot of innovation.
It's going to involve
a lot of risk taking.
I think there's no
way it will happen
unless an important
group of business leaders
decides to act from purpose.
Decides to build
great firms that
not only make a lot
of money but are also
trying to make a
difference in the world.
I think those firms can
be the tip of the spear.
Can be the leaders that show
us that these new business
models and new ways of
working can make a difference.
We have a lot of evidence now
that such firms can make money.
That they are often more
productive and more creative
than their conventional rivals.
So I think we need to
rediscover as businesspeople,
a sense of great mission.
Not permission to not
think about strategy.
Not permission not to think
about the business model.
I teach 28 sessions,
every session
I say, where's the
money, where's the money.
What you can do well and be
focused on the really important
questions.
And in doing that, you can
begin to shift the world.
Great.
Well done.
My first response
to Rebecca is really
in the form of a question.
How can I sign up for
your online course?
I very much like Rebecca's
emphasis on mission or purpose
driven business.
And so we may find
ourselves-- this is the risk--
with not quite enough
to disagree about.
Oh, I have some
ideas, don't worry.
However, it seems to me
that the mission driven,
purpose driven kind of business
that Rebecca eloquently calls
for-- and rightly--
faces a number of obstacles
that are powerful obstacles
and that need a broad
social and political project
to address before even the most
enlightened and conscientious
business executives
can come together
to pursue the noble
vision of business
that Rebecca puts before us.
One of the greatest
obstacles has to do,
I think, with the change in
the character of capitalism
over the last 30 or 40 years.
And that has to do with the
financialization of capitalism.
There's a growing divide
between business and investment
in productive capacity
on the one hand.
And what finance does--
the purpose of finance
is very simple--
it's direct capital to
socially useful activities.
Investing in factories,
plants, technology, research
development, homes,
education, hospitals, roads.
But in recent
decades, capitalism
has changed its character in a
way that increasingly separates
financial activity from these
underlying social purposes
to do with the real economy.
As recently as 1980,
financial activity
accounted for about 10%
of corporate profits.
By 2005, it accounted
for about 30%.
Now that wouldn't
be a troubling thing
if all that financial activity
were fueling investment--
socially productive activities.
Helping business do
the kinds of things
that Rebecca has highlighted.
But only a tiny portion of
finance is now doing that.
Only about 15% of finance
actually is fueling investment.
And the rest of
it consists mainly
of casino-like speculation
on existing assets
like real estate and
land, for example.
And to some extent,
on consumption.
So where the traditional
Economics 101 account
says that finance is the
lubricant of economic activity
in a business, when
finance surpasses
a certain role in the
economy, when it explodes,
as it has done in the last
three to four decades,
it actually becomes a
drag on economic growth
and on innovation and
on entrepreneurship
rather than fuel for it.
Now this didn't just happen.
It happened as the result of
deliberate policies, which
goes to Rebecca's point
about the rules that govern
the way capitalism works.
And the dazzle and the allure
of ever expanded financial
activity and the speculative--
the moral economy
of speculation, as
we might call it--
has bedazzled politicians
of both parties.
It's been a bipartisan
infatuation that
has contributed not
only to instability
and the financial
crisis of 2008.
It's not only been
a drag on growth.
But it's also led
to a kind of capture
by finance of both parties and
of regulatory agencies that
have made it very
difficult to implement
the kinds of rules
and regulations
that Rebecca rightly emphasizes.
The kinds of rules
and regulations that
embed capitalism in a larger
social and political purpose.
Not only that, it's
fueled inequality.
The growing gap
between rich and poor.
And even perhaps
morally more corrosive--
the spirit of speculation,
the speculative ethic has been
corrosive-- in ways that
we're only beginning,
I think to notice--
of the dignity of ordinary work.
And this, I think,
has contributed
to a fueling of the backlash
against the kind of finance
driven global capitalism that
has unfolded in the last three
decades.
A political backlash--
kind of populist backlash--
that has some very ugly
and dangerous features.
So it seems to me that the
future of capitalism depends.
It depends on us.
Not only on us as people who
are involved in business.
Not only on business
executives, enlightened,
though some of them may be,
especially after they've
taken Rebecca's online course.
But it depends on us
as democratic citizens
to change the terms
of public discourse
so that we can debate
these questions directly.
Rebecca said something early on
that I think is very important
and that I want to emphasize.
She described
capitalism as a tool.
But what's happened over
the last four decades
is that we have ceased to regard
market economies as a tool.
And instead, our moral
and political imagination
has become the captive
of a certain picture
of the role of money and
markets in a good society.
We've drifted, almost
without realizing,
from having market economies
to becoming market societies.
The difference is this--
a market economy is, just
as Rebecca said, a tool.
But a market society
is different.
It's a way of life in which
market values and market
thinking begin to dominate
almost every aspect of life.
Not just the domain
of material goods--
cars, toasters, flat
screen televisions--
market society is a place
where almost everything is up
for sale.
It's a way of life in
which market values begin
to infiltrate and colonize
every sphere of life
from personal relations
and family life to health
and education and civic life and
the media and law and politics.
And when that happens,
transactional forms
of relationship begin to
crowd out non-market values
worth caring about.
And one of the
corrosive effect--
one of the non-market
values crowded out
has to do with the
dignity of work.
And by work I
don't mean the work
that hedge fund
managers engage in,
for which they are
remunerated at such rates
that they are attracting
increasing numbers
of our graduates and of MBAs.
It's the kind of
work whose dignity
is eroded by a speculative way
of thinking about the economy.
It's the kind of work that
ordinary men and women do
and in which they were taught--
we were taught-- to take pride.
And what happens I think--
this is the most deeply morally
corrosive aspect that the
shift to a market society
and to a naturalized version
of capitalism has wrought--
there's something
deeply demoralizing
for ordinary citizens
when the work they do
and the effort they
expand is almost
mocked by the system of
reward that we now have.
Well, back some years ago,
there was a British sociologist
named Michael Young
who wrote a book called
The Rise of the Meritocracy.
This is in 1958 in Britain.
Now meritocracy-- we think
of that as a good thing.
As an ideal.
As something to aspire to.
A meritocracy where people
are rewarded according
to their contribution,
according to their hard work,
their talents, their effort.
But Michael Young,
who coined the term,
actually was writing
a dystopian account
of what a meritocratic
future might hold.
And what he glimpsed--
that was at the time--
Rebecca will know this--
Britain was moving from a class
based aristocratic society
to one open to talents.
And that was a good thing.
But what Michael
Young pointed out
was there is something
dangerous and even oppressive
if we ever imbibed too deeply
the full meritocratic idea,
which is where you land depends
on your merit, your virtue, how
hard you work.
In the old aristocratic
system, if I
landed at the bottom,
at least I had
the compensation of
knowing it wasn't my fault.
It wasn't I doing.
I just had the bad judgment
to be born to poor parents.
And if I landed at the top on
my glory and my good fortune,
but I wouldn't inhale
too deeply knowing
that it was in large part
due to the accident of birth.
But how does that play out
when people come to believe
and are taught to believe
that where they land
depends on their virtue,
their merit, their hard work.
There will still
be those at the top
and those at the bottom
in a perfect meritocracy.
But there will be a
tendency, he said,
for those at the
top to say, I am
hereby dint of my own
effort and merit and virtue
and I deserve it.
And therefore, I look down
at those below and say,
they deserve their fate.
He said that would
be the temptation.
And equally insidious for
those at the bottom to look up
and to look at
themselves and to say,
maybe, I deserve to
have landed here.
Maybe I'm just not as smart or
as hard working as Bill Gates.
Now he predicted--
Michael Young did--
that in the year 2033,
there would be a populist
revolt against this arrangement.
And it came 16 years
before he predicted.
The populist
revolt, the backlash
against the version
of global capitalism
that's been unfolding for the
last three or four decades-- we
saw it with Brexit.
We saw it with the
election of Trump.
We see it in the rise of
populist parties in Europe.
That is in large part fueled
not just by job losses
due to globalization and
technology or stalled wages.
It's also, I think,
a loss of self-esteem
that ordinary
working people feel
and middle class people feel.
And so the future of
capitalism, it seems to me,
beyond trying to enlighten
business executives,
beyond even trying to
change the rules give
such advantage to
unproductive forms of finance
requires that we
have a public debate,
a revitalized public
discourse about inequality,
about mobility, and above all,
about the way we should regard
success and disadvantage and
the mutual responsibility
that those who landed
on top should consider
themselves to have for those
less fortunate than themselves.
What do you think, Rebecca?
I thought that was
fabulous, Michael.
Let's clap him too.
Michael, you raised so many
profound and important points.
I could imagine we could spend
the next little while talking
about diagnosis, like what
exactly has gone wrong.
We could spend our time
talking about where
it is we want to get to.
I think you and I share a
vision of a much more discussion
driven, socially
embedded economy.
One where-- a kind of old
fashioned kind of capitalism.
But I would like to
spend a little time
at the third place, which is
how we get from here to there.
Because that feels to me
almost the hardest thing.
Because if you look at our
current political situation,
we have an enormous polarization
not only in this country,
but in many other
parts of the world--
if you think about what's going
to happen in France tomorrow.
We see a world in which I'd
rather have my son marry
someone of a very
different ethnic background
than have him marry someone
from a different political party
than mine--
statistically.
You know, we've really sort
of gone into our corners
and started yelling
at each other.
We're a long way from the
debate you were talking about.
So I have this crazy idea,
which might be crazy,
which is that rather
surprisingly, business
is one of the best places to
begin having that conversation.
So let me try and give you
just like a couple of reasons
that might be the case.
And I'd be very
curious what you think.
So one reason it might
be a good place to begin.
It's one of the places where
everybody has to be polite.
Where people are
brought together
from very different backgrounds
in service of a common goal.
The kinds of firms
I'm thinking of--
and I take your point
about financialization--
they're firms that
give people rides
and run hospitals and
build widgets and employ
tens of thousands of people.
So they can see the
importance of having
an economy that works.
And managers in those
kinds of firms--
not all of them--
but many are very
much in touch with
what you describe,
which is the dignity
of ordinary work.
For me, one of the
characteristics
of a purpose driven firm is you
treat everyone with respect.
And you understand
that everything
is a part of the whole.
So in my dreams, business
begins that conversation, just
an enlightened fraction.
But you know, 1,000 CEOs
control 73% of OECD GDP.
I mean, business is
incredibly concentrated power.
If we could imagine
just 100, 150,
200 of those very large
firms thinking I'm
managing in a
different kind of way--
not that it would fix things on
its own, I'm not that naive--
but could it help support
exactly the kind of dialogue
and politics and social movement
that you're thinking about?
It can be an important start.
I wouldn't want to restrict
it and I suspect you
wouldn't either to businesses.
I think civil society
as a whole has
to be a source of a rejuvenated
kind of public discourse
oriented to the common good.
And business is an
enormously important part
of civil society.
So are social movements.
So are congregations.
So are unions.
So are schools and universities.
So are the media.
It would be wonderful if
some group of business CEOs
could initiate this
sort of discussion.
But it would be important--
and I think I understand
you to be suggesting this--
that their are conversations
not only be about
how to run their
firms responsibly
and how to expand their
vision of the purpose
of the corporation to
include not only shareholder
value, but also the well-being
of suppliers, consumers,
employees, and others
whose contributions
are other constituencies
of the corporation.
All of that's important.
But I also think that any
such movement would also
have to have a political voice.
Now maybe corporate leaders
might shrink from that.
What do you think about that?
So it's a great question.
I think, certainly
historically, there
have been places and
times when business
has been overtly political.
Sometimes in a bad way,
sometimes in a good way.
I think we're beginning to
see something stirring now.
I'm sure you're familiar
with the business leaders who
signed a letter
to President Trump
saying it was very important
to stay in the Paris accords.
This is a major
international agreement
with respect to global warming.
I'm sure you saw the business
leaders stepping up and saying,
no, the way we're approaching
immigration is something
I'm very uncomfortable with.
I know at the local
and city levels,
many business leaders are
stepping up and saying,
no, this destruction of
our educational system,
of writing off people
as disposable is not OK.
We want to revitalize
our local neighborhoods
and really work city by city.
So I think you're
certainly seeing that.
You remind me of
something I think
is almost as important
as the financialization.
And that's the idea that the
only moral duty of the firm
is to maximize
shareholder value.
I've met some business
leaders and business
people who think,
well, that's all
I have to do-- maximize
shareholder value.
But what that means
is if I see something
that if I do it will actively
harm the society around me,
why, I should go ahead
and do it because it
maximizes my profits.
You know, if selling guns to the
children in the Congo is legal,
I'm there.
I'm selling guns to
children in the Congo.
I think this is such a
destructive way of thinking.
I think it does two things.
One, it says the only duty is
to look down into the firm.
And I'm with you--
I think not just CEOs,
but everyone in business
should be looking out to
the society in which they're
embedded and saying, how
do we fit with the rest.
But it's not a legal duty to
maximize shareholder value
in the short term.
It's not at all clear it's the
best way to maximize returns
on capital.
It's a lousy way to run a
business if taken too far.
And most importantly, it excuses
a huge fraction of society
from engaging in the debate
you want them to engage in.
And I'm with you.
I think business should
be full of people saying,
I'm part of something
much greater.
My firm is helping to
strengthen this whole system.
I like that very
much and I wonder
if I could complicate your
task with the business leaders
by adding a couple more
items to the agenda.
You mentioned climate change
and education and policy
toward immigrants
and even toward guns.
I wonder if I could
add possibly more--
I don't know-- contentious
items to that agenda
for the socially enlightened
business community
that you will help nurture.
What about-- and this
does go to the pressures
that impel companies to
behave the way they do,
including short-termism,
including, for example,
plowing most profits
now into such things
as buying back stocks,
boosting the share price, which
has an effect on the way
the CEOs are remunerated.
They're pressed to do that,
they would have to be almost too
altruistic not to do that, given
the frank policy framework,
for example.
So could we add to
the list, Rebecca,
that they would press to
change the tax code that
allows corporate debt
to be tax deductible
but not investment
in the same way.
To put those two on a par.
Because that's part of what
forces these companies-- what
fuels the financialization
in part are these rules.
Or here's another one--
and it goes to the
dignity of work.
Social security in
the United States,
the primary retirement system
going all the way back to FDR
in 1935, is financed
by a payroll
tax, which is a
regressive tax paid
by workers and by companies.
But it's a tax on labor.
Now what about the
idea of proposing
to getting rid of the payroll
tax, regressive as it is,
and swapping it out for
a financial transactions
tax, which at a tiny
fraction of a percent even,
could generate enough revenue
to replace the payroll tax.
This would have an
impact on several
of the demoralizing tendencies
that we've been discussing.
It would be a recognition
that financial transactions
in this economy, especially high
speed financial transactions,
have little, if anything,
to do with contributing
to the public good.
It would slightly
slow that down.
It would symbolically
express a sense
that this activity is not really
helping business or the Main
Street economy.
And it would be a
signal that we're
going to respect work by
getting rid of the payroll tax
and we're going to
derive those taxes
from financial transactions.
What do you think those
corporate executives
would say about that?
Now for some of them,
actually, this would help them.
I'm reluctant to speak for
all corporate executives.
I will say that I'm
completely with you
in wanting to remove
the favorable tax
treatment on debt.
And I would love to get
rid of the payroll tax.
You and I would have
a lively conversation
about whether it should be
replaced by a carbon tax.
Well, I would add to
the list of carbon tax
and a financial transactions
tax because between the two,
we can get rid of the
payroll tax and fund
infrastructure and education.
And solve global warming.
Yes.
Let's do that.
In general, a financial
transactions tax
and a carbon tax
to bear the burden,
get rid of the payroll tax,
reduce the income tax--
Now we're going too detailed.
Tax carbon.
Tax consumption.
Tax carbon.
Tax financial transactions.
Build the infrastructure.
Deal with global warming.
And honor work.
What about that, Rebecca?
I'm there.
So we solved all the problems
of the world, Bharat.
Let's go to Q&A.
So the even hashtag
is [INAUDIBLE] 226.
[INAUDIBLE]
So you're welcome to start
asking questions [INAUDIBLE]
here.
Is it inevitable
that capitalism must
[INAUDIBLE] prices in order
for businesses to lead and act?
And if so, are we there yet?
I think we have a major crisis.
I've been deeply involved in
global warming for the last 12
years.
And when I used to meet with
other people who were also
concerned about the
issue, we used to say,
what we really need is for a
big storm to hit New York City
and really cause some
difficulty and damage.
What we really need is
for major crop failure
to cause civil war in
a couple of countries.
We're seeing that.
The environmental
crisis is with us.
It's a slow motion crisis.
And we have a major political
crisis on our hands.
I think whatever your own
political views, the breakdown
in the political conversation
is a very, very serious problem.
But I think what
the questioner is
asking is, do we need
something even more
visible to have business lead.
I think not.
I think business is
starting to lead.
I literally know hundreds of
businesses that are starting
to move in this direction.
They can see the
writing on the wall.
They can see it's not in
their long term interest
to consider business as usual.
They're finding ways
in the short term,
within the very
tight constraints
to make a difference.
So I don't think it's necessary.
I think alas, we
may get it anyway.
What is an alternative
to capitalism
and why would that
system work better?
I think you should take
this question, Michael.
I'm like, a dyed in the
wool capitalist here.
I think that what
we've been discussing,
at least implicitly, is not
capitalism for or against,
but varieties of capitalism.
I think we've been discussing
various ways of embedding
market economies in a
framework of political rules
and also that civic values and
ideals that require capitalism
and market economies to
function in a way that
contributes to the common good.
Now there are some who say there
is only one kind of capitalism.
And that's an unfettered,
free market capitalism
without regulation.
And neither of us
is defending that.
But I think the alternatives
that we are kind of finding
our way to and trying to work
out and articulate are really
ways of reconceiving,
reimagining capitalism so that
it does what unfettered
free markets cannot do,
which is approximate
the public good.
I think sometimes people
look at our current situation
and feel that it's so
extreme that the only way out
is to reject
capitalism altogether.
I myself-- that makes me feel
very nervous because the track
record of societies that
rejected capitalism completely
is terrible.
If you don't have the
market allocating resources,
then I get to do it or
Michael gets to do it.
And then we allocate
all the economic power
and with it, the
political power.
And if you have a really
strong democracy that
can constrain Michael
and I, who are allocating
all the resources, then
the really strong democracy
can constrain the market.
So you see before you two
people who are very committed
to the kind of mixed
model where capitalism
is balanced by a strong
democracy and strong controls.
And if I could just add, lest
there be any misunderstanding,
the kind of mixed regimes
that we're discussing,
it seemed to me at least to be
entirely compatible with most
versions of social democracy.
Now some people say
that social democracy
or democratic socialism is
an alternative to capitalism.
But I think there is
a spectrum of ways
of making use of
market mechanisms
as tools without allowing
them to define the public good
or to define social justice.
I think that the
emphasis and that's
the insight of social
democratic or democratic
socialist traditions, which
do not require getting rid
of market mechanisms
but do require
keeping markets in their place.
I guess that's the
slogan that I would
use to describe the kind of
position that I'm suggesting.
Michael, do you know
that great phrase,
the American dream is alive
and well and living in Denmark?
You know, that social
mobility is higher in Denmark.
I'm not saying Denmark
is the solution.
Denmark is small and
culturally homogeneous
in ways that make it much easier
to have these conversations.
But I think we need to fight our
way to something like the very
best of what we've seen
here in the States.
Historically, there have
been moments here in the US.
But also, we've seen
in other countries,
including Japan and
Germany and Scandinavia,
where I think a lot of the
Latin American countries
are trying to find
their way too.
I don't know if
your answers were
in response to the
following question
but sort of preempted it.
Are you suggesting a convergence
of capitalism, socialism.
So let me actually
take the next one.
As professors at
Harvard Business School,
how can you influence
business students
who are potential
future business
leaders to use business for
social and environmental good?
Right.
Well actually, I'm a visitor
at Harvard Business School.
So I should defer
to Rebecca on that.
What do you think?
Maybe you can give us
some tips, Michael.
I'll tell you how
I try and do it.
And you should know, I'm
not the only faculty member
at the business school
who is deeply concerned
about these issues.
There are many of
us who want to keep
the heart of the capitalist
system-- all its innovation
and its potential to
create great prosperity.
But make sure it doesn't
destroy the system in which it's
embedded.
So how do how do we
go about doing that.
Our number one sort of
direction is to point out
you don't need to give up on
running a profitable business.
I think often, people
think it's either/or.
That I have to be a ruthless
red blooded capitalist or I
can care about the world.
And I think that's
sloppy thinking.
There are lots of
opportunities to do both.
And as I tried to
suggest, when you
start to work in partnership,
that set of opportunities
gets even bigger.
So what we try and
do is concretely
give people case after
case of firms who
are doing this in real time.
So for example, we teach
them about the Roundtable
for Sustainable Palm Oil,
which was founded by Unilever.
Unilever could see
what was happening.
The worldwide
demand for palm oil
was leading to enormous
deforestation, which
was destroying our lands
in Indonesia and Malaysia,
leading to global warming, and
also causing widespread species
and environmental destruction.
And they said, well, we
can't solve this on our own.
But if we all agree to
buy sustainable palm oil,
we can really turn this around.
And now 60% of global palm
oil is sustainably committed.
It's not perfect.
There are all kinds of
issues and difficulties.
But people are working them.
And you have business working
with the civil society,
with the government
to try and make
sure that the economies
in Indonesia and Malaysia,
where most palm oil is
grown, a thriving economies
for the people on the
ground and for the children
of those people.
It's very exciting.
It's very possible.
So that's my personal route--
is shows that it's possible.
Let me just pick up on
a couple of questions
that seem to be related.
One, what are the triggers
and the policy changes that
gave rise to the
financialization
of the economy, so to speak?
And related to that,
looking forward,
how do you see the future
of the finance industry,
in particular, based on this
compensation, hedge funds,
based on what you discussed
about the future of capitalism?
Well I think some of
the policy changes
came in in under
bipartisan auspices.
In fact, many of the
changes came in the 1990s
during the Clinton
administration
as a bipartisan
effort to deregulate
the financial industry.
In the 1990s.
And this, I think,
contributed to what
was already beginning to
be the financialization
of the economy.
It goes back to the
late 1970s though,
when finance was seen to
be a way that politicians
beset with demands for public
investment of various kinds.
It was a way, so to
speak, about sourcing
the decision making on how to
deal with conflicting claims.
Should the government
finance housing,
infrastructure,
education, health,
opportunities for consumption.
In a way, loosening and
deregulating finance,
unleashing finance,
became an alternative
to public investment
in those things.
So that began in
the 1970s and '80s.
Then came the deregulation
of the Reagan years.
Then the 1990s and the
Clinton administration
getting rid of Glass-Steagall.
The decision by the
Clinton administration
not to regulate derivatives.
So these were the policy
choices, along with one
that we've discussed,
which is the favorable tax
treatment of debt.
And that's distorted.
It's distorted the
decisions that companies
make about using equity versus
using debt for investment.
So I think this
combination of factors
contributed to the
financialization
of the economy.
We've discussed some
possible policy responses.
Taxing debt on a par with
the taxation on equity.
Not giving the tax break.
Financial transaction tax.
Others would be
restoring the distinction
between commercial
and investment.
Banking increasing
capital requirements.
I would add to that banning
naked credit default
swaps, which are essentially
casino-like speculations that
have nothing directly to do
with financing businesses
or research and development
for new companies.
And then a third
would be breaking up
the big banks, which
is discussed widely
in politics today.
So those six or seven
measures would be, I think,
a place to start.
But the more important thing
is to have a public debate.
I don't know if that's
the right list exactly.
But those are the ones
that seem plausible.
But a more direct and
open public debate
about this question than
we've had in recent years.
Here's another one, just to
make the link between finance
and technology, given some of
the students today discussed
cases like Apple.
Is the seeming overvaluations
of tech companies, many of which
produce few tangible goods,
good or bad for capitalism?
A little bit of silence.
Yeah, the tech
companies-- many of them--
do produce tangible
goods, so I'm not
sure I fully understand
the question.
But the overvaluation of
some of these companies
goes back to the issues
of financial speculation
that we've been discussing.
It leads to inflated
equity prices
that gives rise to the
bursting of bubbles,
as we've seen most recently
with the housing crash.
And we saw prior to that
the tech bubble bursting.
But that's part of
the dynamic that
an unconstrained
financialization of business
contributes to, which is
this cycle of overvaluation
and bust.
But I would not say
that tech companies
don't produce tangible goods.
They do.
Just for fun, let me disagree.
Yeah.
Which is we don't know
they're overvalued.
That's one of the
strengths of markets.
You could equally
say, well, it's
pulled a lot of
energy and excitement
into a sector, which may create
products and services that we
will use.
No, it could be.
I don't know that
they're overvalued.
I'm speaking systemically,
there is a tendency
for bubbles to be
created by this kind
of financial activity.
I'm with you on the
financialization and the danger
I mean, 2008, right?
We're still trying
to recover from 2008.
But to have individual firms
overvalued every so often-- not
such a big deal.
There's 15 more questions.
So we're not going to
get through all of them.
Let me just make the decision
to take a couple more.
And before that, let me
actually insert one of my own,
which is, concretely in terms of
changing public discourse, what
is the role of the media?
Well currently, the
role of the media
is pernicious on the whole.
And it's hard to imagine
revitalizing public discourse
in a way that enables it and
us, as democratic citizens,
to debate big questions,
including questions of value,
with the current media
structure that we have.
And that has partly to do
with the ratings driven,
sensation driven
kind of coverage
of which cable
television news and talk
radio are the most
vivid example.
Social media would also
fall into this category.
So I think any attempt to
revitalize public discourse
to address larger
questions would
require rethinking the way the
media is organized and funded.
There will always be tabloids
and their cable television
equivalents, but
they needn't have
the kind of dominant role in
the media that they have today.
And I think we
have to experiment
with new ways of
funding media companies,
whether through
nonprofit mechanisms,
foundation based mechanisms,
or maybe socially responsible
purpose driven
business undertakings.
Because the media
that we have today
is very good if what we want for
public discourse are shouting
matches and ideological
food fights in very short 10
second soundbites.
But if we want something
better than that,
the media has to
take a different form
and also be, I think,
funded differently.
So I completely agree.
Let me stress as part of
working on this course,
I've been reading
everything I can
about how societies got out
of really bad situations
historically.
How they built more just and
more inclusive societies.
And the free media, a media that
is really telling it like it is
and where people are talking
intensely about the issues,
is correlated with every
transition I can find.
So I think it might
be the most important.
But I understand there's a
professor at HBS who studies
this pretty intensively.
Maybe we should ask him.
Next question.
Wait.
If you're not going to answer.
Could I just add
one thing to this?
Here's an example from the
past of a purpose driven
company related to the media.
I don't know if
those of you here
who are old enough to
remember Walter Cronkite, who
used to be the anchor
of the CBS Evening News.
Polls showed that he was the
most trusted person in America.
And back in that day-- now
CBS News was a company--
CBS was a company.
There was a news division and
an entertainment division.
Now it wasn't owned by
a megacorporate parent,
as they all are today.
No, the Washington Post
and the New York Times
have very different
ownership structures.
Yes.
But the television
networks back then--
CBS.
The television
networks are all--
Now, CBS was a corporation.
It was a profit
driven corporation.
But they regarded the news
division as a public service.
A public service.
Not subject to the profit
or ratings requirements.
Walter Cronkite saw once a
year how his ratings compared
to those of NBC and ABC.
Now that the television
news media are almost all
owned by a corporate
parent, they
are the directors and
producers and the anchors
of those news programs.
See, not once a year, not
once a month, not once a day,
but on a minute by minute basis
how their ratings are comparing
to those of their rivals.
So maybe we need to
have purpose driven
businesses in the media too.
And maybe this idea that
we run the corporation
for many reasons, only one
of which to make money,
is central to solving
this problem as well.
Let me close by actually
giving you a choice about which
question to answer.
One is very close to home
and one is very far away.
The one close to home.
So here is the question--
how do HBS admissions play
into the meritocracy argument.
Does it contribute to
the dystopias situation
and what is the solution?
The one further away--
is capitalism the correct model
for third world countries,
where the economy is
often controlled by a few
and vast socioeconomic
gaps exist
between the rich and the poor?
Very quickly on HBS.
HBS admissions is aggressively
meritocratic and open
to people from many, many
different backgrounds.
I believe it's over
60% of students
help get tuition support.
So certainly, the school is
very much aware of its role
in trying to make opportunity
available to everyone.
On the question about
the developing world,
my own belief is that
capitalism rightly understood--
that is, properly controlled
without crony capitalism,
without the concentration
of wealth and power--
is one of the most powerful
ways for developing nations
to move forward.
If capital really is
available to everyone--
real capital that
funds, real businesses--
if everyone can
build a business,
if everyone can
participate, that's
one way of breaking open
the concentration of wealth
and power that plagues
so many countries.
So to my mind, real capitalism,
free and fair capitalism
is a very plausible solution
to what is happening
in too many countries.
Just to take up the question.
Now I know more about
Harvard College admission
than I do about HBS admissions.
And it illustrates the
defects of meritocracy
as we traditionally conceive it.
Because what goes
into the kind of merit
that admissions
officers evaluate
includes all sorts of factors
that are not the doing
of those who are admitted.
If you look at the Ivy
League and the most selective
competitive colleges and
universities in the US today,
what percentage of
the students who
attend those places
would you guess
come from the bottom
20% of the income scale.
Just shout out a number.
What would you guess.
What?
5%.
Any others?
40%?
From the bottom 20%.
It's 3%.
At Harvard College, it's 4%.
Slightly better.
At Yale, it's 2%.
What percentage do you
think come from the top 20%?
Not the super rich,
but the top 20%?
It's around 70% at these places.
And here's one
other striking fact.
That the percent of the
students at the top dozen most
competitive places who
come from the top 1%
is greater than the percentage
of students at these places who
come from the bottom half put
together of the income scale.
Which means if you are
walking in the Harvard Yard,
bump into someone at random,
there's a greater chance
that person will
come from the top 1%
then from anywhere
in the bottom half
of the American population.
Now, you could say that's
a meritocratic admissions
system if it
faithfully reflects who
has the best grades
and test scores
and letters of recommendation
and extracurricular activities
and internships.
You could say it's a
meritocratic system,
but it's a far cry
from one that offers
genuinely equal opportunity.
And what is reflected
in the admissions
to top colleges and universities
is a reflection, I think,
of the way meritocracy such
as it, works in other aspects.
Oh, but now I want to
get into a fight, just
so we have to finish, right?
Go ahead.
With 30 seconds to go.
The statistics you
cite is horrifying.
But to me, what I hear
is not the Ivy League
should rethink their
admissions policy,
although possibly they should.
What I hear is a massive
failure in education
and social support
and wage distribution
for the bottom half of
the population, which
is a national disgrace.
And we must address.
Well, we don't
disagree about that.
Though I also think it's true
that the admissions policy
policies themselves could
benefit from affirmative action
for poor kids.
And the studies
that we have show
that poor kids who go to top
colleges and universities
do every bit as well
as affluent kids.
And so I think there's
a lot of room there.
So my first husband was
born on the wrong side
of the tracks in New Jersey
to immigrant parents.
He was the first in his
year to go to college.
And he became one of the
most highly cited astronomers
of the 20th century.
So it's absolutely possible.
Thank you very much.
Thank you.
Thank you for just a
fascinating conversation.
Just moved our minds
in so many ways.
And in some sense,
this last question
almost comes back full
circle to everyone
who's gathered here today.
Because in some sense, as we
were talking this morning,
the intersection of technology,
cost, and talent, I think,
starts providing just so
much greater opportunity,
I think, for so many
people around the world
than we have imagined so far.
But thank you for taking
the time on Saturday.
Certainly.
Thank you.
