Warning Signs

Don Cayo has written a compelling piece in today's Sun.

Social and environmental ills worry world's CEOs

Book by Harvard professors sheds light on what the top business leaders of the world think are our biggest concerns

By Don Cayo, Vancouver SunOctober 8, 2011

Mike Segar-Reut Growing inequality can breed discontent and threaten our financial system and trade, a new book warns. In New York City, people are taking to the streets during the Occupy Wall Street series of protests.

Photograph by: Mike Segar, Reuters, Vancouver Sun

Leaders of some of the world's most successful companies say the whole system of capitalism is at risk and only capitalists themselves can save it, according to a new book by three faculty members at Harvard Business School.

And many of the threats on their list - fast-growing global inequality looming large among them - could be copied straight from a social activists' handbook.

Inequality breeds discontent, as any CEO with a window overlooking Wall Street might notice these days. It invites a backlash from those who don't share in capitalism's benefits. Sooner or later, some politicians will come on board with policies aimed at short-term popularity, though not necessarily coherence or effectiveness.

Other kinds of threats like global pandemics or natural disasters, can decimate the human capital needed to make the system run, and/or disrupt both markets and the institutional checks and balances that capitalism relies on.

The book, Capitalism at Risk: Rethinking the Role of Business, is written by Harvard profs Joseph L. Bower, Herman B. Leonard and Lynn S. Paine. It draws on discussions by major business leaders at forums that, using the clout of Harvard Business School, they were able to convene in North America, Europe, Asia and Latin America. This format gives the book added depth and substance - as well as, at times, diversity, as the participants don't always agree. Yet it can also be an irritation for readers as the authors keep the speakers' names confidential, so we never know who's saying what.

But there does seem to be consensus on what the big problems are. In addition to the broad threat of growing inequality and the populist - and often business-hostile - political movements it leads to, threats to the financial system and to healthy global trade include:

. Unrestrained migration - whether within developing countries or from the poor world to the rich - in numbers that overwhelm capacity to productively absorb the newcomers.

. Environmental degradation of food and water supplies, and many other aspects of quality of life.

. Failure of the rule of law, which is an essential underpinning for a successful market economy.

. Low levels of education, which limit worker productivity.

. The rise of state capitalism in response to free market shortcomings, real or perceived.

. Radical movements, terrorism and war which destroy the stability that markets need.

. Pandemics that disrupt trade and decimate labour.

. Inadequacy of existing institutions - just a matter of resources and competence, but also jurisdictions as nation-based institutions face global issues.

Some of these concerns sound as if they have less to do with North Americans and are of more concern in the parts of the world affected by movements like the Arab Spring or the class warfare burgeoning in Latin America. And this may well be true.

But it's hard to look at this year's riots in the U.K., the growing desperation of people falling out of the middle class in the U.S., or rising child poverty in B.C., and then say, "It can never happen here."

Still, the business leaders are less united on what they should do about these threats.

A significant minority - the authors don't tell us the number, but I take it to be well under a third - worry, yet are still content to be bystanders. They say finding solutions is "beyond their pay grade" and should be left to government.

A smaller group think they can also stand by and wait it out - that existing institutions and practices will work things out over time.

The rest are either activists who want to shape and promote solutions, or innovators who want to address the challenges directly.

This article appears on the same day as an item about a Wall Street-type protest on its way to Vancouver.