As people start to consider what it may look like when lockdowns lift, some are asking whether shareholder capitalism can survive Covid-19. Increasingly, workers are demanding better treatment from their employers and governments are attaching strings to business bailouts. With the fragility of even huge global businesses exposed by the coronavirus shock, many are asking if we can rebuild our economy to be stronger, more resilient, and fairer. The first idea on the chopping block may be bottom-line obsessed shareholder-first capitalism. – Felicity Duncan
Under free-market capitalism, households are expected to be prepared for emergencies. Experts chide those who haven’t saved up enough to cover their expenses when a crisis hits – we’re all supposed to be able to pay our bills for at least a few months after losing our jobs.
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Yet as the Covid-19 crisis has shown us, few companies are as well-prepared for downturns as households are meant to be. Huge global businesses have been brought to their knees by a couple of weeks of lockdown. Clearly, they had not been building up their six-month emergency funds.
As the business carnage plays out, some are asking whether the focus in the last few decades on shareholder returns has created a generation of businesses far more fragile than any snowflake. Capital structures at businesses – especially US businesses – have become ever-more engineered in recent years under the pressures of shareholder capitalism. Companies have worked hard to shrink the equity portion of their capital – either through share buybacks or taking on debt – to shore up shareholder returns in a low-growth economy.
This has been good for shareholders, but mostly bad for everyone else. Wages have stagnated at 1970s levels in most of the rich world and business investment has been weak. As the Covid-19 shock has shown, shareholder-first capitalism seems to have created businesses that look good on paper but perform poorly in the face of a market test.
As we prepare to rebuild when lockdown lifts, many are asking whether it’s time to bid farewell to shareholder capitalism.
