When Roger Williams got his turn at the microphone earlier this month, his question for the bank CEOs lined up before the House committee on financial services seemed an unusual one to put to seven sharp-suited financiers. “Are you a socialist or are you a capitalist?” the Texas Republican asked each of them, from Citigroup’s Mike Corbat to David Solomon of Goldman Sachs. 

None struggled to assure him of their free market bona fides, but the fact the question was even asked reflected a remarkable change in the discussion about business in Washington and beyond in recent months. 

America’s decades-old system of corporate capitalism is suddenly up for debate. One reason is the rising prominence of self-described democratic socialists such as Alexandria Ocasio-Cortez, Mr Williams’ fellow committee member, which has put a spotlight on critics who were once outside the political mainstream. Yet some of the most influential voices calling for change are the very chief executives who have arguably benefited most from the current model. 

Days before his appearance at the congressional hearing, one of the seven bank leaders offered some more nuanced thoughts on capitalism than his one-word affirmative answer to Mr Williams. Jamie Dimon, who earned $30m as chairman and chief executive of JPMorgan Chase last year, devoted several pages of his 23,000-word annual letter to shareholders to a reflection on the “fraying” of the American dream and the role business could play in stitching it back together. 

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Capitalism had lifted billions out of poverty, he wrote, but “this is not to say that capitalism does not have flaws, that it isn’t leaving people behind and that it shouldn’t be improved”.

Companies — like governments, unions and special interest groups — may have become too self-interested, he conceded, ticking off loopholes in the corporate tax code. Having long been able to “almost literally drive by” many of society’s problems, they should now do more to address them, he argued. America needed to step up its spending in areas such as infrastructure and education, “and that may very well mean taxing the wealthy more”. 

In the same week the billionaire founder of the world’s largest hedge fund delivered a similar message — with a sterner warning. Bridgewater Associates’ Ray Dalio, worth almost $17bn by Bloomberg’s calculations, issued a manifesto arguing that the capitalist system he had embraced as a precocious 12-year-old investor was now reinforcing inequality and must “evolve or die”. Part of that evolution, he said in the near-8,000-word piece, would involve raising “more from the top” in taxes. 

“I’m a capitalist and even I think capitalism is broken,” Mr Dalio said as he tweeted out his essay. Expanding on the theme to a mass audience on 60 Minutes, the CBS current affairs television show, he said capitalism was “at a juncture”. Americans could reform it together, “or we will do it in conflict”. 

Few other capitalists have said so publicly that they share Mr Dalio’s fear of “some form of revolution”, but more and more of his peers are echoing his concerns about inequality and the populist backlash it has fed. Globalisation and technological change have “led to increased stress and declining living standards for many and created enormous wealth for a few,” Chubb chief executive Evan Greenberg wrote in the insurer’s latest annual report. The system was “failing a large portion of the population,” warned Weston Hicks of Allegheny, the reinsurance company owner. Companies from General Electric to Honeywell have begun to list populism and negative sentiment toward multinationals in the “risk factors” section of their corporate filings. 

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Those arguing for reform range from Rose Marcario, chief executive of environmentally-conscious retailer Patagonia, to Larry Fink, who as chairman and chief executive of BlackRock has pushed the companies the giant asset manager invests in to show they serve a social purpose beyond making profits for their shareholders. 

Why now, 10 years on from the global financial crisis, after seeing stock markets and profits hit new highs and a Republican president cut corporate tax rates and regulations at their urging, do America’s leading capitalists sound so uneasy? One answer, according to some in the thick of the debate, is fear. 

“Part of what scares them is the politics,” says Darren Walker, president of the $13bn Ford Foundation. “What really scares them is when they look at the data showing younger people are increasingly comfortable with socialism as a way of organising the economy. That is incredibly frightening to them.”

According to a Gallup poll last year, the percentage of 18 to 29-year-old Americans who have positive views of socialism has held steady at 51 per cent, but the percentage saying they have positive views of capitalism has fallen from 68 per cent to 45 per cent since 2010.

The 2020 US election campaign is also expected to feature a long list of candidates with strong views on the subject, from Senator Elizabeth Warren, who has proposed breaking up big companies and imposing a “wealth tax” on individuals with assets over $50m, to Howard Schultz, the former Starbucks chief eyeing an independent run, who has talked of a “growing crisis of capitalism” even as he has questioned whether other candidates have the business experience to fix it. Several are testing out messages on earnest topics such as quarterly earnings guidance, share buybacks and a financial transaction tax that rarely light up presidential debates but have this year found an audience. 

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“I think there’s a real fear that it’s legitimate now to talk about socialists’ and the left’s ideas of much higher taxes, corporate regulation, corporate reform and the stifling of free market enterprise,” says Martin Whittaker, chief executive of Just Capital, a charity that aims to build a more just marketplace by measuring how companies reflect Americans’ real priorities.

“In private emails and discussions [business] people have been diagnosing the problem and I think everyone recognises we have a real problem,” he says, but the solutions are still up for grabs. “People are trying to find traction for a sensible middle way of capitalism reform but it’s not there yet.”

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For Morris Pearl, a former BlackRock managing director, the pressure capitalists are feeling is just a consequence of the “gross inequality” that has shaken many voters’ faith in the free market. Mr Pearl chairs Patriotic Millionaires, a group of self-professed “traitors to their class” who have been lobbying since 2010 for higher taxes on the rich. 

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Their message has attracted much more attention this year than before, Mr Pearl says, because “a lot of smart people suddenly realised there are a lot of people in the middle parts of the country that have just sort of had enough. Capitalism, if it’s going to survive, is going to have to address that.”

As the public’s anger about inequality mounts, he ventures, capitalists should be thinking of preserving themselves, not just their system: “Given the choice between pitchforks and taxes, I’m choosing taxes.” 

His group has attracted few public company chief executives, however, and he sees “hubris” in some of their prescriptions, particularly on tax. Mr Dimon may favour higher personal taxes, yet he has been a vocal supporter of Republicans’ cuts to corporate tax rates, Mr Pearl says. “It’s good if you own stock in JPMorgan but that doesn’t do a lot of good to a lot of people. It’s kind of like saying . . . they want stuff like schools and bridges but they want somebody else to pay for it.” 

Similarly, when Amazon founder Jeff Bezos challenged retail rivals earlier in April to beat its $15 minimum wage, one Walmart executive responded on social media: “Hey retail competitors out there (you know who you are) how about paying your taxes?” 

Mr Dimon’s letter acknowledged that America’s business leaders “are not generally viewed with high levels of trust”, and some of his peers recognise that many people will tune out the prescriptions of people earning hundreds of times their median employee’s salary. 

Any boss launching into a discussion of inequality risks inviting an uncomfortable discussion about their own wealth. Equilar, an executive pay consultancy, calculates that the median chief executive of a large US company received 254 times as much as his or her median employee in compensation last year, with about one in 10 earning more than 1,000 times as much. The multiple 40 years ago, according to Economic Policy Institute research, was under 30. 

“Jesus Christ himself isn’t worth 500 times his median worker’s pay,” Abigail Disney, the film-maker, Disney heiress and Patriotic Millionaires member, told CNBC earlier this month. 

Richard Edelman, whose eponymous public relations firm publishes an annual study of trust (or the lack of it) in business, government and other institutions, says there are “relatively few” business leaders who can talk broadly about reforming capitalism and expect to be heard. But he believes many more can speak effectively about how their own businesses can improve their supply chains, retrain their employees or participate in their local communities. 

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Another hurdle for the reformers is the fact that business remains far from unified on the argument that capitalism must change. For every initiative like Lady Lynn Forester de Rothschild’s Coalition for Inclusive Capitalism there is an executive still speaking up for the shareholder primacy model popularised by Chicago economist Milton Friedman in the 1970s. 

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Cognex chairman Robert Shillman, for example, used his shareholder letter this year to express his alarm at the trend of “bashing” businesses like his Massachusetts sensor and software manufacturer which is valued at $10bn, pointing to initiatives like Ms Warren’s accountable capitalism bill, which would oblige directors of large companies to consider the interests of all stakeholders, not just shareholders. “The free market has worked great for Cognex and for all its shareholders for the past 40 years,” he said. “Why change it?”

Other chief executives have rejected calls from Ms Warren, Ms Ocasio-Cortez and others for higher taxes on the rich, with computer magnate Michael Dell telling a Davos panel he trusted his charitable foundation more than he did the US government to allocate his wealth.

Such concerns have held back previous attempts to push capitalism in a more long-termist, stakeholder-friendly direction. Dominic Barton, global managing partner emeritus of McKinsey, wrote a Harvard Business Review essay in 2011 while he was still running the consultancy, urging business leaders to address the failings the financial crisis had exposed if they hoped to avoid rupturing the social contract between the capitalist system and the citizenry “with unpredictable but severely damaging results”. 

Looking back, he says, “it hasn’t changed as fast as I would want . . . but I think there’s a recognition it has to go much faster.” Populist votes for Brexit and Donald Trump have made more people within the system realise “we’d better fix it”, he says, and serious money is now backing reform initiatives. “BlackRock saying this stuff when they have $6.5tn [in assets under management] is not an academic exercise. That wasn’t happening eight years ago.” 

Alexandria Ocasio-Cortez

For the Ford Foundation’s Mr Walker, the test will be how much more action is seen now than in the aftermath of the financial crisis. “It is good news that some CEOs are talking about inequality. Now we need CEOs to act,” he says. He is cautiously optimistic, seeing growing numbers of business leaders who are now “willing to do things that are not in their best short-term interests but are in the best interests of their company and country long-term”.

In 2011, Mr Barton had warned his fellow business leaders that they could reform capitalism themselves or have it reformed for them “through political measures and the pressures of an angry public”. The question now, he says, is whether companies will take more meaningful action — even at a short-term cost — to save what Mr Dimon still calls the most successful economic system the world has ever seen. 

“I believe it can be [reformed from within], but I think it’s going to be a lot bumpier than we thought,” Mr Barton says, predicting that the process could take another 10-15 years. There may be more populist “rise-ups” he adds: “There are going to be disruptions because people are pissed off.” 



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