Peter Georgescu’s impassioned and centrist plea to return to a capitalism that works for regular people. Capitalists Arise! End Economic Inequality, Grow the Middle Class, Heal the Nation, by Peter Georgescu (2017).
Free markets used to work for everyone, Georgescu explains, providing opportunity for all who had talent and who would work hard. Corporate profit led to reinvestment in the economy and in employees, and a virtuous circle ensued. An extreme version of shareholder primacy (exacerbated by technological change and globalization) has corrupted that system, and now the rich get richer and widespread opportunity has largely dried up. Corporations must repair themselves by getting back to basics – long-term relationships with employees, reinvesting for innovation and growth, and a bigger, broader notion of stakeholder value.
Among the many critiques of current capitalism, a wide spectrum emerges to differentiate those who see a once-beautiful, now-betrayed essence of the system from those who think we should chuck it all. Robert Reich, while proposing a profound reshaping of everything from intellectual property law to anti-trust regulation, is nonetheless interested in Saving Capitalism, the title of his 2016 book. Naomi Klein says tweaking the system is insufficient and names capitalism as fundamentally incompatible with solving the existential climate threat, a view embodied in her 2014 book’s title, This Changes Everything.
Peter Georgescu’s 2017 critique comes from deep inside the system. A long-time executive and CEO of century-old advertising and marketing giant Young and Rubicam, Georgescu seeks to reach the leaders still inside that system. The resulting clear, well-argued, and laser-focused critique of today’s capitalism from a long-time corporate leader plays on Georgescu’s strengths as a messenger, while dodging all side topics he views as distracting, low-consensus, or beside the point.
In a nutshell, that’s what I think. But I’ll also tell you how the book makes me feel. Georgescu works hard and succeeds in making this book readable, approachable, and constructive. It feels like an urgent, high-stakes, and vigorous conversation – often because the author literally recounts conversations with people he is trying to consult about the issue or recruit to the cause. It’s an easy read, in a good way.
If there’s any fault in presentation, it’s that Georgescu appears to bend over backwards to depoliticize the topic and repeatedly affirm and reaffirm his commitment to free markets. Yet the sincerity of that commitment is a great strength that he wields in service of reaching an audience that isn’t hearing this message every day, namely the titans of industry.
Another strength of the book lies in its insiderness, in Georgescu’s chatty recounting of private – usually deftly anonymized – conversations with people in the belly of the corporate beast. His access to business leaders gives the book a depth and flavor that makes it fun to read and nicely grounded. I’ll give away few of those juicy morsels; instead, I’ll focus on the substance of Georgescu’s critique, his recommendations for change, and a few constructive criticisms.
The substance of the critique: the system, once great, ain’t workin’ the way it used to
Georgescu delivers a two-part message – and he delivers it over and over so you can’t miss its two parts. First, free markets and the way corporations used to behave delivered prosperity, progress, and hope for everyone. Second – and he pulls no punches here – our current version of capitalism, now defined by a toxic caricature of shareholder primacy, has strayed from that vision and practice, to the profit of a very few and to the detriment of the rest of us.
If you’ve kept up with the history of economic thought, you’re probably thinking, “Hey, that’s Milton Friedman’s line – the shareholders come first…and only.” Georgescu goes farther in depicting our current capitalism, seeing a corruption of that notion in today’s short-term focus on share price and paper profit, a mindset that even undermines long-term shareholder gains.
You might be tempted to pocket the previous paragraphs and skim (or skip) the first half of the book, but the details are plentiful. Georgescu pines for the rising tide that, in his view, lifted nearly all boats from the 1950s to the 1970s. For example:
- On capitalism’s previous glory: “On any given day of the week, many can strike it rich in America and go on to do good things with that money.”
- Summarizing decades of his work: “We made fortunes for some corporations. We made life better for others. In incremental ways, things improved all over. I was proud of what we did, even though those days are over, big time.”
Lest you get carried away with nostalgia and happy capitalist feelings, Georgescu provides a searing critique of the status quo. On the current state of things that trouble him:
- “[M]ost people have been locked into their stations in life, while the corporations that employ them are thriving.”
- “Total spending on labor as a percentage of GDP has been decreasing.”
- “For the large majority of our people, the American dream has simply disappeared.”
And Georgescu is deeply concerned not just with inequality, but with the unjust practical implications of it. Notably:
- “The real inequality that results from this income disparity is the resultant inequality of opportunity. That is the human tragedy in America today.”
- “What you earn determines how much time you are able to spend with your children. Studies have shown that those with a college degree are more likely to have family dinners together. And families that have meals together generally raise children who have higher aptitudes for learning… It’s all mental stimulus that’s dependent on a family’s ability to earn and spend.”
Clearly, these failings are not mere facts or disconnected observations for Georgescu. Rather, they are personal – and the failure is that we’ve lost something that was once great and is now corrupted:
“This extraordinary creator of wealth—free-market capitalism—isn’t working for anyone but the people at the very top. In times past, it offered the rest of the world a beacon of hope for a better life. It built the strongest, most affluent middle class in world history. We boasted the world’s strongest economy and military. The most urgent question we face now is why we no longer play those roles.”
At the heart of Georgescu’s critique, this isn’t just about wages. It’s about the loss of a system in which profit led to prosperity shared among employees, management, and shareholders and investment for the future, which in turn generated new businesses, innovation, more jobs, and more shared prosperity. He importantly links the deterioration in the commitment to workers and the short-term thinking that leads to underinvestment generally and lower R&D expenditures specifically. In turn, this failure undermines economic growth itself in the long run. Notably, that is a damning critique of today’s capitalism on its own terms.
One strength of the book is that shareholder primacy is not a mere label, nor is it mysterious. It manifests as a clear mechanism that betrays the original successful recipe:
“Our public corporations are no longer generating as much new value—in products and services—to grow profit. Instead, they are increasing profit by allowing their core assets to languish while they engineer higher share prices through financial manipulation. Through stock buybacks, companies are reducing the number of shares and thus increasing share value. At the same time, executives are increasing dividends to shareholders, shunting profit into the accounts of stockholders, including themselves, and neglecting both employees and R&D.”
Georgescu identifies a crucial source of this faulty prioritization: “The prevailing myth is that shareholders own the corporation. As Lynn Stout, a Cornell Law School professor, has pointed out conclusively, this isn’t legally the case. She writes that shareholders don’t legally own a company: they simply own shares of stock. The corporation itself owns its assets.” Regardless of whether that legal analysis interests you, this punch line is Georgescu’s call to restore balance:
“The shareholders have rights, but so do other stakeholders.”
Indeed, that broader view of stakeholders eventually becomes the cornerstone of the enlightened self-interest that Georgescu seeks to foster.
Prescription for change: from shareholder primacy to stakeholder value
The second half of the book lays out a variety of solutions, and Georgescu demands a lot from corporate leadership as well as from government. As much as Georgescu asks for corporate enlightenment and a shift to “stakeholder value,” he repeatedly underscores the role of self-interest as well. He names two questions at the outset:
“Given these factors, two key questions are addressed throughout this book:
• Why doesn’t the private sector see how precarious income inequality has made its profitability and seek productive solutions that both close the wealth gap and spur greater profitability?
• Can we admit that our current business model has been responsible in a major way for a crisis of inequality, and can we wake up and take action now, rather than continue doing business the way it’s been done for more than four decades, until the whole system risks falling apart?”
With those motivating questions and the critique of the status quo, Georgescu picks up the hard work of charting a way out. In chapter 6 (The Way Forward), the prescription for change boils down to a small handful of straightforward prescriptions.
First, Georgescu asks for more, and more consistent, re-investment by businesses in themselves. Sometimes that takes the form of innovation generally, sometimes as workforce training, sometimes more narrowly as R&D. It means less money toward financial shenanigans such as stock buy-backs, and less “superficial brand building” that has become the norm, and more commitment to building the business itself.
Second, Georgescu asks for a deeper commitment to employees in every way, from higher wages and more re-training to a “recognition of basic human values.” The big ask goes far beyond compensation to a new relationship, or perhaps a return to something closer to what we had before off-shoring became the norm.
Chapters 7 and 8 put as much flesh on the bones as Georgescu can must, including a gripping and persuasive mini-case study of Costco and a series of other examples. Strengthening his case, examples appear to trickle out since the book was published, such as Amazon’s July 2019 commitment to spend $700 million to retrain workers over the next half-dozen years.
Well well, that’s easy – or not. Georgescu makes clear that his contacts in the C-suite love the idea of such a shift but fear the backlash of shareholders, boards, and financial markets. It will take bold leadership and a high pain threshold, it seems. I’ll return to that shortly in closing.
A few omissions, for those who want a fuller picture
Georgescu makes a few modest oversimplifications in his analysis, though it’s hard to know if he is truly blind to these details or if he simply wants to drive home a simpler message to a larger audience. As a reader, you’ll have to decide for yourself whether these gaps are fundamental or cosmetic – or maybe strategic, an idea I’ll acknowledge shortly.
The first oversight is the almost total silence on race and gender. Other than brief and breezy references (including a mention of Ta-Nehisi Coates), there’s no sense that, in addition to the phenomena he describes, there just might have been historical and institutional inequality for women and for people of color. This omission ignores compelling evidence about, for example, persistent wage gaps between men and women, as well as recent data-rich revelations of the persistent obstacles to wealth accumulation for African-American men. These issues simply aren’t the fight he picks, so for narrative convenience, Georgescu sets them aside.
Second, in a quest to depoliticize his work, Georgescu lumps Bernie Sanders and Donald Trump and all of their respective supporters in the same basket of economic discontent. “Signs of unrest are everywhere now,” Georgescu tells us in Chapter 1, “the Occupy movement, the Tea Party, the angry and restless following behind Donald Trump and Bernie Sanders.” And then later, in Chapter 7, the summary of these political movements aligns clearly with Georgescu’s own critique: “Donald Trump and Bernie Sanders rode a wave of revulsion over what has happened to capitalism in this country.” No serious analysis can entirely conflate those campaigns, so the generalization is jarring.
Why these obvious flaws? Okay, I get it: Georgescu wants to step away from politics, embrace a middle ground where people from different political persuasions can meet, and forge an agreement that transcends (or ignores) those other differences. On the one hand, I hope he succeeds in forging that agreement. On the other hand, the reductionist combination of Sanders and Trump is, at best, deeply problematic and at worst simply wrong. For example, the “wave of revulsion” that carried and still carries Trump clearly connects to race, and Sanders and Trump had almost no overlap in their approach to addressing “what has happened to capitalism” (other than a vaguely common complaint about trade). I suspect that Georgescu’s “middle ground” will therefore appeal more to people on the right, especially those who innocently and cluelessly revere the romantic and selective notion of the 1950s as a time of equality of opportunity.
For those of you looking for a nuanced view of policy, be ready for Georgescu’s pedigree in business – not government – to show through in places. In general, he has few roles for the public sector, other than high-consensus items such as basic research, job retraining for displaced workers, and infrastructure investment. He even resorts in places to a tired call to “dramatically reduce regulations over all businesses” – and even when he acknowledges that “regulations are essential,” it is merely to “preserve fair and open competition.” Again, policy makers are not his audience, which is good because he isn’t going to impress them with his depth in their realm.
The ultimate focus: getting the One Percent on board
So who exactly is his audience? Georgescu foreshadows this question with his tone in the first chapter, recounting his discussion with his collaborators in this project:
“[We] knew that the rich were getting richer, and the rest of the country was getting, well, more and more restless about it. When this subject came up, it was polarizing, and I wasn’t convinced that it needed to be. There’s a strident edge that creeps into the voice of someone who objects to how much money folks in the highest percentiles make. I wondered whether we could do an end run around the scolding tone and look at it from a practical perspective.”
It’s possible to read practical as selectively non-inflammatory, or to see strident edge as legitimate grievance, or to interpret scolding tone as speaking truth to power. Indeed, these interpretations are in the eye of the beholder. Yet if you can power past those innuendo-laden perspectives, Georgescu rewards you with his insight about the big game in his crosshairs:
[T]he reality is that many of the men and women who run our most successful companies don’t really believe in this crisis.”
That’s the final barrier: we need the people who are doing just fine, thank you, to realize that they are the exception. Georgescu has no problem bringing his own “scolding tone” to this crew, and even taunts them with some thinly-veiled warnings of revolution, noting once that change is coming either “through the ballot box or in the streets.” He just may have the credibility to succeed with this mix of carrot, stick, and conscience.
Georgescu aims, quite clearly, to provide the One Percent with the emotional support, world view, and playbook for implementing his version of “stakeholder value” in place of the broken system that he details in hard-hitting but corporate-friendly terms. And that may be the hint about how best to deploy this book: give it as a gift to any corporate leader you know.