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Reshaping Capitalism To Drive Real Change: The Role Of Government

Lisa Gralnek November 9, 2020

A few weeks ago, I had the great privilege of moderating a discussion on the role of government in reshaping capitalism to drive real change. (You can watch the full conversation in the video recording at the end of this post.) In the soon-to-be released book Impact, by the amazing Sir Ronald Cohen, the case is presented for moving towards an economic model of risk-return-impact, versus the standard risk-reward binary. This new model still targets returns (profit), but also accounts for the real social and environmental risks of doing business. Shifting our existing systems will require the cooperation of big business, entrepreneurs, investors, philanthropists and government alike. 

Three other impact leaders joined the conversation. Lenny Mendoca is a former Partner at McKinsey, serial entrepreneur, and the recent economic advisor to California state Governor Gavin Newsom. Ron Ivey is currently a Fellow at the Boston Consulting Group’s Center for Social Impact (CSI) and has held numerous positions advising businesses and the US government on solving complex socio-economic challenges. And, MaryAnne Howland is the Founder of the Global Diversity Leadership Exchange and Chair of the American Sustainable Business Council’s Race & Equity Working Group. 

Here are some of our key takeaways. 

1) All of you are trailblazers in your own right, what actions are you seeing in government and in partnership with the public sector right now that are giving you the greatest hope? 

Generally, the conversation is moving towards something far more inclusive. Meaning, purpose, community and health are no longer simple buzzwords, but are increasingly being supported by infrastructure. We’re heading towards what Sir Ronnie refers to as the “Impact Revolution” — a revolution in economics and policy. 

Some hopeful examples of this momentum include: the fact that ESG investments now account for $30 trillion- or ⅓ of all assets under professional management today and are growing; shifting consumer expectations are forcing companies to rethink their responsibility and address issues of social and environmental impact; diversity & inclusion is no longer a niche conversation; entrepreneurs are increasingly asking “how can my business/technology/etc. do more than just make money and really help the greatest number of people in the world?”. 

2) What are the biggest issues you see that require coordinated collective action between government, private and civil sectors to achieve positive impact? 

Sir Ronnie states that “our economic system is self-defeating, that unfettered capitalism has resulted in the creation of major social and environmental problems including poverty, undereducation, unemployment, health, environmental destruction and climate change”. We need systems-level game changes to address the scale of today’s global challenges. Among others, these include: encouraging and boosting impact investing; reskilling workers for a new world normal; and rooting out social and economic inequality everywhere it exists since it only feeds violence and instability. One of the primary ways we can support this is to take money out of politics and level the playing field.

3) What role do policy makers have in changing the way corporations measure and report impact? 

In order to change the behaviour of companies, we need government to use its scale and voice directly in two distinct ways: we need rules and regulation, and we need fact-based decision-making. 

If we accept that business has been largely responsible for creating and exacerbating the world’s current problems, government needs to enact standard policies that encourage enterprise transparency and account for the real costs of social and environmental impact levied by corporate activities. We cannot do this within the current system.  

Sir Ronnie’s risk-reward-impact model is based on pricing-in externalities — accounting for the cost of businesses doing negative harm to the planet or people. Just as the government established GAAP (generally accepted accounting principles) following the stock market crash of 1929 — today, we need impact-weighted accounting principals that rely on data and science to help us better understand and influence tax policy, competitive policy (avoid market concentration), climate change, education, community building, wealth distribution and so much more. 

4) What is the relationship between innovation and the future of impact? 

There is huge white space to explore and incentivize collective action that enrolls the private, public, and civil sectors in building a truly inclusive economy. Opportunities abound for multilateral cooperation, public-private partnerships, and aligning government policy to impact objectives. The real question is how can governments begin to move faster in embracing and adopting thinking and technology that ensures continued growth and prosperity? 

As Lenny Mendonca, recent economic advisor to the Governor of California (which happens to be my home state, the country’s most-populous one, the one perhaps most greatly impacted by climate change, and one with the world’s 4th largest GDP- larger than India’s and just a bit smaller than Germany’s) shared — zero emission vehicles are set to become Califrnia’s  #1 export this year. This fact was made possible by the state encouraging and supporting the expansion of innovation ecosystems, as well as committing to a reduced carbon footprint. The result of this collective activity is not only less waste and pollution, but also the creation of jobs, market value, and increased productivity! 

5) What qualities must governments foster in business to move us towards a more inclusive and equitable society? 

General consensus is that success requirements go beyond the norms and rules of basic governance – and include trust, effectiveness, efficiency, and accountability. We talked about being able to compare apples to apples in reporting on private sector activities. Most importantly, we spoke about how transparency is THE key ingredient for impact. 

6) How do you think governments can better communicate and “market” impact in order to help support a ‘race to the top’? 

If governance is defined as “the rules, laws, norms, language on which common understanding and regulation can happen” — then the role of government should ostensibly be to enact and enforce these rules, laws, norms and language around what we define as capital and impact. As Ron Ivey shared, our relationship with government must be based upon trust, social cohesion, and legitimacy. We need government to be outspoken advocates for the public good. We need to measure outcomes and adapt when and where we see need. Right now, too many in the world see governments as responsible for engendering inequality and supporting long-ago built systems engineered to fail. The way of the future is to do better.  

7) If governments are truly “we the people”, what must each of us do to be the change we want to see? 

We each play many roles in our communities: as consumers, employees, investors, and voters. In each of these roles – we have the choice to engage, to participate in the conversation. As MaryAnne Howland, longtime leader in all things diversity & inclusion calls to our attention: “We must use our voice to demand accountability.” As citizens, she challenges us to ask ourselves: What do I care most about and what am I willing to fight for? She pushes us to “get out there and make some noise, to get involved.” We must demand action from our representative leaders; after all, there’s no time to waste — impact must start now! 

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In closing, it’s obvious that to reshape capitalism and drive real change, both government and governance is needed.  

  • We need governments to help harness business’ proclivity for innovation, wealth creation and progress in such a way that it benefits all, not just some. 
  • We need governance in order to create and oversee the incentives that will propel investment and encourage co-creation, versus taking the more traditional stick-only based approach of taxes, penalties, and regulation. 
  • Our leaders in both public and private sectors must also recognize that we’re all in this together – interconnected and interdependent.
  • Driving real transformation and global impact requires the cooperation and commitment of states, nations, multilateral partners, nonprofits, corporations, local communities, and individuals alike.  
  • We can “do well and do good together” as so many in the business community are increasingly realizing and already tackling. Let’s join them! 

Hosted by SOCAP and the American Sustainable Business Council, watch the whole conversation here:

Governance / Leadership
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