Stakeholder Capitalism: Not Really
Stakeholder capitalism is all the rage these days, with Elizabeth Warren and Bernie Sanders at the forefront of the movement. Their participation is just another example of their economic ignorance.
The concept of stakeholder capitalism is itself a contradiction in terms; it would be more correct to call it “stakeholderism.” Just like crony capitalism (it is really just “cronyism”) isn’t real, as the terms are opposites of one another, the same with stakeholder capitalism. You cannot have both. It’s like saying libertarian statists. You can put the words together but they lose their meaning.
Stakeholder capitalism is a concept that suggests corporations should balance the needs of all the “stakeholders” who comprise the business, from shareholders to executives to employees to customers to suppliers and even to more nebulous stakeholders such as the environment or community. This is in contrast to traditional capitalism, which earns profit for the company owners and investors, the ones who put forth the risk capital to get and keep the company going. It earns this profit by providing products and/or services that their customers voluntarily pay for.
Stakeholder capitalism sounds good and looks altruistic but in fact are composed of different competing interests and goals. These various factors ultimately take away from the most singular purpose of a business: create a product or service for which another person or company sees value in that product or service and exchanges money (or goods or services) for it. If the finished product is good and has value, it will be consumed by another person or business for amounts in excess of the cost of resources to create the goods (profit). If the finished product is not good, then the cost of resources exceeds the perceived value and there will be a loss. It is only by focusing on this single-minded purpose that one can tell if the product/service has merit and should be continued. A company must be able to return a profit to its investors to induce them to invest more money for the company to increase its production of other valuable products and services.
Stakeholder capitalism seeks to undermine the traditional measure of profit and loss by insisting that various interests all mutually derive benefit. But this is not why a company exists nor should it. It misallocates resources and value and creates competing outside interests (that will not agree on how important each one is), all in the name of being socially beneficial. No company can sustain itself with that end result in mind, which ultimately hurts the very society stakeholder that capitalism would otherwise help.