Reimagining Capitalism in a World on Fire 
Rebecca Henderson
Public Affairs (April 2020)

Three problems: massive environmental degradation, economic ineqality, and institutional collapse

As Rebecca Henderson explains, this book “is the result of a fifteen-year exploration of why and how we can build a profitable, equitable, and sustainable capitalism by changing how we think about the purpose of firms, their role in society, and their relationship to the government and the state.”

What specifically needs to be changed, indeed transformed?

The process by which  problems such as massive environmental degradation, economic inequality, and institutional collapse are best solved. One of the central causes of these problems “is the deeply held belief that a firm’s only duty is to maximize ‘shareholder value.'” That was the core concept of a transformation in economic thinking pioneered by Milton Friedman and his colleagues at the University of Chicago following the Second World War.

More specifically, “First, they argued that free markets are perfectly efficient, and that this makes them a spectacular driver of economic prosperity…The second argument behind the injunction to focus on shareholder returns rests on the  normative primacy of individual freedoms, or the idea that personal, individual freedom is — or should be — the primary goal of society and that an individual’s ability to make decisions about the disposition of her resources and time should be one of society’s highest goals…Third, Friedman and his colleagues argued that managers are agents for their investors.”

That in essence explains the thinking that needs to be changed in order to complete another transformation of thinking: shareholder value maximization “only increases prosperity and freedom when markets are genuinely free and fair. Modern capitalism is neither.” The rich get richer and….

Henderson asserts that a reimagined capitalism — “a reformed economic and political system — has five key pieces, not sufficient on its own, but each building on the other and each a vital part of a reinforcing whole.” They are:

1. Creating Shared Value
2. Building the Purpose-Driven Organization
3. Rewiring Finance
4. Building Cooperation
5. Rebuilding Our Institutions and Fixing Our Governments

Obviously, these are immensely complex strategic objectives, and achieving any one of them would indeed have wide and deep impact on any economic infrastructure.  Henderson is well aware of the challenges that await those enlightened leaders of “high road firms” who attempt to achieve the transformation that is needed.

Rebecca Henderson observes, “The roots of our current predicament are fear and separateness. We fear we will never have enough. We feel that we are separate and alone. But we are not.”

Whether or not capitalism is again driven by shared value remains to be seen. I have no idea to what extent (if any) I or anyone else who reads this book can do much (if anything) to help get even one of the five “pieces” in place. That said, I think this is a very important book. I have gained a much deeper understanding of what must be done…and why it must be done. Whether or not that happens remains to be seen.

Meanwhile, the fire rages on.