Reinventing Capitalism in the Digital Age (Elements in Reinventing Capitalism)

This Element examines the crisis facing capitalism’s legitimacy, which has primarily arisen from the embrace of shareholder capitalism. This model, which sought to maximize shareholder value as reflected in the current stock price—often at the expense of employees, customers, and society—took hold in the 1970s. Though formally renounced by the Business Roundtable in 2019, shareholder capitalism continues to influence corporate behavior, often hidden behind the veneer of stakeholder capitalism.

Stakeholder capitalism, which emphasizes balancing the interests of various stakeholders (shareholders, employees, customers, etc.), has become the most widely cited model of capitalism today. However, it is criticized for its incoherence and difficulty in being a practical guide for the actions of an entire firm. The concept struggles to provide clear, actionable frameworks for businesses to follow, leaving gaps in its ability to align goals and manage competing interests effectively.

The Element suggests that a new evolution of capitalism—customer capitalism—emerges as a more promising model. Customer capitalism prioritizes the creation of value for customers and users, enabling firms to address the challenges of the digital age. By focusing on customer value co-creation, businesses can better align their interests with those of other stakeholders, including employees, shareholders, and society at large. This model not only facilitates the long-term success of firms in a rapidly evolving market but also has the potential to deliver broader societal benefits, ensuring a more sustainable and inclusive form of capitalism that meets the needs of all stakeholders.