Banking on Building Back Better How can a stakeholder economy help rebuild the UK after COVID-19? Foreword
The concept of a stakeholder economy has a long history. In recent times, Klaus Schwab in the 1970s, R Edward Freeman in the 1980s and Will Hutton in the 1990s have all explored the notion that economic actors – and companies in particular – have responsibilities to people and groups beyond those who have direct legal ownership.
Arguably that notion is older still, and could be said to be the original conception of capitalism in modern times. Indeed, Milton Friedman’s 1970 essay declaring the primacy of the shareholder over other interests was effectively a rejection of what had been a stakeholder approach to capitalism and business.
This essay collection is published as part of this long history. Far from being a recent fashion conceived for the unusual economic circumstances of our current times, the drive for businesses to do better for their employees, customers, suppliers and society has deep roots. “Building back better” and “ESG” may be relatively new terms, but they capture old ideas – and ideas whose time has come again.
This is especially so in banking. Since the Global Financial Crisis, banks have sometimes been depicted as the essence of Friedman’s capitalism, narrowly interested in nothing beyond the bottom line. The essays in this collection show how false that depiction is. Here we find the CEOs of major banks setting out in detail how the stakeholder approach is not an additional part of their business but the foundation of that business.
A socially purposeful, ethically professional approach to banking is the ethos on which the Chartered Banker Institute, the oldest institute of bankers in the world, was founded too. Creating shared prosperity for customers and communities alongside shareholders is, in our view, essential for sustainable economic growth. It is also essential for continuing to rebuild the connection between banks, bankers, business, communities and society as a whole.
The importance of the stakeholder approach to the next phase of economic history cannot be understated. The dreadful pandemic that has caused such death and pain around the world has also created economic turmoil. Too much of that economic impact has been felt by people who already had less security and fewer resources than others. To prove, once again, its worth to humanity, the capitalist economic model must generate and distribute new wealth to help address that uneven economic shock. Businesses, and especially financial ones, must play their part in delivering an economy that works not as well as it did pre-COVID but better, and more fairly. In this collection, we find the people who run some of those businesses setting out how they will do so.
But the stakeholder economy is not simply something for companies to deliver. A fundamental principle here – and one that gives the Social Market Foundation its name – is partnership between the state and the private sector. A social market economy is not one where the state simply withdraws and leaves business to do as it will, trusting private enterprise to do the right thing in the end. There is a vital role for government and politics in delivering that economy.
That does not mean seeking to control or direct economic activity. Rather, political actors have a vital role to play in the wider conversation that sets the norms and standards for the treatment of those stakeholders. In that context, this collection is significant for the inclusion of essays from frontbench economic spokesman for both the Government and Opposition. Those two sides might be expected to disagree fundamentally about something as important as economics, yet we see here that the concept of the stakeholder economy is one that reaches across the partisan divide – another measure of how relevant that concept is today.
There is a vital role for individuals too, and this is where the work of professional bodies such as the Chartered Banker Institute is key. The 30,000 members of the Chartered Banker Institute, from Customer Service Officers to Chief Executive Officers, all demonstrate an ongoing commitment to sustaining high professional standards, which for us encompasses the stakeholder approach. In fact, we cannot see how banking can succeed if it is not deeply embedded within, and working hard to support, the communities in which it is rooted.
The Chartered Banker Institute and the Social Market Foundation operate in the separate but related worlds of banking and public policy, but there is much that unites our two organisations. Both are charities and both are committed to an economy where business and policymakers alike explore ideas and policies that promote the interests of all stakeholders. Together, we are proud to present this collection and contribute a little to the long and honourable history of the stakeholder economy.