Back in the fall of 2008, op-eds were shrieking about the end of capitalism. So far, capitalism seems to be bumbling along just fine. Yet there's still plenty of talk about how to temper the system's ill effects--from volatility to unsustainable growth to income inequality. In the Thursday Wall Street Journal, former vice-president Al Gore and the Generation Investment Management co-founder David Blood outline their vision to do that. It's called "sustainable capitalism."
WHY CAPITALISM, ON BALANCE, IS GOOD AND HERE TO STAY
There are several well understood advantages inherent in capitalism that make it superior to any other system for organizing economic activity. It has proven to be far more efficient in the allocation of resources and the matching of supply with demand, far more effective at wealth creation, and far more conducive to high levels of freedom and political self-governance ... markets lie at the foundation of every successful economy.
WHY, NEVERTHELESS, IT'S TIME FOR SOME REFLECTION
The recent crisis in global markets (following other significant market dislocations in 1994, 1997, 1998 and in 2000-2001), has shaken the world's confidence in the way modern capitalism is now operating. Moreover, glaring and worsening systemic failures—such as growing income inequality, high levels of unemployment ... and, most importantly, the reckless inattention to the worsening climate crisis—are among the factors that have led many to ask: What type of capitalism will maximize sustainable economic growth?
Sustainable capitalism seeks to maximize long-term value creation. It explicitly integrates environmental, social and governance (ESG) factors into strategy, the measurement of outputs, and the assessment of both risks and opportunities. Sustainable capitalism challenges us to generate financial return in a long-term and responsible manner.
HOW TO CREATE SUSTAINABLE CAPITALISM THROUGH INCENTIVES
We believe that the building of sustainable capitalism should start with careful attention to the nature and design of the incentives that businesses use and public policies encourage ... To begin with, compensation should be aligned with long-term objectives, and financial rewards should be linked to the period over which results are realized. ... Incentive structures should also reflect more complete measures of performance. ... There is no question monetary incentives are important--indeed critical--but it is important also to consider other meaningful ways to motivate and engage work forces. In a recent book by George Akerlof and Rachel Kranton, "Identity Economics," the authors document how people in exceptional organizations work well because they identify with the values and the culture, not simply the financial rewards.
This article is from the archive of our partner The Wire.