How McKinsey Destroyed the Middle Class

Technocratic management, no matter how brilliant, cannot unwind structural inequalities.

Jerry Useem, Francis Fukuyama

If you can rely on people to do what they say they’re going to do—without costly coercive mechanisms to make them dependable—a lot of things become possible.

Jerry Useem

Trust is to capitalism what alcohol is to wedding receptions: a social lubricant. In low-trust societies (Russia, southern Italy), economic growth is constrained.

Kenneth Arrow

Virtually every commercial transaction has within itself an element of trust.

Global flows: The ties that bind in an interconnected world

Economic and political turbulence have prompted speculation that the world is already deglobalizing. But the evidence suggests that global integration is here to stay, albeit with nuance.

Reimagining Capitalism

What is capitalism? Is it the greatest source of prosperity and freedom the world has ever seen or a menace on the verge of destroying the planet and our society? Rebecca Henderson argues that capitalism is the only solution to the massive problems that we face and explores the ways in which the private sector can help to reimagine capitalism so that it works for … [ Read more ]

Rebecca Henderson

Scholars came to distinguish between “inclusive” and “extractive” societies. Extractive regimes concentrate both political and economic power in the hands of an elite few. Healthy inclusive societies, by contrast, rest on three foundations: a free market; a strong civil society; and a democratically elected, transparent, capable, and responsive government. Together these three institutions hold each other accountable, balancing the power of the free market with … [ Read more ]

Rebecca Henderson

Markets require adult supervision. Markets only lead to prosperity and freedom when they are genuinely free and fair. Intuitively, if firms can dump toxic waste into rivers, lie to their consumers, and form alliances to fix prices, there is no guarantee that maximizing profits will increase either aggregate wealth or individual freedom.

Rebecca Henderson

The rule of law, well-designed corporate governance, anti-corruption safeguards, democratic government, a free media, and appropriate financial regulations are critical to enabling free markets to stimulate high quality development.

Rebecca Henderson

The deepest moral commitments of capitalism require that they help to sustain the health of the institutions on which the free market relies. If firms exist to maximize prosperity and social welfare, they have a moral duty to act as if there were a price for carbon, for example, even when there is no price in place. If firms exist to maximize freedom of opportunity, … [ Read more ]

James O’Toole

When the purpose of a corporation is seen as only maximizing shareholder profit, enlightened capitalism — even when it is linked to long-term financial success — tends to fall by the wayside.

Mission critical

Economist Mariana Mazzucato explains how solving society’s toughest problems starts with rethinking how value is created and innovation is incentivized.

Michael Birshan

Value flows from corporations to households through eight different pathways. If you take a dollar of revenue that the average corporation generates, 25 cents of that flows through as labor income: wages, salaries, and other benefits to employees. Seven cents of that dollar goes to capital income, meaning dividends, share buybacks, and interest payments to debtholders. Six cents goes to investment—earnings that are retained to … [ Read more ]

Bethany McLean

The biggest lesson of all from the crash — one that would resonate in our own time — is that when the financial system cracks, the motto of “free markets for free men” no longer holds, because the government has to step in.

Aaron De Smet

Transaction costs are now low enough that you can have a gig economy. We can create technology-enabled platforms that allow us to have collaboration at scale through nonemployees or quasi employees.

Now there were some economists who said that when transaction costs fall enough, the large employed workforces will go away. That was the prediction. I never agreed with it, because another reason why people work … [ Read more ]

James Surowiecki, Viktor Mayer-Schönberger, Thomas Ramge

It’s easier than ever to enter into, and successfully monitor, partnerships, and to outsource even core corporate functions to outside players. Intermediaries and brokers are less important. As a result, the transaction costs of doing business outside corporate walls are falling, which means that the economic case for the traditional big corporation (which exists in large part because of its ability to coordinate production with … [ Read more ]

John Maynard Keynes

If human nature felt no satisfaction (profit apart) in constructing a factory, a railway, a mine or a farm, there might not be much investment merely as a result of cold calculation.

Paul Krugman

No matter how many times we keep on saying the stock market is not the economy, people won’t believe it, but it isn’t. The stock market is about one piece of the economy — corporate profits — and it’s not even about the current or near-future level of corporate profits, it’s about corporate profits over a somewhat longish horizon.

The corporation in the 21st century

Shifts in how businesses create value and how it flows to households highlight the changing role of the corporation.

Joan C. Williams, Ro Khanna

The right is starry eyed about the market but coldly realistic about the limitations of government. The left is starry eyed about government but coldly realistic about the limitations of the market. As Churchill once said about democracy, it’s the worst possible system except for all the others. Both the market and the government are deeply flawed tools. But they are all we have.