Common Good Versus Stakeholder Capitalism

Amid the on-going debates about capitalism, it is worthwhile to flesh out some distinctions between common good capitalism and stakeholder capitalism.

Let’s start with some definitions.

Capitalism is generally associated with free enterprise and free market exchange whereby producers and traders generate profits by providing value to counterparties.

It can perhaps most starkly be contrasted with communism, wherein business decisions are centralized within government bureaucracies and the pricing signals of free market exchange are destroyed while prosperity turns into breadlines.

It can also be contrasted with socialism, wherein business decisions ostensibly remain in private hands, but profits are redistributed to the point of destroying all incentives to create value and—again—prosperity turns to breadlines.

Finally, the proposition that the corporatism of fascism ends badly is widely accepted.

Meanwhile, common good capitalism may best be defined at least in part by contrasting it with what it is not.

For example, one might envision a spectrum with (1) laissez-faire capitalism on one end and (2) government control of business decisions via socialism, fascism, and communism on the other. Common good capitalism may then be viewed as providing more government involvement than laissez-faire capitalism but less interference than socialism, fascism, or communism.

Finally, stakeholder capitalism may be differentiated from the foregoing because it proposes a system of internal corporate governance rather than external regulation (though it may be imposed by regulation). It is best contrasted with profit maximization in terms of determining the end of internal corporate decision-making. In other words, instead of private corporate decision-makers pursuing the one true north star of profit, they attempt to balance the interests of myriad stakeholders.

(There is perhaps an argument to be made that fascism is better understood for these purposes as imposing a form of internal corporate governance to the extent it leaves profits and decision-making with the private sector so long as those profits and that decision-making sufficiently align with the interests of the state. But we’ll leave that discussion for another day.)

Stakeholder capitalism is typically critiqued as suffering from a many-masters problem that both undermines efficient decision-making and provides cover to self-dealing insiders.

In addition, it ignores the role of stakeholders that is already baked into capitalism in the form of the incentives inherent in capitalism to be deemed a trustworthy and responsible counterparty to trades.

Finally, proponents of stakeholder capitalism often ignore the availability of external regulation in addressing perceived negative externalities.

For example, if it is concluded that corporations pollute too much, it is arguably better to make certain pollution illegal rather than adding “the environment” to a laundry list of stakeholders corporate managers are somehow supposed to balance ethically.

(It may also be worth noting that stakeholder capitalism can be a Trojan horse for ESG and DEI.)

Turning back to common good capitalism, one frequent criticism levied against it is that government should be neutral vis-à-vis markets, but there are several rejoinders to this assertion.

First, it is reasonable to conclude that no market the size of the United States can function without at least some government regulation. Accordingly, any binary characterization of government regulation as presenting an either/or choice is a red herring.

Second, neutrality is desirable except when it’s not.

On the one hand, if corporations are taking a side in our culture wars regarding transgenderism by supporting the Human Rights Campaign, it might be perfectly reasonable to want them to get back to neutral by either stopping support of HRC or at the very least adding support for a balancing organization such as the Alliance Defending Freedom.

Similarly, if a corporation’s employee health insurance coverage pays for chemical or surgical sex change procedures for minors, it might be perfectly reasonable to want them to get back to neutral by either stopping their financial support of what is arguably child abuse or at the very least also paying for detransitioning procedures.

On the other hand, it is also perfectly reasonable to expect the U.S. government to not stay neutral while U.S. jobs are shipped overseas and national security is undermined via one-sided or abused trade agreements. In those cases, the good of neutrality is arguably outweighed by the common good of the American worker and national security.

Even a pro-free-trade stalwart such as Paul Krugman has apparently recently acknowledged that there are tradeoffs between free trade and things like national power that may need to occasionally be resolved in favor of national power.

To be sure, the previous two points mix internal and external governance, but the general idea about the potential myth of neutrality arguably remains.

Put another way, if every time leftists are in power, they utilize all the levers of government available to them but every time conservatives are in power, they keep their hands off those levers under the banner of “neutrality,” then you should expect to end up with leftist culture dominating your society. (Sound familiar?) This may be what Lenin meant when he allegedly predicted that: “The capitalists will sell us the rope with which we will hang them.”

Of course, the devil is in the details. And we may well debate whether proponents of free enterprise and free market exchange should even be using the term “capitalism” given its Marxist roots.

However, while there will certainly be some line-drawing issues, there should be room to operate between laissez-faire on the one hand and socialism, fascism, and communism on the other. A good-faith, pro-market position advocating for common-good capitalism while rejecting stakeholder capitalism, socialism, fascism, and communism is possible.

As a relatively recent Conservative Perspective published by Alexander William Salter via The Heritage Foundation (where I work) noted: “The question is not whether to jettison free enterprise in favor of the common good, but how to orient free enterprise in support of the common good.”

Or as Vincent Phillip Muñoz recently put it in a related context: “Rather than jettisoning American principles, we need to recover their genius … The Founders’ natural-rights republicanism offers … a principled and prudent commitment to the common goods belonging to the political order.”