By Punit Arora & Sarah Stephen

Our recent Business & Society Commentary argued that the extent of modern slavery would have been much worse without the dynamism of the capitalistic markets. Economic growth and prosperity unleashed by dynamic markets have significantly reduced populations vulnerable to exploitation. As we noted, “Imagine a world in which India and China alone had hundreds of millions of poor vulnerable to exploitation.” We also called attention to the fact that the wages in Japan, South Korea, and Singapore, i.e., countries that switched to capitalism earlier, are now comparable to those in the economic North. We expect this trend to continue in other countries such as China and India resulting from their liberalization processes. Thus, we believe that capitalism, in the long run, improves the economic outcomes for a vast majority of the humanity.

However, a long-run macroeconomic trend on worldwide economic progress will come as little comfort to those who are left behind, face poverty, injustice, extinction, or even suffer short run losses. Further, as we unequivocally agree that even one person facing exploitation, poverty, hunger, or ill health is morally repugnant, we also believe that addressing short-term and micro-level challenges is of critical import. Thus, instead of waiting for long-term changes to unfold, we need to find and enable mechanisms that can help us short-circuit the development process and make markets work better for all even in the short run.

In that spirit, this essay outlines three challenges that need to be confronted to make markets work for all. Before we discuss how to improve markets, let’s remind ourselves how markets work.

Markets, participants, and incentives

First, markets work because incentives generate attention among participants. Profits are to capitalism what blood in water is to sharks. However, that is a good thing IF we can harness that instinct in the right direction. Take the case of food. Until the 1980s, the predominant worry was that the world simply would not have enough food to feed its growing population. Venture capital, innovation, and investments in agricultural technology, in pursuit of profits, solved that problem so “well” that we now have an obesity crisis. These growths were made possible by the profit motive, just like the adoption of mobile telecommunications and mobile payment options even in the most remote corners of the world.

On the flip side, markets also suffer from short-sightedness, inertia, incumbency, and entrenchment problems. Capitalism often means we are solving yesterday’s problems to make today’s profits and, in the process, creating tomorrow’s problems. Every new solution creates new problems because whilst entrepreneurs see immediate profit potential, the significant detrimental impact on societies and environment are often not visible for a while. Going back to the food example, this has likely contributed to health (notably, obesity), societal (e.g., evictions from ancestral lands), and environmental (e.g., deforestation and biodiversity losses, and carbon emissions) problems. Now that markets smell economic opportunities from solving these problems, we already see significant progress in the production and use of renewable energy and organic foods, for example. BUT this will perhaps create new problems in the process! Hence, we need to work on recognizing and breaking such development cycles before we reach tipping points. 

The shortsightedness does not just exist on the side of ‘greedy’ capitalists and producers. Markets deliver on what consumers truly want, i.e., what they can and would pay for, rather than what they merely wish for. It’s their revealed, rather than their stated, preferences that really count. These choices are sometimes dictated by available technologies and factors of production, but more often by indifference to, or lack of awareness of, true impacts beyond our immediate gratification of our needs. Thus, we, as consumers, are often oblivious to the working conditions of those who are not in our immediate surroundings. We may have brief moments of awareness- as was the case in the midst of pandemic, which highlighted inequalities and revealed how many in the economy (especially essential and migrant workers) experience deplorable human and worker rights. Yet, we seem to go back to being ‘unaware’ of how our consumption feeds deplorable practices elsewhere. This problem is further exacerbated due to our increased veneration of wealth, which leads to unbridled consumerism and degrades those who have not. Thus, we need to work on building and sustaining consumer attention in such an environment.

Corporations and accountability

Second, and relatedly, we need to renew studies on the effects of practices such as monopolistic behavior. Giant corporations and key industries have an incentive to rig the rules of the game in their favor. It is the duty of governments to restore fair competition. However, governments and elected politicians are often vulnerable to the role of money in politics. We need to study and present robust evidence to counter crony capitalism and rigged institutions, which can prevent capitalism to work for the benefit of all.

As a natural corollary to the above, we need stronger checks on corporations that prevent their wrongdoing in long supply chains. While in the long-run, changes in local conditions automatically force these changes on them, we need to shine stronger sunlight on corporations to force them to acknowledge their societal and environmental footprints throughout their extended supply chain. With governments often unable or unwilling to hold powerful corporations accountable, the onus falls on us: the wider society, media, and scholars to conduct investigative studies. These would not only develop red flags to illuminate hidden activities, but also incentivize corporations into addressing their dark side. One specific solution, as regards addressing modern slavery, would be for scholars to draw from the wealth of literature on standards and reporting and collaborate with NGOs in creating watertight certifications and binding standards for corporations (e.g., similar to the Forest Stewardship Council). Furthermore, corporations can be incentivized into being trailblazing changemakers.

Economic systems and layered institutions

Third, our market-based institutions are often layered over pre-existing societal failings such as tribalism, casteism, racism, feudalism, misogyny and all other such ‘-isms’ that you can think of. The presence of such foundational failings will likely perpetuate an unhealthy and unfair society irrespective of the type of economic or political system followed. These failings are bound to support the privileged, who have a strong incentive to maintain their status, including by the utilization of power and the manipulation of the rules of the game in their favor. Thus, it is worth reemphasizing that capitalism does not imply ‘free-for-all’. While we often juxtapose state and other economic actors (e.g., unions, non-profits, cooperatives, etc.) as the opposite of free markets, we actually need multiple power centers to countervail each other’s powers, especially in the short run before competing new elites force a resolution. We need to reclaim the role of such economic agents who can counteract powerful organizations and incentivize the process of speeding up the transition to fairer societies.

Even then, we realize that this much needed transition is impeded by existing societal failings and invisible barriers to change. For instance, we heard many voices during the pandemic identifying a fertile context for transformative change in society. Yet, these calls remain unaddressed. Essential workers remain rather forgotten, people still consume goods without much thought to supply chain issues, economic activity has resumed as before, and corporations continue making hot pledges that are not walked. Thus, we need to examine this resilient inertia, study the root causes, and identify challenging sites (whether at the level of organizations or countries) that oppose transformative change.

Accelerating a better society

In our Commentary, we argued that the problem of modern slavery would be more acute without the dynamism of capitalistic markets. However, we also acknowledged that capitalism has its own flaws. In this essay, we outline these shortcomings in a bit more detail. We also suggest that by addressing these shortcomings, we can better tap into the documented strengths of capitalism towards addressing our grand challenges. In this pursuit of fairer capitalism, we provide some broad contours of an agenda for business and society scholars to contribute towards eradicating societal ills, such as poverty and modern slavery.