Capitalism is the greatest economic model in history. That said, sometimes it breaks, as we’ve seen. But one of its strengths is that it also can shift and change; and we may be on the verge of one such change, a change that will lead to a more prosperous capitalism.
That change is the coming demographic shift. Boomers are retiring. Stepping into their places are two key groups: millennials and women. The energy around the advancement of these two groups is almost palpable. The millennials are ageing into the workforce, an unstoppable force.
As for women, after years of stalled professional progress, the momentum seems to be in their favor. The national conversation on the benefits of gender diversity – sparked by “Lean In,” by Anne-Marie Slaughter, by speculation over Hillary Clinton’s presidential run – is powerful. As a result, women are recognizing the power they have as a group, joining networks such as Ellevate andWomen 2.0, in which they share information and knowledge, mentor each other, and help each other advance. Women are starting businesses at a greater rate than men, as technology reduces the cost; this may pick up steam as platforms like Indiegogo promise to make capital raising more inclusive. And company managements are renewing their efforts around diversity, as they recognize that their tired affinity groups won’t be the only answer.
The implications of this shift in the workforce are significant: these groups think differently, act differently and value different things than those who have come before them. As they bring their values into the workplace, our economy begins to shift to a form better termed “Inclusive Capitalism.”
What does Inclusive Capitalism look like?
Well, if the research is right, a lot of great things happen:
The economy grows. Further advancing women in the workforce is not a zero sum game: more economic participation begets more economic demand begets more economic participation. By some accounts, fully engaging women in the US economy expands it by 7 percent to 9 percent, and by more in some parts of the world.
The retirement savings funding gap is reduced. More women working, more retirement savings, more Social Security savings, lower funding gap. In addition, there is some evidence that more women in senior management roles leads to lower gender pay disparities; it is estimated that equal pay for equal work could close the Social Security gender gap by a third.
Less volatile financial markets. Women are more risk-aware than men, with the correlations between testosterone and risk-taking well-documented. So imagine trading floors of the big banks with more women. It’s hard to believe that such diversity would have led to a more severe financial crisis, right??
Innovation increases. We mythologize lone geniuses. But innovation is also fueled by diverse perspectives: are teams that all have the same background likely to be more innovative, or those that bring in people who think differently, examining issues in different ways? Much like cities are more innovative than small towns, so teams that have different, and clashing, ideas are more innovative.
Companies perform better. In addition to greater innovation, more diverse teams have been associated with higher returns on capital, lower risk, greater long-term focus, and greater client focus. The power of diversity is so great that diverse teams outperform “smarter” teams. (See my piece on: The Secret to Putting Together an Insanely Successful Team.”)
Employees will push companies toward greater “meaning and purpose.”When we asked the members of Ellevate Network their priorities for accepting a job, the number one answer was “meaning and purpose.” And CatchAFire’s research indicates that 79 percent of millennials seek to work at companies that are socially responsible. No, neither group wants to trade compensation for this, but are instead pushing companies to stretch to do both.
Investors push companies to define their impact on the world around them. As women and millennials increase their wealth, their investments will grow. And so their drive for doing well and doing good will extend past their workplace to their investments (see my post: “The Big Idea 2014: Investing Will Completely Change”). And, in fact, values-based investing – in which investors look for both a fair return and a reflection of their values in their investments – is well out-stripping growth in the overall investing industry.
Think about the potential positive impact: according to the Center for Talent Innovation, 77 percent of women want to invest in companies with diverse leadership teams. As their capital flows to those companies, there can be a self-reinforcing mechanism: more capital to companies with greater diversity, which drives better business results, which gives investors more money to invest, which drives more capital to companies with greater diversity. And this can be replicated for any number of social values.
Families benefit. Yes, I know some folks will have the view that, in this environment, children will suffer without a full-time parent at home. As we approach full economic engagement – and as the desire of women and Millennials for greater work-life integration is felt – smart companies will respond. Today, most larger companies report that they have flexible work programs; yet 60 percent of working women with minor children say they wish they had work flexibility. Hhhhmmm.
Smart companies will move to true “flexibility without shame,” in which taking time for outside demands is not viewed as a form of weakness. Instead, I would guess that worker productivity goes up, as the stress of this-sometimes-unwinnable juggling act (for women and men) is reduced.
Entire industries are re-shaped. Pediatricians who work early morning and evening hours. Vets who work weekends and make housecalls. A Wall Street that is less about the next complex financial instrument and more about values-based investing. A cable guy who shows up on time. Law firms that no longer bill by the hour. I’m not sure how industries will respond to these changes, but the businesses will morph to meet the needs of this emerging workforce.
This shift in capitalism certainly won’t happen overnight, and there are still things to be frustrated about (women making 78 cents to a man’s dollar, venture capital dollars still overwhelmingly directed to males). And these deserve our time and attention to fix them.
But it’s the trend that matters most here. As these groups fully engage in the economy, we will move to a more inclusive capitalism, which will be a more prosperous capitalism.
This article is published in collaboration with LinkedIn. Publication does not imply endorsement of views by the World Economic Forum.
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Author: Sallie Krawcheck is the Chair of Ellevate Network and Ellevate Asset Management.
Image: A man rides an escalator near Shanghai Tower (R, under construction), Jin Mao Tower (C) and the Shanghai World Financial Center (L) at the Pudong financial district in Shanghai July 4, 2013. REUTERS/Carlos Barria.