Stakeholder capitalism is urgently needed - and the COVID-19 crisis shows us why

The COVID-19 pandemic is not only a public health crisis that is costing lives and pushing national healthcare systems to the brink across the globe. It also an economic crisis - and one that could portend a recession far deeper and longer-lasting than the Great Recession of 2007-2009.

But the economic upheaval also offers a rare opportunity to restructure or economies and reform capitalism to make it work for a broader swathe of society.

That was the message from Mariana Mazzucato, an economist and professor at University College London, during the Forum's most recent digital International Media Council focusing on the fallout from COVID-19.

"What's interesting about this crisis is it's really revealed so many problems that we have in our current way of doing capitalism. There's different ways to do capitalism," Mazzucato said.

At the Forum's Annual Meeting 2020 in Davos earlier this year, "all the talk was about purpose and stakeholder capitalism," she added. "And I think this is the moment to say, 'Okay. If we're serious about that, let's make sure that we bring that lens of stakeholder capitalism, of collective value creation, to the table in how we structure the details of things like the bailouts,'" Mazzucato argued, referencing recent government financial rescue packages in response to COVID-19.

Davos this past year convened under the theme "Stakeholders for a Cohesive and Sustainable World," with a key focus on how to establish a model of stakeholder capitalism that can address global challenges like societal divisions created by income inequality and the climate crisis.

"The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large," Forum Executive Chairman Klaus Schwab wrote in the Davos Manifesto 2020.

Building on that ethos amid the ongoing coronavirus crisis, the Forum - through its COVID Action Platform - joined with members of the business on community on 1 April to endorse six Stakeholder Principles for the COVID era:

At the same time, policymakers and national governments also have a vital role to play in facilitating the development of stakeholder capitalism.

"The current moment is very unique, and my recommendation to governments is you have, for once, the upper hand" to help guarantee a fundamental shift in the system, said Mazzucato.

Still, she cautioned that "it's very important not to confuse big government with smart government."

"We don't just need money to be pouring into the system, we need smart state institutions also to manage it... a smart state to work smartly with smart companies to deliver really important solutions to public problems like this one," Mazzucato argued.