Global business chiefs fear poverty could destroy capitalism

Three professors from the world's pre-eminent business school have co-written a study that at first blush seems to fall more in the genre of horror tale than business text.

But in identifying powerful forces that threaten the existence of the capitalist system, the most successful engine of economic growth the world has known, the dons of the Harvard Business School appear to have drawn a line between the fears of the boardroom and those of the Occupy Wall protesters. Street

But the groups seemingly have more in common than might first be apparent.

Income disparity, resource depletion and potentially cataclysmic climate change were recognised by chief executives in a series of conversations conducted by Harvard as among the potential ''disrupters' of global prosperity. The financial meltdown of 2008 and, now, the Occupy movement are clear manifestations of those fears.

''And we'd expect more,'' one of the authors, Joseph Bower, told the Herald. ''Because people really feel outraged.''

Professor Bower and his colleagues note in their study the broad concerns of the 46 business thinkers that they brought together in forums on three continents, but by far the most widely held was ''the tendency of capitalism, as it currently functions, to produce extreme disparities of income and wealth''.

It took little to conclude that the vast accumulation of wealth by individuals compared with the stagnating fortunes of low- and middle-income workers is fuelling the backlash worldwide.

''Some leaders pointed to what they regard as excessive compensation earned by CEOs [that] strike many people as intrinsically unjustified,'' the authors write. The reality of growing disparities - one that is the crux of political debate within Western democracies - poses questions about capitalism's very raison d'etre.

One unidentified Asian business leader told the authors: ''Herein lies a major challenge, because the world has become very much more prosperous as a result of market capitalism.

''The rich have become richer. The poor in most cases have become richer. But the gap between the rich and the poor has also grown wider … There is the growing sense of being left out, even as people are getting better off.''

A European executive said: ''What was the good of capitalism? Was it the fact that we were building a very large, very well-off … middle class? We are not doing this any more.''

And in the US, a chief executive told the authors: ''It's undeniable that in a country like ours, unfettered capitalist impulse on a global basis does seem to exacerbate the problem.''

The Harvard project coincided with the business school's centenary. What better way to celebrate it than to examine the state of the very system that had nurtured its own rise to prominence, an institution pioneering the education of the management class?

The school brought together chief executives and business leaders in 2007 and early 2008 from the Americas, Europe and Asia for its series of discussions, including Australia's David Murray, the former Commonwealth Bank boss who is now chairman of the Future Fund.

Using its famous case-method approach to inquiry, it took as a starting point the then most recent World Bank growth projections and batted around the issues.

Capitalism at Risk: Rethinking the Role of Business is the result, just published.

Joining the discussions were executives such as Jeffrey Immelt of General Electric, John Elkann of Fiat and Bertrand Collomb of the French group Lafarge. They included bankers and financiers, as well as the heads of conglomerates and the former US labour secretary, Elaine Chao.

That capitalism has delivered for billions is not at issue: in the last decades of the 20th century, 97per cent of countries enjoyed increased wealth, according to the World Bank. More than 450 million people were lifted out of extreme poverty.

But the executives also cited as potential threats the powerful forces within financial markets, environmental degradation, political populism, terrorism and war, fundamentalism, mass migration and pandemics.

They are quoted anonymously throughout the work.

''History tells us that when an awful lot of people are disenfranchised, they have no incentive to play by the rules, and given today's communications availability, weaponry … that's an issue we have to really think about, probably over a very long period of time,'' one executive said.

Perhaps unsurprisingly, given that many were the beneficiaries of fabulous remuneration, the business leaders do not appear to offer easy solutions to bridging inequalities. But they back business, not government, largely to ameliorate strains on the system.

''Good government is crucial, to be sure,'' write the Harvard professors in summary. ''But government … needs the support and engagement of business to function effectively.''

In the US, the argument for higher taxes on the wealthy has coalesced around billionaire investor Warren Buffett, who has become a poster boy for the Obama administration's campaign to raise revenues, staunchly resisted by Republicans. The learned dons of Harvard join the dots between business, education and taxes. In a globalised economy, modern business can survive only with a well-educated workforce.

And therein lies the rub. ''Finding a way to mobilise the entire relevant business community, and others, to help support the needed taxes simply makes sense'', they conclude.