Prophets of profits


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The world’s most valuable business manufactures its most popular product in factories it doesn’t own. A company that enables strangers to rent your rooms is valued at $113 billion – but has never made a profit. A story about a school for wizards, written by a single mother in an Edinburgh café, is worth double the GDP of Iceland. ($43.19 billion versus $21.71 billion, in case you were wondering.) And the top one per cent of earners own almost half the world’s wealth. Welcome to the strange world of 21st-century capitalism.

For the few winners, it’s clearly working brilliantly. For the rest of us, perhaps not so much. More and more, experts are asking if it is now time to disrupt and reinvent capitalism itself. “It’s not so much about whether capitalism is good or bad,” says Professor Maurizio Zollo, Head of the Department of Management and Entrepreneurship and scientific director of the Leonardo Centre on Business for Society at Imperial College Business School.

“The real question is: what type of capitalism will enable the world to successfully tackle grand challenges such as climate change and inequity? What form of capitalism will create a flourishing society and generate wellbeing in a more comprehensive way, not just economically but also in social, health and psychological terms? And how can we find a form of capitalism that does not prioritise financial capital over all its other forms – human, social and natural?”

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Do factory gate prices still have meaning as a measure of inflation in an increasingly digital world?


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These aren’t new questions, of course: debating capitalism’s flaws is as old as capitalism itself. But certain aspects of modern capitalism are particularly problematic, says Professor George Yip, Emeritus Professor of Marketing and Strategy.

“Capitalism needs reinventing, because shareholder-based capitalism just isn’t working,” he says. “Too many companies take a short-term approach driven by shareholders’ need for profit.”

Indeed, unless you have a quasi-monopoly like Microsoft or Amazon – where Jeff Bezos has the ‘golden vote’ – it’s hard to manage for the long term in the face of short-term shareholder pressure, Yip points out. “The Anglo-Saxon capitalist system does not sufficiently protect companies who want to make long-term investment decisions.”

And those types of investment decisions are increasingly intangible, bringing a new set of stresses. Developed countries, points out Professor Jonathan Haskel, Chair in Economics at the Business School, are increasingly investing in the assets that spring from ideas, not infrastructure: moving from cars and ships to code and scripts.

“Let’s take Harry Potter. It’s an entirely intangible business: a story, a movie, bits of code on the Pottermore website. And it’s very winner-takes-all. You only need one Harry Potter, which you can scale up and sell to absolutely everybody.”

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How many truly rich people are there globally?
In 2022, it is estimated there are 61,165,000 millionaires and 2,750 billionaires.
There are currently no trillionaires.



So, what are the solutions? Perhaps it’s time for the state to step in. China’s government, says Yip, is making innovation a priority.

“Huawei leads the world in 5G. That’s not Nobel-winning but it is market-winning. China will dominate the world in electric vehicles (EVs) because they have the world’s largest car market, many battery companies, and the government is doing more to promote EVs, including building charging stations, than any other company in the world – they have invited Tesla to manufacture it.”

China’s state-managed capitalist system has a Communist Party chapter in every company above a certain size. “And when, for example, Ford put Volvo up for sale, the Chinese government decided that only one Chinese company should bid,” says Yip. “And it won – it had a big advantage, as all the resources of the state were put behind the bid. That wouldn’t happen in the West.”

Which is not to say there aren’t plenty of examples of state-influenced capitalism, as Yip points out. France famously protected food manufacturer Danone from being acquired by PepsiCo by designating yogurt as a strategic industry. Germany’s form of stakeholder capitalism ensures unions are represented on the supervisory board.

“I have been on one of those boards myself, sitting next to the union representative,” says Yip. “It’s ownership in the right way. But companies will not reform themselves. It must be done by countries and will only work if multiple countries work together. One ray of hope is the recent gloable taxation measures – an international agreement to tax multinationals based on local revenues, not on repatriated profits.”

Haskel suspects that our current banking system penalises intangible startups: reforms are needed to level the playing field. Large pension funds and insurance companies are often limited in their investment types, he points out: they are cautious, so tend to go for ‘safer’ options like government bonds or tangible companies that pay a solid stream of dividends.

They don’t go for intangible companies because who knows what might happen? We could reform the way these funds are regulated, to allow them to invest in more risky assets. If funds collectively do that, then the collective risk is not as high as the individual risk.”

But Zollo believes we need to go further. “We need to turn it upside down,” he says. “Rather than asking: ‘How do I make money by exploiting our various contributors?’, companies need to ask: ‘What is the purpose of our firm? How do we satisfy one particular social need in a unique and innovative way?’”

Profit, he points out, isn’t a bad thing. But it’s a means to an end, rather than an end in itself. Achieving this aim is the Leonardo Centre’s mission – just and regenerative capitalism that is about doing good, not just lowering harm.

“We want to come up with alternative ways to actually handle the core elements of the enterprise. Governance, incentive systems, control systems, strategy, leadership, culture – these need to be rethought completely if we start from the assumption that a company is created to solve a social problem.”


The new capitalism will be what no other capitalism has been before: evidence-based. The Leonardo Centre has created the first global data set of sustainability initiatives. It is using machine learning to read thousands of sustainability reports, identify in each report all the various initiatives that companies are putting in place, and categorise them on their sustainable development goals. Zollo and his team can now estimate, for each sector, a portfolio of behaviours that maximises both financial and non-financial performance. And they want to put these behaviours to the test.

They have created groups of global thought leaders for each element of an organisation – governance, culture, innovation and so on – who are willing to work with companies in live experiments to see what works.

“We usually study what’s been done in the past,” says Zollo. “This is new, and we want to go to scale and do it with hundreds of companies in the next ten years. The idea is to build evidence of what happens when companies start managing their core processes in a way that starts from what society needs.

“Right now, we are stuck with a system to organise, create and
manage companies that made sense when it was invented in the
19th century. Today, it makes no sense. Not for the companies,
and not for society.”

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Imperial is the magazine for the Imperial community. It delivers expert comment, insight and context from – and on – the College’s engineers, mathematicians, scientists, medics, coders and leaders, as well as stories about student life and alumni experiences.

This story was published originally in Imperial 52/Summer 2022