Reimagining Capitalism in a World on Fire Book Summary - Reimagining Capitalism in a World on Fire Book explained in key points
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Reimagining Capitalism in a World on Fire summary

Rebecca Henderson

How Business Can Save the World

3.9 (153 ratings)
25 mins

What is Reimagining Capitalism in a World on Fire about?

Reimagining Capitalism in a World on Fire (2020) asks us to rethink the way our economic system functions if we’re to survive our current crises, like climate change, inequality, and authoritarian populism. In this guide to the future, Rebecca Henderson describes how we must instill purpose into our business ventures, so that they create shared value, rather than merely shareholder value.

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    Reimagining Capitalism in a World on Fire
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    Key idea 1 of 8

    Prioritizing shareholder returns is damaging to both the planet and to business.

    The plight of shareholders has long been discussed in the boardrooms of big businesses. Everything else – from innovation and the environment to workers’ wages – has come after the interests of the shareholder.

    But how did we reach this point? To find out, we have to turn to the ideas of the American economist Milton Friedman, who was popular with business thinkers in the late twentieth century. He claimed that the only moral responsibility of business was to increase profits – businesses that only sought profit would become more efficient and innovative, and bring broader prosperity. Essentially, the market would take care of everything.

    And as shareholders are the people who stand to gain from a business’s profits, Friedman believed that they should be a corporation’s main priority. That’s why, today, many businesses believe that they answer only to their shareholders.

    The key message here is: Prioritizing shareholder returns is damaging to both the planet and to business.

    The result of prioritizing shareholder returns can be linked to most of the problems that we face today. Let’s start with the climate. As big fossil fuel companies prioritize their shareholder returns over the planet, they too are driving devastating climate change.

    Then, there’s widespread inequality. This is partly as a result of big business successfully lobbying against legislation that would make things more equal. Legislation that they believe would affect their shareholder returns.

    And then, partly because of this inequality, we see the election of authoritarian populist leaders across the world. In short, we’re in a mess, and businesses seeking short-term goals are largely to blame.

    The thing is, this kind of business model doesn’t actually hold any long-term benefit for businesses either. Take the fossil fuel companies. By pursuing a business strategy of short-term profits but long-term destruction of the natural world, they’re destroying the very foundations of their business model. Not only will reputational damage hit them hard in the future, it’s rather tricky doing business in a world on fire.

    One illustration of just how short-sighted this model is comes from the American coal firm, Peabody Energy. Even though we face a climate crisis, Peabody continues to prioritize coal. In 2018, their total revenues were $5.6 billion for shipping 187.7 million tons of coal. However, the climate and health costs of burning 186.7 million tons of coal are around $30 billion.

    Peabody is destroying about five times the value that it’s generating. Rather than creating shared ‘prosperity’, as Milton Friedman claimed, profit-hungry businesses like this are threatening the very prospect of life on Earth.

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    About the Author

    Rebecca Henderson is an economist and the John and Natty McArthur University Professor at Harvard, where she teaches the popular Reimagining Capitalism course. She’s also a board member at Amgen and IDEXX Laboratories, both S&P 500 Companies.

    Who should read Reimagining Capitalism in a World on Fire?

    • Business leaders and CEOs looking to change the world
    • Economists and academics interested in rethinking capitalism
    • Anyone interested in the world of the future

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