According to the Harvard Business Review, capitalism, as it is practiced in rich countries, has taken two brilliant ideas too far. The first is return on equity (ROE), one way of measuring value creation that has managed to eclipse many other, and broader, ones. The second is competition, which has come to be seen as an end in itself rather than as a tool for promoting growth and innovation.
Both ideas began as effective solutions to a pressing problem—how to allocate resources to produce, as Jeremy Bentham would have it, “the greatest good for the greatest number.” Centuries on, the advanced economies cling tightly to these approaches, but the problem has changed. The mismatch has caused difficulties of such urgency that many people are now declaring capitalism a failure. The whole system has been indicted, not only because of the financial crisis but particularly since that event, as inherently unworkable.
It isn’t true. Capitalism—broadly, private ownership and resources allocated by markets—remains the most powerful, flexible, and robust system for driving society’s prosperity and enhancing quality of life. But keeping it on track will depend on our ability to rethink the priorities that guide everyone in the system, from entrepreneurs to regulators to investors. Together the practitioners of capitalism will need to throttle back the headlong pursuits of ROE and competition, and that process begins with recognizing those ideas for what they are. They are runaways….
Don't stop now. Go to http://hbr.org/2012/01/runaway-capitalism/ar/1
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