Despite the uncertainty and anxiety in the news today, the world is a much better place than ever before. In emerging markets, billions of people have moved out of extreme poverty. In the developed world, innovation has surpassed what most could have ever imagined 20 years ago. The promise of global progress has become a reality for many — but not all.
Our global narrative of progress is increasingly being called into question by economically marginalized groups and populist politicians. This narrative rests on three propositions: that globalization is a driver of growth and prosperity; that technological progress enriches our lives; and that shareholder returns reflect businesses' contributions to societal progress.
Those who question the continued applicability of this narrative have a case. While globalization has increased aggregate prosperity and reduced inequality across nations, it has also created winners and losers within nations. Rising income inequality has become a driver of the widening trust gap between the elites and everyone else, which has helped fuel the rise of populism.
And there is an increasing fear that technology could make matters worse by displacing jobs. With policymakers distracted by political polarization and limited fiscal and monetary room to maneuver in, one thing seems certain: Global businesses must advance a new narrative for globalization, technology and the role of corporations — and support it with action.
WHERE DID THE EXISTING NARRATIVE BREAK DOWN?
Popular support for globalization has largely rested on the premise that most people would benefit from it, many could succeed through their own efforts, and a social safety net would temporarily protect the disadvantaged. Traditionally, it has been governments' role to provide equality of opportunity, a safety net and stability.
Meanwhile, business focused on generating growth, productivity, innovation and, ultimately, societal wealth. This approach was credible as long as economic inequality was kept within reasonable bounds. Persistent, growing income inequality in many societies around the world suggests these limits have been passed. The same goes for technology. While some are enthusiastic about the possibilities of artificial intelligence, many fear unequal gains and potential job losses.
Lastly, the corporate focus on maximizing shareholder value has advanced productivity and created wealth and jobs, but now it must contend with slow growth, stalling global trade and a growing awareness of unintended social and environmental side effects. So far, corporations have mainly reacted by increasing share buybacks, accumulating corporate cash and driving dividends toward historic highs.
Our research shows that many companies are increasingly geared toward the short term. Such companies tend to generate less growth and value in the long run.
What does a new narrative require? To preserve global progress, it will need to emphasize equal access to economic opportunity. At the same time, business leaders need to embrace a new agenda to shape the future.
TOWARD A NEW LEADERSHIP AGENDA
To do so, leaders must balance two conflicting objectives. First, they must secure the prosperity of their companies. This has become harder in an era defined by lower growth, impatient investors, geopolitical uncertainty and rapid technological change. Second, they must secure the conditions for sustained prosperity, which requires a more inclusive model for global economic integration and technological progress.
To achieve those ends, we propose that business leaders support a new agenda with seven areas of opportunity:
- SHAPE THE NEXT WAVE OF GLOBALIZATION. While the last wave of globalization centered on accessing foreign markets and creating low-cost global supply chains, the next wave could follow a very different pattern. Business leaders can take an active role in shaping the next phase by looking beyond cost-based offshoring and emphasizing the benefits of trade and technology across a wider geographic and demographic base.
- SUPPORT ENTREPRENEURIAL BUSINESS GROWTH. Several decades of economic progress have resulted in a concentration of economic activity in larger enterprises and a decline in startup activity. The emergence of platform businesses, which facilitate the collaboration of thousands of individuals and enterprises in dynamic ecosystems, could help restore balance and sustainability. Such ecosystems even the playing field for individuals and small firms to participate in technological progress, catalyzing employment and innovation.
- LEVERAGE TECHNOLOGY FROM FRONT TO BACK. If businesses leverage it from the back office forward, focusing on increasing efficiency and optimizing internal processes, the result will be the displacement of labor. Instead, businesses should start from the front, focusing on solving unmet customer needs and delivering new value.
- INVEST IN HUMAN CAPITAL. An increase in the dynamism and diversity of business environments means that people must adapt their skills more quickly. This includes their ability to take part in the production and consumption of new goods and services. Finding ways to help people acquire transferable skills during their careers, not just before they start out, is a large social challenge. Education is critical in creating career mobility and equality of opportunity, but it takes too long for new work skills to become codified and for the education system to deliver them. Firms can help close the loop. As new tools become available to build human capital, corporations could broaden their mandate in this area, both with their own staff and in their communities.
- BROADEN ACCESS TO BASIC GOODS. Access to some fundamental goods and services in our economies is too restricted because they're prohibitively expensive. Housing, education and health care are just three examples of basic goods that have substantially increased in price, leading to unequal access. Providing access to such goods is often a consequence of competitive business activity and disruptive innovation. Low-cost airlines, for example, brought access to their services to previously underserved regions and customer segments.
- REBALANCE AND ALIGN REWARDS. People's sense of self-worth and happiness is closely linked to the nature of their work and their relative earnings. Mismatches between rewards and performance undermine perceptions of fairness and faith in the system. Bringing rewards into a healthy relationship with performance presents an opportunity for leaders to shape people's perceptions of self-worth and access to opportunity. On executive compensation, leaders should increase transparency of compensation levels by being open about the criteria for performance-based pay, and by ensuring that executive remuneration is governed effectively.
- REVITALIZE SOCIETY THOUGH A SOCIAL BUSINESS MINDSET. Business needs to remain deeply embedded in society to positively affect it. In fact, business can create solutions to society's most fundamental problems. For example, take long-term and youth unemployment. In Europe, numerous business-led initiatives address this issue, working with public agencies and thousands of volunteers and employers. These initiatives offer structured labor market reintegration and skill-building programs.
Martin Reeves is a senior partner and managing director in the Boston Consulting Group's New York office and the director of the BCG Henderson Institute. Johann Harnoss is a project leader in Boston Consulting Group's New York office and an ambassador to the BCG Henderson Institute.