Milton Friedman, Nobel laureate in economics and founder of the “Chicago school”, was the father of a commonly held management principle according to which “the only responsibility of a company is to maximise the profit of its shareholders” (1970). As if they were guided by some kind of underlying universal order (Adam Smith’s famous “invisible hand”), he believed that companies whose sole objective was to maximise profits would spontaneously propagate shared value to society. There was no need to worry about external effects, such as environmental impact or social responsibility. Nor about the equitable distribution of prosperity. Not even long-term competitiveness or national wealth. The immediate optimisation of profits would automatically drag economies and societies to balanced, positive and fair growth. The market was intelligent and rational, and would reach its optimal point of equilibrium: consumers would spontaneously and freely choose the most responsible and least damaging consumption options for the environment. The mission of Governments was to stand aside, deregulate, and make way for investor spirits, free and bold. Economics became a pure science, a simple extension of mathematics. A science of great formal beauty, but decontextualised from historical processes or social realities. A science that responded to immutable principles: anything that happened in a New York neighbourhood and could be modelled by an economic equation would be replicated when applied anywhere else in the world. Any discretionary intervention in the markets by an administrative body would generate biased errors in the natural order of economic mathematics.

The market equations, the invisible hand of Adam Smith and Friedman’s postulates are not sufficient to reconcile us with the planet and our own society

This school of thought decisively influenced world economic theory for half a century. Its political philosophy postulated the extreme virtues of the free market and minimal government intervention. The best industrial policy was the one that did not exist. If financial efficiency decreed that productive value chains should be delocalised to Asia (with lower labour and regulatory costs and greater environmental laxity); and that Europe must become a wasteland devoid of industrial activity, then so be it: other activities would replace those that were leaving (as if the economy followed the physical laws of perfect gases). If technological change forced millions out of a job, they would become entrepreneurs, and inevitably create new and better jobs, following a sort of thermodynamic principle. If industrial activity, according to all evidence, dangerously accelerated climate change, it must be a purely optical effect derived from our brief historical observations.

The limits of turbo-capitalism

The 80s and 90s were years of neoliberal turbo-capitalism, driven by the policies of Reagan and Thatcher, and later by the emergence of the internet. Massive growth and wealth were generated. The fall of the Berlin Wall defined a theoretical end of history, according to Fukuyama (1989): without an alternative system, the model of liberal democracy and market capitalism would inevitably spread throughout the world. But the dot.com bubble (2000) caused the system to collapse just as it entered the twentieth century, and it reached its critical limits with the financial crash in 2008. Not everything worked. The economy was suffering from hyper-financialisation. The weight of short-term capitalism was excessive, generating asset bubbles that only existed in the minds of astute investors. In the last decade, the emergence of almost monopolistic digital platforms, and the trend towards zero marginal cost have created unequal and highly polarised societies. Global fiscal engineering and deindustrialisation have pushed the old middle classes into precarity, starved the old welfare states, and spread populism. Climate change has been exacerbated. And nature has laid bare our fragility with the emergence of Covid. Nature does not negotiate: in the face of a pandemic, we are as fragile as the Palaeolithic tribes. The harsh months of confinement have erased the memory of the obvious signs that the climate has also mutated: 2020 was also the year that saw large fires in California and Australia, and the unusual emergence of large Ice-Age mammal remains in the Republic of Sakha and Alaska due to the permafrost rapidly melting after 20,000 years of being permanently frozen. And just a year ago, storm Gloria was violently altering our coasts like never before. Nature continues to warn us, with ever-more-frequent and ruthless signs. The market equations, the invisible hand of Adam Smith and Friedman’s postulates are not sufficient to reconcile us with the planet and our own society.

Disruptive technology: towards a world of abundance?

The year 2020 has been a year of awareness. Capitalism needs an urgent review. One of its best products, management (the scientific and professional management of organisations) is also one of the best weapons we have for tackling human problems. We simply need to give it purpose beyond Friedman’s postulates. We need to align technological change, our management knowledge, and the free market forces towards priority objectives: to generate distributed prosperity and respond to the challenges that threaten us as a civilisation: major climatic, technological, geopolitical and demographic changes, among others. Management, and capitalism itself, can and should be endowed with a will to positively impact society, the economy and the planet. And just by turning to formulas for public-private cooperation, modulating the markets and choosing the correct direction of growth (aimed at solving these great human challenges), we can make it happen.

Technology, knowledge put into action, is an infinite source of human progress: surprisingly, today, the liberating force of technology resources could meet almost all the material needs of the human being

We are aware of our fragility. And we know that time is of the essence. But precisely at this moment of profound collective catharsis, we also have, for the first time in our history, the fundamental weapon required to advance towards a scenario of balance and shared prosperity: technology. We are in the midst of an unprecedented technological revolution. Covid has taught us another lesson: in less than a year, we have been able to synthesise a set of vaccines, milestones that under normal conditions (without extreme pressure from the markets) could require a decade of intense work. When the forces of knowledge are concentrated in a specific direction, the results are extraordinary. More than 90% of all the scientists who have ever graced this earth are probably alive today. And all are connected by ultra-fast, global computer networks: any advance in knowledge is automatically propagated to the entire scientific community, which can immediately build on it. Those of us who follow the technological race are aware of the immense possibilities: technology is developing exponentially. Thanks to Moore’s law (according to which, the power of electronic processors doubles every two years), in a few years, we will have the most powerful supercomputers in the world in our iPhone or our Galaxy. And in our car, our office, our games console and our medical centre. Just as today we carry the supercomputers of 2005 in our pockets.

Surprisingly, technology could lead us to virtually utopian scenarios of shared prosperity. The deployment of artificial intelligence, digitisation and the internet of things can make healthcare available to everyone, at rapidly decreasing costs. The price of a watt of solar energy has fallen by 90% in a decade, at a rate that exceeds Moore’s Law. And the price of wind energy has dropped by 70%. The concentration of research efforts means that renewable energy efficiency limits are being stretched further than anyone thought possible until very recently. Can we imagine a world of infinite, practically free energy for all? It seems impossible, but who would have predicted, in 1990, that two decades later we would hold virtually all the information in the world on a small mobile device in our pocket? Who could have imagined the emergence of the internet or the power of Google? Information, a scarce and strategic resource until very recently, has become an abundant free resource thanks to the force of technological change. Today, a child in Africa has more information in his hands than President Reagan did in 1980 (Diamandis & Kotler, 2012). And the process does not stop: 3D printing opens the door to new forms of distributed product manufacturing, at almost zero marginal cost. A farmer from Mongolia, or Peru, could access spare parts for his tractors if he had a 3D printer nearby and a digital model of the part in open source. The combination of genomics and computer science will provide even more futuristic and life-changing developments in the new field of Synthetic Biology: can we imagine programmed microorganisms whose metabolism digests the plastic in the sea and turns it into sugar? Can we imagine biological materials in our walls, capable of photosynthesis, absorbing CO2 and generating oxygen?

The frontiers of knowledge are rapidly expanding thanks to the cooperative and competitive work of thousands of scientists. Technology, knowledge put into action, is an infinite source of human progress. Surprisingly, today, the liberating force of technology resources could meet almost all the material needs of the human being. We could move towards a world of information, education, food, energy and infinite production at practically zero cost, with inclusive, sustainable and intelligent economic models (based on innovation). To do this, we will need clean, digitised and knowledge-based industries. Today we are once again talking decisively about an industrial strategy for Europe. A strategy that is not based on choosing potential sectors for the future (“picking winners”), but on promoting the cross-cutting transformation of industry and connecting it to knowledge sources. In the words of Thierry Breton, European Commissioner for Industry, “We want to be the world’s leading industrial continent and generate the highest added value and quality jobs” (Breton, 2020). Europe is aiming to half its emissions by 2030, and reach carbon neutrality by 2050. Countries like Denmark have shown how global competitive advantages are generated through strategic investments in human capital and clean technologies, and its startups are selling these technologies all over the planet.

The path to increased integration and competitiveness in Europe

Disruptive technology has made the electric vehicle and new models of more environmentally-friendly mobility possible, and a critical industrial and research mass is beginning to accumulate around hydrogen technology as a way to decarbonise the economy. Leading economists like Mariana Mazzucato (2016, 2018) are calling for a redefinition of capitalism, with a new sense of shared value; and for conditioning —among other things— the financial aid given to automotive and steel companies, or airlines, with environmental requirements, co-investing in technologies that will make them more sustainable and, at the same time, more competitive. Thanks to this input from Mazzucato (2018), Europe is now contemplating large-scale public-private missions that will allow for the emergence of a new generation of companies with high potential and positive impact. The new post-Covid European leadership is lighting the way with a Green New Deal that will put the continent at the forefront of clean technologies and knowledge-based industry. In 2015, the United Nations proposed 17 Sustainable Development Goals (SDGs) for the eradication of poverty, the protection of the planet and the extension of prosperity, through more than 160 specific proposals that range from universal access to drinking water and healthcare, sustainable mobility, and the reduction of CO2. How are these goals to be attained, if not through bold political visions, strategic investments in R&D and cooperative public-private actions?

Recovery from Covid-19 will be quick and could be well targeted if we correct old mistakes: the 1920s could usher in an era of a new purposeful, intelligent, sustainable and inclusive capitalism

Technology will lay the foundations for prosperity, sustainability, health and safety in the post-Covid world. Spain recently published its latest R&D statistics. The Spanish economy invests 1.25% of GDP in R&D, with an increase of just 0.01% per year. That’s a long way from South Korea’s 4.5% or Germany’s 3.1%. Poland and Greece now invest more than Spain. Portugal has a comfortable lead. Spain’s R&D/GDP investment is now less than it was in 2009. On the same day these figures were released we also learned that we now publish as many high-quality scientific papers as France and Germany. A beacon of hope in an inefficient innovation system with an unbearable disconnect between science and business. We have created the knowledge bases; now we must consolidate them and apply them to the missions advocated by Mazzucato. In Italy, they are following her precepts and devising a substantial post-Covid recovery plan articulated around at three major missions: digitisation, sustainability and health.

Despite everything, better times will come. After great crises, golden days have always followed. The arrival of the vaccine hails the beginning of the end for this nightmare pandemic. Biden’s mandate in the US could rebuild international relations and reconfigure a bloc of liberal democracies to confront the economic and technological tsunami coming from China together. Europe has taken note of its insignificance during the Trump era. The Next Generation funds could provide a real boost for European competitiveness and integration. In Spain, the new Budget provides for an 80% increase in science and innovation. Recovery will be quick and could be well targeted if we correct old mistakes. The 1920s could usher in an era of a new purposeful, intelligent, sustainable and inclusive capitalism.

  • BIBLIOGRAPHY

    Breton, T. 2020. The Industrial Strategy in times of Covid-19.  Available online.

    Diamandis, P.H. and Kotler, S., 2012. Abundance: The future is better than you think. Simon and Schuster.

    Friedman, T., 1970. A Friedman doctrine‐- The Social Responsibility Of Business Is to Increase Its Profits. The New York Times. Available online.

    Fukuyama, F., 1989. The end of history?. The national interest, (16), pp.3-18.

    Mazzucato, M., 2018. The value of everything: Making and taking in the global economy. Hachette UK.

    Mazzucato, M., 2018. Mission-oriented innovation policies: challenges and opportunities. Industrial and Corporate Change, 27(5), pp.803-815.

    Mazzucato, M. and Jacobs, M., 2016. Rethinking Capitalism. London: Wiley-Blackwell.

Xavier Ferràs

Xavier Ferràs

Xavier Ferràs is Professor of Operations Management, Innovation & Data Sciences at ESADE since 2002. He is Executive Director of Business Custom Programs. He has been Dean of the Faculty of Business and Communication at the University of Vic. He holds a PhD in Economics and Business from the UB, an MBA from Esade and is a Telecommunications Engineer (UPC). He has been director of the Business Innovation Unit of ACC1Ó, director of business development at CIDEM; head of innovation; coordinator of the Technological Innovation Plan of Catalonia (2001-2004), and member of the commission for the elaboration of the Research and Innovation Plan 2005-2008. He is the author of the book Innovación 6.0: el fin de la estrategia (Plataforma, 2010), and co-author of Pasión por innovar (Granica, 2006), Tanto creces, tanto vales (Granica, 2005), and 50 lecciones de management (Granica, 2007).