The historical context: multiple faces of capitalism

In my previous article, I addressed the biggest misunderstanding about capitalism: the confusion between capitalism as a valuation system and neoliberalism as an ideology. That piece provoked interesting discussions in my circle, with a fair criticism that I paid too little attention to the historical context of capitalism.

To understand how we got here, we have to go back to the time when capitalism was not synonymous with profit maximization at all costs. Today I want not only to analyze, but above all to tell. A story about how capitalism lost its heart.

There was a time when capitalism worked for more than just the capital owners. A time when companies thought not only about quarterly earnings, but also about their employees, society and the future. It was a capitalism with a social heart – and it is that forgotten lesson that we must rediscover today.

When capitalism still had a social heart

It is 1966. The world is in the midst of change. In Paris students are storming the streets, in San Francisco counterculture is growing, and in the Netherlands unions are preparing for strikes. In the midst of that turbulent era, an industrialist leads one of the largest companies in the Netherlands. Not from an ivory tower, but walking the factory grounds in Eindhoven, talking to his employees as if they were family.

He invests not only in technology, but especially in people. Good wages, safe working conditions and even social amenities such as housing and sports clubs for staff. Not because he is forced to, but because he believes that a company without social responsibility loses its right to exist. It is a time when many business owners see their employees as cost items. The man sees them as partners in success.

Was this industrialist therefore a socialist? No. He was a capitalist with a social heart. His approach showed that capitalism is not necessarily about exploitation, but that it depends on the rules of the game you apply. He believed in profit, but also in responsibility. At a time when one company after another is moving to cheaper production countries, Frits Philips continued to invest in the Netherlands. His vision is remarkably close to what I would now call Social Capitalism: a system that serves the interests of capital as well as labor and society.

The factory where workers became partners

Fast forward to the 1990s. In São Paulo, Ricardo Semler takes over the family business Semco. On his first day of work, he fires half the management. The second day, he asks employees to decide their own working hours, salaries and even their bosses. And the third day? He spends it listening. With no agenda, no restrictions. Just listening to what his employees have to say.

Colleagues declare him crazy. But within a few years, Semco grows from 90 to more than 3,000 employees, with sales increasing tenfold. While other companies struggle with motivation and turnover, Semler achieves the opposite: employees who want to work longer, even without a raise. And why? Because they are not working for the profits of a few shareholders, but for a company that belongs to all of them.

So Ricardo Semler, too, is not a socialist. Like Frits Philips, he believes in capitalism, but with rules of the game that treat workers as full partners. His model shows that Social Capitalism is not only desirable, but profitable.

The origin of the word capitalism

To get a good idea of the historical context of capitalism, we travel back to the mid-19th century. On the streets of London, children pile up at the gates of factories, their hands black with coal and their eyes dull with fatigue. The machines are running day and night, powered by a new economic system that has no name yet, but whose contours are becoming sharply visible. Capital is the new king and the owners of machines, factories and land are his court.

At the same time, another word is gaining ground: socialism. Whereas capitalism revolves around the interests of the owners of capital, socialism defends those of the workers – the proletariat that spends its days in dark factories for a pittance. The contradiction is clear and fierce: capitalism promises freedom, but that freedom appears to apply primarily to those who already own property. It is not difficult to understand why socialists see capitalism as the enemy. Not because the system itself is bad, but because it is used to serve the interests of a small elite.

Then comes the Great Depression of the 1930s. The bubbles of speculation burst and millions of people lose their jobs. Soup kitchens fill up faster than factories can close. It becomes clear that a system revolving solely around profit maximization inevitably leads to crises.

In that chaos, other voices are suddenly heard. John Stuart Mill speaks of rules and taxes to curb the excesses of capitalism. His words resonate with John Maynard Keynes, who proves with his sharp analyses that an economy is not about austerity, but about confidence. His solution is as simple as it is bold: a mix of public investment and strong regulation of financial markets. And it works. The postwar years bring decades of growth and widespread prosperity. It is proof that regulated capitalism can work – as long as the rules of the game are fair.

And then … things go wrong.

It is the 1970s. The world is spinning, but the economic wheel is beginning to falter. Since World War II, the Keynesian model has provided unprecedented growth, but now the engine is sputtering. The oil crises of 1973 and 1979 created an economic shock no one saw coming. While oil prices skyrocket, the economy lags behind. For the first time, stagflation arises: a toxic cocktail of high inflation and high unemployment. Factories close, people lose their jobs and the lines in front of unemployment offices get longer by the day.

At the same time, people are desperately trying to find an explanation. According to the Phillips curve higher unemployment should ensure lower inflation, but in the 1970s the exact opposite happens: high unemployment and high inflation. Keynes’ theory suddenly seems outdated. Politicians and economists are at a loss. The same question sounds everywhere: what is wrong with the system?

Then a new economic prophet enters the scene: Milton Friedman. He appears on television, writes columns and speaks at conferences with a certain self-assurance that makes politicians hesitate. Whereas Keynes advocates active government, Friedman sees the very same government as the cause of the problem. According to him, it is high taxes, regulations and greedy labor unions that stifle the economy. He offers a new gospel: less government, more market. His solution is as simple as it is radical: deregulation, privatization and tax cuts. And it hits the mark.

It does not take long for politicians to embrace this gospel. In 1980, Ronald Reagan becomes president of the United States. In his actor’s voice and charming smile, he addresses the country, “Government is not the solution to our problem; government is the problem.” In the United Kingdom, Margaret Thatcher comes to power with a similar message. Her goal is clear: break the power of the unions, cut taxes and sell state-owned companies to the highest bidder. The message is clear: the government should withdraw; the market can do it better. In the Netherlands, it was Ruud Lubbers who introduced neoliberalism since the Wassenaar Accord.

And it works. At least, so it seems. Deregulation and tax cuts are causing economic growth to skyrocket. Inflation is falling and stock markets are experiencing golden times. Companies that have complained about bureaucratic obstacles for years are suddenly free to do business. Journalists are writing rave pieces about the American model and stock markets are breaking record after record. A new era seems to be dawning in which the free market creates prosperity.

But under the surface, something else is happening. As the economy grows, the rich get richer and richer and the poor are left behind. The old deal in which companies and workers benefit together from growth is being replaced by a system in which it is mainly shareholders who win. Companies turn into profit machines that buy up their own shares to drive up the price, while wages barely rise. The promise that prosperity would automatically trickle down to the rest of society – trickle-down economics – turns out to be an illusion.

The downside of neoliberalism only really becomes visible during the 2008 financial crisis. The deregulation of banks leads to a situation where financial institutions take uninhibited risks with products no one understands. Annual reports grow to hundreds of pages filled with jargon and graphs, but no one can explain exactly what is happening. Stock market traders trade billions in a fraction of a second, guided by algorithms and the promise of quick profits.

And then the bubble bursts. Lehman Brothers falls, banks are on the verge of collapse and confidence in the market disappears like snow in the sun. Stock markets collapse and billions in savings evaporate within days. As one bank after another collapses, the same government, which neoliberals say should do less above all else, cries out for intervention. Billions of dollars and euros are allocated to bail out the banks. The system has bitten its own tail.

So the problem is not capitalism per se, but the version of it that has been dominant since the 1980s. A version that tries to solve every problem with less regulation and more market, regardless of the consequences. Neoliberalism claims to bring freedom, but mostly gives more power to those who already have it. And now, years later, we are faced with a choice: do we stay stuck in that same trap, or do we learn from the mistakes of the past?

Social Capitalism: The Keynesian Model 2.0?

The term Social Capitalism has come up a few times. It brings to mind the Keynesian model that provided stability and growth after World War II. But where Keynes focused primarily on economic growth and employment, my definition of Social Capitalism looks broader. It is not just about jobs and wages, but also sustainability, long-term value and basic security.

The bottom line is simple: an economy that works not just for capital owners, but for everyone. Whereas Keynes focused primarily on government as a guiding force, Social Capitalism also sees an important role for corporations themselves. Not by forcing them, but by adjusting the rules of the game so that social value becomes as important as financial profit.

Whereas Keynes primarily saw public investment as a solution to crises, Social Capitalism proposes an unconditional basic income as an economic stabilizer. Instead of cleaning up the mess afterwards with billions in emergency aid, a basic income ensures that the purchasing power at the bottom of society never falls away. This prevents a crisis from spreading like an oil slick.

A salient detail: the prophet of neoliberalism, Milton Friedman, also advocated an unconditional basic income – in the form of a negative income tax. Not out of altruism, but precisely to ensure social security without a complex and costly welfare state. It shows that the question is not whether we should provide basic security, but how.

Another difference is the emphasis on sustainability and long-term value. The Keynesian model mainly revolved around maximum growth. Social Capitalism sees growth not as an end in itself, but as a means to create broad prosperity. The focus is not on quarterly figures, but on investments that will still have value 20 or 50 years from now. That means rules that ensure companies reinvest profits in innovation and sustainability rather than stock buybacks and bonuses.

Logical step

The term Social Capitalism may be new, but the ideas are not. They build on successful elements of the Keynesian model, combined with solutions to the problems that led to neoliberalism.

It is not a return to the past, but a redesign of capitalism with a moral compass and clear rules of the game. Not for the shareholders, but for the stakeholders: workers, the community and the planet.

In other words, what we need is not the abolition of capitalism, but a new version of it that works for everyone.