What is Public Interest Capitalism?

Public Interest Capitalism is neither American nor British shareholder capitalism nor Chinese state capitalism, but a form of capitalism that pursues the interests of our entire society, or the "public interest."

The "public interest" referred to here refers to "the economic and spiritual prosperity of ourselves and our descendants."

First of all, in a capitalist economy, a company invests production factors such as labor, capital, and land, and engages in economic activities with the aim of making a profit in a freely competitive market economy, striving to maximize profits.

Furthermore, public interest capitalism views companies as "public institutions of society."

Why does a company strive to maximize profits? Because it contributes to society through the products and services it provides.

Furthermore, as a public institution, a company cannot be short-lived. It has a responsibility to continuously generate profits, enrich its employees, and enrich society.

Therefore, public interest capitalism strongly advocates that companies return to these principles and conduct their economic activities as public institutions for society.

That is to create good products and services that improve society.

In return, the profits earned by the company are distributed fairly to all the "company members" that support the company.

This will enable the company to achieve further growth, creating a virtuous cycle of growth and distribution, and enriching the economy and society.

"Company" refers to the colleagues who support the growth of the company, such as employees, customers, suppliers, the local community, the earth, and medium- to long-term shareholders.

By increasing the total amount of distribution to the company, the economic and spiritual wealth of society as a whole will also increase.

Widening inequality and social divisions plague the world

Human society in the 21st century is facing enormous challenges.
This is due to the widening economic gap and the division of society.

Widening economic disparities mean that new wealth is returned only to the wealthy, causing the middle class to decline and dividing society into a small wealthy class and a large poor class. Of course, society cannot be sustainable in this state. No matter how large the GDP or how economically prosperous a society is, the pressure of dissatisfaction caused by economic disparities will continue to grow, and we will fall into a society where people cannot live in peace.

Furthermore, in the name of diversity, the values of those who feel oppressed will be induced and concentrated along two major opposing axes, further dividing society. Dualisms such as yes or no, red or blue will run rampant, and distrust and intolerance will swirl. In such a society, the short-sighted idea of avoiding failure or losses will become stronger, and fewer people will be willing to take risks and take on challenges.

So why are similar problems of inequality and division becoming more serious all over the world?

The reason for this is that American and British style "shareholder capitalism" has spread throughout the world.
At the heart of shareholder capitalism is the idea that a company belongs to its shareholders.
The role of management is to maximize profits for shareholders.
Therefore, the more profits a company makes and the greater the economy grows, the more those profits are enjoyed only by shareholders, leading to a greater uneven distribution of wealth.As in the United States, 1% of the population owns 35% of the net worth of the entire nation.

And the "purpose" of management also changes to increase shareholder profits. To generate profits, they cut expenses such as salaries and capital investments, sell assets, increase dividends, and buy back their own shares. This is because such management is considered "proper governance."

Create a society filled with an educated, healthy, and prosperous "middle class"

The foundation's representative, Taketo Hara, studied in the United States in the 1970s, started a business while still a student, and later became the second-largest venture capitalist in the United States. In 1997, he was shocked.
This is because the American Business Roundtable (equivalent to Japan's Keidanren) declared that "companies belong to their shareholders."
If a company belongs to its shareholders, then shareholders will take the profits first, employees' salaries will not increase, productivity and creativity will decline, new businesses will not be born, the middle class will decline, economic inequality will widen, social division and conflict will become more serious, and public safety will deteriorate.
With this in mind, Hara Taketo returned to Japan and proposed "public interest capitalism" in 2003.

To create an educated, healthy and prosperous middle class.
A company does not belong to shareholders, but serves as a public institution and contributes to society through its business.

After the Lehman Shock in 2008, the idea of public interest capitalism began to spread among business leaders and scholars in the United States and Europe.
At the 2019 American Business Roundtable, it was declared that the purpose of a company is not to "maximize shareholder profits" but to "fulfill its responsibility to bring economic benefits to all stakeholders." Similar content was adopted at the Davos Forum in 2020, and a movement to reconsider "shareholder capitalism" is becoming apparent in China as well.

Unfortunately, in Japan, the trend towards shareholder capitalism that began in 2000 was institutionalized in the 2010s with the Corporate Governance Code and other measures, and since 2020, it has become commonplace to maintain a PBR of 1 or more and promote share buybacks.

Three Principles for Practicing Public Interest Capitalism

Public interest capitalism is understood as increasing corporate value by contributing to all of the "company" - employees, customers, suppliers, local communities, and the earth - who contribute to the company's growth, and as a result, bringing significant profits to medium- to long-term shareholders.
Therefore, the following three points are important practical principles for management based on public interest capitalism.

❶Fair and appropriate distribution to the company

Rather than distributing profits generated by the company primarily to shareholders, we will distribute them fairly to the company, including employees, and increase the total amount of distributions.

❷Medium- to long-term sustainability

Sustainable growth cannot be expected if we only focus on short-term perspectives and actions to generate immediate profits, so it is important to approach management with a firm medium- to long-term perspective.

❸ Demonstrating entrepreneurial spirit

We strive to improve and refine our products and services on a daily basis, and we also boldly venture into new fields to ensure the company's sustainable growth.

At the Alliance Forum Foundation, we work with many companies to achieve the goal of "creating an educated, healthy, and prosperous middle class" by increasing the number of business managers who practice public interest capitalism, broadening its scope, and reconstructing the framework for institutional design.
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