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Evolving the Economic System: A Conversation with Subi Rangan

Subi Rangan is a chaired professor of Strategy & Management at INSEAD, the global business school founded in Fontainebleau, France. For more than a decade, Subi has focused his research on the evolution of the economic system. In 2013, he initiated the Society for Progress, a group of eminent social scientists, philosophers, and business leaders aiming to “contribute to and catalyze rigorous research on how enterprises and all economic actors may better and more systematically integrate performance and progress.” Oxford University Press published two volumes of their work in 2015 and 2018, and the group just completed a third volume in 2023. Subi has an MBA from the MIT Sloan School of Management and a Ph.D. in political economy from Harvard University. He’s completing nearly three decades at INSEAD.

Sorenson Impact Center CEO Geoff Davis sat down with Subi at the 2023 Stakeholder Conference to learn his views on the future of capitalism. Watch the full conversation in the video below, or read the highlights to learn more about how the economic system is evolving and why this work is so critical.

On the paradigm evolution of capitalism:

The economic system is amazing. While the wealth and development that we sought have come within grasp all over the world, there’s still a lot to do. The economic system has delivered incredible performance but not always progress. I think we’re now ready to shift the goalposts and go beyond just the quest for wealth and prosperity. That transition requires that we may need to rethink not just the practices, but the paradigm. How that paradigm evolves is a tricky question because the old is not completely in disrepair, and the new has yet to fully emerge and be adopted. We’re now in that bridging period, which may take a generation or maybe longer.

On the theory of economics and how it must evolve:

To understand the necessary evolution, we must consider the purpose of the economy. It came out of this idea that we get welfare from what we consume. Therefore, if we could all consume more, then our standard of living and our welfare utility would rise. Seen this way, the central problem then becomes production. And that became the essential economic question to address: How do we increase outputs while minimizing (scarce) inputs? We call that productivity.

Today, we have a $100 trillion plus world GDP, which is extraordinary, with eight billion people. On average, we’re rich whether we like it, believe it or not. Yet, it’s a little bit of A Tale of Two Cities — the best of times and the worst of times. As we’ve succeeded in boosting output, we’ve gradually realized there’s something else we care about, which we call “outcomes” — whether it’s health, physical and mental, the environment, trust, concentration of wealth, and anxiety about our collective future. We are experiencing a paradox of abundance. How can we have such a rich world economy, which has delivered exactly what we wanted, the wealth of nations, and at the same time, we feel this global anxiety and inequality and worries about climate and sustainability and social stability? When we look at the outcomes that we care about, the scoresheet is not so great. Accordingly, the first evolution of the paradigm is to acknowledge that we need to better integrate output and outcomes. We have to migrate from an output-centric to an outcome-centric economy. This is a big shift.

The second thing is that we have to better integrate wealth and well-being. As the wise have observed, money may be the currency of the economy, but time is the currency of life. The pursuit of wealth can crowd out well-being. The research that I do comes under this rubric called integrating performance and progress. We’ve achieved tremendous performance — and as a strategy professor, that’s the main dependent variable we try to study. But now we need to study progress too. Enterprises will need to formulate competitive strategy and contributive strategy. In the past, we would think firms deliver performance and governments deliver progress. We now realize there’s a third and bigger ‘p’ that is peace. Governments have to focus on peace and security.… It falls, therefore, to private economic actors to better integrate performance and progress. This means better integrating market and society, humanity and nature, present and future, money and meaning, output and outcomes, income and impact, etc. So integration has to become the third chapter of business, following innovation and internationalization.

If at a macro level we want output and outcomes, if at a firm level we want performance in progress, then at the individual (micro) level, we need leaders who have not only competence but also character. We need economic actors (including consumers) to integrate competence and character. In our education we focus too much on competence and not enough on character. By character, I mean caring, commitment, courage. We focus a lot on power and too little on courage.

On why it is so important to advance this work:

Thankfully, it seems that the world is ready and inclined now to change. All economic actors — investors, producers, employees, consumers, regulators — everyone’s ready. In the past, we would have said that if the economic system has some dysfunctional side effects or unintended consequences, then perhaps the invisible hand will be complemented by the visible hand of regulation.

A century of this experiment has shown us that just as there are market imperfections, there are also government or regulatory imperfections. Regulation is necessary but far from sufficient. Instead, education is a much better response to our emerging aspirations. Let us educate economic actors, not just regulate them. This is the more promising path forward. But that means business educators who have the background and the broader community of scholars need to work harder.

There is a tremendous opportunity to contribute and make our research and teaching count, whether you look at AI, or whether you look at climate, or whether you look at inclusion — any of these aspirations that we have, which are incredibly inspiring. My conviction is that there’s a moral evolution going on in humanity, broadly speaking. As Kant observed, humans are endowed with the freedom to reason, including against always acting only in our own self-interest. It is time for our business economic models, methods, and measures to evolve. As stewards of this great Smithian system, let’s each do our small share in accelerating its positive evolution.

For more on this topic, watch a roundtable discussion on new stakeholder theory, led by Sorenson Impact Center CEO Geoff Davis and featuring a distinguished group of global business and academic leaders. Watch it here.