Declining Trust in Capitalism: Managerial, Research, and Public Policy Implications

Abstract

Many people no longer trust in capitalism. We draw on upper echelons theory, paradox theory, and the trust literature to consider the sources and implications of this loss of trust. Although firms face growing pressures to address social problems that often are attributed to capitalism, firms also face intense pressures to maximize shareholder returns. In response, we outline key attributes of stakeholder-oriented leadership that can help managers address these new social demands. We also identify stakeholder-based strategies that firms are enacting to tackle these challenges, how lack of trust affects the impact of these strategies, and how strategic leadership is critically important to their effectiveness. We argue that a more widespread, consistent, and concerted effort to integrate social and financial missions, and to balance the needs of multiple stakeholders, is needed to mitigate the loss of trust in capitalism. We conclude with managerial, theoretical, and public policy implications, including a discussion of the tradeoffs between private-sector and government-mandated solutions to social problems.

Keywords: capitalism, trust, upper echelons, paradox, strategic corporate social responsibility, stakeholder theory

JEL Classification: M14, M38, M52