STAKEHOLDER CAPITALISM IS SMART CAPITALISM: Following the example of Henry Ford, capitalism should generate corporate profits while also benefiting the people who make that profit possible.

• Author: Georgescu, Peter

Capitalism is the engine of growth and progress around the world. Even a nation with a highly centralized power structure like China has immersed itself in capitalist production to keep pace with the growth of its population. Over the past 40 years, China has used capitalism to lift 800 million of its people out of extreme poverty. India is transforming itself in much the same way. Third-world nations are experiencing an overall decrease in the rate of poverty as well. Thirty years ago, 50% of the people in the poorer nations of the world lived in extreme poverty. By 2012, that percentage was down to 21% and, to date, extreme poverty prevails among only 8% of the world's population.

Capitalism has lifted billions out of poverty. Yet it also has generated enormous inequalities of income and wealth. If we want capitalism to prevail against those who see only the latter reality, capitalism needs to adapt by going back to some of the principles that made it great in America even a century ago. At the dawn of the automotive age, Henry Ford found a way to make a profit he shared with those who created it: not just for the CEO and the company's shareholders. Ford paid his workers much more than the prevailing wage to give them enough discretionary money to be both devoted to his company and able to buy his cars themselves.

This was stakeholder capitalism in a nutshell. Make a profit while nourishing the world that yields that profit.

Fast-forward to the postwar years, from the mid-1940s to the early 1980s. American business found the confidence to build trusting relationships with employees, shareholders, customers, communities, suppliers and markets. It wasn't the challenge it represents today. America owned most of its markets. It was riding the wave of growth that followed its own industrialization during the war and then the rebuilding of Europe. Dozens of businesses paid workers generously, and wisely, to eliminate the need for unions. Eastman Kodak Co. paid its workers high wages and offered large bonuses around the end of each year that kept the community vibrant. Workers spent those bonuses at thousands of businesses that were nourished by the corporation's profits. Employees and the community thrived along with the corporation.

When global competition began to emerge and encroach in the 1970s, American business assumed a defensive crouch. By the early 1980s, shareholder primacy became the template for private sector leadership: Cut costs...