Alex Edmans’ new book Grow the Pie reveals a pioneering approach to solve the crisis in capitalism: moving away from a “pie-splitting” mentality and advocating a new “pie-growing” mentality.
The book explores how business has lost the public’s trust – profits and executive pay have soared while incomes of average workers have been flat. Companies have made outsized returns, paying little attention to customer welfare, worker rights or climate change. Business is no longer working for ordinary people, or the planet. Citizens – and the politicians who serve them – are fighting back. However, Mr Edmans believes many calls to reform business are extreme. They fail to recognise the positive role that business can play in society and view business as the enemy.
A new angle
Grow the Pie sets out a radically different approach – by applying it, companies can create both profit for investors and value for society. It dismantles the pie-splitting mentality: the idea that the value a company creates is a fixed pie, and this pie can either go to investors or society.
Professor Edmans instead advocates the pie-growing mentality. The value that a company creates is not fixed but can be increased. By running a business to serve a social purpose – to improve human health, help citizens save for retirement, or farm food sustainably – companies aren’t sacrificing profit, but generating profit as a by-product of serving society.
Grow the Pie presents rigorous evidence that both sides benefiting from business isn’t a “too good to be true” pipedream, but realistic and achievable. It lays out an actionable framework explaining how managers, investors, and policymakers can reform business to serve society, and also how citizens can play their part. The book presents quality evidence on controversial topics such as executive pay, shareholder activism, and share buybacks, uncovering many surprising results and showing that they can in fact be used for social good.