When capitalism works, everybody wins
Feature Highlight
When KKR purchased CHI Overhead Doors, the company offered employees stock ownership in the company.
Over the past couple of years, Americans’ positive perception of capitalism has decreased from 58% in 2019 to 49% today, according to an Axios/Momentive poll. To many, capitalism seems to be hurting everyone – customers, communities, employees, and the environment–except those with capital.
“Today, 18-34 year-olds are almost evenly split between those who view capitalism positively and those who view it negatively (49% vs. 46%). Two years ago, that margin was a gaping 20 points (58% vs. 38%),” according to the poll.
There are even calls to ditch capitalism all-together, “before it takes us all down with it.”
But a recent deal by KKR, a private equity firm, shows the power of capitalism and the inherent goodness in the model when practiced well.
In 2015, the private equity firm purchased CHI Overhead Doors, a garage door manufacturing company, for around $600 million. It plans to sell it to Nucor Corporation for $3 billion.
In the deal, KKR stands to benefit significantly. The employees of CHI Overhead Doors can also expect a windfall as they are expected to make anywhere from $20,000 to $800,000, depending on their tenure. In addition to the payouts, employees received around “$9,000 each in dividends over the years of KKR’s ownership.”
Josh Ryan, an assembly-line supervisor at CHI put it this way, “It is life-altering, I can’t explain how much it’s going to change – not just people’s lives here – it’s going to change this entire community.” Three of Mr. Ryan’s relatives also work at CHI and his family will make $750,000 on the deal.
Simply put, this is capitalism at its finest.
When KKR purchased CHI Overhead Doors, the company offered employees stock ownership in the company. So, in addition to their salaries and benefits, employees were able to own a piece of the company.
With the guidance of KKR, CHI improved its safety record, reduced steel waste, and implemented a more efficient manufacturing and distribution process. Revenues and profits soared and employees were kept abreast of the improvements they were making.
As a result of the program, CHI became a much more efficient company.
Less steel waste, a more efficient manufacturing and distribution system, and a better safety record – a direct consequence of capitalism – all benefit the environment, communities, and customers.
Why is this important?
Much of the work we do at the Christensen Institute’s Global Prosperity practice is about learning how market-creating innovations can trigger widespread prosperity in poor countries.
Market-creating innovations transform complex and expensive products into simple and affordable ones, and makes them accessible to a wider segment of the population. At the core of creating prosperity is a relentless pursuit of market-creating innovations.
Our thesis is anchored in capitalism, similar to the one described above. But if capitalism is on trial and, to many, is already guilty of destroying lives, the environment, and communities, then poor countries will not benefit from it.
We have learned, for instance, that market-creating innovations lead to jobs that support the vast new market being created. When employees can become owners, they are more likely to work harder, invest in the company, and the surrounding communities.
This ultimately leads to increased revenues and profits which generate a new source of tax revenue for governments. These profits can be used to build infrastructure and develop institutions, which are much needed in poor countries.
And as people – other investors, entrepreneurs, corporations, and governments – see the benefits of the market, a culture of innovation and entrepreneurship ensues. This creates a virtuous cycle that leads to more innovation and more new markets.
This is how capitalism–and more specifically, market-creating innovations – can lead to widespread prosperity.
Capitalism can thrive even in the poorest parts of the world. From Mo Ibrahim’s Celtel in Africa to Devi Shetty’s Narayana Health in India, the power of market-creating innovations anchored in the principle of capitalism is changing millions of lives.
So, instead of throwing out the baby with the bath water, what if we promoted a capitalism where everyone wins.
Efosa Ojomo is a senior research fellow at the Christensen Institute, and co-author of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. Efosa researches, writes, and speaks about ways in which innovation can transform organizations and create inclusive prosperity for many in emerging markets.
Other Features
-
Tinubunomics: Is the tail wagging the dog?
Why long-term vision should drive policy actions in the short term to achieve a sustainable Nigerian economic ...
-
Living in fear and want
Nigerians are being battered by security and economic headwinds. What can be done about it?
-
Analysis of the key provisions of the NERC Multi-Year Tariff Order ...
With the MYTO 2024, we can infer that the Nigerian Electricity Supply Industry is at a turning point with the ...
-
Volcanic explosion of an uncommon agenda for development
Olisa Agbakoba advises the 10th National Assembly on how it can deliver on a transformative legislative agenda for ...
-
Nigeria and the world in 2024
Will it get better or worse for the world that has settled for crises?
-
The Movers and Shakers of Nigeria 2023
This special publication profiles 25 people and institutions based on their societal or industry impact in 2023.
-
Can the naira become strong again?
The wrong question that keeps policymakers, business leaders, and the citizenry worried.
-
The process of market creation demystified
Distribution, it turns out, is the unsung hero of market creation. It is what makes discovery profitable and ...
-
The most valuable ‘white spaces’ today in African investing
The first gap is in the range of $10-25 million scale-up funding rounds. The second is the lack of customised, ...
Most Popular News
- IFC, partners back Indorama in Nigeria with $1.25 billion for fertiliser export
- Univercells signs MoU with FG on biopharmaceutical development in Nigeria
- CBN settles backlog of foreign exchange obligations
- Ali Pate to deliver keynote speech at NDFF 2024 Conference
- Euromonitor forecasts Sub-Saharan Africa GDP to grow to $4.5trn by 2040
- Afreximbank-backed Geometric Power commissions Aba project