Why We Need to Rethink Capitalism

Summary

In March 2015, Paul Tudor Jones walked onto the TED stage in Vancouver and delivered the fullest public statement of the philosophical half of his career. His argument: over fifty years, society had come to value corporations in a narrow, monomaniacal way — profits, quarterly earnings, share prices, at the exclusion of all else — and the result was 40-year-high profit margins, historic income inequality, and a social fabric under strain. "Manias never end well," he warned, and the profits mania would be no exception.

The talk's answer was not revolution, taxes, or war — the three ways history usually closes the gap between rich and poor — but a fourth path: using the free market itself to price justness. He introduced JUST Capital, the not-for-profit he co-founded to survey Americans on what just corporate behavior means and rank the 1,000 largest companies against those criteria. The talk is the primary source for the stakeholder-capitalism thread that runs through everything from Robin Hood to JUST Capital to his Davos appearances.

Full Text

This is a story about capitalism. It's a system I love because of the successes and opportunities it's afforded me and millions of others. I started in my 20s trading commodities, cotton in particular, in the pits, and if there was ever a free market free-for-all, this was it, where men wearing ties but acting like gladiators fought literally and physically for a profit. Fortunately, I was good enough that by the time I was 30, Fortunately, I was good enough that by the time I was 30, I was able to move into the upstairs world of money management, where I spent the next three decades as a global macro trader. And over that time, I've seen a lot of crazy things in the markets, and I've traded a lot of crazy manias. And unfortunately, I'm sad to report that right now we might be in the grips of one of the most disastrous, certainly of my career, and one consistent takeaway is manias never end well. and one consistent takeaway is manias never end well. Now, over the past 50 years, we as a society have come to view our companies and corporations in a very narrow, almost monomaniacal fashion with regard to how we value them, and we have put so much emphasis on profits, on short-term quarterly earnings and share prices, at the exclusion of all else. It's like we've ripped the humanity out of our companies. It's like we've ripped the humanity out of our companies. Now, we don't do that -- conveniently reduce something to a set of numbers that you can play with like Lego toys -- we don't do that in our individual life. We don't treat somebody or value them based on their monthly income or their credit score, but we have this double standard when it comes to the way that we value our businesses, and you know what? It's threatening the very underpinnings of our society. And here's how you'll see. This chart is corporate profit margins going back 40 years This chart is corporate profit margins going back 40 years as a percentage of revenues, and you can see that we're at a 40-year high of 12.5 percent. Now, hooray if you're a shareholder, but if you're the other side of that, and you're the average American worker, then you can see it's not such a good thing. ["U.S. Share of Income Going to Labor vs. CEO-to-Worker Compensation Ratio"] Now, higher profit margins do not increase societal wealth. What they actually do is they exacerbate income inequality, What they actually do is they exacerbate income inequality, and that's not a good thing. But intuitively, that makes sense, right? Because if the top 10 percent of American families own 90 percent of the stocks, as they take a greater share of corporate profits, then there's less wealth left for the rest of society. Again, income inequality is not a good thing. This next chart, made by The Equality Trust, shows 21 countries from Austria to Japan to New Zealand. shows 21 countries from Austria to Japan to New Zealand. On the horizontal axis is income inequality. The further to the right you go, the greater the income inequality. On the vertical axis are nine social and health metrics. The more you go up that, the worse the problems are, and those metrics include life expectancy, teenage pregnancy, literacy, social mobility, just to name a few. Now, those of you in the audience who are Americans may wonder, well, where does the United States rank? Where does it lie on that chart? And guess what? We're literally off the chart. Yes, that's us, with the greatest income inequality and the greatest social problems, according to those metrics. Now, here's a macro forecast that's easy to make, and that's, that gap between the wealthiest and the poorest, it will get closed. History always does it. It typically happens in one of three ways: either through revolution, higher taxes, or wars. either through revolution, higher taxes, or wars. None of those are on my bucket list. (Laughter) Now, there's another way to do it, and that's by increasing justness in corporate behavior, but the way that we're operating right now, that would require a tremendous change in behavior, and like an addict trying to kick a habit, the first step is to acknowledge that you have a problem. And let me just say, this profits mania that we're on is so deeply entrenched that we don't even realize how we're harming society. Here's a small but startling example of exactly how we're doing that: this chart shows corporate giving as a percentage of profits, not revenues, over the last 30 years. Juxtapose that to the earlier chart of corporate profit margins, and I ask you, does that feel right? In all fairness, when I started writing this, I thought, "Oh wow, what does my company, what does Tudor do?" "Oh wow, what does my company, what does Tudor do?" And I realized we give one percent of corporate profits to charity every year. And I'm supposed to be a philanthropist. When I realized that, I literally wanted to throw up. But the point is, this mania is so deeply entrenched that well-intentioned people like myself don't even realize that we're part of it. Now, we're not going to change corporate behavior Now, we're not going to change corporate behavior by simply increasing corporate philanthropy or charitable contributions. And oh, by the way, we've since quadrupled that, but -- (Applause) -- Please. But we can do it by driving more just behavior. And one way to do it is actually trusting the system that got us here in the first place, and that's the free market system. About a year ago, some friends of mine and I started a not-for-profit called Just Capital. started a not-for-profit called Just Capital. Its mission is very simple: to help companies and corporations learn how to operate in a more just fashion by using the public's input to define exactly what the criteria are for just corporate behavior. Now, right now, there's no widely accepted standard that a company or corporation can follow, and that's where Just Capital comes in, because beginning this year and every year we'll be conducting a nationwide survey of a representative sample of 20,000 Americans of a representative sample of 20,000 Americans to find out exactly what they think are the criteria for justness in corporate behavior. Now, this is a model that's going to start in the United States but can be expanded anywhere around the globe, and maybe we'll find out that the most important thing for the public is that we create living wage jobs, or make healthy products, or help, not harm, the environment. At Just Capital, we don't know, and it's not for us to decide. At Just Capital, we don't know, and it's not for us to decide. We're but messengers, but we have 100 percent confidence and faith in the American public to get it right. So we'll release the findings this September for the first time, and then next year, we'll poll again, and we'll take the additive step this time of ranking the 1,000 largest U.S. companies from number one to number 1,000 and everything in between. We're calling it the Just Index, and remember, we're an independent not-for-profit with no bias, and remember, we're an independent not-for-profit with no bias, and we will be giving the American public a voice. And maybe over time, we'll find out that as people come to know which companies are the most just, human and economic resources will be driven towards them, and they'll become the most prosperous and help our country be the most prosperous. Now, capitalism has been responsible for every major innovation that's made this world a more inspiring and wonderful place to live in. that's made this world a more inspiring and wonderful place to live in. Capitalism has to be based on justice. It has to be, and now more than ever, with economic divisions growing wider every day. It's estimated that 47 percent of American workers can be displaced in the next 20 years. I'm not against progress. I want the driverless car and the jet pack just like everyone else. But I'm pleading for recognition that with increased wealth and profits But I'm pleading for recognition that with increased wealth and profits has to come greater corporate social responsibility. "If justice is removed," said Adam Smith, the father of capitalism, "the great, the immense fabric of human society must in a moment crumble into atoms." Now, when I was young, and there was a problem, my mama used to always sigh and shake her head and say, my mama used to always sigh and shake her head and say, "Have mercy, have mercy." Now's not the time for us, for the rest of us to show them mercy. The time is now for us to show them fairness, and we can do that, you and I, by starting where we work, in the businesses that we operate in. And when we put justness on par with profits, we'll get the most wonderful thing in all the world. We'll take back our humanity. Thank you. (Applause)

Key Themes

The talk is the archive's canonical statement of stakeholder capitalism — the claim that employees, customers, communities, and the planet must sit on par with shareholders — and of venture philanthropy, the use of market mechanisms (rankings, indexes, eventually an ETF) to redirect capital toward just behavior. The warning that inequality ends in revolution, taxes, or war is the social-facing version of the same defense first instinct that governs his trading: see the tail risk early, position before it arrives. JUST Capital's later appearances at Davos 2020 and the Inside ETFs keynote are direct sequels to this talk.

Context & Significance

The TED stage was an unusual venue for a hedge fund manager, and that was the point: Jones was making the case against shareholder primacy to the class that benefits from it, in his own name. The talk's most disarming moment — the confession that Tudor gave one percent of profits to charity and that he "literally wanted to throw up" when he saw it — gave the argument a credibility no outsider critique could carry.

The talk also marks the point where PTJ's two careers formally merged. The trader who read manias in cotton and equities was now reading one in corporate behavior, using the same pattern-recognition instinct: extremes revert, and it is better to position for the reversion than to be run over by it. JUST Capital, launched from this stage, became the operational arm of that trade — and the reason his later interviews treat capitalism's repair as a portfolio question, not a sermon.