Stakeholder Economy

A stakeholder economy is a social system of production and exchange that is intended to protect the interests of all persons and organizations affected by the [Page 1986]activities of buyers and sellers. A stakeholder economy is organized for the participation of stakeholders in its institutional mechanisms to allocate capital resources, to produce goods and services, and to distribute them in response to demand. Thus, a stakeholder economy is intentionally governed for the interests of broad and diverse segments of society rather than for the more narrow interests of the owners of capital and the holders of wealth.

In North America, the term stakeholder comes from the colonial era when it was the practice for land owners to mark their property by putting stakes in the ground. Those who did so were said to have a stake in the community. In addition to the owners of capital and the holders of wealth, today's stakeholders are composed of distinct and diverse groups in a society. For example, buyers and sellers clearly have a stake in the ethical functioning of a society's economic system. Other affected groups with an interest in the fairness and integrity of economic activities include employees, nongovernmental advocacy organizations, and the populations of local communities. Some also argue that posterity, the future generations yet unborn, are stakeholders whose interests are affected by the sustainability of current economic activities and today's decisions that are likely to affect future financial health, availability of natural resources, and the level of environmental pollution.

Clearly, there are many distinct groups of diverse stakeholders. They have in common, however, their perception that something they value is at risk because of society's actions, or inactions, to produce and exchange goods and services. Commutative justice depends on public-policy-making mechanisms that allow all these distinct and diverse stakeholders, including the stewards of posterity, to participate in economic governance and exchange. Such mechanisms include broad representation of social groups on advisory, legislative, and regulatory committees. Commutative justice in a stakeholder economy also gives voice to the diverse groups in capital allocation decisions for production and distribution.

In a context of scarce or finite resources, decision makers are not likely to be able to simultaneously satisfy the preferences of each and every stakeholder. In this situation, broad inclusion compels each group to use the tools of public persuasion and to exercise its political power to realize its preferences in the governance of the economy. The effectiveness of the stakeholder economy is likely to depend on cooperation, consensus, and coalition building to balance the power of any large group with much at stake. A stakeholder economy requires integrity in the public process for interest groups to influence the activities of businesses and organizations. Principles of procedural justice are important to ensure fairness in the process of making decisions that trade off and balance responsiveness to individual stakeholders.

The World Bank, because of its important role in stimulating the development of economies, has relied on a rigourous approach to stakeholder analysis that focuses on the integrity of government operations and public policy decision making. Central to the Bank's approach is the assumption that the stakeholder groups with the most resources and the most at stake are most likely to realize their preferences in public policy processes governing the economy. Importantly, the World Bank also has found that the positive social effects of a developing economy are significantly diminished in societies where public-policy-making institutions are captured by one stakeholder group to the exclusion of others.

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