Joe: The most dangerous idea in business, the one that’s actively setting our world on fire, isn't some radical new theory. It’s the one thing every business school has taught for 50 years: that a company's only job is to make money for its shareholders. Lewis: Wait, isn't that just… capitalism? I mean, that’s the whole point, right? Make a profit, deliver returns. What’s so dangerous about that? Joe: That’s the billion-dollar question, and it’s the central argument in a book that’s been making serious waves, Reimagining Capitalism in a World on Fire by Rebecca Henderson. Lewis: Rebecca Henderson... she's a big deal at Harvard, right? Joe: A very big deal. She's a University Professor at Harvard Business School, which is a huge honor, and she has this fascinating background—an MIT engineering degree and a PhD in economics. It gives her this unique, systems-level view of the problem. Her course on this topic at Harvard exploded from a handful of students to over 300, which tells you how hungry people are for this conversation. Lewis: An engineer looking at economics. I like that. It means she’s probably looking for how the machine is actually built, not just the theory. Joe: Exactly. And she argues that the machine is built on a flawed premise. The book starts with a perfect, if horrifying, example of this dangerous idea in action. Do you remember the "Pharma Bro," Martin Shkreli? Lewis: Oh, I remember him. The guy with the most punchable face on the internet. He jacked up the price of some life-saving drug, right? Joe: He did. And Henderson uses his story to show that he wasn't just an anomaly of greed. He was the logical endpoint of a philosophy that has dominated our world.

Joe: The drug was called Daraprim. It’s an essential medicine used to treat complications from AIDS, and it had been around for decades. It cost about a dollar a pill to make. In 2015, Shkreli’s company, Turing Pharmaceuticals, acquired the rights and overnight raised the price from thirteen dollars and fifty cents to seven hundred and fifty dollars a tablet. Lewis: A 5,000 percent increase. That’s not business, that’s extortion. It’s pure evil. Joe: It feels that way. And the public outcry was immense. He was vilified everywhere. But here’s the chilling part. When he was confronted, Shkreli was completely unrepentant. He went on TV and said, with a straight face, that his primary duty was to his shareholders. He argued he should have raised the price even higher. Lewis: Okay, but he's a monster. A uniquely terrible person. Is he really representative of the whole system? It’s easy to point at one villain. Joe: That’s the critical question Henderson asks. And her answer is, yes, he is. He’s an extreme example, but he was operating perfectly within the logic of an idea that has become gospel: shareholder value maximization. This idea was popularized by economists like Milton Friedman back in the 1970s. Lewis: So you're telling me this whole 'greed is good' thing isn't some ancient law of economics, but basically an idea from the 70s? Joe: Precisely. Before that, major corporate leaders often talked about their responsibility to their employees, their communities, and the nation. But in the 70s, facing stagflation and global competition, the argument that a firm’s only social responsibility is to increase its profits took hold. It was seen as the purest, most efficient way to drive economic growth. Lewis: And I guess the argument is that it worked, for a while? Joe: It "worked" if you only looked at a very narrow set of numbers. But Henderson argues it created what she calls an "unholy trinity" of problems. First, environmental degradation. Think about a coal-fired power plant. It pumps out CO2 and pollutants that cause thousands of deaths and billions in health costs. But does the company pay for that? No. In economic terms, it’s an "externality." Lewis: So 'externality' is just a fancy word for 'someone else's problem.' Joe: Exactly. The cost is real, but it’s not on the company’s balance sheet, so it’s ignored in the pursuit of profit. The second problem is soaring inequality. If your only goal is profit, you're incentivized to keep wages as low as possible and fight against things like minimum wage increases. And the third is institutional collapse. Companies, in the name of shareholder value, spend billions lobbying to weaken regulations, get special tax breaks, and essentially rig the rules of the game in their favor. Lewis: That’s the Disney story from the book, right? Lobbying to extend their copyrights on Mickey Mouse forever. Joe: That's a perfect example. Disney spent millions to get the Copyright Term Extension Act passed, which benefited their shareholders immensely but, as economists argued, provided basically zero benefit to society in terms of encouraging new innovation. They just fixed the rules. When you add all this up, you get a system that creates immense wealth for a few, but at the cost of a stable planet and a fair society. Lewis: Okay, I'm convinced the system is broken. So what's the alternative? Everyone becomes a non-profit? We all just hold hands and sing Kumbaya? Joe: That's the magic of Henderson's argument. The alternative is actually more profitable. It starts with a concept called 'creating shared value,' and the best example is, of all things, a Norwegian garbage company.

Lewis: A garbage company? Not exactly the glamorous, world-changing business I was picturing. Joe: And that’s why it’s the perfect story. In 2012, a guy named Erik Osmundsen becomes CEO of Norsk Gjenvinning, or NG, Norway's biggest waste handling company. And the industry is a mess. It's seen as dirty, unfashionable, and it’s rife with corruption—companies are illegally dumping hazardous waste, misrepresenting their financials, all to cut corners. Lewis: Sounds about right for the garbage business. Joe: Osmundsen goes undercover, basically. He rides in the trucks, hangs out at the depots, and what he finds horrifies him. So he does something radical. He implements a zero-tolerance compliance policy. No more cheating. And a lot of his managers and staff quit. They think he’s insane. Lewis: He’s torpedoing his own company’s profitability, from their perspective. Joe: From the old perspective, yes. But Osmundsen had a new vision. He didn't see NG as a garbage hauler. He saw it as a global seller of recycled raw materials. He started investing millions in high-tech recycling facilities. The book describes this incredible machine that uses optical technology to sort different metals from a stream of trash with incredible precision. They started pulling out valuable commodities—aluminum, copper, high-grade plastics—that were previously just being buried in a landfill. Lewis: So he turned a cost center—getting rid of trash—into a revenue stream. Joe: A hugely profitable one. By cleaning up the business and investing in sustainability, NG became one of the most profitable waste companies in Scandinavia. This is what Henderson calls "creating shared value." NG solved an environmental problem—reducing landfill waste and the need for virgin materials—and in doing so, they built a highly disruptive and profitable business. It’s a "both/and" proposition, not an "either/or." Lewis: That's a great story, but does it scale? Can a giant company like Walmart or Unilever really do this? Or is it just for niche European companies that have the luxury to think about this stuff? Joe: That's the most common critique, and Henderson dedicates a whole chapter to it. The business case is built on three pillars. First, reducing risk. She tells the story of Lipton Tea, owned by Unilever. They realized their supply chain was at risk because unsustainable farming was degrading the soil. If they didn't invest in training hundreds of thousands of farmers in sustainable practices, they literally wouldn't have enough tea to sell in the future. Lewis: So sustainability wasn't about being nice; it was about survival. Joe: Exactly. Second, cutting costs. This is the Walmart story. After Hurricane Katrina, Walmart’s CEO Lee Scott made a huge public push for sustainability. They set a goal to double their truck fleet's efficiency. By 2017, they’d done it, and it was saving them over a billion dollars a year in fuel costs. That’s not pocket change; that’s around 4 percent of their net income. Lewis: A billion dollars. Okay, that gets a CFO’s attention. What’s the third one? Joe: Increasing demand. And this is where it gets really interesting. Unilever found that its "sustainable living" brands—the ones with a clear social or environmental purpose—were growing 69 percent faster than the rest of its portfolio and delivering 75 percent of the company's growth. Consumers, especially younger ones, are actively choosing brands that align with their values. Lewis: You mentioned Unilever, and that feels like the perfect pivot. Because even a purpose-driven giant like Unilever ran into a problem it couldn't solve alone, right? Joe: That's right. And that leads to the final, and maybe most difficult, piece of the puzzle.

Joe: In 2008, Unilever's chief sustainability officer shows up to their London headquarters to find the building being scaled by Greenpeace activists dressed as orangutans. Lewis: Wow. That’s a statement. What was their beef? Joe: Palm oil. It’s an ingredient in everything from Dove soap to ice cream. But its cultivation was driving massive deforestation in Indonesia, destroying the habitat of orangutans. Greenpeace unfurled a massive banner that said, "Dove: Stop Destroying My Rainforest." It was a PR nightmare for Unilever. Lewis: So Unilever just needed to switch to sustainable palm oil, right? Problem solved. Joe: It’s not that simple. And this is the core of the problem. Sustainable palm oil costs more. If Unilever pays that premium but its competitors—Procter & Gamble, Nestlé—don't, then Unilever's products become more expensive, and they lose market share. They get punished for doing the right thing. Lewis: Ah, the free-rider problem. Why be the good guy if everyone else is cheating and getting ahead? Joe: Precisely. You can't solve a "public good" problem like deforestation or climate change on your own. So Unilever’s CEO at the time, Paul Polman, did something brilliant. He said, "Let's socialize the problem." He went to his competitors through an industry group called the Consumer Goods Forum and convinced them all to commit to zero net deforestation by 2020. He got everyone to agree to play by the same rules. Lewis: So they formed a cartel for good, basically. Joe: A cartel for good! I love that. And it worked, to a point. They created a demand for sustainable palm oil and pushed major suppliers to change their practices. But Henderson’s final point is that even this kind of industry self-regulation isn't enough. She points to the soy and beef moratoria in the Amazon. They were incredibly successful at slowing deforestation for a decade. But then a new government came into power in Brazil that was hostile to environmental protection, and deforestation rates skyrocketed again. Lewis: Because the government stopped enforcing the rules. The whole agreement depended on a cooperative government partner. Joe: Exactly. The private sector can build the car, but it needs the government to provide the roads and the traffic laws. Without a referee, the game eventually descends into chaos.

Lewis: So, it feels like a paradox. The book is called Reimagining Capitalism, but the final answer seems to be... we need a strong, functioning government to make capitalism work properly. It's not about business or government, but business and government. Joe: Exactly. Henderson's ultimate point is that free markets and free politics are complements, not adversaries. The idea that government is the enemy is another dangerous myth, often pushed by the very players who benefit from rigging the rules. The real path forward is for purpose-driven businesses to become active partners in shoring up the democratic institutions that allow fair markets to thrive in the first place. Lewis: It’s a complete reversal of the Milton Friedman idea. It’s not that the social responsibility of business is to increase profits; it’s that the social responsibility of business is to help build a system where everyone can prosper. Joe: And that’s a much bigger, and more hopeful, idea. It’s about businesses advocating for things like a price on carbon, or stronger public education, or campaign finance reform—because they understand that a healthy society and a stable planet are the ultimate foundation for a healthy market. Lewis: So for someone listening, who feels overwhelmed by all this, what's the first pebble they can throw to start this avalanche of change she talks about in the end? Joe: Henderson gives a few simple steps, but the most powerful one is to 'bring your values to work.' Ask questions. If your company talks about sustainability, ask for the data. Start a conversation with your colleagues. Support the companies that are trying to do the right thing with your wallet. Your choices as an employee, an investor, and a consumer are the first ripple in the pond. Lewis: It’s not about one person saving the world, but about millions of people demanding a better version of it. Joe: It’s a powerful and hopeful, if challenging, vision for the future. Lewis: A world on fire needs more than just a bucket of water; it needs to redesign the firehouse. A fantastic read. Joe: This is Aibrary, signing off.