How an Economist's Cry for Ethical Capitalism was Heard

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Photograph by Kevin Davies

Noreena Hertz had to seduce Bono. The Cambridge University economist was writing a book on the developing world, and Bono's personal saga of getting the U.S. government to cancel more than $400 million of debt was just the pop-culture bridge she needed to move her ideas beyond the wonkish corridors of academia. After all, Hertz's motive for The Debt Threat -- a deep dive into the debt trap that, she argued, would have global consequences for all -- was to juice the campaign that had been building slowly in activist ranks. The book itself would be a battle cry (a postcard inside made it easy for U.K. readers to urge the prime minister to cancel billions owed by the world's poorest countries), and its release was pegged to hit before the 2005 G8 meeting. Hertz sent Bono an email, unsure if it would find him. To her astonishment, it did: "I'm so glad you got in touch," read the rock star's reply. "I'm a real fan of your work. Bono."

Few academics have leaped from the critical fringes to the role of prophet as adroitly as Hertz. Wielding her contrarian message -- that markets need to serve the interests of people as much as they serve companies or shareholders -- Hertz has been campaigning for the past decade against the mantras of mainstream economists, urging a more ethical form of capitalism. But her message isn't some yoga-infused spiritual quest. As she explained in her 2001 European best seller, The Silent Takeover, it is about the unsustainability -- environmentally, socially, and economically -- of laissez-faire capitalism and the idea that markets are stable. If the surge of corporate power was going to leave governments relatively impotent, Hertz argued, then those corporations themselves needed to fill the void. "She moved the conversation from what corporations can do to be socially responsible to a much more profound examination of the boundaries of corporate behavior and public behavior and where they have failed," says Debora Spar, who was a dean at Harvard Business School for nearly two decades and is now president of Barnard. "She's much more radical."

Hertz -- part activist, part detective -- argues that both economics and business need to be put back into the human social context. "Over the past 30 years, economics became a narrow field completely out of touch with reality," says Hertz, 41, who sees the discipline as a jigsaw puzzle. "I don't believe you can reduce the world to a mathematical formula. I start with the world, assume it's complicated, and ask where can I get help from a whole range of disciplines." Drawing on subjects as diverse as anthropology, physics, geopolitics, and neurology, Hertz's economic vision is at once eclectic and holistic, which may explain her apparent ability to foresee dangers and opportunities others do not. It is also relentlessly pointed, serving an explicit agenda -- making corporations realize that they can no longer operate in their Adam Smith -- designed bubble. "I really believe in a globalist agenda, but globalization isn't just allowing companies to trade freely all over the world. It's about what types of rights and responsibilities come with that," Hertz says. With inequality surging, resources diminishing rapidly, and the earth's very future in question, capitalism-at-all-costs is no longer an option, she insists: "I have problems with this very extreme form of capitalism where the pendulum has swung so far in one direction, where the focus is completely on the short term, and no one is thinking about the consequences."

Few were thinking about the consequences, of course, before September of last year, when the financial system imploded. On this side of the Atlantic, Nouriel "Dr. Doom" Roubini and Robert "Irrational Exuberance" Shiller smelled the impending destruction, but many economic demigods like Alan Greenspan claimed they had no idea it was coming (Greenspan notoriously confessed his "shocked disbelief"). The Black Swan author Nassim Taleb says, with typical gusto, "The whole [economic] profession failed." The largest financial crisis since the Great Depression confirmed Hertz's long-standing conviction that there would be dire consequences if unregulated markets were rewarded for success but not penalized for failure. "Is there reason to believe that we are soon going to see more defaults on commercial debt, emblematic of a widespread financial crisis? I believe that within the next five years, yes, we will see this," Hertz wrote in 2004's The Debt Threat. "She was predicting what would happen," says Joshua Cooper Ramo, managing director of the strategic advisory firm Kissinger Associates, who first met Hertz at Davos back in 2001. "For the past five or six years, everyone had pie-in-the-sky optimism that capitalism and democracy would be triumphant. Now we're seeing all these incredible problems in the system, and she's been pointing out that these problems exist."