What Starbucks’ union-busting and a centuries-dead economist can teach us about the future of capitalism.
When Schumpeter first put forth his theory for capitalism’s transition to socialism in the midst of the Second World War, he believed the process was already well underway. Close to a century later, most would agree he thought wrong.
When Howard Schultz took over Starbucks in 1987, he had a coffee problem.
Despite the chain’s success since its 1971 inception, too many Americans were still drinking bad coffee. He wanted to offer them something better. As is documented in Schultz’s four memoirs, that’s exactly what he did.
Schultz’s disruption and consequent takeover of the American coffee market made him an icon of American entrepreneurship. If Joseph Schumpeter could see Schultz today, he’d stand back and clap in admiration.
In Schumpeter’s 1942 book, Capitalism, Socialism, and Democracy, the Austrian economist laid out a theory that transformed how economists understood the inner workings of the capitalist system. He argued that entrepreneurs, not governments or stodgy old firms, were the ones responsible for economic growth. Though they often faced resistance as they challenged the status quo (i.e. burnt American coffee), their innovations rendered old technologies obsolete. Replacement with bigger, better, more efficient products led to economic expansion (i.e. Arabica beans and thirty-one frappuccino flavours). Schumpeter called the process “creative destruction”.
Half a century after Schumpeter’s death, his ideas enjoyed a resurgence into vogue. Venture capitalists, entrepreneurs, and Silicon Valley darlings scrabbled in the early 2000s to convert to the church of Schumpeter. Bill Gates, Steve Jobs, Jeff Bezos, and yes, Schultz were all touted as proof of the Schumpeterian ideal when the world watched them ascend, leaving untold creations and destructions in their wake.
But while Schumpeter may have predicted modernity’s greatest “creative destroyers”, he also had a theory for capitalism’s demise. In a speech aptly titled Can Capitalism Survive? he opened with a provocative thesis:
“No, ladies and gentlemen. It cannot.”
Standing in stark contrast to Marx’s vision of a capitalist system overthrown by a class-conscious proletariat, Schumpeter’s vision was less revolutionary. Capitalism’s downfall would not come from the alienation of human beings from their work or the mass-scale exploitation of workers. Capitalism’s demise would come from the capitalists themselves.
Science and logic allowed entrepreneurs to innovate and capitalism to thrive, Schumpeter argued. But “the rationalizing effect of industrial life” would eventually move beyond machinery and into the minds of the intellectual elite who governed the capitalist system. Recognizing that poverty, social stratification, and other injustices were irrational at their core would become “virtually a requirement of the etiquette of discussion.” Schumpeter predicted that, eventually, the ruling classes would become so intellectually uncomfortable with the nature of their own system that they would voluntarily spearhead a transition to socialism — a transition that would keep them at the helm of power, just with a more palatable distribution of resources.
If Schumpeter’s “creative destruction” theory proved true, could his “end of capitalism” theory be next?
In 2023, Howard Schultz doesn’t have a coffee problem. He has a union problem. Over the last few years, more than 250 Starbucks locations have unionized, pushing for more predictable schedules, better benefits, and — because thirty-one frappuccino flavors are thirty-one too many — fewer specialty menu options.
Starbucks has responded to this shift with staunch opposition, with Schultz claiming union organizers are an “outside force that’s trying desperately to disrupt our company”. In 2022, Starbucks shuttered dozens of recently unionized locations (a move deemed illegal by federal regulators).
Schultz has been pushing back in other ways, too. Strangely, he’s done so by offering many of the same policies union organizers are advocating. In 2022, non-unionized employees became eligible for higher wage packages and more generous sick leave policies. As a result, many stores in the process of unionizing saw a decline in union interest.
Schultz is not opposed to socially generous employment policies — as long as they’re on his terms. He’s a good boss, after all. It all seems very Schumpeterian, doesn’t it?
Starbucks is not the only firm resisting growing pressure from workers seeking unionization. Amazon and Apple are others in a string of companies beginning to contend with increasing demands from workers who want to bargain, not beg, for better working conditions from their startup-turned-behemoth employers
Simultaneously, many American billionaires are undertaking new efforts to advance social causes (or bolster their public image, who’s to say which is the true motive?). Bill Gates has the Bill and Melinda Gates Foundation, a non-profit dedicated to “fighting poverty, disease, and inequity around the world.” Jeff Bezos has the Bezos Earth Fund, “the largest philanthropic commitment ever to fight climate change and protect nature” (even as Amazon’s business practices destroy it). Famed investor Warren Buffet, former JPMorgan CEO Jamie Dimon, and others have all levied criticisms in recent years about weak government regulation and the need to replace “shareholder capitalism” with “stakeholder capitalism” — a form of corporate governance that considers a company’s holistic impacts on communities alongside stock performance. Capitalists, they seem to be saying, can be the social do-gooders we need.
When Schumpeter first put forth his theory for capitalism’s transition to socialism in the midst of the Second World War, he believed the process was already well underway. Close to a century later, most would agree he thought wrong. To say that Schultz’s crisis of conscience signifies the impending end of the Western capitalist system would be foolish.
But Schultz’s response begs the question: is this what Schumpeter meant?
Written by Sara Chiarotto O’Brien