By Vanguard Enterprise Intelligence Unit with the work of Michael Porter, Rebecca Henderson, Luigi Zingales, Raghuram Rajan, and Mariana Mazzucato.

Capitalism does not face its greatest threat from a lack of dynamism. It still produces innovation, mobilizes capital, scales enterprise, rewards risk, and creates the conditions for extraordinary technological progress. Its more serious problem in 2026 is legitimacy.

For many people, the modern market economy no longer feels like a system of broad opportunity. It feels like a system that works brilliantly for some, adequately for others, and indifferently for those who feel trapped by housing costs, healthcare costs, stagnant mobility, regional decline, precarious work, debt, and the perception that powerful institutions write rules in their own favor. The economy may grow, but the lived experience of growth is uneven. Productivity may rise, but trust may fall. Innovation may accelerate, but political resentment may deepen.

This is the central challenge behind the renewed interest in popular capitalism. The issue is not whether markets should exist. The issue is whether market economies can once again be experienced by broad populations as fair, productive, and open to advancement. A capitalism that produces wealth without legitimacy becomes politically fragile. A capitalism that protects incumbents, extracts rents, and socializes insecurity while privatizing gains invites backlash from both left and right.

The question for 2026 is not whether capitalism can defend itself rhetorically. It is whether it can reform itself practically.

The Trust Problem

The public’s skepticism toward capitalism is not merely ideological. It is experiential. People judge economic systems less by theory than by whether they believe effort leads to advancement, whether institutions apply rules fairly, whether work offers dignity, and whether the future appears better than the present.

This is where modern capitalism has become vulnerable. In many advanced economies, people see strong asset markets but unaffordable housing. They see technological progress but fear job displacement. They see corporate profits but limited wage security. They see executive compensation rising while frontline workers absorb volatility. They see innovation clustered in a few metropolitan regions while other communities lose employers, young talent, and civic confidence. They see markets described as competitive while dominant firms appear to enjoy extraordinary power.

The result is not a simple rejection of markets. Many people still value enterprise, ownership, entrepreneurship, consumer choice, and innovation. But they increasingly doubt whether the system is reciprocal. They ask whether the market rewards contribution or proximity to power. They ask whether competition is real or managed by incumbents. They ask whether capitalism is a system of opportunity or a system of extraction.

This distinction matters. Public trust will not be restored by telling people that capitalism is better than its alternatives. It will be restored only if capitalism becomes visibly better at producing broad-based opportunity.

Rent Extraction and the Legitimacy Gap

One of the most important ideas in the debate over popular capitalism is rent extraction. In healthy capitalism, firms earn returns by creating value: building better products, improving productivity, solving customer problems, investing in workers, and innovating. In distorted capitalism, firms earn excessive returns by controlling access, manipulating rules, exploiting scarcity, locking in users, suppressing competition, or shifting costs onto others.

The public may not use the language of economic rents, but it recognizes the experience. It appears in housing markets where ownership becomes increasingly unreachable. It appears in sectors where consumers feel they have few real choices. It appears in fees that seem disconnected from value. It appears in regulatory capture, opaque pricing, noncompete restrictions, monopoly-like platforms, and business models built more on extraction than productivity.

Rent extraction is politically dangerous because it makes capitalism look rigged. It undermines the moral argument that markets reward effort and innovation. If people believe the system rewards control over contribution, they stop seeing wealth as evidence of value creation and begin seeing it as evidence of power.

This does not mean all high profits are illegitimate. High returns can signal innovation, risk-taking, and superior execution. But capitalism depends on the difference between profits earned by creating value and profits protected by blocking others from creating value. Popular capitalism requires leaders to defend the first and discipline the second.

For business executives, this is not merely a policy issue. Companies that rely on opaque pricing, exploitative lock-in, abusive labor practices, or political protection may achieve short-term returns, but they weaken the legitimacy of the market system that allows them to operate. They borrow trust from capitalism while contributing to its erosion.

Pre-Distribution, Not Only Redistribution

The traditional political answer to capitalism’s inequalities has been redistribution: tax after the market has allocated income and wealth, then use public policy to soften the results. Redistribution remains important. But it is no longer sufficient as the only answer. A system that relies only on after-the-fact correction may still feel unfair because many people experience the market itself as unequal before government ever intervenes.

This is where pre-distribution becomes important. Pre-distribution asks how resources, bargaining power, education, assets, and opportunity are distributed before market outcomes are produced. It focuses on the starting conditions of capitalism, not only the cleanup afterward.

In practice, pre-distribution can include stronger education and training systems, broader access to capital, employee ownership, profit-sharing, portable benefits, housing supply reform, child development investment, competition policy, wage progression, small-business formation, and pathways for workers to acquire skills that technology complements rather than replaces. It can also include institutional arrangements that give more people a stake in productivity growth before gains are concentrated.

The appeal of pre-distribution is that it does not require abandoning markets. It seeks to make markets more broadly participatory. It asks whether people have the assets, skills, bargaining power, and access required to compete and benefit.

Business has a role here. Companies can design compensation systems that share gains more broadly. They can invest in workers before labor shortages force them to. They can build apprenticeship models, internal mobility pathways, and skill-based hiring systems. They can support supplier diversity and small-business ecosystems without treating them as philanthropy. They can create ownership and profit-sharing structures that give employees a direct stake in value creation.

Popular capitalism is not created by redistribution alone. It is created when more people experience the market as a place where they can build, own, advance, and belong.

Innovation-Driven Growth

The strongest case for capitalism remains innovation. Markets are powerful because they allow experimentation, competition, decentralized problem-solving, and the rapid scaling of useful ideas. In a world facing climate transition, aging populations, healthcare burdens, defense needs, AI disruption, and productivity challenges, societies need more innovation, not less.

But innovation alone will not restore trust if its gains are perceived as narrow. The public is increasingly aware that technological progress can create winners and losers. AI can raise productivity while threatening jobs. Biotech can improve health while raising affordability questions. Clean technology can reduce emissions while creating new supply-chain risks. Platform businesses can create convenience while concentrating power.

The political sustainability of innovation depends on whether people believe they participate in its benefits. A capitalism that produces frontier technologies while leaving large portions of society economically insecure will not remain popular. It will be seen as brilliant but indifferent.

This is why innovation policy and business strategy must be linked to inclusion. Governments can support research, infrastructure, regional development, and competition. Businesses can invest in workforce transition, responsible deployment, regional ecosystems, and business models that expand access rather than deepen exclusion. The goal is not to slow innovation in the name of fairness. It is to make innovation socially durable.

Popular capitalism needs growth. But it needs growth that people can recognize in their own lives.

Policy Experiments and the Search for Balance

Across advanced economies, governments are experimenting with different ways to rebuild trust in markets. Some focus on industrial policy, using public investment to support strategic sectors such as semiconductors, clean energy, defense technology, and advanced manufacturing. Others focus on competition policy, trying to reduce market concentration and restore pressure on dominant firms. Some experiment with employee ownership, wage supports, portable benefits, child allowances, housing reforms, place-based investment, or public-private partnerships.

These experiments reflect a shift in political economy. The old debate between state and market is giving way to a more practical question: what institutional design produces both productivity and legitimacy?

Industrial policy can strengthen resilience and create strategic capacity, but it can also become corporate favoritism if poorly governed. Competition policy can discipline incumbents, but it must avoid punishing scale that reflects real innovation. Employee ownership can broaden wealth, but it requires thoughtful design and sound governance. Place-based investment can revitalize regions, but it must avoid symbolic projects disconnected from long-term economic ecosystems.

The lesson is not that one model will solve the trust problem. The lesson is that capitalism must become more institutionally adaptive. It must be able to distinguish value creation from extraction, scale from dominance, innovation from disruption without responsibility, and public investment from private capture.

A popular capitalism agenda will therefore require both reform and restraint. It must reform markets where power has become too concentrated or opportunity too narrow. It must also restrain the impulse to politicize every business decision or convert markets into permanent instruments of state allocation.

The goal is balance: fairness without stagnation, productivity without predation, profit without social contempt.

The Role of Business Leaders

Business leaders cannot solve capitalism’s legitimacy crisis alone. Many drivers of distrust are political, institutional, and structural. But executives cannot pretend they are bystanders. Corporate behavior shapes public beliefs about markets. Every exploitative fee structure, avoidable layoff, anti-competitive practice, misleading claim, or excessive reward gap becomes evidence in the public case against capitalism. Every credible investment in workers, innovation, communities, fair competition, and long-term value becomes evidence in its defense.

The first responsibility of business leaders is to separate value creation from value capture. Value creation expands the pie. Value capture merely reallocates it toward the firm. Both exist in business, but a company that depends too heavily on extraction will eventually face reputational, regulatory, and political resistance.

The second responsibility is to invest in productivity in ways that include people. Automation, AI, and operational efficiency should not be pursued only as labor-arbitrage tools. They should be linked to training, redesign, advancement pathways, and better work. If technology makes companies richer while workers feel more disposable, the social contract weakens.

The third responsibility is to support fair competition. Business leaders often praise markets while quietly preferring protection from them. Popular capitalism requires executives to accept that competition is not merely a threat to be managed, but a source of legitimacy. When markets are open, dynamic, and contestable, success is easier to defend.

The fourth responsibility is to practice stakeholder realism. This is not the same as vague stakeholder capitalism. It means understanding which stakeholders materially affect the long-term health of the enterprise: employees, customers, suppliers, communities, regulators, investors, and future talent. Leaders must ask whether their decisions strengthen or weaken the trust that those relationships require.

The fifth responsibility is to avoid political theater. In polarized environments, companies may be tempted to perform ideological alignment for one side or another. That may create short-term applause, but it can deepen distrust. The more durable posture is institutional seriousness: consistent standards, transparent reasoning, fair dealing, and disciplined communication.

A Framework for Popular Capitalism

Leaders who want to contribute to a more inclusive market system should begin with five questions.

First, does our business model create value or exploit dependency? This requires honest examination of pricing, customer lock-in, labor practices, supplier terms, data use, market power, and regulatory advantage. If customers, workers, or suppliers remain only because they lack alternatives, the company should recognize the political risk embedded in the model.

Second, do our gains translate into shared opportunity? This does not mean every employee receives the same outcome. It means the company can show credible pathways for advancement, skill development, ownership, profit-sharing, wage progression, and internal mobility.

Third, are we investing in productivity or merely cutting cost? Cost discipline is necessary, but a company cannot shrink its way into legitimacy. Investments in technology, talent, process improvement, and innovation matter because they create the surplus that can be shared and reinvested.

Fourth, do we strengthen or weaken the communities in which we operate? Companies are not charities, but they are also not floating abstractions. They depend on infrastructure, workers, public institutions, local trust, and social stability. A business that extracts from communities without contributing to their capacity undermines its own future operating environment.

Fifth, can we defend our success publicly? This may be the most important test. If a company cannot explain why its profits reflect value creation, why its compensation practices are fair, why its market power is legitimate, or why its social impact is responsible, then it may be creating economic value while destroying trust.

Popular capitalism is not anti-business. It is a demand that business become more worthy of public confidence.

Human Flourishing and Political Stability

The deepest case for popular capitalism is not that it produces higher GDP. It is that it can support human flourishing. Markets are legitimate when they help people build lives: work with dignity, own assets, support families, start enterprises, contribute to communities, and believe that effort can alter their future.

When capitalism fails to support that belief, politics becomes unstable. People who feel excluded from opportunity become receptive to anger. They may not agree on the solution, but they share a sense that the system is not working for them. That resentment can move in many directions: populism, socialism, nationalism, anti-corporate activism, anti-elite politics, or withdrawal from civic life.

Business leaders should take this seriously. Political stability is not external to business. It is one of the conditions that allows markets to function. Stable institutions, trusted rules, social cohesion, and broad belief in opportunity are forms of economic infrastructure. When they weaken, the operating environment becomes more volatile.

Popular capitalism is therefore not sentimental. It is prudent. It asks companies and policymakers to preserve the legitimacy of the system by making it more productive, more open, and more visibly fair.

The Real Test

Capitalism has survived many crises because it is adaptable. It can reform without abandoning its core strengths. It can generate innovation while correcting abuses. It can reward risk while broadening participation. But adaptation is not automatic. It requires leadership.

In 2026, defending capitalism means more than defending markets against their critics. It means listening carefully to what the criticism reveals. If people believe capitalism is rigged, leaders must ask where it has become too extractive. If people distrust corporations, executives must ask whether their companies have earned that distrust. If younger generations doubt the system, institutions must ask whether opportunity is genuinely visible to them.

The future of capitalism will not be secured by nostalgia, slogans, or fear of alternatives. It will be secured by performance that people experience as legitimate.

Popular capitalism is the attempt to rebuild that legitimacy. It does not reject profit. It insists that profit be connected to contribution. It does not reject markets. It insists that markets remain open, competitive, and broadly rewarding. It does not reject growth. It insists that growth produce human possibility, not merely institutional wealth.

The companies that understand this will not treat trust as a communications problem. They will treat it as a business-model test. They will ask whether their success strengthens or weakens the system that makes success possible.

That is the question capitalism must answer in 2026: not whether it can still create wealth, but whether it can create enough shared confidence to remain politically and morally sustainable.