Common Purpose: Realigning Business,
Economies, and Society….PART 1
Today’s
economic and political upheavals reflect an ongoing misalignment between
business and economies (on the one hand) and acceptable societal outcomes (on
the other). There is still time to adjust, if we are willing to reexamine some
long-held assumptions.
Underlying the bitter politics of our time is a simple, prevalent
reality: Too many people feel that they are being left behind by a system
unfairly stacked against them. For a number of generations, citizens in the
world’s wealthiest nations perceived themselves as participants in a long chain
of ever-increasing prosperity. Now many see themselves as worse off than their
parents. They also believe their children’s lives will be worse than their own,
and often with good reason. They resent the global financial system and
perceive that its benefits are going only to a small minority of people —
which does not include them.
These perceptions are now so widely shared that they add up to a
political and economic malaise. This is not limited to the “populists” who are
angry and active; they are prominent because of the role they have played in
influencing major elections. No matter what your own political perspective may
be, our times are marked by a fundamental loss of confidence: in the
reliability and impact of economic growth; in the institutions of our
interconnected world (and the trust people have in them); and in the apparent
ability of government, business, and civil society to respond.
Why is this happening? A wide variety of factors have been blamed:
technology, globalization, economic and political theories (of all sorts),
business, government, partisan gridlock, immigration, religion, and the
influence of special interests. Members of the working and middle classes, the
global elites against whom they are rebelling, and the new wave of populist
political leaders challenging those elites have identified one another as the
problem. But as long as the discussion focuses on separate culprits, it’s
difficult to find a solution. The root cause is the relationship among a subset
of these factors, and how they have emerged, interacted, and transformed over
the past several decades.
In the period after World War II, three drivers of change served
humanity well by typically delivering both economic growth and social progress
over many years.
1. Globalization: the
building out of worldwide economic institutions, facilitating the cross-border
migration of people, goods, capital, and information, and ultimately driving
significant increases in international trade
2. Technological advances: spurred
by the computer and Internet, but also encompassing communications generally,
biotech, and healthcare, leading ultimately to robotics and artificial
intelligence
3. “Financialization”: a
view of value based on financial metrics, primarily GDP at a macro level and
shareholder value at a corporate level
Together these drivers and the institutions that embody them had
an extraordinarily positive impact on society. They lifted billions of people
out of poverty and raised the quality of life around the world in unprecedented
ways. However, as the three drivers evolved, they began to accelerate and
change, not only in their essential nature but especially in their compound
effect. Each driver has influenced and reinforced the others, ultimately
combining to cause a divergence between economic growth and social progress
that has placed the current system under a significant strain.
How have we gotten here and what can we do to adjust our course?
In this article, intended to solicit debate and inquiry, we examine the key
drivers of change to help better understand their nature and the events that
have surrounded them, and to contribute to discussion of how to bring business,
economies, and society back into greater alignment.
The Long Growth Wave, 1945–89
With the end of World War II, a virtuous cycle began that lasted
for nearly 45 years, and that continues to affect the way we think about
business, economies, and society. The virtuous cycle represented an
unprecedented alignment of economic growth with social progress, resulting from
the three drivers: globalization, technological advances, and financialization.
One key element was triggered by the Marshall Plan, an initiative
that gave loans and grants from the U.S. to other countries (totaling about
US$13 billion between 1947 and 1951) and was intended to help rebuild Europe
and Japan. The Marshall Plan went beyond funding; it established structural
changes with an eye toward multinational interdependency. Its lessening of
regulations and trade barriers was the first of many steps toward forming
the European Union. Together with such measures as the Bretton Woods
agreement of 1944, which established monetary exchange among nations, the plan
laid the foundation for an increasingly global economy.
The result was sustained and significant economic growth,
delivering first recovery and then social progress. Companies sold
predominantly to their rapidly growing home markets, full of consumers making
many purchases for the first time (most dramatically in the U.S., where the GI
Bill helped create a large new group of professionals, composed of returning
veterans). The economic engine worked exceptionally well and in alignment with
the communities and societies within which it operated. Rising tides lifted all
boats.
This was also a period of significant technological progress,
leading to the 1965 formulation of Moore’s Law, which predicted continued
exponential growth in computing power. Many of the technologies that made
personal computers and the Internet possible began in the 1960s. Some, like
packet switching and artificial intelligence, were prerequisites for today’s
cloud computing–based platforms and Internet of Things infrastructure. The
mobile phone, a version of which was introduced commercially by AT&T in
1946, would take almost six decades to develop into today’s smartphone, the
fastest-selling gadget in history.
Meanwhile, a globally
interconnected economy took shape, featuring increasing levels of international
trade. According to the World Trade Organization (in its 2008 World
Trade Report), international exports grew more than 8 percent per year between
1950 and 1973. New markets opened up, communications and transportation
technology improved, regions became more connected through trade agreements,
and capital became more readily available through deregulation. Together these
factors enabled companies to do more business abroad. As their home economies
matured, they began to rely on far-flung markets for growth. Slowly at first,
then with greater speed, multinational corporations (MNCs) introduced their
wares around the world, led by consumer products and automobiles.
An unprecedented sharing of knowledge and talent across
international boundaries spurred productivity and innovation, supported by the
institutional framework that had been put in place after the war. This pattern
of global economic growth is often taken for granted today, but at the time, it
contributed to a general perception of progress and prosperity, with enough to
go around. There was a sense that this progress, underpinned by healthy market
economies trading with each other, was the natural order of things in the
postwar world — at least for the citizens of those countries that globalization
had reached.
At the same time, policymakers grew accustomed to using GDP as the
primary measure of national success. Drawn from agricultural and manufacturing
statistics, it did not directly capture quality of life, but this did not
matter so long as GDP and social progress rose together. A society full of
promise was a natural outcome, it seemed, of the burgeoning financial world.
Business leaders, for their part, gradually returned to the
concept that a company’s main objective should be to maximize shareholder
value. This had been the prevailing point of view before the 1930s (Henry Ford
had famously lost a lawsuit in 1919 to shareholders who objected to his paying
workers $5 per day). But during the Great Depression and the War, American
companies had adopted the view that they should work “in the balanced best
interests of all,” a phrase used in the 1953 General Electric annual report.
Starting around 1970, economists such as Milton Friedman, Michael Jensen, and
William Meckling argued that this multifaceted approach created inefficiency
and waste. Management could make more intelligent decisions with the single
financial goal of shareholder value; in the view of these economists, this
would automatically lead to better decisions for employees, customers,
creditors, and the community as well. This mind-set was further reinforced by
CEOs such as GE’s Jack Welch and International Telephone and Telegraph’s Harold
Geneen, who delivered constant profit increases by aggressive restructuring of
underperforming assets.
It is important to touch upon the nature and purpose of the
economy — because the assumptions that underpin both are often subject to debate.
The economy is considered here to be the engine by which human needs (and
desires) can be met through opportunities. This means that the effectiveness of
the engine itself largely determines the degree to which needs will be met and
opportunities will be realized. During this period, the economic engine was
delivering as intended, underpinned by the three drivers. It supported business
and economic success, measured in financial terms, on an ever more global
scale. This enabled many people to prosper, their communities to thrive, and
society more broadly to advance.
CONTINUES IN PART 2
by Colm Kelly and Blair
Sheppard
https://www.strategy-business.com/article/Common-Purpose-Realigning-Business-Economies-and-Society?gko=f1919&utm_source=itw&utm_medium=20170606&utm_campaign=resp
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