In 1848 Karl Marx remarked of his time “all that is solid melts into air.” 2019 is hardly 1848. But when we read Marx muttering about “constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty” the mood can seem awfully familiar.
In the United States and in other capitalist countries around the world there is a feeling of uncertainty, of broken institutions, of unfairly distributed opportunity. We’re at a moment when we’re asking ourselves a direct question: In the economic system we’ve built, what—and who—gets optimized?
For the past 75 years our economy has optimized for stability, efficiency and return on investment. Those have been the goals even as we’ve constantly fiddled with the machinery for noble and cynical reasons and always with unintended consequences.
There’s no longer broad agreement on what gets optimized. Capitalism has begun one of its periodic adaptations to a changed world. And what’s interesting is that many of the very people for whom the dominant economic system works well are asking questions about its purposes—not out of altruism but out of concern for self-preservation.
Paul Romer, who won the 2018 Nobel Prize in Economics for his work on the knowledge economy, has grown concerned about the meaning of a modern economy for real people. Last month, for example, Romer told the New York Times “this is a really unique moment in human history. We’re likely to decide in this time frame what people are going to live with forever.”
In his new book, The Economist’s Hour, Binyamin Appelbaum remarks, almost in passing, that “efficiency has no special claims as the primary purpose of the marketplace.” Which will be viewed by many of us as heresy.
Romer and Applebaum are asking basic questions about our economy’s strategic intent. If you’re any kind of a capitalist you’ve got to pay attention.
Punished if you don’t adapt
As consultants we often find the hardest client to work with is the one that has long been successful with a model to which, logically, they’re attached. When big change comes along—machine learning, demographic shifts, nontraditional competitors—once successful organizations will be punished by the market if they can’t adapt and innovate.
For most of the last 75 years Western economies have successfully taken a largely market-driven approach to the world’s big challenges. Most often we muddle through and improvise a combination of free markets and enlightened intervention, hoping some sort of rough justice appears. In the interim there can be plenty of pain.
Seeing the long-term upside in disruption—and accelerating the upside’s arrival—requires visionaries who can abandon ideas to which they were previously committed when empirical observation shows they don’t work. In that respect, the declaration of the Business Roundtable in August that public companies should take into account not just shareholder returns but the interests of all stakeholders—employees, customers, society—took the conversation started by impact investors to a new level.
The declaration was short on specifics. But it signaled that concern about the purposes of capitalism has gone mainstream. It was an acknowledgement that inequality of rewards—real and perceived—is bad for the economy and bad for business.
Argue from data
In a free market it’s not always clear what the right choices are for an organization, for an individual, for a society. We must often feel our way through our choices. We can have leadership that stinks and still profit by asking the question: What are we optimized for?
Are we optimized for shareholder returns? A healthier planet? Full employment at good wages? Freedom from government intervention? What? We can easily lose ourselves in argument. But we can agree without argument that if we value x—the thing we wish to optimize—then we should seek the indicators which show how close we are to achieving x.
If you were to create a dashboard to measure your optimal economy what would you include? Virtuous intent would not be enough. Your dashboard would have to be data driven.
Our dashboard would include a measure of a healthy middle class, especially social mobility. We would track longevity and other markers of overall health like child mortality and global temperatures. We might track self-reported measures of wellbeing--including happiness—which may be subjective but which over time tell a story. We might consider leaving off conventional measures of an expanding economy since their correlation with social wellbeing isn’t axiomatic and could provoke more argument then insight.
Western capitalism sometimes demonstrates a totalizing quality that allows no alternative to faith in its superiority. Our dashboard would allow for different answers for different societies to the question, “What are we optimized for?”
Our dashboard would not be enough. But it would compel us to name our strategic intent. That would be a beginning.
So what would you optimize? And what would you put on your dashboard?
This essay is a collaboration with Kevin McDermott of Collective Intelligence LLC.
Andrew Green shares perspectives and hard-won lessons on mastering the business growth path