Saturday, June 10, 2017

BUSINESS SPECIAL..... Common Purpose: Realigning Business, Economies, and Society….PART 1

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
Top of Form

Bottom of Form
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

No comments: