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Mindset Not Market Failure

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In an article on Harvard Business Review Blog, titled U.S. Companies Versus the U.S. Economy, Thomas Kochan (of MIT Sloan School of Management) argues the disconnect between U.S. companies and the U.S. economy is the result of market failure.   While the management of each business corporation makes decisions believing the unit of survival is the independent business enterprise, this doesn't mean there aren't other socio-economic consequences of these decisions.    These consequences impact the very collection of people to which business leaders believe they have no connection or responsibility, yet upon which they so much depend.

According to Milton Friedman societal concerns are government's responsibility.   As Friedman stated "there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." This line of thinking, in light of the influence that corporate self-interest has on formulating law--the very rules of the game they are to stay within--has tragic consequences for everyone.

The focus of concern is so limited that it's as if business operates only in markets and not in society--society is merely on the side.   I suppose in this sense it is market failure because the market does not reflect the societal cost of business decisions, and accordingly the business enterprise does not incur these costs.

Business Operates In Society Not On Society

Kochan asserts "what's good for individual U.S. companies is no longer automatically good for business nationwide, for U.S. workers, or for the economy."   As if it ever truly was!   When was this ever really the case? This growing disconnect is not so much about a failing market as it is about a system of orientation, a mindset destined to fail.   That is, what we believe about ourselves and the purpose of business are at the root of what we are now experiencing.  

Kochan does acknowledge the alignment of needs between the U.S. business community and the U.S. economy, seemingly suggesting that these institutions have things in common.   He identifies a few characteristics of our current situation that collectively amount to (as he stated) a "perfect recipe for decline and a terrible legacy to leave to our children and grandchildren":

o    K-12 student performance that's failing fast relative to that of comparable countries

o    Companies invest far less than they used to in worker training

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o    Many jobs go unfilled because companies say they can't find workers with the skills they need

o    A large and growing population of people who have been unemployed for so long that they no longer look for work

o    Wages have been stagnant for three decades, except in the case of the top 1%

o    The gap between top earners and all others is greater than at any time since the 1920's

o    Unions are attacked as part of the problem, not (as they could be) part of the solution to these challenges.

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These are not because of market failure but rather because the system of orientation (the mindset) of leaders in business and government--their beliefs and the way they think--doesn't reflect an understanding of systems.   Seemingly those in authority are oblivious to the fact that everything is connected to everything else and so they decide and act as if things are independent.   Thus the unit of survival to them is them and their corporation.   However this does not negate the fact that nothing is just individually separate and independent, even though we structure life in society as if things were--this is the root of many of our socio-economic crises.  

So what we have are decision-makers whose decisions have influence on life in society yet they have: limited scope of concern; a view of the future as a linear sum of short-terms; and a relationship to people as objects having only instrumental value in service to their self-interest.   We have business management with a myopic focus on results, especially those in the short-term, and correspondingly a preference for divesting not investing, coupled with decisions by elected government officials guided (if not directed) by their pursuit of their material self-interest.   Thus there is collusion between moneyed interests of private business and political parties--it is a fixed system--that in effect diminishes if not disregards concern for the collective "we' of society (except of course in election years).   So what does this get us?   Kochan's list (above) is a short list but an important list of observations emerging from the system we've created.

It's a Tragedy

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My educational background includes a Ph.D. in Organizational Studies, an M.A in Statistics and a B.S. in Mathematics/Education. My experience in business and industry is as extensive as it is diverse, having held positions across the full range of (more...)

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 Hello, Here is a highly incit... by Ad Du on Sunday, Feb 26, 2012 at 9:37:10 AM