A pitchfork moment has arrived — Part 1

Thought Spark

My book Seeing Around Corners is all about strategic inflection points. So, back in March of 2020, in the midst of the mother of all inflection points, I used the framework from Chapter 2 of the book to reflect on what kind of futures we might be looking at as the pandemic rolled its disruptive way through our lives. Here’s an updated version of that story. I’ll include the future scenarios piece in Part 2, and I think you’ll be intrigued that some of the possibilities are now becoming real.

An economy in runaway imbalance

The American economy is just not working for the majority of people. As one observer put it: the class war is over — the rich won.

Companies that employ hundreds of thousands of people refuse to offer paid sick leave, meaning that workers have a choice: go to work sick or lose what is often a desperately needed paycheck. In a grim and rather revolting 2014 study, the Centers for Disease Control reported that one in five food service workers showed up for their shifts while so ill they were vomiting and had diarrhea (and the recommendation is that they should stay away for an additional 48 hours to prevent them infecting others). This is a huge risk to public health.

People are literally terrified of incurring crippling medical bills in the United States. A recent study found that 38 percent of respondents put the fear of receiving an unexpected medical bill higher than a host of other potential costs. Americans went into debt to the tune of $88 billion in 2018 and an independent survey found that one in four skipped care because of cost. And this wasn’t just poor families — the fear was pervasive across all income levels.

More broadly, the blow to vast numbers of people who live paycheck to paycheck of all the cancelled events and postponed economic activity is revealing just how poorly the American economy is working for most Americans. Even in the midst of our long economic boom, 17% of Americans reported that they couldn’t pay all their bills. And while the United States has created a lot of jobs, most of those don’t offer decent pay and adequate, predictable hours. As my colleague Steve Denning reports, we have looked the other way while witnessing a decades-long decline in the quality of American jobs.

Indeed, an economy that once employed 23 percent of its people in manufacturing jobs today has only 8 percent so employed; the remainder were replaced with lower-wage/lower-hours service jobs. And where did those jobs go? To less expensive locations. Indeed, entire industries have decamped to Asia and other countries to the point where, as Steve points out, Amazon couldn’t make a Kindle in the US if it wanted to. Despite reassurances that Americans would do the innovating and other people would do the manufacturing, MIT’s Eric von Hippel years ago demonstrated that it is the intense connection between suppliers, users, and manufacturers that are where innovation starts.

We were warned

Back to inflection points. It wasn’t as though we weren’t warned. In 2010, Andy Grove published a severe rebuke of the notion that innovation could thrive with scaling and manufacturing happening elsewhere. He also presaged the newly discovered notion that companies should be run for people other than their shareholders. As he said then, “all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability — and stability — we may have taken for granted.” For a real indictment of how our ideology of maximizing shareholder value has undermined shared prosperity, you can’t go wrong with William Lazonick’s and Jang-Sup Shin’s latest book, Predatory Value Extraction.

The result is what professor Peter Turchin calls “population immiseration,” in which the vast majority of people face declining standards of living. Have a look at his blog for the fascinating logic of why this is really bad news and why even the well-off are going to suffer. See also Nick Hanauer’s now famous TED talk.

A Change in the Social Compact, or will it be Pitchforks?

Infectious diseases have often catalyzed social change. Water systems, sewer systems, and public health authorities all emerged from previous epidemics. Social change can also come from economic change, such as industrialization and the creation of the first instance of mass inequality in what came to be called the Gilded Age. The excesses of the first gilded age ignited protests. It gave way to the “progressive” era, in which workers’ rights, the rule of law, the breakup of monopolies, women’s suffrage, and many other social protections which people living in western democracies have come to take for granted were implemented.

With Biden’s election, one of the great uncertainties back in March has been resolved — there are likely to be significant policy changes that hold the promise of tilting policy toward matters that might reduce income inequality and lead to higher wages, reversing the long-held (and fraying) argument that lower taxes create economic growth. Indeed the editorial board of the New York Times in November of 2020 decried the “relentless propagation” of tax cut philosophy in favor of higher wages. Trickle down doesn’t work.

What is to be done?

We’re seeing specific policy recommendations. One, championed by Bill Lazonick, is to rescind an obscure 1982 SEC decision that essentially allows unlimited open-market stock buybacks, a decision that he argues has created “profits without prosperity” and fundamentally distorted the decision-making of leaders at firms such as Boeing to disastrous effect. Harvard’s Rebecca Henderson, in her book called Reimagining Capitalism in a World on Fire, argues that the mis-pricing of the true costs of externalities stems from too heavy a reliance on market mechanisms across the world; with too little investment in governance practices and long-term investments. The legitimacy of engaging in mass layoffs, during good times, simply to drive profits and executive compensation may well come into question.

Nick Hanauer, a wealthy entrepreneur and unapologetic capitalist, has been vocal in advocating for sharing the spoils of the capitalist system, warning his fellow plutocrats that “the pitchforks are coming for us!” Citing Henry Ford as an inspiration, he notes that “These idiotic trickle-down policies are destroying my customer base!” Paying living wages is a key policy that Hanauer believes governments should require so that all employers are on a level playing field with respect to labor costs, in addition to collecting a greater share of taxes from the wealthy to fund essential government services. Peter Georgescu, a refugee and former CEO of Young & Rubicam has been sounding the alarm at what he calls the “slow suicide” of capitalism and has likewise called for higher wages for workers.

Roger Martin, in his very thoughtful book More is Not Better offers specific policy solutions taken from practices in other places. Among them — requiring shareholders to hold stocks for longer periods of time and engaging in consumer “multi-homing” to ease monopolistic controls.

The pandemic has unfrozen a great many taken for granted assumptions. Part 2 will be focused on future scenarios. I think you’ll be intrigued that some of the possibilities are becoming real.