If we don’t want blood in the streets, or a life behind bulletproofing, the former CEO of Young and Rubicam warned, we need more broadly shared prosperity in America
It was July of 2020 (the 24th, to be precise). Joe Biden had only just garnered enough delegates to become the Democratic nominee for a tempestuous election whose outcome couldn’t be called. Pandemic related lockdowns were intermittently being imposed all over the world. The Tokyo Olympics, scheduled to have its opening ceremony on that day, would be pushed back by a year. Protests over social inequities were in full swing, and with parts of the economy shuttered entirely, millions were turning to food banks, many for the first time.
It was on that day that Peter Georgescu, former CEO of Young & Rubicam and an iconic American success story, and I met to chat about his fiery manifesto, Capitalists Arise: End Economic Inequality, Grow the Middle Class, Heal the Nation. The book is the culmination of his deep concern that America has lost its way, economically and morally, and is a plea to his fellow business and social leaders to take action. With a new administration in Washington and a resurgence of popularity for the role of government to help people, the conversation foreshadowed a lot of what we’re seeing today.
“America,” he said, “is the star of my life’s story.”
And a fabulous story it is. He was born in Romania on the eve of the second world war. When the iron curtain fell across Europe, his parents were stranded in the United States, leaving his brother and himself in the care of his grandparents. His grandfather was eventually seized by the authorities and murdered in captivity, and the rest of the family were arrested and sent to a work camp. After a bit of diplomatic derring-do, the boys were released and traveled to the United States.
A scholarship to Exeter Academy proved to be his breakthrough, followed by a Princeton degree with honors and an MBA from Stanford. His corporate career was equally stellar — culminating in his leadership of Young & Rubicam, a bevy of industry awards and a number of honorary doctorates.
The America of the post-war period allowed him to, was an environment in which, as he said, “I became the best Peter Georgescu I could be.” That America, he believes, no longer exists. He became so concerned about income inequality, lack of justice and lack of opportunity that he penned the book and attempted to draw attention to the cause.
How we got here
In his book, Peter takes us on a journey through the social contract as it existed when he was a young man to the one that we have today.
After World War II, productivity and wages went up in America. A critical coalition of business leaders, labor leaders and political leaders struck a series of bargains that aimed to create broadly shared prosperity and spark the formation of a large middle class. Starting in about 1980, under the guise of shareholder capitalism, we see a break between increased productivity and increased prosperity. When Peter did an analysis looking at wage patterns, he realized that nearly 60% of American households need to borrow money to put food on the table, despite the fact that 25% of the society is doing really well. Capitalism, he concluded, is committing slow suicide.
As we discuss in our conversation, a big part of the solution lies in businesses doing the right thing. We really don’t want to live in a society in which a certain group of people are able to protect themselves through money and possibilities, while the vast majority feel exposed and threatened, and their lives are economically precarious.
The facts are grim. Twenty percent of people in the gig economy receive no benefits or pensions. Their low wages make them eligible for government assistance. Many American children are blocked from the kinds of opportunities Peter had. They aren’t prepared for the kinds of jobs the economy offers.
Part of the problem is that for those with a degree of wealth and influence, these problems are not personally felt. CEOs, Georgescu suggests, must worry not only about their own children’s future but about all American children’s future, making the dream of equal opportunity a reality.
Capitalists, Peter suggests, can fix this, indeed must fix this by pursuing inclusive growth. Otherwise, democracy will eventually collapse. There are no alternatives, unless we want to live in a society where the wealthy live behind guarded walls and drive armored cars and everyone else is at the mercy of violent forces. As he puts it, the time for action is now.
The two most potent forces that will let us get back to shared prosperity and more inclusive capitalism are by improving productivity and innovating to create new value. The key ingredient to making this possible is to recognize that employees are assets. They create the real lasting value, not the CEO.
As he suggests, “We must broaden our minds and understand that the new value creators are the workforce. We must think about incremental value and paying our people more and think about how to motivate them. The ‘era’ of shareholder primacy, where workers were just transactions and the core of management within organizations was to squeeze people must cease.”
Nine months later…
Peter’s voice is being echoed by many that argue we need to completely rethink the social contract. While we didn’t know it during our conversation last July, the groundwork was already in place for increased pressure to change the incentives for corporate leaders to reflect a broad coalition of stakeholders. Businesses are talking about the need to do more than enrich shareholders.
Listen in to our conversation!
You can listen in on my conversation with Peter Georgescu in my Thought Sparks series of podcasts, drawn from my Friday Fireside Chats and other conversations.
To see all the available conversations, click here.
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