Mindset Not Market Failure

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”:

  • K-12 student performance that’s failing fast relative to that of comparable countries
  • Companies invest far less than they used to in worker training
  • Many jobs go unfilled because companies say they can’t find workers with the skills they need
  • A large and growing population of people who have been unemployed for so long that they no longer look for work
  • Wages have been stagnant for three decades, except in the case of the top 1%
  • The gap between top earners and all others is greater than at any time since the 1920’s
  • Unions are attacked as part of the problem, not (as they could be) part of the solution to these challenges.


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

A few points on the list, when looked at together, suggests a deeper underlying dynamic.  For example, companies investing far less than they used to in worker training, many jobs going unfilled because companies say they can’t find workers with the skills they need and unions are attacked as part of the problem together indicate a shifting the burden dynamic is likely operative.  In a Huffington Post article on skills mismatch Andrew Sum (Northeastern University Economics professor), concluded from his analysis of data from The Bureau of Labor Statistics there is no “credible evidence of anything approaching a shortage in manufacturing workers anywhere in the country.”  In the same article Paul Osterman, professor of management at MIT stated “firms are always interested in shifting the costs of training to the public sector.”  So what we have is moneyed self-interest trumping collective interest in the interest of maximizing self-interest—a real tragedy of commons.


A tragedy of commons is not merely the fact that we share a common tragedy.  If the current situation was in deed just a common tragedy, then the institutions simply getting together—as Kochan suggests—to alleviate the common problem might be all that is needed.  Unfortunately given the root cause of the situation, what getting together absent of proper guidance would do is provide opportunity for more collusion.  This would lead to short-term symptomatic relief to appease the collective ‘we’ of society while (hidden from view) the select group of individuals (persons and corporations) would continue advancing their self-interests ensuring the underlying dynamic remains operative.


But we aren’t suffering from a common tragedy, what we have is a tragedy of commons where decision-makers see themselves as individual actors and fail to understand how deeply interrelated we are—concern is self concern not universal concern.  What is not included in the decision-making is what we have in common: our humanity, our environment, and life itself.


Seeing Wholes Is Critical

We are deeply and inextricably holarchically related, which means we shouldn’t act as if we are independent entities each seeking to maximize (our) self-interests.  We can’t proceed as if we aren’t highly interdependent and still maintain our viability.  For example if we are team of people then the team is comprised of a network of helping relationships and if we do things that destroy these relationships then we in effect will destroy the team.  In other words, we can’t forsake our constituent parts—which are systems as well—and expect to continue to exist.  We exist as living systems within living systems—wholes within greater wholes—and therefore we must think and act with this in mind.


An industry or a corporation that defiles or debases its environments as it pursues maximum monetary return cannot survive over the long term. So when we think about the unit of survival, we discover that it is not our little corner of the world, it is not our corporation or our industry, but rather the system and its relationship with other interdependent systems.  Holding this perspective, those in authority of an industry or a corporation would not consider itself the unit of survival but rather it is the industry or corporation plus its energy providing environments (which includes not only the natural environment but also society and the system of humankind). Polluting one’s source of life’s energy is not the way to sustainability and viability.


Until we change our system of orientation—the assumptions and beliefs we hold in mind that direct our decisions and behavior—we will not extricate ourselves from the situation we have created.  Like a boomerang the problems will keep coming back.  Paraphrasing Einstein, we can’t solve problems with the same level of thinking that created them.


What we are experiencing is the effect of the confluence of egoism, materialism and reductionism circumscribed in a mechanistic world-view—systems thinking is nowhere to be found in either development programs or education.


Therefore, what we (first) have is a meta-problem; an inability to correctly understand the problem because our system of orientation renders the underlying issue imperceptible. So we end up offering a solution to a symptom—treating symptoms—not the problem.  No wonder our problems recur, although with possibly different players but it’s the same problem nonetheless!   Ours is a problem of mindset not markets.


4 thoughts on “Mindset Not Market Failure

  1. Mindset it is. If we could never build another automobile factory, we would meticulously take care of it each and every day. The fact that natural capital was here when we got here and it is self-renewable (if maintained) it is easy to accept that it was granted to us. Natural capital has limits and our mental understanding of that is even more limited.

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