The Forthcoming Crisis

October 27, 2012

I just ended participating in a webinar organized by the Humanity's Team, the group that hosted Global Oneness Day.Very stimulating discussion about the future of humanity.I want to share with you what I said and what I think.In one of my previous blogs, I wrote that capitalism was dying in front of our eyes.In light of what I learned in this broadcast, I want to rephrase the title of that blog.Capitalism is not dying. It is flourishing. It is taking over the world. What is dying is the Capitalist Model. It does not work anymore. It brought us an unparalleled standard of living, but it is destroying our quality of life. It is destroying the planet, which we all share.What is wrong?The fault lies with the very foundation of capitalism, its capital markets. And the foundation of capital markets is the stock market. Yes, the stock market.What is wrong with it?It de facto bifurcates owners from the companies they supposedly own.Let me explain.Owners of shares move from one company to another at a heart-beat. Should another company offer higher returns on investment, stockholders are quick to shift their holdings.Their behavior is not that of real owners. They are speculators.What about the Board of Directors? Do not they represent the owners?Yes, but how? By maximizing profits that the company generates. If the CEO does not produce the profits that are better or comparable to other companies in the industry, he or she will be replaced quickly.Simple.So profits, return on investment, earnings per share are what drive companies’ management, Boards of Directors and the so-called owners. Period.And as every company tries to maximize its profits, the planet is being destroyed. The total system is sub-optimized as the corporate world pursues a policy of each one for himself to his own individual benefit.That no longer works today.The world is too interdependent.Our resources are fixed.As we consume more, the planet is becoming depleted.Who is at fault? I believe that our business schools within academia are one of the main culprits.What are they doing?They are training thousands, if not millions, of today’s business leaders around the world. Their credo is a straightforward one: the future lies in the hands of corporate leaders who can design the best business models geared to maximizing profits.Business schools are “the swamps that breed the mosquitoes that carry the life threatening malaria.”What can we do? First, we need to change business education. Then, we need to change our economic theory, which bases itself exclusively on mathematical value-free models.And, finally, we need to train future and present leaders to be professionals who understand the importance of limits. Who recognize that limits are driven by values, not by numbers.Take medical schools. What are medical doctors trained to do?To follow the Heraclitus oath: “DO NO HARM.”A medical doctor can maximize profits by prescribing unnecessary surgeries. Unnecessary repetitive visits.But “a professional” no harm doctor will focus on the health of patients rather than on profits.Which means profits should not be a deterministic goal to be maximized, but a constraint goal not to be violated.Profit is a boundary. Not a goal.A professional doctor does not want to be bankrupt. However, his focus should be the welfare of the patient.In the case of the business world, the goal needs to be one of adding value albeit profitably.Thus, to maximize profits, stop selling and promoting food that is full of sugar. That is processed to the point of spreading obesity, diabetes, high blood pressure. Stop polluting air, water and the earth we live on.Reorganize the financial markets that have only one concern: return on investment.Replace the stock market with the bond market. Let the people who work in the company, own the company. Have representatives of the public, not only the owners, sit on the Board of Directors. Have socially conscious people like artists sit on the Boards.If we want to change behavior, we need to change the power structure of organizations.Organizations are like motor boats. If one engine is very strong, and the other very weak, no matter how much shouting you do on the deck, the direction the boat will take is predictable.The business profit oriented institutions are too strong today. They have capital markets. They have schools for training future leaders. They have measurements to monitor success. A reward structure geared to maximize profits. And they unite themselves into strategic alliances. They use the most sophisticated psychological models to brainwash customers to buy products they do not even know they need...Arrayed against them are socially conscious organizations which are weak. Not united. Fighting among themselves for donations. With only sporadic leadership training and no significant alliances. Without research. Without development. Armed only with good intentions.Good luck.The world is marching over the cliff.To a disaster.How the engines are aligned is driving the planet boat to a disaster.A disaster that will be pale in comparison to 1929, which was an economic disaster.The calamities we are experiencing at present and increasingly in the future are not just economic. Or just social. They are systemic.Our world today, and increasingly so tomorrow, is far too complex and interdependent.For instance a technological change has almost instantaneous social, cultural and economic repercussions. In other words, we live in a more complex world than 1929 and our problems are and will be systemic in nature. Very complex and very global.Whoever gets elected to be the President of United States in 2012 will have bigger and more acute problems than the president who was elected in 2008. And the one elected in 2012 will wish he had the problems of 2008.The problems are getting bigger. More complex. More systemic.And who might take over to solve them? Necessarily so: big government.Who else?We have already been conditioned to dependency. Our government is responsible to take care of us. Who else?We are marching towards a new middle ages. New feudal ages. Governed not by monarchy or the church. But by bureaucrats and bureaucracy.Big government will not solve the problems. It will accentuate them. And hide them by suppressing rights and freedoms.Why? Because bureaucracies by definition are control freaks.Unless we unite now to deal with the problems, that is our future.How do we unite?There are about a billion people who support NGOs. Just imagine if they got together. Truly together jointly to follow a plan of action. To meet goals that they jointly support. Instead of one organization protecting the whales, another the dolphins and a third one the gorillas…all together select one item at a time and win legislation that will help us all. Like repeal the law that it is punishable by law not to maximize profits.(Do you know that in the USA, stockholders can sue Boards and management if they can prove that management did not try to maximize profits that were available?)De-legitimize business schools that teach that profits are the goal of corporations.De-legitimize Milton Friedman’s theoretical framework that corporations exist for their shareholders only, and profit is the exclusive measurement of their interests.Will it happen?Unfortunately it calls for a paradigm change. Change in thinking. Major change in values.Paradigms change with a crisis. And for a major paradigm shift, we need a major wake up crisis.And it is coming. But if we do not prepare for it, the solution might be worse than the problem: an unmanageable bureaucracy.Sincerely,Dr. Ichak Kalderon Adizes

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Dr. Ichak Adizes