Wednesday, April 20, 2016

The century's deadliest idea

In 1970, Nobel laureate economist Milton Friedman declared that the purpose of business was profit, exclusively and without apology.  Wages have stagnated since then as employers have taken his advice and prioritized profit and shareholder value over everything else in their business model.

Milton Friedman at the establishment of the International Monetary Market (IMM), the world’s first
 in foreign currencies.

"No popular idea ever has a single origin. But the idea that the sole purpose of a firm is to make money for its shareholders got going in a major way with an article by Milton Friedman in the New York Times...."  ~Forbes, Denning
Among the most destructive turns in national history, our subsequent and almost exclusive focus on corporate profit changed not just our business environment but our culture.  It has spread through the developed world and into the developing world.

The visible effect, the widening GAP between the wealthy and all the rest.  The unintended consequence, a death toll that goes far beyond that of all the century's wars combined.*

Among our children today, 21,000 die daily.  More than 100 million have died since the turn of the century, and perhaps twice that many more since Friedman's pronouncement.

The killers are poverty, hunger, easily preventable health issues, and malnutrition. Despite the scale of this daily/ongoing catastrophe, it rarely manages to achieve, much less sustain, prime-time, headline coverage.

It wouldn't be fair to blame Friedman, of course.  He was just reducing the factors of finance to the functionally relevant ones.  Friedman never intended or expected the transformation we've seen, and I doubt he would approve.  Economics since the 1980's is math and money and winning.

From UNICEF, the world’s premier children’s organization, part of the United Nations, we find that:
  • 2.5 billion people lack access to improved sanitation
  • 1 billion children are deprived of one or more services essential to survival and development
  • 148 million under age 5 in developing regions are underweight for their age
  • 101 million children are not attending primary school, with more girls than boys missing out
  • 22 million infants are not protected from diseases by routine immunization
  • 7.6 million children worldwide died before their 5th birthday in 2010
  • 4 million newborns worldwide are dying in the first month of life
  • 2 million children under 15 are living with HIV
  • >500,000 women die each year from causes related to pregnancy and childbirth
  • All the above are after years of improvement.  Some countries have made significant advances in health and nutrition.  Others have lost ground.   
 *Death by war in the 20th century is estimated at 200+ million.  The death toll from preventable causes among children under age five and just since 1970 exceeds 300 million, and that is just the children.  Each one was a great loss to their family. Across populations, death and suffering from poverty, economic inequality, and disenfranchisement (all unnecessary and addressable) are beyond measure.  Or excuse.

While there are many difficult problems associated with poverty, it's worth remembering that poverty from generation to generation is not chosen by the victims, it is chosen by policy makers and imposed by rules of trade and finance.  
20 APR 2016 -- This morning with my doctor, he was lamenting the changes in medical practice that he'd seen in his 30 years.  The science is magnificent, but the business has changed, he explained.  It used to be about the patients, it was a service, not a business.  Doctors entered the field because they wanted to help, to make a difference, to save and improve lives.  Today, healthcare is a business about the money and not about the patient's needs.  It's a business like every other.

Note: Despite the Nobel Prize, Friedman's premise turns out to have been problematic. It changed big business, and it took almost half a century to see that it wasn't going to work well.

Following Friedman's philosophy and theory, Jack Welch made GE the largest corporation in the world, and in 1999 was named CEO of the century. "It turned out that the fabulous returns of GE during the Welch era were obtained in part by the risky financial leverage of GE Capital, which would have collapsed in 2008 if it had not been for a government bailout."

"In due course, Jack Welch himself came to be one of the strongest critics of shareholder value. On March 12, 2009, he gave an interview with Francesco Guerrera of the Financial Times and said, “On the face of it, shareholder value is the dumbest idea in the world." ~Forbes, Denning

Much in popular economic theory has fallen flat. Supply-side and trickle-down are perhaps the most familiar failures. Meanwhile, the GAP widens.

Things are changing, and it is going to be different. Whether it will be better or not remains to be seen. Our great concern remains, how will we treat the poor and deal with persistent and imposed poverty?

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