15 Feb 2012  Op-Ed

Occupy Wall Street Protestors Have a Point

The concerns of the Occupy Wall Street movement are not far different from what business leaders have told professors Joseph L. Bower, Herman B. Leonard, and Lynn S. Paine.

 

It's been easy to dismiss the Occupy Wall Street-and-beyond protesters. To many, they seem disorganized, lack a clear agenda, and advance simple solutions to complex problems. But in reality their concerns are not very different from the concerns we heard when we talked to business leaders around the world about the problems they thought might constitute material threats to the sustainability of market capitalism.

As part of Harvard Business School's centennial celebration a few years ago, we convened groups of business leaders in Europe, Asia, Latin America, and the United States to consider the future of the global market system. In keeping with the School's learning model, we provided participants with a "case"—this one consisting of the World Bank's scenario for global economic progress, looking toward 2030.

While cheered by the prospect of continued economic growth that would triple the middle class from 400 million to 1.2 billion people, these business leaders were concerned about the growing inequality of income within many nations, across nations, and across regions.

Half the world's poor would be in sub-Saharan Africa living on incomes a small fraction of those in developed countries. Of 4.1 billion workers, 3.3 billion would be unskilled living in developing countries. In developed countries the benefits of growth were increasingly enjoyed only by the top quintile, and mostly by, yes, the top 1 percent.

The business leaders we spoke to were disturbed by the environmental challenges of climate change, scarce water, and depleted fishing stocks as well as by migration driven by both income inequality and the environment. Interestingly (given that we interviewed them in late 2007 and early 2008), they were very concerned about the volatility and fragility of the financial markets. They thought the financial world had become detached from the real economy. And they were upset by the potential for populist reaction to these problems that could lead to damaging legislation.

"The time has come for companies to accept the challenge to use their entrepreneurial skills on a broader canvas"

We classified what we heard as ten potential disruptors of the global market system: the functioning of the global financial system, barriers to world trade, inequality and consequent populism, migration, environmental degradation, failure of the rule of law, failures of education and public health, state capitalism, radical movements and terrorism, and pandemics.

The eleventh disruptor

The business leaders also identified an eleventh disruptor: the inadequacy of existing government and multilateral institutions to deal with these problems. When we stepped back from our discussions and considered what was being said, it was clear that the golden goose—global market capitalism—was at risk from the impact of an interrelated set of forces more powerful than the economic and political capabilities of national governments.

What did these leaders think should be done? Some thought that, quite simply, bad things happen on occasion and that if governments didn't get in the way too much, things would sort themselves out. Others were worried that governments would intervene with populist remedies that would make matters worse, but were against any intervention by business because business had no legitimacy—"it's above my pay grade." Still others thought that business should use its influence to activate government. A final group said that companies were the only ones that had the capability to turn problems into opportunities.

This last group interested us most. They saw the possibility of building businesses using the kinds of innovation and technology that brought millions of rural poor into the market system (as China Mobile did by bringing mobile phone service into the Chinese countryside), that brought medicine where it had been unaffordable (which the pharmaceutical company Cipla did with HIV/AIDS drugs in Africa), and that brought housing to urban poor (one of building materials maker CEMEX's accomplishments in Mexico).

Based on our research, we believe the time has come for companies to accept the challenge to use their entrepreneurial skills on a broader canvas. Companies complain that their recruits aren't adequately educated.

In response, they will have to train their workers themselves or go elsewhere to find customers. Bankers bemoan Dodd-Frank, but where is the financial industry's proposal for adequate capital and an end to predatory lending practices? Organizations lament sky-rocketing health care costs, but why is there such a limited effort to organize preventative care? Cutting Medicare will not stop the epidemic of obesity.

The market system cannot work if its consequences are seen to be unfair, because its benefits are not distributed widely. That is what our business leaders said—and that seems to be what the protesters are saying as well. Rather than dismiss them for not being able to understand or provide solutions for the problems they identify, we might do better to worry about what the consequences might be if the real concerns they identify become the basis for populist political legislation. Defenders of capitalism need to get busy solving the problems the Wall Street occupiers have spotlighted.

The authors, all professors at Harvard Business School, have recently published Capitalism at Risk: Rethinking the Role of Business (Harvard Business Review Press, 2011).

Comments

    • ALICE CONNALLY FISK

    ECONOMIC JUSTICE. NOW!

    U. S. poverty must Go a conscientious overthrow. Resolution now the call a living wage for one and all. Our long-time shafted people roar We Just Won't Take It Anymore. The working poor, the down and out a risen people packing clout. The fairness movement leads the way People power here to stay. The middle-class profoundly score inequity shall rule no more. Righting long wrongs one by one disparity at last undone. Our fed-up people fiercely vow Economic Justice. Now!

    BY: Alice Connally Fisk

    (poem / lyrics written by 73-year-old great-grandmother) Afisk10302@aol.com

     
     
     
    • philip hyland
    • manager, in transition

    Why talk about market capitalism, N america and Europe work on closed systems to preserve the status quo. e.g. no free movement of labour (immigration controls) . renummeration committees which approve each others pay. Show the results in USA and UK and see how many of the top 1% in 1900 are still the top 1%. Yes exceptions but in general.

     
     
     
    • Anonymous

    It is doubtful that individual actors in the free market will coordinate to solve these problems. There will constantly be free rider temptation and competitors seeking relative advantage. Solving these issues is where regulation and governmental intervention have their place.

     
     
     
    • Wayne Brewer

    A few questions to provoke some thought:

    Isn't it possible for results to "be seen" to be unfair when in fact the processes that created the results are in fact just and objective? Whose view gets weighted the most in determining fairness of results? Those with the least favorable results? Why?

    Do you really think that unskilled folks of the world whose real standard of living will be climbing faster than many, many others throughout the world are going to be complaining? If everything around them continues to get better and better because a market (group of individuals) organizes such that people are free to develop their talents and abilities in a mutually beneficial way, why not stop there and let the results take care of themselves? Things only get better when people expend energy. Don't you want the maximum amount of energy expended improving living standards for all?

     
     
     
    • M B NEACE
    • CEO/Director, TheRainMakers-TBL

    This is a very good read and surely temporal. Holistic thinking/strategizing is most appropriate in today's global climate. Some of us have been writing and using the phrase 'triple bottom line' in what these authors suggest that business should "...use their entrepreneurial skills on a broader canvas...." Success will depend on this shift to holistic (TBL) business philosophy.
    Regarding 'inadequate preparation, most university business schools remain in a siloed pedagogy. I agree. Until this changes students/managers will lack basic 'holistic' underpinning the authors claim is necessary. As a retired business professor I fought this battle continually - without much success. Inadequate governance, especially in the developed world, is troubling and presents business managers difficult challenges. No simple answers. Business input should be to raise the quality of governance from a holistic perspective as the authors suggest.

     
     
     
    • Ed Rye
    • FI Markets

    "The market system cannot work if its consequences are seen to be unfair, because its benefits are not distributed widely."

    That's precisely why even old school markets evangelist Adam Smith recognized that, to ensure the continuing faith of, and participation by, the masses in the markets, there will always need to be some limits (e.g., on usury, on anti-competitive practices, etc) imposed on the instinctively overreaching animal spirits of the most successful market participants.

    "Rather than dismiss [the OWS protesters] for not being able to understand or provide solutions for the problems they identify, we might do better to worry about what the consequences might be if the real concerns they identify become the basis for populist political legislation."

    Agreed - that would seems to be a much more constructive approach than either complaining about the government requiring SIFIs to make a good faith effort at managing themselves to reduce taxpayer risks or rewriting one more hagiographic invocation of failed screenwriter Ayn Rand in the WSJ.

     
     
     
    • Clark Phippen
    • Director, EnerTech Capital (Rtd)

    My knee-jerk thought on the global inequality of income is that productivity gains, largely through IT these days, have left many simply not able to contribute therefore not meriting income in the capitalist world. A more socialistic world order would seem to one way to counter this, but this is a poor answer. A more intense application of capitalism is better by far, one focused specifically on having the largest possible number contribute to GNP. In other words, job creation.

     
     
     
    • Anonymous

    The problem is not companies or entrepreneurship, the problems are: - government intervention (rules, bias towards certain industries, playing venture cap games, etc) - push for socialism from those that hate our system -- even though our system has led the innovation that's made the world a better place - lazy people that want others to pay for the wants and needs If the government gets out of the way, entrepreneurship will succeed. Think about what made America great in the last 200 years, it wasn't social equality, it was capitalism.

     
     
     
    • Dr. Michael Hopkins
    • CEO, MHC International Ltd

    Yes, strange that the private sector in the USA has been so silent. For instance, the US Chamber of Commerce that might be considered to be the 'voice' of business has been one, if not the biggest, lobbyist against just about any action by the current Obama Government including its stimulus package (popularly deemed to have preserved or created anywhere from 700,000 to three million jobs for lack of better estimation), while paradoxically admitting 'government efforts are useful in the short-term.' More on this see: http://www.csrwire.com/blog/posts/273-socially-responsible-restructuring-is-csr-the-answer-to-unemployment

     
     
     
    • Peter Corin
    • IT Manager, Banking

    Great article. The occupy protestors may not have changed anything, but I believe they awoke a social conscience in many influential people (or future influencers).

    When at university I argued with one of my IntBus lecturers who argued that a firm could not operate on anything except a total focus on profit, I wonder if he would say the same thing now.

    I paid close attention to the protest as I have recently joined a bank. I'm a 29 year old manager and I look forward to leading organisations into a different operating model over the rest of my career.

     
     
     
    • Hugh Quick
    • Home, None

    Beware of wishywashy liberalism, giving everybody what they think they want - It won't work. Capitalism does need legislative and organisational revision and that could be done. At present shareholders are over protected and employees get a raw deal.

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    Occupy Wall Street(OWS) is a protest against social and economic inequality in US where the wealthiest 1% doubled their wealth in last 30 years whereas the average pretax income of the bottom 90% declined. The other concens are high unemployment, greed, corruption, undue influence of corporations on government(particularly from financial services sector), income inequality and wealth distribution. These are all serious issues which require focused multipronged attention in order to maintain financial and economic stability. Brushing aside OWS movement merely because it lacks proper leadership and thrust is not a prudent action. If it is recognised that these issues are indeed critical, all concerned need to gear up to find and implement proper solutions. This movement, started in US, has need in other countries also where absence of stict financial discipline is rampant. Clear cut messages need to go to business,governments and corporates to shun their past misadventures which resulted in economic downturn. Indeed,OWS have very valid points attention to which is justified and warranted.

     
     
     
    • KP

    The problem with Wall Street is that it is no longer (perhaps never was) based on a model of Capitalism, but a twisted form of Capitalism. Capitalism stands for free markets and ensures incentives and disincentives in proportion to efforts and ability. Where a large section of Wall Street goes wrong is that while there is incentive for positive action there is no disincentive for negative action. The Wall Street believes and behaves as if it has an unlimited PUT options on its losses. True Capitalism disincentivises moral hazard and this is what the protestors are demanding (or should if they are not)

     
     
     
    • Aditya Mishra
    • President, Randstad India

    OWS is a wake-up call for the humankind. The disparities have widened though the averages have moved up. This is true in many parts of the world. However, I do not think, there is any better approach than capitalism. We need guides along this journey so that the excesses are curbed to begin with. These guides need to be rebuilt in our social fabric and the education system; the age-old values and beliefs of humankind need to be relearnt by the influencers in our society. Hope, good sense prevails and movements like OWS are able to achieve these results!

     
     
     
    • Aleem
    • Marketing Manager, Jaydev Constructions

    OWS is valid protest with more clarity on issue and less clarity on the solution. Three points to make on solution which need to take on with good leadership. 1. We need to create a economy where money should move from rich to poor, not other way around which is happening in interest based system like wall street. Where poor, irrespective of he earn or not he need to pay back more to the rich. Its not fair and justified. Hence we should think about joint investment-joint risk module, here haring of profit and loss should equally. 2. Stocks should be perceived and behave like long term investments in stock market, say no to speculation. Else it's gambling in casino. 3. Entry Barrier in business should be minimized and their issues need to be address by government, which big companies don't want.

     
     
     
    • Anonymous

    Unbound and unchecked Greed is the root cause of the 2008 financial crisis and all major crisis throughout history. The only way to check this is through individual awakening and self realisation. No amount of policing or regulatory controls will help as GREED feeds on human weakness !