THE AMERICAN DREAM IS ABOUT TO END, ACTUALLY IT ALREADY ENDED AS A DREAM. WHAT IS LEFT IS THE REALITY OF A WORLD IN THE GRIPS OF RUSSIAN AND CHINESE AUTHORITARIANISMS AND TOTALITARIANISMS, SUPPORTED BY MORE OR LESS MILITARY DICTATORSHIPS IN AFRICA AND ASIA.
THE ALTERNATIVE IS TO BECOME AUTHORITARIAN OR DIE TOO.
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Is This The End Of The American Dream?
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Roger Martin has been a leading strategist and consultant for many years. He is consigliere to CEOs of many multi-billion dollar enterprises. He also spent a decade and a half as the dean of the Rotman School of Management in Toronto, a post he took as an act of patriotism in the hopes of creating Canada's first world-class business school. (He achieved that goal.)
Martin is also a prolific author, having written numerous business best sellers such as Playing to Win: How Strategy Really Works (co-authored with P&G CEO A.G. Laffley), The Design of Business: Why Design Thinking is the Next Competitive Advantage, and Creating Great Choices: A Leader's Guide to Integrative Thinking (co-authored with Rotman School Adjunct Professor, Jennifer Riel), which is his most recent book.
In this interview, he reflects on the future of social democracy, and posits that economic shifts have transpired that have altered the viability of the American Dream.
(This is the 26th interview in the IT Influencers series. To listen to past interviews with the likes of former Mexican President Vicente Fox, Sal Khan, Sebastian Thrun, Steve Case, Craig Newmark, Stewart Butterfield, and Meg Whitman among others, please visit this link. To read future posts in this series, please click the link above to follow me on Twitter @PeterAHigh.)
Peter High: Please describe the work you are doing with the Martin Prosperity Institute on the future of Democratic Capitalism.
Roger Martin: We are in the middle of a six-year project with the goal of answering the following mystery: Between 1776 and 1989, a period of a mere 213 years, the median family in the U.S. economy had a 95 percent probability of their income being higher, in real terms, than it was the year before. In those 213 years, they were two bad periods where this was not true. The first was the Long Depression in the late 1800s. People know less about that depression than the Great Depression, but it was equally bad. The second was the Great Depression, which began in 1929 and went for several years. Other than those periods, it was only the odd year or two where the median income did not increase. Additionally, up to 1989, the income of the top 1 percent dropped dramatically more than the median person’s income. That is American history up to 1989. Then, between 1989 and 2014, where we have the latest revised figures, median income was flat. 2014 was not higher than 1989.
There are two things to notice here. One, that is longer than any other time in American history, by far, and it is continuing. Two, in this period, the top 1 percent has done better than any time in American history. It is not even close, and it is accelerating. The mystery we are trying to solve is what changed about the American economy that makes the post 1989 period different from the period prior to 1989 whereby the median income person now has no expectation that their income is going up next year or the year after. Meanwhile, the top 1 percent’s incomes are getting better every year.
Why do I care about that? In Democratic Capitalism, the median income family is the swing voter. Unless the public vote’s for the status quo, you will have the government producing that negative result punted out. After the Great Depression, if we consider the industrialized democratic countries of that era, which was Europe and the U.S., virtually all of Europe went either communist, socialist, or fascist in response to that stagnation. The United States did not. In fact, the FDR administration took the country leftward, but still it was avowedly democratic capitalist. The reason that was politically plausible was the median family, the swing voter, could say, “At least we are all in this together. The rich are getting slammed super hard. We are getting slammed. The whole economy is getting slammed. Let's try to work our way out of it together.” We do not have that condition anymore. The median family, if they are paying any attention, is saying "We are getting slammed and those guys couldn't possibly be doing more awesome."
If we don't figure out a way to return to an America where the swing voter feels like things are getting better, we could have an attack on Democratic Capitalism. What I am trying to figure out is why it is different? What is going on that makes it so different? Then, what can we do to restore the classical situation where the median income person has every right to expect things are getting better?
High: I know you are in the throes of your work, but do you have any working diagnoses?
Martin: One is that much of Democratic Capitalism is premised on the world being made up of normally distributed things. The expectation is that because a lot of life is normally distributed, things like height, weight, intelligence, etc. that things like wealth and income would also be normally distributed. However, it turns out wealth, and many other economic things, are Pareto distributed. The Pareto Principle, by Vilfredo Pareto, is winner take all, or an 80/20 distribution. What makes something normally distributed with a big fat middle, like say the big fat middle class, and then have tails, like the poor and rich people, is if all the data points are independent of one another. For instance, if I am tall, it does not make it more likely that you are short. They would only be related if there were only so much tallness to go around. There is not, so we end up with a normal distribution for height. However, if one data point does influence other data points, you get a more extreme distribution where a few categories in the distribution have all the results and a long tail of people with little. When having more wealth enables you to earn more wealth, you get a Pareto distribution. We can think about it with reputations. Having a bigger reputation attracts more people to you because you have a bigger reputation, then, you get an even bigger reputation. This gives you a Pareto distribution of things like Twitter followers, Facebook friends, etc.
Theorists who have looked at this in other domains, not necessarily the economic domain, argue that if the system has more tension applied to it, there is a better likelihood it will go Pareto. Our emerging thesis is that as markets become more efficient, partially through globalization but also through the increasing availability of capital to compete in industries, they have become less Gaussian. There is not room for a lot of competitors. What is happening now is a winner emerges, by winning they are able to position themselves to win more, and then they crush everybody else. They are now the dominant player in the industry and the people associated with that become the richest people. Our current situation is not a normal distribution with the big bump in the middle. We have more extremes where a few companies, a few products, a few people, or a few parts of countries, are the big bump. That is one thing that is emerging that would explain why it is not going to snap back and end up looking like America prior to 1989.
High: Is there a remedy?
Martin: I do not have an answer yet. That is what we are going to spend the next couple of years figuring out. We have a core diagnosis of the problem, now we have to figure out if our diagnosis that the economic world is full of Pareto distributions, or lists toward Pareto and away from Gaussian, is true. And if it is, what do we do about that?
High: Your answer alludes to corporate responsibility and the company's role within the broader economic structure. This brings to mind companies like Apple, Google, Facebook, and Amazon.
Martin: Yes, the companies known as the “Four Horsemen of the Apocalypse.” They are called that because they are crushing everything and everybody with their weight.
High: Microsoft got into the crosshairs of the government because of concerns about undue influence. It is hard to imagine Microsoft had more influence than Apple, Google, Facebook, and Amazon currently do.
Martin: Self-restraint is the only protection against a comprehensive, or more extreme, government imposed solution. Those at the top of the Pareto distribution, are basically just enjoying it and not asking themselves questions like: Are you destroying the commons? Are you something that feeds off the host to such a degree you might be killing it? Is it better for you long term?
Was it better for Microsoft long term? Microsoft and Intel would go to the computer companies and essentially charge them big time or threaten them with charges if they let somebody else in. For a while, Intel would charge you less for its chips if you used 100 percent Intel chips than if you got 80 percent Intel and 20 percent AMD chips. Intel was trying to make sure they had as close a thing to a monopoly as humanly possible.
You could argue that for Microsoft's long-term health, being the operating system monopolist was not good for them. They fossilized and came to be the walking dead. They are the General Motors of 1970. Companies have to consider that it may be in their interest, if the distribution is heading in a Pareto direction, to try to ameliorate that, rather than accentuate or exacerbate it, which is what Apple, Google, Facebook, and Amazon are all doing. They are all attempting to get as close as they can to an impregnable monopoly. Apple to a lesser extent. At search, Google is; at social media, Facebook is; at selling everything, Amazon certainly is. These four companies celebrate the exodus of players from their field of play. Instead they should be saying, “It would be better if there is vibrant competition. We may be the winner, but we will not be the only player that can make a pop or be left standing.”
High: You are one of the leaders in the field of strategy. How should companies think about strategy in a period where it can feel like the rate of change is faster than the rate at which you can develop a new strategy?
Martin: If enough people repeat something enough times, it becomes repeated wisdom. Henry Mintzberg, from McGill University, is one of the most famous business professors/strategy guys of all time. He created the notion of emergent. He often starts his presentations with a quote that says something along the lines of: “The pace of change is faster than ever before, it is almost impossible to keep up. There has been nothing like this in any point in history.” He then asks, “Where do you think that quote came from?” People respond, “Wired” or “Tech Crunch,” and he says, “Scientific American, 1868.” People think the present is fundamentally different from the past, all the time. In particular, they think right now is more tumultuous than ever before. Why does every generation think things are now changing faster and that the pace of technological innovation is unbelievable? It is because it is unresolved. As long as something is unresolved we think of it as being very dangerous.
Strategy is not different today. There was never a time when everything was stable and you could do one thing and it would last for a long, long time. People can say, “But General Motors from the 1920s to the 1970s, they were absolutely dominant and that does not happen anymore.” In response, I point out companies like Coca-Cola that have been around for 100 years. For a century they have been dominating the cola business.
Strategy has always been change. Strategy is your best estimate of how to align your assets to compete in the field you would like to compete in, until such a time that that is not the best way anymore. My practice of strategy has always been at the word “go.” I call it, where-to-play/how-to-win. You should ask yourself the question, "What would need to be true for that to be a great idea?" But you never know about the future. You should have a bunch of options though because if one set of things is true, you should do “A.” If a different set of things is true, then you should do “B.” If other things are true, then “C.” You will have to choose, but your choices are always just a guess. You have never had strategy, it has always been about shortening your odds. You decide on “c” because you think certain things are true: Customers will react this way, competitors will do this, and the government will do that. Whatever list you have. Then, you should wake up every morning and consider, now that we are experiencing outcomes from our strategy choice six months ago, and have six months of additional data, to what extent are the things we thought were true or less true? If they are looking like they are not true anymore or they never were true we only imagined they were true, then it is time to ask the question: How should we change our where-to-play/how-to-win? If they look like they are supposed to, the question would be: How do we make sure we are pursuing this where-to-play/how-to-win, as stringently and strongly as possible. That has always been the case for strategy. I started doing strategy in 1981 and nothing has changed. Not a thing has changed about that.
High: What is the cadence with which one should monitor their strategy?
Martin: Every day. In 1981, it should have been every day, the same is true today. You should put your strategy on your tack board to remind yourself to ask: Are those things that would have to hold true looking good or looking bad? Then you wake up the next morning, come into work, and ask: Are they still looking good or looking bad? That is the right cadence.
High: Can you describe the notion of integrative thinking?
Martin: I started thinking about this in 1991. The inspiration was wondering why people were crazy enough to hire Monitor Company. We were a bunch of kids. We were young punks taking on the big established players, and we got business. I asked myself, why would they hire us, rather than McKinsey or BCG? McKinsey started in 1920 and BCG started in 1963. We stated in 1983. They were old, wise, and way bigger than us. I came to the conclusion they hired us when there was not a model for thinking about the problem they were facing. If they needed someone to do something that had been done before, they hired somebody who had done it 50 times. However, if it had not been done before, what we said convinced them we could handle that one-off project.
This led me to study, for the next decade or so, the questions: “Is there a way highly successful leaders think their way through these kinds of things? Is there anything we can tell about the production of answers to dilemmas like this?” I figured out that those dilemmas tended to be either- or problems. We could either head in this direction or that direction, but we do not feel good about either of them. I came to the conclusion that talented leaders faced up to those things and said, “Wow, we have an either-or choice, and I am not comfortable with making that.” Somehow they figured out how to come up with a better resolution. By studying it even more, I came to the conclusion that the resolutions seemed to have the same the same general form. I kind of knew something about that when I wrote the book, The Opposable Mind: How Successful Leaders Win Through Integrative Thinking, in 2007. We knew these leaders were able to generate a new option that contained elements of the others, but was superior to both. In my follow up book Creating Great Choices, which followed about 10 years later, we knew more about the precise form those integrated solutions take.
People often ask me, “How do you write a book every two years about some new ideas nobody has thought of? And write two or three Harvard Business Review articles a year? Where do you come up with these ideas?” I hang out with business men and women in their businesses. The problems that need solutions become obvious. There is a big value add if you are facing one of these either-or choices and you can figure out a way to come up with a better answer. You will do wonders for your organization and end up famous, wealthy, or whatever gets you happy. However, it is only a minuscule fraction of executives who seem to have that capacity. I try to reverse engineer and distill what they do and give it a methodology. Then I write a book or some articles and teach students and corporations those ideas.
High: In 1998, you joined the Rotman School of Management at the University of Toronto. What drew you do to the university? What were your aspirations?
Martin: I did not have any aspirations for myself. As a Canadian, it was an act of patriotism. I had gone to undergrad business school in Boston, fell in with a group of people down there and got acclimated to the U.S. milieu. Then, with Monitor Company and getting an MBA, I was acclimated to the global milieu. I completed my undergrad and my MBA at Harvard, so I am not opposed to people leaving their country to go somewhere else, however, over time, I came to the conclusion that it was not a good thing that Canada had no world-class business school. Students should not have to leave Canada to get a global business education. Moreover, it is hard to have a world-class business sector without a world-class business school. I thought, this is something you could do Roger. I came back to Canada to try to give Canada a great business school. I saw it as my civic duty. I believe people who are successful before retirement age should turn their minds to public service. Our goal was to create a school that is globally consequential, relevant to the world, and does breakthrough interesting work. We have accomplished it.
Peter High is President of Metis Strategy, a business and IT advisory firm. His latest book is Implementing World Class IT Strategy. He is also the author of World Class IT: Why Businesses Succeed When IT Triumphs. Peter moderates the Forum on World Class IT podcast series. He speaks at conferences around the world. Follow him on Twitter @PeterAHigh.
I am the president of Metis Strategy, a business and IT strategy firm that I founded in 2001. I have advised many of the best chief information officers at multi-billion
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