Three turns of the screw changed civilization. The first was a turn from the humanities to sciences, which scientist C.P. Snow described in 1959 as “a clash of two cultures". The second was the belief that growth of an economy’s financial size is a good measure of society’s progress. Personal wealth became a measure of human worth and shareholder value of a firm’s management’s effectiveness. The third was a shift in the purpose of education, from ‘liberal’ education to improve ways of thinking, to ‘vocational’ education on how to get things done and earn more.
The world is beset with systemic problems—climate change, increasing inequality and a geo-political storm with its eye in Ukraine—that have brought humanity to an edge; 20th century governance models will not solve 21st century problems. History, which ended in 1991 according to Francis Fukuyama, with the victory of democracy over autocracy and a vision of borderless trade over national interests, has returned. The collapse of the World Trade Organization and advance of Nato have revealed that beneath their high-minded aims, global institutions were means for powerful countries to dominate others.
In corporate governance, Milton Friedman’s dictum that the business of business must only be business, while good for shareholders, is not good for society and the environment. Concepts of corporate management have infected the ways other sectors work. Management consultants who advise corporate chiefs how to increase shareholder value have become advisors to governments, international development organizations and social enterprises. Leaders of these sectors meet annually in Davos to “change the world". Business concepts provide them a common language. The chief minister of an Indian state proudly called himself the CEO of his state at Davos to attract international investors at the turn of the millennium.
Friedman was the high priest of an ideology that urged governments to get out of the way and let the private sector do business. The role model for the latter was Jack Welch. During his two decades as chief of GE, from 1981 to 2001, he turned GE into the world’s most valuable company. It was worth $14 billion when he became CEO and $600 billion when he retired, and was crowned “Manager of the Century" by Fortune magazine. After retiring, he refashioned himself as a management guru in an effort to instil hard-nosed tactics in a new generation of business leaders.
Soulless business: Jack Welch’s “GE Way" was founded on four ideas. One, the purpose of a firm is to increase shareholder value. Two, the way to do this is to pursue efficiency relentlessly; GE was admired for excellence in execution. It employed ‘black belt’ warriors who applied tools like Six Sigma to remove all inefficiencies. Three, human beings are instruments to improve the firm’s financial performance; its objective “360 degree" evaluations stacked employees up against each other and dropped the bottom 10%. Four, strategy was a game of acquisitions and disinvestments, to extract whatever was needed to meet or beat analyst estimates, which GE did remarkably well.
Welch’s model of leadership cannot provide lessons for national leaders. If the economy is not generating enough jobs, they cannot cast out surplus citizens. If growth is weak, they cannot buy another country to increase GDP, or sell a portion of theirs to shore up the balance sheet. Countries do follow such strategies in disguise, however. European countries increased their wealth in the colonial era by acquiring foreign resources by force. Post colonialism, poorer countries were cajoled to attract investment by ceding economic sovereignty to foreign investors over domestic enclaves in which labour and environmental laws were diluted and these investors paid less taxes than local citizens.
Albert Einstein said it is madness to solve problems with the same methods that caused them. Stem has reduced disease and raised human longevity, but also created nuclear weapons of mass destruction and digital weapons of mass disruption. Professional managers have turned mercenary, willing to sell their skills to the highest bidder. Between the two world wars, after Einstein had shaken science with his general theory of relativity, the philosopher Henri Bergson warned: “Humanity groans, half crushed by the weight of the progress it has made… the ever-growing body awaits the addition of a soul, and the machine requires a mystic faith."
This year, business leaders convened in a muted World Economic Forum in Davos after a two-year covid break. The world has become more unequal in the meantime. Every half hour during the pandemic, another person became a billionaire even as another million people fell into poverty. Compassion for the powerless must be put into the Stem machine run by the powerful. Economic theories for raising productivity and growth must include concerns for equity. And ethical concerns must determine the goals of businesses pursuing efficiency and profits. A global consensus on ends must guide the governance of means.
Arun Maira is former member, Planning Commission, and the author of ‘Transforming Systems: Why the World Needs a New Ethical Toolkit’
