Capitalism, economy & financial well-being in America, Government & Law, Jobs

A Theory About a Possible Root Cause of Political Polarization

February 18, 2019

We continue to see and experience it – extreme polarization of not only Washington politics, but the American electorate.  We have seen voters behave in what appears to be irrational ways when voting.  The core of the far right, for example, seems to vote blindly for party, that despite promises works to limit healthcare, labor laws and consumer protections.

I recently encountered an article in The New Yorker by Ron Shaich, the former CEO of Panera Bread, “The Founder of Panera Bread Explains the Economic Forces That Led to Trump”.  It is an interesting read, I recommend it.  Here are some highlights:

By 2010, Panera was opening a new store approximately every three days, and had more than a billion dollars in annual sales. But the financial crisis had made consumers more cautious with their spending. To keep them coming, Shaich developed a system for digital ordering, a catering and delivery service, and a loyalty program. These programs required significant investment, but they paid off. By 2017, Panera had become one of the most successful restaurant chains in the United States, and much of the industry adopted its innovations.

Over the last few years, however, Shaich has come to believe that the current business environment is far less amenable to the process of building companies like his. Wall Street has embraced the idea that companies exist solely to serve the holders of their stock. Under this way of thinking, managers of companies should focus their actions on driving short-term value for their shareholders, and should pay far less (or no) regard to other constituents who may have a stake in the business, such as employees, customers, or members of the community.

IIn the summer of 2017, Lynn Paine and Joseph Bower, two Harvard Business School professors, published a piece in the Harvard Business Review arguing that the idea that profits are all that should matter to a company’s leadership is a relatively new one. They trace it to an essay by the free-market economist Milton Friedman, which ran in the Times Magazine in 1970. In the piece, Friedman outlined what he called the “Friedman business doctrine,” which holds that ideas of corporate social responsibility, which had become popular in the business world, were undermining the American way of life.  The article caused a sensation, and Friedman’s idea that managers of companies were nothing more than “agents” of shareholders was taken up by economists and business-school professors, who helped build it into the dominant attitude in the United States and beyond.

The tension between long-term and short-term economic interests has become a favorite topic in policy circles in recent years. Much of Trump’s base is made up of white, rural voters; many of them have seen jobs disappear from their communities, while wages have stagnated for those still working. In the 2018 election high-school-educated voters came out, once again, strongly in favor of the party of Trump. According to Shaich, the resentment that these voters feel is a direct result of the quick-profits-over-all ethos that dominates economic thinking.

“When we live in a world where we view value creation as the end, and not as a by-product, which is what short-term thinking lends itself to, we end up doing great damage to every other constituency, and that’s what ultimately drives back to the kind of ‘let’s rip down the establishment’ nihilism that in my view is at the core of Trumpism,” Shaich said. 

This is a compelling argument.  It is an indictment of unbridled capitalism as we have discussed in previous blogs.  A healthy democracy does not have huge disparities among ‘the people’, or huge polarizations for that matter.  Corporations must function for the benefit of all stakeholders – management, labor and share holders – and treat them equally!

Photo by katja.torres

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