It’s here. It’s finally here. After two years of scratching, clawing, eye gouging, and worse, Election Day is upon us. What happened to us during this election cycle? Already-bitter divisions have given way to a new level of abhorrent discourse. It seems as though we’ve lost faith in our fellow man. Matt Taibbi had a great piece at Rolling Stone this morning about just that. There is a genuine belief that, if elected, the “other guy” actually wouldn’t do his best to serve the interests of the American people.
I mean, I wouldn’t blame either man for abdicating his moral responsibility to serve the 49% of voters who end up voting against him. Both candidates have been subjected to unrelenting and unprecedented assaults, thanks largely to a Citizens United ruling that has allowed “independent” groups to distort, smear, and lie with virtual impunity. It would be hard not to hold a grudge. But the suggestion that the President of the United States wouldn’t do his version of the best is pretty insulting.
We all want prosperity for ourselves and future generations, we just disagree on the right way to get there. No President would consciously advocate against citizens who didn’t vote for him. Congress, for all its squabbling and obstructionism, is working against the other half of the aisle, not the other half of the country. It’s not just Republicans either; Democrats are equally capable of crippling obstructionism. As The Atlantic reports, this “unprecedented obstructionism” we keep hearing about is in fact quite precedented.
We’re all in this together and any realistic plan for making the United States a more vibrant place surely requires participation from everyone. Of course, each Presidential candidate favors different policies that would affect our nation in different ways. For example, economic planning that more aggressively redistributes government revenues works against the interests of affluent voters while across-the-board tax cuts end up hurting our vanishing middle class. The salient point is this: both candidates have a vision of their ideal America and some sort of plan on how to make it a reality. Whether they’ve been honest with the electorate about how they intend to make that vision a reality is another issue entirely.
Presidential candidates are selling a grand vision, but they’re constrained to an electoral process that leaves them little time and even less practical ability to enact the majestic fantasy on which they campaigned. Every four years we’re sold a reimagining of the American Dream, and every four years the President scarcely gets off the starting block before being bitch slapped by the cold hand of our current reality. This pattern is extremely significant. Our political process and indeed our entire industrialized economy has become locked in a destructive pattern of Short-termism.
The inability of our political system to act much beyond a four-year timeframe has crippled our ability to affect transformative change at a time when we need it more than ever. Economic imperatives force Wall Street to measure success in 90 day increments when their very survival requires they take a much more expansive view. The challenges we face don’t have four-year solutions. These are generational problems that require a strategic approach, but Washington is mired in tactical thinking. James Gustave Speth, former White House adviser to President Jimmy Carter, just released an excellent book entitled America The Possible, which presents a hopeful reimagining of the American economy. As always, the first step is admitting we have a problem. Here’s a sample from Speth’s book. He outlines some important areas for your consideration:
Compared to the 20 member nations of the Organization for Economic Cooperation and Development (OECD), America now has:
- the highest poverty rate, both generally and for children;
- the greatest inequality of incomes;
- the lowest government spending as a percentage of GDP on social programs for the disadvantaged;
- the lowest score on the United Nations’ index of “material well-being for children”;
- the worst score on the UN’s gender inequality index;
- the lowest social mobility;
- the highest public and private expenditure on health care as a percentage of GDP, and yet the highest infant mortality rate, prevalence of mental health problems, obesity rate, percentage of people going without health care due to cost concerns, and consumption of antidepressants per capita, along with shortest life expectancy at birth;
- the third lowest scores for student performance in math and middling scores in science and reading;
- the second highest high school dropout rate;
- the highest homicide rate;
- the largest prison population, both absolutely and per capita;
- the highest water consumption per capita and the second highest carbon dioxide emissions per capita;
- the lowest score on the Yale-World Economic Forum’s Environmental Performance Index, and the second largest Ecological Footprint per capita;
- the highest rate of failing to ratify international agreements;
- the third-lowest spending on international development and humanitarian assistance as a percentage of GDP;
- the highest military spending in total and as a percentage of GDP; and
- the largest international arms sales.
Does anybody have a four-year fix to any of the challenges on this list? If you do, submit your application to the Nobel Foundation right now. The truth is we can’t solve any of these without a concerted effort spanning multiple Presidential administrations and both parties of Congress. A small handful of the conditions above would be shocking; looking at all of them in a big long list is enough to make some folks give up. How can we even begin to whittle away at that rap sheet of social, environmental, and economic crimes? A model for the required mental shift can be found in the unlikeliest of places. Wall Street.
Before you close this webpage in protest, let me explain. Wall Street, you say? A place where pathological dishonesty and corruption is rewarded with bailout checks? A place that has, until quite recently, operated outside the constraints of pesky laws? A place where Short-termism is the holy word of the Lord? Well…yes.
In any system there are outliers. Darwin would tell us that sometimes these mutations produce a species that is better adapted to current environmental conditions than the previous generation. Over time, this outlier shifts to a position of genetic supremacy and becomes the new normal. This evolutionary process plays out in our biological processes as well as in our social constructions. Currently there is an evolutionary shift happening in the backbone of our industrialized economy. All of the problems on Speth’s list have economic roots and fortunately for us, Wall Street is slowly mutating into something more reasonable.
The 90-day doctrine has arguably done more to constrain our economy’s true potential than anything else. It forces the maximization of short-term earnings and stock prices at the expense of long-term value. This in turn creates an investor base that is more short-term oriented which of course produces a more volatile market. In the same way, the firm reports on a short-term basis and the investor base expects firms to focus on short-term goals. The resultant firm-client relationship is a positive feedback loop of negative behavior.
Given uncertainty about future performance and the observability of current performance, executive compensation is typically tied to stock price. When executives are compensated based on short run performance they pressure their managers to deliver favorable short run results. What’s more, it encourages firms to systematically underperform their full potential by forcing them to publically set expectations and then actively positioning to just slightly exceed those expectations in order to appease the Street. This whole management ideology reinforces the 90-day doctrine, often at the expense long run valuation. Shockingly, 87% of companies that were on the Fortune 500 list in 1955 no longer appear on that list today, either the result of bankruptcy, acquisition, privatization, or valuation collapse. The 13% of those firms that remain are companies like Boeing, Campbell Soup, Deere, IBM, and Whirlpool.
The good news? There is a growing pool of mutants. These companies that set longer-term goals and back those goals up with systems that reward long run management. Firms run on this basis consistently out-perform the 90-day sprinters of the world. George Serafim and some of his colleagues at Harvard Business School have written a number of articles on the high risks of short-term management. There’s one in particular that I love called Short-termism, Investor Clientele, and Firm Risk, published in February of 2012. Mr. Serafim and his colleagues have been able to demonstrate a measurable market advantage for firms that have environmental and social policies in place. In this video he explains how firms that imbed sustainable (see: long-term) practices in their strategy and operations clearly outperform their competitors.
In their study, Short-termism, Investor Clientele, and Firm Risk, Serafim and his colleagues reviewed over 70,000 earnings conference calls for more than 3,600 firms from 2002-2008. Using precise key word testing they were able to determine “the time horizon that senior executives emphasize when they communicate with investors.” It shouldn’t be a surprise that the firms who engender a systemically focused, long run attitude financially outperform the other group.
What the hell does any of this have to do with the Presidential election? Everything!! Nationally and at the local level, the disadvantages of short-term thinking and clearly demonstrable advantages of long-term thinking have never been more important. Tomorrow (God-willing), this election will be over and it will be time for our newly entrusted officials to start governing. Look back over that list of items that desperately need attention. Pick one of them and ask yourself, is any one man capable of solving this problem in four short years? Even in an ideal world, I seriously doubt either Presidential candidate could deliver on their broad vision of reshaping America in 48 months.
Our political system could seriously take a lesson from the slow, silent transformation of Wall Street. Pretend for a minute that tomorrow morning, General Motors’ CEO Daniel Akerson announced to the world that by 2030 GM would offer only electric vehicles to consumers. Akerson is 64 years old and is very unlikely to remain GM’s CEO for the next 18 years. Just because he wouldn’t be in charge to see the vision realized doesn’t mean he can’t survey the market, identify key trends, and respond accordingly. Then Akerson just has to trust that the next guy who comes along will see the same value in his long-term vision and believe that customers are going to continue to respond favorably.
Surely there would be individual employees at GM, perhaps many high-ranking managers who would disagree with Akerson’s decision. Still, I have to believe that Akerson would be making such a decision because it lines up with his vision of how to keep GM competitive well into the future. Some other potential CEO might have a different idea of how to best serve the GM shareholders, but the goal remains the same: invest in the long term health of General Motors.
All I want for Christmas is a United States government that’s willing to do the same. If we want to start crossing items off that foreboding list of failures, we need to set some long-term goals. Those goals should be rooted in an explicit acknowledgement that in many key areas, America is no longer the leader it once was. It doesn’t matter who starts the process of reconciliation, as long as the next leader doesn’t come along and try to dismantle it because its got the other sides’ cooties on it. Mr. Future President: Is this attempt at long-term planning serving the best interest of a majority of Americans? Yes? Okay, leave it the fuck alone.
The current elections process is Washington’s version of a Wall Street 90-day sprint. When it’s all said and done each candidate will have spent about $1 BILLION and not have much to show for it. On May 31st, 2012 FiveThirtyEight Blog had President Obama polling at 50.6% and Romney at 48.3%. Now several billion dollars later (if you include outside money), the President is polling at 50.8% and Romney is virtually unchanged at 48.3%.
If that doesn’t blow your freaking mind then I don’t know what will. Raising and spending billions of dollars on a two-year campaign that leaves voters’ opinions virtually unchanged is the exact opposite of an effective election system. It’s distracting, it’s corrosive to our national spirit, and it doesn’t allow our elected officials to do their jobs.
In the system I just described, one candidate barely squeaks out a victory and we all lose. It keeps us stuck in the same toxic polarization and undermines any attempt to set and administer new long-term goals. It’s up to us to decide that our growing list of failures is one item too long. Government responds to constituent demand. Are you as frustrated by this as I am? Who is your Congressman? Who is your Senator? Who is your State Representative? Take a minute to write (as in hand-write) your Representative. Tell them that you want them in their office working on your behalf, not out on the campaign trail stumping for half their term. Don’t be rude, just outline what you expect and what types of behavior would earn your vote in the future.
Want to get involved in other ways? Look at the list at the top of this post. Pick the item that shocked you the most and talk to a friend about it. American exceptionalism is alive and well; I’d bet dollars to a bag of doughnuts that most American citizens wouldn’t believe half the items on that list. Spread the word.
If you haven’t already, vote! But after the election is over, your voice is still your vote. There’s nothing stopping you from standing up for what you believe in, especially when we’re not in an election cycle. Talk to your friends. Talk to your enemies. Talk to the man in the mirror. Help someone understand that these are generation-long challenges that require persistent attention from all ends of the political spectrum. No single Presidential administration is equipped to solve challenges on this scale. It’s up to us to decide that we want a new way forward and demand a sacred, long-term plan capable of delivering the goods.