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The Smartest Guys in the Room Say the Dumbest Things

Forget Enron. Add Nobel Prize winner, economist Milton Friedman, to the list of smartest guys in the room, who said, did, and taught the dumbest things.

And just what did Friedman say in 1970, that American leaders in 2015, have become so infatuated with?

Here it is. Word for word. No kidding.

friedman“When I hear businessmen speak eloquently about the ‘social responsibilities of business in a free-enterprise system,’ I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are or would be if they or anyone else took them seriously preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”

Time to pull some strings off this failed economic theory, to unravel the “unwitting puppets of the intellectual forces undermining the basis of a free society these past decades.” Because Friedman actually said this stuff. And American leaders believed it, and then acted on it.

And the result?

It took 45 years, but American Leadership finally created for today’s knowledge workers but not themselves of course–leadership’s most damning version yet, of Friedman‘s unintended but real, economic Utopia: “Profits without Prosperity,” as University of Massachusetts Professor, William Lazonick referred to it. And this economic leadership deception, isn’t just the fox guarding the hen house. This is the fox in the hen house, waiting for the chickens to come home to roost.

But now the chickens have come home, and global competition rules the roost. Sadly, both for American employees and for Friedman. Because the well educated economist‘s theory, has for years, laid a continuous improvement goose egg. Confusing everyone in the coop. Substituting the golden egg of continuously improving people and process––which should have come first–– with the smell of rotten eggs, the remnants of command and control. All evidenced by America’s all time low employee engagement, our almost stagnant economy, and wage deflation.

But why we can’t compete globally, still seems to be problematic and confusing for Friedman and his colorful egg layers. The former economic geniuses, who once sat in American leadership’s hen house, which now appears instead, to be more of an employee improvement, leadership dog house.

Let’s face it, we can’t compete because modern leaders have failed to capture and engage man’s curiosity and creativity. Because if they had, we would have exchanged our arrogance for our humility, and listened to learn not tell. We’d be continuously improving people, because learning comes from people, and improvement comes from learning. Which in turn, comes about from the detection and correction of errors in our thinking. And we’d be using that employee knowledge, to show leaders where wasteful activities exist, that are destroying the American people, their personal productivity and well being.

I suppose it was easier for Friedman to assign blame to the “intellectual forces…undermining the basis of a free society these past decades,” and not teach executives the true human value of respect and continuous improvement. Especially when today’s executives earn 300 times more than those they serve.

Respectfully speaking though, who could successfully argue that paying executives so much money, doesn’t make the company extrinsically better?

Maybe Japanese executives like CEO Akio Toyoda of Toyota. Who in 2013, earned just 2.9M on 18B of profits. Respecting people; improving people; and improving process and wasteful activities that affect people. And of course, selling cars to–of all the crazy things––more and more people.

Seems like people do matter Mr. Friedman. They’re called customers and employees, fathers and mothers, friends and family. Nations originally disparaged by people, then brought back together by leaders with better vision and execution.

That’s the Japanese circle of Kai and Zen-the art of making change good through continuous improvement. The kind we need more of in America and throughout the world.

Let’s stop turning to pontificating prognosticators. Today’s Tarot card readers using computer driven analytics. The kind now used to decide people’s job security and personal productivity, especially average people come time for their annual review.

Let’s stop teaching children, employees, and sadly, future leaders, the wrong things about man’s intrinsic motivation. Let’s stop sending the message to society that man’s intrinsic value is irrelevant. An unnecessary part in improving this strictly extrinsically valued society.

In a 1991 article written by Alan Robinson from University of Massachusetts and Dean Schroeder from Valparaiso University, both authors pay close attention to the effective use of employee suggestions. Turns out, man’s intrinsic value in other cultures and countries, is extrinsically valuable to leaders and stockholders.

Japanese employees turned in 32.5 suggestions per person. American employees turned in 0.11. American leaders implemented just 37% of the employee’s recommendations, while Japanese leaders implemented 87%. But how were Japanese employees compensated for their input? They received average compensation of $2.50 per suggestion. How much did the Americans receive per suggestion? $497.71. 

American employers were too busy to listen, and employees too disengaged to contribute. Both waiting for enough extrinsic output, to come from their intrinsic input, to accommodate a meaningful enough ROI and RONA to take collective action. 

Meanwhile, America was losing the luster on her once global competitiveness crown and she didn’t understand why.

Perhaps emphasizing our need to nurture man’s intrinsic value over his lifetime, not just nurture his extrinsic net worth quarter by quarter, still makes sense. Especially if we’re going to improve one another, ourselves, and our ability to compete in the global economy. And in that distinct order.

The results of America’s inability to compete today, are simply the consequences from the consistent leadership message sent to the willing workers of today and yesteryear: We have little value for your mind, your heart or your soul. Your value to corporate America is, strictly speaking, only from the neck down. Don’t speak or think, we know what’s best for you.

A message better understood by reading Steven Denning’s, Forbes 2011 article, entitled, “The Dumbest Idea In The World-Maximizing Shareholder Value.”

Or, if you are really ambitious, and enjoy learning from history, read Out of The Crisis. The Anti Gospel to today’s American rhetoric on modern day economic and management theory.

The author, Dr. W. Edwards Deming, railed against American leaders–who, way back beginning in the 1940’s, assigned regularly occurring production variances, to employee failings. This while leaders continued to miss the true causes behind increasing production costs and poor quality. Deming assigned blame for this directly to American leaders, calling for a radical transformation to how America leadership conducts business.

Dr. Deming, knocked on American leadership’s door, but couldn’t come in. Friedman‘s puppets had dead-bolted it shut; double locks; top and bottom.

The unlimited asset of human capital Deming talked about–once free for the asking––unlike the current ingenuity of Wall Street– has now, all but dried up. Becoming increasingly drier, but far more potent, continuous improvement powder for the ever exploding opportunity we now call the global economy. Powder still sitting on the sidelines, anxiously waiting for a substitution with bank capital, so it too can be deployed in some ongoing, yet meaningfully engaging fashion.

Will the first country that really wants our human capital, please come forward?

As Professor Lazonick points out in Harvard Business Review’s article, Profits Without Prosperity, during the previous 45 consecutive years, real wage increases, (wages adjusted for inflation) have not increased more than two percent in any three consecutive year period but once. And that was during the internet bubble of 1997, 1998, and 1999.

To put this in lay people’s terms, my 24, 22, 20, and 18 year old children, now earn substantially less per hour today for the same job that I performed in 1984. And even when I don’t adjust for inflation.

Got milk?

At least recently?

Mine’s going sour; seems I can’t afford a new gallon.

So what can we do differently to improve America’s ability to compete domestically and abroad?

Let’s turn to history and General Douglas Mac Arthur, Taichi Ohno and the millions of other leaders and customers, who collaboratively helped Japan become the 2nd most productive nation in the world, very shortly and efficiently, after World War II ended.

Re-building a nation ravaged by war, but then greatly improved upon by humans––and almost exclusively from the customer’s point of view––Japan used human capital and man’s intrinsic creativity and curiosity to compete. Adding greater and greater value, to the products American consumers often told the Japanese they wanted more of, by putting their money where American leadership’s mouth once was.

What did General Mac Arthur demand American leaders (working in Japan to re-build the country and the culture) do with the Japanese’s people’s curiosity, creativity, and craftsmanship after WWII ended?

He demanded leaders use the people’s intrinsic cultural talents, to create sustainable, corporate and societal advantages. In fact, Mac Arthur required the culture of Japan–one of a highly curious, creative, and respectful people–not be challenged, changed, nor interrupted by American occupiers. He feared that creativity––Japan’s cultural backbone––would be lost forever if it wasn’t preserved.

If that were to take place, Mac Arthur believed Japan couldn’t stand on her own after his team left. Today, Japan remains the only nation ever turned back over to the defeated country, to financially, peacefully, and democratically stand on her own once the victorious occupiers left.

Let’s be clear. This isn’t an attack on the American worker, as Friednman and 1970’s leaders would like you to think. It’s the Anti Gospel being preached to American leadership again, speaking to us loudly from the crypts of Deming and Drucker.

But what’s it proclaiming?

We have seen the enemy and he is us. For without a customer, there’s no value to add–and nothing to worry about having to increase nor improve.

Sorry Mr. Friedman, you were wrong in 1970 and you’re even more wrong today.

People matter. All of them.

About the author

COLIN BAIRD

COLIN BAIRD

Colin is a writer for Chief Executive Magazine. When he is not writing, or speaking to small groups of executives, he spends much of his time on the floor of America’s middle market companies, consulting on operational excellence using the tools of lean sigma.

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