Andrew Edgecliffe-Johnson of the Financial Times wrote an important piece this week, titled “Why American CEOs Are Worried About Capitalism.” In it, he quotes Jamie Dimon of JP MorganChase and Ray Dalio of Bridgewater as favoring higher taxes on the wealthy. He outlines the growing inequality between mass and class, as evidenced by CEO pay escalating to 300 times that of the average worker. He goes on to say that companies are recognizing populism and negative sentiment toward multinationals as risk factors in their corporate filings. He worries about a Gallup poll finding that a majority of 18-to-29-year-old Americans have a positive view of socialism (51 percent) while those with a positive view of capitalism has fallen from 68 percent to 45 percent since 2010.
I was quoted in the article as saying that the average CEO will not be trusted to speak broadly about reforming capitalism. I suggested instead that corporate leaders can speak more effectively about how their own businesses can use their supply chain to improve society, retrain employees at danger of job loss from automation and encourage employees to participate in their local communities. I wanted to expand on my thought in this blog post.
We are at an unusual historic juncture. The prior American flirtations with socialism, in 1877 and 1929, stemmed from massive economic contractions. The U.S. economy is steaming along, with Q1 growth in excess of 3 percent and unemployment at 50-year lows. And yet trust in institutions, particularly government, is at depressed levels. What’s going on here?
The fear of automation is an existential one. According to the U.S. Bureau of Labor Statistics and McKinsey, there will be massive displacement of workers by robots. In the U.S., it is expected that 54 million of 166 million jobs will be affected. These will be concentrated in hotels, food service, manufacturing, retailing and transport, many of which are in the blue-collar category. This is consistent with our Edelman Trust Barometer data, which shows that 60 percent of those employed by multinationals believe that their jobs are at risk in the next decade due to automation. Note also the concern about lack of training; nearly two-thirds of multinational employees said that they do not feel prepared for jobs of the future. With the advent of self-driving trucks, robotic autonomous warehouse technology and robot sales clerks in retail stores, these fears are becoming reality.
The rise of developing markets has meant the relative decline of the developed markets. The U.S. had 40 percent of world GDP in 1950, 30 percent in 2000 and 15 percent in 2017. By comparison, China had 5 percent in 1950 and has 18.3 percent of world GNP as of 2017. At its peak in 1820, China had 40 percent of global GNP while the U.S. had 5 percent. The Chinese have a stated ambition of being the dominant power in industries of the future such as artificial intelligence, formerly the exclusive province of the developed world, especially the U.S. The U.S. is also the world’s leading debtor. We have $22 trillion in government public debt, which is more than 30 percent of the total global debt. Compare that to China, which has roughly 8 percent of total debt. This explains why the Social Security Administration has projected that its trust funds will be bankrupt in 2035 without changes in age eligibility or inflation adjustment methodology.
We are facing a new challenge: declining life expectancy in the U.S., down for the third year in a row in 2018. This is the first three-year decline since 1915-18, which was largely attributable to influenza. The big change in mortality is the number of 20-to-40-year-old people succumbing to drug overdose (70,000) and suicide (47,000). The U.S. now places 33rd globally in life expectancy.
America also has rising income inequality. The average hourly wage peaked in 1973 in real terms. It is the same in real terms as it was in 1978. The annual increase in hourly wage is 2.7 percent in the past five years, versus 4 percent average increase in the years prior to the Great Recession. Since year 2000, the average increase in hourly wage for the bottom 10 percent of income earners is 3 percent, 4.3 percent for the bottom 25 percent, and nearly 16 percent for those in the top 10 percent. The top 10 percent of income earners make nine times as much as those in the bottom 10 percent.
What can business leaders do to improve this picture? Take heed of the winds of change and stop quoting Milton Friedman’s admonition that the only responsibility of business is to maximize shareholder return. Be part of the solution, especially in education, for example by allowing your workforce to volunteer as mentors to high school students. Take seriously the challenge of automation by insisting on retraining for those most vulnerable to robot replacement, associating your company with community colleges for blue collar upskilling. Put your supply chain to work by insisting on a minimum level of purchases from entrepreneurs, especially those of color, because those are the fastest-growing employers in the U.S. Recruit the best and brightest employees who want to work for a company that has purpose and delivers societal value. Pay employees a higher wage, even if you have to reconsider your pricing policy on low-end products. And lead from the front on compensation—include workers at all levels in equity plans.
Richard Edelman is president and CEO.